What do you wish you knew when starting out?

Question

Hi all - I thought I posted this already but I can't find it, so hopefully this isn't a repeat. I'm getting ready to purchase my first STR. What are some lessons learned that you have, or what are 1 or 2 things you wish someone told you when starting your STR journey? Thanks so much!

Collin Hays · Answer

As investors, we tend to underestimate the true costs of doing business. We underestimate repairs & maintenance, utilities, and insurance costs, and assume "best case."  I think we also tend to overestimate our rents, because our place is just so amazingly good and better than the rest.  Again, "best case."

Specific to short term rentals, we also underestimate the time that we will commit to making it financially successful. This isn't a stock mutual fund that you can just tuck away and watch grow.  Short term rentals are a business - your own business - and it not only takes capital for that business to succeed, but willpower.  The will to roll forward even when things are at their worst.

The reason that so many small businesses fail is often not only insufficient capital, but lack of will.

Jon Martin · Answer

That you are either 1 bedroom or 5+ bedroom. 2 & 3 bedrooms (and in most cases/markets 4 bedrooms) are the saturated and squishy middle. Too much space and high of a cost basis to compete with hotels, along with being excessive space for 1-2 person stays, while also not big enough for multiple families. You end up spending the extra money to purchase, rehab, furnish, clean and heat/cool the extra space for a return that doesn't scale with the added costs and often ends up underutilized. Which is not to say that the right property and location could not work great with that bedroom count, although you probably need an A+ location to really make that work given how many of them are out there.

Even with what I said above, I would only invest in a 1 bedroom project if there were multiples of them on the same property like a hotel or group of cabins. You are directly competing with hotels at that point so you will have less lead time and shorter guest stays for a solid portion of your bookings. Whereas with 5+ bedrooms people plan much further in advance and don't mind 3 night weekend minimums. Which IMO makes 5+ bedrooms the winner.

Chris Seveney · Answer

Typically the people who do the most marketing and promotions are the people to stay the furthest away from.

Mike Grudzien · Answer

I wish I knew interest rates would go crazy in 2024.....

Tyler Divin · Answer

I like a lot of what everyone has already said.

I would add this...when shopping for a property research the top amenities in the market and make sure you have the SPACE for them even if you don't have them yet.  You can only add a firepit, hot tub, or game room if you have the space for it and by space I don't mean carve out a firepit in the side of a slope or something that's not going to make sense financially.

In that same regard pay careful attention to the amenities other comps have.  You might have a 4 bedroom in the mountains but if they have a view and you don't you're not going to achieve the numbers they are and it's hard to add a mountain view!

Shannon Strickland · Answer

I wish I had purchased with the aim of 20% annual revenue instead of 10%-15% to cover All operating and holding costs.

I wish I had added Airbnb a month after I felt comfortable with my PMS and Vrbo.

I wish I had worked harder to achieve an earlier date-placed-in-service for tax purposes.

I wish I had attended the Avalara MyLodgeTax Lodging Tax 101 within days of closing to understand all the state, county, and local taxes and licenses.

I wish I had known I was responsible for collecting and remitting taxes from Vrbo bookings because of the API connection to my PMS.

I wish I had hired one cleaner at a time from Turno to build trust with one another and pride in keeping an orderly supply closet.

I just hit the first anniversary of the date-placed-in-service, and there might be other “wishes,” but these are what immediately came to mind.

Joseph Sauer · Answer

First one to come to mind is to get help with my bookkeeping a lot sooner. I'd say most investors are great with accounting and using QuickBooks....but I'm in the minority. I finally got help beginning of the year and it's one of the best decisions I've made.

For my wife and I, we wish we would have focused on a true vacation market. They're established, most already have established rules for STRs and rely on them for all the money they bring in, and , the best part of STRs, you want to actually go visit and stay there! Our first one is in a small town and it's actually been very successful but we really want a beach house we can go visit. So we're going to sell that and use the profits to go get one!

Now more universal ones:

What gets measured gets managed. I wish I would have consistently assessed my listing (photo order, title, description, etc) and my pricing way more consistently early on. Every time I stay consistent with my upkeep my bookings stay consistent.

I wish I would have utilized AI earlier on. ChatGPT has made guest communications and updating my listing soooooooo much easier and faster. Seriously. It's a game changer. Google ChatGPT prompts for STR owners and have fun.

The little stuff goes a long way  Snacks on the counter for guests to have after a long road trip, cheap universal phone chargers next to every bed, digital guidebook with all the details, recommendations, and directions; all these are inexpensive, fairly easy to do and make a huge difference. There have been a couple times I was convinced we were getting less than 5 stars (a couple dog hairs found on a bedsheet or a tv remote with a dead battery) but we ended up getting 5 stars and I think it was all those little touches that added up to something greater than the mistake.

Amanda Breck · Answer

Many of my clients wish they knew about asset protection strategies when first starting out. Real estate investing, including short term rentals, come with a lot of inherent risk. Mitigating and planning for that risk is important, both to protect yourself and your personal assets, and to protect your business assets. An asset protection plan is all about planning ahead. Once a liability event occurs, it is often too late to do anything to mitigate it.

Have good insurance from the start, and consider setting up an LLC structure to protect yourself from investment liability, and to isolate liability so your whole portfolio is not affected by one event. These strategies only work if they are set up ahead of time.

Andrew Steffens · Answer

One piece of advice not already mentioned is to keep in mind that STR is a marathon, not a sprint.  Spend a little extra for durable materials and items.  Get pro photos.  Invest a little in your new biz.  Also have reasonable expectations.  Cash flow is important but you'll always have your biggest payday when you sell, so appreciation and principal pay down are the biggest factor to your net worth.

Good luck!

Max Emory · Answer

The #1 piece of advice I offer is to focus on making money and your customers' experience over anything else in the beginning.

Then, once you have cash coming in and some equity, begin to think about things like tax strategy, asset protection, etc.

Too many rookie investors get this backwards and end up sinking cash into services they don't need in the very beginning before they've made any money or have any equity to protect.

If you already have a high net worth, you'll obviously want to separate your RE activities/ownership from your personal stuff from the beginning, but I'm just speaking in generalities.

I'm not an attorney or CPA. Just what I've seen as an REI and the owner of a bookkeeping firm that serves REIs almost exclusively.

Hope it helps!

What do you wish you knew when starting out?

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