Finding Short Term Rental Deals in a Hot Market

[Jonathan Dempsey]

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,200,000
Cash invested: $60,000

Seller financed collection of 5 short term rentals & two vacant lots in Pocono Pines, PA. The property generates enough net revenue to service the 15 year note & cashflow an average of $3,500/month on a $60,000 down payment.

The STRs are secluded bungalow style units and a SFH

What made you interested in investing in this type of deal?

The deal was a perfect fit for my partner & I. We invest exclusively in STRs and saw the X-Factor in this portfolio offering. Specifically, the uniqueness in the units sizes, seclusion, level of finish, and proven financial history. The cash on cash returns for the property were excellent upon underwriting for BOTH future and past performance. My partner & I operate a short term rental management firm & are very much interested in where the STR space is heading.

How did you find this deal and how did you negotiate it?

My partner saw the offering posted on a Facebook group. We set out to tour the property and others in the area. Upon walking the property with the seller, there were several points where it was clear the seller had an emotional attachment to the property. The seller & his husband had built the bungalows themselves and lived there. It also became clear by their future plans that they were not hurting for cash. My partner & I decided to offer full ask price in exchange for seller financing.

How did you finance this deal?

5% down, seller financed on a 15 year note at 6% interest.

How did you add value to the deal?

We will be building on the two lots that came with the portfolio. One additional 1 bedroom bungalow, and one 3-4 bedroom house near the lake. First we must install septics and lock in the construction financing.

What was the outcome?

The property group currently is estimated at a value of $1.5M. After putting in approximately $500K of construction on the two lots, the property value is estimated to be closer to $2.3M.

Lessons learned? Challenges?

Smaller units attract much more appealing guests for hosts. The Poconos area is not equipped with enough supply for smaller groups. There is a mismatch in risk reward in this asset class. For this reason, we recently went under contract on a 43 unit resort BRRR style deal in a similar location that will fit a similar asset class with more amenities offered due to the scale.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I recommend Lab Creates Design for STR design & labor as well as Perspective Media for photography.

I work as an agent team lead with our team specializing in STR investments & analysis, so needless to say I recommend our team.