Does anything beachfront on the Florida Panhandle ever cashflow?

Question

We have had family in the past that has owned some condo rental properties in Fort Walton.  It was more of a part time residence and slight appreciation play, but the cash flow was bad.

My wife and I do love visiting the panhandle and have always mused about buying one but every time I pencil out the number, the results suck.

From what I can tell there are a ton of negatives to owning a beach front short term rental:

1.  Everything rusts and the HVAC has a very short lifespan along with a lot of maintenance for the structure due to salt water.

2.  Insurance is bad.

3.  HOA fees are high

4.  The sand really shortens the life of the property furnishing and requires more frequent replacements.

5.  Hurricane damage can leave long vacancy periods.

6.  Occupancy is low in winter season

7.  Professional management that is often charging 20%.

All that to say, I have rented plenty of vacation rentals so clearly there are investors renting these things out and I assume they are not dumb doing it. But whenever I try and pencil out one as an investment all I see is big time negative cash flow and maintenance that eats away at any appreciation. So what am I not seeing in my numbers telling me to stay away?

Matt "Roar" Gardner · Answer

@Michael Zagorsky - You can most definitely cash flow in the Panhandle! I have a SFR and a condo in Destin and on Okaloosa Island.  We purchased our SFR for $565K (sleeps 14 ppl) and we grossed around $73K last year (netted around $20K).  That was our first year in the neighborhood, and I know plenty of my neighbors who have had multiple six-figure years in the same houses.

I do agree that the prices are getting inflated, but that's what negotiation is all about.  You have to buy at the right price in order to cash flow well.

Here's a response to some of your points (in my humble point of view):

"1.  Everything rusts and the HVAC has a very short lifespan along with a lot of maintenance for the structure due to salt water."  -- True, humidity is a factor, but it's not like HVAC die in a few years.  They typically last 10-15 years in Florida.

"2.  Insurance is bad." - Did you mean cost of insurance? If you have a solid insurance broker, he can save you a ton of money.  For example, a lot of insurance companies will tell you to purchase the sink hole coverage, which is really expensive; however, sinkholes are not a factor in this part of Florida.  AND The sink hole coverage that you think you need is actually already built into your insurance by Florida state law.

"3. HOA fees are high" - I've helped plenty of investors purchase properties with very small or no HOAs and others with very high HOAs.  It all depends on what you want; there are options.

"4.  The sand really shortens the life of the property furnishing and requires more frequent replacements." - I think you'll find the tenants shorten the lifespan just as much as the sand. lol

"5.  Hurricane damage can leave long vacancy periods." - Hurricanes are definitely a factor if your area gets a direct hit.  Other than that, we generally are not affected for more than a day or two.

"6.  Occupancy is low in winter season" - Totally true, but a lot of my out-of-state investors love this aspect! They love that they can bring their family in the off season without hurting their bottom line.

"7.  Professional management that is often charging 20%."  - True, you'll see 20-25% often; however, there are some 'cheaper' options in the 16-18% range.  I've heard of much higher management fees in the smoky mountains (i.e. 40%+!).  Nonetheless, the management aspect of these investments is huge.  If you're able, I recommend self-managing, even from a distance.  If not, finding the right property manager for you will be key.

As far as your numbers, I'm not sure where you may be going astray, but best of luck!! :)

Charlie Cameron · Answer

@Stetson Miller I'm here in the panhandle with @Matt 'Roar' Gardner (on his agent team!).  The places he is referring to are either condos in beachfront buildings or houses within walking distance to the beach.

If @Michael Zagorsky wants a beachfront house, that will be harder to cash flow well on.  Break even is more likely, but it would be tough to pay more for waterfront when it rents for just barely more than the house a block or two from the beach.  In Destin, most vacationers either plan to be in a condo that's at the beach or a home and drive to public beach access or walk if walk able.  So many of the perks of Destin require driving a lot of times anyway (mall, boardwalk, McGuires, Henderson beach park).

It IS possible to make money on beachfront property though.  My in-laws purchased a hurricane damaged beachfront home in Emerald Isle for personal use and as a rental.  Even with using it for one week during high season every year (miss out on 10K for that week), they are still cash flowing on the property.  There is always a way!!!

Luke Carl · Answer

You forgot to mention non warrantable loans.

Condos..... I don’t think I’d suggest. Although I’ve never owned one, I’ve made several offers and run all the numbers. Decided not to.

I’ve got a 4 bedroom going in Destin that will do just fine. But it’s not on the beach and it’s a single family. 2 blocks from the beach with a pool. More details to come.

Valerie Rogers · Answer

We own 3 beachfront 2 BR/2 BA condos in the same building on Okaloosa Island, purchase prices between $280,000 (in 2014) - $375.000 (in 2018). As with all of our STRs, I'm happy if they pay for their expenses and make a little money and all of them do. We're not making a killing, but at least our money is safely invested in a stable market and not likely to disappear.

Michael Zagorsky · Answer

To ask the question a different way.  I get that there are rental properties that don't cashflow, especially in markets where the investor is looking for long term appreciation due to changing trends.

BUT short term rentals are not long term rentals and usually the expectation is that a short term rental cash flow and generate a nice margin.  That is true of mountain cabins, city STR's, etc.  People are making a profit from those.

There are a ton of beachfront short term rentals on the market, so lots of investors are doing this.  I would get the appreciation play, but they don't seem to be better than other appreciation plays and have a ton more maintenance and risk than other locations for STR.  So what do investors see in them?

Michael Zagorsky · Answer

Do you mind me asking how did you choose these as investments?  What made you choose investing in beachfront instead of other markets from an asset appreciation standpoint?

Wendy Schultz · Answer

I was told by a realtor in the Destin area that rentals usually gross about 10% of their value annually. So, a $800,000 property would do about $80,000. That was several years ago so I'm not sure if that's still the case. I also couldn't tell you if that was the same for condos as well as SFR.

Mark Miles · Answer

#7 not an issue if you use offshore VAs for PM as I do at $4/hr. Always look for ways to innovate in this business & make money where others are failing

Also re #6, at least your winter is short! There’s STRs here in the north that go vacant for 7 months at a time. Yet some people still think it’s a good idea. Tough to innovate around 20 degree temps for half the year & make any money up here

Does anything beachfront on the Florida Panhandle ever cashflow?

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