Multifamily Vs Short Term Rentals-Which do You prefer??

Question

I've been a single family residential investor for over a decade and it's about time I step up my game!

I'd ultimately love to have a few short term rentals around the country that we can also vacation to.  Also very interested in multifamily, small apartment.

Which do you prefer and why?  What's the bigger money maker?

And, when looking at multifamily, are there any pros or cons on owning the entire complex vs partial?  I have my eye on a property that is a 20 unit complex (essentially 20 condos) and this seller owns 14 of the 20 that he's selling as a package. The complex has an HOA in place, numbers are workable (would like to get the price down some-have Not made an offer).  Any reason to steer away because it's only 14 of the 20 units?

THANKS IN ADVANCE!!

Greg Murphy · Answer

@Krystyna Fennelly￼

Be carful with condos in my opinion condos are the last thing I would use for rentals

Boris Mordkovich · Answer

My biggest advice is that I’d recommend not to mix personal and business properties. If you want a successful short-term rental, focus on that -- rather than trying to find a place that you also want to vacation in yourself. Oftentimes, what you want/like is not necessarily what makes the best short-term rental.

It’s also worth noting that a multifamily can also be a short-term rental. There’s no reason why you can’t have multiple properties in a single apartment building rented out on a short-term or mid-term basis.

Anthony Angotti · Answer

Why not both? I prefer multifamily and analyzing short term rental properties as long term rentals (unless they are in an area where short term is a historically supported model like vacation communities).

I don't think you should necessarily stay away from the 14 of 20 units, but you should get a better deal to offset the risk of not having control of the entire building. Primary issues could be issues with neighbors, you eating most of the long term costs of building maintenance if other owners don't pay for improvements, etc.

Krystyna Fennelly · Answer

Thanks Taylor and Justin, good point on STR.. I live in South Texas, between Houston and Galveston.  I know a couple investors with STR in Galveston and although a beach town, being our climate is never Too cold, STR seem to rent well year round.  Even in 'winter' months, families from Houston enjoy heading to Galveston for the weekend to get away.  But this may very well not be the case in other areas.  And cities regulations will too hold a very important role.. Definitely would require a good amount of research at the minimum as I don't like throwing darts in the dark; or making bad investments.  As well, waiting COVID out a bit longer wouldn't be a bad idea. We seem to be getting back to 'normal' in my area but never know as we near the end what regulations will stay or be added and how that could affect this industry.

I guess thinking through my question more, I realize my GOAL would be to have both multi and str. The real question would probably be which to start with if I only have funds to do one for now.  But all the info on both is greatly appreciated and helpful!!

Cameron Tope · Answer

The grass is green where you water it!

You can make money in any asset class as long as you fully utilize your competitive advantages and mitigate the downside.

I know mutli-family and Airbnb sound sexy but I continue to stick with boring single-family, and it hasn't let me down.

If you switch to multi-family or Airbnb then be ready to go through a learning curve. Being bored in your business of single-family properties is a good sign lol

Timothy Church · Answer

Why think of them as two separate paths? You could easily find a nice multifamily property and simply run a couple units as Airbnb. If the performance greatly outweighs the long term rental performance you can onboard more of the units. If it doesn't or regulations change, simply convert over to a furnished long term without much hassle.

I have two mixed use properties here in Galveston that have airbnbs running as one component of them. It gives a great mix and gives me a decent return above my long term. I even just got done using one of them for a one year lease for a UTMB doctor on rotation.

In strong tourism markets, airbnb will always have some role. While there is more regulations coming into place in various spaces, there will start to be a push back on those. We are moving into a world of more renters and remote working. The ability to travel and while working full time will become more of a standard than an exception.

It doesn't have to be an either/or! Do both as one and get a good feel for each.

Allan Smith · Answer

I would not advise buying a bunch of condos together. That is not investing in multifamily. Mostly I would have avoided for the HOA headaches. Plus, usually it is more profitable to own a 14-unit building than it is to own 14 condos.

short-term rentals make far more money than multi-family does. But it is also a more active business. If you aren't able to take on the management in house, which is much more time intensive than traditional rentals, then you have to pay somebody and those managers take a big cut of the gross rent.

I see multifamily as a more stable long-term investment, but I think having short-term rentals sprinkled in is a good way to diversify types of Assets and types of revenue streams.

Justin Carmack · Answer

At the end of the day it depends on what you're trying to accomplish.  I'm in the process of buying a multi-family (11 unit building) right now.  One of the things I really like about the multi-family is the fact that everything is grouped together and it's super efficient to run.  If I want to make a site visit I'm not going to drive all over the state visiting multiple properties.  Additionally, you can drive up the value of the investment by brining in more revenue/profit by increasing rents, billing utilities back to tenants, making improvements which drive up rents.  The value of the property is directly related to how much money you can produce. You control your own destiny in that regard.  It's almost like a stand-alone town.  You're not dependent like you are on SFR for neighbors to make improvements to their homes, maintain them, etc.

I was "all-in" on short-term rentals up until Covid-19, which was hopefully an anomaly, black swan event, etc.  I'm concerned with increasing regulation. I'm interested in owning short-term rentals on lake-front homes here in Indiana.  The northern half of our state is covered in lakes like MN, WI, or other Midwest states.  The areas are rural and typically aren't subject to HOAs or city politics which may have a negative effect on my ability to rent the house.  The only downside is they are far away from where I live which causes difficulty.  They're also seasonal.  Profits are much, much larger though.  There's also the added benefit of being able to use it as a personal vacation home several times per year.

Taylor L. · Answer

My concern with short term rentals is all down to the regulations. An unfriendly city can regulate STRs out of existence. My city passed an ordinance requiring short term rental operators to live in the property for more than half of the year. Completely destroys any kind of legal STR business at scale. I know there are folks operating illegally in other cities that figure they'll never get caught, then when it happens the city throws the code enforcement book at them.

Greg Murphy · Answer

@Greg Murphy

You have way more options with a single family