Love it Erin. The hysteria is hilarious. We have 6 STRs in Colorado Springs. Yes, like everyone else, we lost $10k+ in reservations in a very short period of time in Mid-March. However, like any smart investor, we quickly pivoted, dropped our rates, gave discounts for 3-6 week stays, and ended up at 93% occupancy for March and 98% occupancy for April.
The world did not end... Yes, we rented "nightly" rates lower than we had ever done before ($45/night was our lowest we went on one of our 1 bed/1bath guesthouses for April). However, last I checked, $45*30=$1350 for the month. We would MAYBE get that as a long term rental year round, but more likely $1200/mo for that unit on a long-term lease. And this was not an everyday, common situation that everyone plans for. This was a massive, world changing and UNCOMMON pandemic.
Now, we sit here in Mid-May getting nonstop bookings from people dying to get out of their home (most seem to be coming from the mid-west and want to come out and hike in our lovely mountains). We are back up to getting $75-125/night depending on the time of the week. I feel bad for those STR investors who went into full panic mode in Mid-March and converted all their STRs into year-long leases. At least in our area of Colorado (Colorado Springs), the summer is where we make approximately 80% of our net income for the year. We didn't want to miss out on that upside IF the rona had a chance of subduing and life went back to somewhat normal at any point during the summer. There was risk that it could have lasted way longer and it would've hurt us more than if we had just converted to LTR early on, but we calculated that the upside was worth the risk. It was also pleasantly surprising how quickly we were booked in 5 of our units for 3-6 week stays THROUGH the Airbnb app. I guess I forget how many people STILL need a place to stay in-between houses or traveling work. Two couples had sold their house faster than they thought, and their new house wasn't done being built yet. Another guy was trying to buy a place out here but was from out-of-state and so he wanted to come out for a 4 weeks as he looked for another place. There are a lot of these people out there.
Low barrier for entry:
Yes, STRs lowered the bar for everyday folks with limited capital to get into the real estate game/biz. Lots of people got in and everything was honky-dory. A lot of people got hooked on the massive cash-flow and then went super leveraged to get all they could and grow fast. I'll admit, my wife and I totally did the same. Instead of stock-piling our reserve accounts, we got more units via house-hacking and 5% down every year. And honestly, we don't regret it at all and are very excited for what the future brings. Even with big hits to the economy, we could take close to a 50% reduction in revenue for the year and still come out better than if we just switched to LTRs. Yes, STRs take way more work and is definitely more of a side-gig than a "passive" investment, but with systems in place and a great cleaning staff, most of it is automated and cruises on down the road with limited interaction.
One thing that we "knew" but didn't prepare for is just having more reserves - which everyone probably could admit that they "should" have more.
Anyways, Thanks Erin for the conversation starter and I hope those who are interested in just starting out with a house-hack AND STRs will still give it a shot because the upside is so awesome and the downside is you sell the furniture and convert to a LTR. Just make sure the numbers work both ways and you'll be golden. Shoot me a message if you ever want to chat into more details! I could talk about STRs all day long.
Cheers!
Michael
