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Updated almost 2 years ago on . Most recent reply
Pros and Cons of STRs
In many markets across the country, the short-term rental (STR) strategy for investors is gaining popularity due to the huge cash flow it can generate. If you are considering adding this strategy to your repertoire, here are a few pros and cons to consider.
Pros:
- Cash flow: STRs generate more than double the cash flow of long-term rentals, on average. In many U.S. markets, rising home prices are making it increasingly difficult to cash flow. STRs are a great option to remain profitable.
- Not as much ongoing work as most people think: We typically spend 1-2 hours per week managing our 3 AirBnb units. This includes communicating with guests, coordinating with cleaners and performing any maintenance tasks we have not yet hired out (restocking supplies, minor repairs, etc.).
- Well-maintained property: With guests staying for 4 nights on average, a cleaning crew will come in several times a month. In contrast to long-term rentals in which you primarily rely on tenants to keep the unit clean, the quick turnover of STRs ensures the unit is being cleaned frequently.
Cons:
- More upfront time and money: The actual hours and dollars required to set up an AirBnb vary based on the unit’s size and the level of luxury you would like to offer; yet it cannot be ignored that furnishing a unit takes a considerable amount of time and money at the outset.
- Management time: The time allotted for managing your STR property(s) can also vary greatly based on whether you have outsourced each task required. It can be as simple as coordinating landscapers, cleaners and handymen, or performing each of those tasks yourself. As you build your STR portfolio, hiring these tasks out is the best way to go to truly generate passive income.
- City/County Restrictions: If you are not living in the STR property as your primary residence (i.e. "house hacking"), there are a limited number of cities that allow STRs.
- Risk of STR rules changing: While many cities have legislation in place that allows for STRs, these rules are always subject to change. Wise investors will have an exit strategy such as converting to a long-term rental.
If you have any questions about STR investing, please don't hesitate to reach out!
Most Popular Reply
Hi Alexa,
Thank you for posting this. I'm a Rookie about to purchase my first property. I'm about to go tour a new-build 960sf unit in a STR zoned area a few hours from my home this coming Saturday.
Being new-construction I'm sure it won't have many/any problems and, if it does, it should be under warranty.
But...
I'm wondering what kinds of questions we should ask while we're on site this weekend touring the property?
I've already got these questions lined up and sure would like to know if I'm missing out on something. Thanks in advance!
1. What's the HOA fee?
2. What's the average WaSTE (Water, Sewer, Trash, Electric/kwh)
3. What are the associated STR taxes for the town/county/state?
4. ???
Great perspective and I appreciated you sharing your experience.
Hi Alexa,
Thank you for posting this. I'm a Rookie about to purchase my first property. I'm about to go tour a new-build 960sf unit in a STR zoned area a few hours from my home this coming Saturday.
Being new-construction I'm sure it won't have many/any problems and, if it does, it should be under warranty.
But...
I'm wondering what kinds of questions we should ask while we're on site this weekend touring the property?
I've already got these questions lined up and sure would like to know if I'm missing out on something. Thanks in advance!
1. What's the HOA fee?
2. What's the average WaSTE (Water, Sewer, Trash, Electric/kwh)
3. What are the associated STR taxes for the town/county/state?
4. ???
@Alexa Ferguson. Thank you for sharing the pros and cons of STRs and here's a question I haven't found information on yet: I am considering a beach front condo on the Emerald Coast for an STR, and have concerns about HOAs. It's been suggested that some HOAs will allow a certain percentage of units to be used as STRs. What are the opportunities for making certain that my purchase won't be outside that allowed percentage and how does one obtain that HOA info as part of due diligence quickly enough before the unit disappears off market?
Hi @Aeon Jones, great question. You may have already looked into this, but if there is an HOA in the development I would be sure to confirm whether STRs are allowed. Even if the property is in a STR-friendly-zoned area, an HOA can still choose to not allow STRs. Other questions that you may not need to ask on site, but would be good to look into are:
- Is an STR license required in this area?
- What is the average nightly rate/occupancy rate for similar AirBnbs in the area?
Hope that's helpful!
@Alexa Ferguson - It is zoned specifically *FOR* STRs. They are developing a large piece of land right next to an RV park so it kind of makes sense.
I definitely think the license question is a good one for city/county/state. And if it is, maybe I'll just do a LLC in that state instead of another one here in NV. Any thoughts on that?
I looked up the average nightly rate for similar properties on AirDNA and even if we only do 50% occupancy at the average rate we'll still cash flow nicely.
Thanks for sharing your experience @Alexa Ferguson. Great insights!
@R. Marcella Poole Your realtor should be able to find the HOA's contact information on the MLS listing and reach out to them to obtain this information. Hope that helps!
Thanks for sharing, looking back on this it was very helpful. Appreciate the post.
STR: higher appreciation (better areas), Fun, you get to use the property, can have more cashflow depending on the market, more tax benefits as an active investor. NOT passive.
LTR: passive (if you hire a PM), easy- set it and forget it, cheaper entry point, tax benefits depending on your income level & strategy.
I love BOTH. I think balancing a portfolio is important. I have 6 STR's that I run myself 100%, I have 10 LTR's in states like AL, OH, TN and I have a PM that handles those. I have some flips going for more cashflow and have some wholesale deals completed that also bring in extra cash. Balancing your portfolio is key! Do it all! Just get started somewhere. If you don't have the $ for STR or the time. Buy an out-of-state, renovated & managed property that is cheaper- just get started. It's not WHEN to invest, its where!
Hi,
Anyone seeing STR demand decrease for 2023? I am a new investor under contract with an STR PCB. The owner, one realtor provided gross income and property manager comes in abt about 6 k less do to market decreasing. This makes me be negative cash flow now. I did borrow some money for down payment t. I'm doing seller financing and want to be in real estate long term. I hear different ideas about appreciation vs cash flow. If I wait as this is beach and reaching high season, prices will only be higher next year. What are things to evaluate a move forward vs not ?