All Forum Posts by: John Carbone

As we return to the post-pandemic pace of supply and demand, investors are beginning to count the cost of operating a vacation rental, and if it is all really worth it. Well written article here. One huge factor not mentioned is rising interest rates: If I finance $500,000 and have to pay 10 percent interest, I have to generate $50,000 per year just to cover the interest payment. Two years ago, I might only need to generate $20K to pay the interest. For all but the most exceptional deals, this is no time to be investing in anything that requires debt service.

After an unpredictable summer, Airbnb and Vrbo operators are deciding if the headaches of hosting are worth it (msn.com)

I’ve said before that the lower returns are going to push people to either sell or go to a property manager.

The problem with selling right now is that you may end up bringing money, and perhaps a lot of it, to closing: If the cabin you paid $750K for and financed @ 5% APR is barely making numbers, who is going to buy it for more than $400K @ 9 or 10% APR?

Yes exactly. There’s only one way this ends, and that’s lower prices unless the fed reverses course quickly like the overall market has been “predicting” since they did their first hike. I was looking back at data, a year ago the market was pricing in fed funds to be below 3 percent at this point. We are now 5.5 and no abatement in sight.

The window has been closing quickly, and there are still a few people out there who think they are a guru and can make profits on 500k + purchases at these rates, I imagine by winter those people will no longer be there and it will be fully obvious to everyone by then.

The fed has no incentive to cut rates. Home values, stocks, and jobs are still strong. Any rate cut risks inflation spiraling back up and the fed knows that if this happens they lose all credibility and then we are stuck with high inflation for the foreseeable future.

The fed has made all of us look like Warren buffet in real estate. A decade plus bull market, most investors don’t know what a business cycle is because they have never seen one, and people are blinded thinking they are gurus. We are all taking the FED medicine now. It’s needed though.

5 Votes

Quote from @John O'Leary:

Hello Collin,

There's a lot to unpack here. Like most real estate investments location is paramount, and understanding supply and demand dynamics in the desired market is crucial. I also think a pivotal factor is the quality of the operator. Ensuring that the operator can offer a distinctive experience to vacationers can differentiate your property in an increasingly competitive space. If you identify properties in a market that isn't oversaturated and manage to provide that unique touch, there's potential for profitability.There are also DSCR financing options available for short-term rentals with rates hovering in the mid to low 7% range.

Where are these options available? An owner occupied conventional is over 7 percent now. Send me a private message with details please.

1 Vote

Quote from @Collin Hays:

After an unpredictable summer, Airbnb and Vrbo operators are deciding if the headaches of hosting are worth it (msn.com)

Good article, but yes as you say it leaves out the 30-60k extra interest on 500k/1m purchase new comers are paying. Essentially you are having the bank become a much bigger partner with you now. A little over a year ago when the fed first hiked I made a post that the punch bowl was being taken away and the party is over. The juice took a little longer to squeeze out as rates slowly crept higher but nonetheless here we are. Since rates have hiked I have not found one deal that made sense to buy here in the smokies. People buying 500k+ cabins at 10 percent which you still can’t really get anything below 500k and talk about adding value are facing a massive uphill battle.

I’ve said before that the lower returns are going to push people to either sell or go to a property manager. People can justify doing this for a large pay day but once that is no longer the case and someone is answering guest messages on a property that they are losing money on or barely covering costs, that will get old really fast, and paying a 20 percent fee to not be associated with it will look much better and taking the loss will be the best option for them unless they sell, but some will be forced to not sell due to 6 figure loses.

the big promoters of self management are also the ones who don’t actually do it day to day and deal with guests. They pay other people to deal with the grunt work but they don’t openly tell you that.

1 Vote

Quote from @Michael Baum:

For our house, it is too far out for Walmart+ to deliver (I asked yesterday) so that isn't an option. Costco won't come out either.

The only place that does deliver out here is Lowes. Home Depot won't come out either...

Who did you ask? I’m curious if this works in the smokies.

0 Votes

Quote from @Alex Scattareggia:

Lets assume the 5k monthly top line is correct.

Correct me if my numbers are wrong here but the monthly expenses number seems quite optimistic.

Mortgage is going to be 2.7k. So, you are calculating $900/month in additional expenses? This deal is pretty thin margin to begin with, but I think you are being quite optimistic with the expense number.

Good luck, saying no to marginal deals is equally as important as saying yes to great ones.

90 percent of deals done right now are in similar situations or worse with the underwriting, but some people are still throwing the dice. The issue is the interest rate being so high. People are trying to get too crafty here, a few will succeed most won’t.

0 Votes

Quote from @Andrew S.:

Quote from @Jim K.:

@Seth Kristian

How and why should hotels and motels and resorts and their lobbyists be so terrified of STRs? How is it that someone like Seth, who I assume had absolutely no background in the professional hospitality business other than this STR, is able to bring a comparable or superior service to market than what the professional hospitality business can provide? There shouldn't be the GHOST of a chance that Seth can beat them out at their own game. And yet...here they all are quaking in fear of his little business.

One of the reasons why the hotel industry lobbies against STRs is that they feel (rightly to a large extent) that they are being held to different standards. For example, many safety regulations (sprinkler in every room, regular inspections etc) simply do not apply to STRs. This makes it more expensive to run a hotel. The STR customer generally doesn't appreciate that they are accepting a larger risk by not being protected by sprinklers, etc. Until something bad happens, anyway... Also, there are certain types of hospitality taxes in some locations that are only levied on hotels and not private rentals.

Incidentally, since you mentioned Taxis, this is also still an issue with Uber/Lyft which generally are less regulated in terms of safety/insurance. People just don't realize the aded risk when they Uber. I assume that over time, regulations will probably catch up in all of these cases, but I'm going to predict that STR owners will complain bitterly when they are forced to install sprinklers in every room...

I do get your larger point though that change generally is positive, but is always associated with pain for the status quo.

Is it safer being in a 10th floor hotel with a sprinkler system in every room needing to go down 10 flights of stairs in a fire as opposed to being in a SFH with an easy path to exit like hundreds of millions people do on a regular basis? I'm going to sleep extra well the next hotel im at knowing that the inspected sprinkler in my room will save me.

2 Votes

Quote from @Mike Dymski:

Can you move back in, reapply, and STR by the room? Jurisdictions are implementing three primary models across the country (1) STR disallowed under existing residential zoning (2) STR by the room allowed with homeowner physically living there (3) STR of whole home allowed without homeowner physically living there. This jurisdiction is #2, which is a very different model than #3.

If he lives in the detached garage studio he has, presumably this falls under option 2 if zoned for multi family?

0 Votes

Quote from @Seth Kristian:

Quote from @John Carbone:

Quote from @Seth Kristian:

Quote from @Kelly Sennholz:

Quote from @John Carbone:

“Their line of questioning quickly pivoted to my daughter, where she goes to school, where i sleep”

this line of questioning for renting out your house to someone…sounds like nazi Germany when they went around to houses looking for Jewish people.

First, this comment is very inappropriate.

Secondly, in a democracy, we work things out. The law and the political environment are the mechanisms for doing this. Sometimes, we are on the losing side of an argument, that is how democracies work. Your comparing this to Nazi Germany is insulting and ill informed.

When corruption has played a part in how things go, that is wrong. We must support democracy full throatedly, in particular with all the openly anti-democracy folks floating around now. Buying a home is one of the most important financial decisions many can make to improve their lifelong wealth. We must support this, also, if we are to maintain the Horatio Algers America. That is a dream I believe in.

* FIREWORKS *

We’ll said!!

Is your primary home zoned for multi family? If you put a Home Depot shed on your property and live in it you would meet qualifications, or living in a rv in a detached garage.

if you moved out of your primary residence to another property in the same vicinity then it’s not your primary residence from both a voting standpoint and a irs standpoint.

Funny you should mention that because I already have a studio in the detached garage. It just felt so weird to rent the “entire property” with the minor caveat of host is staying inside the garage… but its basically a finished economy in there, had a bed setup in there any everything. Food for thought

Perhaps you should focus on legal ways to make it work then if that’s what you want to do or sell it. Anything further on this topic without addressing either of those two options doesn’t solve any problem.

0 Votes

Quote from @Seth Kristian:

Quote from @Kelly Sennholz:

Quote from @John Carbone:

“Their line of questioning quickly pivoted to my daughter, where she goes to school, where i sleep”

this line of questioning for renting out your house to someone…sounds like nazi Germany when they went around to houses looking for Jewish people.

* FIREWORKS *

We’ll said!!

2 Votes

I think anyone paying these record prices with 10 percent mortgages will not end well in the next several years.

2 Votes

All Forum Posts by: John Carbone

John Carbone has started 38 posts and replied 1079 times.

Post: Are vacation rentals still worth it?

Post: Are vacation rentals still worth it?

Post: Are vacation rentals still worth it?

Post: Hack to managing Airbnbs remotely!

Post: What would you do?

Post: City just stripped my STR license!

Post: City just stripped my STR license!

Post: City just stripped my STR license!

Post: City just stripped my STR license!

Post: What would you do?