All Forum Posts by: Scott Ellis

@Matt Quick, call your city planning department and just chat with them. Tell them you’re thinking about doing this—what do need to know? They‘re usually pretty helpful. You’ll typically have to tap straight into the city water and sewer. That may come with a hefty fee that’s basically a tax on new construction. Also, if mobile homes are frowned upon, there are still prefab homes that certainly be doable.

@Robert Shelton, I'd ask her Realtor to see if the owner would have a conversation with you.  She may need/want a big taxable lump sum from the sales. But she may also be very open to seller financing for 5-10 years if that'll lower her taxes and still help offset her new costs of assisted living.

I just closed my first seller-financed purchase, and it was extremely easy.  Older gentleman, 40-years of deferred maintenance. I offered him 20K under his asking price or full asking price if he'd finance for 2 years.

He agreed and we ended up doing 6% interest but interest-only payments for 2 years. This allows us to make lower monthly payments while we rehab it and then we'll refinance once the new rental income is established.

Our closing company drafted the promissory note for us and a local escrow company is servicing the loan.  That way, the owner has the peace of mind of not having to manage anything related his financing.  The escrow company charges around $100/year and then they handle the property tax and insurance payments, late fees, etc.

We put about 10% down, which basically covered his commissions and closing costs/taxes.

Setting: We just had a development project die when our commercial appraisal came back at 50% of what we were expecting.  We were going to build a new triplex on the same lot as an existing 4-plex that has a mix of long term tenants and Airbnb rentals.

Issue: Short term rentals don't have 12-month leases. Even though we could show a year's history of average monthly income, occupancy rates, etc, it was black and white—no long-term lease, no counting the income.  As a result, for example, one studio apartment that has a 12-month rolling average of $1800/month on Airbnb was assigned a market rate rent of $425. 

My Brainstormed Solution: Create a separate Short Term Rental Management LLC. This entity would then lease the apartments from our existing operating entity. Thus, we'd have 12-month leases in place to appease the the appraiser/bank. Now, I immediately see holes in this. We're renting from ourselves. All the income would still flow through to our tax returns that underwriting would review.  I've seen operating entities self-lease from a holding entity, but I believe that's done for asset protection, rather than skirting outdated underwriting guidelines.

Question for BP: Have any of you successfully refinanced properties using short term rental income? Or, for the lenders out there, any thoughts on how to best approach this? Could the multi-entity approach work without landing me in jail?  Any other way to classify the income that would be looked on more favorably by underwriting?

Thanks for your input.  I appreciate it!

First, just do it. Get it listed. Our biggest problem was the deciding to do it. Then, go over the top at the start and put in the work yourself with cleaning and turnover, if you can. First, your extra effort to will shine through to the guests.  You'll hear right away about problems and things you forgot to get for the place (alarm clock, that specific specialty coffee maker they use at home, the refrigerator is super loud at night.) However, people are very forgiving when they see you're active and attentive to your needs.  

After a month or so, you will have most of those kinks worked out and should have built up some great reviews.  Then, build your systems and processes.  You know exactly what it takes to flip the house between guests, so make an extremely detailed step by step guide. You should be able to hand it to a junior high boy and they could have it looking perfect, just by following the steps.  We took lots of photos for our cleaning crew—the dishes get organized like this, this is how the bed should look after you make it, this is how to arrange the magazines and remote on the coffee table, etc.

Lastly, if you're going to refinance it to pull equity out, don't tell your bank your renting it on Airbnb. I'm not sure what to tell them (I'm actively struggling with this,) but since Airbnb is not a 12-month lease, my banks will not count it as income to be factored into either the property's valuation or your DTI ratio.

@Lee L., have you listed the property yet?  If you haven't and you're trying to get all your ducks in a row before "going live", I'd set a moderate policy (maybe 30 days) and kick it down the road a little.  You'll have a lot better sense with 3-4 months of bookings under your belt. You can also update the policy at any time.

If you've made the decision to use it as a vacation rental, I would focus on getting it listed and building up some reviews as soon as possible to try and set yourself up for a successful holiday season this winter.

@Benjamin Vail, would you mind sharing which hotel supply site you use?

@Lee L. We use Amazon for most of our supplies.  We put a little pump unit in the showers with soap, shampoo, conditioner and then buy those by the gallon. If you use keywords like "hospitality" or "travel" in your searches, you can often find 50-200 packs of things like hotel bars of soap, 3oz dish detergent, etc. if you plan on using those types of hotel style amenities.

For sheets and towels, we use Inn Style.

My recommendation is to start more flexible, and if you start seeing issues, tighten it up accordingly.

We have a totally flexible policy.  At around 90 bookings a month, we typically see 1-2 cancellations per month. We also offer last minute discounts, so we rarely see cancellations end up in unbooked nights on the calendar; even if we don't make as much revenue off those last minutes bookings.

Our typical bookings are 1-3 nights and we're in a city.  If we were in a vacation destination or mostly saw week-long bookings, we'd have a stricter policy.

I just know it's sucked for us, personally, when we've had to change plans do to something like a medical emergency or cancelled flights and we couldn't get a refund. Since we have the choice as hosts, I'd rather be a pleasant surprise than an added frustration. However, I can understand why other hosts do have stricter policies.

@Dave Gaines, I've been pretty unscientific but it's worked so far.  You can you use the Buy and Hold calculator, but factor 0% vacancy since short-term is just a different animal.  This will help you get a baseline of what you'd need to bring in each month to hit the returns you're going for.

Then, look out about 3-4 weeks on Airbnb in your area.  What's the range of prices for properties that have over, say, 30 reviews. You want to look ahead to avoid listings that discount deeply as the actual date approaches as well as just getting a larger pool of listings to look at. Airdna is also helpful.

Then I'll run a variety of scenarios. 90% booked at $50/night.  50% booked at $100/night. @Villy Ellinger's matrix would be great to add to this as well.  I don't do a seasonal matrix because I'm in an urban area that sees little fluctuation through the year. But the goal here is running some different scenarios to see if you could still pay the bills in a worst-case scenario.

The other thing the buy and hold calculator does is tell you how the property could do as a long-term rental. We use STR to supercharge our revenue numbers, but our properties could get by as long term rentals if needed. That's probably not the case in many vacation destinations, but it's taken a lot of the stress out of STR for us.

I'll chime in with what we do, but I admit this would be difficult at scale.

And as Spokane's current vacancy is at 1% or less, I'd say just implement the billbacks if you can. I think you'll be fine.  People realize Spokane's market is changing. And, try it at one property to A/B test the rents you can get and time to fill those units between lease-ups.

I'm mainly in the 2-4 unit space, and Spokane has lots of 100-yr old houses that were split into apartments during the two world wars. As such, many have separated the electrical, but kept the original water and gas service.

We've overcome this in several ways to end up with strong numbers, but they've all involved charging above-market rents.

• By the room leases—A 2b/1b apartment that could get $900 to a family is rented at $600/rm to students.
• Furnished apartments—People understand they're paying above market rent for an all-in place to stay.  These are typically more like corporate housing or traveling medical professionals.
• Short term rentals—We've used Airbnb selectively as a way to turbo-charge properties that maybe have a small funky unit that can't command strong rents but still is a bear to heat in the winter.

 Since electrical is what I see being most commonly separately metered, I see a disproportionate amount of these smaller properties still relying on baseboard heat so that tenants can foot the bill.  We actually have one house where we've sort of done this.  We cover the central heat, but will only heat the house to about 65. Then, tenants use a mix of baseboards and space heaters to cover the rest on their own dime.

On my last two rehabs, we've separated plumbing to the units so that we can pay a single city base charge, but then submeter the units down the road to do RUBS.

We also tried, at one property, simply sending a group email each month sharing what our heat bill was and how that compared to the previous year. This was actually fairly effective, as tenants could connect the dots between high utilities and an inevitable rent hike. 

In conclusion, I'm re-reading all the ways we've side-stepped doing RUBS.  You should just do it. =)

Depending on your provider, we're getting 100mbps service from Xfinity for $60/month, which is more than enough for two units.  I'd set it up in both as you can either charge a little more in rent on the long-term side of the duplex, or at least it's a nice perk for those tenants.  

We use a commercial grade setup of this http://a.co/d/83d5pmq at our 3-4 unit properties and it works flawlessly. 

If you do share between the two units, one thing that would be wise would be creating two different wireless networks to keep everything separate between the two.  Most solutions you'd end up with can do that.