STR Rent to Own / Host to Own Options

[Kyle R.]

Hey All

I am a frequent reader of this forum when I get the daily email of new posts. Reading all of the regular contributors has helped my business a lot especially about the automation/tools questions that get asked. So thanks for that.

I know we are not a big fan of Rental Arbitrage here and neither am I, but I have my 3rd STR under contract that is falling through due to appraisal issues (lagging comps compared to current listing prices). This is in the same town as my other two which is a well established driving vacation market on the SC Coast where Covid did not impact rentals. I am fairly confident in that my conservative rental income projections (50k) at the current prices would get ~25% CoC, but what I am not sure of how achievable the max income is (70k based on my estimates).

If the deal falls through due to financing, I would love hear your thoughts on my potential two creative options to the seller:

1. Rent to Own - Seller who had previously done vacation rentals through a small local realty company would turn into a traditional landlord and I would have 1 year lease at a higher monthly market rent and I would have the option to buy at agreed upon price at end of lease or anytime soon. This would let the seller still make more money annually then if he kept it with the local realty company (often break even) without any of the financial risk. I would own the STR listings and all income related to it. This would let me get an understanding of the true potential STR income with no long term risk before purchasing.

2. Host to Own - Seller would let me manage STR listings for him for 1 year instead of using local realty company. I would own the listings and take a small % of total income with the option to buy at end of 1 year for certain price. This substantial increased income to the the seller to will incentivize him to take it off the market until we come to terms at the end of the year. This also lets me again own the data on income and occupancy without having any financial risk.

The only risk to the seller is that the selling prices down by next year. What are some other key points that benefit the seller? For me, it is not about the money I would make during this but more about having the visibility into what kind if income this property can do to make the purchase less risky and stressful.

[Michael Baum]

Hey @Kyle R., how about a 3rd option. See if they will carry the note. Work out all the details, low interest etc and see what they say.

That would get them out of the place and give you a way to get the property. Negotiate a lower down then refi in 3 to 5 years or so.