Memphis Investors: What Makes a Good Short-Term Rental Deal?

Question

Hey everyone!

I'm a local real estate agent and investor in the Memphis market, and I've noticed what seems to be a growing trend of short-term rentals popping up around the city. It's exciting to see. While Memphis has always been known for Graceland, barbecue, and music, it's traditionally been more of a logistics, healthcare, and transportation hub than a vacation destination. So I'm curious what you all are seeing.

My background is primarily in the BRRRR strategy, multifamily, and long-term buy-and-hold investing. I currently own 8 rental properties and am under contract on my 9th, but I haven't ventured into the short-term rental space yet.

I'd love to hear from those of you who are successfully investing in short-term rentals, especially if you're doing deals in Memphis. Beyond AirDNA, what metrics and assumptions are you using to underwrite these properties? How are you estimating occupancy, nightly rates, seasonality, operating expenses, and maintenance? What variables have you found make or break a deal?

If you've invested in Memphis specifically, I'd love to hear about some real examples of deals you've done, what made them successful, and any mistakes you'd avoid if you were starting over. I'm looking to better understand the strategy so I can help clients who are interested in short-term rentals and potentially purchase one myself in the future.

Looking forward to hearing everyone's thoughts!

Drew Sygit · Answer

Given the market description you just shared, would think that MTR should be fairly easy - and less stressful than STR.

Drew Sygit · Answer

We do MTR, NOT STR, and post on those plus FurnishedFinders.

Just have to put in minimum stays of 30 days to avoid STR Guests.

Ashish Acharya · Answer

@Jordan Ray, With eight properties and a ninth under contract, Jordan, you clearly know how to underwrite a deal, STRs just add a few more variables on top of what you're already doing with BRRRR and buy-and-hold. From a tax side, since you'd be moving from purely long-term rentals into your first STR, the big thing to understand going in is that STR income doesn't automatically get the same passive treatment as your existing portfolio. Whether it lands on Schedule C or E, and whether losses can offset your other income at all, comes down to average guest stay length and your material participation hours, and that's a very different calculation than what you're used to with long-term holds.

Remember, REPS hours have nothing to do with STR treatment. STRs use their own material participation test entirely separate from real estate professional status, so REPS qualification doesn't automatically unlock loss deductions on a new STR, it's tracked on its own.

Since you're already scaled with multiple properties, material participation is worth thinking through carefully before you buy your first STR, the hours you spend on your existing eight properties don't automatically count toward material participation on a new STR, that's tracked property by property or through an election, and getting that wrong is one of the more common mistakes new STR investors make even when they're experienced landlords otherwise. Cost segregation is also worth running the numbers on for an STR purchase specifically, since STRs tend to have more depreciable components (furniture, appliances, short-life items) than a typical long-term rental, and that can meaningfully change the after-tax return on the deal you're underwriting.

Sounds like Memphis is worth watching given what you're seeing locally, and once you've got a target property, running the tax side alongside the AirDNA numbers is worth doing before you commit to make sure the deal actually pencils the way it looks on paper.

Happy to connect!

Jordan Ray · Answer

I would think that too, these guys are posting their properties on AirBnb & VRBO.

Memphis Investors: What Makes a Good Short-Term Rental Deal?

Most Popular Reply