Short-term Rental Long-term Wealth

“Short-term Rental Long-term Wealth: Your Guide to Analyzing, Buying, and Managing Vacation Properties” By Avery carl

• “You’ll begin by reserching and analyzing factors like the average occupancy rate, price per night, and cost of properties in the area you’re evaluatting to determine whether an investment makes sense.”
• “Metro markets area major metropolitan areas that attract many visitors but are not financially dpendent on tourism.”
• “National vacation markets are tourism-dependent.”
• “In regional vacation markets, the majority of tourists arrive by car.”
• “Since these markets are often smaller towns, real estate prices tend to be cheaper than those found in national vacation rental markets.”
• “On the surface, it would seem that metro markets are the best for STRs given their diverse pool of travelers. However, because of regulation issues in most metro areas, it’s actually the regional drivable vacation rental market that is the most stable investment.”
• “First, we will take a look at the drivers of the past two economic downturns: the housing/financial crisis of 2008 and the COVID-19 pandemic vacation market performed better than the metro and national vaation markets. During both of these economic downturns, the regional vacation market performed better than the metro and national vaation markets. That was thanks to its two pillars of recession resistance: affordability and accessibility.”
• “Stringgent markets are those in which a battle is constantly being waged between STR owners and the city council.”
• “Moderate markets feature regulations that are stable and manageable for both STR owners and primary residents.”
• “Relaxed markets still have rules and regulations, but they are minimal, and revocation of STR licenses is typically unheard-of”
• “To locate annual tourism numbers, visit your potential market’s department of tourism website. If there is no data listed on the website, you can often call the department and ask someone to email you some tourism brochures and information.”
• “Other great data sources are hotels, major theme parks, major-league sports teams, and universites.”
• “Another great way to obtain market data is through major national property managers, such as Vacasa, Evolve, and TurnKey.”
• “Try to steer clear of rental projections from management companies that do not utilize the major booking platforms.”
• “A good rule of thumb for choosing investors to reach out to is to look at their post count. How many posts do they have? The more posts they have, the more engaged they are with the invester community. More important than the number of posts, though, is the number of upvotes they have.”
• STR communities:
  • The BiggerPockets forums
  • STR owner Facebook groups
  • STR webinars and masterminds
  • The booking platforms themselves
• Questions to ask agents
  • “How many properties do you sell a year?”
  • “What percentage of your closings are for investors?”
  • “Are you an investor yourself? Do you self-manage your units?”
• “This product is the 10 percent down vacation home loan. That’s right: 10 percent down.
  1. It must be more than sixty-five miles from your primary home.
  2. You must occupy the property for some portion of the year. (The number of days is not specified in current guidelines, but ask your lender for the most up-to-date details.)
  3. The property must be a one-unit dwelling, so no duplexes, triplexes, or fourplexes.
  4. The property must be suitable for year-round occupancy.
  5. You must have exclusive control of the property (meaning you cna’t sign control over to someone else with a lease).
  6. The property cannot be placed with a property managmeent company.
  7. You may utilize only one vafation home loan per market (meaning you can take out multiple vacation home loans as long as each property is in a different market).”
• “Yes, you have to pay private mortgage insurance (PMI) on anything with a down payment o fless than 20 percent. However, you could pay it all up front for a fairly modest fee at closing, or you could get the PMI removed by obtaining a broker price opinion (BPO) in a year or two. A BPO should not be confused with an appraisal–a BPO is an opinion on the value of the property generated by a qualified professional, such as a real estate broker or representative of the mortgage company. BPOs are less rigorous and less tightly regulated than appraisals. If the BPO shows that the property has appreciated 10 percent and you now have 20 percent equity in the property, most lenders will knock off the PMI.”
• “Remember, it is always a good idea to have documents outlining the terms of the partnership drafted by an attorney licensed in your state.”
• “Metro markets typically lend themselves to the BRRRR method better than vacation markets. That’s because in order for a property to be a viable BRRRR candidate, you’ll need to acquire it for significantly less than market value. How does that happen? When the property is ‘distressed’–in order words, the owner is facing financial hardship and needs to unload the property quickly–the seller might be willing to accept less than market value.”
• “In vacation markets, the majority of properties will either be second homes or existing investment properties. Therefore, if an owner get into financial trouble, these properties will be the first ones they sell, for close to market value.”
• “When a property does hit the market, ask your agent to take a video for you. Request that they shoot a 360-degree view of the rooms to get a better idea of how big they are and how the space flows. Additionally, have them take a photo of the serial number on the HVAC unit, which will tell you how old it is before you make an offer.”
• “To find out whether a condo is non-warrantable, your lender will have to request a ‘condo questionaire’ from the HOA. A property must meet the following criteria in order to be warrantable:
  1. No single entity owns more than a certain percentage of the units. (The number can change from year to year when Fannie Mae releases new guidelines. It si curently 10 percent, but your lender will be able to give you the exact number at the time of your purchase.)
  2. The project has fewer than four units.
  3. The unit is detached condo.
  4. At least 50 percent of the units are either second home or primary residences, not investment properties.
  5. The HOA is not invovled in any lawsuits.
  6. No more than 25 percent of the owners in the proejct are delinquent on HOA dues.
  7. Commercial space accounts for less than 35 percent of the square footage of th project.”
• “Ask your agent about the rules in the state where you’re buying before going under conract. In states where there is no option period, only an inspection period, you cannot terminate the contract over something that is not a material defect of the home.”
• “Furniture is personal property and, therefore, in the eyes of any lener, can have no value in a real estate contract. It can’t event be mentioned in the real estate contract. Furniture must be addressed in a separate document that does not go to the lender. Additionally, furniture cannot be a negotiation point during the inspection period because–you guessed it–furniture is not real estate.”
• “The best way to address furniture is to have both buyer and seller sign a separate bill of sale stateing that all contents of the property will come with the property in as-is condition at no additional charge, or at the cost of $1.”
• “The seller wants the buyer to honor any existing bookings after closing.”
• “While a fully booked calendar sounds nice, I recommend that you do not agree to this request. If you are buying in the rightr market, you will not need the seller’s bookings.”
• “On the flip side, many buyers will ask seller to stop booking the property at the time that a contract to purchase is signed. This is also unreasonable. Why on earth would the seller stop booking the property when the property has yet to go through the inspection or appraisal process? What if the buyer terminates the contract because buyer and seller cannot come to an agreement on inspection items?”
• “In soem cases, not only will the seller request to ‘transfer’ bookings to the future buyer, but they willl aslo request to keep a percentage of the income from those bookings as a finder’s fee. Nevewr agree to this.”
• “The absolute cleanest way to handle any transfer of bookings is for the buyer to create their new Airbnb and Vrbo listings and for the seller to send a cancellation email to all future guests that includes the new listing link for the rebooking.”
• “Usually the contract will require that the property stay with the management company for a set period of time to accommodate future booked dates.”
• “Sometimes these requirements can be negotiated in exchange for a higher purchase price. Another strategy would be to have a longer close date so the seller can give the management company notice of the sale.”
• “The selller wants to continue managing the property for the buyer after closing. Just say no.”
• “When you execute the cancel-and-rebook method, the deposits are refunded to the guests, and when the guests rebook with you, their deposits are then repaid directly to you. When a seller refuses to do this, they’ve probably spent the deposits and do not have the moeny to refund the guests. This is a tough one to navigate. It’s best to ask to have those deposit amounts held in an escrow account out of the seller’s proceeds rather than to rely on the seller to provide a check at closing.”
• “Rental history means nothing, and in some cases, it can be the absolute poorest indicator of a property’s potential. Rental history is a variable that should be used as one data point for your analysis, not the benchmark.”
• “More options are surfacing online all thee time, but AirDNA, Mashvisor, and Key Data are currently the big players in the STR data market.”
• Property management companies to call on for rental projection: “The three bigest are Vacasa, Evolve, and TurnKey.”
• “Depending on a number of factors, some properterties in CBRA zones, which can be found at http://www.fws.gov, are eligible for federal flood insurance at a reasonable cost. Others will not be covered and will require private flood insurance that meets the CBRA zone qualifications. There are very few underwriters that provide private CBRA zone insurance”
• “Cash-on-cash (CoC) return is the name of the game with STR investing. In anohter words, what is the amount of money you re putting in versus the amount of money you are getting out at the end of the year?”
• gross annual income – expenses – mortgage, taxes, and insurance = cash flow
• cash flow / cash invested * 100 = Cash on Cash return
• “Capital expenditures (CapEx) will range between 1 and 3 percent. On a brand-new construction, you’ll have few, if any, CapEx items in your first year or two, but in a twenty-year-old build, you might spend the full 3 percent.”
• Fees to consider: Booking fees, cleaning fees, occupancy tax, property tax, electricity, water, cable and internet, insurance, miscellaneous maintenance
• “To get started, you’ll need two core team members: your housekeeper and your handyperson.”
• To find these team members: “Try these sitest instead:
  1. Market-specific STR-owner FAcebook groups
  2. Facebook Marketplace
  3. Thumbtack
  4. Angi (formerly Angie’s List) and HomeAdvisor
  5. Airbnb, Vrbo, and the other major online booking platforms.”
• “The housekeeper will charge a certain rate just to clean the property, and the owner will provide all the items to be restocked–toilet paper, paper products, dishwashing detergent, etc.”
• “The housekeeper will charge a higher per-cleaning rate buitl will take care of all restocking items.”
• Pay the housekeeper: “My preference is to pay every other week.”
• “Whatever you work out with your housekeeper, ensure the payments are trackable for tax purposes at the end of the year. Receiving proper invoices from the housekeeper is ideal, though emails can suffice in most cases. I find that the PayPal invoicing platform is teh most efficient and easiest way to track when a housekeeper does not have a bookkeeper or a robust bookkeeping plaform.”
• “One way, as mentioned earlier, is to hire your handyman or a gig worker from an app like Thumbtack to take photos for you after the cleaner leaves. Another strategy that has worked well for me is to pick one guest each month and ask them to let you know if anything is not clean enough.”
• “Guest check-in is typically in the afternoon, and in the rare event that a cleaning is missed, you can suggest that they leave their luggage and head to dinner on you. When they get back, their unit will be clean. An alternative would be to purchase gift cards to local restaurants and keep them hidden at the property for guests to use in these instances.”
• “Best practice is to have several handypeople on your list. Try to rotate them for nonemergency jobs so that you maintain a good rapport with all of them.”
• “Airbnb will collect and remit state sales and local occupancy tax on behalf of owners in most states, while Vrbo requires owners to remit those taxes themselves.”
• “The only way to guarantee that a property willnever smell like pets is to make it non-pet friendly.”
• Emotional Support Animal: “Read up on and familiarize yourself with the current Americans with Disabilities Act (ADA) guidelines on what constitutes a true service animal versus an ESA. The ADA requires you to allow service animals–it’s discriminatory not to–but ESAs are not service animals, so you are not required to grant a stay to a guest with an ESA.”
• “Stick to a two-night minimum when starting out, but if you do want to fill a few one-night holes, set a higher-than-average rate. This will tend to weed out parties.”
• “Depending on your market, don’t accept any stays longer than two weeks. Around the ten-day mark, guests start asking for discounts to reward them for their long stay.”
• “Many owners set a minimum age for guests to be allowed to rent their properties, the most common being 25.”
• “Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended, prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, because of race, color, religion, sex, familial status, national origin, and disability.”
• “Therefore, you are allowed to sete a minimum age for renting your property.”
• “Many new investors don’t allow instant bookings because they are afraid of opening their properties up to bad guests. However, it can be a very lucrative tool if you follow a few best practices:
  1. Guest must have a profile photo.
  2. Guests must have a government-issued ID uploaded to the platform.
  3. Guests must have at least one reveiw from other hosts.”
• “At a minimum, an STR agreement should specify the following
  1. Obligations and expectations of the guest
  2. An outline of the cancellation and refund policies
  3. Pet policies
  4. Occupancy rules
  5. Rules about events
  6. Security deposits
  7. Limitation of libility
  8. What will happen if either party violates the terms of the agreement”
• “Your local attorney can draw up a rental agreement that is binding and enforceable if you ever needed to refer to it in a dispute.”
• “If the purchase price of the property is more than $500,000, the security deposit is $250. if the purchase price of the property is less than $500,000, the security deposit is $150.”
• “If damage occurs during a stay that was booked through Airbnb, you’ll need to file a claim with the Resolution Center. At that point, th guest may or may not pay the damage resolution.”
• “Do not file damage claims or resoluions unless the damage is severe.”
• “Hitting guests with damage resolutions equals bad reviews. In fact, damage to a small inexpensive item is actually an opportunity to leverage a good review.”
• “In any case, it’s unlikely the guest caused the damage on purpose, so a simple farewell message would be: ‘No worries about the lamp! Please travel safe, and thanks again!’ This acknowledges that you noticed the damage but you aren’t worried about it. If they did, in fact, break the lamp, this approach makes them feel obligated to leave a positive review for being so cool about it.”
• “Taht being said, if a renter does cause significant damage to your property, call the rental platform immediately and document all the damage with photos. Make sure that your cleaner knows to send you photos as soon as they find damage, because if the next guest checks in before the booking platform is notified of any damage and potential claims, you lose the ability to file the claim.”
• “Anytime a guest asks for a discount up front before even booking, the answer is no. If they’re already being high-maintenance by asking you to change your prices for them, they are going to make a terrible guest when they actually check in. My only exception to this rule is for members of the military and first responders.”
• “The ‘I’m not happy with something’ discount should be considered on a case-by-case basis.”
• “Your property and market will determine the best cancellation policy for you, but it is wise to go with the strictest cancellation policy possible.”
• “However, if your property is in a less heavily raveled area, you’ll want to offer a more lenient policy in order to attract more bookings.”
• “If you’re in an STR-friendly market and you get a chancellation, you should rush to your booking platform to raise the rates on those canceled dates before the next guest has a chance to book.”
• “Of course, there are exceptions, such as low season, but for the most part, you should be dealing with a fairly high-volume property if you’ve chosen your market wisely.”
• “Put it right in your listing copy: ‘We do not give refund due to weather or natural disasters.’ Why? Because you don’t want guests canceling two weeks out because they saw snow in the forecast or a tropical storm that may or may not reach hurricane status.”
• “Is that to say you shouldn’t ever offer a refund if the guest needs to cancel due to a hurricane? Absolutely not.”
• “You just don’t want to be obligated if it’s obvious the guest is using the weather forecast as an excuse to get a refund.”
• “A few of the most popular channel managers among STR investors are
  1. YourPorter
  2. iGMS
  3. Guesty
  4. Hostfully
  5. Syncbnb”
• Pricing managers
  1. “Beyond Pricing
  2. Wheelhouse
  3. PriceLab”
• “Do not use Airbnb’s built-in pricing tool. Airbnb’s goal is not to optimize booking prices and revenue for hosts, but to offer affordable prices to its guests.”
• “When a guest books, a notification is sent to your housekeeper, alerting them that they need to clean on a cerain date. The housekeeper then acknowledges the cleaning on their end, and the owner receives a notification that the cleaning is on the housekeeper’s schedule. Currently the two major scheduling managers are TurnoverBnb and Automatebnb.”
• “You can automate sales and ocupancy tax remitance with a platform called Avalara MyLodgeTax. This platform is compatible with most of the major booking platforms and keep you and your listing in compliance. MyLodgeTax will review your local tax obligations., All you have to do is report your earnings to the app each tax period, and it will automatically withdraw the taxes from your designated account and remit them on your behalf.”
• “However, in the event that a lock runs out of batteries or there is some other technological glitch, best practice is to have a backup lockbox or two hidden somewhere around the property with keys inside,”
• “Sensors such as NoiseAware, can be installed around the home to monitor noise elvel.”
• “My rule of thumb is four towels, two hand towels and four washcloths per bathroom.”
• “Leaving too much can cut into your cash flow, so keep a max of two rolls of toilet paper per bathroom and two rolls of paper towels in the kitchen. Make it clear to guests in the FAQ or welcome section of your listing how many of each item will be left out for them. We explain that we provide a ‘starter kit’ of paper products but that guests who plan to stay for longer than two or three days will most likely need to supply their own once the starter kit runs out.”
• “Use mattress (and box spring, if you have them) encasements”
• “Pay for professional monthly interior and exterior pest control that includes bedbug checks and prevention.”
• “Do not require your guests to strip the beds for checkout.”
• “If the sheets are left on the bed, the housekeeper can easily check for the tiny black or dark brown blood spots that bedbugs leave behind.”
• “The possibility of providing a pack ‘n play that malfunctions or isn’t setup properly makes me break into a cold sweat. Instead, provide guests with the website of a local retailer that rents pack ‘n plays to travelers.”
• “So to deter bookings before you’re ready, set your base rate at $4,000 per night. Assuming you have not purchased a $20 million mansion, this rate should be so high that no guest would possibly book your STR.”
• “When you do go live, the major booking platforms are going to promot you to offer a 20 percent discount for your first few bookings in order for your listing to get some traction. Before you do this, go into your calendar and ensure that your three-day weekend and holiday rates are very high.”
• “Make sure that instant book function is turned off when you first go live. You are going toi get hit with bookings pretty quickly, and with a brand-new property, you’ll need to vet those guests a little more thoroughly. Once you have been live for a few days and have a number of good bookings, or your calendar is full for about a month out, you can turn on the instant book feature. Many channel management platforms require that the instant book feature be enabled in order to work properly.”
• “Also, when posting a new listing, include something like ‘new owner special’ in the headline.”
• It’s very important to keep all communicstion with your guests in the booking platform’s messenger app. Do not allow them to send you texts or call you.”
• “Set up busienss hours. Whether it be for religious reasons, full-time job commitments, or just running your business like a business, you can still be highly successful with your STR without being available 24/7.”
• Mesage templates
  • “The ‘thank you for booking’ template”: “This message will go out to guests as soon as they book your property. It will include a few lines thanking them for booking and conveying how excited you are that they have chosen your property for their vacation. It will also set the expectation for the communication for the rest of their rip. It will lay out when they can expect another message that will include the address and check-in instructions, as well as a few lines answering any FAQs that come up in your market prior to booking.”
  • “The ‘check-in’ template”: “This message will be auto-sent by your channel manager within forty-eight hour of check-in. It will include the address of your property, directions (you’d be surprised by how many people have trouble using their GPS), door codes, Wi-Fi networks and passwords, and so on.”
  • “Giving anyone the address of an STR too far in advance leaves your property vulnerable to potential break-ins. When a guest is pushy about receiving the exact address before the forty-eight hour window, this can be an indication of a scam, and it may be wise to ask them to cancel and find other accommodations if they are unhappy with your address policies.”
  • “Best practice is to just stick to a no-early-check-in policy and explain to guests that this ensures the housekeeper has enough time to get the property in tip-top shape for their arrival.”
  • “Pleace the door code three-fourth of the way down in your check-in message copy. This forces teh guest to read all the other rules before they find the door code.”
  • “The ‘checkout’ template”: “Schedule this message, which includes checkout instructions, to auto-send guests twenty-four hours before checkout. In my markets, it is standasrd for guests to gather and dispose of all trash in the outside trash cans, put all dishes into the dishwasher and run it, and remove any food or beverages they brought with them from the refrigerator /freezer. This template also includes the checkout time. The same rule that applies for early check-ins should also apply for late checkouts. The housekeeper must have enough time to clean for the next guests.”
• “A few other common scams are:
  1. Booking the trip as a surprise for someone else.
  2. Overpaying the amount of the booking and then requesting a refund before the initial payment has cleared.
  3. Booking a reservation that starts within the next twenty-four hours, staying in the property, and checking otu before the host can discover that the payment is fraudulent.”
• “To protect yourself and your investment, never communicate off-platform, accept payment off-platform, or allow bookings in which one person is planning a stay for soemone else.”
• When double booked: “Instead, call both parties, explain the situation, and try to get one of them to cancel their booking. Being honest with the guests and communicating the issue as soon as possible is all you can do.”
• “Do not, however, issue a refund for the nights they already stayed. Never offer to discount the full trip–only the portion remaining after the maintenance issue arises.”
• “We once had a guest ask us to bring them more toilet paper during their stay. This is nto a reasonable request, and we had to point them in the direction of the nearest store.”
• “Eery now and then, a guest will forget something at your property. Have a plan in place with your housekeeper to deal with this.”
• “There have been two occasions when guests have left a firearm in my unit. If this happens, don’t freak out, and don’t try to get it back to the guest yourself. The correct course of action is to call your local sheriff’s office or police department and let them know that a guest has left behind a firearm. They will collect the firearm so that the guest can retrieve it from them.”
• “Thanks so much for staying with us. We hope to have you back again soon! We left a five-star review in your inbox, and we hope you will do the same for us!”
• “Respond to all reviews, not just the negative ones. Kindly thank guests for the review, and invite them to come back anytime.”
• “When you o get a less-than-five-star-review, responding gives you the chance to publicly explain whatever perceived negative situation the guest experienced. The way you respond to negative reviews will shape the way future guests view you as a host.”
• “Teh only reason a platform will remove a bad review is if it violates one of their reveiw policies by including:
  • Commentary about a person’s social, political, or religious views.
  • Profanity, name calling, and assumptions about a person’s character or personality.
  • Content that reers to circumstances entirely outside of another’s control.
  • Content about services not related to the platform (for example, transportion and meals).
  • commentary about past platform reservations, hosts, or guests, or commentary about the platform product that does not relate to the listing or host they are rating.”
• “If you own a property with a partner and you both plan to participate in hosting and guest communication, you’ll need to define clear processes and procedures in advance. Set aside some time before your listing goes live to discuss cancellation policies, how you’ll handle some of the most common issues, and which partner will be responsible for which tasks.”
• “Exactly how you allocate money to your funds will be specific to your property. Nonetheless, here are some basic guidelines:
  1. Taxes: 30 percent of each booking
  2. CapEx: 3 percent of each booking
  3. Cash reserve: 20 percent of each booking until you reach six months’ worth of reserves
  4. Profit: 25 percent of each booking”

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