All Forum Posts by: Dina Schmid

Like you, we decided to look for a property in the RRG because we like to go there. It's always a tough call on whether to just do a day trip or pay for a rental as the costs of a nice rental can add up quickly.

The TL/DR (which I'll expand on) is that we ended up changing to a strategy of letting others help pay for a cabin that we know we'll love. In other words, we are going with something that won't cash flow positive and we're okay with it.

There are definitely cabins that will cash flow positive, especially if you get something smaller that is likely under $300K. We found some that would definitely cash flow with a 30% (or more) down payment. If you ask nicely and promise not to share, you can usually get good financial information on the properties that are currently operating as a STR.

If you're just starting out looking, you may not be aware of just how many cabins out there are poor quality builds due to the lack of codes. Those cabins that would cash flow - well, we didn't always love them or they had issues. We walked away from a new build last fall because we could already see issues and the sellers ended up getting us a pre-inspection report that said there were serious issues with drainage and foundation. (It ended up selling about 9 months later for less than 2/3 of original asking price.) We've seen crazy stuff. A cabin that in theory would have cash flowed positive almost $1K/month had the kitchen drain go through the crawl space and dump out about 4' away from the house. We were under contract for another place and walked away because of a 2" drop in the house in one corner caused by the foundation not going below grade and the owners not willing to do anything. (Their realtor also begged ours not to send any reports to them. So the house sits on the market and the sellers aren't disclosing the issue - which was one of just many.) 

Eventually we upped the budget to get something we would absolutely love even if it was slightly cash flow negative. We're currently under contract with a builder for a spec home + the lot next to it (so we'll have over 2.5 acres) and have discussed having him make some small changes which will up our costs a little, but definitely bring us joy. In our minds, we come out ahead as we get exatly what we've been looking for. We also get to enjoy our place as often as we like (the slightly lower occupancy rate due to our use is also a factor in being cash flow negative) and the negative cash flow is offset easily by the equity we'd gain, even assuming only a 2% appreciation on the cabin. 

Good luck with your search. Feel free to DM me if you have any questions.

I also recommend Wise. It's what I pay my overseas VAs with for my business.They did just increase their fees slightly, but it's still the best option IMO.

What area of the city is this in? Who is your target market for the 4Br/3Ba property as a STR? I have to admit I'm having a hard time picturing somewhere other than the UC area where it would work.

Is she under Medicare, or Medicaid? The rules for each are different, and the allowable assets under Medicaid can vary by state. If she's currently on Medicare but is trying to qualify for Medicaid, in some states the home can be kept if there's an intention to return (thus the allowable "caretaker"), but it will be subject to asset recovery upon their death, making it hard for the family to keep the home. 

(Note, I'm not a tax professional or attorney, but have done a lot of research into this area as it is relevant to my personal situation with family members. You can read this article to see more about asset recovery after death: https://apnews.com/article/medicaid-estate-recovery-nursing-...)

I know there are companies that do this. One (that I only know through IG but follow due to the great tips she gives) is LaunchedHost. A search might help you find others.

Before our contract fell through, we were going to go with a business policy from State Farm. It provided loss of use coverage and high liability limits but at less than 50% the cost of the quote I got from Proper. We do receive a loyalty discount due to having homeowners & car insurance through them already. We also had the option of another type of policy that was even less expensive that would have required us to spend at least 1 night in the house and rent it at least 30 nights each year. That did not provide the same coverages that the business policy did, but it was very affordable.

Release is signed and we're getting our earnest money back.

Sellers offered a laughable $1500 in concessions - specifically towards the bathroom subfloor issue. Our realtor said she was shocked and so was I. Sellers aren't willing to do anything towards the deck or foundation. They got someone to say that the foundation doesn't need to be repaired right away; that they could just keep an eye on things for a while. (Easy to say when you won't be living in it for long!)

I appreciate what everyone who chimed in has had to say. We are definitely prepared to walk unless the sellers meet a number I have in my head, which would make it worth my while to move forward. There's nothing else on the market right now that I'm interested in, so no reason not to see this one out and see what the sellers come back to us with.

Quote from @Dan H.:

There is no way I take your RE agent advice and accept a reduction equal to estimate or even close to it.  I would not even accept reduction equal to estimate and lost rent.  

We only do a value add if the expected value add is at least 2 times the cost of the value add.   This is our minimum and here is the thinking 1) it is work doing value adds.   Even with the use of contractors, it is work managing the contractors and making various decisions.  2) value adds have risks.  I was overconfident after successfully doing numerous value add rehabs when this spring we took on a rehab of a little unit that was listed as built in 1901 (I believe it was really built in 1920s and 1901 was used because they did not know when it was built).  I had no experience with that age.  In addition little added complexities.  Age meant we did things we had not done previously.   We went way over our expected budget - by far our worse budget miss ever (remarkably we were only 0.5 week over our 2 month timeline).

Using my rule, take the estimates and double them then add for lost occupancy and that is what I would be seeking or the owner have the work done using licensed contractors and do the work, take the risks, and suffer the vacancy costs.

If you purchase having to do the work and your appraisal can handle it, the credit at closing is superior to price discount.  It would mean the costs are financed with the property and it raises your basis cost against future cap gains.  

good luck

Thanks Dan. The number in my head was 1.5x the estimates, and I can see where you're saying 2x makes sense.

We are of the same thinking on taking the cash at closing vs price reduction. I know the realtors would prefer that because it increases their commission so I'm sure they'll push for it if that's what we want.

Quote from @Michael Baum:

EDIT - Where are you looking? I am curious about the area you are investing in.

We're looking at the Red River Gorge area. I really want something that doesn't require 4WD or AWD which limits options. I also call it the Wild, Wild West of homebuilding since it's the closest thing to lawless homebuilding out there. We've seen some crazy stuff.