Real Estate Agent · Los Angeles, CA · Member since 2019 · 302 posts · 163 votes
My ADU is done and now I'm debating on LTR or MTR. I could probably get about $3,000 unfurnished and $4,000-$4,500 furnished. It's a 2 bedroom 1.5 bathroom by LAX. Any tips? Looking at places to get furniture. I need a couch, table and chairs and all the small things. Looking at about $3k. Already have 2 beds.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
Tips:
- management in my market has market rent at 25%. If using a PM for STR, the LTR is better return even using your higher range of rent. $4500 would leave $375/month for utilities and furnishings and their maintenance. By the way in my market (San Diego) I am experiencing the same STR with pm is netting me about the same as LTR self managed. STR with PM is not generating significant higher return (this year 2 STRs are behind if they were LTRs but we had a poor off season).
- Self managing STR can increase the return compared to LTR if you do a good job. STR PM is much more work than LTR PM. there is a reason market STR pm in my market is 25% and market all inclusive LTR pm in my market is 8%. If we believe the pricing reflects effort involved, STR pm is 3x more work than LTR PM.
- it is important that some of the furnishings are quality including common area seating and mattresses. Typically US made indicates quality. Look for “contract grade” furnishings.
- you can furnish fairly cheap (offer up, CL, buy nothing …, thrift or consignment stores, etc) but it take more effort and more calendar time. Time off market is lost income. I suggest the cheaper route only if furnishing is not the longest timeline. It appears your nightly rent will approach $300/night average. You can see how extended furnishing timeline to save money may not be the wise financial choice.
- who lives in primary unit? How separated are the primary from the ADU? LTR Tenants do not like STRs due to the tenant turn over. Having new "strangers" move in regularly is not ideal especially for SFH LTR renters. They pay a premium to not be in apartment living.
You have to make the decision right for you. Do you have time and desire to self an STR? Do you have time to furnish with quality used furnishings? Are your units separated well?
I believe if you use a quality PM the financial performance will be close to self managing an LTR.