All Forum Posts by: Craig Jones

I will be the contrarian and say that I don't think interior design and decor in general is money well spent.  Anything you can do to or put in your property which is relatively easy for others to duplicate ends up being a pretty weak moat.  On that playing field, everyone's costs go up just to stay in the game, only to end up in exactly the same place competitively.

Better to spend the money on acquiring (or trading up to) properties with really defensible differentiators like a great view, great location, or lots of bedrooms.  

It varies wildly by state, county and city.  My state has no statewide Lodging/TOT tax.  For the county TOT tax, AirBnB collects and remits it on my behalf.  But for VRBO and direct bookings, I have to collect it and remit it to the county on a quarterly return.

In the county next door, hosts are responsible for collecting and remitting TOT on all bookings, even AirBnB.

Thanks for your reply.  The company HQ is in the SF Bay Area, this potential project is up near Lake Tahoe.  We do work all over Northern California.

I'm not the expert in this area, but I believe it's the case that financing against future receivables would set up some unacceptable risks for company valuation.  An owner-led company might take those risks, but as an employee-owned company it's harder to contemplate.  Financing based on lender's equity in the property is much preferred.  We can probably handle lower LTC ratios than you've mentioned.

General contractor in business for 40+ years with an opportunity to acquire someone else's unfinished rehab for ~$2M with an ARV of $4M - $6M depending on whether we finish the existing project or tear down and start over with a better design. Projects in this price range are our bread and butter -- custom builds, whole house remodels and additions. Typically architect-designed, but also some design-build.

To date though, always owner financed.  We've never been investors or done a spec house.  

What are the best sources of financing for this scenario?  We'll explore our existing banking relationships, but I suspect there might be better options.  Too big for typical fix-n-flip type financing?

100-person employee-owned company with a strong balance sheet.  No one owns more than 10%.

Quote from @Ricardo Carrasco:

From my limited understanding of insurance policies, if I have the second-home policy with home sharing endorsement (personal liability $1M) plus an umbrella for $2M, then I should have about the same coverage I get from Proper, even in the unlikely event of an off-premise liability lawsuit. 

The only thing that would be different is that Proper covers revenue loss + all the bells and whistles  I feel I don't need for 2x the cost - squatters/bed bugs.

Any input on this from more experienced STR investors or others with insurance backgrounds please?

It sounds like a good option for your situation where you have substantial personal use of the property, and the STR use fits within State Farm's parameters. I'm also with you that Proper's policy may not be worth the price because the extra risks covered by their bells and whistles are largely avoidable risks. Everyone has to do their own evaluation though. If you're in a market where you have to provide kayaks and bicycles for your guests in order to compete, then you might think differently.

It's important to remember though that a second-home policy is still a homeowner's policy at the end of the day. The homesharing endorsement modifies it slightly, but there could still be substantial differences between that and an STR policy written on a commercial form. That's going to depend on the specific language in each carrier's policy and homesharing endorsement though. It's worth reading through the whole policy carefully to understand the differences, and / or get help from your agent to spell it out.

Quote from @Michael Baum:

For the 1 millionth time, it isn't a loophole. It is the IRS rules around short term rentals.

Loophole - A way of avoiding or escaping a cost or legal burden that would otherwise apply by means of an omission or ambiguity in the wording of a contract or law.

Please stop referring the rules and regs as a loophole. It isn't.

I always smile when I read this, but I can fully understand why people might call it a loophole.  It's essentially using multiple novel (but legal) applications of long-standing regs to an activity that largely didn't exist at the time they were created.  I doubt congress envisioned people self-managing multiple single-door motels on the side while holding down a full-time job.  Or cost seg studies on SFRs.

None of that means we shouldn't take advantage of it though.

Quote from @Patricia Andriolo-Bull:

Thanks. In process of looking for new umbrella myself. They increased my annual by $500. When you say commercial STR policy do you mean something like Proper or a STR owned by an LLC?

Yes, all the STR specialty policies from folks like Proper, Steadily, CBIZ, etc. are typically written on commercial forms, which is what I was referring to. If your STR is in an LLC, I'm not sure Markel's umbrella policy would cover it.

$1347 annual for a $2M policy covering 3 cars / 3 drivers (one under 21), primary residence, one STR and an old pontoon boat. All the underlying policies have $300K liability limits, except for the STR which has $1M/$2M. I think almost half the cost comes from the teen driver.

Additional $345 annual to add $1M excess uninsured / underinsured motorist coverage.

A $2M umbrella on top of a $2M STR policy might seem like overkill, but it's a big three-story house with seven bedrooms, max 19 guests. I don't like to think about all the terrible things that could happen, but there's lots of exposure there. A simple scenario is a fire where a bunch of people don't get out.

I'm not familiar with the rules in LA, but in NorCal detached ADUs on single-family properties are required to have separate utilities.  They can't be piggybacked off of the main residence.  For sure PG&E requires this for gas and electric, and I think most jurisdictions require it for water and sewer as well.  Trenching, utility connection charges and etc. add a huge cost handicap which makes the economics unworkable in almost every case.  Unless it's owner occupied and they just don't care.

I am starting to see a lot of interest in putting small ADUs on existing multi-family properties though.  Like small enough to be 100% prefab offsite and then trucked in.  Often these go on lot area that's been converted from parking, but it sorta depends on the property configuration.  Shared utilities are the norm for multi-family so that issue doesn't comp up.  And the numbers are pretty good on the projects I've looked at.

I know the topic of umbrella insurance comes up here periodically. I was just out shopping for new auto and umbrella policies, and most insurers won't write a personal umbrella that covers an STR if the underlying policy for the STR is on a commercial form -- which is the case for most good STR policies. I discovered though that Markel *will* write a personal umbrella over a commercial STR policy (plus your personal auto + homeowners). And they also had the best rate for a $2M umbrella with a 16-year-old driver in my household.

Hopefully helpful to others who are out shopping for insurance.