Having a growth mindset is a tremendous tool to leverage and also looking back at previous professional experiences can help you to identify where you will be an asset as an STR host and what areas you may need to strengthen and/or outsource. Many of us got started in our careers with some capacity for customer service. This is fantastic as this will be the number 1 area to utilize when dealing with clients. Other skills include office skills such as bookkeeping and tax preparation, communication skills, marketing, property maintenance, and believe it or not IT troubleshooting and tech support skills for property technologies and guests’ use of technologies in the homes. Draw from whatever skills you have acquired in your working life so far and give yourself a pat on the back for being able to transfer existing skills and use them in a new way!
Other things you need to know:
- Each guest is unique
- Accounting for special needs is paramount
- Response time is extremely important – someone on your team must be available 24/7
- STR licensure may be required in your state
- Laws and regulations can change at any time
- Plan your STR business with your neighbors’ rights in mind
- Things in your home can be damaged or taken
- Emergencies can and do occur
- BE PREPARED
Goals: Begin with the End in Mind
Anytime one goes into a financial endeavor of any kind, it is HIGHLY advisable to ensure that all possible angles are covered and that each outcome fits into the larger life goals one has set. It is critical before getting started to determine what you want, why you want it, how it fits into your everyday life (financially speaking), and what it is going to take (and how much it is going to cost in both money and time) for you to reach your dreams.
Maintaining a positive money mindset and having a clear view on revenue and cash flow for an STR business is the quickest way to peace of mind while also ensuring that all revenue is going to the right place.
Whether you are coming into this business to pay down debts, to add to your retirement nest egg, or to generate additional income while in retirement, it is so important to identify the time/money balance in the beginning. What are your needs?
Many people come into this business at different stages in their lives, and this propagates needs that are very different. For illustration purposes, we will explore building equity. Of course, harmonizing both equity and cash flow is going to be the ideal solution and ultimate goal, and we encourage you to figure out where you fit across the spectrum we outline here.
Different types of leverage planning can afford different solutions based on your goals and available resources. When you can start to clarify the distinction between your need for a property, or cash, or both property and cash is when you can clarify your best options.
If you have cash that is ready to be deployed in Real Estate, be intentional and thorough for a property purchase. STR’s are a great option to be able to create a competitive return on your money to either pay down debt faster or enhance your additional income more than a traditional rental would allow. Creating cash flow without equity means you are able to take advantage of properties that others own. There are ways to do this with a rather handsome investment required, and there are ways to do this with minimal investment. We’ll go through the different options in this next chapter.
The main purpose is to not allow your obstacles to dictate your actions but to let your actions overcome your obstacles. We want you to be focused on the goal, and we’ll figure out how to achieve it.
So what are your goals? Let’s explore this question through three avatars, all in different stages of life:
Joshua, 20-35 (Young Adult):
Josh is a young man living in the heart of the city. He works at the local courthouse doing mainly clerical work and is currently struggling to determine what his college major will be so that he can get a job that he likes more. With the help of his parents, Josh bought a new car right after graduating high school and he also has an affinity for expensive clothes, watches, and has all the latest tech gadgets; it’s very difficult for him to save money. He has a roommate in a small apartment but wishes that he could have a place of his very own with a backyard so that he could get a dog. Josh also has a keen eye for interior design and watches all the home design shows on HGTV.
NOTICE: Josh does not necessarily love what he does for a living and is not sure what type of work is the “right fit” for him. Josh has acquired a substantial amount of debt in the short 2 years that he has been an adult. He has no retirement plan established.
Lowe & Sara, 36-59 (Middle Aged)
Lowe is a married man with children in middle school. He works as a professor at the local university and his girlfriend, Sara works as a manager at a leading retail store. Lowe is deeply committed to teaching his students and doesn’t mind grading assignments over the weekends. He’s taken all steps to ensure a decent retirement, but he sure wishes that Sara didn’t have to work on her feet as much as she does. He and Sara own their home and get to take the kids on planned summer vacations, but they will both need to work to keep pace with their retirement goals. Sara’s parents own a small condominium nearby and travel to see them when the weather permits; the condo is rented out for 6 months a year when they are at their regular home. This is a tremendous help as they love spending time with their grandchildren, and this gives Lowe and Sara some time to themselves.
NOTICE: Lowe has a secure career path that he loves. He has resources and a working plan toward his retirement; he played it safe for a secure retirement. Lowe’s time is somewhat limited, but both he and Sara do make time for the things that are important to them. Sara has a job that demands a lot from her physically.
Rob & Maya, 60+ (Golden Years)
Rob & Maya have recently retired after working into their mid-sixties. Rob had a pension job and has all of his and Maya’s basic needs covered. Rob likes working and had started driving Uber during the evenings to keep busy, and Maya has taken a job at a nearby resort as a concierge during the late afternoons/early evenings for extra spending money. Rob is really good with his hands and built a small 2 bedroom casita in their backyard with his son so that he and his family have a place to stay when they come to visit for the holidays. Rob and Maya both really enjoy mornings drinking coffee together, playing cards with their group of friends, and they are thrilled to have extra time in the city where they both grew up to explore new things.
NOTICE: Rob & Maya are both like staying active. They are okay in retirement but both work off-hours and are earning additional income. Both Rob and Maya are social and outgoing people. Rob has a great relationship with his son who has taken an interest in real estate projects.
How much money is required to get started?
Let’s be clear about this fact, some money will be needed for all of the STR strategies. If you have the money to invest in Real Estate, great. BUT, if you don’t have the money to buy Real Estate, that is okay.
Do you have enough to rent and furnish a place for STR purposes? If you do, great! If you don’t, that’s okay too. It actually doesn’t matter what you’re resources are or are not, it just matters that you are clear about what your options are so that you can focus on choosing the strategy that best fits your goals. In addition, all the fundamental skills that you build along the way will allow you to level up to more advanced cash building techniques as you go along.
For the lowest cost acquisition strategy (Co-hosting) it only takes a few hundred dollars to get started. Later in the course, we will also go into more detail about what the precise expense types are, but for now, just understand a rough estimate amount. For the second strategy (rental arbitrage) more funds will be required and the amount will depend on the parameters you set for the property that is rented out under a traditional rental contract and subsequently leased to short-term renters. The last acquisition strategy (Purchasing a Property for STR) will include the cost of purchasing a home.
How much time do you have?
Time management and control are huge factors in running a successful STR. It is beneficial to reflect on your usage of time and ask yourself the following questions:
- How well am I at the calendar blocking my schedule and truly controlling my time across multiple categories of my life? (personal goals, work, physical/exercise, relationships, spiritual, recreation, etc.)
- And do I have enough time to add something new to my plate?
- Can I make time? WILL I make time? Be Realistic!!
Learning something new will always be somewhat challenging, and it also does not happen overnight. However, if the content is learned and applied correctly it does not have to take a lot of time after your initial investment of time required to break through the learning curve. Having an extremely accurate vision of how you use your time will allow you to acquire new knowledge needed in order to run a new STR business, OR it can also help you to identify areas in which you can leverage other resources to ensure that all aspects of your STR business are running smoothly and in a timely manner. Resources include:
- Property Managers
- Systems and Softwares
Time factor will also adjust as you get more into your business. Once you have set up and run your first property, you can systematically align your business so it takes minimal time to manage. After your management process is streamlined, growth can now be your main focus and will take up more of your attention.
What is your risk tolerance?
Another consideration to be made in regard to your resources and how you will leverage them is your overall comfort level with taking risks. Keep in mind that there is an alternative (safety net) real estate option for each of the strategies that are presented here, so financial risks are not as high in STR investing as they can be in other types of real estate investing. Risks of investing your time should be noted as well so that a realistic picture is in place for what you will need to succeed at the onset of this endeavor.
Let’s review each of our avatars in regard to the resources they currently have available.
Josh: Given the circumstances in Josh’s life, he is best suited for a cash flow strategy without the need for a lot of capital investments initially.
- Money – Josh has some revolving debt that he needs to pay down first before he can get his secured debt (car loan) and his student loans up to date. Josh also has expensive tastes..
- Time – Josh needs to allocate time toward earning income to pay his living expenses and other debts, but since he is so young Josh has a lot of time on his side for exploring new strategies for the long-term.
- Risk Tolerance – Josh has somewhat of a tendency to throw caution to the wind in regard to purchasing. However, he is also rooted in security through maintaining a full-time job and pursuing required skills toward making a career (through earning a college degree). Josh is somewhat risk-tolerant.
- Other Resource Considerations – Josh has a two-bedroom apartment located in the heart of his city (a hot spot for STRs). He also has a passion and talent for interior design that he is not currently putting to use. Josh has a supportive family. Josh is tech-savvy. Josh has a vision of what he wants for his future (his own place and a dog).
Lowe and Sara: In his middle career, Lowe has financial resources that have built up over time. He and his family have more consideration for building equity, though cash flow is also a strong benefit for STR acquisitions.
- Money – Lowe and Sara have some savings that they could leverage. If they determine that cash flow is more appropriate for them, they will not need to use these funds or can make a small deduction from their savings. If they determine to invest more heavily in order to build equity over time, they can borrow from their retirement funds and repay themselves (with interest).
- Time – Lowe and Sara are both pressed for time during their busy lives. Sara does not put in as many hours as Lowe, but she is standing for the majority of the day and is exhausted at the end of 8 hours. Lowe spends many extra hours grading homework assignments and mentoring students. They also have 2 children that need their guidance and care.
- Risk Tolerance – Both Lowe and Sara are relatively risk-averse.
- Other Resource Considerations: Lowe and Sara both love their jobs and make a decent living; this is a huge benefit! Sara’s parents exercise tax advantage, business strategies through real estate. This serves as an example for them, and Lowe and Sara have children who they can also teach how to benefit from real estate investment strategies.
Rob and Maya: In their later years, Rob and Maya have found ways to stay active and earn supplemental income. They are both in good health and enjoy their home and add on casita.
- Money – Rob and Maya are living on a fixed income from Rob’s pension. They do not have a lot of additional income for investments.
- Time – Rob and Maya have a lot of time on their hands as newly retired people and both spend extra hours to earn spending money.
- Risk tolerance – Rob does not have a lot of flexibility for financial risks. Both Rob and Maya take personal risks by putting themselves in new circumstances.
- Other resource considerations: Rob has some construction and handyman skills. The casita in the back of their home is perfectly suited to rent out as a short-term rental at various times throughout the year. Both Rob and Maya are great people persons. Rob’s son could be interested as an involved partner in real estate projects.
We know that millennials are all about working a ‘side hustle’ but STRs for extra money is not only for 20 something-year-olds! Retirees are actually one of the fastest-growing groups of short-term/vacation rental providers. The reason for this is because becoming a host for a short-term rental is a way to earn supplemental income. I don’t know about you, but I DO NOT want to “plan for downsizing” in my retirement years. I’m not sure that this is a welcomed option for all after retirement and it will certainly be nice to have the option!
In addition to earning extra money, another reason why retirees are becoming hosts is that it’s something fun to do that keeps them engaged with a purpose. I know we’ve all heard stories about people going back to work after retirement due to boredom. Hosting (and/or co-hosting) a vacation rental is an avenue for seniors to provide service and stay plugged into the community.
Short-term rentals are a great strategy for any age group, but as those of you know who saw my Live session, being solid on retirement is near and dear to my heart. Please share this with older people you know who may benefit and be curious about this strategy!