All Forum Posts by: Miguel Del Mazo

Great post.  I would add that this is a geat time to reassess not only insurance coverage but any recurring expense as well as maintenance needs. Has the price of internet creeped up while you were in the home? Renegotiate it. Who is going to change the air filters in the HVAC system or mow the lawn? You will likely be losing the right to a homestead exemption, so let your local municipality know. 

If you've enjoyed a lot of appreciation in the value of your primary home, you may want to start a timer to sell before losing the "lived in the house for 2 of the last 5 years" capital gains exemption (limited; not infinite, but big).  

What important business mail will be coming to what will now be your old address? Can you go ahead and change that (think address of record for LLCs or bills for other properties).

Make sure any HOA and the local government allows for your home as an MTR.

1 last point to add to Jamie's first point: if you can, take a video tour of the home and what you're leaving behind. Insurance companies appreciate that evidence if a claim were to be made. 

 I believe the answer is "no".

*I am not a CPA, tax professional or a lawyer*

I cannot give legal advice, so all of my advice is illegal advice.

As far as I know, section 469 of the tax code is what allows for the "STR loophole". It specifically calls out stays of less than 7 days, though. There is not an equivalent version for MTRs.

https://www.airdna.co/blog/short-term-rental-tax-loophole

It sounds like you are already doing move-ins perfectly with photo evidence and proper documentation. We don't use a form, but it's not a terrible idea. Referencing another recent post, there's not a great software solution that I am aware of for on-boarding a new MTR resident.

If you aren't already, I would make sure you disclose to a potential resident any relevant issues that are endemic to a unit as early as possible. For instance, if the neighboring unit has a shut-in chain-smoker, or the house has railroad tracks behind it, it is definitely better to let a lead know and lose them than to not disclose, upset them and lose them (after they leave a nasty review).

I'd agree with Jonathan that even late complaints need to be taken seriously, and barring some obvious malfeasance, I would just take the word of the resident and fix the issue. I've been burned by this once before, but it's just less stress on me with this informal policy.

Wait, using my phone and my memory isn't the ideal?

We use Avail.co to do the background checks, prepare and store leases, and to offer the required renter's insurance policy.

Stessa.com does a good enough job acting as a free substitute for Quickbooks.

AirBnB and Furnishedfinder.com for listing the space (though I will be trying MiniStays soon).  VRBO was not a great experience.

For a single unit, I wouldn't sweat the details too much unless you plan on expanding quickly. Getting a few tenants a year really doesn't demand perfect systems. With that said, I kind of wish we had built as we grew a little earlier because retrofitting has been a bit of a pain. :)

Best of luck.

With that said, I think you've shown a lot of grit in holding your own on the forums. I don't think you've been 100% right, nor have the more vocal detractors been spot on with everything either.

I advise that you don't give up on MTR as a strategy, if it appeals to you. If you have any questions, you can DM me, and i'll try and answer as I am able, in my limited way.

I am going to try and answer this question with a fair amount of grace, so please bear with me.

As to the original question, here's a rough idea of my thought process regarding a potential purchase:

The hospital is a Level II trauma center with 390 beds (that's a decent-sized hospital), so it probably needs a fair number of travelers. If you want a general sense of their demand for traveling medical professionals, go to the hospital job recruitment page. If there are a large number of openings, then they are likely filling that need with travelers.

See how much the property will cost a month. Principal, interest, taxes and insurance. 280k with 20% down at 7% = about $1500 a month for PI. Taxes are public record, and are about $125 a month (will go up after purchase a bit). Insurance shouldn't be bad as this is a condo, so a lot of potential risk is covered by the HOA insurance. Add another $20 a month for that.

Add in HOA fees ($300 a month; shown in your link), Gas, electricity, high-speed internet, water, trash and snow removal. A lot of those costs are probably part of the HOA dues, so let's say and average of $175 a month for electricty and another $80 for internet. You have a better idea of those costs as I do not live in IL.

So, costs so far are $2200. Play around with that with your more accurate estimates.

Rentometer estimates that rents in the area for a 2/1.5+ are around $2500. Using a 1.5x estimate for what a MTR rental rate might be gives us $3,750. Then I would compare that estimate with what Furnishedfinder.com has in the area. In the immediate are there are 3 houses on FF that are going for 4000 to 6000 a month, but they are 3 BR to 4BR SFHs. I would then adjust down the original MTR rental estimate based on those findings. Let's say $3200?

$3200- $2200 = $1000 month of profit, right? Not really. Put aside some money for fixing things up around the condo from time to time ("CapEx"; 5% to be conservative), and some for vacancy (maybe 10% of the monthly). That leaves ($3200 x .85) - $2200 = $520 a month in profit. Bear in mind, you will have to tweak these numbers based on what you think are proper estimates. For instance, I suspect vacancy might be a little higher based on the train tracks running directly behind the condo. That might be normal and expected in IL. I don't know.

So for $56,000 dollars down plus (an estimated) $7,500 in closing costs plus another $5000 in furnishings, you get an asset that produces about $500 dollars a month. $68,500 / $500 per month = about 12.4 years to get back the intial investment.  

So why do people bother if it takes 12 years to get back your investment on what looks a pretty good monthly profit?  Well, in that 12 years, your tenants will have paid down about $35,000 in principal (aren't amortization schedules depressing?), and at a 2% average yearly increase in value of the condo, it will be worth about $60,000 more than when it was purchased. These numbers get better if the area is becoming more in demand over time as rents will go up and the condo will appreciate faster than 2%.

*Now we come to the hardest part*: does this property have "potential"?  I have no idea primarily because deals are only "good" or "bad" in the context of what the goals of the owner are. Would I self-manage this deal to earn $500 a month allowing me to own this property in 15, 20 or 30 years? Yes.  Should you?  Again, I have no idea. that's a much more personal decision, and that is probably why Jonathan Greene asked for more information from you about your experience level, especially since you wrote "I am totally out of my league understanding the possibilities of an MTR".

To be successful in the MTR space, I would recommend that any owner or operator strive to provide the best customer experience possible. Potential residents can tell if the owner/operator authentically cares about providing that A+ experience, and they will vote with their wallet regarding where they stay.

So going back to my original sentence, here is where my grace runs out. I have a challenge for the OP.  I took over an hour, on a Sunday,to click a suspicious link in order to look over your property, to learn a little bit more about the West Chicago sub-market, to analyze a deal for a stranger; and to present a rough algorithm for how to analyze the numbers of a deal so that a general process could extrapolated for the next property you consider. All of that was done without thought for any return to me. It was done simply because I enjoy helping in my very limited way.  If at any point in this admittedly large wall of text, you, OP, found yourself getting upset with me, then I would recommend you avoid the MTR space as you will find many similar opportunites to learn that you will not enjoy. LTRs are a great way to approach real estate, and it sounds like you are doing very well in that space. Keep crushing it there.

If you offer an amenity, guests get more upset when the amenity is broken than if it was never there in the first place.  

We've debated adding a printer station to our units because it would be awesome if we were traveling to have the ability to print where we were staying.  However, can you imagine how many service requests would come in for silly stuff related to printers?

Amenities need to serve the needs of both the resident and the tenant, or they don't make it inside.

Congrats on the new MTR operation.

I don't like the idea of putting in what may be a relatively high-cost and low-return piece of equipment in your unit. 

Is there a full-sized gym nearby that would be willing to waive their start-up fees for your residents in exchange for a referral from you?  Your residents would benefit with better gym access on the road, the gym would get a little more revenue each month; and you can advertise the benefit without sacrificing square footage.

Thanks, and best of luck.

I am sorry to hear about the challenges you're having with renting out your townhouse in Kennesaw.

I agree that it's probably past time to look into either selling (and re-investing in a carefully selected investment property), hiring a new property management company, or pivoting your strategy with the townhome. 

If your HOA is ok with leases less than a year in length, you may have a potential medium-term rental given the proximity to Kennesaw State University and to Wellstar Kennestone Hospital. Traveling professors and medical professionals would probably be my target avatars.

I am biased though toward MTR as a strategy, and it's not without risk to spend a couple grand converting an empty LTR into an MTR, so consider all of your options carefully.