Short term rentals for newbies

[Jimmy Woodard]

I’m sure this is the 10,006th novice post on here, so I thank you in advance for your help. My friend and I are starting our journey to find great properties that we can turn into short-term rentals. We believe this is a great time to buy at a discount and will wait patiently for the travel market to recover next year. Here are some questions that come to mind:

1. Should we go with hard money lenders or stick with traditional lenders?

2. Are there benefits to treating the vacation home as an investment home vs. a second home?

3. Should the strategy be discounted properties or does it not matter as long as the ROI is there?

4. What calculations do you use to figure out ROI? How much do you reserve for repairs and cap ex reserves? What's your minimum cash on cash return or cap rate before you'll invest?

5. Are there cities that seem better suited to find real estate for short term rentals?

6. What tools do you use to manage your properties?

7. Anything else I’m missing?

Thank you for any and all advice!

[Avery Carl]

Welcome to STR's Jimmy!

1. Should we go with hard money lenders or stick with traditional lenders? No reason to do this unless you can't qualify for conventional loan.

2. Are there benefits to treating the vacation home as an investment home vs. a second home? If you're planning to self manage, you can use the 10% vacation home loan with a few stipulations. The property has to be over 65 miles from your primary, you cannot place a lease or a property management contract on the property. The Fannie/Freddie guidelines show that you *can* rent the place out on your own when you aren't there.

3. Should the strategy be discounted properties or does it not matter as long as the ROI is there? Everyone loves a discount, but a discount is not what makes a deal in STR. A deal is the amount that you're paying vs. the amount you're making. If at full price those numbers work, then they work. Not saying you have to pay full price every time, but it's just not as much of a factor.

4. What calculations do you use to figure out ROI? How much do you reserve for repairs and cap ex reserves? What's your minimum cash on cash return or cap rate before you'll invest? The property needs to be able to hit 15% cash on cash return at an absolute minimum, but the markets I am in far exceed that, and many markets that I am not in that probably do as well.

5. Are there cities that seem better suited to find real estate for short term rentals? 100,000%. Regional, drivable vacation rental markets have been the most recession resistant and usually have really great ROI. The most important thing to research is REGULATIONS in any city.

6. What tools do you use to manage your properties? You're referring to "channel managers," IGMS, YourPorter, etc.  You're not ready for that yet. For your first one I'd recommend doing it all yourself so that you can then choose the channel manager that is best at the tasks the you like to do the least in the business.

7. Anything else I’m missing? Just cruise around these forums there is a ton of great info!