How do you decide to STR or LTR a Property?

[Shawn Parsh]

I have been investing in real estate for over 20 years, but have no experience in short term rentals like Airbnb. I was hoping some of you could give me some things to consider as I try to decide to LTR or STR. I live and invest in NE TN around the Mountain City, TN area. We have a lot of Airbnb places in the area because of the mountains, lakes, Virginia Creeper Trail, and the Appalachian Trail. Because of so many STR places the availability for long term rentals is almost non existent. I get asked quite often if I have anything to rent.

I currently have a place I rehabbed that I have listed for sale because I'm also building a house that I need the cash for, but I have another house I just started that I may rent. I have a third that I just signed a contract on that I could also rent. Any advice will be appreciated. 

[Ke Nan Wang]

I'm doing both STR and LTR in St. Augustine, FL and doing both well so I think I'm qualified to provide some insight. My current scale is self manage and not a management company.

LTR is passive income, you put a good tenants in, as long as your property is in good shape, you won't hear from the tenants until they pay rent or lease renewal or the occasional maintenance request. 

STR is a hospitality business. Unless you hire a PM who's charging you 20 to 25% and most likely not doing their job to deserve that money. So in most areas, STR with PM only outperforms LTR if STR is super good and/or LTR is super bad. In general, STR with PM does not worth the hassle comparing to LTR with the following exceptions:

1. STR you personally can enjoy the property too

2. Most likely your STR will be well maintained at tip top condition. I can safely say I can fulfill my host obligation and put my STR on the market right away without any improvement and sell. I cannot say that with my LTRs. Usually 10% of my tenants leave the place better than they moved in, 10% of my tenants leave the place worse than they moved in and we had to exhaust their security and pay the cost in terms of 6 to 12 months rent to bring a property to listing condition (depend on how long the LTR tenants have lived there of course). And the rest 80% of tenant leave the property in so so condition and we would still need some work mostly in maintaining the wear and tear. So if I have a property that's in a very nice area and it's well renovated, I would do STR or MTR if STR is not allowed so I can maintain the property in a good condition.

If your plan is doing STR with PM then to you it's probably not that much difference other than the income will fluctuate from season to season.

If your plan is doing self manage STR and want to do it in a way that's self fulfilling (all guests are super happy with the place and your service and you are making good money that's worth your time) there is some learning you need to do and risks/investment you need to make before jumping in.

First, the house needs to be well built and in great condition, so either new construction or upgraded inside and out with a reputable contractor who does great work. You don't want to ruin your guests' experience with this not working, that not working. 

Secondly, the house needs to be furnished and decor up to the standard, at the minimum, like a 3 star hotel if not better. You also need to stock the house with consumables such as coffee, towels, dish soap and body wash and shampoo etc.  

Some optional items from a LTR lease now become requirement: you have to own the utility account, definitely have contractors to maintain yard, pest control, periodic soft wash the exterior, pool/hot tub (only speaking from FL, or any other property routine maintenance in other region). 

So those are property setups. Then the bulk of the work just began, now you have to market your property to attract guests and keep them happy to get those good reviews so you place is stayed booked. There is pricing strategy involved. How do you change your rate based on your market and the vacancy status of your listing. Study your competitions, see how you can offer more values to your guests. Most of the time, it's just space and price. You may in a position where you can offer some unique experience to the guests that other places don't, so that's your value preposition. 

Your attitude towards your guests will be always most hospitable. Thinking in terms of a good manager of any service industry. I give much more leeway to my STR guests than my LTR tenants because I know people pay good money to have a good time on their vacation. I'm the Johnny on the spot guy if there is any small inconvenience come up for my guests.

The number 1 thing you hire out is your cleaner. When we started out we were doing our own cleaning because we don't trust other cleaners. It's a lot of work. Especially if we have multiple turnover in one day. Gradually, we tried out a number of cleaners and found the great one we currently using. With a great cleaner, our workload reduced 90%. So right now our STR is mostly just communication with guests and occasional property visit if there is any issues. We are pretty hands off now.

I think our way of self managing is the optimized way where our place stayed booked, our reviews are extremely positive and we are fairly handsoff and we can leave town no problem. 

So as you see, it's a lot more work to get it established, but once you've gotten a system going, it's not that much more and the pay out is good. 

Hope this helps you to make your decision.