Short Term Rental investors in the Eastern South Dakota area?

Question

How's it going BP!

I am fairly new in Sioux Falls, SD, I currently own one LTR and I am searching for more.  I have recently sparked an interest in STRs utilizing AirBNB/VRBO.  While searching for more multi-family deals, I plan on acquiring my first AirBNB investment property.  Anybody in the Sioux Falls area already investing in STR/LTRs or planning on doing so?  I am looking to connect with any investors and maybe bounce some ideas off each other! thanks!

Joe Splitrock · Answer

@Michael Baum thanks for the shout out. @Samuel Hudacek I own both LTR and have one STR here in Sioux Falls. I was surprised by the various reasons that people travel to Sioux Falls, including the number of people coming to vacation. I have noticed on the STR front that there is a fair amount of churn on the listings. Lots of people getting in and getting out of the business. You have to be careful who your guests are, because there are people wanting to party, do drugs, etc. There have been a number of people short term traveling here for work, including construction on the new Amazon. Travel nurses are another market, but we have also seen contracts cancelled, so you have to be careful. The travel nurse agreements are usually 3 months, but they have a clause they can cancel at any time for any reason. We have seen this twice now. STR make more money than LTR overall, but have more expenses and take more time. Since our goal is passive investing, we overall prefer the LTR.

When analyzing numbers, be aware that expenses are a big concern. Property tax values are moving up fast here. Our recent assessments are 20% to 25% increase on all properties. Our insurance for properties we purchased last year was 25% higher than existing policies. Our agent said that an increase on existing policies is coming. Utilities are all going up. None of this is unmanageable, but plan in your numbers when analyzing deals. If you are using last years taxes, insurance or utilities, plan those numbers 15% higher to be safe.

Back to STR... Overall I think STR were slow to gain popularity in SD, but now I am seeing more saturation. It is pretty easy to stand out in the STR market, because most hosts do a horrible job running them. If you keep your place ridiculously clean and maintained, you will get good reviews. Good reviews mean higher nightly rate and lower vacancy. Our STR has been 97% occupied.

My only concern on STR is the effects that a recession would have on the travel and tourism. The economy cycles and in a recession, discretionary spending decreases, which includes vacations. This is not a reason to avoid STR, but another consideration to plan for when building your portfolio.

James Kats · Answer

Hey Samuel.  I live and invest in Sioux Falls.  I currently own a couple dozen long term rentals, but my primary focus now is converting them over to short term.  I have 5 short term rentals up and going and am working on the next two.  I opened my first one two years ago next month and have learned a lot of things along the way.  If you have any questions, I would be glad to help you out.

Benjamin Aaker · Answer

Hi @Samuel Hudacek,

Welcome to Sioux Falls. I own The Davis Short and Long Term Stay in Garretson. It's rented exclusively through AirBnB. We have had 74% occupancy over the past year. This is largely due to contractors building the wind turbines and nursing staff for the local nursing home. We aren't what people think of as a vacation destination (but getting better) so these traveling workers have been a big boost to our business. Let me know if you'd like to meet up.

Michael Baum · Answer

@Joe Splitrock, he is the man in SD! And the man in general.

Sam Hudacek · Answer

Hey James, I'd love to grab lunch one day and pick your brain on investing in South Dakota!

James Kats · Answer

@Andrew B. Right now I have one property under contract, a single family house, to close next month that I will be turning into a STR, and am working on rehabbing 3 of my existing places from LTR to STR.  As true with all real estate, the biggest thing in STR is location.  I have some LTR that would make great STR because of location and other properties that are great properties and are good locations for long term but would not be good for STR.

James Kats · Answer

Hey @Andrew B. !  In my case, I have had one STR up and running for just over two years now.  Initially I wanted to test out the model here in Sioux Falls before diving head first into the field.  I have done mostly LTR up to this point and was familiar with them but was seeking more of a return.  I opened my first place, a 3 bed 2 bath, the April after COVID hit and I was was expecting to be vacant most of the time, but was shocked at how busy it was.  I was getting about 90-95% occupancy.  I did notice a significant drop in winter bookings, but was still booked about 50-60% of the time.  After testing it out for 15 months, I opened another 2 last year and got another 2 up this year, with the next one up next week.  So I don't have enough data to definitively say that there was a significant drop in bookings between the two years.  Sorry I can't be of more help there.  One thing that I have noticed though is that my smaller units are booked way more often then my larger ones.  I have 2 bedrooms up to 4 bedrooms and my 2 bedrooms perform way better.

Let me know if you need anything else!

Andrew B. · Answer

Hey all, glad I found this post. My wife and I are looking at SF for STR. She is from nearby and her parents retired in SF so made sense for us to look somewhere we know.

Initially, we started looking and were really encouraged by the numbers, particularly 4-bed homes. Then we started digging deeper into data from PriceLabs and spotted that occupancy in Jan-Apr 2021 vs Jan-Apr 2022 went from an average of 54% to 43% and median ADR from $162 to $156 for 4-bed. For the overall market, the numbers are 58% to 49% and ADR stable. The significant drop in average occupancy is concerning since it drives so much of the analysis. With the price of homes in the market, rates rising, etc., and this being our first deal, I am just trying to gain a little confidence in the numbers.

My questions then are: Has anyone seen these numbers play out in their own properties? Maybe not exactly, but has occupancy dropped significantly YoY? What is the general state of the STR market at this point? Are you seeing a slowdown of bookings? @Benjamin Aaker @James Kats @Joe Splitrock are the success of your properties mostly driven by traveling workers and are you seeing tourist travelers drop off?

Lastly, I'd be interested in what size properties you own that are performing well. We'd like to get in and buy a couple this year then buy a few in a traditional tourist area.

I definitely fell into analysis paralysis at one point and finally overcame it to start making offers, but when I stumbled across these numbers it gave me pause, so any help is greatly appreciated. We have a couple properties a week we find we are interested in and keep hesitating based on our confidence in these numbers.

Thanks again.

Andrew

Vince Mathis · Answer

Glad to connect!

I am from Madison and invest in Sioux Falls,  but live in Phoenix, AZ.

Sam Hudacek · Answer

Hey Vince! I really like the AZ market, I can definitely see myself investing there in the future, if you're ever down in Sioux Falls you got to let me know!

Short Term Rental investors in the Eastern South Dakota area?

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