All Forum Posts by: Tomoko Hale

 Not only that, but the appraisal won't put much (if any) value on the furnishings. There's a good chance it may not even appraise for what the seller is asking if the seller really is asking for that much more compared to others just for furniture. 

20% is about average for a short term rental as far as management fees go. Some go as high as 25-30%. It does really eat into your revenue, but if you're convinced you can't manage it yourself from a distance, you will need either a PM or a co-host. Have you searched for co-hosts in your area? Your instinct to speak directly to the PM and not through your realtor is spot on. Never let the Realtor be a barrier. Is your Realtor an experienced STR host (more than likely, no). Do they know what questions to ask? What expectations do they have and do they align with yours? It's a huge investment for you - you definitely should have direct access to the PM. If the property was already listed on the MLS, I'd push back on the price relative to the comps. But if you're trying to get an exclusive deal, the reality is that you probably have less bargaining power because if they want $296.10/sq ft they know they can put it on the MLS and see if they get any bites. Income is difficult to predict not knowing the market. You can use a tool like AirDNA to get estimates of property performance in your specific market and with your typical size and configuration of home. You can do the same to estimate rents for a midterm rental by going to the Furnished Finder stats page for your city. If it's currently an STR they should be able to provide you with the p/l statement from prior years so you can see gross rents, operating expenses, average daily rates and occupancy levels. ACTUAL data is always best.

if they are a great PM 20% is totally fair. not too high and not too low

 It is a special policy. You need to tell your insurance carrier that you would be renting under 30 days! Also Hi Tomoko!!

Agree with others that 20% is fair.  Regarding your other questions:

  - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

- WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.

20% is not high for managing a STR. That's pretty fair.

As everyone said, 20% is fair for a manager to take care of a STR. I would include your realtor in the conversation, at least when you're introducing yourself. As far as continuing the realtor in the conversation after that wouldn't be necessary. Is the property set up as a STR already or do you need to do the basic work to get it started? What's the quality of the furniture included?

If I were in your position I'd fill it with my own furniture and not overpay for a property. In case I have to sell or I quit running STRs I wouldn't want to be under water out the gate.

Don’t overlook the 10% down second home occupancy loan for financing a property like this.  Happy to help with any questions.  

My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......

Agree with others that 20% is fair.  Regarding your other questions:

  - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

- WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.