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Investing In STR Real Estate

Mar 23

Thinking about investing in STR Real Estate? First, STR simply means short-term rental. While it used to be a small niche investment, now it has become a competitive industry that will only continue to grow over the next decade. Airbnb, VRBO, Vacasa are a few of the bigger names in the industry that created a marketplace for short-term rentals to be booked by guests. These have started to overtake hotels as the preferred lodging option for tourists, business travel, and month-long stays.

While even just a few years ago, starting an Airbnb business was essentially a license to print money; this has changed immensely with the increase in competition and the increase in real estate prices. While bland STR properties were once commonplace, over the next 5-10 years owning a generic Airbnb will result in a negative investment.

Below are the necessary actions to take to make sure you are prepared for owning profitable STR real estate.


1. Identifying your objectives

First, ask yourself “Why do you want to get into the business” understanding it may be a combination of these.


This will help you determine the best location or locations for your future STR properties. If you are looking for a vacation home or future retirement home, location is going to be more important than ROI. However, if you’re primary goal is to make it a business, then ROI will be more important than location.


2. Do You Need A Realtor?

The problem with hiring a realtor when buying property is two-fold. the first issue is that realtors are location-based so if you aren’t tied to a location you would then need dozens or even hundreds of agents looking at properties in different locations. The second issue is that the majority of agents have no understanding of STR properties and the principles needed to make a good home a strong rental.

Now in certain high-volume areas of short-term rentals, there are realtors with this knowledge because they are investors themselves. If you decide you know the exact location you want to invest in and there are agents in that location that have extensive knowledge of STRs (i.e. investors themselves), then you can rely on them.

There is no such thing as a certified vacation rental agent. Anyone who states this is claiming to have been certified with a program that isn’t accredited by any state or realtor association and should be taken with a grain of salt or even as a negative point.

The most important thing to know is that you need to be the one with the knowledge required to understand if a property is a good buy or not. Relying on someone who is making a profit from the purchase and not the long-term success of the property is never a good idea.

3. Research Local Laws and Sentiment

Local laws are constantly changing and this is a serious problem for the STR community. Some states are short-term rental friendly like Florida. The Florida state legislature previously passed a law that prohibits any additional regulations against STR properties. However, previous local regulations were grandfathered in. This means that cities like Orlando are still able to restrict Airbnb because they had laws on the book before. However, in locations without current laws; it gives STR investors future safety.

So research the local municipal laws and state laws, some cities will restrict STRs from operating entirely and some may just require a permit to be issued. This will help you identify the best areas to invest

The final thing to consider is the local sentiment on short-term rentals. Look at recent news of Airbnb protests or local city council meetings in the area to make sure there isn’t an effort to restrict STRs.


4. New or Existing STR property?

Now you need to decide if you want to purchase an existing STR or if you want to start from scratch. There are many benefits to both paths. Buying an existing one could result in getting future bookings, but understand that Airbnb makes this difficult, and full cancellation of old bookings is required. Coordination with the seller to communicate with current reservation holders and you emailing them encouraging them to rebook the listings are all important.


5. Understand the Capital Costs

Having a planned theme or decor style for the house is essential and understanding that you will have these capital costs for furnishings is important unless it comes furnished. You need to calculate the expected cost of furniture for the house after you decide on the theme. Remember bland won’t cut it anymore. You can’t just grab a couch from Goodwill, through it in the house, and expect to make money. You will fail without a plan of action.


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