What is the ROI (gross and net) for STR in OBX?

Question

I am looking into STR in OBX, what my research shows so far is you get around 10% of house value gross rents annually. So if I buy for $500K, $50K in annual rents.

Sales Price: $500K

Gross ROI: 10% = $50K

PM + Maintenance Expenses: 20% of rents =  $10K

Net ROI: $40K

Mortgage, Insurance ($2.2K/month): annually $26400

Down payment: $100K

Closing: $5K

Net profit: $50K - $10K - $26.4K = $13.6K

Net Cash on Cash return: $13600/$105000 = 13%

I am getting 12% on LTR in the same city as I am in. Is STR for this return worth it?

What am I missing here?

John Underwood · Answer

All this is subjective. You can run numbers all day long but they will never be more than a guess.

People have cheaper house that make more than a more expensive house. It comes down to location, expensive you can provide, draws to the area, etc. You can't predict wild fires or pandemics either.

Mike Leng · Answer

If you hire a PM, the fee alone will be more than 20%. Maintenance is at least 5%, but you should budget 10% to be safe. You are also missing property tax and utilities in your math.  Electricity in the summer can easily go up to $500 a month. Plus at least $100 monthly for internet. You also have no reserve for big ticket items like roof and ac and etc. These expenses will wipe out your remaining $13k.

I think the realistic estimate is that you will get net 0 cash flow, but in 30 years you will get a house on the beach fully paid for (and will be worth probably $2M in 30 years), plus free vacation every year in this property.