Short-Term Rental Property Investment (Which Type is Right for You) | The STRR Podcast #92

There are a ton of investment options when it comes to short term rentals. I mean, you've seen everything, you know you have, from glamping to houseboats to trailer parks to beautiful castles to vacation luxury homes on the ocean. I mean, you name it, everything in between there. It's available to rent right now as an Airbnb. But what makes the most sense, that's what we're going to talk about this week based on the investment returns, the safety, the stability and also the financing options available for these different investment options. Let's jump right in. Welcome to Short Term Rental Riches, where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as possible.

Happier here again as always. And another fun topic, and this is going to be a really good one for all the newbie investors or maybe seasoned investors, but are looking at exploring other options for short term rentals. And so I've broken it down into three categories. This is by no means a overview of everything because you know that we've got options to rent short term rentals these days. Everything from tree houses to houseboats to glamping to yerks to, to castles to, you name it, it's out there now and it's an option. But what makes the most sense, that's what we're talking about this week. And I'm going to break it down for you guys into three different categories. We're going to talk about luxury vacation rentals, expensive, nice luxury vacation rentals. The rentals on the ocean, overlooking cliffs, overlooking the seas. These really nice ones that have higher price points. Then we're going to talk about this new and dare I say trendy category of short term rentals. And I'm calling these the exotic ones or sort of the unique ones. So this is going to be all your tree houses. This is going to be your houseboats, your trailer parks, these sort of different type options which can be super profitable. So I'm going to lump those into one category and then the third category is going to be kind of the.

I guess I should say a little more boring rentals. And this is actually the section that I invest in. And these are rentals that can actually be long term rentals as well. So we're going to break these down and just keep in mind this, this is a broad generalization within these three categories. There are tons and tons of other options and limits and some can return much better than others. But in general, I want to break these down. And it really comes down to kind of like this risk reward scenario, right? Actually, all investing, I'm sure you've heard this before, the riskier it is, the more chance we have for higher returns. Historically speaking. Generally speaking, you know, the investing money in bonds, very safe, but it's going to have a very, very low return. So I'm going to break these three categories down with that in mind. So let's just jump into it. The first one here, luxury vacation rentals. So these are your amazing beach mansions. These are your lake houses. These are your traditional vacation rentals where people are going for vacation. They're not necessarily living in these properties. They might be far from city centers. So this is our vacation rental category. And I would say, you know, these are going to be. These are gonna be our highest price point. So this is one of the cons. I'll break these down in pros and cons. I would say this is the most expensive out of the three categories, but they also have really high chance for return. A lot of these properties are earning thousands and thousands of dollars a night. So that is the reward side of it. But another con, and again, this is a generalization to this category, is that a lot of these vacation rentals might be more seasonal. So keep that in mind. Is it a really nice cabin up at the ski resort that only operates or is only going to be full during the winter season? So this is a little more typical with these vacation rentals. They're going to be a little more seasonal, and we don't want to bank on just these few three months or we need to keep in mind that this is where we're making all of our money and something changes. There's a recession, for example. Well, is that amount of money going to be enough for us to cover all of our expenses and in terms of safety, in terms of backup plans? Well, I would give this a two out of the three categories. So I'd say it's kind of in the middle. One is because of the seasonality, but another one is that these are vacation rentals for vacation. And so if there's a recession and people have less disposable income, well, then most of the time they go on less vacations. Right now, if this vacation rental is super luxurious, super exotic, you might be targeting a class of people that recessions don't matter to them. They're wealthy, they've got tons of income streams coming in, and they're still going to go on vacation. So it depends on where your vacation is. At in that scale. In terms of financing, I'm going to give this a two out of the three categories because there are financing options available for pure vacation rentals based off the income. And there are more and more coming along, but it's not quite as easy as some of the other categories. So break that down. So, okay. And then on the pros side we talked about, we can make extremely high nightly rates. That is amazing. I would give that a two actually though, out of these three categories in terms of reward based on investment. And then a really nice thing about vacation rentals, great pro is that you can build really good loyalty. You get guests coming back year after year after year and you can really fill out your schedule in advance. So that's a great, great pro. So let's jump into the next category. And this is, this is. These are the fun ones, right? These are the exotic. Not that the vacation rental ones aren't, but these are like the new ones that are popping up. And I would give these unique exotic rentals a number one out of the three categories for return, potential, investment, return. And now this is based off the amount of money invested and the amount that you can get back. Because if we think about it, these weird exotic rentals, tree houses and stuff, they don't cost that much to build, right? 20, 30,000 bucks. But a lot of these are running for 100, 200, 300 plus dollars a night. So you can get your initial investment back really quickly. So it's got a fast payback. And I'd give that a number one out of three categories. You can get your money back quicker in this category than you can in the others. You can also build a reputation with these and brand loyalty, just like we can with a vacation rental. So this is definitely a pro and that will help you if you have this type of rental and there is a downturn, there is a recession. If you have brand loyalty, you're a rock star at the marketing on Instagram and all that stuff. Well then you can have your calendar booked up literally for like years. I mean, this is happening with some of these types of rentals. So that is. That is definitely a pro. And another pro is that these properties don't have a lot of like carrying costs, you know, the utilities and stuff. This again, this is generalization. Some obviously have more than others, but the utilities and these types of costs are going to be lower in this category. Now let's talk about the cons. And again, this is all risk reward scenario, right? So I'm going to Say these are the riskiest investments in the short term rental world. In the short term rental space. Why? I'm going to give you my main reasons right now. Well, if there is a recession again, these types of places are going to have less guests going to them. These are definitely like a disposable income type of vacation or escape. These are usually more for like quick getaways two and three nights. So I think if there is a recession these are going to get hit the hardest. There's also fewer financing options because this is not a traditional investment. You go to your local lender or your bank and you say hey, I want to turn this small trailer park at 10 units into short term rentals or I want to put up some tents with air conditioning and make this glamping resort. Well, they're not as familiar with that. So there's going to be less financing options. So I would say out of the three categories that this is the going to perform the worst in a recession. You're going to have the hardest financing options. Of course they're lower entry points a lot of times and it's going to be hardest to sell. Right. What if you want to sell this project or you want to sell these tree houses where you have short term rental guests coming? It's going to be a much smaller market that's going to be interested in buying that compared to traditional vacation rental or compared to a urban type rental in a city center. So I would say that these do these weird unique ones have the highest potential for return but they're also the riskiest. So let's move on to the third category and this is the category that I invest in. Yes. Because I'm a little more conservative, I'm a little boring, whatever you want to call it. I, I put a lot of value into the security in these types of investments in the long run. So I'm in this for the long run. So what are these types of properties? Well, these are going to be our more affordable properties, I guess you could say more traditional. These are going to be properties that either have currently a long term tenant in them or have the easy ability to put a long term tenant back in them. So they're likely going to be in the city or near the city or in the suburbs. Right. We're not going to be off in the forest somewhere. We're not going to be two hours away at some beautiful lake destination. These are more of our city type properties. So the pros, best financing options if there's long term tenants in There, our bank's going to be comfortable with that. They will give you a loan as long as it makes sense. So that's an easy one. I give that a one. Out of the three different real estate categories, definitely the easiest financing options and I'm also going to give it a 1. In terms of safety, this is the safest sector to be in because if there is a recession and people have less disruption, disposable income, they're not going to be going on these exotic trips as much. They're not going to be staying at beautiful vacation rentals that cost $5,000 a night. Not as much, I should say. And not all economic classes. But what happens in a, in a downturn, a lot of times people that are renting, for example, they might be running a really nice apartment somewhere in the city center, an A class apartment. Well, if they start making less money, times are tough. They're going to move out of there and they're going to move somewhere into like a B class type investment or even C class. That's not as nice, but it's more affordable. And these are the type of properties that I invest and these are the ones I teach about. Of course, a lot of things that I talk about applies to all these different levels. The operations are pretty much the same no matter what type of property you're investing in. But I like this category because it's more resistant. Just gotta say it, that's, that's the truth. So it's more resistant to downturns. In fact, depending on where your property is, if there is a recession, sometimes these rents even go up because if everyone's leaving these class A luxury properties to go to other properties, B or C class, that puts more pressure on those properties and that means your rents can actually go up. So I think they have the best backup plans. And another one of those is, is it's easiest to sell. If you decide you don't want to be in the business anymore or your rental's not working out or whatever it is, you can put that thing on the market. It's a normal type property. You're going to have more buyers because they have more financing options. It's just going to be easiest to sell. So what are the cons to these? Well, there are several. I would say that the pros, this is number one in a lot of categories because it's, it's the safest. But cons, you're just not going to make as high of a return with these. Again, this is across the board. This Isn't a, you know, there's all different types of properties returning different amounts within these three real estate categories. But in general these are going to be more like a commodity. These are going to be, you know, there might be a thousand or two thousand in a relatively large city or, you know, you know, who knows, tens of thousands. But they're not going to be that much different than each other. Right. So it's going to be a little harder to build brand loyalty. Of course, you can do that very easily. And we do that as well. We get lots of guests returning because they're comfortable staying at our place already. But it's just a little more challenging, it's a little more competitive of a space. It's also easier for someone to enter the market. Right. Someone can add rentals down the street from you much easier than they can add a mansion alongside a lake house or you know, some place out in the woods or tree houses or boats or whatever. So it's more prone to competition. And that affects our returns. It can affect our returns. So in a nutshell, those are the three categories we talked about. Vacation rentals, which are luxury vacation rentals with much higher price points. They can do very well. And again, I just try to break these into three categories. Within each category there's lots and lots of different options. But I would give the luxury vacation rentals in terms of safety and returns, I would give them a two out of the three so they can have fabulous returns and they're going to be a little safer. The exotic rentals, these are the tree houses and the, the houseboats and the, just the, the, the weird unusual type of rentals. I'm going to give these a number one for having the most potential for return. But on the flip side, I'm going to give them a three for being the least safe in a downturn and a recession. The more risk. So they can have the best returns, but they're also the riskiest. And then we've got the affordable rentals or the traditional type short term rentals that maybe had a long term rental in them before, that maybe had a long term tenant in the before. These are the types of properties I invest in. I would give them a three in terms of return being the worst in terms of return. But remember, these returns are still much better than if we had long term tenants in there. A lot of my properties making three, five, eight times what I was making with a long term tenant. So even though out of these categories the potential returns are a little less, it's still much better. Better than long term rentals. Of course this depends on your property. We talk about that a lot on this channel So I would say it's three in terms of return but in terms of safety I'm going to give it a 1. I'm going to say it's the safest. There's just more backup plans. You can sell it easier. You got more financing options. It can actually do better sometimes in a recession just depending on where your properties are. So I hope this helped you guys. It doesn't mean that you should just be in one category as long as you're aware of what you're getting into. I think you can have properties in all three of these categories and it can be really fun right. So hopefully that gave you a little more insight and your guys investment journeys are going awesome. Hopefully they're growing and you're learning a lot and until next time have a wonderful day.

Sam.