Long Term Rentals vs AirBnB Investing

99 Replies

@Alex Wise

Hey Alex, thanks for asking this. I’m gonna throw in a additional twist. I’m in the process of purchasing a four bedroom 2 1/2 bath property in Atlanta Georgia. I’m converting it into an eight bedroom three bathroom property. If I were to put a single family in here I can probably get $1600 a month. My Gross revenue is going to be upwards of $5000 a month because I intend to rent it out by the room. $150 Per week for every room except for the master which will be $199 a week. Yes, there are expenses involved in and a little bit more headache but somebody will always need a room regardless of the economy. My target demographic is Single men who make less than $30,000 a year. I’m using a company in Atlanta called Padsplit to acquire, screen, and place the tenants. This may be something to consider if you’re looking for something in between. You may not have a Pad split in your town but you can always learn how to rent out by room or look at student housing.

You might make more with AirBNB, but they are a lot more work.  You have regular marketing, higher turnover meaning a wide range of clients and will have more in repairs.

With arbitrage, you need to make sure the person who owns the house knows exactly what you are doing as many won't allow you to operate a business out of it (nor will their insurance) or sublet (which is effectively what you are doing).

I only do long term rentals, but a friend only does short term rentals.  He does pretty well, but has to leave work at all hours which means you need a certain type of job or to be able to hire people.

I've been thinking the same for my first investment, after recently staying in our first air bnb. A lot of good info on this thread.

From everything I have read, if done right STR seems to produce better cash flow, but also comes with more risk of bigger gaps of vacancy.

Hope to keep learning more off this thread. Thank you all for the time and help.

Good info, I appreciate it.   I have all LTR except for 1 furnished MTR. 

Question- how is depreciation handled with an STR?

LTR rent is passive, STR income is ordinary, correct? Gotta pay SE taxes and all that?

Haven't seen tax considerations as a factor to help decide to go one way or the other. 

2021 is an aberration , even otherwise TN & smokies in general are super hot markets. The Occupancy rates & nightly rates have doubled and so has selling price .. the reason I like STR over LTR is due to the cash flow % being higher , it is a big enabler in rolling the dice for successive purchases ...a 400$ cashflow per month is stable but I personally  dont know of any other way to increase purchasing power . BP has a lot of forums for creative investing. Expenses are higher in STRs however with a good team on the ground , much of the additional "aches" can be delegated


 
Originally posted by @Alex Wise :

@Gururaj Iyer

I mean the numbers I'm hearing are insane on some of these STR. Theres a guy I've followed for awhile on Social Media who has four modest homes around TN and is bringing in more than $40k/month between them.

Happy to pay management costs. I can’t imagine he’d be at a loss unless he tried.

@Steve Vaughan nope STR income goes on a Schedule E and is treated just like LTR income as long as one does not provide substantial services during guest stays like a bed and breakfast or hotel would (meals, cleaning services, etc). In addition if one materially participates in their RE business you can even offset active income, ie by using cost seg. to accelerate your depreciation. I'm sure your tax pro can fill in the gaps! Search Brandon Hall Short Term Rental on YouTube and you will pull it up.

@Alex Wise We do both STR and LTR.

We did a BRRR for our LTR in a market with lots of renters. The STR is in a vacation market. When Covid hit we got a ton of cancellations. We pivoted and listed on Furnished Finders for travel nurses and Drs. Our STR also could work as an LTR if we needed to. This year we've been booked almost solid. Your house cleaner is your best asset pay them well.

@Alex Wise I was interested in this as well, but what I ended up finding was that the cost of managing one outside of my area was so high, (property management and turn over service) that I would be better off brrrring here for a little while.

I was looking in Florida and my down payment alone would’ve been $120k. That may have cash flowed a little better, but it would’ve slowed the rest of my investments to a crawl because I would’ve had all of my cash in one property.

That may not apply to you though, it’s just the conclusion I came to.

Originally posted by @Alex Wise :

@Connor Cushman

Which did you do first?

I bought an LTR first (lived in it for a year then moved and rented it out). I will continue to do that over the next couple of years because it basically costs me nothing. I'm an agent and I put minimal down so I can move into the next house using my commission. Meanwhile I'm saving for down payments on short term rentals. I'll be able to get away with doing the buy and move thing a couple of times before I have to use other strategies, but it's such an easy/cheap way to get started.

Originally posted by @Alex Wise :

@Jonathan Pavkov

Looks like you’re in Columbus so where are you hiding the duplexes, tris and quads??!

I’ve kept my eye on those for years and haven’t felt like there’s much around that isn’t a wreck or isn’t entirely out of my price point. Grandview and German Village is too pricey. Downtown spots aren’t a great area. Maybe I need to explore other parts of the city.

If you know where the deals are, let me know. :)

You need to cold call more! They are out there. You just need to know where to look. Columbus, Ohio is hot right now so there is a lot of competition. 

I work with investors regularly here in the Myrtle Beach, SC market. LTR vs STR always comes down to what the investors goals are. My experience in the current market is that STR through the AirBNB/VRBO has a much greater ROI. The challenge is getting into the right property to maximize that ROI. This market also has a shortage of LTR which folks are using while new homes are built for them.

Also don't forget to calculate ROTI (return on time invested). If you care about free/personal time, don't marry yourself to a part time job and do a long term rental with a good PM. If you have the time to spend, then shoot for the high ROI, but expect more work.

One more thing I'd like to say as well. STR's are not necessarily more work. They require more systems. You'll actually spend more time and money on an LTR if you have long term tenants in your place and you haven't seen inside the place for 12 months. Your repair costs are usually higher. If you have the right systems in place your place is constantly being cleaned, maintained, and small issues can be fixed immediately. Most STR's can be automated with the amount of tools that have been created. I'd actually say STR's are less work and less expensive in the long run due to the systems.

@Ronald Stanley

Student housing makes me nervous in theory but they are paying tenants aren’t they? Maybe I should explore that route more.

Essentially creating your own multi family unit by managing it per room.

Do you have them sign for XX months? Or go week by week?

Is it furnished or they do all of that for themselves?

I imagine once you get 8 different leases moving in and out at different times in one house, it could be a challenge but sounds like it would pay off.

Is this your only other income property?

@Theresa Harris

I think now could be the time because I do work remotely, but just because I don’t go into the office doesn’t mean I don’t have to be pretty responsive at work.

I could see where that would be hard to maneuver.

Thank you for your reply :)

@Brian Walters

And sounds like STR *could be* more labor intensive. That doesn't scare me too much right now just doesn't feel like Columbus is the right market for STR so I'd have to explore elsewhere.

I see you're in Vegas. That could be a good market for STR!

@Steve Vaughan

Good question Steve!

I just heard one of the Bigger Pockets "10 Questions" episode on July 18 where they addressed briefly taxes related to LTR. You might have that all covered but I don't think they spoke to STR.

I’d be interested to hear more on that too.

@Brian G.

Thanks Brian! When you say “meal, cleaning services” does that refer to AirBnB cleaning services and granola bars on the counter? I know via AirBnB, renters pay for the cleaning fee in addition to the nightly rate.

Or you’re meaning more significant services included in the price of the stay?

Thanks for the helpful reply!

@Justin Manges

That likely applies perfectly to me.

If I'm looking at an STR outside of Ohio, it would probably be out of state. I could stay there for awhile. I could even live in it until it's setup I suppose but that logistically sounds like a challenge.

So what are you thinking after you stay local a little while longer? Next steps?

@Remington Lyman

I’ll say I have more income than I did 5+ years ago when I was looking, but heavy handed investors had way more cash to make more appealing offers. I find if they are doing this full time they are likely old calling and working deals ahead of me too.

I haven’t explored that though so maybe I should.

@Jeremy Reynolds

Being from Ohio, I feel like Myrtle Beach could be a natural connection. Seems like everyone in Ohio goes to Myrtle Beach but maybe that’s everyone in the Midwest?!

I’ll connect with you on here as it would be nice to have somewhere to start if that made sense for me!

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