STR very close to a construction site?

Question

Hi everyone, many people know that I invest in short-term rentals in Spain so I often get questions on the topic from fellow (would be) investors. I got one that I'm not sure how to answer properly given that I've never been in the situation and don't know anybody who has. So I figured out I'll ask the STR experts, given that it's a situation that's not unique to the area. So here it goes:

"We recently bought a short-term rental that we were going to launch as a short-term rental, as STR income should be much higher than MTR and LTR income in this vacation location. We just discovered that a new condo b building is going to be built very close by (1 minute from our door by foot and there's no construction between our terrace/garden and the construction site). The construction is going to last for two years so I wonder if we wouldn't be better off renting long- or medium-term during that period."

I was interested to see what AI would say so I interrogated Gemini, ChatGPT and Perplexity and they all advise against starting with an STR, invoking:
- Necessity to disclose, resulting in substantially less bookings. And even then, guests might still complain and give bad reviews
- Necessity to discount
- Price war between the many STRs affected and competitive disadvantage compared to the already established players.
The result: lots of stress and much less rental income.

As we know, LLMs can make mistakes and hallucinate so I thought I'd ask the short-term rental experts out here.

Many thanks

As we know, LLMs can make mistakes and hallucinate so I thought I'd ask the short-term rental experts out here.Many thanks

Carolyn Fuller · Answer

We had 2 year construction happening on 3 sides of our STR. I'm talking about 19 story, 8 story and 6 story apartment buildings!

Our automatic response to instant bookings highlighted the construction, encouraging guests to cancel if they wanted to avoid the construction noise. Very few guests cancelled. None of the guests complained. In fact, we had one guest who hung out with her nephew in the backyard watching the construction. They loved it.

Letting guests know what is in store is the key.

Bruce Woodruff · Answer

I'm not sure why anyone would start a financial project with an inherent issue. I mean, just why?

You know you will get some negative reviews and issues, regardless of what you disclose.... LTR it until the construction is finished...

Bo Smith · Answer

Two years of construction is rough but the AIs might be overthinking it. I've seen STR owners work around noise by being super transparent + offering small perks. MTR could be your goldmine though - traveling nurses, corporate relocators. Less hassle than STR turnover, better than long-term rates. How's MTR demand in your area?

John Underwood · Answer

I think A.I.probably has this correct.

However if you do have a STR you have to disclose in bold large letters about the construction and the noise.

Mike Lambert · Answer

@Erwin Groenendijk, You unsurprisingly mentioned all the important points that count here. However, I want to avoid giving bad advice since it's not my property. I can do as much quantitative analysis as I want, there is an uncontrollable qualitative aspect here regarding what guests will think and the reviews the'll give. If it was me, I wouldn't book the property under any circumstances as an STR, even in it was free, as I value my time and tranquility too much over sparing a bit of money. But everybody's different, hence I ask the community for their opinions and experience with that kind of situation.@Bo Smith, there is demand from MTRs, but especially from remote workers and retirees, who I imagine woud likely spend a large part of the day inside or on the terrace or garden during construction hours.

@Andrew Street, you did a great job mentioning in detail all the important aspects. Under those circumstances, it's very difficult to model anything as the outcomes would almost entirely depend on guests/tenants and their behaviour. Will they book in the first place and, if they do, how will they handle reviews.

Erwin Groenendijk · Answer

Hi @Mike Lambert, with all of your knowledge, you should know the answer to this question.

Is there enough demand in the area? Are you profitable if you might need to lower a bit?

As always with tourist rentals, make sure to stick out from the competition with a unique interior design.

Michael Baum · Answer

Hey @Mike Lambert! So a one minute walk isn't right next door. Sounds like it is open on the side where the construction is going on so no buffer.

One thing to ask is what the regs are regarding the times for construction. Some areas in the US have really no restrictions. Construction can happen at 5am or 10pm.

I have read that Spain values way of life etc so I am betting that there will be restrictions on when they can be making noise so it shouldn't be happening super early or late.

Another thing to think about would be parking. Early on you will have all sorts of large trucks like concrete pumpers, big framing package flatbeds etc etc needing to park the rigs. Will that impact the guests ability to park?

Shiloh Lundahl · Answer

Most of the time the best answer to give somebody is, "it depends on the numbers." I think that applies in the situation. If the person that wants to buy the piece of real estate next to a construction site, that the cost of that should be included in the deal. Additionally, an estimation of a construction timeline is not necessarily what the timeline will actually be. So there is a big gamble or risk in knowingly purchasing next to a construction site. The cost of purchasing the property should take consideration that risk. So, in other words, without a significant discount, and I mean significant, I would not do the deal because I need to get paid for the risk I take on.

Andrew Steffens · Answer

I think it depends on the unit and the location as well.  Is this a location where people are out all day, and a more basic unit that sort of just as act as a place to sleep and cook simple meals? If so disclosure would likely be sufficient.  I have been in hotels in cities where there is construction and its not a big deal, Im out of the place by 8am and do not return til the evening.  Now, if it were in the mountains where I may go for rest and relaxation and may be in the unit 23 out of 24 hours in a day then I would be highly annoyed.

STR very close to a construction site?

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