Is the Short-Term Rental Play Starting to Wear Thin?

[Chase Calhoun]

We’ve always been long-term, buy-and-hold investors, we’ve got about 75 units, mostly single family and small multifamily here in central Arkansas. But like a lot of folks, we dipped our toes into the short-term rental game a couple years back when the numbers looked strong.

We converted six of our smaller units, one bed, one bath places in good parts of town, into Airbnb's. They were thoughtfully furnished, nice setups, and they actually performed well early on. But over time, bookings slowed a bit. After last year, we sat down and realized they were only making maybe $100/month more than they would have as long-term rentals.

That might still be worth it for some folks, but in our case, my wife was the one managing them. So when we factored in her time, the turnover, guest communication, and the occasional guest-related disaster… it just didn’t feel worth the squeeze anymore. We ended up converting them all back to long-term rentals.

Separately, we had bought a lake house a while back and considered using it as a short-term rental, but opted against it. Then just recently, I helped a close friend buy a lake house on the same lake that had been an Airbnb. It was a nice property, originally priced reasonably, but it sat on the market and went through multiple price cuts. We made what felt like an insultingly low offer… and still got it accepted. He ended up buying it for nearly $200K under asking, fully furnished. Great for him, but to me, it just reinforced that some STR operators are feeling squeezed.

I know STRs can still work, the top-tier properties in prime markets with experienced operators are likely still doing just fine. But for the smaller stuff or folks without strong systems, it seems like things have shifted. I also think mid-term rentals are interesting, we were kind of in that zone with ours, but they take more attention than we’re looking to give right now.

For us, it just wasn’t worth it,  but I know some people are still crushing it with STRs. Curious how y’all are making it work in this market?

[Collin Hays]

Number one, anytime someone says they are “crushing it”, my default is to take whatever they are claiming and apply the square root.  😎

STRs have been around for a century or more, so it is not a new investment class.

Whether it is a good investment depends, in some part, or your definition of a good investment, and your time horizon.  

If you are a cash buyer seeking income, one can expect income that is triple or quadruple treasuries and CDs, and you are holding a long term appreciating asset.  I would call that an excellent investment.

If you are borrowing, you should be hoping that expenses are paid for by revenues in the early going. If you are hoping for extra cash each month, that’s a big ask.

Even if you are still out of pocket $1000-2000 a month for a while, I don’t know that this is such a bad deal either.  How much cash is your 401K putting into your pocket each month, as you dutifully contribute the max?  You’ll be waiting until 60 for that answer.

I bought my first STR in 2005 for $240K with 20% down. It didn't "cash flow" for five years, but now the home is paid off and it's worth triple what I paid, while I enjoy significant monthly income. Was that a bad deal?