Rookie investor question...how do you decide between STR and LT?
New York, NY · Member since 2021 · 3 posts · 1 vote
Hi everyone,
I am a new investor interested in multifamily investment opportunities in CT (looking at New Haven and New London right now). I have a day job as a strategy consultant and live in NYC, so I'm looking at markets that are more affordable than Manhattan.
I'm curious about both STR and long term rental properties. Is there a general consensus on STR vs long term rentals for first time investors? Is the learning curve steep for STR as a first property in terms of property management? How do you decide between doing STR vs long term? Would it make sense to use a multi-family to have both long and short term tenants in different units? I see some crazy numbers on AirDNA - is that an accurate gage of revenue potential?
I would love to connect with anyone thinking about similar investment strategies, realtors, or experts in the area.
Thank you and looking forward to connecting!
Ilgaz
Hi @Ilgaz Arikan. Similar to what @Ryan Luby said, I have absolutely no personal experience in short term rentals, as of right now. I do have colleagues and friends that own some in and around Connecticut though. So for what it's worth, I'd be happy to share what I know with you from what I've learned from them.
Past that, I am a buy&hold investor focused in the central CT markets, and also flip properties as well. I'm currently house hacking in Meriden, CT to top it off (which I find to be a fantastic buy&hold market, but likely not a fantastic STR market). Ryan Luby is a great resource for the southern markets around New Haven. If you're looking for any insight in other areas to broaden your knowledge of the state, please don't hesitate to reach out to me.
Str, assuming it means Short Term Rental, is an airb*b type thing.
Ltr, or assuming Long Term Rental, is providing housing for people.
Much success.
Bob
@Ilgaz Arikan to start I have zero experience with short term stuff so I can't speak on it other than knowing its extremely market dependent due to municipality guidelines for short term rentals. You would have to talk to someone who's extremely familiar with this approach and find towns with favorable laws before starting.
Other than that, I live and invest in New Haven county and host a monthly meet-up in New Haven for investors.
I would be happy to talk & help anyway I can, I'm a licensed contractor & realtor, currently helping a couple other investors find properties in New Haven for traditional buy & hold investing
Best,
Ryan
Hi @Ilgaz Arikan. Similar to what @Ryan Luby said, I have absolutely no personal experience in short term rentals, as of right now. I do have colleagues and friends that own some in and around Connecticut though. So for what it's worth, I'd be happy to share what I know with you from what I've learned from them.
Past that, I am a buy&hold investor focused in the central CT markets, and also flip properties as well. I'm currently house hacking in Meriden, CT to top it off (which I find to be a fantastic buy&hold market, but likely not a fantastic STR market). Ryan Luby is a great resource for the southern markets around New Haven. If you're looking for any insight in other areas to broaden your knowledge of the state, please don't hesitate to reach out to me.
You need to decide which you prefer. STRs will provide a much higher return, but require more periodic maintenance of course. This is not necessarily a negative since you will have a house that is always in perfect condition with few surprises in terms of maintenance. I do and have done both and find the STRs much better, not just because of the money.
Of course with STRs you are much more limited in choice of property when you are purchasing.....it is all about location, even more than traditional RE. Not only the city, but also the specific neighborhood and even the state all come into play.
Another advantage of STRs is that if it doesn't work out as expected, or if you just get tired of them, you can always turn that house into a LTR. You cannot always do that with a LTR.
Welcome to BP @Ilgaz Arikan. STR can work out in eastern CT, but they have to be near the casino and priced competitively when compared to the hotels in the area. As @Ryan Luby and @Ryan Newport mentioned none of the multi family markets in Connecticut are really that great when it comes to STR.
@Michael Noto @Ilgaz Arikan, What I will say though however, is that I do have a couple colleagues that specifically have STR around New Haven targeting travel nurses and transplant patients, and college areas. I think there's definitely value in these niches, but it requires research. But, imagine having a travel nurse rent your air bnb for top dollar for 60-120 days straight, or a transplant patient that is required to be located close to a hospital 90 days prior and 90 after their surgery. They're saving money at your air bnb vs a hotel, and you're definitely getting an extremely high quality "short" term renter. Another important note is that New Haven just recently open up 6 new direct flight routes out of the Tweed Airport to 6 different cities in Florida. I think paying attention to factors like this helps make decisions for STR strategy.
But Michael is definitely correct in a sense that CT is certainly not a vacation destination in nearly any way besides the Casinos.
Hello and welcome to the site. @Francois Martin is very experienced in STR in New London. He is doing them with multi-family properties as well.
I have a few long term multi-family properties. I have thought about trying the STR game, but there seems to be a lot more work that goes into them over the long term or you need to be able to find people who can run all the systems for you.
@Ilgaz Arikan welcome! I too am a long term buy and hold investor in CT. I currently househack in Manchester and am working on putting a few others under contract. I know of folks who have LTRs near bodies of water (Mystic, Goshen etc) and I've looked into it but not nearly enough to provide any sort of advice. Like others have said, you'd need to check out the municipal laws and run your numbers to make a determination about the viability of an STR in that space. If you'd like to talk about long term rentals I'm happy to help! @Ryan Luby hosts a great new haven meet up as well. Hope this helps!
@Ilgaz Arikan I know STRs have higher returns in the near-term, but my suspicion is that those returns will decline over time as competition increases, like with any investment vehicle.
The questions that you should ask arewhether you can establish a competitive edge as a STR operator, or if the property can be useful as either STR or LTR (once STR market is saturated you may convert to LTR). If the answers are No, then that would suggest that LTR is likely a better path for you to take.
Thanks everyone for the thoughtful responses and ideas. It is inspiring to hear others are doing this in CT, but it seems the location is super important and property management/processes need to be thought through. I am still in the learning process, so your insights are super helpful. I appreciate the welcome and support from the community.
@Ilgaz Arikan are you looking to run a business that you are always either on call or is not profitable or are you looking for passive income or something in the middle. If you want passive once you find a team than you need a great management company either for STR or LTR. If you want in the middle than self management of LTR in a C+ or higher area is probably the option. If you want to do a short term rental you are starting an active business and if done correctly you will make much more money but depending on your skill and the systems you create and master the work to extra income may be less than a different job or business and you need to look at work seasonality and risk not just one aspect. I have a mainly STR portfolio but we started a management company that has a half dozen full or close to full time workers because we felt that at the time the 3 STR's we had was so much work we needed to either go bigger and outsource or stop because it was driving us crazy we also have basically 90+ percent occupancy year round and have check in's and outs basically every day. STR's or more like a restaurant business than a LTR if you are really getting the top profit. I also have a few LTR's with a management company and they have been very solid for around 10% CoC and have also had a ton of appreciation. They have been almost completely passive.
@Ilgaz Arikan
Str are much more labor intensive as ypu have to book constantly, as well as provide a fully furnished house and clean between every guest. Ltr are fairly easy as you can rent for a year and only really need to stay up on general maintanence.
The plus for str is you should make more money. If you are not, then you are doing something wrong.
Ltr are fairly easy as you can rent for a year and only really need to stay up on general maintanence.
This is a common belief....but the overlooked factor is that with a LTR, your tenants (even the good ones) will not pay attention to the routine maintenance. Little leaks will not be reported, slightly malfunctioning systems will not be noticed, you don't get to put your eyes on the property more than once or twice a year. Plus when they move out every year or so, you are automatically painting, carpeting, fixing holes in drywall...etc...
Contrast that with a quick cleaning once or twice a week. My wife and I do our own cleaning and it takes an average of 45 minutes each time to make the place perfect. And I can look over all systems as much as is indicated.
I bet if you figure out the time and $$ spent on an average LTR turn-around, it almost equals out when you look at all of these factors......
Plus you get the 3 - 5 times income from a well run STR.... :-)
Ltr are fairly easy as you can rent for a year and only really need to stay up on general maintanence.
This is a common belief....but the overlooked factor is that with a LTR, your tenants (even the good ones) will not pay attention to the routine maintenance. Little leaks will not be reported, slightly malfunctioning systems will not be noticed, you don't get to put your eyes on the property more than once or twice a year. Plus when they move out every year or so, you are automatically painting, carpeting, fixing holes in drywall...etc...
Contrast that with a quick cleaning once or twice a week. My wife and I do our own cleaning and it takes an average of 45 minutes each time to make the place perfect. And I can look over all systems as much as is indicated.
I bet if you figure out the time and $$ spent on an average LTR turn-around, it almost equals out when you look at all of these factors......
Plus you get the 3 - 5 times income from a well run STR.... :-)
I have not done any STR, but my LTR are fairly hands off. Sure there are maintanence issues and capital repairs, same as there are with STR. But, the main difference I see is I average about 2.5 years per tenant vs a weekly (my perception) STR. So I may have to clean a property every 2.5 years on average. My turnaround per property rarely is more involved than me doing touch ups and spot cleaning. I will also fix any issues I come across. I would estimate 8 hours for my turnaround after a tenant leaves. So we both have similar maintenance issues, but my lease turnover is maybe every 2.5 years. Also, I have no cleaning or utilities during the time a tenant lives in the property. So yes, STR should be more profitable, but you also have to keep it rented and fully stocked. Just my perception.
I have not done any STR, but my LTR are fairly hands off. Sure there are maintanence issues and capital repairs, same as there are with STR. But, the main difference I see is I average about 2.5 years per tenant vs a weekly (my perception) STR. So I may have to clean a property every 2.5 years on average. My turnaround per property rarely is more involved than me doing touch ups and spot cleaning. I will also fix any issues I come across. I would estimate 8 hours for my turnaround after a tenant leaves. So we both have similar maintenance issues, but my lease turnover is maybe every 2.5 years. Also, I have no cleaning or utilities during the time a tenant lives in the property. So yes, STR should be more profitable, but you also have to keep it rented and fully stocked. Just my perception.
It sounds like you have a well run operation. I was thinking tenant turnover once a year and a week-long+ fixer-upper period. If I could guarantee your results it might be different....but now that I'm spoiled by STRs it's too late :-)
"I'm curious about both STR and long term rental properties. Is there a general consensus on STR vs long term rentals for first time investors? Is the learning curve steep for STR as a first property in terms of property management? How do you decide between doing STR vs long term? Would it make sense to use a multi-family to have both long and short term tenants in different units? I see some crazy numbers on AirDNA - is that an accurate gage of revenue potential?"
So I am an investor here in Connecticut. Short-term rentals are a more active business model than long-term rentals. Long-term rentals are a business that is easier to place with property management and is more passive. Truly excellent Property Management of Short Term rentals is something which is a totally different beast. They need to constantly price adjust, field calls from tenants, rush fix issues, and turn over cleanings between guests. Can this be done remotely or passively- yes but not at scale. AirDNA is a great data resource but you must also peel the onion. The dataset is three correlated but different factors: the property location, the property amenity, and the host factored against seasonality and tourism. So a great house with a hot tub, with a crappy host will not be shown to clients or booked as much (remember AirBnB favors good ratings- it is an echo chamber).
I currently have/co-own about 51 units (selling/buying) all are long-term. I am totally beginning to diversify to add short terms to the mix, but with totally different property management. My goal is stable cash flow, with reserves, and seasonal cash flow which has the LTR underneath as a safety net.
Please let me know if that makes sense to you.
@William Collins thanks for your thoughtful reply. Based on these responses, I am understanding that the management of a STR is a serious time commitment/should not be underestimated. In terms of my realistic personal bandwidth over the next 3-5 years, LTR may be a better fit for my lifestyle. I work a fairly demanding W2 and will continue to do so in the near term, so I think LTR is the way to go as it is more passive. STRs just look so attractive based on those numbers...
@Ilgaz Arikan I am mainly saying that short-term rentals may force you into property management faster, and still could have better numbers. The margin for getting it right is smaller than LTR. Short-term rentals have a greater amount of moving parts and more real-time demands. But this may be an equation of "Who not how". You may just need to solve for that management aspect first.