I Bought a Short Term Rental Because of COVID

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I Bought a Short Term Rental Because of COVID

Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

Today we got a little house under contract and it will be our first short term rental. 

Over the last few months, I have read countless posts on BiggerPockets about how short term rentals have been struggling with cancellations. Any time an investment looks like it is struggling, I ask myself "is now the time to jump in?" The best investment opportunities always happen when a segment is in turmoil. There is an old saying, if everyone is selling, I am buying. It is contrarian investing.

Of course I know most seasoned short term rental owners are not selling. Most saw little impact or have a long term view, so understand any cancellations now are not a permanent trend. 

Up until this point, all our rental properties have been long term rentals. You may wonder why we are heading in a new direction? There is several reasons. First of all, COVID has left us really bored and we are looking for a new challenge. Second reason is higher cash flow. Based on the numbers, we can do much better versus long term. (We still have LTR as the backup plan if things go wrong). Third reason is we plan to run it as a family, using it as a teaching lesson in how to run a business for my 12 year old daughter. As we were home schooling her last year, we decided she needed to learn more than math, English, science, etc. I flat out believe my child should never be an employee and this is a step in teaching her how. 

The property itself is a two bedroom single level home. It is located less than a half mile from two universities and a major hospital. It is one mile from downtown and one mile from a newer regional 12,000 seat arena and convention center complex. The entire neighborhood has gone through renovation and value appreciation. 

The question I have for experienced STR operators is what do you wish you would have known starting out? 

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Neil Henderson
Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes
6y

1. Don't compete on price. Compete on value. Work to emulate what the highest priced listings in your area are doing rather than compete with the bargain listings. Go for quality over quantity. I'd rather have 50% occupancy at a high price point than 90% occupied at a low price point. Don't rely on AirBnB's smart pricing, their goal is more bookings (which they get a cut of) not quality bookings.

2. Spend the first 3-6 months doing most everything yourself. Cleaning, guest communication, price setting, etc. Spend that time writing down processes and procedures that you will eventually hand off to team members or automation. Turnoverbnb (cleaning) changed our lives, as did Smartbnb (communication), as did Pricelabs (pricing). 

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y

    I hope you got a good discount off retail. Areas that are vacation destinations are doing fantastic right now. Properties that are in downtown locations will be slower to come back. 

    Knowing what I know now I personally would focus on Lakes, mountains, beach areas where people go on vacation with their families.

    You might want to consider making this a long term rental until things are closer to normal.

    9Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y

    I like it!  

    My advice for any brand new STR owner would be:

    1. Don't charge damage deposits
    2. Buy a commercial policy instead of a homeowner policy
    3. Make sure STRs are legal in the area that you are looking to start one
    4. Pick either airBNB or VRBO - don't do both
    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    8Reply
  • Randy Cooper
    Tracy, CA · Member since 2016 · 48 posts · 16 votes
    6y

    Wow that's a great idea! We are are getting our home ready to sell. We our relocating and STR's will be our focus.

    I would love to follow your family’s journey on BP.

    Thanks for sharing this with us.

    Randy Cooper 

    0Reply
  • Justin Anderson
    Property Manager · Pigeon Forge · Member since 2016 · 199 posts · 208 votes
    6y

    Just to add onto the comments you've already received...
    - Make sure you stay compliant with the laws and it's a STR-friendly area (repeated because it's important!)
    - DO list on airbnb and vrbo.  It doubles your exposure.  Depending on the area, you may find that one gets more bookings, but there is nothing bad that can happen from listing in multiple locations.
    - Figure out your average guest quickly and adjust policies accordingly.  For example, since it's near a college, I could see a group of kids renting it as a party house.  You could put a 25 and up age limit on it, ask for a copy of their ID, set a 3 day minimum stay, etc. to help mitigate that.
    - I agree that since it's not a vacation destination it'll probably be slower on the recovery end.  The Smoky Mountains are back at full speed already, as are coastal areas in Texas.
    - Since it's an educational tool for you, I suppose maximizing return isn't so important.  Nothing wrong with that.

    5Reply
  • Ken Boone
    Investor · Greenville, SC · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Collin Hays - Why do you recommend doing only 1 platform airbnb or VRBO?  I always recommend using both.  My traffic is split about 60/40 on both platforms and I know some owners in one area that I am at that are only on one platform and they don't perform near as well as my cabin.

    Just curious as to your reason to use just one.

    3Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Ken Boone:

    @Collin Hays - Why do you recommend doing only 1 platform airbnb or VRBO?  I always recommend using both.  My traffic is split about 60/40 on both platforms and I know some owners in one area that I am at that are only on one platform and they don't perform near as well as my cabin.

    Just curious as to your reason to use just one.

     We market only on VRBO and stay fully booked.  A friend of mine and competitor only markets on airBNB and stays fully booked.  You have millions of eyeballs from each.  I prefer one platform and just stick with that, for simplicity's sake. The "too many cooks in the kitchen" concept.  KISS.  Keep it simple, stupid.  

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Ken Boone
    Investor · Greenville, SC · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Collin Hays Ok just curious as to why.  I market on both and am fully booked as well and I would love to only be on one for simplicity sake.  But I do know at least for my  cabin in Wears Valley I am staying fully booked but the owners that are only on 1 platform are not near as booked as I am.  I am  probably out performing them 2 to 1.

    Thanks,

    3Reply
  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @John Underwood:

    I hope you got a good discount off retail. Areas that are vacation destinations are doing fantastic right now. Properties that are in downtown locations will be slower to come back. 

    Knowing what I know now I personally would focus on Lakes, mountains, beach areas where people go on vacation with their families.

    You might want to consider making this a long term rental until things are closer to normal.

     With COVID, the surrounding states are closed down and we are not. That means sports tournaments, events, weddings, etc. are all being relocated to our state. In other words lots of out of town travelers. On top of that yesterday, Amazon announced a 2 million square foot distribution center in our city. We are not a vacation destination, but feel strongly we will emerge from COVID a winner. I am also prepared to have this be a break even for a while as we get up to speed. But I agree lakes and mountains is probably our next move after we learn the business.

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y

    We have always done very well on VRBO.  We pay $600 per year for each of our properties, and do not pay additional service fees and credit card fees.  We have our own integrated credit card processing, with discount that is about 20 percent below VRBO.  Since we are integrated, we also get our funds from all VRBO bookings within 24 hours.  There is no waiting or 3 percent "advance pay" premium.

    So for us, VRBO makes the most sense.  Don't get me wrong, I'm not a huge fan of either.  ;)

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    2Reply
  • Matthew Terry
    Rental Property Investor · Mesa, AZ · Member since 2019 · 138 posts · 144 votes
    6y

    I have a cabin in western NC that rents for $100 a night. It is within reasonable driving distance of several large cities. It is nestled in the mountains in a very low population town and has business internet and Dish Satellite. This is the first year we started on VRBO with no reviews and it is hard to keep up with the demand. 

    However, buying a place in a more ubran or suburban area that you fly to might not have as much demand. People want to get away to a coast, lake, or mountain area, escape from their homes they are locked up in for months, but do it with minimal risk of COVID. 

    3Reply
  • Mark Miles
    Rental Property Investor · Philadelphia, PA · Member since 2016 · 543 posts · 716 votes
    6y
    Originally posted by @Joe Splitrock:

    Today we got a little house under contract and it will be our first short term rental. 

    Over the last few months, I have read countless posts on BiggerPockets about how short term rentals have been struggling with cancellations. Any time an investment looks like it is struggling, I ask myself "is now the time to jump in?" The best investment opportunities always happen when a segment is in turmoil. There is an old saying, if everyone is selling, I am buying. It is contrarian investing.

    Of course I know most seasoned short term rental owners are not selling. Most saw little impact or have a long term view, so understand any cancellations now are not a permanent trend. 

    Up until this point, all our rental properties have been long term rentals. You may wonder why we are heading in a new direction? There is several reasons. First of all, COVID has left us really bored and we are looking for a new challenge. Second reason is higher cash flow. Based on the numbers, we can do much better versus long term. (We still have LTR as the backup plan if things go wrong). Third reason is we plan to run it as a family, using it as a teaching lesson in how to run a business for my 12 year old daughter. As we were home schooling her last year, we decided she needed to learn more than math, English, science, etc. I flat out believe my child should never be an employee and this is a step in teaching her how. 

    As if that is not enough, we will be documenting our entire journey on a Youtube channel. Again, because we are really bored due to COVID. 

    The property itself is a two bedroom single level home. It is located less than a half mile from two universities and a major hospital. It is one mile from downtown and one mile from a newer regional 12,000 seat arena and convention center complex. The entire neighborhood has gone through renovation and value appreciation. 

    The question I have for experienced STR operators is what do you wish you would have known starting out? 

    Congrats and welcome to the party! Running a successful STR comes down to 3 Ps: pics, people & pricing.

    1) Decorate your house nicely & pay a professional photographer to take some amazing pics

    2) Hire amazing people - cleaners, handyman, recruit some neighbors to help fill in the gaps, & self-manage or hire an offshore VA to manage the property if you'd rather make yourself rich instead of making a local property manager rich (more on that here: https://www.biggerpockets.com/... )

    3) Price fiercely to maximize profits not occupancy (they're not the same thing). If you set higher prices and rent fewer nights but make the same amount of money, you actually come out ahead. Less money spent on supplies, less wear and tear on your place, less money spent on utilities, fewer guest headaches, etc.

    7Reply
  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Mark Miles:
    Originally posted by @Joe Splitrock:

    Today we got a little house under contract and it will be our first short term rental. 

    Over the last few months, I have read countless posts on BiggerPockets about how short term rentals have been struggling with cancellations. Any time an investment looks like it is struggling, I ask myself "is now the time to jump in?" The best investment opportunities always happen when a segment is in turmoil. There is an old saying, if everyone is selling, I am buying. It is contrarian investing.

    Of course I know most seasoned short term rental owners are not selling. Most saw little impact or have a long term view, so understand any cancellations now are not a permanent trend. 

    Up until this point, all our rental properties have been long term rentals. You may wonder why we are heading in a new direction? There is several reasons. First of all, COVID has left us really bored and we are looking for a new challenge. Second reason is higher cash flow. Based on the numbers, we can do much better versus long term. (We still have LTR as the backup plan if things go wrong). Third reason is we plan to run it as a family, using it as a teaching lesson in how to run a business for my 12 year old daughter. As we were home schooling her last year, we decided she needed to learn more than math, English, science, etc. I flat out believe my child should never be an employee and this is a step in teaching her how. 

    As if that is not enough, we will be documenting our entire journey on a Youtube channel. Again, because we are really bored due to COVID. 

    The property itself is a two bedroom single level home. It is located less than a half mile from two universities and a major hospital. It is one mile from downtown and one mile from a newer regional 12,000 seat arena and convention center complex. The entire neighborhood has gone through renovation and value appreciation. 

    The question I have for experienced STR operators is what do you wish you would have known starting out? 

    Congrats and welcome to the party! Running a successful STR comes down to 3 Ps: pics, people & pricing.

    1) Decorate your house nicely & pay a professional photographer to take some amazing pics

    2) Hire amazing people - cleaners, handyman, recruit some neighbors to help fill in the gaps, & self-manage or hire an offshore VA to manage the property if you'd rather make yourself rich instead of making a local property manager rich (more on that here: https://www.biggerpockets.com/... )

    3) Price fiercely to maximize profits not occupancy (they're not the same thing). If you set higher prices and rent fewer nights but make the same amount of money, you actually come out ahead. Less money spent on supplies, less wear and tear on your place, less money spent on utilities, fewer guest headaches, etc.

     Great advice, I am familiar with the three P's of marketing (product, placement and pricing) but never heard that for short term rentals. One of the reasons we chose our local market is we already have a network of people to repair and clean things for our long term rentals. I like the advice on pricing. I have already hear people say that under-pricing can be a bigger problem than overpricing. That is true on long term rentals too. 

    1Reply
  • Melissa Wesling
    Investor · Chicago, IL · Member since 2020 · 148 posts · 97 votes
    6y

    Congrats on your first short term rental and diversifying your portfolio! I love that you are teaching your daughter the biz, that is our goal as well with our daughters, hoping they will want to take over managing the properties at some point down the road. I would add a couple things that weren't mentioned that I wish I knew when starting: 1) View your short term rental as a business. I had a hard time with that at first because I put so much love and care into preparing our STR for guests. When we first started renting, we allowed pets and I was so sad when a dog chewed up some trim. Luckily everything can be fixed! 2) Have a pet policy, we don't allow pets anymore. 3) To go along with hiring amazing people (cleaners, handyman, etc), consider having a system to double check the scheduling if you have a lot of turnover. We mostly have weekly rentals and last year there was a misunderstanding with the cleaning crew and our new guests checked into a house that hadn't been cleaned. We manage from out of state, so this was a rush to get things done. The scheduling error only happened one time in 12 years, but now we have the cleaning manager text us when cleanings are complete :)

    Good luck and have fun! 

    1Reply
  • Neil Henderson
    Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes
    6y

    1. Don't compete on price. Compete on value. Work to emulate what the highest priced listings in your area are doing rather than compete with the bargain listings. Go for quality over quantity. I'd rather have 50% occupancy at a high price point than 90% occupied at a low price point. Don't rely on AirBnB's smart pricing, their goal is more bookings (which they get a cut of) not quality bookings.

    2. Spend the first 3-6 months doing most everything yourself. Cleaning, guest communication, price setting, etc. Spend that time writing down processes and procedures that you will eventually hand off to team members or automation. Turnoverbnb (cleaning) changed our lives, as did Smartbnb (communication), as did Pricelabs (pricing). 

    10Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y
    Originally posted by @Collin Hays:

    We have always done very well on VRBO.  We pay $600 per year for each of our properties, and do not pay additional service fees and credit card fees.  We have our own integrated credit card processing, with discount that is about 20 percent below VRBO.  Since we are integrated, we also get our funds from all VRBO bookings within 24 hours.  There is no waiting or 3 percent "advance pay" premium.

    So for us, VRBO makes the most sense.  Don't get me wrong, I'm not a huge fan of either.  ;)

     How do you get around the service fees and integrate another CC service? That is huge.

    0Reply
  • Stephen E.
    Rental Property Investor · Member since 2020 · 172 posts · 110 votes
    6y

    This sounds good. My personal opinion is that I would never buy an STR property that couldn't cover itself plus a little profit if the STR didn't work out. There are a lot of reasons an STR won't work out, some of them have not even been thought of yet. I've managed and owned a fair number of STRs. A couple of things that have helped me:

    1. It's not much work, but it occupies a lot of mental real estate. I've found that managing 1 is very easy, incredible profit for investment, but it doesn't scale well. Also, it's just as hard running a STR that makes $100 a night as $500 a night. I've personally paired back so only my best performing properties are STR, as well as my personal home if I'm traveling.

    2. I use Beyond Pricing for setting rates. You have no idea how much you are leaving on the table if you don't have software working for you.

    3. Gotta have a pushbutton entry on the front door, either keycode or smart lock. But just as important is having a secondary way to get into the house if the lock fails for any reason. There is (almost) no bigger emergency than a guest that can't get inside.

    4. Every couch should also be a bed.

    5. Every bed should be at least a queen, king if possible.

    6. Maybe most important: str guests should not have to learn anything. Things that a long term renter can easily deal with an STR renter can't, like a wonky doorlock, a trick for operating the stove. They shouldn't have to put any thought into anything. Extras that require some knowledge/learning on the part of the guests, like a high end esspresso machine, are just asking for trouble.

    7Reply
  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Stephen E. thanks for the great feedback. Since we are already doing LTR, we know this property could easily cash flow that way. Honestly it would be much less effort too. Part of this is learning the STR process as we are thinking about doing it out of town. I feel better learning the ropes with a property and market I know well.

    I was already thinking of couches that convert and beds, I was undecided between queen or king. I am glad you brought up coffee, because we were debating between a standard coffee machine and Keurig. If we do Keurig, I wonder how many pods to leave. I fear if I leave a case of them, it will walk away whether they use them in the property or not.

    Are there any extra features or amenities you have that most other hosts don't have? 

    0Reply
  • Stephen E.
    Rental Property Investor · Member since 2020 · 172 posts · 110 votes
    6y

    Tough call on the Keurig. I've gone both ways. I don't think guests care that much as long as you provide coffee. A basic coffee machine (has to be basic) and ground coffee seems to be just as good. Provide ground coffee and sugar, but not milk. I have one property with a Keurig and don't think I would do it again. Same with the bean grinder and whole beans + french press. Too many guests can't figure it out.

    If you use a Keurig you only put out so many pods per guest. Have a locked place you store the rest of them.

    I'm pretty fond of these sleeper sofas because they're so comfy to sleep on: https://www.amazon.com/Jaxx-Zipline-Convertible-Sleeper-Ottoman/dp/B013TUBL3W. It depends a little bit on where the sofa is and the vibe. I own two of them. One converts to a California King, and guests love that. But then I have to get special sheets, so downside. If every mattress is the same you don't have to figure out which sheets are which.

    Another thing I do, that I like but it's not for everyone, is I've created a google doc for each property and I send the google doc to the tenant a week before they arrive. What I like about this is the google doc is a living document, you can change it anytime. I put the wifi code, lock code, etc. all in the google doc.

    One very last tip I should have included. You need to provide check-in instructions like you're dealing with someone mentally disabled. Here's the door (picture of door). Insert copper key. Turn the key to the left... etc. 95% of guest problems happen at check-in. Directions need to be almost unbearably clear for getting into the house.

    2Reply
  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Collin Hays:

    I like it!  

    My advice for any brand new STR owner would be:

    1. Don't charge damage deposits
    2. Buy a commercial policy instead of a homeowner policy
    3. Make sure STRs are legal in the area that you are looking to start one
    4. Pick either airBNB or VRBO - don't do both

     Thank you for the feedback, it is much appreciated. Can you please explain the comment on commercial insurance versus home owner policy? 

    0Reply
  • Courtney Coleman
    Flipper/Rehabber · Jonesboro, GA · Member since 2018 · 7 posts · 7 votes
    6y

    @Joe Splitrock love this for so many reasons. What gets me the most is how you're bringing your daughter into it and giving her such a great real life experience. My husband and I will be homeschooling our two this year.

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @John Underwood:
    Originally posted by @Collin Hays:

    We have always done very well on VRBO.  We pay $600 per year for each of our properties, and do not pay additional service fees and credit card fees.  We have our own integrated credit card processing, with discount that is about 20 percent below VRBO.  Since we are integrated, we also get our funds from all VRBO bookings within 24 hours.  There is no waiting or 3 percent "advance pay" premium.

    So for us, VRBO makes the most sense.  Don't get me wrong, I'm not a huge fan of either.  ;)

     How do you get around the service fees and integrate another CC service? That is huge.

    Once you have 10 or more properties on VRBO, you kind of get to go on your merry way.   

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Joe Splitrock:
    Originally posted by @Collin Hays:

    I like it!  

    My advice for any brand new STR owner would be:

    1. Don't charge damage deposits
    2. Buy a commercial policy instead of a homeowner policy
    3. Make sure STRs are legal in the area that you are looking to start one
    4. Pick either airBNB or VRBO - don't do both

     Thank you for the feedback, it is much appreciated. Can you please explain the comment on commercial insurance versus home owner policy? 

    Yes.  STRs are commercial enterprises, similar to a hotel.  Homeowners policies are not intended for this.  Google to search term “vacation rental insurance” or “short term rental insurance” and you see insurers that provide appropriate coverage.   

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    2Reply
  • Heather Carrow
    Realtor · Ocean City, MD · Member since 2019 · 54 posts · 26 votes
    6y

    Joe, 

    Congrats on your first STR!

    1Reply
  • Joseph Bafia
    Investor · Raleigh, NC · Member since 2019 · 314 posts · 280 votes
    6y

    I wish I researched market prices and strategies a it more when we jumped in.  I went the route of shopping a few places near us and priced close to them with really no rhyme or reason.  We were renting at $100-$125/night to start.  We started booking quickly and over time started increasing rates.  Once we were doing it for a few months we started doing more research on COMPARABLE properties and now a year later we rent the same house $175-$265/night.  

    As for VRBO/Airbnb, we use both.  Hate doing it for reason of multiple platforms and 95%+ of our business comes from VRBO, BUT I will say Airbnb hs filled in gaps during odd days like midweek, so love having the higher occupancy.

    Regardless, I don't think you can just pick one and "hope" .  You have no idea which platform will be more relatable to your market or guests.  Its interesting on these forums when I first got involved hearing someone say "I only get AIrbnb bookings", and I was thinking I was doing something wrong.

    Best of luck and happy to help with any specific questions.

    1Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    @Joe Splitrock

    I applaud your efforts to teach the biz to your daughter. To me, that's more to applaud than your new STR!

    2Reply
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