Help me analyze: Potential STR mountain cabin build (Packwood WA)

[Tom Borton]

Hi all, my wife and I are finally getting serious about investing in real estate this year, and have been so thankful to have found this community!  We've been devouring all the BP podcasts, and starting to read the forums. We own our primary home in the Portland area, and have had an STR condo in Seaside OR for 2 years. Hoping to add a mountain cabin (both for investment and to bring our three young daughters to when we can). After this, we are hoping to pursue more destination-location STRs in Oregon and Washington, and possibly BRRRR LTRs closer to home to diversify a bit.

Help me analyze this potential build. I think I have calculated the appropriate numbers, but this our first new-build adventure and I would appreciate more experienced eyes on this analysis.

We are considering purchasing land in Packwood, WA and building an upscale modern 3/2 1500 sq ft A-Frame cabin. Hoping for $325,000 for the build (budgeting for $400,000 with overages). I'm not sure I can copy and paste my Excel spreadsheet, so i will approximate the numbers here.

Strategy:
Take a Home Equity Loan (second) on our primary @ 5%.
Pay off existing HELOC (variable, at 7.5% now), use remainder ($120k) to buy the land (plus 30k of our own cash).
Use the land as down payment on a construction loan. Refi after construction.
These numbers consider only the portion of costs of the HEL attributable to the land purchase, not the payoff of the HELOC (which we took out to buy the Seaside condo).

Cash In:                     $66,166 (Cash, 1 year of debt service of HEL, debt service of const. loan, furnishing)
Amount Financed:      $548,000 (home equity loan + construction loan + closing costs)
Total Cost of build:     $614,166
ARV:                               $850,000 (or rather "after construction value")
Refi                                $637,500 (75% of value + closing costs)                                       
Cash Out                       $89,500
New payment             $4500/month (54,000/year)

Estimated Cash Flow (pre-tax numbers, so actual mileage may vary)

airBNB year 1:            $70,000     (net income $16,000)
airBNB year 2:            $100,000   (net income $46,000)
airBNB year3+:           $120,000   (net income $66,000)

ROI (construction year):    0
ROI Year 1 of STR:              24.2%

ROI Year 2 of STR:              69.5%
ROI Year 3+ of STR:            99.7%

Did I calculate these ROI numbers right? The numbers seem too good to be true, but I tried to use pretty reasonable estimates throughout. In the mean time we're looking at other STR and BRRRR options in Oregon and Washington.

Thanks everyone!

Tom

[Tim Wade]

Hi Tom,

I love crunching numbers and thinking about returns.  My wife and I also invest in STRs and I spend a lot of time working over the best place to buy our next property.

I've been looking at Packwood recently for a client.  I'm an agent in addition to being an investor.  I'm excited about the potential but I don't know about $120k/year. My first impression is that your numbers in the current economic climate seem a little rosy.

I also have friends that are builders and I try to stay in touch with them on costs as we mostly do "to the studs" renovations when we buy a place.  I'm curious about the size and quality of a house you could build for $375k.  Does that include utility service to the house, a driveway, septic and well?  Because just those costs can run you close to $75-100k if you hit any snags.

I love talking about investments and I love the Packwood area, if you want to dig in more, I would be happy to jump on a call!

If you want to see an example of one of our projects, here is the airbnb link:

https://www.airbnb.com/rooms/4...

Hope I can help!

Best,

Tim