Seeking Advice on STR Profitability & Strategic Adjustments for Year 2

Blue Ridge, Georgia
Short-Term & Vacation Rental Discussions
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Seeking Advice on STR Profitability & Strategic Adjustments for Year 2

Mary Peale
Member since 2024 · 5 posts · 3 votes

Hi everyone,

I’m looking for some guidance on improving the performance of our short-term rental, and I’d really appreciate your insights. Here’s a quick breakdown of our financials:

  • Operational expenses (excluding mortgage): $33k (Jan-Dec 2024)
  • Annual mortgage payments: $58k
  • Total needed to break even: $91k+
  • Income earned this year: $80k

Clearly, we need to bridge a gap of about $11k just to cover our expenses, and I’m exploring options to increase profitability. Specifically, I’m curious about the following:

  1. 2/2 vs. 3/2 properties: Are there significant advantages to offering a 2/2? For instance, do 2/2 properties typically have longer average stays, or are they more desirable?
  2. Cleaning fee impact: On average, we spent $2,500/month on cleaning fees this year. Would encouraging longer stays realistically help reduce this, especially for a medium-sized cabin?
  3. Nightly rates: Are 2/2 properties generally priced lower per night than 3-bedroom properties? If so, does this make it harder to meet revenue benchmarks?
  4. Year 2 turnaround: What strategies could we implement to project a higher ROI in our second year?
  5. Exit strategy considerations: Is it worth absorbing some of the costs and focusing on long-term appreciation?

I’d love to hear from others who have navigated similar challenges or have insights on improving profitability in the short-term rental space. Thanks in advance!

1Reply
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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
1y
Quote from @Mary Peale:
Quote from @Collin Hays:

While trying to figure out a way to boost revenue is good, I think you are doing pretty darn well if you are short less than $1,000 per month in the first year (or two, or three). Remember, someone else is paying off a chunk of that asset. What would be the crime if you were tossing in $11K every year from now on?  It's an appreciating asset.  Look at it like you do your 401K. 

I appreciate your perspective on “appreciating assets” and agree. This is something I aim to understand more about. So far, Zestimates says it’s appreciated by 0.88% in the past 15 months.

1. Is this expected since interest rates are high and listing prices are subsequently dropping? 
2. I’m temped to order an appraisal this month, or does that seem like over kill and do you recommend I sit back and trust the real estate process?

Thanks for any additional input you have time to put forth. & thank you especially for the positive affirmation, Collin!

Long term, your property is going to up in value; likely way up. Rents are going to go up too, perhaps significantly so.  A 15-month measuring stick isn't adequate. In the short term, prices fluctuate like the winds:  Up one day, down the next. Real estate investing works out best when treated with a crockpot approach instead of microwave.  We live in a microwave world, where everyone expects their investment to soar overnight. It usually doesn't work that way.

[email protected]806-672-7102
SMOKY MOUNTAIN FALLS INC.51 Review
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  • Alex Nauth
    Member since 2019 · 17 posts · 28 votes
    1y

    In my STRs the bigger the better as far as bedrooms are concerned. I have two 3/2 properties and two 4/3 properties. They average 4-5 night stays, keep in mind im not in a vacation hot spot. I be sure to offer nice weekly and monthly price discounts. 

    Be sure to take a look at your amenities too. I've added a few things for very minimal cost that guests really love and increased revenue ~34% year over year. Also look at pricing softwares and adjust accordingly. I use pricelabs on all my listings and have really enjoyed it. 

    STR markets are tough and change fast, best of luck!

    1Reply
  • Mary Peale
    OP
    Member since 2024 · 5 posts · 3 votes
    1y

    May I ask which amenities you added that you believe contributed to a revenue boost?

    2Reply
  • Alex Nauth
    Member since 2019 · 17 posts · 28 votes
    1y
    Quote from @Mary Peale:

    May I ask which amenities you added that you believe contributed to a revenue boost?


     Definitely! You can find a bunch of lists that mention top amenities such as hot tub, sauna, etc. I added arcade games, board games and accept pets as well. I find the vast majority of my stays are families that love the games and 30-40% of the time they bring their pet as well. People also love the back deck with the string lights and a nice seating area. 

    1Reply
  • Alton Johnson
    Investor · Atlanta, GA · Member since 2021 · 34 posts · 10 votes
    1y

    EDIT: Can't delete this post, so simply editing it.

    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    1y

    While trying to figure out a way to boost revenue is good, I think you are doing pretty darn well if you are short less than $1,000 per month in the first year (or two, or three). Remember, someone else is paying off a chunk of that asset. What would be the crime if you were tossing in $11K every year from now on?  It's an appreciating asset.  Look at it like you do your 401K. 

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    1Reply
  • Jonathan Sanchez
    Real Estate Agent · Denver · Member since 2023 · 17 posts · 10 votes
    1y

    @Mary Peale - Hi Mary, I have a couple ideas that come to mind. I've sent you an DM

    0Reply
  • Mary Peale
    OP
    Member since 2024 · 5 posts · 3 votes
    1y
    Quote from @Collin Hays:

    While trying to figure out a way to boost revenue is good, I think you are doing pretty darn well if you are short less than $1,000 per month in the first year (or two, or three). Remember, someone else is paying off a chunk of that asset. What would be the crime if you were tossing in $11K every year from now on?  It's an appreciating asset.  Look at it like you do your 401K. 

    I appreciate your perspective on “appreciating assets” and agree. This is something I aim to understand more about. So far, Zestimates says it’s appreciated by 0.88% in the past 15 months.

    1. Is this expected since interest rates are high and listing prices are subsequently dropping? 
    2. I’m temped to order an appraisal this month, or does that seem like over kill and do you recommend I sit back and trust the real estate process?

    Thanks for any additional input you have time to put forth. & thank you especially for the positive affirmation, Collin!

    0Reply
  • Joel Oh
    Member since 2023 · 188 posts · 111 votes
    1y

    Your business must make money day 1.

    It is so much more difficult to fix the model that is not making money than starting a new business that makes money day 1. 

    What you are trying to do is a patchwork. You are not even scooping your initial investment so your cash on cash return is negative. It is an urgent situation and you have to fundamentally change everything. You made that revenue with your new listing boost. Year 2 will not have that blessing. 

    0Reply
  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    1y
    1. 2/2 vs. 3/2 properties: 2/2 is smaller, thus cheaper to operate and lower price per night than a 3/2 all other things being equal. There are varying opinions on this but mine is: cheap never goes out of style. You should get more nights in the smaller property that can still easily accommodate a family traveling, but is still inexpensive enough to make sense to solo travelers.
    2. Cleaning fee impact: Don't you collect this back from your guests?
    3. Nightly rates: Yes, but the benchmarks should also be lower.
    4. Year 2 turnaround: What strategies could we implement to project a higher ROI in our second year? Collect cleaning fees and put more of the booking fee on the traveler if your rentals are in demand and it's the market isn't overly competitive. Further you should look at how many nights you were occupied across all units here and divide $25,000 by that number. This is how much you need to increase your room rate to become profitable based on last year's information. Do it ASAP.
    5. Exit strategy considerations: Is it worth absorbing some of the costs and focusing on long-term appreciation? I don't see a higher or better use for this real estate - do you? No and I wouldn't mess around with an appraisal until you are positive cashflow. 
    2Reply
  • Mary Peale
    OP
    Member since 2024 · 5 posts · 3 votes
    1y
    Quote from @Melanie P.:
    1. 2/2 vs. 3/2 properties: 2/2 is smaller, thus cheaper to operate and lower price per night than a 3/2 all other things being equal. There are varying opinions on this but mine is: cheap never goes out of style. You should get more nights in the smaller property that can still easily accommodate a family traveling, but is still inexpensive enough to make sense to solo travelers.
    2. Cleaning fee impact: Don't you collect this back from your guests?
    3. Nightly rates: Yes, but the benchmarks should also be lower.
    4. Year 2 turnaround: What strategies could we implement to project a higher ROI in our second year? Collect cleaning fees and put more of the booking fee on the traveler if your rentals are in demand and it's the market isn't overly competitive. Further you should look at how many nights you were occupied across all units here and divide $25,000 by that number. This is how much you need to increase your room rate to become profitable based on last year's information. Do it ASAP.
    5. Exit strategy considerations: Is it worth absorbing some of the costs and focusing on long-term appreciation? I don't see a higher or better use for this real estate - do you? No and I wouldn't mess around with an appraisal until you are positive cashflow. 

     Thank you for your detailed response, Melanie. Yes, we do collect a cleaning fee. 

    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    1y
    Quote from @Joel Oh:

    Your business must make money day 1.

    It is so much more difficult to fix the model that is not making money than starting a new business that makes money day 1. 

    What you are trying to do is a patchwork. You are not even scooping your initial investment so your cash on cash return is negative. It is an urgent situation and you have to fundamentally change everything. You made that revenue with your new listing boost. Year 2 will not have that blessing. 

    Couldn't disagree more.

    I am the owner of multiple businesses, and I've never had one "make money day 1".  
    My first STR, purchased in 2005, was negative cash flow for 4 years. It is now paid for, is worth triple my purchase price, and provides about $60K a year in rents.

    So I had to pump another $60K in it over a few years. In the scheme of things, that's sofa change.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    1y
    Quote from @Mary Peale:
    Quote from @Collin Hays:

    While trying to figure out a way to boost revenue is good, I think you are doing pretty darn well if you are short less than $1,000 per month in the first year (or two, or three). Remember, someone else is paying off a chunk of that asset. What would be the crime if you were tossing in $11K every year from now on?  It's an appreciating asset.  Look at it like you do your 401K. 

    I appreciate your perspective on “appreciating assets” and agree. This is something I aim to understand more about. So far, Zestimates says it’s appreciated by 0.88% in the past 15 months.

    1. Is this expected since interest rates are high and listing prices are subsequently dropping? 
    2. I’m temped to order an appraisal this month, or does that seem like over kill and do you recommend I sit back and trust the real estate process?

    Thanks for any additional input you have time to put forth. & thank you especially for the positive affirmation, Collin!

    Long term, your property is going to up in value; likely way up. Rents are going to go up too, perhaps significantly so.  A 15-month measuring stick isn't adequate. In the short term, prices fluctuate like the winds:  Up one day, down the next. Real estate investing works out best when treated with a crockpot approach instead of microwave.  We live in a microwave world, where everyone expects their investment to soar overnight. It usually doesn't work that way.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    2Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
    1y

    Hi Mary!

    It is hard to respond to this without fully understanding the issue and missing pertinent information such as what market etc.  Obviously you want to lower expenses while maximizing revenue.  Through that lens I will try to answer your questions to the best of my ability:

    1. My market (Tampa, FL area) 3/2 outperform 2/2 just as 4/2 outperform 3/2, assuming all other things are equal.  The only caveat to that is if you have the ability to turn it into separate units I.E. having a 2/1 and 1/1 instead of a 3/2.  In that case you will need to analyze the comps, and keep in mind operating two units on one property can bring other costs and operational issues.

    2. Are you not charging the guests a cleaning fee? Our cleaning fee covers professional clean, laundry service, and consumables.  This way I do not care whether guests stay 1 night or 30 from cleaning standpoint.

    3. If all things are the same a 3/2 will command a higher price than a 2/2, and typically as a property gets more expensive the average length of stay goes down.

    4. I would try to maximize revenue through things like additional marketing/platforms for example adding VRBO in addition to Airbnb etc, as well as employing pricing software. I would also try to minimize expenses through decreasing cleaning costs, installing smart tech like a thermostat to control utility costs, etc.

    5. There is only so much you can do to maximize rev and lower cost.  If you are still negative cash flow and can stomach it, then focus on appreciation and principal pay down.

    Good luck!

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
    WebsiteView Page
    1Reply
  • Monique P.
    Member since 2023 · 88 posts · 62 votes
    1y

    Hi Mary - your post is so succinct which makes for easy reading. ;-)

    Some things come to mind-do you host yourself, have a property manager or co-host, is your STVR dog friendly, do you have king beds, where is your market, do you have professional photos etc.

    If you're comfortable posting a link to your property, it would give you more direct feedback from everyone so we can try to help you meet your target. ;-)

    1Reply
  • Mary Peale
    OP
    Member since 2024 · 5 posts · 3 votes
    1y

    Hi Monique, thank you for the response.
    Here is the link -> http://airbnb.com/h/chillaxcreeks

    Self-managed. I'm the co-host. Fiance is the owner.
    Blue Ridge, Ga.
    Dog Friendly
    Lots of amenities. I'm willing to invest in more but not sure if that's a good idea until I see profitability. 
    1 King, 2 Queen, 2 Full (in the loft area)
    Photos are taken by a professional, yes.

    0Reply
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