First Short Term Rental - Deal or No Deal?

[Brennan Clayton]

I am currently under contract on my first short term rental in South Georgia (Where I live). It’s a 2,200 square foot 3 bed 2 bath, 1920s historical home in a great location. When we did our first walk through I could see it needed some minor work, interior and exterior paint, two cracked windows, and a few other cosmetic things. So we made our offer of 180k with a 10k repair credit, they accepted. It appraised for 194k so bank is okay with repair credit. We are using 100% financing by leveraging raw land we own as collateral.

We anticipated using the 10k repair credit to make all necessary repairs and then budgeted another 20k for furniture, decor, etc. Airdna says the average house in our are is at 67% occupancy and $124 a night. Their estimated gross revenue for this house was 34k, I think this is a little conservative considering this house would be one of the top 3 houses on Airbnb in this area, but for calculating I'm using this conservative estimate. There is one comparable historical house in not as nice of an area that is at 96% occupancy, grossing 45k annually. After all expenses we should cashflow right under 1k a month and have a 53% COC return.

Then we had the home inspection done and the game has changed a little. There was a lot of issues with the electrical. The whole house had two prong outlets, multiple areas in the attic and crawl space where rodents had chewed through the wires leaving exposed electrical lines and multiple outlets did not work. Home inspector advised rewiring the entire house. He also found some plumbing issues and the A/C was not draining properly. Seller said they will fix plumbing and A/C but will not fix anything electrical. I'm waiting to get an estimate on rewiring the house but I've heard it can cost anywhere from 7k-9k. Since our loan is 190k and the house appraised for 194k if we put in an additional 7k we will be under water on the property. Our COC return will also drop to 40.5%. Our goal was to purchase our first STR locally to learn as much as we can and then eventually buy STR in destination locations. Should we do this deal? Back out of this deal? Go straight to destination locations? Find a different house locally? Any advise will be appreciated.

Monthly Expenses

Mortgage: $1,202

Taxes: $170

Insurance $100

Utilities: $350

Cleaning Expenses $200