Best ways to break even or profit on short term rentals (STR)?

[Eric Baron]

Hello, 

I was really excited about the prospect of purchasing a STR (my goal was one in Breckenridge and one in Hilton Head) to be able to use a couple times a year personally and then use as a STR the rest of the year. I would need to hire a full time management company for the STR. My goal was to hopefully break even at minimum, if not turn an eventual small profit. I just didn't want it to put me in a financial deficit each year. After all, that's what investments are supposed to do, right?

However, after talking with several people in the industry including veteran realtors (whom I am working with to find properties of interest) that work specifically in these cities and with people that mostly buy for STR, they say most people are lucky to break even who own a STR and most do not profit. That was a bummer to hear from several different people, and I'm not clear what major benefit having a STR would be at this point. So now I'm rethinking if it would be worth it, or would I more likely lose a lot of money each year? If I could break even and it would be a place to stay a couple times a year for free (well not really, but you know what I mean), then I would be ok with that. However, if investing in any property including a STR, I would hope to actually make some profit from it.

So it seems to me that finding a super low rare deal (which I don't expect in these areas), and/or paying off the majority of the STR when purchased rather than financing the majority would be the most likely way to break even or perhaps make a profit. Am I wrong? I realize a lot of factors come into play including location, % that management companies keep, etc.

With all of that said, here is my main question. What are the ways that a STR purchase (especially in these 2 areas) would result in breaking even or perhaps even a small profit? Specifically, is there a certain % to pay off when purchased that would be suggested in this scenario (beyond a typical 20% down, and I realize the more the better, but am looking for the minimum suggested), or other recommendations/thoughts that may lead to this end result of break even or profitability?

Thanks in advance!!

[Amy Nakos]

I just responded to a similar thread a few days ago. here was my response: 

I work in the Breck market and have for 17 years. I have STR rental examples on my website along with a spreadsheet you can download that assumes a 10 year hold with certain appreciation and rental increase assumptions. I have run numbers in this market thousands of times and the secret sauce is how much you can make and keep on your rental revenue. 100% cash expect a 2-3% cash on cash return first year, no tax benefits assumed. With a loan you are subsidizing. Prices are high because people don't care if it cash flows - they want to use it for fun and offset expenses with rentals. Be aware of transfer taxes, condo tels, STR regs as they relate to septic, wells, and of course special assessments. Amy

I will add that a 50% LTV may get you close to breaking even.