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. 

[Yiwei Cheng]

I would recommend looking at how much money you could make as a STR vs LTR & then deciding if it's worth the effort to do STR vs LTR. STR is very different from LTR in so many ways and if you are going to self manage, it is not an easy transition. Since you are new, if you choose to do a STR, I would recommend hiring a great property manager who can do it for you.
Also not all houses would make a great STR, so getting local advice on location, size, etc would be beneficial.

[Shawn Parsh]

Yiwei,

I appreciate the advice. I would self manage...in a way..I have a crew I use pretty regular for all the rehabs I do so I have people in place to help if I go the STR direction. I need to reach out to local investors who are doing STR in the area and see how many nights a month on average they are booked and what they are getting a night. I can see the prices listed, but it would be great to hear directly from the investors. I also need to figure out how the cleaning fee works and other details like should their be a minimum night stay requirement. I appreciate your input.

[James Carlson]

@Shawn Parsh

No right or wrong answer here.

You're likely weighing the extra amount of work required to set up and operate an STR against the extra money that you'll make. Everyone's "worth it" is going to be different.

A decent Airbnb/vacation rental property here in Colorado will do 8-12% cash-on-cash. An absolutely killer one will do 15-17%. 

We use AirDNA to give ballpark numbers on short-term rental revenue and Rentometer for LTR estimates. See what they're saying for your area and then plan on probably 20 or so hours minimum up front setting it up and then -- if you get the right systems in place -- maybe 2-3 hours a week managing. Is that extra amount of work worth the extra money?

[Bruce Woodruff]

a) You'll make more money. b) They are a lot more trouble. 

Look at your competition (not just on AirDNA) and see what they're making. IS that number worth it to you?

[Shawn Parsh]

James and Bruce, 

Thank you much for your quick feedback. I will follow through on your advice, it is much appreciated. 

[Jay Thomas]

That's a smart move – the location sounds perfect for attracting tourists and outdoor enthusiasts. LTRs offer steady income with less day-to-day management, potentially appealing in a market with limited options, yet may yield lower returns and pose risks of wear and tear. On the other hand, STRs present higher income potential, flexibility in pricing, and potential tax advantages, but require active management, adherence to regulations, and may entail unpredictable income. Given the high demand for LTRs in your area and Mountain City's tourist allure, a hybrid approach may be beneficial. Consider converting one property into an STR while retaining the others as LTRs to establish a stable income base, taking into account your willingness to manage STR responsibilities, local regulations, and financial projections for each property scenario.

[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. 

[Shawn Parsh]

Jay, 

I appreciate the input. I like the mixed approach you suggested. I normally flip very few houses, but lately it has been my focus so I can generate the cash to finish building a house. My normal pattern has been to find rehab and rent properties for the cash flow.

I just looked at the data on airdna as suggested to see the estimated income for STR. If it is accurate it would generate more income. Of the three that I punched in one in particular showed promise for STR. The estimate stated a 62% occupancy rate and 38,000 gross income. I of course will do some home work and reach out to others in the market. If it looks like a potential then I need to figure out how to list it and with who. Thanks again.

[Shawn Parsh]

Quote from @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. 

I really appreciated the detailed response. I am not afraid of the work so no issue there and I would self manage. The properties I buy are usually older houses that I completely remodel. What is great about my location is that I am close to Damascus, VA. That is a town of 500 people that swells for 9 months a year because of tourist. There are a ton of hostels, and Airbnb's in Damascus, but they run out of space a lot. The property I have listed for sale right now is 5 miles to Damascus. The other two are close as well. I will do my research and make a decision. Thanks again. I will likely have more questions as I move forward and learn what it is I don't know.

[Leora Merrell]

Don't forget that the gross income shown by Airdna includes cleaning fees. So you'll need to deduct that from your estimate. That will be several thousand alone. @Ke Nan Wang gave some of the best detailed info that I've seen someone give on this forum in a long time. Read, then re-read his post a few times. Your set up expenses will be costly and may sway your decision making.

List on both Airbnb and VRBO. 

[Shawn Parsh]

Leora,

Thank you for the input. Can you elaborate what the set up expenses entail? I'm not against some expenses to get started, I could use the write offs after the last couple flips. 

[John Underwood]

I have heard that people who work in these area have a hard time finding places to rent. So the difference in STR vs LTR might not make a vacation rental worth the extra work.

Definitely run the numbers on both. I like to use a spreadsheet to make it easy to play with the numbers.

[Dave Skow]

@Shawn Parsh- start with comparing what a monthly rent on a LTR for a property likes yours compares to 30 days of a similar property STR for a property like yours ....make adjustments for vacancy expectations and expenses and compare

[Leora Merrell]

Quote from @Shawn Parsh:

Leora,

Thank you for the input. Can you elaborate what the set up expenses entail? I'm not against some expenses to get started, I could use the write offs after the last couple flips. 

Furniture, mattresses, pillows, linens, towels, bath mats, soap dispensers, hair dryers, iron, ironing board, vacuum, a FULLY stocked kitchen, TVs, cable, internet, rugs, outdoor furniture, hot tub (maybe?), grill, grill tools, throw blankets, throw pillows, board games….to name a few. 

[Shawn Parsh]

Leora,

Hey thank you much. No worries, I have a person on my team that loves to outfit properties. I appreciate the quick response. 

[Shawn Parsh]

Quote from @Dave Skow:

@Shawn Parsh- start with comparing what a monthly rent on a LTR for a property likes yours compares to 30 days of a similar property STR for a property like yours ....make adjustments for vacancy expectations and expenses and compare

 Thanks Dave, I understand. I am going to start reaching out to other investors with short term rentals this weekend. 

[Kate Stoermer]

So I always like to note success in STR is a very different skill set; its hospitality and marketing. Some folks are very willing to lean into the learning curve to understand what it takes to deliver an **experience** vs housing. To learn how to position the property in a marketplace - and understand the STR marketplace in order to achieve that.

The idea of listing it on Airbnb and they will come is no longer a thing if you want to realize income potential. It does take investing time to learn or building a team who has the skills to do this on your behalf in order to see the ideal return. 

Analyzing income potential actually requires understanding the marketplace as well; the data clearinghouses that provide data are not 100%. I tell most people they are 70 to 80% there. But so many factors can impact on revenue, and realizing income potential including how well set up, marketed, and managed they are.  

So ultimately, its about goals - what are you looking to accomplish, and resources - it takes more money to set up and run an STR vs LTR.

In my business, I often help analyze income potential for long-term investors; happy to help if that's of interest.  The learning curve gets a lot shorter when you have someone on your team that can lean in with you,  

Best of Luck

-Kate

[Shawn Parsh]

Thanks for the input Kate, much appreciated. 

[Sarah Kensinger]

Numbers and how the property looks are the best answer to your question. If the property doesn't cash-flow or it's rather dated, then it would make more sense to LTR.  

[Shawn Parsh]

Sarah,

Thanks for the input. Almost all of the properties I buy I rehab so they are all in great shape. They all would cash flow as long term rentals I was just considering STR as a way to make more. Thanks again.

[Andrew Steffens]

Echoing what most said here but I purely would analyze the numbers. If there was some utility to the property being an STR like being able to house friends or family at times or something, that could be factored in. Otherwise, I base my similar decision based strictly on the numbers. \

Keep in mind it is fairly easy to go from an STR to a LTR but more difficult (annual lease) to go from LTR to STR.

[Shawn Parsh]

Andrew,

I appreciate the input. I was thinking the same thing that I could try STR and if for some reason I don't like it or the money doesn't look good I could switch to a LTR. I have no need to have an additional place for family and friends to use. I live in the same area and have plenty of room at my place. Thanks again for your thoughts.

[Dave Skow]

Quote from @Shawn Parsh:

Quote from @Dave Skow:

@Shawn Parsh- start with comparing what a monthly rent on a LTR for a property likes yours compares to 30 days of a similar property STR for a property like yours ....make adjustments for vacancy expectations and expenses and compare

 Thanks Dave, I understand. I am going to start reaching out to other investors with short term rentals this weekend. 

 @Shawn Parsh- you are welcome ...good luck !

[January Johnson]

My team has agents in TN and in 20 STR-friendly markets across the US. I'd be happy to share with you the sites I recommend for clients to pull STR rental projections. Feel free to message me.

[Basit Siddiqi]

While STR and LTR both involve real estate, they are drastically difference.
One is more like a business and the other is more like an investment.

You can make more money through a STR, the question is do you have the expertise in the business and are you willing to put in the extra time / effort.