All Forum Posts by: Rohin Dhar

We just purchased a place in Oakhurst, CA so near Yosemite but a different gate. We were able to get traditional vacation rental homeowners insurance through Berkshire Hathaway Guard Insurance using a local broker. However, most of the properties we looked at didn't qualify for private insurance and had to use the CA Fair Plan with an additional rider for short term rentals.

Good luck!

Personally, if I sold any of my STRs, I'd feel like I'd have a hard time getting back into the market ever again since the prices have gone up so much. We have places in Hawaii and Sonoma and if we ever sold, I'm pretty certain we could never get back in. For example, in Sonoma they no longer give out STR permits in our area. We could literally never re-enter!

So, I guess I'd just sell if I wanted to get out of the game entirely or felt it was a market where it would be easy to re-enter down the line by acquiring a new property.

What's kind of lost in this debate is that not only do property managers charge their 30%, but they're unlikely to generate as much top-line gross revenue as a motivated self-manager.

We took over a cabin last year managed by property manager. It grossed about $3K per month, and netted $2K per month. The last owner was happy because it mostly covered her bills. With us now the cabin grosses $5.5K per month and also nets the same amount because we're self-managing. The difference in the net is $3.5K per month! 

The difference was we obsessed with improving lots of little details from the interior design to photography in a way that a manager won't (or can't because they don't own the place and are limited in their changes). All in the changes we made cost about $5K. Plus we're super hosts and the property management company is not.

That said, self-management isn't for everyone so I often recommend using a property manager if people are fine just getting a little extra income to cover property taxes and such. Self management takes a lot of mental energy and not worth it for everyone.

I'd echo everything  @Dustin Allen said.  If it's an existing short term rental, I expect to see at least the earnings history prior to touring the place or making an offer. It should just be part of the informational packet your agent makes available for marketing the property if someone asks. If the expense data exists, even better, but typically that's not available or reliable.

Since this is single family residence, these financials won't impact the appraised valuation, but they very much influence how much someone would be willing to pay! 

@Joe Gettler, I don't have great data b/c she just helped them for a couple of months, but I think it's just under $4K a month for a nice 2 bedroom in a good location. I'm not sure if there's any premium at all. If anything there might be a discount b/c there are so many landlords who want this option so that they don't have long term tenants in the building so they have the option to sell the place vacant.

My wife briefly help a friend manage their monthly short term rental in San Francisco while they were traveling and have a few friends that do it.

Monthly rentals seem to book pretty well, but not at a significant premium to long term term rentals.  Most owners who do it want to keep the option of having the building vacant when they eventually sell the place since vacant places sell much more easily then tenant-occupied ones if it's a rent controlled building.

If you get an investment property loan, the lender will typically count 75% of the projected *long term* rent (from the appraisal) toward offsetting the the debt in your DTI (debt to income) calculation. If you're getting a second home loan, they won't count any of the projected rent so you need to quality based on your existing DTI. After your STR income is on your tax returns, it helps offset debt DTI calculations on future financings. I guess you could do second home loan with 10% down, but I suspect most will require 20% anyways.

Our lender at least adds back in depreciation when doing our DTI calculation @Joe C. so not a big deal to have paper losses related to the depreciation. However, if you have non-paper losses and excessive write-offs, that will negatively affect your DTI and prevent you from purchasing future properties using conventional debt.

I'm not a mortgage professional, so talk to one to get the exact details. Either way you probably need 20% to get started if you're using conventional debt.

We've put offers in on places without seeing them (and then toured the places in person prior to closing once we were in contract). Some helpful hints for "de-risking" this:

1. If it's an existing Airbnb/Vrbo, read all the reviews. That's like having dozens or hundreds of people inspect the property and location for you.

2. Read all the reviews of Airbnb and Vrbo listings nearby your target property. That will give you some due diligence on the location and the kind of homes people like.

3. Do a location based search on instagram of the area to get a sense of the general vibe. Is it filled with joyous pictures of people on vacation or more mundane? What do people like doing on vacation in these areas and can your house help facilitate that? You probably can do this on Snapchat and other social networks as well.

4. And goes without saying, but do all the inspections and such.

While we've technically viewed all our properties before closing, I'm not sure I've added much value by seeing it compared to reading all the Airbnb reviews if it's an existing rental and having qualified inspectors review the property.

We have 4 and they're in all different states. Only way it works is if you have a really great house cleaner who over communicates with you. If you find someone like that, pay them really well!

I'm a little envious of folks that have all their properties in one location because you only need to find your "team" once, but it's not too hard to spin up a "team" in a new location. It would be nice to just have to communicate with one house cleaning service, but I don't think that's in the cards for us.

@Lauren Chiozza I spoke to them a few months back and here's how I would summarize the decision.

If you can get traditional financing for the property, you should go for traditional financing. 

If you can't get traditional financing for whatever reason, it's not a bad alternative if it's a great property that will handily cover your costs. The interest rate will be 3% higher, there is a prepayment penalty if you refi out within 5 years, and there are more fees and reserve requirements than traditional loans. But everything seemed pretty reasonable for a commercial loan and I'd consider them if I really wanted a property but couldn't get a traditional loan. Not legal or financial advice of course, so do your own due diligence if you go down that path with them or a similar lender!