New and looking for help!

[Tim Haas]

Hi Everyone! I'm new to the BiggerPockets website/forum and have limited experience in real estate. From everything I've seen, heard, read, watched, etc., this looks like a fantastic community, and I'm excited to be a part of it!

For a quick history, I've bought, flipped, and sold seven properties and am minimally experienced in short-term rentals. I am looking to diversify my portfolio further and would like to do so through real estate... specifically buying and renting (short-term or long-term). I live in a College Town with great potential for both types of rentals. That said, I've begun looking in my local area and have had two opportunities present themselves that could be bought and flipped, by and rent (long term) or by and rent (short term). I would pay for the property and the rehab with cash (as opposed to any financing).

Before making the purchase, I wanted to reach out to the community and gather any insights, feedback, etc., from people like you who are much more experienced than me in this realm. What are some of the things I should be looking for and considering before making this type of move?

Thank you so much, and I look forward to being a part of and contributing to this community!

[Jason McDougall]

Hey Tim! Congrats on jumping in! I think that buy and hold is a great strategy. If your goals are looking at both short and long term rentals, I would suggest that you make sure that any deal that you buy will produce cashflow for both lease types. If STR gets shut down for any reason, you need to be able to rent LTR and still cashflow.

You mentioned that you will be paying all cash, but I would also perform a DSCR (Debt Service Coverage Ratio) calculation assuming that you will have some sort of debt on the property, just in case your plans change and you want to pull your cash out through a refi to purchase more properties.

If the property doesn't produce at least a 1.25 DSCR, I would not buy it. You can calculate the DSCR by taking the Net Operarting Income (NOI = Annual rent amount minus taxes, insurance & HOA dues) divided by the annual principal & interest payment. For example, if rent is $1300, taxes are $2000 and insurance is $800, and P&I payment is $650, the calculation would look like this:

$1300 x 12 months = $15600

Minus $2000 taxes = $13600

Minus $800 insurance = $12800 this is your NOI (Net Operating Income)

Divided by annual P&I payment ($650 x 12 = $7800)

NOI of $12800 / $7800 = 1.65 DSCR (Anything above 1.25 is great)

I hope this helps, let me know if you have any additional questions!