Costs related to short-term rentals vs long-term rentals
Member since 2021 · 16 posts · 5 votes
Costs related to short-term rentals vs long-term rentals
Most Popular Reply
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 487 votes
2yQuote from @Matyndia Oyourou:
Hello, I am starting on my real estate investing journey. My goal is to buy a multi-family unit and house hack in Houston, Texas. I am trying to decide between renting out the remaining units short-term vs long-term and would like to know the costs involved with each. What are the fixed and variable costs associated with having a short-term rental vs long-term rental? What are some unexpected costs? Thank you in advance for your valuable feedback!
You also have the "cost" of your time, which will vary a lot, especially as you ramp up while learning the STR ropes. After 10 years of hosting, I don't spend much time each month on my 4 STRs, but newbies who like to watch their cameras, obsess about a lot of (often unnecessary) details, and pile on a bunch of tech (channel managers, dynamic pricing tools, etc.) all at once will spend MUCH more in time, and that's worth something for sure.
15 Replies
- 2yJonathan GreeneBusiness MemberReal Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
Your main difference is that you have to outlay cash to furnish short- or mid-term rentals, whereas you do not for long-term rentals. You also need all kitchen stuff, towels, sheets, etc. For short- and mid-term rentals, you also have cleaning costs associated per stay.
With that said, you should be able to at least 2x minimum on any short-term over long-term and in some areas 4-5x.
- 2yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
House hacking with a multi-family unit sounds like a great way to kick off your real estate investment journey. Short-term rentals come with fixed expenses like licensing, listing fees, and optional property management and furnishings. Variable costs include cleaning, linens, guest amenities, and utilities, with unexpected expenses like guest damage and turnover. Long-term rentals have their own set of fixed expenses such as background checks and optional property management, with variable costs like vacancies, evictions, and utilities, and unexpected expenses like tenant damage and unpaid rent. To make the best choice, consider your time commitment, risk tolerance, and do some research on rental rates in your target area.
- Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 487 votes2y
Quote from @Matyndia Oyourou:
Hello, I am starting on my real estate investing journey. My goal is to buy a multi-family unit and house hack in Houston, Texas. I am trying to decide between renting out the remaining units short-term vs long-term and would like to know the costs involved with each. What are the fixed and variable costs associated with having a short-term rental vs long-term rental? What are some unexpected costs? Thank you in advance for your valuable feedback!
You also have the "cost" of your time, which will vary a lot, especially as you ramp up while learning the STR ropes. After 10 years of hosting, I don't spend much time each month on my 4 STRs, but newbies who like to watch their cameras, obsess about a lot of (often unnecessary) details, and pile on a bunch of tech (channel managers, dynamic pricing tools, etc.) all at once will spend MUCH more in time, and that's worth something for sure.
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
The main issue with multifamily STR deals is financing. I'm not sure what unit count you are looking at, but most 5+ unit buildings need to be LTRs, but anything 2-4 unit multifamily can easily be done with A DSCR loan for short-term rentals.
- Member since 2021 · 16 posts · 5 votes2y
Quote from @Tanner Lewis:
The main issue with multifamily STR deals is financing. I'm not sure what unit count you are looking at, but most 5+ unit buildings need to be LTRs, but anything 2-4 unit multifamily can easily be done with A DSCR loan for short-term rentals.
Thank you for the valuable information! I am looking for a 2-4 unit multifamily and planning to house hack. This is my first time hearing about DSCR loans. I plan to do my research on this type of loan. Do you know if the loan allows you to use the property as a primary residence?
- Member since 2021 · 16 posts · 5 votes2y
Quote from @Jay Thomas:
House hacking with a multi-family unit sounds like a great way to kick off your real estate investment journey. Short-term rentals come with fixed expenses like licensing, listing fees, and optional property management and furnishings. Variable costs include cleaning, linens, guest amenities, and utilities, with unexpected expenses like guest damage and turnover. Long-term rentals have their own set of fixed expenses such as background checks and optional property management, with variable costs like vacancies, evictions, and utilities, and unexpected expenses like tenant damage and unpaid rent. To make the best choice, consider your time commitment, risk tolerance, and do some research on rental rates in your target area.
Hi Jay! Thank you for the wealth of information you provided me. You gave me a lot of important factors to consider, like licensing and listing fees. Thank you
- Member since 2021 · 16 posts · 5 votes2y
Quote from @Jonathan Greene:
Your main difference is that you have to outlay cash to furnish short- or mid-term rentals, whereas you do not for long-term rentals. You also need all kitchen stuff, towels, sheets, etc. For short- and mid-term rentals, you also have cleaning costs associated per stay.
With that said, you should be able to at least 2x minimum on any short-term over long-term and in some areas 4-5x.
Thank you for the information!
- Member since 2021 · 16 posts · 5 votes2y
Quote from @January Johnson:
Quote from @Matyndia Oyourou:
Hello, I am starting on my real estate investing journey. My goal is to buy a multi-family unit and house hack in Houston, Texas. I am trying to decide between renting out the remaining units short-term vs long-term and would like to know the costs involved with each. What are the fixed and variable costs associated with having a short-term rental vs long-term rental? What are some unexpected costs? Thank you in advance for your valuable feedback!
You also have the "cost" of your time, which will vary a lot, especially as you ramp up while learning the STR ropes. After 10 years of hosting, I don't spend much time each month on my 4 STRs, but newbies who like to watch their cameras, obsess about a lot of (often unnecessary) details, and pile on a bunch of tech (channel managers, dynamic pricing tools, etc.) all at once will spend MUCH more in time, and that's worth something for sure.
You made a great point about treating time as an important part of my analysis. What do you consider are some things worth spending time on while managing STRs and what do you consider unnecessary details? Thank you for sharing!
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
When you first start investing in real estate in Houston, Texas, you might want to think about house hacking. There are both fixed and variable costs associated with renting out apartments in a multi-family building for short- or long-term periods of time. Mortgage payments, real estate taxes, utilities, property management fees, landlord insurance, and upkeep and repairs are examples of fixed expenses. Mortgage payments, property taxes, insurance, and property management fees are examples of fixed costs. Furniture and amenities, cleaning and turnover expenses, and maintenance and repairs are examples of variable expenditures.
Mortgage payments, real estate taxes, insurance, property management fees, utilities, upkeep, and repairs are examples of fixed costs. Cleaning and turnover expenses are examples of variable costs, and they could be more for short-term rentals. When you are organizing your real estate investing endeavors, these up-front expenses must be taken into account.
Good luck!
NETWORTH BUILDERS5236 Reviews - Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
Quote from @Matyndia Oyourou:
Quote from @Tanner Lewis:
The main issue with multifamily STR deals is financing. I'm not sure what unit count you are looking at, but most 5+ unit buildings need to be LTRs, but anything 2-4 unit multifamily can easily be done with A DSCR loan for short-term rentals.
Thank you for the valuable information! I am looking for a 2-4 unit multifamily and planning to house hack. This is my first time hearing about DSCR loans. I plan to do my research on this type of loan. Do you know if the loan allows you to use the property as a primary residence?
You cannot do so as they are strictly investor loans. If you are looking to do this owner-occupied, conventional may work, but if you have issues qualifying, you can run the numbers as a non-owner-occupied property and pursue a DSCR loan.
- Member since 2021 · 16 posts · 5 votes2yI am able to qualify for a conventional loan with a 5% down and an interest rate of around 7.5%.
Quote from @Tanner Lewis:
Quote from @Matyndia Oyourou:
Quote from @Tanner Lewis:
The main issue with multifamily STR deals is financing. I'm not sure what unit count you are looking at, but most 5+ unit buildings need to be LTRs, but anything 2-4 unit multifamily can easily be done with A DSCR loan for short-term rentals.
Thank you for the valuable information! I am looking for a 2-4 unit multifamily and planning to house hack. This is my first time hearing about DSCR loans. I plan to do my research on this type of loan. Do you know if the loan allows you to use the property as a primary residence?
You cannot do so as they are strictly investor loans. If you are looking to do this owner-occupied, conventional may work, but if you have issues qualifying, you can run the numbers as a non-owner-occupied property and pursue a DSCR loan.
I would like to know how down payment requirements and interest rates for DSCR loans compare to conventional loans.
- Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 487 votes2y
Quote from @Matyndia Oyourou:
Quote from @January Johnson:
Quote from @Matyndia Oyourou:
Hello, I am starting on my real estate investing journey. My goal is to buy a multi-family unit and house hack in Houston, Texas. I am trying to decide between renting out the remaining units short-term vs long-term and would like to know the costs involved with each. What are the fixed and variable costs associated with having a short-term rental vs long-term rental? What are some unexpected costs? Thank you in advance for your valuable feedback!
You also have the "cost" of your time, which will vary a lot, especially as you ramp up while learning the STR ropes. After 10 years of hosting, I don't spend much time each month on my 4 STRs, but newbies who like to watch their cameras, obsess about a lot of (often unnecessary) details, and pile on a bunch of tech (channel managers, dynamic pricing tools, etc.) all at once will spend MUCH more in time, and that's worth something for sure.
You made a great point about treating time as an important part of my analysis. What do you consider are some things worth spending time on while managing STRs and what do you consider unnecessary details? Thank you for sharing!
IMPORTANT:
--Guest communications, including setting up your automated messages--Price adjustments (key into seasonal pricing and important events in your area)
--Listing description and noting amenities
--Guest reviews
--Learning from experienced hosts with great reviews (you can do this on many social media sites, including the Facebook group, Short Term Rental, Long Term Wealth)
UNIMPORTANT:
--Watching your Ring Doorbell camera--Obsessing about minute details that other hosts are freaking out about
--Being a control freak about ANYTHING related to this business. You just cannot control it all.
- Member since 2021 · 16 posts · 5 votes2yThank you for elaborating!
Quote from @January Johnson:
Quote from @Matyndia Oyourou:
Quote from @January Johnson:
Quote from @Matyndia Oyourou:
Hello, I am starting on my real estate investing journey. My goal is to buy a multi-family unit and house hack in Houston, Texas. I am trying to decide between renting out the remaining units short-term vs long-term and would like to know the costs involved with each. What are the fixed and variable costs associated with having a short-term rental vs long-term rental? What are some unexpected costs? Thank you in advance for your valuable feedback!
You also have the "cost" of your time, which will vary a lot, especially as you ramp up while learning the STR ropes. After 10 years of hosting, I don't spend much time each month on my 4 STRs, but newbies who like to watch their cameras, obsess about a lot of (often unnecessary) details, and pile on a bunch of tech (channel managers, dynamic pricing tools, etc.) all at once will spend MUCH more in time, and that's worth something for sure.
You made a great point about treating time as an important part of my analysis. What do you consider are some things worth spending time on while managing STRs and what do you consider unnecessary details? Thank you for sharing!
IMPORTANT:
--Guest communications, including setting up your automated messages--Price adjustments (key into seasonal pricing and important events in your area)
--Listing description and noting amenities
--Guest reviews
--Learning from experienced hosts with great reviews (you can do this on many social media sites, including the Facebook group, Short Term Rental, Long Term Wealth)
UNIMPORTANT:
--Watching your Ring Doorbell camera--Obsessing about minute details that other hosts are freaking out about
--Being a control freak about ANYTHING related to this business. You just cannot control it all.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
1. Furnishing the unit
2. Replacing consumables, broken or stolen furniture
3. Utilities, to include TV and internet
4. Landscaping
5. Short-term rental insurance
6. Marketing, to include hosting fees
7. Extra taxes (I think it's 8.25% for Houston)
8. Maintenance
9. Professional management
10. If you self-manage, account for your time (which most STR managers don't do)
11. Vacancies
12. HOA fees
There may be more. Most STR owners that I encounter love to brag about how much money they bring in, but then don't account for all their expenses and they certainly don't account for the cost of their time. If they honestly account for everything, they would see that they don't earn nearly as much as they think.
The DIY Landlord Book4.7243 Reviews - Member since 2021 · 16 posts · 5 votes2yThank you for the detailed list. You have given me a lot of factors to consider!
Quote from @Nathan Gesner:
1. Furnishing the unit
2. Replacing consumables, broken or stolen furniture
3. Utilities, to include TV and internet
4. Landscaping
5. Short-term rental insurance
6. Marketing, to include hosting fees
7. Extra taxes (I think it's 8.25% for Houston)
8. Maintenance
9. Professional management
10. If you self-manage, account for your time (which most STR managers don't do)
11. Vacancies
12. HOA fees
There may be more. Most STR owners that I encounter love to brag about how much money they bring in, but then don't account for all their expenses and they certainly don't account for the cost of their time. If they honestly account for everything, they would see that they don't earn nearly as much as they think.
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