Partnering With The Right Realtor for your STR
If you’re investing in a residential home or second home, finding the perfect realtor narrows down to your rapport with the realtor, their knowledge of the area, their relationships with other realtors, and their experience in negotiations. If you’re shopping for a vacation rental investment property, add all the qualifications above and to that much more.
In the market I represent, which is a huge vacation market, I have met some amazing realtors with great skillsets, and yet I remain amazed at how few truly understand how to underwrite a property for short-term rentals. I’ll walk into an open house and they’ll brag that the property grossed $65,000 last year as I look at the list price of $1.1M (the cash flow won’t work on this one), or when asked about projections, they hand over a projection analysis from a local property management company. Using management company projections isn’t a bad resource, but a true #shorttermrentalspecialist realtor will have a lot more in their arsenal to share with their prospective buyer.
Here are some questions an investor might want to ask a prospective investment realtor:
Do you own any short-term rentals?
While not a requirement, it does help to work with a realtor that has his/her own skin in the game you’re wanting to play. They will be naturally easy to connect with because they have already been in the shoes you’re trying to walk into. There is a sort of “geek club” of STR investors and we all love to talk shop any time, all the time. Most of us are excited to share our experiences with others and maybe brag a little about how well our homes are performing and how we helped achieve that performance. But most of all, sharing the pitfalls and successes with you and being a resource for you brings a lot of credibility and helps you feel more at ease about entering that market as an investor.
Which formula do you use to help a client evaluate a purchase?
There are many formulas to underwrite an STR investment. GRI (Gross Rental Income), COC (Cash on Cash Return), Cap Rate, and more. Not one is wrong or right, and some may not work in all markets, but your realtor should be familiar with these formulas and possibly tell you why Cap Rate isn’t the right formula to evaluate in their market. If the market is a fast appreciating market, sometimes the investor factor is the property appreciation and the tax depreciation offset, but one size doesn’t fit all and an investment savvy realtor can have these conversations with you and lead you to the properties that will meet your investment goals.
What tools do you use to project rental numbers for a property?
Again, having local property management projections is a great added resource, but a knowledgeable #STRSPECIALIST realtor will make sure the property can pass their own sniff test. This can be anything from speaking to other owners in the neighborhood who self-manage to share what a self-managed owner might expect or using tools like AIRDNA or Rabbu to evaluate projections.
Are there regulatory constraints on short-term rentals in the area?
Many markets are cracking down on STRs including requiring a license, a 24-hour contact to meet police at the property if police are called, or even placing moratoriums on STRs. These are important restrictions and demands to know before you buy.
How is the labor force for availability of housekeepers/maintenance workers?
You may think that this only applies to owners who self-manage, but that’s not the case. If the pool of workforce is extremely limited, it means your property management companies struggle to find the labor as well, which could lead to difficulties maintaining the property and delivering high cleaning standards, which is the first thing that will negatively impact your reviews.