All Forum Posts by: Doug Lee

If you open an LLC for your first property, everything you do for the property must go through the LLC. This includes the mortgage and insurance specifically. Typically banks charge higher rates for a second home and then higher rates again for an investment property. You could see up to 2-3 pts over a normal primary mortgage. That's substantial, especially for your first property. When you manage multiple properties, a full business structure LLC or equivalent is a requirement at that point. Your lending options open up, but rates become somewhat 'less' important because you're likely cash flowing more in your total portfolio.

AirDNA info can be misleading.  You can type an address in and get one answer, then type in an address across the street and get a 30k difference. 

Quote from @Michael Baum:

Hey @Doug Lee, so the deal looks MEH to me. Not the worst thing in the world, not the best. Also, i would like to know where it is located.

Getting into any kind of investment all depends on the deal. You could do a T Bill ladder and get 6% right now. That won't last forever.

We get our bookings usually 6+ months in advance. We have bookings for 2024 right now so it all depends on the area.

We have about a year of cash reserves on hand. That is more than a lot of folks have. I wouldn't do anything less than 6 months.

Frankly, if you have investments to make that could yield 30-40% returns, I would do that. That kind of return is nuts even in the best of times. What is the risk level? Tax advantages?

You can't count on appreciation to make up $$$ on the back end. Something that pays out 30-40% passively is amazing IMHO.

There is a lot to unpack on that. 

 Thanks for all your feedback.  Much appreciated.

Tax savings are similar... it's oil and gas related which is allowed to be deducted straight on the non-passive side from what I understand regarding IRS regs.

You don't need a debt repair company.  Find out from the CC company what the total pay off is.  Then negotiate it down and make sure they provide a letter that's stating it's paid in full with whatever terms you negotiate.  Usually you can a ridiculously low number and they will settle.  I forget what the percentage is... 25%?   50%?

Quote from @Thomas DeLay:

Looking to purchase another home for a house hack with my wife. We have enough for a 20 percent down payment but would like to get a lower interest rate, would it be possible to put 6 percent down to lock a lower interest rate and then put 14 percent more down later to make out payments lower ? Thank you guys in advance such a great community! 

You get a lower interest rate by buying down the rate ie putting more down, not less.  There is a point of diminishing returns.  If your finance person is honest, they will be forthcoming where that break point is.  Usually it's around a 1 - 2 points below where you're originally quoted assuming you have great credit and are financing  conventional terms. 

Quote from @Sarah Kensinger:

Honestly, I won't look at possible STR property or even take on a STR co-hosting client unless the property has a 20%+ COC return. So, I feel strongly that you could do better with another property somewhere else. The STR market is still very much there...it's strong, thriving, and not going anywhere. You just need to know your market, who your serving, and have an experience that guests go home never forgetting. Bookings are coming in more last minute...6-8 weeks before arrival... and it's something a lot of people in our mastermind are seeing. So that could be why you're seeing calendars more open, although summer bookings should be about filled up.

With this property you mentioned, I would be a little wary of all the homes laid out very similar and everyone having the same idea to run a STR. It's possible you could do well but it'll pretty competitive! I'm suspicious that you would benefit from having a larger home in the same area, especially since someone has a 3 possible 4 bed that is making $90k.

That's where I was hoping the numbers ended up. To clarify, 90k was gross revenue for their 3/2 unit. I actually called the realtor/investor this morning and shared my calculations with her. The numbers went slightly down because I wasn't aware of how airbnb calculated fees exactly. I was close but they dropped by a percent or two (now 10.77% COC year 2+ - only $9k annual cash flow). This person also mentioned that many bookings are last minute like you stated. She mentioned that 48k annual revenue was for the 75th percentile, so this seems reasonable, however that's only 162 days out of the year (44%). Still a ton of opportunity left.

Either way, I honestly can't see how the numbers work for many units in the surrounding area unless it's just a bonus to them to rent out.  Financially I feel like I can do better elsewhere in the market.  Hell 6 month CD's are paying 5-6% now.

Quote from @John Underwood:

If your cash flow comes from a projected 20 nights at $300/night, I'm only seeing $6000 annual  cash flow.

I honestly have LTR'S that cash flow over 10k per year with much less work.

So it depends on your goals. You might be happy with the house paying for it self, getting the tax deductions and not making much money.

See update above.

I WANT the unit to cash flow more.  I'm trying to post a conservative cash flow analysis because I don't have the experience to tell me otherwise.

Quote from @Bruce Woodruff:

Quote from @Doug Lee:

162 nights @ $300 per night - $48k annually (real estate investor's projection).  Break-even is around 142 nights/year.

That is waaaay too tight....to rely in 20 nights a year to make your profit. (If I read that correctly)

 Thanks for pointing that out.  I looked at the wrong column on my sheet.

147 days break even for year 1, 129 days break even on year 2+.

Good morning. First post here concerning STR's. I've been following for a while and this board seems like a great resource.

A few questions concerning my STR analysis for a unit I'm looking to purchase.

Details - 

1. New small beach town subdivision.  40-50 homes.  All brand new.   2 bed/2 bath/1 loft.  300 yards from the beach.

2. Using what I feel is reasonable criteria - 162 nights @ $300 per night - $48k annually (real estate investor's projection).  Break-even is around 142 nights/year.

3. Financials for year 2+ (ignore year 1 due to furnishing investment) - Right around $10k annually for cashflow, COC - 12.878% from around a $75k - $80k initial investment.

4. I'm 5 hours away, so I'm definitely not local.  Would plan to self-manage and need to find reliable maintenance, cleaning, and possibly a co-host for emergencies.

5. Other details - An investor just 5 minutes away made 90k last year in 2022 on a 3/2 (plus a small additional room in the old garage - 4/2?) for comparison just 12 rows from the beach.  Currently it looks like many have the same idea for renting these 2/2 units in this subdivision.  I've seen 4 to 5 units posted recently on Airbnb.  I looked at all their calendars...granted it's early in the season, but they don't have much at all booked.  I also looked at more established units on the beach, and they took look pretty sparse.  

My concerns - 

1. The market seems to be softening from what I'm reading.  I get real estate is cyclical....just like the stock market (that's where I'm mostly familiar).  You need to ride out the lows.  Have your units been renting at the same pace as before?

2. Is this still a good time to get into the STR market? The bad - The loan rates aren't great. Insurance is high on this unit because it's close to the beach. I will likely have significant competition because all these units in my neighborhood are identical in layout. Differentiation will be difficult, although, if demand is there, we all could profit. The good - The units are new. I do have some small tricks up my sleeve to differentiate. The pricing on the unit is 'relatively reasonable' and the residential market values still seem to be holding up well. This investment could help me round out my portfolio.

3. Is it normal for most of your units to book late?  I'm a planner, so my vacations are typically booked 6-12 months in advance.  Hosts' calendars don't seem to reflect this.  This has me slightly concerned.

4. What do you keep in cash reserves to float a unit in your projections?  Do you keep a full year of expenses on hand?  2 years?  When do you decide if it's worth selling if the unit isn't bringing in what you project?

5. What ratio of bookings do you utilize outside of airbnb & VRBO?  Are you utilizing your own website, booking tool, and contracts?  I assume if you are you're able to pocket more of the proceeds?

6. What do you think of the projected financials for this unit? 12% COC is better than sitting in the bank, however, it feels low compared to other types of investments I'm used to. I currently have other options to invest in that could produce anywhere from 30-40%, but there's no asset base at the end. It's just a straight up passive investment.

Appreciate any thoughts.  

Thanks again.

Doug