New Business and maybe a triplex?

Question

Hi all,This may be long winded and possibly deserving of 2 posts, but I appreciate any feedback as I start this real estate journey.I'm a New Orleans native currently living in Atlanta. I have approximately 3 years before I'm able to move back to NOLA. Given that timeline, I'd like to start getting involved in rental property and possibly development. My "side" job, mostly remote, is for a small construction and design firm in New Orleans has offered the potential of partnership. The owner there would like to partner with me in a new entity with the model that I do all of the leg work and he will finance and design - but it has to be profitable for both of us. We trust each other and have been friends for a while now, just to dispel any initial concerns. This is an opportunity that few people probably ever see and I don't want to pass this up. So I am here to learn all I can about building something from the ground up with a partner. Any tips or directions for learning the ins and outs of development work would be extremely welcomed! I need to learn how to find and cultivate residential and commercial deals in a seemingly saturated real estate market. I also need to learn how the financing works for development projects. (books/seminars/classes?)Now for the triplex: I've noticed a few opportunities for large triplex's in neighborhoods that my fiance and I would want to live in when we move back to New Orleans. One of which is a triplex consisting of 2: large 3/2s and a large 1/1 listed just under $1m. Tell me if this is crazy or impossible, but I'd like to purchase it for short term rental purposes and setup the 1/1 as our personal residence until we move back. Or maybe let a friend live there who would clean and manage the rentals? The building is currently only short term renting one of the larger units. It's booked for 70 days so far from July 2017 - June 2018 averaging $928/night. With an average occupancy for short term in New Orleans at 40% ( http://insideairbnb.com/new-orleans/ ) and the potential of 2 units being listed, it seems like great potential for cash flow. Correct me if I'm wrong but even at a lower nightly rate: 600/night x 2 units x 40% occupancy = $175k which would cover the mortgage, licenses, expenses, etc. If all of this is correct I would guess the biggest hurdle would be figuring out financing something like this, right? Also this property seems to be a flip - selling for $400 in 2016. Does the asking price and my overall plan sound off? What are the downsides? How risky is short term? My overall goal is to build a small partnership and obtain enough investment properties to match my fiances future income while being able to manage a family. Currently gross $85 + fiance $65 - income will jump to $300 plus when we move back which will give me more time to focus on building something amazing. I know that it won't be easy - but then again nothing worth doing is ever easy.Thanks for reading!

Mike Wood · Answer

@Charlie Gonzales As for the short term rentals, not all STR's need to be owner occupants, it depends on the zoning of the property. For example, if the house is in an area zoned for large apartments (C-1, C-2, C-3, MU-U, etc) it can operate as a commercial short term rental, which does not require owner occupant. See the link to the city's website that explains the rules. But most of New Orleans is residential zoning, which will limit your options for STR. https://www.nola.gov/short-term-rentals/str-zoning...

Charlie Gonzales · Answer

@Kimberly Jones thanks for the info. I didn't realize that it needed to be owner occ. in order to get the license - I guess any strategies for strs will have to wait until I return to the city. In the mean time I'll focus on long term rentals for the next few years.@Mike Wood You're right - short term rental is probably not a viable option, and especially since I won't be able to do owner occ. Long term rentals will have to be the focus.As for the development, I'd be bringing all of the operational management to the table, as well as a sizable client base ready to build and invest. But that question really made me think... What else could I bring to the table? After talking about it, the company would serve as a legacy project for him. A way for him to leave a mark on the city before he goes into retirement and I would be the person to carry it on for him with the team that is already in place. But this also leaves a lot of learning for me to do of the next few years.

Mike Wood · Answer

@Charlie Gonzales As @Kimberly Jones stated, the city of NOLA is clampling down on short term rentals and has hired staff to enforce the new short term rental regulations. If this property does not have a new short term rental permit, there is a good chance it will not be able to get it. Since the rules only came into affect in April, there are still lots of short term rentals available on sites like Airbnb, but they are not legal. Our current mayor and the city counsel have made short term rentals one of their platforms for change, and are definitely following thru. Dig deeper into the property. If you can't short term rent this, my guess is that its not a very good long term rental purchase, I cant imagine any property in NOLA that is $1m as a good long term rental purchase.As for your development question, it is not clear what you are bring to the table, so its not clear how to set up the deal. Honestly if the partner is a builder, designer and financier, I dont see why they need you.

Kimberly Jones · Answer

Are you up to speed on our new str regulations? Unless the property is in a commercial area you will have to owner occupy in order to get the license. Technically you are supposed to be "on site" any time you have guests but you can probably mack it off by having a friend stay there. The challenge may come in with financing. You are going to have to have owner occ financing because you have to have the homestead exemption for licensing. Owner occ financing is not my area of expertise but I am thinking it may be difficult to use str income to qualify. If your income is high enough to qualify without using the rental income it would be a non-issue.