Looking for creative financing/partnership!!

[Keegan Schaub]

Hi, 

I have STR house I am looking at that has great potential but is a bit out of my price range. Looking for advice on where to come up with the money and/or partnerships. The asking price is 1.15mil.

The current owner has lived in the main house and rents out the guest house which to my calculations grosses ~$75,000/yr (AirDNA avg occupancy 70% and $294 ADR). The guest house alone would pay for the mortgage.

The guest house already has 4.99 star superhost airbnb listing with 237 reviews, great amenities and a view of Mt. Adams and possible St. Helens! Also has an Instagram account with close to 1k followers.

With the 3 bed / 2 bath main house as a separate airbnb listing (~$400 ADR / 70% avg Airdna occupancy) this property could gross ~$150-200k/yr with little competition in the area. Estimated mortgage monthly cost is $5,500

Any help is much appreciated!

[Alex Breshears]

Hi Keegan! I love your enthusiasm for the STR space! As a STR owner and a manager, I want to point out a few things when looking at the numbers. First, the AirDNA numbers have a lot of limitations, so honestly you need to look at them more as guidelines than gospel. Second - that $75,000 a year is likely ALL the income that was paid for that listing, including cleaning fees, occupancy taxes, sales tax, and platform fees. Depending on the property, that $75k might be a net to you as an owner would likely be in the area of $40k after supplies and all these other fees are paid out. That $40k would then be used to pay the mortgage, which on the 1.15M asking price would not cover the mortgage.

The other thing about the underwriting is that you really need to think about your business model for you STR business. For example, my business is very high touch customer service, we have wine and chocolate at check in, higher end amenities, really nice plush and soft towels, linens and beds. We are about providing a ton of value at a premium price. Our occupancy goal is not 100%. If it gets that high, our prices were not high enough. On the other end of the spectrum is what I call "heads in beds" model, where you are trying to get as many warm bodies in house, and maxing out the occupancy for it. Nothing wrong with that, but when looking at comparables, you really need to keep in mind your business model. In my business model our supplies costs are higher, we have higher end amenities and lots of wonderful and thoughtful touches. That affects your underwriting. We spend about $10k per bedroom of the home on furniture, kitchen items, linens and technology. That doesn't include out outside of amenities such as hot tubs, fire pits, decking, pavers etc. With the heads in beds model you may not need these nicer finishes and higher end things, so you could get away with less upfront, but you may pay for it in the long run with heavy wear and tear on the property and furniture.

Also - keep in mind that STR underwriting is the SECOND thing you need to do. You need to evaluate if the regualtions allow an STR and also what regulations may be coming down the line. Many markets are putting a lot of restrictions in place around STR's and some have moved to outright ban them. Get a really good hold of the regulations around STR's in this market before offering on anything. The last thing you want to do is work to put all the pieces together, close and then find out that the property cannot be operated as an STR. It happens and will likely become more common as different markets try to find solutions to affordable housing in a record time of housing shortages.