All Forum Posts by: Jon Martin

STR "loophole" is section 469 that allows you to count the paper STR losses as active against losses your active W2 income. Much easier to fulfill the requirements than REPS or whatever other method is allowed for using LTR losses against W2 income.

I disagree with your 2nd paragraph, there are plenty of markets out there with homes well under the national median that still have strong visitor numbers. Mid-to-high end markets I would agree.

Keep evaluating markets. 3.5 years ago, just before pulling the trigger, I had airdna (market research tool) open on one tab and realtor on the other. On both websites I went up and down freeways, rivers, and coastlines to get a feel for the general pricing landscape for much the continental US on both the revenue and the acquisition side. Looked for markets where the annual revenue to home price ratio was as favorable as possible. 

Shoot for 20%+, including rehab costs. Anything under 15% will have disappointing cash flow at best, especially if you are not self managing and/or have high HOA or property taxes. 5+ bedroom properties are more likely to hit those ratios than 2-3 bedrooms in most markets.

Chart looks like my average morning until I have my first cup of coffee

You don't have to pay for your LTR tenants power, water, cable/wifi, toilet paper, coffee, dish soap . . . The list goes on. You don't send them a partial refund because there was a hurricane or a power outage. Insurance isn't 2X+ what a normal policy costs. The hidden costs really stack up. 

Overall, it seems that the destinations that blew up during the pandemic (Joshua Tree, Smokies, mountain NC) are seeing the harshest corrections, while many other markets are doing well, or at least cash flow positive because of lower entry prices. People flocked to them because that was the only/best option for travel at the time. 

Anecdotally as someone who lives in California, I went to Joshua Tree and Palm Springs for the first time in my life during the pandemic . . . And haven't been back! Not because it isn't a nice place, more so that there are so many options and part of the fun of travel is experiencing new places. 

This. You are already putting up at least some cash to sign the lease and furnish the place, so why not deploy that cash in a better way and have ownership?  

I would look into a house hack with 3.5-5% down, such as a single family home with a detached garage or walk out basement that you convert to a 1-bedroom for STR. If you are single or have a supportive partner, live in that unit and rent the main house to really stack cash.

There are also 10% down bridge products that include rehab costs. So many great products out there, IMO it is better to use that cash to leverage equity than use cash (or credit cards) to pay for security deposits and furniture. 

Agreed. I first saw a photo of Bryson City (never been), where the mountains and river and train tracks all meet in a quaint little town, towards the end of 2021 and thought it would be an incredible place to own an investment property. Even then the purchase prices were inflated and the revenue estimates didn't come close to justifying it. 

Given that residential properties are valued based on comparable sales of other homes this is likely not to change. I don't see STR sales of residential homes being enough of a piece of the pie for appraisers to come up with some alternate special way of appraising the property.

That said you can always try to price it on a multiple and sell it that way, but it won't be lendable and the market will tell you if your "business" is priced appropriately. 

On a related note, I think there is huge opportunity in repurposing commercial buildings into STRs or hybrid STR/boutique hotels and that is something that could be sold as a business, although that is an expensive endeavor and comes with much more DD and risk than a residential home purpose.

Agreed with the above . . . The draw with STRs is that the amenities are on site and private. Guests might appreciate the option but monetizing it could be tough. 

If you are going to put that much effort in and have the space, just build some 1/1 bedroom cabins while you are at it.