STR to Primary Game
The STR to Primary Game
On the subject of where profit accrues, one of the biggest potential wins, especially for higher income folks is what I call the STR to Primary.
There still is a way to win at the STR game but it’s not really being an STR operator. It’s leveraging the tax code to obtain a property you want as a primary or secondary residence, reducing the overall cost during your time of ownership. Here is how you do it.
Find the property you want and purchase it.
Conduct a cost seg study, setting up shorter depreciation lives for a portion of the property. This allows you to accelerate considerable depreciation into Y1.
Outfit and furnish it, down to the art, exactly how you want it. This is subject to bonus depreciation in Y1. If you were doing it for your own house, you would get no possibility of deduction.
Generate STR bookings. Feel free to set the price on the high side and keep the bookings on the low side, but you do want some activity, ideally, somewhat decent and regular activity.
Maintain this for about 18 months. After which, you shut down the STR operation and occupy the house. It’s your only choice for such a money losing proposition, right?
When you go to sell the property, you are required to recapture this depreciation so technically, it is a deferral, not a total write off. However, if you hold the house for 10 or 15 or more years, this is a significant benefit.
This allows you to buy the property you want, get a good size tax break in Y1, do some work for 18 months and then have your property. Don’t forget to thank me.