Need Help Calculating Short Term vs Long Term Rental Return

5 Replies

Hello,

I currently own a vacation home in Phoenix that I use mostly use for personal enjoyment, but I also do to short term rentals (STR) through AirBnB and VRBO to offset some of the costs.

Since I use my home mostly for enjoyment and sometimes do STR, I am trying to determine the return calculation comparison between a LTR (long term rental) and STR. Here are the current numbers:

- Purchase price of 340k in December 2016

- Not sure if this is relevant, but I put 10% down and have a 30 year fixed at 3.5%

- Utilities (electricity, gas, water, internet) have averaged $3627 / year for the last 2 years

- Pool cleaning $ 1000 / year

- Lawn care $ 1200 / year

- Property Tax $1450 / year (2018)

- Mortgage interest $6900 (2018)

- PMI $638 (2018)

I guess I am trying to decide how much I would need to earn per year doing STR vs LTR 'and' which is a better investment based upon the above numbers. (I believe that following the 1% rule, in order for it to be a good investment, I would need to generate $3400 / month). If it is determined that an unfurnished, LTR is a good (or better) investment than a STR, I could do a LTR on my existing home and then purchase a new vacation home if the numbers made sense. The utilities, and possibly the pool cleaning and lawn care could be removed from the list of annual expenses if doing a long term rental. Hopefully all of this makes sense?

Thanks in advance!

You'd be hard pressed to achieve the 1% rule in this case on an LTR basis. There is greater risk in the STR side but the Phoenix market is good if your location is right. We're experiencing fantastic success with two STR condos near Old town.

Thanks for this... Yep, I think the 1% rule is hard to achieve from a very high level LTR, so that is why I'm trying to figure out which is the better investment and how much I would need to earn in each scenario (STR vs LTR).

Where in town is the property located? - This has a big factor on STR potential, and obviously also on long term rentability and rent rates.

How much success have you had operating it as a STR thus far? You should be able to extrapolate what a full year of STR profit/loss would look like based on your previous vacancy rate and average nightly rate.

Thank you @Jon Crosby and @Ryan Swan.... I'm not necessarily looking to figure out how much my can rent for at this point (either STR or LTR) as I already have a decent idea based on Zillow data sets, etc. I am looking more to take all of the existing numbers (expenses) and then go in reverse - that is figure out my expenses if I do STR (which include utilities, mortgage, interest, taxes, pool, lawn) and calculate out how much I would need to bring in, in a year for a good ROI (e.g. maybe from 6% to 10%). Then compare this to LTR which doesn't have utilities (and possibly doesn't have pool and lawn care expenses either) and see how much I would need to bring for a return of 6% to 10%.

I may learn that the LTR monthly rates in my area based on my mortgage costs and expenses don't make sense and I should go the STR route.