New and considering between vacation and long term rentals

[Erin Killough]

Looking for advice on the best way to start out. There are great rental long term rentals in my area but also considering an investment  at the beach for a short term vacation property. 

[Ryan Cheek]

Quote from @Erin Killough:

Looking for advice on the best way to start out. There are great rental long term rentals in my area but also considering an investment  at the beach for a short term vacation property. 

Hey there!

It’s awesome that you’re weighing both options! There’s a lot of potential with long-term rentals, especially if you already have strong opportunities in your area. They tend to be lower maintenance, and the steady cash flow can be a great way to start building your portfolio.

That said, vacation properties can be lucrative too, especially in high-demand beach areas. However, the short-term rental market comes with added complexities like managing turnover, dealing with seasonality, and ensuring you comply with local regulations. If you’re just starting out, a long-term rental could be the safer bet for consistent returns and lower management hassle.

On the other hand, some investors prefer out-of-state opportunities for better cash flow and affordability. For example, I work with investors looking into new construction duplexes in Indianapolis, which offer solid rental returns and less upkeep compared to older properties. If you're considering diversifying outside your local market, that could be worth exploring too!

Let me know if you want to chat more about these options or would like help mapping out a strategy that fits your goals. Best of luck with whichever path you choose!

Cheers,
Ryan Cheek

[Erin Killough]

Ryan,

I'm definitely interested.  Do you also work with a property management company?  Are you selling at retail or wholesale?

[Eric DeNardo]

@Erin Killough

Short term rentals are great! I do them and I enjoy creating a great experience for the guests and the receiving more income for my property. I would consider how much involvement you want to have for your investment. While you can systematize your airbnb operations to be more passive, you do have to put more effort in vs a long term rental. Try one out and see how you like it!

[Adam Bartomeo]

I would not advise starting out your investing with an STR unless you have some type of hotel hospitality background. I know that everyone makes them out to be these great and easy properties to manage but they are extremely difficult. They need a lot of systems to be in place and need a LOT of attention on the marketing and maintenance sides.

[Preston Dean]

Quote from @Erin Killough:

Looking for advice on the best way to start out. There are great rental long term rentals in my area but also considering an investment  at the beach for a short term vacation property. 

 Hi @Erin Killough

When it comes to picking the area you want to invest in something I would recommend for you is this website.https://www.areavibes.com/

Use this rating and classification system I have created over time to get an idea of the "Class" for the area - A class B class & so on

Here is my rating & classification for each livability score.

80 and above A+
78/79 A
76/77 A-
74/75 B+
72/73 B
70/71 B-
68/69 C+
66/67 C
64/65 C-
60/63 D
59 and below F

[Clare Pitcher]

Hi Erin, 

I work for a property management company in Milwaukee, Wi, and here are some thoughts to consider: 

Vacation rentals- 

Pros: Higher Income Potential due to tourists, Flexibility, Shorter Tenant Commitment

Cons: Inconsistent Income depending on demand and time of year, More Management Required, Wear and Tear because of constant turnover

Long-term rentals- 

Pros: Stable Income, Lower Management Effort, Predictable Expenses, Less Wear and Tear

Cons: Long-term commitment (this can be pro or con depending on the tenant), Market Dependence 

The choice between vacation rentals and long-term rentals largely depends on your financial goals, management capacity, and the property’s location. Because you are just getting started, I think long-term rentals would give more stability as you are navigating the rental market. Let me know what other questions you have! 

[Dustin McQuate]

Hi Erin,

I lived in Baltimore for 20+ years and now live in Breckenridge, CO.

While I lived in Baltimore, I self-managed multiple LTRs (long term rentals) and now here in Breck I self-manage two STRs (short term rentals).

 I want to add two things that I dont see mentioned in the previous replies, but may be the first things to consider:

1) How much will you use the vacation home yourself?

Do you want a vacation home or are you strictly looking for an investment. If you'll be using the home yourself, then the cash flow may not matter as much. If you want to get that beach house before prices increase even further, the cash flow may not matter as much. Here in the ski towns of Colorado, most STRs are used by their owners. Consequently, most STR owners look at the revenue from renting as a way to offset the cost of having a ski house as opposed to strictly as an investment vehicle.

2)  How are STRs regulated in the area where you would want the vacation home?  

Im guessing you're thinking OC or the Delaware beaches for the vacation rental/ STR. You'll want to know what the STR regulations are at the beach towns you're interested in. Regs can run the gamut: STR licenses are unlimited and available immediately with no restrictions, STRs can only be rented so many nights/ stays a year, STRs can only be in designated areas, the number of STRs are capped and there is a waitlist for a license.

As others have mentioned, typically an unregulated STR will have more revenue than a LTR, but it will require more consistent work and effort.

Hope this helps!

Happy to answer any other questions you may have.  

Good luck!

[Koren Lavi]

@Adam Bartomeo is right on this one. STRs can be an enormous hassle compared to other rentals. But if income is your number one priority, could be the best way to go. The only possible way I would consider doing AirBNB/VRBO out-of-state is if I had A LOT of trust in my property manager. 

[Michael Smythe]

@Erin Killough Baltimore is a lot like Detroit - many "great deals" are actually nightmares!

Recommend you connect & communicate with @Russell Brazil who knows a bit about the Baltimore market.

In the meantime, read below about how nightmares often occur:

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

Similarly, if you put all Class D tenants in a Class A 4-plex, what do you think will happen?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

PM us if you’d like to discuss this logical approach in greater detail!