All Forum Posts by: Torry McFall

Let's pretend that IO and amortizing loans came with equal interest rates. The latter would be the obvious choice. You could always pay extra principle voluntarily. However, you wouldn't choose to pay down principle (i.e. pay extra each month) if you had an opportunity to invest that money for a high rate of return elsewhere (like more real estate). In the real world, you'll pay a higher interest rate for the IO loan. Look at the additional cost in that. Compare it to the benefit of using the extra cashflow. That's how businesses look at it. Many commercial deals are interest only. It's not as philosophical as it is mathematical. No doubt, some people like the security of a slowly but surely decreasing principal balance. But you could just as easily bank the extra cashflow until you had reserves for that property that made you feel more secure. 

Yeah, I will need to start looking at DSCR loans. I will be buying another personal home in the future and using my VA loan. I think having LTR that have been recently converted to STR/MTR might equal not getting to count that income and cause DTI issues when I'm using typical conforming loans and the VA is particularly rigid. Overall though, I think I have to stop letting the financing piece get in the way. I tend to try to optimize everything, including the lowest interest rate possible, to the point that it ends up slowing me down.

@Allen Duan Definitely will. I liked the idea of using MTR and STR like tuning knobs I can turn when and where it makes sense. We have balloon fiesta here when STR will probably be preferable. I only recently considered that I could mix the MTR and STR options. I will need a cleaner I can really trust before I can go heavy STR. I also have seen STR demand dry up quite a bit lately.

@Nicole Heasley Beitenman I just saw that you are a lender Nicole. In my previous posts I've mentioned that STR and MTR concern me with regard to getting future financing b/c a lender would want to see two years tax returns to prove out the income, whereas with LTR, lenders will count the bulk of expected rent (less whatever percentage for vacancy and repairs) from the moment I have a longterm lease, which allows me to keep accumulating. I'm wondering how folks acquire a large portfolio of STR/MTRs w/o being impeded by this.

*SFH not SFY. Wish there was an edit button.

Well, while my downtown condo idea doesn't seem to make a lot of sense, converting my SFY rentals in a nicer area of Albuquerque looks like it would make sense. The MTR rental rates look to be 33% to 40% higher than LTR rates. I'm conservatively approximating that I would get 22% more in net rent than my LTR income after taking into account paying for utilities/services. When I take out debt service and look at net cashflow, that equation is better. I would have 60% to 85% more cashflow. So if I had to retire next year, I might get busy converting them one by one. As it stands, I don't really want to convert them until I'm done acquiring for a while. As I said in my previous post, I'm concerned about how MTR and/or STR will affect my ability to get financing on future deals. I haven't seen that addressed before. MTR and STR folks, how do you deal with the financing issue?

@Chris Allen Thank you. Well guys, my enthusiasm is toned down after looking harder at the rent I might receive. There are two decent condo's on FF that are close enough to give me some clues. There's a 2 br 2 bth at $2550/mo and a 1 br 1 bth at $1795/mo and another 1br 1ba fo $2175. That's the range and I'm closest to the last one I think. I think I will have a much cooler unit, but still, these rental rates are well below the premium I expected to see. I would need more than a couple hundred extra per month above what I would receive for a LTR to make me want to furnish and manage a MTR over a LTR. I have LTRs I bought for the price of this condo that fetch a little less than $2,175 rent.  Of course those houses would cost me $80K more now than when I bought them. But on the other hand, this condo has an extra $275/mo association fee and I would be paying for utilities and furnishing. hen I add on the fact that the rents won't really count to a lender (the next time I try to purchase a property) until I have two years of tax returns, proving the income (whereas they will count and LTR lease immediately), I'm just thinking the MTR thing isn't that attractive. I'm going to keep digging but I'm just surprised anyone would take on the added work unless there was a very substantial premium over LTR.

@Colleen F. Good info! Thank you. I just looked at this loft downtown. It's literally walking distance to one hospital and within walking distance to another. It's also in the middle of our downtown area which could make it appealing to other professionals. It's cool historic building that has been converted into lofts. It has brick with huge two story windows that expose an unobstructed city view. It has exposed ductwork and trusses.... like a cool NYC style loft. I think if I throw down some LVP, add led lighting to brighten up, and maybe put quartz (waterfall) over the central kitchen island, it will look very chic. Units are being advertised for LTR at $1495 and $1995 per month. I think I'd be closer to the $1995 (I've flipped a lot in my past so I will be able to make it very nice for less $ out of pocket than most folks).  Are there any rules of thumb regarding LTR rental rates vs MTR? A % above LTR you can expect for MTR?  I'm going to look on furnished finder and see what my competition looks like. I also need to look into how difficult it might be to finance a condo... haven't done that before. 

I agree. Leases expire at different times so I will likely wait until a tenant isn't renewing their long-term lease to try any STR or MTR strategy. I might, however, buy a loft in our down town area to test out MTR. Something I don't see brought up very often is the affect it will have on financing future deals; i.e., if I convert to STR or MTR, a lender will want to see two years tax returns to count the income, whereas they will count the majority of income shown on a long-term lease. It has had me thinking that I might not want to convert any to STR or MTR until I'm ready to pause accumulating for a while.

I wonder if they care about their surroundings. Hospital areas aren't always surrounded by the nicest surrounding residential areas. That's true here. Maybe that doesn't matter to traveling nurses. Maybe they just want to get off their shift and be in a bed as quickly as possible. I don't know the nature of the tenant yet.