Mistakes made... Looking for advice

Member since 2023 · 13 posts · 0 votes

As the title suggests, I can already admit to mistakes for this deal. What I need help with is how to pivot. In March 2022 we bought a 4bd home in Montgomery TX (about 45 min north of Houston). My wife wanted an STR and we were excited about the area. Lake Conroe with yacht club amenities. We did a cash out refi and borrowed $345,000 @ 3.5% to use to buy a house. We have a property manager and the property has generated $24k in rental income for 2023 as of the date of this post. By the time you add our true expenses, like the cash out refi ($1500), landscapers, wifi, utilities, property taxes and insurance we are spending $40k leaving us negative $16k/ yr at this point. We have twice the number of guests YOY so we don't know if we should just stay the course or cut bait and invest elsewhere. Property values have come down about 10% which means by the time we pay commissions to realtors we will likely lose between 50k-70k on this property. Solutions we have considered are changing to LTR, selling and investing elsewhere, continue to STR and market the property more. What would you do?

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

I have had 2 STRs/MTRs for many years (since 1999) that have always performed except for the Covid year and last year due to a rehab gone bad.

So we decided to start 2 addition STRs last year. Neither of them have the gross that they would have as a LTR and both have negative cash flow.

This year, one of the 2 long time STRs did not get selected in the STR lottery in spite of being an STR under same ownership since 1999. It was converted to MTR at the same time as ~200 other units in the small community (Mission Beach) that also did not get selected in the STR lottery. I rented it as a furnished rental for less than I would have got as an unfurnished rental.

The other unit that has always performed also has reduced occupancy and gross compared to normal. The occupancy numbers are high for most areas but in 2019 this unit had 95% occupancy. This year it is ~75% occupancy and was taken off market 3 times (2 sewer pipe leaks and a new roof) so the occupancy is artificially reduced from the 3 times taken off market. I suspect without being removed from market it would have occupancy in the low to mid 80s and may have had some small positive cash flow.

None of the 4 units have positive cash flow, but this is in large part to extracting equity via refinances in Dec 2021 (so they are all near 80% LTV).

I point out these struggles to show that even a long time successful STR owner can struggle. I am unsure that the 2 new STR units are good STR units (not special enough location and very high LTR rents - market LTR rent in these units is ~$4.5k).

I possibly would let these ride indefinitely as I have rentals to offset these, but the wife probably will want to use the resource/units to optimize profit and it is unclear that the STR/MTR option is optimal on 3 of the units.

If I were you I would try to ride out the government attempt to slow the economy and hope this results in both higher rates and higher occupancy.

Good luck

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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
2y
@Sean Taylor
I'd cut bait and invest in good cash flowing properties. Your property is a liability with negative cash flow even if you're adding more guests year over year. I'm in TX too and target C+ class SFR within 15-20 min of downtown. I put 20% down on cash flowing properties that are appreciating better than nicer homes due to the demand and low inventory. Your ROI and appreciation will be much better in this class property over time in TX. Plus you'll have almost zero turnovers bc this class tenant most likely won't ever afford to buy so they'll be with you forever which makes it very passive compared to what you're doing. Good luck.
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Zane Cress
Realtor · Athens, GA · Member since 2023 · 201 posts · 104 votes
2y
Have you factored in your depreciation benefits? Maybe that will help you on the tax side to break even this year. Losing 50k+ on selling does not sound like a good plan to me. Where can you go that any cash flow will make up for that loss in a reasonable amount of time? That's easily a 10 year return on a cash flow deal these days due to current rates. Maybe look for ways to trim costs, especially in the slow season, or add some unique items to the property to engage more nights booked. Understanding your target customer in STR is critical and then catering to them. If this area is likely to go up in value again due to it's location and features then you will make the money back over time. If you can afford to feed it for a while then it will probably be worth it.
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Sean Taylor
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Member since 2023 · 13 posts · 0 votes
2y
Quote from @John Morgan:

@Sean Taylor
I'd cut bait and invest in good cash flowing properties. Your property is a liability with negative cash flow even if you're adding more guests year over year. I'm in TX too and target C+ class SFR within 15-20 min of downtown. I put 20% down on cash flowing properties that are appreciating better than nicer homes due to the demand and low inventory. Your ROI and appreciation will be much better in this class property over time in TX. Plus you'll have almost zero turnovers bc this class tenant most likely won't ever afford to buy so they'll be with you forever which makes it very passive compared to what you're doing. Good luck.
If we go sfr assuming $300k purchase price with 20%($60k)down @7.8% interest, our expenses would total over $2100/mo. The median rent on a 3x2 just outside Houston city limits is under $1900/mo. This still leaves us negative. What am I missing or not taking into consideration?
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Sean HudginsPro Member
Real Estate Agent · Chesapeake Va · Member since 2019 · 150 posts · 100 votes
2y
What would the situation look like if you were to LTR the property? Would the property cash flow or break even as LTR?
Is your STR performing better, worse, or the same as the other local STRs? If it performs at or better than the average, then it's time to change strategy. If it is underperforming, what can you change to increase bookings, average? Daily rate, etc.
I suggest sharing the link to the AirBNB listing and getting some feedback from some of the pros here on what you can improve to increase your revenue.
I suggest getting all the numbers together for LTR and seeing what you can improve before you jump ship. Try to break down each scenario here as detailed as possible, and I'm sure you will get some sage advice on what to do. Welcome to the forum; hopefully, the great people here can help.
[email protected]757-844-8215
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Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Zane Cress:

Have you factored in your depreciation benefits? Maybe that will help you on the tax side to break even this year. Losing 50k+ on selling does not sound like a good plan to me. Where can you go that any cash flow will make up for that loss in a reasonable amount of time? That's easily a 10 year return on a cash flow deal these days due to current rates. Maybe look for ways to trim costs, especially in the slow season, or add some unique items to the property to engage more nights booked. Understanding your target customer in STR is critical and then catering to them. If this area is likely to go up in value again due to it's location and features then you will make the money back over time. If you can afford to feed it for a while then it will probably be worth it.
Thank you for your opinion. The property earned $9k from June through December 2022, $24k for 10 months in 2023 and we have $3k booked in advance for 2024. If the trend line continues then we could break even in 2024 and look forward to potential profits in 2025.
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Konstantin GinzburgPro Member
Member since 2021 · 376 posts · 242 votes
2y
@Sean Taylor
I think a little more information would help us be able to give you advice. What is your occupancy rate at this property? What is your monthly revenue when you using an STR model vs if you switch to a LTR or MTR model? What is your expect profit/is there any profit to be made if you switch from STR to LTR? If your occupancy rate is not too high at the moment and you believe you can attract more visitors than sticking with an STR model and attempting to improve your marketing would be a good strategy to try. If you think that travel demand to that area is waning or the market is becoming saturated; leading to more competition then you likely have two options. Switch to LTR as you have suggested or find a way to out compete the other STRs in your area. Various things such as offering additional amenities, having better photographs, better marketing, or competition based on price can help you become more competitive compared with the other properties. I would look into those ideas prior to selling if you anticipate selling at that large a loss.
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Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Konstantin Ginzburg:

@Sean Taylor
I think a little more information would help us be able to give you advice. What is your occupancy rate at this property? What is your monthly revenue when you using an STR model vs if you switch to a LTR or MTR model? What is your expect profit/is there any profit to be made if you switch from STR to LTR? If your occupancy rate is not too high at the moment and you believe you can attract more visitors than sticking with an STR model and attempting to improve your marketing would be a good strategy to try. If you think that travel demand to that area is waning or the market is becoming saturated; leading to more competition then you likely have two options. Switch to LTR as you have suggested or find a way to out compete the other STRs in your area. Various things such as offering additional amenities, having better photographs, better marketing, or competition based on price can help you become more competitive compared with the other properties. I would look into those ideas prior to selling if you anticipate selling at that large a loss.

Thank you very much for your post. Currently our occupancy rate is 40%. If we STR then the annual rents would be approx the same. 2k/mo x 12= $24k for both STR and LTR but our other expenses like utilities and insurance would be half of today's cost. 8k vs 16k. The property has professional photos and a star rating of 4.92 from our guests. We are careful not to price too aggressively because we don't want to attract the "party" guests. I appreciate your perspective.
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
2y
Quote from @Sean Taylor:

Quote from @John Morgan:

@Sean Taylor
I'd cut bait and invest in good cash flowing properties. Your property is a liability with negative cash flow even if you're adding more guests year over year. I'm in TX too and target C+ class SFR within 15-20 min of downtown. I put 20% down on cash flowing properties that are appreciating better than nicer homes due to the demand and low inventory. Your ROI and appreciation will be much better in this class property over time in TX. Plus you'll have almost zero turnovers bc this class tenant most likely won't ever afford to buy so they'll be with you forever which makes it very passive compared to what you're doing. Good luck.
If we go sfr assuming $300k purchase price with 20%($60k)down @7.8% interest, our expenses would total over $2100/mo. The median rent on a 3x2 just outside Houston city limits is under $1900/mo. This still leaves us negative. What am I missing or not taking into consideration?
I target 200k homes in the DFW area that rent for around 2k. I don’t know your area, but I would lower your price point.
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Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @John Morgan:

Quote from @Sean Taylor:

Quote from @John Morgan:

@Sean Taylor
I'd cut bait and invest in good cash flowing properties. Your property is a liability with negative cash flow even if you're adding more guests year over year. I'm in TX too and target C+ class SFR within 15-20 min of downtown. I put 20% down on cash flowing properties that are appreciating better than nicer homes due to the demand and low inventory. Your ROI and appreciation will be much better in this class property over time in TX. Plus you'll have almost zero turnovers bc this class tenant most likely won't ever afford to buy so they'll be with you forever which makes it very passive compared to what you're doing. Good luck.
If we go sfr assuming $300k purchase price with 20%($60k)down @7.8% interest, our expenses would total over $2100/mo. The median rent on a 3x2 just outside Houston city limits is under $1900/mo. This still leaves us negative. What am I missing or not taking into consideration?
I target 200k homes in the DFW area that rent for around 2k. I don’t know your area, but I would lower your price point.

Thanks John. Great advice. The property is in Montgomery.
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Bonnie LowPro Member
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
2y
Mistakes happen to every investor, but it seems like you still have some options and that's the beauty of real estate. Selling at a loss would be my option of last resort at that interest rate. Especially since it sounds like you must have some resources that are allowing you to currently manage negative cash flow and potentiallyhold out until 2025 as you mentioned in a reply. The things that jump out at me are : when you say you had "rental income" of $24k is this net or gross? I'm assuming it's gross since you're operating at a loss. If it's gross, that's not great. I'd start by firing your property manager and taking over property management yourself. It's not hard and you're most likely giving away a substantial amount of your income and it's rare that a PM will manage your property with more attention to detail and dedication to a healthy bottom than you could muster up yourself - particularly since most of them get paid right off the top, not off the bottom line. If your numbers are up YOY, it indicates your have a good and desirable property so it's likely not the property itself that is the problem. You might post a link to the property here so people can give you some constructive suggestions about how it could be better.
You might also look at the MTR strategy and market your property to insurance placement agencies that are helping to provide temporary accommodations for families that have had some type of damage claims to their own properties. Not sure how viable this is in your area, but a 4/2 is the type of property that tends to be in high demand and low inventory for insurance placements.
[email protected]
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Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Bonnie Low:

Mistakes happen to every investor, but it seems like you still have some options and that's the beauty of real estate. Selling at a loss would be my option of last resort at that interest rate. Especially since it sounds like you must have some resources that are allowing you to currently manage negative cash flow and potentiallyhold out until 2025 as you mentioned in a reply. The things that jump out at me are : when you say you had "rental income" of $24k is this net or gross? I'm assuming it's gross since you're operating at a loss. If it's gross, that's not great. I'd start by firing your property manager and taking over property management yourself. It's not hard and you're most likely giving away a substantial amount of your income and it's rare that a PM will manage your property with more attention to detail and dedication to a healthy bottom than you could muster up yourself - particularly since most of them get paid right off the top, not off the bottom line. If your numbers are up YOY, it indicates your have a good and desirable property so it's likely not the property itself that is the problem. You might post a link to the property here so people can give you some constructive suggestions about how it could be better.
You might also look at the MTR strategy and market your property to insurance placement agencies that are helping to provide temporary accommodations for families that have had some type of damage claims to their own properties. Not sure how viable this is in your area, but a 4/2 is the type of property that tends to be in high demand and low inventory for insurance placements.

Thank you for your input Bonnie. Yes the income is gross. It wouldn't be feasible for me to manage the property due to my schedule or interest level. We can continue to operate at a loss indefinitely but that obviously isn't the goal. I will start investigating the MTL option. Here is a link to our home. https://air.tl/gy6ArVJk
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
@Sean Taylor
Your property manager is killing your profits.
Take over the management as this is likely costing 20% to 30%.
The tools that Vrbo and Airbnb provide make it pretty easy to self manage.
Get a great cleaning crew and a handyman and you'll be set.
2 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @John Underwood:

@Sean Taylor
Your property manager is killing your profits.
Take over the management as this is likely costing 20% to 30%.
The tools that Vrbo and Airbnb provide make it pretty easy to self manage.
Get a great cleaning crew and a handyman and you'll be set.
Thank you John. I appreciate your advice.
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Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
2y
Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Logical Property Management4.9453 Reviews
Website View Page
1 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Michael Smythe:

Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Thank you Michael for your response. We are committed to real estate investing and admittedly are new and unexperienced. Our hope is that those more experienced than we are would be willing to share advice based on our specifc set of facts. We knew that the STR would take some time to gain traction and can see the YOY growth after 2 years. We don't have to sell and don't need the money. We wonder if we are missing something. This was why we reached out seeking advice from those who have knowledge and experience.
0 Reply
Bonnie LowPro Member
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
2y
Quote from @Sean Taylor:

Quote from @Bonnie Low:

Mistakes happen to every investor, but it seems like you still have some options and that's the beauty of real estate. Selling at a loss would be my option of last resort at that interest rate. Especially since it sounds like you must have some resources that are allowing you to currently manage negative cash flow and potentiallyhold out until 2025 as you mentioned in a reply. The things that jump out at me are : when you say you had "rental income" of $24k is this net or gross? I'm assuming it's gross since you're operating at a loss. If it's gross, that's not great. I'd start by firing your property manager and taking over property management yourself. It's not hard and you're most likely giving away a substantial amount of your income and it's rare that a PM will manage your property with more attention to detail and dedication to a healthy bottom than you could muster up yourself - particularly since most of them get paid right off the top, not off the bottom line. If your numbers are up YOY, it indicates your have a good and desirable property so it's likely not the property itself that is the problem. You might post a link to the property here so people can give you some constructive suggestions about how it could be better.
You might also look at the MTR strategy and market your property to insurance placement agencies that are helping to provide temporary accommodations for families that have had some type of damage claims to their own properties. Not sure how viable this is in your area, but a 4/2 is the type of property that tends to be in high demand and low inventory for insurance placements.

Thank you for your input Bonnie. Yes the income is gross. It wouldn't be feasible for me to manage the property due to my schedule or interest level. We can continue to operate at a loss indefinitely but that obviously isn't the goal. I will start investigating the MTL option. Here is a link to our home. https://air.tl/gy6ArVJk

Your property is lovely and your guests had nothing but great things to say about it. I'm curious why value and location were given lower scores overall since no one mentioned either in the reviews, but guests can be fickle and it's not hurting your overall ratings that much. The only recommendations I could think of to make your property stand out more (and these are pretty minor things) is to add a really nice coffee bar setup and to better outfit your kitchen. Guests love a good coffee bar and you've got the room in your kitchen to do it. It doesn't have to break the bank but it does add a lot of charm and convenience and photographs well. Put in a couple of different coffee making options (drip, pour over, french press, grinder, maybe an inexpensive milk foamer). Sometimes it's little features like this that make you stand out from every other property when guests get scroll fatigue looking at listings. And then I'd beef up the kitchen supplies. Your assortment of dishware, cutlery, utensils and small appliances looks pretty sparse for such a big home. I'm happy to share a link to one of my kitchens for you so you can get an idea of what I mean by well stocked. Maybe you DO have more and it's just not showing in your pictures. Let me know if you'd like to see some photos. Other than that, your property looks great. If you're not going to switch to self managing have you considered finding a co-host? They can typically save you considerably on management fees. I know people who co-host for 15% of revenues. This might help you close the gap a bit and co-hosts often are very motivated to do the job well. Hope this helps!
[email protected]
1 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Bonnie Low:

Quote from @Sean Taylor:

Quote from @Bonnie Low:

Mistakes happen to every investor, but it seems like you still have some options and that's the beauty of real estate. Selling at a loss would be my option of last resort at that interest rate. Especially since it sounds like you must have some resources that are allowing you to currently manage negative cash flow and potentiallyhold out until 2025 as you mentioned in a reply. The things that jump out at me are : when you say you had "rental income" of $24k is this net or gross? I'm assuming it's gross since you're operating at a loss. If it's gross, that's not great. I'd start by firing your property manager and taking over property management yourself. It's not hard and you're most likely giving away a substantial amount of your income and it's rare that a PM will manage your property with more attention to detail and dedication to a healthy bottom than you could muster up yourself - particularly since most of them get paid right off the top, not off the bottom line. If your numbers are up YOY, it indicates your have a good and desirable property so it's likely not the property itself that is the problem. You might post a link to the property here so people can give you some constructive suggestions about how it could be better.
You might also look at the MTR strategy and market your property to insurance placement agencies that are helping to provide temporary accommodations for families that have had some type of damage claims to their own properties. Not sure how viable this is in your area, but a 4/2 is the type of property that tends to be in high demand and low inventory for insurance placements.

Thank you for your input Bonnie. Yes the income is gross. It wouldn't be feasible for me to manage the property due to my schedule or interest level. We can continue to operate at a loss indefinitely but that obviously isn't the goal. I will start investigating the MTL option. Here is a link to our home. https://air.tl/gy6ArVJk

Your property is lovely and your guests had nothing but great things to say about it. I'm curious why value and location were given lower scores overall since no one mentioned either in the reviews, but guests can be fickle and it's not hurting your overall ratings that much. The only recommendations I could think of to make your property stand out more (and these are pretty minor things) is to add a really nice coffee bar setup and to better outfit your kitchen. Guests love a good coffee bar and you've got the room in your kitchen to do it. It doesn't have to break the bank but it does add a lot of charm and convenience and photographs well. Put in a couple of different coffee making options (drip, pour over, french press, grinder, maybe an inexpensive milk foamer). Sometimes it's little features like this that make you stand out from every other property when guests get scroll fatigue looking at listings. And then I'd beef up the kitchen supplies. Your assortment of dishware, cutlery, utensils and small appliances looks pretty sparse for such a big home. I'm happy to share a link to one of my kitchens for you so you can get an idea of what I mean by well stocked. Maybe you DO have more and it's just not showing in your pictures. Let me know if you'd like to see some photos. Other than that, your property looks great. If you're not going to switch to self managing have you considered finding a co-host? They can typically save you considerably on management fees. I know people who co-host for 15% of revenues. This might help you close the gap a bit and co-hosts often are very motivated to do the job well. Hope this helps!

Bonnie, I really appreciate your comments. Yes, I'd love to see an example. Our set is for 12 and it's all Mikasa. Great suggestion with the coffee bar.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Sean Taylor:

Quote from @Michael Smythe:

Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Thank you Michael for your response. We are committed to real estate investing and admittedly are new and unexperienced. Our hope is that those more experienced than we are would be willing to share advice based on our specifc set of facts. We knew that the STR would take some time to gain traction and can see the YOY growth after 2 years. We don't have to sell and don't need the money. We wonder if we are missing something. This was why we reached out seeking advice from those who have knowledge and experience.

Can you rent this as a LTR, through a PM, and sustain the loss for a few years? If not, start to self manage as a STR until you can get yourself to a break even then re-evaluate. If you can survive it, consider this a lesson as you start pursuing investment #2. Lots of people are in your situation, do not fret about it. You will be good. The entire STR industry in the med center, and the people who bought in Sunnyside of Houston are all in this situation.
People did some other things like bought HML flips in Nov 22 and still here in Nov 23 can't push out in the northern heights of Houston. Lots of people bought falling knives, the question is what can you weather.

0 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @V.G Jason:

Quote from @Sean Taylor:

Quote from @Michael Smythe:

Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Thank you Michael for your response. We are committed to real estate investing and admittedly are new and unexperienced. Our hope is that those more experienced than we are would be willing to share advice based on our specifc set of facts. We knew that the STR would take some time to gain traction and can see the YOY growth after 2 years. We don't have to sell and don't need the money. We wonder if we are missing something. This was why we reached out seeking advice from those who have knowledge and experience.
Can you rent this as a LTR, through a PM, and sustain the loss for a few years? If not, start to self manage as a STR until you can get yourself to a break even then re-evaluate. If you can survive it, consider this a lesson as you start pursuing investment #2. Lots of people are in your situation, do not fret about it. You will be good.
Thank you Jason for the words of encouragement. We will get through this. LTR would bring in the same revenue but offer lower expenses by only about 8k. We are looking for the next investment and might consider a LTR in our area.

0 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Sean Taylor:

Quote from @V.G Jason:

Quote from @Sean Taylor:

Quote from @Michael Smythe:

Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Thank you Michael for your response. We are committed to real estate investing and admittedly are new and unexperienced. Our hope is that those more experienced than we are would be willing to share advice based on our specifc set of facts. We knew that the STR would take some time to gain traction and can see the YOY growth after 2 years. We don't have to sell and don't need the money. We wonder if we are missing something. This was why we reached out seeking advice from those who have knowledge and experience.
Can you rent this as a LTR, through a PM, and sustain the loss for a few years? If not, start to self manage as a STR until you can get yourself to a break even then re-evaluate. If you can survive it, consider this a lesson as you start pursuing investment #2. Lots of people are in your situation, do not fret about it. You will be good.
Thank you Jason for the words of encouragement. We will get through this. LTR would bring in the same revenue but offer lower expenses by only about 8k. We are looking for the next investment and might consider a LTR in our area.

You always want to underwrite things as a LTR. Same revenue but 8k less in expenses, seems great. Can you weather that?
Even if you want it to pursue opportunity #2 as a STR or MTR, or whatever. Always underwrite it as a LTR, so you can pivot. It's not just the revenue that'll deter you from keeping it as a STR or MTR, it could be regulation. Need to plan for those obstacles too.
0 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @V.G Jason:

Quote from @Sean Taylor:

Quote from @V.G Jason:

Quote from @Sean Taylor:

Quote from @Michael Smythe:

Real estate has never really been a quick money maker. It usually takes 3-5 years to start making sustainable positive cashflow.
The last 5+ years of low interest rates and the new STR industry have attracted a lot of new investors that really have no clue what they are doing.
Rates are up and the STR industry is maturing and dealing with more regulation.
As Warren Buffet has said, “Only when the tide goes out do you learn who has been swimming naked.”

Suggest you really ask yourselves if you have what it takes to be investors and how committed you are to see the inevitable challenges through.
Thank you Michael for your response. We are committed to real estate investing and admittedly are new and unexperienced. Our hope is that those more experienced than we are would be willing to share advice based on our specifc set of facts. We knew that the STR would take some time to gain traction and can see the YOY growth after 2 years. We don't have to sell and don't need the money. We wonder if we are missing something. This was why we reached out seeking advice from those who have knowledge and experience.
Can you rent this as a LTR, through a PM, and sustain the loss for a few years? If not, start to self manage as a STR until you can get yourself to a break even then re-evaluate. If you can survive it, consider this a lesson as you start pursuing investment #2. Lots of people are in your situation, do not fret about it. You will be good.
Thank you Jason for the words of encouragement. We will get through this. LTR would bring in the same revenue but offer lower expenses by only about 8k. We are looking for the next investment and might consider a LTR in our area.

You always want to underwrite things as a LTR. Same revenue but 8k less in expenses, seems great. Can you weather that?
Even if you want it to pursue opportunity #2 as a STR or MTR, or whatever. Always underwrite it as a LTR, so you can pivot. It's not just the revenue that'll deter you from keeping it as a STR or MTR, it could be regulation. Need to plan for those obstacles too.
Thank you. I will research that a little.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
I have had 2 STRs/MTRs for many years (since 1999) that have always performed except for the Covid year and last year due to a rehab gone bad.
So we decided to start 2 addition STRs last year. Neither of them have the gross that they would have as a LTR and both have negative cash flow.
This year, one of the 2 long time STRs did not get selected in the STR lottery in spite of being an STR under same ownership since 1999. It was converted to MTR at the same time as ~200 other units in the small community (Mission Beach) that also did not get selected in the STR lottery. I rented it as a furnished rental for less than I would have got as an unfurnished rental.
The other unit that has always performed also has reduced occupancy and gross compared to normal. The occupancy numbers are high for most areas but in 2019 this unit had 95% occupancy. This year it is ~75% occupancy and was taken off market 3 times (2 sewer pipe leaks and a new roof) so the occupancy is artificially reduced from the 3 times taken off market. I suspect without being removed from market it would have occupancy in the low to mid 80s and may have had some small positive cash flow.
None of the 4 units have positive cash flow, but this is in large part to extracting equity via refinances in Dec 2021 (so they are all near 80% LTV).
I point out these struggles to show that even a long time successful STR owner can struggle. I am unsure that the 2 new STR units are good STR units (not special enough location and very high LTR rents - market LTR rent in these units is ~$4.5k).
I possibly would let these ride indefinitely as I have rentals to offset these, but the wife probably will want to use the resource/units to optimize profit and it is unclear that the STR/MTR option is optimal on 3 of the units.

If I were you I would try to ride out the government attempt to slow the economy and hope this results in both higher rates and higher occupancy.
Good luck

3 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Dan H.:

I have had 2 STRs/MTRs for many years (since 1999) that have always performed except for the Covid year and last year due to a rehab gone bad.
So we decided to start 2 addition STRs last year. Neither of them have the gross that they would have as a LTR and both have negative cash flow.
This year, one of the 2 long time STRs did not get selected in the STR lottery in spite of being an STR under same ownership since 1999. It was converted to MTR at the same time as ~200 other units in the small community (Mission Beach) that also did not get selected in the STR lottery. I rented it as a furnished rental for less than I would have got as an unfurnished rental.
The other unit that has always performed also has reduced occupancy and gross compared to normal. The occupancy numbers are high for most areas but in 2019 this unit had 95% occupancy. This year it is ~75% occupancy and was taken off market 3 times (2 sewer pipe leaks and a new roof) so the occupancy is artificially reduced from the 3 times taken off market. I suspect without being removed from market it would have occupancy in the low to mid 80s and may have had some small positive cash flow.
None of the 4 units have positive cash flow, but this is in large part to extracting equity via refinances in Dec 2021 (so they are all near 80% LTV).
I point out these struggles to show that even a long time successful STR owner can struggle. I am unsure that the 2 new STR units are good STR units (not special enough location and very high LTR rents - market LTR rent in these units is ~$4.5k).
I possibly would let these ride indefinitely as I have rentals to offset these, but the wife probably will want to use the resource/units to optimize profit and it is unclear that the STR/MTR option is optimal on 3 of the units.

If I were you I would try to ride out the government attempt to slow the economy and hope this results in both higher rates and higher occupancy.
Good luck

Dan, I very much appreciate you sharing your struggles being a seasoned investor. I vote to keep the government out of it all together. I think we'll just stay the course for now and reevaluate in a year or so.
0 Reply
Robert PaynePro Member
Real Estate Agent · Bowling Green, KY · Member since 2023 · 36 posts · 36 votes
2y
I started running an STR in Bowling Green, KY May. My Monthly expenses are about $1400. I self manage and I turn it over if I'm in town. From May til now the house was 80% occupied and I have grossed about $28k. About $4k of that is cleaning fees. I charge significantly less than you do and I don't have problems with parties. There are several tweaks you need to make to improve your gross. I'd be happy to discuss my experience with you, but for now here are a few.
1. Research the pricing of other successful STRs in the area, You don't need to be the cheapest to get booked, but you need to be competitive.
2. Lower your weekday price. You should be aiming to fill as many weekdays as possible to increase your occupancy rate. Of your 40% occupied I bet most of that is weekend only stays. 40% occupied at $250 gets beat by 80% occupied at $160. These are just example numbers, but I am sure you get the point.
3. Add in discounts for longer stays. 15% off of a 1 week stay can make a huge difference in how many 1 week stays you get. I also give a discount for 5+ days. Longer stays are less likely to be partiers. And cleaners will be charging the same whether they were there 2 days or 10.

This is my listing

www.airbnb.com/h/bgky
1 Reply
Sean Taylor
OP
Member since 2023 · 13 posts · 0 votes
2y
Quote from @Robert Payne:

I started running an STR in Bowling Green, KY May. My Monthly expenses are about $1400. I self manage and I turn it over if I'm in town. From May til now the house was 80% occupied and I have grossed about $28k. About $4k of that is cleaning fees. I charge significantly less than you do and I don't have problems with parties. There are several tweaks you need to make to improve your gross. I'd be happy to discuss my experience with you, but for now here are a few.
1. Research the pricing of other successful STRs in the area, You don't need to be the cheapest to get booked, but you need to be competitive.
2. Lower your weekday price. You should be aiming to fill as many weekdays as possible to increase your occupancy rate. Of your 40% occupied I bet most of that is weekend only stays. 40% occupied at $250 gets beat by 80% occupied at $160. These are just example numbers, but I am sure you get the point.
3. Add in discounts for longer stays. 15% off of a 1 week stay can make a huge difference in how many 1 week stays you get. I also give a discount for 5+ days. Longer stays are less likely to be partiers. And cleaners will be charging the same whether they were there 2 days or 10.

This is my listing

www.airbnb.com/h/bgky
I love your advice. Thank you for taking the time. I will connect with my property manager and discuss these options.
0 Reply

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