All Forum Posts by: 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.

I can't speak to what the situation was like in the early 2000s because I've only been investing since 2018. Therefore, my motives and goals are also likely different from someone who has already accumulated a nice portfolio.

I will say that today's climate is a lot tougher than it was 5-7 years ago, but I am still cautiously optimistic. I don't ever expect to have the same privileges my family did when they started investing back in the 1980s, but I do think there is money to be made down the road. I have no choice but to commit to this game for the long-haul. Having the patience to find deals I genuinely feel good about vs rushing into a deal simply for the price point is going to be key for me personally. Thanks to my W2 career I am comfortable with being house rich, cash poor for now atleast so we will see how this all shakes out 10, 20 years from now.

One thing that is true is that property management fees on STRs are an absolute profit killer, and honestly it hurts my soul, but I have to remind myself of the opportunity cost of time saved by doing this, which in-turn allows me to focus on other income generating projects.

I don't think it's necessarily a bad investment even if your costs exceed your income in the year you're starting out. In addition to appreciation potential, there are a bunch of tax benefits to consider as well... my favorite being that a tax loss can be carried forward to offset future taxable income. So I definitely think understanding the big picture and how your situation aligns with your personal goals should be taken into consideration.

In my opinion, the problem is not "cash inflow", but rather "cash outflow". I think many of us use hyper-consumerism as a means of validating our self-worth.

We NEED to upgrade to a new cell phone every year, we NEED to take expensive vacations to show our friends how fun our lives are, we NEED to purchase the more expensive car, we NEED to eat at chic restaurants and document the experience all over our social media. If we don't, what will other people think of us? What will we think of ourselves??

It's hard not to fall into this trap when digital marketing and social media advertising is constantly shoving all of these unnecessary products and services down our throats. I read the Millionaire Next Door for the first time recently and it honestly opened my eyes to a lot of these constraints and how societal pressures keep us trapped within this vicious cycle. Breaking free from it all was one of the best things I've personally ever done financially. I realized I much preferred to eat dinner at home, where I would be satisfied and not still hungry afterwards.

With that said, I'd love to purchase your book! @Gino Barbaro

Maybe a year? Only you can decide what's best for you, but for me a year usually feels like a good enough time to get a STR business off the ground. If you're aggressive with the advertising it could be done much sooner. Luckily my newest and largest property only took three months to complete all majors repairs and for bookings to start filling up consistently.

Do you have a mortgage? It sounds like maybe you don't (or have a smaller one) so that could take some of the pressure off and will definitely give you an edge.

Really hope it works out for you!!

Patience will be key here. It's true that demand seems to be low across the board this year for vacation or travel rentals. If you can weather the storm and some of the stress that comes with it, you may see a swing in momentum once the macroeconomic tides shift. My STR has been up and down all year, but overall I still see a lot of opportunity coming my way. I think transitioning to LTR will definitely remove a lot of the pressure, but the profits aren't where I would need them to be. Hang in there and try to keep yourself motivated.. you may be surprised to the upside in the end. If you aren't, then you'll know it's time to rethink your strategy.

Great post, thank you Jeff! I'm wondering if I would be eligible for financing on a vacation home under the "second home" rules if I am currently renting my primary residence? I realize this is probably a trivial question, but I am getting different feedback from different sources.

I don't think the new owner is under any obligation to refund anything unless its specifically documented ahead of the close. If the budget surplus is known at the time of the sale, then the seller may be able to get a pro-rated credit on the closing statement, but usually once the sale is done, it's done. I agree with you that this may not be common practice in different markets, my experience with HOAs is only in the state of NJ.

I agree that 15% cash on cash returns seems ambitious, but I guess it depends on what their pricing and financing strategies are. In this market, I'm really struggling with getting a new deal to pencil without a 25%+ downpayment.

I have a new STR property that I expect to basically break-even on in terms of both cash and NOI over the next few years. I don't self-manage this property which definitely cuts into my profits, but I'll still consider this a win for now because it's appreciating at an average rate of 9-10% a year.