What Does STR Mean In Real Estate And How to Invest In It?

 

Written by Peter Keszegh

STR, or Short Term Rental, refers to the practice of renting out a furnished apartment, house, or room for short periods, typically less than 30 days. 

In recent years, platforms like Airbnb, VRBO, and Booking.com have brought this investment strategy to the forefront. It's now an appealing option for real estate investors seeking higher yields on their properties. 

Investing in STR real estate properties can be tricky but rewarding. It involves frequent guest turnover, property management, and adapting to varying local rules.

But, the chance to make more money because short-term rentals can charge more per night than long-term rentals is very interesting. This guide makes short-term rentals in real estate easy to understand. It gives people who want to invest the information they need to join this exciting, money-making area.

What Does STR Mean

What is STR?

A short-term rental or STR is when people rent out furnished places to stay for a short time. It’s different from long-term renting because STRs are for just a few days or weeks, not months or years.

This kind of rental is for different people who need a short-term place to stay. It offers things that make it feel like home.

The rise of platforms like Airbnb, VRBO, and others has greatly boosted the popularity and accessibility of STRs. This has transformed them into a mainstream lodging choice for travelers globally.

STR real estate has changed the way people travel. They let you stay in places that feel more personal than big hotels.

These places to stay include apartments and houses, and even cool spots like treehouses and tiny homes. They fit all different kinds of budgets and preferences. 

STRs mix the cozy feeling of being at home with the fun of traveling. They're getting more popular because people want travel options that are both flexible and real.

small cabin in middle of woods

How STR properties are used

Owners and investors use properties for short-term rentals (STR) to give travelers a place to stay for a short time. People like these places because they offer something special, like more privacy and a chance to experience the area in a different way.

 This is becoming very popular with travelers today. It also makes these properties a good way for owners to make money in the hotel and travel business.

  • Vacation Rentals: STR properties give travelers a cozy place to stay. They have more room, privacy, and things like kitchens and laundry. This is great for staying longer, family vacations, or group trips.

  • Local Experience: Short-term rentals let guests stay in local neighborhoods. This gives them a real feel of the place, unlike big hotels in tourist spots.

  • Corporate Housing: Used for when employees go on business trips, training, or short-term work. It's a cheaper, comfy option instead of staying at hotels.

  • Versatile Accommodation: For work or play, STRs offer solutions that cater to different needs and preferences.

  • Event Accommodation: STRs provide a cheaper, more convenient option for those attending big events like festivals, concerts, or conferences.

  • Investment Opportunities: People who own property can make good money by renting out their places for short periods. Guests will pay more for special stays.

Benefits of investing in STR properties

Investing in short-term rental properties can be very profitable. They can earn you more money than regular, long-term rentals. Here are some benefits:

  1. 1
    Dynamic Pricing Model: STRs allow investors to adjust prices based on seasons and demand, maximizing earnings per square foot by setting optimal prices.
  2. 2
    Maximized Investment: STRs' flexibility enables owners to capitalize on peak travel seasons, keeping the property competitive and profitable.
  3. 3
    Flexibility and Control: Owners can block off dates for personal use, offering a unique advantage over long-term rentals and making it appealing for personal enjoyment.
  4. 4
    Diverse Real Estate Portfolio: Investing in different types of properties, from city apartments to beachfront villas, allows for risk diversification and multiple revenue streams, fostering financial growth and stability.
  5. 5
    Tax Benefits: In some countries, STRs receive tax breaks and deductions, minimizing the tax burden on owners' rental income.
  6. 6
    Appreciation Potential: With the growing popularity of STRs, property values in sought-after locations are likely to increase, providing potential for long-term appreciation and higher resale value.
  7. 7
    Minimal Long-Term Commitment: Unlike traditional long-term rentals, STRs offer owners more flexibility to change their investment strategy or sell the property if desired.
  8. 8
    Fosters Tourism: By providing unique and authentic accommodations, STRs can attract a diverse range of travelers, promote tourism in the local community, and contribute to its economic growth.

How to invest in STR properties

Investing in short-term rental (STR) properties can be lucrative if approached with diligence, research, and strategic planning. Understanding the real estate market dynamics, property types, and regulatory landscape is crucial for success in this competitive space.

Researching potential markets and locations are one of the steps to investing in STR properties

1. Researching potential markets and locations

Investing in short-term rental properties means you need to really understand the big market trends and what special things make some places better and more money-making than others.

Tourism and business travel trends

A STR (Short-Term Rental) market makes more money when lots of tourists or business people are traveling. By looking at travel patterns, like the busiest times and why people are traveling (for fun, cultural events, or meetings), you can guess how many people might need a place to stay. 

Places that are fun to visit all year have the bonus of always having guests, unlike places that are only busy at certain times of the year.

Supply and demand dynamics

It's really important to know how many short-term rentals (STRs) are available and how many people want to stay in them. If there are too many rentals and not enough guests, owners might not have a lot of people staying, and they might have to lower prices to compete. 

On the other hand, if a place is getting more visitors but doesn't have many rentals, it could mean a lot of guests for each rental and the chance to charge more.

Economic health and growth prospects

The economy and future growth of a place can really affect if your investment will do well over time. Places with growing job opportunities usually bring in more business people and tourists. 

Also, think about if the place is putting money into making things like roads better and attracting more visitors, because this could mean more people will want to stay in short-term rentals (STRs) in the future.

Proximity to attractions and amenities

Places near big tourist spots, business areas, restaurants, stores, and buses or trains are really popular. When people pick a place to stay, they like it to be easy to get to and close to everything. This makes these spots better for owners because they can charge more money.

Neighborhood safety and quality

The safety and good quality of the neighborhood are very important. Homes in safe and nice areas usually get more bookings. Looking at online reviews and local crime numbers can help you understand how safe an area is.

Unique selling points and scenic value

Properties that stand out because they're special or have nice views are more appealing. This could mean places with cool history, unique designs, amazing views, or special extras like a pool or garden. These cool features make staying there better for guests and mean the place can be rented out for more money.

Regulatory environment

Before investing, you need to know the rules for short-term rentals (STRs) in the area. Some places have strict rules that can make it hard to make money. Check the local laws about where you can have STRs, what licenses you need, and any rules you have to follow. This will help you follow the law and avoid trouble.

Marketing and management considerations

Good marketing is key to attracting more guests and bookings for STRs. This means using great photos, listing your place on websites where people book vacations, and posting regularly on social media to get noticed.

Staffing and maintenance

Taking good care of your investment property is very important. This helps make sure guests are happy and leave good reviews. If your property is big or in a busy area, you might need to hire people to clean or fix things. Also, it's important to have someone guests can call if they have problems during their stay.

luxury modern home in a suburban area

2. Finding the right property

Choosing the best property for short-term rentals means knowing which properties work best and finding features that can make you more money. This part will help you pick the right investment that meets your goals and what people want.

Conduct comprehensive market research

Before investing, it's smart to examine the market closely. Find out how often places are usually filled, how things change with the seasons, and what others charge in the area you like. 

Use tools and information from STR platforms. They can help you see what people want and how much they're okay with paying.

Evaluate property condition and upkeep needs

A house or building that's in good shape and doesn't need a lot of fixing or making better can start making money faster. Think about how much it will cost to keep it up, too. If a place costs a lot to maintain, it might not make as much money over time.

Assess amenities and features

Amenities and features make a property nice to stay in. Things like quick internet, modern kitchens, comfy living rooms, and private parking spots help a lot. Also, if a property has something cool like a beautiful view, a swimming pool, or a big yard, it's even better and more interesting.

Understand the impact of location

The place where your property is located can really affect how much money you can make from it. Properties close to popular places, bus or train stations, or safe and nice areas usually do better. 

But these places might cost more to buy. So, it's important to think about whether the higher price is worth it because of the money you could make later.

Consider target demographics

Knowing what your target group likes and needs can help you make your property more appealing to them. This means you can have more people staying and get good reviews. For instance, if you want to attract families with kids, think about having things like a playroom or a place outside where kids can play.

a marketing strategy can help further boost and improve your business

Create an effective marketing strategy

To get more guests and make money, you need a good plan for marketing. Use websites like Airbnb, VRBO, or Booking.com to find more people. Also, use social media and special ads to show off your place.

Stay up-to-date with industry trends

When you have a rental property, it's really important to keep up with what's happening in the business world. This means watching the market closely, seeing how prices are changing, and knowing the rules. Doing this will help keep your property making money and staying ahead of others.

3. Understanding regulations and legalities

Understanding the law is super important if you want to invest in short-term rentals (STRs). Different places have different rules for STRs. 

These rules can affect many things, like where you can have your rental and how you run it. It's really important to know these rules well so that your investment follows the law and makes money.

Zoning laws and use restrictions

Zoning laws are rules about how you can use land in different areas. Some areas might not allow short-term rentals (STRs) at all, so it's really important to look up the rules for the area where you want to invest. 

Also, sometimes groups like homeowners' associations (HOAs) or condo boards have their own rules that might stop you from running an STR.

staying informed with the rules and regulations can make you avoid any issues in the future

Licensing and permit requirements

Many places ask people who want to rent out their homes for short times to get a special permit or license first. They often need to follow certain rules, like having their place checked for safety or showing they have insurance, to keep their permit.

Tax obligations

Understanding the tax implications for running an STR is very important. This means knowing about the income taxes and local taxes for guests that you need to collect and give to the government. If you don't follow these tax rules, you could get penalties and fines.

Operational regulations

Rules for how things should run may include how many people can be in a place at once, how loud things can be, and how to throw away trash. These rules help make sure short-term rentals don't cause problems in their areas. It's a good idea to learn about these rules where you live and make sure you and your guests follow them.

Insurance coverage

When you run an STR, it's super important to have the right insurance. Normal home insurance might not cover short-term rentals. So, you should check your insurance policy or talk to an insurance agent to see if you need extra coverage. This helps keep you safe from having to pay for any accidents or damages that happen at your place.

Guest screening and communication

When you run an STR, keeping your guests safe is very important. Some cities ask for background checks on everyone who rents a place, but some cities let you decide how to check on your renters. 

You should always tell your guests what your rules are, what you expect from them, and what to do in an emergency. This will help everyone have a good time and avoid any problems or confusion while they're staying with you.

Maintenance and safety standards

Keeping your STR clean and safe is very important. It makes sure your guests are comfortable and helps prevent accidents you could be responsible for. You should regularly check that everything in your STR is working right and that there are no dangers. Also, make sure you have safety gear like fire extinguishers and carbon monoxide detectors to keep your guests safe.

4 .  Marketing and advertising

Once your STR is ready for guests, it's important to start telling people about it. This helps you find people who want to rent your place and make money. Here are some good ways to do that:

  1. 1
    Creating an eye-catching listing on popular rental websites such as Airbnb, VRBO, or HomeAway.
  2. 2
    Utilizing social media platforms to showcase your property and reach a wider audience.
  3. 3
    Partnering with local businesses or tourism organizations to promote your STR.
  4. 4
    Offering special deals or discounts during peak seasons or holidays.

Make sure to keep your listings up to date and quickly answer any questions from people who might want to stay at your place. Good reviews from people who have stayed before can really help your place become more popular.

word impossible with hand covering first two words

Challenges and risks in STR investing

Investing in STRs can be great, but there are some challenges and risks. Here are ten important things every investor should think about:

1. Market saturation

In today's fast-changing hotel and lodging industry, too many places to stay is becoming a big problem for STR investors. They need to plan carefully to stay ahead of the competition.

  • Understanding Market Dynamics: In places where lots of tourists go, there are so many options that it's hard for short-term rental investors to stand out. When there are too many rentals, your property needs to be really special to attract guests. To do well, investors must look for places where not enough rentals are available but people want to visit. Making your rental different by having cool things that others don't, setting good prices, and being great at helping your guests can make your property more popular.

  • Strategic Marketing and Diversification: To deal with too many similar businesses in the market, investors need to work smarter in how they advertise and think about spreading their investments. This means they might invest in different places or types of properties. Making their property ads attractive with good photos and details, and using social media can help more people see them. Also, looking at special markets or places not many people are considering might find new chances with fewer competitors.

2. Regulatory changes

For people investing in STR, it's really important to keep up with rules and regulations. This helps them stay out of trouble and make the most money from their investments.

  • Staying Informed on Local Regulations: The rules for STRs keep changing. Different places make new rules that can affect how much money you can make. Some new rules might limit how many days you can rent out a property, change the rules about where you can have STRs, or even say you can't have STRs in some places at all. It's important for investors to keep up with these rules by looking at the city's official websites and talking to other people who rent out places short-term for the latest news.

  • Proactive Compliance and Advocacy: To handle regulatory changes, investors need to make sure their properties meet current laws, possibly by getting the right permits or changing how they operate. Joining local groups or associations that represent short-term rental interests can help influence regulations in a positive way.

3. Economic volatility

For people investing in STR, it's really important to handle ups and downs in the economy. This helps them protect their money and take advantage of changes in the market.

  • Anticipating Market Fluctuations: When the economy gets tough, fewer people travel or go on vacation. This means not as many people want to stay in STRs, like vacation homes. Investors should keep an eye on the economy because it can change how many travelers are looking to rent. It's smart to have some extra money saved up so you can get through times when not many people are renting your place.

  • Flexible Pricing Strategies: Using flexible prices can help deal with ups and downs in the economy. Tools that change prices based on how many people want something, the time of year, and special events in the area can make more money when things are busy and attract visitors when it's slow.

hand holding dollar bills

4. Unexpected costs

Unexpected costs can pop up in different ways. These can affect how much money short-term rental investments make and how well they run.

  • Budgeting for the Unexpected: Owning a short-term rental can mean some surprise costs like urgent fixes, keeping things in good shape, and making updates to keep up with others. Investors should save some of their earnings in a special fund. This way, they can pay for these unexpected expenses without hurting their profits too much.

  • Regular Maintenance and Upgrades: Taking care of your property before problems happen and sometimes spending money on making it better can help avoid big, surprise costs. Checking your property often and fixing little things right away means they won't turn into big issues. Also, making updates and fixing things up keeps the property looking good for guests.

5. Property management

Effective property management is crucial for maximizing the profitability and sustainability of short-term rental investments.

  • Evaluating Management Solutions: Managing a STR takes a lot of time. You have to do marketing, take bookings, clean, and keep everything in good repair. If you hire a company to manage the property for you, it can make things easier, but you have to pay them. They usually want a part of what you earn from renting out the place. Before deciding, think about if the help from the company is worth the money you will not get because you have to pay them.

  • Optimizing Self-Management Practices: For investors who decide to manage their properties by themselves, it's important to be efficient to save time and effort. This means they can use property management software to help with booking guests, taking payments, and talking to guests easily. Also, having good plans for cleaning and fixing things is helpful.

documents showing tax

6. Tax implications

Knowing how taxes work when you own an STR is really important. It helps you make the most money from your investment.

  • Understanding Tax Obligations: Dealing with taxes for STR income can be tricky. Taxes you might have to pay include income taxes, occupancy taxes, and maybe VAT, and they can change depending on where your rental is located. It's really important to know these tax rules so you can follow them correctly and not pay more than you have to.

  • Seeking Professional Advice: Talking to a tax expert who knows a lot about real estate and STRs can help you understand taxes better. They can give you tips on how to make your investment save you money on taxes, tell you what costs you can deduct, and keep you up-to-date with new tax rules.

7. Seasonality

Seasons matter a lot if you rent out places for short stays, like holiday homes. This is because the time of year changes how many people want to stay, how much money you can ask for, and how often someone rents the place throughout the year.

  • Planning for Fluctuating Demand: Short-term rentals often get more or less popular at certain times of the year, which means the money they make can go up and down. It's important to know when these times are for your place and plan for them. You might need to change your prices to get more people to stay during slow times and make sure you save enough money to cover when you're not making as much.

  • Maximizing Off-Peak Opportunities: Finding ways to make your property attractive even when it's not the busy season can help lessen the effects of up and down times. You can do this by focusing on different types of guests, giving special deals, and talking about fun local things to do or events happening during the quiet months.

Wrapping up 

Investing in STR real estate can be a great way to make money in real estate. If you pick the right place, learn which properties make the most money, and understand the rules, you can benefit from more people wanting comfortable places to stay for short periods.

Investing in short-term rental real estate needs careful thought and smart planning. It's important to know the risks and tough parts of this kind of investment. 

To do well and make more money in this active field, you should pick properties wisely, manage them well, and plan your taxes smartly. So, always keep learning about the market to do your best.

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