All Forum Posts by: Randy Davis

If I break it down into 4 segments: 

1) Getting the project built
2) First few years of the operating model (1-5 years)
3) Longer term operating model (5+ years)
4) Exit strategy

1) I think the key is to use a real estate attorney for the contract phase to help protect my interests from time of deposit to building opening. Anything you'd recommend beyond that? 

2) I feel best about this phase. It's a bit of a crap shoot as there aren't any clear comps. I feel $600/nt and 65% are good assumptions to use after the first few months as the branding occurs and word gets out. 

3) How to maximize the operating revenue? Once you get past 5 years, mortgage remains fixed but rates (theoretically) have begun to rise. This is potentially a good time to reap a profit. However, as the building ages, demand will start to wane at some point and refurbishment costs will creep in. Also, as time goes on HOA's tend to get a little more out of control. So the real key is step 4.

4) Based on above, any advice on how to properly time an exit? Obviously keeping your eyes on the building and on booking data is probably crucial. Anything else that you'd recommend? This is a ways off, but want to document some of these thoughts in the business plan so I don't lose sight of them. Also, finding the right agent that can help position the investment portion of this property correctly will be important. 

 Thanks, Jonathan - 

Many of those things are already on my radar. There is a lot of hotel construction planned over next two years. That's definitely a threat to the ADR and occupancy for this project. I've tried to account for that in my projections, but its a lot of guesswork. 

I don't think the blackout dates apply, as they advertise it as being for owner use as long and as often as you want. But I'll definitely confirm when I receive a contract. 

Thanks Andreas - I'm excited about it too. And Vastland is the one building it. You're probably familiar with them. They generally do top notch work. 

I was really just mainly looking to see if anybody had pointers on this type of investment that I hadn't already considered. Also, since this is a bit unique to Nashville, wondering if anyone had thoughts about that type of a venture in the Nashville market. 

I don't think it's going to make a killing in the short term, but once the brand is established I think it could be quite lucrative. The key for me is to be able to cash flow in the short term, and then to get out before property becomes dated, HOA fees skyrocket, etc.

I agree, John, but I don't want to do more with RE than taking a very passive role. Unfortunately it's not just the job which is a 55-60 hr per week. I also take care of a disabled brother, an elderly dad and a son with severe depression. I love my full-time gig (which is pretty lucrative) and don't want to replace that with RE investment. I get why many people do want to do that, and I'm glad that you've been able to make that switch work for you. I think many others still dream to do so. 

I've heard similar complaints about condos for years, and I think your comments generally have merit. However one of my regrets was not investing in a condo in downtown Nashville in 2008. This was just prior to the sub-prime meltdown. It was a new build priced at $350K for a 2-bed, which we thought was a fortune back then. That condo just listed for $950K. That's a 40% higher appreciation than across Davidson County over that same period. Obviously the last couple of decades, Nashville has proven to be the exception rather than the rule in many ways. I'm still very bullish on Nashville, largely because of the business development growth happening. Recent commercial or mixed use developments like Nashville Yards, and the upcoming Oracle HQ development in East Nashville will forever change the economics of the city IMO. I think that will fuel Nashville RE growth in similar ways that leisure travel has for the last 2 decades. But you are right about not knowing when the Nashville express train will start to slow down.

My wife and I are very established in our careers with an eye on retirement in the next 5-7 years. We don't have the time to do any serious real estate investing, but did purchase a home in Franklin outside of Nashville in Sept '22. The timing was pretty good as this turned out to be a downward blip in the market but we locked at 5.25% before rates went crazy. Recent comps shows that $850K property is now worth roughly $950K.

We're interested in mid to long-term investing and not making a quick buck so equity growth is our focus as long as we can cash flow it adequately. So far, so good - as we've kept this property pretty fully leased out since acquiring.

We're looking at other options in the Nashville area, but are now focused on something with short-term rental potential so we can stay there on our multiple trips to Nash every year. Unfortunately, the airbnb market that was so strong 3-4 years ago has really softened, partly do to macro trends and partially due to increasing restrictions in the area. Supply has also swelled quite a bit over the last couple of years. So we did come across a condohotel option that's new. I know, I know. I've read the conventional wisdom. "It's not a great investment", "so many usage restrictions", "costly management fees", etc. However, there are a few unique things about this property.

Same old, same old
Yes, you are required to use their management co.
Operating costs are expensive - but they handle everything
Also, locked into their FF&E package (so they create a standard rental experience)
30% down payment
65/35 revenue split on top of operating costs
HOA is about $8K per year

What's a little different
New property - to open in a couple of years
"Discounted" price before ground breaking
A new-ish model in the Nashville area
Upper-upscale/luxury residences with traditional hotel attached to this property
In a location that can help merge Nashville's growing business center with it's historically strong tourism center. Will likely pull well from both visiting populations.
A ton of amenities - everything a high-end hotel would offer, includes a lot of business space which could pull in potential renters during week, while tourist crowd would dominate weekends
Great location in midtown Nashville
A developer with a great reputation
Not part of a hotel chain (which could be a negative when it comes to bookings)
No restrictions on owner usage
Developer will retain high ownership percentage to allow him to have significant HOA control to avoid it from getting out of control

It's an interesting model in an interesting market. I know this isn't a popular investment model, as there are clearly some downsides - high costs, financing, etc. My goal is to cash-flow it in the short-term and build equity. I feel like while this is a challenge in seasonal tourist area, it might be a stronger model in the Nashville market, especially without a lot of competition in this space.

I have some pro-forma numbers that I feel I've vetted to death. Since its a new property without similar properties nearby, the ADR and Occ % are an educated guess that I've drawn on some diligence from nearby hotel properties.

Their projections: $675 nt/ADR with 70% occupancy. $22K net profit annually.
My projections: $600 nt/ADR with 65% occupancy. $8K net profit annually.

High end hotels in the area with 1-br suites average in the $700-$750/nt range (or more). Overall occupancy in the county was roughly 65% last year, 74% downtown. As this is downtown adjacent, it's likely closer to that number. However, those numbers are a mix of room types and price points. My assumption is at this price point ($600 for 750 sq ft 1 br condo with kitchen and balcony vs $400 for std 350 sq ft hotel room) occupancy % would be somewhat less. I couldn't get full recon on this, so it's perhaps the weakest part of my estimates.

Again, we're lifestyle investors looking for an opportunity that fits into our lifestyle which includes very little active involvement on our part. Also, willing to play the longer term game as long as we're roughly cash flow neutral in the near term.

My wife and I are very established in our careers with an eye on retirement in the next 5-7 years. We don't have the time to do any serious real estate investing, but did purchase a home in Franklin outside of Nashville in Sept '22. The timing was pretty good as this turned out to be a downward blip in the market but we locked at 5.25% before rates went crazy. Recent comps shows that $850K property is now worth roughly $950K. 

We're interested in mid to long-term investing and not making a quick buck so equity growth is our focus as long as we can cash flow it adequately. So far, so good - as we've kept this property pretty fully leased out since acquiring. 

We're looking at other options in the Nashville area, but are now focused on something with short-term rental potential so we can stay there on our multiple trips to Nash every year. Unfortunately, the airbnb market that was so strong 3-4 years ago has really softened, partly do to macro trends and partially due to increasing restrictions in the area. Supply has also swelled quite a bit over the last couple of years. So we did come across a condohotel option that's new. I know, I know. It's not a great investment, so many restrictions, costly management fees, etc. However, there are a few unique things about this property. 

Same old, same old
Yes, you are required to use their management co. 
Operating costs are expensive - but they handle everything
Also, locked into their FF&E package (so they create a standard rental experience)
30% down payment
65/35 revenue split on top of operating costs
HOA is about $8K per year

What's a little different
New property - to open in a couple of years
"Discounted" price before ground breaking
A new-ish model in the Nashville area
Upper-upscale/luxury residences with traditional hotel attached to this property
In a location that can help merge Nashville's growing business center with it's historically strong tourism center. Will likely pull well from both visiting populations.
A ton of amenities - everything a high-end hotel would offer, includes a lot of business space which could pull in potential renters during week, while tourist crowd would dominate weekends
Great location in midtown Nashville
A developer with a great reputation
Not part of a hotel chain (which could be a negative when it comes to bookings)
No restrictions on owner usage
Developer will retain high ownership percentage to allow him to have significant HOA control to avoid it from getting out of control

It's an interesting model in an interesting market. I know this isn't a popular investment model, as there are clearly some downsides - high costs, financing, etc. My goal is to cash-flow it in the short-term and build equity. I feel like while this is a challenge in seasonal tourist area, it might be a stronger model in the Nashville market, especially without a lot of competition in this space. 

I have some pro-forma numbers that I feel I've vetted to death. Since its a new property without similar properties nearby, the ADR and Occ % are an educated guess that I've drawn on some diligence from nearby hotel properties. 

Their projections: $675 nt/ADR with 70% occupancy. $22K net profit annually. 
My projections: $600 nt/ADR with 65% occupancy. $8K net profit annually.

High end hotels in the area with 1-br suites average in the $700-$750/nt range (or more). Overall occupancy in the county was roughly 65% last year, 74% downtown. As this is downtown adjacent, it's likely closer to that number. However, those numbers are a mix of room types and price points. My assumption is at this price point ($600 for 750 sq ft 1 br condo with kitchen and balcony vs $400 for std 350 sq ft hotel room) occupancy % would be somewhat less. I couldn't get full recon on this, so it's perhaps the weakest part of my estimates. 

Again, we're lifestyle investors looking for an opportunity that fits into our lifestyle which includes very little active involvement on our part. Also, willing to play the longer term game as long as we're roughly cash flow neutral in the near term. 

Thanks, Zeona - Yes, we're not anxious to dip into our own reserves to cover the mortgage largely because of the risk in the macro-economy relative to inflation, depression, etc. Instead, we'd prefer to build some reserves to help withstand such events. 

Your words help me feel more comfortable with a mid-term approach. I had considered this early on, but abandoned it quickly because I assumed the market for this was very small. I've talked to a couple of real estate agents in Nashville about this type of approach and they acted surprised that I'd consider this. 

Curious - do you have familiarity with the Nashville mid-term market specifically, or just more generally on a national scale? 

Also, I always prefer to make decisions with data and can get my hands-on data for short-term rentals and long-term rentals. Is there a data source out there for mid-term rentals? 

Ingrid - I'm also based in SLC (West Jordan to be specific) and looking at the same thing. We're looking at the same areas and as of right now, our goal is to retire in Nashville in 8-9 years. Franklin an area we're extremely interested in. Did you make any progress since this inquiry? We're making a trip for 6 weeks at end of April and still trying to develop a strategy. Long-term rental / mid-term rental, stand-alone house in the suburbs vs condo/town-home closer to downtown where rents are stronger. Any thoughts? Advice?

That's good advice - it would also allow us to use the property when we're in town which wouldn't be the case with a long-term rental. Is there enough demand out there for mid-term rentals that we'd likely be able to consistently cover a mortgage? Not sure how popular these are in the Nashville area, but the approach is very interesting. Is Airbnb a good platform for these?