Another LTR or start first STR to scale faster?

Question

So I am looking at other strategies to increase my cash flow and scale faster. STR seems to be a possible answer for me. I know that LTR buy and hold strategy is more secure and proven method to build wealth but I feel it’s too slow for my goal.

STR is looking pretty attractive, especially with the likelihood of return of 100% bonus depreciation this year. With one property, I can generate more cash flow. It will take more work and risk. I understand that it is quite a different beast than LTR. I figure hosting and managing one STR might be similar or equivalent to managing multiple LTR’s and their tenants. Maybe I am totally off and in over my head. I might find myself hating hosting. I am not sure if I want to commit to being in the hospitality business rather than housing business.

I have learned a lot and have a functional system in place with my two LTR’s. I can just continue this process, rinse and repeat with my next investment but maybe if I pivot and add a STR to the portfolio next, I might be a lot closer to financial freedom.

So far I am looking at northeast Oklahoma specifically lakefront property at the Grand Lake. I love that area and seems to have good tourism. It’s 4hrs from my home in OKC. It’s border to Kansas, Arkansas and Missouri cities.  I see on Zillow properties listing for around 300-450K. 450K is turn key furnished. I haven’t done a thorough research and I’m so inexperience in this STR business, but it appears that the average nightly rates on Airbnb goes for around 200-300 per night at 30-50% occupancy.  I used the free airdna tool for these numbers. My mortgage is probably going to be around $2800 a month. Utilities probably will be additional $400 a month.  Do these rough number look like they might work?

Any books and resources recommendations? Is the paid versions of AirDna worth it?

I am looking for any advice and a sounding board to bounce off my thoughts.

John Underwood · Answer

I have talked to several STR owners who are not even breaking even in this climate.

Also unless the STR pencils in to make a lot more than a LTR then I add another LTR right now.

Now if you can find a STR that has something going for it and the numbers makes sense then absolutely go for it.

Kolin Goff · Answer

@Henry Le my wife and I have a mix of LTR and a STR that we manage ourselves and have found that the STR yields much better cash flow.  Surprisingly, less headaches as well since we use hospitable for a lot of our automations.

Keep in mind that in order to write off the losses generated from depreciation against your active income you will have to materially participate which is nearly impossible if you don't self manage your STR during that tax year. It's much easier than you think with the help of PM software.

Michael Baum · Answer

Hey @Henry Le, so I am of 2 minds on this. I understand wanting to accelerate you goals, but you don't want to risk everything you have done so far.

What you need to do first is take a look at the Grand Lake area and see what others on AirBNB and VRBO are renting for. What does their calendar look like? What kind of amenities are they providing?

That will give you a good idea as to what you will be able to do with a similar property.

Property prices are all over the map and there aren't many waterfront places to choose from. It looks like you will be in the 700-800k range for a decent looking place on the water.

What I would also do is ask around about what is the better part of the lake vs a less desirable part. Many lakes have some swampy areas in the summer when (if) the lake level drops which wouldn't be great for guests.

Grand Lake is a reservoir so it will be more prone to low areas from time to time. Our lake (Lake Coeur d'Alene) is a natural, glacial created lake so it is quite a bit deeper (200ft) and there isn't many "bad" areas on it at all. Steepness of the land to the lake is the most common issue.

Another thing to look at is being in a bay vs open lake. Open lake (like us) is more prone to debris landing on the beach. We have to clear some pretty huge logs every year from our beach. This last week, a dock floated in and is currently sitting on it. So you will be doing more beach maintenance.

There is a lot to unpack so start with checking on AirBNB and VRBO and see what you might be able to bring in.

Bonnie Griffin Kaake · Answer

@Henry Le Short-term rentals have very different and more complex issues for owners. I teach continuing education classes for CPAs to make them aware of these complexities. Too many investors and tax professionals do not understand how vulnerable they are to audit by not knowing what they don't know. Just two things that come up over and over again: 1. STRs of less than 30 days, must be depreciated over 39 years. 2. Even if it is a STR the actual number of rental days MUST be 7 days or less on average for the total number of rental days per year. This is even with 100+ hours of personal management and more than any other person or entity in order to qualify for active investment treatment. If the average is more than 7 days, it is passive rather than an active investment no matter how many days you personally manage that property.

Contact me if you need additional information on tax benefits and increased cash-flow.

Ben Tutewohl · Answer

Hi Henry,

Adding an STR property to your portfolio to speed up growth seems like a smart decision based on your situation, especially if/when 100% bonus depreciation comes back.

You're right to think that managing one STR will likely take as much time (if not more) than managing several LTRs. It will probably require significantly more time and effort than your two LTRs combined. Luckily, the increase in revenue from STRs compared to LTRs is often significant enough to justify the extra time and effort. And there are ways to limit your involvement while remaining more profitable than LTR investing.

1. Self-Managing: There are many automations now that make self-managing with a full-time job very doable. If you are able to set aside some time upfront to learn how to self-manage effectively this is defiantly an option to consider and probably the right starting point. If you end up hating it, you can always hire a PM or Co-Host.

2. Hire a Co-host: Most Co-Hosts will take care of guest messaging, create an attractive listing, and schedule cleaners and other contractors on your behalf. If you go this route you will still have some involvement but it will be drastically reduced.

3. Hire a full service property manager: If you go this route it will become very passive, hypothetically less involvement for your than with your self-managed LTRs. STR PM's often get a bad rep because they won't care for your property as much as you and they charge high fees which may be true in a lot of cases, BUT, going this route still will likely put more money in your pocket than an LTR and be as passive so its worth considering.

I'm not an expert on the Grand Lake area, so I won’t comment on your projections, but I do think looking at turnkey, furnished properties is a smart move for a first-time STR investor. Furnishing and designing a property, especially from a distance, can be more work than you’d expect.

Andrew Steffens · Answer

I think a good mix, just like what financial advisors advise for stock portfolios.  I only own STR now but I am considering some small MF LTR's to add diversity.  Also, I do not think the advice I just gave is for everyone as it is market dependent.  I don't know anything about NE OK so I would advise rigorous DD to make sure you will cashflow there and to have a plan B.  Good luck~

Jeff Langley · Answer

LTR. Or find a nice LTR that can also double as a STR/midterm as a potential plan B. Much safer and in the right area, do surprisingly well.

I don’t know many people taking the 100% depreciation, multiple tax professionals have always advised me against it.

Jeff Chisum · Answer

90% of my clients are leveraging to the 10% down second home occupancy loan for acquisition

Kevin Nguyen · Answer

@Henry Le here's a few things I can share with you that I've noticed in the past year or a year and a half. The numbers that a lot of hosts are using as income or market data was driven from 2022 in 2023.

2024 In many markets, it was still very strong but this year is not. A few things with Airbnb we noticed this year is that airbnb is focusing more on experiences.

One big thing with Airbnb is within the first eight or nine months. You have a small window to obtain what's called super host. You have to get I believe 10 5 star reviews.

If you miss it by one review or by one star. You missed your window of be becoming a super host when your super host they push your listing up higher.

I like to just compare it to the housing market may be a few years ago where flippers were able to go in and do a quick lipstick renovation and make a healthy spread.

I know a ton of Airbnb host that started within the last year and are coming into dry spells no bookings and And they left with a few options and all requiring more capital into it.

I believe if you look for a property that is in a market for location where They have ability to maximize on usually the winter months. For an example if a home Is lakefront that's gonna be great in the summertime but if it's right on a prime ski resort.

So so even in the winter months when it would typically be slow, you would still be seeing much more travelers and bookings in the winter months.

I hope that makes sense if I can help you with any sort of insight, I'd be more than happy to!

Henry Le · Answer

Thank you so much guys for the great insights!! Lots of think about!

Another LTR or start first STR to scale faster?

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