Killed a mid-term deal in week 19, and the $3,100 was the cheap part
Nineteen weeks on a 4 unit building, all of it underwriting, none of it closing. Walked away two weeks ago. Writing it down because the thing that killed it was not on my checklist and now it is.
The plan was three units furnished at a 32 day minimum and one kept long-term to anchor the debt coverage. Building sits about a mile from a 300 bed hospital in a mid-size market, which is exactly the setup everyone describes. Purchase 745k, furnishing budget 9k a unit, so call it 27k on top.
Underwriting held at 82 percent occupancy across the three furnished units at $2,650 blended. That was my number and I got it from listing sites, which means I got it from asking prices on live listings. When I finally paid a local manager for two hours of her time and her actual booked history on eleven comparable furnished units, the trailing twelve was 66 percent, and the blended realized rate was $2,410. The gap between what a listing asks and what a unit collects is the whole margin in this strategy and I had no way to see it for four months.
The second problem was debt. The lender ran a DSCR product and their appraisal came back with a 1007 rent schedule built on unfurnished market rent, $1,525 a unit. They would not underwrite the furnished premium at all, and they were clear that this was their policy on furnished short and mid-term income, which is a lender by lender thing and worth asking about in writing before you spend on diligence. At $1,525 a unit the coverage worked but the deal was mediocre, and I'd have been buying a plain 4 unit at a furnished-model price.
Third, insurance. Two carriers declined a standard landlord form once I described 30 to 90 day furnished stays with my contents in the unit. The third quoted, at roughly 2.3x what I'd penciled. That alone moved my per unit annual expense by about $1,900.
Out of pocket: inspection 1,150, appraisal 700, attorney review 900, the manager's two hours 350. Call it $3,100. The five months is what actually cost me.
What I'd do differently, in this order. Buy the local manager's booked occupancy history before I write an offer, not after inspection. Get the lender's written position on furnished income before spending anything, because if they only count unfurnished market rent then my entire premium is equity and not debt capacity. Get a real insurance quote at the described use, in writing, during diligence. And I'd underwrite the deal twice, once at furnished assumptions and once at plain long-term rent, and only proceed if the long-term case is at least tolerable. A mid-term deal that only works at 82 percent occupancy is a bet on tenant sourcing, and I'd rather own something where the furnished premium is the upside instead of the whole thesis.