STR/AIR BNB- House, apt or Condo- Which is best?

Question

Looking in the near future to get my first investment property and leaning most towards going the Air BNB/STR route. Is this even the best route? Or is LTR better in your opinion?

I am wondering which property type is best for this route in terms of success and the least hassle when it comes to things like HOA's (As I know a large portion of HOA's are not friendly to this route).

Which property type is best? Condo, apt, or house? I am leaning towards Condo, but worry about HOA's.

I am looking in the STL, MO and Naperville/Champaign, IL areas.

Britney Allan · Answer

Hi Dominic! Thanks so much for your insight and feedback!

I agree on the HOAs being more of a hassle than not. I do also agree and appreciate the suggestion on taking on a LTR first. I think that is where I am headed.

Thanks again!

Kerry Baird · Answer

Who is your avatar guest?  I am near the beach in FL and have a 3, a 4 and a 5 bedroom.  They are booked year round, largely from people who drive from the Atlanta area. I get folks from other places, too, of course.  Families tend to be my main focus.  I get people who drive from out of State to play softball, people who work in for Space X and recover rockets.  But mostly folks who come to the beaches for fun and relaxation.  Who is coming to your place, and why are they there?

John Underwood · Answer

So it depends on a lot of factors.

Location, views, sleeping qty/ arrangements, amenities etc

I would recommend a house in a non HOA neighborhood.

A vacation destination would be my choice over a house on 4th st.

Michael Porche · Answer

@Britney Allan Great question, Britney. I feel it depends on the area where you invest and what your overall goals are. STR can be more lucrative in certain areas, but also comes with a lot more of a need for knowledge and business savy techniques to be very successful. However, in some markets, you can get lucky and just throw one up and do very well! LTR is a lot more passive and less constant touching with your property and with your manager if you choose to have one.In regards to the condo and/or house... Well, that completely depends on who is traveling to the area to stay at those locations and why are they staying. the HOA's are usually more strict when it comes to condos of course. That is something to consider.

Dave Skow · Answer

@Britney Allan thanks  1) the  decsion between  STR  vs LTR  rent depends  on many factors so tough to  answer with a simple  response ,,,,location /  type of property /  involvement    2)  HOAs  can  be  tought on STR  properties   and  expensive and  can  change and  have future   repairs / assesmenets   so  IMO   SFR  or  TH might be a  safer investment to  try using for your plans   3) good luck

Jay Thomas · Answer

Long-term rentals provide more stability and predictability since you can expect a steady stream of rental income over the life of your investment. It also takes less effort to manage, as leases tend to be longer and there's usually no need to deal with turnover between the tenants. Moreover, HOAs or landlords are often more open to this type of rental agreement, so restrictions may not be an issue.

Marcus R. · Answer

I think a larger property would be best so that will probably be a house. Smaller properties tend to compete with hotels since they sleep around the same amount of guests.

Dan Maciejewski · Answer

There are a few ways to look at these.

First -- LTR is way less hands-on and more on the passive side once you're leased up.  You can think of an STR as a small, luxury, one-suite hotel -- in other words, a business, not a passive investment (even if you're under property management).  The returns are usually better with STR, but for a first investment, I would normally recommend a long-term rental.  But, it's been really hard to make the numbers work on a long-term rental in most regions recently.  If you're a flipper with access to great deals, then that will change things a bit from a normal retail investor.

Next -- I can't answer what's best for your region, but I can tell you why I shy away from condos in my region.

1.  The condo fees are always going to go up, and you can't control the capex like you can in a detached home.  That can hit numbers a lot

2.  If you're in a building that allows STR, the board can usually change that at any time.  Some places limit turnovers, the percentage of owners that can rent out units, the max/minimum days per stay, the number of guests per unit, etc... All of that can usually be changed by a vote.  Unless:

3.  You find a building that is built for STR.  In this case, almost all of the owners will be investors, and will likely always be an investment complex.  This will make it harder to finance.  It will be a non-warrantable condo, which will make financing harder.  But even more than the financing:

4.  You will run into the problem of returns.  You will be buying into a condo a today's prices, while most, if not all, the other owners will have bought at much lower prices.  They will be making fine cash flow with much lower rent rates than you will need to charge to make your numbers work.  This is a much bigger problem than in a house because you can't differentiate yourself by location, floor plan, amenities, etc...  The best you can do is spend more money to update and decorate to higher levels, but you won't get a whole lot more rent just because you have a sexy shower, hood vent, or a new fridge.  The other owners all having basically the same product puts downward pressure on price because that's all they are competing (at least against each other) on.  Apartments will have the same problems on this issue.

David Dachtera · Answer

STRs are *NOT* investment properties - they're part of a Hospitality Industry business. Unless you have hospitality experience - hotel / motel management, etc. - I'd recommend to avoid it until you have some.

That said, I'd recommend to avoid HOAs entirely. Instead of condos, you can do what's called "rent arbitrage" - rent an apartment with the understanding that you will be using it for short-term rental to cover your rent + expenses and provide some profit. HOAs in condo buildings and even in some SFR subdivisions may be receptive if you state your intentions up front.

These days, HOAs are not the major concern. Municipalities have started banning STRs across the Country due to neighbor complaints about tenant turnover, noise, etc.

Since you're looking at covering a large area, get good at finding and coordinating service companies to meet the needs of a hospitality business: cleaning, supplying, maintenance, etc.

My $0.02 ...

STR/AIR BNB- House, apt or Condo- Which is best?

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