If you’ve done any research into this segment of investing, the most common cons are that it’s not passive income. These properties are actively managed with constant communication, cleaners in and out every few days and constant marketing to stay fresh and ahead of your competitors. Even though all of those items can be subbed out to companies that specialize in such services, those fees eat away at your profits. Then, there are the obvious start-up costs of furnishing the property and the refreshing of furniture, linens and other necessities every few years. Don’t be too discouraged with the cons because there are some great positives, too! First and foremost is that you can charge more per day than you would in a traditional long-term lease. If you’re charging $2,000/mo ($65/day) for a long-term tenant with an unfurnished house, there is a good chance you’re charging about double that for a short-term. You’re also charging a separate cleaning fee to help offset that cost. Another positive is the ability to make quick market changes. For instance, I live in Raleigh, North Carolina, and every Spring, we have some great festivals that people come into town for. On those weekends, my short-term rental prices increase a good amount simply due to an increase in demand. My current long-term tenants don’t pay more for those weekends. WHEN DOES IT MAKE SENSE TO INVEST IN STRS? The main reason investors dive into STRs is that they can make more. This is not a universal statement. There are many STR owners who probably should turn their homes into long-term, furnished rentals. Remember, you’re not only competing with other STRs in your area, but hotels as well. You need to decide what level of “hotel” you’re operating, what the demand is for that particular segment and whether the numbers make sense. Is your property going to go after the Ritz-Carlton client or the Motel 6? Both are viable business options, but you can’t charge Ritz Carlton prices and deliver Motel 6 amenities. That is a lesson that is hard learned by many novice investors in this space.
YOU CAN’T CHARGE RITZ CARLTON PRICES AND DELIVER MOTEL 6 AMENITIES.
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