Hi! My partner and I are looking to buy an STR in Destin. We found a 2 bedroom condo that would be 13% Cash on Cash with everything included (downpayment, closing fees, monthly insurance, HOA fees etc.). This is with 60% occupancy expectancy (AirDNA says it'd be higher) and $200 avg room rate, which is also conservative.
We read that we should be aiming for closer to 20% Cash on Cash but is that still realistic with these home prices? We've plugged in over 50 properties at this point all around the Emerald Coast and nothing is anywhere close to 20%. Are we looking in the wrong market?
It's our first investment and we don't have any friends investing in STRs to ask. Your thoughts are highly appreciated!!
Real Estate Agent · Tampa, FL · Member since 2018 · 464 posts · 452 votes
4y
@Alisa Noll - My recommendation is: try to not let the forums dictate what is a good or bad return to you. As an agent and investor in the Destin area, I have plenty of customers that even accept negative CoC ROI, as they are purely appreciation investors. For my typical cash flow investors, their acceptable CoC ROI varies greatly! I have some that have been looking for a 25% ROI home run with very specific criteria for over a year, while others may be happy with anything above a 5% CoC ROI. The latter investors typically plan to use their property as a second home, so they have a lot of personal bias in the type/location/style of the home because they want it to fit their family's needs.
To grossly generalize though, 10-20% is the common band of CoC ROI that we see for most investors. Best of luck to you!!
Investor · Flowery Branch, GA · Member since 2019 · 413 posts · 412 votes
4y
If you’re running your numbers conservatively at 13%, then my guess is you will hit over 20% if self managing efficiently.
Also a 2 bed in Destin should do more than what you’re planning for. Your number would have it gross around $44k/ per year. I’m thinking your closer to $50k+ if not $60k from what I’ve heard and seen people doing in that market. But good for you for being conservative with your numbers. That’s a winning strategy with lots of upside.
Real Estate Agent · Portland, CT · Member since 2019 · 761 posts · 849 votes
4y
Hey Alisa,
13% seems pretty low for a STR. I am assuming that is with property management? If not, that's way too low for the amount of work that will be required. I am no STR specialist so, take what I said with a grain of salt. I have just attended a couple of STR meetings and I am going off what I heard from other STR investors.
Real Estate Agent · Tampa, FL · Member since 2018 · 144 posts · 132 votes
4y
Joshua is right in line! 20% is still doable in the area, lean on other investors/agents in the area for more rental data vs just Airdna. 2 beds should typically be around that 50k/year number. Depending on location & amenities, maybe more
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
4y
@Alisa Noll If you think you can get closer to 20% than I think that's awesome! My STR has been a lot of work to get up and running and if I was getting 13% COC I'd rather put it in the stock market to be totally passive. There are some other things to consider like loan paydown and tax benefits that could convince you to purchase. Depends on your goals!
Real Estate Agent · Tampa, FL · Member since 2018 · 464 posts · 452 votes
4y
@Alisa Noll - My recommendation is: try to not let the forums dictate what is a good or bad return to you. As an agent and investor in the Destin area, I have plenty of customers that even accept negative CoC ROI, as they are purely appreciation investors. For my typical cash flow investors, their acceptable CoC ROI varies greatly! I have some that have been looking for a 25% ROI home run with very specific criteria for over a year, while others may be happy with anything above a 5% CoC ROI. The latter investors typically plan to use their property as a second home, so they have a lot of personal bias in the type/location/style of the home because they want it to fit their family's needs.
To grossly generalize though, 10-20% is the common band of CoC ROI that we see for most investors. Best of luck to you!!
Real Estate Agent · Panama City Beach, FL · Member since 2021 · 23 posts · 24 votes
4y
Receiving a 13% CoC return is way better than receiving 0% with no investment. Like Matt said above 10-20% is relatively standard for what people are looking for down here. I think as investors we often let obtaining perfect numbers keep us from getting our feet wet.
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
@Alisa Noll The newbies always tend to focus on formulas and sites like AirDna. None of these numbers may be accurate for you and most of them are made up or just wrong. You ought to run your own numbers to see what your competition is actually getting, and then figure out what return you would personally feel comfortable with.
Don't forget to factor in things like: do you like the property, does it have appreciation potential, will it work as a LTR if all goes south?
@Alisa Noll The newbies always tend to focus on formulas and sites like AirDna. None of these numbers may be accurate for you and most of them are made up or just wrong. You ought to run your own numbers to see what your competition is actually getting, and then figure out what return you would personally feel comfortable with.
Don't forget to factor in things like: do you like the property, does it have appreciation potential, will it work as a LTR if all goes south?
Factoring in turning it into an LTR typically doesn’t work in a vacation market like Destin. City market absolutely, if vacation rentals go away in Destin then there are larger issues.
Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes
4y
@Alisa Noll I think that you've done your analysis on conservative estimates is very smart. I always do that. If you can make this work as an investment for you at 13% cash on cash, that does not mean that you will not strive and likely hit 20% or more like others in the forum suggest. It does mean, however, that if a hurricane hits, or some major repair comes up and drives the return down temporarily, you will be able to weather it smoothly because you were prepared to be able to operate even at a lower CoC return.
To some comments above about putting your money in the stock market instead. Why "instead"? Do both. In my book investing in real estate is not a substitute for the stock market. I do both. I'm old school that way, lol, and still believe in diversifying assets :-).
Yes, STR is a lot of work, but it gives you a lot more control over your performance (especially if you self manage) than many other investment options. You cannot dictate the course of the companies or mutual funds that drive your stock portfolio. You also cannot very quickly pivot pricing, marketing etc for a long-term rental (heck, sometimes you can even evict non-paying tenants). But in vacation rentals you can make it whatever you want and can drive revenue a lot more dynamically. I love that about the business. If someone is looking for a very passive investment, then maybe STR is not for them. I personally love the business, the challenge, creativity, etc. That is my primary work now and I think it's so much better than sitting in a corporate office :-)