All Forum Posts by: Michael Rutkowski

I'm certainly not implying this is the case with all properties, just what I've seen in our saturated market, as a manager and agent. Mine are great also, but there is no way that is the case for everyone.

You might have heard this one before... A small town in a beautiful location, with an under priced real estate market, gets swamped by investors who bought up all the property to rent to tourists. Sound familiar? It is happening more and more around the World, not just in the US. I recently got interviewed by Business Insider on the topic, and you can read my thoughts about this here:

https://www.businessinsider.co...

But essentially, the market is no longer healthy, and those properties which don't stand out aren't getting the bookings, in an over-saturated STR environment. Bozeman's STR proportions are about 3-5% of total housing units. We have a diverse economy here compared to the rest of Montana towns, but yet tourism always is a foundation of our economy. And real estate plays into that. So in my opinion, 5% of total housing units being STR is too much. The City has run into a $1.4M education deficit, and I can tell you they won't be banning STR's anytime soon, but enforcement has gone up on them. The Bozeman Tenant Union, which is fighting for to ban STR's would have an easier time banning these around Disneyland, than here, as we have strong property rights, lowish taxes, and the City is aware of who pays the bills to keep our town shiny and new.

As the prime rate gets higher, and more buyers are pushed out of the market, it becomes very appealing to buyers to have some option to cashflow. Something like an ADU can make a first time home purchase possible now for a family, if they rent out that unit for example. But more and more, if a property doesn't have amenities, guests will either book a hotel for a cheaper price, or go find a better STR.

So let me ask you a few questions: How long have you owned a STR? What is your vacancy now, vs before the STR boom (pre-ABB IPO)? What proportion of your town is STR/total housing units? I'd love to hear about insights into your areas.

Our property management company manages about 20 of these in a large area of SW Montana from Madison, Gallatin, Park, and Sweetgrass Counties. I've been an investor here since 2007, and I've been selling real estate here since 2016. I would agree with most sentiments that we are headed for a huge downturn in STR. Our market is still very strong, but the outer limits out in the county, or anywhere further than 30 minutes from a town like Bozeman or Livingston, and in more isolated pockets are taking a huge hit right now. I'm not really worried about my rentals, as we have a niche market that we manage, which is very amenity rich, unlike those el-cheapo illegal 1 night specials you are seeing everyone and their cousin posting in Bozeman.

The main problem is that many investors out there predicated their purchase of a residential property on a strictly STR operations and income. I never ever advise that to potential buyers, and also point out that a bank will not accept STR income, but only LTR income, market-rate at a 75% occupancy...

Our real estate market is down over 50% from last year and rates are killer right now at 20-30% down with a 7+ rate right now, so you can imagine how that is killing our market. In other words, when it comes to a sale, these investors will be the first to lose money as their equity in the property fizzled away as the Fed fights inflation. I think deals will be hitting the market so keep your eyes peeled.

Besides the STR market taking a hit, I've been expanding my own operations for accommodations, plus additional complementary businesses in under-serviced areas. In the next few years, we are planning on opening a few businesses, regardless of the state of the economy. We don't bother with residential property or land zoned residential anymore. We don't buy in city limits. We don't even build with concrete anymore. Everything is modularized, and we pack our properties with amenities. Not seeing many exciting STR's out there when I travel these days, which I assume is just owners not really caring about the experience their guests are having, but only about the money they are paying. It does, however, make me feel better about my properties!

Good luck out there! Merry Xmas and Happy New Year!

Yep, still available! This is a state lease option, and the Land Board has raised prices quite a bit since I posted this, but still there, still a killer location, and only a small chunk leased out so far. 

Conforming loan limits have gone up, what is the price range you were looking at? Should be able to do 5% down if you're under the $650k mark, with good rates. I know that's a stretch, but totally doable in our market. But you should be thankful, on a non-owner occupied investment property, rates are going back up to 4.5-5%+, and 25% down minimum sometimes 30%, and 6 months of reserves. At that point, once all those ducks are in a row, you will need to compete for an accepted offer. I have put in offers $15k over asking for clients, and they got rejected. This may be one of the toughest markets to break into.

Hello Silvia, 

Thanks for contacting me! I am a licensed real estate agent, and property manager in the State of Montana, for full disclosure. So, by state law, if you are already working with another agent or manager, I can't really help you out. Our business offers assistance with both purchases or sales, and management of short term rentals. We have been managing short term rentals in and around Bozeman since before they enacted regulations on them, and have close to 1,000 5 star reviews. Our management includes cleaning, and with commissions, we can almost guarantee that we have the most competitive rates in the area.

So if it sounds like I can help you out, just let me know! Thanks again for reaching out to me, Mike 

From my experience with older homes in Montana, I would think that a home built in 1953 has some asbestos derivative in it's construction. You will likely find Zonolite insulation in the attic, and some asbestos in the siding or flooring. I redid a house in Bozeman that was built in 1952, and there was asbestos sheets lining the HVAC pipes... Those can be tough to deal with as a heads up, and perhaps selling may be the easiest option. 

Rents out there are about $400 for a 2 bed apartment, straight out of the 1950's, and about $700-800 for a small SFH in a similar condition as a whole (might be less of a headache for $100 less/month in rent than rented as 2 units). There could be many reasons why a property is worth more than another. The other could have been redone more recently, have more amenities, or some other completely different reason. That is something an agent could look into for you, and they could run their own comps.

You shouldn't have any trouble finding a PM, and assuming it is decent and livable, I would shoot for $400 for the main, and $500-$600 for the basement. That may be a little bit steep for Glendive, but you don't have many rentals out there to start with anyway. Another flip side would be to try and grab some traffic from I-94 through town and operate as a STR. You could probably charge a minimum of $80/night in the slow season, and $120/night during summers. But this strategy would require more updating and money up front.

Good luck!

Ok, so I did confuse the lawyer with my question also, but I guess I should word this better: The property is owned by one of my companies. I would like to sell this property, then buy a completely new property, not transfer ownership to another company. I would like to buy the new property under a different company name. So in fact, there are two separate companies, dealing with two separate properties. I was eventually told this would be ok, but it took a few minutes of clarification with a lot of "Uhhhhs" and "Hmmmms". So that's something I would like to verify. I was also supposed to get a call by the end of the day on this, and have not, so perhaps I may be talking to the wrong company. Maybe I should be talking with a real estate CPA instead of a lawyer?

This isn't just a shell LLC, but an actual business which owns the property. I actually pay most of my taxes through this company in Schedule C. The other company also has Schedule C income... and so that's where I'm confused. If I own both 100%, and both are on my personal tax returns, then it seems I can get away with it.

I may just file a quit claim, as this seems to be confusing everyone including myself. Good to know about price, and $1k is exactly what it cost before. So maybe a heads up to others out there.

I'm trying to initiate a 1031 with a qualified intermediary, and have been quoted up to $3k for fees. Previously we were involved with one in a different state and they were only about $1k, but this was a few years ago. What are equity exchangers charging these days where you are from? Can I use any intermediary anywhere in the country, or do I need to use the ones in my state where my property is? I'm also looking to keep this between LLC's, and couldn't seem to get a sufficient answer from the lawyer I talked with. So I want to sell property from one LLC, and then buy a different property under a different LLC. Both are owned by me. Is the IRS going to allow that?

Hi Cooper, I invest in both Gallatin and Paradise Valleys. Let me know if you have any questions. We run a property management company in Bozeman, and I handle real estate sales for our business. Always good to meet other investors!