STR material participation to be considered active business

[Tom Dean]

I've been researching this quite a bit and am looking into acquiring an STR that I would actively manage and would keep average stay at 7 days or less. I would like to meet the requirement of spending over 100 hours on it yearly and spending more time than anyone else.

I realize this is a complex concern so just looking for general advice here based on the experiences of others.

I would manage bookings and client communications aside from maybe an on call service for at night. I would use cleaning services but it's my understanding I could use more than one company over the course of the year to limit how many hours one company spends on it.

I'm looking into a utilitarian STR more for business travelers, so this won't be one where everything is perfect, it's bound to accumulate wear and tear I think.

The STR would be out of state, but I plan to travel there for probably two weeks a year where I would perform many repairs myself. Possibly fix furniture, etc if needed too. Also I would shop for whatever new furniture is needed, work on landscaping, etc. It's an active business, not passive so I believe that requires continually evaluating the property, adjustments to decor, etc may be needed as well to make sure I'm fully optimizing the property.

I have a lot of home renovation experience from my own personal home and my LTR's already so I'm very used to this kind of work. I would only hire out for major work I can't do myself or emergency repairs.

I've dealt with older houses before and the house may be fine for occupants but there's still usually lots of things that can be fixed / improved so it seems a house that isn't perfect would give more opportunities for ongoing maintenance of this sort.

To me it seems fairly straightforward to meet the time requirements but I think I need to have extensive documentation? Would taking before and after photos of everything I do help? I'm trying to plan this out as well as possible to avoid any issues down the road.

I've seen the stories where people run into issues meeting this requirement and get scrutiny from the IRS, to me it seems the two biggest red flags might be when they hire a property manager and also when they rarely go out to the property to work on it themselves, always relying on contractors. But not sure if I'm overlooking anything else that would cause increased scrutiny.

Also, to clarify, my overall goal with the property is simply long-term wealth building through mortgage pay down and appreciation so I'm not targeting properties with very high cash flow thus the focus on tax writeoffs. From what I've been looking at I feel that properties that are mid tier for the market, rather than high end, can often appreciate very well as they are sought after by a large segment of the local population.