Brrrr STR in non vacation markets

22 Replies

Not sure why you'd operate a STR in a non-vacation market....? They're called vacation rentals for a reason...,,

I suppose there are some regular neighborhoods where a STR would work, but why are people coming? What is there to see or do that is special or unique? You need to entice people to leave their homes and travel to your rental, and a non-vacation area won't do that as far as I can see.......

Originally posted by @Bruce Woodruff :

Not sure why you'd operate a STR in a non-vacation market....? They're called vacation rentals for a reason...,,

I suppose there are some regular neighborhoods where a STR would work, but why are people coming? What is there to see or do that is special or unique? You need to entice people to leave their homes and travel to your rental, and a non-vacation area won't do that as far as I can see.......

People in vacation destinations call them “vacation rentals.” The rest of the world calls them short-term rentals (STRs)… ya know, like the title of this forum?

We’ve got 40 in Cleveland and people come for every reason imaginable… sports, medical, Rock and Roll Hall of Fame, work, visiting family. 

To the OP, you just need to understand going in that the lender refinancing your property is NOT going to look at the STR income for the appraisal. It needs to appraise based on comp sales on long-term rental rates.

Yes, we do. There are at least 9 different ways STR can be rented, probably more, so vacation location is only one of many. Naturally, the more ways to rent short-term you can find the better.

I buy turnkey properties or directly form flippers and then have them professionally managed by super hosts, aiming to have as many of the 9 options in place as possible.

The biggest issue I see when people speak about real estate is the fact that most people look at price and appreciation, not at performance and all the variables that drive or hamper performance.

@Abdul Lateef

Yes I do this and make a significant amount of profit. I operate in Upstate NY one in a small college town and one in the country. You’d be surprised who you will host.

@Bruce Woodruff

STRs are good for a variety of people. I have one in Cortland, NY where there’s a small D3 college as our main employer. There isn’t much to vacation in Cortland. However, I’ll get families, college students, traveling nurses, traveling workers, people traveling from Canada to NYC or vice versa, etc. You get the point.

@Nick Rutkowski Yes I get it. My STRs have a variety of guests from vacationers to families to working stiffs. 

My point was that in order to have a really successful STR, you need to have a base of something to hold it all together....a touristy kinda town is a plus, that's all......

Get it?

I do STRs in a refinery town. Refinery contractors are all I rent to. They are psychotic ruffians. So am I, sort of.

Is there a hotel in town? If "yes"...there is a market for STR.

That said...consider how much $$$ you have to invest. Might be better to put it all into 1 x $800K deal, then spread it amongst 8 x $100K houses. Risk increases somewhat, but headache decreases significantly. CoC returns probably similar.

I'm personally going to start looking at each house I buy that's not an HOA a little closer to see if it could be a good fit. I've had several houses that would've been a great fit IMO, but it was with a HOA that frowned on short term rentals.

Most of the times I find that some of the most successful STR's for my clients are in areas that are not known as vacation areas. There are several layers to this, but, as someone who analyzes deals for clients all day every day and pays for very expensive software to aggregate short term rental occupancy and booking rates, I can tell you that the best performing properties are almost always outside of traditional vacation areas. This doesn't mean that any area will work, but with a little due diligence, you can find which areas are dramatically underserved on the short term rental market and go from there.

One unlikely example is, in my city a client of mine had 9 STRs, and they all did fairly well, but during the pandemic, traveling nurses began looking for 3-month furnished corporate rentals and she converted all of them to corporate rentals and took them off of AirBnb and VRBO and is making almost twice as much as she was, and has very low vacancy. 

Another example, in the western NC mountains near where I live, most people gravitate towards investing in over-saturated well known vacation areas with lots of amenities, however, there are other stunning areas in the mountains with very low prices (comparatively) that have very high occupancy because hardly anybody has an STR in available in the area. There are several "up-and-coming" towns in Western NC that perform just as good or better, at a lower acquisition and higher cap rate. It's just knowing where to look. 

Last example. In one small town in NC, there is a casino being constructed in an area with almost no STRs, it's still 2 years from opening, but what people don't realize is that because of the lack of hotels, and the size of the projects, contractors have no where to stay, two of my clients have bought very cheap housing in the area, modestly furnished it, and have better ROI than almost any other investment they've ever had.

It's knowing where to look and having someone work with you that knows what the hell they're doing that will help you cut through the big data and make sense of under-valued acquisitions, of which, there are plenty. 

@Levi Bennett The casino anecdote reminds me of a friend in Texas that bought an RV park along a highway when she caught wind of a pipeline being constructed near there in rural West TX.  She 5x'd the RV revenue when the pipeline workers arrived and sold when the pipeline was finished a couple years later.  Your scenario is even better, because there'd be no need to sell at the end since the casino should bring more customers.

Great stuff!

@Garrett Gruss Yes, a lot of people think about vacation rental, which is one way, but there are students, as others here have mentioned, then there is corporate travel as more and more business travelers rather stay in STR than a hotel. Then there are traveling nurses and construction workers representing special skills companies that often stay for weeks or a few months and then move on to the next site. There are people renting STR because a family member is in the hospital for weeks of treatment and they like to be close. Then there are events, like weddings, where groups of people stay often 3-5 days to prepare, attend and then recover before going home. I am sure there are more. This is all just to show that there are many ways to use STR.

Originally posted by @Bruce Woodruff :

Not sure why you'd operate a STR in a non-vacation market....? They're called vacation rentals for a reason...,,

I suppose there are some regular neighborhoods where a STR would work, but why are people coming? What is there to see or do that is special or unique? You need to entice people to leave their homes and travel to your rental, and a non-vacation area won't do that as far as I can see.......

 Bruce,

My market does really well with STR due to the traveling nurses and part time workers in the area. Not nearly as profitable as desirable vacation locations but still does better than long term rentals.

Originally posted by @Abdul Lateef :

Anyone has done the BRRRR method with operating the homes as short term rentals in non vacation markets?

Not sure what you are asking, maybe just if it is possible? Yes, a lender would just use the comparable approach to valuation the property no matter how good the income is. I believe if you have at least 1 year of STR income the lender may take that into account to balance out your DTI but that would be the only benefit. Some lenders will underwrite what market rent would be if it was a long term rental regardless of what it is producing, although this is more common in commercial underwriting.

@Bruce Woodruff

I did not refer to a vacation rental, i said short term rentals, which vacation rentals is sub category of. I simply look at the spread between all costs and short term revenue to see if it makes sense relative to the extra CAPEX (furniture) needed.

@John Underwood

Thanks for the comment, but why is it a square peg?

The reason why I want to do this is because my main strategy is Brrrr, but after interest and principal pay back my cashflow might be $200 a month per unit, an extra $500 could significantly increase my cashflow if i scale.

@Tanner Sherman

I meant does it work economically.

My goal is to BRRRR, but after all costs and interest the cashflow in $100-150k homes are around $200, so using STR to boost cashflow by $500 can significantly increase performance at a large volume say when you reach 20 homes for example

Originally posted by @Abdul Lateef :

@Tanner Sherman

I meant does it work economically.

My goal is to BRRRR, but after all costs and interest the cashflow in $100-150k homes are around $200, so using STR to boost cashflow by $500 can significantly increase performance at a large volume say when you reach 20 homes for example

It depends on your area. Vacation destinations do way better in the STR space, and in my opinion are much easier to market. This also comes with a lot more competition. One trick I have seen is to give your property a focus point/unique selling point. Whether it is unique art, a unique mural, amenities that are not typical, etc. Create social media pages for your Bnb, and encourage guests to take pictures to post on your page.

Originally posted by @Levi Bennett :

Most of the times I find that some of the most successful STR's for my clients are in areas that are not known as vacation areas. There are several layers to this, but, as someone who analyzes deals for clients all day every day and pays for very expensive software to aggregate short term rental occupancy and booking rates, I can tell you that the best performing properties are almost always outside of traditional vacation areas. This doesn't mean that any area will work, but with a little due diligence, you can find which areas are dramatically underserved on the short term rental market and go from there.

One unlikely example is, in my city a client of mine had 9 STRs, and they all did fairly well, but during the pandemic, traveling nurses began looking for 3-month furnished corporate rentals and she converted all of them to corporate rentals and took them off of AirBnb and VRBO and is making almost twice as much as she was, and has very low vacancy. 

Another example, in the western NC mountains near where I live, most people gravitate towards investing in over-saturated well known vacation areas with lots of amenities, however, there are other stunning areas in the mountains with very low prices (comparatively) that have very high occupancy because hardly anybody has an STR in available in the area. There are several "up-and-coming" towns in Western NC that perform just as good or better, at a lower acquisition and higher cap rate. It's just knowing where to look. 

Last example. In one small town in NC, there is a casino being constructed in an area with almost no STRs, it's still 2 years from opening, but what people don't realize is that because of the lack of hotels, and the size of the projects, contractors have no where to stay, two of my clients have bought very cheap housing in the area, modestly furnished it, and have better ROI than almost any other investment they've ever had.

It's knowing where to look and having someone work with you that knows what the hell they're doing that will help you cut through the big data and make sense of under-valued acquisitions, of which, there are plenty. 

 I’m sold! Where do I sign? :-)