Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
Hello - I have two STRs in the Pigeon Forge/Gatlingburg area. I have had one for two years and the second I purchased this year. The first one is a 4bd/4bath log home and it is with a well know local property manager. They take 30%. However the property is grossing 70k+ every year and it did that for two years prior to when I purchased. My mortgage payment on it is 1,900 a month. My PM tells me that in that area those results are simply not possible for a “do it yourself approach” is this true? The second property will do about 45k a year for a 2bd/2ba and the same PM. That mortgage payment is 965 a month.
Hello - I have two STRs in the Pigeon Forge/Gatlingburg area. I have had one for two years and the second I purchased this year. The first one is a 4bd/4bath log home and it is with a well know local property manager. They take 30%. However the property is grossing 70k+ every year and it did that for two years prior to when I purchased. My mortgage payment on it is 1,900 a month. My PM tells me that in that area those results are simply not possible for a “do it yourself approach” is this true? The second property will do about 45k a year for a 2bd/2ba and the same PM. That mortgage payment is 965 a month.
Thank you for any insights!
Yeah I mean, if I was making 30% I'd tell you that you couldn't do it too. I've heard giving 15-16% but not 30%. That's what I'd expect to split with a partner and if that was the case my partner would be the manager.
Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
6y
Allen,
the important thing out of all this is net profit. If you pay your mortgage and taxes and furnishings and Linens and utilities and insurance and maintenance and commission on credit card fee and everything else, someone taking 30% of the gross is reducing your net beyond belief.
when you are frozen or motivated by fear or lack of understanding, you are completely on the wrong path. This is a long-term play.
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Diane G. I am making a lot of money. About $1,200 net income per property (I have 2) and that is after every single expense. It also doesn’t include the equity build or appreciation on the properties.
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
Not sure if this works. Here is 2019 (there is a little missing though - had a two week stay after Xmas that went into 2020 that will be paid on 15th of Feb)
While $1200/month NET profit looks very impressive, once you bake in depreciation over 27.5 years, the real profit becomes less desirable...sorry to be so blunt....
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Diane G. I have no problem with blunt! But can you explain that a bit? Sorry - I mean I know what depreciation is, but not sure I understand the reference to 27.5 etc.
Say you bought your 4/4 for $300K, of which $60K goes to the land, $240K goes to the house itself... In 27.5 years, that $240K will depreciate down to $0, meaning a cost of $8.7K a year...
So your annaul profit of $14.4K is now reduced by $8.7K, leaving you with a net net of $5.7K a year...
Simply put, after 27.5 years, the house itself is going to worth $0 due to end of life..... assume you dont make any repair/remodel
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Diane G. Hi - I don’t think that’s really the right way to look at property in my opinion. Property values generally only go up I was always told....
A few things - I paid 390k -In early 2018.
Last appraisal and comps puts it at about 505k now. More if an investor cares about the proven gross numbers.
It’s a real log cabin with metal roof , with proper maintenance- there is no reason the house won’t stay full value. Furnishings and appliances will of course need Maintenence.
Maintenance, or Capex, is the other side of the coin of depreciation.... it runs about 3% a year of your purchase price in order to maintain the value of the property.... So $11K a year...Which reduce your net profit from $14K a year to $3K a year....
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Diane G. I really don’t know where you get these numbers :)
Most I ever spent on any my houses has been 9k one year and $5k of that was a new AC unit. That is a my current house in So Cal built in 2005.... that i bought for $700k - there is no way in the world I would ever get close to 1% Maintenence cost, let alone 3%...
On the cabin rents - other than keeping up with staining, appliances and new furniture- they are pretty bulletproof. Maybe an odd plumbing issue here and there. Think my biggest expense probably is the re-stain every 3 years or so...
27.5 year is what IRS use to depreciate a property... Or, you can use 10% of rental income as a capex budget....which would still leave you with $7K net profit....
Why are you saying depreciation? As long as the property is kept up it should appreciate in most markets. Especially in the market he is in unless people stop vacationing there.
If you believe anything Diane is saying here, call me up in 27.5 years and out of the kindness of my heart I'll offer you land value + $1 for your properties.
Also, you can definitely self manage. In a market heavy with vacation rentals it will be easy to find your own cleaner and handyman. Don't worry about all of your bookings coming from your manager's website. Airbnb and VRBO will do you just fine. I used to chase repeat bookings, and while it does show that you have a desirable property a new guest's money spends the same.
Look up some of the automation tools mentioned on the thread if you are worried about the time commitment. But I spend about five minutes a week on my STR.
Here is my biggest concern - 100% of my rentals all come from my PM’s own site (zero VRBO etc) I also have many return guests.
Is your property currently on VRBO or AirBnB? If not, then of course they all come from your PM's site. If they are on there, what do the listings look like? Especially in comparison to vacation rentals of similar properties in the same market? If other properties in your market are not having trouble getting bookings on VRBO or AirBnB, then why would yours.
Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
6y
@Alan Ford Back when I was a finance major, one of the calculations we had to do was (Net Income) plus (Depreciation). I think it was to determine annual cash flow. Depreciation is a non cash expense. You expense it on your taxes, but you are not paying cash for it each year (like utilities, toilet paper, etc). Don't listen to naysayers that take you off your track with the mention of depreciation expense cutting into your cash flow.
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Jason Goretzki it is not on any other site but his. What aspect do you mean of how do they look? Like days rented or how nice is the listing or his cost per night etc?
Investor · Thousand Oaks, CA · Member since 2019 · 31 posts · 28 votes
6y
@Alan Ford
I own a 4 BR/6 BA cabin in Sevierville that I bought in April 2019 with the help of @Avery Carl. I self manage from California while running my own business full time and raising two children.
I have not had my cabin a full year yet, but it will gross more than the $75k yours did all from Airbnb and VRBO. I would recommend talking to @Lucas Carl about self managing. He helped me immensely.
If you have good cleaners, a good handyman and some WiFi devices, it can easily be done. I would not pay a PM 30% when it it is something you can do yourself and it doesn’t involve much time at all.
Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
6y
@Lauren Johnson thank you! That was a very helpful response! I am working with @Avery Carl already and might just be going down this route or at least looking into cutting the cost down from 30%.