Diversifying to Short Term Rentals - Pros/Cons/Questions

[Nick Ferguson]

I've been a buy-and-hold investor for a while.  I have a small portfolio and self-manage and intend to grow steadily over the next 20 years and then retire.  

I've kicked around the idea of diversifying into short-term rentals (not switching, just adding one or a small handful of properties over time to supplement my regular portfolio). 

I'm in NE Ohio and while I don't plan to completely "self-manage" (ie, do maintenance/cleaning/etc. myself) I do want these properties to be close enough that I can A) check them out personally when needed and potentially tinker/add improvements on occasion myself AND B) if they are vacant for a weekend, go and enjoy some R&R on short notice. 

First and Foremost, how are most of you guys managing these places when you aren't local?  Are you turning over to a full-service management company that handles listings/tenant calls/maintenance/cleaning/etc. OR are you handling booking/listing and managing separate cleaning and handyman/maintenance crews yourselves OR some hybrid/other way?  

I'm specifically looking at Ohiopyle/Laurel Highlands area of PA , Southern WV area (think near New and Gauley Rivers), or rural areas between Pittsburgh and Morgantown. Also, would consider less "destination" type areas like Salt Fork or Portage Lakes areas in Ohio if the price was right and the investment made sense. I've also considered doing a "test run" with an SFR in the Cleveland area and if that does not work, simply converting the unit to long-term and adding it to my existing portfolio. Does anyone have experience with STR's in any of these areas and care to offer any advice?

Finally, how should I think about financing/equity/cashflow factors specific to SFR's? Will I have trouble getting financing on an STR? How do banks look at STR income and debt in regards to DTI and purchasing other properties (whether short or long term)?

Feel free to add any advice but mostly I'm just looking for things an experienced investor should think about when considering pros and cons of diversifying into short-term SFR's.

[Marc Rice]

First and Foremost, how are most of you guys managing these places when you aren't local? Are you turning over to a full-service management company that handles listings/tenant calls/maintenance/cleaning/etc. OR are you handling booking/listing and managing separate cleaning and handyman/maintenance crews yourselves OR some hybrid/other way?

- I manage over 100 STRs in Columbus and most of the owners hire me to manage those for them. We strictly do studios and 1bds in A/B class locations though. If you're going to do STRs you should make sure you have a local full service manager lined up since its a lot of work even with only wearing a few hats.

I'm specifically looking at Ohiopyle/Laurel Highlands area of PA , Southern WV area (think near New and Gauley Rivers), or rural areas between Pittsburgh and Morgantown. Also, would consider less "destination" type areas like Salt Fork or Portage Lakes areas in Ohio if the price was right and the investment made sense. I've also considered doing a "test run" with an SFR in the Cleveland area and if that does not work, simply converting the unit to long-term and adding it to my existing portfolio. Does anyone have experience with STR's in any of these areas and care to offer any advice? 

- I'd be surprised if you can even find a STR PM company down there...I'd make sure wherever you buy there are a few STR companies to choose from.

Finally, how should I think about financing/equity/cashflow factors specific to SFR's? Will I have trouble getting financing on an STR? How do banks look at STR income and debt in regards to DTI and purchasing other properties (whether short or long term)?

- I always make sure properties cash flow without STR and just maximize the return with STR. Its more risky to buy a home that is 100% contingent upon working with STR only and then something like covid or regulation happens and you go insolvent. Most banks won't qualify a home on STR and if they do you'll be getting waxed with points/rate. I'd buy vacant and convert into STR post closing. This basically means you won't be able to refi based upon STR income unless you have 1-2 years of it.