All Forum Posts by: Gabriel Graumann

@Andrew McGuire I believe it's a 2-part answer:

1. Market: the reality is that the local Phoenix market is by in large over-saturated by STR's. While there may be limited pockets that have a shortage, the overall market has an abundance of hospitality options which STR's fall under. The vast majority of people utilizing STR's are coming here during the peak months. That trend changed for a few years during the COVID situation, but that era has ended. We have a STR in the East Valley and saw numbers go to "historical" norms this summer, but our peak months are hitting higher occupancy and nightly rate numbers than last season. This leads to number 2.

2. What was your strategy getting into STR's, and what was your exit strategy? If you were basing your NOI on historical highs created in COVID years, your numbers will never look the same if you can't make substantial changes to your rentals. I believe one person referenced the value of pools (an absolute must for larger properties for summer and swing months from my perspective...and the data supports this). However, if you got into a STR prior to the COIVD craziness, then this past summer shouldn't have been a surprise at all. Assuming your nightly rates aren't dropping significantly in the peak months, then you're simply back to normal occupancy rates in a seasonal marketplace. I would look to what numbers you are trying to achieve and then weight that against how yours are performing under NORMAL conditions, and if they can't hit your NOI requirements then move on to an investment type that can.

I've done everything from fix and flips, buy and hold, STR, land entitlement then wholesaled and/or sold to developers, and commercial value-add projects. There is money to be made in every market, you just need the right plan and know when it's time to enter a segment of the market or when to exit it, and it usually comes back to the numbers of the deal. Happy to connect further if it's helpful.

@Jeremiah Alton welcome to the community. As a few others have shared, having a strategic plan in place before visiting properties is crucial to your future success. Networking and creating your "team" of professionals is one part of it, but also educating yourself on the variety of real estate investments and determining which is the best vehicle for achieving your goals now vs. later is equally important. Making a list of the most important outcomes in the first 36 months is also key.

I've done everything from wholesaling deals, fix and flips, buy & hold, STR's, commercial value-add, land entitlement then assigned off or sold to developers. Happy to connect if it makes sense.

@Scott Barnes I believe what you're trying to do is roll your 2% "commission" paid by the seller into the deal. The most common issue with attempting this is that title/escrow cannot apply commissions to down payment or funds applicable to the purchase as it requires the sale to process in order to make the commission funds available. Furthermore, I'll assume what you are also attempting to do is use the 2% commission equivalent to cover that portion of the down payment needed to close on the purchase, which would give you a larger equity position in the deal.

If the above assumptions are correct, the simplest method would be for your group to front the cash equivalent to the 2%, which will be reimbursed to you through the 2% commission collected at closing. This assumes you have the funds available to do this. A second method would be to add your name as partners in the deal with a percentage of ownership equivalent to the 2% commission you would have earned but is being removed from the acquisition costs by you relinquishing the acceptance of a commission. This lowers the acquisition price to the buyer, which you are now a part of, and your equity in the deal is pre-established. Happy to connect if helpful. Good luck with the deal.

@Jon McEntee My experience in 20+ years brokering and personally investing is that real DEALS never have a short supply of buyers/investors. If you're using all of the methods you mention to create buyer lists, and you're struggling to wholesale your deals to anyone, it's not the lack of buyers but the lack of a true deal. I'm getting called, texted, and PM'd weekly by wholesalers and investor focused brokers stating they have a deal that need buyers, but when they send over the file the numbers simply do not represent the current market reality that most "solid" buyers are looking for. Perhaps the numbers worked in 2021 when interest rates were low, and appreciation was 1% every 2 months, but the market today is very different. Anyone with cash or access to cheap money is demanding more margin than they did 12-18 months ago. Personally, I won't even consider a residential deal that isn't in a strong location and offered to me a minimum of 30% below a conservative ARV value. This is due to my min. requirement of a 20% net ROI (on a resale).

If you're actually centered here in the valley, I'd be happy to connect with you and see what you have.

Investment Info:

Single-family residence buy & hold investment in Mesa.

Purchase price: $450,000
Cash invested: $85,000

Short-term rental that emphasizes on-site amenities, creating an environment that creates an unforgettable experience to each guest.

What made you interested in investing in this type of deal?

We wanted a portfolio that included a residential component that provides for long-term equity growth, while benefitting from the higher-than-average cash-flow that STR's provide.

How did you find this deal and how did you negotiate it?

The property was listed on the local MLS for over 30 days, so we came in with an all-cash offer with relatively short closing window at a discounted price. Offer was accepted with little changes to our terms.

How did you finance this deal?

Acquired it with cash on hand.

How did you add value to the deal?

Improvements included new flooring, fixtures, appliances and paint throughout the interior. On the exterior, we added a huge putting green, extended the covered patio, landscaping updates, added a hot tub and pool heater. Converted the garage into a media room and bunkhouse.

What was the outcome?

Once the property was furnished and created a steady 9 months of bookings, we leveraged the property to recapture 60% of the capital invested and a property management company handles all elements of the day-to-day obligations.

Lessons learned? Challenges?

Have an awareness of local policies that may impact the intended use as a STR. In our case, the large 3,500 lot master planned community we personally lived in was planning to vote to ban all STR's, of which there were more than 40 of at that time. We knew this change would remove 40+ properties in our local STR market, creating an opportunity to pick up additional bookings in a highly desirable area. We selected a property in an area with no HOA specifically for this reason.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

As a licensed broker in AZ, I self-represented in the transaction.

@Yisroel New Knowing how you intend to use the list determines where you should be looking. If you just want to know who holds a real estate license and focuses on commercial brokerage, you could use your local MLS to run a roster report. It would have full contact info for the broker and their firm. However, let's say you are actually trying to find a commercial broker who closes a ton of leases, you could run a separate report on your local MLS or a platform like Costar based on volume closed over a certain period of time. If you are looking to send them marketing information for your service business, you could use the either of the reports above.

 Nothing. We paid cash for the acquisition, improvements, and furnishings. 

Quick summary: I purchased, improved and furnished a single-family home in Mesa, AZ in July 2022 for use as a STR. It came to market in November 2022 and has been leased consistently since then. We now want to pull some of the equity out to have capital in reserves and/or available for future deals. Open to cash-out refinance or HELOC. I've tried several past lenders and I'm running into lending issues due to 2022 total income (personal and business) being dramatically lower than 2021 due to a variety of tax maneuvering we did (accelerated depreciation, rental only drawing income for 2 months of the year, having a huge 6 figure 2021 followed by a "normal" 6 figure year in 2022, etc.). Market value is $550K, bank appraised value is $490-500K. We are open to pulling anywhere from $200-350K depending on loan type and terms. Current credit right at the 700-740 range depending on agency.

If anyone has had RECENT success with a lender for the above type property in AZ, please PM me and/or reply with the lenders contact info. Thanks in advance.

@Dean Murray I've completed investment purchases with both cash in hand and hard money loans. This said, I would advise AGAINST starting off your investment career with a HML. We've read the same books and heard the same advantages to using "other peoples money" to invest. Yes, it allows investors into the market more quickly and/or scale more quickly. However, there are huge drawbacks to utilizing HML's beyond the fees, high interest rates, and often tight timelines. There are lessons to be learned for investors that only come taking it slower.

The most overlooked and underdiscussed problem with HML's or similar debt is the compounding effect that they bring into the investment equation and outcome. One main effect is borrowed money actually LIMITS your exit options, not increase them. For instance, I purchased a property with cash on hand in mid-July of this year for use as a daily rental. The intention going in was to purchase the property for cash, make improvements and furnish the property, then refinance it into a permanent long-term loan. Fast forward 2 months and rates continued to rise very quickly for all loans, but especially so for investment loans with the average quotes coming in at upper 7-8% range. Had we held a HML for the acquisition costs with a timeline running out in a 3-6 month window, we would have been forced to refinance with a high interest loan with terms that were not advantageous across the board. Then we'd need to refinance again down the road 12-18 months, or whenever rates were more advantageous and pay another round of fees for the privilege. Instead we have kept the property in cash, and tapped some of the equity via a HELOC with a 5% year 1 interest rate. If another deal comes we'll have the HELOC funds to use, and if not, we aren't losing 7-8% having a note out there.

@Account Closed interesting note. We haven't owned long enough to see if that is the case for our property. More bookings for sure off VRBO. We do have a booking that came from VRBO for the entire month of April, which is more than 4 months out. We'll see if the guest keeps the booking leading up to that date. Overall we are very happy with the outcome of the property, wouldn't change much of anything. Already looking for the next property in the area. What do you invest in?