Getting Started in Short Term Rentals (STR)
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!