Why this year the best season to purchase a turn key coastal STR is Spring

[AJ Wong]

Finally! Spring has arrived. It has been a very long winter, and for investors and real estate pros alike, the season is off to a brisk start. 

Inventory is up, transactions and mortgage applications are up, mortgage rates and prices are generally flat. 

In my world of coastal Oregon and California STR's and vacation rentals, prime properties still move very quickly.

The general investment profile of recent investors are second home or vacation home buyers, typically from out of State or area, and looking to take advantage of the diminishing benefit of the 'STR Loophole' of accelerated depreciation to offset high W-2 wage taxes.

Several of my recent buyers have been medical and legal professionals with high taxable income, that are looking to expand their value portfolios by incorporating an accessible short term rental property (often doubled as a legacy anchor) that will often offset or 'pay for itself,' in tax savings. 

Without a full summary of the STR tax loophole for high W-2 wage earners, here is a link to the best explanation and summary I've come across and helped me digest the value of the benefit: HERE 

In short, the bonus depreciation rate was 100% in 2022, 80% in 2023 and is planned to be phased out to 60% this year. It should be noted that there is proposal to extend the full 100%. I have not been able to verify that this has been enacted as part of the recent budget negotiations* (If anyone can provide some clarity or insight it is always appreciated.)

An example would be a $1M purchase with a $250k deduction (at 60% for 2024) results in a $150k deduction. With many financing with as little as 10% down, the tax savings can exceed the 'cost' of acquisition. 

Beyond the tax incentives, Spring is an excellent time to close on seasonal areas (such as the Oregon Coast) where high season is typically from May-Oct/Nov with the peak in June/July & August. If in contract soon, investors can capture the peak season and make their property tweaks or improvements in the low season. In order to execute effectively, operators will want to validate the path to permit is strait forward and reliable at closing or within 30 days of closing. Optimal acquisitions targets for efficiency will include those that are furnished, or with a history of operating as an STR.

For turnkey options it can also be a good idea to get ahead of the historical summer peak buyer push and not have to worry about getting a rental launched while most visitors are looking to stay for the night.

For properties that require furnishing, the beginning of Spring is the optimal time for out of area or absentee investors to enjoy their property, familiarize themselves with their new home and their community and get operations and supplies dialed in. 

At present we show roughly 100 STR eligible coastal and multi family properties throughout the state of Oregon, at least half of which are active STR's and offered turn key furnished.

[Sarah Kensinger]

Not sure why the "loophole" word is a trigger with people...seems like something that is their issue. Regardless the tax and CPA professionals coined the term, so maybe we can give posters a break.