So, you’re considering investing in a short term rental...

Written by Scott Steenbergh

Maybe you’ve heard various success stories from other hosts, or you’ve seen catchy posts on social media about how easy it is for people to make a fortune on investing in a short term rental. Or maybe you’ve stayed in an STR and have done the math based on the nightly rate. It all sounds so romantic and exciting! While the idea of the ‘get rich quick’ scheme is as old as America is, one can’t help but wonder if there is any truth to the idea that people can have success or even become financially independent from renting real estate. Let explore some of our top considerations before you plunge headfirst into hosting. 

Investing in a Short Term Rental - Goal:

It’s important to first define and then refine your goals as they relate to real estate investment. Consideration should be given to the idea of investing in a short-term rental versus other real estate investing and the easiest way to decide is to have defined goals driving your actions.  What is the main goal and what are you hoping to get out of it?  Is it financial? If so- in what way? Perhaps you are looking for passive income. Or maybe you want to break out of the corporate culture rat race. Or is there a certain amount of cash flow per month that would help relieve financial stress on your family. Have you ever dreamed of owning your own vacation home but can’t truly see how it can be possible but are thinking a rental may help you get there.  All of these are valid reasons and many of them are part of what prompted us to initially take the leap into the real estate investing world. 

Goal setting can be tricky business. One good tip we can offer is to define your goals using the SMART acronym. It's important to make the goal Specific, Measurable, Achievable, Relevant, and Time-bound.  We start by asking ourselves a simple question: “ If everything were to go perfectly over the next six months to a year, what would that look like.”  You’ll want to spend some time with this one. Sit with it. Meditate on it. Picture it in your mind's eye. What would be going on? Who would be there? What would your emotions look like? How would it feel? How much money, etc. Be as specific as possible here. You want to abandon any self-doubt that creeps in to play here (reference Mindset post) Once you have your ideal defined-write it out on paper. Then you simply work backwards with your SMART goals to help define the steps to make your dream a reality. A good example of one of the SMART goals that we defined when seeking to enter the STR space was to provide enough income from the rental that it would replace Rebecca’s income so that she could transition into a stay-at-home mom. The goal was to replace her income in the first 12 months by investing in a STR.

Short Term Rental Considerations - Time:

How much time are you realistically able to commit to this endeavor? Time can be a serious sticking point for some folks and mindset comes into play here. One of the great things about real estate investing in general and specifically STR rentals is that they can be as passive as you would like them to be. Meaning, if you’re committed to being hand on and wish to completely manage it yourself you can set that up. If you value the idea of passive income (who doesn’t?!) you can set up your properties to be managed completely by a property management company.

The truth about any investment is that you will have to commit some time to make them successful. Nonetheless, we have found that in setting up STR’s the bulk of the time commitment happens up front in finding, closing, and setting the property up to rent. Once you get over those initial hurdles and have your management systems in place you can easily manage your property from afar with very little time commitment on a regular basis. 

Short Term Rental Investment Costs:

How much money does it really cost to get involved in short term rental investing? The truth here is that there will be some cost up front if you want to get involved but exactly how much skin you will need to have in the game is dependent largely on you and your goals. Depending on the property and market that you are considering and if you are comfortable in leveraging debt to help you generate income. There are generally two schools of thought here concerning investment strategies. We recommend becoming familiar with both and decide which makes the best sense for you. One school would suggest that you remain conservative and do your best to pay for everything in cash. This is a great option for people if you have some cash on hand or other investments that you can take liquid cash from such as an IRA or equity in another form of real estate. On the other end of the spectrum, you find a school of thought that debt which many of us learn is the enemy, if not really a bad thing as long as you use it strategically to invest in assets. When harnessed correctly debt can be a vehicle to wealth. When taken on frivolously it can sink you into bankruptcy. It is important to find out for yourself where you lie on this spectrum, and we encourage you to look into and digest as much information as you can on the subject so that the decisions you make about investing are informed. Some resources you may find helpful (rich had poor dad book, bigger pockets pod cast series)

Investing in a Short Term Rental - Mindset:

The mindset necessary to become a successful real estate investor is one that requires you to challenge yourself. Many of us grow up, adopt, and develop Limited beliefs around money and success. You may ask yourself who am I to believe that I can be successful at this. Or you may find yourself thinking that although success is attainable for some, it just doesn’t happen to people like me.  Or you may have limited beliefs relating to the amount of time or energy you have available in your life to commit to this sort of investment. These limiting beliefs, although normal for most people, will be a hindrance to your success as a short-term rental owner. We are in the business of calling the bluff of any fear-based thinking that prevents our forward moving progress. We must adapt the mindset of thinking outside our normal box and constraints into the realm of what is possible for us. By letting go of the scarcity mindset we can attune ourselves to the abundance that is available to us. 

It's important to keep in mind that we did not develop the limited mindset overnight and it may take some time and diligent effort to break them. We are in the business of continual forward progress-not perfection- by challenging ourselves on day at a time. The reward for doing so is getting to live the life you have always dreamed of. 

Some helpful questions to ask yourself to help break the cycle of a limited mindset: instead of “ I can’t commit the time” ask “ how can I find the time to make this happen?” instead of “ I don’t have enough money” as “ how can I have enough money”.

Short Term Rental Considerations - Money:

On to the question of the hour. Just how much money can you earn from investing in a STR. The truth here is that the sky's the limit. It is totally dependent on how much time and effort you would like to put into it.  With that said it is unrealistic to assume your first investment property will make you financially independent. However, it will set you free. Free in your mind to pursue the path to financial freedom and independence should you choose to walk it. In our case it was our second property that not only freed us, but allowed Rebecca to retire and allowed me to become semi-retired-meaning our cash flow from our investment covers our monthly expenses with a little left over. At 39 years old I am free to choose to work as much as I’d like and for me you cannot place a price tag on that!