30 Day Minimum Only STR, Bad idea?

Question

Hi Everyone,

I am currently looking at a potential house hack in Richmond Virginia that I plan to Airbnb parts of. However, the property is in an HOA that only allows minimum 30 day short term rentals.  The property  is in a great area and I see other properties nearby doing great numbers on AirDNA. I looked into these properties on Airbnb and saw that they do offer 30 day stays and the asking price for the stay looked very attractive for me as a host. However, they are able to be rented for less than 30 days as well. I wanted to see, has anyone bought a property that could only be used for STRs longer than 30 days, and what was the outcome?

For more context, I did look into renting to a travel nurse and with that revenue I would be cash flowing negative $1400/month. I pay rent of $1550 right now, so I would still be coming out slightly ahead. The ROI is very weak in this scenario.

Any thoughts would be great. Thanks BP Fam!

Bruce Woodruff · Answer

I'm sure it could be doable, but be aware that once you pass the 29 day window, you are creating that legal 'tenant' relationship, which can lead to problems. Look up 'Tenant Rights' in your state and see what could happen. How hard is it to evict where you live?

Kerry Baird · Answer

A month long rental is not my cup of tea when I am planning on doing short term.  I'd put that in the long term rental basket, and that is doable from overseas.

Nathan Gesner · Answer

If I'm reading this correctly, you're actually in a negative cashflow.

Take gross rents, subtract all expenses, subtract a certain amount to be set aside for reserves, pay the mortgage and interest, then what is left over is cash flow.

If rent is $1,550.00, subtract taxes and insurance, utilities, HOA fees, or any other expenses you are responsible for. Pay the mortgage and interest. Then (this is the part many forget), set aside some money to cover for vacancies, property management, capital expenditures (roof, flooring, windows, etc.).

It's safe to plan on setting aside 40 - 50% of the rent income for vacancies, management, capital expenditures, taxes, and insurance. Then you pay your mortgage. Then what you have left is cash flow.

Bruce Woodruff · Answer

Yep, I forgot to mention that. When I do get requests for stays longer than we allow (14 days), they always want a discount. Always. Like it costs me less to run the place because they're staying there 14 days instead of 3 guests for 5 days each. Actually I'm going to get rid of the 14 day limit and take it down to7 days max. The people that stay longer get too accustomed to the place and start treating it like their own...moving around furniture, even changing pictures on the wall, wanting heavier (or lighter) curtains on the windows...... PITA....

Bruce Woodruff · Answer

Me either, for reasons I mentioned above. Easier ways to make more money by doing Short Term Rentals...

Michael Baum · Answer

Nope. Wouldn't do it.

Kyle Roberts · Answer

Hey Everyone,

Thanks for all the insight. I talked to a PM who does short term rentals in the area and she told me she stays away from mid term as most tenants are looking for steep discounts for extended stays. I also looked into tenant rights and it takes on average of 2-4 months to evict in Richmond. Based on that duration, even having to evict one tenant would be detrimental to the performance of the deal. I didn't see anything about what the tenants rights are if I were to live in the property, so something to look into in the future. However, I think you are all right. This is situation where I am trying to justify an under performing property because I want to buy a deal. The numbers do not work as a mid term rental and really don't work as a long term rental. Thanks for keeping me honest! On to the next lead.

Lyndsey Garza · Answer

I am in the Galveston, TX market, since 2006. Question is - will you be getting any enjoyment from use of the property? If you are close enough to use it as an occasional vacation spot for you, it's a win-win. We have the University of Texas Medical Branch on the Island and I am diving into the travel nurse market opportunities numbers. Our season is no longer as seasonally dependent as it was in when I started managing properties in 2008-2013 so it may prove to be less profitable. Perhaps a great solution for certain areas here, but 30-day restrictions are being changed in this market behind the scenes...

The ability of a property to be used as STR investment has increased property values here in Galveston. Just my thoughts. :)

Chris Allen · Answer

@Kyle Roberts If you are looking at the property as a rental, I would not try and factor in the rental and CoCR while you live there as the numbers will look skewed since you live there and will note be renting out the entire property. So just plug it into the BP calculator and see what it could do as an LTR or projected Mid-Term Rental.

If you are looking for a reason to "Justify" this purchase, can you

- Rent it out by the bedroom (either to traveling medical professionals, medical residents, construction workers, or college students)?

- Is it in an area that you think will greatly appreciate (either by market or forced), you are willing to live there for 2+yrs, and you can live there for less than or equal to if you were to rent?

- Can you rent it as a LTR and make money?

- Can you just get a room mate if the mid-term doesn't work?

- Is this a property and area you want to hold for a long time?

- Is this money just burning a hole in your pocket and will make you a better return than a standard savings account?

If you said yes to any of these, I think you could argue it is reasonable to consider it. But you also need to ask yourself, "What do I actually want", if you want to just get into the game, have a nice place to live, willing to pay a little more for a place you can call your own and willing for it to not be a great CoCR, then I say go for it. But if you want to make your money do the most work possible, then maybe you find a different property or strategy.

Chris Allen · Answer

Correct me if I am wrong, but the same "tenant rights" don't exist if it is your primary residence correct? Example, you can choose not to rent to rent to a female if you are only looking for male roommate. So I am not sure of the exact "laws" for this scenario, but if it is his primary residence, this may not be an issue?

30 Day Minimum Only STR, Bad idea?

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