Long Term Rentals vs AirBnB Investing

99 Replies

@Avery Carl

The STR queen has spoken.

I own 5 LTRs. Purchased them turnkey and use PM on all of them. Passive income $200-400/month a pop. I'm working to add STR to my portfolio for the cash flow so I can scale my investments more quickly. I am only looking at ‘vacation' markets so I can also enjoy it for personal use.

@Stacey So

Thank you for sharing and yes, I didn’t realize she had been on the BP podcast more than once. Looks like she also posts some good content on IG I was checking out.

Glad to hear you’re having good success with LTRs and exploring STRs! I’m right there with you in thinking I can rent it from myself when I wanna :) haha

@Andrew Syrios completely agree. My STR ONLY works because I have the absolute best care takers for it. They have been cleaning and landscaping the place for years before I purchased it. It would be a nightmare to handle without them. The labor shortage is brutal at the moment

My next property will be a straight up rental. Will be an interesting experiment to see what works better for my situation.

Loving reading all the different perspectives.

@Alex Wise there is an Airbnb STR group of Columbus and Cincinnati based investors that meets through Central Ohio Real Estate Investors Association (2nd Friday of the month online). Columbus is a great market for Airbnb.

I have a vacation rental elsewhere and long term in Cincinnati. I have been looking at buying an existing STR in West coast of Florida the last couple of years but the gross and returns are less than I am used to with my investments, so not all STR are equal.

Good luck on your journey!

Originally posted by @Joe S. :
Originally posted by @Steven May:

@Alex Wise

I have 3 rentals. 2 are long term leases (1 year in length) and the 1 is a air bnb. I self manage all of them

The long term rentals are much much more passive. I usually go over and cut the grass during the summers, and assist in changing HVAC filters every 3 months. Takes me maybe 1 hour a month to manage these. I collect $250/mo from each house.

My air bnb is extremely time intensive. My air bnb is on my street so I still clean it myself between turnovers because I have a pretty flexible schedule. I do have a cleaner for when I’m not available but having a full time cleaner cuts into profits quite a bit. You have people coming and going every 2-3 days most of the time. The house needs a full cleaning in between each. Sheets and comforters can get stained. You have to stay on top of taking out trash. Managing keeping inventory of supplies like toiletries. People messaging you all the time and sometimes complaining about things. Then they give you a score out of 5 after every stay. Also, it’s very difficult to make repairs because the windows are tight.

For example, I need a plumber to come look at a slow draining washer drain and a appliance repair guy coming to look at a non spinning dryer. My turnovers consist of the client checking out at 11 AM and the next client checks in at 3 PM. In June I only had 2 nights vacant - same thing in July - and next month in august I have 1 nights vacant. So it’s nearly impossible to get a contractor in for repairs unless the client doesn’t mind you intruding on their stay away from home.

BUT, this home would rent for $1100/mo as a long term lease. On air bnb I’m pulling $2200-2500/mo. So gotta weigh the pros and cons. It’s a job you are creating or much more income or you can sit back and relax and collect a smaller paycheck from long term rentals

 Is the $2200 gross or net?

 It is gross. After expenses - net is anywhere from 700-950$/mo based on utilities and supplies bought that month. 

Originally posted by @Alex S. :
Originally posted by @David Dachtera:

Long-term rentals are true real estate investing.

 yeah, well, you know...that's just like your opinion, man.

... as we use it here. Two of the biggest real estate investors are corporate entities: McDonald's Corp. and the Catholic Church. 

Hotel companies are, likewise, REIs. However, that's not their bread and butter. They make their money from the Hospitality Industry, just like STR hosts.

Originally posted by @Sandra Morrison :

@Alex Wise there is an Airbnb STR group of Columbus and Cincinnati based investors that meets through Central Ohio Real Estate Investors Association (2nd Friday of the month online). Columbus is a great market for Airbnb.

I have a vacation rental elsewhere and long term in Cincinnati. I have been looking at buying an existing STR in West coast of Florida the last couple of years but the gross and returns are less than I am used to with my investments, so not all STR are equal.

Good luck on your journey!

 @Marc Rice Maybe this is a good thing to send you new admin to. An STR meetup for people in Columbus, Ohio!

I am in a similar situation and am trying to decide if I want to take the risk of furnishing a house for short term and dedicate my time to managing it. One thing I learned is to pay very close attention to the regulations in the areas you are looking. Each city will have its own policy on STR and several will only allow 30 day min rentals.

@Jessica Wainscott

We were in a similar place last November of 2020 with a tenant at our long-term rental in a remote rural town in Connecticut when our tenant was unexpectantly transferred by his employer.   Having been a landlord for many years, my instinct was to "kick it into gear" and start searching for the replacement tenant, because we want to minimize downtime and science tells us that "nature abhors a vacancy."  But I had heard intriguing reports about the short-term vacation rental market, and I knew of an upcoming 3-day Vacation Rental training seminar, so we fought back on all of our basic instincts and left the house vacant for a short period that ended up being about three months, and attended that training class.   In the training session, we heard the importance of checking with our town officials regarding changing the use from long-term rental to short-term.  So we reached out to the planning and zoning committee and received their blessing in writing.  Now with the training under our belts and the blessing of the town authorities, I authorized my wife to "cut loose" and furnish the home with a theme appropriate to its rural location.  Soon Amazon and Wayfair drones were circling our home like flies.  We got to know the UPS and FedEx drivers on a first-name basis as the beds and the dressers and sofas and dining room sets started filling our garage.  My wife was having a ball, she almost pulled a muscle in her index finger, clicking that mouse, but with no rent coming in from this property and the credit cards approaching their limits, sweat began to appear unexpectantly on different parts of my shirt.  I now have a full set of all of the 64 different sizes of Allen wrenches used to assemble all of the items that she purchased.  The floor refinisher needed a week to do his work, and another week to plan his arrival.  The kitchen and bathroom contractor seemed to have had other jobs that were more lucrative, as we had to beg him to return to finish the project, but at last, the renovations were complete.  The place looked awesome!  We were still unsure that anyone would want to stay in this remote location so we hired a vacation property management company to take professional pictures, manage the pricing and the incoming calls, and take 10% of the income.  We went live in mid-February and got our first booking that same week.  We were thinking maybe we would get a few bookings in the summer after people learned of the existence of our new Vacation Rental which we call The Quiet Corner Cottage.  But they kept coming every weekend, week after week, month after month, some started to stay for the full week, some started to leave nice reviews, some started to leave great reviews and we had guests each and every weekend since we started.   Yeah, but did it bring in more income?   It sure did!  Not only this month but each and every month since we first opened!  This month the income is 3.46 times what we used to get!   So the question becomes, Could you use an extra $4,438 this month, and next month, and the month after that?  At this point, all the credit cards are paid back down to zero and our little "money machine" is pumping out cash like there is no tomorrow.  So yeah, there is some risk involved here, but you also have a good opportunity to hit the jackpot.  And what is the worst that could happen?  You end up with a gorgeous home, fully furnished and ready to offer to the traveling nurses or others looking for a medium-term, furnished place to live.  I have a feeling that the demand for medium and long-term furnished places to live are in extremely high demand because they are so rare.   So I think you should bite the bullet and go for it! 

@Sandra Morrison

Thank you Sandra! I didn’t know that existed.

I found a group on Facebook but is there another way to join that group meeting as a newbie? Sounds like great minds in there to connect with who have some experience specific to what I’m looking for.

@Jessica Wainscott

Mm good call! There was mention of regulations earlier but I think more specific to LTR in someone experience. But I know there’s been some regional limitations depending on the city and what’s allowed so that’s a good reminder.

Originally posted by @Steve Vaughan :

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. 

If the average stay is less than 7 days, which is usually the case with STRs, the depreciation is on a 39 year schedule like commercial properties, as opposed to the 27.5 year schedule it would be as a residential rental. @Brandon Hall has some great podcast episodes on this subject.

@Alex Wise in my area (Northern Kentucky) each city and county in some situations has its own regulations. We found this out the hard way when we had to change our strategy from a typical STR to a min. 30 day STR bc of the city regulations.

@Tony Clark Tony I’m in a similar boat. I’m in the process of converting my former primary residence into a short-term rental. However, I’m torn between a focus on a “Traveling Nurses” strategy vs an “airBNB” strategy.

I was wondering what motivated you to change your strategy from “Travel Nurses” to “Airbnb”?

Thanks Tony...!!!

@Kwadwo Asare great question, really it's two things that made me want to switch: 1) I'll be able to take on the additional management for an airbnb because I'll be living at the property - I am planning on buying more rentals that will be Travel nurse/furnished finder only, and 2) Short term rental rates in Nashville are unbelievably good for 3-4 bedroom homes (lots of large groups coming to Nashville), so by going the short term rental route I'm able to capitalize on that. I wouldn't be opposed to turning it back to rent by the room at some point though, it's been great so far. Feel free to message me if you want to talk more about it, I'm happy to hop on a call!

Originally posted by @Tony Clark :

@Alex Wise I think there's a lot of wisdom in these posts, and the reality is that short term rentals will be much more management intensive than long term rentals, but will offer higher returns. The question you need to ask yourself is do you want to buy yourself a passive investment or an active job? Once you factor management costs in for STR you'll wind up with returns that are only slightly higher than LTR but riskier, however if you'll manage it yourself you can see returns that are much higher because you're getting compensated for your time. Similar to flipping, the more work you do yourself the more money you'll save/make (generally speaking).

I'd recommend exploring one of 3 options: 

1) Looking into a house hack that could be used as a short term rental to dip your toes into the industry, but only buy something that will cashflow or at least break even if it doesn't work out or you don't like the active management piece of it.

2) Look into furnished rentals to traveling professionals (travel nurses on furnished finder). Monthly rents are higher than renting out long term, and as long as you account for higher vacancy you should still be able to see solid returns. 

3) Invest in a long term rental first to provide stable cashflow and learn what it takes to manage, and then revisit short term rentals in a year or so as a means of diversification. 

I'm currently going through the process of converting my primary residence house hack from a travel nurse/furnished rental to an Airbnb, and I'm expecting much higher returns but I know there will be additional management required. I'm able to outsource most of it, but I figure it's a relatively low risk way to start investing in the STR space myself. Always happy to chat further about it if you want to connect, just shoot me a message.

Best of luck!

Great info here!!! Thank you!

Originally posted by @Elizabeth Holloway:

@Andrew Syrios completely agree. My STR ONLY works because I have the absolute best care takers for it. They have been cleaning and landscaping the place for years before I purchased it. It would be a nightmare to handle without them. The labor shortage is brutal at the moment

My next property will be a straight up rental. Will be an interesting experiment to see what works better for my situation.

Loving reading all the different perspectives.

Yeah, STR are very management intensive. But they can cash flow like crazy. I think having STR has a small (5-25%) portion of your portfolio makes sense unless it is your exclusive niche.

My wife and I ran an Airbnb in the Poconos, Pa for three years. We were fortunate to be able a 3 bedroom 1 bath ranch for $25k. With furnishings and repairs, we spent an additional $15k. During those three years we made an unexpected amount of income. However, there was a price to pay. Although we had a cleaning woman who was always on the ready to clean after guests left the home, we still had to go to the house from NYC on a monthly basis to simply oversee the property. The community in which the house was also had HOA fees and, of course, taxes. I think we were very successful in running this leg of real estate. However to find that success, one must be and stay on top of the unit being rented. And if you live two hours away like we did, you may eventually get burned out despite the financial gains.

Since selling the unit and all its furnishings, we have since purchased three long term units. While we didn’t find the deal like we did with the house in the Poconos, we also don’t have to micromanage the property, pay for the utilities, or travel frequently to them to ensure that they are still standing. Unlike the short term rental, tenants we have now want to establish a home and will treat it like theirs. Finally, at the start of every month I am aware of how much rent I will be receiving. With the short term rentals, while lucrative, poor weather, competition from other short term rental owners, and global pandemics can derail any plans you may have based on speculative income. 

I own 8 LTR units in Wisconsin and have been Airbnbing my primary residence since 2016. The potential revenue for the STRs is far greater but as stated above can be a little more hands on unless you hire out a cohost/manager.  Even after accounting for management, if you are in a good spot, it can still have a better cash on cash return.

My next investment will for sure be an STR property. I've been analyzing much of the Airdna data to see where it makes the most sense. There are many vacation spots and lake homes through out Wisconsin that have a lot of potential. I also plan on managing for other investors in the area. If you have questions about the Airdna market analysis for your area I'd be happy to help.

A lot of comments here so please do excuse any repetition, Alex. I have been doing STR for a while now in one of the highest regulated STR markets in the country - Denver. I think you are on the right track. 2 things I would note. 1) Most importantly, make sure in whatever city/county you're going to STR in that are not only up to date on current STR policy, but more importantly future policy discussion Ask property mgmt companies which way it is trending and attend quarterly city meetings to see where that discussion currently lies and see where it's heading. Do you need to live there as your primary as your usual place of return? Do you only need to have 2 proofs of primary residence documentation? For example, many people bought in Palm Springs CA because it was one the highest-grossing STR areas in the country. Then, they changed policy and many of those STR's could not cash flow what they anticipated they would after they poured a lot of money into those high priced homes. 2) I highly encourage using a property mgmt company, which you seem in favor of. I look at it that they are (hopefully) the pros. So they should be able to price it correctly to make up for the 20% (or whatever the fee) and then some. As Robert Kiyosaki said, true wealth is measured in the number of days you don't have to work where your passive income exceeds your expenses. That's what a good property mgmt company does for you. In the end for a worst-case scenario, I like to make sure that if the city's rules change and I can no longer STR in that city that LTR rent figures will still at least cover my mortgage and then some. Good luck to you man!!

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