Rookie investor question...how do you decide between STR and LT?

Question

Hi everyone,

I am a new investor interested in multifamily investment opportunities in CT (looking at New Haven and New London right now). I have a day job as a strategy consultant and live in NYC, so I'm looking at markets that are more affordable than Manhattan.

I'm curious about both STR and long term rental properties. Is there a general consensus on STR vs long term rentals for first time investors? Is the learning curve steep for STR as a first property in terms of property management? How do you decide between doing STR vs long term? Would it make sense to use a multi-family to have both long and short term tenants in different units? I see some crazy numbers on AirDNA - is that an accurate gage of revenue potential?

I would love to connect with anyone thinking about similar investment strategies, realtors, or experts in the area.

Thank you and looking forward to connecting!

Ilgaz

William Collins · Answer

"I'm curious about both STR and long term rental properties. Is there a general consensus on STR vs long term rentals for first time investors? Is the learning curve steep for STR as a first property in terms of property management? How do you decide between doing STR vs long term? Would it make sense to use a multi-family to have both long and short term tenants in different units? I see some crazy numbers on AirDNA - is that an accurate gage of revenue potential?"

So I am an investor here in Connecticut.  Short-term rentals are a more active business model than long-term rentals. Long-term rentals are a business that is easier to place with property management and is more passive.  Truly excellent Property Management of Short Term rentals is something which is a totally different beast.  They need to constantly price adjust, field calls from tenants, rush fix issues, and turn over cleanings between guests.  Can this be done remotely or passively- yes but not at scale. AirDNA is a great data resource but you must also peel the onion. The dataset is three correlated but different factors: the property location, the property amenity, and the host factored against seasonality and tourism.   So a great house with a hot tub, with a crappy host will not be shown to clients or booked as much (remember AirBnB favors good ratings- it is an echo chamber).

I currently have/co-own about 51 units (selling/buying) all are long-term.   I am totally beginning to diversify to add short terms to the mix, but with totally different property management.  My goal is stable cash flow, with reserves, and seasonal cash flow which has the LTR underneath as a safety net.

Please let me know if that makes sense to you.

Ryan Newport · Answer

Hi @Ilgaz Arikan. Similar to what @Ryan Luby said, I have absolutely no personal experience in short term rentals, as of right now. I do have colleagues and friends that own some in and around Connecticut though. So for what it's worth, I'd be happy to share what I know with you from what I've learned from them.

Past that, I am a buy&hold investor focused in the central CT markets, and also flip properties as well. I'm currently house hacking in Meriden, CT to top it off (which I find to be a fantastic buy&hold market, but likely not a fantastic STR market). Ryan Luby is a great resource for the southern markets around New Haven. If you're looking for any insight in other areas to broaden your knowledge of the state, please don't hesitate to reach out to me.

Ryan Newport · Answer

@Michael Noto @Ilgaz Arikan, What I will say though however, is that I do have a couple colleagues that specifically have STR around New Haven targeting travel nurses and transplant patients, and college areas. I think there's definitely value in these niches, but it requires research. But, imagine having a travel nurse rent your air bnb for top dollar for 60-120 days straight, or a transplant patient that is required to be located close to a hospital 90 days prior and 90 after their surgery. They're saving money at your air bnb vs a hotel, and you're definitely getting an extremely high quality "short" term renter. Another important note is that New Haven just recently open up 6 new direct flight routes out of the Tweed Airport to 6 different cities in Florida. I think paying attention to factors like this helps make decisions for STR strategy. But Michael is definitely correct in a sense that CT is certainly not a vacation destination in nearly any way besides the Casinos.

Tracy Opoku · Answer

@Ilgaz Arikan welcome! I too am a long term buy and hold investor in CT. I currently househack in Manchester and am working on putting a few others under contract. I know of folks who have LTRs near bodies of water (Mystic, Goshen etc) and I’ve looked into it but not nearly enough to provide any sort of advice. Like others have said, you’d need to check out the municipal laws and run your numbers to make a determination about the viability of an STR in that space. If you’d like to talk about long term rentals I’m happy to help! @Ryan Luby hosts a great new haven meet up as well. Hope this helps!

Mat O'Grady · Answer

@Ilgaz Arikan

Hello and welcome to the site. @Francois Martin is very experienced in STR in New London. He is doing them with multi-family properties as well.

I have a few long term multi-family properties. I have thought about trying the STR game, but there seems to be a lot more work that goes into them over the long term or you need to be able to find people who can run all the systems for you.

Zachary Beach · Answer

@Ilgaz Arikan are you looking to run a business that you are always either on call or is not profitable or are you looking for passive income or something in the middle. If you want passive once you find a team than you need a great management company either for STR or LTR. If you want in the middle than self management of LTR in a C+ or higher area is probably the option. If you want to do a short term rental you are starting an active business and if done correctly you will make much more money but depending on your skill and the systems you create and master the work to extra income may be less than a different job or business and you need to look at work seasonality and risk not just one aspect. I have a mainly STR portfolio but we started a management company that has a half dozen full or close to full time workers because we felt that at the time the 3 STR’s we had was so much work we needed to either go bigger and outsource or stop because it was driving us crazy we also have basically 90+ percent occupancy year round and have check in’s and outs basically every day. STR’s or more like a restaurant business than a LTR if you are really getting the top profit. I also have a few LTR’s with a management company and they have been very solid for around 10% CoC and have also had a ton of appreciation. They have been almost completely passive.

William Collins · Answer

@Ilgaz Arikan  I am mainly saying that short-term rentals may force you into property management faster, and still could have better numbers. The margin for getting it right is smaller than LTR.  Short-term rentals have a greater amount of moving parts and more real-time demands.   But this may be an equation of "Who not how". You may just need to solve for that management aspect first.

Ilgaz Arikan · Answer

@William Collins thanks for your thoughtful reply. Based on these responses, I am understanding that the management of a STR is a serious time commitment/should not be underestimated. In terms of my realistic personal bandwidth over the next 3-5 years, LTR may be a better fit for my lifestyle. I work a fairly demanding W2 and will continue to do so in the near term, so I think LTR is the way to go as it is more passive. STRs just look so attractive based on those numbers...

Bruce Woodruff · Answer

It sounds like you have a well run operation. I was thinking tenant turnover once a year and a week-long+ fixer-upper period. If I could guarantee your results it might be different....but now that I'm spoiled by STRs it's too late :-)

Rookie investor question...how do you decide between STR and LT?

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