A possible first STR property?

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A possible first STR property?

Tomoko Hale
Member since 2022 · 67 posts · 20 votes

I have been looking for an STR property and may have found one at a distance. The property is located in a mid-size city with several attractions nearby.

I understand that management fees can vary by location, but this property management company charges 20%. That seems high—does it? Based on my research, this PM company is highly reputable and provides excellent service. My local realtor obtained information from the PM about the property’s income for 2024, along with an estimate of monthly expenses the owner is responsible for. The PM handles almost everything except the decision-making.

Would it be rude or inappropriate if I communicated directly with the PM without involving my realtor?

The house is listed at $350K, including all the furniture. The owner wants to sell for a 1031 exchange, and the property hasn’t been officially listed yet. The location is great, and MTR could also be an option. Resale homes in the area have been selling for about $260/sq. ft., but this property is priced at $296.10/sq. ft. The house is 1,500 sq. ft. in size. How much would you counter if you were in my position? How much income would you at least if you purchase this property?

This will be my first time purchasing an STR, and I have no prior experience. I'm feeling both scared and excited about taking on this challenge.

I’d love to hear about your experiences and any advice you can share.

Thank you in advance!

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
1y

My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    1y

    20% is not high for managing a STR. That's pretty fair.

    2Reply
  • Mike GrudzienPro Member
    Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
    1y

    20% for STR is fair.

    2Reply
  • Jeff ChisumPro Member
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    1y

    Don’t overlook the 10% down second home occupancy loan for financing a property like this.  Happy to help with any questions.  

    2Reply
  • Patricia Andriolo-Bull
    Member since 2022 · 527 posts · 413 votes
    1y

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.

    2Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    1y

    My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

    So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

    You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

    I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

    If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

    Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......

    3Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Patricia Andriolo-Bull:

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.


     Thank you. So 10% return for the cash for the first year? Is that what you mean?

    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Bruce Woodruff:

    My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

    So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

    You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

    I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

    If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

    Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......


    Thank you for the detail information this is very helpful. So another questions about insurance. Is STR insurance different from home owner insurance? So if this is an STR property then, I just need to have STR insurance?

    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Jeff Chisum:

    Don’t overlook the 10% down second home occupancy loan for financing a property like this.  Happy to help with any questions.  


     Thank you.
    Even though somebody else owned this property, she has the number for the sale last year. What if I consider DSCR, would it be possible to use it?

    0Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    1y

    As everyone said, 20% is fair for a manager to take care of a STR. I would include your realtor in the conversation, at least when you're introducing yourself. As far as continuing the realtor in the conversation after that wouldn't be necessary. Is the property set up as a STR already or do you need to do the basic work to get it started? What's the quality of the furniture included?

    If I were in your position I'd fill it with my own furniture and not overpay for a property. In case I have to sell or I quit running STRs I wouldn't want to be under water out the gate.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    1y

    Hey @Tomoko Hale, we really need more info on the place to really help.

    Without more info this sounds like a less than optimal deal. @Bruce Woodruff did a good job with some basic numbers and it looks like a loser.

    Plus you are paying a premium over the average. What do the comps say? If they are at $260 per sqft, then that is what it is worth. The STR part plays no part in the valuation like @Patricia Andriolo-Bull said.

    I agree that 20% is pretty fair, but you could self manage it once you get things in order.

    3Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Nick Rutkowski:

    As everyone said, 20% is fair for a manager to take care of a STR. I would include your realtor in the conversation, at least when you're introducing yourself. As far as continuing the realtor in the conversation after that wouldn't be necessary. Is the property set up as a STR already or do you need to do the basic work to get it started? What's the quality of the furniture included?

    If I were in your position I'd fill it with my own furniture and not overpay for a property. In case I have to sell or I quit running STRs I wouldn't want to be under water out the gate.


    Thank you Nick for the reply. Yes the property is 100 % ready to go and set it up for STR already and seems like the property has been well taken care of so if I take over, it shouldn't be a problem. All of the furniture was purchased last year and looks great.There is a restriction of the exterior needs to stay as it looks for a historical location.

    0Reply
  • Carter McLeod
    Member since 2024 · 3 posts · 1 vote
    1y
    Quote from @Tomoko Hale:
    Thank you for the detail information this is very helpful. So another questions about insurance. Is STR insurance different from home owner insurance? So if this is an STR property then, I just need to have STR insurance?
    It can be different as there are coverages offered specifically for STRs.  I have had a good experience with Proper Insurance.  
    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @John Underwood:

    20% is not high for managing a STR. That's pretty fair.


     Thank you

    0Reply
  • Mya Toohey
    Real Estate Agent · Tampa Florida · Member since 2013 · 630 posts · 303 votes
    1y

    @Tomoko Hale

    With STRs its not just purchasing the property.  You have to set them up, market, book and clean.  You have to make sure that whatever company you choose will maximize your profits.  I would try and manage it yourself if you have the time and effort.  Then you get 100% minus cleaning fees and maintenance.  You really to examine your options with everything and be very choosy who you let run it for you!!!  I am in Florida and we have an influx of STRs and I did all that and taught my owners how to do it themselves so they didn't have to me the entire time.  Now some stayed with me and that was great but some learned that with a little bit of knowledge you can do it on your own.  

    2Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Patricia Andriolo-Bull:

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.


     Patricia,

    Thank you for the reply. So this property will come with all of the furniture and they looks fairy new. So the the value of the house is $260/SF but the seller is trying to sell it at S$296/SF because of the furniture. I

    My goal is to have a cash flow.

    0Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    1y

    20% is about average for a short term rental as far as management fees go. Some go as high as 25-30%. It does really eat into your revenue, but if you're convinced you can't manage it yourself from a distance, you will need either a PM or a co-host. Have you searched for co-hosts in your area? Your instinct to speak directly to the PM and not through your realtor is spot on. Never let the Realtor be a barrier. Is your Realtor an experienced STR host (more than likely, no). Do they know what questions to ask? What expectations do they have and do they align with yours? It's a huge investment for you - you definitely should have direct access to the PM. If the property was already listed on the MLS, I'd push back on the price relative to the comps. But if you're trying to get an exclusive deal, the reality is that you probably have less bargaining power because if they want $296.10/sq ft they know they can put it on the MLS and see if they get any bites. Income is difficult to predict not knowing the market. You can use a tool like AirDNA to get estimates of property performance in your specific market and with your typical size and configuration of home. You can do the same to estimate rents for a midterm rental by going to the Furnished Finder stats page for your city. If it's currently an STR they should be able to provide you with the p/l statement from prior years so you can see gross rents, operating expenses, average daily rates and occupancy levels. ACTUAL data is always best.

    [email protected]
    0Reply
  • Jeremy Jareckyj
    Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
    1y
    Quote from @Tomoko Hale:
    Quote from @Bruce Woodruff:

    My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

    So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

    You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

    I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

    If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

    Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......


    Thank you for the detail information this is very helpful. So another questions about insurance. Is STR insurance different from home owner insurance? So if this is an STR property then, I just need to have STR insurance?


     It is a special policy. You need to tell your insurance carrier that you would be renting under 30 days! Also Hi Tomoko!!

    0Reply
  • Jeremy Jareckyj
    Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
    1y

    if they are a great PM 20% is totally fair. not too high and not too low

    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Jeremy Jareckyj:
    Quote from @Tomoko Hale:
    Quote from @Bruce Woodruff:

    My thoughts: If you are going to use a PM, hire out the cleaning and any maintenance/repairs, you will be giving away 30+% of your income.

    So you need numbers to put on your spreadsheet.....1) what are you estimating for your nightly/monthly imcome? (Hint - go on VRBO and see what your local competition is charging). 2) How much do you intend to put down? Let's say 20%...now let's do the math:

    You offer $320k, 20% down is $64k so you finance $256,000 @ let's say 6%....you neglected to mention where this property is(!) so I used 1.5% as a property tax number, and I used $200 mo for insurance. Your monthly 'basic' expenses are $2134. Add a CapEx withholding of 10% ($225) and your PM fee of 20% ($450) to this. So monthly expenses are $2809.

    I'm assuming for the sake of this conversation that you charge $150 per night and are occupied 50% (15 nights a month), so your projected income should be $2250 per month.

    If the above numbers are accurate, you will have an operating loss of -$559 per month. So no, tis is a horrible deal for you.

    Now of course I know nothing about your property (since you provided so little detail) so if this is a huge 5 BR house with pool on a lake somewhere, then you need to adjust my numbers. But basically, you need to run numbers like above to know if a deal is worth doing or not......


    Thank you for the detail information this is very helpful. So another questions about insurance. Is STR insurance different from home owner insurance? So if this is an STR property then, I just need to have STR insurance?


     It is a special policy. You need to tell your insurance carrier that you would be renting under 30 days! Also Hi Tomoko!!

    Hey Jeremy!!! Thank you for the reply! Hope you are doing well!! Say hi to your business partner !
    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Jeremy Jareckyj:

    if they are a great PM 20% is totally fair. not too high and not too low


     ok. Maybe I will call you if you are available!

    0Reply
  • Tomoko Hale
    OP
    Member since 2022 · 67 posts · 20 votes
    1y
    Quote from @Bonnie Low:

    20% is about average for a short term rental as far as management fees go. Some go as high as 25-30%. It does really eat into your revenue, but if you're convinced you can't manage it yourself from a distance, you will need either a PM or a co-host. Have you searched for co-hosts in your area? Your instinct to speak directly to the PM and not through your realtor is spot on. Never let the Realtor be a barrier. Is your Realtor an experienced STR host (more than likely, no). Do they know what questions to ask? What expectations do they have and do they align with yours? It's a huge investment for you - you definitely should have direct access to the PM. If the property was already listed on the MLS, I'd push back on the price relative to the comps. But if you're trying to get an exclusive deal, the reality is that you probably have less bargaining power because if they want $296.10/sq ft they know they can put it on the MLS and see if they get any bites. Income is difficult to predict not knowing the market. You can use a tool like AirDNA to get estimates of property performance in your specific market and with your typical size and configuration of home. You can do the same to estimate rents for a midterm rental by going to the Furnished Finder stats page for your city. If it's currently an STR they should be able to provide you with the p/l statement from prior years so you can see gross rents, operating expenses, average daily rates and occupancy levels. ACTUAL data is always best.


     Thank you Bonnie. It is a pretty distanced from where I am at so I will be visiting the location tomorrow. I'd like to meet the property management company and the business people(cleaning and handyman related) so I could paint a better picutre.

    Thank you for the info. I will ask them the P/l statement!

    1Reply
  • Patricia Andriolo-Bull
    Member since 2022 · 527 posts · 413 votes
    1y
    Quote from @Tomoko Hale:
    Quote from @Patricia Andriolo-Bull:

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.


     Patricia,

    Thank you for the reply. So this property will come with all of the furniture and they looks fairy new. So the the value of the house is $260/SF but the seller is trying to sell it at S$296/SF because of the furniture. I

    My goal is to have a cash flow.


     I don't think you should pay a premium for the furniture but that's just me.

    0Reply
  • Patricia Andriolo-Bull
    Member since 2022 · 527 posts · 413 votes
    1y
    Quote from @Tomoko Hale:
    Quote from @Patricia Andriolo-Bull:

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.


     Thank you. So 10% return for the cash for the first year? Is that what you mean?


     Yes, 10% Cash on cash return.  Some people are okay with less others wouldn't touch it for that much.

    0Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    1y

    I manage over 60 units in a competitive market (Tampa).  Most of my clients are at 20% with only few exceptions for very high grossing properties and clients with multiple properties with me.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
    WebsiteView Page
    0Reply
  • Leora Merrell
    Rental Property Investor · Member since 2019 · 276 posts · 235 votes
    1y
    Quote from @Patricia Andriolo-Bull:
    Quote from @Tomoko Hale:
    Quote from @Patricia Andriolo-Bull:

    Agree with others that 20% is fair.  Regarding your other questions:

      - If the going value is $260/SF, why would you pay more than that?  This is like buying any other property, it is valued at whatever the market is.  Maybe a bit more furnished unless other properties are also selling furnished. 

    - WRT income, at a minimum it has to cover all of your costs plus some for unforeseeable expenses.  What are your goals for this property (e.g. why are you getting into this)?  Will you also be using it for yourself, future appreciation, etc?  This could help decide if the income is enough.  How much do you expect to invest?  I usually look for 10% return if not more.


     Patricia,

    Thank you for the reply. So this property will come with all of the furniture and they looks fairy new. So the the value of the house is $260/SF but the seller is trying to sell it at S$296/SF because of the furniture. I

    My goal is to have a cash flow.


     I don't think you should pay a premium for the furniture but that's just me.


     Not only that, but the appraisal won't put much (if any) value on the furnishings. There's a good chance it may not even appraise for what the seller is asking if the seller really is asking for that much more compared to others just for furniture. 

    1Reply
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