To Buy or Not to Buy: How to Make the Final Call on a Property

So you found a property to start or continue your short-term rental journey! You've done your analysis, and you think you want to move forward and submit an offer... But what if?

‍

Yeah, what if? What if the property doesn’t perform as well? What if you missed something? What if the comp was overly optimistic?

‍

Well, friends, here is one way—and my approach—to make a final decision to buy or pass. I perform a worst-case, expected-case, and best-case analysis in my comp and make a decision based on those results.

‍

Expected Case

Do your analysis like we here at Robuilt and HostCamp teach. Don’t just take the first numbers that a rentalizer or similar tool provides. Instead, take that number and then refine it with a thorough analysis. Really hone in on that number for annual revenue based on your best and most educated guess with the tools that you have available. Refine your expenses as well with the most up-to-date information and analysis.

This represents your expected case based on the best information available. This is what you expect to achieve in your first year of operation for revenue, profit, and cash-on-cash return if you operate your property with excellence.

‍

Worst Case

Now perform a worst-case analysis. What could go wrong? What if you find Quest plumbing and have to repipe the house? What if you stumble out of the gate and get a couple of low ratings on Airbnb? What if you launch at the same time as several other properties with better design and more amenities? While you certainly hope none of these things happen, assume for a minute that they will, and then lower your revenue and raise your expenses accordingly.

‍

I always check two things in this worst-case analysis. First, in a reasonable worst-case scenario, what are the revenue, profit, and cash-on-cash return? Second, how far down would I need to drive revenue before I get to break even for the year? Ideally, the reasonable worst-case scenario has a higher revenue than the break-even version because you have more margin.

‍

Best Case

Lastly, and this is the most fun part because you get to dream and fantasize, perform a best-case scenario. What if you beat your expectations by 20%? What if you come blasting out of the gates and snowball your way to a monster year? What if you get an MTR client willing to pay STR rates (it can happen!)? How does this impact your revenue, profit, and cash-on-cash return? Like what you see?!

‍

Now, take these three scenarios and ask yourself the following:

1. Does the expected case meet my goals?
2. Can I weather the storm if the worst case comes true? Do I have the stomach and the financial resources to handle it?
3. Am I really, really excited about the best-case scenario? Does it make me feel giddy with anticipation?

‍

If you can answer “yes” to those three questions, then, in my book, this property is a definite go. Submit the offer, move out, and get it going. If the answer to any of these questions is “no,” then I would take a long and hard look at the deal before deciding to move forward.

‍

I hope this helps put the critical final decision-making process into an easily approachable framework that will allow you to have confidence moving forward.

‍

Happy deal hunting!

‍

‍