All Forum Posts by: M T Naughton

Hello, 

I started operating STRs this year and am nervous that someone will sue me and take my equity. All of my properties have gone up significantly. I would refinance but rates are horrible. The properties are already held in individual LLCs and I have umbrella coverage. Still, there are hundreds of people entering and exiting my properties now. Is there any way I can further protect my equity? 

PS. I live in TX so HELOCs are out 

Thanks! 

Hi all, 

I purchased a house for $1.2m, renovated it with $150k, and now it appraises for $1.9m. I want to get access to the money and was going to refinance but interest rates are crazy. Furthermore, this is an Airbnb so I don't want to have so much equity in the home as it's more likely to have a lawsuit issued against it with so many people going in and out. 

Aside from refinancing, someone told me I could take out a 2nd mortgage. Does anyone know how that works? Any other ideas? Thanks. 

Best,
Matt

I own one duplex and am about to purchase another. I have umbrella coverage but no LLC. I have always kept separate bank accounts (checking & savings) for my duplex. I'm about to buy my second duplex and am curious if I should also open another set of bank accounts or just use the one I have. Thoughts?

I know there are generally two camps. Some feel that real estate is a viable alternative to bonds and others feel they are not. What camp are you in? Why are you in it? Note that when I say "real estate" I'm not talking about your personal residence as it is not liquidable. Thanks for sharing your thoughts! 

@Gerald Pitts- rent it out to a family (traditional duplex) not my own. @John Underwood - each scenario is different. see spread sheet and cashflow row 

Hello,

I hope everyone is well! I'm about to close on a duplex in Austin, TX. I currently own one and sadly the cost of homes has gone up so much that doing it the traditional way no longer cash flows. As such, I'm considering an STR Airbnb strategy. I was wondering if you would mind reviewing my numbers to see if they made sense or if I'm missing something.

About the Asset:
Purchase price: 1.238M

Loan: 10% down with a 3.65% interest rate. My downpayment and closing costs will be $138,878

Location: 1.5 miles from Downtown Austin in "A" Neighborhood - House is on the side of a freeway but there is a wall barrier

Sq Ft: 4400

Beds/Baths: 9 beds / 9.5 baths

Kitchen: 1 kitchen - I need to remodel it and build another kitchen for unit B

Living room: Non-existent - I plan on sacrificing a bedroom and knocking down some walls to make space for 2 common areas
Zoning: Zoned as a duplex but currently a single-family home (not up to code)

Year built: 1981

History: Inspector says the house was "overbuilt" - The structure is very solid with no signs of damage. The home was initially a duplex for a father and his adult daughter - The daughter then turned the home into a Bed and Breakfast - Currently being rented out room by room ($1,000/per room but not all rooms are rented at this time)

Repairs: Needs a new central AC and heating system - Roof is 14 years old - new kitchen - updated kitchen - two common areas - Mold remediation

Numbers: *Here are the different options I am exploring (see what they are below)
- Scenario 1: Cash-out refi + Airbnb both sides of duplex. The house is currently under market. Comps suggest the actual value is ~$1.7m. I am paying $1.238m
*** In Austin, you can only rent out a home on Airbnb if you live in (aka owner-occupied). According to the folks in the Austin Airbnb Hosts Facebook group as long as the county has the home listed as my homestead, they wouldn't have any way of knowing that I'm renting out two sides vs one but scenarios 3 and 4 are 100% legal and, as such, can serve as backup plans

- Scenario 2: Airbnb both sides of duplex (no cash-out refi)

- Scenario 3: Duplex 1/2 rented out to family (traditional) and 1/2 Airbnb

- Scenario 4: Regular good old duplex

Note: Data from airdna.co (Airbnb) and rental comps

Anything I'm overlooking? 

Thank you, 

Matt

The property is zoned as a duplex. The part that is shaky is renting out both sides on Airbnb. The numbers I shared show 4 different senerios. 3 of which are 100% by the books and float from a cashflow perspective :) 

Hi all,

Thanks so much for the comments! Based on feedback, I've decided to change my strategy. Instead of renting out the space room by room, I'm going to turn the property into a duplex and rent each side (4 bed 4 bath) on Airbnb.
I will be living in the house so I would qualify for an SRT 1 license. Note that I can technically only rent out the side that I live on but I have spoken to folks in the "Austin Airbnb Hosts" Facebook group and as long as the property is registered as my homestead, they currently do not have the ability to track it I'm renting out one or two sides. Of course, I've also ensured that it still makes sense if I do have to rent out one side to a family.

Here are the updated numbers:

- Scenario 1: Cash-out refi + Airbnb duplex. The house is currently under market. Comps suggest the actual value is $1.7m. I am paying $1.2m

- Scenario 2: Airbnb duplex (no cash-out refi) 

- Scenario 3: Duplex 1/2 rented out by room and 1/2 Airbnb

- Scenario 4: Regular good old duplex

Kindly share your thoughts!

Best,
Matt

Hi all, 

Thank you everyone for the thoughtful responses :) 

Regarding me living there. Yes! I said in the plan section "I will create a "tiny home" in the house (with private entry) and I will find a short-term rental property manager to run the operation with my oversight. Note: to run an Airbnb in Austin you have to live in the house." 

Gross: 175,200

Net: 58,056

We heard that as long as you have a short term rental license, unknown parties under the same roof does not apply. It only applies to parties for which you have written a lease. (If we did want to do long term, we'd have to get a boarding room license but we are not interested in that for reasons that you all listed.) 

We already found a management company (hopefully they are good) but otherwise I imagine we can just create a system and hire out the cleaning and booking questions. 

Another thing that I thought about was creating a duplex and renting out one side and living on the other. @Ryan Kelly would that be legal? I'm reading on the STR application that "NOT PART OF A MULTIFAMILYUSE" (3rd requirement).

Hello,

I hope everyone is well!

I'm in the middle of closing on a fairly large property in a fairly central part of Austin, TX. Since I still have 8 days to make a decision, I thought it would make sense to share the deal with my larger real estate network to see if it really made financial sense.
Here are the details.

Purchase price: 1.238M

Loan: 10% down with a 3.65% interest rate. My downpayment and closing costs will be $138,878

Location: 1.5 miles from Downtown Austin in "A" Neighborhood - House is on the side of a freeway but there is a wall barrier

Sq Ft: 4400

Beds/Baths: 9 beds / 9.5 baths

Kitchen: 1 kitchen - needs to be remodeled

Living room: Non-existent - there is an attic space that could be renovated, I could convert a larger bedroom, or I could create nooks in each room or in the halls

Zoning: Zoned as a duplex but currently a single-family home (not up to code)

Year built: 1981

History: Inspector says the house was "overbuilt" - The structure is very solid with no signs of damage. The home was initially a duplex for a father and his adult daughter - The daughter then turned the home into a Bed and Breakfast - Currently being rented out room by room ($1,000/per room but not all rooms are rented at this time) 

Repairs: Needs a new central AC and heating system - Roof is 14 years old - Kitchen is outdated - common area

Plan: There are a few different options I am exploring. The top runner is to turn it into an airbnb and rent each room out individually. I will create a "tiny home" in the house (with private entry) and I will find a short-term rental property manager to run the operation with my oversight. Note: to run an Airbnb in Austin you have to live in the house. I think that by making improvements on the property I will be able to increase the valuation by ~400k (meeting with an appraiser to discuss tomorrow). The Zestimate for this house says it should be 1.7M but I am getting it for 1.238M.

Detailed cash flow analysis **Notes:1) I ran a few scenarios before landing on renting it out room by room 2) Year one rents are the result of waiting until current tenants' leases run out and I slowly replace moved out tenants with Airbnb guests

Annual numbers aside from cashflow:

Loan paydown	20,736
Appreciation	36,900
Forced appreciation	462,000
Depreciation	21,716

Question:

1. Is there anything in our strategy you'd recommend modifying? Maybe doing some other type of rental or something more creative?
2. Any blind spots we are missing?
3. Would you do this deal?
4. Any other advice that I'm not asking for but you think I need? :) 

Thank you so much for taking the time to review all of this. It means a lot!

Best,
Matt