All Forum Posts by: Collin Hays

Quote from @Tobias Joneses:

I'm looking at the numbers and with interest rates seeking 6.5. Housing prices the way they are and cleaning fees can anyone make money on str in long beach if they get in the game now?

Of course!  You only need to find one good deal. 

Quote from @Dina Schmid:

If all goes well with Monday's post-repairs inspection, we should close later in the week on a cabin that we want to use as a getaway for us + STR when we're not using it. It was a new build, shown completely furnished and the builder listed it for use as a STR after we saw it. We knew the place was special, that's why we jumped with a full-price offer. We had no idea just how many other people would think it's special.

The next available weekend is June 6th! There are bookings for the other weekends in June and only five random open days in March. While this is a good problem to have, I'm starting to stress about it for a few reasons I'll put below. I want to note that bookings will transfer, but we're under no contractual obligation to honor them. I'm trying to figure what the best thing is to do moving forward.

Reasons why I'm stressing:
1) There's a drone photo showing no other cabins around. It looks completely isolated. Except that this spring there's going to be a cabin built next door. By fall there might be others. Imagine showing up to a cabin you thought was isolated and finding construction going on?
2) I don't like the idea of renting out a cabin I haven't stayed in myself. I don't know if there's anything missing. It will be a royal PITA to do a one-night stay on a random Wednesday, but it could be done.
3) It's currently listed as pet-friendly with only a $30 pet fee. I'm highly allergic to cats (like super-allergic) and also allergic to most dogs. An extra $30/stay isn't enough for me to have to make myself a zombie on Benadryl in order to sleep there and not wake up with my eyes swollen shut because someone let their dog sleep in the bed.
4) I think it's been priced too low. It's led to incredibly high occupancy rate in the off-season, but I'd rather have a slightly lower occupancy rate in order to reduce wear and tear and leave some weekends open for personal use.

I'm at a loss on what to do about this. On one hand I like that it will probably cash flow (we expected to break even at best) and know there's issues with canceling reservations. On the other hand, I want to be able to enjoy this place too. Any suggestions? How have you handled it when you've purchased a popular existing STR?

1. I wouldn't publish the drone photo.  

2. It's a good idea to stay in your own place a few days before you rent it out.

3. Unless you are going to be staying at the place, I would leave it as pet friendly. Folks are going to bring their kitties and dogs regardless of what your policy is.  Over 50 percent of travelers are traveling with pets.

4. A high occupancy in the off season is really good. You didn't buy the house to preserve it, but for it to produce income. Reminds of a friend of mine - bought a brand new Camry but kept it in the garage the whole time because he was afraid someone might scratch it. Kind of defeated the purpose.

5. If it is breaking even, you are doing better than most. You don't want to cancel reservations; that will give you a bad rating. Make your own reservations in advance. 

6. When you stay there, you are essentially renting it from yourself, because you are giving up lost rents while you are there.

It sounds like you did the correct thing in contacting Airbnb. What was their response?

Quote from @James Hamling:

Quote from @Collin Hays:

If I was buying a property for a short-term rental, regardless of what it is currently used for, I would never pay more than 8X my annual projected rents.

Yeowzers, 8X annual revenues..... I'm gonna have to start calling ya "Money-Bags Collin". 

I don't care what kind of business it is, STR, Hot Dog stand, any biz I am NOT paying 8X annual gross revenues, no flippin way!

3X is a GREAT entry for most as long as it's not a sinking ship or with crushing overhead and miniscule margins. 

4X-7X is a normalized range for acquiring many different business's. 

 3X earnings?  Hey, if you can find me a $500K property that is producing $133K in annual rents, I’ll buy that yesterday!

Quote from @Patrick Osterling:

 Thanks, Matt! Makes sense. I'll look out for local banks in my community and start some conversations. 

 Buy them lunch at Panera. You'll score some points and show them you are for real.

I forgot to address another question..."what if I like my banker but I find that another bank is offering me a better deal?"

I tend to stick with my banker, unless the terms are way out of line. My banker needs to make a profit from me, he's in business, too. There is a lot to be said for having money at your immediate disposal when a cherry deal comes along. Do you have to pay a bit of a premium for that luxury?  Perhaps. 

I recall a deal where I was offered a cabin for $230K cash. I knew the property was worth way more than that. I told the seller "I'll have you a check for $230K in two days."  We had to wait a few more days due to the title company needing to get documents together.  I called my banker, told him the deal, and he said "No problem. We will wire the $230K and worry about the rest after you close the deal."  

After it was "done", I did refinance with my bank. I paid him the normal closing cost, a few $ grand in fees, and a slightly higher interest rate than I might could have gotten conventionally.  But that's not apples to apples. Had it not been for my bank, I wouldn't have scored that deal.  

Because that property didn't quite fit my portfolio profile, I re-sold it 5 months later for $375,000.  So $145K profit in 5 months, plus around $12K in rents, minus my bank fees etc., all because I had a relationship with a banker that has trust in me.

Quote from @Patrick Osterling:

Thanks @Collin Hays! More favorable terms sounds great to me, and I've heard this strategy before, but I'm not sure I understand how it works in practical terms. Could you share an example or two how that actually works in practical terms? For example, I've used several banks for loans: Flagstar Bank, All Western Mortgage (a broker), PenFed Credit Union (HELOC), NewRez and probably a couple others I'm forgetting. None of which I never actually met in person. But are you saying to find a local bank branch and physically go in and develop a personal relationship with a banker? If so, how many deals/loans do we need to do before I can expect more favorable terms? How do you know which bank/banker to establish a relationship with? What if I like a banker but another bank is offering better terms on the first couple deals? I'm having a hard time wrapping my head around how to actually make this happen in today's world. Thank you!

Yes, in person. Your banker should be your friend and partner.  You should know the names of their kids and dogs, and vice versa.  

You will have much better success with local banks or credit unions.  The big banks are useless for this type of thing, because no meaningful decisions are made locally.  Everything is by the book, so to speak.

It’s hard to say “how long” it takes to forge a good relationship. It might be immediately if there is a good chemistry. I can literally call my banker and get something done over the phone.  You will get there, just invest some time and effort. 

Having a good banking partner can make you a lot of money.

I seem to get this question, or some variation of it, fairly often.  "Which is the best bank"?  "How much do I have to put down"?  "Do I need to buy it as a second home"?

The answer to all of these questions is, it depends.

In the "conforming loan" world, the bank doesn't have much say in what you do.  Banks A, B, and C will have to have the same guidelines.  A conforming loan refers to a type of mortgage that that aligns with the criteria set by the Federal Housing Finance Agency (FHFA). Meeting its standards makes these loans eligible to be purchased by either Fannie Mae or Freddie Mac. By buying mortgages, Fannie and Freddie reduce risk for lenders. This practice also frees up more money for lenders to use to fund additional mortgages.

In "non-conforming loan" world, anything goes. That is, anything goes that is OK with your bank.  For example, my bank will sign off on pretty much anything I want to buy with 10 percent down, with a fixed rate at prime, for 5 to 7 years, with a 30 year amortization schedule. That means that my payments are what they would be on a 30 year loan. At the end of the 5 or 7 years, if I keep the property that long, it's rinse, lather, and repeat. 

Now, it took me many years and a lot of real estate trading to get to this place with my bank, but that is why I highly recommend that RE investors work hard and finding and nurturing a local banking relationship. Because when a hot deal comes up and you need to close fast, that relationship can be the difference in scoring the deal. 

Finally, certain banks are comfortable with certain kinds of customers. I am sure that there are folks out there with banking relationships where the banker would require zero down. For example, I know of a local bank that really likes doctors. If you are a doctor with proven income or a contract, the bank makes incredible deals that they wouldn't make for me.  That's just a niche of customer that they really feel comfortable taking risk with. 

Some banks are actively looking for the non-conforming loans.  Banks (and credit unions) want to put their deposits to work making money as loans. Right now is a particularly good time.  Banks are hungry for loans.  

So...if you are going to be investing in real estate beyond one house, find a good banker. Call around. Take a few to lunch and interview them.  Remember, you are the customer. You ultimately decide who YOU are going to work with.

Hope this helps.

Quote from @Jaycee Greene:

Quote from @Collin Hays:

If I was buying a property for a short-term rental, regardless of what it is currently used for, I would never pay more than 8X my annual projected rents.

How did you get to the 8x projected rents number, @Collin Hays? Is that an imputed cap rate that you use as a rule of thumb based on your expected operating expense margin?

It's just a comfortable multiple for me. If the price is more than 8X, it doesn't mean it won't work as a STR, but it means I'm going to really have to work to make it work. Since I have limited cash to deploy, I do not want to waste it on iffy deals.

Some folks are comfortable paying 10X, but you can find those deals all day long.

Now, if it was a highly unique and rare property, I'm not as worried about the multiple.  Sometimes, unicorns come along and you snag them, but not very often.

Talk to your local bank. If you have a good relationship with them, they may do the deal. Credit Unions are often overlooked, but can be very competitive. Talk to Andrew Steffins on this board. He's in FL.