All Forum Posts by: Scott Ellis

@Ashley Wolfe, Do you and your family still want to use the cabin personally for vacationing and weekends away?

If so, short-term renting lets you still block out any nights that you/family want to use it. While you could definitely handle the communication and management from home; you DON'T want to be driving to clean.  You'll hate your life very quickly. =)

Are there other houses around the lake that are on Airbnb?  What do their calendars look like? 

Being far from large cities means less access to property management companies, 24-plumbers, etc.  However, from my experience, small towns often have locals that love the remoteness but have to piece together 2-3 part time jobs to make it.  You might very easily find someone nearby who'd love the extra side income of coming by for a couple hours 2-3 times a week to clean. 

I'd also throw out that our STR's earn between 2-3 times what a long term lease would bring in; so playing devil's advocate to your original post—getting your systems in place to manage it as a STR now could actually move you closer to your goal of getting away from full-time W2 income.

Putting the financial part aside, do you and your husband want a lake house?  Is this a way to get the vacation home you always wanted, while letting it pay for itself?

If so, I'd do more research, but then go for the lake house!  Have a chat with your CPA, but there are some very nice benefits with, say, going to work on your property on Friday and Monday, but then enjoying the weekend at your lake house and being able to deduct travel and some of your meals.

Airdna.com is a good resource for estimating vacancy and revenue potential. Property management on STRs is expensive, but it doesn't have to be all or nothing. I self manage our STRs and communicate with guests, but I have a cleaning staff, backup cleaning staff, and a handyman who can typically respond the next day. With remote rentals, you just need better contingency plans. Is there a nice neighbor who could, worse case scenario, run an extra blanket over or see why the breaker isn't flipping back on. With our local STR's I get maybe 1-2 calls per month from guests needing something outside of my normal cleaning/maintenance process; and it's usually simple requests for things like an extra blanket or the cleaning lady forgot to restock toilet paper. The nice thing about Airbnb is that people are pretty forgiving. As you bumble through getting your processes figured out, there's not much that a partial/full refund won't remedy.

Is it remote?  Will you get year around traffic, or is it a seasonal destination? As you start crunching numbers, think through your plan for a worst case scenario.  On the one hand, at $325/night, you only need 8-9 nights per month to cover your mortgage, utilities, and cleaning.  However, what if you only got 5 nights/month for 3 months in row—would that put a huge burden your monthly finances?  If needed, is there enough demand that you could slashes prices to $75/night+cleaning and keep it close to full?

@Michael Breedlove, First, my apologies.  It appears the mobile app stripped out all my formatting on the last post, so the numbers all bled together.

While I'd call your local banks, yes. At our bank, 1-4 units could get a "normal" SFR HELOC on them. The big thing is being owner occupied. Most lenders will only do HELOC's on your primary home. However, you can move and keep the HELOC in place after you've moved out. Calling around to our local banks, their terms were all similar, but there were definitely differences between banks that offered HELOCs and banks that were actively promoting them.  The one we got did not charge for the appraisal and had no annual fees.  The only fee that would possibly apply was a $400 charge for the bank to recoup the appraisal costs if we closed the line of credit within two years.  

So, from my perspective, even if you'd rather save up cash for the down payment on your next home, I think it'd be worth checking into a HELOC just so you could get it in place while you're still at the 4-plex.

We used ours to buy our next triplex. We did the BRRRR strategy and then paid off the HELOC after doing a cash-out refinance on the triplex. One other benefit that we learned along the way is that HELOCs have no seasoning period. So, even if you use another line of credit, or a balance transfer from a 0% credit card to pay the HELOC down, you can immediately turn around and use the HELOC funds for a down payment on a conventional mortgage.

@Steven Di, I’ll throw in a second vote for Spokane. Not a small ski town, but 5 areas within an hour and a half. And you won’t be paying inflated prices for all your materials and trades. For a smaller town— Sandpoint, Idaho. Schweitzer is the local hill.

@Michael Breedlove, lots of good advice on options for refinancing? I’ll just throw out another option. Have you looked at getting a HELOC on your current 4plex rather than refInancIng? Our local bank does HELOC’s on primary residences up to a 90% total LTV. Roughly 5% interest (though variable), and interest only payments for the first 10 years. Also, no closing costs or origination fees. So, back of the napkin math: 450,000 x 90%=405,000 405,000 - 363,000=42,000 Max HELOC amount AddItIonal interest-only monthly payment: $175 It has worked well for us. Happy to share any other details from our experIences.

@Andre Crabb, my two cents. With 1-4 unit FHA loans that you intend to use as your primary residence,  I don't believe FHA cares what you do with the rest of the space/units. FHA does not want you purchasing a property, never living there, and using it as just another rental in your portfolio. There is less risk for FHA if the owner is living there.

As to your three use cases, I believe all three would be compatible with an FHA loan as long as you are going to be living there as well.

For your first two, search for your city's regulations regarding short term rentals.

For your 3rd option—in my city, you can rent out your primary residence for 14 nights per year (like when you're out of town), without needing to register at all as a short term rental. 

Now, one thing you will want to consider is qualifying for your loan.  If you're looking at a 2-4 unit property that's currently rented, you'll be able to count some of the current rent toward your debt to income ratio, as that will be income that you can reasonably expect to have coming in after you purchase it.  Always talk in terms of 12 month leases with your lender.  I've yet to find a lender that has a way to underwrite based on short term rental income.

Good luck. We've had a lot of success transitioning a portion of our long-term rentals to Airbnb.

@Allen Fletcher that is a great idea; and keeping that capacity open on our lines would insure his liquidity should he need those funds for something else.

Thanks for the tip!

@Christopher B. & @Katie K., in our case, we used our HELOC and a separate line of credit to pay cash for a triplex. We fixed it up using a 3rd private loan. After six months, we did a cashout refinance. The goal was to refinance and repay the private loan, personal line of credit and HELOC. However, our appraisal came back way low. We contested the appraisal and got it raised a little (content for a different post), but our cashout did not fully cover paying all three of our loans off. We kept the leftover balance on our HELOC since it had the lowest interest rate and required interest-only payments.

@Katie K., our cash flow covers both the primary mortgage on the triplex as well as the HELOC payments and additional profit for us. Since the appraisal was low, the mortgage couldn't be for the amount we'd hoped, but. . .that meant a lower mortgage payment which freed up additional cashflow to cover our HELOC payment.

Our plan, if needed, is to use the personal line of credit (now sitting at $0) to zero out the HELOC and then turn around to use the HELOC as our verified funds if we need another down payment for a residential mortgage.

Final Advice: Just make sure you have a contingency plan. Our worst case scenario would be that we'd need to sell the triplex to pay off the HELOC. If some temporary negative event happened, we have Roth IRA principle funds that we could pull out to make payments on the HELOC in the short term. The "risk" of a HELOC is that you're leveraging your primary house to make investments. So. . .just make sure you understand that risk and take steps to mitigate it.

Hi Leslie,  Welcome to Bigger Pockets.

I live in Spokane and love it, though I have family in Whittier and always enjoy visiting LA and getting down to San Diego!

While Spokane's prices are definitely lower than a lot of coastal cities, the market is pretty hot here as well right now. Low inventory and a lot of SFR's and smaller multifamily are getting multiple offers on day one; so I think you should be ready to put in plenty of offers, and then do your due diligence on any offers you get accepted.

The downtown core is definitely revitalizing with the major downtown park getting overhauled right now.

What type of property are you looking for and what kind of "any and all advice" would be helpful for you? Is Spokane a good place to invest?  Sure.  Are there plenty of other good markets to invest in? Sure.  Do you have friends or family here? I saw you've visited several times, so there could be nice tax benefit to being able to write off portions of your visits. 

Are you looking for a fixer upper or for something turnkey and very hands off?  

@Mitzmichael Sumilang,  you're correct.  If we'd cancelled the transaction, we would've gotten our earnest money back.  But some of the sunk costs were things like the $1200 appraisal and $1000 in extensions we paid trying to buy the lender more time to get their secondary approval.  There were other costs like scoping the sewer line, inspection, pest reports, radon.

You're thinking is correct and is a personal decision to make.  You're right on that the interest only payment is a great benefit.  The flip side is that on the cashout, you're still paying down the principle; and probably the biggest benefit in my opinion is that you're locking in the interest rate for three decades. Your house should appreciate. Your rents should go up.  Inflation will continue to rise. But your debt stays pegged at the current rate. My HELOC has gone up a full point in the year we've had it, and I'm planning on it continuing to bump up over the next few years.