Starting a Short-Term Rental Business
If you’re reading this, then perhaps you’ve already thought about starting a short-term rental business, or buying a short-term rental yourself. It’s a good thought. It’s not for everyone, though – you need to be able to move quickly to address a guest’s concern, be reachable at night and on weekends (although rare, I’ve gotten calls at 1am on Sunday morning), and have a good ability to manage customer relationships. Ive found the short-term rental business works well with our lifestyle and fits our personalities as good as anything else we’ve done. We’ve not been doing this for very long, so we’re not grizzled veterans here to give you wise advise necessarily, but I’m happy to write about our experiences in the hopes that it will be helpful to you on your journey, whatever that looks like for you.
I’ve always been relatively comfortable with real estate, even though my first and second purchases didn’t work out so well. The first was a condo on the ’13th’ floor of the Metropolitan building, a remodeled Suntrust bank in downtown Atlanta chopped up into loft apartments. When I sold it 6 years later I actually had to write a check to the closing attorney for about $1000 due to my seedy ‘interest only’ mortgage I was carrying at the time. My next real estate gamble was a 3bd 1ba in Jonesboro I bought from my mom when she moved to Texas. Within 2 years the Great Recession took hold and sliced that home’s value in half, and it stayed underwater for at least 10 years. But for some odd reason I was undeterred, and seeing the depressed prices of homes at the time, I forged ahead started buying homes to rent as opportunities arose.
In 2021, housing values spiked to ridiculous levels due to the housing shortage created by the COVID-19 Pandemic. I had been thinking that I was over managing tenants and making constant repairs, so Lea and I sold most of our long-term rental houses and rolled the profits into some high-quality short-term rentals. To me, the pros seemed to far outweigh the cons. Looking at the short-term rental business from the outside looking in, I contemplated that the following would be true:
- We’d make more money,
- Guests would be easier to deal with than tenants,
- Little to no ‘eviction moratorium’ risk (landlords in 2021 know what I’m talking about),
- We’d be able to stay in them for free when they weren’t occupied, thereby saving us money on vacations, and
- The properties would be better taken-care-of and require less maintenance over time.
We did in fact make more money in STR’s than our long term rentals – our yearly ROI (return on investment) basically doubled, jumping from roughly 6% to around 12%. There is certainly more work involved from a business perspective…we have to find new ‘tenants’ every few days vs every few years… but most of that work is automatic if it is setup correctly.
I was wrong about guests being easier to deal with, but it’s not that big of a difference. It’s more about the communication burden being so much higher. We will typically exchange 7 structured conversations between ourselves and the guest from the moment they book to about a week after they leave. The good news is that it’s all automated, so unless the guest has a specific question or concern, I don’t really have to get involved directly. The trick, I’ve found, is to let them know what to expect and answer most questions before they’re asked.
Eviction Risk – this one really bothered me in 2021. I was highly exposed to this risk and I was shocked when the CDC banned evictions nationwide in 2020. I had no idea that the imperial federal government had the power to force property owners to honor a lease even if a tenant couldn’t/wouldn’t pay – in perpetuity. Thankfully the eviction moratorium only lasted about 18 months, and even though the risk was real that a tenant might not pay, every single tenant we had did continue to honor their leases, partially restoring my faith in humanity. Having said all that, I wasn’t going to be that exposed again if I could help it. The nice thing about STRs is that there are no tenants, only guests, unless they are staying for 30 days or more in most cases. These guests can be asked to leave at any time without eviction proceedings should it come to that – but fortunately we’ve never had to ask a guest to leave.
The ability to stay in your own properties is a great perk! You should know that the IRS only allows the property owner 14 days per year, without severely limiting your ability to claim expenses as deductions on your taxes, which you will certainly want to do, so don’t overdo it. In the rare instances that a cabin isn’t booked for the weekend, it’s great to be able to take advantage of it, or offer it to our parents, etc… I have found that from a business perspective, I actually lean towards staying at other places when we go on vacation, in part because we almost always make more money by renting our place then we would spend on another place, and staying in other host’s properties lets us learn how other hosts run their business… a bit of surveillance on the competition if you like.
As far as maintenance goes, there is a higher bar that you as a host are expected to maintain. I’ve experienced a bit of a learning curve in this area, because our properties are too far away for us to utilize our regular maintenance crews. I’ve had to build new relationships with local folks, which I’ve enjoyed. Guests pay a lot of money to rent our place, and they expect a great experience… and if we fail to deliver, we will get a bad review, which will hurt our chances to pickup the next booking. If the pictures don’t match, or they find a few grains of sand on the floor from the previous guest, their review will say “Floors were dirty, sand was everywhere”, as an example.
I have so much more to say about this business, so be sure to check out our other articles on the subject. Thanks for reading!
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