All Forum Posts by: Patrick K.

starting my first hotel, some of the rooms are big enough to either have 2 queen beds or a full kitchen and 1 queen bed. I have looked through all sites but couldn't find statistics on revPAR by room type. which one would be more profitable downtown in a big metropolitan?

Thank you for your time

1 Vote

Quote from @Richard Elvin:

@Patrick K. I'm not a big fan of the model, however, I love numbers. :)

Here's how I would evaluate: (all numbers are random, just for example)
Setup cost divided by the lease term. $36,000 setup, 36 month lease term = $1,000/month

Add all monthly expenses so you know what is expected outflow.
Setup cost $1k/month, + lease $3k/month, plus insurance $1,250/month, plus utilities $350/month, plus maintenance $150/month, etc, = $5,750 expected outflow/month

Then take expected income $7,500, subtract expected outflow of $5,750 = $1,750/month expected incom

Multiply $1,750 times lease months (36) to get gross expected profit ($63,000) and subtract setup cost to get net expected profit ($63k-$36k) = $27k

To get total ROI multiply monthly expected expenses by lease term, add setup cost, then divide gross expected profit by the result (($5,750*36)+$36k) = $243,000

ROI $63000/$243,000 = ~26% or ~9%/year.

All numbers made up on the spot for visual display of calculations. Again, this is not something I have any interest in, so I would definitely want to fine tune my equations before building a spreadsheet to calculate.

Off the top of my head, this is how I would evaluate arbitrage. I hope it's helpful as a thought exercise at least.

@Richard Elvin Thanks for this Richard, I think you counted set up cost twice in your formula. But my problem with a ROI model is this, for a regular real estate deal, the I (investement) is usually paid back on exit, i.e. you have sold your house. But in arbitrary senario. your investment is furniture, which has no exit values. There should be an analysis that is universal to both senarios.

0 Votes

I was wondering how you evaluate investment with limited or no equities such as STR arbitrage. Since when the lease is up, you have nothing in the deal other than a few years old furniture, whose value would be limited if anything.

My initial thought would be to evaluate it like a hotel, which is usually evaluated with a payback period, but in a hotel deal the investment usually includes the land and buildings, which have significant value on exiting.

Any pointer would be appreciated.

0 Votes

I have around 50 rental units. and I have been using Buidlingstack for a couple of years now at $100 per month, but I really need a communication feature that I can keep track of how fast my superintendent takes care of tenant's complaints. but with building stack the feature costs an extra $200 and brings it to 300 per month for 50 units. It is fairly expensive.

Yardie Breeze would be a perfect solution at $1 per unit and $100 minimum with the features that I needed. But it is only available in USA. (The starting price in $400 in Canada for premiere tier)

So Canadian Landlords and PMs, what s your recommendation for a small landlord?

Thank you

0 Votes

Toronto, Ontario

Hi all,

I am considering leasing an industrial space in Toronto and turning it into a boutique hotel. However, I have not seen many people leasing space for hotels, even though residential/Airbnb arbitrage is very popular these days.

I have a lot of experience running short-term rental/Airbnb, but not so much when it comes to renovation.

I am really interested to find out:

What is the industrial standard term to lease space for hotel, 20 years?

What type of due diligence I should complete on the property.

What other pitfalls I might encounter that I should be aware of?

Thank you all for your time!

1 Vote

On their city website it states:

One owner can obtain an STRL for up to two (2) separate properties. The primary residence and one additional dwelling unit without any additional requirements, fees, permits, licenses, zoning, or related restrictions.

I am not sure what it means, does it mean someone can have more than 2 properties as long they satisfy some additional requirements?

2 Votes

Atlanta, Georgia

Quote from @Marty Boardman:

Quote from @Patrick K.:

Hi all, I have been watching a lot of Pace Morby's videos these days. He is an advocate of subject-to financing to purchase properties.

In all the videos I have watched, he talked about all the up-side of subject-to financing. but the downside is rarely discussed. I thought I could use BP's collective brain power to help educate myself further on this subject. For all questions below, it is assumed I am the buyer, who wants to assume the seller's loan and take the title of their properties.

The pinkest elephant in the room is what happens when I as an investor default on the loan payment. I understand the ownership goes back to the original seller. However, if this is during an economic downturn when default would likely happen, there might be no equity in the house for the original seller, and I can't see how a seller would be comfortable being ultimately responsible for a mortgage that might last 20-30 years. It felt like a glorified rent-to-own agreement.

Any thought would be appreciated.

As others have pointed out Patrick the original seller does not get the house back if the buyer defaults. The investor has equitable title to the property. If the bank foreclosures the investor receives any surplus funds and the original seller gets nothing (well, they do get a foreclosure on their credit report).

There are really only two types of sellers that are agreeable to subject-to deals:

1. Sellers with no equity

2. Sellers in foreclosure

I've done hundreds of subject-to deals with both.

When the housing market crashed in 2008 I defaulted on numerous subject-to deals. Values dropped by 55% in my area (Phoenix) and there was no way I could sell these properties. Fortunately, I escaped any legal trouble because I worked out arrangements with the original sellers and gave them their houses back. Others didn't want them back and were okay with a foreclosure. After all, they were headed that direction before I stepped in to buy their house in the first place.

In 2023 and beyond, I think acquiring houses subject-to is a smart strategy, especially if you plan to fix and flip because you don't need to keep the mortgage in the original seller's name for very long.

As for acquiring rentals, subject-to is also preferable as long as you can count on at least $300 + in cash flow (and have reserves for 6 months). But I would advise you have a plan in place to pay off the existing mortgage in 2-3 years because eventually the original seller will become unhappy with having a loan in their name and no house to show for it.

Finally, there's a lot of irrational fear out there about the due on sale clause and the lender calling the note. I've never seen this happen. Banks are in the business of collecting loan payments, not calling mortgages. If you're paying on time they don't care if Santa Claus owns the house.

Good luck Patrick!

Hi Marty,

Thank you for the information. What was the worst that could happen to the investor if default happens? from what I understand. the bank forclose on the proeprty whose mortgage is with the previous seller. and their credit report got dented. but you are fine other than losing the house?

Also as for your comment regarding pay off the existing mortgage in 2-3 years. I think with some improvement on the house. I can refinance out the old mortgage and still with no cash down. However I might not be incentivized to do so depends on the rate. What can the seller do if they don't "like" the situation?

thank you for your time.

0 Votes

Quote from @Tom Gimer:

Quote from @Patrick K.:

Quote from @Tom Gimer:

@Patrick K. You are mistaken on this concept:

"... what happens when I as an investor default on the loan payment. I understand the ownership goes back to the original seller."

The only way the seller is getting the property back is if they (1) recorded a mortgage/deed of trust in connection with the subject-to transaction, (2) properly foreclose on that lien, and (3) become the high bidder at the auction sale. The likelihood of all of these occurring is low in a typical subject-to transaction.

Could you elaborate on the consequence if the buyer defaults on the loan payment?

When the buyer defaults, the seller's credit is trashed, the lender forecloses, and the buyer loses the property. Does it end there? Perhaps.

I don't see how sellers would be comfortable leaving their credit score at the mercy of someone else they barely know, for the life time of the mortgage which could be 20+ years to come.

1 Vote

Quote from @Tom Gimer:

Could you elaborate on the consequence if the buyer defaults on the loan payment?

0 Votes

Hey Mike. These are some very valuable information. I have been watching Pace Morby these days and these definitely gave me soemthing to think about.

Would you share some thought on the prevention measure on some of the items you mentioned?

Specifically items 4,5,8,9,11

Thank you

1 Vote

All Forum Posts by: Patrick K.

Patrick K. has started 23 posts and replied 40 times.

Post: Any hotel owner can provide some guidance on room types?

Post: How do you evaluate STR arbitrage investment?

Post: How do you evaluate STR arbitrage investment?

Post: Any PMS recommendation for Canada Landlords?

Post: Anyone has experience leasing commercial space and turn into hotel?

Post: Is it accurate you can only rent out 2 dwelling units in Atlanta Georgia as short STR

Post: regarding subject to financing.

Post: regarding subject to financing.

Post: regarding subject to financing.

Post: Using Subject To, to Get "Free" Properties - A Quick Guideline