Should we do a short term or long term rental in CA?

Question

My wife and I purchase a SFR last April in Northern CA. (Redding) with intentions of turning it into a long term rental. We also have thought about turning this property into a short term rental as well due to its lack of yard and location. However, we are not as well versed on the short term rental side of things at this point. Our question is with the eviction moratoriums being extended federally as well as in CA would we be better off turning it into a short term rental to avoid getting a long term tenant placed just to have them stop paying the next month? We don't mind the additional work but just want to make the best choice possible being that this is out first property. Any input would be much appreciated. Thanks.

Joshua Messinger · Answer

Hey @Justin Kerstetter!

Congrats on you, and your wife's investment! Super excited to see how this turns out for you guys!

I haven't ever invested in the CA markets, so I am not familiar with any fees or rules you would have to worry about. But, first of all, I would double-check to make sure there aren't any rules or fees that you would have to pay to start your STR. If there is this may make it not even worth it to use the property as an STR as it may put you in a cash flow negative situation.

Here are a couple of questions that may help you in your current situation:

- Do the benefits of you using this property as an STR outweigh the benefits of an LTR?

- Is it worth your time to deal with managing the rental? (STRs are a much larger headache when it comes to managing)

- How do you know the property would be successful as an STR given the area it's in? (Figure out avg occupancy, revenue, amenities, etc)

Otherwise, it sounds like you guys are in a good spot, and you have your options open with this one. If you guys have any more questions don't hesitate to reach out!

Live Free,

Josh Messinger

Scott Winter · Answer

@Justin Kerstetter

VERY DIFFERENT STRATEGIES

Don’t switch strategies because of the moratorium. Since you don’t know much about short term rentals, it seems as though your trading one unknown for another. I’d first ask some questions to people about how big the risk of renters not paying is (I hear it is pretty small). Then see what you could do to mitigate that risk.

If you do want to get into short term rentals I’d suggest starting with figuring out the demand in your market. Just look at similar properties in your area and see if they are booked. Reach out to the owners and ask the question.

IF the Redding short term rental market will support it, and you think you are up for the part time job, I’m just going to say go with short term. Especially right now with COVID, you may be able to stay booked with higher local travel demand through most/all of this year.

Here is why it is very different though, you mentioned more work, and yes it is. Also more up front costs to furnish, more up front costs to make it look nicer than a long term rental, more monthly costs because your paying for monthly expenses (utilities, consumables, broken things, (snow removal?), yard work, cleaning service), and most definitely you can sprinkle some more stress in there at times. To do it well, it will take time, customer service, and potentially some conflict resolution skills with your neighbors if you ever have guests partying all night. BUT it can be SO much more financially lucrative and for me rewarding being able to have a happy vacation spot for people to come make memories.

Long term as you probably know, doesn’t usually have those upfront or ongoing expenses. Although you’ll still get a stressful situation every once in a while, it is much more passive. And what you also get is the “much more passive” income to match.

Feel free to message me if you have any specific short term rental questions.

Marshall Leipprandt · Answer

@Justin Kerstetter Do it. Learning the STR model now and how to manage that business will prove very valuable in your career as a RE investor. It's another tool for the toolbox.

Definitely look into the regulations in Redding as others have mentioned, but if your fall-back is a LTR that still performs well, an STR is a no-brainer to me.

Good luck!

Cara Murray · Answer

We have properties in Redding area and have done Airbnb pre covid, I was pretty booked but cleaning for hours every check out (washing all bedding and towels takes longer than you think). It was a good source of income but timely. We did the traveling nurses and they are normally in your home for 3 to 6 months. Good tenants and decent money. But then Covid hit and they stopped doing traveling nurses. I'm unsure how much they are being used now. We then moved into long term rental. I'm still profiting from the rental and have little to no stress. Not a single one of my tenants have missed or even been late on a monthly payment. I do a serious application process. I require application prior to viewing the property, Credit check, background check, call references. The biggest reason we have stuck with long term is once you get a tenant in place you have little time actually dedicated to the property which has gave me the ability to actively pursue more properties and dedicate my time on growing out portfolio.

Robert Ryness · Answer

I think the important thing to know is the location of your property. If it’s in a nice neighborhood near the River it could be an excellent Airbnb. If it’s near mercy or Redding medical center it could be an excellent option for traveling nurses. Traveling medical professionals is a small demographic but you could call the hospitals and ask if they have a property manager they use to help locate their staff. These traveling medical professionals I would assume are good tenants, they make good money and are also going to be pretty direct about their move in and move out times which helps you plan ahead and you can also carve out a niche for yourself in Redding too.

Justin Kerstetter · Answer

@Ranjit Sandhu We ended up converting our primary residence to a LTR that is currently rented out. However, this September we will be turning it into a more midterm furnished rental as there is a need for this in the area. Not sure when your family member would need a place to live. There are some decent neighborhoods in the area close to the Mercy/Shasta Medical Centers. West Redding is a nice area and there are some older homes that have been remodeled in the Garden Tract Area. Let me know if you have any other questions.

Pete Ludlam · Answer

Be very careful with STRs in California. Even a city or muni that doesn't have any rules limiting STRs today could easily put in place rules tomorrow - if the only way you can cashflow is with an STR, you are putting a lot of eggs in one basket.

Cole Simpson · Answer

I agree with @Marshall Leipprandt @Claire Rosenberg if the numbers hit your goals I would do it. STR OR LTR either way, make it about the numbers. Best of luck!

Jesse Penland · Answer

I was in contract with a home that I was going to turn into an Airbnb in Redding . I went down to the city to start the process and they told me that I cannot have an Airbnb in that home because there was another STR within 300 feet. Apparently it’s a new rule that the city is enforcing. I would definitely look into it before getting your hopes up for a short term rental in The redding area. I also heard that there will be stricter rules coming down the pipe in a couple months.

Ranjit Sandhu · Answer

Justin, I wonder what have you done. As I'm looking a rental for my family member who will be working in Redding hospital for next 3 years. Any suggestions from anyone will be appreciated. We are looking for a smaller house 2 bed/2 bath as family member has a pet. Any safe area in Redding near Mercy/Shasta Medical Center?

Thank you!

Should we do a short term or long term rental in CA?

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