All Forum Posts by: Dina Schmid
Dina Schmid has started 9 posts and replied 99 times.
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
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
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.
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
Quote from @Michael Baum:
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
Quote from @Michael Baum:
The simple fact that the foundation was incorrectly done, that leads me to suspect that there are many multitudes of issues within. Electrical, plumbing, the list could go on and on. I would be worried that the whole house was done shoddily and will continue to cause you issues as time goes on.
There were other things noted in the inspection report along these lines and what else is there that we don't know about is a good question to be asking.
Putting the emotional aside is hard. We've been looking for over 6 months and this would be the second time we've walked because of foundation issues. (First time was pre-offer inspection that drove us away - on a new build.) I'm ready for this to be over.
If you're looking for original art, you could consider contacting the AP art teacher at a local high school and asking them to coordinate commissioning a student to make something for you or purchasing from a student. There are some really talented students out there who would love to make some money off their art. I know this because my oldest was contacted via her art teacher one year to paint a portrait of recently deceased pet for someone and jumped at the chance.
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
Quote from @Mike Grudzien:
Unless this is the deal of the century, after reading through the issues, my first thought is: run, don't walk!
Why buy a box full of (serious) problems?
Deal of the century with 3.0% interest rate?
My 2 cents,
Mike
It's a poorly decorated, poorly photographed and underperforming STR in a location I love. It's also in an area with no building codes or inspectors and we have yet to find anything in the area without visible problems. These just happened to go beyond what we were able to visually see.
I'm honestly torn on this one and unless we can get a major financial concession, we are prepared to walk. I have a price point in my head (about 20% off list) at which I do think it would be a really good deal. I can't say I'm confident we'll get there though. We're not afraid to put in a little sweat equity either and are experienced DIYers so I'm confident that we could greatly increase the value.
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
Quote from @Account Closed:
Hey Dina,
The extensive repairs discovered during inspection could ultimately provide a tax benefit by increasing the depreciable basis of the property. Major issues like foundation work, bathroom renovations, and deck repairs are considered capital improvements, which can be depreciated over time, allowing you to offset a significant portion of your rental income with those deductions. While the repairs will temporarily affect rental operations, the long-term tax advantages from depreciation could help recover some of the initial financial outlay.
In terms of negotiations, it would be wise to push for a larger price reduction instead of accepting a cashier's check, given the magnitude of the repairs and the expected loss of rental income during the downtime. You can strengthen your position by documenting the repair estimates and the potential loss of income due to the disruption in bookings. Additionally, consider negotiating the ability to delay or cancel some bookings to complete the necessary work sooner, avoiding further damage.
Thanks Zachary. You presented a perspective I had completely overlooked.
Would you still recommend negotiating a lower purchase price vs cashier's check on closing given that we're in a higher income tax bracket and thus capital gains tax could come into play in the future?
Post: Negotiations When Purchasing Existing STR
- Posts 100
- Votes 51
We're under contract for a SFH that is currently in use as a STR. Inspection revealed A LOT more problems than we ever imagined a house of this young age would have. We asked them to address 5 items that we saw as the most expensive and/or critical. Our realtor has informed us that they will address two lower cost items on the exterior of the home and want to provide us with a cashier's check at closing to address the other three. I believe part of their motivation is that they would have to cancel reservations to get the remaining work done.
We have quotes and know what the work will cost (we're talking tens of thousands of dollars). I haven't turned over our estimates as I told our realtor that the estimates won't cover the real cost to us, which is higher due to loss of use (no rental income while work is being done) and time that we'll have to invest in hiring and coordinating the work.
We have 7 days left to reach agreement on this and I'm not hopeful at this point. I know we're in a good position because the sellers will now have to disclose some of the crap-ton of problems their place has and the foundation expert said that by refusing to fix the foundation they may end up having to be in a "sold AS IS" position which will drop the value significantly.
Any recommendations or suggestions for ways to negotiate this (and not lose our earnest money)? Do I provide my own document for what we're asking for that includes loss of use (and compensation for my time)? Do we just ask for a gigantic reduction in price to cover everything? Or do we walk (something we are seriously considering). Our realtor wants us to accept an amount equal to the estimates.
For anyone who wants the details on the issues: 1) Deck is not securely attached to the house and the stairs are leaning. This is actually the easiest fix. 2) Foundation footer didn't go below the frost line and one corner of the house has sunk 2". Helical piers placed every 5' should fix this, but for a significant cost. 3) Due to a toilet becoming loose and failure to recognize that the toilet leaks every time it is flushed, the subfloor has "significant deterioration." Basically, the bathroom has to be gutted and subfloor replaced. This is not only expensive, but time consuming and it can't be rented during the renovation. Prior to finding this out, we agreed to honor all current bookings after taking ownership (we would get the income). But that means we have to push this out even further and the longer the issue isn't addressed, the more damage that is being done. At some point the subfloor under the bedroom may also be affected (it's a small bathroom and the toilet is right when you walk in) and the cost will go up even more. Adding that we won't honor those bookings is likely part of the negotiations, but again, loss of income.
Post: State Farm for STR insurance
- Posts 100
- Votes 51
Quote from @Craig Jones:
I have also heard a State Farm agent (not mine) say that homeowners /w STR rider is allowed if the owner stays at least one night per year. That language is definitely not in the rider itself, so if you decide to go that route, I'd ask for it in writing.
Our decision to go with the BOP was driven by the fact that they write commercial STR under a hotel / motel policy. So I have a fair amount of confidence that it will cover most of the scenarios we might encounter. I have little confidence in what a homeowners policy /w STR rider will cover, because no other insurer I've talked to is okay with this for an (essentially) full-time STR operation.
Post: State Farm for STR insurance
- Posts 100
- Votes 51
I found this post as I was searching for more information about State Farm's coverage and hope someone who has posted on here can help clarify something for me.
Are you getting a homeowner's policy with an endorsement for use as a STR or a business policy? Is one better than the other.
Our agent provided quotes for both. The business policy is significantly more expensive. It includes loss of income and higher liability coverages but covers less on contents and sewer backup.
The homeowner's policy requires us to rent it for a minimum of 30 days and stay in it a minimum 1 night/year which should not be a problem.
Both of these are a fraction of the ridiculous quote I got from Proper and much less than Steadily's quote so I am planning to go with State Farm. Just not sure which one is the best option from a STR standpoint.
Post: Vetting Management Companies - Questions To Ask?
- Posts 100
- Votes 51
If you plan to stay there, ask about the policies regarding owner stays. I found a PM that restricted the total number of days owners could stay. Another one I talked to requires owners to pay for housekeeping at the end of their stay and a third said you could save money by coming after a guest checks out and cleaning after them yourself.
In addition to looking at their reviews, see who wins the SEO war if there are multiple PMs with direct booking sites.Google the lake name + cabin or rental house and see who pops to the top.
One other question I like is "What makes you different?" Then decide if the answer is something you consider to be a good thing or not.