Purchasing your first Short-term rental can feel a little overwhelming. At first you are are excited to get started and then limiting beliefs pop up. “Is buying right now the right choice? How do I choose the right market? What happens if the property is not profitable? Will I lose everything? ”
You are not alone with these feelings…
In this post, we will knock out one limiting belief… “I can’t choose a market”. Below are 8 steps to guide you through selecting your market and making your first offer.
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8 Step Guide to purchasing your 1st STR:
1. The first step is to determine “why” you are investing in short-term rentals.
(Are you investing purely for cashflow? Or are you focusing on personal use with rental income covering your expenses? )
This is a personal decision and is different for every investor.
2. After you determine why you are investing you then the next step is “Research your market”.
If you are focusing on pure cashflow then you can use some of the online research tools, Mashvisor, Airdna or STR insights to curate a list of the most profitable short-term rental markets.
(I prefer Airdna over Mashvisor but my new favorite is STR Insights).
Note: STR insights is a new research tool that has amazing potential. One unique feature to STR insights is that its subscription allows access to over 12k markets. You can search nation wide with STR insights. This program empowers investors to explore entire markets by searching cities, regions, destination type (mountains, beach etc).
Then you can break the numbers down further by comparing properties by bedroom. The data includes ROI, revenue and property valuation (based on active rental listings). Note: the valuation may not match the MLS as the value is calculated from active STR listings. This is hands down the best product for the price. Other programs require investors to pay per market.
3. Choose your market
(The most profitable market or one that fits your personal criteria, or both.)
After you have done your research it is time to pick a market. This stage may be intimidating but make a choice. There are so many options that people often get stuck at this stage. If you feel stuck here, then go back to step 1 and ask “why” are you investing. Repeat step 2 and then choose a market.
4. Research the neighborhoods and local laws of your chosen market.
This step is very important when researching a market because zoning and regulations can vary significantly between markets.
For example, condos are the only properties allowed to offer short-term rentals in some markets. In other markets, you can only own one short-term rental property. So, if you are looking to scale up in a single STR market then you may want to consider a different market.
Also, if you are set on owning a home then don’t choose the “Condo only” market. A great resource for understanding local regulations is your realtor. With that said, it is always a good idea to do your own research.
The old “trust but verify” line applies to STRs. In the end, you will be responsible for knowing the regulations and they are easy to find with a good Google search. You will also want evaluate HOA rules for any property you are considering.
5. Develop a STR purchasing team.
Mortgage Broker: Do your research and choose a mortgage broker. Make sure to get pre-approved so you can move quickly on a property that meets your purchase criteria. Your mortgage broker can be local but should be licensed in all 50 states to allow you flexibility in your market choices.
Finding a great mortgage broker is important because they will be a crucial member of your purchasing team. They will be responsible for locking your interest and getting your loan approved. Developing a good relationship with your broker will improve your ability to act quickly.
Agent: A Real Estate agent that understands the Short-Term Rental market is a must have. When researching STR agents consider agents that own STRs. These STR investor agents are not selling vacation homes. They understand the market as both agents and STR owners which can be a great advantage when negotiating a deal. You might have to interview a few agents before finding one that meets your criteria.
In addition, an agent with STR experience can be invaluable if you are planning to self manage. They will have referrals for handymen, cleaning services, and contractors for those of you looking to self-manage. Your agent will also be able to give you information about the various property management groups in your market if you are not interested in self-managing.
6. Make your purchase and begin to prepare for your property set-up (A Step by Step Guide to Setting Up Your Short-Term Rental)
7. Apply for a business license and set up your booking sites if you are self-managing.
(If you are not self managing then interview a few property managers before selecting your new property manager.)
NOTE: To maximize your tax savings you will need to self manage and that will be more challenging the further you are from your property…. NOT impossible just more challenging. When researching your long distance market make sure to confirm that you can contract with a cleaning service and handyman without a property manager. YOU are the manager. IF you hire a property manager to manage the property then you will not qualify for the tax savings available to STR businesses.
8. Enjoy your short-term rental journey
Like most things in life, STR investing is full of ups and downs. It is part of the process. Don’t sweat the small stuff, understand damage will happen, keep cash reserves and make sure to enjoy the property yourself.
Bonus Step (The Alternative to 2 and 3):
Select a market that you visit frequently and enjoy.
By choosing a market that you enjoy you are confirming your own market research. You know what guests will be willing to pay to stay at your place because you know what you are willing to pay. (It is still a good idea to confirm your numbers with STR insights)
In addition, you know the town and neighborhoods because you have actually stayed over night in your market. There are many aspects to a market that numbers and calculations don’t always pick up. Sometimes the difference between a great STR and an O.K. STR is the location being one street closer to the slopes.
The best part of choosing a market based on enjoyment is that you can use the property. Sometimes the best investment is an investment in yourself and family.
Practice the Carpe Diem MD lifestyle and seize the day
Carpe Diem MD
Enjoy your Journey to Financial Freedom