2021 Short-Term Rental Investment Strategy

Lauren and I are looking to expand our Short-Term Rental portfolio and have been discussing our goals.  I am sure many of you are in the same boat.   Lauren is a Lifestyle investor and I’m more of a Cash-flow investor…. (Click here, what type of investor are you)

So we have been debating on where to buy our next property. 

Current Market

I am predisposed to continuing to invest in our current market.  We know the rents allow for good cashflow.  The downside is that our down payment will be higher in this market and we will not use these additional properties.  They will be purely cash-flowing investments.  Therefore, we will be adding great investments in a strong market with proven cashflow…. but they will not expand our personal use…

New Markets

Lauren on the other hand would prefer to invest in a new market and use a 10% down to purchase a property that we will use.  If we follow Lauren’s model, we will invest less capital but our cash-flow will be low or just barely covering costs. 

These properties will grow our net wealth over time and allow for personal use but will not increase our monthly cashflow…. this type of investment will be a lot of fun but will not move us forward on our path to financial freedom. 

Now the properties that Lauren prefers are more high-end so that may be part of the problem.  There may be some 10% down cashflowing options in these markets but we will need to continue looking.  We know it is possible because we own a 10% down property that can cashflow 45k net. 

The Market is HOT 

We are also looking in HOT markets….  However, the market is HOT Everywhere….. in all sectors of real estate…. except commercial.  We believe that Real estate is like the stock market.  Don’t try to time it.  If you find a deal that you like and the numbers work for you then go for it.  Ask yourself: Will this property be worth more in 30 years then it is today?  If your answer is Yes and you are a buy and hold investor then you will probably be fine. 

The next burning thought is….  Are housing prices going to crash?….

Maybe, or maybe inflation is going to continue and prices will continue to climb… Or maybe the fed increases rates and the housing market drops 10%-20% but the mortgage payments remain the same because the interest rates are higher.  Yes, you could get into trouble with massive drops in equity if you are looking for a short-term turn around but that is not how we purchase our STRs. We buy and hold.

What if bookings go down? Will lockdowns return?

Another concern is travel.  What if travel and bookings decrease.  2020 was dramatic and even with all the lockdowns we were able to manage our properties by maintaining a reserve.  A lack of cash reserves is a way to fast track your path to financial ruin, not freedom. 

The rental market in STRs is highly variable and maintaining cash reserves is very important.  Lauren and I maintain 6-10 months of reserves.  We may need to increase that to 12 months after the covid-era.  Some might argue that holding reserves is a waste but I would rather sleep at night knowing that the mortgages will be covered than depend on raiding my retirement or HELOC to cover expenses.

HELOCs can dry up during a financial crisis and retirement accounts can “lose” significant value, which would be the worst time to make a withdrawal.  In the end, holding reserves provides stability, peace and confidence during your STR journey. 

We are continuing to expand our portfolio and hope that you will join us on our Journey to Financial Freedom.

Enjoy Your Journey to Financial Freedom

To learn more about Short-Term Rental Investing take our course starting May 2021.

CME credit available via the Physician Burnout and Wellness portion of the course

5 thoughts on “2021 Short-Term Rental Investment Strategy”

  1. Love this! Thanks for sharing an inside look. Always helpful to see others’ strategy. I’m looking to build our portfolio as well, but of LTRs.

    I really appreciate that you have a developed a strategy to be successful in this unique market rather than just sit on the sidelines out of fear or indifference!

    1. Thank you. I wanted to share that we are having the same conversations as our readers. It is ok the have doubts and concerns during this time. Right now is a great time to analyze different investment strategies and choose what works for you.

  2. “10% down property that can cashflow 45k net.”

    Yes please, I’ll take two!

    I’m on a steep learning curve with STR. It seems like such a change of mindset from long term rental, but I really want those juicy tax benefits from accelerated depreciation.

    Is STR just a distraction or a good strategy? I can’t tell from where I’m sitting right now.

    1. The best time to buy real estate was yesterday. That was our first property. I am sure there are markets with some great options but STR investing combined with low interest rates have really increased prices in STR markets. You can definitely find cash flowing properties with 25% down which would be the same down amount as your LTR options but with bonus depreciation as an option….

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