Asheville Area STVR - Financials

11 Replies

I have an opportunity to purchase a 4/3 property in the town of Black Mountain, NC, just outside of Asheville, NC.

We have the intent of renting this property out short term and occasionally using it as a vacation spot.

I was hoping to get some input and opinions on the financials of this deal to ensure my head is not just in the cloud and that it actually has the ability to pay for itself and potentially provide some cash flow.

The purchase price is around $365k, purchasing the property on a 30-year 3.875% with 35% down. House payment will be around $1.5k with insurance and tax. 

I have seen estimates on various sites of potential revenue spanning from $45k- $60k. (airdna, etc). I am estimating a need to bring in around $2.7k /month to break even.

We are comfortable managing the property ouselves which will help to reduce our costs.


Any opinions or insights from anyone familiar with that area, or with STVR's in general, I would be happy to hear all!

Hi @Alex Fountain -

My wife and I love Black Mountain so I'm a fan of what you're doing.  Two suggestions to consider,

1.  Plan for 3-4 years of $8-$12k revenue.   That's advice from folks who rode out 2008-12 when tourism dropped significantly.

2.  Check out NC Commerce website for opportunity zones.  There's potential there North and East of BM if you're interested.

-Mike 

Ditto James's warning above.  But at that mortgage rate I think you can't lose. I predict the vacation rental market will cool significantly in the Asheville area over the next five years primarily due to an insanely sharp increase in available rentals (we're already seeing significant softening of demand) , and will then tank if we get a recession.  But at that price and rate, and managing it yourself, you could likely break even as a regular rental  even if the vacay rental market declines.  

I appreciate both of your comments on this topic and really appreciate the realistic approach. We are going to keep a parachute on the sideline as we begin to ease into this property, understanding that as a newer property the reviews wont drive in business like a seasoned property would. 

The demand is certainly something I have thought about, but something I am willing to risk. I figure there is risk in just about any investment opportunity, especially when you pair it with a recession. 

I plan on trying to drive as many long term guests as possible. We would be within a 10-15 min walk to downtown, 5 to Lake Tomahawk, so I am banking on that being a driver.

With the understanding of the potential negatives, do you have any realistic idea of how rentals such as this would fair in the current market; say, as with a 2-3 year track record?

For  proforma, I usually take 20% off AirDna for conservative estimate and accounting for AirBnb service fees.  In reality, my properties usually perform 20% above Airdna's estimates.   With that said,

1. Dive a bit deeper in AirDna and understand Top 10% performers

2. Do a bit of research on town / county tourism sites to understand target customers.  Value add to get top rents could be,

    a. Market as luxury- outfit furniture appropriately.

    b. Target big groups going to Christian conferences in surrounding areas (Montreat, The Cove, etc...).  This may require marketing outside of AirBnb / VRBO.

3.  Outside of contingency planning for downturn, what interests me about BM is Asheville growth east- proximity to Raleigh-Durham-Chapel Hill.  It's a very quick drive.  So, If the Triangle keeps booming, you might benefit indirectly over time.  We saw the same thing east this year along Carolina Beach-Fort Fisher-Kure Beach.  Busy season was starting in early May not Memorial Day. 

Black Mountain is a great community, you can't go wrong in the long run. You'd probably have no problem renting your house to long term tenants. Cash flowing your property with some combination of nightly/short term rentals on AirBnB or VRBO or an OTA can present some challenges.

Practically, turning nightly rentals can be a challenge. Good, reliable cleaning people can be hard to find, believe it or not, and really expensive because of the demand from other STR's in the area. I have a friend that was a Superhost on AirBnB, managing only 3 to 4 properties for an out of town owner, and there were often times where she was driving from Asheville to Swananoa and Blk Mtn to clean properties when her cleaning staff - hired by her, trained by her - failed to show up. Cleaners in the area get $20-$35/hour, and there aren't enough of them. I know cleaning fees are paid for by guests, but sometimes there just isn't someone to do it. She charged a 25% management fee, which included all guest communications and management. Some hosts in the area charge 30%. That's a chunk.

Relating to the bigger STR market and tourism, Black Mountain is not Asheville. It's a solid 15-20 minutes away on the interstate. When Asheville runs out of supply, which is traditionally only during leaf season in October, demand moves north to Woodfin and Weaverville, then east to BM. That's not to say BM isn't its own destination, but traffic is tiny compared to what's going to Asheville.

The last thing I would mention about the market is this: nightly rates are dropping and quickly. I first saw $120/night rooms in downtown hotels during weekends in January 2017. Having run BnB's, furnished STR's and long term rentals in Asheville since 1997, that was an eye opener.

Asheville proper has added so many hotels rooms, condo-tels, and STR's in the last three years it's astounding. In 2017 Buncombe County had like... 3500 STR's. And there is more of everything on the way. The Asheville CVB and TDA has all the data on this, it's available if you contact them.

One interesting trend I remember from 2017 is of the 1.9 billion or so tourism $$ generated in the area that year, the percentage of the pie spent on lodging was decreasing, year to year. Meaning people are spending less on where they stay and more on beer, food and entertainment. Hotels and BnB's were getting a smaller % of the lodging dollar, while STR's where getting more. So that might still be a positive for your market.

But the bigger story is declining nightly rates. So I would try and be conservative in your revenue estimations. You'll also need to maximize your revenue and push your rates @ peak times of year, particularly during holiday weekends, in summer, and definitely in late September through early November. There's a lull before TG and another through the holidays. Occupancy correlates a little bit to the school year and kids vacation schedules. NYE is traditionally good. But Jan-March have been super slow in the last three years. I now take those months off and close our inn.

$45k-$60k sounds like a lot to me for a rental... but hey I hope you get it!

@Alex Fountain @Doniel Winter

To add to Doniel's stats, in the Western Region, ADR has actually been rising YoY for the last seven years, but it went flat this year.  RevPar (Revenue per available room) is still up 5.8% this year.  This could indicate peaking.  You can find the data below (this is the free reports so it's limited in drilling down).

https://partners.visitnc.com/lodging-reports

Do the numbers work now?
What do the numbers look like to "break even"?

Do you expect tourism to decline to that point?

Will the property rent out long/longer term at a profit?

Are you making money instantly, at closing? Meaning equity.

Is it a great deal if the property does not cash flow?

Is it a great deal, at all?

Are you working with a real estate agent who understands your goals?

What do they think about the potential purchase price and if it's a good deal?

Thank you everyone for your input! I really appreciate it. I graduated with a hotel management degree that I haven't really put to use recently. Diving into these numbers reminds me why I was so interested in it to begin with.