Quote from @Erica Calella:
I could see why you are concerned here, but if I was in your shoes, I'd try hold out as long as possible before jumping ship.
My burning question- What do your operating costs consist of here? They seem high for what I am assuming to be a smaller sized property. What can you do to reduce these? Once you are able to increase your margins, I would try to pay down the mortgage as quickly as possible using whatever extra cash flow you can generate. Look at everything, from utilities, to landscaping, to property taxes etc to see where you can save. Your debt payments appear to be around $16.8K per year, not $24K, so I'm not sure where that figure is coming from, but once the mortgage is paid off, you'll have some more cash flow to play around with.
1031 exchange is always an option if you are really just done with this property and want to sell. I think all of the capital improvements you made will increase your basis too, but make sure to confirm with a tax professional on that.
My monthly mortgage payment is about $1,400/month which includes PITI. You are right that my annual debt service is about $16K ($1.4K x 12) but the metrics I shared were over a 17-month timeline of being operational with the STR ($1.4K x 17 = $24K). Understandably a bit confusing on my end - sorry for that.
I appreciate you pointing a finger at the operating costs. I'll do my best to summarize. Again, I will show these metrics over the past 17-months that I've been operational. Total operating costs over this 17-month timeline total $32K. Also important to note that I live out of state and require some boots on ground management and travel costs to travel to the property.
Admin ($6.2K) - includes $1.3K of advertising (listing photos, FB ads, etc.), $2.1K of travel (flights & rental cars), $2.3K in software subscriptions (PMS, etc.) and $300 in meals
Management Fees ($1.7K) - PM fees, booking platform fees, etc.
Cleaning Fees ($6.2K) - pass-through charge for guest
Repairs & Maintenance ($10.5K) - General R&M ($1.5K), Painting ($1.2K), Plumbing ($1.5K), Pest Control ($500), R&M Supplies ($500), Labor ($3.5K), Linens, Soaps, Consumables ($1.5K)
Legal & Professional ($1.5K) - LLC setup & lawyer fees ($350), inspections ($1.1K)
Utilities ($6.4K) - Gas (avg. $63/mo.), Electric (avg. $121/mo.), Internet (avg. $60/mo.), Water & Sewer (avg. $107/mo.).
Please let me know if you see anything glaring or things that I can work on bringing down or eliminating completely.
It's important to note that up until I hired the full-service PM in April '24, I was self-managing from out of state and paid a local boots on the ground resource when needed. From April '24 moving forward, my P&L will look much simpler as the cleaning fees, PM fee and software subscriptions are handled by the PM so I will just see income after all of those fees on my P&L.
Regarding the 1031 exchange - that would still result in losing all the cash invested above and beyond my equity position. My understanding of a 1031 is that you essentially move the equity from property A to property B, I can't recapture my full $130K cash invested, only the current equity position of $45K. Unless I am misunderstanding your suggestion there.
