STR CoC Performance Expectations
Member since 2022 · 9 posts · 7 votes
I realize there are lots of variables at play, but what are some ballpark CoC returns one could expect with this strategy? I've heard mentions of 25% CoC returns but have not seen it in the handful of analysis that I've done. Does Pricelabs or Airdna reveal insights to best CoC market rankings?
@Rich Miller It's not worthless. I just found that it was not as complete or packaged as I was hoping for $200/month. You'll find data on a bunch of smaller markets, college towns, and cities. It, just like airdna, rabbu, or others, is still just a starting point. You have develop some expertise or specific market knowledge.
Then you have to write a check. And after that, you have to start writing more checks and doing the hard work of setting a property up for success. It's really hard and expensive to get a short term rental up and going. Everyone sees the big numbers and returns but very few folks want to hear about how stressful and expensive it is before you make a dime of revenue. The underserved markets and desired returns mentioned don't have turn key, furnished properties. Most properties are going to need at least a light renovation and furnishing. You're going to be stuck in the "holy crap, we're spending so much money...this better work" stage for 3-6 months. It sucks in the beginning.
When I'm helping clients find places we're typically targeting 15% or more. 25% is exceptional. There's a company called STR Insights that I think is trying to use data to identify markets.
I agree with @Luke Carl and @Dave Stokley. 25% is killer right now.
If you can do 15% that would be excellent. That is my target. Maybe even 10% if everything else looks ok.
I was talking with an agent regarding the PCB, FL area and they told me this and it seemed a little off the mark:
"If you look into investment properties, a lot of experts will say that anything above 3% is a good cash return. Of course this varies by market, but even Airbnb says that their best properties are 4-5%+ coc return. Short term rentals are just not a high Coc return investment - we consider them a great asset in that you are gaining renter paid equity, appreciation the longer you have it and major tax benefits by managing it yourself.
Fix and flips really are going to be your big money makers for short term in this market."
Hi Rich! This is a great question. Here in the CO market we are seeing an average COC return of about 15% - 25%. Just to give a reference point, the COC return for investing into the stock market is about 10%.
Hi Rich! This is a great question. Here in the CO market we are seeing an average COC return of about 15% - 25%. Just to give a reference point, the COC return for investing into the stock market is about 10%.
Well, I am comparing STR to other asset classes such as the stock market. But 10% would be more like the total return for stocks including dividends. The CoC for a STR is more like a stock dividend which is typically only 2-3% Where in CO you seeing those STR CoC returns at that level?
20% is good, but it really depends on your personal goals.
IMO it needs to be 10% or higher if at all possible. Where you can really benefit is if thats letting you hold it so you can can have it paid for while it's building equity. Also look and see if your property could be good for midterm rentals like short term nurses or even if you could earn extra money through a location scouting service. Could be other areas where it can make money for you.
20% is good, but it really depends on your personal goals.
Well that's easy. My personal goal is to find the most bang for my buck.
When I'm helping clients find places we're typically targeting 15% or more. 25% is exceptional. There's a company called STR Insights that I think is trying to use data to identify markets.
Thanks Dave. I'll check it out. I like big data sets to make informed decisions. I want to be early to the party in a market rather than chasing the herd
It is hard to say. Your numbers are based on your particular purchase price, down payment, rehab, monthly expenses, debt loan/interest rate. Calculate it all out and see where you land. If you can reach 20% that is good right now, a little less is ok too depending on the parameters involved and your particular investing goals.
20% is good, but it really depends on your personal goals.
Well that's easy. My personal goal is to find the most bang for my buck.
Yep that's easy!
Just run the numbers and find the best money maker.
Some people just want to have a free vacation property that the expenses are covered on and they can use some for free.
It seems that people are confusing the terms COC and CapRate(or simply called Return). In my understanding, Return (or Cap Rate) is net income divided by purchase price. It doesn't matter if you bought it with cash or loan. If you bought a house for $1M, and your net income (after all expenses) is 100k, the Return or Cap Rate is 10%. If your net income is 50k, the Cap Rate is 5%. 2 years ago, 10% is feasible, nowadays, 5% is more likely.
COC is Cash on Cash, so if you put down $200k as down payment on a mortgage, your net income is still 100k, but your cash income may only be 40k because you are paying 60k in mortgage payments. Your COC is 40/200 = 20%. COC is usually higher than CapRate. When people talks about 20 or 25% return, they are referring to COC. When people talk about 3 or 5% return, it's usually not COC. A 3% COC would mean a $1M house, $200k down payment, and $6k net cash income. I guess it's possible, but it would be way too low to be worthwhile, because a 6k net cash income can quickly turn into a negative 20 or 30k cash outflow if you need to replace a furnace or if the STR demand softens.
I wouldn't be interested much under 10-15%. But don't forget the appreciation that will accrue over the next few years....assuming you buy right and are not keeping it forever.
For example, if you can get a $250,000 house that produces $25k net every year, you have 10% return. If you can sell this house in 3 years for $300k then you have $50,000/36 = $1.3k a month extra return.
Just another way to look at it. Some people won't take this into consideration, it depends what your goals/perspective are...
I wouldn't be interested much under 10-15%. But don't forget the appreciation that will accrue over the next few years....assuming you buy right and are not keeping it forever.
For example, if you can get a $250,000 house that produces $25k net every year, you have 10% return. If you can sell this house in 3 years for $300k then you have $50,000/36 = $1.3k a month extra return.
Just another way to look at it. Some people won't take this into consideration, it depends what your goals/perspective are...
I think it is a mistake to look at STRs in purely investment terms, rather than business terms. LTR's biggest variables are how many bedrooms and baths and over time, market rents in area. Market rents for STR will vary way more drastically than LTR. STR success and return involves more marketing, ebbs and flows of travel indsutry (which has recently been super strong, but can be very fickle), competitive advantages, and even the quality and consistency of the cleaner. I'm not sure that anyone can intelligently answer that question without being a lot more specific about a particular property.
@Account Closed, I don't mean to be nitpicking, but your math is wrong. A $250k house produces net income $25k is possible, but that doesn't include any mortgage payments. That's what I was trying to explain in my earlier post. If you buy the house with cash, your return (aka Cap Rate) and COC are the same- 10% in this case. If you put $50k down and borrow $200k, your CapRate doesn't change, but to calculate your COC, now you have to subtract your mortgage expenses. $200k mortgage nowadays will probably result in a monthly payment of $1300 or $1400. So your cash flow is only 25000- 1300x12= 9400. Therefore, your COC is only 18%. Not bad, but it's also not completely true. If you paid $5k on loan closing cost and $30k to get the house ready, your initial cash outlay is not the 20% of the purchase price, but a much higher $85k instead of $50k. Your real COC is 11%. My point is that people tend to exaggerate the COC either because they are not understanding the math, or they conveniently forget some of the costs and it makes the COC looks much better than reality. On the other hand, real CapRate(including the same startup cost) is 25/ 285 = 8.7%. Cap Rate is much less likely to be manipulated.
@Account Closed, I don’t mean to be nitpicking, but your math is wrong. A $250k house produces net income $25k is possible, but that doesn’t include any mortgage payments.
Yeah, I didn't want to say anything, but.......it ain't 50%....
@Account Closed, I don't mean to be nitpicking, but your math is wrong. A $250k house produces net income $25k is possible, but that doesn't include any mortgage payments. That's what I was trying to explain in my earlier post. If you buy the house with cash, your return (aka Cap Rate) and COC are the same- 10% in this case. If you put $50k down and borrow $200k, your CapRate doesn't change, but to calculate your COC, now you have to subtract your mortgage expenses. $200k mortgage nowadays will probably result in a monthly payment of $1300 or $1400. So your cash flow is only 25000- 1300x12= 9400. Therefore, your COC is only 18%. Not bad, but it's also not completely true. If you paid $5k on loan closing cost and $30k to get the house ready, your initial cash outlay is not the 20% of the purchase price, but a much higher $85k instead of $50k. Your real COC is 11%. My point is that people tend to exaggerate the COC either because they are not understanding the math, or they conveniently forget some of the costs and it makes the COC looks much better than reality. On the other hand, real CapRate(including the same startup cost) is 25/ 285 = 8.7%. Cap Rate is much less likely to be manipulated.
In my hypothetical, the $25,000 net was after and including debt service.
I wouldn't do the work of getting a short term rental off of the ground for less than 20% CoC. You have to do your own research and find underserved markets to find that now, though. There are plenty of places where you can find garbage properties that have heavily booked calendars.
I've paid for STR insights. Their data is fine, but not as earth shattering as their founder makes it sound on podcast interviews. It was $199 for a month, which I canceled after a few weeks. The biggest variable in the data is the average price for a home in particular markets. It's so fickle and specific - even within a particular market - it's hard to find a median home price that works across a city/town. If the median home price is $200k, that does not mean that the median home in a STR zoned area or a location that would do well as an STR is going to cost $200k. I didn't really learn anything new or earth shattering.
Bottom line is that you have to develop some domain expertise, do your own research, and spend some time stalking comparable airbnb/vrbo properties to see how they perform over time. You can get 20% CoC, but it's not going to be in the popular markets mentioned on BP.
I wouldn't do the work of getting a short term rental off of the ground for less than 20% CoC. You have to do your own research and find underserved markets to find that now, though. There are plenty of places where you can find garbage properties that have heavily booked calendars.
I've paid for STR insights. Their data is fine, but not as earth shattering as their founder makes it sound on podcast interviews. It was $199 for a month, which I canceled after a few weeks. The biggest variable in the data is the average price for a home in particular markets. It's so fickle and specific - even within a particular market - it's hard to find a median home price that works across a city/town. If the median home price is $200k, that does not mean that the median home in a STR zoned area or a location that would do well as an STR is going to cost $200k. I didn't really learn anything new or earth shattering.
Bottom line is that you have to develop some domain expertise, do your own research, and spend some time stalking comparable airbnb/vrbo properties to see how they perform over time. You can get 20% CoC, but it's not going to be in the popular markets mentioned on BP.
@Travis Timmons I was going to look into STR insights as well. Did you find that it at least points to potential underserved markets? My gut feeling was to not move in the same direction as the herd.
@Rich Miller It's not worthless. I just found that it was not as complete or packaged as I was hoping for $200/month. You'll find data on a bunch of smaller markets, college towns, and cities. It, just like airdna, rabbu, or others, is still just a starting point. You have develop some expertise or specific market knowledge.
Then you have to write a check. And after that, you have to start writing more checks and doing the hard work of setting a property up for success. It's really hard and expensive to get a short term rental up and going. Everyone sees the big numbers and returns but very few folks want to hear about how stressful and expensive it is before you make a dime of revenue. The underserved markets and desired returns mentioned don't have turn key, furnished properties. Most properties are going to need at least a light renovation and furnishing. You're going to be stuck in the "holy crap, we're spending so much money...this better work" stage for 3-6 months. It sucks in the beginning.
@Rich Miller It's not worthless. I just found that it was not as complete or packaged as I was hoping for $200/month. You'll find data on a bunch of smaller markets, college towns, and cities. It, just like airdna, rabbu, or others, is still just a starting point. You have develop some expertise or specific market knowledge.
Then you have to write a check. And after that, you have to start writing more checks and doing the hard work of setting a property up for success. It's really hard and expensive to get a short term rental up and going. Everyone sees the big numbers and returns but very few folks want to hear about how stressful and expensive it is before you make a dime of revenue. The underserved markets and desired returns mentioned don't have turn key, furnished properties. Most properties are going to need at least a light renovation and furnishing. You're going to be stuck in the "holy crap, we're spending so much money...this better work" stage for 3-6 months. It sucks in the beginning.
@Travis Timmons Thanks so much for such a detailed reply... You've given me a lot to chew on.
@Travis Timmons you are right, why actively manage a STVR for a 20% CoC return? Instead be a passive investor and NNN lease a property to a STVR business manager( not an ordinary property manager) and receive 20%+ returns as a passive investor. That way property does not have to be local.
STVR manager pays for furnishings, interior maintenance, RE taxes and insurance.
@Rich Miller Understand that there are builders who will provide you with a turnkey property as well as a STVR business manager to whom you can NNN lease your property. You have to be satisfied with earning a consistent 20%+ CoC return as a passive investor.
They pay for all RE taxes, insurance, furnishings and interior maintenance as defined in the lease agreement.