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Updated almost 3 years ago, 01/03/2022
I'm selling my long term rentals and buying beach property
Long post, but I really wish someone had told me this when I was struggling to buy single family homes.
Hey y'all, wanted to share what I’ve learned in the past year. I took a promotion with my medical sales job, and move to Wilmington, NC (beach town) in 2017. I started buying rental properties when I was 23 in Columbia SC after the market crash, and ended up with a portfolio of 8 properties, 7 single family, and one duplex. Things were ok, I BRRRR’d 2 of them (I learned from trial and error, didn’t discover Bigger Pockets until 2017) as they appreciated, the rest I bought for 20-30K each, all in I was at or under 35k each, rented from $675-800 depending on bedrooms. I basically looked for brick, decent roof, renovations that put me all in under 35k. Obviously this had me investing in very marginal areas. Great cash flow, but in most cases, I didn’t have an exit strategy for my money. I paid cash, and couldn’t refi unless the 80% LTV was 50k or greater. 2 of these properties eventually appraised for 75k, so I pulled out 55k on each, on another I got an equity line, but again, I was basically on my own trying to figure all this out, and there was a big learning curve.
Ok let’s fast forward. In the past 2 years since leaving Columbia SC, I’ve been through 3 property managers, and basically I’ve learned that the ones that are really good, sooner or later, get really busy, and become really average and then really below average. People make it sound really easy, but it’s just not. Finding a good property manager isn’t that difficult, but finding one that has longevity is different. Basically what I learned is that no one minds my business the way that I would mind my business. Also, because of the type of renters lower income properties house, the cap X expenses really cannibalized a lot of the cash flow. Every time a renter moved out, it was potentially a couple thousand to paint, replaced kicked-in doors, windows, carpet, etc. I never did section 8, but some days it felt like it.
I sounded a lot like some of the newer investors I talk to “I’m making 6k a year off of each of my rentals, once I have 10, that’s 60 grand! Then I can buy 2 a year!” And even though those metrics work for some people, I felt that my time was worth more than what I was making, and that I needed to find a way to put a lot more velocity to my investing to get where I needed to be. I looked at multifamily properties, had a 6 unit under contract, and the deal fell apart. Right about then, I discovered something that changed everything about our trajectory.
Ok, hear me out. I know that Short Term Rentals (STR) has a stigma that people can't shake, but I want to dig into that a little bit. Here's the short version. My wife and I bought a beach house duplex at Carolina Beach just outside of Wilmington. It's a 3/2 in each half. We did some small renovations, flooring, paint, scraped ceilings, etc, moved into one unit, and put the other up on AirBnB. Our occupancy on our island goes from 19% in the winter to 95% in the summer, and we listed on November the 10th, 2018, so we really weren’t expecting much. Our first booking was for November 16th, and amazingly, we did $1250 in gross rents between then and 30th. In December, we did $2400, which is our mortgage. (those are gross rents, doesn’t discount the cleaning fees, but we cleaned it ourselves for the first 3 months) We’ve increased that every month, more and more 5 star reviews push you higher up the list, and the bookings start rolling in faster and faster. Currently, we’re fully booked for the next 3 months, and June-Sep, we’ll do $8,000-$8,500 in gross rents PER MONTH. I haven’t had a house payment since December 2018. On a yearly average, we pay all our bills, and get paid about $1400 a month to live 2 blocks from the ocean. See why my long term rentals stopped looking so attractive?
People have trepidation about STR, "What happens when the market tanks? Aren't all your bookings going to dry up?" Well, no actually. From all the research I've done, in 2008, when the market tanked, domestic travel didn't take a hit. People still take their time for vacations. When they want to save money, they don't cancel their 7 day vacation, they change the destination. Instead of flying a family of 4 to Disney, or the Bahamas, they save $500 per ticket and instead drive to the beach. Also, with AirBnB being a global company, it's easy to find a market with a lot of volatility and see how it reacted. Greece is a good place to start, but again, I found that it didn't really dent the occupancy, average daily rate, or cash flow.
What about seasonality of being a beach destination, aren’t you busy 4 months and year and then just sitting empty? Nope. From November 10th through April, our occupancy is 81%. What we found is that there are still a lot of people travelling to the beach, they can just be really picky about where they stay. So, how did we jump to over 80% occupancy and stay there? One word. Data.
I am in no way affiliated, but I attribute most of our success to AirDNA.co (not .com, it’s .co) This is a data scraping company that gives back-end data on AirBnB, Booking, and Home Away. I can see what people are booking, what they pay, average daily rate, length of stay, where the people are from, what they like, and what they didn’t. When we staged our house, we didn’t guess on what people would like, we used the data. We used over 10,000 AirBnB reviews to pick out the top rated mattress (zinus memory foam $399 for a king), the best platform beds (Wayfair, $299 a king), the best lighting (daylight LED), basically everything. I’m a big believer in using data. Past reviews and metrics dictate our future performance. Because of this, we operate as a 90% performer in our market (that’s overall performance, not occupancy), and our downstairs is on pace to do 57k in gross rents this year. YEAH, THAT’S RIGHT, I SAID $57,000. Which is awesome, but all of a sudden, I’m an idiot for living in the other unit. Our opportunity cost of another 50 grand has us looking for another house now. Also, we signed on a tri-plex last month, the first unit just hit AirBnb, and that property will do 105k in gross rents per year as a median performer in our market, 130k if we knock it out of the park (We will).
"But what happens when a renter trashes your place, or kids throw a party? I bet you guys are only having success because you live there…" Well, about that. AirBnb (I use that to mean all STR, for bandwidth, we are across all platforms, VRBO, AirBnB, HomeAway, Booking, Travelocity, etc, our pricing just varies based upon what commission they charge) is a review based system. It's a feedback loop, all tenants review your property, and you review them. So everyone has an incentive to be fair and honest and to try and do right. When a person requests to book, we see who they are, where they are coming from, and every place they have booked before, and we see what that host had to say about them. News flash, if a profile for a 20 year old kid was created yesterday, has no reviews, and they live locally, I would decline that request, they're trying to throw a party. The point is, the data is there, you can pick your guests.
“What about how your property is treated? People constantly in and out sounds like a bad idea.” Nope, so far, on average people are actually in the property 3-4 hours a day, usually they are out enjoying their vacation, checking out local restaurants, hanging on the beach, fishing, kayaking, who knows. We’ve actually found that any time there’s an issue, we find out about it right away. For instance, 2 weeks ago, a shower head broke and was leaking. The guests let us know about it as soon as they checked in. They wanted us to know, so that we didn’t assume they did it. (if anyone ever does break anything, you can charge them through the AirBnB app, another reason people take great care of the property) I sent the info to our handyman, and he coordinated with our cleaner, and went in and fixed it the next time she was in there, boom, back in business.
So here’s the long and short of it. I’m selling off my long term rental properties. Most of them are now worth 50-70k, I’m taking that money, and putting it to work here at the coast. Here’s my barrier to entry, in order to pick up a property, I need to cover the mortgage, taxes, insurance, and profit $1000 per door, per month. Sounds unrealistic, but so far we’ve averaging 15k per door per year. So basically, I get an equity pay down, I get really really strong cash flow, and unlike in Columbia, I’m in a market that should appreciate over time. Equity, Cash flow, and Appreciation? Find me a better investment and I’m all ears. As for now, my wife quit her job in medical sales and became a real estate agent here at the beach (Shameless plug, anyone need help investing at the coast?), we’ve started a boutique property management company, and we’ll be scaled to 10 doors by the end of 2019. Just so we’re clear, that’s 120k in cash flow, not counting the equity pay down. Also, before it comes up, I manage our listings from my phone, and it takes me about 5-10 minutes per day. I sell and implant pacemakers and defibrillators for a living, so we use automated technology for 90% of our communications with guests and the cleaners.
Ok, rant over. Anyone struggling to scale a long term rental portfolio and thinking that you need to invest in marginal areas to try and achieve that elusive 2% rule, there is a better way.
Hey man, happy to share that, I’ve already written a lot of that up in a post before that I think was titled something like automating my short term rentals. I’m a see if I can track that down and share it, it will save me a lot of time
Did that work? That’s one place to start there are a couple more posts that may give the whole story. Honestly, I hate technology, but it might be time to start writing blog posts
I bought a place in the Bahamas, and was nervous about it. It was in Hopetown, Abaco. I lived there for 4 years and now rent it out on Airbnb. I planned on selling it when I was done living there, but it is making fabulous income. I cant replace that income with any investment in the states, the opportunity just doesn't exist. It is more work, and the pressure of 5 star reviews is annoying. However, the extra effort is really paying off and I enjoy working with something that I have pride in. My other rentals are in the bay area. They make good money but are rent controlled, so I have some tension filled relationships with my tenants. I prefer the vacationers...more fun to deal with.....
@Drew Ogden how are you remotely managing the cleaning, repair, laundry processes etc?
Originally posted by @Ceasar Rosas:
@Clint Harris
I actually just bought a 2 bedroom condo in surfside beach, near Myrtle Beach to live in, fix it, and then potentially put it up as a STR. I'm currently looking now for something else. Would love to connect and maybe see this project you have. Awesome stuff.
Sure man, I don’t hide, I share with anyone, text me at+19105151785, if I’m not in surgery, real estate is my favorite thing to chat about
Originally posted by @John Vietmeyer:
I’ve been considering the same. Did you use 1031 to make the jump?
I didn’t, and I’ll tell you why. Once you 1031, you start the clock. I bought 7 of my investment properties 2008-2013. Prices were rock bottom, so when they eventually appreciated, on the first few, I tried a 1031. So when that happens, you start a timer. A 1031 usually costs 2-3k in attorney fees. You have x-amount of days to identify your next property. If, as in my first 4-5 properties, you were only looking to save less than 10k in fees anyway, the first time a deal falls through, and you pay that tax, you quickly realize that a 1031-exchange is designed to make small time investors feel like they’re pulling off a big deal. It’s not worth it. Anything less than 10k, pay the tax and roll on. If I was 67, I’m sure I would think differently, but in terms of the time-value of money, 1031 is only worth it if the velocity that i can add to that tax deferred sum is equal to or greater than that same number in the S&P 500. If it’s not, then roll on.
@Eric H That would be a whole thread in itself. I have good contacts since I lived there. It is a small island, so you end up knowing everyone. I pay friends to take care of things, everyone has some involvement with the tourist business. They are happy and I am happy. I stay on top of things, and everything is working out so far. It is a very investor friendly country, and a great place to visit that is VERY close to the US.
Ok thanks
Did you buy global warming insurance
No, but I bought a commercial ice machine, and I’m almost halfway done lining my properties with Yeti coolers. Once I install the giant fans on the corners and put lifevests under the guest beds I think I’ll be set.
But yes, my properties are out of the flood zone, but I do still carry flood insurance besides just wind and hail
@Clint Harris awesome story man! Inspiring and informative. I keep getting pulled in the direction of STRs but resist because I don't want the work that goes with it. Great to hear the success stories!
@Clint Harris I’m so glad you shared this. I’m a realtor new to Myrtle beach and the return on a lot of these vacation rentals is phenomenal! I had been working with investors in long term rentals prior to this and can’t believe the difference! The review screening as you mentioned is a great way to minimize on the risk associated with short terms. Local pm companies are great as well allowing for many investors to sit back and take care of their daily lives rather than focus so much time and energy on the details associated their short term rentals. Thanks for the great read!
@Clint Harris
I just listed my LTR in Airbnb 3 days ago and in two weeks with less than 60% occupancy for these 2 weeks my mortgage will be covered.
Given your experience with investing and STR.
Will you suggest owner financing to acquire more properties in STR desirable areas⁉️
I would like to scale up and buy another one this year but I just bought my second rental a few months ago.i ll have to wait until next year to purchase another.
@Clint Harris
Fantastic post, glad you decided to share!!
I think you'll really enjoy working with the higher clientele and fewer repair headaches
Originally posted by @Nandy B.:
@Clint Harris
I just listed my LTR in Airbnb 3 days ago and in two weeks with less than 60% occupancy for these 2 weeks my mortgage will be covered.
Given your experience with investing and STR.
Will you suggest owner financing to acquire more properties in STR desirable areas⁉️
I would like to scale up and buy another one this year but I just bought my second rental a few months ago.i ll have to wait until next year to purchase another.
Yes! Owner financing is awesome, you can also looks for a lease to own option, or also find underperforming long term rentals on Craigslist or wherever, and work out an Arbitrage deal. We currently have a triplex that we have a master lease on. We pay 36k a year for all three units, and we will do 125k in gross rents in those three units this year. It’s a fantastic way to continue to scale without being limited by your borrowing power. If you get your first one or two deals right, you will easily be able to afford the 20% down on properties moving forward once or twice a year. That way you get the cash flow, but you also get the equity pay down, and the long-term appreciation.
@Clint Harris
Great post. Seems like a no brainer if you are not afraid to work before automating and get the buy side right. I am looking over the Intercostal now in Fort Lauderdale and you got me thinking. I would love to connect and find out more.
Thanks for sharing!
@Clint Harris Absolutely fascinated by your post! I've been studying the pros and cons of several REI strategies for months now and this hits home. You mentioned it's tough to get into the market these days due to the entry barrier. Is this because your strategy consists of buying these properties in cash? Based on everything I have read, I'm being told to buy cash if I can and implement the BRRR strategy. In this case, the R would an STR :)
Knowing what you know today, what would you do if you were just starting out and had 50k to invest...what if you had 100k to invest? This also assumes you already have a primary residence so you can't house hack.
Thanks in advance!
- Henry
@Clint Harris Great Post Clint. Thank you for sharing. Very informative and is really making me rethink my investing strategy.
Thanks again.
Henry, this is a great question, with answers that depend on quite a few things. The barrier to entry is typically that these properties are in the 400-500k range, and no, I do t pay cash, I do 80% LTV, and utilize notes that are leveraged against the STR projections of the property itself, much like a commercial note would be, so it doesn't cannibalize my personal borrowing power. Tell you what, I'm leaving tomorrow for a week in the Bahamas (trust me, I'm not that rich, this is just a little vacation before we have our first kid in a couple of months) but I'll be back next Sunday. My cell is 9105151785. Give me a call in a week and let's chat
@Henry Massey, read above, forgot to tag you
Originally posted by @Drew Ogden:
I bought a place in the Bahamas, and was nervous about it. It was in Hopetown, Abaco. I lived there for 4 years and now rent it out on Airbnb. I planned on selling it when I was done living there, but it is making fabulous income. I cant replace that income with any investment in the states, the opportunity just doesn't exist. It is more work, and the pressure of 5 star reviews is annoying. However, the extra effort is really paying off and I enjoy working with something that I have pride in. My other rentals are in the bay area. They make good money but are rent controlled, so I have some tension filled relationships with my tenants. I prefer the vacationers...more fun to deal with.....
Dude. We need to chat. I’m headed to the Bahamas tomorrow, just to Nassau, but we usually try to make it over to Coco bay on Green Turtle. Let’s connect, I’m thinking hard about going international, you have time to chat in a week when I get back?