STRonomics Underwriting Properties In Today's Volatile Climate
This episode is Sponsored by MarketMySTR.com the STR Industries #1 marketing platform.
Topic: Underwriting for Short-Term Rentals:
- Emphasis on the need for diligent underwriting in the current market.
- Highlighting the importance of the Debt Service Coverage Ratio (DSCR) in underwriting.
Key Takeaways:
1. Proper Underwriting:
- Overestimating revenue and underestimating expenses can lead to costly mistakes in short-term rental investments.
2. Expense Estimation:
- Typically, expenses range from 35% to 50% of gross revenue, depending on the market.
- Underestimating expenses can result in inaccurate projections.
3. Granularity in Calculations:
- Standard calculators lack the detail needed for accurate underwriting.
- Advanced performance calculators help identify issues in specific expense categories.
4. Hidden Expenses:
- Expenses like insurance, utilities, and climate-related costs can be overlooked but are crucial.
5. Market-Specific Expenses:
- Expenses vary by market; consider factors like snow plowing and trash collection.
6. Interest Rate Impact:
- Changing interest rates can affect mortgage expenses, so stay updated on current rates.
7. Set-Up Time and Costs:
- Factor in the time and costs required to prepare the property for guests, including travel expenses.
8. Annual and Legal Fees:
- Include fees for LLC renewals, legal matters, taxes, and miscellaneous costs in projections.
9. Tech Fees:
- Account for technology fees associated with property management, pricing tools, and marketing.
10. Conservative Projections:
- Overestimate expenses by 10% and underestimate revenue by 10% in your pro forma calculations for a more conservative outlook.
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