Area Analysis for BRRRR to STR

6 Replies

So I don't have a specific property in this one. It's more of a pre-analysis of an area I'm looking at for STRs and outlining how I think about narrowing down where I like. I expect most on here go for LTR, so maybe a peek into how our STR analysis happens is interesting to an investor.

Our goal is to find some areas that are favorable. Or if a passive investor likes a particular area (a bonus of owning STR is it can also be your vacation home) we could dig into that area too, dig further into refinance math, etc. We can monitor them as things come along, filtering what we don't want right away, and we have a big head start on knowing if it's a great deal or not. If the area is no good from the analysis, we can save a lot of effort. I've recently done the same for Destin, Florida (a very specific condo my wife liked :D) if anyone is interested in that.


Area:

Nashville, Indiana. Quaint tourist town in the hills of south-central Indiana. Largest state park with hiking, biking, camping. Hugely popular when the leaves change.

I’ve got lots of personal connections to the town and local government. 


Market Data:

Pulling all home sales in the past 24 months that sold for under $300k:

Median 1 BR $168,000
Median 2 BR $174,900
Median 3 BR $205,000
Median 4 BR $229,500
Median 5 BR $207,000

I kept it under $300k because a) a lot of turn key places are more than this which defeats the purpose of BRRRR, and b) this felt like a typical range for what "normal" people can get as a second mortgage (ie a passive investor who brings the money and/or mortgage, depending on the property).

While I did have to use Zillow for this, these numbers seem promising, given the ability to buy at a very low price - under $250k - relative to the income it can produce in that area.

Short Term Rental Data:

I used Airdna’s data for the area.

Something I noticed was a big jump in ‘entire home' data in April 2019 and local government connections show us the town is opening up to the idea of STR via Airbnb/VRBO. Speaking to someone on the town council confirmed this. The town does require certain exceptions to be petitioned to the town council in certain areas of the town. These hurdles keep the total number of homes available on Airbnb low, but provide massive opportunity for those willing to go through it.

I’ll add that homes that resemble cabins are the most popular by far. Nashville, Indiana and Brown County have a type of back woods and nature feel. “Rustic” is thrown around a lot.

Per Airdna data:

Market Grade A+, Investability 100/100, Rental Demand 89/100, Revenue Growth 98/100
2 BR most popular, but 1 BR and 3 BR very close behind. Not many 4-5 BR, almost no studios.

Anyway. I began by pulling all data from Airdna, by month, number of rooms, and percentile into a spreadsheet:

I have a light background in data analytics, so this part is very enjoyable for me.

Now, the thing about Airbnb is that a HUGE majority of people that list do not do a good job. Rarely you’ll see great photos and an excellent description. Most people set a price and forget it, and ignore seasonality, especially in this town for some reason.

Active management is crucial. Our team’s Airbnb expert James Svetec (co-writer Airbnb for Dummies, at one time top 1% of Toronto listings) says with active management, getting into the 75th percentile is quite easy.

So, if we take all the months together and get average of the 75th percentile in Average Daily Rate (ADR) and Occupancy rate (as a percent of nights booked per month) for entire house listings on Airbnb we get the monthly revenue:

1 BR: $3,784
2 BR: $5,757
3 BR: $6,354
4 BR: $8,423
5 BR: $10,358

Another note here is that 2020/COVID was a boon to STR. Many more people traveled using Airbnb to avoid hotels, and rural/nature areas like this one did the best of all because everything in the city was shut down. The data above was calculated using Apr 2018 - Dec 2019. If the trend of 2020 continues, and the 75th percentile is achieved, the numbers would be much higher.

Quickly you can see that even purchasing a turn-key property here - assuming you do the work to get it approved by town council if required - could produce fantastic revenue. I did the full math anyway, see below. (I know, it’s not the BP Calculator!)


Large assumptions, trying to be conservative:

Purchasing a 4 BR home (or larger, if possible)
$250k purchase price (bit over median)
20% down, 5% fixed interest, 30 years
$4k closing costs
5% CapEx
$70k rehab
Normal internet, TV, yard/snow, etc|
Out of pocket $300/week rented cleaning*

*Airbnb guests usually cover this, however if you follow Airbnb news, there’s always a rumbling of guests upset they have to cover this cost. Putting it in removes about 6-7k/yr from the bottom line as a conservative estimate. If it never changes, great! We keep that.

Expected results (using 4 BR, 75th percentile ADR & Occ)

Conservative results (using 3 BR, 50th percentile ADR & Occ data)



Even if we found a four bedroom at this price and did absolutely horribly (even by 3 BR standards), it could cash flow $472, >4.5% CoC. Put in normal active management and it shows $4500 per month cash flow across the year and >40% CoC. Double the price of the place to $500k purchase price with the same rehab budget and it still cash flows $1800 with mediocre management. Again, this is with pre-COVID data. If we include 2020 and 2021, it's even better.

I'd say Nashville, Indiana is worth a deeper look.

Thoughts?

Originally posted by @Joshua Jarrett :

Utility estimates seem low. Question, your dad isn't Dave Murphy from Columbus, IN per chance?

Yeah could be. Not a lot of extra conservative cushion in elec/water and is an estimate that assumes the occupancy rates shown. Maybe vacationers waste more than that! 
And no, sorry. I don't know a Dave Murphy out there.