STR in Panama Beach City - Deal Analysis and questions

[Majid Tahir]

Hi everyone,

I'm evaluating a condo in Panama Beach City Florida for a short term rental.  Here are the numbers:

Purchase Price: 290k

ARV: 285k - 300k

No major renovation is required.  Here are the monthly expenses as I've researched so far:

Supplies $100.00
Electricity $400.00
Gas $50.00
Water/Sewer $50.00
Cable/Internet/Netflix $50.00
Pest Control $50.00
HOA $1,100.00
Property Tax $200.00
Insurance $100.00
Repairs $239.63
CapEx $239.63
Property Management $0.00
Booking Fee $143.78
Total Monthly Operating Expenses $2,723.03

A few questions arise for me:

1. $1100 in monthly HOA fees are A LOT. Is that common in Florida vacation condos? Is it wise to purchase a vacation rental condo with such high HOA fees? It seems that it would add significant additional pressure when the home is not rented. With such high HOA fees, I feel it would make it difficult to sell the home as well. I'm trying to think of a contingency plan in case the short term rental model does not work with this property.

2. Should I still plan for 5% capex and 5% maintenance with this property or condos in general? I supposed I'll need to research more closely what the HOA covers first?

3. @Avery Carl has some charts on her site with average occupancy rates, and average daily rates for this area.  Her figures indicate an average daily rate of $215/night and an occupancy rate of 70% for a 2 bed/2bath in PBC area over a full year.  Assuming these numbers are fairly accurate and acquiring a loan with 25% down, I'm looking at a monthly cashflow of around $600/month.  Do these numbers seem reasonable?  Am I being over optimistic here?  Any guidance would be greatly appreciated.  

Anything else that I'm missing. Would love any other feedback on this deal or STR in general.

Thanks in advance.

Majid

[Daniel Walker]

Nick, sorry I'm traveling and not a ton of time to explain. Not trying to be a know it all either. But a few bites... 99% include all utilities in their HOAs except power. And there are about a half dozen that include power. Some of the older buildings might not include internet or cable but most do. Count on paying power, HO6 insurance policy and taxes. On the weeks rented, management companies project 25 weeks a year rented. Spring break has just began. Easter is a big rental week then it dies down for 2 weeks usually. Then the summer begins and is busy until Labor Day. Most owners use October as their stay BUT the secret is out and October is becoming a rental season, especially long weekend stays. This is due to how beautiful it is most days. Also thanksgiving is a busy rental week and now between Christmas and New Years should be an easy rental period. If you have a 2 bedroom or less you should have no problem renting to snowbirds. This is typically early January with checkouts first of March. Though some snowbirds come earlier and/or stay later. In a general sense, whatever you can get per week in July is what you should be able to charge monthly to a snowbird. If you use a management company, make sure they allow you to market it yourself and negotiate a 10% fee if you provide the renter. There are lenders offering 10% down on second homes with rates close to 3% today. 30A is our most popular location and the highest price per foot. But this is the lowest ROI as well. If ROI is your top priority you'd be better in Miramar beach, Destin, Okaloosa island and Panama City beach.

Prices have began to level out.  In fact the only locations that are still pushing 10% appreciation are gulf front homes and townhomes on 30A, where they appreciated about 8% from last year.  The remainder is about 2-4% since last year with a few locations showing small decreases.   I am sure hurricane michael and the upcoming election has something to do with this.   But sellers are wanting top dollar and buyers want a deal. Sellers will only achieve this if new construction or with recent upgrades.  Buyers will only achieve this if they are ready to pull the trigger before they see it and make contingent on seeing and approving the property during the 15 day home inspection window.   

I hope this helps some and I’m sorry if I came across harshly before.  I only had a few seconds to chime in.