Why I don’t invest in STR

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Why I don’t invest in STR

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

The reason I don't invest in or use my rentals as STR anymore is that if I pay a property manager 30-35% then my return is the same as a LTR so since I won't self manage I might as well just invest in LTR.

Has anyone any experience where they can pay a manager 30-35% and still net more as an STR than as a LTR ?

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Kyle MccawBusiness Member
Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
4y

Sure no reason to go the STR route if you don't cashflow more with a short term rental.

However, I have a manager for two of my STR's in Texas and the cashflow blows away any long term rental cashflow (10x). It all comes down to the property and the location.

When I was first approached to Airbnb one of my long term rentals, I was skeptical. I agreed to it if it would revenue $3,500+/month. First month revenue was $13k. Second $9k. Traditional rental rate is $2,400.

My bread and butter is LTRs. They are less risky.

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  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    4y
    We all "self manage" Don you know that :)
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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    Management of STRs range from 18-25% and definitely net more than LTR with multi units. 

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  • Bob Willis
    Investor · Curtis, NE · Member since 2019 · 231 posts · 140 votes
    4y

    I pay 18% for my PM on my STR. Are you bundling other things into your 30-35% number?

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

    30-35% is insane. The one I will use once I launch charges 15% and one in another market I'm considering charges 18%. 

    Condotels can charge well about 35%, which is maybe where you are considering?

    1Reply
  • Mark Miles
    Rental Property Investor · Philadelphia, PA · Member since 2016 · 543 posts · 716 votes
    4y
    Quote from @Don Konipol:

    The reason I don't invest in or use my rentals as STR anymore is that if I pay a property manager 30-35% then my return is the same as a LTR so since I won't self manage I might as well just invest in LTR.

    Has anyone any experience where they can pay a manager 30-35% and still net more as an STR than as a LTR ?


    I hire offshore assistants to manage my STR properties at a fraction of the cost you're quoting. It's EXTREMELY profitable!! Much better than LTR where you only net like $100 per door per month lol.

    2Reply
  • Michael Stebnicki
    Buford, GA · Member since 2019 · 16 posts · 9 votes
    4y

    30-35% seems very high

    0Reply
  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
    4y

    Sure no reason to go the STR route if you don't cashflow more with a short term rental.

    However, I have a manager for two of my STR's in Texas and the cashflow blows away any long term rental cashflow (10x). It all comes down to the property and the location.

    When I was first approached to Airbnb one of my long term rentals, I was skeptical. I agreed to it if it would revenue $3,500+/month. First month revenue was $13k. Second $9k. Traditional rental rate is $2,400.

    My bread and butter is LTRs. They are less risky.

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  • Joshua MessingerBusiness Member
    Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
    4y

    Hey @Don Konipol! 

    This is a ridiculous rate. We only charge up to 20% for our clients. Anything above that we believe is insane. Especially if they aren't providing a top tier experience and promising a 5 star review for every single reservation. 

    If you ever need anything don't hesitate to reach out! 

    All the best,

    Josh 

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

    Come on @Don Konipol! You know most of us self manage! :)

    I was quoted 35% for ours. Not everyone has their rental in an area with 50 PM's vying for your business right in town. Our rental is 36 miles down lake from town. Takes an hour to get out there. No one wants to send their cleaners or repair people out there as it takes 1/2 their day. Thus you get the super high rates.

    Is it crazy to charge than in our case? I don't think so. I won't pay it but I understand they have to make money and with gas prices and more being so high, I can't imagine what the charge is now. That rate was in 2017.

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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    4y

    @Don Konipol I don’t think I would have much profit left over if any at all paying 30-35% to a pm. Maybe 20% but I would rather self manage and pocket the money to juice my returns.

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  • Nathan GesnerBusiness Member
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    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

    I pay 20% for management of my short-term rental even though it's only 30 minutes from my house. I prefer freedom over the additional money and I still make more money than I would as a long-term rental.

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  • Allen Williams
    Realtor · Jacksonville, FL · Member since 2019 · 95 posts · 87 votes
    4y

    @Don Konipol

    In Jacksonville FL, I work and support mainly STR investors and the company I work with here only charge 18%. And all my customers have been nothing but happy and have easily surpassed LTR profits and less damage/wear and tear to property. The beaches or Multifamily units make a lot of sense in my market

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  • Scott K.
    Member since 2020 · 223 posts · 233 votes
    4y

    I have 4 LTR and 4 STR. I self manage everything, the LTR's generate about 17-20% ROI, the STR's generate about 45% ROI. So yes, if you took 30% out of that, you'd come under the LTR. However, as posters above stated, if you take the average which is more like 15-20%, you should come out ahead. There are even agencies who only take 10% now, though your reviews will suffer.

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  • Don KonipolBusiness Member
    OP
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    4y
    Quote from @Nathan Gesner:

    I pay 20% for management of my short-term rental even though it's only 30 minutes from my house. I prefer freedom over the additional money and I still make more money than I would as a long-term rental.

    I guess my experience of pm charging 30-35% on STR is incorrect. But it would appear that even paying 20% may not leave enough profit differential to justify STR vs LTR, when one accounts for the greater wear and tear, and the quickly depreciating value of furnishings.

    I keep hearing about people spending only a couple of thousand to furnish a STR; buying at auctions, second hand etc. But this can't be high end STR. When I bought high rise condos in Phoenix area in 2012, I decided to furnish the most expensive one high end and lease it medium term. It was a 2100 sf two bedroom and I spent $30,000 outfitting it. Turned out my 6 month renter stayed 6 years (LOL). By my calculations I received about $1,000 more monthly in rent than I would have unfurnished.

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  • Jeffrey Albaum
    Investor · Austin TX · Member since 2018 · 151 posts · 165 votes
    4y

    Hi @Don Konipol!

    I completely hear you - I started out paying a property manager 20% and quickly realized that when all was said and done, it was severely cutting into my cash flow. I quickly moved away from that management company (although I really enjoyed them personally, they're great folks and I wish I made money with them!), and started my own STR management company with more affordable pricing. If you ever want to chat or get an idea of what your property should be generating let me know!

    Cheers!

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  • Mike Eichler
    Realtor · Pocono Pines, PA · Member since 2019 · 183 posts · 108 votes
    4y

    What property management company are you seeing that is more than 30% that is insane! There are many property management companies that charge closer to 20-25% of gross revenues, much more reasonable, with prices like that there is definitely room for more profit than a long-term rental. You also have the option to self-manage the property, if you have too many or have a fulltime job that takes up all of your time you could contact a nearby host to your property and offer them something like 10% to manage your property for you. I wouldn't give up the power of STR because a property management company can be expensive.

    Hope this helps, if you have any other questions let me know.

    all the best, 

    Mike

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

    I do everything myself.  Plumbing, mowing, roofing, appliance repair, bookings, collecting rent.  But STRs are my full time job, not a side hustle.

    2Reply
  • Villy Ellinger
    Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes
    4y

    @Don Konipol STR is not an investment for everyone. The fact that you are realistic about your time availability vs the requirements of the particular investment type, and decided it was not appropriate for you makes you a smart investor. I don't invest in options even though I got my MBA in finance, because, frankly, I don't understand them well enough, lol. STR is one of the least passive real estate investment options. Even with a lower management fee (let's say 20%) you will still be getting less cashflow than if you self-manage, and your investment performance will be at the mercy of your manager's skill set even if you bought a killer property in a killer market :-). And if you have to hire out for all and every minor expense, it will eat most of your profit. I say, good for you for realizing what is right for you and good luck with long-term rentals. All I do is STRs because I on the other hand didn't like long-term rentals when I tried them :-). I felt I had no control over my properties. To each his own.

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  • Don KonipolBusiness Member
    OP
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    4y
    Quote from @Villy Ellinger:

    @Don Konipol STR is not an investment for everyone. The fact that you are realistic about your time availability vs the requirements of the particular investment type, and decided it was not appropriate for you makes you a smart investor. I don't invest in options even though I got my MBA in finance, because, frankly, I don't understand them well enough, lol. STR is one of the least passive real estate investment options. Even with a lower management fee (let's say 20%) you will still be getting less cashflow than if you self-manage, and your investment performance will be at the mercy of your manager's skill set even if you bought a killer property in a killer market :-). And if you have to hire out for all and every minor expense, it will eat most of your profit. I say, good for you for realizing what is right for you and good luck with long-term rentals. All I do is STRs because I on the other hand didn't like long-term rentals when I tried them :-). I felt I had no control over my properties. To each his own.


     Good points Villy.  At my age and quite frankly net worth, I only do what I enjoy.  Hey, if I was just starting out, I would probably go for the additional return.

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  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Even if you subtract 30%, you still have 100 -200% more to work with.....but I frankly enjoy self managing....

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Don Konipol:
    Quote from @Nathan Gesner:

    I pay 20% for management of my short-term rental even though it's only 30 minutes from my house. I prefer freedom over the additional money and I still make more money than I would as a long-term rental.

    I guess my experience of pm charging 30-35% on STR is incorrect. But it would appear that even paying 20% may not leave enough profit differential to justify STR vs LTR, when one accounts for the greater wear and tear, and the quickly depreciating value of furnishings.

    I keep hearing about people spending only a couple of thousand to furnish a STR; buying at auctions, second hand etc. But this can't be high end STR. When I bought high rise condos in Phoenix area in 2012, I decided to furnish the most expensive one high end and lease it medium term. It was a 2100 sf two bedroom and I spent $30,000 outfitting it. Turned out my 6 month renter stayed 6 years (LOL). By my calculations I received about $1,000 more monthly in rent than I would have unfurnished.


    we have same experince in Vegas I was not really looking to do medium term but my DAughter ( is and agent) said she was contacted by an insurance company in Chicago and they have been providing tenants medium term for a few years now they pay the rent and so far been very good at double normal rent.  We probably had 20k in furnishings maybe a tad more since we lived there half the year..
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  • Jonathan KlemmBusiness Member
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    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    4y

    Hey @Jay Hinrichs - I may be a little late to the STR party, are you saying that an insurance company in Chicago called your daughter to use the mid-term rental for corporate housing? Or that they provide insurance for mid-term rentals?

    If the latter, I'd love to connect with the insurance company.

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  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
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    Quote from @Jonathan Klemm:

    Hey @Jay Hinrichs - I may be a little late to the STR party, are you saying that an insurance company in Chicago called your daughter to use the mid-term rental for corporate housing? Or that they provide insurance for mid-term rentals?

    If the latter, I'd love to connect with the insurance company.

    Leasing to insurance companies is very common. I recently leased a home that would traditionally rent for $1,300 for $250/ night. Basically $7,500/ month. I provide all bills paid and fully furnished.  My guest have a water claim on their home. Insurance puts them up in my place until their home is being repaired.
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Jonathan Klemm:

    Hey @Jay Hinrichs - I may be a little late to the STR party, are you saying that an insurance company in Chicago called your daughter to use the mid-term rental for corporate housing? Or that they provide insurance for mid-term rentals?

    If the latter, I'd love to connect with the insurance company.


     this company is hired by insurance companies to scourer the US to find their insureds housing after a major calamity ( fire flood etc) where the insureds policy calls for alternate housing while the their house is being put back together..  So we get paid by that company who is getting paid by the insurance company..  And you can charge a very nice premium for 3 to 6 months stays my first one ended up 14 months.  I have also rented ( NOT furnished but very quality renters) in Madison county MS to those building a custom home and needed a place to live while it took 12 to 16 months to build their dream home.  Also great teanants and somewhat of a premium on rent.. but nothing like the furnished and being paid by insurance. 

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  • Katrina P.
    Investor · Randallstown, MD · Member since 2010 · 185 posts · 57 votes
    4y

    @Kyle Mccaw what market is your STR in? Those returns are astronomical!

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