Making the leap into STR vs Buy & Hold

Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes

6y

@Michael McCarthy forgive me for saying so but what do you have to offer? Why would I invest in someone that wants to bake pies if all they’ve ever done is post on a pie forum?

Read every thread on this forum then come back with some better questions.

Sorry to be so harsh. I’m still proud of you.

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Julie McCoy

Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes

6y

@Michael McCarthy Vacation rentals are buy and holds. The difference is you're renting them nightly instead of monthly/yearly, they require more in the way of management (while they do not have to require a lot of work, they are NOT "passive"). The answer you're looking for re: what to tell your investor, however, is cash flow.

It does sound like you've got a fair bit of learning to do - right now you don't know what you don't know. See if your friend with the STRs will let you pick his brain about how he operates them, and go back through the posts on this forum and read a ton. That will help you get a better sense of what's involved in VR investing and the right questions to ask, which will in turn help you be informed for your investors.

Until you can articulate why VRs are a better bet on your own, an investor shouldn't invest in them with you.

5 Reply

Mark Miles

Rental Property Investor · Philadelphia, PA · Member since 2016 · 543 posts · 716 votes

6y

Originally posted by @Michael McCarthy:

So I am extremely interested in STR investing. I have a close friend that is successful at investing in a couple STR as passive income on the side and I am highly interested in doing the same. I have seen some of his numbers and how well his number are now and pre-COVID, and truly believe in the model. I want to make the same leap into STR, first as an investment on the side, and maybe one day, have the ability to make it a full time gig.

I have a couple people that I could possibly partner with on this who have had a lot of experience in real estate, but not in the vacation rental market, especially STR with AirBnB and VRBO. I want to present the model to them where they would solely be capital partners and I would be the managing partner, but need some extra advice on the benefits of STR over long term buy and hold.

Areas I am extremely interested in are Sevierville/Gatlinburg region, but also know the Gulf Shores/Destin region very well too (I was stationed there before during flight school). I know they have been extremely popular in the past and have high occupancy rates most of the year, and especially in the future post-covid, will continue to be very popular. I may get some push back in wanting to invest closer to where I am stationed (coastal carolina region) with areas such as the OBX, but I am not as big of a fan of the dependency on a more seasonal region.

Apologies for the long post but what does the group have to say about this? Thanks!

Congrats and welcome to the party! Running a successful STR comes down to 3 Ps: pics, people & pricing.

1) Decorate your house nicely & pay a professional photographer to take some amazing pics

Also, be prepared to constantly reinvest some of your profits into your house in order to keep it in tiptop shape. I think a lot of new investors look at the allure of STR and see the big revenue numbers and forget how much damage your house and your furniture and your furnishings will take with guest after guest after guest staying in your house

If you let your house and the furniture and the furnishings fall into a state of decay, what originally started as a big moneymaker will instead become a constant source of guest complaints and bad reviews and headaches and sleepless nights (for you & your guests!) and refunds to guests

2) Hire amazing people - cleaners, handyman, recruit some neighbors to help fill in the gaps, & self-manage or hire an offshore VA to manage the property if you'd rather make yourself rich instead of making a local property manager rich (more on that here: https://www.biggerpockets.com/... )

And make sure that your cleaners and handyman are not only doing a top-notch job of keeping the house in pristine condition, but they are also reporting to you (or to your PM or to your offshore asst) every little thing that needs to be upgraded or replaced so that you can stay on top of it and take care of things before you hear it from your guests in the form of guest complaints and bad reviews. If your bath mats are getting nasty, you need to hear that from your cleaners not your guests!!

And keep your handyman on speed dial because there will be plenty of occasional electrical and plumbing and HVAC and hot tub issues, many of which will be minor but will still require your handyman to take a look. This business ain’t for the faint of heart!

3) Price fiercely to maximize profits not occupancy (they're not the same thing). If you set higher prices and rent fewer nights but make the same amount of money, you actually come out ahead. Less money spent on supplies, less wear and tear on your place, less money spent on utilities, fewer guest headaches, etc.

Bottom line: there’s a LOT of puzzle pieces you have to get right to make this work really well, but once you master it, it can be very rewarding

I preferred to invest in the year-round high revenue parts of the US where you can earn a lot of money year-round. I prefer that because it gives me a nice cushion so I always have extra profits to reinvest back into my houses as things need to be upgraded or repaired. Be careful if you’re considering an area with only seasonal revenues because you might be underestimating just how high your expenses can be in this business, I know I did before I started!!

Keep in mind that your expenses will occur year-round (whether your house is rented or not), so try to invest where you can earn lots of year-round income to offset those expenses (which is typically the southern US, which you’re already doing). Just my two cents based on my experience. Best of luck!

6 Reply

John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

6y

STR's are not passive Investments unless you are giving a large chunk of your income to a PM.

I would avoid partnering with someone else if you can avoid it. It unnecessarily complicates things.

Coastal Carolina areas can be great areas for a STR as is the Pigeon Forge area.

Might be best to run your first one closer to where you are located.

STR' are typically long term holds.

2 Reply

Michael BaumPro Member

Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes

6y

Hey @Michael McCarthy, I agree with everyone here. What @Luke Carl said was right on the money. Right now you offer very little to a capital partner. You have come here looking for experienced folks to give you ammunition to convince the money guys to buy in.

So, @John Underwood and @Julie McCoy are 100% right on what you need to do. I was in the same boat as you. I wanted to do a vacation rental but didn't know where to really start.

What I did was hang out here. Read everything, ignore some of it and use the rest. I always wanted a place where I grew up in North Idaho on Lake Coeur d'Alene. The area is 350 miles from where I live so fairly close. There is a ton of information on here and all over the web.

You don't want to risk others $$$ on a learning experience for you. I think you can do well as you have some great places to do it, but take the time to learn and jump in yourself first.

Welcome to the forum!

2 Reply

Avery CarlBusiness Member

Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes

6y

@Michael McCarthy everyone else already said what I was going to say. In addition, listen to BP podcast episode #364 :)

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Paul Sandhu

Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes

6y

I'll put in my 2 centavos. Find a niche market and do your STRs there. I know this guy that lives in a small town with a refinery. There is no tourism in his town. He's got 23 STRs with 83 beds. He rents them out to refinery contractors. Welders, pipefitters, boilermakers and other such ruffians. This guy is a ruffian too, it kind of goes with the territory. Charges the same as a motel, but people can cook, do laundry, have more space and privacy, and they are decorated like Hugh Hefner's mansion. A motel room with 2 beds is $400/week. He charges $400 for a 2BR, $600 for a 3BR. He was killing it before covid with 73 refinery contractors as tenants.

1 Reply

Sofia Sharkey

Property Manager · Kansas City, MO · Member since 2018 · 280 posts · 221 votes

6y

@Michael McCarthy the benefit is the increased CashFlow. Period.

Other things to consider might be that the units are professionally cleaned multiple times a week so they are kept up.

However, do you have experience managing STRs? Many people do it themselves but most have no clue how to do it right to maximize earnings or to keep them filled. They either under price, over price, or don’t have the customer service needed.

Managing STRs requires research, systems, and lots of time (24/7) - even if you bring in technology to help.

1 Reply

Mike Shemp

Rental Property Investor · Stewartsville, NJ · Member since 2016 · 419 posts · 280 votes

6y

My personal opinion is to make sure that at least you, or your partners, is familiar with the area you want to invest in with a short-term rental. There are many great markets to invest in, but every market (especially vacation areas) have their places that just aren't as great for one reason or another. I think it is important that you or someone on your team you are putting quite a bit of trust in other folks.

As an example, we invest in the Outer Banks and White Mountains and there are certain areas, streets, etc. that I would not invest in, even though we love these markets and invest in these markets today. This is because we have been going to these areas for years, different seasons/times of the year, and have literally driven every single road that exists in these places over and over to the point when we see a home on a real estate web site we say "Oh, I know where that is".

Mike

0 Reply

Tonya Copeland

Investor · Member since 2020 · 7 posts · 1 vote

6y

I agree with your insights. I've also been running STR and the net rental yield is typically twice higher than those from long term rentals. It definitely requires lots of researches and studies in the beginning, but it's worth it.

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Michael McCarthy

OP

Member since 2020 · 3 posts · 1 vote

6y

Thank you to eeryone who replied! It has been awesome to see everyone give some great advice here! @Luke Carl and @Julie McCoy I totally agree that I am a total rookie at this and please give me all the feedback you got, whether kind or harsh, all feedback is needed and appreciated! I definitely sound like a rookie when I also mix up my terms, but y'all knew generally what i meant so thanks for helping me out too. @Avery Carl I have heard your podcast and thought it was great!

@Mark Miles and @Michael Baum, thank you for the solid advice too. I would love to hit y'all up and get some advice about your beginnings into STR. I would been keen to hear about y'all journey and first steps you took in your first STR. Anything to help map out my blueprint.

I definitely am decided on the STR with the increased cash flow and investing in areas that I enjoy to spend time in. I want to build a business plan and blueprint before I take my first steps, so I will be definitely reading more, asking more questions, sounding like a newbie at times, and working to get as much knowledge as possible!

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Alice Horn

Property Manager · Kissimmee, FL · Member since 2019 · 446 posts · 266 votes

6y

Agree with all the above comments. Running a portfolio of vacation rental properties is a sophisticated and complex hospitality business. It requires years of experience, the right tools and software, the right staff and much more to do it well. Having said that, you need to start somewhere! If you are passionate about the opportunity, start small with one or two units and fine tune your approach. You will then be in a better position to attract investors.

Good luck!

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Making the leap into STR vs Buy & Hold

Making the leap into STR vs Buy & Hold

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