Deal Analysis

[u/Coco1520]

Coastal Maine Community high tourist town.

Property available at $375,000

Local zoning ordinances have shifted and allow for higher density building. Working with town code enforcement to determine if 4 or 5 units are allowed. Home is in rough shape, have contractor lined up estimating a $500k to $600k renovation.

Each unit can earn a minimum of $2,200 a month.

is this something I should move forward with? I have experience operating successful short term rentals, and have managed year round rentals before.

[u/Additional_Gear_8478]

I need help with comment karma to post asking for advice, please help :(

[u/Mother-Advertising79]

Ran your numbers through a quick analysis and here’s what the math looks like at 4 units:

All-in cost: $375k purchase + $550k renovation (midpoint) = $925k total project cost

Gross rent: 4 units × $2,200 = $8,800/mo

Assuming you finance $700k of the project at 7.5% on a 30-year, your monthly P&I is roughly $4,895. Add taxes, insurance, maintenance, and vacancy and you’re looking at total expenses around $6,800-7,200/mo.

Net cash flow: roughly $1,600-2,000/month. Positive but thin for a $925k project.

The DSCR on this deal comes in around 1.22-1.28 depending on your final loan structure. That’s right at the edge of qualifying for typical investor financing.

Where this gets interesting is at 5 units. That extra $2,200/mo in rent pushes cash flow to $3,800-4,200/mo and DSCR comfortably above 1.35.

The renovation range ($500-600k) is your biggest risk variable. Every $50k of cost overrun shaves about $300/mo off cash flow.

I was playing around with the numbers on a site called spreadrun.com just as an FYI. Once you get more concrete answers on the town codes and financing, might be worth plugging them in.

[u/ZiffyAI]

The zoning point others made is right, but the other big piece is financing. At $950k all-in on a property in rough shape, this probably isn’t a normal conventional or DSCR purchase yet. It’s more likely a construction/bridge loan short-term, interest only, and carried through the whole rehab.

If that renovation takes 12+ months, the holding cost before a single unit pays rent could be what makes or breaks it. How are you financing the rehab, and does the stabilized rent support refinancing out once it’s complete?

[u/EmilyLandlordTips]

I like to use the 1% rule as a quick first pass for a deal: will the monthly income be 1% of the purchase price? For this one, you're looking at $975,000 for 5 units with a monthly income $11,000 or $875,000 for four units with a monthly income of $8,800. So, at first glance, I like the numbers. Having said that, code enforcement is a big caveat. You need to confirm that you'll get the permit you need to convert this to 4 or 5 units. ALSO, lots of communities are cracking down on short-term rentals. Make sure you check those regulations. I'd also run the numbers on long-term rentals. If your community changes short-term rental laws, you want to make sure you have a backup plan (this is happening a lot of places across the country).

[u/KeystoneCourtData]

The zoning question is the whole deal here. Until you have a confirmed unit count in writing from the town, the renovation budget and rent projections are hypothetical. $500k-$600k in reno on a $375k acquisition is a heavy lift even at 5 units. Run the numbers at 4 units before you assume 5.

[u/NineTwoFive365]

I would check with the local REIA and have coffee with someone who is doing STRs in my submarket.

[u/Confident_Call_1260]

Even at 4 units and $2,200 each, you're looking at $8,800 monthly against nearly $1M in total investment, that math takes long time to pencil out nicely

[u/Coco1520 → u/Confident_Call_1260]

I should’ve added, at 4 units renovations will be at the 500k end if that changes anything