Sell or hold in a great location but with STR control

[Ke Nan Wang]

Hi BP,

Hope everyone is having a great Tuesday!

Just wanna see what are your thoughts on this situation:

We have a nice and cute 900 sq ft, 3 bed 2 bath 1 car garage house in one of the most sought after community in St. Augustine Beach. No HOA, less than 10 min straight walk to a nice public beach on A1A Beach Blvd. Comparable nice condition houses are selling for $500k in this neighborhood. Our house has been rented out LTR for about 10 years. We have had stable tenants in it. The current tenant is paying $1850 a month but I'm confident market rent for this place, if upgraded, would be around $2800 a month. So we are not renewing out lease at the end of June and looking at fixing the place up and then we would either sell it or rent it out again.

The unfortunate part about this property is that it's under STR control by the City of St. Augustine Beach. It's located in a medium-low population density area where only 30+ day short term rental or LTR is allowed. Less than 30 day transient rental is not allowed (technically it's by licensed by it's being long gone and the waitlist is 10 year long).

We are looking at probably selling it as-is around $430,000. Or fix it up cosmetically and selling it for a premium around $500,000. We have a portfolio LOC balance that's costing us 8.75% right now, so if there are no deals on the market, we can at least pay down the 8.75% balance. At 8.75% interest rate, the $430,000 is costing us $3135 a month, adding property tax ($5000 last year) and insurance ($1200 last year), a total of $3651 a month to hold the property where it's not generating maximum of $3000 a month in LTR. We have cashflow from our real estate portfolio to pay down the LOC balance so we are not in a position that we need to sell this property. In other words, we can weather out the high interest rate and wait for more appreciation down the road.

My other option is to fix it up, furnish it and make it a MTR. We are looking at $4000 a month fair market rent but need to take into consideration of occupancy and added operating expenses with the MTR. 

Or we can do what some other people are doing in the neighborhood, doing a transient rental under the table and hope to not get caught. I don't think this option is appealing to me. The risk vs reward is not there for me at this point. 

The best part about this property is that it's located in the most sought after neighborhood near a very popular public beach. The area is growing. There aren't that much land left in the area so the property will have the highest chance of appreciation further down the road. 

So with the limitation of STR control and not allow this property to cashflow compared to the equity in it. Would you sell it and use the money somewhere else? That's what we are leaning towards doing. But often other people says location location location is the number 1 priority in real estate, and this property has a great location.

Looking forward for some insight from the community. Thank you in advance.