Investing into an oceanfront single residence vacation house

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Investing into an oceanfront single residence vacation house

Alex S.
Investor · Washington, US · Member since 2021 · 68 posts · 13 votes

I'm starting out and already collected cash and some knowledge needed for my real estate investment deal. I'm thinking about the investment into an oceanfront single residence vacation house for short-term rentals with Airbnb/VRBO to have the ability to be in the house from time to time with my family, most likely when there is no occupancy. For that reason, I want to limit the property to short-term rentals only.

With occupancy and rates provided by a local property management company in the area, I'm looking at, even with 50% occupancy the math works fine providing positive cash-flow, taking into account all the expenses (I used knowledge from the book where I learned about Bigger Pockets and this BP calculator). The math doesn't work for long-term rentals though for the same property.

After initial research, my search was severely limited by city zoning prohibiting short-term rentals in many oceanfront areas but there are still some options left.

I'm looking for opinions of skilled investors here about short-term rentals with Airbnb/VRBO. Does it worth it in the case described above?

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Kyle Momany
Real Estate Agent · Tampa, FL · Member since 2018 · 144 posts · 132 votes
5y

@Alex S. The STR restrictions are getting more & more strict in certain areas. This is why I always recommend to invest in areas that are more dependent on it ( Destin, Panama City, Etc.) These cities aren't going to put in restrictions on the one thing that brings them the most business, tourists. As far as Property management, I have to piggy pack on what everyone else has said. We have many investors , even out of country that self-manage to increase that return. With the right systems and people in place, you should be spending more than a few hours a month on your rental.

Let me know if you have any questions. Good Luck!

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  • Bryan Balducki
    Real Estate Agent · Denver, CO · Member since 2019 · 161 posts · 176 votes
    5y

    @Alex S. Depending on your long term goals, it could be worth it. I know multiple short term rental operators and they are doing great. In Destin, Florida, there are many complexes that don't limit short term rentals and can be great investments, even with an HOA. Keep in mind that property management will charge 20-25% so that will decrease cash flow and could even ruin the deal, depending on your desirable return. For those that I know self managing, they are making a killing, but have to sacrifice more of their time. Look into the details of your property management contract and make sure they have great referrals if you go that route. Also, have a good amount of reserves and a backup plan in case regulations change, because the Airbnb/VRBO short term industry is still new and changing.

    2Reply
  • Connor Cushman
    Realtor · Cumming, GA · Member since 2018 · 158 posts · 127 votes
    5y

    @Alex S. You can definitely make this work in many markets across the country! And make much more cashflow than you would doing long term. Especially if you self manage. I’d recommend checking out parts of Florida or the Carolinas

    1Reply
  • Alexander Knowles
    Real Estate Agent · North Myrtle Beach, SC · Member since 2018 · 110 posts · 99 votes
    5y

    It is definitely a worthwhile pursuit but you have to remember you are running a mini-hotel service and is definitely more management intensive. The management expense is usually the cash flow killer for investors, but they are worth their weight in gold when you account for the headaches and cleaning that needs to be done. If you are able to self manage then you're eliminating that 10-30% management expense for yourself which makes it look good on paper - but remember to account for your time and effort to make it successfully work. Depending on your area, these are becoming very competitive (there is still a huge demand) so it is important to weigh the quality of service/management in order to gain positive reviews and retain repeat customers. 

    2Reply
  • Kyle Momany
    Real Estate Agent · Tampa, FL · Member since 2018 · 144 posts · 132 votes
    5y

    @Alex S. The STR restrictions are getting more & more strict in certain areas. This is why I always recommend to invest in areas that are more dependent on it ( Destin, Panama City, Etc.) These cities aren't going to put in restrictions on the one thing that brings them the most business, tourists. As far as Property management, I have to piggy pack on what everyone else has said. We have many investors , even out of country that self-manage to increase that return. With the right systems and people in place, you should be spending more than a few hours a month on your rental.

    Let me know if you have any questions. Good Luck!

    3Reply
  • Enzo Di PalmaBusiness Member
    Realtor · Miami Beach, FL · Member since 2019 · 32 posts · 9 votes
    5y

    Solid advice from the panel. To answer your question, I have a heavy bias on the STR format so most definitely worth it. In particular with the criteria you are using i.e ocean front/proximity to beach. There are variables that will increase your occupancy thereby increasing cash flow. Enough so to justify management costs and personal use. Focus on current comps of STRs in your area of interest. This information should be current and include historical data. (occupancy %, ADR/daily rate, key amenities, etc)

    [email protected]786-346-8724
    1Reply
  • Alex S.
    OP
    Investor · Washington, US · Member since 2021 · 68 posts · 13 votes
    5y

    Thank you guys for your opinions and useful data points to consider, I'm updating my cash flow estimate accordingly. Let me summarize what I hear to make sure I got it correctly:

    • - STR has higher property management rates (25-30%) unlike 10-12% for LTR
    • - Local policies are more dynamic for STR and what is allowed now, can be banned in the future (I saw that happening in HI when considering buying a real-estate there), should have a backup plan
    • - STR require more management time thus if managed personally, should expect more involvement
    • - Look at Florida and Carolina (NC?) for best oceanfront house dals for STR (I actually research OBX and cash flow there works the best, although it's an opposite coast for me so less lucrative for the first real-estate investment)
    • - Take into account the need for good management/cleaning services as for STR it's critical to keep the property up to standard in between rentals

    Also, I have an additional question on the CapEx for STR vs LTR, does anyone here have some experience to share? Should I allocate a bigger CapEx for STR? How big is the %?

    ---

    @Bryan Balducki, you asked about my long-term goal, I have a few: 

    1. 1. Diversify my current investment portfolio which is mostly domestic stocks right now, the real-estate investment seems to be more stable and cooperative in case of good deals and leverage usage.
    2. 2. Aquire a vacation house to use like 5% of the time but still have it as an asset generating positive cash flow and not as a liability
    3. 3. Try our real estate as an investment in general, I'm new in this area, but after research and a few months of learning, I can see how it can work
    1Reply
  • Bryan Balducki
    Real Estate Agent · Denver, CO · Member since 2019 · 161 posts · 176 votes
    5y

    @Alex S. I don't believe you need to allocate more for a STR compared to a LTR, but should consider the life of the property and what expensive items might need to be replaced/age of these items such as the furnace, A/C, roof, water heater etc. I tend to stick to 10-15k per property in reserves for capex/maintenance. Also for STR, you made need to get things replaced more quickly to reduce cancellations, which might cost more for an "emergency fix", so I'd always have that cash ready to go.

    I had a water heater go out on me in my STR and because it was over the weekend, no one could come out for 2 days and the water heater I needed (had to be specially modified) would take even longer to come in. I decided to go with a tankless heater because they could install it a couple days later, which costed 6k. I did not have the reserves ready but I did have a credit card so that saved me. Had to cancel 6 reservations.

    As for your goals, it is great that you want to diversify into real estate. A STR could be the perfect way to get started, as it was for me. Your first deal is your best deal because you learn the most and build confidence for your next deal. Thanks for sharing!

    2Reply
  • Alex S.
    OP
    Investor · Washington, US · Member since 2021 · 68 posts · 13 votes
    5y
    Originally posted by @Bryan Balducki:

    I had a water heater go out on me in my STR and because it was over the weekend, no one could come out for 2 days and the water heater I needed (had to be specially modified) would take even longer to come in. I decided to go with a tankless heater because they could install it a couple days later, which costed 6k. I did not have the reserves ready but I did have a credit card so that saved me. Had to cancel 6 reservations.

    As for your goals, it is great that you want to diversify into real estate. A STR could be the perfect way to get started, as it was for me. Your first deal is your best deal because you learn the most and build confidence for your next deal. Thanks for sharing!

    Thanks for sharing your experiences with STR and words of encouragement! I like the BP community, glad I discovered it :)

    0Reply
  • Matt "Roar" Gardner
    Real Estate Agent · Tampa, FL · Member since 2018 · 464 posts · 452 votes
    5y

    @Alex S. I'm an investor and agent in the Destin and surrounding markets. I have STRs, flip, and own a few apartment complexes. When it comes to CapEx, that'll vary greatly by the asset and expected hold for you personally. The niche of investing should have minimal impact on that. For example, if you plan on holding the asset for 20 years and your roof only has 10 years of life left, then I would start to budget monthly to ensure you have the cash needed to replace that roof by years 5-10.

    As for management, I highly encourage all of my clients to self-manage to the max extent.  I have clients all around the world that manage remotely.  It's most definitely possible if you're looking to maximize your cash flow. 

    When it comes to exit strategies, it is definitely a wise choice to choose a property where the LTR rental rate will at least break even for you; however, there are plenty of investors who take the risk of going all-in on the STR exit strategy when all other exits are not projected to be profitable.

    I hope that helps! Best of luck!

    2Reply
  • Alex S.
    OP
    Investor · Washington, US · Member since 2021 · 68 posts · 13 votes
    5y
    Originally posted by @Matt "Roar" Gardner:

    @Alex S. I'm an investor and agent in the Destin and surrounding markets. I have STRs, flip, and own a few apartment complexes. When it comes to CapEx, that'll vary greatly by the asset and expected hold for you personally. The niche of investing should have minimal impact on that. For example, if you plan on holding the asset for 20 years and your roof only has 10 years of life left, then I would start to budget monthly to ensure you have the cash needed to replace that roof by years 5-10.

    As for management, I highly encourage all of my clients to self-manage to the max extent.  I have clients all around the world that manage remotely.  It's most definitely possible if you're looking to maximize your cash flow. 

    When it comes to exit strategies, it is definitely a wise choice to choose a property where the LTR rental rate will at least break even for you; however, there are plenty of investors who take the risk of going all-in on the STR exit strategy when all other exits are not projected to be profitable.

    I hope that helps! Best of luck!

    THanks! It does help, great advices

    1Reply
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