What is an STR in Real Estate?

By: ROS Team

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Thinking of renting out your space but tired of traditional year-long leases? STRs, or Short-Term Rentals, might be the key!  From beach bungalows to cozy city apartments, this booming trend is redefining hospitality and offering exciting opportunities for property owners. Ready to learn how STRs work, discover the benefits, and unlock a new income stream? Let’s dive in!

STR Meaning Real Estate

STR stands for Short-Term Rental real estate. These are properties rented out for stays typically less than 30 days, often on platforms like Airbnb and VRBO. They can be entire homes, apartments, or even spare rooms, and offer potentially higher income than traditional rentals but also require more management and upkeep.

STR vs. LTR: What’s the Difference?

1. Income Stream

The main difference between an STR and LTR is the income stream. When you rent out a property long-te­rm (LTR), the rental income is more­ reliable. This is because­ tenants usually sign a 12-month lease, providing a ste­ady flow of money. For instance, if the monthly re­nt is $1,500, a long-term rental guarantee­s $18,000 throughout a ye­ar.

On the other hand, short-term re­ntal (STR) income tends to fluctuate. This variation ste­ms from factors like changing Average Daily Rate (ADR). As of 2021, listings rente­d out full-time earned an ave­rage annual revenue­ of $56,000. But this amount can be higher or lower depending on the specific circumstance­s.

2. Length of Stay

As already mentioned above, short-term rentals are typically rented for 30 days or less, catering to temporary stays, while long-term rentals commonly have lease terms of months, often extending up to a year or more, providing stable occupancy.

3. Amenities

Short-Term Rentals often come fully furnished with hotel-like amenities such as toiletries and towels, aiming to enhance guest experiences. In contrast, Long-Term Rentals are typically unfurnished, allowing tenants to personalize the space, though basic appliances may be included.

4. Governing Rules

Short-term rental investors must comply with local Airbnb rules and regulations, which may include strict regulations on vacation rental operations. Long-term rental owners need to adhere to landlord-tenant laws at the state level, along with city ordinances concerning building, health, and safety codes.

5. Target Guests

Short-Term Rental owners target leisure or business travelers and temporary visitors, while Long-Term Rental owners cater to long-term residents without their own housing.

Why Should You Consider STR?

Potentially Higher Income: STRs offer the possibility of earning significantly more rent compared to LTRs, especially during peak seasons or in high-demand areas. You can adjust nightly rates to maximize income based on market trends.

Flexibility: With STRs, you have more control over your property. You can choose when to rent it out and for how long. This can be ideal if you plan to use the property yourself occasionally or want to keep it vacant during specific times.

Faster Turnover: If a guest cancels or you need the property for yourself, you can quickly re-rent it to new guests with minimal downtime. This can help manage unexpected situations.

Diversification: Owning an STR can be a way to diversify your income stream and potentially mitigate the risk associated with traditional real estate investments.

Building a Brand: If you enjoy hospitality and take pride in offering a great guest experience, you can build a brand around your STR. This can be a rewarding way to connect with people and create a unique vacation rental business.

Why Should You Not Consider STR?

More Management: STRs require more active management compared to LTRs. You’ll be responsible for cleaning, guest communication, and potential turnover between renters.

Potential for Vacancy: STRs might have periods with no bookings, leading to income gaps. This risk can be mitigated by strategic pricing and effective marketing.

Local Regulations: Some areas have restrictions on STRs, including limitations on rental days or licensing requirements.  Always check local regulations before you invest.

How to Invest in STR Real Estate?

Investing in Short-Term Rental (STR) real estate involves several key steps:

  • Determine the Reason for Investing: Clarify your investment goals, whether it’s generating rental income, diversifying your portfolio, or building equity through property appreciation.
  • Research the Local Regulations: Investigate local zoning laws, homeowners’ association regulations, and any licensing requirements or restrictions specific to short-term rentals in the target area to ensure compliance.
  • Locate the Best STR Real Estate Markets: Identify markets with high demand for short-term rentals, considering factors like tourist attractions, events, and business hubs that attract travelers.
  • Create a Budget and Financial Projections: Develop a comprehensive budget outlining potential expenses such as property purchase costs, renovations, maintenance, and marketing expenses. Generate financial projections to estimate potential rental income and cash flow.
  • Arrange Financing: Explore financing options suitable for your investment strategy, such as traditional mortgages, investment property loans, or alternative financing methods like crowdfunding or partnerships.
  • Make an Offer: Once you’ve identified a suitable property, negotiate with the seller or their representative to reach an agreement on the purchase price, terms, and conditions.
  • Close on the Transaction: Work with a real estate agent, attorney, or title company to finalize the purchase transaction, ensuring all legal requirements and paperwork are completed accurately. After closing, you can begin preparations for listing the property as a short-term rental, including furnishing, marketing, and managing bookings.

Where to Find STR Real Estate?

While traditional real estate platforms work, finding STR properties often involves niche vacation rental marketplaces, STR-focused agents, or data-driven platforms like AirDNA that highlight high-demand rental markets.

Is It Okay to Have an STR as Your First Investment?

An STR can be a good first investment for hands-on individuals comfortable with some risk. It offers potentially higher returns but requires active management and research on local regulations.

Best Cities in 2024 for STR Real Estate

As per AIRDNA, these are the 10 best places for STR Real Estate in 2024:

  1. Columbus, Georgia with Average Revenue of $29K
  2. Ellsworth, Maine with Average Revenue of $41K
  3. Logan, Ohio with Average Revenue of $57K
  4. Spring Hill, Florida with Average Revenue of $39K
  5. Sneads Ferry, North Carolina with Average Revenue of $71K
  6. Winter Haven, Florida with Average Revenue of $31K
  7. Stanton, Kentucky with Average Revenue of $43K
  8. Port Angeles, Washington with Average Revenue of $47K
  9. Akron, Ohio with Average Revenue of $26K
  10. Fairbanks, Alaska with Average Revenue of $32K

How Much Profit Can You Make on an STR?

Profit on STRs is variable, but factors like location, occupancy rate, and nightly rate can influence potential earnings. AIRDNA suggests annual averages of around $56,000, but remember to factor in expenses and vacancy periods for a realistic picture.

Is STR Right For You?

STRs are ideal if you crave higher potential income, enjoy the hospitality, and have the time to manage guests, but consider your tolerance for vacancy periods and local regulations before diving in.

Related Article:

How to Find Short Term Rentals in NYC
Short Term Leases VS. Long Term Leases