All Forum Posts by: Paul Shannon

It costs nothing to get your insurance adjuster out to take a look.  2 weeks ago I had my roof replaced, gutters and downspouts too, on my primary residence.  We had a minor hail storm on 4/8.  My neighbor's brother is a roofer and had him out to look at some of the homes.  4 out of 5 of them had their roofs approved.  I didn't think the damage warranted full replacement, but with 4/5, I thought it'd be worth a shot.  Sure enough, full replacement.  

My wife is a commercial insurance underwriter.  She educated me that If you're damage is from a "cat" (catastrophe) your rates will not go up.  Act of God.  If you are negligent, like leaving water running in a bathtub upstairs that floods 3 floors and causes damage, your rates do go up.  But your claim at one property should not affect your other policies or rates.  And the worst the insurance company can do is say no.   

Yes, there's always that risk. Its a big reason I haven't invested in STRs yet. Florida government has been battling this issue out for a while. They seem to be interested in regulating versus banning, which I think is a good thing long-term for sustainability of the STR industry.

@John Underwood

@Alec Hilliard

Agree with you guys. I'm used to earning much better returns on B/C Class Midwest BRRRR properties. My intent with Destin is to get into an A Class property. Thinking it won't cash flow much, but has long-term appreciation prospects that my current portfolio lags in. I'm trying to find a "rental" that could also be sold to an owner occupant or second home down the road, not just to another investor.

@Chris Rowland

@Matt "Roar" Gardner

Matt/Chris - appreciate the great info.  I was able to track down this map off the fws.gov site specific to Destin - https://www.fws.gov/cbra/maps/... 

Does this mean that basically you are self-insuring if you are in a CBRS zone?  No flood insurance available at all?  Sounds way too risky for me.  

A lot of the most upscale homes in Destin are in these CBRS areas. 

I'll have to check out Crystal Beach village. 

If you are in an insurable zone, what does a typical FEMA policy cost (obviously depends on the home, but ballpark)?

I recently vacationed in Destin with another family and returned to the same VRBO rental we stayed in the year before.  Destiny East neighborhood if you're familiar.  Our families are considering purchasing a luxury rental that mirrors what we stayed in.  5br/5ba, very unique pool, outdoor bar, 2 blocks from the beach, 15 years or less old, granite, stainless, etc etc.  

We have a budget of $1.6M and are looking for a 3% COC, 6% NOI. With debt we'd use to finance the purchase, I'm estimating we'd have 10% of gross rents left over after debt service, setting aside for reserves/cap ex to reach those returns.

We made the owner of the property we stayed at an offer, but he's not going to sell cause he has a cash machine.  The property rents for $1K a night in peak season and rents for 40 weeks a year, grossing almost $200K annually.  He paid cash for $1.1M.

Can we find anything in this stage of the market cycle that will meet our goals?  We are only considering properties that jump off the page when you see the VRBO listing.  

These properties are all over the rust belt/midwest, as specially in tertiary markets.  You'll struggle to find them in any other area of the country.  If you're investing out of state, you'll need to build a team.  Go with the market that's showing population growth and one that you're able to find people you can rely on and trust.  That's more important than any other factor when investing in these types of properties.  

Agree to keep it simple when starting. I've shook hands with folks with fancy business card's with the LLC name and beautiful logos on it, but haven't done their first deal yet.

If you focus on networking and deal flow that's what will grow your business. All the other stuff will become necessary when you realize you have a business.  

Rule of thumb is to carry as much insurance as your net worth.  If that warrants an umbrella policy, you should talk to a good insurance agent in your town to find options that benefit your specific situation.  

@Tim Jacob summed it up well.  Underwrite for 10-12%.  I would scrutinize the "lease-up" fee for filling a vacancy.  I believe its standard practice in some markets, but not in mine.  Its a conflict of interest.  If your PM makes money by filling a vacancy, they are incentivized to fill your units with higher risk tenants to encourage turnover.  If you are forced to go this route, I would ask your PM to see the final applicants so you're aware and your input can be heard.    

I would agree with this approach, as I did just that.  Its much easier to grow into a solid plan than to grow haphazardly and have to go backwards to rebuild poorly built systems or processes.  

I crossed the 20 unit barrier and noticed it was impossible to do it all....sourcing, acquisition, financing, project management, property management, leasing.  I'm grateful I did all those functions for some period of time, b/c I have a baseline understanding and built my systems to support me stepping back from those activities I didn't enjoy.  I started outsourcing property management way sooner at 5 units, b/c I wasn't good at it and didn't like it.  For 10% its well worth it, b/c it free's me up to do what I do enjoy within the business and that allows for growth.  I also am now using a project manager that coordinates with my PM on acquisitions needing rehab.  

Unless your goal is to build a property management company, I would say outsource PM.  If/when you ever scale to hundreds of units, then it may be time to bring it back in-house.