Almost 2 years in and haven't made any money (via cashflow)

[Steven DeMarco]

Hey BP - Want some advice/perspective on my situation.

Back in 2022, I had a strong desire to get into REI to diversify my investments and pursue a new side hustle. I envisioned real estate investing as a way to make extra money on the side and continue to build my wealth. I signed up for a mastermind class that teaches you how to invest in STRs and pulled the trigger on a 2BD/1BA house in Pittsburgh, PA to operate as an STR. This was my first real estate purchase and the final sale price was $166.5K which I purchased using a 10% down second home loan. I then proceeded to dump a ton of money into capital improvements in order to make it a competitive STR (details below). 

Since owning the property, my total cash investment is about $130K for initial acquisition, capital improvements, the mastermind course and floating negative cashflow. Here is the breakdown: Closing Costs ($30K w/ $16.5K down payment), Furniture, Setup & Design ($35K), New Electrical ($14K), New HVAC ($12K), New Roof ($9K), New Landscaping ($1K), Mastermind Course ($10K), and the remainder is floating negative cashflow ($19K).

I've been operational through 17 months (March '23 - July '24) and the following metrics are throughout this 17-month time period. My total gross income on the property is $37K and my operating expenses have been $32K, leaving me with a NOI of $5K. After factoring in debt payments of $24K ($1,400/month), my cashflow (before any capital expenses) is a total of $-19K. Averaged over this 17-month time period of operating the STR, I'm averaging a negative cashflow of about -$1,100/month.

To reiterate, I've put $130K cash into this deal. From a cashflow standpoint, I've obviously generated no return. The current Zillow Zestimate for the property is $193K, which means I'm sitting on roughly $45K of equity. If I were to sell anytime soon, with selling fees, I'd be realizing upwards of a 6-figure loss assuming the Zestimate is accurate. It may not be, as I've made a ton of capital improvements and I've seen comps sell for over $220K in the same neighborhood. Either way, selling doesn't paint a good picture.

In April '24, I hired a full-service PM which has helped tremendously with bookings and appears to have started turning the cashflow ship in the positive direction. I have been consistently within +/- $100 of breaking even for the first 4 months of the PM operating the STR. Since we have gotten momentum with the new listing on Airbnb, I am booking out well into Sep/Oct/Nov at the time of writing this post and I anticipate that the next few months will produce some positive cashflow. Over time, I also anticipate that the cashflow will improve slightly as the listing continues to excel (26 out of 27 reviews have been 5-star) and book out into the future.

My current plan is to give the PM a full year to establish the listing and then revisit what my cashflow scenario looks like. As of now, I (obviously) do not want to invest any more cash. I am a far cry away from the dream of building my wealth and it feels like I did absolutely horrendous on my first real estate investment.

Let's assume we take the happy path with my cashflow situation improving and over time, I average $500/month in cashflow after things stabilize with the new PM ($6K annual cashflow). 

The estimated rate of appreciation since I purchased 17 months ago ($166K -> $193K) is roughly $26K over 17 months (about $1,500/month). It seems unlikely that this will continue into perpetuity and let's say a more conservative estimate is 3% annually, which would equate to about $6K annually in appreciation. 

So on paper, it would take me 10.8 years ($12K in cashflow + appreciation) to net out the $130K in total cash invested.

What if the cashflow situation doesn't improve, but continues to break even or even worse begins to dip negative again? What should I do? Any help, guidance, critique, insults, etc. are welcome. I just want some discussion and perspective around this as I don't have a close network of investors to bounce ideas off of.

[Erica Calella]

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

[Bruce Woodruff]

So the numbers do look grim, no doubt. But I would not jump ship. Yet.

Look at your long-term goal(s). What is your 10 year goal? Your 5 year goal? Pencil this in backwards and see where you are in relation to your lon-term goals.....this could be salvaged with patience and smarts. Good call on getting the PM on board.

If this is not in line and continues to be a neutral cash flow asset, then it may warrant a look at selling and moving even if those numbers don't paint a good picture as you say. But I would give it a little more time, at least you're not bleeding profusely any more....

[Nicholas L.]

@Steven DeMarco

thanks for the transparency.  i don't know if you should sell or not, but what I do know is: you didn't do "horrendous."  a lot of people just aren't honest about their costs - they'll put $50K down, pay $10K in closing costs, spruce up for $15K, and spend $3K to market and place a tenant, and then they'll make $88 in month 3, and say "i made $88."  well... what about the $80K you spend to get the property?  

so you're just being honest and you're actually tracking everything.  kudos, you're looking at it like a business.

maybe in a few years you could refinance if values have gone up enough?  this would hurt your cash flow, but you'd get some capital back.  only you can decide which is more important.

[Steven DeMarco]

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

My monthly mortgage payment is about $1,400/month which includes PITI. You are right that my annual debt service is about $16K ($1.4K x 12) but the metrics I shared were over a 17-month timeline of being operational with the STR ($1.4K x 17 = $24K). Understandably a bit confusing on my end - sorry for that.

I appreciate you pointing a finger at the operating costs. I'll do my best to summarize. Again, I will show these metrics over the past 17-months that I've been operational. Total operating costs over this 17-month timeline total $32K. Also important to note that I live out of state and require some boots on ground management and travel costs to travel to the property.

Admin ($6.2K) - includes $1.3K of advertising (listing photos, FB ads, etc.), $2.1K of travel (flights & rental cars), $2.3K in software subscriptions (PMS, etc.) and $300 in meals

Management Fees ($1.7K) - PM fees, booking platform fees, etc.

Cleaning Fees ($6.2K) - pass-through charge for guest

Repairs & Maintenance ($10.5K) - General R&M ($1.5K), Painting ($1.2K), Plumbing ($1.5K), Pest Control ($500), R&M Supplies ($500), Labor ($3.5K), Linens, Soaps, Consumables ($1.5K)

Legal & Professional ($1.5K) - LLC setup & lawyer fees ($350), inspections ($1.1K)

Utilities ($6.4K) - Gas (avg. $63/mo.), Electric (avg. $121/mo.), Internet (avg. $60/mo.), Water & Sewer (avg. $107/mo.).

Please let me know if you see anything glaring or things that I can work on bringing down or eliminating completely.

It's important to note that up until I hired the full-service PM in April '24, I was self-managing from out of state and paid a local boots on the ground resource when needed. From April '24 moving forward, my P&L will look much simpler as the cleaning fees, PM fee and software subscriptions are handled by the PM so I will just see income after all of those fees on my P&L.

Regarding the 1031 exchange - that would still result in losing all the cash invested above and beyond my equity position. My understanding of a 1031 is that you essentially move the equity from property A to property B, I can't recapture my full $130K cash invested, only the current equity position of $45K. Unless I am misunderstanding your suggestion there.

[Bruce Woodruff]

Quote from @Nicholas L.:

@Steven DeMarco

thanks for the transparency.  i don't know if you should sell or not, but what I do know is: you didn't do "horrendous." 

So true! At least you got out there and did something, unlike most people. We've all had 'less than great' properties and deals.

[Steven DeMarco]

Quote from @Bruce Woodruff:

So the numbers do look grim, no doubt. But I would not jump ship. Yet.

Look at your long-term goal(s). What is your 10 year goal? Your 5 year goal? Pencil this in backwards and see where you are in relation to your lon-term goals.....this could be salvaged with patience and smarts. Good call on getting the PM on board.

If this is not in line and continues to be a neutral cash flow asset, then it may warrant a look at selling and moving even if those numbers don't paint a good picture as you say. But I would give it a little more time, at least you're not bleeding profusely any more....

Regarding REI specifically, my goal as of Sept '22 was to purchase 3 - 5 STRs within 3 - 5 years that each cashflow $2K - $5K per month.

Now that I'm 2 years in, my goals have certainly changed (although I would love to achieve those initial goals eventually). Since purchasing the STR, I have purchased another SFH + ADU that I am currently house-hacking in. The numbers look a bit more promising on the house hack. Not generating cashflow, but have reduced my living expenses and acquired an asset.

So if I revisit my goals, within the next 5 years, I'd love to: (1) be in a consistent cashflow positive scenario with my STR; (2) move out of my house hack and rent both units; (3) purchase another duplex/SFH+ADU and house hack again.

[Steven DeMarco]

Quote from @Nicholas L.:

@Steven DeMarco

thanks for the transparency.  i don't know if you should sell or not, but what I do know is: you didn't do "horrendous."  a lot of people just aren't honest about their costs - they'll put $50K down, pay $10K in closing costs, spruce up for $15K, and spend $3K to market and place a tenant, and then they'll make $88 in month 3, and say "i made $88."  well... what about the $80K you spend to get the property?  

so you're just being honest and you're actually tracking everything.  kudos, you're looking at it like a business.

maybe in a few years you could refinance if values have gone up enough?  this would hurt your cash flow, but you'd get some capital back.  only you can decide which is more important.

I appreciate your comments and thanks for the reply - I am absolutely looking at it like a business and am in the game to build wealth. I meticulously track performance metrics, expenses, income, etc. I rarely see fully transparent posts like this so I wanted to get the numbers out there to receive actionable feedback.

[Jaron Walling]

We're still renting my first property from 2018, have cash-flowed every month, and "lost" every dime replacing the HVAC this year. Good stuff!! 

I believe your goals have to change with the market conditions OR you can't buy more properties. 2023-2024 has been crazy and we don't do crazy. Our goals have changed, maybe it hasn't helped our REI, but it's given clarity for what we enjoy and look for when searching for deals. If you're playing the long game embrace it and believe in your market.

[Erica Calella]

Quote from @Steven DeMarco:

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

My monthly mortgage payment is about $1,400/month which includes PITI. You are right that my annual debt service is about $16K ($1.4K x 12) but the metrics I shared were over a 17-month timeline of being operational with the STR ($1.4K x 17 = $24K). Understandably a bit confusing on my end - sorry for that.

I appreciate you pointing a finger at the operating costs. I'll do my best to summarize. Again, I will show these metrics over the past 17-months that I've been operational. Total operating costs over this 17-month timeline total $32K. Also important to note that I live out of state and require some boots on ground management and travel costs to travel to the property.

Admin ($6.2K) - includes $1.3K of advertising (listing photos, FB ads, etc.), $2.1K of travel (flights & rental cars), $2.3K in software subscriptions (PMS, etc.) and $300 in meals

Management Fees ($1.7K) - PM fees, booking platform fees, etc.

Cleaning Fees ($6.2K) - pass-through charge for guest

Repairs & Maintenance ($10.5K) - General R&M ($1.5K), Painting ($1.2K), Plumbing ($1.5K), Pest Control ($500), R&M Supplies ($500), Labor ($3.5K), Linens, Soaps, Consumables ($1.5K)

Legal & Professional ($1.5K) - LLC setup & lawyer fees ($350), inspections ($1.1K)

Utilities ($6.4K) - Gas (avg. $63/mo.), Electric (avg. $121/mo.), Internet (avg. $60/mo.), Water & Sewer (avg. $107/mo.).

Please let me know if you see anything glaring or things that I can work on bringing down or eliminating completely.

It's important to note that up until I hired the full-service PM in April '24, I was self-managing from out of state and paid a local boots on the ground resource when needed. From April '24 moving forward, my P&L will look much simpler as the cleaning fees, PM fee and software subscriptions are handled by the PM so I will just see income after all of those fees on my P&L.

Regarding the 1031 exchange - that would still result in losing all the cash invested above and beyond my equity position. My understanding of a 1031 is that you essentially move the equity from property A to property B, I can't recapture my full $130K cash invested, only the current equity position of $45K. Unless I am misunderstanding your suggestion there.

Thanks for all of the clarification. Many of the costs you've outlined above are upfront set-up costs. You won't be incurring these every year..

I think you should sit down and just run the numbers for the next 12 months, taking into consideration only what you expect to spend to operate the property, expect to spend on maintenance and a buffer for emergency repairs. At this point your PM should be handling all software related costs, unless your PMA states otherwise. If you're passing along cleaning fees to the guests, then they shouldn't have such a material impact on your profits.

I'm speaking from experience a little bit. I also have an out-of-state STR with a PM who handles the bookings and cleaning etc. Now that all of the initial set-up costs and major repairs are more or less behind me, the property is starting to cash flow well. But similar to you, the situation was not looking great at the start.

You are correct that a 1031 exchange won't allow you to capture your initial cash investment, but selling outright won't either, plus you'll have to pay taxes on the capital gains and depreciation recapture. A 1031 exchange will defer that and give you a chance to move towards a better cash flowing property, which is why it could be considered a viable option.

[Bruce Woodruff]

Quote from @Steven DeMarco:

Net profit of $2-5k mo? Maybe $2k, but $5k is a lofty goal for an average STR (depending on location of course). Make sure you're realisitic and looking at pure NET profit after all expenses, including taxes...

[Steven DeMarco]

Quote from @Jaron Walling:

We're still renting my first property from 2018, have cash-flowed every month, and "lost" every dime replacing the HVAC this year. Good stuff!! 

I believe your goals have to change with the market conditions OR you can't buy more properties. 2023-2024 has been crazy and we don't do crazy. Our goals have changed, maybe it hasn't helped our REI, but it's given clarity for what we enjoy and look for when searching for deals. If you're playing the long game embrace it and believe in your market.

Ouch! Having to fork over that cashflow for an HVAC replacement must have been painful, but at least you didn't have to dip into your own pocket. 

I agree that keeping the goals fluid to adjust with the market is important. I don't want to do crazy either.

[Steven DeMarco]

Quote from @Erica Calella:

Quote from @Steven DeMarco:

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

My monthly mortgage payment is about $1,400/month which includes PITI. You are right that my annual debt service is about $16K ($1.4K x 12) but the metrics I shared were over a 17-month timeline of being operational with the STR ($1.4K x 17 = $24K). Understandably a bit confusing on my end - sorry for that.

I appreciate you pointing a finger at the operating costs. I'll do my best to summarize. Again, I will show these metrics over the past 17-months that I've been operational. Total operating costs over this 17-month timeline total $32K. Also important to note that I live out of state and require some boots on ground management and travel costs to travel to the property.

Admin ($6.2K) - includes $1.3K of advertising (listing photos, FB ads, etc.), $2.1K of travel (flights & rental cars), $2.3K in software subscriptions (PMS, etc.) and $300 in meals

Management Fees ($1.7K) - PM fees, booking platform fees, etc.

Cleaning Fees ($6.2K) - pass-through charge for guest

Repairs & Maintenance ($10.5K) - General R&M ($1.5K), Painting ($1.2K), Plumbing ($1.5K), Pest Control ($500), R&M Supplies ($500), Labor ($3.5K), Linens, Soaps, Consumables ($1.5K)

Legal & Professional ($1.5K) - LLC setup & lawyer fees ($350), inspections ($1.1K)

Utilities ($6.4K) - Gas (avg. $63/mo.), Electric (avg. $121/mo.), Internet (avg. $60/mo.), Water & Sewer (avg. $107/mo.).

Please let me know if you see anything glaring or things that I can work on bringing down or eliminating completely.

It's important to note that up until I hired the full-service PM in April '24, I was self-managing from out of state and paid a local boots on the ground resource when needed. From April '24 moving forward, my P&L will look much simpler as the cleaning fees, PM fee and software subscriptions are handled by the PM so I will just see income after all of those fees on my P&L.

Regarding the 1031 exchange - that would still result in losing all the cash invested above and beyond my equity position. My understanding of a 1031 is that you essentially move the equity from property A to property B, I can't recapture my full $130K cash invested, only the current equity position of $45K. Unless I am misunderstanding your suggestion there.

Thanks for all of the clarification. Many of the costs you've outlined above are upfront set-up costs. You won't be incurring these every year..

I think you should sit down and just run the numbers for the next 12 months, taking into consideration only what you expect to spend to operate the property, expect to spend on maintenance and a buffer for emergency repairs. At this point your PM should be handling all software related costs, unless your PMA states otherwise. If you're passing along cleaning fees to the guests, then they shouldn't have such a material impact on your profits.

I'm speaking from experience a little bit. I also have an out-of-state STR with a PM who handles the bookings and cleaning etc. Now that all of the initial set-up costs and major repairs are more or less behind me, the property is starting to cash flow well. But similar to you, the situation was not looking great at the start.

You are correct that a 1031 exchange won't allow you to capture your initial cash investment, but selling outright won't either, plus you'll have to pay taxes on the capital gains and depreciation recapture. A 1031 exchange will defer that and give you a chance to move towards a better cash flowing property, which is why it could be considered a viable option.

That is a fair point - a lot of those setup costs will not be recurring.

I like your idea to run the numbers for the next 12 months. I will do that to see what I should anticipate and track my progress against a "happy path" future P&L.

Appreciate the clarity on the 1031, that makes sense now.

[Steven DeMarco]

Quote from @Bruce Woodruff:

Quote from @Steven DeMarco:

Net profit of $2-5k mo? Maybe $2k, but $5k is a lofty goal for an average STR (depending on location of course). Make sure you're realisitic and looking at pure NET profit after all expenses, including taxes...

When I initially set these goals, I was still in the "bright-eyed, bushy tail" phase of envisioning my future REI portfolio. Yes, I had a goal with NET profit of $2K - $5K per month per STR.

I now realize that this is only attainable in highly desirable locations and with larger or more unique properties. And you have to put a fair amount (25%+) down, operate in the Top 10% of your market and truly have an outstanding property.

Influencers and social media gurus make it seem like this is much more achievable than it actually is.

[Nicholas L.]

@Steven DeMarco

yep, the transparency posts come around every once in a while.  like this one.  similar to yours but for LTRs.

https://www.biggerpockets.com/forums/88/topics/1171104-the-m...

he got 231 votes =)

[Joe Villeneuve]

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

The longer you hold out, the worse it gets.  Cut your losses, and move on.

[Erica Calella]

Quote from @Joe Villeneuve:

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

The longer you hold out, the worse it gets.  Cut your losses, and move on.

That may be valid in situations that you have been in, but that mindset doesn't apply to every deal so the blanket opinion to just "cut losses" and "move on" is useless.

[Mike Dymski]

Ignore the prior stuff (it's all noise), calculate expected ROE for the upcoming few years (including appreciation and principal paydown), and compare that to alternative investment options and you'll have your answer on whether to hold or reinvest elsewhere.

[Steven DeMarco]

Quote from @Joe Villeneuve:

Quote from @Erica Calella:

I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship. 

My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.

1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.

The longer you hold out, the worse it gets.  Cut your losses, and move on.

Where I sit right now, if I were to cut my losses and sell, I'd be cementing the loss of over $100K. I've done an excellent job at meticulously tracking everything, so I feel comfortable with the "monitor closely to see what a stable asset looks like" strategy. But I value the different perspectives and would like to understand what led you to that conclusion more clearly.

There's no future here where I could get closer to breaking even? Why do you feel that way?

[Steven DeMarco]

Quote from @Mike Dymski:

Ignore the prior stuff (it's all noise), calculate expected ROE for the upcoming few years (including appreciation and principal paydown), and compare that to alternative investment options and you'll have your answer on whether to hold or reinvest elsewhere.

(Genuinely asking to understand, not question your intelligence) but why would I focus on Return on Equity (ROE) and not track being paid back on my original cash investment of $130K? If I narrowly look at ROE, does that simply ignore the upfront cash investment and just focus on my efficiency of current equity position?

In my happy path that I projected, with $45K of equity and cash flowing $6K/year, the ROE is 13.3%. In a vacuum, this looks promising, right?

But it took me $130K of cash to get that $45K of equity and a cash flowing asset. Why does looking at ROE help?

[Jay Hinrichs]

Quote from @Jaron Walling:

We're still renting my first property from 2018, have cash-flowed every month, and "lost" every dime replacing the HVAC this year. Good stuff!! 

I believe your goals have to change with the market conditions OR you can't buy more properties. 2023-2024 has been crazy and we don't do crazy. Our goals have changed, maybe it hasn't helped our REI, but it's given clarity for what we enjoy and look for when searching for deals. If you're playing the long game embrace it and believe in your market.

great point in 10 years from now this property will start eating cap ex.. unless the rents per night go up substantially I suspect this will never make money over the long haul.. not sure why a sub 200k house in Pittsburg looked like a good STR opportunity ??? thats a mystery to me.

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Steven DeMarco:

Hey BP - Want some advice/perspective on my situation.

Back in 2022, I had a strong desire to get into REI to diversify my investments and pursue a new side hustle.

The old joke "we lose $100 on every one we sell, but we'll make it up in volume" comes to mind.

It's too painful to read the entire thread, so if this is redundant, just understand that I run the department of redundancy department.

I'm assuming you ran the numbers prior to making the purchase and over estimated the occupancy and rate per night, (along with costs). I don't expect that the actuals are going to change in a favorable direction any time soon. It is what it is. People are turning to their credit cards to buy food. That's a pretty dire situation as an economy we are currently in with no relief in sight.

I'd sell as a lease/option to someone who can’t get bank financing (such as a successful business owner), getting 20% down and basing the strike price as a 20% premium for 2 or 3 years down the road, charging a reasonable interest rate to get cash flow. When the option is exercised there are no real estate agent fees. You get the tax write offs, principal paydown, guaranteed sale with no agent fees. I'd flesh it out for you, but you seem to be able to handle the numbers part pretty well.

I think also folks that do the STR have to realize the 35 to 50k spent furnishing the home is what many times makes these negative cash flow and of course over a 10 year run the furniture most likely will need replacing upgrading to keep relevant.. I like the LO  move it now option especially since its fully furnished.. Even moving to a MTR fully furnished rental could help.. I do that with a Vegas prop and we get basically double the rent and its A class so no need for PM.  To me this had HIGH risk all over it.. OUT OF State  market like I said kind of weird 200k STR in pittsburg ( maybe I am missing something)  Etc etc.. Sell now move on.

[Jay Hinrichs]

@Jim K. JIm do you know any 200k or under location in Pittsburg that would make sense as a STR and a viable long term investment.. seems weird to me..

[Steven DeMarco]

Quote from @Account Closed:

Quote from @Steven DeMarco:

Hey BP - Want some advice/perspective on my situation.

Back in 2022, I had a strong desire to get into REI to diversify my investments and pursue a new side hustle.

The old joke "we lose $100 on every one we sell, but we'll make it up in volume" comes to mind.

It's too painful to read the entire thread, so if this is redundant, just understand that I run the department of redundancy department.

I'm assuming you ran the numbers prior to making the purchase and over estimated the occupancy and rate per night, (along with costs). I don't expect that the actuals are going to change in a favorable direction any time soon. It is what it is. People are turning to their credit cards to buy food. That's a pretty dire situation as an economy we are currently in with no relief in sight.

I'd sell as a lease/option to someone who can’t get bank financing (such as a successful business owner), getting 20% down and basing the strike price as a 20% premium for 2 or 3 years down the road, charging a reasonable interest rate to get cash flow. When the option is exercised there are no real estate agent fees. You get the tax write offs, principal paydown, guaranteed sale with no agent fees. I'd flesh it out for you, but you seem to be able to handle the numbers part pretty well.

When I ran the numbers performing at the 50th percentile (using nightly rate and occupancy numbers from AirDNA), my annual gross revenue projection was $34K. When you annualize my total income from the past 17 months, it's right around $26K. So given all the capital improvements and running the operation from out of state, my performance has been less than 50th percentile. Not great and probably shouldn't be a surprise for my first go.

In hindsight, yes I slightly overestimated my income potential but I feel that with a well-performing listing and full-service PM, $34K annual is achievable. Where I completely dropped the ball is on the capital investment. To your point, turning a sub $200K place into a high performing STR is not a great idea. I had to pay for a lot of things to get the property into good shape (roof, electric, HVAC, backyard upgrades, furniture, design, etc.).

Your idea to lease/option is intriguing, I had not thought of that option. Could you provide more detail and why that might put me in a better situation financially on this property? I'm happy to do more research if you can point me in the right direction.

[Steven DeMarco]

Quote from @Jay Hinrichs:

Quote from @Jaron Walling:

We're still renting my first property from 2018, have cash-flowed every month, and "lost" every dime replacing the HVAC this year. Good stuff!! 

I believe your goals have to change with the market conditions OR you can't buy more properties. 2023-2024 has been crazy and we don't do crazy. Our goals have changed, maybe it hasn't helped our REI, but it's given clarity for what we enjoy and look for when searching for deals. If you're playing the long game embrace it and believe in your market.

great point in 10 years from now this property will start eating cap ex.. unless the rents per night go up substantially I suspect this will never make money over the long haul.. not sure why a sub 200k house in Pittsburg looked like a good STR opportunity ??? thats a mystery to me.

I'm hoping that once I start seeing cashflow, I will be able to save that cashflow for future Capex. I'm not just going to pocket the cashflow and spend it. I get your overarching point though. Regardless of if it cash flows in the future, I will still have Capex/maintenance/vacancy/etc. and the longer it takes to recoup my investment, the higher chance I will run into large Capex items.

[Steven DeMarco]

Quote from @Jay Hinrichs:

@Jim K. JIm do you know any 200k or under location in Pittsburg that would make sense as a STR and a viable long term investment.. seems weird to me..

I am not pretending that I've hit a home run investment. I too am skeptical, which is the whole point of my post. I want some different perspectives. If you think that I'm crazy for buying this property, you're probably right. 

But I'm in the position that I'm in because I wanted to take a leap and figure it out as I go. Part of that process involved maximizing the asset to its highest possible performance (thus all the capital expenses and investment). The property is undoubtedly better than when I purchased it a year and a half ago.

I'm looking for creative ideas or solid criticism that I can apply to my situation. Then I can make a decision based on the options in front of me.