First Time STR analysis

[Shannon Leckinger]

Hello!  First post and long time listener. I think I know the answer to this question already, but want to make sure I am not missing anything (plus I am still learning). We evaluated 2 properties yesterday.  Both will come in about -$14-16K annually, have a cap rate of 3.7%.  If we are losing money every year, but do plan on holding on to it long term, with our goal being appreciation of the market and someone else paying a good chunk of our mortgage, is this worth doing on any level?  I know we would see tax savings too.  Feel free to dumb this down for me, I want to learn and have had this goal for a long time.  I'm just not sure if I have analysis paralysis etc.  The other part of this is that in addition to this, we are borrowing from our home equity line of credit to put down the 20% deposit- so we have that payment too.   Price of condos we are considering are $465-$475k and they each bring in about $35K annually.  Thank you so much in advance!

[Travis Timmons]

You can rationalize it however you'd like, but you will come out way ahead if you rent your vacations and buy your investments. Don't talk yourself into a place because of personal use.

Buying a $475k condo that brings in 35k in gross rental income will lose a lot of money. I just bought a $400k STR and the break even point with 25% down is $54k with a 2% sinking fund and 3% maintenance built in. My basic underwriting making some standard assumptions on HOA expenses, 20% down, 7% interest rate, 30 year mortgage, utilities, supplies, and maintenance costs shows a loss of about $22k per year if you are self managing. That calculation also assumed $0 renovation and $0 furnishings, which won't be the case. It's a terrible investment. Please do not buy it.