First STR Purchase - Existing STR in Blue Ridge, GA
Member since 2022 · 17 posts · 7 votes
Hi, newbie here.
For my first real estate investment, I am considering an existing STR that is for sale in Blue Ridge, GA. I have run the numbers using DealCheck and no matter what I do, the property shows a negative cash flow
Here are the potential numbers that I am using:
Purchase price = $380,000 ($19,000 below asking. The asking price is well above the market there)
Loan Amount = $342,000 (10% down)
Gross rent I used $150 per night with 60% occupancy (aggressive I know) = $4563 per month
Vacancy = $1825
Operating Expense = $681
Loan amount = $2050
PMI amount = $143
Cash flow is -$137
What am I doing wrong or is this just a bad deal? I am considering this cabin because it is very nice and is already a popular STR property. Appears to be true turnkey
Any guidance or feedback I consider a gift and would greatly appreciate
Charles
Hey Charles,
Congrats on getting in the game! I am an agent in North Georgia, and an investor with an STR in Ellijay, just south of Blue Ridge. You are correct that it is extremely difficult to find a cash-flowing property right now. Cost of debt is higher than usual (at least lately), and the past 2 years of appreciation has made it "expensive" to purchase.
I experienced a 52% occupancy last year, but also utilized my cabin personally a significant portion of the time so it caused me to be a little lower on the occupancy. I believe your 60% is a fair assessment. We also have a long gravel road getting to our property, so it becomes a little tough to access at times, and because of it's remoteness, it does lose power 3-4 times/year. We only charge $125/night but probably ought to be more. It's 6 acres, on a small 10-acre lake.
I did the math on your payment - are you getting a 6% interest rate on a second home? Borrowing $342,000 at 6%, 30yr fixed is amazing right now. Wow, that's impressive...is the seller buying the rate down for you? My mortgage girl is quoting much higher on a second home with 90%LTV right now.
I will say that my operating expense for my little cabin (roughly 1000sqft) is higher than $681/month. Here is the breakdown of our real expense:
Our repairs/maintenance were $514/month last year. This could've been lower by about 30%, but I chose to do a couple of upgrades that could be considered capital expenditures (Cap-ex is a term that you'll need to get familiar with!).
Our cleaning fees were $6,860/yr so $571/month.
Our utilities were $223/month.
Our expense to host on VRBO was $499/yr, so $42/month.
Insurance was $867/yr, or $72/month.
Property tax was $102/month.
That's a total expense for us of $1,524/month BEFORE debt service (your mortgage expense).
Our gross income was $23,963 for 2022, or $1996/month.
My mortgage (I refinanced a couple of years ago when the rates were low) is $654/month, so negative cash flow by -$182/month. I certainly would not want you to get negative cash flow, simply telling you what my real numbers are.
In my particular situation, the cabin is worth every penny, because I'm literally sitting in it right now, on my birthday, enjoying nature and about to go fishing with my 65 year old father. :)
Again, not advising you, but there is a part of the picture for me that also needs to be seen. That interest expense from last year (for me) was a tax deduction of $5,340 at a 29.75% tax rate = $1589 actually saved in tax dollars.
I also got a depreciation of the asset (again, for me) of $4,909, and at 29.75%, that's real money bottom line to me of $1,460 last year.
So - for me - the positive cash flow from owning the asset and having the deductions was $3,049, the negative real cash flow from operation was -$2,184, resulting in a real net positive cash flow of $865...AND I spent around 20 days at the cabin last year, allowed my dad to stay 4 nights, and donated 6 nights to charities of my choice.
I hope this was helpful to you and others. It was not meant to be prideful or anything other than just trying to be helpful and provide value to the thread, as well as help a newbie understand and see some REAL numbers. :)
Hi Charles. Wondering why you are including vacancy expense when your gross rent is calculated off of an occupancy that already includes vacancy?
Also, make sure your operating expense includes housecleaning for each booking, maintenance, utilities, and if you are not local, someone who can act as a guest contact or at least emergency contact.
Good luck!!
Hey @Charles Wade. Just a quick question. You said the asking price is well above market? What is the market value of the house.
A STR is just a house. It is worth what the comps say. Past performance is no guarantee of future success.
Also, what is vacancy costing you?
Shouldn’t be running numbers on a 10% loan
Thank you but can you explain why? Again...I am new and learning
Hi Charles. Wondering why you are including vacancy expense when your gross rent is calculated off of an occupancy that already includes vacancy?
Also, make sure your operating expense includes housecleaning for each booking, maintenance, utilities, and if you are not local, someone who can act as a guest contact or at least emergency contact.
Good luck!!
Hey @Charles Wade. Just a quick question. You said the asking price is well above market? What is the market value of the house.
A STR is just a house. It is worth what the comps say. Past performance is no guarantee of future success.
Also, what is vacancy costing you?
Ok @Charles Wade, what does the appraiser say? Not Zillow.
I wrote this, it should help!
@Charles Wade 1) you will have a challenge finding a loan at 90% ltv for a STR investmenet 2) what interest rate are you using ? 3) get formally pre approved with a lender if you arent already
I’m in the n ga mountain market. I would be cautious buying a home without a Mountain View or water access. I would also be cautious using historical returns.
lastly, real estate is a long term game, where you take into account taxes benefits, appreciation, cash flow, leverage, debt paydown, etc
Ok @Charles Wade, what does the appraiser say? Not Zillow.
Greetings
It has not been appraised as of yet. I am not under contract on this property, just considering it and running the numbers ahead of my decision.
@Charles Wade 1) you will have a challenge finding a loan at 90% ltv for a STR investmenet 2) what interest rate are you using ? 3) get formally pre approved with a lender if you arent already
Thank you for the feedback. I am already approved with 90% financing
@Charles Wade I think your gross rent is correct, but the way you wrote it makes people think you are already including vacancy... $150 per night for 30 nights is $4500 less vacancy (40%)... you've got $2700/mo to work with.
I plugged this deal in my calculator and made some assumptions on expenses (property taxes, insurance, maintenance/repairs, supplies, utilities - don't forget water if not on well, gas, electric, cable, trash, lawn care, and if you have an HOA)
Even at 20% down, this deal doesn't seem to make sense to me.
@Charles Wade 1) you will have a challenge finding a loan at 90% ltv for a STR investmenet 2) what interest rate are you using ? 3) get formally pre approved with a lender if you arent already
Thank you for the feedback. I am already approved with 90% financing
@Charles Wade 1) you will have a challenge finding a loan at 90% ltv for a STR investmenet 2) what interest rate are you using ? 3) get formally pre approved with a lender if you arent already
Thank you for the feedback. I am already approved with 90% financing
Great ! Are you able to share what lender and terms you are getting this through ?
@Charles Wade I think your gross rent is correct, but the way you wrote it makes people think you are already including vacancy... $150 per night for 30 nights is $4500 less vacancy (40%)... you've got $2700/mo to work with.
I plugged this deal in my calculator and made some assumptions on expenses (property taxes, insurance, maintenance/repairs, supplies, utilities - don't forget water if not on well, gas, electric, cable, trash, lawn care, and if you have an HOA)
Even at 20% down, this deal doesn't seem to make sense to me.
Finding a loan at 90% LTV for a Real Estate investment can be quite challenging. It is important to get formally pre approved with a lender if you aren't already, as this will help you get an idea of what interest rate you may be able to negotiate. Knowing your interest rate in advance will also help you find the best loan option for your Real Estate investment. Good luck!
@Charles Wade I think your gross rent is correct, but the way you wrote it makes people think you are already including vacancy... $150 per night for 30 nights is $4500 less vacancy (40%)... you've got $2700/mo to work with.
I plugged this deal in my calculator and made some assumptions on expenses (property taxes, insurance, maintenance/repairs, supplies, utilities - don't forget water if not on well, gas, electric, cable, trash, lawn care, and if you have an HOA)
Even at 20% down, this deal doesn't seem to make sense to me.
You can do 10% if you do a second home loan. But if you're intent is solely for an investment and you do not intend to use it at all, your mortgage broker won't like it and by not like it, that is probably considered mortgage fraud. So that is why you shouldn't base it on a 90% LTV.
@Charles Wade I think your gross rent is correct, but the way you wrote it makes people think you are already including vacancy... $150 per night for 30 nights is $4500 less vacancy (40%)... you've got $2700/mo to work with.
I plugged this deal in my calculator and made some assumptions on expenses (property taxes, insurance, maintenance/repairs, supplies, utilities - don't forget water if not on well, gas, electric, cable, trash, lawn care, and if you have an HOA)
Even at 20% down, this deal doesn't seem to make sense to me.
You can do 10% if you do a second home loan. But if you're intent is solely for an investment and you do not intend to use it at all, your mortgage broker won't like it and by not like it, that is probably considered mortgage fraud. So that is why you shouldn't base it on a 90% LTV.
Oh yes I knew that. I do intend to use it as a part-time primary and my broker is aware of my intentions as well.
If you're at a 60% occupancy rate then 40% is your vacancy. You have already factored in vacancy so you are essentially double counting vacancy with your $1825 number.
Is 60% aggressive? what does your local market say? How did you come up with this number? Why do you think it's aggressive?
In your operating expenses did you include insurance, taxes, repairs, capex?
Are you sure you can qualify for this type of investment loan with a 10% downpaymentt?
Hey Charles,
Congrats on getting in the game! I am an agent in North Georgia, and an investor with an STR in Ellijay, just south of Blue Ridge. You are correct that it is extremely difficult to find a cash-flowing property right now. Cost of debt is higher than usual (at least lately), and the past 2 years of appreciation has made it "expensive" to purchase.
I experienced a 52% occupancy last year, but also utilized my cabin personally a significant portion of the time so it caused me to be a little lower on the occupancy. I believe your 60% is a fair assessment. We also have a long gravel road getting to our property, so it becomes a little tough to access at times, and because of it's remoteness, it does lose power 3-4 times/year. We only charge $125/night but probably ought to be more. It's 6 acres, on a small 10-acre lake.
I did the math on your payment - are you getting a 6% interest rate on a second home? Borrowing $342,000 at 6%, 30yr fixed is amazing right now. Wow, that's impressive...is the seller buying the rate down for you? My mortgage girl is quoting much higher on a second home with 90%LTV right now.
I will say that my operating expense for my little cabin (roughly 1000sqft) is higher than $681/month. Here is the breakdown of our real expense:
Our repairs/maintenance were $514/month last year. This could've been lower by about 30%, but I chose to do a couple of upgrades that could be considered capital expenditures (Cap-ex is a term that you'll need to get familiar with!).
Our cleaning fees were $6,860/yr so $571/month.
Our utilities were $223/month.
Our expense to host on VRBO was $499/yr, so $42/month.
Insurance was $867/yr, or $72/month.
Property tax was $102/month.
That's a total expense for us of $1,524/month BEFORE debt service (your mortgage expense).
Our gross income was $23,963 for 2022, or $1996/month.
My mortgage (I refinanced a couple of years ago when the rates were low) is $654/month, so negative cash flow by -$182/month. I certainly would not want you to get negative cash flow, simply telling you what my real numbers are.
In my particular situation, the cabin is worth every penny, because I'm literally sitting in it right now, on my birthday, enjoying nature and about to go fishing with my 65 year old father. :)
Again, not advising you, but there is a part of the picture for me that also needs to be seen. That interest expense from last year (for me) was a tax deduction of $5,340 at a 29.75% tax rate = $1589 actually saved in tax dollars.
I also got a depreciation of the asset (again, for me) of $4,909, and at 29.75%, that's real money bottom line to me of $1,460 last year.
So - for me - the positive cash flow from owning the asset and having the deductions was $3,049, the negative real cash flow from operation was -$2,184, resulting in a real net positive cash flow of $865...AND I spent around 20 days at the cabin last year, allowed my dad to stay 4 nights, and donated 6 nights to charities of my choice.
I hope this was helpful to you and others. It was not meant to be prideful or anything other than just trying to be helpful and provide value to the thread, as well as help a newbie understand and see some REAL numbers. :)
Hey Charles! I have a better calculator you can use. I'll PM you.
Vacancy shouldn't be a cash expense. This can help you come tax time but doesn't actually cost you dollars on a monthly basis.
Are you using comps in order to generate revenue projections or actuals? My sheet will sort of force you to do some research and input competitors' revenues. This will help make your projections more realistic.
Hey Charles,
Congrats on getting in the game! I am an agent in North Georgia, and an investor with an STR in Ellijay, just south of Blue Ridge. You are correct that it is extremely difficult to find a cash-flowing property right now. Cost of debt is higher than usual (at least lately), and the past 2 years of appreciation has made it "expensive" to purchase.
I experienced a 52% occupancy last year, but also utilized my cabin personally a significant portion of the time so it caused me to be a little lower on the occupancy. I believe your 60% is a fair assessment. We also have a long gravel road getting to our property, so it becomes a little tough to access at times, and because of it's remoteness, it does lose power 3-4 times/year. We only charge $125/night but probably ought to be more. It's 6 acres, on a small 10-acre lake.
I did the math on your payment - are you getting a 6% interest rate on a second home? Borrowing $342,000 at 6%, 30yr fixed is amazing right now. Wow, that's impressive...is the seller buying the rate down for you? My mortgage girl is quoting much higher on a second home with 90%LTV right now.
I will say that my operating expense for my little cabin (roughly 1000sqft) is higher than $681/month. Here is the breakdown of our real expense:
Our repairs/maintenance were $514/month last year. This could've been lower by about 30%, but I chose to do a couple of upgrades that could be considered capital expenditures (Cap-ex is a term that you'll need to get familiar with!).
Our cleaning fees were $6,860/yr so $571/month.
Our utilities were $223/month.
Our expense to host on VRBO was $499/yr, so $42/month.
Insurance was $867/yr, or $72/month.
Property tax was $102/month.
That's a total expense for us of $1,524/month BEFORE debt service (your mortgage expense).
Our gross income was $23,963 for 2022, or $1996/month.
My mortgage (I refinanced a couple of years ago when the rates were low) is $654/month, so negative cash flow by -$182/month. I certainly would not want you to get negative cash flow, simply telling you what my real numbers are.
In my particular situation, the cabin is worth every penny, because I'm literally sitting in it right now, on my birthday, enjoying nature and about to go fishing with my 65 year old father. :)
Again, not advising you, but there is a part of the picture for me that also needs to be seen. That interest expense from last year (for me) was a tax deduction of $5,340 at a 29.75% tax rate = $1589 actually saved in tax dollars.
I also got a depreciation of the asset (again, for me) of $4,909, and at 29.75%, that's real money bottom line to me of $1,460 last year.
So - for me - the positive cash flow from owning the asset and having the deductions was $3,049, the negative real cash flow from operation was -$2,184, resulting in a real net positive cash flow of $865...AND I spent around 20 days at the cabin last year, allowed my dad to stay 4 nights, and donated 6 nights to charities of my choice.
I hope this was helpful to you and others. It was not meant to be prideful or anything other than just trying to be helpful and provide value to the thread, as well as help a newbie understand and see some REAL numbers. :)
@Mike Williams this is immensely helpful. THANK YOU for putting some real numbers here. We just closed on our first cabin last friday. even though it seemed like it had everything for starting to rent, we dont like the decor and changing a bunch of them and putting it on STR down the road. this year my cashflow will be in negative for sure. but in my case, I didnt buy this to be only STR, so I can live with it.