I have 4 long term rentals in another state. I have a decent property manager. I am interested in converting them to short terms buy my manager has no experience with this, although they are “interested” in getting into this space. I think if i can show them how it will benefit them, how they will make more money this way, and give them a sample contract we can plug some assumptions into, they will do it. Anyone have any suggestions/resources on this topic?
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
I'm on several non-real estate forums fairly regularly. NO WHERE on the internet will you get such high quality info so quickly as on this forum. It's really quite remarkable.
Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
6y
This is largely a myth. Is a lot more work, and in many places long-term rentals can make more than short-term rentals and a property that is short term rental with you doing all the management, the dollar is worth about 30% less in a long-term rental dollar because of all the costs.
"I think if i can show them how it will benefit them, how they will make more money this way,"
I have 4 long term rentals in another state. I have a decent property manager. I am interested in converting them to short terms buy my manager has no experience with this, although they are “interested” in getting into this space. I think if i can show them how it will benefit them, how they will make more money this way, and give them a sample contract we can plug some assumptions into, they will do it. Anyone have any suggestions/resources on this topic?
Hey Brian. STRs generally earn a higher return than LTRs, if done properly, so you're on the right track.
First of all, hopefully your properties are in a high-demand year-round tourism spot (preferably in the southern half of the US which is where STR works best) & hopefully it's legal there too - check the regs.
Also, STRs require a LOT more effort on the management front than LTRs. Your PM will probably demand a lot more money which will make it untenable to use them. Most people on here who know what they're doing self-manage (or outsource management inexpensively overseas). Even if you wanna let this PM try managing your STR, I'd be hesitant about using a PM who lacks STR experience - they might quickly be in over their head which will hurt your bottom line as you accumulate 1-star reviews & get pushed back to the 12th page of search results on Airbnb thus lowering your occupancy rate.
Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Brian Shelton There's so many variables here - beginning with what your market is. STRs don't work well everywhere; maybe your LTRs are good candidates for STR, maybe they're not, you gave us no information on them so we can't know.
Like @Mark Miles said, you need to know the local regulations. Is it legal in your market? Are there any requirements for permits, remittance of taxes, certain zoning, etc? Make sure you know this before you do anything else.
In my market, most properties that would be permanent residences or long term rentals would not make good short-term rentals. In other markets, this may not matter as much.
Bottom line, we're going to need a lot more information about your properties before we can give any specific advice on if it's a viable idea, much less if it's a good idea to get your LTR PM involved.
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
I'm on several non-real estate forums fairly regularly. NO WHERE on the internet will you get such high quality info so quickly as on this forum. It's really quite remarkable.
I'm on several non-real estate forums fairly regularly. NO WHERE on the internet will you get such high quality info so quickly as on this forum. It's really quite remarkable.
You’ve taught us well! You’re the Godfather of this forum. I feel like 90% of the things people say on here are just regurgitating things we’ve learned from you at some point. Personally I’ve tried to learn as much as I can from you & Avery (& others) on here then I try to innovate where I can to take my business to the next level. As always, play chess not checkers
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
@Mark Miles I appreciate the comments but we all know uncle Paul is the boss around here. He was the only regular before I showed up and his jokes are better than mine. I think. Plus Julie has been a pro just as long as I have. Much respect.
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
6y
Just any LTR will not automatically make a good STR. The house needs to be in an area that has a draw for people to want/need to come to this area. Most anything will rent but certain style properties will usually do better than other types. Do you have a view of the mountains of water or are you walkable to a downtown area? This will make for a better STR.
Then their are websites specifically for STRs such as VRBO and Airbnb that make it easy to remotely self manage your property without the need for a PM taking a large chunk out of your gross income. This makes it tough to have a cash flowing property. The PM might be the only person making any money.
Property Manager · Columbia, SC · Member since 2017 · 121 posts · 163 votes
6y
Generally, my thoughts are that your property manager will likely be turned off when they realize the large gap in what they do today versus what they will need to do to manage a Short Term Rental. You are going to be essentially running a hotel, so you are going to handle daily guest communications, daily turnovers/cleans, manage the listing/pricing, restocking consumables, setting up new door codes, etc...I would be extremely careful to hire someone who has no experience and already is grounded in traditional property management expectations, unless they seem very committed to learning & making it successful. If they half-*** it and your units aren't up to par, you are going to feel it in reviews & ultimately bookings/revenue in the long term.
Depending on size of your units, you are going to be investing $5,000 - $10,000 upfront in one time furnishings per unit ($50,000 minimum for all 5 units). You are going to need to have a profitable listing for at least 6-9 months just to recoup that investment. If I were you, I'd want to be fairly certain that my listings will be able to compete & operate for that long. The best way to do this is to look at the competition in your area, inspect their prices, their future occupancy, and how their product (units) compares to what yours will be once furnished. Are you going to be competitive and if so at what price? Does that price justify your investment and the work involved?
Finally, I would recommend a few other resources as you are exploring the topic. Below are my favorites. Each of them also have really great Facebook groups, where host ask questions like yours. Each community is different, so its worthwhile to get opinions from everyone:
Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
6y
@Brian Shelton. @David Bergman summed it up well. First I would see if it's legal to do an str in your market. Second I would see if there is a demand for strs. It can be for tourists or for traveling workers. I do the latter. 83 beds.
I have 4 long term rentals in another state. I have a decent property manager. I am interested in converting them to short terms buy my manager has no experience with this, although they are “interested” in getting into this space. I think if i can show them how it will benefit them, how they will make more money this way, and give them a sample contract we can plug some assumptions into, they will do it. Anyone have any suggestions/resources on this topic?
Short term rentals are basically hotels. The hotel industry is night and day compared to the Property Management industry. See no scenario where a Property Manager who isn't in the hotel business would be interested in doing this, especially on such a small scale.
CTO of BiggerPockets · Seattle, WA · Member since 2019 · 178 posts · 178 votes
6y
Some great answers, so taking a different approach to the question:
View this as a business experiment that you and your PM are jointly embarking on. How would you run the experiment? What are the success metrics? How would you know when to stop? For example:
The minimum is that you both expect to make the same or more than you are today (you make at least as much as the monthly rent, your PM as much as their monthly management fee). You’ll give it 6 months and evaluate. You’ll put up the funds to buy the furniture, etc. and all proceeds in excess of your minimums will first act as a draw down against that capital investment. After that, you will split proceeds above your minimum in some ratio (say 50/50, since you’re taking the bottom line risk but your PM is taking the time risk). At six months you’ll both know more than you do today and can decide if this or a different business model makes sense. There is no one way door here; in the worst case you’re out a bit of rental income, your PM is out a bit of time, you shake hands and go back to doing what you’re doing today, but in the best case you both learn a new business model which you can continue to tweak for mutual success.
Some great answers, so taking a different approach to the question:
View this as a business experiment that you and your PM are jointly embarking on. How would you run the experiment? What are the success metrics? How would you know when to stop? For example:
The minimum is that you both expect to make the same or more than you are today (you make at least as much as the monthly rent, your PM as much as their monthly management fee). You’ll give it 6 months and evaluate. You’ll put up the funds to buy the furniture, etc. and all proceeds in excess of your minimums will first act as a draw down against that capital investment. After that, you will split proceeds above your minimum in some ratio (say 50/50, since you’re taking the bottom line risk but your PM is taking the time risk). At six months you’ll both know more than you do today and can decide if this or a different business model makes sense. There is no one way door here; in the worst case you’re out a bit of rental income, your PM is out a bit of time, you shake hands and go back to doing what you’re doing today, but in the best case you both learn a new business model which you can continue to tweak for mutual success.
This doesnt account for the $50k you’ll spend buying furniture. It’s a much bigger financial risk than you’re making it seem
CTO of BiggerPockets · Seattle, WA · Member since 2019 · 178 posts · 178 votes
6y
@Mark Miles it does account for it, that’s the capital draw down I mentioned. But in any case I’m sure there’s a better experiment to be constructed, I just made all that up as an example. My point is that you don’t have to know exactly the right structure to start. Moreover, just the act of thinking of it as an experiment will help to drive clarity on goals, risks (to your point), tolerance for those risks... which may lead to a better experiment design or a decision not to do anything!
I’m taking a chapter out of the book The Lean Sartup (Eric Ries).
Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
6y
Around here, it's about $1000-$1500 to furnish a 3BR STR. That's 3 bedrooms, living room, all kitchen appliances, washer/dryer. I take a 16 foot trailer to an estate auction and buy all the appliances and furniture I need for a house. 20 year old appliances keep on working. Something from a big box store has a 3 year warrantee, they usually fail during year 4. The living room HDTV is the most expensive item in the house.
I'm in agreement with @Kevin McKittrick. I would try to pilot one unit first to get both of your feet wet before diving in. This would minimize your investment & risk, while still allowing you both to experiment and understand what the new challenges are in running an STR. Then you can ramp up one by one as you feel build and become confident in your systems and team.
If it were me, I also wouldn't overly complicate the agreement between yourself and the property manager, negotiate a fair percentage of revenue (less cleaning fees) that will compensate appropriately for his/her time. The numbers I have seen for this tend to gravitate around 20%, but can be more or less depending on area & services provided.
Metrics I would watch during your pilot are Average Daily Rate (ADR), Occupancy Percentage, Total Revenue per property per month. Most important will be your reviews/star rating left by guest, and will reflect the quality of your management team.
Really appreciate the suggestions, all very helpful. Couple notes: I do plan to start with one unit. I'm going to rent the furniture--I know that's generally a terrible financial decision but in this case it make sense because if it doesn't work I just give it back. i'll have to buy sheets, kitchenware and some things like that. Not concerned about that expense, 2-3 grand. Also, the properties are near a military base so the visitors don't expect lavish amenities, just the basics. They are generally in town to visit a soldier and just need a place to stay. When I go there I've discovered the hotels are often full, hence the idea to convert to ST. Thanks again for your input, appreciate the BP community!
@David Bergmann makes a lot of good points here. Upfront investment is furnishing a home can be a huge turn off initially, due to needing kitchenware, linens, towels, TVs, decor, etc. Depending on the size of the house it could be upward of 10k. Also, things to think about are the “profit driving amenities” like a hot tub, fire pit, pool, location, etc. These are things that travelers commonly filter their search for and drive up the nightly rate. Some of these things can be substantially higher in price than a single piece of furniture. I’m competitive markets, you need to stand out from other properties.
@Brian Shelton my question would be where are your homes located?
I would try 1 to see how it goes first if the numbers line up. Timing is important too and most people don’t think about. Coming on in the middle of your peak season is 1 of the worst times to start due to people booking well in advance.
I would advise you to branch off from your long term pm due to lack of experience and a totally different approach/team that’s needed. I work for a company called Evolve Vacation Rental. We are an alternative from doing it yourself or using a high priced PM. You should check us out!
Real Estate Broker · Staunton, VA · Member since 2019 · 194 posts · 216 votes
6y
@Brian Shelton There are many limited-service management companies (similar to Evolve) that will handle the back-end management such as creating and pricing your listing, guest communication, and reservations management. If you find a local cleaner that is willing to take on the responsibilities of cleaning, inspecting, and stocking your units, you're fairly well covered in terms of owning STR's remotely. Bonus points if the cleaner is willing to be on-call for guests if they need anything. You can google local handymen if any maintenance issues arise.
I know the topic is past at this point but in case others are considering a "traditional" PM or realtor without prior STR experience to manage their STR, I wouldn't recommend it. A colleague of mine is a traditional PM with hundreds of annual rental units. He tried to get into vacation rentals, and just taking on two properties nearly caused him to lose his mind. The processes, systems, and accounting are all completely different than annual rentals. Managers have to have advanced familiarity of Airbnb, VRBO, and all of the sub-softwares and tools to really be able to provide a quality service to their clients. This is why you find so many PMs that specialize solely in STR. Their management fees may be higher than a realtor might quote you, but believe me, you want a specialist.
Investor · St. Petersburg, FL · Member since 2014 · 7 posts · 1 vote
6y
@Brian Shelton Brian starting with one unit seems reasonable. This is Hospitality business, not landlord business. Check out the prices and amenities of your competitors nearby on Airbnb and VRBO, you'll try to offer a bit better than the market. If the hotel competition is Super 8, it shouldn't be hard to offer something more inviting. Look at your competition's future bookings and occupation rates. I wouldn't want to do this with a PM that has no experience, there is a big learning curve. An alternative is to get an experienced co-host. Discuss with them what level of involvement/control you want.They can help you set up your listing and get you started, they can handle the turn overs and cleaning staff, restocking, communication with guests, whatever you need, while you're learning this new business. Based on what you ask them to do, you negotiate a percentage of the profits (between 5-20%). The difference between a pm and a co-host is that the money goes to you first, you can select their cut/percentage on the Airbnb website and they get paid automatically based on that number you enter. Co-hosts have access to everything else, but they don't have access to the money. The most important thing is the photography and staging, don't skimp on that step. People select a unit based on the photo. Don't be afraid of putting some cheese on a cutting board with a couple of glass of wine on the counter for the photo, that's staging. You're selling an experience, show them what that experience might be. Photos of local activities, bars, good restaurants also help. If your target customer is military families, make sure you have children proof amenities, a stroller for rent, toys for kids, Disney+ on TV, no sharp corners. Reviews are very important, response time as well. I hope this helps.
Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
6y
A major point that I am not seeing in any responses (unless I just missed it, which is entirely possible), it CHECK YOUR CITY'S REGULATIONS. Many metro areas have STR regulations that make it very difficult for owners to legally operate Airbnb's. That should be your first phone call if you haven't made it already.
Property Manager · Wisconsin and Florida · Member since 2017 · 346 posts · 227 votes
6y
Long term and short term are two VERY different ballgames. As others have mentioned, they are a lot more work and involve a lot more hands on interaction from the property manager. I'm a short term property manager and the long term property managers I've talked to have gotten into it because there has been demand for it but rarely have they been able to do it well. It's not in their wheelhouse. It's the same for me not wanting to get into long term because it's a different ballgame. Where are your properties located?