Your STR Might Be “Winning”… While Your Return Quietly Shrinks

[William Thompson]

I see a lot of STR owners get excited when equity builds up. And honestly, that's a good problem to have.

But here’s the catch:

As equity grows, your return on that equity often drops if cash flow doesn’t grow at the same pace.

So you might feel like you’re crushing it because the property value is up…
but you’re also potentially sitting on “lazy money” that could have been used to:

• buy another STR
• diversify into a different market
• or redeploy into a higher-yield opportunity

And one more thing people forget:
equity loses buying power over time. Inflation makes tomorrow’s down payment more expensive than today’s.

I’m not saying everyone should sell or refi. Sometimes the equity is your safety buffer.

But it’s worth asking the uncomfortable question:
Is your equity part of your strategy… or just something you’re watching grow?

For STR owners here — do you track your return on equity, or do you mainly track cash flow and appreciation?

[Collin Hays]

This is a great topic; thank you for posting. Similar to a farmer, STR owners have a long list of input costs. Before considering debt service, investors have utilities, taxes, insurance, repairs, maintenance, advertising, HOA fees, and so on. After all of those are paid, you have profit.

I began investing in the Smokies in 2005.  Profit was the greatest percentage of revenue, followed by taxes, utilities, repairs & maintenance, and advertising. In 2005, a subscription on VRBO was $199 per year.  

In 2005, out of every dollar in rent, here is where the money went (not including debt service).

$.39 profit

$.20 repairs & maintenance

$.15 lodging taxes

$.14 utilities

$.04 property insurance

$.03 property taxes

$.03 credit card fees

$.02 advertising/OTA fees

Today it looks more like this:  

$.30 profit

$.17 repairs & maintenance

$.16 Advertising/OTA fees

$.15 lodging taxes

$.14 Utilities

$.06 property insurance

$.03 credit card fees