Why Invest with RMS

We initiate our process with meticulous market research, centering on affluent regions characterized by robust tourism demand and minimal seasonality. Through a strategic alliance with Revedy, a pioneering force in short-term rental underwriting, we harness their expertise to curate data insights from selected markets. This includes evaluating potential revenue streams, occupancy rates, and regulatory considerations intrinsic to each market.

The amalgamation of curated data with actual rental statistics garnered from Vacation Rental Managers within each market, coupled with data from subscription-based sources like AirDNA and Key Data, forms a foundational aspect of our methodology.

Leveraging our seasoned valuation acumen, we ensure property acquisitions transpire at an appealing entry point. Our dedication extends beyond the acquisition phase, as we actively discern opportunities to augment both the property and your investment’s value through value-added enhancements.

Our commitment endures throughout the holding period. We remain engaged by fostering regular communication with vacation rental managers, consistently assessing actual outcomes against projections, and conducting on-site visits to the property. This proactive stance assures that your investment thrives under our vigilant care.

IRR stands for “Internal Rate of Return.” It is a financial metric used to evaluate the potential profitability and attractiveness of an investment. IRR represents the annualized rate at which an investment’s net present value (NPV) becomes zero, meaning it’s the rate at which the present value of expected future cash flows equals the initial investment cost.

In simpler terms, IRR measures the annualized rate of return an investor can expect to receive over the lifespan of an investment, considering both the cash inflows and outflows. It helps assess the potential profitability of an investment by considering the timing of cash flows and the cost of capital.

A higher IRR typically indicates a more appealing investment opportunity, as it suggests that the investment’s returns are greater and will be achieved more quickly. Investors often use IRR to compare different investment options and make decisions based on which one offers the highest potential return relative to its associated risks.

Cost segregation is a tax strategy used in real estate to accelerate the depreciation of certain components of a property. It involves breaking down the cost of an investment property into various components with different depreciation periods. This allows property owners to depreciate certain components more quickly, resulting in higher tax deductions in the earlier years of ownership.

In the United States, the IRS allows property owners to depreciate different types of property over specific timeframes. For example, the building itself might be depreciated over 27.5 years (for residential properties) or 39 years (for commercial properties). However, there are components within the property, such as lighting fixtures, flooring, HVAC systems, and more, that can be depreciated over shorter periods, often around 5, 7, or 15 years.

Cost segregation studies are conducted by professionals who specialize in this area. They analyze the property’s components and their associated costs to determine which items can be reclassified for accelerated depreciation. By front-loading depreciation deductions, property owners can reduce their taxable income in the early years of ownership, thus potentially improving their cash flow and overall return on investment.

It’s important to note that cost segregation studies must adhere to IRS guidelines and regulations, and property owners should consult with tax professionals to ensure compliance and optimal tax benefits.

The Loan Constant, also known as the Mortgage Constant or Debt Service Constant, is a financial metric used in real estate finance to calculate the constant periodic payment needed to repay a loan over its entire term. It represents the combination of principal and interest payments in a fixed loan payment. The Loan Constant is expressed as a ratio or percentage and is used to assess the level of risk and financial stability associated with a loan or investment.

To calculate the cash yield in real estate, the Loan Constant is used in conjunction with the Net Operating Income (NOI) of the property. The cash yield, also known as the Cash-on-Cash Return, is a measure of the return on investment in real estate, considering the cash flow generated by the property.

The formula for calculating Cash Yield is as follows:

Cash Yield = (Net Operating Income – Debt Service) / Total Cash Invested

Where:

• Net Operating Income (NOI) is the income generated by the property after operating expenses but before debt service (mortgage payment).
• Debt Service is the constant periodic payment on the loan, which can be calculated using the Loan Constant.
• Total Cash Invested represents the total amount of cash invested in the property, including the down payment, closing costs, and any other upfront expenses.

The Loan Constant is a critical component in this formula because it represents the annual debt service, which is a significant cash outflow for the property owner. By subtracting the debt service from the Net Operating Income and dividing it by the total cash invested, you can determine the return on investment as a percentage.

In summary, the Loan Constant is used to calculate the debt service component of the Cash Yield formula. It’s essential for assessing the overall profitability and financial performance of a real estate investment by factoring in the cost of borrowing and evaluating the cash flow generated by the property.

A preferred return and a waterfall are terms often used in investment agreements, particularly in the context of real estate partnerships, private equity, and other forms of joint ventures. They outline how profits and distributions are allocated among investors and sponsors in complex investment structures.

The preferred return refers to a predetermined rate of return that certain investors, typically limited partners, are entitled to receive before the general partners or sponsors receive their share of profits. It acts as a form of priority distribution to ensure that investors get a certain minimum return on their investment before other parties can participate in profits. Preferred returns can be expressed as a percentage of the initial investment or as a fixed amount.

The waterfall structure outlines how profits are distributed among different classes of investors after the preferred return has been met. It’s a tiered distribution model that describes the sequence in which different parties receive their share of profits as investment returns increase.

The waterfall structure typically consists of multiple tiers or “waterfall levels,” each specifying how profits are allocated between different groups of investors based on their agreed-upon terms. The most common waterfall structures include two tiers (Class A and Class B), but more complex structures can involve three or more tiers.

In a waterfall structure, as profits exceed the preferred return and move into subsequent tiers, the distribution proportions might change, favoring the sponsors or general partners more as certain profit thresholds are reached. The structure can also include catch-up provisions, ensuring that certain parties receive the share of profits they missed out on during earlier tiers.

Overall, the preferred return and waterfall structure are mechanisms used to fairly allocate profits among investors and sponsors in investments with varying risk profiles and return expectations. These structures are typically outlined in detail in the investment agreements or operating agreements that govern the terms of the investment partnership.

In the realm of real estate, “value add” refers to a strategy where an investor or property owner seeks to increase the value of a property by making improvements, enhancements, or changes that positively impact its overall appeal, functionality, and income-generating potential. This strategy involves identifying underperforming or undervalued properties and implementing targeted actions to enhance their market value, rental income, or resale potential.

Value add opportunities can involve various aspects of a property:

• Physical Improvements: This includes renovations, upgrades, and repairs to the property’s structure, interior, and exterior. Examples might be renovating outdated interiors, upgrading appliances, modernizing landscaping, or improving energy efficiency.
• Functional Upgrades: Adding amenities, such as pools, hot-tubs or game rooms, can enhance the property’s desirability and attract higher-paying guests.
• Operational Efficiencies: Implementing efficient property management practices, cost-saving measures, and optimizing rental operations can improve the property’s financial performance.
• Repositioning: Changing the property’s positioning in the market, such as transitioning from a long-term rental to a short-term rental with improved features, can attract a different tenant demographic and command higher rents.
• Lease Restructuring: Negotiating new leases with existing tenants or securing higher-paying tenants can increase rental income.

The ultimate goal of value-add strategies is to generate a return on investment that exceeds the cost of improvements, thereby creating additional value for the property owner. This approach is often employed by real estate investors looking to capitalize on properties with untapped potential, and it can involve both short-term fixes and long-term strategies to maximize the property’s value appreciation.

Luxury real estate is often considered a safer investment for several reasons, although it’s important to note that all investments carry some level of risk, and the safety of an investment can vary depending on market conditions and individual circumstances. Here are some reasons why luxury real estate is sometimes perceived as a safer investment:

Stability in High-End Markets: Luxury real estate markets often exhibit greater stability compared to lower-end markets. Economic downturns may have a more muted impact on high-end properties, as affluent individuals may be less affected by economic fluctuations.

Limited Supply: Luxury properties are typically in limited supply due to their unique features, locations, or architectural designs. This scarcity can help maintain their value over time, as demand often remains consistent.

Long-Term Appreciation: Luxury real estate in prime locations can appreciate significantly over the long term. Properties in prestigious neighborhoods or with breathtaking views tend to hold their value or even appreciate at a higher rate than average real estate.

Diversification: Investing in luxury real estate can be a way to diversify your investment portfolio. Diversification can help reduce risk because it spreads your investments across different asset classes.

Attracting High-Quality Tenants: Luxury properties often attract high-quality tenants who are more likely to pay rent on time and take good care of the property, reducing the risk of rental income interruptions.

Lower Price Volatility: Luxury properties tend to have less price volatility compared to lower-end properties, which can experience larger price swings in response to market conditions.

Inflation Hedge: Real estate is often considered a good hedge against inflation, and luxury properties may offer additional protection due to their higher initial value and potential for greater appreciation.

Amenities and Features: Luxury properties often come with exceptional amenities and features that can make them more attractive to potential buyers or renters, increasing their appeal and value.

International Demand: Luxury real estate markets can attract international buyers, adding an additional layer of demand and potentially increasing the property’s value.

Perceived Prestige: Owning luxury real estate can provide a sense of prestige and status, which can contribute to its long-term desirability and value.

It’s important to note that the safety of any investment depends on various factors, including location, market conditions, individual financial goals, and risk tolerance. While luxury real estate may offer certain advantages, it’s essential to conduct thorough research and due diligence before making any investment decisions. Additionally, working with experienced real estate professionals can help you navigate the complexities of the luxury real estate market and make informed investment choices.

The short-term rental industry, which includes vacation rentals, Airbnb-style accommodations, and other alternative lodging options, has its own set of common acronyms and terminology. Here are some of the most common acronyms and terms you may encounter in this industry:

STR: Short-Term Rental. An umbrella term for accommodations rented for short periods, which can include vacation rentals, apartments, and homes.

OTAs: Online Travel Agencies. These are platforms like Airbnb, Vrbo, Booking.com, and Expedia that facilitate bookings for short-term rental properties.

ADR: Average Daily Rate. In the hospitality sector, ADR measures the average daily rate paid by guests on booked nights. To calculate ADR, you can use the following formula:

ADR = Total Revenue / Number of Booked Nights

RevPAR: Revenue Per Available Rental. RevPAR is a simple way to calculate your revenue per available rental. To calculate RevPAR, you can use the following formula:

RevPAR = Total Revenue / Number of Available Nights

Occupancy Rate: A key performance metric used to measure the utilization or occupancy level of the property during a specific period. It indicates the percentage of available nights or stays that were booked and occupied by guests. To calculate occupancy rate, you can use the following formula:

Occupancy Rate (%) = (Number of Nights or Stays Occupied / Total Number of Available Nights or Stays) x 100

Dynamic Pricing: Adjusting room rates based on demand fluctuations, events, seasons, and local market conditions to maximize pricing during peak periods and encourage bookings during slow periods.

Orphan Days: Unoccupied days between vacation rental bookings that are less than your minimum stay requirements. Also known as “gap days” or “booking gaps”.

VRM: Vacation Rental Managers. VRM’s encompass both individual property managers and professional groups responsible for the management of numerous properties.

NPS: Net Promoter Score. A measure of guest satisfaction and likelihood to recommend the property to others.

These acronyms and terms are commonly used in the short-term rental industry and are important for property owners, managers, and industry professionals to understand for effective communication and business operations.