Getting Started in Short Term Rentals (STR)

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I've posted fairly regularly about the success that my wife and I are having in STR at the beach in Carolina Beach, NC, and its generated some questions, but one that keeps repeating. I thought I would take a minute to give my opinion on the best way to get started with a short term rental property, whether it be AirBNB, VRBO, Booking, Travelocity, Expedia, Etc. (We use all platforms to maximize bandwidth)

So first of all, it’s really important to reverse engineer what you want your end result to be. Of course everyone wants to make a bunch of money from a business you run from your phone (and it actually is possible, and it’s awesome, just takes a TON of work up front) but I would recommend breaking down your goals into bite-sized chunks. Let’s say you want to have a duplex or triplex operating in a good short term rental market within a year. In our market, a duplex like the first one my wife and I bought that’s a couple blocks to the beach, staged really well, great pictures, good marketing, pays all of the debt service, taxes, insurance, and our net on the property is 50-55k a year. But lets just say that as a median performer, you want a duplex/triplex operating, and you need it to pay for itself, and make you a couple thousand dollars a month over a yearly average. Here’s how I would go about mentally organizing that journey, I’ll keep it as brief as I can while still trying to communicate the value.

Take a self inventory of what you have.

1) Do you have money to spend? Obviously for most new investors, the answer is No. Ok, that’s fine, we didn’t either on our last deal.

2) Do you have family or a retirement account that you might be able to partner with or convert to self-directed IRA? Again, for most of us the answer will be no. Ok, that's fine. The point is, don't stop.

3) Do you have the experience of running a successful rental or a well performing property, or are you able to show a track record of a small flip or renovation that increase the value of a property? For many, that answer is still no. That’s fine, it’s your reality, embrace it, and adjust course. Starting to see a pattern here? Perseverance and being honest with yourself are crucial.

4) This question is probably where a lot of people land. Do you have the knowledge of what makes a STR rental successful and how it operates? Have you educated yourself on the process, on what it takes to choose a market, to stage, to set up the profiles, to manage the calendars, to automate the guest messaging? Maybe the answer is "yes", but if you're not currently operating, then it's probably "No" or even "I don't know". And you know what? That's great, because "I don't know" is still an answer. "I don't know" or "I'm not sure", or even "Well, I think so" are answers that imply a certain level of ignorance. That's not a bad thing, ignorance is just the lack of education on a subject, and boy do I have some good news for you. Education is free. The resources are endless on educating yourself and digesting data on what makes a certain market at A or an A+ in the STR market. AirDNA.co (I know I keep yammering on about this, but the data is extremely helpful) is a great place to start. Dig in to the data, look at the occupancy, average daily rate, seasonality, regulations, etc. The data is there, it's your responsibility to metabolize it. After that, look at operations. There are countless articles, some of which I've written and posted, that are all about staging, marketing, streamlining, automating, etc.

If you don't have money, or access to money, or experience, then the one thing that you can get for free is education. Once you can talk the talk, and actually analyze a property, or help someone with an underperforming property, you have created real and true value for yourself. At that point in time, you have something that makes you a commodity. You've spent 6 months building your knowledge base, and you know more than most of the people around you in your market. So you still can't afford to buy a place, but with your knowledge, what about renting a long term unit, and then operating STR out of it? This is called Arbitrage, it's legal, and it can generate tremendous cashflow. My wife and I have an arbitraged triplex, we pay 36k a year to lease the entire triplex, and our gross rents are 125k over a yearly average. Not only that, once we were able to clearly and articulately explain our plan and educate the property owner on how we were going to execute, he was willing to defer rent for the first 2 months while we got up and running. We used an interest free credit card to stage, and were caught up on rents by the end of the second month, had the furniture paid off by month 4, and kept rolling. For us, this was a no money down deal that was solely based upon our education, and ability to communicate our ability to execute.

Think that’s a stretch? It worked for us. You might have to make 20-30 or 50 phone calls to properties up for rent, or expired listings before you find someone willing to partner with you, but again, that part is free, what do you have to lose? If you aren’t able to communicate that the owner still gets paid, the property is cared for and cleaned really well constantly, and you’re actually adding a lot of value to the property because of the new rental history, then you probably need to keep educating yourself until you that message becomes clear.

Even if that avenue isn't for you, with your new-found education, I see people every day on the FB AirBNB Superhost group that are looking for co-hosts that know how to operate. Even as a 10% or 15% cohost, you're now getting paid to operate a STR, and you just went from education to EXPERIENCE.

In summary, if you think you have nothing to offer, and no way to get started, then take it upon yourself. Educate yourself. Education can be leveraged into experience. Experience can be leveraged into cashflow, and cashflow can be turned into ownership/partnership. We went from zero experience with STR to 8 units in 9 months. Educate yourself!

Hey Clint,

Thanks for sharing that. This would make a great blog post. Thanks for being vulnerable and sharing real numbers. This has me motivated...I'm not looking at my vacant units thinking on whether or not I should try and find a cohost to partner with to make them an AirBnB!

Thanks for sharing @Clint Harris ! I've been using Airdna to analyze markets, but currently only use the free version. The info is limited, but it gives me a rough number for daily rate & occupancy. 

Have you upgraded on Airdna? Do you use the state specific upgrade or the national? I feel like it's so pricey to have access to all the numbers. What is your opinion?

I have a subscription that focuses entirely on my local market which is the island of Carolina beach in North Carolina. I think the important thing to note is that with any subscription, no matter the size, it gives you access to the Rentalyzer. The Rentalyzer allows you to plug-in any address of any property in the world, and it will show you what the gross rents for that property should be over a year, and includes the occupancy, seasonality, average daily rate, etc. I use the rentalyzer more than anything. My recommendation is not to use AirDNA to search nationwide to identify what market you want to be in. You should always start in a market thats close by so you have the chance to get your systems in place, and then you can consider expanding from there. My recommendation is that once you have chosen the market you're going to be investing in, then use the air DNA data to do a deep dive

Originally posted by @Clint Harris :

 I have a subscription that focuses entirely on my local market which is the island of Carolina beach in North Carolina. I think the important thing to note is that with any subscription, no matter the size, it gives you access to the  Rentalyzer.  The Rentalyzer  allows you to plug-in any address of any property in the world, and it will show you what the gross rents for that property should be over a year, and includes the occupancy, seasonality, average daily rate, etc. I use the rentalyzer more than anything.   My recommendation is not to use AirDNA to search nationwide to identify what market you want to be in. You should always start in a market thats close by so you have the chance to get your systems in place, and then you can consider expanding from there. My recommendation is that once you have chosen the market you’re going to be investing in, then use the air DNA data to do a deep dive 

 The Rentalyzer is pretty awesome in theory, but it isn’t sophisticated enough to detect things like “this property is waterfront; this one isn’t”. Or “this property was recently renovated; this one wasn’t.” Or “this property is cabin-style which is more attractive than its drywall-based neighbor”. It does give basic directional advice though - you can see in general which neighborhoods tend to earn higher gross rents. As always, caveat emptor!

Absolutely agree that it’s not perfect, and I wouldn’t use it for long distance investing because you need to KNOW the market and have eyes on.  What I like is that it runs everything as median performer in that market.  Not median occupancy, but median performance.  That means it takes into account every property that has rented for at least one day a month for the previous 365 days.   That means someone has the worst rental, and someone has the best, and gives you the numbers on what falls right in between. I run an analysis on every property that we look at, our barrier to entry is that we want to cover all debt service, insurance, taxes, and still make a profit of $1000 per door per month over a yearly average. if the rentalyzer shows that metric, then we go for it, and so far have beaten that metric every time.  The rentalyzer originally showed the bottom half of our duplex as doing 43k, and we’re on track to do 57k this year. If you use the numbers and data to drive your analysis, you set yourself up for happy surprises instead of bad ones.  Again, couldn’t agree more that the rentalyzer isn’t carved in Stone accuracy, but so far we’ve been able to beat the rentalyzer metrics by at least a 20% standard deviation on all of our listings, so it’s a great benchmark for us.

Originally posted by @Clint Harris :

So you still can't afford to buy a place, but with your knowledge, what about renting a long term unit, and then operating STR out of it? This is called Arbitrage, it's legal, and it can generate tremendous cashflow. My wife and I have an arbitraged triplex, we pay 36k a year to lease the entire triplex, and our gross rents are 125k over a yearly average. Not only that, once we were able to clearly and articulately explain our plan and educate the property owner on how we were going to execute, he was willing to defer rent for the first 2 months while we got up and running. We used an interest free credit card to stage, and were caught up on rents by the end of the second month, had the furniture paid off by month 4, and kept rolling. For us, this was a no money down deal that was solely based upon our education, and ability to communicate our ability to execute.

Clint - your wisdom has helped me so much! I am also just getting started in STRs. Can you give some advice on how to present the Arbitrage plan to a prospective client to show it is a win-win situation? Do you offer a premium percentage to the owner based on the income you make above your lease price?

It’s your responsibility to educate the property owner as to why you will be the best tenant they have ever had. If people arent going for your pitch, then you arent presenting it in the right way.  Here’s what you need to communicate. 

"I will be the best tenant you have ever had. I will have professional cleaners in your property every 2 to 5 days, if anything ever breaks like a window or a ceiling fan, it is no longer your responsibility to fix it as the property owner. It's my responsibility. I take care of making sure it gets done before the next guest arrives. The people coming in and out of the property use it sparingly instead of living there permanently, so your Cap X are lower, and your appliances and flooring will last longer. I'm adding tremendous value to your property in terms of Gross rents. When your property generates $30,000 and the identical property across the street generates $12,000 that adds value and build equity for you. Paid first. We pay you on the first of every month, if we do a good enough job, then we get to keep what is left over above the rent, but you always get paid first, your property continues to go up in value, someone else is paying the mortgage for you, and we are adding forced appreciation by keeping it nice, and pumping rental income through your property."

 I typically offer market rent, or slightly above. You can offer some kind of profit share like up to five or 8% if you think that’s a creative solution that will get the deal done. The best thing to do is to target multi family properties where you have already run the metrics through air DNA and know that they will perform nicely. Once you get one unit, even if they just give you one to try out, as soon as the other tenants contracts are up, if you are operating correctly, they will give them to you. This strategy is a dream for a passive investor. They just sit back and collect money, and you take care of the property.

Great post, thanks for the food for thought.  We are currently using airdna's investment explorer to help hone in on a market for investment.  It's very helpful, and I would say the paid subscription for 1-state is definitely worth it for this purpose.