STR (vacation rental) which one would you choose?

Question

Hoping I can get some wisdom from all the STR gurus. Here are the options I have.

Option 1:

Purchase price $201K

2 bed/ 1 bath

Conservative daily rate $200/night

Conservative occupancy 35% (annually)

Net cash flow monthly $250 (conservative)

Actual estimate through AirDna $338/nightly and 49% annual occupancy. I like to be conservative, though.

Initial investment $25K (10% down and closing)

Additional cash $10K (furniture and decorations)

Total cash investment $35K

Property is renovated and not much needs to be done.

Option 2:

Purchase price $305K

3 bed/3 bath

Conservative daily rate $325/night

Conservative occupancy 35%

Net cash flow monthly $400/month

Actual estimate through AirDna $450/nightly and 49% occupancy annually.

Initial investment $37K (10% down and closing)

Additional cash $15K (furniture and decorations)

Total cash investment $52K

Property needs work. It is rentable as-is, but to get top dollar it needs about $50K worth of work. Once work is done it could bring in between $550-$650/night.

Luke Carl · Answer

@Samir Solanki. Don’t bother with 35% occupancy market is my suggestion.

Ken Boone · Answer

I concur with what was mentioned above.  Why buy in a 35% occupancy market  when you can buy in plenty of other places with a much higher occupancy rate?  Unless you have a personal interest in using the place and cash flow is really not your goal I would not touch those.  Again, like others have said those numbers I can do on long term rentals which are almost 100% passive investments.  For me to purchase an STR, it has to do significantly better on the return than for an LTR.

John Underwood · Answer

I am focused on the cash flow you stated. My long term rentals cash flow more than either scenario above and are hands off for me.

So I would say neither would work for me. Too much work for too little money.

I cash flow about 2k a month on a mortgaged lake house. I know others that do way better than this.

Scott K. · Answer

You should be thinking in terms of ROI. Calculate how much total money will go into your investment, and how much you will get back per year, as a percentage of the initial investment. Choose whatever ROI is higher. This is how I choose what to do with my properties, whether it's flip, LTR, STR, or invest in some other asset or vehicle. Just a FYI I make $6k to $8k a month after expenses per house. But realistically it's not a competition, it's just what options are available to you, and which produces the highest returns.

Paul Sandhu · Answer

You could probably make more money and have less hastles if you rented them out as a long term rental.  People would provide their own furniture and utilities.

Michael Baum · Answer

Hey @Samir Solanki, like the others I like #2, but I would like to know where these are located. Location makes a difference in valuation. What other places are like yours in the area? Are there a ton of 2/1 units and only a few 3/3? Is it reversed?

What kind of views/amenities ? There are a lot of questions that need to be asked before a good judgement can be made.

Paul Sandhu · Answer

I would not do either if your monthly cash flow is a low 3 digit number.  One or two empty nights a month and you are negative.  Shoot for grossing your purchase price with 26 consecutive weeks worth of rent.  That's what my cousin does in a refinery town.  He's a redneck ruffian and I try to avoid him.

JD Martin · Answer

If you can afford the rehab then #2 seems like a clear winner assuming your numbers are right and that the market for that property exists, because you have a much higher top-end relative to the cost of the property.

I say this without judgement on whether either is a good proposition. I am making a binary choice here. It is completely plausible that your best option is to run in the other direction :)

STR (vacation rental) which one would you choose?

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