How does this deal sound??

Question

Hello we own/manage a few STRs in a heavy tourist area of East TN. We have always bought but I have been sitting on a good lot now for a few years and since prices are sky high at the moment I'm considering building on it. Curious as to your thoughts is this sounds like a good deal in the current climate.

Our plans are to build a 1,196 sqft cabin. The last time I spoke with a builder (year ago at least) he told me I should consider $275sqft to build. So that's a loan for $328,900. At the moment these places are appraising $400-$500sqft. I'll go in the middle and say $450. So thats an estimated value when the cabin is done at $538,200. I would refi right away and hopefully end with a mortgage around 200K.

What I'm nervous about still are the crazy high interest rates. Does this deal sound good enough to just ride with the interest as it is now and wait until it drops to refi? We have never built before so I am curious as to any thoughts you have on this deal. Oh and we can use the value of the lot against the downpayment of the loan so we would be coming to the table with almost nothing

Carter Wolski · Answer

Hello Josh. This sounds like a great move to me. I have actually been looking to buy a lot in the Gatlinburg area and build a small modern cabin. I would most likely sell it in order to build some more capital for more builds with the end goal of eventually keeping some of the builds to use for STR. I am a Canadian with no US credit history so getting a construction loan on something like this seems to be impossible. I do however have a US LLC now. I have been trying for about a year now to get something done. Do you know of any options I may have? Seems like my only option may be to get someone to help me qualify. Happen to have any connections that I could speak to about this? Again, I think building on your lot is a great play! Have a great day!

Josh Helms · Answer

That's really interesting. Do you have any more details on what's changing about how banks value STR's? I have always thought they should have a different valuation since they are generating assets and not the same as a house that just sits there. I think the gross yearly income should be taken into account. Thanks for the reply!

Patrick Mencel · Answer

This sounds like a decent move to me. Rates are definitely a buzz kill at the moment, but cash is cash. However I will say that soon banks are going to be able to weigh the potential income of STR's and finance them appropriately. Holding out may not only get you a better rate but the cabin may appraise for even more.

How does this deal sound??

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