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

[Tom Borton]

Thanks Tim, that's exactly the feedback I was looking for! We're new to looking at AirDNA numbers and assessing where we would fit. And the unknowns of a build, as you point out, are also hard to gauge. Your listings are beautiful... you guys have a great design eye. I think the Packwood market still seems to have lots of outdated places. The comps we've been looking at are these:

https://www.airbnb.com/rooms/4... (1 bed/1.5 bath, 104.5k revenue)
https://www.airbnb.com/rooms/4... 3 bed/2 bath, 124.9k revenue)
https://www.airbnb.com/rooms/5... (3 bed/2 bath, 113.3k revenue)

We've been working with a local builder to pre-plan, and estimate costs.  But it sounds like you have some experience too... I know build costs are coming down, but maybe we're still too low?  My estimates are also accounting for $20,000 in septic (not included in the $400k number).  The lot is flat and level, so we only need a short gravel driveway. Community water, and electric are at the street.

It does sound like we have similar interests (and design styles), so we would love to connect!