Analyzing Short Term Rentals

17 Replies

Hello All, My husband and I are looked to buy a short term rental in the Smokies in the next few months. I have gotten pretty good at analyzing long term rentals but have a feeling I am leaving things out when analyzing short term. Is anyone willing to share any spreadsheets they use to analyze properties? 

Hi @Nicole Vincent

I'm a newbie when it comes to STRs, but jumped in with both feet after some long discussions with Avery and Luke Carl. I still don't have a spreadsheet or really any clue on how best to analyze a STR property, so if others are willing to share, I may borrow it as well :) I just know that we bought our cabin back in November and we haven't regretted it one bit. In fact we're looking at getting our second property either there in the Pigeon Forge area or the Branson, MO area here in the next couple of months. I am anxious to see what our first year rounds out to be. Best of luck to you. We love the Smokies!

Paul

Hi Nicole! There really is no black and white answer to that. I was on a call with some investors the other day about multifamily, and the presenter walked us through his spreadsheet. At the end of the call several people asked if they could have a copy of his spreadsheet. He told us that he does not share his spreadsheets because they are built around how HIS brain works and it spits out the information that is most important to HIM, which may not align with other people's brains.

There is no hard and fast formula that determines whether or not a property is a good investment for YOU. What you can do is gather all the income and expense numbers that you can from all the data sources that you can, subtract your expenses from your potential income, and if the number at the end of the formula is one that makes enough sense for you to make that down payment, then there is your answer.

@Nicole Vincent I made some modifications to our Personal SFH long-term rental spreadsheet to help us determine projected "average" monthly cash flow and expenses.
Understanding that as compared to steady and predictable long term rental rates, STR rental income varies a lot month-to-month based on many factors: seasonal demand, competition, your standing on Airbnb or other platforms, your personal occupancy goals/philosophy (I.e., highest occupancy at lower daily rates, or Higher ADR with more infilled nights), personal usage blackout days, etc.

Using online tools and/or talking with the previous owner, your REA/PM, and area research for the market you’re looking to invest can help you get a usable ADR and Annual Occupancy for your property. We used this to average our potential monthly income:

Example: If you learn your ADR is $100 and annual occupancy is 200 days/year, your “average” monthly income would be $1,667.

$100x200=$20,000; $20,000/12=$1,667

Similarly, on the expense side, adding in the additional STR-specific expenses (Cable, WiFi, utilities, etc) and averaging them out for each month can give you a decent expectation of monthly costs. Many of the expenses are fixed (HOA, cable/WiFi, insurance, etc), while others vary based on usage (utilities, PM fees, etc). You can still come up with a decent average though.

Long story short: we modified our LTR spreadsheet by averaging income and expenses over a year to get a cash flow number we were comfortable with for STR. We used this technique for our Branson purchases.



I own one in OR in wine country.  I am not sure it works just doing a XLS any more than a standard rental.

The big things, I think, are non-math like marketing it, creating appeal, posting in the right places, charging the right rates.  I hired a prop mgr, but it's not cheap (like 40%) just to see what happens when someone that knows what they're doing run it.

Originally posted by @Steve Morris :

The big things, I think, are non-math like marketing it, creating appeal, posting in the right places, charging the right rates.  I hired a prop mgr, but it's not cheap (like 40%) just to see what happens when someone that knows what they're doing run it.

 How long ago did you do this?  Have you gotten any results yet?

Originally posted by @Ryan Moyer :
Originally posted by @Steve Morris:



 How long ago did you do this?  Have you gotten any results yet?

I'm in OR and considering COVID, I'm happy.  I like the prop mgr and when I do stuff I get her feedback on what to do and she listens to me on postings (am an apt broker so understand power of pictures).  I think they all charge about 40% +/- and the bigger brands like V***** are more, but then I've got a faceless contact source.  Be aware and read your contract, they get a 6-month stay and it's prob the same split.

I'm in the phase where I'm just telling her to get it filled and get good reviews and work out the start-up issues.

 

@Luke Carl thanks a lot going to read through that thread now

@Avery Carl @Melissa Wesling you both make good points and my husband and I will sit down and make a list of what is important to us. Mostly we are looking to make more cash flow than our LTR's we already own. Although we may stay at this potential property once a year we are more interested in making money with it. 

@Julian Sage currently I am taking an estimated gross rental income and subtracting out mortgage, taxes, hoa fees, homeowners insurance, utilities, and cable/internet. Not sure if things like cleaning need to be taken into consideration, or hospitality type things that will need to be stocked in the house. How much to account for cap ex? Those sorts of things.

@Nicole Vincent no cleaning doesnt need to be factored as it's paid by the guest. You can put a line item for monthly deep clean if you want though. You can take your gross and put in 1% if you feel like you need to save for maintenance each month.

For some reason it's not letting me tag @Jon Crosby, but he will most likely come along and provide a great calculator. I've found it helpful when analyzing the properties I bought. Or you can search him on here and message him. There's also a calc on BP calculators, but I don’t think I’ve tried it in earnest.

I would include cleaning in your analysis. When you get your 1099 from the booking platforms at the end of the year it will be on your gross numbers including all fees. So you'll want to account for that.

@Nicole Vincent - a couple other line items to consider adding on your P&L.  On the revenue side consider adding pet fees and cleaning fees.  On the expense side, we have a "hospitality" expense line which includes gift cards, gifts for guests, gifts for repeat guests, or gifts when something goes wrong.  You'll want to talk to your accountant because only so much of that expense is tax-deductible.  If your property is near the beach or an area prone to weather and natural disasters you may want to factor in some vacancy during that time.  For example we have a property in the Outer Banks and during hurricane season we have a high likelihood of not being able to rent out that week, refunding our guests, etc.

Please feel free to reach out with any questions.

Mike


Don't forget about consumables like paper towels, napkins and TP.

Some things like sheets and pots and pans have to be replaced at certain intervals or when damaged.

I charge a little more for the cleaning fee to offset some of these items.