douglee25
Well-Known Member
Does anyone here have experience with STRs? Specifically ones that aren't close by from a management point?
I have an opportunity to invest in a brand new unit in a beach town about 5 hours away from me. It's about 300-500 yards from the beach. It's a 2/2 with a loft that can easily sleep between 6-8 if you also utilize a sofa sleeper. The small neighborhood is also supposed to have a community pool once fully complete. This would be my first STR. I have zero experience with real estate.
A few concerns -
1. I ran the numbers with what I feel is a realistic cost per night yielding approximately $48k in revenue. I spoke to an investor /realtor who owns a 3/2 plus a garage space that was converted to a 4th bed and she did 90k in revenue last year in the town next door only 5 minutes away. Ignoring year 1 financials due to startup costs ie furnishing the place, they are as follows:
Cash flow - $9500
Cash on cash return - 12.75%
I have seen some calculations add back in the cost of using it yourself for two weeks. They classify this as 'savings' because you're not outlaying cash for a rental elsewhere for a vacation. Although this would essentially pull it off the market for two weeks for potential business, it could still potentially be an additional 14 days of rent. Those numbers change to:
Cash flow - $14k
COC - 18.26%
Break even is around 122 days and I'm currently showing 162 days in my example above.
It also shows an approx tax savings of 14k on year 1 due to accelerated depreciation. This would be straight off my non-passive income due to the STR loophole (if you've heard of that).
The numbers seem OK-ish. 12% is better than the money sitting in savings but it will require some time investment from me to manage the bookings through airbnb and vrbo.
2. Inevitably there will be calls that something broke, they can't connect to wifi at 3AM, the AC didn't turn on, etc. This will require me to have a team to help manage these issues ie a good local maintenance person or a "co-host" (someone local who can handle small issues). While a call here or there won't be bad, 162 days was based on 54 rentals at 3 days each. 54 new tenants increases this risk greatly. Managing a potential 54 calls for 'bullshit' will likely begin to piss me off when I'm out on the boat in the summer or out to dinner with the family.
If you've done STRs before at a distance, how do you manage this?
Some questions -
1. What do you think of the financials? Mediocre? Poor? Rather invest in something else? Keep it as cash?
A buddy of mine also showed me some other investments that could yield a year 1 and 2 return of 46% each. That ties up my money for 15 years. Or you could do a 7 year investment with a straight 40% return each year. Due to the nature of the business, the paper losses/tax benefit comes right off the non-passive side of your tax return.
The numbers do seem better in comparison, however, like any investment, it's good to be diversified. Part of me wants to see if I can make this scenario work. The other proposed investment is completely passive.
2. What has been your experience managing an STR with tenants from a distance? Maintenance wise? Call wise? How do you deal with these issues?
A piece of me thought that this investment would be a good long term hold because I could utilize it now and in the future when I retire. If I bought in now, at least the cost is somewhat feasible vs. future costs likely being much higher. Two counter points to this... 1. If I wanted to utilize a beach rental, I could just go and pay the 5k elsewhere to rent for a week or two without the hassle of owning one. 2. Invest elsewhere and continue to build wealth. At some point when I have more FU money, the cost to purchase a beach house 10-15 years from now won't matter. It's just 'money' at that point.
In the back of my mind, the investment is somewhat risky. The lifeblood of the investment is rentals. Without it, I'm holding the unit with cash reserves. It's probably more risky to me because I have no history or experience to base this on. However, many people are investing in STRs and make money at it. I found at least 4-6 units from the same small beach community that already have these units posted on airbnb/vrbo (all brand new). Almost all are investors from out of town and even out of state (picked up from their bio).
All input appreciated. Thanks.
I have an opportunity to invest in a brand new unit in a beach town about 5 hours away from me. It's about 300-500 yards from the beach. It's a 2/2 with a loft that can easily sleep between 6-8 if you also utilize a sofa sleeper. The small neighborhood is also supposed to have a community pool once fully complete. This would be my first STR. I have zero experience with real estate.
A few concerns -
1. I ran the numbers with what I feel is a realistic cost per night yielding approximately $48k in revenue. I spoke to an investor /realtor who owns a 3/2 plus a garage space that was converted to a 4th bed and she did 90k in revenue last year in the town next door only 5 minutes away. Ignoring year 1 financials due to startup costs ie furnishing the place, they are as follows:
Cash flow - $9500
Cash on cash return - 12.75%
I have seen some calculations add back in the cost of using it yourself for two weeks. They classify this as 'savings' because you're not outlaying cash for a rental elsewhere for a vacation. Although this would essentially pull it off the market for two weeks for potential business, it could still potentially be an additional 14 days of rent. Those numbers change to:
Cash flow - $14k
COC - 18.26%
Break even is around 122 days and I'm currently showing 162 days in my example above.
It also shows an approx tax savings of 14k on year 1 due to accelerated depreciation. This would be straight off my non-passive income due to the STR loophole (if you've heard of that).
The numbers seem OK-ish. 12% is better than the money sitting in savings but it will require some time investment from me to manage the bookings through airbnb and vrbo.
2. Inevitably there will be calls that something broke, they can't connect to wifi at 3AM, the AC didn't turn on, etc. This will require me to have a team to help manage these issues ie a good local maintenance person or a "co-host" (someone local who can handle small issues). While a call here or there won't be bad, 162 days was based on 54 rentals at 3 days each. 54 new tenants increases this risk greatly. Managing a potential 54 calls for 'bullshit' will likely begin to piss me off when I'm out on the boat in the summer or out to dinner with the family.
If you've done STRs before at a distance, how do you manage this?
Some questions -
1. What do you think of the financials? Mediocre? Poor? Rather invest in something else? Keep it as cash?
A buddy of mine also showed me some other investments that could yield a year 1 and 2 return of 46% each. That ties up my money for 15 years. Or you could do a 7 year investment with a straight 40% return each year. Due to the nature of the business, the paper losses/tax benefit comes right off the non-passive side of your tax return.
The numbers do seem better in comparison, however, like any investment, it's good to be diversified. Part of me wants to see if I can make this scenario work. The other proposed investment is completely passive.
2. What has been your experience managing an STR with tenants from a distance? Maintenance wise? Call wise? How do you deal with these issues?
A piece of me thought that this investment would be a good long term hold because I could utilize it now and in the future when I retire. If I bought in now, at least the cost is somewhat feasible vs. future costs likely being much higher. Two counter points to this... 1. If I wanted to utilize a beach rental, I could just go and pay the 5k elsewhere to rent for a week or two without the hassle of owning one. 2. Invest elsewhere and continue to build wealth. At some point when I have more FU money, the cost to purchase a beach house 10-15 years from now won't matter. It's just 'money' at that point.
In the back of my mind, the investment is somewhat risky. The lifeblood of the investment is rentals. Without it, I'm holding the unit with cash reserves. It's probably more risky to me because I have no history or experience to base this on. However, many people are investing in STRs and make money at it. I found at least 4-6 units from the same small beach community that already have these units posted on airbnb/vrbo (all brand new). Almost all are investors from out of town and even out of state (picked up from their bio).
All input appreciated. Thanks.
