Thread by @TXStrGuy

In most STR markets, a 1BR requires as much as work as a 5BR but makes around a 3rd of the income. Lots of markets are undersupplied by larger homes. The biggest barrier to entry is purchase price.

Here's how to buy a large STR without a ton of up front cash and make a killing:

Find a secondary or tertiary market (that isn't specifically a vacation rental market) with STR occupancy greater than 65%. I'm talking markets like Austin (68%) Orlando (67%) Portland (83%) Salt Lake City (77%) or Charleston (76%). Identify the general target area for STRs.

In Austin, it's downtown near 6th Street, Rainey St, or East Austin. In Charleston, it's The Peninsula or near Kiawah Island. These are the areas that the occupancy rates hold true no matter how many guests your home will sleep. You don't want to buy away from the action.

Once you identify your target area, hop on Airbnb. Search your target area for homes that can sleep 16 plus. Weed out the results of 4 bedroom homes that can sleep 6 in the living room with a sleeper sofa and 4 air mattresses. These aren't your competition.

Find the few Airbnb's that can legitimately and COMFORTABLY sleep 16 plus. Are the prices high? Do the calendars look healthy? These are comps. Further, these are signs that the market is undersupplied by larger units. Time for those hosts to share the wealth.

Take notes of what these listings offer. Do they fit the theme of the city with the decor? Do they have a game room? A pool table? A hot tub? Are they waterfront? No matter the strategy, the key to initial success in short term rentals is mirroring success. Time to hop on Zillow.

Search your city on Zillow. Once results appear, draw a boundary around your target area. Set your listing criteria - number of bedrooms, must have pool, under $1MM, etc. Sort the results by days on Zillow. Scroll to the bottom of the results page. These are your money makers.

This is a sellers market. Most of these homes have been on the market for significantly longer than others are overpriced and unrealistic. These are rarely worth looking at. We want the ugly ones. But how do we compete with fix and flippers?

Here's the secret. It's too much work for a family of five to take on. There's a reason Chip and Joanne haven't bought it. They'll breakeven. So who buys it? We do. We want to breakeven.

Here's what you do. Find the opportunity. Figure out how much it'll cost you to bring it to the same listing standard as your Airbnb comps. Then, find out how much similar homes at the same standard as the Airbnb's have sold for. Similar style, amenities, year built, etc.

Finally, figure out what your offer price is. If you haven't caught on quite yet, the strategy is to fix, refi, and hold. I'll take it a step further by fully cashing out of the deal by doing a cash-out refinance once my rehab and furnishing is done.

Here's an example:

Take a home that's been on market for 150 days first listed at $700k. Since then, there have been four price cuts and it's now on the market for $600k. I decide that this house will net me roughly $120k per month on Airbnb once it looks like my comps.

It'll cost me $60k in rehab and $25k in furnishing costs to have it make-ready for listing. Most of these sellers are motivated enough to listen to any potential buyer. I offer $535k and we end up at $550k.

I explain to the listing agent that I'm an experienced investor, want to use seller financing, and will put 10% down. To sweeten the deal, I'll make monthly interest only payments at 4.50% and pay off the outstanding balance in 6 months.

Ok but why would the seller do that? If I don't pay off the note in 6 months, he pockets my down payment of $55k plus interest payments of $11k and still owns the house. It's almost a no brainer, especially since these contracts are completely legal and registered with title.

The seller accepts. I perform the rehab on the house, furnish it, and go for the refi. The house appraises at $768k and I get cash-out refi terms of 85% at 5.50% with a 30 year term. I pay off my outstanding loan balance of $496,800 and net $156k.

After my down payment, furnishing cost, capex, and interest payments on my seller financed note, I profit $4,622. I now have a monthly revenue stream of $10k per month with $116k of captured equity.

These deals are absolutely out there. You just have to find them.

A few precautions:

1. Be sure you've dialed in on your numbers. If it doesn't appraise, you're shit out of luck.

2. Know your GC. This only works if they perform.

3. 85% LTV is risky in this market. I'm not saying don't but you better be ready to ride the wave.

You probably won't find a deal immediately but save those searches on Zillow. Eventually, one will hit your inbox that you know won't sell at that asking price. Happy hunting.

#RETwit