All Forum Posts by: Alex Scattareggia

You´re right, but I think I didn´t make my point correctly.  

I segregate the two things like this. 

1. Purchase. Of course, if the ultimate plan is to run it as an STR, then it has to be analyzed through that lens. But if the price only makes sense because of STR income that makes me very leery. I think a lot of people are upside down right now because of this kind of analysis. Market factors are outside of our control, and I don´t like having to be reliant on one strategy whose value is subject to change without me having any say.

2. Operation.  All things being equal on the asset side, the operation and systems put in place will make or break the performance of the investment but at this point that has almost nothing to do with real estate.  This is the hospitality side

They are two totally different skillsets and so I think they should be taught independently of one another.

 I re-read this and it sounded negative, and I truly don´t mean it to come across that way.  The deal looks like it could be great.  

But especially right now in a shifting market there are a lot of people who are hurting because they used comps for the monthly income without totally understanding that we have had a pretty spectacular run post covid and that the true market might not be there like that for much longer.  

It is why I would argue for hyper conservative numbers especially on the revenue side in almost all markets.  There are still going to be deals that make sense using this method and then you have simply bought yourself some extra wiggle room if things get a little hairier than expected. 

Without knowing the market 100% it's hard to weigh in on the rental expectations. 

However, what I would recommend is to put your fixed costs aside (taxes, mortgage, etc.) and then get more conservative on your rental expectations by about 10-20% and increase your expected costs by the same.  If the deal still pencils out than you probably have enough cushion to make it work even in rough times.  I don´t like relying on any one source of information when analyzing a deal so I would average out as many sources as possible and then scrape some % off that number to get a safe estimate.

I also always like to work with a net in these kind of deals, worst case scenario if you rented both units long term would the investment still make sense or at least not lose money monthly? 

 How cool! I´ve been to Isla Mujeres almost ten years ago but never thought of investing there. Such a mellow place compared to Cancun.  What is the market like for rentals? 

Have you figured out the property manager side of it? I wonder if there are any local PMs or if they would have to commute and take the ferry.  What a lovely place, good luck with everything. 

I think the biggest mistake that people make, is thinking that investing in STR´s is some totally different style of real estate. The biggest win or loss you are going to have on your STR business will come at the purchase. The underlying asset is real estate. So, when it comes to the analysis, negotiation and purchase I would not rely on a STRcentric book. Go to one of the REI bibles and get really solid on the basics so that your foundation is solid and you purchase well.

However...  

The operation of an STR has almost nothing to do with real estate and 100% to do with hospitality, that is where you can distinguish yourself from other operators, provided you made a good decision in your initial purchase.

For the nuts and bolts and real-world applications, I would lean on forums like these and studying or talking with other successful investors. 

For a more general philosophy on hospitality, especially if you are going into the higher end STR space I would recommend Four Seasons: The Story of a Business Philosophy by Isadore Sharp about the founding and development of the Four Seasons brand.  It really helped shape how I think about the guest experience and has a lot of STR application. Never say sorry, always ask how can I make it better etc. etc.  

Good luck!

 Ding Ding Ding! You are paying an intermediary for marketing and deal flow.  When you start creating your own deal flow there is no real value in the OTA´s any longer.  You can recapture some of the 10-20% AND provide additional value to the client in the form of a lower overall price for the same rental. 

If I were in your shoes I would do the following.

1. Price it astronomically high. Like you said, you don´t need the income.  There will probably be some headaches that arise so make it worth your time.  High price might be enough to keep out folks who won´t respect your place, but even the best group can get rowdy when you have 10-20 people drinking all day. 

2. Have an amazing cleaning staff and that shows up on time.  Turning over a house that big after a weekend of partying is a lot of work and I would hate to come back to my primary home and feel like people had been in it all weekend.  You can pass this cost on to the client through the cleaning fee, and I wouldn´t skimp on cleaning in this specific situation. 

I completely agree with John above about having the cleaning staff put away all personal belongings and probably having a completely different set of linens, towels etc for the family vs renters.

3.Turn off instant book. This enables you to screen the clients a bit more.  When people are inquiring about your place make it VERY clear what the rules of the house are, and finish with ¨if you guys are in agreement with all of that I would love to welcome you to our place this weekend! If you are looking for more of a party place, I can point you in the right direction¨ You will also have the option of setting your security deposit, the bigger the home the bigger the deposit. 

Thats a pretty basic primer.  I have two big rentals in party destinations and making very clear upfront what is allowed and not is the only way to really screen the clients.  If in doubt just say no!  One really bad group can sour you on the whole thing and also eat up the profits of 4 or 5 bookings in the worst-case scenarios.  Sounds like you are in an ideal market and have the perfect product so I am sure you will crush it. Good luck 

I would look at this scenario through two options. 

Option A. If you rent the property to an arbitrager who is going to pay you $1000/month + cover utilities etc, their all-in cost will probably be somewhere in the ballpark of $1500/month.  

A good arbitrage guy wouldn´t do a deal like this for less than $1,000 profit/month.  After cleaning fees + the $1500 expenses they will need to be grossing roughly $3,000-3500 per month to make this worthwhile. Whether or not that is possible would require some more knowledge about your unit and the market itself but that wouldn't be super hard to figure out. 

It might be worth looking into an Option B, where you pay a STR Property Manager their 25-40% and net the difference. So using the 3k revenue number - 30% to the property manager you net $2,100.

Your work load is very similar in both scenarios but your income would double in scenario B.  The keys are going to be to find a solid operator on the property management side.  

Good luck!

 Put age minimums if the OTA allows it, no instant book + a good screening process.  

The worst-case scenario is friends coming to visit their buddies in college and turning your STR into the weekend party spot. We invest in markets that get heavy spring break traffic and I can tell you, nothing will kill profits like college kids partying in your place.

I have seen you post this kind of thing a few times over the last few months and I am assuming you are going to try to launch a product or service. It seems you have some sort of data scraping tool and are just kind of throwing a bunch of info out there, but I am not seeing the utility of this to an investor. 

I think you could potentially have some good raw data but maybe synthesizing it into an investment strategy would be a more useful application of your info.