All Forum Posts by: Richie Thomas

Hi @Aaron Furr, I read your blog article and the deal analysis.  Have you considered Section 8 housing?  You'd have similar drawbacks in terms of clientele, but at least the checks would be more regular.  More info here.

Also, consider finding a local property manager before you close on this deal, and ask them for their advice.  It'll be hard to find a PM who specializes in managing transitional housing, so it might make sense to start that process sooner rather than later, so you can be ready when you find that deal which makes you say "Heck yes".

EDIT- I think point #3 above was unclear.  I meant that the percent of time my units were occupied ranged from 83-98%.  I was apparently way too tired to be coherently posting on BP haha.

Hi @Racheli Vidal, I'm a former house hacker in NYC with 2 1/2 years' experience as an Airbnb host.  Here's my take:

1) You're going to be self-managing 14 units?  That's... a lot for one person, or even a small team.  I'd recommend including a line item for a PM in your budget.  For reference, my Airbnb "co-hosts" (i.e. the other hosts I'd hire to manage my listing while I was away) typically charged 15-25% of the bookings they managed.  Managing one unit is easy enough, especially if one lives in the unit.  Most of the cleaning work I did was work I'd have to do anyway.  But if I were managing 13 additional units, that'd be a full time job.  Not sure what your goal is for this investment, but if it's intended to be passive income, then you want to make sure you're not trying to increase cashflow by spending your time.

2) Short-term rental units need to be furnished.  When I run the numbers on a short-term rental, I include the furnishings cost in the line item for initial repairs.  However, you've currently got $8,000 budgeted for initial repairs, total for all 14 units.  This strikes me as much too low.  I managed to furnish one 3-bedroom, 800 sq foot apartment in Brooklyn for $8,000.  It might be possible to spend less than that, but remember that these rentals need to be listed, and that photos are the biggest selling point in any listing.  I'd recommend spending just enough to get people excited about the possibility of staying there, rather than going the Goodwill route or something similarly budget-conscious.

3) I'd agree that vacancy was too low.  My lowest vacancy was 98% during high season.  In the winter, it was around 15%.

4) Be sure to include a monthly budget for restocking of staples, supplies, etc.  You'll go through a lot of toilet paper.

5) You'll also need a laundry budget, to wash linens, towels, bedsheets, etc.  As well as budgeting time to do this yourself, or money to have someone else do this.

6) +1 to insurance.  Vacation rental insurance is a necessity, since sooner or later you'll have to deal with the aftermath of a less-than-ideal guest.

7) Aren't water, sewer, and electric metered separately by the condo association, and therefore payable by the tenants themselves?

8) +1 @Jaysen Medhurst's comment on watching out for special assessments and other surprises from the HOA.

9) +1 to @Tim Herman's comment about an exit strategy. I'd actually be surprised if the HOA didn't have something to say about STRs in their complex. It'd be pretty lucky if they allowed them at all, let alone 14 of them. If they allow them at all, there's usually a cap on the percentage of units that can be used as STRs. And there are usually minimum stay requirements for non-owner-occupied rentals, sometimes as long as 3-6 months.

@Cody Ringler what kind of mortgage do you have on that first duplex?  If you move out in a year and rent out the newly-vacant unit, what does your cash flow look like at that point?  Does that one year time period come from the lender, i.e. do you have an FHA loan? If so, could you refinance after year 1 into a regular fixed-rate mortgage, and would your cash flow with the 2 rented units be enough to afford the PMI on your refi mortgage? If so, you could keep getting a new FHA loan on a house hack every year, refi after the year is up, and rinse/repeat. It'd be best if the loan involved a bit of forced appreciation, so that you could combine house hacking with BRRRR and increase your velocity of money.

Hey @Paul Bloomfield, I think you're on the right track in terms of the overall disadvantages of this deal.  Another thing to consider is that condo associations, HOAs, etc. can impose special assessments on property owners.  So if a common area needed repairs, they could send you a bill which you'd be on the hook for.  As you mentioned, your fixed landlord expenses are already cut to the bone, so it appears you may not have budgeted for the kind of prudent reserves needed to weather the storm of special assessments.

Also, I don't see a budget for a property manager.  Are you planning to manage the property yourself?  If so, have you done a cost-benefit analysis of that plan?  A budget of 10% of monthly revenue would be $150, so you'd be saving that $150 per month, but taking on a ton of work in exchange.

Does your lender have an appraisal appeal policy, and if so, can your realtor find enough comps at the initial price to do so?

Also, is this property located in a sub-division?  If so, how many unsold homes are there in that sub-division?  If your property is the last unsold unit, you might not have much bargaining power.  But if there are quite a few unsold properties and they're all quite similar, then I would think that your BATNA is stronger than the builder's.

Even better, you can be the "good cop" while the appraiser/lender plays the part of "bad cop", which can be another strong negotiating tactic.

Hey @Cody Ringler, the way you budget for an Airbnb rental is a bit different from how you'd budget a normal rental.  If you don't plan on managing the rental yourself (i.e. changing the rooms between guests, sweeping, vacuuming, washing dishes, laundering the sheets and towels, etc.), then you'll need to budget for a property manager.  Vacation rental property managers are much more expensive than regular rental property managers.  I believe it can range from 20-30% of the revenue.  Airbnb has a co-host program, where they can show you other hosts in your area who manage their own property and (for a fee) will manage yours as well.  Each co-host charges a different rate.

With an Airbnb or other vacation rental, you'll need to fully furnish it, from the bedrooms to the living rooms to the kitchen (fully-stocked, including not only utensils and plates but staple food items like cereal and cookware too).  You'll need decorative items, creature comforts like books and DVDs, linens and towels (including enough for your longest anticipated stay), bathroom items like shampoo and soap and toilet paper, and a monthly budget for re-supplies of these.

I'd also recommend purchasing a vacation rental insurance policy, to cover the furniture items and other things which may get damaged by a guest.  I don't have a specific brand that I'd recommend, I just linked to HomeAway's preferred vendor as an example.

That's all I can think of for now, I'll write back with more if I think of anything.

Sure Mark, although I actually hosted in NYC, not in SF:

-I hosted for a little over 2 years, in a large studio which I had converted into a 3-bedroom.

-It was basically a house hack, and it was kind of my only option besides commuting an hour-plus each way to work.  

-My average rate per night was $120 in the summertime and $85 in the wintertime, and I almost always had 90%+ occupancy.

-My rent was $3,240, a slow month for me was $5,000 in revenue, and a good month was $7,000.  

-I picked my neighborhood because it was very touristy, and I had a professional photographer take pretty good photos so that my listing would stand out.

-It was surprisingly low maintenance as a live-in host.  I pretty much just changed over the rooms (changed the sheets, vacuumed and made sure no belongings were left behind, etc.), and did the laundry.  Everything else was stuff I'd have to do anyway (i.e. clean the shared rooms).  I didn't make breakfast for the guests or do anything like that.

-The guests and I would often run into each other.  Some guests were super-chatty and some just wanted to do their own thing.

-I found the best way to filter out problem guests was to be very up-front in my listing about the downsides of my apartment (distance from the subway, age of the building, etc.) so that people knew right away whether it was for them or not.

-If I had to do this over again, I'd put that information in the photos section, since many guests just look at photos (and oftendon't read the full property description) before booking.

If there's anything else you want to know, feel free to DM me.

Hey @Tyler Santos, a few thoughts:

1) How did you come up with an ARV of $200,000? Do you have local comps of properties with similar age, square footage, # of rooms, etc.? I tried looking for comps on my own but Rutland is a small town and I didn't see any recently-sold comparable properties, so maybe talk with a local realtor about this.

2) Have you been quoted a 30-year fixed rate investor-specific mortgage at 4.0%?

3) I don't see an ongoing monthly budget for CapEx or Repairs. I know you allocated an up-front budget of $20,000, but that's just for immediate renovations. You'll also want to set aside money (probably 10% each for CapEx and Repairs) for when things inevitably break.

4) I also notice you haven't budgeted for a property manager.  This is the budget line item I'd most advise you to reconsider.  The amount of work it takes to manage a property every month is substantial.  Take a look at this list of PM duties, and ask yourself if you'd rather do all these things yourself so you can save 10% of your income budget.  Property managers are the ones who get the 3 a.m. phone calls that a toilet is clogged.  It's a thankless task, to say the least.

5) I see property taxes for this property in 2018 were listed at $6,000 on realtor.com, which would make them about $500 per month.  But I only see $235.50 allocated in your monthly expenses.  Is there a reason for the difference?

6) As part of your up-front repair budget, are you able to put the different units in this property on separate utility meters?  This would allow you to bill the tenants individually for utilities, as opposed to paying them all yourself.  Looks like this would save you a few hundred dollars per month.

7) According to Rentometer, both the 2-bedrooms and 1-bedrooms are under-priced for the market.  So you could likely increase your revenue at some point, whenever the tenants change over.

I ran the numbers with some the above changes included. I budgeted 10% each for Repairs, CapEx, Vacancy, and Property Manager. I changed the mortgage rate to 5%, since I would argue that's a bit more realistic (you may even want to go higher; I usually use 5.8%). I removed the utilities costs, assuming you'll be able to meter those separately (I may be wrong there). Here's the link from my report.  Still shows very healthy cash flow, but a bit more down-to-earth.

Good luck, this looks like a great find!

Oops, looks like I confused Kansas City with Wichita.  Sorry about that, hope that's not a huge faus pax in your city haha.

Also, one thing I forgot to mention above- Airbnb turnover would obviously be quite high compared to a typical tenant, so your Airbnb co-host fee would probably be something like 20% of the revenue.  So that would be comparable to a 20% budget for a property manager.  However, if I were a betting man, I'd say your revenue would almost certainly see a greater-than-20% increase with Airbnb, probably much greater.  Again, check Airdna.co for more info.  I have no affiliation with them, I just think they make a great product for short-term rental investors.

Alternately, I see this property is 1 mile from Wesley Medical Center and 2 miles from the Bob Dole VA Medical Center. You could also try renting to travel nurses on travelnursefinder.com. This would be a similar play to the short-term/Airbnb rental idea, and you'd also need to furnish the property. But the turnover would be less so the property management fee would be less as well. Travel nurses tend to pay above-average rent prices because their work contracts last between 10-13 weeks. Here's their listings page for Wichita, which shows one 2-bedroom going for $1,875 per month, and a one-bedroom going for $900/month.  If you were conservative and priced each of your units at $1,400, that's $4,200 in income per month vs. your current budget of $3,100.  Travelnursefinder.com's parent company, Furnishedfinder.com, has a handy stats page where you can see free data on their volume of Wichita inquiries.  It's not much data, but it's better than nothing.