All Forum Posts by: Michael Greenberg

There is a lot of talk about the future of tourism during and post-COVID and how it will affect the behaviors and choices of vacationers.  This is a great article.  It make the case the "drive to" spots are going to become increasingly popular due to the perception of greater safety.  The theory is that vacationers will increasingly want their space and breathing room.  That is bullish for places like national and state parks, bearish for urban and crowded areas.  It seems also to be bullish for STRs, and bearish for high-rise hotels.

https://www.yahoo.com/news/coronavirus-create-kind-tourist-130039607.html

Of course, there is another driver not in this piece that will be bullish for drive-to STRs: Budget constraints. COVID-19 is going to hit most families financially. So for a typical family of four people, there will probably be a lot fewer willing to spend $5-10,000 on a vacation with flights and car rentals. A drive-to vacation, where the biggest expense is the STR rental, is going to be preferred by many.

All of this is very bullish for those who own STRs in the "drive to" destinations across the U.S. and Canada.

@Michael Greenberg

What will you do with the money?

They are now giving “extenuating circumstances for Covid-19” much like if a guest calls and says their brother died and they let them out if the cancelation policy. I would expect the April 14 cancelation policy to get pushed back to May 1 very shortly.

The following guest was set to check in April 15. 

The policy as of 3/27/20 is below

typed on an iPhone 

I know there have been many threads started on Coronavirus and it's impact on STR's over the past few days, but I wanted to share this data that Airdna published today detailing the affects of it on different types of STR markets. It appears metro markets are feeling the effects far more significantly than vacation rental markets.

The below data supports the two-fold STR investment strategy that I adhere to:

1. I only invest in STR's in TRUE vacation rental markets rather than metro markets. (I am in the Smoky Mountains in TN and the Emerald Coast in FL). The regulations in these markets are very very favorable for STR investors, since it's been the norm for tourists to rent privately owned single family homes and condos on an overnight basis for decades. (Well before the internet, much less Airbnb or VRBO). Because of this, these cities and counties figured out how to monetize STR's long ago, and the local economies depend on the income far too heavily to ever impose any truly restrictive regulations against STRs.

2. I only invest in vacation rental markets where the vast majority of the tourists are driving into, rather than flying into. The accessibility and affordability of drivable vacation rental markets is very difficult for more expensive fly-to markets to compete with in any sort of economic downturn. 

What are your experiences thus far? I have had a few clients want to pull the plug on contracts out of fear, but I have had far more reach out and tell me that they have been sitting on cash and are ready to jump into scaling into more STR properties if whatever is going on in the world results in a softening in purchase prices.

Moral of the story (and the data), keep your eyes on the numbers and your head clear of emotions when it comes to investing in any economic circumstance, whether they are favorable or slightly scary!

https://www.airdna.co/blog/coronavirus-impact-on-global-short-term-rental-markets?utm_source=drip&utm_medium=email&utm_campaign=Here%27s+how+the+Coronavirus+is+Affecting+Short-Term+Rentals+Globally&utm_content=0

for many of us, The Back-up Plan for short-term rental problems is to switch to long term rental.

food for thought. They are projecting blood in the streets. All those travel and restaurant and Salon and other nonessential businesses have workers who will be losing a lot of job shortly. They are projecting perhaps 1 million jobs lost in April. And a lot more after that. It just goes long-term they're talking about perhaps tens of millions of jobs.

so when you start getting those Replacements in the form of long-term tenants, you might want to consider their ability to pay you. Nurses and medical personnel and grocery in pharmaceutical and other essential type jobs are probably much safer. Also people on Social Security or Social Security disability or retirement or other types of guaranteed income.

yeah we can't discriminate, but a factor in your ear rental guidelines should be are they working in something that almost guarantees future unemployment

How will the actual crisis impact the real estate market in your opinion?

The fact is that , justified or not, the crisis has already hit many businesses including hospitality & tourism, transportation, financial markets and other businesses will be hit due to the problems in these sectors, regardless of the continuous outspread of the virus. (Please stick with the question and avoid your personal opinion if the fear is justified or not. Thx )

As an investor, will you keep investing this year? How do you think the prices will evolve this year?

A friend of mine was in escrow. He told me he cancelled today because he's convinced he can buy the same property much cheaper 6 months from now. Thoughts?

I’m seeing a lot of posts that are negative about being highly leveraged. Here is something to consider. Let’s say I have a property worth 120k and I’m leveraged at only 50% (60k). The property numbers are as follows:

Rent $1050 a month

Mortgage payment $395 (5% on 60k, 20 year)

Taxes $75

Insurance $75

Property management $0 (self manage)

Repairs/vacancy/turnover/Cap Ex reserves $150

Monthly cash flow $355

Property account balance $0

Now let’s see how it would work if I were leveraged at 75% and kept the other 25% in an account for reserves.

Rent $1050 a month

Mortgage payment $594 (5% on 60k, 20 year)

Taxes $75

Insurance $75

Property management $0 (self manage)

Repairs/vacancy/turnover/Cap Ex reserves $150

Monthly cash flow $156

Property account balance 30k

I would much rather be 75% leveraged, make only $156 a month in cash flow, and have an additional 30k in the account for emergencies and unforeseen events, such as a Coronavirus apocalypse, than be leveraged at 50%, make $355 a month in cash flow, and not have the extra 30k in the account. With an emergency fund of 30k, I could last up to 3 years with this property being vacant before I got into real trouble. Or I could drop the rent in half and negatively cash flow $300 a month and last 8 years before I ran out of money. With no reserves, even if I’m leveraged at 50%, I have to come out of pocket $550 or more a month just to stay current with the mortgage and taxes. If I go a few months without paying and the bank knows that there is a lot of equity in the house, who do you think they are going to foreclose on first? The person with the equity where they can get their money back? Or the person without the equity to where if the bank were to take back the house and sell it, they would be taking more of a loss?

Do you not remember in the crash of 08 and 09 hearing about conservative people who got 15 year mortgages on their primary residences being foreclosed on when they lost their jobs and were unable to pay their mortgages even though they had paid their home mortgages down significantly more than their neighbors. 

Being conservative with debt in my opinion is not as important as having cash on hand.

Right now I’m looking to refinance an owner occupied commercial building that I have at 5.5% for a 25 year mortgage with a payment of about $2900 a month. The rates have dropped and the building has increased in value. I’m looking at refinancing it to the maximum and keeping the rest in the property reserve account. After the refi, my payment should be a little lower, the rate should be in the upper 3’s and I should have 30k - 50k in savings. I’m willing to pay 10k in costs to refinance it at a lower rate and get cash out so I have more cash on hand.

The principle here I would say is having cash on hand to weather the storms of life is better than having more equity in a property.