All Forum Posts by: Angelo Wong

Hi @Chatree C. 

I completely empathize with your want to stand out from the crowd and do as much as possible, but I think the main key with short-term rentals is that you'd like to satisfy the vacationer's expectations, and then wow them with a little bit more (but no more amenities above that).

That is, your metric probably should be based on customer feedback and not "pushing your place beyond other [landlords]." Because if you find that hot tub/grill are the main things people pay for, adding video games, a projector/movie room might actually not get you any more bookings, and you might not actually be able to charge much more for it. 

Adding too much stuff in your short-term rentals is equivalent to over-rehabbing (except tenants can't easily steal paint/cabinets, but they can steal stuff you buy).

Basically I understand the desire to make your tenants as happy as possible and give them an awesome experience, but if your market doesn't care about a certain amenity, don't force it on them, there's no value to be gained on the tenant side nor your end.

An approach we used to find amenities is to get the minimum amount of stuff possible (I don't think we even had a coffee maker) and just ask our guests what's missing and what they'd like to see - once we got enough responses it was only then we threw in the inventory.

Hey @Akash Y.

Actually I didn't - I talked to a bunch of people and it seemed like remote management of short-term rentals could be a pain. Also asking around for the numbers, they just didn't seem to make sense. So now I sublease places locally and re-rent it out at a higher price to make the spread. Only 6 units so far but it's working well enough (but I could also see how managing remotely could be very bad as there are enough headaches managing locally).

Interesting note, I think Airbnb's algorithms look for bots/scammers, and I think my behavior of polling a bunch of landlords was identified as spam, so they perma-banned me. So perhaps not a great idea to ping landlords. Maybe make a fake account on an IP address you never use if you want to do such a survey in an area you're interested in.

I don't think that legislation is a huge issue so far - there's always ways to sidestep it, etc. and they generally are not enforced (unless under HOA which most newer homes are). Also low rent is also generally needed because 1) tourists are willing to pay more to be on the strip (it's a gambling market so they are OK to spend money), and 2) hotels on the strip are already really cheap and in high supply. Seems like you'll only be able to bag road-trippers passing through or the overflow market during conferences, of which there are a lot. Or maybe if you're close to UNLV some students or professors. Completely speculating now, though.

I personally use @Amanda Han - I highly recommend her. Although she is remote (as I've seen that's a concern of yours), she's been extremely responsive and informative to any and all real-estate related tax questions. Like @Brandon Hall she's also been on the BP podcast.

I think if your main concern is just an extremely knowledgeable real estate specialist, highly reputable CPAs in the BP community like the ones mentioned above where they have a lot of real estate clients is probably a good starting point for you to start a dialogue with.

@Sean Tagge 

Sure, I'll give the address:

8390 Burning Tree Ln Memphis, TN 38125.  It is currently rented out for $1610.

Purchase was at $118,900.  Square footage 2861.

Loan amt was $95120.

Comps they used:

3773 Birchvale Dr Memphis, TN 38125 (.47 W).  This is $155K, 4/2.5, 400 sqft smaller.

3814 Clubview Dr Memphis, TN 38125 (.32 SW).  This is $155K, 4/3, 300 sqft smaller.

3862 Windyke Dr Memphis, TN 38125 (.32 SW). This is $120K, 4/2, 900 sqft smaller.

In my humble opinion, I think the most apples to apples comparison is just Birchvale, as that's the only one where the room count even matches.  Windyke I think is a much more off comparison as subject property is 50% more in sqft.

Thanks for the tip on Steve Bighaus, though.  Will definitely give him a call and see what's going on.

This is pretty interesting now - I had previously made the wrong assumption that the appraisals would come in the same from the buy side and refinance side.  This seems to be not the case, and it seems to be less money on the cash out refi side.

Was wondering if anyone doing BRRR has any tips in terms of refi? Just be more conservative in the numbers than say what a flip would make?

@Jeff Kehl - Makes sense.  Essentially the market upon selling it will still bare the higher price, but the appraisal won't.  Although my initial plan was to use it as a cash-out refi, and so the banks I think do read into the appraisal -- though maybe I can convince them otherwise by showing them the returns, etc.

But anyway, a follow up question: if the market can bare it at a higher price, but the appraisals now are artificially low, how do the buyers afford it?  Wouldn't they have to go to their respective lenders and if your list price is above appraisal, how do they close the deal (as appraisal would come under on their end)?

@Ramon Cuevas - Yeah definitely looks like I didn't do enough due diligence on my end; have not actually heard of a subject-to appraisal, and will definitely do that in my next deal.

@James Wachob - Will definitely keep you in mind in the future.

@Chris Mason - 100% agree with the point where there'll probably be less headache due to the tenants attracted.  However, I would not have thought to compare cosmetic rehab returns with stock returns, and was curious to know your reasons for underwriting those returns against stocks?  I wouldn't compare it to a stock return for the following reasons:

1. Stock returns are compounded YoY whereas an increase in rent here is a flat %.  At a 7.2% return, stocks would overtake the flat % return at year 10.

2. There is no principal to speak of here.  Since the $11K didn't increase the property's value at all, the $11K is a sunk cost.  If you made only even 0% in stocks, you still have $11K in equity (minus inflation).  Making 0% here is a net loss of $11K (excluding increase in rent).

For those reasons, I'd compare this cosmetic rehab to a bond with a 10% yield...except if the bond never pays you back your principal.  I wouldn't even compare this to an annuity because an annuity would pay you your dividends for the rest of your life, but I can't justify above market rent anymore once the paint and the carpet is old.

Though a lot of people do tell me it is just better to do these cosmetic rehabs, etc. upfront - though I guess I still don't understand why.  The math just doesn't make sense to me?  Maybe I'm missing something where if I were to attract lower quality tenants, they would cost me more than $11K in the long term, but how would one underwrite that?

@Chris Mason so I guess what are the places I'd upgrade to get an ROI out of it? Kitchen and/or bathroom? I know the upgrades depends on what neighborhood you're in, but is there any examples of what could be done?

I'm renting the place out right now for $100/mo above market but with an $11K cosmetic rehab to do that--not really worth it at all.
Yeah 20% is expensive, but I acquired it for $118900 -- so if it went up to $155k, it would have probably been a 20K pull-out (10% is still high, but I can actually do a bunch of stuff with 20K).

@Michael Medinger - this is great advice - though if I get an appraisal again with a direct wholesale lender, there's still no solid guarantee that the appraisal will come in at the right number, right?  Example: there is still a risk that this could have came back at 140.  That is, is it worth it to try again with a direct wholesale lender or nah?

Yeah it was 2 different appraisers - one appointed by WF, one appointed by Citibank.

So I guess the question is: in the future, how do I avoid these 10k mistakes?  All I did was just carpet/paint/blinds/basic repairs with no large upgrades.  Should I have just left the 30 year old carpet in there and just updated the kitchen/bathroom, because that seems somewhat counterintuitive as well?

Hi,

I recently purchased an investment property out at Memphis, TN last month - 4/2.5, nice schools, low crime, etc. and the appraisal came in at $140K.  Comps with better condition around the area was $155K (so -15K for condition).

So I threw in about 11K in for new paint, new carpet, new blinds, miscellaneous repairs in the house so I could maybe do a cashout refi.

Appraised it again, and it came in again at $140K.  But according to the previous appraisal it should have at least rised a bit, if not to $155K?

So basically it is saying that the entire cosmetic repair improved the house by $0?  I didn't do anything crazy like throw in granite countertops or anything like that.

2-part question: is it usual that these updates don't increase the value of homes at all?  Second, if it is unusual, what is the best way to have the appraiser reconsider the appraised number?