Making the leap into STR vs Buy & Hold

[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!

[Mark Miles]

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!