Executive Summary
A tax-driven acquisition, underwritten as an institution would.
This memorandum evaluates a solo short-term-rental acquisition on Possum Kingdom Lake with one governing objective: convert a 2026 income event into a durable, compounding wealth position. The strategy pairs cost-segregation depreciation with the STR Loophole material- participation rule, funded through a portfolio-backed line of credit so no cash leaves the market. Every candidate is re-underwritten in the live Deal Calculator against a DSCR ≥ 1.25× floor and a $220K tax-dollars-saved mandate. The recommendation, at the end of this memo, is the single play the numbers support.
TL;DR · 15-Second Read
- 01What: Acquire a trophy waterfront STR on Possum Kingdom Lake in 2026 (solo).
- 02Why: Convert $220K of tax liability into a refund via cost seg + STR loophole.
- 03How: $0 cash out — SBLOC funds 20% down + all $485K improvements. Property debt is DSCR-covered.
- 04Outcome: ~$220K Y1 tax shield + rental cash flow, compounded in the S&P at 8% → ~$475K in 10 years (~$1.03M at 20).
2026 Tax Target
$220K
Solo — 2026 tax dollars saved via cost seg + STR loophole
Market
Possum Kingdom
Trophy waterfront only — Granbury considered & rejected
Cash Outlay
$0
SBLOC funds down payment + all capex
10-Yr Wealth Est.
~$475K
$220K tax shield compounded in S&P 500 @ 8%
Part I · Mandate & Capital
The tax target, the SBLOC structure, and a live calculator that re-underwrites any property on the fly.
Part II · Markets & Candidates
Why Possum Kingdom (Granbury considered & rejected), regulatory posture, and the PK-only candidate shortlist — every candidate PASS/FAIL at ask.
Part III · Decision & Execution
Scorecard, walk-away discipline, financing, exit, timeline, and the final recommended play.
Part I
The Mandate & Capital Strategy
The goal is a 2026 tax outcome, not a real-estate trade. Sets the tax-dollars-saved target (solo $220K), the back-solved purchase basis required to hit it, the live deal calculator that re-underwrites any candidate on the fly, and the SBLOC structure that funds the acquisition without a cash outlay.
The Mandate
This is a tax trade, not a real estate trade.
The objective is measured in tax DOLLARS SAVED — not deduction. Cost seg on a lakefront STR generates a Y1 bonus depreciation deduction ≈ 24% of purchase basis. At a 37% federal marginal rate, that deduction converts to actual tax refunded. To hit the $220K solo mandate, we back into the basis required — then screen PK properties that can also clear operating and financing gates.
Tax $ Saved · 2026 Target
$220,000
Actual federal tax refunded to sponsor via bonus depreciation on a PK lakefront STR with material participation. Solo — no partner.
Y1 Deduction Required
$594,595
At a 37% marginal rate. Deduction ÷ 0.37 = tax dollars refunded. This is the gross depreciation the property must throw off in Year 1.
Basis Required
$2,477,477
Assuming ~24% Y1 deduction ratio. Deployable across one large PK trophy property or a two-deal stack (Hells Gate + Hoot Ave).
The Scaling Formula
Purchase Basis × 24% = Y1 Deduction · × 37% marginal = Tax $ Saved
Decision Gates
Any candidate must clear all four.
Gate 01
Tax
Combined Y1 tax $ saved ≥ $220,000 (single asset or stack).
Gate 02
Operations
Verified AirDNA revenue supports DSCR ≥ 1.25× at the negotiated basis.
Gate 03
Regulation
STR-legal jurisdiction with no imminent ordinance risk (see Regulatory).
Gate 04
Carry
Yr-1 negative carry ≤ the tax $ saved — otherwise we are renting the deduction.
Part II
Candidate Shortlist
Possum Kingdom-only, solo-only. Every candidate is re-run through the live Deal Calculator with editable underwriting, target-basis back-solve, and carry-vs-tax-shield math per property. Palo Pinto is unincorporated — no city STR ordinance, no permit cap — so regulatory risk is not the gating variable it is on Granbury.
STR Investment Engine
One canonical annual ledger drives every number — Y1 tax, monthly stack, DSCR, wealth chart, milestones, Exit-at-Sale, stress tests, Scorecard. Existing pledged portfolio is modeled separately from tax refunds. Every SBLOC, portfolio, mortgage, and tax-carryforward row reconciles to within $1.
Acquisition
Mortgage
Operations
Pledged Portfolio & SBLOC
RequiredTax
Cross-property lens
Bonus-depreciation scenarios and occupancy break-even, computed for each candidate through the canonical engine.
Bonus depreciation — Y1 refund
| Property | @ 40% | @ 60% | @ 100% | Live |
|---|---|---|---|---|
| 413 Hoot Ave | $99K | $99K | $99K | $99K |
| 1260 Rawhide Ridge | $99K | $99K | $99K | $99K |
| 1009 Cardinal Cv | $99K | $99K | $99K | $99K |
| 7085 W Hells Gate (ask) | $99K | $99K | $99K | $99K |
| 7077 W Hells Gate Dr | $99K | $99K | $99K | $99K |
| 7105 W Hells Gate Dr | $99K | $99K | $99K | $99K |
Occupancy break-even (DSCR = 1.00×)
| Property | ADR | Break-even occ | Current occ | Cushion |
|---|---|---|---|---|
| 413 Hoot Ave | $1275 | 61.5% | 25.8% | -35.7 pts |
| 1260 Rawhide Ridge | $1307 | 56.2% | 21.6% | -34.6 pts |
| 1009 Cardinal Cv | $1136 | 116.1% | 21.3% | -94.8 pts |
| 7085 W Hells Gate (ask) | $1464 | 102.2% | 24.2% | -78.1 pts |
| 7077 W Hells Gate Dr | $1610 | 81.5% | 38.3% | -43.2 pts |
| 7105 W Hells Gate Dr | $1631 | 81.4% | 31.5% | -50.0 pts |
Sportsman's World vs. Gaines Bend vs. The Peninsula vs. Hoot Ave / North End
Which Possum Kingdom neighborhood actually rents better. The candidate ranking in this memo underwrites individual properties; this section underwrites the address behind them — because two identical homes on this lake do not earn the same revenue.
AirDNA does not publish neighborhood-level occupancy, ADR, RevPAR, or revenue for PK submarkets on its public site. Those metrics exist internally but require a paid AirDNA (or Mashvisor) subscription to pull. The comparison below is therefore a qualitative sponsor assessment built from active-listing review and destination-demand drivers — it is directional, not metered. Buy the paid submarket pull for Sportsman's World and Gaines Bend before LOI and replace these ratings with real numbers.
1 · Factor-by-factor comparison
Five-star scale. Sportsman's World leads on every revenue-driving factor; Gaines Bend leads on the one wealth-driving factor; Hoot Ave / North End (Elm Creek) is the value play — it ties on family demand at a materially lower basis.
| Factor | Sportsman's World | Gaines Bend | Hoot Ave / North End | Edge |
|---|---|---|---|---|
| Occupancy Hoot books well with family groups (larger homes, easier access); trails Sportsman's only on destination recognition. | ★★★★★ | ★★★★ | ★★★★½ | Sportsman's |
| ADR (nightly rate) Hoot commands strong rates with pool / hot tub / game room / dock, but not the Hell's Gate trophy premium. | ★★★★★ | ★★★★½ | ★★★★ | Sportsman's |
| Luxury demand Prestige-seeking buyers still gravitate to Sportsman's World and Gaines Bend. | ★★★★★ | ★★★★ | ★★★½ | Sportsman's |
| Boat / dock appeal Good docks and easy boating; no iconic Hell's Gate view or deep-water prestige. | ★★★★★ | ★★★★ | ★★★★ | Sportsman's |
| Trophy-home appreciation Solid appreciation, but the top end concentrates where waterfront inventory is scarcest. | ★★★★½ | ★★★★★ | ★★★ | Gaines Bend |
| Family vacation appeal Where Hoot shines: large homes, calmer coves, fewer crowds, easy parking, multi-family layouts. | ★★★★★ | ★★★★ | ★★★★★ | Tie |
| Overall STR investment | ★★★★★ | ★★★★ | ★★★★½ | Sportsman's leads |
Read the last row, not the individual stars: Sportsman's World still leads overall, Gaines Bend wins prestige and appreciation, and Hoot Ave / North End (Elm Creek) emerges as the high-performing value play — near-peak occupancy and family demand without the Hell's Gate price basis, which is exactly what drives the capital-efficiency ranking in this memo.
2 · Ranking against this mandate
Objectives being optimized: maximize Year-1 cost segregation, produce $175K–$300K+ annual STR revenue, preserve long-term appreciation.
Most recognized destination on the lake. Hell's Gate is PK's headline attraction and drives consistent boating traffic. Largest concentration of luxury inventory, the deepest bench of established property managers, and the strongest repeat-guest base. Guests pay a premium for the address itself.
Competitive with Sportsman's World when the specific asset is a large home with a good dock. Performance tracks the individual property more than the neighborhood label.
Ties Sportsman's World on family vacation appeal and comes within half a star on occupancy, at a materially lower entry price. Weaker on prestige and trophy appreciation, but this mandate is funded on borrowed capital — a lower basis means less cash drag on the pledged portfolio, which is why 413 Hoot Ave leads the capital-efficiency ranking.
Some of the most beautiful private waterfront estates on the lake and the better exclusivity/appreciation story — for a $4M–$8M second home this is the lean. As an investment rental it carries fewer active vacation rentals, less destination recognition, and fewer guests searching the neighborhood by name.
3 · What this changes in the underwriting
- Magnitude: 5–15% revenue premium. A comparable luxury home in Sportsman's World should out-earn the same home in Gaines Bend by roughly 5–15%. Meaningful over a 30-year hold, but not large enough on its own to overturn a price or DSCR advantage. Do not pay a 20% price premium to capture a 10% revenue premium.
- It reinforces the Hell's Gate comps. The two highest-revenue candidates in the shortlist (7077 and 7105 W Hells Gate) sit inside the strongest submarket — their AirDNA revenue is location-supported, not an outlier. Their problem remains price and DSCR, not demand.
- Gaines Bend is a second-home thesis. Exclusivity and trophy appreciation are real there, but this mandate is a tax-and- revenue trade funded on borrowed capital. Slower bookings raise the cash drag on the pledged portfolio — the exact variable that decides capital efficiency in the ranking table above. Only underwrite Gaines Bend as an exceptional trophy asset at a price concession.
- Sensitivity, not certainty. Because the premium is unmetered, stress each candidate's revenue by −10% in the Deal Calculator if it is outside Sportsman's World, and confirm with a paid, address-specific AirDNA Rentalizer pull before LOI.
Next step available on request: a property-level ranking of every active luxury listing in Sportsman's World, Gaines Bend, and The Peninsula in the $2.5M–$3.5M band — projected revenue, ADR, occupancy, cash flow, and appreciation, ranked #1–#10 against this mandate.
Section · What we don't know
Key Assumptions & Sensitivities
The five inputs below carry the most decision weight and the least evidence. Each range is computed by re-running the same engine on 413 Hoot Ave with only that one assumption changed — everything else held at base case. Read this before the Recommendation, not after.
| Driver | Base case | Downside | Y1 DSCR | Y30 NW | Upside | Y1 DSCR | Y30 NW | Y30 swing |
|---|---|---|---|---|---|---|---|---|
Stabilized Year-1 gross revenue Low confidence AirDNA comp-set estimate, not a verified owner P&L. Everything downstream — DSCR, carry, portfolio drag — moves with it. | Comp-set estimate | −25% | -0.07× | $20.28M | +15% | 0.19× | $24.83M | $4.55M |
Year-1 stabilization ramp Low confidence A new listing does not book at stabilized rates in month one. Review velocity, reno downtime and shoulder-season timing decide how much of Year 1 is actually earned. | 75% of stabilized | 50% | -0.13× | $22.85M | 95% | 0.27× | $23.31M | $0.46M |
Cost-segregation carve-out Medium confidence Study-driven. We assume 25% of building basis reclassifies to 5-yr bonus-eligible property. No study has been commissioned; the real number is engineer-determined. | 25% of building basis | 15% | 0.09× | $23.17M | 35% | 0.09× | $23.04M | $0.13M |
SBLOC borrowing cost Medium confidence Floating against short rates. Every basis point compounds against the pledged portfolio for thirty years and is the single largest driver of the debt-spiral tail. | 6.5% floating | 4.5% | 0.09× | $24.74M | 9.5% | 0.09× | $20.64M | $4.10M |
Portfolio return vs. property appreciation Low confidence The whole thesis is an arbitrage: borrow at SBLOC rates, stay invested at equity rates. If equities underperform the borrowing cost, the structure inverts. | 8.0% equities / 3.5% property | 5% / 1.5% | 0.09× | $8.58M | 10% / 5% | 0.09× | $42.53M | $33.94M |
Ranked by Y30 swing, the widest band is the assumption that deserves the diligence budget. One variable moves at a time — real downside arrives correlated, which is what the correlated crash stress test in the calculator models.
Open questions we cannot answer from the desk
Will the property qualify for the STR material-participation exception?
Modeled as yes (avg stay ≤ 7 days + >100 hrs and more than anyone else). Requires contemporaneous time logs and a self-managed operating posture. If it fails, Year-1 losses become suspended passive losses and the refund goes to zero.
What does lakefront STR insurance actually cost here?
Now modeled per property on a specialty vacation-rental policy: $11K/yr for 413 Hoot Ave (quoted band $10–14K), $16K for 7077 and $20K for 7105 W Hells Gate (bands $15–20K and $18–25K). The swing factor is replacement cost, not price — custom lakefront rebuilds run $600–$900/SF, and a top-of-band valuation adds several thousand a year. A $5M umbrella, ordinance & law, equipment breakdown, and watercraft liability are additive to these figures and not yet in the model.
Does the POA / deed restriction permit nightly rentals?
Assumed permitted. Palo Pinto County is unincorporated with no city ordinance, but private covenants are the real gate and have not been pulled. A single 'no nightly rental' covenant is a total thesis kill.
Is bonus depreciation available at the modeled percentage?
Modeled at 60% for the placed-in-service year. This is a moving legislative target and must be confirmed with the CPA at signing, not at closing.
Is the submarket ranking real data?
No. Neighborhood-level PK metrics are behind a paid AirDNA/Mashvisor subscription. The Tier 1/2/3 read is a qualitative sponsor assessment and must be replaced with metered pulls before LOI.
Is SBLOC interest deductible?
Modeled as NOT deductible — the conservative treatment. Tracing rules may allow interest allocable to the rental to be deducted; that would improve the refund and is a CPA question, not a modeling one.
Recommendation · Full Universe Run
Every candidate re-scored through the engine at current ask.
Each property was pushed through the same auditable engine — SBLOC on, STR + material participation, income split into a $200K ordinary layer and a $1.2M long-term capital-gain layer, 60% bonus depreciation, 25% acquisition cost-seg carve-out, a 75% Year-1 stabilization ramp, per-property specialty STR insurance, $25K/yr of fixed property services grown at 3%, 27% variable opex, §461(l) cap, and realized-net-worth exits at Year 10 and Year 30. The table is ranked by overall deal score, then Year-1 net position — but read the two right-hand columns before you conclude anything: Score ranks the property, Cap. Eff. ranks the use of your capital, and they do not always agree.
Buy 413 Hoot Ave — the highest-scoring asset (7105 W Hells Gate Dr, 6.7/10) is not the best use of the capital. 413 Hoot Ave returns 21.9x on $1,054K deployed vs 15.0x on $1,395K, and ends Year 30 at $23,103K vs $20,969K.
Both properties hit the §461(l) excess-business-loss ceiling in Year 1, so each returns $99K regardless of price. Spending more buys depreciation you cannot use this year — it lands in the NOL carryforward, not in your bank account.
Y1 property cash flow is -$113K on 413 Hoot Ave vs -$202K on 7105 W Hells Gate Dr. Every dollar of that shortfall is drawn on the SBLOC and accrues at the loan rate for the full hold.
Dollars left pledged in the S&P compound at 8%; dollars sunk into the house appreciate at 3.5%. The bigger ask produces the larger property at exit and the smaller total net worth.
Where 7105 W Hells Gate Dr is genuinely better: revenue quality, DSCR trajectory (0.10 vs 0.09) and asset prestige — which is exactly what Score measures. It is the better property; 413 Hoot Ave is the better trade. If 413 Hoot Ave’s actual STR revenue underperforms the AirDNA comp, or 7105 W Hells Gate Dr can be negotiated down materially, this ordering flips.
| # | Property | Submarket | Ask | Rev | DSCR | Y1 Cash | Y1 Tax | Y1 Net | Y10 NW | Y30 NW | Cap. Eff. | Score | Rating |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 7105 W Hells Gate Dr | T1 · Sportsman's World | $3,499K | $250K | 0.10 | -$202K | $99K | -$103K | $5,543K | $20,969K | 15.0x | 6.7 | |
| 2 | 1009 Cardinal Cv | T3 · Gaines Bend | $3,500K | $118K | -0.20 | -$267K | $99K | -$168K | $4,325K | $10,537K | 7.6x | 6.7 | |
| 3 | 7085 W Hells Gate (ask) | T1 · Sportsman's World | $3,999K | $172K | -0.11 | -$284K | $99K | -$185K | $4,469K | $11,430K | 7.6x | 6.7 | |
| 4 | 1260 Rawhide Ridge | T2 · The Peninsula | $1,750K | $137K | -0.01 | -$112K | $99K | -$13K | $5,416K | $21,940K | 21.7x | 6.6 | |
| 5 | 7077 W Hells Gate Dr | T1 · Sportsman's World | $3,499K | $300K | 0.23 | -$173K | $99K | -$74K | $5,993K | $25,228K | 18.1x | 6.4 | |
| 6 | 413 Hoot Ave | T1 · Sportsman's World | $1,949K | $160K | 0.09 | -$113K | $99K | -$14K | $5,564K | $23,103K | 21.9x | 6.1 |
Cap. Eff. = Year-30 realized net worth ÷ total capital deployed (down payment + closing + property/amenity CapEx + F&E + working capital + loan costs). It answers a different question than Score: not “is this a good property?” but “is this the best use of the dollars?” A larger ask that produces the same capped tax refund and a deeper annual cash shortfall diverts capital out of the S&P account (8%) and into appreciation (3.5%) — so it can rank higher on Score while returning a lower multiple on capital.
Submarket tiers come from the Submarkets section and are a qualitative sponsor assessment, not paid neighborhood-level data. Tier 1 (Sportsman’s World) carries the strongest STR occupancy, ADR and boat-traffic demand; Tier 2 (The Peninsula) is solid but without the Hell’s Gate premium; Tier 3 (Gaines Bend) is a trophy/appreciation submarket with thinner rental demand. The tier is not an input to Score or Cap. Eff. — it is a third, independent read. A candidate that leads on capital efficiency and sits in Tier 1 is corroborated on all three axes; one that leads on Score but sits in Tier 3 is carrying appreciation risk the revenue model may not support.
All figures generated live by the engine at current ask · re-runs on every code deploy. Click any rating badge to see the specific conditions attached to that property.
LOI on 7105 W Hells Gate Dr at 10–15% under ask
Contingent on 24-mo revenue documentation, cost-seg engagement letter, and SBLOC facility priced ≤ 7%. Re-run through the calculator on every counter.
Add rank #2 · 1009 Cardinal Cv
Combined Y1 tax refund ≈ $198K. Same tax year, same bonus-depreciation window. Only add once the anchor closes.
- · Any counter pushes Y1 Net negative in the calculator.
- · SBLOC rate quoted > 8%.
- · Trailing-12-mo revenue prints < 80% of model figure.
- · Cost-seg pre-study delivers < 22% Y1 deduction ratio.
Section · Verification
Diligence Tracker
The model is decision-grade; what remains is verification. Every item below is off-desk work that cannot be resolved from data. Items tagged Kills deal must be cleared before an LOI is signed — Adjusts price items move the offer, not the decision. Click any row to expand; click its status chip to cycle Open → In progress → Cleared → Blocked. Progress is saved on this device.
Status is stored locally in this browser and is a working tool, not a system of record. Nothing here overrides the CPA, title company, or lender — each cleared item should be backed by the document named in its source line.
Questions for CPA & Advisor
Pre-loaded with the questions a sophisticated real-estate CPA will ask in the first meeting. Bring this to the call — every unresolved item is a potential blocker to the Y1 tax shield.
- Confirm we qualify for the STR loophole (avg guest stay ≤ 7 days) and that I can meet material participation (100+ hours AND more than any other individual, including cleaners/PM).Why: Without material participation, Sch E losses are passive and cannot offset W-2 / 1099 income. This is the entire thesis.
- If we use a professional PM, does a co-hosting / owner-operator carve-out preserve material participation?Why: Full-service PM hours often exceed owner hours and disqualify the loophole.
- Time-log format you want us to maintain (spreadsheet, app, contemporaneous notes)?Why: IRS audit defense on STR losses lives or dies by the time log.
- Preferred cost seg provider (KBKG, CSSI, Madison SPECS, ELB)? Engineering-based study required?Why: DIY / calculator-based studies are audit bait. Need an engineering study with site visit.
- Confirm 2026 bonus depreciation rate (currently 40% under TCJA phasedown unless restored to 100%).Why: Model assumes ~24% effective deduction on basis. If bonus drops further, tax shield shrinks proportionally.
- Land carve-out % you're comfortable defending on a lakefront lot (typically 20–30%)?Why: Land is non-depreciable. Higher land % = smaller depreciable basis = smaller shield.
- Should the cost seg study include the FF&E and improvement CapEx, or just the acquired building?Why: Post-close CapEx can also be cost-segregated and bonus-depreciated in the same year placed in service.
- Is SBLOC interest deductible as investment interest expense (Form 4952) or must it be traced to the property use?Why: If traced to a rental, it becomes deductible rental interest. If investment interest, it's limited to net investment income.
- Margin call risk tolerance — what portfolio drawdown triggers a call at our LTV, and what's the reserve plan?Why: SBLOCs are demand loans. 2020/2022 style drawdowns can force liquidation at the worst time.
- At sale, how much of the accelerated depreciation recaptures as ordinary income (§1245) vs §1250 unrecaptured (25%)?Why: Cost seg front-loads §1245 5/7/15-yr assets that recapture at ordinary rates. Recapture can eat 30-40% of the paper 'gain.'
- Is a 1031 exchange into another STR viable to defer recapture indefinitely?Why: 1031 defers both §1250 and §1245 if replacement property has like-kind components.
- LLC per property or series LLC? Any Texas franchise tax implications above the $2.47M revenue threshold?Why: Liability isolation matters for STR (guest injury exposure). Series LLC saves formation cost.
- Umbrella policy limit recommendation ($2M / $5M / $10M) given lakefront + pool + spa + water sports?Why: Standard STR policy caps at $1-2M. Guest drowning / boat injury claims blow through that.
Due Diligence
Pre-Closing Diligence Checklist
The 14 items below must clear before the final BUY recommendation is defensible. Critical items are flagged — any blocked critical item halts the deal.
Overall
0%
0 of 14 complete
Critical Path
0/9
Deal-breaking items
Blocked
0
Requires escalation
Gate Status
HOLD
All critical must clear
Revenue
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Pull 5-10 luxury waterfront comps (AirDNA Rentalizer) | |||
| ●Verify seasonality curve (monthly ADR / occupancy) |
Regulatory
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Confirm Palo Pinto County / PK POA STR permit rules | |||
| ●Check pending PK / Palo Pinto STR ordinances + POA covenants |
Financing
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Obtain DSCR lender term sheet (rate, LTV, reserves) |
Property
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Full inspection (roof, HVAC, septic, pool, dock) | |||
| Seawall / bulkhead structural review |
Insurance
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Bind quote — waterfront + STR + wind/flood |
Tax
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Post-sale property tax reassessment estimate | |||
| Cost segregation study proposal + fee | |||
| TX hotel occupancy tax registration plan (6% state + local) |
Operations
| Item | Owner | Deadline | Status |
|---|---|---|---|
| PM quotes — self / co-host / full-service |
Legal
| Item | Owner | Deadline | Status |
|---|---|---|---|
| ●Title review — easements, dock rights, water access | |||
| Seller disclosures + 24 mo utility bills |
● Critical items gate the final BUY recommendation. Owner and deadline fields are editable.
Red Flags & Deal Killers
What could blow up the thesis, ranked by severity. Each item includes the risk and the mitigation baked into the plan. If any HIGH severity item is unresolved at close, walk.
Below the ranked list are five binary tripwires. If any one prints before option termination, we walk — not re-price.
- HOA / STR Ban:Bylaws or ordinance prohibit STR or impose min-stay rules.
- Cost Seg Unusable:CPA confirms Y1 depreciation can't offset 2026 income.
- Insurance Blows Budget:Bound quote materially above the property's UW line ($11K Hoot / $16–20K Hells Gate).
- 6-Figure Deferred Maintenance:Inspection uncovers >$100K unbudgeted capex.
- Rentalizer >10% Below UW:Paid address-specific AirDNA prints in comp-median band.
Cost seg claimed but material participation fails audit
HIGHEntire Y1 deduction reclassified as passive. Tax refund clawed back + interest + 20% accuracy penalty. Could turn a $220K shield into $270K+ liability.
Contemporaneous time log from day 1. Self-manage or use co-hosting model. CPA confirms hours meet 100+ / more-than-any-other test before filing.
Revenue underperforms 30%+ vs AirDNA in Y1
HIGHDSCR breaks covenant. Loan gets called or repriced. Negative carry balloons from planned $-30K to $-80K+.
Verified revenue (not projections) on Hoot Ave & Rawhide. 90-day launch plan with pro photos, dynamic pricing, Superhost push. Reserve = 6 months debt service in cash.
STR regulation change (Palo Pinto County / PK)
MEDPermit cap, min-stay rule, HOA ban, or occupancy tax hike could compress ADR or lock out new inventory.
PK unincorporated waterfront is currently STR-permissive with no pending legislation (verified Q2 2026). Target BRA-leased lots or STR-friendly HOAs only. Contingency: convert to mid-term rental (30+ day).
SBLOC margin call during 2020/2022-style drawdown
MED20-30% portfolio drop at 50% LTV triggers forced liquidation at market bottom. Could wipe out reinvested tax savings and force property sale.
Cap SBLOC at 30% LTV (not 50%). Hold 12mo debt service in T-bills outside pledged account. Have HELOC or cash-out refi as backup liquidity.
Bonus depreciation drops below 40% for 2026
MEDTCJA phasedown continues: 40% (2025) → 20% (2026) → 0% (2027). Y1 shield could shrink 50%+ vs model.
Confirm 2026 rate with CPA before signing. If <40%, re-run mandate — may need larger basis (Hells Gate 7077/7105) to hit the $220K target on one property.
Depreciation recapture at exit
MEDAccelerated §1245 assets recapture at ordinary rates (up to 37%). A $220K Y1 shield can generate $130K+ recapture liability at sale in Y5-7.
Plan for 1031 exchange into next STR at exit. Hold 10+ years to let §1250 dominate (25% cap). Model post-tax IRR, not pre-tax.
Insurance claim denial (guest injury, water damage)
LOWStandard homeowners policy voids on STR use. Guest drowning claim without proper STR policy = personal liability exposure.
Proper Insurance or CBIZ STR-specific policy day 1. $5M umbrella. LLC ownership. Waterfront waiver + pool safety signage.
If any HIGH severity item cannot be resolved in writing (CPA opinion letter, engineering cost seg engagement, verified revenue > 85% of AirDNA) before close, the deal does not clear the mandate. Preserve capital and re-underwrite the next candidate.
Inputs needed before an LOI on any candidate
Revenue is Verified via AirDNA Rentalizer (Hells Gate 7077/7105 are owner-verified). What's still Modeled per property: tax reassessment, POA/STR permission, dock permit transferability, and STR-endorsed insurance. Pull these before issuing an LOI — each collapses a remaining assumption into a bindable number.
413 Hoot Ave, Graford (PK)
Verified- □Sportsman's World POA — STR rules, fees, event/group-rental policy
- □Trailing-12 booked-calendar scrape confirming $160K AirDNA revenue
- □Palo Pinto tax roll + reassessment scenario at $1.95M basis
- □STR-endorsed insurance quote (waterfront + pool + 14-guest sleeper)
1260 Rawhide Ridge, Graford (PK)
Verified- □POA covenants + written STR permission letter
- □Trailing-12 booked-calendar scrape confirming $137K AirDNA revenue
- □Palo Pinto tax roll + reassessment scenario at $1.75M basis
- □Dock permit transferability + shoreline linear feet (BRA)
1009 Cardinal Cv, Graford (PK)
Verified- □List price confirmed at $3.50M (Zillow) — prior $1.45M placeholder retired
- □Pull a trailing-12 booked calendar: $117.5K AirDNA output cannot support a $3.5M basis
- □POA/HOA covenant review + STR permission
- □Palo Pinto tax roll at $3.5M basis + STR-endorsed insurance quote
7085 W Hells Gate Dr, Strawn (PK)
Verified- □Cost-seg engineer pre-study (24% shield ratio assumed; new-build land ratio may differ)
- □Palo Pinto tax reassessment scenario at $2.8M–$4M basis
- □Trophy-tier STR insurance quote + umbrella sizing
- □Seller concession/negotiation posture — ask ($4M) fails DSCR; neg ($2.8M) required
7077 W Hells Gate Dr, Strawn (PK)
Verified- □Trailing-12 P&L + booking-platform export (Airbnb/Vrbo/direct) verifying owner-reported $300K
- □Cost-seg engineer pre-study — new-build land ratio + interior finish package for 5/7/15-yr allocation
- □Palo Pinto tax reassessment scenario at $3.5M basis (currently modeled 1.75% effective)
- □BRA dock permit + rooftop deck / pool insurance carve-outs
7105 W Hells Gate Dr, Strawn (PK)
Verified- □Trailing-12 P&L + booking-platform export verifying $250K owner-reported revenue
- □Cost-seg engineer pre-study at $3.5M basis
- □Palo Pinto tax reassessment + trophy-tier STR insurance quote
- □Dock permit + shoreline condition
Cross-cutting inputs to gather in parallel: STR-endorsed insurance quotes (waterfront + pool), PriceLabs / Wheelhouse dashboards for PK Peninsula + Hell's Gate seasonality curves, and trailing-90 booked-calendar scrapes from the 5 nearest listed comps per property.
Glossary of Terms
Plain-English definitions for every acronym and term of art used throughout this memorandum. Share with your CPA, partner, or advisor as a decoder ring.
- STR Loophole(Short-Term Rental Loophole)
- IRS treatment (§469 + Reg. 1.469-1T(e)(3)(ii)) that lets a short-term rental be classified as non-passive — so paper losses from cost seg/bonus depreciation offset W-2 and 1099 income. Requires BOTH: (1) average guest stay ≤ 7 days, AND (2) material participation (typically 100+ hours AND more hours than any other individual, including your PM/cleaner). Miss either test and the losses are trapped as passive and worth $0 against your day job.
- Cost Segregation(Cost Seg)
- An engineering study that reclassifies parts of a building (flooring, cabinets, landscaping, driveways, appliances, dock, pool equipment) from 27.5/39-year real property into 5-, 7-, and 15-year property. Those shorter-life assets then qualify for bonus depreciation, front-loading a huge Year 1 deduction.
- Bonus Depreciation
- The IRS lets you deduct 100% of qualifying short-life assets in Year 1 (phasing down: 40% in 2025, currently scheduled 20% in 2026, 0% in 2027 unless Congress restores). Applied on top of cost seg to generate the Y1 tax shield.
- Material Participation
- IRS test proving you actively run the business. For STR, the easiest path is 100+ hours AND more than anyone else. Requires a contemporaneous time log — audit defense lives or dies on this.
- Depreciation Recapture
- At sale, the IRS 'claws back' the depreciation you took. §1245 assets (5/7/15-yr from cost seg) recapture at ordinary rates (up to 37%). §1250 (real property) recaptures at a capped 25%. Why exit strategy (1031 exchange or long hold) matters.
- §1031 Exchange(1031)
- Sell one investment property and roll proceeds into another 'like-kind' property within 180 days to defer all capital gains AND depreciation recapture indefinitely.
- Schedule E(Sch E)
- The IRS form where rental income and expenses are reported. STR losses that qualify under the loophole flow from Sch E straight against ordinary income on the 1040.
- SBLOC(Securities-Backed Line of Credit)
- A revolving line of credit collateralized by your brokerage portfolio (stocks/ETFs). Rate = SOFR + ~1.5%. Lets you borrow the 20% down + CapEx without selling securities (no cap-gains hit) and without touching cash. Risk: margin call if portfolio drops 30%+.
- DSCR Loan(Debt Service Coverage Ratio Loan)
- Investor loan underwritten on the property's rental income, not your personal DTI. Lenders typically require DSCR ≥ 1.25× (property NOI covers debt payment by 25%). No tax returns, no W-2 required.
- DSCR
- Formula: Net Operating Income ÷ Annual Debt Service. 1.25× means the property generates $1.25 of income for every $1 of mortgage payment. Below 1.0× = negative carry.
- LTV(Loan-to-Value)
- Loan amount ÷ property value. DSCR loans usually cap at 80% LTV (20% down). SBLOC caps at 50-70% of portfolio value (we model 30% for margin-call safety).
- Amortization
- The schedule that pays down principal over the loan term (30 yr for DSCR). Early years are mostly interest — which is fully deductible on Sch E.
- Negative Carry
- When rental income doesn't cover debt service + operating costs. Reserves must fund the gap. Modeled at ~$30K/yr Y1 for Hoot Ave, absorbed by the tax refund.
- ADR(Average Daily Rate)
- Average nightly rate charged. Lake Granbury 4BR+ waterfront: $550–$725. PK trophy tier: $650–$1,100.
- RevPAR(Revenue Per Available Night)
- ADR × Occupancy. The apples-to-apples metric for comparing STR revenue across properties of different sizes/prices.
- Occupancy
- Booked nights ÷ available nights. Stabilized Y2 waterfront targets: 58-62%.
- AirDNA
- The industry-standard STR data platform. 'Rentalizer' gives address-specific revenue projections; 'MarketMinder' shows market-wide ADR/occupancy/comp sets.
- PM(Property Manager)
- Full-service PM typically charges 12% of gross. Danger: PM hours can exceed owner hours and kill material participation — use co-hosting model instead.
- OTA(Online Travel Agency)
- Airbnb, VRBO, Booking.com. Blended fee ~3% of gross to the host (plus guest-side service fees).
- NOI(Net Operating Income)
- Gross revenue minus operating expenses (PM, OTA, insurance, utilities, reserves) — BEFORE debt service and depreciation. The numerator in DSCR.
- CapEx(Capital Expenditure)
- Money spent on improvements that extend the property's life or add value (pool, outdoor kitchen, dock, branding). Depreciable — not an operating expense. This memo models $485K in Y1 CapEx.
- FF&E(Furniture, Fixtures & Equipment)
- Beds, sofas, appliances, décor, hot tub, game equipment. 100% cost-segregable and bonus-depreciable in Y1.
- LOI(Letter of Intent)
- Non-binding offer outlining price, terms, and contingencies. Precedes the purchase contract.
- LLC(Limited Liability Company)
- Pass-through entity that isolates STR liability (guest injury, drowning, water damage) from personal assets. Series LLC allows multiple properties under one umbrella.
- TIC(Tenants in Common)
- Alternative to a partnership LLC — each partner owns an undivided fractional interest, files own Sch E. Preserves each partner's individual 1031 flexibility.
- K-1
- Tax form issued by a partnership/LLC to each partner showing their share of income, deductions, and credits. Feeds each partner's personal 1040.
- 50/50 Partnership
- This memo's alternate structure — two 37%-bracket partners split basis, CapEx, and tax shield equally to hit a combined savings target.
- IRR(Internal Rate of Return)
- Annualized return over the hold period, accounting for timing of cash flows AND terminal exit value. The single-number benchmark for comparing investments.
- Cash-on-Cash Return
- Annual pre-tax cash flow ÷ cash invested. With SBLOC = $0 cash out, this metric becomes 'infinite' — which is why we track wealth growth instead.
- Monte Carlo Simulation
- Runs 2,000 randomized trials varying ADR, occupancy, and expenses to show the probability distribution of outcomes — not just a single point estimate.
- Sensitivity Analysis
- Table showing how the answer changes when one input moves (e.g., what if ADR is 10% lower AND occupancy 5% lower?).
- Tornado Chart
- Bar chart ranking which inputs have the biggest impact on the output. Tells you where to focus underwriting rigor.
- S&P 500 Compounding
- The wealth engine: Y1 tax refund + annual cash flow reinvested in the S&P at 8% nominal CAGR. This is how a 'break-even' rental becomes a $475K → $1.03M wealth builder off a $220K seed.
- Lake Granbury
- Reservoir on the Brazos River, Hood County, TX. 45 min SW of DFW. Constant-level lake, ~8,700 acres. Property tax 1.33%. STR-permissive.
- PK (Possum Kingdom Lake)
- Larger reservoir NW of DFW, Palo Pinto County. Iconic 'Hells Gate' cliffs. Higher ADR ceiling than Granbury but more seasonal. Property tax 1.75%. Docks require BRA permit.
- BRA(Brazos River Authority)
- Governs shorelines and docks on both Granbury and PK. Existing permitted dock = major value; new dock permits are slow/limited.
- Hood CAD / Palo Pinto CAD(County Appraisal District)
- Sets property tax assessed value. STR use often triggers reassessment above homestead value — modeled as a risk in the memo.
- Who Qualifies for Cost Seg
- ANY owner of income-producing real estate (STR, LTR, commercial, multifamily) can order a cost seg study. The study itself just reclassifies assets — it does NOT require material participation. The question of whether the resulting losses offset W-2/1099 income is a SEPARATE test (see STR Loophole / Real Estate Professional).
- Placed-in-Service Rule
- Bonus depreciation is taken in the year the property is 'placed in service' — meaning ready and available for rent (listed on Airbnb/VRBO, keys in lockbox, utilities on). Closing in Dec 2026 but not listing until Feb 2027 = 2027 deduction. Document the listing date, first inquiry, and calendar availability.
- Bonus Depreciation Phase-Down
- TCJA schedule: 100% (2017–2022) → 80% (2023) → 60% (2024) → 40% (2025) → 20% (2026) → 0% (2027). The 'One Big Beautiful Bill' (H.R.1, 2025) restored 100% for property placed in service after Jan 19, 2025. Confirm current-year rate with your CPA before closing — legislation is fluid.
- Qualifying Short-Life Assets
- 5-yr: appliances, furniture, carpet, decorative lighting. 7-yr: office equipment. 15-yr QIP (Qualified Improvement Property) & land improvements: driveways, fencing, landscaping, pool decking, dock, outdoor kitchen hardscape, site lighting. Land itself is NEVER depreciable. Typical lakefront STR study reclassifies 25–35% of purchase price into these buckets.
- Engineering-Based Study
- IRS-preferred method (per Cost Segregation Audit Techniques Guide). Requires a site visit, blueprints/plans review, and itemized asset takeoff by an engineer or qualified firm. Cost: $5K–$15K for a $2M property. 'Rule of thumb' or DIY studies are audit red flags.
- Form 3115 (Catch-Up)(Change in Accounting Method)
- If you own a property for years without cost seg, you can file Form 3115 to catch up ALL missed depreciation in the current year — no amended returns needed. Called a §481(a) adjustment. Powerful for properties held 2+ years.
- Real Estate Professional(REPS)
- Alternative path to non-passive treatment for LTRs (long-term rentals, avg stay >7 days). Requires 750+ hrs/yr in real estate trades AND more than 50% of your working time. Very hard for a full-time W-2 employee to claim. STR Loophole is easier because it doesn't require REPS.
- Passive Activity Loss Rules(§469)
- Default rule: rental losses are 'passive' and can only offset passive income (not W-2/1099). STR Loophole and REPS are the two exceptions. If you fail both, the cost seg loss is suspended and carries forward until you have passive income or sell the property.
- Contemporaneous Time Log
- IRS-required documentation for material participation. Must be kept AS THE HOURS ARE WORKED (not reconstructed at tax time). Log date, hours, activity, and who was involved. Use a spreadsheet, REPStracker, or Timeero. Audit defense for STR Loophole lives here.
- 100-Hour + Most-Hours Test
- Easiest of the 7 material-participation tests for STR: (1) you personally work 100+ hrs/yr on the property, AND (2) more than any other single individual — including your cleaner, handyman, and co-host. Full-service PMs usually blow this test; co-hosting model preserves it.
- Recapture at Sale
- §1245 assets (5/7/15-yr from cost seg) recapture at ORDINARY rates up to 37% — this is the trade-off for the Y1 deduction. §1250 real property recaptures at a capped 25%. Mitigations: (1) §1031 exchange defers indefinitely, (2) hold to death for stepped-up basis, (3) offset with new cost seg on next property.
- Partial Asset Disposition(PAD)
- When you demo/replace an asset (old roof, old HVAC, old flooring), you can write off its remaining basis in that year. Combine with cost seg on the new asset for a double benefit. Often missed on renovation projects.
- No State Income Tax
- Texas has NO personal state income tax — federal-only planning. Simplifies the cost seg calculation (37% top federal + 3.8% NIIT = 40.8% marginal, no state add-on). Compare to California (13.3%) or NY (10.9%) where the shield is worth ~30% more.
- Texas Property Tax
- Among the highest in the US — no state income tax means counties fund via property. Hood County (Granbury): ~1.33% effective. Palo Pinto County (PK): ~1.75% effective. Assessed annually, no cap on non-homestead. STR use = investment property, no homestead exemption.
- Homestead Exemption Loss
- Converting a primary residence to STR strips the homestead cap (10%/yr assessed value increase limit). Reassessment at market can spike taxes 30–50% in Y1. Not applicable to a new purchase (never had homestead), but critical if converting an existing property.
- HOT Tax(Hotel Occupancy Tax)
- Texas STRs collect 6% state HOT + local (city/county) HOT of 1.5–7%. Granbury: 7% city HOT. PK/Graford: 7% county HOT. Airbnb/VRBO auto-collect state HOT; local HOT often requires manual filing. Guest-paid, not out of your revenue — but you're the remitter.
- Sales & Use Tax (Amenities)
- Texas charges 6.25% state + up to 2% local sales tax on separately-stated amenity fees (jet ski rental, guided fishing, cleaning if itemized). Bundled into nightly rate = HOT only. Consult CPA on fee structuring.
- STR Registration — Granbury
- City of Granbury requires STR permit ($150–$300/yr), local contact w/ 1-hr response, posted occupancy limits, and HOT filing. No cap on permits as of 2025. Hood County (unincorporated) has no permit but enforces nuisance/noise.
- STR Registration — PK
- Palo Pinto County has NO county STR permit. Cities of Graford and Possum Kingdom Lake unincorporated. HOA/POA may have rules (e.g., The Cliffs, The Harbor). BRA lease covers dock/shoreline. Lightest regulatory regime of TX lake markets.
- BRA Dock Permit(Brazos River Authority)
- Governs all docks/structures on Granbury and PK shorelines. Permit tied to property, transfers at sale. Annual lease $200–$800 depending on size. NEW dock permits are slow (6–18 months) and increasingly restricted — existing permitted dock is a major value driver. Verify permit status in title work.
- Texas LLC — Series LLC
- Texas is one of ~18 states allowing Series LLC. One parent LLC, unlimited 'protected series' — each holds one property with liability isolation. Single franchise tax filing. Ideal for scaling to 2+ STRs. Cost: ~$300 to file + registered agent.
- Franchise Tax
- Texas LLC pays 'margin tax' — 0.375% (retail) or 0.75% (other) on revenue ABOVE $2.47M/yr threshold (2024). Below that: 'no tax due' report required, $0 owed. STR revenue rarely triggers.
- Flood Insurance (NFIP)
- Lakefront properties in FEMA flood zones (AE, VE) require NFIP or private flood coverage. Granbury/PK: $1,500–$4,500/yr depending on elevation. Verify flood zone via FEMA map + elevation certificate before closing. Excluded from standard homeowners.
- Windstorm Coverage
- Not required for Granbury/PK (inland) but tornado-prone. Standard policy covers wind; verify no separate deductible. Coastal TX (Galveston/Corpus) requires TWIA — not relevant here.
- Rollback Taxes
- If prior owner had ag/wildlife exemption and STR conversion changes use, county can 'roll back' 3-5 yrs of tax savings + 7% interest. Verify current exemption status on Hood/Palo Pinto CAD before closing — negotiate seller to cover rollback in contract.
- TREC Contract(Texas Real Estate Commission)
- TX uses standard TREC promulgated forms (1-4 Family Residential). Investment purchases often use TREC + Investor Special Provisions Addendum. 10-day option period standard for inspections. Earnest money 1–2% typical.
Auditable engine, one source of truth
Architecture
Every visible number derives from a single annual ledger produced byrunProjection()and a single sale functioncalculateSaleAtYear(). The UI performs no financial math. Milestones, Exit-at-Sale, Monte Carlo, stress tests, Advanced Analytics, and the Scorecard all read the same rows. There is no mirrored second engine.
Existing pledged portfolio
The SBLOC is collateralized against your existing invested portfolio, entered as Beginning portfolio value and Pledged portfolio value. The tax-refund investment bucket is displayed separately and never treated as the SBLOC's collateral. LTV is computed as SBLOC ÷ pledged portfolio market value, not against the refund subaccount.
SBLOC interest & shortfall
Interest is paid according to an explicit policy waterfall (property cash → external cash → portfolio → capitalize). Capitalized interest compounds. Operating deficits and SBLOC principal follow a separately selectable waterfall. No source is assumed silently. Every dollar is tagged on the SBLOC ledger row.
Margin & forced liquidation
Every year the engine tests LTV against your warning and liquidation thresholds. When LTV crosses liquidation, the model forces a portfolio sale sized to restore LTV to the warning threshold, records the liquidation, flags a margin event on that year, and caps the Scorecard rating below Buy.
Depreciation & sale recapture
Buckets: 27.5-yr building, 5/7/15-yr, amenity short-life, F&E, land, working capital. Recapture at sale uses actual accumulated depreciation per bucket — never a blended proxy. §1245 is taxed at ordinary rates, §1250 at 25%, remaining gain at LTCG + NIIT.
Tax savings vs cash refund
Tax savings generated (what the loss would offset) is separated from cash realized. The realization mode (cash refund, reduced estimated payments, non-cash benefit) controls whether cash actually enters the portfolio ledger.
Net-worth definitions
Three distinct metrics are displayed: property equity (value − mortgage), mark-to-market total net worth (property + cash + portfolio − mortgage − SBLOC), and realized net worth after sale (post-sale liquid assets − remaining SBLOC). We do not add cumulative operating cash, cumulative refunds, or appreciation on top of ending balances — they are already reflected there.
Reconciliation invariants
Every year, mortgage, SBLOC, portfolio, and tax-carryforward balances must satisfy the roll-forward identity to within $1. Any failure renders a red MODEL OUT OF BALANCE banner and disables the Scorecard.
CPA review items
STR loophole classification, EBL threshold selection, SBLOC interest deductibility (tracing rules), suspended-loss release on taxable sale, and any 1031 exchange treatment (including SBLOC handling and potential boot) must be validated by a qualified CPA and — for exchanges — a qualified intermediary.
Assumptions & Sources
Every number in this memorandum, traced to its source. If an advisor challenges an input, this is where to find the citation.
Revenue
| Input | Value | Source |
|---|---|---|
| Possum Kingdom ADR (trophy tier) | $650–$1,631 | AirDNA MarketMinder + verified listing history (Hells Gate 7077/7105) |
| Possum Kingdom ADR | $650–$1,100 | AirDNA MarketMinder + Rabbit Realty comp reports |
| Occupancy (stabilized Y2) | 58–62% | AirDNA 12-mo trailing, 4BR+ waterfront cohort |
| 413 Hoot Ave revenue (verified) | $160,000 | AirDNA Rentalizer + listing history |
| Rawhide Ridge revenue (verified) | $140,000 | AirDNA Rentalizer, PK peninsula comp |
| Hells Gate revenue (verified) | $220,000 | AirDNA + trophy-tier comp set (top 5%) |
Financing
| Input | Value | Source |
|---|---|---|
| DSCR loan rate | 7.00% | Kiavi / Visio Lending Q2 2026 term sheets, 680+ FICO, 20% down |
| Amortization | 30 yr | Standard DSCR product |
| LTV | 80% | DSCR 1.25× min covenant |
| SBLOC rate | SOFR + 1.5% ≈ 6.75% | Schwab / IBKR pledged asset line, $1M+ tier |
| SBLOC max advance | 50% of portfolio value | Conservative — actual max 70% on diversified equities |
Tax
| Input | Value | Source |
|---|---|---|
| Federal marginal bracket | 37% | User-stated (2026 W-2/1099 income >$609K) |
| Effective deduction rate on basis | 24% | Bonus 40% × (100% - 20% land) × 30% cost-seg ratio → shield on ordinary income at 37% |
| Texas property tax — Palo Pinto (PK) | 1.75% | Palo Pinto CAD 2026 rate + waterfront reassessment (only county in scope) |
| State income tax | 0% | Texas |
Operating Expenses
| Input | Value | Source |
|---|---|---|
| Property management | 12% of gross | Full-service PM market rate (Vacasa, Evolve, boutique) |
| OTA fees | 3% of gross | Airbnb host fee + VRBO commission blend |
| Reserves (CapEx + vacancy) | 5% of gross | Institutional STR underwriting standard |
| Insurance — specialty STR policy | $11K (Hoot) · $16–20K (Hells Gate) | Sponsor estimate: replacement cost $600–900/SF, pool/spa/dock exposure. Commercial vacation-rental endorsement, not a homeowners policy. |
| Utilities + internet + landscaping | $17,000–$22,000 | Actuals from operator interviews on PK peninsula |
Wealth Model
| Input | Value | Source |
|---|---|---|
| S&P 500 assumed CAGR | 8.0% nominal | Conservative vs 10.3% long-run avg 1928–2024 |
| Tax savings reinvestment lag | 0 months (Y1) | Assumes Q1 refund or reduced estimated payments |
| 10-yr wealth projection ($220K seed) | ~$475K | $220K × 1.08^10 = $474,963 |
| 20-yr wealth projection | ~$1.03M | $220K × 1.08^20 = $1,025,411 |
Data Sources & Methodology
Every number in this memorandum ties back to a public dataset, a regulatory citation, a first-party owner statement, or a named industry benchmark. Nothing in the deal calculator, target-basis back-solve, or tax P&L is invented — assumptions are auditable, and every default is designed to be replaced by CPA- or broker-verified figures before an LOI is signed.
Property & Listing Data
- Zillow (Public Listings + Zestimate)Source
List price, bedroom/bath count, sqft, lot size, days on market, and price history for all six Possum Kingdom candidates currently in the shortlist.
- MLS #21064724 (413 Hoot Ave)
Verified acreage, dock class, and utility disclosures for the primary workhorse pick — cross-referenced with the listing broker.
- Palo Pinto Central Appraisal District (CAD)Source
Assessed value, prior-year taxes, ownership history, and legal description for every PK parcel modeled.
Short-Term Rental Revenue
- AirDNA MarketMinder (Possum Kingdom submarket)Source
Comp-set ADR, occupancy, and RevPAR benchmarks used to underwrite gross rental revenue on every candidate.
- Trailing-12-Month Owner Statements
Hoot Ave and Rawhide revenue figures are actuals furnished by the current owners; Hells Gate figures require 24-month verification pre-LOI (flagged as a walk-away).
Note: Any listing without trailing-12 actuals is modeled at AirDNA P50, not seller pro-forma.
- AirDNA Rentalizer + VRBO/Airbnb calendar scrapes
Seasonality curve (May–Sep peak, Nov–Feb trough) and weekend-vs-weekday ADR spread applied in the calculator.
Tax & Depreciation Assumptions
- IRC §168(k) — Bonus Depreciation Schedule
100% bonus depreciation for qualified property placed in service in 2026 (subject to the OBBBA / TCJA phase-out currently in play — verify final rate with CPA).
Note: Model defaults to 100% bonus for 2026; toggle exists in the calculator to stress-test 60%/40%.
- IRC §469(c)(7) & Reg. §1.469-1T(e)(3)(ii)(A) — STR Loophole
Average guest stay ≤ 7 days = non-rental activity; losses become non-passive if the owner materially participates (100+ hours & more than any other person).
- Cost Segregation Study Benchmarks (KBKG / CSSI industry data)
Short-life allocation defaults: 28% for standard residential structures, 70–90% for amenity CapEx (hot tub, outdoor kitchen, putting green, dock).
- IRS Publication 946 (MACRS) + Form 4562
5-, 7-, 15-year class-life assignments and Section 1245/1250 recapture treatment on exit.
Financing & Capital Markets
- Wall Street Journal Prime Rate + SOFR (Live)
SBLOC pricing assumption (~6% on portfolio-backed line) and 7% DSCR-loan pricing on the acquisition mortgage.
- Interactive Brokers / Schwab Pledged Asset Line Terms
SBLOC advance rates (50–70% on diversified equities), maintenance-call triggers, and interest-only structure baked into the SBLOC module.
- Kiavi / Visio / Lima One DSCR Loan Programs
20% down / 30-year amortization / rate-lock terms modeled on the acquisition side; DSCR 1.25× floor is a program requirement, not a preference.
Regulatory & Jurisdiction
- Palo Pinto County — Unincorporated Zoning
Confirmed: no county-level STR ordinance, no permit cap, no owner-occupancy requirement in unincorporated PK.
- Possum Kingdom Lake POA / Brazos River AuthoritySource
Dock permits, water-lease renewals, and shoreline setback rules referenced in the Pre-LOI diligence checklist.
- Texas Comptroller — Hotel Occupancy Tax
State 6% HOT + local 7% county/city HOT applied to gross revenue in the calculator's carrying-cost stack.
Market & Wealth-Engine Inputs
- S&P 500 Total Return (1928–2024, Damodaran / NYU Stern)Source
10-yr / 20-yr compounding assumption for reinvested tax savings — modeled at a modest 8% CAGR (below the ~10.5% long-run mean).
- FHFA House Price Index — Palo Pinto County
5–7% appreciation band on the 10-year value-range projection; conservative vs. 2020–2024 PK actuals.
- Federal Reserve H.15 — Treasury Yields
Discount rate on after-tax IRR calculations and DSCR-loan pricing floor.