All Forum Posts by: Nik Moushon

 That would be part of the build cost. Not running expenses.

I'm am running number on a property that I am looking at buying and building a small cabin on. My plans for the cabin are to be used by the family and be a STR when we are not using it (80% of the time). So half the time its a personal property and half the time its an investment property. So I don't need this property to make a TON of cash...even a small loss is fine. At this time I don't plan on getting into STR as a full business or investment route (maybe in the future...maybe).

Anyways, I need some help trying to figure out what the list of expenses are going to be to run this in peak season as a STR. And on some of them, how to I find out what those costs? 

• Mortgage (easy to find out)
• Property Taxes (easy to find out)
• Insurance (easy to find out)
• Utilities (How do you guess for these when first starting out? 150% of your personal homes usage?)
• Cleaning Fees (Is this typically back charged to the renter through AirBnB?)
• Supplies (How to you gauge how much you will need to spend a month? Beside the obvious items, k-cups, TP, paper towels...what else are considered supplies?)
• CapEx & Maint. (Is 1% enough for you or do you more or less?)

The location is very close to my home. So I will be doing the managing and any maintenance stuff (fixes or lawn care). 

 This will do the exact opposite. It will cause prices to do the opposite of what they are intending, go even hirer. Because now every lot in the ENTIRE state can now be a MF lot. Everyone now has a parcel that, with the rise in home prices, is more than likely will be free and clear. Which means they can either sell it for cash or have the down payment already covered to secure a construction loan. 

Now with the massive influx of new "lots" available to build on, you would think this would drive down prices but it wont. The reason is there isnt enough materials and labor to cover all the new demand for building. So if you thought it would be hard to get a GC to build a house now and that they are over priced....just wait when tens or hundreds of thousands of people try to rush the market and build on their new found parcel. Best case scenario (or worst case depending on how you look at it) is that the initial price reduction because the sudden influx of build lots hitting market, will be offset by the spike in material and labor prices and you see continued normal growth/appreciation in the market.

Its no different than where we are today. Housing is in such a huge demand and the main reason prices keep going up is because there is not enough material and labor to build houses fast enough. There plenty of land to build in 90% of the country. Its the fact that materials are more pricey and take longer to get to the site and labor is in a huge shortage as well. 

I mean, I think make the entire state anti single family is taking it a bit too far but the idea is sound for most the state. It will have a long term impact on housing but definitely nothing short term. Especially if the material and labor shortage continue.

 Per zoning and how jurisdictions view things, ADUs are completely different than a just allowing another unit. ADUs are usually capped in square footage and number of bedrooms. Another unit is not. Its will be adding a new, full size house to any lot as long as it meets the setbacks and other zoning restrictions. Think detached duplex...if that oxymoron makes any sense lol. 

 It doesnt matter how leveraged you are, if you start getting too detailed in your offer you start limiting your ways out. You also start making the seller question your intentions. Have your offer start broad and narrow it down through negotiations. Make them feel like they have a say and try to guide them into the direction you were thinking of anyways. I dont know enough about your project to really add specifics that you should or shouldnt have. Just dont be too 'greedy' up front. 

The great things about contracts are you can right them pretty much however you want and as along as both sides agree...it works. 

In this market, no one is holding on to a building for several years while you figure out your numbers and get everything in order. If you are doing a large land development that requires re-zoning and special approvals, then you might be able to ask for closing to happen after re-zoning is approved. Even then, in this market, that would be hard to get accepted. 

Most of your due diligence (MEP & Arch study) falls under a feasibility period. For a large commercial building this usually is about 60-90 days. Sometimes more or you can ask for extension but not usually much more. That is part of the risk of developing. You need to get your numbers a close as possible as soon as possible. You have to make your best estimated guess on what development costs are going to be and do you best to stick to those numbers. But a seller isnt waiting 2 years while you flush everything out. 

The other option you can propose is a lease-to-own option. You agree to lease the building for X number of years and have the option to buy at the end or at anytime for an agreed upon price. This is more expensive holding costs but it less up front and less risk for you. BUT that has to have a seller that doesnt mind taking in a small amount of rent for a year or two before getting a payout and not wanting a lump sum. Again, this market isnt leaning that way. 

 This varies by jurisdiction. Mine requires letters sent out on a short plat too. So OP will need to check his own laws. 

This logic doesn't work. STR, by definition, falls under the same definition that hotels are under, which is Lodging. So the only zones that would be "safe" for STR are commercial zoned area. Or small overlay areas that allow for Lodging. This is the logic that the anti-STR crowd is using to get bans for STRs.

Thus areas don't have to be re-zoned to ban STRs. They just have to add new regulations to the existing zones. Adding new regulation is WAY easier than re-zoning. New regulations are narrowly focused whereas re-zoning has a very broad impact. 

There is no need to go door to door. This will only will this just invite more people to potentially try and stop you by voicing their NIMBY opinions and make you do what they want you to do with your property. Plus, every city has requirements on what needs to be sent out to the neighbors. If you are going to subdivide, odds are, that the city requires letters be sent out to all the neighbors within a certain distance. They will do this for you. So why would you waste your time doing this before the city will? 

More importantly ask yourself, what does it gain you? Unless you are trying to do something radical and what to try and garner support from neighbors, there is no need to increase your projects risk by inviting more people to voice negative opinions about what you want to do. 

I did right read over that you mentioned it was in an LLC. That does change the lending a bit and I understand why you are getting the higher rate quotes now.

If you are stuck with your property in a LLC I would look around for a 20 year fixed loan. Like @Steve Vaughan suggested. Its the same concept as the 30 year. My goal is to get as long of a fixed rate as possible. You can always get lower rates but they come with lower fixed years too. 

One of the things I always look at when I'm looking to refi or start a new loan is buying points. This HIGHLY depends on what your long term plan is with a property. If you are planning to hold for at least 10 years then consider buying points. Run the numbers and see how long it would take to pay that back. If it takes much more than 10 years to pay it back (after factoring in my normal cash flow) I don't consider it. When I first got quotes on my duplex it was over 5% too and was considering buying points down to at least 4% because this is a forever property for me. At 4% on a multi unit property is pretty darn good and allows for the cash flow margins to flux with the economy and I would still sit just fine. I would still consider doing this with a 20 year fixed if you can find one. I probably wouldnt with a 10 year though. 

Also, try and look for a bank that you could do a portfolio loan with and group in the several other properties you are going to buy with your new cash. Talk with them and bring it up. Suggest something along the lines of: you will take the 30 year fixed at 5.25% and if I bring in 2 or 3 more loans to your bank you will give me 30 year fixed at 4.25% on the new loans and change the first loan as to that as well. Something like that. Doesn't hurt to ask, right? Try to negotiate something. I would think they would love for you to bring that $300k, in cash and loans, right back to them. 

Just to also piggy back a little on what Steve said about properties in a LLC. I agree with him that SFR rentals are very low risk. If you are really concerned about liability just pay for a $1m umbrella policy (or higher if you want). This makes getting the loan and refi much easier. With that said though, I will be moving my duplex into an LLC here soon-ish. My reason is different than just straight liability that most people think of. I plan on doing a lot of development in the near future. That comes with a LOT of risk and a LOT of liability. So I am moving it to a LLC to protect it from the high risk factor that comes with developing property which is completely different from the risk of a law suite from a pissed off tenant. So thats my reasoning behind a LLC. Not sure what yours is and its completely up to you.