Actual Numbers: 2-Year Update on VR in Destin, FL

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I've received a few direct messages over the last few months regarding this thread:

https://www.biggerpockets.com/forums/530/topics/20...

So, rather than typing everything out every single time, I figured I would post an update in a new thread. Here goes.

We bought a VR in a beachfront condo property in Destin, FL in July, 2015. It's in Miramar Beach, to be specific. I have 2 good years worth of data. I won't give exact numbers, but you can figure it out.

  • We put 25% down. Got a 30-year mortgage at 3.5%.
  • It's a 2 bedroom, 2 bath unit on the 7th floor with a great beachfront view.
  • Closed at just under $400k.
  • Gross rental revenue for 2016: $43k.
  • Gross for 2017: $45k.
  • We use the on-site property management service, which charges 25% of gross rentals
  • HOA fees are $649/month

If you do all that math, you'll figure out that we come out of pocket a little bit (~$1,500-2,000/year). And actually, there was a special assessment this year that set us back another $4k.

All that said, it's not as bad as it seems.

We use the condo ourselves for 2-3 weeks per year. That's a few thousand dollars we don't have to pay to rent a place. We only use it during the off-season and random weeks or weekends when it isn't rented.

We have a 1-year old, and will have at least 1 or 2 more kids. We plan to own this place for 20+ years and bring the family here.

I've run the model out for that long (20 years). At the 10-year mark -- if we were to sell -- then the profits would average back out to around 7% year over year. That isn't great, but it isn't horrible. This is all assuming around 1.5% appreciation.

If we do hold onto it for 20+ years, then that number grows a lot.

Another thing to consider is the 25% property/rental management fee. If we did this all ourselves, then we'd clear $10,000/year. But, we live in Atlanta. Managing a beach rental from 5 hours away would be an absolute nightmare. The last thing I want to deal with every single Saturday during peak season is someone not happy with something, not able to get the key code to work, the unit isn't clean, etc. There are other third-party management companies in the area that take smaller fees (20%, I think). But our rental program is on site. It's completely seamless for guests, and the office handles everything. It's basically like a hotel where people own the rooms.

Along with the other fees mentioned, there are a bunch of other small fees that come with a VR:

  • Broken dishes/appliances/toilets/whatever
  • Annual fees for certain items maintained by the that are NOT part of the HOA dues (cable boxes, fitness center, etc.)
  • Replacing furniture as it wears out

So, I guess my final take is that a VR in a popular beach area is only a good investment if you're willing to hold onto it for a long time. We went in with this mindset, so I'm pretty happy with how things are going so far. In fact, I'm typing this from our balcony right now.

You can get properties across the street from the beach or a few blocks away for a little cheaper. I'm not sure if they rent as well, but I've seen some gross rental numbers that are pretty close to ours. So, properties just off the beach may cashflow better, which is something to consider. You also may go to less touristy areas, but I can't say if they will gross as much.

I think I covered most everything. Sorry if anyone was looking for a wonderful story of quick riches, but I'd rather be honest about our specific case. I'm sure every market is a little different.

Thanks!

Thanks @Brandon Richardson for the detail response.  

Myself and two others have been looking in Greyton/Watercolor area the numbers you provided sum up what we were guessing.  As a VR beach house I would be happy paying a little $ each year, knowing that we'd have a place to stay when we came down and it'd hopefully turn a small profit once sold.

Thanks again, and hopefully we'll see you down there soon!  Enjoy the beach.

Investment properties here along the beach can be profitable if you approach them from the right angle.  Like any business you need to control costs.  Management fee's, financing fee's all suck away from your income.  Cash is king.  

Great post @Brandon Richardson . There is a rush towards STR nowadays and many people don't realize the whole picture. They see a gross income being 2 or 3 times the LTR and get excited.

STR is a "business" and it requires specific business process best practices to make it profitable, (including cost management as @Peter Mohylsky said).

Wow, those sound like rough VR numbers to me, although if you value the personal use more then the investment that is understandable. On a $400k property I'd be looking at a minimum of $100k/gross rents per year and no HOA.

@Mike Hibbs no problem! Let me know if you have any other questions.

@John D. that's kind of my point. We do value the personal use, and we let the renters pay for it. We eventually would have bought a place regardless of whether or not we rented it out. It's definitely a long-term investment -- if at all.

To gross $100k/year, you're going to pay $1MM for the property in the FL panhandle/Emerald Coast area. Real estate agents may tell you differently, but they have different motivations. And you may find an outlier or two.

@Kevin Lefeuvre this is why I wanted to give real numbers. And my numbers align with the other people we know who own properties in our area.

And you can chisel out some expenses, as @Peter Mohylsky mentioned. If you pay cash, then you'll obviously save on financing. If you manage the property yourself, you'll pick up that money, too. You just have to decide how much your time (and sanity) is worth.

So I just wanted to put VRs in the Emerald Coast area into perspective. It's a popular destination, and the real estate prices reflect that. There may be properties that perform a little better than ours, but ours is at or above average. And other markets along the east and west coast are probably very different.

Hope this is helpful for some!

I do both short term and long term rentals here along the Emerald Coast.  There are ups and downs with either market and definitely is not for everyone.  Saying that.  real Estate is a great part of a balanced portfolio and needs to be considered with the associated risk.  

@Brandon Richardson  We looked very hard at Destin. Averys family has a large house there. We could not make the numbers work especially the way the structure the mortgages in these buildings. We ended up buying another cabin in the mountains which was totally the best move. We're lucky enough to have the family house should we want to take a trip to the beach. Which we never do but should. 

Also... Managing from 5 hours away is not a nightmare. I do it. With 5 properties. And I have a day job. It's very easy. Have a friend with 4 FL Condos he self manages and has for 8 years. He has a very demanding day job. It can be done. Easily. And with much better results than the front desk.  It's just not for everyone. 

@Brandon Richardson , I have been using my house as a VR on Airbnb and VRBO for about 5 years now, and I've managed it from all over the world, working my other job. If you want to cut out the PM fee, I'd suggest going down there and didn'ddi a few days interviewing cleaners, researching handymen, networking with other be owners who can their these types of contacts your way. Even hiring a cleaning company and paying a fee which you pass on the renter is better than someone charging you to come out and replace a lightbulb.

We've used Care.com, Thumbtack, etc. to great advantage over the years. Smart lock (or lockboxes), smart thermostat, a locked storage room full of cleaning supplies and extra linens, and you'd be amazed at how your margins will increase, if that's what you want to do.

Best of luck!

@Lucas Carl and @Richard White - Y'all's comments make me almost want to try managing it myself. And I don't even work a regular 9-5 job.

Right now, it's just not worth the $9,000/year. That's a small price to pay for a complete buffer between me and the chaos that ensues on turnover day in Destin, FL during peak season. If the wife ever threatens to make me go back to the corporate world, I may reconsider :)

BTW, I've looked at mountain cabins, and the numbers are much more appealing. One of these days...