STR Cash Flow in Destin Florida

[Matt "Roar" Gardner]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $565,000
Cash invested: $20,000

This house is a three-story cash machine. It sleeps 14 guests, which is in line with Destin's regulations. It's almost 3000 sq ft with 5 bedrooms, 5 bathrooms, two living rooms (first and third floors), and a wet bar on every floor.

What made you interested in investing in this type of deal?

As a realtor and investor, I've seen other people crushing it in the STR space, so I decided to make the leap. I've enjoyed helping my clients finding solid properties for STRs, and I wanted to prove the concept for myself.

How did you find this deal and how did you negotiate it?

This was on the MLS for a while, and we had a few options from which to choose that were acceptable to us. We decided to utilize the Ackerman bargaining method discussed in Never Split the Difference. They were asking $615K and we offered $500K. We eventually settled on a $550K price, but then we negotiated back up to $565 so that the sellers would pay $15K more towards closing. Less $ upfront = Bigger ROI.

How did you finance this deal?

This was my first STR purchase. I decided to split it up in a partnership. The passive partner is a dentist, and we were able to purchase this under his name with the Physician's Loan, which is a loan offered by a few banks. The loan is nice in that you can buy a second home for only 10% down with no PMI at all and with a solid rate (low 4%).

How did you add value to the deal?

The passive partner brought 60% of funds for the purchase/closing and my local partner and I brought 40%. After closing, we all own one-third of the deal and equity, though --> Trying to earn as much sweat equity as possible.

There was a slight value add in this property, and it could sell for $610K+ now due to new paints and updating some decor.

What was the outcome?

As far as numbers, we grossed $73,000 in our first year. Total expenses and debt servicing was about $53,000, which gave us an annual cash flow of about $20K. We rolled profits into a second, smaller condo ($170K purchase) that we will be trying to cash flow this year as well.

The nice thing about these larger vacation rentals is that they typically come furnished. This property is also has a shuttle service to get my guests to the beach and a massive pool.

Lessons learned? Challenges?

I do self-manage. I do not clean. 90% of the management is automated (currently using iGMS, Pricelabs, and Hostfully), and I actually haven't seen the house in a few months even though I'm local. It is definitely possible to manage these things remotely. I am only on AirBnB and VRBO. I don't deal with Booking.com or an individual website.

It was a challenge to get all the systems up and running initially.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

As far as lenders, look for those niche loan programs, such as the physician's loan. Personally, we used Synovus Bank. As far as insurance, we used an insurance broker, Dan Morrow (umbrella'd under All State).