1st STR purchase...Start Big or keep it small to being with?

Question

Hello my STR gurus,

My wife and I are trying to decide where to purchase our first STR? We're very interested in the Outer Banks area (Corolla). Knowing what all of you know now, would you start with a large home (think 6 bedroom) and a pool (400-550K and would be a stretch for us) which could bring 40-60k a year based on what I've been seeing down there, or would you start smaller on a learning model, say a 2 bedroom in historic Wilmington that is up for sale at 119K that the description says has brought in over 14K so far this year doing AirBnB? I appreciate all your thoughts and comments.

Thanks

Paul

Jon Crosby · Answer

Biggerpockets needs to add emoticons just so I adequately react to all of @Paul Sandhu awesome comments on here.  A vote simply doesn't do it justice.  : )

Paul Sandhu · Answer

I thought marrying @Lucas Carl was the best decision you ever made.

I married my wife, and she lived about half a mile away in a 4BR 2BA house.  She moved in with me.  A year later she tried to sell her house through a realtor because the For Sale By Owner sign wasn't working.  I had to sign some papers.  Asked the agent how much they rent their houses out to refinery guys.  They said "Up to $1000 per week". I had a recently vacated 2BR house.  We took 4 beds out of my wifes house along with other furniture and appliances.  In 2 days we were getting $800/week.  2 months later they moved out.  30 minutes later their friends called me and wanted the house.  $800/week for 2 more months.  They moved out and 45 minutes their friends called me and wanted the house.  Just 3 guys, so $600/week.  This is a $10k house.  We repeated the process 21 more times with 21 houses that we bought.  That was my best decision.

Avery Carl · Answer

Are those gross or net numbers? If gross, those are very low returns for the purchase price. In my market, a 5 bedroom can reasonably gross $100k. Would you be self managing or using a property manager? If a manager, what is their fee? That will be a huge determining factor in your net income and overall success. Fill in some blanks here and I can give you a better analysis. But good for you for getting ready to pull the trigger. Investing in STR’s was the best decision I ever made.

Avery Carl · Answer

@Paul Sandhu the jury is still out on that particular decision, haha.

Paul Sandhu · Answer

That's more $ than my places would make.  But did you ever have the thrill of walking in to your STR and find an intruder, finding an unconscious and unresponsive tenant that overdosed, or dealt with several tenants that were having adulterous affairs with each others spouses?

Paul Cox · Answer

Thanks to everybody for your comments. I will be chatting with Avery tomorrow at 3 to discuss STR up in the Tennessee area and other STR thoughts....  The numbers I mentioned earlier were best guess as I looked at the rental sites down there for certain homes and so there was no factual science to the numbers I mentioned for the Corolla beach house. In fact, the home we were looking at has never been rented. You can check it out at the following link: https://www.zillow.com/homedet...

The advice is great especially about avoiding prostitution and rattlesnakes in a refinery town @Paul Sandhu :) :) :)

We're really excited to pull the trigger on something as I have listened to the podcasts this last week and the biggest pieces of advice is to "Just do something". Thanks again everybody for all your thoughts and comments...Will update as I move forward!

Wendy Schultz · Answer

@Paul Sandhu and @Avery Carl Thanks for the laugh!

I'd take a look at the expenses of each property. I tend to think smaller properties have a higher expense ratio. You still have to pay cable and internet for each property. You still have to manage each property doing guest interaction, turns, maintenance, etc. You may have lawn care or snow removal that are somewhat equal, electric, water, etc. And at the end of the day, how high is your risk tolerance? Do you like having a few smaller properties that you have to manage and spend more time on (more expensive to run) or do you like all your eggs in one basket? (but less of your time to manage the day to day operations since you only have one property) I started with small properties but have been moving towards higher end properties. I agree with the others that the property revenues seem a bit low.

Dan Bunker · Answer

The size of your STR really depends on where it is. Some areas only see couples or small groups traveling, others have huge families that travel together for family reunions. I know in my STR area the bigger properties actually do better than the smaller ones. But for the cost of the bigger properties you can get 2 or 3 smaller ones and still come out making more per year since you now have multiple places. Just depends on your market and what you want to do.

Glenna Wood · Answer

I've had OBX property for 14 yrs. $40-60k gross for a 6 BR in Corolla with a pool is too low. If the seller claims that is net I would look mighty hard at the projected expenses and number of weeks rented. The smaller property sounds better to me. Lower up front cost and higher return on your $$. Also you would have the option to convert to LTR if it turns out STR isn't your thing.

These places are in two very different markets so there is some apples to oranges here. What kind of vacation experience do you wish to offer. OBX is beach experience period. IMHO is sweet spot is 5 BR, enough room for couple of siblings, their kids, and the grand parents. If there is no pool and hot tub, cut the gross rent by half. 5 BRs will spread the pool/HT operating costs over more BRs than 3 or 4. You are competing against thousands of other beach houses. Wilmington would be a more diverse experience and likely offer more ways to market the property.

Coastal NC is STR friendly. IDK specifics on Wilmington. More urban areas seem to eventually head to more restrictions.

Paul Sandhu · Answer

Forgot to mention prostitutes and rattlesnakes.

1st STR purchase...Start Big or keep it small to being with?

Most Popular Reply