All Forum Posts by: Shannon Leckinger

@Shannon Leckinger

I have STRs and LTRs - your condo will be possibly more of an appreciation play but you can't pay bills with appreciation. The HOA can decide to do a special project or make a short 3 story elevator more hurricane proof ($800000) or have issues after a hurricane and then you are definitely not ahead of the game.

Please connect with me and I can maybe point you in a better direction. Flipping and STRs are all anyone sees on TV - there are so many more strategies that aren’t as time and $$ intense.

@Shannon Leckinger

you got great advice from @Travis Timmons.  one thing I didn't see in this thread is... do you WANT to own and operate an STR?! other posters have started threads saying they're going to buy STRs for tax savings... and this doesn't make sense to me.

if you want to buy a vacation house for your family, and you can afford it, and you'll occasionally rent it out - that's great, it's just not an investment.  neither is a primary residence and most of us have those too.  

now, if you want to buy an STR as an investment, and you NEED the income to support it, that's totally different...

I get it...I get emotional with properties and buy into the sunk cost fallacy too. I'd be happy to send you my STR underwriting spreadsheet if you want it.

You can rationalize it however you'd like, but you will come out way ahead if you rent your vacations and buy your investments. Don't talk yourself into a place because of personal use.

Buying a $475k condo that brings in 35k in gross rental income will lose a lot of money. I just bought a $400k STR and the break even point with 25% down is $54k with a 2% sinking fund and 3% maintenance built in. My basic underwriting making some standard assumptions on HOA expenses, 20% down, 7% interest rate, 30 year mortgage, utilities, supplies, and maintenance costs shows a loss of about $22k per year if you are self managing. That calculation also assumed $0 renovation and $0 furnishings, which won't be the case. It's a terrible investment. Please do not buy it.

I also suffered from analysis paralysis. It sounds like you might be in the situation I'm in: buying a vacation home that I plan to use as a STR when I'm not using it so that other people can help pay my mortgage. We are hoping to close in the next two weeks on a property that we know will *maybe* break even and more likely lose about $2K in the first year, but we're okay with that because we're getting something that we absolutely love and hope to enjoy for years to come. We've rented other people's STRs in the past and now we're putting that money into an investment instead. Since we're not in this 100% for the invesment, we're okay with a slightly negative cash flow. But the level of negative cash flow that you're talking about is quite high and it sounds like it's not something you're comfortable with and thus should look for something else.

The rule of thumb for me used to be that the property needs to be able to do 20% of the purchase price in gross rental income. That metric is a little dated, but I think you can adjust it to 15%. If it cannot do that, it's likely to make little to no money in the first year or two. That backs out to 10-15% cash on cash return in most cases. I would not advise buying the condos you mentioned above unless there is something that I am missing. I would also never buy a short term rental in an HOA - it's just one more entity that can tell you what you can or cannot do.

Hey @Shannon Leckinger, welcome to the BP Forum! Your subject line has STR and then your post references $35k (combined NOI, I'm assuming?).

First, is the $35k the annual rent from each condo and is that coming from the STR activity report from the seller?

Second, have you ever managed an STR unit before?