All Forum Posts by: Aaron Henricksen

I have been operating two short term rentals in a town a couple of hours away in a college town for a little over a year now. We recently expanded and now have another property about 5 minutes from where we live, and the mix of self-managing these three properties, along with increased work responsibilities at my W-2 is getting a bit much, and I'm rethinking my strategy. Specifically, regarding the two properties in the college town a couple of hours away, I had been doing everything remotely except the cleaning and stocking, and had delegated this to a local cleaner. Well, my rookie mistake was not setting up a system to monitor her work. Over the last couple of months, I've been going to the properties a little more frequently and realized that she's doing a horrible job. I brought this up with her, told her what I found myself and pointed out what she wasn't doing correctly, and then sent a checklist of expectations of what should be cleaned/completed at each cleaning. Unfortunately, on a trip there this weekend, I found that the situation hadn't been improved and am now going to be letting her go. For a little more background, I've had quite a few comments over the course of the year, but I think by being very responsive, apologetic, and offering refunds where appropriate, I've been able to keep my ratings up. When I would bring these complaints up with the cleaner, she would generally deny the allegations or make excuses, and out of fear that I wouldn't be able to find someone else (or just putting my head in the sand and avoid the problem all together), I would defer to her and not push the issue. I realize that this is no longer viable and a change has to happen.

I'm a big fan of Bigger Pockets and have realized through reading/listening that the largest benefits of real estate come over time through loan paydown, taxes, and appreciation, and over the short term through cashflow. But if I rethink my strategy, I'm at a place in my life where I don't need to maximize monthly cash flow at any price, but still want my properties to pay for themselves (and then some) without creating another job. So, since I'm at a crossroads, I blocked future bookings, and only have a few more this month; so this would be a perfect time to change strategy if I wanted.

The options I see are:

1) Find another local cleaner, and spend many long evenings over the beginning period monitoring their work;

2) Hire a local STR property management company to deal with it;

3) Scale back my operations significantly - I realized that by only renting the property out on football game and graduation weekends, that I can probably make 70-80% of annual expenses and use this time to reset;

4) Hire a local individual to act as a personal property manager;

5) Move away from STR (at least on these two properties) and pivot to LTR;

6) Pivot to Medium Term Rentals since the properties are already furnished.

Regarding #1, this is kind of business as usual, but would have me learn from my mistakes on the first cleaner and hopefully not repeat them. This is also the option that probably makes the most cash flow, but is the most work. I'm trying to take things off my plate though, and this would not do that (at least in the short term).

Regarding #2, this would be easy, but the properties that I've seen that are run by local STR property management companies tend to have lower ratings and much lower bookings that I do, which makes me wonder whether I would cashflow anything with this route. Otherwise, though, this would be probably the easiest.

Regarding #3, this would allow me to essentially reset and only focus on the high dollar nights. I'm about to go through a very busy period at work (ramping up now until the beginning of next summer) and this would allow me to essentially take this off my plate for now (except for a few weekends), while still cash flowing. This would obviously have me finding a new cleaner, but it would give me time to evaluate their work without the pressure of quick turnarounds and extreme urgency. Also, my work will get the busiest in the spring, and I could mostly shut it down during that period, and refocus and ramp up again next summer;

Regarding #4, the more I think about this, the more I like it. If I paid someone a reasonable salary (I'm thinking $1,000/month) and they managed both properties in terms of guest communication, responding to emergencies when they appear, visit the properties (they're next door to eachother) weekly, and have a monthly meeting with me to brief me on what's going on (or someother regular timeframe). This option would provide the boots on the ground to make sure the cleaner is doing their job appropriately, and give the properties the attention they deserve. This is obviously a pretty big expense, but it would give me some control while not having to be flooded with work. Also, it is obviously more expensive than option #1, but would probably net enough money to make more cash flow than the other options (except for maybe #6, I'm not sure how that would work out). In the short term though, this could also create more work as I would need to hire both the cleaner and the local manager and train the local manager.

Regarding #5, I can begin moving away from STR (at least in the short term), and move into LTR with the knowledge that my cash flow would mostly disappear, but the properties would still pay for themselves and I would still see the long term benefits of real estate. Also, I could always pivot back to STR in a year or two if I wanted.

Regarding #6, I think reducing the number of turnovers would decrease my work, and this way, I could still keep the football/graduation weekends for STR and do 1-3 month stays for the remaining parts of the year. I would still be looking for a new cleaner and would have the monitoring work (especially at the beginning), but it would cut down on the communication when work ramps up a lot (especially in the spring).

Do y'all have any thoughts or suggestions? What would you do in my position? Are there any possibilities I'm not seeing? Also, does anybody have a method of finding a strong/reliable cleaner that has worked well for them (this is also important for us since we haven't found anyone good at the new property near our home)? 

At the moment, I can't scale up, and am spending my nights/weekends working on my real estate instead of having it work for me and need to make a change for this to work over the long term.

Thanks!

I'm considering purchasing a property as a second home, with a 10% down 30 year mortgage, and using it as a STR for most of the year. I would also be using it with my family to vacation, so I would be using it for personal reasons for at least a couple of weeks each year.

I spoke with a mortgage broker recently, and he told me that I'm not allowed to rent it out during the first 12 months, even as a STR. He said the problem would be when I claim the STR income on my taxes, that someone could look at that and consider it mortgage fraud. I also read that if you only operate a property as a STR for 14 days or less, you don't need to count the revenue on your taxes, but my goal would be to rent it out much more than that.

I’ve heard people on the podcasts use this kind of mortgage, so, my questions are:

1) is this truly a restriction? and

2) are there any work arounds?

For a little more context, I have two other properties, including my primary residence, and another STR that's in my LLC's name, where I used a portfolio lender. So, I even thought of some strategies where I purchase the house in my name, but my LLC operates the STR side of the business, or even creating an S Corp to run the STR part.

From what I've heard and understand, using a second home mortgage to buy a STR seems like a common strategy, and I don't want to break any laws or rules related to taxes or the mortgage, but I'm trying to see if there's a creative solution, if this is, in fact, an issue.

Thanks in advance!

@Alvin Uy, thanks for this post. I've considered having my LLC buy my primary residence, and renting to myself. The main reason is that I want to hold on to my current property (I think it would be great as a short-term rental), but we were considering moving, but couldn't reasonably hold on to it and qualify for a new property based on what my DTI would be holding both residences. If, instead, I kept my current house in my name, and just leased out our spare bedroom as an office to my LLC, I believe I could count a portion of the rental income (75% if I remember correctly) into the DTI equation, thereby helping my DTI for the new property. Is that essentially what you were saying when you say it lowers your DTI?

I love this idea. Thanks!

@Collin H. Thanks again for the info. So it seems like you're not very optimistic about the prospects of STR in any of the ski areas, including Taos and Red River? Or, it's mostly Angel Fire specific?

@Collin H. Thanks for the feedback. Do any of your friends with property in Angel Fire use their properties as STRs? If so, do you know what their experience has been. And, is there anywhere else in the region that you would recommend for a STR?

@Justin Travis Kearnan Not exactly. I didn't purchase that property, but ended up getting another one instead. On that property, I purchased with a private money lender, and found a portfolio lender to refinance to me without a seasoning period, but was told that they only did that because I had a good personal financial situation and they were confident that I could cover the mortgage, if necessary. The refinance was about two months after the purchase, and I was able to BRRRR it.

I've also been thinking of the BCS area. I recently invested in a STR in Bryan, but am considering making further investments in long-term rentals, and due to the low price, I was also considering some condos. I understand the HOA cost that is a factor, but do any of the BCS experts on the forum have a feeling about the overall market? I've heard that condos/townhomes are soft around the country right now, while SFRs are pretty hot. That makes sense given the social distancing that people have tried to maintain over the last year, but I also wonder if this is an opportunity to scoop up some cheap properties (again, condos or townhomes) that will be significantly more expensive post-COVID. Do y'all have a sense of the condo/townhome market in BCS right now compared to SFR or small multi-family? Is one soft, while the other is strong? Or are they in line with each other?

I also had a question about the rental market in BCS. Obviously, much revolves around student housing. I was looking last January though, and it looked like everyone was trying to undercut each other and rents were going down a lot. It might have been people looking for subleases though, and specific to that time. Is there a better time of year to have a vacancy than others? Do January and August have cheaper rents than other months because of people desperate to get a student in for the semester or year? Is the rental market softer than usual right now due to COVID, and do you expect things to turn around a lot by next school year? I'm not wedded to student housing, just general long-term renters which may (or may not) include students.

I know I asked a lot of questions here, but I appreciate the advice. Thanks!

Does anyone have any thoughts on the STR market in Angel Fire, NM (or Taos or Red River in that area)? I'm in Central Texas and am looking for a STR destination that could be used for a few days (or a week) once or twice each year by my family, while still cash flowing very well as a STR. That area is one that has occurred to me that appeals for personal reasons (distance, location, climate), and it appears much cheaper to purchase than the ski towns I looked at in Colorado. Does anyone have any experience in this area, reasons I should (or should not) purchase in this area, or any alternatives in that part of the country that might be better for what I'm looking for? Or, and this is an alternative question, is there any place in the country that cash flows better as a STR than any other area? I know a lot of people like investing in the Gatlinburg/Pigeon Forge area, and haven't ruled that out, although it's a further drive from where I'm at.

It seems that there are a lot of people that have already replied, but just to throw in my experience, I've spent the past month trying to figure it out, and finally came to a good solution. I purchased my first investment property at the beginning of December and am nearly done renovating it now, and I'm about to turn it into a STR in the next couple of weeks. A few weeks ago I started looking for someone to help me complete the cash out refinance. The property was relatively cheap (purchase price of $63k, ARV of $95k), and I was getting turned down by pretty much everyone because, they either didn't want to do STR (most) or the property was under $100k (also, most). I kept searching for lenders though, and to not waste time, I would usually point out the two reasons that I was being denied by other banks to not waste my time (or the lenders time), and even made some Bigger Pockets posts looking for a solution. In the end, I found a local portfolio lender who was willing to take me on. I should be closing in the very near future with enough cash out to make it a successful BRRRRnB. This property is about 1.5 hours from me, so my plan is to use it for learning over the next 6 months or so, while generating some income, and hopefully once I've learned more, and automated everything possible, I want to get my next STR somewhere further from me in a vacation destination that will generate a lot more income than what I'm expecting from this current property. I think it's definitely possible, but just be prepared for enough people to say no before you get to a yes; the yesses are out there, you just have to dig to find them.

I purchased a townhome earlier this month, and I'm fixing it up. I had to use a high interest private money lender, so I'm hoping to refinance sooner, rather than later. I'm doing repairs, but expect to be done by the end of the month. The current loan is $64,000, and the ARV is $95,000, based on an appraisal done about three weeks ago. My goal would be to do a cash-out refinance, so I can pull my invested cash back out for a successful BRRRR. It's not currently rented (as I'm renovating it at the moment), but I'm planning on using it as an Air-BNB once completed. If needed for the refinance though, it should also work as a long-term rental. Can anyone here help me out with a long-term, reasonable cash out refinance loan?

Thanks,

Aaron