Biggest mistake to avoid in investing in short term rentals

[Wendy Schultz]

Having been a STR investor, consultant, educator, and property manager for a number of years, I want to spread this piece of advice to prevent as many newbie investors as possible from heartache and money loss. And as a self proclaimed rule breaker, this pains me to even say it.

Be 100% positive that you can do short term rentals in the property you're looking to purchase before you purchase. And not only that, be sure that you can operate it the way you want to before you purchase it. 

Let me explain more using some examples...

*A friend of mine recently purchased a property in Osceola County near Disney World, the vacation rental mecca, assuming that short term rentals would be allowed since everywhere nearby allows it. Turns out after we researched it, that particular parcel isn't zoned for STR. Ugh!

*We purchased a property in a gated community with a 6 month minimum lease thinking that we could get away with having our friends and family stay there and pay us. Our nosy neighbors told on us and our guests got locked out of all the amenities, the gate and we got a slap on the wrist. 

*We purchased a vacation property in a condo association that allowed us to rent on our own but when we tried to offer property management to other property owners who weren't happy with the onsite manager, we got ourselves into a lawsuit. They didn't have anywhere in the bylaws that you couldn't hire property management outside of the onsite property management but they made it difficult enough that it was hardly worth it. 

*In Miami Beach, they are fining owners $20,000 for the first violation, $40,000 for the second, for operating in areas that are not zoned for short term rentals. https://www.miamiherald.com/ne...

*In Orlando proper, they have rules that require the owner to stay on site with guests who are staying in your property. https://www.avalara.com/mylodg...

And on and on they go. With STR being a newer animal for places that haven't traditionally been resort areas, municipalities are trying to figure out how to deal with them. Your best bet is to stick to areas that are traditionally vacation rental friendly and even so, do your research!

[Ethan Cooke]

@Wendy Schultz - Thank you for the examples, I agree with all the risks you have outlined. I think the biggest mistake to avoid in investing in Short Term Rentals is to invest in Short Term Rentals. Regulations are changing so rapidly that if you buy a property simply for its STR cash flow potential, it's easy to get caught with your pants down as soon as regulations go south. A great way to take advantage of STR cash flow without the risk is to rent properties from landlords, furnish them and re-rent them as STRs (or longer term furnished rentals). I manage a portfolio of 19 furnished units in the San Francisco Bay area and make a decent income without owning any of them. I would not buy any property as a STR unless I would want to buy the exact same property as a traditional long-term rental property. I fully agree with @John Underwood that the critical considerations are to buy right and to have multiple exit strategies.