Is the price tag too high for a first rental property?

Question

Hi! I am BRAND new to the game. Been researching and learning like crazy, but I am in a good place with money and investing will be a side gig for me. What started out as simply wanting to purchase a mountain home in a neighboring state has turned into a completely changed vision. I am looking in Blue Ridge, GA and the market is very hot and obviously prices are high. I am interested in doing STRs. I've been running rental reports and just joined Bigger Pockets yesterday (after listening to the podcast for a few weeks now). Am I crazy for wanting to purchase a 3 bedroom mountain home for 879,000 for a first investment? Gross Rental last year was over $76,000 with 305 nights occupied. This property is completely turn key with an agency already in place. However, they take about 38% cut. Its difficult to look for something with a cheaper price tag in this hot market that will bring in a cash flow. Should I start smaller?

Nathan Gesner · Answer

I have a vacation rental valued at $400,000 that brings in $70,000 a year. The property you are looking at is a low performer and I would personally stay away from it. Even if you managed it yourself, I don't know that it would be a good performer.

I'm a big fan of short-term rentals and am looking to purchase another one myself right now. However, the entire real estate market is at a peak (sales, long-term rentals, short-term rentals) and I think now is the time to exercise caution. If a property is mediocre today, there's a good chance it will get worse when the short-term market slows down in the next 1-2 years. My bookings were up for the last two years but this year they are slowing down and I expect my income to drop. Others are seeing the same thing.

Long story short, be careful. I've got cash to spend in the next two months and haven't found a great deal in short-term, so now we're looking at other avenues that I know will be more stable.

Patricia Steiner · Answer

Forget the price for a moment...what's the ROI? Why are you doing this? Is this a part-time vacation home with a rental opportunity when your family isn't using it? The agency cut is too steep for me...that's a partnership without a capital injection on their part.

My recommendation would be to do the math...if you buy it, what with be your NOI. I would also explore other property management solutons than the one is place. Again, the question isn't price. It's "is it worth doing."

Best...

Mike Williams · Answer

@Andrea Davies -- > if you are still looking in the Blue Ridge market, I would love to connect. I am an investor/agent and own a property in Ellijay that performs well. Let's chat!

Drew Sygit · Answer

Did you fill out the BiggerPockets analysis form?

Steven Foster Wilson · Answer

I think it is important to set yourself up for success so that you can just keep that ball rolling. This property does not sound like it would do that unless it was for your own fun and you wanted it for a vacation home. Personally, I would not do that.

Is the price tag too high for a first rental property?

Is the price tag too high for a first rental property?

Most Popular Reply

5 Replies