Price of entry too high?

OP

Member since 2022 · 8 posts · 8 votes

3y

Hey @Pamela V.! So I think those areas would be pretty solid. I might have a preference for Jersey seeing as it much closer to you which is always nice for a first STR.

I was poking around the overall Jersey Shore area and there seems to be some decently priced places but you are still talking 750k.

I totally agree about the seasonality of the Jersey Shore. It might make more sense to find a duplex locally and attempt to get more steady cash flow that way until we have more experience, if the shore is the only viable option.

1 Reply

Pamela V.

OP

Member since 2022 · 8 posts · 8 votes

3y

Quote from @Bonnie Low:

There's nothing wrong with B markets if they help you hit your numbers. I wouldn't dismiss them. There are a lot of people doing very well - as in able to retire early - focusing mostly on B markets. One podcast I recommend you listen to is Living off Rentals with Kirby Atwell. He's in one of those B markets, he's an experienced investor, and he's killing it. Everybody has their dream property. Sounds like yours is one on the beach. Mine is a lakefront property in a mountain town. I can't buy that yet, but I'm buying properties that are putting off good cash flow and will eventually get me there.

I will definitely check out that podcast, thank you! So many good ideas in this woe-is-me post— this community is amazing, and it has me thinking of so many great alternative ways into the market. So grateful!!

1 Reply

Eric FernwoodBusiness Member

Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes

3y

Hello @Pamela V.,

Focus on your goal of financial independence rather than buying a specific property type. Whether it is an STR, MTR or LTR does not matter, as long as it gets you where you want to be.

Cash flow is not where you make the most money or scale your investments. The most profitable aspect lies in appreciation.

I have created the following example to demonstrate the benefits of cash flow and appreciation over a five-year period. Property A has an annual appreciation rate of 7%, but no cash flow. Property B has a 7% cash flow, but no appreciation. Note that between January and today, the properties we are targeting in Las Vegas have appreciated by over 10%. Therefore, a 7% annual appreciation rate is not unreasonable.

Given the current 7% to 8% interest rates, a cash-out refinance may not make sense. However, I believe that high-interest rates are not permanent.

Another factor to consider is the effort involved in operating a short-term rental. Furthermore, Airbnb caters primarily to tourists, and during bad economic times, fewer people go on vacation. A better alternative might be mid-term rentals, which primarily accommodate traveling nurses.

Additionally, you may want to consider choosing a location with lower costs. Properties that appeal to our target segment typically range from $320,000 to $475,000. Also, buy a property that is an excellent long-term rental (LTR) and use it as a medium-term rental (MTR) or short-term rental (STR). This way, if the market changes, you have a fallback position.

One last recommendation. Wherever you buy, your financial future is tied to the long-term economic growth of the city where you invest. Below are a few location considerations:

Only invest in cities with a metropolitan population greater than 1 million. Small cities can be overly dependent on a single market sector or major employer.
Never invest in a city unless the state and city populations are both increasing.
Do not invest in any city on the Neighborhood Scout’s list of the 200 most dangerous US cities.
Prices and rents are driven by demand. Where prices are low, there is little demand for housing and rents will not rise fast enough to keep pace with inflation. In such locations, it does not matter how many properties you own, you will soon be back on the daily worker treadmill because your buying power is declining every day..

[email protected]702-358-8884

FERNWOOD Team, KW VIP Realty520 Reviews

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3 Reply

Michael BaumPro Member

Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes

3y

Yeah, some of that info I really don't agree with @Eric Fernwood.

No way I would count on appreciation to offset a bad performing STR. I get what you are saying, but there are very few vacation markets that have zero appreciation. How well it does performance wise is an open question for the investor, but losing money and counting on appreciation is a bad plan.

Regarding vacationing in poorer economic times, people find a way. They cut back somewhere so they can take a decent vacation. That might mean driving to the Smokies or Sedona instead of flying somewhere, but would be willing to drive to a great spot.

I personally would never invest in STRs in a major metropolitan area. Too big a risk on regulations taking out STRs and making it impossible to cash flow or do it at all.

This doesn't really apply to LTRs. MTRs maybe. It all depends on the regulations around length of stay. Some metro areas prohibit less than 90 days. Some 180 days or less.

Regarding prices vs rents and demand. Just because prices are low doesn't mean it won't cashflow as a LTR. Coffeeville, KS is one of the worst towns to live in in America. One of our members invests there and buys houses for pennies. Like $2500. He rents them out just fine in a very specialized market. He isn't going to get much appreciation, but rents rooms for $400 a week to refinery guys.

@John Underwood also buys LTR in areas for low prices and does very well.

It all depends on the deal and the area.

0 Reply

Eric FernwoodBusiness Member

Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes

3y

Hello @Michael Baum,

If I gave you the impression that I would purchase a low-quality property with the hope of future appreciation and rent increases, that was not my intent. You should never buy a bad property. I agree that low-cost locations can provide good initial cash flow. So, if your only criteria is initial cash flow, then low-cost locations are the way to go.

Financial security is the goal of most real estate investors. Financial security means that the income must continue for as long as they and their spouses live, which could be 30 to 50 years. Additionally, the generated income must keep pace with inflation because we live on buying power, not a fixed number of dollars. An example will illustrate this point.

Suppose that every time you go to the grocery store, you buy the same basket of goods and today they cost $100. The table below shows the decline in buying power over time, based on the difference in rent growth versus inflation. For example, if inflation is 6% and rent growth is 1%, the rate of buying power loss is 5 %/year.

If the difference between the rate of rent growth and inflation is 4%, in ten years, $100 will only be able to buy 66% of the groceries it can buy today. In 20 years, $100 will only buy 44% of the groceries it can buy today. Therefore, buying properties based solely on their initial return is unlikely to provide the long-term financial security people are looking for, because rents will not keep pace with inflation. So, I recommend a long-term view instead of only the initial cash flow.

I looked up the stats on Coffeeville, KS. The population has declined since 1960. So, as long as the refinery jobs exist, your friend will do well. However, if the refinery jobs go away, there are few alternative employers. Again, it is the difference between a short-term view vs. a long-term view. I know that I would not want to bet my financial future over the next 20 to 40 years on a small town with a declining population and only a few employers.

Source

[email protected]702-358-8884

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Michael BaumPro Member

Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes

3y

I am not worried about Paul's portfolio. It is nearly impossible to build a new refinery in the USA so that thing is going to be operating forever!

I think that this is the difference between LTRs and STRs.

1 Reply

Akash Dedhia

Member since 2023 · 19 posts · 3 votes

3y

Quote from @Luke Carl:

Quote from @Pamela V.:

Hi, everyone. My husband and I have been saving for almost a year to invest in our first rental. To me, STR is the only thing that makes sense for us, as we are 40 with 2 kids, and looking for the highest cash flow possible to allow for quick scaling and then freedom from the 9-5. (I recognize that the halcyon days are behind us, and this may still be a 5-10 year process.)

I have been reading the books and listening to the podcasts, so I pulled a pricelabs market analysis on our first choice (dream) market, and then looked at the MLS to determine what price range we would be looking at. 🤯 Went to our more local second choice, driving distance market— 🤯. Million dollar and up for even modest properties, 2 or 3 BRs, no pool or beach front.

Silly me was proud of saving almost 30k this year, when it will likely not even get us close to our goal of 2024 purchase. How do you even get into these beach STR markets as an average person? We make decent money, but it sounds like off-market deals are slim pickings these days, and I doubt we would qualify for a 900k mortgage. A bit of quick math at second home mortgage rates also tells me that breaking even with MLS prices the way they are right now would be a stretch.

I’m happy to put the work in to find a deal, and be patient, but unless you already have a cash flowing property to provide substantial leverage, I can’t see how this is realistic for an average person. Am I relegated to B markets? LTRs in small cities? I am missing a piece of the puzzle I think.

Help!

TIA….

To comment on your title.... A buyer always thinks the price is too high. And a seller always thinks it's too low.

As for the rest.... You are correct that real estate is very difficult. It's a wealthy persons game. If you've got a bunch of cash you can buy real estate until you get sick of it, and then you can go back to stocks.

However. DON'T Get Discouraged! It is very difficult but it can be done. I've worked 10x harder at real estate than I ever worked at a day job, and it paid off. Stick with it. Consume more content. Join a mastermind. Eat the watermelon, spit out the seeds. Good things will happen! Keep going :)

Any mastermind you recommend?

0 Reply

Kerry BairdPro Member

Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes

3y

I have found most of the 39 properties I have bought in the way @John Underwood suggests. I bought my 2 barrier island Florida STRs from tired landlords, who carried back a mortgage for me at 6% interest only. They wanted a lump sum of $100k as down payment and their "mailbox money," plus the tax benefits of not getting all of their gains at one time.

3 Reply

Melissa HaworthBusiness Member

Real Estate Agent · The Panhandle | The Emerald Coast | Panama City Beach | Destin · Member since 2017 · 262 posts · 103 votes

3y

Hey @JD Monroe, looks like someone could use your advice getting started!

[email protected]469-658-2869

1 Reply

January Johnson

Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes

3y

There are walkable-to-the-beach townhomes in my market (FL's Emerald Coast) from the mid-$300Ks that you can finance with a 10% down second/vacation home loan. PM me if you'd like more info.

1 Reply

Irma Siney

Investor · Taylors, SC · Member since 2017 · 11 posts · 1 vote

3y

@Kerry

@Kerry Baird how do I find these tired landlords?? 😅

0 Reply

Kerry BairdPro Member

Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes

3y

When you see a hand posted, hand made “For Rent” sign, call the number and ask. In my state, we have homestead on the primary residence, but not on rentals. So, that’s one way to determine a rental from an owner occupied house.

Another way: I look through the property records at my county, and look who is on ownership. Can look up the mailing address, which is same or different from the house itself. The date of transfer will be in the records, as well.

Or pay for a subscription service, such as PropStream. You can generate a list of the non-owner occupied houses and the person or entity on title.

0 Reply

Sebastian Giraldo

REALTOR, Investor, and Rehab Expert · Miami Beach, FL · Member since 2015 · 196 posts · 74 votes

3y

I think you may be trying to run before you walk. Think about finding a good deal. Perhaps an off-market deal where you can bring in cashflow.Build relationships and a good feel for property management, renovations, tenants, etc. Then with more income, better foundation and more savings you go into something you can dominate.

0 Reply

Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

3y

Having patience will not serve you well in this business. I'm not suggesting you be hasty, but history has proven that the only way to truly get ahead is to own real property and ride the appreciation and use it as a hedge against inflation.

There are endless posts here from people who are only using BP calculators and the antiquated "rules of thumb" for buying properties- 1% rule, 2% rule, 50% rule, etc, etc. Those rules don't take market knowledge in to account, they're all about blindly throwing out offers without truly understanding the long game.

Buying quality properties in quality market and managing them professionally is simple and proven. The numbers won't look great for the first couple years, but I guarantee they will in 10 years.

Just to prove my point- this chosen market of yours- run numbers for propeties based on values and rents from 10 years ago and then what those same properties look like today. They'll look like grand slam deals every time, every property. That's not a result of anything other than buying and waiting.

The least stressful and risky first few transactions would be house hacks, I'd suggest you get your feet wet by exploring that option.

Best of luck!

0 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

3y

Quote from @Michael Baum:

Yeah, some of that info I really don't agree with @Eric Fernwood.

No way I would count on appreciation to offset a bad performing STR. I get what you are saying, but there are very few vacation markets that have zero appreciation. How well it does performance wise is an open question for the investor, but losing money and counting on appreciation is a bad plan.

Regarding vacationing in poorer economic times, people find a way. They cut back somewhere so they can take a decent vacation. That might mean driving to the Smokies or Sedona instead of flying somewhere, but would be willing to drive to a great spot.

I personally would never invest in STRs in a major metropolitan area. Too big a risk on regulations taking out STRs and making it impossible to cash flow or do it at all.

This doesn't really apply to LTRs. MTRs maybe. It all depends on the regulations around length of stay. Some metro areas prohibit less than 90 days. Some 180 days or less.

Regarding prices vs rents and demand. Just because prices are low doesn't mean it won't cashflow as a LTR. Coffeeville, KS is one of the worst towns to live in in America. One of our members invests there and buys houses for pennies. Like $2500. He rents them out just fine in a very specialized market. He isn't going to get much appreciation, but rents rooms for $400 a week to refinery guys.

@John Underwood also buys LTR in areas for low prices and does very well.

It all depends on the deal and the area.

>Regarding vacationing in poorer economic times, people find a way. They cut back somewhere so they can take a decent vacation. That might mean driving to the Smokies or Sedona instead of flying somewhere, but would be willing to drive to a great spot.

I can tell you did not have an STR at the Great Recession (GR). I have heard the Avery's state the same thing but they also did not have STRs at the GR.

I have never heard that from any STR host that had STRs in the GR.

I had 2 STRs at the GR that have more than 20 million people (current population) in metro areas that are within 2.5 hours drive of my STRs. I suspect there are few areas with more people within 2.5 hours drive of their STR unit. My point is it does not get much more drive to than my location. at the GR our occupancy fell so low that we switched to STR for the high season and MTR/LTR for the off season. We needed ~25% occupancy to match the LTR revenue, but we were not getting even close to 25% occupancy.

The belief that a recession cannot devastate drive to STR markets has been demonstrated not to be accurate.

0 Reply

Michael BaumPro Member

Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes

3y

No one said recessions aren't bad for STRs. Even drive to locations.

But there are recessions and there are RECESSIONS. The great recession was quite bad and affected a lot of folks. I don't think we are staring down the barrel of what occurred then.

In the end, some owners will have low occupancy, others will not.

Like I said originally, it really depends on the area.

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Price of entry too high?

Price of entry too high?

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