Selling My Multifamily STR/MTR rental Nightmare

[Matthew Masoud]

So I purchase value add small multifamily and convert them to STR/MTR.

My plan was to purchase them, repair the units, furnish all or most units, MTR/STR the units, cash flow like crazy, and then sell when I'm ready to move on.

All has worked out except for that last step. It's surprisingly hard to sell these assets as MTR/STRs

Let me give you a concrete example:

Purchased a 6-unit property for $200,000. Repaired and furnished all the units and listed them MTR/STR. The property now spits off $3-4k/month AFTER all expenses are paid ($7k gross).

At a 12% cap rate property is valued at $400k. The issue is lenders/sellers don't want to pay/lend a premium for the STR/MTR revenue.

Calculating long-term rents, the property would be worth about $300k. I'm getting offers at $300k-$320k. I was able to refinance at a $300k valuation but I don't really want to hold these assets.

I have the same issue with another 10 unit I own and another 6 unit.

You significantly decrease your buyer pool on the exit, in exchange for stronger rental income during the hold.

My investment strategy has always been buy, increase property's income, sell for a profit and keep growing but STR/MTR might not be conducive to this strategy.

For now I'll just keep cash flow these assets till the right buyer comes along.

[Michael Baum]

So @Matthew Masoud, this comes up from time to time. People who want to value the property at a higher rate than comps support. Mostly around SFH's.

I did a survey a few months ago of 8 different lenders. Portfolio, banks, credit unions etc. I called them direct and asked them specifically if they would value an operating STR at a higher value than the comps of similar properties.

All the answers were NO. They don't give value to the STR revenues.

One did say they could put me in touch with their commercial property division that could tell me more about their products that might cover what you are saying.

A DSCR lender will take into account the revenue, but the value of the property is still what others are worth.

The bottom line is that past performance is no guarantee of future success. In the end, to the lender, the property is worth what the comps are.