Invest in Galveston, TX STR

14 Replies

I'm looking to purchase a STR in Galveston. I'm a real estate broker and I live in Pearland. I've run some numbers and seems as though it's a great opportunity to get some decent cash flow and personal enjoyment. Below is what I've come up with. What am I missing. Are there any experienced investors out there that would like to meet to discuss?

There are a few things to take into account not mentioned. First is going to be HOT taxes on rental income. Here in Galveston, the total taxes are 15% (6% state & 9% city). 

Another thing not mentioned is insurance on the property. Depending on the property, you typically need flood, windstorm, & liability.

Also water bill & sewage from the city.

One important question: you mentioned HOA in your cost. Do the HOA bylaws allow for STR?

I'd be happy to help a bit with numbers if you can give me an idea of the property and its location

Timothy Church, Real Estate Agent in TX (#668626)
409-877-4159

I was looking at Beachside Village. I assume there were no HOA issues since I saw other homes in the subdivision listed as STRs. The mortgage payment was an estimate but it was PITI. I live in Brazoria County and we have to have windstorm insurance so I guessed based on what I'm paying. Of course, the insurance may be higher because of the location. Just trying to figure it out. Your help will be greatly appreciated.

There are some great homes there. We actually rented one on the beach the next set over for a family reunion. They can be great performers if done right. 

If you want to sit down to discuss things sometime, I'd be happy to meet with you. Have a few appointments that will be bringing me up to the Webster area next week. If you feel like making the trip down here, my schedule is flexible.

I have a subscription to AirDNA for the island since I deal with STRs down here. Be happy to go over the data with you when we meet. 

Feel free to DM me or text me with the number in my signature.

Timothy Church, Real Estate Agent in TX (#668626)
409-877-4159

Why not 3 180k houses? Why not two 275k??

Other than that the only number I don’t like is your occupancy. I’m not happy with less than 300 days per year which looks like almost double your market. Gross number looks like it’ll be good enough for a self managed VR.

When looking at your possible purchase it looks pretty good when factoring in some things. I'm assuming your mortgage payment is PITI, and since it is non owner occupied you have factored in a bump in property taxes after the purchase. Again, I don't know your local tax laws.

The only glaring figure that is way off is repairs. Your repair number will average 23% - 41% depending on a whole host of factors. Remember, this isn’t a long term rental so anything, and I mean ANYTHING that breaks needs to be repaired. Also, you need a supplies figure for your size property. 

I think you have a possibility. 

Best Regards,

Eric 

I would also include consumables. Cleaning supplies, coffee, TP, Kleenex, soap and shampoo if your going to supply. We provide a welcome card and some cookies or other sweets etc.

Originally posted by @Lucas Carl :

Why not 3 180k houses? Why not two 275k??

Other than that the only number I don’t like is your occupancy. I’m not happy with less than 300 days per year which looks like almost double your market. Gross number looks like it’ll be good enough for a self managed VR.

 Multiple homes would be an option.  My original research lead my to this particular area of Galveston because I stayed there and the numbers seemed good.  I would love 300 days per year but I don't think that's the case for most places in Galveston.  I live under an hour away which is important for me so that I can manage the place.  Also, I can get the personal enjoyment a lot easier when it's under an hour away.

Originally posted by @Eric A. :

When looking at your possible purchase it looks pretty good when factoring in some things. I'm assuming your mortgage payment is PITI, and since it is non owner occupied you have factored in a bump in property taxes after the purchase. Again, I don't know your local tax laws.

The only glaring figure that is way off is repairs. Your repair number will average 23% - 41% depending on a whole host of factors. Remember, this isn’t a long term rental so anything, and I mean ANYTHING that breaks needs to be repaired. Also, you need a supplies figure for your size property. 

I think you have a possibility. 

Best Regards,

Eric 

The mortgage payment is PITI. The home that I'm looking at is not owner occupied and I based my numbers off the 2017 taxes. I'll adjust the repairs and add in supplies.

Originally posted by @John Underwood :

I would also include consumables. Cleaning supplies, coffee, TP, Kleenex, soap and shampoo if your going to supply. We provide a welcome card and some cookies or other sweets etc.

 Thanks.  I will add supplies.

As I was raising my repairs, I was thinking I should have a home warranty to help cover those big repairs.  Thoughts???

@Gregory Wesley We sold a single family home in Pirate's Beach last December that we operated as a STR for 2 years. A few comments I would suggest:


- Houses on the beach, or with a good beach view, will ALWAYS book first.  If you don't have that, you will be on the conservative side of your revenue estimates.

- Flood insurance is a HUGE cost -- especially if the previous owners didn't grandfather their old flood zone rating throughout the years.  Find out exactly your exposure before you make an offer.  It may skew your numbers.

- Your # of days rented is conservative enough -- you may do better in years 2+ but see my first point above.  However your rent per day seems very high to me if that is your average rate.  Without knowing more details about the house (bedrooms, location, etc) I couldn't guess more.

- @Eric A. may be on the high side for repair estimates as a % of revenue.  However if Eric was also including maintenance then it could be closer to accurate.  The salt air will eat everything out there.  And beach guests are some of the hardest on STRs.  So be prepared to handle some of the work yourself or it will eat into your profits.

- Home warranties are garbage, IMO, so I would just take that $500-700 and use it for repairs on your own.  The houses in that neighborhood are fairly new so I wouldn't worry about HVAC, etc quite yet.  However be prepared to repaint every 2-3 years, seal the deck, and fight the battle against rust.

Ultimately we enjoyed owning our property and it did fairly well for us. However the profit we did turn just didn't cover the amount of work we felt it took on our part. And the threat of a good hurricane - even a glancing blow - always made me concerned about my profit margins. So we sold it at a great price and focus our attention on our STR in the hill country for now.

Let me know if I can answer any questions.

Best of luck!

@Mark S. thanks for your input.  When you say flood insurance is a huge cost.  How much are you talking?  After Harvey, I bought flood insurance and if cost me about $500 per year.  How does that translate to beach front property?  What type of cash flow did you see over the 2 years.  I got my daily rental from checking a similar homes rates throughout the year and the highest was $870 per night and the lowest is $335 per night.  I just went for the middle of those two numbers.  I know there's some risk of hurricanes but I would hope my insurance helps mitigate most of the costs associated with a storm.  I have a contractor who I've been doing projects with for years so he will take care of my repairs for a low cost.  I'm mainly trying to see if I'm way off with my numbers.  Right now with the input I've received, I'm at about $30K per year in cashflow.  I have a very flexible schedule so I can easily get down there a couple times a week or more if needed.  I have another business with all of the cleaning supplies and once owned a janitorial service so I can take my two sons down there and clean the place a couple times a week if I need to.  That will help my bottom line.

@Gregory Wesley   Flood insurance is tied to the flood zone mapping that the house sits on.  The maps changed over the years.  So where that hood is, and because it is a relatively new neighborhood, I'm going to guess you're looking at $3-5K in flood insurance.

The property we had was built in 1985 when it had an A-zone flood rating.  Because flood insurance was "transferred" between owners as it changed hands, the A-zone rating was grandfathered in and remains that way.  However that house would have flood insurance of $2-3K today without that proper transfer.  Instead we were fortunate to only pay $800 a year.  Total insurance between flood, windstorm and homeowners was around $2,800 if I recall.

Regarding your average daily rate, I can't help you there unless you give more description about the property.  I think we booked 150 days the last year we had it which was pretty good.  But we didn't have a view and were two blocks from the ocean.  We grossed about $37K if I recall.  But then you have to take 15% taxes out of that, cleaning fees, supplies, misc, etc.  

Your numbers could benefit better by you being more aggressive on your purchase price and putting more down (which sounds obvious, I suppose).   And I know this won't slow your enthusiasm, but you're buying at the wrong time.  If you wait until Nov/Dec, you will be able to be VERY aggressive on your offer prices and you will get more desperate buyers.

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