If you’ve been paying attention, you’ve been hearing a lot of buzz words. Well, it’s not a buzz word. It’s actually kind of a new thing. Short term rentals or STR’s. They’ve really been picking up a lot of steam recently, especially with the market going crazy. If you’re an active investor, prices are still going up. Interest rates have been going up. And with the advent of things like direct to consumer booking sites like Airbnb, VRBO, it gives the everyday real estate investor another option to consider when trying to find suitable investment strategies and asset classes. So in this video, we’re going to discuss if STR’s are really a viable, sustainable approach to financial freedom and wealth building, or is this just a flash in the pan and a here today gone tomorrow type of fad?
Difference between Short and Long Term Rentals
I’m Jonathan Beasley and my wife and I own a good bit of real estate. If you’ve been watching our YouTube channel much, you see that we’re sort of showing you what we’re building out in live time and kind of give you a behind the scenes look at how we’re doing, what we’re doing. And over the past 12 months, we’ve transitioned some of our portfolio about 13 or 14 units over to short term rentals. And additionally, we own a significant contingent of long term rentals as well. So we’re in the single family space and we’re in the multifamily space and now we’re in the short term rental space as well. So I say all that to say I have my hands in both worlds of long term and short term stuff. And today I feel very comfortable sharing with you what we know about the pros and cons of both asset real estate asset approaches.
So if you stick around with me all the way to the end, I’ll also give you a little sneak peek on what types of properties we’re buying right now and how we’re preparing to ensure that our cash flow is high and our portfolio is diversified in an ever more challenging market, with prices and interest rates continuing to increase. Now let’s get into the good stuff. So how do we know if something is a short term rental or a long term rental? Well, here’s an easy way that you can decipher the two, and it all depends on your tenant base. If you’re going to be renting the property out to a tenant that is on a monthly lease, as in they pay you about the same amount every month, every single month.
And it’s usually for a 12 month period. That’s what we would now consider a long term rental. On the other hand, if you’re renting the property out for an unspecified number of days, the tenant is sort of picking out their days and willing to pay X amount per night.
Those are what we’re calling a short term rental or an STR, because the guest is staying for a shorter period of time. So let’s get into some of those distinctions as it relates to these as an investment strategy. Here’s a big one. Long term rentals are generally much more hands off. Your life is going to be easier if you stick with long term rentals. And that’s okay. It’s actually a great strategy. I prefer to have extra tools in the tool belt.
So that’s one of the reasons that we’re adding sort of Airbnb and VRBO rentals to our arsenal. Also because it gives you an opportunity to supplement your cash flow in some different ways. So in long term rentals you’re basically just responsible for maintenance of the property. You got to make sure the lights stay on, you got to make sure the water is running, the appliances are okay, you know, nothing’s majorly wrong or breaking and people can stay there without too much stress or fanfare. Short term rentals, different gig. You’re responsible for everything. You have to keep it furnished. You have to worry about if the laundry is being done, you have to make sure that you have enough towels, toothpaste, are there plates? Are the utensils you often have to keep the water in place for the next person. When someone leaves, you have to have a cleaner come behind and make sure they clean up every dog hair if you allow pets.
So you are much more in the hospitality industry. When you move into STR’s as opposed to long term rentals, you’re just sort of renting someone in a house. And short term rentals you are taking care of someone stay like it’s a hotel, so you’re kind of like a mini business in that way. It’s much more hands on, much more labor intensive, and it has a higher risk profile. But as with most things in life, with greater risk can often come greater and higher returns, which is one of the reasons Rachel and I are moving into the space. So let’s talk about some pros and cons. I will start with short term rentals. Number one, higher potential revenue. I can’t say it any simpler than that. It’s higher risk, more work and higher potential revenue.
Why Decide to Invest in Short Term Rentals
So with sites like we talked about Airbnb and VRBO, you have the opportunity to max out the revenue of a particular property because you can get people all across the country to come stay at this property, particularly if you find a unique property that you sort of niche out with amenities. So you can absolutely maximize your cash flow in most cases if you know what you’re doing with STR’s. And in many cases, STR’s are just the most profitable asset class that we can find right now in real estate. Number two, short term rentals allow you to get into neighborhoods, locations and property types that you never could have touched before. For instance, Rachel and I want to do this here soon. We want to buy a multimillion dollar house in sort of a destination location.
Nothing crazy. It could be as simple as like the Myrtle Beach or Outer Banks, North Carolina. But we want to buy a property where either large families can come together or companies can have corporate retreats at a place like this. You’re talking about like multi-million dollar property. That’s not a property we could afford on our own, but if we could do it properly on Airbnb, we’ll have all of the benefits of owning that property and renting it out and maybe even having really good positive cash flow from it. And that’s all because of the advent of the short term rental and the travel industry being what it is. So that’s moving us into a space that we wouldn’t otherwise be able to get into without short term rentals. Number three, personal growth, and I appreciate this because as a personal value mine, I always like to grow. So why do I say personal growth?
Because this teaches you to actually run a business. This is not just real estate investment. This is a business your systems have to be better. Your processes and your services have to be better. You have to be infinitely more organized and hands on to pull off a short term rental business successfully. So now to the cons, it’s significantly harder and more labor intensive. There’s a theme developing here, plain and simple. This is not passive income, so don’t be deceived thinking that you’re just going to like slam into some short term rentals, buy a couple of properties and then hire someone else to manage it. It does not work like that. This is a business. This is not a passive investment and that is a major con.
Number two, it’s much riskier if somebody doesn’t book your property, you have zero revenue coming in. So this is particularly stressful. For instance, if you buy in a municipality that hasn’t set up rules or legislation yet, if they decide to set up let so imagine you buy $1,000,000 property somewhere and the laws just change overnight and they decide that they’re not going to allow Airbnbs or rentals under let’s say 30 days.
You might find yourself in quite a pickle. So there’s definitely some risk that you have to mitigate and that’s a hurdle that you have to consider. It’s one of the reasons that we recommend that you buy in areas that already have sort of an established legislative approach to short term rentals, if they don’t have any rules yet, that simply means that the rules are probably going to come at a later date in the future.
So don’t get caught with your pants down. Now, let’s talk about some long term rental pros. They’re much less work. It’s one of the main reasons that people buy them is because you can set them up as a passive investment. You can put it there. You hire a property manager who in the long term rental space probably charges you 8 to 10%. Conversely, short term rental property managers typically charge 25 to 30% of your gross right off the top. It’s because it’s so service and time intensive pro number two. In my opinion, it’s a better, more well-worn path to sustainable wealth. And if you’re looking for like a simple and easy path to get there, long term rentals are the way to do it.
The Downsides of Short Term Rentals
Short term rentals are a little more difficult, a little more niche, and probably something I would not recommend you start out with. So I would say long term rentals are an easier, more well-worn path to get where you want to go financially. Number three, you don’t have to worry nearly as much about zoning laws. We’ve talked about this a little bit and in that way they’re just more secure than short term rentals are. It’s very unlikely that there’s ever going to be a scenario where a city just comes out and says, we’re not allowing people to rent in this city anymore. Like it’s not going to happen. If you invest in a growing city, there’s probably more demand for rental properties than there is anything else there. So long term is super stable, short term rental.
So here are a few of the cons with long term rentals, so there’s significantly less options for you to increase rents compared to short term rentals. The rents are, for the most part, what the comparable rents of the area are going to allow them to be. So if there’s a place that’s up the road that’s similar to yours and is renting for 50 bucks less, they’re going to rent that one. Whereas with short term rentals you can do some things to make your property nicer and stand out. You can become a super host on Airbnb so that the algorithm works for you can add amenities. So for instance, Rachel and I are going to be building a small glam sites are going to be some more details to come. But we’re going to build this little cleared area with two geo-domes and it’s called glamping, glamorous, camping.
It’s basically an outdoor experience, but with an enhanced feel. But we’re going to do things like offer two four wheelers as an amenity. I’m going to clear out a shooting range so they’ll have access to a private shooting range. These are things that will allow me to offer more amenities and they can invest in their vacation time and enables us to generate more revenue because of these distinctions that we create in our property, because it’s unique, you just don’t have those options in long term rentals, as you do with STR’s. In long term rentals, you pretty much you got what you got and it is what it is. Number two, your tenants in long term rentals stay there for a long period of time, which means they beat the place up over time. So unless you’re doing a lot of inspections, there are periods of time where you might not get into your property for six months or 12 months and you have no idea what the condition of the property is.
We just had this happen. We had someone stay in our house during COVID. We couldn’t get them out, we couldn’t evict them. They were unemployed and they just basically were professional tenants and beat the system. And it took us the entire span of their lease to get them out. And we finally got them out. We had like $30,000 worth of floor damage. The floor joints were all rotted. There had been leaks in the crawl space and it was just a mess. And that is a problem that you don’t face with short term rentals because you’re turning these things over in a week or two weeks. So your cleaner goes in there and sees exactly what’s going on with the property and can alert you to any issues that might arise.
In Conclusion
So to sum it up, my brass tacks is comparing long term to short term is short term rentals are inherently riskier and you need to mitigate that risk through education. This doesn’t mean that they’re bad. As a matter of fact, I am starting to love short term rentals. The money is actually usually made where the risks lie because right fortune favors the bold, isn’t that the whole thing. And on a personal note, Rachel and I are moving swiftly to adding more short term rentals to our portfolio. But you do need to understand the personality of the asset that you are buying. So, for instance, single family homes tend to appreciate the most but usually have the worst cash flow. Multifamily homes tend to have the most cash flow, but less appreciation.
And then short term rentals tend to have the absolute most cash flow when done well, but can go south really, really quickly if your bookings dry up or there’s legislative changes, or if a global pandemic creates issues with the travel industry. So these are all things that you have to consider. You have to know what your capacity is, you have to know what your reserves are and how you can mitigate risk by buying in the right properties and having the right coaches and mentors along your side to help you do it. So I hope you enjoyed what I’m sharing today, and I hope I got some wheels turning. If you’re trying to figure out what your next investment could be. Short term rentals are a great place to look. I also hope I got you some tips on how to maximize your investment, your upside, and maybe reduce your risk as well.
If you got something out of this video, would you please like and subscribe? And if you have questions, do you want to ask me something specifically about an investment? Feel free to comment below. I will most definitely respond. I want to hear specifically what you like, how we can help you, how we can serve you, and also is a sneak peek. If you’re still watching, I’m going to be putting out a behind the scenes look at me actually clearing our glampsite with a bobcat. I’m going to be in the woods, never driven one before. So I’m going to be getting sweaty and full of ticks, learning how to drive a bobcat in 95 degree weather in my ten acre backyard on my way to building a geo-dome glampsite.
Because this is what you do as an investor, man. You put one foot in front of the other, so it’s going to be super cool and I can’t wait to share that with you guys. So until next time, I’m Jonathan Beasley signing off.
