Long vs short term rental in Texas?

Question

Hi everyone, I’m looking for perspective as my wife and I weigh two options: kick-off our real estate investing with long-term rentals or short-term rentals.

I’m open to other suggestions, but I've tried to narrow our focus, and these seem to be in line with our interests and goals.

1. Short-term rentals: Start with vacation properties we’d use ourselves, maybe Marble Falls or Canyon Lake, and build the property as a destination (like my friend Mike Elefante has done). The value I see here is the potential for greater cashflow, and a property we can use ourselves. Possible downsides include putting all of our initial investment into a single property, we might not be able to find a property in our price-range, and taking a bit of a gamble on occupancy.

2. Long-term rentals: Someplace like San Antonio where we could purchase a handful of mid $100k homes in quick succession. Pros I see are securing a long-term renter, the potential for buying several properties in (relatively) quick succession, and spreading our investment. Possible cons are smaller cashflow potential, and the double-edge sword of dealing with a single renter.

We live in Dripping Springs just outside of Austin, TX and both work remotely from home. Our goal is financial freedom and ultimately independent wealth so we can travel freely as a family.

We do not have a team yet, and we’ll be starting with at least $65k cash to pursue loans. I have an LLC from another venture that never took off that we plan to fold everything under down the road.

I appreciate any help and thoughts you may have.

Ryan Kelly · Answer

@Michael Lynn As @Rob Lee suggested, both are very viable plans. I would also look at Bell County to the north for long-term rentals in markets like Harker Heights, Belton, and Temple. Very affordable and a steady employment base. Isn't AS crazy as the major metros, but good properties are still getting multiple offers. The lakes won't be cheap if it's a great property with a view, but they should have a solid short-term rental base nearly year-round.

Rob Lee · Answer

Both are great ideas. If you know that you want to own multiple properties start with #2. The Austin and DFW markets are on fire. The competition for "starter" homes is crazy. Out of state investors are running up the housing prices. If it hasn't reached San Antonio yet I can't imagine that you have long to get in front of it. Best of luck in your decision-making process.

Michael Lynn · Answer

@Rob Lee & @Ryan Kelly thank you both for your input.

I'm leaning heavily toward short-term simply because it's something I'm more excited about, and the prospect of using it ourselves now and again is huge. Now to dig into what options exist there.