Making profit with STR’s in an today’s market

36 Replies

I’m curious what methods some of you are using to secure profitable short-term rentals with the inflated market values we are seeing today. 


My last str was in 2018 in western Carolina mon rains and was around 100/sq ft and now it’s 2 1/2 times this.

By the time you put 10% down and pay mortgage, utilities, insurance & taxes there is barely anything to nibble on.

I’ve looked at ltr properties and it’s even worse.

Would love some of your insights and how you all have approached this market!

Thank you in advance for your thoughts everyone…

As with any property, you have to keep looking and running the numbers until you find something that makes sense.

Maybe not turnkey so that you can put some sweat equity into it?

@John Underwood good point. I’m okay with doing some work on place to get it in the right shape to rent. The challenge is now even some of the rehabs are overinflated and don’t represent true value. I’m curious, what percentage return do you shoot for with your str investments in the current market?

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Originally posted by @Jeff Gold:

@John Underwood good point. I’m okay with doing some work on place to get it in the right shape to rent. The challenge is now even some of the rehabs are overinflated and don’t represent true value. I’m curious, what percentage return do you shoot for with your str investments in the current market?

 20% would be a good return. 

It's not sexy to hear, but put 20-25% down and you have a nice buffer if the market and/or rates fall. Typically lowers your CoC return but is safer and you'll sleep better at night. (Easier said than done though)

@Joshua Strickland that makes sense. Trying to keep as much cash on hand as possible but I understand your point.

The challenge: As prices for homes go up, the rental market in certain areas can hit a ceiling (based on avg I come in that area) so you start heading toward diminishing returns. 

@Jeff Gold very true, especially over the last year. I myself have benefitted from this greatly. My beach condo has appreciated to the point where my CoC would be a full 10% lower if I would have waited to purchase now, and I recently sold a cabin for 170% what I paid in May of 2020. But I would argue buying with a lower down payment to try to get ahead of inflation and hoping revenues stay at 2021 levels or continue to rise isn't sound investing.

Now if you run numbers based on 2019 revenue projections and can still comfortably cash flow with a lower down payment. That seems to be the sweet spot.

I'm personally trying to keep my revenue projections to the point where I can cover expenses if revenue falls and can sell if needed without being underwater. I don't think we will get to that point over the next few years and I'm actually bullish on the STR market, but it's nice having a backup plan.

@Jeff Gold With the added income in STRs over LTRs, you shouldn't have too much of a problem finding something. Not every house will work for a STR, you need a year-round tourist destination, and a GREAT location.

Adding sweat equity is a big plus, of course, as much as you can handle or stomach......

Just keep looking, or change your areas of interest....

You can try the BRRRRSTR strategy if you're comfortable rehabbing properties. This way you an take out most of your initial investments. You may still have a sizable PITI, but at least you won't have a lot of money in the deal once you're operating as a Short Term Rental.

Hey Jeff! 

When looking for an STR make sure that the area will provide a unique experience to any guests that may be staying there (Business trips, Amusements, etc).

On top of that, make sure that the area has high rental rates, and that the area's zoning rules are not restrictive towards investors. To figure out this information you could use Airdna or Pricelabs. 

Always happy to help out! 

Live Free, 

JD

It takes time but bookings have been high and it's been very profitable. Also rehabbing will give you a discount and you'll have equity. Connect with a team to get a hang on what the current market is doing for prices and bookings.

I've been asking tired landlords to carry back, with a down payment.  So they get a lump of cash and some cash flow.  I've gotten two houses like this in a barrier island location of Florida.  No credit check, no origination, no commission, etc. and we closed in a local title agency for one, and at the seller's lawyer's office for the other. I pay 6% interest only, which enables me to cash flow.  

Yes home prices are way up but so are rent prices and occupancy rates.

Still plenty of cash flowing meat on the bone in the same markets there always was.

@Jonathan Dempsey yes. Location is key. My issue is less about location as I know where I want to be and more about the right deal. People are paying well over asking routinely and have lost sight of whether it is a good investment because many are simply buying to as a 2nd home to escape to on the 
weekends. They aren’t necessarily seeing it thought the eyes of a businessman/woman. This has lead to more inflated pricing. 

Sometimes it’s just timing. The more I’m researching I’m noticing big manipulation in the market. Found a food own today had “meat” on the bone and found out from realtor that in the “hidden” notes only he could see that were taking competitive offers over a certain time period. Basically a bad auction that will jack up the price an elevated level. Let the buyers beat each other up and the seller wins - every time. No thank you. 
when you ha e a lot of hungry people and a little food they will fight over scraps. 

Not my style. 

Originally posted by @Jayson C.:

You can try the BRRRRSTR strategy if you're comfortable rehabbing properties. This way you an take out most of your initial investments. You may still have a sizable PITI, but at least you won't have a lot of money in the deal once you're operating as a Short Term Rental.

The lender that I have been using to refinance my BRRRs wants a 12 month lease in place.  I’m assuming you have connections that are fine not having a 12 month lease in place before the refinance? 

@Jeff Gold your post reminds me of what I too often forget: we only know what we know. The real dangers in real estate often come not from what see in our backyard, but from being blindsided by what we do not know across town. 

I see posts in the mass media and reality shows with owners pounding their chest about 5-10% cap rates or gross incomes ignorant of $100k downpayments + $100k renovations/furnishings. Unless you're banking $8-10k/mo after expenses you're on a 5-10 year journey just to break even. 

Plenty of other places and spaces to invest far less dollars for nice returns, you just have to keep looking around and focusing on where your interests and dollars are best leveraged, which unless you're lucky, is not often in your backyard.