All Forum Posts by: Sean Bramble

Update: the advice you guys gave was really helpful. Here’s what I did/ am doing

1) identified several smaller "emerging" STR markets I am interested in (based on estimated gross ROI, and demand drivers nearby), and confirmed the regulatory outlook looked safe going fwd. Started with 1 market, but have expanded to ~5 to multiply my luck in these smaller markets with less deal flow

2) spoke to handful of agents in those markets to learn more, and chose 1 agent I liked the most (was looking for someone who knew STRs, could do video tours, was responsive, and had a good network of contractors, etc). I visited the first market I liked in person first, but have since gotten comfortable with relying on my own research, my agent, and Google street view to understand a market without first visiting

3) Kept an eye on leads as they hit my inbox every day, and underwrote the good ones that hit my criteria 

4) if a deal looks good and pencils out well, I have my agent go to the property for a video tour

5) if the video tour looks good, I get more detailed in my underwriting. i.e., do a true bottoms up furnishing and renovation budget, get a firm sense of DSCR loan options from lenders, obsess about revenue projections using specific comps in the market, talk to insurance companies, get firm on property tax estimates, operating costs specific to that property/ market, etc. this step goes relatively fast over the course of a day or so. As the gaps in my understanding start to fill in, I'll decide to move fwd with an offer or not

6) make an offer, get it accepted, get the loan process moving

7) visit the property and do inspections. This is as far as I’ve gotten. We thought we had a home run with this last one, but realized when we got there that it needed more work than we expected. Got a few quotes from contractors and realized our initial rehab budget was WAY off which would comprise our yield target, so we pulled out of the deal. Sucks to do this, but I’d rather pull out at the last minute bc the numbers don’t work than get emotional and buy it anyway. Hurts a little bc we LOVED the property, but we’re investing for yield … and that’s that

this has been a great - albeit costly - learning experience for me. In the future I’ll add a lot more buffer in my renovation budgets, make sure there are contractors available to get started immediately, and question my agent much more about the exact state of the property before pulling the trigger on an offer (I’ll ask them to do as slow and critical of a video tour as they possibly can). And there will no doubt be hundreds more unforeseen things to learn as I continue this journey … the learning curve is steep, but necessary I suppose. Back to “step 3”/ watching my inbox for new leads …

thanks again everyone! The hive mind on BP is SO helpful to a rookie figuring out this process for the first time

I’m hearing more and more folks are underwriting their deals with a blend of 2019, 2020, and 2021 revenue from Airdna to adjust for the spike in travel during the pandemic years (I.e., don’t just look at the trailing 12 mos figures Airdna spits out). Find actual comps rather than using rentalizer. That’s one suggestion 

Beyond that, a key metric I look at in is debt service coverage ratio (DSCR). Many lenders look at this to gauge risk, and you should too. A DSCR of 2.0 means you can cut your rates by 50% and still break even, 1.5 means you can cut your rates 33%, and so on. Many of us get infatuated with cash on cash for obvious reasons, but DSCR is a necessary addition for STR underwriting. Remember, STRs are hospitality/ discretionary spending, not housing, so revenues will swing with the ebbs and flows of peoples' wallets. You want to be able to cut rates when you need to to maximize revenue in a down market, and a higher DSCR will allow you to do this … I.e., more "meat on the bone" is safer (meat = profit margin). Reserves achieve the same outcome, but a lot of folks are bad at actually hanging on to them (but yes, you do need them).

I also expect there to be some good deals on the horizon with anxious sellers over the next 6-24 months … so be patient and buy great deals, they are coming

Good luck!

 This type of info from someone I've never met is EXACTLY why I love BP so much! Thank you! I'll pay it fwd

Hey BP! I'm in escrow on a property and the seller has asked to stay for an additional 2 weeks before moving out. What are the pros and cons of doing a leaseback to the seller vs. just extending the escrow period?

Also, are there any other creative strategies related to leasebacks I could use to alter the mechanics of this investment itself? Can't really imagine how that would work, but anytime money is changing hands I assume there is some opportunity to factor that into my loan somehow? Long shot, but wanted to ask the hive mind just in case. Thanks everyone!

I'm at an STR conference in Nashville right now and am hearing this over and over again from Smokies investors - bookings are way down for the summer. Spoke to one guy who is still investing in the market, but he stressed that he is underwriting his deals with an avg of 2019/2020 revenue (rather than trailing 12 mos figures Airdna is spitting out). What this means to me is the "shoot from the hip/ buy anything and it will cashflow" days of STRs are over. You have to get your hands dirty with analytics to make money now, and the black box revenue estimate Airdna shoots out just isn't going to cut it anymore

Thanks everyone for the input! Yeah I think the STR "bubble" Dave Meyer was referring to on the podcast was a potential perfect storm of a handful of forces colliding:

- 2nd home demand drying up due to 1) increase in rates/ decrease in affordability, and 2) people moving back into a more "normal" way of life in their primary homes post-pandemic/ lockdowns

- Decreases in STR guest demand from the pandemic highs (i'm seeing 10-30% declines in a few markets I'm following, but this isn't true everywhere)

- The fact that many investors bought in at pandemic highs with only 10% down and will be underwater if home values in their markets drop more than that

- The fact that some investors based decisions off of super high pandemic STR revenue averages that Airdna uses to project income ... and invested in homes with razor thin profit margins

- The compounding effect a recession in the economy would have on the above issues (more people selling their 2nd homes, and further declines in STR guest revenue)

Definitely something to ponder ... I feel really good long-term about the property we have under contract as well as the market it is in, so I doubt we will pull out. Feels too much like a home run to just let go of, plus I'd really prefer not to sit on my hands waiting for the market to drop. But I also don't want to "buy at the top" as they say... hopefully some more thinking on this topic will emerge during my inspection period ... we'll see ... 

Hey everyone - I’m listening to the latest On The Market podcast and they are specifically talking about value declines in 2nd home markets due to demand from 2nd home buyers drying up due to rising rates/ affordability. I’ve also noticed Zillow dropping 12 mo appreciation estimates for several markets I have searches set up in (flipped from +10% to -10% within the last month - major change). These 2nd home marketsare the same markets many of us target for STRs investments .. so this is worrisome

I’m under contract on my first property in one of these markets which pencils out well projections-wise… plenty of profit margin to weather a recession/ lower demand from guests and not have to sell at a loss … but I still feel hesitant buying an asset that could lose $100K in value quite fast. Any thoughts? Should I be waiting these next few months out to see what happens? I’ve seen a few other posts on this topic which felt alarmist at the time, but now the talking heads on BP are talking about it as well … hmm …

IMO Airdna is weak, and good for only 2 things:

1) scanning markets to see where there is more demand (i.e., high avg occupancy/ revenue) - the free version of Market Minder does this

2) comparing market revenue over last 3-4 years to see what was happening pre-pandemic - they are the only service that has historical data going back this far. You have to subscribe to a market for this.

That's literally it. Pricelabs Market Dashboards offers significantly more depth & flexibility beyond Airdna for a much cheaper price. It is especially better for identifying comps in the area and seeing their past 12 mo performance. But their data only goes back 15 months (so cross referencing Airdna may be worth it for a historical view)

Suggestion: do not take Airdna's Rentalizer as gospel. Run your own comps based on the property you are considering - get your hands dirty with analysis. Many refer to this as "the enemy method", and you can use Pricelabs to see an entire year of data for each "enemy". You can also look fwd on Airbnb calendars to gauge future performance as well.

Good luck!

What happened to make you realize how much you didn't know? Come on ... I know you've all got some great war stories :)

Yes there is a 54321 ppp 

Can you elaborate more on how I would use a bridge loan in this scenario?