Should I do this Nashville Deal?

Question

I’m going to Nashville next week and am hoping to buy a short term vaca rental condo that Turnkey will manage (18% commission). It’s called Alloy and is located at 374 Herron Dr. which is 3-4 miles south of both Music Row and DT. Purchase price is $370k and I’m conservatively estimating a $2,250/mo mortgage payment which includes everything. It’s a new construction 2 bed 2 bath 1,300 sq ft and looks really nice. Nashville is getting a MLS team and they’ll play 1 mile away starting next year. This is also conservative but I’m assuming my break-even will be $3,500/mo revenue. I should keep about 75% of every dollar after that. I’ve had multiple ppl within Turnkey say their minimum they’ll take on is $2,500/mo. Any Pro Forma income statement I’ve seen seems outrageously high ($8k/mo revenue).  Is it reasonable for me starting in 2020 (since 2019 I want to price it very aggressive to get ppl in and get good reviews generated) to get $4k/mo revenue and make $350ish/mo profit? I’d like some thoughts because needing $3,500/mo revenue just to break even is very intimidating, however, in a few years I could also be making so much above $3,500/mo in revenue that I’m kicking myself. What’s a reasonable average revenue to expect monthly?

Feel free to chime in your thoughts and I’d love to hear all your numbers if you have a short term vaca rental in Nashville- thanks!

Luke Carl · Answer

@Kyle Seidel there’s no reason the first 8 months need to be a wash it’s a brand new property it’s not like you’re replacing roofs. Open the doors and make money right away. Don’t you have an agent? If they can’t answer these questions you need a new agent. And make sure they own and self manage several of their own properties. Never buy a steak from a vegan.

Benjamin Vail · Answer

@Kyle Seidel it is not true anymore that you won’t perform well in the first couple of months. Airbnb has continued to tweak their search algorithm, and new listings now get lots of juice in the first 3 months. When I first started 3 years ago, it was true that the first several months were always 50% revenue at best, but now I actually see it being closer to full expected revenue just because of how much of a boost they give to new listings.

I am curious, are you buying a permit with this property? How will you keep/renew the permit?

I am also curious, how your STR will perform if it is in a building full of other STR’s? Most Airbnb guests seem to be wanting a unique experience, and especially in Nashville, if they wanted a hotel room, they would rent a hotel room, right?

You are putting a lot of trust in your manager to need to hit $3.5k/month!  Best of luck to you!

John Underwood · Answer

@Kyle Seidel I personally would start off smaller. This is a lot of money to invest if it turns out to not cash as well as you hope. Also STR laws are evolving in a lot of places. Could you still cash flow if you had to convert to a long term rental?

Paul Sandhu · Answer

You might want to try a different market.  I know a guy that makes a killing renting to contractors at a refinery in a small town.  He buys bank foreclosures for 25 cents on the dollar of appraised value.  6 months of average gross rent pays for the purchase price of the house, but it could take 5-10 months to get 6 months of average rent.  It's all about the market you are in.

Luka Milicevic · Answer

I’d make sure first and foremost you can do an Airbnb where you are planning.

Kyle Seidel · Answer

@Benjamin Vail ThNks for that insight about Airbnb- that’s great to know! I’m having Turnkey manage my property and they have a permit specialist.

That’s true about if there are a whole lot of other STR’s. What they built a couple years back doesn’t seem to allow any STR’s. What they just recently built allows STR’s but I’m not sure how many will be doing that. One thing I didn’t mention is it is a 2-story townhome which I think helps me. Also I’ll be traveling there about a month overall per year so as long as the worst case scenario is breaking even I’ll take it.

Yes I am! $3,500/mo to break even is daunting but I think I can get that and then some the warmer months but the colder months I’ll be probably losing money.

I’ll post on here with any updates if I end up getting this place just so other investors in my shoes see an example of what buying a new construction STR would look like numbers wise.

Kyle Seidel · Answer

@Lucas Carl All of my numbers I get to very conservatively. What my goal is is to have even the most conservative numbers make sense so that reality will make it better than expected. Keep in mind I do have to furnish everything and with 0 reviews off the bat I’ll need to price it lower than I would with more reviews. LOL nice comment at the end there.

Do you have any other insight or raw numbers from the Nashville market?

Kyle Seidel · Answer

@Lucas Carl Alloy is actually complete. These first 8 months I’m assuming a loss with setting it up and pricing aggressively. Starting in 2020 I’m trying to see what my potential revenue could be. Needing $42k/yr of revenue just to break even is pretty intimidating but if this place generates say $50-60k/ yr and thus I profit say $5k-$15k/yr it’ll be very worth it to me. I do think this area will grow with the MLS team coming close by next year

@John Underwood I would also love to start out smaller but this is basically the only option I have. There’s a couple small 1 bed options available at Endeavor for $260k but that would need to be a portfolio loan which would add an extra $400+/mo to the mortgage because of the higher interest rate. The permits and hoa’s are also pretty nuts around Nashville so I’d like to have that backup option for a LTR if needed but with a $2,250/mo mortgage and needing to pay some type of expenses and plus say 10% to a property management company I’d be losing money if I had to get a  LTR.

Luke Carl · Answer

@Kyle Seidel Going to be next to impossible to predict income on a property that is a year out from being complete. I do know Alloy is in a less than desirable area.

Lots of new construction STR developments coming in to Nashville. The times they are a changing.

@Paul Sandhu for president.

Should I do this Nashville Deal?

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