All Forum Posts by: Aaron W.

Quote from @Anthony Angotti:

I think the extra income from a STR or MTR when you don't live in the area just isn't worth the hands on management you will need.

Yes, this is a key consideration that might drive sticking with LTR, but something that can I can easily roll back to if this turns out to be non-viable. I do have a trusted person there who can handle STR turnover during the summer, but the overall goal would be to leverage as much automation in the turnover process as possible.

My perception - possibly wrong - is that there's less restocking of consumables, etc., to deal with for an MTR vs STR, and that extra cleaning and inventory check may be all that's typically needed to prepare for the next stay in addition to the usual maintenance that would come with any LTR.

Quote from @Joe Villeneuve:

Yes.

1 - If you were to buy it now, how would you pay for it?  How much cash would you have to put into it?

2 - While you're waiting for all/any of these events to take place, what would be the cash flow,...positive or negative,...and how much?

Thanks for the reply.

1) I can acquire this property free and clear as a gift. It was inherited by a relative with no interest in this, who has been waiting out a cash offer from a friend of the decedent who has dragged it out too long. There is now an investor willing to offer 20% less than he anticipated, which he doesn't consider acceptable, but another year of property taxes will come around eventually. He is ready to let someone else do this if it stays with the family. I estimate the basic rehab to modernize it at around $15k, but more likely $20k-$25k to get it to the higher end of the local rental market. I can do this without borrowing, but would evaluate financing first.

2) I apparently edited that passage out. Assuming I finance the rehab and hire a local PM, at my conservative estimate of $800/mo, I would expect an LTR to generate about $3,000 in positive cash flow after year 1, with a strong possibility to break even on resale with the updates in year 2 or 3. (It's arguable that, for my time, LTR might end up competitive with selling the property as-is today and passively investing the proceeds elsewhere. With no assumptions about appreciation beyond inflation, I end up with an IRR around 10% after 10 years.)

As an MTR, assuming 25% vacancy and $1,500/mo, I'm coming up with a first-year positive cash flow of $5,500, 10-year IRR of 15%. I don't feel that these are aggressive assumptions, and they don't factor taking advantage of the summer STR market. (From what I've seen, summer visitors seem to push small STR occupancies to 90%+ even at the lower end.)

I am likely to be gifted a very small SFH in a small city in a rural area, 2/1, 780 sqft with a large garage/outbuilding. Population is roughly 60,000 in a 10-mile radius with a similar community next to it, 30-minute drive away. The town has been slowly growing as the commercial center of the region for some years and is in construction on a sports-tourism complex and a casino-hotel.

I would finance the needed rehab with the equity, inspectors and contractors have already been through it for a prior offer and given the needed work a thumbs-up. The lot is in a new TIF district which is likely to see some considerable reinvestment in the next 10-20 years and steer the city's (slow, but real) growth through the neighborhood. I also have personal interest in visiting the area more often, so travel to inspect and manage the property suits me.

I anticipate this property will have a stronger resale value at some future time and that extracting cash from the rehab before sale makes sense. (The new kitchen and electrical will be far more up-to-date in 5, 10, or even 20 years than what is there now.) As a small LTR with above-average upgrades and an outbuilding for storage/workshop, I would anticipate a minimum rent of $800/mo. For STRs, occupancy is strong and I could see $120/night, but demand is very erratic during the off-season, I'm less confident in putting numbers on it. (AirDNA suggests revPAR of $66, but the data set is extremely limited.) 

So I'm interested in MTR as a possible sweet-spot to minimize turnover and seasonal slowdowns. The property is walkable to a hospital, 2 and 5 miles from two others, and 15 miles from the region's level 2 trauma center. Job listings show steady and diverse demand for travel nurses in the region, and there are some other angles that might generate leads for furnished housing, including several small-medium light manufacturing employers within two miles of the property and a university in the neighboring city.

Aside from the AirBnbs - most of which are larger - the other options in the city itself are 2-star extended stay motels at $100/night that are in poor condition. Most of the (few) listings on FurnishedFinder are for more rural properties and are asking $1,500/mo, where this is one mile from a gym with a pool, a supermarket, and beauty shop, and very close to hiking, golf, and other recreation. It has a fenced-in yard and a quiet street. To my mind, it seems very desirable and convenient for traveling professionals, as well as large enough for remote workers visiting family in the area with a spouse. If needed, I would also be able to pull a vacation rental permit to help fill it as an STR in the summer months to take advantage of the steadier seasonal occupancy and higher rates on that front. Failing all of that, I would convert back to LTR and take a modest hit on the furnishings.

There's more investigation to do, but I thought I would run this by the board as I've learned a lot here over the last few years. Am I overlooking any major and obvious considerations?