Rookie Investor - STR looks appealing

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Rookie Investor - STR looks appealing

Vincent Samaha
Member since 2023 · 12 posts · 1 vote

Hello. First post. I've been listening to the podcast/videos. I've recently begun realizing that my 401k will very likely be insufficient for retirement (I'm 37), so I'm searching for alternative investments. Instead of thinking of my later years as "retirement", it's better to call them the "passive income years", and real estate seems to fit perfectly within that idea. 

Since our family is regularly on the paying side of STRs through VRBO, it's something we're familiar with, and my wife and I have jokingly talked about buying a cabin in the Smoky Mountains or a beach house on Dauphin for personal use and rental income.

But I don't want to joke anymore. If we just play it safe and let someone else plan for our "passive income years", we won't be having passive income. 

So where should I start with STRs? Can I annualize the estimated income from a site like AirDNA and plug the numbers into a normal rental calculator to analyze the investment? What metrics should I prioritize?

Thanks for your help

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
3y

STR'S are the shiny object attracting everyone's attention right now.

People have not done their research, paid too much and are making ingredients very little or coming out of pocket to make the mortgage payment.

That said, if you run the numbers and do your research you can find a profitable vacation rental.

Turnkey is going to cost you more.

Turning a great house into an STR will likely be cheaper but will be more work.

Buying a distressed property or foreclose will likely involve a remodel plus furnishing it. This will likely net you more profit, but will be even more work.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y

    STR'S are the shiny object attracting everyone's attention right now.

    People have not done their research, paid too much and are making ingredients very little or coming out of pocket to make the mortgage payment.

    That said, if you run the numbers and do your research you can find a profitable vacation rental.

    Turnkey is going to cost you more.

    Turning a great house into an STR will likely be cheaper but will be more work.

    Buying a distressed property or foreclose will likely involve a remodel plus furnishing it. This will likely net you more profit, but will be even more work.

    7Reply
  • Leslie Anne Morris
    Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
    3y

    This is exactly how I started! I own 11 STR now in the Smoky Mountains. I had a true love for cabins to be honest. It is a great retirement vehicle plus it's fun for the family. Get a good team. A good agent should know what will make good money and hopefully how much, or have the ability to refer you to someone who does - like a property management company. I think AirDNA has been super conservative lately. I also have access to Key Data, and it is conservative also.

    1Reply
  • Brooklyn McCarty
    Investor · Member since 2022 · 1k+ posts · 754 votes
    3y

    First you should start with Avery Carl’s book Short Term Rental, Long Term Wealth. Great book for newbies!! 

    Avery also has a calculator on her website, The Short Term Shop that I use frequently. It's great to help analyze deals. Metrics are going to depend on you personally. Common ones people look at are COC & cash flow though


    2Reply
  • Mike Shemp
    Rental Property Investor · Stewartsville, NJ · Member since 2016 · 418 posts · 280 votes
    3y

    We pick areas that we like to vacation in, and then we keep vacationing there until we get very familiar with the market.  I don't mean drive around for 20 minutes, I mean drive around neighborhoods at night, during the day, when it's raining, when it's not raining, on weekends, during weekdays over and over to get a feel for them.  

    Then we write down the roads we like, and keep our eyes open for opportunities.

    You can purchase Airdna data to get a sense of what a comparable home you are looking for might bring in.  You can also find homes similar to the kind you want to buy on Airbnb and VRBO, look at their rates, look at their calendars, and use a spreadsheet to kind of estimate what it might bring in if 100% booked, 75% booked, 50% booked, etc.

    That's where I would start.

    Mike

    4Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    3y

    you can do it! if you already have the property why not? Great cashflow and you can still use the property. You can self manage easily too! Give it a go, you have nothing to loose!

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Vincent Samaha, first thing, at 37 your 401k should be doing just fine by the time you reach retirement. Max that thing out. There is so much you can do to get that thing up to snuff. Don't just give up on it!

    Sticking with solid vacation spots is a good way to get started. Just make sure the numbers work as @John Underwood said.

    3Reply
  • Brian Kragerud
    Investor · Member since 2021 · 29 posts · 19 votes
    3y

    @Vincent Samaha go listen to Robert Kiyosaki you will find 401k is not going to reach your retirement goals, put it in real estate STR with so many more benefits.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hah! Opposite points of view on the 401k! Always interesting. It all depends on the goals. :)

    1Reply
  • Clarissa Baker
    Property Manager · Miami, FL · Member since 2023 · 21 posts · 3 votes
    3y

    This is from BiggerPockets itself
    https://www.biggerpockets.com/...

    You can match these against high performing STR destinations off AirDNA to get a starting sample. There are also plenty of best performing/best cities for Airbnb investment lists that will help you create a short list.

    Also STR is not your only option. You can also consider medium term rentals

    0Reply
  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    3y
    Quote from @Vincent Samaha:

    Hello. First post. I've been listening to the podcast/videos. I've recently begun realizing that my 401k will very likely be insufficient for retirement (I'm 37), so I'm searching for alternative investments. Instead of thinking of my later years as "retirement", it's better to call them the "passive income years", and real estate seems to fit perfectly within that idea. 

    Since our family is regularly on the paying side of STRs through VRBO, it's something we're familiar with, and my wife and I have jokingly talked about buying a cabin in the Smoky Mountains or a beach house on Dauphin for personal use and rental income.

    But I don't want to joke anymore. If we just play it safe and let someone else plan for our "passive income years", we won't be having passive income. 

    So where should I start with STRs? Can I annualize the estimated income from a site like AirDNA and plug the numbers into a normal rental calculator to analyze the investment? What metrics should I prioritize?

    Thanks for your help


     Hey Vincent, I manage over 100 AirBnB / VRBO properties. We are currently in Sacramento and Phoenix Metros. My partner has been nagging me about getting into the Smokies -- it is the #1 vacation destination in the entire United States, given its close proximity to so many different urban cores. 

    Would be happy to chat with you about our experience getting started from scratch in the vacation rental industry, and share with you some numbers from the Smokies. We have a great network out there. 

    0Reply
  • Michael Evans
    General Contractor · Palm Desert, CA · Member since 2016 · 193 posts · 79 votes
    3y

    Before deciding on the location of the property, it is important to research the local ordinances regarding STR's. I ran an Airbnb using my own 3-2 detached single family house for two years. The City where I live requires the owner to live on site in order to get the STR permit. There are significant fines for not having a permit. Two years before, I built a guest house on the property and lived in it while I was renting the main house on Airbnb and VRBO. I good way estimate the income is to go on the Airbnb and VRBO sites and check what other similar properties are renting for and do your calculations from there. You should also keep in mind that the City may require you to pay as much as 11% DOT tax as in my City and you have to file a monthly report with the income you receive and enclose a check for the tax.

    Good Luck!

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    STR's are at or approaching oversaturation, so proceed with caution.

    So, you either need to find a real great deal in the super popular locations -OR- focus on the level under the super popular areas.

    [email protected]248-209-6824
    Logical Property Management4.9451 Reviews
    WebsiteView Page
    0Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    If you're just getting started with Real Estate investing, I highly recommend reading Avery Carl's book Short Term Rental, Long Term Wealth. It's a great resource for new investors and provides an overview of the different types of investments and strategies. Additionally, she has created a calculator on her website - The Short Term Shop - that can help analyze deals quickly and accurately.

    When analyzing Real Estate deals, it's important to consider metrics such as Cash-on-Cash (COC) or cash flow. These will depend on your individual goals and objectives when investing in Real Estate. No matter what metric you decide to focus on though, having this knowledge will put you miles ahead as you start your Real Estate venture! Good luck!

    [email protected]832-889-5607
    0Reply
  • Elias Osborne
    Real Estate Agent · Columbus, OH · Member since 2023 · 23 posts · 22 votes
    3y
    Quote from @Vincent Samaha:

    Hello. First post. I've been listening to the podcast/videos. I've recently begun realizing that my 401k will very likely be insufficient for retirement (I'm 37), so I'm searching for alternative investments. Instead of thinking of my later years as "retirement", it's better to call them the "passive income years", and real estate seems to fit perfectly within that idea. 

    Since our family is regularly on the paying side of STRs through VRBO, it's something we're familiar with, and my wife and I have jokingly talked about buying a cabin in the Smoky Mountains or a beach house on Dauphin for personal use and rental income.

    But I don't want to joke anymore. If we just play it safe and let someone else plan for our "passive income years", we won't be having passive income. 

    So where should I start with STRs? Can I annualize the estimated income from a site like AirDNA and plug the numbers into a normal rental calculator to analyze the investment? What metrics should I prioritize?

    Thanks for your help


     Hey Vincent,

    I would proceed with caution. The STR market is beginning to get oversaturated in some areas. Make sure this is something you have planned out with setbacks known and accepted. Identify if you want to fully purchase a property or to use rental arbitrage. If purchasing, are you getting a turnkey property or a fixer that needs remodeling (losing potential income) plus furnishing.

    Plan out paying a property management team into the expenses. AirDNA is a good metric to use. If you want to keep it a little simpler, just search the areas that you are targeting on VRBO/AirBNB, and check their nightly rates and break profit down by occupancy rate.

    0Reply
  • Vincent Samaha
    OP
    Member since 2023 · 12 posts · 1 vote
    3y

    Thanks for all the replies!

    I do plan to just learn and research for now. People have lost their minds on prices from watch I can tell. On Zillow they're selling for 50-200% more than what they paid 2-3 years ago, even with much higher rates. Insane. 

    I did watch one BP video where the guy says to aim for 10-12% CoC return unless significant appreciation is expected. He broke down what to set aside for vacancy, property management, capex, and regular maintenance. It seems like a safe method to analyze properties.

    0Reply
  • Vincent Samaha
    OP
    Member since 2023 · 12 posts · 1 vote
    3y
    Quote from @Brian Kragerud:

    @Vincent Samaha go listen to Robert Kiyosaki you will find 401k is not going to reach your retirement goals, put it in real estate STR with so many more benefits.


     I listen to him and other people in that circle. "Rich Dad Poor Dad" is a mindset changer.
    I just know I can't rely on the tax environment to stay the same or get better, and that's assuming the market doesn't take a dump when I need to start taking withdrawals. 

    0Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    3y

    If you're only getting a 10-12% cash on cash return, it's not worth the amount of work and money that it takes to get a short term rental to market. It's really hard. The online real estate world makes it seem far easier and less stressful than reality. Aiming for a 10-12% cash on cash return may be the reality in some markets, but that being appealing or worth it sounds like something a realtor would say. Go get 8% compounding interest in an index fund before you do that. Those don't have furnaces that go out, guests that are disrespectful, or mortgage payments in January when nobody is traveling. 

    3Reply
  • Myrtle Mike ThompsonBusiness Member
    Realtor · Myrtle Beach, SC · Member since 2016 · 350 posts · 204 votes
    3y

    @Vincent Samaha  Congrats on jumping in.  There's some great advice above from some very experienced investors.  Should your interest turn to the Myrtle Beach market I'd be happy to help. 

    [email protected]843-999-2301
    Myrtle Mike Real Estate580 Reviews
    WebsiteView Page
    0Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    3y

    It's important to remember that real estate is only part of the STR business. You're actually getting into the hospitality business, not real estate investing.

    What makes me say that? Ever heard of "arbitrage"? Some folks make a deal with a landlord - who may or may not be the owner - to rent their property with the understanding that it will be used for STR or MTR (LTR would be a conventional sublease). They pay rent of $X and rent it out for $X + $Y. My upstairs neighbor does exactly that. By the way - this is week #3 with no guest upstairs.

    You'll need experience operating a hospitality establishment - motel, hotel, B&B, etc. - to fully understand that side of the business. You'll learn about the platforms - AirBnB, VRBO, etc. - as you go along.

    My "expert" on the subject is Jermaine Massey.

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Vincent Samaha

    If you're 37 and planning for retirement, I think you're going to do well. The reason to buy a STR would be because you want to be a successful host as others have said.

    I want multiple sources of income when / if I retire - dividends, savings, real estate of multiple kinds, possibly part time work.  I just turned 40 and this is the portfolio I am working on building.  A 401k is a perfectly reasonable component.  

    0Reply
  • Carrie HaysPro Member
    Rental Property Investor · Lexington, KY · Member since 2018 · 10 posts · 10 votes
    3y

    If you and your wife are w2 employees the major incentive to STRs over other types of rental property is the ability to make that non-passive income and losses. 

    [email protected]859-447-4019
    0Reply
  • Michael Evans
    General Contractor · Palm Desert, CA · Member since 2016 · 193 posts · 79 votes
    3y
    Quote from @Travis Timmons:

    If you're only getting a 10-12% cash on cash return, it's not worth the amount of work and money that it takes to get a short term rental to market. It's really hard. The online real estate world makes it seem far easier and less stressful than reality. Aiming for a 10-12% cash on cash return may be the reality in some markets, but that being appealing or worth it sounds like something a realtor would say. Go get 8% compounding interest in an index fund before you do that. Those don't have furnaces that go out, guests that are disrespectful, or mortgage payments in January when nobody is traveling. 


    0Reply
  • Michael Evans
    General Contractor · Palm Desert, CA · Member since 2016 · 193 posts · 79 votes
    3y

    I agree with Travis. It's way more work than all the STR gurus talk about. I did it for two years on my own 4 bedroom house and I can say for sure that I would never do it again. It's a full time job and that was just one property.

    0Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    3y

    I'm not saying don't do it...just don't do it for a 10-12% cash on cash return. Set up and furnishing is going to be harder and more expensive than you expect. You're likely going to have to find something that needs some work, can be bought at a discount, and have the willingness to do the necessary renovation to get it market ready to be able to increase the returns to make it worth the hassle in most markets. That's hard, stressful, and expensive work. It's been worth it for us, but it is absolutely not for everyone. You need the willingness to put in that work or simply having enough money that a lower return isn't as big of a deal - then you can buy something furnished and turn key in a mature market. You pick where you want to land on the stress-ease-financial return continuum. Good luck and let me know if I can be helpful.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Vincent Samaha. There is a lot of advice and ideas floating around. I guess it comes down to what you find acceptable. Some here have said they wouldn't get out of bed for 10-12%. Some think it is OK if you are happy with it.

    We are at about 24%. It is way better than we expected and has been steady. We are on target for about the same in 2023 so far. Time will tell.

    Bottom line is if you are happy with the 10-12% and it is steady and works, then you are fine. Yes you could possibly do better, but you never know.

    As for the time it takes, in high season, I spend about 2 hours a week working on our lake house. I handle everything regarding bookings and communication. I have a great cleaner and a handyman on call if I need help there. Our place is 8 hours away from us.

    We have good systems in place, do very regular maintenance on all the house systems and vet each and every guest. No instant bookings allowed. We rarely have a bad guest, have all 5 stars on both VRBO and AirBNB and are booked 100% for our season, each and every season so far.

    It doesn't have to be a chore, or a full time gig. If we had 10 houses, I would do something different, but one place is pretty easy if you do it correctly.

    My 2 cents.

    4Reply
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