Honest Discussion on STRs

OP

Member since 2022 · 26 posts · 26 votes

2y

Hello fellow member! My name is Teren Hooper, I am a realtor in the North Ga Mtns. I had a STR in 2018 and did very well. I was only renting out one bedroom at the time, but I was bringing in on average 1000-1200 per month. I was in college and it was a great way to help keep me afloat and make a house payment. Fast forward 6 ish years, My wife and I decided to rent out the home as a STR. I had done minimal research however felt it would be a great opportunity mostly because of the success I had when renting out one bedroom in the home in 2018. I was mistaken. The home is paid off but it still took over 6 months just to break even on what we had bought in materials etc for the rental. When researching the numbers seemed to add up but there was one key problem I did not take into account. The market was completely flooded. It is my observation that this is currently the growing problem. Too many STR and not enough long term housing. My wife and I decided to turn the home into a long term rental and have not looked back since. We have a huge housing problem in our area and we have been very successful in filling that gap.

Hope this helps!

Thanks Teren! I get what you are saying because we are seeing the same problem here in Colorado.

0 Reply

Derek Fike

OP

Member since 2022 · 26 posts · 26 votes

2y

Quote from @Travis Timmons:

Find your subject matter expertise and unfair advantage. Here's a random example - know a guy that has gone on ice fishing trips in New England for 15 years. He bought an ice fishing cabin for pennies in a location that you, I, and all the other clowns talking about real estate on the internet would never know about. I don't know his in depth numbers, but I'd venture to guess he made over 50% cash on cash.

Looking on a map or an online forum to find a location is a good way to eek out a modest return if managed well. The outsized returns that make an STR worth the hassle are found in niche categories and locations now. National Parks are mentioned above - everyone knows the Smokies, Yosemite, Yellowstone, Zion, Grand Canyon, but have you heard of New River Gorge, Mammoth Cave, Pictured Rocks National Lakeshore, or other lesser known but very well visited national park sites?

A short time ago, it was an IQ test. If you could look on a map and do basic math, you could make a 20-50% cash on cash return. The market has matured and margins have compressed.

Solid feedback and I agree with looking into properties near national parks. I was also considering cheap land around the Great Sand Dunes National Park. Very limited opportunity in that area for places to stay or set up camp.

1 Reply

Derek Fike

OP

Member since 2022 · 26 posts · 26 votes

2y

Quote from @James Carlson:

Quote from @Derek Fike:

I agree with you! This is what is drawing me to Gulf Shores/Orange Beach, AL. This is a hot spot for tourism with beautiful beaches and great entertainment/events. I live in Colorado and would like to purchase my first rental here, but it seems too risky with all of the upcoming restrictions and potential quadrupling of lodging taxes.

Seems like commercial taxation of Colorado STRs might be amended pretty heavily. (And it seems there's at least some chance it doesn't pass at all, based on the opposition they're setting.) I've got several clients wanting a vacation rental in Colorado who are watching closely.

Yeah that taxation proposal is absolutely ridiculous.

0 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

2y

@Derek Fike

@John Underwood

great list. i'll add - depends on your mindset.

everyone coming on BP wants to start getting "cash flow" in week 2 of whatever they're investing in - LTR, STR, syndication - and quit their job in year 2.

but i believe that real estate is long term. so... what if you :

-ignored the headlines

-were an individual in a strong financial position

-bought an STR in a place you believed in and liked to visit, and

-were willing to put in some time, effort and funds over 1 or 3 or 5 years?

i bet that just might work.

5 Reply

John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

2y

Quote from @Nicholas L.:

@Derek Fike

@John Underwood

great list. i'll add - depends on your mindset.

everyone coming on BP wants to start getting "cash flow" in week 2 of whatever they're investing in - LTR, STR, syndication - and quit their job in year 2.

but i believe that real estate is long term. so... what if you :

-ignored the headlines

-were an individual in a strong financial position

-bought an STR in a place you believed in and liked to visit, and

-were willing to put in some time, effort and funds over 1 or 3 or 5 years?

i bet that just might work.

I took me 10 years to build up the consistent cashflow that I needed to live the lifestyle I wanted and quit my day job as an engineer.

6 Reply

James Carlson

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

2y

Early days you could throw up a crapbox, call it "quaint" in the headline, and net a few thousand a month as an STR.

Competition is stiffer now. Like others have said, you got to be thoughtful about location, property condition, amenities, photography, furnishings... basically everything. Sounds like a lot of work. And it is.

But when you do it right, it works. I've got clients who bought a new construction home outside Florissant, 45 minutes into the mountains west of Colorado Springs. They furnished the hell out of it, put in a hot tub, took great photographs and are nearly doubling the AirDNA projection for other vacation rentals in the area.

3 Reply

Carrie Matuga

Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes

2y

@Derek Fike I think this is an excellent point to discuss on. I think that whether a STR makes sense or not is entirely dependent on the market and that market's comfort and experience with STRs. In areas like FL, Smokey Mountains, etc. they depend almost entirely on tourism for their economy and there is a LONG history of families using homes vs. hotels for their stays. Those areas generally have their rules for STR figured out. In metro areas like LA, NY, Denver, Chicago where housing is already scarce and expensive, there can be more risk as rules are not necessarily clearly defined and there is more concern about the housing for LT residents. That said, one benefit for STR that I don't often see discussed is and I think should play in the decision is the tax benefits. While I am not an accountant, and you should speak to yours about this, there is a loophole in the tax code called the STR Loophole which allows your STR (provided you are not using a PM) to be counted as active income/active expense so that the costs, payments, depreciation etc. goes against your active W-2 income. For high income earners, this can amount to thousands of dollars of savings.

2 Reply

Andrew SteffensBusiness Member

Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes

2y

It is still a great business - for the right people.

No more get rich quick i.e. cashflowing $2k a month on a $200,000 purchase price

If you are in it with the right property, with the right expectations, for the right reasons you can be successful!

The STR industry pre-dates Airbnb and even VRBO. it is not going anywhere just evolving, and Airbnb/VRBO are likely not going anywhere either

[email protected]813-563-0877

Vacation Rentals of Florida53 Reviews

Website View Page

5 Reply

Troy GandeeBusiness Member

Real Estate Broker · Charleston, SC · Member since 2013 · 794 posts · 454 votes

2y

In Coastal SC, it has definitely become very saturated and much more competitive. It still works well and cash flows just fine, but you can't be lazy. The product just has to be more marketable and attractive now. I see plenty of owners struggling, but they often has less than desirable properties, poor photos and no remarkable amenities to set them apart. Our primary unit is still operating about 95% occupied and rates have never declined for us. We have another one in a luxury beach community that does nominally well, but I really blame the regime/community fees more than the strategy.

2 Reply

Ricardo Hidalgo

Real Estate Agent · Member since 2019 · 569 posts · 257 votes

2y

Quote from @Derek Fike:

Thanks everyone for all of the information so far! I saw a recent report from AirDNA that showed Gulf Shores, AL having one of the highest ROIs and CoC returns in the short-term rental space, which is where I have been spending the most of my time searching, but also, building wealth through equity growth in Destin, FL doesn't seem like a bad option either!

I think Panama City beach would outperform or if not be at PAR with Gulf Shore Alabama. I know PCB generally can do 10-15% of the gross purchase price in comparison to its rental revenue.

2 Reply

Evan Polaski

Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes

2y

@Derek Fike, you are completely correct. The front page news is "Airbnb is going bust". And when you ask any of the many, many people who bought into STRs being a cash printing machine for anyone involved, it is a bust. Like a lot of things real estate over the last few years, there are a lot of people that leaped in without any real knowledge or plan, and they are not doing well.

You are also right that a well located property with all the required work needed to differentiate yourself will yield a solid return.

There are certainly headwinds that stem from the popularity of these STRs: as you note, more jurisdictions are changing their laws and/or requiring more from hosts. Since you bring up condos: not only could the local jurisdiction change their laws (less likely in a high vacation area like Gulf Shores), but also any HOA doesn't step in and start trying to restrict Airbnb usage.

I think the thing many people don't think about is the marketing aspect of the successful Airbnb's. If you believe buying a condo in Gulf Shores and throwing it on Airbnb is a surefire way to success, I would be very cautious. How many other Airbnb's are in the same building or adjacent building you are looking at? What will get people to want to stay in yours over the neighbors, besides price? You need to create a UNIQUE value proposition, and in the world of STRs, that not only comes from many areas: namely the property's ability to capture attention on the platform and the guest experience from response times to questions or booking confirmations, to comfort of mattress and towels, to enough toilet paper being on site, through to checkout requirements.

3 Reply

Derek Fike

OP

Member since 2022 · 26 posts · 26 votes

2y

Quote from @Evan Polaski:

@Derek Fike, you are completely correct. The front page news is "Airbnb is going bust". And when you ask any of the many, many people who bought into STRs being a cash printing machine for anyone involved, it is a bust. Like a lot of things real estate over the last few years, there are a lot of people that leaped in without any real knowledge or plan, and they are not doing well.

You are also right that a well located property with all the required work needed to differentiate yourself will yield a solid return.

There are certainly headwinds that stem from the popularity of these STRs: as you note, more jurisdictions are changing their laws and/or requiring more from hosts. Since you bring up condos: not only could the local jurisdiction change their laws (less likely in a high vacation area like Gulf Shores), but also any HOA doesn't step in and start trying to restrict Airbnb usage.

I think the thing many people don't think about is the marketing aspect of the successful Airbnb's. If you believe buying a condo in Gulf Shores and throwing it on Airbnb is a surefire way to success, I would be very cautious. How many other Airbnb's are in the same building or adjacent building you are looking at? What will get people to want to stay in yours over the neighbors, besides price? You need to create a UNIQUE value proposition, and in the world of STRs, that not only comes from many areas: namely the property's ability to capture attention on the platform and the guest experience from response times to questions or booking confirmations, to comfort of mattress and towels, to enough toilet paper being on site, through to checkout requirements.

Appreciate the insight here and completely agree with you!

0 Reply

Matthew Creel

Real Estate Agent · Orange Beach, AL · Member since 2018 · 36 posts · 15 votes

2y

@Derek Fike I am a local agent/investor living in Orange Beach, AL. I've helped numerous clients successfully purchase condos and houses as cash flowing STRs. That being said, it has become much harder to produce a true cash on cash return in our market in recent years. But with the right house or unit solid, returns can still be accomplished. Inflationary pressures are being felt in all the categories that play into this ROI calculation. Along with substantial property price increases we have seen exponential increases in insurance premiums, property taxes, repair costs, and capital expenditures. One thing I didn't see mentioned as I skimmed the responses above is the risk for special assessments. It has become more important than ever to perform a detailed review of the HOA. Many associations are feeling these same inflationary pressures and as many of the buildings in the area age they are needing more and more repairs that are in many cases being passed onto the owners in large sums. These assessments can wipe out years of cash flow all at once. It's super important to buy in a newer concrete constructed building with a solid HOA. If you'd like to learn more about Gulf Shores and Orange Beach feel free to reach out. I'm happy to talk REI anytime......it's my favorite thing to do :)

1 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Derek Fike:

Hey Everyone,

I know that there has been quite a bit of conflict as to whether an STR can be profitable or not, so I figured that coming to this community for perspective would be best. I keep hearing that STRs are dead and that Airbnb/Vrbo will be a bust, but I can't help but think that there are other factors that are somewhat contributing to this thought, such as people getting into the STR game not know what they are doing, defaults due to communities putting in heavy restrictions on STRs, etc. It seems like this could have been avoided if people did more research before purchasing a property for an STR.

I personally believe that this is still a sound business idea if executed properly, however, whenever I talk to family and friends about this, most of them "down" this idea saying that there is no money to be made. For example, I have a connection in Dallas, TX who purchased multiple STRs in Miramar Beach, FL and claims to only be breaking even, which I found extremely difficult to believe because I also have a connection who owns a one bed, one bath condo in Destin, FL who made $78K in rental income, including the lodging tax and cleaning fees, and was still able to net approximately $35K in 2023. Therefore, I can't help but think that my connection in Dallas executed their STR in the wrong manner, but at the same time, they are having others pay for their condos which isn't bad either!

I've been highly interested in investing in a condo to advertise as an STR in Gulf Shores/Orange Beach, AL, Pensacola, FL, Okaloosa, FL, or Destin, FL, but have been lacking internal support and confidence to pursue this. I know that this is a personal flaw and that I should go for it if it makes sense to me after doing my own research, however, I can't help but think that it may not work out the way I believe it could based on all of the negative sentiment I have received from family and friends. Therefore, I figured I would come here to engage with professionals who actually do have a good amount of experience and/or success/failures in this area for any guidance, advice, etc.

Thanks everyone and I look forward to engaging in a productive discussion!

There're several discussion meeting here.
- by average, in 2023 the vacancy nationwide goes down similar to pre covid which is 52%. So you can't compare to 2021/22 era.
- everything else depends on the location but very typical STR is averaging 3-5% cap rate, it's kinda suck in this number so most likely you would break-even only.
- even during 2010-2015 bullish era, most airbnb operator makes money after appreciation, not cash-flow. This is 100% correct in any situation.

1 Reply

Brooke Dyer

Member since 2024 · 60 posts · 25 votes

2y

I help cohost and property find for investors across the country. The trends we are seeing is to stray away from highly saturated markets, and markets with high 'buy in'. The key is to find non-saturated markets, and those that are offering great options to you outside of short term rental investing (mid-long term renting as an option need be).

I recommend up and coming small metro areas, college towns or picking an area and searching for or building a really unique property (think A frames, container homes, etc). You'll want to find a market that's showing increased annual revenue and occupancy year over year, and with median house prices slightly under or on par with the nation's average.

As an investor, you'll want to do your homework and research current rentals in the area, and learn from reviews what guests are wanting in that area (near attractions, hot tubs, kid friendly, pet friendly, games, etc.) It's important to understand what's important to this market before purchasing a property in the area!

Feel free to reach out to me if you'd like to discuss more!

Brooke Larson

Realtor | Keller Williams

2 Reply

Braeden Cobb

Investor · Scottsdale, AZ · Member since 2022 · 50 posts · 22 votes

2y

Hey Derek, I am currently managing a portfolio of STR from apartments, to condos, to townhomes, to sfh properties. I believe a lot of of this discussion around STRs "dying" is from not only saturation, but also just a simple leveling out. There was such a surge after covid that STRs were essentially the best investment you could make since the demand was so high and the supply just simply wasn't available at the time. When looking to purchase a property, I believe planning to pivot at any given time is important. Your str license could be swiped any year, and other strategies may need to come into play. If it makes sense as a long term rental, a lot of time it will make sense as a short term rental. STR takes time and you can only automate so much, while ltrs can be basically completely hands off with the right tenants. Where you buy is also obviously important too. Right now cities like Scottsdale and Seattle are so expensive that with the combination of high interest rates, it could take a little longer to make the numbers pencil out. Hope that helps.

2 Reply

Brooke Dyer

Member since 2024 · 60 posts · 25 votes

2y

Quote from @Braeden Cobb:

Hey Derek, I am currently managing a portfolio of STR from apartments, to condos, to townhomes, to sfh properties. I believe a lot of of this discussion around STRs "dying" is from not only saturation, but also just a simple leveling out. There was such a surge after covid that STRs were essentially the best investment you could make since the demand was so high and the supply just simply wasn't available at the time. When looking to purchase a property, I believe planning to pivot at any given time is important. Your str license could be swiped any year, and other strategies may need to come into play. If it makes sense as a long term rental, a lot of time it will make sense as a short term rental. STR takes time and you can only automate so much, while ltrs can be basically completely hands off with the right tenants. Where you buy is also obviously important too. Right now cities like Scottsdale and Seattle are so expensive that with the combination of high interest rates, it could take a little longer to make the numbers pencil out. Hope that helps.

I completely agree with this! It's pivotal to buy into a market that could be easily pivoted at any given time. Also, great note about the industry leveling out - this is something that we try to explain to our clients frequently too!

1 Reply

Account Closed

Investor · FL · Member since 2016 · 332 posts · 388 votes

2y

I am an investor and STR self managed in FL panhandle and Smokies. A couple things not mentioned by others. In the Panhandle/Emerald Coast, GulfShores and Smokies there was a major shift in the purpose of the real estate inventory in the past 4 years which for ease of identification I will call pre-COVID and post-COVID. Pre-COVID these markets had 20% to 40% of all prime inventory being held as personal residences or second homes with no desire to rent. Due to age of owner's (70+), money to be made selling ( rapid increase in equity), change in the market area (over crowded beaches/Pigeon Forge strip) and life changes (divorces/death) the owner occupied/2nd home owners sold. The new buyers turned them into STRs. Additionally most markets saw and the increase in new builds increasing inventory over 10% a year. Now post-COVID you have a larger inventory, increased prices, increased interest rates, increased property taxes, increased regulation (even Smokies are now requiring permits) and increased insurance and at the same time return of the reduced Pre-COVID occupancy numbers. All this said, due diligence is required. I still acquired and built STR properties in both markets and am getting over 20% cash on cash return. You need to know the market and buy right. Due to interest rates, it is now important more in the Post-COVID years to buy at a discount. Look for the opportunity to buy an outdated property for 15% to 20% less than market and update it. As someone mentioned there are a number of outdated properties in the Emerald Coast and especially Gulf Shores needing a refresh. Do not go for a complete gut or major reno as it will take too much time and money to do. Think paint, deck, countertops, flooring and removing the 1990s curtains. Here is a trend I am seeing in all markets....COVID and Post-COVID era STR owners are selling because of many reasons (headaches/lack of cashflow/increased condo assessments/not there cup of teas for business). This means we should see a portion of those convert back to owner occupied or 2nd homes, but also this will produce and opportunity to buy at a discount. Unfortunately the race to the bottom pricing is real and it will remain for atleast the next year till after elections (currently it is a fear driven leadership and it produces fear) and clearing out the fear driven pricing by the panicking STR owners selling. Be patient, do due diligence, buy right and be ready to work and it will be successful.

I hope this helps.

4 Reply

Alyson Gordon

Real Estate Broker · Raleigh, NC · Member since 2023 · 79 posts · 57 votes

2y

STRs definitely are not dead! I do think that just like any investment you have to be picky and really evaluate a deal before buying it. A lot of it comes down to your specific property - you can do well in a dead market or do terribly in a hot market. With STRs, you need a good location, design, guest experience, and you'll do great. I think some people got into STRs over the last few years without doing their homework unfortunately.

2 Reply

Zachary Cain Humphrey

Investor · KY · Member since 2022 · 204 posts · 77 votes

2y

They bought property in Destin florida and are breaking even its simple... they very likely over paid and have purchased in a boom market with high interest rates. Therefore the cash flow is gone in some of these extremely expensive markets.

You can make nearly any place perform depending on the purchase price and cost of debt.

Secondary markets is where I would be looking now for cash flowing rentals.

Primary markets like Destin or Smoky Mountains many owners buy there because they travel there but those markets and prices just arent competing with nightly rates. It doesnt mean people arent making great cash flow in those markets, but depending on their purchase price, location, debt service etc their financial position may be very different from yours if you bought into the same market today.

Yet research is research and there are still many cash flowing STR markets.

Think Maine, KY, Arkansas for some markets still with great cash flow pockets and far better purchase prices.

0 Reply

James Carlson

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

2y

@Alyson Gordon Totally agree. You can do great in a tight market and terrible in a hot market. (Furnish an STR with cast-off furniture and take cell-phone photos and see how well you do.)

We see this here in Colorado where short-term rentals aren't cash-flowing nearly as well as they did two years ago, but I also just found a $650,000 property in the mountains outside Denver that gets to around $900/mo cash flow and is near 10% cash-on-cash. Can you get better numbers elsewhere? Yep. But to @Zachary Cain Humphrey's point about motivation to buy a vacation rental in Colorado (or Destin or the Smokies) is that most of my buyers also want a home to visit. So the double motivations helps those numbers look appetizing enough.

1 Reply

Jim Hudelson

Member since 2020 · 34 posts · 19 votes

2y

The way that I see it, there is an analogy between the STR market and t.v. How you obtain t.v. is ever changing (and doing it quickly). The same is true of the short term rental business. You have to keep up. I think that buying into a proven rental market is smart. The florida panhandle is excellent for this. Year-around business, regulations that are favorable, demand. it's all there. As others have said it then comes down to location and execution. If you have a house in Old Seagrove and present it well you are going to rake it in. If you have a 2 br condo on the beach - good luck. What makes yours better than the next? You have 100's if not 1000's of competitors for this type of property. If you have a house in Seaside or Watercolor or Grayton Beach you will likely keep it rented. I've traveled a lot and the beaches in this area are top shelf. I also lived in that area for 20+ years. I left because it has just gotten too too. Too much commercialization. Too much traffic. Too many people from cities that want it to be like home. But, people continue to flock there for their vacations so it works for STR.

2 Reply

Theresa Holl

Investor · Minneapolis · Member since 2023 · 265 posts · 162 votes

2y

Hey Derek - my first impression about you is that it's very reasonable to favor moving forward with support. All these investments start with building your A Team. No investor is doing this stuff alone and beyond mentors, even partners to dilute risk are not that hard to find. A lot of us here have networks you can tap into and other resources to share.

As far as who's making money and who's not, a lot of people struggling think of it as an Airbnb, rather than a short term rental business. There are so many revenue streams and upsells available and it's the high end properties that are succeeding right now. Even something as simple as adding your cleaning fee to your nightly rate will eliminate a lot of the worst guests to deal with and position you as more high end. Upsells include concierge services, butlers, parking, local tour guides and activities (affiliate partnerships), renting different parts of your property at the same time to different clients, romance packages, spa packages, up charging for high end amenities, massage/wellness packages and affiliate partnerships. Opportunity doesn't sleep.

Also, check out FL house bill SB 280. Might create a profit windfall for prepared hosts in the right cities that have had rental restrictions.

0 Reply

Honest Discussion on STRs

Honest Discussion on STRs

Most Popular Reply

49 Replies