First Deal, Red Pill or Blue Pill?

[Reese Newell]

I want to thank everyone here for the learning I have been able to grasp from reading the forums and putting together a solid template to running a STR business. These are for 2 properties in the Southeastern part of the Florida where I believe they will open STR for good again starting Aug 20th, with the latest being Sept 20th. I am debating between which of the 2 deals to try and close.

Red Pill: Property is listed @ $495k.  It was listed at $479k and the agent kept telling me the price was firm and being virtually unresponsive for a week.  I came up to full ask as I believe the property comps at ~$550k or so.  The agent then said they were pulling the listing and moved it up to $495k leaving a sour taste in my mouth.  This property has a tenant that is paying $3500/month until Dec 31st which on 1 side brings in a little cash flow while waiting out the virus situation a little longer.  I believe the property will bring in around $7000/month from rentals leaving my projection at a 15% CoCR in year 2, with a lower 4% CoCR in year 1 due to 3 months of the tenant being in place and then needing to do some work for ~3weeks to begin renting it.  I need to fully furnish it, and do pavers around the pool.  The owner is not allowing anyone inside to see it until a contract is drafted (scaring away most first time home buyers and letting it sit a little under market value).

Blue Pill: Property is a former airbnb that began to go downhill during covid listed at $600,000.  I was able to see their annual revenue which declined for the past 2 years.  I do not believe it has to do with the place itself as they had nothing but rave reviews, but in their pricing.  I also believe they had a little higher expenses than they should have.  It comes furnished (although I estimate I will still put in around $5000 for some new things to make it slightly more attractive).  It also has the smartlock and nest already installed.  I do need to hire someone to get the landscaping up to par.  This lowers my cash outlay for the project putting it very similar to that of Deal #1.  I believe this property will be able to bring in ~$7500/month from rentals.  I would be able to occupy this in early October during low season and get my systems in place and streamlined for High Season which begins in December.  I also believe I can close this property at $575k and it appears to be a good value relative to comps as well.  The CoCR on this one is lower at 12%.

On one hand, having the place already decently furnished with no pool work to do and being able to learn faster seems very appealing oif I took the Red Pill. At this point, I am fine losing a little bit on deals, as long as I facilitate my learning so I can scale faster over time. The flipside of this is that I am exposed to the virus a little more. I believe the city will be totally fine w/ STR by the date I have it ready to run, but I could see a slowdown in traffic from tourism.

However, the Blue Pill returns a higher CoCR and avoids some extra risk with the virus.  Does anyone use some other metrics to analyze the deal?  The CoCR is one metric, but the Blue Pill also has a higher cash return per property value which is something else I was considering and I thought should be weighed.

A little background on myself that may sway your decision, I played poker professionally for ~10 years and was able to amass a solid net worth in the low 7 figures. I no longer wish to play full time (I have not played in 3 months now), but will most likely play part time to bring in ~100k/year for another 2 years while I build up my real estate portfolio. I have $1.3MM as a first note on a retirement home that will be completed in December, where I will then own the property and retain 22% equity in the business as a silent partner with the opportunity to finance as many of them as we end up doing. I am very comfortable with risk, playing at the highest stakes poker for my game for a long time. I have only been learning about STR for about 3 weeks now after deciding LTR were not as appealing to me after learning that side for ~5 months. Knowledge is very important to me, and I am completely comfortable losing on a deal if it happens and then taking the data I have to refine my deals. I would like to learn quicker so I am able to scale going forward after I see my processes are fine tuned and working.

I am leaning towards the Blue Pill to acquire knowledge earlier at the expense of some extra risk, with the possibility that the Red Pill still exists on the market after the Blue Pill has begun to show some promise, allowing me to also scoop it.  I would love the input of this great community, and could easily be swayed one way or the other...At the end of the day, both are wins for me to learn.

Are you taking the Red Pill or Blue Pill and why?