How to do you do your due diligence?

Question

Newbie here trying not to overextend myself.

So lets say I have my eyes on a property. How do you go about determining your monthly nut (as far as taxes, insurance, and maintenance)?

And once you have that figure, how do you get a "hand grenade close" estimate of what you think you can gross as a STR? Is it a manual process (what does that look like)? Are there any online tools (what does that look like)?

This would be my first one and the property alone will cost between 1M and 1.5M so I want to make sure I do my due diligence and minimize getting caught with my pants down.

Thanks in advance for any guidance you can provide.

Sarah Kensinger · Answer

I start with looking up the property's potential revenue. I would put the address through Aridna's rentalizer (which is free) and Rabbu (which is also free). If you really want to dial in your possible revenue and see your competitors, you could purchase the data of the zip code you're looking to buy in.

As for the monthly bills I would start making some phone calls to the area utility companies or talking to a knowledgeable realtor. Zillow listings usually have the previous year's tax info and I believe most homes would have 3% of the monthly revenue allotted to maintenance. But of course, if things are kept up with there shouldn't be too much maintenance. Depending on the size of the property supplies would be $100-200 a month, and you would need to decide a PM or if you would self-manage.

We use an analyzer to underwrite properties, but I know a lot of people do it on paper or through a spread sheet. If there's anything I can help you with feel free to reach out!

Jon Martin · Answer

-Make sure the property is in a good location first and foremost; close to amenities/attractions; use google street view to make sure it is not on a super busy street, across the street or adjacent to a distressed property or low rent business etc (probably not an issue at your price point)

-Run the numbers with all the free tools mentioned; good idea to play around with subtracting a bathroom and bedroom within those searches to be sure there are no outliers skewing the data and to be more conservative at the low end of your estimations

-Check the comps for neighboring properties; how full are their calendars and at what price; also average review rating for location and what comments the guests are leaving about the area (safety, noise, proximity)

-Extra points for properties that are surrounded by more valuable homes; makes appreciation and profitable exit plan more likely

-As for monthly bills, sometimes this is tough but by your 2nd property for the area you should have a decent idea. Just make sure you are accounting for all the various categories of bills you will have aside from the obvious utilities (lawn care, pool care, snow removal in cold areas, consumables, higher insurance cost etc)

John Underwood · Answer

There are many great conversations on here you can search for about this very topic.

Erin Church · Answer

I'd like to mention that it's a great idea to run the numbers a LTR also. This is often easier to determine. If it works for a LTR, then usually going MTR or STR is just icing on the cake (sometimes a lot of icing!). :)

Are you planning on self-managing or hiring a company? If you're going to hire a company, I'd ask them what they think the income would be also. Buyer beware though - I've had a client that picked a very bad STR company and they've made a shamefully small return because of mismanagement.

Andrew Steffens · Answer

I commented this on your other post but will repost here to make sure you saw it, and maybe help someone searching in the future:

Sure,  I use AirDNA as a starting point.  They have a tool called Rentalizer.  It is free, however the free version will simply spit out a number which some sort of algorithmic average of the closest comps.  It can at be times be very accurate, or very inaccurate.  I have a the paid version which actually shows me the comps so I can more accurately look at them and take in the ones that are closest to the subject property and throw out the others.  From there, typically I have real world numbers from similar homes we manage as we have many all over the Tampa area so I sort of take all that data in and assign a range.

Akash Dedhia · Answer

Nick presents an extremely biased representation of data that spells doom n gloom since sept of 2020, almost 3 years in the making i am still waiting for the doom n gloom to come to fruition.

Jon Martin · Answer

I do a front page AirBnb search for "flexible dates" and choose a random 2-3 day stretch for the city and with the same bedroom count. This should pull up basically everything because it will show all the listings that are normally booked. Zoom in on the general area of the home you plan to buy. The home locations won't be exact because AirBnb offsets the exact location but it's close enough. Click on as many properties within a close radius as you can find. Then check their calendars and ADRs and note the quality of the listing. I also like to click on a few that are a bit further out away from the main attractions and use those as the conservative bottom end of the revenue scale. Should give you a good general idea.

Michael Haynes · Answer

Hello Justin Cabral in Doral. You could look at Nicks Reventure Consulting youtube videos. Try AIRbnb Owner's are About to Sell (Massive Housing Crash).

Justin Cabral · Answer

Really good points. Thanks. One question I have is how would you suggest the best method to look up comps for neighboring properties? Straight thru airbnb and vrbo? Or is there a better online tool that makes that homework a bit more user friendly?

How to do you do your due diligence?

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