All Forum Posts by: Ryan Moyer

What Luke is referring to is that this exact question was asked just a few hours ago (and is asked very frequently).

Most of us are not really experts in that side of things, but you might find something useful in that thread as well. https://www.biggerpockets.com/...

What Luke and John say is true, though it seems STR passive investors are regularly willing to take these crappy deals, and in many case even worse ones for them. Far worse. Robuilt, for instance, a popular youtuber who does these deals, takes 50% equity in addition to a 50/50 profit split even when the investor is providing 100% of the capital. Insane.

However, given that this is a good friend I'm assuming you want a fair deal, and not something your partner is going to look back at closer in 5 years and wonder why you took advantage of them, even if that certainly was not your intent.

I am not a financial advisor, and have basically no experience structuring these deals, but if it were me I would just make the split equivalent to the amount of capital being brought by each side, and you taking a cut of property management the same way a normal PM would.

So if they bring 60% of the capital the ownership split is 60/40.  From there you take a PM fee out of the income (20% or whatever), and then any leftover profits after that are split 60/40.  Basically treat it like you're both passive investors at 60/40, and you're also a PM company getting 20% of gross rev.

The only thing that leaves out is any compensation for you in finding and analyzing the deal. I can't comment on what that should be worth. For me, investing with a friend, I wouldn't change anything for it. But I'm weird and I find looking for deals fun. And I do understand that some investors are truly passive and have no idea what makes a good/fair STR deal and are willing to pay for it to be someone else's problem.

It's totally dependent on the lender whether you can do multiple loans at a time. Just be upfront about it and if you still qualify with those additional loans added to your DTI and whatnot, it shouldn't be a problem for most lenders.

I had two properties under contract and an ongoing refi on my primary residence all at the same time, all closed within a couple weeks of each other.

You nailed it here.

The reality is we really have no friends on either side of the aisle.  Liberals dislike us because we cause housing issues for low wage workers.  Conservatives dislike us because we bring a transient population into their neighborhoods.

The one thing we have going for us is that we make the towns money, and they like money.  But as soon as a larger source of money, like a ski resort, is at odds with us we know who they are going to support.

The liberal side of things is well documented in these Colorado ski towns.  The conservative issues crop up in areas like my place in rural Utah.  I always laugh to myself when I read the city council meeting notes and see one of the folks in my neighborhood, who I know proudly flies a "don't tread on me" flag off their front porch, begging the local government to intervene and tell me what I can and can't do with my property because it doesn't fit their definition of neighborhood hominess.

The only real way to avoid these issues is to enter markets where vacation rentals are a large established part of the economy like many of the vacation markets discussed on here often.  Anywhere else is always going to be a risk that could turn on you any day regardless of the political leanings of the area.

Just be careful to note that STR restrictions are EXTREMELY tight in that area. St George only has specific areas where you can STR and you can NOT self manage in those areas. Each neighborhood has pre-assigned property managers that take 30% of gross revenue and given that they have a government imposed monopoly on that neighborhood they don't exactly have the best motivation to do a great job. It's not like they have to win your business.

Towns a little outside of St George have more lax regulations but still strict by national standards. Hurricane is the next biggest rental market and the waiting list for a permit there is at least a decade. La Verkin and Toquerville are more doable but come with their own significant hoops you will have to jump through as well (Toquerville you have to live there locally to get an STR permit, for instance).

Scott Whittaker is the realtor we used when we looked in the area. He has a lot of STR specific knowledge and has a few rental properties himself so he understands the regulations. We ended up buying on the other side of Zion due to all the regulations around the greater St George area but he did a great job for us when we were looking in the St George area. I actually still get automated emails from him on a list he set up for new MLS listing that only sends me the properties in the area that can be STR'd and self managed (of which there are very few).

Scott Whittaker - 801-550-5976

I'm happy to chat about the area if you like because, even though we don't own there, we spent about a year looking and got pretty close.  Desert Colors is a new AWESOME looking development that has popped up since we moved on but, again, I believe you're stuck using a pre-assigned property manager there that will take 30% off the top and it ain't exactly cheap to buy in.

Evolve is not generally well thought of here.  Most of us our self-managers, which is much easier than you think, and even if you just have to go the PM route Evolve only takes care of the easiest part of managing, the pre-booking stuff.

The real PITA of self managing (and it's really not that bad) is pretty much everything that happens after the guest checks in, which is the part they don't do.

Yeah I get it, but I don't think it's really different anywhere in that kind of economy.  I actually edited my post I think as you were typing so you probably didn't see the last part.  But we have bans and regulations like crazy here in Utah as well and Utah is about as conservative as it gets.  And I'm not even just talking about Park City, my area is Eden UT which still has an old and rural government and you can pretty much only do STRs in one designated condo complex and a couple designated small neighborhoods.  The entire rest of the valley they are banned and my best guess is even those areas won't last long and the owners there will get screwed as they clamp down more every year.

I want a ski rental badly but it's just not worth the risk to me.  I just don't think it's safe anywhere unless it's a place in a condotel.

 I live in a ski area so I kind of understand it.  Hate it but at least understand where they're coming from.

I don't think the issue is people coming in larger groups, the issue is housing for lower wage workers. These ski areas have insane property values (mine in Utah isn't as bad as those Colorado towns but same idea) so there's no way someone working for $7-15/hr at a ski resort or working restaurant wages or store clerk wages can afford to live there. In the past that meant they would just rent, but now every investor in the area isn't stupid enough to rent their properties as a LTR for $1500/mo when they could list it as an STR and make double/triple that even with a property manager. Originally people could just move a little further out of town but now even those areas are popular for STRs.

So there's nowhere for lifties and store clerks and restaurant staff to live so they go somewhere else. Then the restaurants and ski resorts and whatnot are understaffed and complain. Now the city is stuck choosing whether to side with the STR owners that they did fine without for the last 50 years or the ski resorts/restaurants/shops that actually bring all the tourists into town.

It's why I'll probably never own a ski property, even though I love to ski and could manage them much easier since they'd only be 30 minutes away instead of 2000 miles like the places I do own for STR. I'd rather just make my money somewhere more STR friendly and use those profits to pay for a sweet ski vacation.

I'm sure Colorado isn't very STR friendly in general like said but we have bans and regulations out the wazzoo in the ski areas here in Utah as well, and Utah is about as conservative as it gets. It's just a micro-economy that doesn't work in the current climate with STRs so lucrative.

I am one of those CC points hoarding freaks that spends my free time reading about how to maximize credit card rewards.

I think really you have 3 options.

1) Amex Blue Business Preferred - 2 membership rewards points on all purchases.  Note that Membership rewards points are roughly twice as valuable as equivalent cash by most points site's valuations.  Most of these sites value 1 MR point = 2 cents.  So getting 2% back in MR points on any purchase means you're essentially getting 4% back on all purchases once you factor in the value of a MR point.

2) Capital One Spark Business - 2% back.  This is "cash" which is not as valuable as MR points, but the nice thing here is you can redeem them AFTER a purchase to "erase" that purchase.  That means you can still pay for an expense to use for tax purposes, and then "wipe" it afterwards.  So IE if you needed to book a flight to check on one of your properties and you spend $500 on that, if you booked that flight with your MR points you would have nothing to write-off as an expense.  With this card you would book for $500, expense it, and then redeem the miles against that purchase later.

3) Chase Business Ink Cash - 5% on a lot of common STR utlities like cable/internet/etc. Only 1% on everything else so you'd have to do the math whether the 5% categories make up the difference on that or not. If you have a premium ultimate rewards card you can transfer these points to that UR account which effectively doubles their value (similar to the AMEX membership rewards points) so it's almost like you're earning 10% in those utility categories and 2% on everything else.

IMO the flexibility of membership rewards and Chase Ultimate rewards far outweighs actual cash back because with a little bit of effort you can get a lot more back in redemption.  For instance I just booked a flight to Hawaii for our family where the ticket cost was $1200, but I was able to book it for 50,000 points I transferred out of my Chase ultimate rewards to those airline miles instead.  If I had redeemed those 50,000 points for cash I would have only gotten back $500 on them.

I am no tax expert, but my understanding is the expenses only exist to create an income based on a revenue amount.  If they are already factoring the expenses in before sending your income over, then it is done and done.

In that sense from a tax perspective there is no difference in...

Revenue - $2000
Expenses - $400
Income - $2000 - $400 = $1600

Or

Income = $1600

They're effectively the same.  If you're doing the second approach (which is what your management company is doing) the expenses are already factored in.  Your income is $1600 AFTER expenses, so you can't then claim those expenses again.  That would be double dipping.

I think the bigger concern would be the management company's lack of transparency in breaking down the revenue/expenses, and whether that means they are possibly rent shifting (offering lower nightly rates that they rev split with you and shifting the cost into various administrative fees that they keep 100% of).

IE instead of

$500nt x 4 nights = $2000, they take 16% of $2000 so you get $1680

They might be doing something like (and this is typical of PM companies trying to squeeze out an extra buck)...

$400nt x 4 nights = $1600
+$400 in "administrative fees" = $2000.

You get 84% of $1600 = $1344

Same rent cost for the customer but now they are only paying you 84% on $1600 instead of $2000, and then pocketing the entire $400 "administrative fee".