All Forum Posts by: Jeremy Horton

I do an HSA w/ my W2 job over an FSA. The HSA has a lot more benefits, once you read about it it's generally a no brainer

There is so much variability here - that's what makes it tough 

Rental income is going to be taxed as ordinary income. So you need to reduce your income. How? Deductions. What kind of deductions? Anything that is necessary and ordinary to operate your business. On top of that being a REP (Real Estate Professional) would help, if not be basically required. 

So you either need a **** ton of doors, or a ton of doors with deductions. Now how many deductions can you take? Can you buy a property or multiple properties a year, do a cost segregation study, take that big deduction in year one, and do it every year...and then never sell the property?

As a rule I estimate my net income to be half of my gross income in the long term (this is just a rule of thumb) so my guess would be somewhere in the 175k-200k range. 

 This 100%. There's absolutely no way I'm paying for labor upfront. If they buy the materials and provide the receipt, cool, I can reimburse for that. I have learned to hold out a good portion until the job is done...learned this the heard way. Holding out ensures the contractor comes back and finishes the job otherwise they don't get paid. That gives me the freedom (and money left) to get someone else in there and get the job finished. 

There's a couple guys I'd pay upfront (but they never have asked) these are guys I've used for work and developed a working friendship/relationship with. 

I also do not pay for estimates anymore. Did this a couple times and got screwed. If you attempt to charge for an estimate...next. Not going to play that game. 

@Michael Baum

Yea I meant an S&P 500 tracker index fund - definitely depends on your level of risk, and I always keep ~6 months cash per property, after that, I invest the rest. Still liquid and usually gets you 8-10% over the long run. Usually you just need a few thousand per property for a small rehab or bigger repairs. If a big special assessment is coming up I think it could make sense to move it to something with a little less risk but still liquid

When did you buy? Destination location? That is legit awesome though man

I am FAR from being a pro, but 99% of what I look at won't even break even (in this present time period) using slightly above "average" AirDNA numbers, especially when you factor in property management, cap ex (special assessment) and cleaning fees (which SO many people don't do). I cant tell you the number of people I've ran across thinking they're making a 15% return when it's actually closer to 2% or less! But maybe it's me! 

That is the comparison I see made a lot too, comparing an exact property as a STR vs LTR. Some properties, from an investors standpoint, are really meant to be a STR due to their tourist location, amenities etc. My 150k houses in B/C neighborhoods are not.

I personally believe we're going to see a further drop in prices, in some of the tourist spots, and I think some of these people that got overzealous in late 2021 to mid 2022 are going to be in trouble. In 10 years they'll probably be fine, but the next 3-5 I think will be rough

So we know places with HOAs and condos with amenities will have a special assessment due every 5-10 years - they always will - the roof has to be replaced, the pools, shops, tiki bar replaced/serviced, parking garages, siding, windows, sliding doors etc. You can see what the past ones were or budget accordingly - I use 10% on my LTRs but they gross less likely than an STR so you could probably get away with 5% of your gross income. Better to be conservative and estimate a slightly higher expense % here.

I base mine off a percentage of the gross income - the income usually trends well with the size and type of property. 

Condos don't really have a Cap Ex - water heaters are small, countertops are small - everything is smaller and relatively cheaper - usually. So everything that may need to be replaced within the condo I run as repairs/maintenance. I run a separate line item for Cap Ex - since for a condo you don't personally have a roof, siding, windows etc - the special assessment will pay for these items hence the special assessment is essentially a Cap Ex expense. 

If I own the building I run the major repairs as Cap Ex - countertops, roofing, water heaters, AC units, septic etc. If it's a condo with an HOA and special assessment grossing 60k I'd use 5% this is 3k a year - over 7 years gets you 21k - throw it in an S&P 500 tracker and it'll end up closer to 30k, take it out and pay off the Cap Ex. Are the numbers perfect, well no, but you can get pretty close.

Here's how I do it - this is just a spreadsheet I made and use (don't look at the actual numbers and math, it's a worksheet, just look at the descriptions for the Expenses)

This is where I'm at right now as well - there is nothing really "eye catching" lately

As far as STRs - If you got in during 2020 or prior - well that was the key. 

To be honest I got the FOMO there for a bit too - I think most STRs from 2021 to present, in traditional vacation settings are just a shiny rock. They require work to the point of a full time job (especially set-up) if you self manage which is what STS recommends as the key to success (who wants to do that?) the returns are not there like they used to be, right now prices/rates/occupancy is not at the right combination to make a 15% ROI.

A lot of what I heard was that STRs are more profitable that LTRs - the caveat is if you STR vs LTR a specific property. I routinely get 15-25% CoC return rehabbing SFH and renting them out. The exit strategy of selling is always there, they require a couple decisions via my PM a year, and other than that I don't have to mess with them. I run #s annually per property and it's just fairly straightforward. STRs are not that way - they have a lot of shine initially but it has quickly worn off for me due to the extra work load, risk, and capital involved for returns that equal at best to my current LTRs.

The ROI is just not there and I have run numbers on dozens of properties in STR markets. As far as for others buying at these prices - good luck. I think we're currently seeing a lot of people take an L in the equity column and they won't get that back for years. And the ROI will be low at the price they bought at. I think we will see lots of people in trouble this coming year - it's already happening

There are some lawsuits going in o PCB with HOAs (some due to hurricane damage). I my buddy owns a 2/1 STR and his special assessment was about 45k - came about 6 months after he bought it.

This is "partly" due a lot - due diligence on the property, having cash reserves, budgeting for CapEx (special assessments are cap ex after all).

This is another thing a lot of STR owners don't factor into their returns - ah yea you made 10k net the last 4 years and here is the 45k special assessment - so you essentially made 0% return on your investment - so this is something that MUST be budgeted for and calculated into your ROI

If you put it in your gross revenue and subtract it out, that's correct and it won't affect your ROI. If you don't subtract the cleaning costs out of your gross revenue (like many people don't do) that's incorrect. I don't care how you do it, I'm just mentioning the correct way to do it (which many people don't do).

Not even going to bother with the rest of your post about your personal feelings...this is not a therapy session

Question - did you happen to run STR numbers with your gross revenue and the new purchase price? I'd be interested to know if the numbers still work out. Obviously not as good as they did for you, but I see so many people buying at these insane prices, there is no way the majority of them are doing well. Even if I use AMAZING gross revenue numbers these places still don't work - or they will break even using only the best cherry picked numbers. I can see a large institution buying them simply because they can be ok with smaller margins since they have the volume. But for your average investor, I can't imagine they are working out as well as the STR craze would lead to believe.