Tillamook County Oregon Coast STR First Timer

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Tillamook County Oregon Coast STR First Timer

Benjamin Hanson
New to Real Estate · Houston, TX · Member since 2014 · 5 posts · 0 votes

Hi everyone, I've been browsing BP for several years now but never pulled the trigger. However, now I'm in the process of buying a property along the Oregon coast a couple blocks from a beach with the intention of making it a STR. It's an old 2/1, about 700 sqft that has not been a rental before. There's unfinished space that may allow for another bedroom but I haven't been able to get into the property yet. I used airdna to get some income estimates but the number they give seems unrealistic as it includes a lot of beach front/ocean view places.

I've reached out to some local realtors and management companies but would love to hear your advice. Specifically:

1) Are there are smaller management companies that I should look into? I won't be in the state so using a manager seems like the best option.

2) Who do you use/what should I expect for insurance and maintenance rates? It doesn't appear to be in a flood zone, but it's not far from one.

3) Is there a rough estimate of expenses that I should use to see if the deal makes sense? The larger management companies start at 25%, plus insurance, utilities, ...what else? I've tried to break it down below but some values are just guesses.

4) Are there local lendors? I've reached out to Visio and Conventus but am open to anyone that loans on STRs.

5) Are my numbers realistic? I've made quite a few assumptions and it shows a negative cash flow. But there are a lot of STR in the area so somehow others are making it work.

Thanks everyone for your comments, analysis, and connections!

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Taj Richardson
Real Estate Broker · Oregon Coast · Member since 2020 · 46 posts · 52 votes
5y

Hello Benjamin,

Here are some answers for you:

1) Are there are smaller management companies that I should look into? I won't be in the state so using a manager seems like the best option.

Yes, Reach out to Kiwanda Coastal Properties. They are the best small STR management company in P.C.

2) Who do you use/what should I expect for insurance and maintenance rates? It doesn't appear to be in a flood zone, but it's not far from one.

For insurance you are going to want to use an insurance brokerage on the Oregon Coast, I usually recommend PayneWest Insurance in Newport, but there are others as well. For verifying flood use floodfactor . com. Your insurance is going to be around $100 a month and you likely won't need flood insurance on top of that. For maintenance your most common maintenance cost items are going to be landscaping, replacing sheets, towels, and kitchen items mostly, factoring around 5-10% a year is reasonable for ongoing maintenance costs.

3) Is there a rough estimate of expenses that I should use to see if the deal makes sense? The larger management companies start at 25%, plus insurance, utilities, ...what else? I've tried to break it down below but some values are just guesses.

For a small home you won't get a 25% management fee, you will likely be more at 30-35% for most management companies. These higher fees usually come with much better marketing of your home so can more than be offset by a lower commission from a small company with a much lower marketing budget.

4) Are there local lendors? I've reached out to Visio and Conventus but am open to anyone that loans on STRs.

Stick to Oregon based mortgage brokers for your best STR loan options. I highly recommend Andy at Newland Mortgage.

5) Are my numbers realistic? I've made quite a few assumptions and it shows a negative cash flow. But there are a lot of STR in the area so somehow others are making it work.

Homes on the Oregon Coast will not cash flow in 9 out of 10 cases with less than 30% down. Your numbers are OK but you are underestimating costs. You should pencil in 30% management fee and your total utilities should come in at around $400 a month total (including cable/wifi). Get cable, it will pay for itself in 2 extra bookings a year and people still watch cable by more than double steaming services. 

Keep in mind, cash flow is not the only reason to invest in a home on the Oregon Coast. In the last 20 years average home appreciation has been at about 9%, that is significant and should not be dischound just because a vacation rental doesnt' cash flow in the first few years. 

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  • Dado Vucak
    Portland, OR · Member since 2020 · 65 posts · 37 votes
    5y

    @Benjamin Hanson most people that are making it in the STR space are self managing. Giving away a quarter of your monthly revenue is going to make it very difficult to have positive cash flow.

    CapEx/Repairs are almost impossible to predict accurately but I would say somewhere between 5-10% is a good rule of thumb to use.

    Your closing costs also seem quite  low. Usually it’s somewhere between 2-4% of the purchase price. 

    Other costs to consider: toilettry, linens, automation software, platform fees. 

    Have you considered self managing? I think you can definitely make it work from out of state leveraging some of the automation software we have available nowadays. It won’t be passive investing but that’s an extra $600 going in your pocket. 

    One last thing, I’m curious why you ended up going with the Oregon coast as your rental market being from Houston! I’m local (ish) - 2.5 hour drive. 

    0Reply
  • Alex S.
    Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 259 posts · 211 votes
    5y

    Hey @Benjamin Hanson!  Are you planning to use this property for personal visits to the Oregon coast?  Paying $350K for something that brings in $2500/mo is probably never going to be financially viable as an investment.

    1. Based on those numbers, you definitely can't afford to hire a manager.  You need two things: 1. A reliable cleaning crew. 2. Two reliable on-call maintenance dudes/dudettes...because reliable ones don't exist.  You'll do all the in-app guest communication, set up the welcome binder, furnish/decorate, etc.

    2. I use 10% for Maintenance...but it just depends on the home's condition. Maybe 5% CapEx

    3. Lawn care?

    4. No one loans on STRs...they just loan on single-family homes.  Standard mortgage process that any bank can help you accomplish.

    5. I just closed a $369,500 deal.  My closing costs were $4200 (not including interest/tax prepayment).

    My opinion...if that rental income is accurate, this isn't a good deal.  Hope it helps, let us know how it goes!

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    Hey @Benjamin Hanson, where exactly are you looking? We looked along the Oregon coast and anything near the beach could be in a flood zone of some kind.

    Flood insurance is going to be the key. Depending on your lender, it could be decently cheap (Lloyds of London) or incredibly expensive (FEMA).

    Really look into the area for this. We almost bought a house 1/2 block off the beach on the bay. Lloyds was around $600 a year just for flood. FEMA was nearly $6000 for a year. That is on top of your vacation rental insurance. Many lenders require FEMA.

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  • Benjamin Hanson
    OP
    New to Real Estate · Houston, TX · Member since 2014 · 5 posts · 0 votes
    5y

    Thanks @Dado Vucak for spotting the closing costs. I hadn't thought about toiletries and linens as I thought they'd be included by management companies but you've given me more confidence to try and self-manage. I went with Oregon coast as I would like to end up in the PNW eventually and I really liked the area while visiting. Property taxes down here are quite high and hurricanes make insurance along our coast expensive.

    @Alex S. I would use it for personal visits but more than likely it would end up available for 10.5-11 months out of the year. Thanks for the pointers and your closing cost numbers. I may need to re-evaluate.

    @Michael Baum I'm looking down near Pacific City, I checked the flood maps and it shows the property isn't in a flood zone, my local insurance agent confirmed that, although they don't work with properties up there. The property is a couple blocks off the beach and up a bit.

    0Reply
  • Taj Richardson
    Real Estate Broker · Oregon Coast · Member since 2020 · 46 posts · 52 votes
    5y

    Hello Benjamin,

    Here are some answers for you:

    1) Are there are smaller management companies that I should look into? I won't be in the state so using a manager seems like the best option.

    Yes, Reach out to Kiwanda Coastal Properties. They are the best small STR management company in P.C.

    2) Who do you use/what should I expect for insurance and maintenance rates? It doesn't appear to be in a flood zone, but it's not far from one.

    For insurance you are going to want to use an insurance brokerage on the Oregon Coast, I usually recommend PayneWest Insurance in Newport, but there are others as well. For verifying flood use floodfactor . com. Your insurance is going to be around $100 a month and you likely won't need flood insurance on top of that. For maintenance your most common maintenance cost items are going to be landscaping, replacing sheets, towels, and kitchen items mostly, factoring around 5-10% a year is reasonable for ongoing maintenance costs.

    3) Is there a rough estimate of expenses that I should use to see if the deal makes sense? The larger management companies start at 25%, plus insurance, utilities, ...what else? I've tried to break it down below but some values are just guesses.

    For a small home you won't get a 25% management fee, you will likely be more at 30-35% for most management companies. These higher fees usually come with much better marketing of your home so can more than be offset by a lower commission from a small company with a much lower marketing budget.

    4) Are there local lendors? I've reached out to Visio and Conventus but am open to anyone that loans on STRs.

    Stick to Oregon based mortgage brokers for your best STR loan options. I highly recommend Andy at Newland Mortgage.

    5) Are my numbers realistic? I've made quite a few assumptions and it shows a negative cash flow. But there are a lot of STR in the area so somehow others are making it work.

    Homes on the Oregon Coast will not cash flow in 9 out of 10 cases with less than 30% down. Your numbers are OK but you are underestimating costs. You should pencil in 30% management fee and your total utilities should come in at around $400 a month total (including cable/wifi). Get cable, it will pay for itself in 2 extra bookings a year and people still watch cable by more than double steaming services. 

    Keep in mind, cash flow is not the only reason to invest in a home on the Oregon Coast. In the last 20 years average home appreciation has been at about 9%, that is significant and should not be dischound just because a vacation rental doesnt' cash flow in the first few years. 

    2Reply
  • Benjamin Hanson
    OP
    New to Real Estate · Houston, TX · Member since 2014 · 5 posts · 0 votes
    5y

    @Taj RichardsonThanks for all your detailed answers. You really know your market!

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