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STR UPDATE for Out of Town Investors Interested in Waco
The reason for this post is to educate out of town investors or first time investors looking to secure their first Short Term Rental in Waco, TX.
As you know, Waco is a highly sought tourist destination in Texas due to the success of TV personalities Chip & Joanna Gaines. Their show 'Fixer Upper' helped put Waco on the map and they haven't looked back since. In my opinion, Chip & Jo have created a standard for renovations here. Because of their success and influence on real estate here, Waco has a collection of some of the best quality Air BnB's in the country. People fly in from all over the country to come to the Silos downtown and enjoy the unique experience Magnolia has to offer. I don't need to tell you that these Air BnB's that were formally renovated homes on their show don't come cheap. If you plan on buying an Air BnB from the Show or finding one close to downtown, you need to be prepared to spend between $350,000-700,000 depending on the square footage of the home. If the home is properly priced, you will most likely be competing against cash.
I have had countless investors contact me with a budget of $300,000 looking for an Air BnB in Waco. Here's some hard news. You missed the bus. I hate it just as much as the buyers do because it's frustrating trying to find a 'deal' in this market. Sellers are still getting darn good prices for their homes and I can't blame them for still being aggressive on their pricing. You will quickly come to the conclusion that every STR for sale on the MLS is priced way over the amount that you would need to buy it at in order to cash flow. Appreciation is out of the question during this recession. So please don't be the person buying at the top and catching the bag. You still need to run the STR successfully with good returns if you ever plan on selling again.
Unless, you are walking around with $500,000 cash in your pockets, you need to be patient in the Waco market. I have experienced the same struggle in finding LTRs for clients. The best market for any investment property right now is still OFF-MARKET. Please read this before filling out inquiries in the Waco market looking for your first investment.
Here are some examples of STRs currently for sale in Waco for your reference. This should help you figure out whether the Waco STR market is too tight for you or not and save you a lot of time and frustration.
One final thought as you analyze our market. Downtown Waco has multiple hotels coming in to meet the increase in Demand. Two notable hotels are Chip & Jo's Magnolia Hotel on Washington Ave. and AC Marriott on Mary street just a few steps from Magnolia. You will be competing directly with these two highly anticipated hotels.
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@Trevor Caswell Good Stuff! Thanks for sharing!
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Are you talking about finding a property that is already an active STR? Wouldn't it be far cheaper to find an outdated property with O-2 zoning to fix up and take to market?
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What great feedback from someone who lives and operates in that market! Thank you....
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Quote from @Travis Timmons:
Are you talking about finding a property that is already an active STR? Wouldn't it be far cheaper to find an outdated property with O-2 zoning to fix up and take to market?
You're absolutely right Travis. Due to our zoning laws and location of the 0-2 properties, this has become a needle in the haystack. Investors need to be patient and find the right lenders who are able to lend on properties being converted with no p/l sheet to go refer to.
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Quote from @Trevor Caswell:
Quote from @Travis Timmons:
Are you talking about finding a property that is already an active STR? Wouldn't it be far cheaper to find an outdated property with O-2 zoning to fix up and take to market?
You're absolutely right Travis. Due to our zoning laws and location of the 0-2 properties, this has become a needle in the haystack. Investors need to be patient and find the right lenders who are able to lend on properties being converted with no p/l sheet to go refer to.
Great info @Trevor Caswell. Do you find the local lenders in Waco are flexible and open to STRs or is it a difficult process?
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@Trevor Caswell great info Trevor. Sometimes the truth is more important than just pumping everyone up to start an unrealistic hunt.
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What I think will be interesting is what happens when Chip & Joanna fade into the sunset. Then you have Baylor and some people that used to be on tv a long time ago fixing houses. I saw an interview with a guy from the Chamber of Commerce there that said Gaines/Magnolia virtually "made" Waco single-handedly, and remembering that they were buying houses for $50k at the beginning of that show it doesn't sound too far-fetched.
Personally I like their show, and they seem like real nice people, but an economy made on cult of personality can't really be that healthy long-term. To me it looks too far to commute to Dallas or Austin; what else is there economically? Census data said over 25% of the population is below the poverty line, which is quite a bit of poverty. It was something like the 14th or 15th poorest city in Texas.
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@Trevor Caswell I'm surprised to here the market is still so robust there! Where I buy in Austin, San Antonio and Louisville things have slowed down
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@JD Martin They have certainly earned the right to ride off into the sunset at anytime haha. They haven't slowed down though. They are busy building the Magnolia Network on HBO, Renovating their new headquarters downtown in the old Waco Tribune-Herald building, and their highly anticipated boutique hotel. The city itself has a ton of big companies pouring in and buying up land for their manufacturing/distributing centers. Waco is and has always been a blue-collared town, but I have seen plenty of transients move here to take advantage of the lower cost of living. The saying is still true here, you get a lot more house for less dollars in Waco rather than Austin and Dallas.
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@Trevor Caswell what are the STR regulations looking like in the Waco area?
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@Ryan Kelly Here is what we use as reference in City Limits.
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Quote from @Trevor Caswell:
@Ryan Kelly Here is what we use as reference in City Limits.
Was told today that a home we are looking at buying in R-2 zone would not be approved, even though it's not within 500 feet of another STR property. Have you run into this also?
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That is interesting. I have not heard that. What is the city telling you regarding why they won't let you?
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Trevor, I read the bylaws for STRs in Waco. I don’t live in Waco. It says that if if you don’t live in the county, you have to have someone local managing it.
Can that be anyone? Does it have to be a management company? Or could it be a friend we ask to be the primary contact?
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Quote from @Trevor Caswell:My fault. The home were were looking at is in R-1B, not R2.
That is interesting. I have not heard that. What is the city telling you regarding why they won't let you?
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What are the typical STRs in Waco, TX generating? Obviously depends on a variety of factors but curious if you have any examples.
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Quote from @Andrew Cargal:
Trevor, I read the bylaws for STRs in Waco. I don’t live in Waco. It says that if if you don’t live in the county, you have to have someone local managing it.
Can that be anyone? Does it have to be a management company? Or could it be a friend we ask to be the primary contact?
Im also curious about this too. Have you gotten an answer?
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I've done some work on MTRs in Waco and seen some good results/healthy cashflow I'd like to add.
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Quote from @Zach Edelman:
I've done some work on MTRs in Waco and seen some good results/healthy cashflow I'd like to add.
How are you advertising these properties? I am interested in the MTR market here since we have 2 hospital systems. I am interested in your rental rate $/sqft. and Vacancy rates.
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I've gotta say, I've never seen a Realtor encouraging buyers to stay away, but I appreciate the transparency around your market, LOL. Are there areas on the outskirts of Waco you recommend? What DO you recommend? Do you bring investors off-market deals in Waco? Do you have any concerns that Waco will ban STRs in the near future much like Dallas and some other metros in Texas have done?