Originally posted by @Chris John:
@Ryan Moyer
Yeah. That's exactly what I'm going. For instance, if I can pay 380k for a 4plex, I'm expecting I can get rents of around $3800 soon. If I went for a STR, I'm seeing it two ways:
1. I'd expect more than $3800/mo for the extra work.
2. I'd expect less than the $3800/mo because I figure I'd make up for it in appreciation.
Interesting that you're saying it should be extremely easy. I found some numbers that showed I could expect around $6700/mo income for a 3BR on a STR in a specific market (median). In long term rentals, I'd expect to pay around 650-700k for a property like that. When I looked on Realtor.com, those houses were going for around 950k. It makes me think I'm missing something.
Of course, this is one anecdotal example, so...
What market were you looking in when you ran those numbers?
Like I said it should be extremely easy. Pull up any log cabin in Gatlinburg or anything within 2 blocks of the beach in Destin and I think you'd have a hard time finding a listing that's NOT doing more than 1% of purchase price in monthly gross.
I bought a home in Southern Utah for $515k in March and one in Orlando for $568k in May and both do well over $10k/month gross easily and that is not counting taxes in that gross rev number. Granted prices have continued rising since then and I put some decent money into the Orlando house but like I said above, any vacation market should be flooded with listings that meet that metric.
On the flipside I would warn of two things...
1) I think you need to set your standards higher for STRs. STRs come with added expenses that LTRs do not such as all of your utilities, platform fees, etc. A house doing only 1% of purchase price in gross monthly rentals is probably not one I would put on my list.
2) Most of the current revenue that makes finding 1% easy is post covid revenue, where we've seen a huge boom in the whole market. Given that property prices have risen alongside this increased revenue, if revenue drops back to pre-covid levels it would be troublesome. For instance in your example above if you bought a place for $950k in Gatlinburg I would think you could reasonably expect it do do $150k-$180k in gross revenue annually (so $12.5k - $15k per month). But in 2019 that same place might have been more like $80k-$90k so if we get back to those levels you would be in trouble.
So it really comes down to whether you believe the vacation rental boom is a temporary outlier or if you believe vacation travel has fundamentally changed. Personally while I think 2021 might prove to be an outlier year I don't think we'll ever see the numbers nearly as low as 2017-2019 again.
