What to do with 1st STR - Not Cashflowing

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What to do with 1st STR - Not Cashflowing

Neil G.
Investor · Knoxville, TN · Member since 2019 · 63 posts · 24 votes

Hey all, what would you recommend doing with a STR property that's just barely breaking even after all expenses? It's a 3 BR old bungalow in Tampa that I'm renting out on Airbnb. My prop management is handling everything, and they're doing an OK job. I'm at around 50% occupancy (on average - higher in winter, lower in summer), but daily rates are way down since the economy has started suffering. The property is a 8/10 in terms of the listing and amenities. It's a nice property, but I don't have a crazy theme to stand out from the crowd of listings and I only have 5-6 reviews so far (4.75 stars).

I just had to make an additional capital investment of $2.5K since it's a 100 year old property and things are breaking here and there. Plus, the summer is pretty slow, so income is down. 

So while the property has appreciated about 15% since I purchased it last year, it's not doing anything to provide any income after servicing the debt and all expenses. This is a side gig for me, so I'd like to get some cashflow without a ton of effort. 

I suppose I could A) Try to revamp the property (although I don't want to invest a lot of capital), B) Sell it, C) Switch to LTR or mid term rental (Furnished Finders - traveling medical professionals).

All suggestions and insight are appreciated! 

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Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
4y

Get rid of your PM and take over. By posting here you already prove you have what it takes 

Podcast Guest on Show From Surviving on $30/Day to 30+ Properties Thanks to Blue-Collar Skills
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  • Collin Wallace
    Homeowner · Joshua Tree, CA · Member since 2022 · 69 posts · 30 votes
    4y

    Seems AirBNB is extremely saturated these days, unless you have a really unique theme standing out amongst others, it will be slow to rent. 

    It seems you dont want to put a lot of capital in to change the theme of the home, (potentially repainting, refurnishing). 

    Id run the numbers to run it as a MTR on FurnishedFinders first, then look to rent it as a LTR. Look at current properties in your area that are currently for rent to compare numbers.

    2Reply
  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    4y

    Get rid of your PM and take over. By posting here you already prove you have what it takes 

    Podcast Guest on Show From Surviving on $30/Day to 30+ Properties Thanks to Blue-Collar Skills
    19Reply
  • Sam Cardenas
    Realtor · Riverside · Member since 2022 · 12 posts · 7 votes
    4y

    Hi Neil, 

    How did you asses the viability of your property as an STR listing before deciding to move forward?

    There might be a higher and better use.

    I would get an analysis from AIRDNA for your property and see how there suggested performance fares with what your property manager is actually delivering. These reports are typically $40, but you can find some reputable sites that give them away for free. 

    I get mine for free here: STR AIRDNA ANALYSIS

    If you can rule out management, then perhaps your property just isn't a good STR.

    Reach out if you need any additional help!

    Best,

    Sam

    4Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    4y

    Get rid of your PM and do everything yourself.  I can do 2 phase electric, plumbing, natural gas piping, carpentry, roofing, drug screen collections and other things associated with short term rentals.  My profit margin is about 60% of gross revenue.  I'm not paying anybody to do anything.   Can you top that?

    5Reply
  • Keith Hoover
    Rental Property Investor · Atlanta, GA · Member since 2019 · 10 posts · 9 votes
    4y

    I agree with @Collin Wallace. It doesn't sound like you're interested in investing any additional capital in the property. If that's the case you may want to consider mid-term renting. You'll probably have relatively higher demand if your property is located near a hospital or university. According to their site Furnished Finder has a tool to help determine demand but, I'm not sure how accurate the information is as I haven't used it personally. 

    In terms of repositioning as a LTR, your local market rent data should give you an idea as to whether or not the cashflow is satisfactory. Otherwise you always have the option to sell or 1031 exchange.

    In any case I hope all works out for you. Let us know what you eventually decide to do.

    2Reply
  • Dave StokleyBusiness Member
    Property Manager · Cleveland, OH · Member since 2015 · 699 posts · 799 votes
    4y

    Sorry to barrage you with questions but...

    Did the PM provide you with any expectations going in? 

    Did you do independent research to set expectations? 

    What were they based on? 

    Is your pricing competitive with comps in the area? 

    Is your PM a local company with local knowledge?

    Do you have good pictures (maybe post a link)?

    3Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Paul Sandhu:

    Get rid of your PM and do everything yourself.  I can do 2 phase electric, plumbing, natural gas piping, carpentry, roofing, drug screen collections and other things associated with short term rentals.  My profit margin is about 60% of gross revenue.  I'm not paying anybody to do anything.  I've even got a lady that cleans my places between occupations for free.  I get to sleep with her too.  Can you top that?

    You are living the life there Paul! I need a hot tub for a new unit and I sure could use one of your homemade ones right about now. 
    3Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Hey @Neil G., like others said, kick the PM to the curb and do it yourself. Also, are you only on AirBNB? VRBO is also there and was one of the first to do vacation rentals.

    We get over 50% of our bookings from VRBO. I find AirBNB to be spotty as far as guest quality goes. So far this year we have done OK. Broken chair, destroyed towels etc. All AirBNB people. VRBO guests usually don't have those problems.

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Quote from @Luke Carl:

    Get rid of your PM and take over. By posting here you already prove you have what it takes 


     I 2nd this.

    0Reply
  • Dan Maciejewski
    Realtor · PInellas County Largo, FL · Member since 2016 · 902 posts · 810 votes
    4y

    Assuming you have a decent property in a great location.  

    Your occupancy for summer should be above 60%. Beach hotels are still running at 80-85%. My partner's hotels are at 85% and 97% at her 2 limited service hotels. That doesn't directly correlate to a single STR, but it should give you an idea that people are still coming. And leisure travel is up!

    Overall Occupancy should be similar to Pinellas at about 75% as an average. We have been beating that for the past 2+ years for STR, but for a rolling decade, 75% is accurate. Your area in Tampa will probably take a slightly bigger hit on occupancy through the recession, especially since the house doesn't sound like it's catering to luxury renters. But you should have a solid occupancy and the ADR shouldn't take too big a hit.

    If you closed a year ago, you should have more than a half dozen stays/reviews.

    You are probably at 15-20% YoY appreciation, so you could definitely sell and walk away with some cash.  But, you may want to try some of the suggestions here.  

    First, I would drop the PM.  Make sure you have professional photos and a compelling description.  Do everything you can to get your ratings up in the next few stays.  Use welcome baskets and free coffee cards!  And if you can, get something unique and "instagrammable," like a mural or something that the Zoomers can take a pic and post about on their vacay.  With you in full control, you'll have a much better idea of what's going on, and you'll be in a position to talk to all your guests to see what they are lacking and liking.

    I suspect your PM isn't doing you the best they could. They should have a very candid reason for the low occupancy, and, I'm guessing, the low ADR. Not every property is a great STR, but I suspect you did a bit of research before buying and thought this should cash flow.

    Another option would be to try to get a medium term tenant in there, but honestly, if you're not cash flowing as an STR in this market, I'm not sure you should be cash flowing as a mid-term or long-term rental. STRs should be getting 30%-50% more than other rentals.

    7Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    Get rid of your property management company. That alone will make your property cash flow just by not giving up a % to them and you'll more than likely be able to increase your bookings. Most people do. Also, get on multiple platforms and consider direct bookings as well. I think we're past the days of "if you build it they will come" especially in saturated markets so you have to do a little work.

    [email protected]
    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Neil G. If you do decide to sell it you should look into doing a 1031 exchange so that you can defer all tax and depreciation recapture when you sell!

    The 1031 Investor5137 Reviews
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    1Reply
  • Neil G.
    OP
    Investor · Knoxville, TN · Member since 2019 · 63 posts · 24 votes
    4y

    Thanks everyone for your input! To answer some of the above questions:

    1. Here's my listing. Open to suggestions! https://www.airbnb.com/rooms/5...

    2. My original estimates came from AirDNA. I calculated a target of $200/night with a 70% occupancy rate, although my break even point is $175/night with a 55% occupancy rate. PM did not provide any expectations going in. 

    3. Here are my real numbers in 2022: 51% occupancy rate (roughly 65% in Winter and 35% in Summer), $2907/mo gross rent ($175/night), $1131/mo mortgage, $523/mo PM fees (18% of gross rent), $441/mo insurance, $285/mo repairs, $200/mo electric/gas, $150/mo landscaping, $120/mo property taxes, $115/mo supplementary STR insurance, $80/mo water/garbage. So my recurring monthly costs are about $3,045. 

    4. I'm not going to manage it myself. I have two other business that take precedence and I live in Mexico, so that's not on the table. I allocated a couple of hours per week to manage this RE business. 

    5. I'm using a PM that lists on multiple booking sites, although they don't tell me which sites were used for my bookings.


    Since digging into the numbers to supply the above figures, I think I should:

    A. Re-run the AirDNA numbers. I haven't looked since Summer 2021. Maybe the market changed.

    B. Possibly cancel the supplementary STR insurance. I don't know if it's necessary.

    Further suggestions appreciated!


    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Ok, let's look at this @Neil G.. First, don't cancel your STR insurance. It is absolutely necessary. Anything that happens to the house while a renter is in there will not be covered by homeowners or standard landlord insurance. Do you have 2 insurance policies? Both a home owner and STR? We only have one that covers it all.

    The worst thing about Vacasa and most other PM's is they own your listing. If you decide to leave, then any of the pics and reviews are gone and you have to start over. Seeing as you only have a few reviews it is not that big a deal.

    The pics look good and the house looks nice IMHO. Maybe the area is just not that big a draw? What is the nightly rate for your competition in the immediate area? Do it yourself on VRBO and AirBNB and see what other places are offering, their nightly rate and occupancy. On VRBO you have 3 reviews totaling 4 stars. One review said the neighborhood wasn't nice.

    I think the price is pretty much right or close. There are 1/1 places going for $60 and a 4/2 going for $199. There are only a few places within 10 blocks or so of your house but more if you go farther out with the pricing remaining pretty much the same.

    What are the $285 a month in repairs? That seems excessive. What is getting broken each month that requires that kind of cashola.

    Bottom line is if you are not able to manage it, you will continue on this track. The 18% isn't out of line if that includes full service top to bottom so I am not sure you will find a better deal.

    Not sure what else I would suggest. Either move it to a LTR (if that can work) or 1031 into another investment.

    1Reply
  • Dorothy Bland
    New to Real Estate · Tampa, FL · Member since 2022 · 20 posts · 11 votes
    4y

    That's an awesome listing. Very cute, great location. I would consider adding to the description the distance to Busch Gardens and distance to Clearwater Beach and also to St. Pete Beach. Maybe even add photos of those locations to the listing photos. What percentage is vacasa charging you? I suspect you could find a local property manager to do it for a slightly lower percentage and give you more personalized service. You could also try plugging in a 3rd party dynamic pricing tool. That might boost bookings. I'm a newbie, but these are my first impressions. (I live in South Tampa.) 

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    @Dorothy Bland, he says in one of the posts that Vacasa is charging 18%

    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
    4y

    I would sell it and do a 1031 into a more passive investment so you can focus on your businesses. Take your 15% equity appreciation while you still can, because you will most likely lose that 15% in the coming year do to the market softening.  

    1Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    4y

    You answered your own question regarding management with "Vacasa". I simply don't see how a corporate behemoth can provide the hands on and personalized touch that a boot-on-the-ground local manager or owner-host can. I'm also not seeing where dumping extra money would be of benefit, I think your place looks pretty cool and checks a lot of boxes. Really dig your bathroom floors and outdoor chill spaces!

    Maybe it does come down to location not being much of a draw from a tourist perspective. If I were to go to Tampa I would want to be closer to the beach, so maybe you need to pivot to marketing your proximity to other amenities as mentioned above (Ybor, Busch Gardens, USF, beaches etc) and possibly go the MTR route. If you think that your neighborhood has some character or funk to it, maybe include some photos of those places to give people more of a feel for it? 

    1Reply
  • Lucie Tighe
    Property Manager · Tampa, FL · Member since 2022 · 147 posts · 66 votes
    4y

    Hey Neil, would love to chat. Can get a revenue projection done for you to see what the realistic numbers are. Know of a great company with low commission rates, complete transparency, no long term contracts, amazing marketing and pricing team. Lets connect.

    4Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    Self manage, it really is not hard. I self manage mine and just have handyman/cleaning lady. If that doesnt make it cashflow forsure sell. 

    P.S. Once you get 20 or so reviews you may be able to bump prices up a bit and have even higher occupancy rates. I noticed that worked for me. 

    1Reply
  • Matthias Pieplak
    Rental Property Investor · Salisbury, MD · Member since 2021 · 18 posts · 7 votes
    4y

    I read so much good advice here. Phenomenal

    @Neil G. - My two cents from experience as someone who frequently stays in Airbnb's and also hosts/co-hosted in several locations:

    Easy fix: pictures. Add some close ups of elements that define the character of your place. Add nearby hot spots, as was suggested above.

    Harder fix: Get more reviews and get over the 4.9 Star threshold! Any rating under a 4.85 Star review hurts occupancy. Not only does the Airbnb algorithm push you down, people (including me) can filter by rating, too. Switching management seems the way to go. Choose a host with Superhost-Status.

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @Neil G. The easy answer, which so many threw out, would b to fire the PMC. As you pointed out you have other reasons for NOT doing that.

    No one even bothered to ask, "How much is your current PMC charging?" (you disclosed 18% AFTER many posted to terminate PMC)

    That's important in the CONTEXT of the service they are providing. 

    Why are you running AirDNA and not them?

    Why aren't they being transparent about the websites they are publishing on?

    What would you do if you were presented a PMC that charged more, but netted you more per month?

    How would you find such a PMC?

    [email protected]248-209-6824
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    0Reply
  • Dan Thomas
    Rental Property Investor · Bow, NH · Member since 2016 · 216 posts · 185 votes
    4y

    @Neil G.

    I second the managing yourself comments. I spend an hr, maybe two per MONTH managing my STR. You dont need to do everything yourself but taking over managing the people that do the work will save you money. If not willing to do that I think before you do anything drastic you need to do a couple things.

    1. Set expectations with your manager -You would be surprised how many people won't say anything and the manager assumes all is good. Pick up the phone and tell them based on x y and z you expect you property to be preforming better and ask for a plan to get you where you want to be.

    2. Run your business like a business- almost all of your expenses are negotiable. Utilities, management, insurance can all be negotiated. Track your expenses on a granular level and take action to reduce.

    3. Understand your ADR - if you are in a tourist market (and you are) and are staying vacant more than you expect it is either because your rate is too high or you are not marketing effectively to your target audience. Your ADR isn't set at what you want it to be it is set at the rate the market will bare. Would you prefer an ADR of 175 at 50 percent occupancy or an ADR of 130 with 80 percent occupancy?

    1Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    4y

    @Neil G. I have been in your situation many times. Numbers could look so good but then they flop and it screws up your entire plan. based on what you are saying, it seems that you are wanting out of it. I would recommend a nice newer build fourplex for a change of pace. you can defer all of your gains and taxes until later and probably buy something bigger and better depending on your market - all of this through the 1031 Exchange as @Dave Foster says. Happy to chat further. 

    1Reply
  • Huiping S.
    Homeowner · Tampa, FL · Member since 2016 · 358 posts · 65 votes
    4y

    The house looks nice except do not have a pool. People used pool and porch SO INTENSIVELY. Our porch next to pool be pressure washed every 2 weeks. The pool is not fancy but be used SO MUCH. Poor will add cost but guests used it lots during summer.

    1 of 7 group will pee in pool(mentally disabled? when we didn't see physically)... but will charge for the treatment cost.

    0Reply
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