All Forum Posts by: Jonathan Dempsey

Adding an extra amenity like a theater room is a fantastic way to increase occupancy or maintain in the ranks in stiff competition.  It's nice that a theater room operates at a fixed cost (as opposed to say adding a hot tub which can come with variable maintenance).  I've had success improving rates and occupancy with a theater room in the past.

While the ROI is there, the remaining consideration is opportunity cost with the space. Would you be giving up a more important room/space to make the theater happen? If not, then get the popcorn ready!

Well said @Michael Baum.  LTRs are of course more proven and less impacted in a downturn.  Your listing sounds like a great example of an experienced based stay that comes with many free recreational options once the accommodation is set.  These areas seem primed to weather the storm.

Not that vacationing is new, and hospitality has had its lumps in prior economic downturns.  With the evolution of homesharing since the last major downturn, I want to be as bold to say we are about to test homesharing's true resistance or lack thereof in a weaker economy.

Amidst a recession and uncertainty looming in the market, how would you classify short term rentals resistance to economic downturns?

I have my thoughts on this, but curious what the people have to say!

Only item I'll share is local affordable getaways (ie. driving distance to mountain/lake houses for the weekend such as the Poconos) may be more resistant than extravagant destinations that require an expensive flight and demand higher nightly rates (Hawaii for example).  This is considering your average Joe through upper middle class.  Surely there is a class of people who will be lesser affected by economic downturns and continue not to bat an eye at the high end vacations as its a lifestyle they've earned and continue to afford.

Live Free,

JD

Hey Neil, my team lives on STRs in PA.  The guys above have nailed the path.  Everything boils down to 1).  Is it legal/will it remain legal as time goes on.   2).   If it is legal and well situated, is it profitable?  

 If you PM me the address would be happy to help with a deep dive on those questions or second look your pre-existing analysis.

Live Free,

JD

@Pretty Khare

These are great numbers, awesome to hear about the niche in Tampa.

To quickly sift and compare apples to apples, the minimum a property gross to purchase price ratio needs to be 1.67% in markets I underwrite in.

So for a 500K house, gross rent would need to hit at least $5000x1.67%, or $8,333 gross.

Generally I see STR expenses to be between 35-40% of gross if you have management in place, cleaning revenue, maintenance, utilities, etc.

Being conservative this leaves 60% of gross as NOI typically. If you want 1% rule on NOI (a minimum standard for a good deal in STR), then you'll need 1.67% gross (1/.6).

I know @Josh Messinger is seeing this in the Poconos as this is a market I invest in heavily, and I’m sure most of those Tampa rentals mentioned are in a similar boat.

STR is my sole focus, always ready to chat STR if you reach out!

Live Free,

JD

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,200,000
Cash invested: $60,000

Seller financed collection of 5 short term rentals & two vacant lots in Pocono Pines, PA. The property generates enough net revenue to service the 15 year note & cashflow an average of $3,500/month on a $60,000 down payment.

The STRs are secluded bungalow style units and a SFH

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

The deal was a perfect fit for my partner & I. We invest exclusively in STRs and saw the X-Factor in this portfolio offering. Specifically, the uniqueness in the units sizes, seclusion, level of finish, and proven financial history. The cash on cash returns for the property were excellent upon underwriting for BOTH future and past performance. My partner & I operate a short term rental management firm & are very much interested in where the STR space is heading.

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

My partner saw the offering posted on a Facebook group. We set out to tour the property and others in the area. Upon walking the property with the seller, there were several points where it was clear the seller had an emotional attachment to the property. The seller & his husband had built the bungalows themselves and lived there. It also became clear by their future plans that they were not hurting for cash. My partner & I decided to offer full ask price in exchange for seller financing.

How did you finance this deal?

5% down, seller financed on a 15 year note at 6% interest.

How did you add value to the deal?

We will be building on the two lots that came with the portfolio. One additional 1 bedroom bungalow, and one 3-4 bedroom house near the lake. First we must install septics and lock in the construction financing.

What was the outcome?

The property group currently is estimated at a value of $1.5M. After putting in approximately $500K of construction on the two lots, the property value is estimated to be closer to $2.3M.

Lessons learned? Challenges?

Smaller units attract much more appealing guests for hosts. The Poconos area is not equipped with enough supply for smaller groups. There is a mismatch in risk reward in this asset class. For this reason, we recently went under contract on a 43 unit resort BRRR style deal in a similar location that will fit a similar asset class with more amenities offered due to the scale.

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

I recommend Lab Creates Design for STR design & labor as well as Perspective Media for photography.

I work as an agent team lead with our team specializing in STR investments & analysis, so needless to say I recommend our team.

Everything comes back to numbers and regulations.  You want to find an area that has an advantageous risk reward ratio.   In our go-to market in PA around the Pocono Lakes, sometimes the lakefront properties have the best cash on cash returns and other times its the lakeviews or even a bit farther out.  

The numbers are typically best when the house has X-factor finishes and amenities that will make you want to rent compared to competitors in the same tier (comparing lake front to lakefront etc.).  The right lakeview listing can generate more revenue than even a lake front if there are enough differences.

Someone said it earlier, but Austin regulations can be tricky.  Personally, I will only purchase in areas where the regulation forecast is not limiting OR if regulatory outlook is bleak, I tend to purchase commercial and resort zoned property before the regulation is in stone and prices go up.

If you ever want to chat revenue, cash on cash analysis, or anything STR, DM me

@Luke J Nelsen  curious if when underwriting you put in a management fee although you self manage.   Just to keep apples to apples and cashflow projections honest?

There is definitely some cat & mouse going on in vacation markets where sellers are utilizing higher returns through covid to justify prices.   However, I don't know that we will have the level of demand drop to pre-covid levels.   In my opinion, many of the markets that exploded during covid will cool down, but remain strong with historic highs after being placed in the spotlight.  Florida being a prime example.  Many people who transitioned down do not have plans to ever look back.   Also keep in mind the workforces opinion on remote work has made a paradigm shift.   People have more freedom than ever to work where from where they like.  Although that may recess, remote work will remain at a higher level than the world has ever seen after testing the landscape through covid.  

Rates may slow the markets, but vacation towns are forever redefined and will become increasingly popular as people realize the freedom's of the post covid era.