February 29, 2024

BiggerNews: Top “Snowbird” Rental Markets


Snowbird season is coming to THESE real estate markets. Every winter, millions of freezing northerners go south, seeking a temporary escape from the cold and to dethaw themselves before returning in spring. And while you may think that most of these destinations are expensive cities, like Miami, there are some cheaper areas that make not only perfect snowbird rental markets, but profitable year-round short-term rental markets as well.

On this BiggerNews, Vacasa’s Kristen Taylor joins us to give her take on the markets with the most demand and the once-popular markets starting to see declines, including a top-rated tourist destination you wouldn’t expect. Kristen shares updated numbers on how long snowbird season lasts, how the typical snowbird is changing, and why snowbird markets can be MUCH more affordable than year-round vacation destinations.

And if you’ve got equity in one of YOUR properties that you’d like to turn into snowbird rental property, stick around until the end. This episode’s Seeing Greene segment will answer the age-old question: what do I do with all my home equity?

David:
This is the BiggerPockets podcast show 875. What’s going on everyone? This is David Greene, your host of the BiggerPockets podcast. Today, we’re bringing you a bigger news episode and I’m joined with Dave Meyer, the man himself. On the BiggerNews show, we cover the news, data, and economics impacting the real estate industry. Dave, tell us about the show that we’re in store for today.

Dave:
Well, today, we are talking to Kristen Taylor. She is the vice president of operations at Vacasa. They are a big short-term rental property management company, and they have some research they have done that they’re going to share with us about snowbird markets. For those of you who don’t know, snowbirding is when someone migrates from a colder market like New York, the Northeast, the Midwest, to a warmer one like Florida or Texas during the winter months, and investors should pay attention to this because it impacts demand for short-term rentals or medium-term rentals as well because a lot of these are longer stays. So, where these people are going for snowbirding could be potentially great places to invest.

David:
Make sure to listen all the way to the end of today’s show where we have an incredible Seeing Greene segment for you. Dave and I get into a gentleman who’s got a great problem. He’s got a property with a ton of equity, but it’s not cash flowing as much as it used to be. It’s a short-term rental in the snow, and we get into what options he’s got and how he should execute his transition.

Dave:
Well, I’m super excited to bring on Kristen, but before we do, let me just mention one very important cool thing quickly. BiggerPockets is doing its first ever multi-day virtual summit from January 22nd to 25th. You can join me, Mr. David Greene, and several other seasoned investors for a four-day summit. There’s going to be a ton of free content. Some of it’s available for pros. If you want to learn more and register for the summit, go to biggerpockets.com/virtualsummit. You’re going to learn a lot, so go check it out.

David:
All right. Let’s get to Kristen. Kristen Taylor, welcome to the podcast. So glad to have you here. First question, can you explain to our audience what snowbirding is?

Kristen:
Yeah. Thank you, guys. Thanks for having me. Happy to be here. Snowbirding is when historically older generations would migrate from colder destinations from up north, down to warmer destinations in the southern parts of the US during those colder winter months.

David:
All right. How many Americans are considering snowbirding?

Kristen:
According to a recent consumer survey that Vacasa conducted with an external partner, this winter, we’re looking at about one-third of Americans who are considering or already making plans to snowbird, so that comes out to about 34% and it’s actually a really big jump from the 19% who responded they were planning to snowbird in 2022. So, definitely seeing an increase.

Dave:
That’s super surprising because I would’ve guessed perhaps the increase happened sometime earlier in the pandemic when work from home became more apparent, but it seems like a lot of people are getting more interested in this concept. Are they more younger people who are starting to do this as opposed to the historical demographic that we’re doing this snowbirding?

Kristen:
Yeah. We don’t have the exact statistics around age groups or demographics or anything like that. We do believe that the majority of snowbirds still tend to fall into an older demographic, but there is absolutely a new wave of what we’re seeing younger snowbirds that has emerged due to the remote or the hybrid work environment. A lot of younger folks have the ability to work from anywhere, and I think we’re also seeing a generation that’s having kids a little bit later in life that maybe are choosing not to have children, and that really opens up their flexibility to be able to be those hybrid workers and be a snowbird at a younger age.

Dave:
That’s super interesting. Does it change the dynamics of snowbirding when… I would imagine if you’re older and retired, you’re looking for a place that’s probably got a lot of amenities like a pool or a beach. Is it sort of changing where people are going and what they’re looking for in the winter destination they’re going to?

Kristen:
I think it definitely does. I think people are looking for sunshine more than anything, but I definitely think there’s more of a desire for that younger generation to have great restaurants, to have maybe a little bit of nightlife, to have outdoor activities. It’s not necessarily just your traditional idea of golf courses and quiet gated communities. I think there definitely is a desire to have more of a lifestyle in the places where people are snowbirding.

David:
All right. So, when somebody’s moving out of their primary residence and they’re visiting somewhere that’s warmer, what are most of them doing with their primary residences?

Kristen:
I definitely think it depends on that generation. I think we have the older generation that might have more of the luxury to own their primary residence. They bought a long time ago. Potentially, their home is paid off and they don’t need that revenue stream. So, I think they have the opportunity to just vacate their primary residence, relocate for a season or a winter, and not necessarily need that income stream. I think the younger generation of snowbirds were sort of in the opportunity of the gig economy, Airbnb, home sharing. I think there’s a need for that revenue stream to cover their costs as well. So, a lot of folks, if they are snowbirding and they are of that younger generation, I think they are looking to rent out their home, whether it’s one room in their property, a whole property, but I think they do need to offset those costs to be able to afford them the opportunity to rent somewhere for 30, 60, 90 days in those winter months.

Dave:
I think I officially would like to become a snowbird. I don’t live somewhere where it snows. I live in Amsterdam where it just rains for six straight months and it’s really not enjoyable, so if there’s anywhere I could go for six months, that seems desirable, but maybe that’s longer than what most people do. Is it a month or two? Is this kind of just like an extended vacation or are people truly transplanting for a full season?

Kristen:
That’s a really good question, and again, I think that depends on the generation. I think historically, we would see snowbirds in more of that retired age bracket staying 60, 90 days. Vacasa is seeing 40, 45 days as the average amount of stay, so it really has shortened and I think there’s a lot at play there. I think people want that escape from their reality, whether it’s raining in Amsterdam all the time or it’s in a freezing climate, or really maybe they’re in a landlocked state and they just want to get to the ocean or they want to get to a lake or they need a break from their norms. So, I think that’s why we’re seeing those reduction in lengths of stay, as there’s not only opportunity for them to do that, but destinations where they can drive to and have their vehicle and still be back and forth if they need to head home to take care of something, have an appointment, have a work meeting, something like that. So, I think that’s where that length of stay has changed. We’re not seeing those long six month blocks.

David:
Okay. So, how long is the snowbird season and what months do we find that people are traveling the most?

Kristen:
Yeah. Again, I think that’s evolving and progressing as well. Historically, those snowbird months were kind of October through end of winter, so right now, I think with the season sort of changing, winter has been delayed a lot. This year is a great example. The West has barely seen any snow and we’re almost halfway through January. So, I think the traditional idea of snowbird is people would pick up and they would relocate around October and they would head back home in that March, April time frame when spring pops, but I think we’re seeing that shift a little bit. I think people are sticking where they are through October, even into November.
In the West especially, which is my market, that’s the best time of year, so if you live in the West, you want to stay put, these are beautiful months. But if you are trying to truly escape the winter and truly escape the cold temperatures, we’re seeing that shift a little bit into January, February where we’re more in the dead of winter and winter is progressing into that earlier spring. So, I think the dates and the seasons are changing as well.

Dave:
One thing I’m curious about is you said that the amount of time people are staying is declining. Is that because perhaps people are going to multiple locations like they leave Colorado and go to Arizona, and then do a little bit of Florida, maybe sprinkle in some Texas in there, whereas back in the day when maybe short-term rentals weren’t as easily booked, they would just find one place and stay there for the whole season?

Kristen:
Yeah. We’re not seeing that as much. We’re not seeing people pop around to various locations. I think if anything, we’re seeing the back and forth more. They’ll pick a spot to snowbird for about 45-ish days. They’ll head back home and take care of business, and then potentially pop to another location, but we’re not seeing trends that support people going from Coachella Valley to Tucson to Texas to avoid winter. We’re also seeing a lot of folks that need their vehicles, so they’re not necessarily doing those long road trips all over the place. They’re staying put, and then heading back home.

David:
All right. Now, that we’ve covered the changing dynamics of snowbird stays, stay tuned because we’re going to get into which markets are best positioned to capitalize on these trends right after this short break.

Dave:
Welcome back, everyone. We are here with Kristen Taylor, vice president of operations at Vacasa, and we’re talking about Vacasa’s latest research on Snowbird markets and how investors can take advantage of this information.

David:
All right. What are some of the most popular destinations that we see people traveling to recently?

Kristen:
Yeah. We’re seeing some trends change quite a bit. There’s my market. I grew up in California, so these are no surprise to me, but Coachella Valley is a big one out in California. For those of you that aren’t familiar with Coachella Valley, we call that the desert in Southern California and it encompasses Palm Springs, Indio, Palm Desert, Rancho Mirage, and it’s about a two-hour drive from LA. You’re about an hour and a half from some of the mountains.
So, it’s beautiful and it is very hot in the summertime, but it is wonderful in the wintertime, and it has just an absolute array of activities. You’ve got golf. You’ve got hike. You’ve got hot springs. You’ve got a lot of resorts. You’ve got the spas and the great dining and things like that. It’s also a great destination because of that diversity. So, growing up here, it was really kind of more of that retired area. It was snowbirds truly, but Palm Springs has become such a massive destination, especially for folks in LA. So, demographic is all over the place, age all over the place. It really is a great destination for pretty much anyone looking for anything.
I also think kind of sticking with the West, Arizona is another great one that is a very desirable destination in the winter. Mild temperatures, pretty much 300 plus days of sunshine in Arizona, so you can’t beat that. Same thing, lots of activity, biking, hiking, horseback riding, great mountains, tons of golfing, and then some really fantastic restaurants and nightlife experiences, especially more in the Phoenix areas. And then, Texas is a big one. Southern Texas is absolutely a snowbird destination. Great weather, more affordable than some other snowbird destinations, so that tends to be a big draw. Some budget-friendly housing options in places like Houston, Galveston, Corpus Christi, South Padre Island. Those are all really popular destinations, and some new ones we’ve seen in trends recently include a lot of South Carolina, Myrtle Beach. I love Charleston. It’s such a charming, wonderful city, and Hilton Head are all big destinations that we’re seeing.

David:
Okay. What about some markets that did well in the past and their popularity is sort of trending down or they’re not being visited as frequently?

Kristen:
Yeah. I forgot to mention Florida. We all know Florida’s a massive snowbird destination as well, but parts of Florida are declining. The Forgotten Coast we’ve seen a decline since 2022. And then, Hawaii is another interesting one. Oahu, we’ve seen a fairly big decline there, and again, don’t have data to support this, but I think cost is a big thing. Travel is a big thing. We’re seeing snowbirds that want to be able to just drive to where they need to go. Getting on a plane, getting to Oahu is a little more challenging, so we’ve seen a decline there as well. And then, we’re seeing a lot of regulations change. We’re seeing a lot of areas and HOAs change booking patterns and things like that, that have also impacted Hawaii.

David:
Are we thinking that because there’s more options of where you can visit for these snowbird months? You’ve got Airbnb. You’ve got Vrbo. It’s very easy to find. “Ooh, look at what that has to offer.” Where Hawaii used to just be the go-to. It’s warm. It’s tropical. It’s perfect. Go there and figure it out when you get there. There was a lot of brochures and there was hotel concierges that could tell you where to go. That was kind of one of your only options. Now, people have so many options that Hawaii is not as popular.

Kristen:
I 100% think that’s accurate and I think the cost to stay in Hawaii is expensive, so if you’re trying to experience a snowbird experience and you’re more of a millennial or you’re younger or with kids or whatnot, it’s expensive to be out there, everything. You’re going to have to rent a car. You are paying for groceries. Hawaii is just a more expensive cost of living, so I think that factors into it, but I think you’re exactly right. There’s short-term rentals and the idea of snowbirding has become so much more attainable for a younger generation and I think people are looking to all these places that they’ve never been to, and I think the desire to see and have experiences is also very much a motivator of the younger snowbird where they want to see national parks. They want to stay active. They want to try new places and see new things, where to your point, Hawaii is beautiful and it’s lovely, but you’re going there to vacation. You’re going there to relax or going there to swim, and these other places all over the nation are going to offer some really great experiences.

Dave:
I’d also have to say Hawaii, as someone who works in a very different time zone than the rest of the people I work with, I think it’s also harder for people who want to work from home. You’re significantly big time difference, especially from the East Coast, so maybe traditional snowbirds want to do that, but more of the work from home crowd, it’s not super convenient for. Kristen, one of the things I wanted to ask about is what should investors make of all this information? A lot of our audience are short-term rental investors currently or aspiring short-term rental investors. Are there any things that come to mind from your research and data that you think would be useful?

Kristen:
Yeah. One thing I’ll definitely call out, if you are an investor looking, the best thing you can do is just check your regulations and where you’re looking to buy. Oahu is a great example. So many parts of that island are 30 plus only, so you’re only getting long-term rentals there. You’re not going to be able to pepper in those 2, 3, 4 nights stays in between, so that will severely limit your occupancy and your overall annual revenue. So, definitely checking to make sure that if you are interested in buying in a snowbird market that that area, that region can support both short term and long term because that’s going to be able to allow you to maximize your profit.
Definitely checking into your HOA regulations as well. Some HOAs will not allow long term, some will not allow short term. So, you want to make sure that wherever you’re looking supports your goals. If you’re looking to buy a property purely for investment and you don’t plan on using it or staying there or enjoying it yourself, I think there’s great opportunity for those long-term stays. They’re a nice chunk of money that cover a big part of your winter income, but again, just make sure that you can offset that in the summer months with short-term. Arizona’s a great example where you might be able to get a 30, 60-ish nightly booking, but you want to make sure that in the summertime, people aren’t going to Arizona for three months in the summer, but you’re going to get weekenders, golf tournaments, bachelorette parties, things like that. So, you want to make sure you’ve got those covered on both ends.

Dave:
Thank you. Yeah. I think that last point is something I’d love to just follow up on because they seem like interesting markets because there’s going to be increased demand during these winter months in these markets, but do they stand out in terms of annual revenue? Are these better markets than, say, a market that is really hot in the summer? Is there something that points to this being a particularly good investment?

Kristen:
I would say yes in terms of affordability. Our markets that are going to be hugely desirable and booked all year round, they’re going to be very expensive to break into. So, you’re looking at buying a home for $1-1.5 million in parts of San Diego versus being able to buy something maybe in Palm Desert for half that. So, the bookings are going to offset a little bit and I think you’re going to be able to break into the market in more of a snowbird area because of the affordability versus something that’s a vacation destination year round is going to be very expensive.
So, I do think there’s benefits on both sides. I think the snowbird market is great. Those long-term guests can be wonderful. You’re going to see a little bit less wear and tear on your property, especially in more of the retired areas, ideal guest more or less. Whereas in the short-term rental, you’re going to see more folks coming in and out of the property. So, there’s pros and cons to both, but I think if you do want to buy in a snowbird market, you’re going to get more affordable home, and then be able to offset that with a long-term booking in the winter, and then potentially hopefully some short-term bookings throughout the rest of the season.

David:
Well, thank you so much, Kristen. This has been very helpful learning about snowbirding trends and where it’s heading in the real estate market. I want to thank you for being on the show and sharing your vast array of knowledge on the subject. We hope to have you on again soon.

Kristen:
All right. Guys, thank you so much. I appreciate it.

David:
Stick around as Dave Meyer and I give you our 2 cents on what investment decisions we would make based on the info Christian just gave us, and after that, the Seeing Greene segment right after this break. All right, Dave, we just got some really good information about snowbirds. What does this mean for investors trying to make financial decisions today?

Dave:
I think the main thing investors should take away was one of the last points that Kristen said, which was about the value that you can get in these types of markets. I think a lot of different short-term rental markets offer different things. Ski towns offer one thing, beaches, big cities where a lot of people travel for work, but I think the key is to figure out one, which areas offer the most revenue on an annual basis, and then how much you’re paying for each dollar of that revenue? Basically, in the short-term rental business, that’s much of the game. How much cash flow can you generate for each dollar that you’re investing into it? It sounds like some of these markets are potentially good ones for that because they’re less expensive than California or Hawaii and do offer some good things.
The only thing I’d mention though is that seasonality is really important, and if you are going to invest in these types of markets, you have to get really good at cash flow management and just make sure that you’re able to keep your money in a bank account or you have other money from somewhere else, so that during the low occupancy months, you are still able to sustain the property.

David:
Yeah. I just want to highlight when you say cash flow management, that’s a great point. It does not mean the same as when we use the word cash flow when we’re talking about real estate analysis, right? There’s words that get thrown around a lot. When we say cash flow, we’re usually talking about cash-on-cash return. Cash flow is typically within a business sense used to describe money coming in versus money going out. So, if you ran a construction company, they frequently run into this problem where they get paid from a client and they don’t save enough money to pay their workers, so they run out of cash flow and they have to go back to the client and say, “Hey, I need an advance, so I could pay my guys because they didn’t manage their cash flows correctly.”
Something I loved about this, if you think about the investors that have traditionally done the best, they always got in early before everyone else. So, short-term rentals, there was a point where we thought these things were crazy. They were considered risky. It’s a flash in the pan. They’re not going to do well. I heard about all these people crushing it in short-term rentals and thought, “Well, that’s not going to last. What are you going to do if…” And I was wrong. It ended up becoming an incredibly sustainable business model that a lot of people are doing well. In fact, it did so well that everybody jumped to the pool. Now, it’s very hard to run a short-term rental business profitably, and if you are able to eke out a profit, it’s a lot of work for not a lot of money. Now, that doesn’t mean don’t do it. It just means be aware. It’s much harder to get into it now once it’s safe. If you get in early before it’s safe and you take more risk, you’re much more likely to have a big reward.
This snowbird model is sort of another link in that chain. You’ve got an opportunity to buy into these areas, like you said, Dave, that are traditionally cheaper, that you can still make some pretty good money, that you don’t have as much competition. You don’t have all the other investors rushing there and picking the bones clean before you get there, and it’s likely to be sustainable in the future because it’s not very likely that human beings are all of a sudden going to love cold, snow, dark, depressing, damp conditions. They’re going to want to be visiting somewhere where there’s sunshine, and word’s going to get out that this is a viable option. At the same time, we’re seeing an increase in the ability to work from home and we’re seeing an increase in medium-term rentals, stuff like Furnished Finder, where people can say, “Hey, I want to rent a place for three months, not one week,” and having to negotiate three months. So, all of these things are sort of coming together to create an environment where I think this snowbird phenomenon can become a legit investing strategy. What do you think?

Dave:
Totally. Yeah. I think it makes a lot of sense. This is exactly the type of thing you need to do if you’re looking for an edge right now. If you can spot markets that are going to increase demand in the near future, that bodes very well for your investments, this is just another way of looking at that. They’re shifting demand dynamics and they’re moving to these markets and that can be really good. I’ll just like to speak for myself. I was kind of joking when I was like, “I live in a rainy place,” but I work remote full time and my wife and I definitely try and get out of Amsterdam as much as possible in the winter. We’re looking for sun. Obviously, there are different locations, but I do think that people who have worked situations like me, which is an increasing number of people, this is a very appealing option, unless you live in really nice places like California or Hawaii full time.

David:
There you go. Well, thanks Dave for joining me today. I thought this was an awesome show. Love that we were able to get some data and love having you here to unpack it. Since you’re here, Dave, I’m going to bring you along into our Seeing Greene segment. As a listener to this podcast, you are part of the growing and thriving BiggerPockets community and this segment is where we get to connect with community members just like you directly by answering listener questions that everyone can learn from, and we’re going to do that now. Today’s question comes from Rory in Colorado.

Speaker 4:
Hey, David, Rory Corpal from Lamont, Colorado here. Long time listener, first time poster. Hey, we’ve got a mountain property property that we did as a BRRRR STR. We built it back in ’20 and 2021, and the short-term rental market has really slowed down, but we are sitting on a ton of equity really thinking about what our next steps are. We’re looking at either a 1031 exchange, and moving that into turnkey properties or an RV park or self-storage, something with real estate involved or potentially multifamily. Another option would be to have a HELOC on it and use those dollars to invest in some other building projects that we’re looking at, as well as perhaps buying a cash flowing business. Love to get your thoughts on what we should do with the equity. We’ve got about $600k that we’re sitting on right now. Yeah. Love the show. Love what you guys have going on and really appreciate your help. Thanks. Bye.

Dave:
All right. Thanks for the question, Rory. This question actually is near and dear to my heart because I also have an STR I did a little BRRRR on in Colorado, and I’m sitting on some equities, so this one’s very relatable to me. Just to summarize basically, what Rory said is that he did a BRRRR STR, which if you haven’t heard of that, it’s like the BRRRR strategy, which is buy, rehab, rent, refinance, repeat, but it’s doing it with a short-term rental property in Colorado, and Rory’s basically wondering what to do with the money he’s built up. He’s got $600,000 in equity, a ton of equity in there, and he’s wondering because he’s making less money, short-term rental income is going down, should he do a 1031 exchange, so basically sell the property in 1031 it into a different type of real estate asset? Should he use a HELOC loan to pull some money out and reinvest it into real estate? Or potentially even go into something outside of real estate like buying a cash flowing business, laundromat, car wash, something like that? David, what’s your take?

David:
My first take is I’m curious if nobody knows there was a bit of an underground war going on between what we were going to call the short-term rental BRRRR hybrid. The BRRRR STR was obviously one of the two.

Dave:
I never heard that one.

David:
Oh, man, this was huge in my world, as sir BRRRR himself.

Dave:
I’ve heard of Air BRRRR and B.

David:
Air B and BRRRR.

Dave:
Air B and BRRRR, yeah.

David:
Yeah. Yeah. Yeah.

Dave:
I heard that one. Yeah. Not BRRRR STR.

David:
That’s what it was. There was a huge clash between the Lycans and the Vampires. Are we going to be a BRRRR STR or an Air B and BRRRR? Yeah. I’m not quite sure where the chips fell, but it looks like BRRRR STR might have pulled ahead. Now, regarding this dilemma, it sounds like he’s got a lot of equity in the property and there’s not as much cash flow coming in, maybe because of more competition, maybe because the snow’s down. There’s a lot of reasons why the short-term rental market may be fading out, but I refer to this in long distance real estate investing as a return on equity. Right?
We all know about return on investment. When you’re putting that initial capital into the deal, what’s your cash-on-cash return? But sometimes you don’t think about the fact that if your property goes up in value, you’re sitting on a lot of energy there. There’s a lot of equity and it’s not giving you good return. That’s typically when we think about moving some of that energy, which we call equity when it’s in a property into something else. And you’ve got two vehicles just like you mentioned. You can either sell it and move the whole stack minus your closing cost and your realtor fees into another property, and usually a 1031 is how you avoid bleeding more of that energy in the form of paying taxes. Or you can keep the property and suck some of the energy out of it through a cash-out refinance or a HELOC and move it somewhere else.
The way that I tend to look at these decisions is I ask myself, is the property going to continue to appreciate or is there reason to think cash flow is going to continue to go up? If the answer is yes, I look for a way to justify a cash-out refinance or a HELOC, so I keep the property and the future benefits of holding it, and then I just move some of that energy somewhere else to get more cash flow. If the answer is no, I don’t think it’s going to go up anymore. It’s kind of hit its cap or it’s not going to go up more than my other options would. There has to be a delta there. If it’s basically, yeah, it’s going to go up and so is everything else, you might as well sell it and move the money somewhere else.
Here’s one of the big reasons why. When you sell a property that you’ve already put a lot of work into… Like he mentioned, this was kind of when they built on their own from the ground up. There’s some sweat equity there. They acquire what I call buying equity. In the next book I have coming out with BP, this is one of the ways that I talk about making money in real estate, is you actually can buy equity. You can buy something for under market value or you can force equity, which is where you improve the property.
When you sell a property that’s peaked and you buy another one that’s a fixer-upper or you get a great deal on it or there’s a way that you can take that energy and you can add to it, it’s sort of like growing your snowball. I would lean towards the 1031 in this situation because it doesn’t sound like the property is going to continue to increase in value, but if you move to another market that is going to increase in value and you buy something below market value and you add value to it by forcing equity and you get more cashflow from something else, you’ve won in the 4 out of the 10 ways that you can make money in real estate, and you can exponentially grow your wealth that way. What do you think, Dave?

Dave:
Well, first of all, I love that you talk about return on equity. I think it is the most underused metric by a lot of real estate investors. People focus on cash-on-cash return. But as you said, when you build equity, which is a good thing, it forces you to have to think about is that equity being used efficiently? And it sounds like in this case with Rory, it’s not being used efficiently. $600,000 of equity is obviously a ton of cash and it sounds like it’s not generating a lot of cash flow, meaning that if cashflow is your goal, it’s not making it very efficiently. And to David’s point, we don’t know if the property is going to appreciate, but if it’s not going to appreciate, that’s further inefficiency in the use of that capital.
Now, in these types of situations, and I think many experienced investors face these, I like to do something I call benchmarking, which is basically trying to understand what you can get with your money elsewhere. Right now, it seems like Rory’s saying like, “Oh, I’m interested in multifamily, an RV park, a self-storage.” Those all just seem like these hypothetical potential options. What would you get? What’s the return on equity you could get there? What’s the 10-year return that you would get on this property compared to self-storage?
Obviously, we don’t know. You have to forecast that, but I think that’s to me, the first step, is just run some numbers and see if I held onto the property or I did a HELOC, here’s what I would get. And if you look at selling it and doing 1031, it might be a very different number. So, I think that’s super helpful in just comparing numbers to numbers. I’m with you though, David. I think in this type of situation, I’m just making some assumptions about Rory, but I’m going to say that if he’s already feeling like this property’s not efficient and the income is going down, then the HELOC is only going to further deplete your cash flow and make this property perform even worse. So, I think take the win. It sounds like you had a great success with this property. I would take the win. Do the 1031.

David:
There you go. Regarding the very last part of it, should I buy a self-storage? Should I buy an RV park? Should I buy a cash flowing business? I would lean away from buying a business, unless you have experience in that business. Right? There’s always this point when you get into something new where you don’t make any money, you might even lose money as you’re learning how to do it before you do well. It’s not all apples to apples here. I would try to reinvest that money in something as similar to what you already understand as possible, which would likely be a short-term rental in another market. You’re also going to get some of the upsides, like we said earlier, where you could get a better deal. You could add value to it. Maybe even build another one from the ground up. Cash that one and sell it. Move the equity somewhere else. Just a very reliable staircase level of building wealth, where you repeat the same thing. You want it to be as boring as freaking possible and as safe as possible all the way up to retirement.
Thank you very much for submitting your question here, Rory. It was great to hear from you. Best of luck. Let us know how that turns out. Remember, if you want to have your question featured on Seeing Greene, we would love to have it. Simply go to biggerpockets.com/david, where you can submit your question. And if you’re listening to this and you loved it, let us know in the comments on YouTube what you thought, and if you’re listening on a podcast app, please go give us a five-star review. Dave, thanks for being on today. Love you. I know you wrote a new book. Start with Strategy, right? Where can people go to get that?

Dave:
Oh, well, thank you for having me. I appreciate it. Yeah. If you want to learn about how to craft your own real estate strategy, go to biggerpockets.com/strategybook.

David:
Alrighty. Thanks, man. We’ll see you on the next one. This is David Greene for Dave, the strategy man, Meyer signing off.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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