STR vs LTR vs Cutting Lose HELP NEEDED

[Benjamin Stacey]

My wife and I recently moved to Lynchburg, VA for work and will be living here for approximately a year and a half. Our work is expected to be completed by early 2026, after which we plan to move back to our hometown. In the meantime, we purchased a home with the intention of converting it into a short-term rental (STR) once we leave. We also plan to finish the basement, which would add about 700 square feet of living space.

Before purchasing the property, we ran preliminary numbers, and converting it to an STR seemed promising. However, after taking a deeper look at the financials, we realized the property would barely cash flow. Based recent STR projections, we expect about $40,000 in annual revenue for a 5-bedroom, 3.5-bath house near Rivermount Blvd, which would only net us a couple of hundred dollars in monthly cash flow. The estimated cost to finish the basement is around $25,000, with an additional $24,000 needed to complete the rest of the property. Our latest calculations show a cash-on-cash return of just 5.87% based on the $40,000 revenue projection. At this point, we're feeling uncertain.

We’re seeking guidance on the best approach moving forward:

1. 1. Should we pursue the STR strategy and aim to be one of the top-performing properties in the market to increase cash flow, potentially up to $1,000 a month?
2. 2. Should we pivot and rent the house to long-term tenants? However, the potential long-term rent is about the same as our mortgage, meaning we’d lose money when factoring in repairs and maintenance.
3. 3. Should we go the STR or long-term rental (LTR) route to break even and rely on future appreciation, with the goal of selling in five years?
4. 4. I plan on DIYing the basement to save costs but is having this extra square ft even worth the trouble? 
5. 4. Should we sell the property when we leave and cut our losses?

Our ultimate fear is that we dump $50,000 into this property for a very small return. The biggest issue is that we already currently own the property and are unsure where to go from here. 

[Marc Winter]

Why risk $50k on a "maybe 5%" return when you can get 4.3% on a CD?  No muss, no fuss.  

Even if one thinks market values will continue to increase over the next few years (I have my doubts), I would not invest in finishing a basement.  That's a low-return improvement, compared to say new bathrooms/kitchens.

IMHO, if you expect to increase your net through rental and market appreciation, consider the length of time it will take to realize that goal—many years. 

I believe this market cycle is topping, and one should tread very carefully before investing more money into an 'unsure' property.

That does NOT mean to stop investing; just make sure you aren't trying to catch a falling knife in an unsure environment.