All Forum Posts by: Benjamin Stacey

Quote from @John Mason:

Yes when you go to Zillow to the house and look for Market value tab

you will see some thing like this

Zestimate® history+192% in last 10 years

 I did not realize that. Thank you!! 

Quote from @Rene Hosman:

These are great questions you're asking @Benjamin Stacey ! 

Here are my thoughts: 

1. Will you have lived in the property for 2 years by the time you move out?
If so potentially worth taking what gains you might have as tax-free capital gains and selling the property if you can get out a little more than you put into it? Unless you really like the idea of having a rental in this area! Then ignore my first comment entirely!

2. You say you're finishing out the basement, is there any chance to divide this property into an up down duplex? Even if the lower level is small? I don't know your market well at all (I am in Colorado) but even a couple hundred extra a month from an additional LTR in the basement could make this worth it to hold on to given the situation you're in. For up/down duplexes, I would ALWAYS spring for full sized windows in the downstairs if you can, and of course the required egress windows in bedrooms at a minimum. Bedroom or studio, full bath, kitchenette, as much nice lighting as possible.

3. Have you considered/is there a market for Mid-term rentals in this area? Maybe there's military nearby or hospitals or universities? Anywhere that people get assigned temporarily or have seasonal demand could make for a good mid term rental. Check out furnishedfinder.com to see if there's many MTR in your area and what the going rate for them is. Mid term rentals are usually 3+ months and you can list on VRBO, FurnishedFinder, & Airbnb. BP Podcasts have a couple great episodes on mid-term rentals which is how I got into them. 

Also paging @Garrett Brown the STR specialist to see if he has any insight to this area or advice on how to get to one of the top STRs in your neck of the woods.

 Hey Rene, 

Thanks for replying to my post! I really appreciate it!!

1) Unfortunately we will be a couple of months away from the 2 year make as of right now. 

2) This was our first idea but to make it a short term rental downstairs. But
realized they were more hoops to jump through with the city to make it a separate dwelling unit so we have opted out of doing it. We need to get an architect involve to stamp a set of drawings for the basement finishing. 

3) I have not considered MTR. This is something that I definitely need to look into. I was under the impression that it typically is a lower cash flow then STR which is why I haven't don't any investigation. Have you seen that to be the case?
I need to check out some of those podcast. 

Quote from @Garrett Brown:

Hey Benjamin! Welcome to the forums. I think from just briefly reading your issues I have a few questions to help me understand your goals better.
1) Would the basement be a separate STR or another bedroom/area in the main house?
2) Do you plan on self managing or getting a property manager? Do you have time and energy for an STR?
3) Is this an AirDNA projection for 40k? Is that including the basement or not?
4) What is the projection for LTR?
5) How much revenue are the top 3-5 places similar to yours doing in the area, and could you beat them with amenities, design, location, etc?

It's tough to answer because there are a lot of numbers involved. BiggerPockets has a Rental Property and Short-Term Rental calculator that you can try to see if the numbers work differently for you!

Garrett, 
Thanks! I appreciate your input. Here are my answers to your questions. 

1) Initially we were wanting to make the basement a separate STR. But realized they were a lot more hoops to jump through with the city to make it a separate dwelling unit so we have opted to make it an extension of the home. Finishing the basement would bring it from four bedrooms to five bedrooms. The holes would need to jump through would be getting an architect involve to stamp a set of drawings.

2) We plan on self managing. We currently have a short term rental in the Smokies so we know the ends and out of the short term world. Hoping this property would help expand our portfolio. 

3) The 40k projection is from Rabbu, which includes the basement. The 40k projection we found is for a 5/3 home. Is Rabbu reliable? 

4) LTR projections range from $1600, which is from bigger pockets rent estimator to about $2500 from looking at comps in the area.  

5) Top properties do about 10 to 15 grand more potentially, in 50k+ range which we would be happy with. Beating the competition with design and amenities is definitely possible due to the smaller pool of people but my concern is having to invest potentially large amounts of extra cash for the amenities just to have a chance in making it cash flow. Is this a true concern? 

Quote from @John Mason:

Benjamin

When you check on zillow for houses similar to yours for last 10 years how much it appreciated?

Not saying it will happen for next 10 years  but it would give some idea:) I usually look at it and multiply it by .6 just as a  safeguard

 Do you just look at the price changes for the last 10 years to get this number? 

My wife and I recently moved to Lynchburg, VA for work and will be living here for approximately a year and a half. Our work is expected to be completed by early 2026, after which we plan to move back to our hometown. In the meantime, we purchased a home with the intention of converting it into a short-term rental (STR) once we leave. We also plan to finish the basement, which would add about 700 square feet of living space.

Before purchasing the property, we ran preliminary numbers, and converting it to an STR seemed promising. However, after taking a deeper look at the financials, we realized the property would barely cash flow. Based recent STR projections, we expect about $40,000 in annual revenue for a 5-bedroom, 3.5-bath house near Rivermount Blvd, which would only net us a couple of hundred dollars in monthly cash flow. The estimated cost to finish the basement is around $25,000, with an additional $24,000 needed to complete the rest of the property. Our latest calculations show a cash-on-cash return of just 5.87% based on the $40,000 revenue projection. At this point, we're feeling uncertain.

We’re seeking guidance on the best approach moving forward:

1. 1. Should we pursue the STR strategy and aim to be one of the top-performing properties in the market to increase cash flow, potentially up to $1,000 a month?
2. 2. Should we pivot and rent the house to long-term tenants? However, the potential long-term rent is about the same as our mortgage, meaning we’d lose money when factoring in repairs and maintenance.
3. 3. Should we go the STR or long-term rental (LTR) route to break even and rely on future appreciation, with the goal of selling in five years?
4. 4. I plan on DIYing the basement to save costs but is having this extra square ft even worth the trouble? 
5. 4. Should we sell the property when we leave and cut our losses?

Our ultimate fear is that we dump $50,000 into this property for a very small return. The biggest issue is that we already currently own the property and are unsure where to go from here. 

Quote from @Sarah Kensinger:

I would also suggest using the cash on hand and then have a HELOC available. I can't tell you how many investors I know, that keep a HELOC on hand in case a property comes up that they want to quickly purchase. Of course, have a plan to pay it back but it's a great way to utilize money that is basically tied up, and losing value since in a couple years it won't be worth what it is today.

When you have gotten a property with a HELOC do you have to let the money "season" in your bank account before you will be able acquire the financing from the lender? Have you seen any issues with this? 

Quote from @Andrew Steffens:

I would take the HELOC because you do not need to use it. Nice to have and not use if you do not need to. I would use the cash first, no sense in paying 8%+ and have cash sitting doing nothing/near nothing.

Good luck!

 Thank you for the advice. Yeah we don't want to pay extra in interest if it's not needed.  

Quote from @Jordan Holmes:

@Benjamin Stacey so we utilized a HELOC to get into our first STR deal (different than your situation, but I can relate). My advise would be if you do get a HELOC, have a rock-solid plan to pay it back in full ASAP. We thought our plan was great and we could utilize cash-flow from our first STR to pay it back, but the cash-flow just never came. Resulting in us paying this HELOC back slowly for time being. Long-term plan is to use gains from LP investment we made here in a few months. Also, if you can do a renovation and pull money out to pay it off, I think that would be ideal.

Another idea would be to utilize other people's money for the renovation and then pay them back whatever rate they desire through a simply interest note.

How is the STR doing in the Smokies? When you do renovate, what are the long-term plans with it to have it stand out in such a popular market?

That is a good point. If the cash doesn’t come in like we think it will when we make it a STR then we would just be paying it out of pocket which we don’t want to do. I like your idea to use other people money on a simple interest term. Would you still do this even if you had the available cash to just pay for the renovations?

Regarding our Smokies property, we are honestly still trying to figure that part out. But our place is currently dark. We plan on brightening it up with a lighter paint and upgrading the kitchenette area. I would say if you plan on buying in the Smokies, make sure you have a few of some sort. Looking back this is definitely something I wish we paid closer attention to.

Quote from @John Underwood:

Why not get the heloq on the property your doing the work too?

The short answer is yes utilize a heloq if the numbers work.

I would get the heloq to have available but use your cash for now do you aren't paying 8% or so for the heloq money.

Then if you need cash you can tap the heloq only then.

This will save you a lot on interest.

You can't deduct the interest on upgrades to your primary residence until it becomes an investment property.

 We just brought the primary residence we are in now. There hasn’t been enough equity built to be able to get a heloc at this time. Have you used a heloc before?

My wife and I are needing some advice on if we should get a HELOC or not at this time.

Current situation:

We currently own a duplex, a short term rental in the Smokies and a primary residence. We currently live in our primary residence and have the intent of moving out in 1.5 years and make it a short term rental once we move out. The plan regarding primary residence is to finish the basement out to increase a number of bedrooms and capacity for the short term rental. Finishing the basement would make the
primary residence a 5 bd/3.5 bath from a 4 bd/2.5 bath. Doing this will increase the projected annual revenue from approx. $52,000 to $80,000.

Plans:

We have been investigating getting a HELOC on the duplex. Talking with the lender we can get a HELOC for $60,000. We currently have about $60,000 of our own money to use for investing/renovating our properties. We estimate that the basement will cost approximately $30,000. We plan to add a bedroom and a full bath to the basement. Eventually we would like to fix up the short term rental in the Smokies as well, thinking that we could do this for approx. $5000. However, right now there is no rush on the short term rental. The priority is finishing the basement.

We are needing some input on if we should go ahead and move forward with this HELOC to help fund our future renovations/future investments or if we should be using our own cash. My thoughts on the HELOC are that we could use it to renovate our current properties and use the funds to fix up distressed properties in the future(doing BRRR-like activities) and thinking it could be used as a safety net if needed.

Should we be doing this HELOC if we are unable to pay it back in full at a later date. We have thought about how the HELOC payments could be "wrapped" in the expenses of the short term rental once we have it up and going, paying it down over time. However, this would drive down our cash flow. We project we would still be cash flow positive even with the extra costs of the HELOC, but we would ideally rather have more cash flow then less at this time

What are things we need to be considering or thinking about? Just trying to figure out if a HELOC at this time is the best decision.

Thanks for all the help!!