LTR vs STR for building cash flow vs headache?

Question

Okay BP, I am finally posting for the first time. My wife and I are feverishly trying to figure out what the heck to do. I am an analysis paralysis person and she is RE agent ready to go. LOL So I have owned a rental for 13yrs however we currently living in it. The plan is for me to retire from the fire department in 3-4 yrs. In order to do that I would like to build a cash flow portfolio of at least 10K/mo. So I have been researching and reading as much as I can, (still have a lot to go) but my questions for this community is:

1) In my local market here in S. FL. the prices are ridiculous and finding a CoC return has been challenging, so do I consider Turnkey investment companies in other states?

2) We have considered buying a STR and using it as an income/vacation for our family. Can I reach my goal with this strategy?

3) I keep hearing Brandon and David ask the question, Why don't people ever get started and buy their first investment? What made you TAKE ACTION and overcome the fear cause thats all it is?

Thanks for taking the time to read my first post, if you have any thoughts or suggestions for us please share. Have a blessed day to all!

Jeff

Joe Splitrock · Answer

@Jeffery P. my family and I just stayed at a short term rental in FL that was hosted by a nurse and her husband who is a retired fireman. They lived local and managed the short term rental. They were getting gross rents that are three times what it would rent for as a long term rental. You may live in an expensive market, but is is a great market for short term rental and the entire state is seeing massive population growth, so even long term rentals are good. Why would you invest in a turn key in a less desirable market? As far as managing fear, that should be no problem for you. How do you run into burning buildings? You are literally risking your life for a paycheck and you are afraid of a tenant or loosing a few dollars?

Matt Groth · Answer

@Jeffery P. Define what "loss on investment " means...buy a house for 300k, 20 percent down is 60k. You wanted cashflow of x, but instead got 0....for 30 years, but all expenses were paid by the tenants. 30 years pass, and the house is worth 150. Did you lose? Nope. That is a HORRIBLE deal, and you are still up on the investment. If you had to guess, life or death choice, is re more or less expensive in 30 years??? There is no guarantee ever, but if re performs that poorly over the next 30 years, my guess is that your stocks did worse.

Grayson Spittel · Answer

@Jeffery P.The difference in cash flow per month is substantial between STR and LTR. While you might use $100-$200 as a healthy goal for a LTR, several investors I know use $1000 per month as the BASELINE goal of a STR inclusive of all savings per month. The differences though are the level of management required if you are self managing, the PM fees that you would be paying (10% vs 25%+), and often times the cash on hand needed so as to buy and furnish a property. With a self managed STR you are essentially creating another job for yourself, so the appeal of the passive investment is removed, however to reach your $10k per month goal you may need 1/10th the amount of properties. My personal opinion as well is that there is inherently more risk with STRs as in many markets we have all seen governmental restrictions put in place that limit the # of rentals, proximity to other rentals, or completely outlaw as in the case at beginning of COVID. Because of this, I’m a huge fan of multifamily properties as your risk is diversified and your monthly cash flow can be higher due to economies of scale. Even in a small multifamily property (2-4 units), you only have 1 mortgage, 1 lawn to mow, 1 set of taxes and insurance. All the best!

John Thedford · Answer

I own over a dozen units in SW Florida and do strictly annual leases. STR are a LOT more work.

Jeffery P. · Answer

Thanks for replying Joe, the fear is simply I’m closer to retirement and a loss on an investment could prove costly. I see we share a common bond. Where did you vacation down here in Florida?

Jeffery P. · Answer

Thank you all for your responses and encouragement, education is the key to anything and I truly appreciate and value those of you who shared your wisdom.

Paul Moore · Answer

@Jeffery P. I recommend a specific type of STR called an AirBnB arbitrage or corporate lease arbitrage. This is where you rent a unit, furnish it, set up the utilities, beautifully photograph and market it, and put it on the Airbnb program. Then you immediately go out and look for long-term corporate tenants. You only use Airbnb to fill in gaps between corporate tenants from that time on. you can significantly leverage your time and financial resources this way, but not be tied down to a major investment in property unless you want to be. My friend @Al Williamson can set you up with training and all you need to know about this type of business. Good luck!

Daniel Denning · Answer

@Jeffery P. I got over the fear last year and took the plunge right before Covid hit. Ended up buying and renovating a condo in Myrtle Beach that is now doing really well. I didn’t want to pay the management fees, so I figured out how to manage it myself from where I live in Atlanta. I did a training course that takes you through the basics of getting started up to scaling your business into managing or marketing many listings. I’m now managing properties in multiple states, and it’s going really well. All this to say STRs can be really profitable if you’re willing to put in the work and provide a place that is in a desirable location and stands out from your competition.

Nick Rutkowski · Answer

@Jeffery P.I’m sure you’ll find turn key investment companies in any state, you’ll just have to pick a state and a honest company. I started off with a duplex turned into STR. Now my partner and I are looking into purchasing a small hotel. They’re a lot of work, it’s like a 2nd and 3rd job combined - sometimes. I just went for it, you got to suck it up and go for it. Think of it this way, if you succeed you’ll have a money maker. If you fail you spent money on education and experience. Either way you win. Good luck!

Jonathan Stone · Answer

@Jeffery P.If you have the know how and the desire STR can provide a great return. If the numbers work as a LTR you can try STR and if it isn’t for you either resell or move it to long term. My wife and I are in contract on our coastal house here on the west coast and very much looking forward to the journey of having a STR and a reason to go to the coast more. I think the total profitability for STR right now is very high and will likely continue at least into 2022. If that helps given your short window until retirement it may be worth the headache.