All Forum Posts by: Ryan Elam

You have a number of options to help you decide if you really bought a bad deal, or if you just need to give your STR a good old kick to get more cash flow. I'd love to know the location of these properties in relation to the other STR properties in Joshua Tree. Your mortgages look good, in some ways it would be too bad to jump from a 3% interest rate up to 7%-8%

DM me, I would love to get a closer look at your properties and see if you could try a few things yet before deciding to cut your losses and sell.

If you do decide to sell, I recommend you list on this group https://www.facebook.com/group...It's mostly owners selling to other owners. You may find someone who is an experienced operator and either thinks they can do better with the properties and really wants to own in that area or someone who really wants your interest rate and is banking on appreciation. You might also reach out to Tony Robinson from the Real Estate Rookie podcast. He knows your area very well (and is probably largely responsible for the saturation because he helped put it on the investor map). He may know someone who really wants to own in that area or have other suggestions for how you could increase bookings and revenue. It's worth a shot anyway. Best of luck to you. It sucks but I would keep investigating your options if you can hang on a little longer.

@Ryan Elam- thanks and sorry to hear  about the  stress ....assuming the slow down is due to  lack of bookings ...I would  agree that  selling is an  option .....possible  to  cover your monthly costs  by making the  properties  MTR  or LTRs  ?

If selling - make sure you use a  conservative  hypotehtical   sales price and  include all  sales  expenses  when making  decsion  to sell 

I made this same mistake in 2019 and 2020. Bought 5 big houses in KC next to great economic drivers. STR didn't work out for me for various reasons. I cut bait, sold them, lost my but and moved on. Now I have a healthy multifamily portfolio in Kansas City that has stability. It was really hard to bite the bullet but I am really glad I did. I had to work really hard to make up for my mistakes but I am ok with that. Hope that helps provide you solace.

If my math is correct, you are "losing" $3-5K per month, on properties that you paid a combined $825K for.  If you can ditch those properties and move on, do it.  Let's hope you can sell them for a price so that you don't have to bring money to closing.  

Quote from @Ryan Elam:

Hey guys, 

I made a mistake and am looking for some advice. 

My wife and I bought 2 properties in the Joshua Tree area - one in 2021 and one in 2022. And while the first one started out great, there has been a huge slowdown this year and we are losing quite a bit of money each month. 

Here is a breakdown of the situation: 

- 2022 = $18k net profit 
- 2023 = -$26k loss between both properties so far (will likely lose between $35k - $50k in 2023)
- Tax Savings via Bonus Depreciation = $52k in tax savings combined ($20k from property #1 in 2021 & $32k from property #2 in 2022)

- Property #1 purchased for $350k + $85k in renos + furnishings = $435k total (2nd home mortgage - 30 yr fixed at 2.9%)
- Property #2 purchased for $475k + $83k in renos + furnishings = $558k total (2nd home mortgage - 30 yr fixed at 3.4%)

- Opened a HELOC ($90k) on property #1 to help pay for property #2.

We are getting appraisals done on each property next week to determine the current market value of each to see if it might make sense to sell. If I had to guess we'd make a slight profit ($30k - $50k) on property #1 and a loss on property #2 ($50k - $70k). 

While we don't want to sell, it only seems like the market is getting worse and it's causing a lot of stress to manage these properties at a loss each month. 

I've been thinking about potentially doing a 1031 exchange for 1 or both properties, but not sure where we would buy that would be cashflow positive and not thrilled about taking on a much higher interest rate. 

I feel like I'm out of my depth and with my limited RE investing knowledge, I would really appreciate any advice anyone is able to offer. 

Thank you! 

First you need to determine if this “slowdown” is a long term trend or a temporary “correction”.  If the former there’s more work to do.  If the latter you may want to just tough it out.
Assuming it’s a long term trend you need to determine the market for home (owner use) ownership in your market.  If it’s pretty strong you should be able to sell the property with owner financing ..  Charge 7.5% while you’re paying about 3%.  You collect your profit in the difference every month.  

Seems you have 3 options (mainly)...#1 is to sell and lick your wounds, #2 is to hold and wait for the STR market to recover (?), #3 is to re-evaluate the situation - can you go to an LTR or MTR with these properties.

Questions for you:

Can you afford to take these losses for much longer? What does your gut tell you about the area and it's possible return to STR glory- what do the locals say, what do the Realtors say?

Sorry this is happening to you, but you are not alone.

A lot of people had the same idea and many areas such as JT have become saturated.

I'm really focusing on buying distressed properties from motivated sellers.

I'm not adding to my STR portfolio for now.

We bought a Double wide with land for 6k total and it is rented for $800. We did not repairs and haven't even seen the inside of it. 

We are hunting down these type deals and building up our cash flow for now.

Buying properties like this would help you recover what your losing.

@Ryan Elam

please post your listings and i can better respond. 

on the initial it appears you overpaid but did a great job with the financing, this is the covid str market mistake a lot have made. 

in order to properly give you some guidance, really need to see what your properties look like etc.

im not a big cut and run guy but if you overpaid substantially you may be better off especially with the losses you are forecasting? 

how much of the reno funds are just furnishings that are sunk cost ?

what is the actual real estate worth.. also keep in mind you sell not only for a loss but your going to have recapture.. tough spot.. maybe lease option to purchase or longer term furnished rental

we did that with a Vegas prop and you would be surprised what you can rent the homes for long term full furnished it should at least cash flow at those super low interest rates or stop the bleeding.