Need you opinion on going from long term rental to short term

Member since 2018 · 40 posts · 18 votes

Hi everyone
I own a single-family home in Folsom CA. It is a 4 bed 2 bath house built in 1990. It has been rented out as a complete unit for 3 years now.
My problem is that this house has a negative cash flow. Mortgage is 3400 while rent is 3200. This excludes 800 a month in property tax. I have not included the insurance which is about 1500 a year. As you can see, I lose an average of 1100 a month over this house.

I am wondering if a short-term rental could be a better choice for me. The house is in a great school district. It is for this reason I bought the house but my family does not want to move there.

How can I reliably calculate the potential income from the house if I switch to short-term rental?

Thanks

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Noah Laker

Real Estate Broker · Sacramento, CA · Member since 2021 · 518 posts · 408 votes

Hey Suhaib, I'm a broker and investor here in Sacramento and I manage about 100 Airbnb properties. Your negative cashflow problem is very common.

Here's the deal: You cannot do short term rentals in Folsom unless the home is your primary residence. However, there is a workaround with a creative rental model. I learned this from some investors down in LA. Happy to share :)

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
1y
The most reliable way is look at other STR's in the area and see what their nightly rates look like over the year and look at their occupancy rates.
Check on VRBO and Airbnb.
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Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
1y
To answer your question, you can use AirDNA or another short-term-rental income analyzing website or software. When I did my research for buying my properties in Costa Rica, I had one of the big STR management companies like Evolve analyze my potential profits and I used that info to raise money through bringing on partners to buy the properties.

Now that I have answered your question, I'd like to share my questions and possible concerns.

Are you looking to rent the property as an STR because you are losing money as a long-term rental? If that is your primary motivation then I wouldn't encourage that. The STR model is a different model and where it is at in it's business cycle, the average STR owner is not doing well. Only the above average STR operators are doing well. So you would either need to learn a lot about how to be an awesome STR operator and you would probably need to put into your home $20,000 to $100,000 in adding furnishings, design, and adding amenities to make the property desirable.

If you don't have the time to manage the property then you would probably want a company to do that for you. That can be expensive and will likely cost between 15 and 20% of the revenue (and that doesn't often include the cleaning fees) which may mean that you don't make a profit.

I would only encourage you to switch your property to an STR if you really want an STR. If not, you may consider just selling it and reinvesting the equity into a different property or properties.
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Mike GrudzienPro Member
Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
1y
Use AirDNA.co for market research.
Search the immediate area, in "Traveler mode" to see what the competition is doing.
All that said, I concur with the general sentiment of the above comments.
You are already running tight. Unless you suddenly become a stellar STR Host and property (requiring additional spending), why not sell and make some better financial decisions....
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
1y
+1 for AirDNA - I recommend using one of their premium monthly subscriptions to explore the actual comps and not just their auto generated projection. I also like @John Underwood said about using Airbnb/VRBO as a tool. I do AirDNA first and then look for confirmation or rejection on Airbnb/VRBO. Good luck!
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Noah Laker
Real Estate Broker · Sacramento, CA · Member since 2021 · 518 posts · 408 votes
1y
Hey Suhaib, I'm a broker and investor here in Sacramento and I manage about 100 Airbnb properties. Your negative cashflow problem is very common.
Here's the deal: You cannot do short term rentals in Folsom unless the home is your primary residence. However, there is a workaround with a creative rental model. I learned this from some investors down in LA. Happy to share :)
2 Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
1y
It seems that STRs are a bit nebulous in Folsom. There are a lot of restrictions. Minimum of 3 night stays, limited number of STRs in a particular neighborhood etc.
You need to get the license and pay the STR tax. You need to provide a certificate of occupancy. I assume that is to assure them that you live in the rental.
HOA's that ban STRs trump the law if it is allowed in a particular area.
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Suhaib Rehman
OP
Member since 2018 · 40 posts · 18 votes
1y
Quote from @Suhaib Rehman:

Hi everyone
I own a single-family home in Folsom CA. It is a 4 bed 2 bath house built in 1990. It has been rented out as a complete unit for 3 years now.
My problem is that this house has a negative cash flow. Mortgage is 3400 while rent is 3200. This excludes 800 a month in property tax. I have not included the insurance which is about 1500 a year. As you can see, I lose an average of 1100 a month over this house.

I am wondering if a short-term rental could be a better choice for me. The house is in a great school district. It is for this reason I bought the house but my family does not want to move there.

How can I reliably calculate the potential income from the house if I switch to short-term rental?

Thanks

I want to add that I bought this house so I can move there eventually but our plans have changed. It is in a great neighborhood with excellent schools.
I am looking for a means to close the gap between the cost and income from that house. What are the other options besides STR.
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Garrett BrownPro Member
Rental Property Investor · Houston, TX · Member since 2024 · 515 posts · 553 votes
1y
A few questions and I think you'll get your answer.
1) Can you actually rent this out as an STR? Does the city allow it? Does the HOA?
2) Is it furnished? If not, prepare to spend quite a bit furnishing it as in $20,000+ and probably way more
3) Are you wanting to become more active in investing and hosting? STRs demand more time even though alot of things can be automated. you will managing cleaners, damage, guest experience, supplies, and more.
4) Use AirDNA to see what an estimate of revenue can be, check Airbnb in your local neighborhood to see if anyone else if getting higher rates, and use BiggerPockets STR calculator to see what common expenses you may be forgetting. What is your revenue now?
I pulled the AirDNA #'s for you for 4-5 Bedroom homes in Folsom. These are jsut blanket averages though.
Annual Revenue
$61.3K

+12%
Occupancy Rate
54%

-1%
Average Daily Rate
$376.34

+11%
RevPAR
$201.78

+9%

In this particular situation and the market, I'm going to guess that you are more intelligent as an LTR and trying to figure out how you bring in more income or lower expenses on that side. If the unit is already furnished (or you have a budget to get it ready) and allows STRs, it may change some things.
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Keith Mintz
Real Estate Agent · San Diego, CA · Member since 2023 · 189 posts · 88 votes
1y
Quote from @Suhaib Rehman:

Hi everyone
I own a single-family home in Folsom CA. It is a 4 bed 2 bath house built in 1990. It has been rented out as a complete unit for 3 years now.
My problem is that this house has a negative cash flow. Mortgage is 3400 while rent is 3200. This excludes 800 a month in property tax. I have not included the insurance which is about 1500 a year. As you can see, I lose an average of 1100 a month over this house.

I am wondering if a short-term rental could be a better choice for me. The house is in a great school district. It is for this reason I bought the house but my family does not want to move there.

How can I reliably calculate the potential income from the house if I switch to short-term rental?

Thanks

Being that you can't do STR in Folsom, I recommend co-living. You can beat that negative cashflow easy.
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Suhaib Rehman
OP
Member since 2018 · 40 posts · 18 votes
1y
Thanks to all of you.
I did some research, the STR is not something I will consider as I am a bit far from the property, and it's just too much hassle. and the return barely meets the threshold if I use the airdna numbers.

The mid-term rentals are also an option. Keith mentioned co-living, which I couldn't get even after reading about it.

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
1y
Doing a bit of elbow grease homework can pay dividends. Sometimes your best choice is the decision not to do something.
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Josh SedivyBusiness Member
St. Louis, MO · Member since 2024 · 134 posts · 55 votes
1y
The most effective approach is to analyze other short-term rentals in the area, reviewing their nightly rates and occupancy trends throughout the year. Platforms like VRBO and Airbnb provide valuable insights for comparison.
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Sameul Ahsan
Real Estate Agent · Worcester, MA · Member since 2024 · 107 posts · 45 votes
1y
Step 1: Use Airdna to research the market’s revenue potential.

Step 2: Examine comparable Airbnb listings to understand current nightly rates and seasonal variations (summer, winter, etc.). Airdna can provide average figures for these rates.

Step 3: Identify and add the right amenities to differentiate your listing and boost occupancy.

Example:
I manage a 450-square-foot cottage in Sandwich, MA (Cape Cod) and offer an amenity that outshines the competition. While Airdna estimated annual revenue at around $45K, I earned $90K last year.
Follow these three steps to build a solid foundation before calculating your mortgage and expenses.
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Anja Schaer
Investor · Atlanta · Member since 2022 · 146 posts · 72 votes
1y
Hey Suhaib, Since STRs aren’t an option in Folsom, mid-term rentals (MTRs) could be a great way to close your cash flow gap. Renting to travel nurses, corporate professionals, or relocating families can bring in 2-3x long-term rental rates with less turnover. Platforms like Furnished Finder or working with insurance housing providers can help.

Co-living (renting by the room) is another option—it takes more management but can significantly boost income. If you’re open to it, screening tenants well is key.

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Scott ScovilleBusiness Member
Real Estate Agent · Sacramento, CA · Member since 2019 · 502 posts · 274 votes
1y
Quote from @Suhaib Rehman:

Hi everyone
I own a single-family home in Folsom CA. It is a 4 bed 2 bath house built in 1990. It has been rented out as a complete unit for 3 years now.
My problem is that this house has a negative cash flow. Mortgage is 3400 while rent is 3200. This excludes 800 a month in property tax. I have not included the insurance which is about 1500 a year. As you can see, I lose an average of 1100 a month over this house.

I am wondering if a short-term rental could be a better choice for me. The house is in a great school district. It is for this reason I bought the house but my family does not want to move there.

How can I reliably calculate the potential income from the house if I switch to short-term rental?

Thanks

Hey Suhaib, that's a great market, but difficult to cash flow or even break even. I typically buy in those Class A areas like Folsom, renovate and create value add to force appreciate the property, hold for a few years and take advantage of tax benefits, and then sell (1031) into small multifamily that will have better cashflow. Be happy to chat about what's worked for. me if you'd ever like to jump on a call.
[email protected]415-933-2202
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