Long Term vs. Short Term - rule of thumb for what direction to go

[Jason Munger]

As investors we seem to have "formulas" or rules of thumb to help us through our decisions. 1% rule, 70% ARV, etc...

Anything that helps you quickly decide when a short term rental is better than a long term rental?

I normally think long term is lower risk (occupancy, crazy renters, etc) but less margin when compared to short term. I have a condo that would be great for short term rental on Airbnb or similar. It's a "golf resort" and right next to the clubhouse. However, it's in Panama City Beach and medium/long term rental properties are in short supply right now and getting an absolute premium. Without taking advantage of people, but charging a "fair market rate" I can do quite well with it. I've thought about the Airbnb route and in the future it is probably a good idea. But for now, I'm tempted to just leave it as a long term rental. Known vs unknown I guess. Plus for STR I would have to lay out the cash to furnish it.

I'm not asking if Airbnb in general is "worth it". I've already done that research. Just where is the break even point where you just go STR? I can sit down and do the hypothetical numbers. Just wondered if there was an "industry accepted" rule of thumb.

[Julie McCoy]

I think it's going to depend on the market, and individual tolerance/desires for return, when you start looking at cap rates and so forth.  Generally speaking, I want to see $1k cash flow per property per month before I'll consider one, and I buy fairly inexpensive properties (<$200k).  I want to see cap rates that begin at 15%.

One of the things that creates a variable is the cost of furnishing/setting up a new property.  In some markets it's easy to buy furnished properties, in others you're starting from scratch.  

In your particular situation, my first question is if STRs are permitted by the HOAs.  It's PCB so they probably are, but you definitely want to know that first.  

Next question is: is the unit already furnished?  If not, how much money/time will it take to furnish it?  

Next question: Would you self-manage or hire a property manager to oversee STR turnover? If a property manager, how much will they charge? If not, how much time do you have available to self-manage? Once you get up and running, it's not difficult, but it definitely requires more time and effort than long-term rentals.

Finally, unless the STR returns are significantly higher than LTR or mid-term, I'd stick with the lower-maintenance mid-term/long-term renters. A way to determine this is to get a feel for local occupancy rates - PCB is a big tourist destination, but there's also a ton of STRs already there, so see if you can get a feel for a typical occupancy rate. You can do this by looking for comparable properties on AirBNB, VRBO, or local property manager sites and checking their calendars (though that's going to be most reliable for the next couple of months, less reliable for dates further out). You may want to call a local PM or two and get their insight, as well.

Good luck!