Best Short-Term Rental markets
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes32k or even 42k on a half million dollar house doesn't sound all that good.
What's your projected cash flow after all your expenses including a likely higher mortgage payment than the current owners?
13 Replies
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
32k or even 42k on a half million dollar house doesn't sound all that good.
What's your projected cash flow after all your expenses including a likely higher mortgage payment than the current owners?
Quote from @John Underwood:
32k or even 42k on a half million dollar house doesn't sound all that good.
What's your projected cash flow after all your expenses including a likely higher mortgage payment than the current owners?
I was just thinking the numbers above. There'd be no mortgage, I'd own it outright
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
You want to make sure your cash is working hard for you. So want a good COC return. Have you figured what that would be after your expenses?
I think thats either a bad area, bad property, or a bad property manager. But its definitely one of the three issues. 500k houses should generate at least 10% of revenue all day long or you should sell the property there and buy somewhere else that gets that.
I would actually guess if you're open to all areas, you can find something that hits the 12 to 14% revenue. So a 500k house in a good STR area should be getting 60k to 70k in revenue. Some areas are even better than that. It also depends on if you can find a deal on the house and if you have good property management.
But 40k in revenue for a 515k house doesn't seem like the best area for str. Maybe consider selling and going to one that is.
- 1yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Tariq A., so make sure you figure in VRBO as well as AirBNB in your calculations.
I don't think 8-9% is terrible today. Things are very different now and it is what it is.
There are a lot of regs on STRs in Colorado Springs - https://coloradosprings.gov/str
Essentially STRs are only allowed in certain zoned areas. (R-E, R-1 6. R-1 9, and Single-Family PDZs) are disallowed and your place needs to be at least 500' from another STR in all zoning districts. Could be really tough.
- 1yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
I am unsure about CO but 10% Net Cash return, plus tax benefits and appreciation is solid in 2024 terms. Long gone are the 2018 days...
Vacation Rentals of Florida53 Reviews - Real Estate Agent · Long Island · Member since 2018 · 88 posts · 38 votes1y
Hi Tariq, the STR markets are very saturate especially in the prime areas. There is a lot more competition than before. Listing prices for areas like near the Smokey Mountains are exceptionally. You'd have to be a builder to really reap any sort of profits from an area as such. Truthfully, I don't think a Capitalization Rate of 8% is terrible plus you'll have an appreciating asset along with the tax benefits. At this point, I definitely would find some solace in that. I currently have an STR in the Poconos and I would recommend if you ever pick a home here to consider style. The Realtor that helped me find a home told me it really didn't matter upon purchasing, but later it did become apparent that in VRBO or Airbnb renters are looking for that Chalet-style home with some amenities. If you ever decide to look over in this area, I'd be happy to put you in touch with the systems I utilize over here and give you insight on which areas to look for. Overall, it's pretty affordable too. For a nice possibly furnished STR, you are looking at between $250,000 to $350,000 depending on your budget. Feel free to send me message.
Quote from @Bryan Stengel:
Hi Tariq, the STR markets are very saturate especially in the prime areas. There is a lot more competition than before. Listing prices for areas like near the Smokey Mountains are exceptionally. You'd have to be a builder to really reap any sort of profits from an area as such. Truthfully, I don't think a Capitalization Rate of 8% is terrible plus you'll have an appreciating asset along with the tax benefits. At this point, I definitely would find some solace in that. I currently have an STR in the Poconos and I would recommend if you ever pick a home here to consider style. The Realtor that helped me find a home told me it really didn't matter upon purchasing, but later it did become apparent that in VRBO or Airbnb renters are looking for that Chalet-style home with some amenities. If you ever decide to look over in this area, I'd be happy to put you in touch with the systems I utilize over here and give you insight on which areas to look for. Overall, it's pretty affordable too. For a nice possibly furnished STR, you are looking at between $250,000 to $350,000 depending on your budget. Feel free to send me message.
Interesting addition when you suggest that builders are the only ones to reap any profits. I think thats true if the builder sells some builds and keeps some.
But I would add a couple of things. Don't just look at the area overall and listen to people say its oversaturated and things are down. Be sure to investigate the varying product types. Great example is Bryan's take on buying chalet style homes in the poconos. Thats the kind of information that separates a good investment from a not so good investment.
And thats exactly what you need to do some digging to find out when you investigate each area. Sevier county TN (gatlinburg, sevierville, pigeon forge) is a great example. People buying the smaller cabins for 500k to 550k are getting 50k to 60k in rent by year 2. Their numbers are solid. The bigger cabins - not so much. So if you were investing solely in smaller cabins, you'd think sevier county was doing pretty good right now. If you had bigger cabins only, definitely not.
One thing I would add though is that your returns are somewhat based on your purchase price which you can control. As an investor, I don't believe in ever paying retail. I just don't think paying retail is investing. If you could pay retail and make a good return, then literally anyone can do it.
What you need to do is identify your area. Then identify your product niche/type. Then find matches for that product that you are able to buy at a discount. Don't be afraid to blast offers to every listing on the mls for 80% of what they're asking. You'd be surprised at what you might get - especially now with rents being down and some of these long term owners having grabbed a ton of equity over the last 10 years or so.
Even if these people know their property is worth more, there is sometimes that one owner that wants the windfall of cash they have coming and will take that low offer. Its a numbers game. Find a realtor that will submit the offers and lower your cost basis enough to where your returns get a bit of a bump. But even better is that you'll have enough equity there to where you'll be able to refi sooner and pull all your money back out so you can grow more.- Real Estate Agent · CO · Member since 2022 · 22 posts · 5 votes1y
Hey Tariq,
I personally have 3 properties here, 2 of which are short term rentals, so happy to speak to investing in STRs here. I am an also an agent that niches specifically to STR investment properties, so happy to offer detailed insight.
I love investing in short term rentals here - I have one that does over $85k gross a year, one that does over $75k gross a year. It has been life changing for me! I purchased both STR houses in the low-600s range. There are absolutely areas where you can beat a 10% cap rate - I see it all the time - you just need to know where to look and what types of properties perform best.
Some areas I would check out include Bailey, Arvada, Westminster, unincorporated Adams County, and many more I could point you to beyond that. The regulatory environment is the first thing you should consider when buying a STR here - it is both the worst and best part of being a CO STR investor. It is the worst because you need to understand the patchwork of regulations across the state, which can vary down to a neighborhood by neighborhood basis. This is also the best thing, because many out of state investors find it confusing and stay away, which keeps our returns much higher and wards off Wall Street investors from buying up swaths of houses, which we've seen in other markets.As an STR specialist, keeping up with zoning and regulation statewide is a huge part of my job.
I also host monthly short term rental events for local investors, monthly webinars, and I also often get furnished, turnkey off-market STR properties. A lot of STR investors prefer to sell off-market so they don't have to shut off business during tours, and I'm lucky to get access to a large majority of those deals in CO. I definitely recommend connecting with an STR community in the CO area, because it's great to meet other people doing the same thing and bounce ideas off of one another. Feel free to shoot me an email if interested in coming to one of my events - I have several upcoming, happy to shoot you an invite.
Last point I will make - while cap rate is helpful, I prefer using cash on cash return. I find it more helpful to track on my total cash into the deal (inclusive of furniture, amenities, etc), so cash on cash and monthly net cash flow are the two metrics I find are most informative when I'm looking at a purchase.
Liv
- Real Estate Agent · Long Island · Member since 2018 · 88 posts · 38 votes1y
Quote from @Mike H.:
Quote from @Bryan Stengel:
Hi Tariq, the STR markets are very saturate especially in the prime areas. There is a lot more competition than before. Listing prices for areas like near the Smokey Mountains are exceptionally. You'd have to be a builder to really reap any sort of profits from an area as such. Truthfully, I don't think a Capitalization Rate of 8% is terrible plus you'll have an appreciating asset along with the tax benefits. At this point, I definitely would find some solace in that. I currently have an STR in the Poconos and I would recommend if you ever pick a home here to consider style. The Realtor that helped me find a home told me it really didn't matter upon purchasing, but later it did become apparent that in VRBO or Airbnb renters are looking for that Chalet-style home with some amenities. If you ever decide to look over in this area, I'd be happy to put you in touch with the systems I utilize over here and give you insight on which areas to look for. Overall, it's pretty affordable too. For a nice possibly furnished STR, you are looking at between $250,000 to $350,000 depending on your budget. Feel free to send me message.
Interesting addition when you suggest that builders are the only ones to reap any profits. I think thats true if the builder sells some builds and keeps some.
But I would add a couple of things. Don't just look at the area overall and listen to people say its oversaturated and things are down. Be sure to investigate the varying product types. Great example is Bryan's take on buying chalet style homes in the poconos. Thats the kind of information that separates a good investment from a not so good investment.
And thats exactly what you need to do some digging to find out when you investigate each area. Sevier county TN (gatlinburg, sevierville, pigeon forge) is a great example. People buying the smaller cabins for 500k to 550k are getting 50k to 60k in rent by year 2. Their numbers are solid. The bigger cabins - not so much. So if you were investing solely in smaller cabins, you'd think sevier county was doing pretty good right now. If you had bigger cabins only, definitely not.
One thing I would add though is that your returns are somewhat based on your purchase price which you can control. As an investor, I don't believe in ever paying retail. I just don't think paying retail is investing. If you could pay retail and make a good return, then literally anyone can do it.
What you need to do is identify your area. Then identify your product niche/type. Then find matches for that product that you are able to buy at a discount. Don't be afraid to blast offers to every listing on the mls for 80% of what they're asking. You'd be surprised at what you might get - especially now with rents being down and some of these long term owners having grabbed a ton of equity over the last 10 years or so.
Even if these people know their property is worth more, there is sometimes that one owner that wants the windfall of cash they have coming and will take that low offer. Its a numbers game. Find a realtor that will submit the offers and lower your cost basis enough to where your returns get a bit of a bump. But even better is that you'll have enough equity there to where you'll be able to refi sooner and pull all your money back out so you can grow more.Mike is absolutely right. I would never want to deter anybody from an area such as that in the Smokeys. I think I should correct myself and say that builders are certainly not the only ones to reap profits from there. I think I'm speaking for myself in terms of a price point that I'm personally not comfortable with over there since it is not in my own buy box yet. However, those cabins are great investments.
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