Starting New STR and Nervous About Market - Would LOVE Feedback!

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Starting New STR and Nervous About Market - Would LOVE Feedback!

Rhonda Greenhaw
New to Real Estate · West Park, FL · Member since 2022 · 17 posts · 8 votes

Hey everyone!

We are taking out a HELOC on our home, updating it and adding some great features, and putting it out there as a STR. We live on one of the only lakes in Broward County where you can have boats with motors, and we are adding a pool and spa, outdoor kitchen and patio with roof, as well as converting our carport and pantry/laundry room into a master suite. We are also doing a ton of landscaping and just really going all out to make it "Instagram-able"...we live in between Fort Lauderdale & Miami just west of 95. We are super close to the Hard Rock Casino, and the stadium where the Dolphins play is only a few miles away as well. But best of all - we are less than 5 miles to some of the best sand beaches in the world.

BUT...what happens if we go into a major recession??? This is our entire future we are putting on the line, so I'm super nervous. We have done some analysis on the place - there are a couple of comps on the lake and in our neighborhood that we can compare and I feel confident that we can get an excellent nightly rate and brisk business - we are going to buy a jet ski, bikes, kayaks and a pontoon that will be rentals - the entire place will be a laid back, party with style...BUT, if the economy crashes - I figure the worst that can happen is that we've upgraded our life.

Basically, the HELOC would add about $600 to our monthly bills - which is incredible - and since our house was almost paid off, I did the comps on ARV and I figure we will near double our home value - so for no cash out of pocket, the worst thing would be that we aded $600 to our monthly bills but nearly doubled our home value...So...even if the economy crashes - my partner and I both have day jobs...sooo, I think we should be pretty smooth sailing...

BUT...as I said - I am TOTALLY new to this and would love feedback, criticism, word of wisdom, or a pat on the back (hopefully...).

Thank you all!!!

Rhonda

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David Collier JrPro Member
Pompano Beach, FL · Member since 2017 · 93 posts · 59 votes
4y

I respectfully disagree with "most hosts in FL are struggling" and say the reality is more than likely the exact opposite. At least for me and many hosts I know in Broward. There is plenty of strong demand and S FL will always have a strong travel mkt no matter the current state of the economy. 

During the financial crisis FL saw a visitor drop of less than 3%. There are over 120 million visitors per year (around 80+ million in 2008). If you can't get a small share of that market you're either in a very bad area, offer a poor product or have pricing issues. 

I don't love the area you are describing (lived in Broward 38 years) but if you can see active comps in your immediate area go off of that. 

You mentioned you've almost paid off the home. Take the total principal paid + expected remodel costs. As long as there is room to force appreciation your worst case scenario to me seems to be you have a home worth more than you've paid into it and you will have an increased monthly cost of $600. Point is, don't spend $100k in remodel costs to increase the value of the home $75k. Know your numbers on comps and DO NOT go overboard.  

I would advise against the jet skis. The liability assumed is not worth the potential increase in rental income they may add (which you won't be able to measure anyway). 

Bottom line its all about active STR comps in your IMMEDIATE area. Search around airbnb/VRBO and leave the travel dates blank. Click the calendar on local comps and see what their availability looks like. If nice homes aren't rented often don't think you'll be able to do anything different. Better to take the HELOC and buy a property in a better location.

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Sounds like it will be really cool @Rhonda Greenhaw. If you price it correctly you shouldn't have a problem renting it. We didn't have any slowdown due to the pandemic or the current fuel prices this year. People like to get away and if you are close to cool stuff and have a great house, you should be fine.

    The rentals is one area that I have some concern. Have you looked into the liability insurance required for those? A kayak or bicycle isn't going to be the big issue, but motorized equipment can really be a problem. You can exceed a 5 million umbrella with an accident on a watercraft or boat. So make sure you are fully covered.

    Frankly, I might setup an LLC that is separate from the home as a business. That should help protect it from lawsuits. You really should contact a good attorney and get some advice.

    0Reply
  • Garrett Gruss
    Investor · Dallas · Member since 2021 · 49 posts · 16 votes
    4y
    Florida is a bit of a regional destination, so you shouldn't be impacted that badly by a recession. primary destinations like Hawaii, cancun, etc suffer the most as they are very expensive.
    0Reply
  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    @Garrett Gruss

    Cancun is actually cheap, especially compared to Florida. The main cost is the flight and it's going to drop like a stone if there's a recession.

    0Reply
  • Austin Drew
    Rental Property Investor · West Palm Beach, FL · Member since 2019 · 155 posts · 57 votes
    4y

    Hello Rhonda, congrats on making the decision to get started. Alot of people ponder with the idea but never make the jump into the game. I am a STR investor here in West Palm Beach and have property down by you in Hollywood. How I see it is even during a recession people still travel within driving distance destinations, they often avoid trips out of the country such as Tulum. With that being said run your numbers as conservative as possible, realistically if you are running your STR efficiently you should be seeing an 80% occupancy in S. Florida. Best of luck

    0Reply
  • Igor Avratiner
    Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
    4y

    @Rhonda Greenhaw Some things to think about:

    - How many nights per month would need in a worst-case scenario to cover the extra $600/m (net of AirBNB, cleaning fees, etc)? 

    - Is it possible to lock in the HELOC rate somehow in case go a lot higher and the $600 increases a lot?

    - Worst case could you rent it as a long-term rental and would that rent cover the additional expense? 

    - What is the minimum you would absolutely have to spend on the house to be able to rent it as a STR compared to the full list of upgrades you described? What is the difference in costs between minimum and full list and what is the ROI on doing the full list of upgrades compared to the ROI for the min?

    Good luck!  

    0Reply
  • Scott Krone
    Investor · Northbrook, IL · Member since 2017 · 352 posts · 295 votes
    4y

    @Rhonda Greenhaw  - not IF but WHEN....Plan as if you know we will be in a recession.  It is coming.

    1Reply
  • Anand S.
    Plantation, FL · Member since 2009 · 329 posts · 119 votes
    4y

    The location you described would not be considered desirable. You really need to be close to the beach or downtown to do well. I would tread with extreme caution, as right now most hosts in Florida are struggling. Broward is swamped with supply and folks simply are tightening their belts as a recession looms. I'd draw down your HELOC and keep it dry for a better investment opportunity.

    0Reply
  • David Collier JrPro Member
    Pompano Beach, FL · Member since 2017 · 93 posts · 59 votes
    4y

    I respectfully disagree with "most hosts in FL are struggling" and say the reality is more than likely the exact opposite. At least for me and many hosts I know in Broward. There is plenty of strong demand and S FL will always have a strong travel mkt no matter the current state of the economy. 

    During the financial crisis FL saw a visitor drop of less than 3%. There are over 120 million visitors per year (around 80+ million in 2008). If you can't get a small share of that market you're either in a very bad area, offer a poor product or have pricing issues. 

    I don't love the area you are describing (lived in Broward 38 years) but if you can see active comps in your immediate area go off of that. 

    You mentioned you've almost paid off the home. Take the total principal paid + expected remodel costs. As long as there is room to force appreciation your worst case scenario to me seems to be you have a home worth more than you've paid into it and you will have an increased monthly cost of $600. Point is, don't spend $100k in remodel costs to increase the value of the home $75k. Know your numbers on comps and DO NOT go overboard.  

    I would advise against the jet skis. The liability assumed is not worth the potential increase in rental income they may add (which you won't be able to measure anyway). 

    Bottom line its all about active STR comps in your IMMEDIATE area. Search around airbnb/VRBO and leave the travel dates blank. Click the calendar on local comps and see what their availability looks like. If nice homes aren't rented often don't think you'll be able to do anything different. Better to take the HELOC and buy a property in a better location.

    2Reply
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