10 Things To Consider Before Investing In STR Real Estate

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, and 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 travelers, 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.

  • Are you hoping to cover the cost of a vacation home for you to enjoy for a few weeks or weekends a year?
  • Are you looking to finance your future retirement home?
  • An investor looking to own multiple short-term rentals?

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. See more about this topic here.

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.

6. Get the Data

Now we need to get the data for a select home or area and the best way to start is to do this on AirDNA with their Rentalizer. This will give you a baseline and then you can even further validate that data by researching on Airbnb and VRBO to pin down the Nightly Rates.

Understand that AirDNA will give averages, some properties will do much more and some much less and that is highly dependent on the type of property you select and your theme.

What AirDNA will Give You For Free?

  • Annual Revenue
  • Average Daily Rate
  • Occupancy Rate

What AirDNA will Give You For A Fee?

  • Seasonal Revenue Forecast
  • Revenue History
  • Comparison Properties

7. Run the Numbers

No matter what your goal is, you have to run the numbers to make sure you aren’t buying a money pit. Understanding you’ll have future repair costs in addition to normal operational costs. Look for updates here for a full calculator.

8. Time To Buy

You selected your area, ran your numbers, identified the property, and now you need to put the offer in. The market is super competitive now so make sure you act fast and make a good offer. Understand if you don’t have a Realtor you have an advantage by saving the seller money on commission. So make sure in the details of the contract you put that you don’t have a realtor and request normal buyers agent commission be refunded to the seller.

Once you have the property under contract, get an inspection done and negotiate any repairs that are needed.

Start preparing for your after-closing action. Don’t wait until closing to get working on everything. Have a plan in place to not waste time between closing and having the property on Airbnb or VRBO.

9. Marketing

Many people believe that there isn’t any marketing for properties on Airbnb and VRBO but this is the furthest from the truth for successful businesses.

You need to have all the social media accounts including a Facebook Page, Youtube, and Instagram. Having eye-catching decor and games in your property can help get guests to post about your STR and tag your account.

You need to make sure your Airbnb and VRBO listings are optimized for the best chance to be seen by potential guests. You can do this yourself and play with it or can use a service like RankBreeze to help understand what should be in your listing.

Also having a separate website is smart so that you can start gaining guests from their google searches. Optimizing your pages for what people search for on google, can get people to come to you before they even search the short-term rental marketplaces. You can also use your website to provide more information to potential guests and even make additional revenue with affiliate offers and local business sponsors.

10. Get A Mentor

If it’s your first STR real estate purchase and you are concerned at all, consider reaching out and getting a co-host for the first year to help guide you. This will cost a percentage of the booking amount but can help give you a smooth transition and not get negative reviews because it’s your first property. There are many established hosts on Instagram that will do this, so search for these accounts in the area of your property and start reaching out.