Considering purchase of 13 cottages to renovate and rent as STR ?

Question

We are considering the purchase of 13 cottages on a 3 acre lot in a primarily summer vacation mountain area..

Being somewhat new to this (STR investing), I'm looking for any and all help, advice. mentors or critiques..

1) Financing:  I seem to be hitting a wall with conventional lenders because of the uniqueness of the property and the fact that all the cottages need lots of work and haven't been rented in a couple years.

I'm about to sell a house which will net us about $300K  and I own a commercial property which I wasn't really ready to sell but might in order to purchase this unique property..

Asking price is $500K and renovations should run about $250K

Any and all suggestions, help would be appreciated...

Tyler Winget · Answer

My good friend @Jonathan Dempsey and myself are under contract for (2) similar deals - but would be super intrigued to hear more about yours sometime and see how we can help!One of them is 17 cabins, turnkey operations, seller financing (woot woot!)

Other is 43 units spread across 15 structures/cabins/bungalows, motel-style-efficiency units. Budgeted 450k and made reno plans. JD tackling the lending  and getting it done.

I’ve sent you request - let’s connect!

Luke Carl · Answer

Be sure to 1031

read a book called short term rental long term wealth

Enjoy! Sounds like a pretty sweet gig

Bonnie Griffin Kaake · Answer

@David Landsman This sounds like it could be a great opportunity. As @Luke Carl  said, be sure to look into a 1031 exchange. It will help you avoid a considerable amount of taxes that you might owe upon the sale of your other two properties. Also, there are other issues to consider as well.

Would you be occupying the property?

Could you do just enough renovation to get the cottages in rental condition and then do the major renovations in the following calendar year? There is a huge tax benefit available to do it that way.

Get a cost segregation study done just as soon as you close and get occupancy! If you need an estimate, let me know. Why pay more in taxes than you need to pay?  Especially when you are doing this kind of complex purchase/sale/1031.

Michael Baum · Answer

Hey @David Landsman, sounds like a very interesting project and fun IMHO. I think you will need to look at a commercial loan of some sort. Does this have a corresponding business associated with it? Is it up to date on licensing and taxes?

If so, it will need a commercial loan to get it done I think. You could also look at a SBA loan as well if there is a business attached to it. I think they offer a rehab loan but you will need to check.

Where is it located? That could give us a better idea of how you will do.

David Landsman · Answer

Thanks for all the input, I have spoke to a number of lenders in the area and its just such a unique property they don't have a lot of options but still looking..  Todd Gosdeke: to answer your question this is part of an estate of an older couple who owned multiple properties in the area and who the last of the couple has now pasted away, now its being sold by the 3 out of town Aires. They are no outstanding code violations, there are about 6 septic systems on property and one well we are still looking into the condition of those..  When it first opened is was used a vacation rentals the over time became more long term rentals to locals and since the couple was getting up in age a lot of the cottages were neglected, except 6 have new metal roofs last done about 5 years ago..

This is a major undertaking that I'm not 100% sure my wife and I can handle she seems to think after renovations we could gross over 150K per year but I'm a bit more skeptical but seriously considering it but hate to sink all cash into the deal if we can't find financing..

Todd Goedeke · Answer

Some questions regarding viability of purchase. Why have none of cabins been rented for a couple years? Are there any building code violations that are present not allowing the rental of the units? What are the septic requirements for that many structures on one parcel? What does property appraise for? What is rental history of cabins when they were rented?

Leslie Anne Morris · Answer

You probably need a commercial lender. I would look in the market where the project is. Speak with some local banks and possibly CDFIs for who they might recommend to talk to about your project.

Bob Metry · Answer

@David Landsman I would speak with local banks and credits unions near the property. they may be more amenable than a conventional lender.

Considering purchase of 13 cottages to renovate and rent as STR ?

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