A lesson learned on pivoting from a FAILED MTR

[Richi Brown]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $90,000
Cash invested: $35,982

This deal was a fun one to execute, Im a traditional LTR Buy & Hold investor and decided to try and hop onto the MTR hype train back in late 2022/early 2023. Ultimately, it didnt work out so well for me, because I did not give it the time and effort it needed to be successful. But the process of trying something new was fun and I would be lying if I said I didnt want to try my hand at it again!

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

We purchased this light sweat equity 2br/1bath located in Warren, Michigan with the full intent of making it an LTR! However, by the time we wrapped up the rehab it was practically the holiday season which is typically the "slow" period in Metro Detroit for both sales transactions and renting properties. In an effort to get creative and try our hands in a new strategy and gave MTR's a crack and pivoted the deal.

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

This came off the MLS. The market was still pretty hot, I went under contract on this right at the beginning of the rate hikes and at the time many houses were still selling for over asking with shortened contingencies. The house was fresh on market and I was able to act quickly on it and lock it up at list price before more competition hopped on it.

How did you finance this deal?

Traditional Bank financing

How did you add value to the deal?

Although it was a light cosmetic rehab, this really wasnt a "value add" play. At the time I arguably paid fair market value for a house that still needed some lipstick and work before it was ready to make money. I bought it because I love this city for cashflow and buy & hold investing, even at that price the deal and numbers still made sense, so I didnt care about getting it at a discount. We spent roughly 7k on the rehab of the property and approx. 3k on furnishing it!

What was the outcome?

Failed miserably! We learned that placing a tenant on an MTR is a much different process than it is on LTR's. We also learned that aside from rehabbing and furnishing the property, we really didnt care much for managing MTR's and the onboarding process.

Ultimately, we decided to pivot again and just rent it as a fully furnished LTR. We ended up finding a really solid tenant, got an additional $150/mo above market rent for the furnishings and the deal cashflows really strongly!

Lessons learned? Challenges?

My wife and I are likely looking at cracking into OOS investing in STR's in the next 12-24 months, and this was an awesome lesson for us that taught us that we will really need to be ready to build out a strong team to execute an OOS STR. We also learned how crucial pivoting is with investing. From closing to tenant move in, this deal took nearly 9 months to get up and running. In large part due to experimenting, but being flexible and ready to pivot at any moment really helped us get this done!

[Nathan Gesner]

Quote from @Richi Brown:

Well done.

I'm curious to know why you would consider OOS STR when the in-state MTR was a failure? STR requires more work than MTR and being in another state will require a manager.