All Forum Posts by: John Carbone

What's a reasonable cash-on-cash Short Term Rental return with 7.5% rates nowadays? Feels like 12-15% is solid, while we expect to refinance in the years ahead at a point or two lower. Any strong opinions?

the days of the 10 percent down 2nd home/STR loophole are closed. Fannie Freddie added several origination points to these loans to make them more expensive and rates are obviously higher. If you put 10 percent down now, you very likely will be negative each month. There will be exceptions, but very few.

also For every dollar you invest now in a rental you have a 4-5 percent opportunity cost with bonds to factor in your equation.

1 Vote

I’ll take a month in January/February for 1500 to keep your lights on.

1 Vote

Panama City, Florida

Quote from @Zach Edelman:

What are the advantages of waiting? What is the alternative here, to just sell the lot? You will incur the expense of building anyways. Also, furthermore, I have to concur with the point mode above that by the time it's finished, there should be some wash-out in the market during the build.

He has said before he is already highly leveraged

he is in probably the most volatile market for STR - smoky mountains

if his projections are off by 30 percent he’s going to need to cover any loses from other undetermined sources.

i Guess the advantage is making sure he has the means to not have to liquidate other assets in his portfolio to cover the payments in a downturn.

If no money has been expended on this new project, hold off and reduce your leverage a little and come back in a few years.

0 Votes

Quote from @Adam Macias:

Short terms rentals are absolutely not saturated or limited in opportunity. I know people who work for Airbnb and they need millions of STRs because of the demand. They ain't even close and anyone telling you otherwise is talking out of complete ignorance. You'd have to be a fool to think there's no opportunity in STR/MTR right now.

How many STR are you buying right now?

0 Votes

Quote from @Kyle Smith:

@John Carbone Is it realistic to consider 50% drop in any market? I'm thinking the economy would have to completely tank for that to happen or am I being a little too optimistic?

The land is in addition to the $300/sqft. I've done some additional calcs and I'm going to need $110k net income (which includes all carrying costs) to break even. With the current year earnings I would be around the net income of around $165k (if I used my current cabin net income as a go-by) with this cabin. The new cabin would be a high-end luxury pool cabin with an unobstructed 160deg view like my other cabin.

Yeah, its a risk but a calculated risk. My high side ($165k net income) is $55k net cash in the bank. Should I walk away from this deal? $845,000 is my all-in investment. If the Smokies market maintains $400 or more per sqft I'll have about $250k in equity at closing (conservatively speaking).

It's a tight-rope deal.

So your expenses on this once complete are 110k a year and with a 165k in rental revenue you are projecting a 55k profit a year assuming you duplicate your comp cabin over last 12 months?

I know 50 percent seems extreme, but considering how high things have come since 2019 with Covid demand etc, I don’t think we need an apocalyptic event to see 50 percent revenue haircuts, just a typical recession will likely do considering far we have risen.

it seems like a 30 percent drop in rents will wipe away profit and anything beyond you will have to come out of pocket for assuming in interpretations correctly.

if you have to go negative how long can you sustain payments? Do you have a day job that can get you through. I’m not suggesting this isn’t a good long term decision, you just need to make sure you can’t get wiped out and risking your other cabins. I also don’t like just sitting on land that has been bought either though.

@Collin Hays has more data on how far he thinks revenues can drop, he has seen the volatility in the smokies and will know more first hand knowledge.

1 Vote

Quote from @Kyle Smith:

Quote from @Bruce Woodruff:

Are you getting a loan to build or using cash from some Refi? A lot of risk here, but I am the jump in the pool and figure out how to swim kind of guy :-)

Doesn't always work, but sounds like you could recoup your investment if the economy tanks?

It’s a straight up equity loan at 8.35%. I know…it’s a big ouch and gasp. I’m a dive in guy as well. I guess that’s how my ADHD works… worry about the consequences later. LOL

Do you have other income sources if things go badly to cover all of your properties? You said highly leveraged but how leveraged is that?

Also is your $300 a foot all in with land to turn key?

another thing to consider is how much will this new property if things go well improve your financials? On the flip side if revenues drop in half how much will doing this property impact you negatively?

0 Votes

Quote from @Dan H.:

Quote from @Denis Ponder:

I'm looking for a handyman right now and I'm exploring Thumbtack and FB Groups. I need to find a few so I can keep the projects moving.

I tried to find a cleaner through Turno for a 500 sqft 1br, 1ba studio. The lowest is $75/project. I can clean it myself in 45 mins, so that price seems a bit steep to me. I will gladly clean it myself at $60/hr.

>I can clean it myself in 45 mins, so that price seems a bit steep to me. I will gladly clean it myself at $60/hr.

I suspect this will get old quick. However the cleaner has to cover their transportation time and costs, pay their SS tax, pay income tax, pay for or do their bookkeeping, pay for cleaning supplies and equipment.

I guarantee the maid is not going to get wealthy taking these jobs but if you want to spend your time cleaning units, it is your choice. I would rather spend my time looking for RE, spending time with friends and family, traveling, watching my favorite sports teams, watching good movies or tv shows. Actually I would rather do anything than clean up after my guests.

Good luck

Everyone is in a different situation in life.

In the past he said he can do it during lunch break. If he’s doing it himself then financially it must be worth it for him.

0 Votes

Quote from @JD Martin:

Quote from @Michael Baum:

Hehe @JD Martin! So the CO house is in Conifer. The house itself is only 7 miles back to town so it isn't bad really. Conifer is 15 miles west of Denver. Population is 7700 or so. Not a tiny town and pretty close to Denver really.

Our lake house is 36 miles down lake from Coeur d'Alene, ID. That is about an hour drive along the lake back to town. The town of St Maries is 18 miles south of us. It is small at 2800 but has 2 grocery stores and an Ace Hardware. I usually go there to for stuff as needed.

Rural but not terribly far.

😅 It's funny how much of everything is perception. If you're from the West and used to driving 60 miles to go anywhere these things become non-issues, whereas if you're from Jersey like me you can drive from Pennsylvania to the city in the same mileage. For me both of them would be BFE but I can appreciate that plenty of other people wouldn't be bothered at all by the distance.

People visit me from major cities here in East Tennessee and think where you and I live now are BFE 😂

1 Vote

Quote from @Alexander Achim:

Quote from @Brooklyn McCarty:

All depends on what you want to get out of it & how long you plan to hold the property in the long run anyways. What’s your end game?

End game for me really was to have some “passive” income . Though with these STR it’s not quite passive . My biggest concern is an unpredictable downturn and even though I’ve got reserves setup to ride it out for a while , if things don’t turn around after a while the mortgage is quite alot to bear in my own.

lot of good insight here though .

List it for 1.8m and see if it sells. Appraisals are coming in higher now because they are still using last year sales. A lot of us in the smokies think we have more equity than we really do right now because appraisals are coming in strong. You still need to find someone that will sign on the dotted line for the appraisal price to capture the equity right now.

0 Votes

Quote from @Kyle Smith:

I know there is a lot of uncertainty coming from all directions about the next 1-3 years in short term real estate. I am all the sudden on the fence about building. I built a pool cabin with a great view in the Smokies and closed on it in January of this year. I have had incredible returns this year. I just went under contract for a new lot and I’m looking to duplicate this particular cabin. If occupancy rates stay as they are now for the next year or two, I will still cash flow around 50k-80k with this new cabin build. Knock on wood..

Should I wait and build once we have more data about the future economy or take the plunge? My gut tells me to build and scale this thing ASAP! But there’s so much negativity out there and even the old timers are saying the incoming storm will be pretty bad. People still vacation right now, but will they vacation at 2019 occupancies the next 2 years? Will employment tank and take the vacation market with it? What are your thoughts? Build with my proven formula or hold onto my money and wait? Thanks in advance.

Here is the way I see it, and I think you should too. You need to look at this new potential cabin build and figure out how
it will affect your risk levels. Lack of risk management is the biggest mistake people make in real estate. I am not one these people that follow the Dave Ramsey crowd of pay cash for everything…far from it. I’m all in on this market as well, every dollar I’ve earned and then some has been put into investing in this market.

when rates were 3 percent I was telling anyone and everyone to get as much borrowing power at fixed terms as you can. This was the expansion phase for businesses, I went hard here myself.

with interest rates rising 250 percent, you need to recalibrate your system and look at your portfolio. Is it worth it to go into high interest rate debt for this new project and have this new property impact your other successful properties in your portfolio?

How much of a drop in rents will you be able to handle? The way I’m underwriting my own deals for expansion is that I need to be able to cover the new payment with 7-10 days of current rental numbers. Anything that doesn’t meet those threshold is too risky for me with borrowed money right now.

If you can weather a 50 percent drop in revenue and have the means to cover the payment and get through construction then go ahead and do the new build. It’s not about who is going to be right or wrong, Just understand that the risk has risen dramatically and plan accordingly.

5 Votes

All Forum Posts by: John Carbone

John Carbone has started 38 posts and replied 1079 times.

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