What process did you use to get your first STR?

Question

Hello folks, what process did you use to get your first STR? Was it recent or many years ago. Did you buy in all cash and use the BRRR method or did you do conventional financing? I have been spending lots of time on neighborhood scout and have created a spreadsheet of many different cities. I am curious to know what you guys did though?

Luke Carl · Answer

Buy house. Rent house. Repeat! As simple as that really.

Frankie B. · Answer

We fell into it accidentally.  I was going to buy a house for my sister to rent from me and going to make a razor thin profit.  After finding and purchasing the home out of state as an investment property, with 20% down conventional financing, the arrangement with my sister fell through.  We rehabbed the home with funds of out of pocket and tried to do the LTR route.  This was during the height of the pandemic.  I got a lot of interest in the property but it was mainly from Section 8 recipients and I didn't want to jump through the hoops of qualifying for the program.  A corporate housing company reached out and asked if we were willing to rent it out short-term for a premium.  We loved that arrangement.  I think the moratorium on rent because of the pandemic had just started or was in full effect.  I didn't want to deal with that.  I got the crazy idea to list it on Airbnb.  So we furnished the property and put the utilities in our name.  The pictures that I first put up didn't even have furniture in it and I was booked out for like 3 months when we first listed. A little over 2 years later we've mainly been full with a combination of corporate leases, Airbnb and VRBO.

I'm going to give you a bit of advice, make sure that you are agile and can pivot if STR is not working.  When I started out there were like 2 other STRs in my area and we were always booked and never needed to offer discounts, now my area is saturated with STRs and almost everyone is offering discounts and there are a lot of vacancies.  I think that this happening everywhere.  Everyone is trying to get in because of all of the money that WAS being made but I think that with so much competition that it's now driving down prices...I'm sure that there are other factors as well.

Good Luck!

Trent Reeve · Answer

i mean, when you have plenty of money sure. otherwise people need to figure out strategy to finance, debt to income ratio, etc.

Giani Brussich · Answer

@Benjamin Furney

Hey Benjamin,

We initially had a spreadsheet of areas we wanted to invest in. Out of those areas, we researched further into the areas and found investor friendly agents to work with. We researched financing options and called mortgage brokers to find out more. We established some other criteria like “are there multiple strategies?”, “Can we carry it for X months?”, “Would we want to stay there if it isn’t booked?”. Kind of worst case scenario questions or what is the exit strategy if it doesn’t go according to plan.

We initially saved 10% down (used the second home/vacation home conventional loan) for the first property and then took a HELOC out on our primary residence to put a down payment for the second using the same loan type. As far as I understand it, vacation/investment home loans at 10% are harder to come by now.

We primarily use STR but aim for MTR during the off-season. We did not have enough capital to do full renovations so we are taking our profits and putting it back into the properties. We started at the end of 2020.

So far everything is working out well but if I were getting started in STR, I would renovate or value add right away if I had the capital. It is not a must but it is makes everything easier.

Kerry Baird · Answer

I found a tired landlord who wanted a down payment to get his cash out, and wanted a stream of income too.  So we agreed on 6% interest only for a few years. I paid him monthly and put the house on AirBnb and VRBO. Did the same thing the next year.  Refinanced my long term rentals and bought another STR the third year.

Joe Hammel · Answer

@Benjamin Furney

Used the 10% down 2nd home mortgage option. At least gets you into the first one for less money down.

Michael Baum · Answer

Hey @Benjamin Furney. We saved up for a place in our chosen area and bam, done. Nothing special or crazy. We could afford the place on our own without renting it but now we are 100+ 5 star reviews in and doing great.

Finding the area you are most interested in, making sure it is legal and will cashflow are you first steps.

Melissa Naman · Answer

Hi Benjamin!  I took a second mortgage on my first rental property that is a yearly rental.  I used to live in it and rented it out when I moved, starting back in 2013.  Since I had the equity built up, I was able to leverage it and have the funds to buy my first Airbnb.  I actually convinced my brother to invest with me so we bought the house 50/50.  We used conventional financing with 20% down.  This was in 2019.  I live close by and manage it myself.  I was actually able to accumulate enough money from the first Airbnb this past year to buy a 3rd investment property and start my second Airbnb!

On top of that, I started blogging about Airbnb business tips to help people like you :)

Leslie Anne Morris · Answer

I emptied the majority of a small retirement account and took advantage of a second home loan with 10% down.

Brooklyn McCarty · Answer

We saved up for the first down payment & then let it cash flow & did it again! We bought in The Smokies & used Julie McCoy with The Short Term Shop. They specialize in STR & it made the entire process very smooth

What process did you use to get your first STR?

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