STR OPPORTUNITY, BUT NEED HELP WITH FINANCIAL OPTIONS

[Haley Henderson]

Hello! 

So I am new to the real estate investing community, but I came across an AMAZING STR opportunity for Air bnb in Galveston, TX (which is where I live) in a Facebook group. The house is for sale and the house is ready to go for rental and seller is selling with furniture and ready to go. I am REALLY wanting to get into the STR space, especially with air bnb. My question is, with this being the first property I would look at purchasing with my fiancé. I do not think we would be approved for a loan amount the listing price. So my question is, what would be the options/steps you would take to try and make this happen?

Reach out about seller financing, etc?

[Alex Breshears]

I'm going to be a bit of a naysayer in the group, just because as a lender I'm one of those people who naturally prepares for the worst and hopes for the best.  First, any short term rental, you need to make sure that the numbers work moving forward. Do not get lulled into a false sense of security by looking at numbers from the last two years. We have had tons of travel where people just wanted to get out of their own four walls. We are also facing some incredible headwinds over the next few years.  Capital markets are getting jittery with the war, rising rates, inflation, just pick an issue we have so many these days. The reason I bring up the capital markets, that has a direct effect on not only WHAT you can borrower, but how much it is going to cost you.  If you get stuck in a loan and want to refinance to pull capital out, it might not be possible for a while as underwriting standards are changing quickly, as are rates.  Do some very thorough underwriting. I know this is your first and it's exciting and you love the home and the fact it comes with furniture, but I'm going to caution you some to slow down. Really learn about underwriting for a short term rental. Learn about how much active work it takes to run one, and if you aren't able to runit yourself then factor in a 20% management fee of all revenue coming in and THEN see what your numbers look like.  Think in terms of cash flow. What makes the most sense.  My short term rental criteria is that is needs to pay for itself in 10 nights or less in a month. If it doesn't do that easily, I don't buy it. Plain and simple.  My business model is higher end properties with higher end amentities, high touch southern hospitality to guests, and it has worked wonders! People love the homes, they love the personal knowledge and tips of the area, and they are happy to pay a premium to have those because I attract guests that WANT that kind of experience. I have very little damage done to the homes as well. So think about WHO your ideal guest is, WHAT are they doing in the area, HOW long are they staying in that area, WHEN are they coming to the area, and then start looking at deals. Just because a place comes with furniture doesn't mean it's good furniture for your ideal guest or even your business model you intended.