All Forum Posts by: John Carbone

Bought a commercial property with a 4-plex on it last year for 175k and added around 200k to it (this included furnishings as well), so I’m all in for let’s call it 400k. My mortgage on it is 135k at 4.5 percent, I just got septic approval to add 3-4 more units on the commercial property. 

I'm doing STR on these 4 units since august and the returns are going well. I'm averaging revenue of 8-9k a month with expenses running $2500 (includes utilities/cleaning crew), and also the mortgage and insurance which is around $900 a month of that $2500. It's going to cost me another 400k to add the additional units on the property.

this is my first time doing this so I’m not sure how to best execute this strategy. I’ve heard that since it’s a 4-plex it’s still considered residential and appraisal will be done on residential and not as a business. There aren’t any comps for a 4 plex in my area, so not sure how it will appraise. I’m keeping this long term for cash flow and not really concerned with appraisal other than how much I could pull out if needed. Am I better off waiting until I add the other units to refinance? If I get 8 units on the property assuming I replicate revenue and expenses again I’ll be at 17k revenue on 5k expenses, what kind of equity would I have to pull out and who would give a refi on this at what likely value, ballpark? I’d really like to try to pull out the equity right now to finance the 4 more units and then wait a year with revenue on all 8 and do another refi…..what’s the best strategy to execute on this?

 As a self manager myself, the appeal is having it make enough money to be worth my time to invest in doing it. For example, let’s assume someone has a million dollar cabin that rents for 150k revenue on 80k in expenses for a profit of 70k. For most people, they view that as 70k profit for themselves or 40k profit with a PM. For 70k profit more people will be willing to self manage as it will return a higher return to them hourly. However, if rents drop down to 100k and the owner is looking at a 20k profit to do all the work of self managing, that’s a 70 percent paycut for the self manager to still have to do the same work as before. The owner could have it managed by someone at this point and “break even” on cash flow but do no work, or do all the work to pocket the 20k themselves. The other option is selling the property at 300k or so less, but that won’t make sense either for most people.

At the end of the day does someone who has the means to own a million dollar property going to want to deal with self management to profit 20k a year? They may when it’s making 70k a year, but at 20K you are working for minimum wage and the inconvenience.

I’d say the trend will start to be noticeable if the slow down continues, and will be something people will be looking at doing when they see their 2023 numbers next year and they ask themselves, is my time worth the profits this makes for self managing in the new environment?

 My 4 bed is doing similar. Jan and February are losing 1k but I blocked off 4 weeks for renovations. My guess is I probably would have had maybe 1 reservation. My property is heavily geared towards PF and dollywood crowd which is closed until early March. 

Beyond February, everything is booking strong except may (only have Memorial Day weekend booked but at a high premium)p

I think January and February going forward are going to be dead months like I assume how it was pre Covid, you’ll be lucky to cover expenses if you have a mortgage . So this probably equates to a 20 percent haircut since during Covid Jan and February were likely booking at unsustainable numbers. I still think by the summer we could be looking at a precarious spot where even the peak months could see a decline in demand, but hopefully that’s not the case, but I’m planning for it. 

This cleansing is definitely necessary though. The weak listings will close up shop or if they can afford it will pay out of pocket. New construction slows down and maybe another wild fire will hit and decrease supply again (obviously not wanting this to happen but just stating possibilities). Just hold on to your properties and don’t sell. 

I have a “lowest” price I’ll take for my properties. If I don’t book at that I’ll just eat it, but my lowest price is reasonable. 

I see a big transition of self managing to property managers. It sounds counterintuitive that if you make less money you would pay a PM fee, but if your option is to sell and lose 300k on your cabin, or self manage and make peanuts for all the effort then the option of paying 20 percent on a declining revenue cabin to take a small loss with tax deductions as an expense makes it a whole lot more appealing than grinding self management for below minimum wage. 

 I have a similar property as well, I currently live in the small one but I plan to start renting it out. When you add the two together in one listing do you charge the same as if you booked them individually?

 How does this work out for you? What percent of people book both in a year? 

 I know @Collin Hays owned several During the GR in the smokies. I recall a post he made showing values plummet 60-70 percent from the peak.