STR-are you earning enough to cover mortgage and expenses?

Question

Hello, I am new to Bigger Pockets and am already learning so much. I would love to hear the experiences of anyone who has purchased a property with 20% down and then used it as a short term rental investment property. Were you able to clear the cost of your mortgage and expenses (utilities, management fees, landscaping, etc)? Or were you in the negative every month?

We’ve been looking at the Scottsdale market in particular, but I am wary of the data I’m seeing on AirDNA in terms of potential rental income.  This would be our first investment property and I’m trying to have eyes wide open going into it.

I appreciate any insight, experiences or advice.  Thank you!

Luke Carl · Answer

@Casey Dye not true my man. I’ve got STRs in different states that I haven’t physically been to in years. Link in my profile.

If you live next door are you going to fix the toilet fix yourself or call a plumber?

Nathan Gesner · Answer

If the property does not produce a "positive cash flow" then you should pass.

Cash flow is what you have left after paying mortgage, taxes, insurance, and other expenses. On a short-term rental, expenses would include taxes, marketing, consumables (tp, soap, coffee, etc.), management fees, capital expenditures (roof, driveway, flooring, etc.), utilities, insurance, landscaping, and everything else.

My short-term rental earns enough in three months to cover all my expenses so the rest is my net income. However, the slower months bring in a lot less, so it's not like I'm earning killer income for nine months of the year. In general, I anticipate netting about $15,000 for the year. That's better than I get with a long-term rental (single-family home) but it doesn't do as well as my multi-family rentals.

Mike Shemp · Answer

Hi @Casey Dye,

What @Luke Carl said is spot on.  You do NOT need to be local and you also do NOT need a PM.  Here is a true story that happened to me to support this....the "toilet in the middle of the night" scenario you always hear about typically with LTRs, but in this case it is a STR.

I was on vacation with my wife on the West coast 2 years ago.  We have a STR in the Outer Banks.  At 4:00am I got a phone call (because on the East coast it was 7:00am).  It was our guest and she said "I took a walk this morning and saw water pouring out from under the house."  Our house is near the ocean, so it is elevated which is why she could see water coming out.  Based on where she described it, I knew the hot water heater had blown.  Here is exactly what I did:

1. I apologized for the issue, and offered to buy our guest dinner that night.

2. I went on my phone and looked up the plumber we had used previously.  If I didn't have that, I just would have used HomeAdvisor, Angie's List, or Google, or Facebook groups to find one.

3. I called the plumber and explained the situation and they agreed to come fix it asap.

I then went back to bed.  I received a phone call at about 6:30am (West Coast time) from the plumber letting me know the new water heater was installed and working.  Later that day I called the local restaurant, got a gift card, and then emailed the guest all the details of how to get it.

There was no PM involved in any of this.   All said and done it was about 30 minutes of my time, and a little anxiety for a few minutes.  You can absolutely manage STRs remotely without a PM.

Mike

Scott K. · Answer

If anyone isn't clearing their mortgage+expenses with a LONG TERM rental, they need their head checked. If they aren't clearing mortgage+expenses with their short term rental, they should be hospitalized... I own 3 STR's, they'll recoup their investment cost in 3 years or less. I own 4 LTR's, they'll recoup their investment cost in 5-6 years.

Luke Carl · Answer

@Casey Dye General rule of thumb in STR if you don’t “self manage” (there are websites that do most of it for you) you won’t make money. Cut out the management fee and see where your numbers are.

Also you can likely find 10% down on this thing if you wanted that and if you call enough lenders.

Jon Crosby · Answer

Just be aware that AirDNA's figures include housekeeping so it will give you a rosier ADR/Revenue prediction if you are not aware of that.  I have a way to extract that using their API if you want me to check out your numbers though.  Feel free to PM if interested.

Lauren Kormylo · Answer

@Casey Dye you might want to ask on the Arizona subforum.  There are a few people there who have STRs in Scottsdale, and might be able to give you advice, here:  https://www.biggerpockets.com/...  Although AZ STR laws are favorable now, there have been rumblings for a long time about pressuring the governor to allow cities to enact their own restrictions.  If the laws changed, would you be able to make money if you had to rent yours long term?  Also, a lot of STR owners in the Valley need to do monthly rentals over the summer, when tourists are not in town.  As far as having a local contact, you could pay your cleaner or a neighbor to be the contact. The authorities just need someone nearby with the authority to allow them to enter the property, or to meet them there in an emergency, which wouldn't happen very often, if ever.

Casey Dye · Answer

@Luke Carl I can definitely see your point as we’ve been quoted 20% for management fees.  Unfortunately I’m not local to the area and my understanding is that I need someone local to be available for any problems or issues.  For this reason, I didn’t think I could get away with not having a management company.

Doug Pintarch · Answer

In spades!!!!

STR-are you earning enough to cover mortgage and expenses?

Most Popular Reply