What risks associated with STRs do you study & seek to mitigate?
14 Replies
Greg Moore
Rental Property Investor from Tampa, FL
posted about 2 months ago
I'm getting closer to my first STR. Beyond a pandemic and changes to the local law that result in STRs not being allowed, what risks are you concerned about and following closely?
Paul Sandhu
Investor from The worst town to live in, Kansas
replied about 2 months ago
Read my old posts. Pretty much everything has happened to me. Last night I encountered someone overdosing in the front sidewalk of an STR.
Paul Cox
Rental Property Investor from Manassas, VA
replied about 2 months ago
As one of the relative newsbys on this forum, I jumped in feet first, listening and learning a ton from this forum. I figure that I could have taken more time analyzing all the potential risks before I jumped in, but then I would be 1 year further out of the game. Or, I could be making money while I'm learning from the much more experienced STR owners on this forum. I guess my biggest piece of advice would be the same that @Avery Carl and @Luke Carl gave me when I got started which was first and foremost look to invest in a true vacation destination. That step right there mitigates a ton of the other concerns that come from investing in a different type of area. @Paul Sandhu has all the stories that come from that "different" area :)
Best of luck to you on your journey.
Paul
Thomas Ackley
Rental Property Investor from Milwaukee, WI
replied about 2 months ago
My first STR is in what I think is the best STR market in WI. Here are my concerns with that market.
1) I can feasibly see the market I am in be legislated out. The residents generally don't like the STR's from what I can see.
2) There are a a small amount of contractors in the market. I've been trying to get a quote for a new HVAC system for about two months now. Still not even a quote.
3) There is a loooong off season. I am filling my weekends right now at 40% of my summer rates, but I don't think I'll even fill the weekends from January through March... We will see, though.
4) It's not the easiest to scale there, as there are not a lot of properties that are on the market and most require plenty of work.
The fix;
I went out of state and to a market that has a lot longer busy season, where the market has had STR's for decades, where the economy is more built on tourism, has a population that can support a lot of contractors and has a lot bigger market to purchase from.
In short, I called Avery.
Greg Moore
Rental Property Investor from Tampa, FL
replied about 2 months ago
@Paul Sandhu thanks Paul. I did read your posts yesterday before posting. In fact, your post is what prompted my question. I began getting nervous that perhaps I’m missing something important in my analysis and overall considerations.
Greg Moore
Rental Property Investor from Tampa, FL
replied about 2 months ago
@Thomas Ackley great response, Thomas. Exactly the kind of insights I was looking for. Thanks!
Luke Carl
Rental Property Investor from Tennessee Florida
replied about 2 months ago
@Greg Moore never analyze risk.
“Rich people analyze reward. Poor people analyze risk.”
- T Harv Eker Secrets of the Millionaire Mind.
Greg Moore
Rental Property Investor from Tampa, FL
replied about 2 months ago
Well said! Thanks for the reminder.
Julie McCoy
Real Estate Agent from Sevierville, Tennessee
replied about 2 months ago
@Greg Moore While @Paul Sandhu has a lot to teach (and a lot of just plain great stories) his model/target demographic is not the same as yours - by a long shot :)
I think you named the two biggest general STR risks (though a pandemic is something that wouldn't have made anybody's list a year or so ago!).
@Thomas Ackley 's answer was perfect, LOL - a lot of these risks can be mitigated by choosing a really good market that has favorable legislation and local economics/resources baked in.
I'm honestly having a hard time coming up with any significant risks in the Smokies... there's always the small risks that come along with any business, and never any guarantees in life, etc. but the good news is most of it you can prepare for. Have good insurance, have reserves, have a plan for if something goes wrong (HVAC went out? Water heater went out? Bug problem? Know who to call).
Sometimes stuff is going to happen that you aren't going to be able to help - a couple of Christmases ago I couldn't do anything about the guests who decided my cookware was too scratched for them to use on Christmas Day. They just had to suck it up and wait for things to open again. But in the Smokies, at least, there's lots of resources. If something like that happened again (as long as it wasn't on Christmas Day) I'd have Instacart deliver new cookware. There's seldom going to be an issue where a little resourcefulness can't fix it - even long-distance.
Ultimately, I think the most important things are to have reserves (this got me through the shutdown without me so much as breaking a sweat financially, even though it was generally a very stressful time!), have an attitude of resourcefulness, and don't sweat the small stuff.
Greg Moore
Rental Property Investor from Tampa, FL
replied about 2 months ago
Thanks Julie! Watch for a meeting request coming your way...!
Mark Futalan
Rental Property Investor from La Quinta, CA
replied about 2 months ago
A few risks that we look at is the over saturation of STR's within the area. Too much supply within a given area can push prices down as well as cause tensions with neighbors and the local community with neighborhoods transforming into more transient destinations than family friendly neighborhoods.
Maxwell Lee
Real Estate Investor from Miami, FL
replied about 2 months ago
@Paul Cox made an important point that vacation rentals are very different from regular short-term rentals. I have very little experience with vacation rentals (ie, ZERO as an investor and just a little as a customer lol) so I am not equipped to speak to that.
I'd say the two biggest risks are the ones you cited. Another adjacent risk that comes to mind is someone investing in a property specifically for STR when it wouldn't make sense as a long-term rental. If we're discussing the problems with regular STRs in a normal market, it should be noted that on the flip side they usually can be very easily converted to long term when the market dictates.
Nancy Bachety
Rental Property Investor from Sag Harbor, NY
replied about 2 months ago
The risk of getting less than five star reviews. One or two random ones isn’t terrible but if there are a few close together you’ll have to overcome them.
We’re on our 4th cleaner in three years. In a place where contractors and cleaners abound, they’re not hard to find but vetting them is critical. And finding good reliable ones who don’t cut corners or send replacement cleaners in their place, takes vigilance. More importantly, communication with guests and taking responsibility for your team’s shortcomings is invaluable. We just fired our third “really great at first” cleaner but had already vetted a replacement and hired them on a days notice. And saved two potentially bad reviews, miraculously, with sincere conversations.
Paying more doesn’t mean getting better service, necessarily.
Don’t underestimate the risk of a few bad reviews and the (short term) effect on your future bookings.
April Vogt
from South Lake Tahoe, CA
replied about 2 months ago
Some great points have already been mentioned here @@Greg Moore . I'll second those posts that mentioned the difficulty of finding a good contractor or handyman when work needs to be done-this is the the case in my market. All the goods ones are extremely busy! Start trying to make those connections now and know that you'll probably have to run through a few before you find the right fit
As @Nancy Bachety said, the hunt for a great cleaner can also difficult and having a quality cleaning crew (and backups) is paramount to your business.
An additional risk I might add is treating your STR as just a real estate investment instead of what it-a hospitality business. If you don't enjoy making & keeping your guests happy, or perhaps do not have the time for it, definitely consider hiring someone who does!
@Greg Moore where will your STR be located?
Greg Moore
Rental Property Investor from Tampa, FL
replied about 2 months ago
Thanks @April Vogt . Great insights here. My first STR will be in the Smokies. But I hope to continue expanding every year into other high traffic, popular destination markets.