What does STR stand for in real estate?
Why would you want to rent out a three bedroom apartment for 1.8 million naira per annum when each room can sell for 50,000 naira per night? Check it out, does it even make any sense to you?
Let me put this in perspective. Three bedroom apartments, contains, three living rooms, one sitting room, one kitchen, one dinning room and some other additions. But let us just calculate with the living rooms and the sitting room (four rooms). At 50,000 naira per room, per night, that building should fetch the landlord 200,000 naira in just one night. Now, multiply that with 365 days in a year, you get about 73,000,000 naira.
Take away the cost of maintaining the rooms, you are still left with a very substantial amount way higher than the 1.8 million naira you get for doing annual rentals.
This will lead us to the topic of today’s blog post which is: What does STR stand for in real estate?
In real estate, “STR” can stand for “Short-Term Rental.” It refers to properties, such as hotels, vacation homes or apartments, that are rented out to guests for brief periods, typically on a nightly or weekly basis, rather than for long-term leases.
What Does STR Stand for in Real Estate – Introduction
In the dynamic world of real estate, savvy investors are flexible and always on the lookout for new opportunities. Short-Term Rentals (STR) have emerged as a lucrative venture and is going to redefine real estate investment in 2024. It offers a unique way to generate income from your property as a property owner. In this blog post, we’ll explore what STR entails, its benefits, challenges, and essential tips for success.
Types of Short Term Rentals (STR)
1. Vacation Rentals: These are typically furnished properties, such as houses, condos, or cabins, rented out to travelers for short stays. They are often located in tourist destinations and can range from a single room to an entire house.
2. Airbnb or Home Sharing: Airbnb is a popular platform where homeowners rent out their properties or spare rooms to travelers. It’s a form of peer-to-peer short-term rental and offers a variety of accommodation types.
3. Serviced Apartments: Also known as corporate housing, serviced apartments are fully furnished units that cater to business travelers and tourists. They often include amenities like housekeeping, concierge services, and utilities.
4. Extended Stay Hotels: These are hotel rooms designed for longer stays, typically a few weeks to several months. They offer more space and kitchen facilities, making them suitable for business travelers or those relocating.
5. Bed and Breakfasts (B&Bs): B&Bs are small lodging establishments that offer overnight accommodations and breakfast. They are often operated by homeowners and provide a more intimate and personalized experience. This is what Airbnb set out to do before they grew to become a business model of its own.
6. Hostels: While hostels primarily cater to budget-conscious travelers, some also offer private rooms for short-term stays. They are known for their communal spaces and shared facilities.
7. Vacation Clubs: These are membership-based services that provide access to a network of vacation properties. Members can book stays at various destinations for short periods.
8. Timeshares: In a timeshare, individuals purchase the right to use a vacation property for a specific period each year. This allows them to enjoy the property for a fixed duration annually.
9. Cottages and Cabins: These are often rustic or remote properties, ideal for nature lovers. They offer a peaceful retreat for short getaways.
10. Yurts and Tiny Houses: These unique accommodations have gained popularity recently. Yurts are circular, tent-like structures, while tiny houses are compact, fully equipped homes. Both provide a unique and minimalist experience.
11. Boat Rentals: I am sure you have never heard about this. But it does exist. In coastal areas or near lakes, you can find short-term rentals of boats and houseboats. They offer a unique waterfront experience.
12. Treehouses and Glamping: For a more adventurous stay, some people rent treehouses or go glamping (glamorous camping). These options combine the comfort of a rental with a unique natural setting. You may not need it, but it exists and they are people looking for it. That is what makes life more beautiful, the diversity in the things we do.
Dormitory Rentals: Some universities and colleges offer dormitory rooms to travelers during academic breaks or summer vacations. These are budget-friendly options for short-term stays.
The Benefits of Investing in STR in Real Estate
1. Higher Rental Income: Short-term rentals often generate more rental income compared to long-term rentals. You can charge premium rates, especially during peak seasons, holidays, or special events.
2. Flexibility: You have more control over when you use the property yourself or make it available for rent. This flexibility can be appealing to those who want a vacation home that can also generate income.
3. Tax Benefits: Depending on your location and specific tax laws, you may be eligible for certain tax benefits or deductions related to short-term rental income, property maintenance, and depreciation.
4. Diversification: Investing in STR can diversify your real estate portfolio, spreading risk across different types of properties. This can be especially beneficial in a volatile real estate market.
5. Property Appreciation: Just like any other real estate investment, STR properties can appreciate over time, potentially increasing your overall return on investment when you decide to sell.
6. Shorter Leases: Unlike long-term rentals, STR leases are typically short-term (a few days to a few weeks). This allows you to adjust rental rates and terms more frequently, responding to market demand.
7. Personal Use: You can enjoy personal use of the property whenever you want, provided you block off the dates for guests in advance. This makes it a more versatile investment option.
8. Location Flexibility: STRs can be profitable in various locations, including tourist destinations, urban centers, and rural areas, giving you the flexibility to choose based on your preferences and market conditions.
9. Property Management: While managing a STR can be time-consuming, you have the option to hire property management companies to handle guest interactions, cleaning, and maintenance, reducing your direct involvement.
10. Inflation Hedge: Real assets like real estate can serve as a hedge against inflation since property values and rental income tend to increase over time.
Challenges and Disadvantages of STR in Real Estate
Short Term Rentals (STR) in real estate comes with lots of advantages. But it also has some potential challenges or disadvantages to the investor. The following are some of the challenges to consider before investing in it as a property owner:
1. Vacancy Risk: Short-term rentals may experience more frequent vacancies compared to long-term leases, leading to potential income gaps.
2. Maintenance Costs: High turnover can result in increased maintenance and cleaning expenses, impacting profitability.
3. Regulatory Compliance: Many cities have regulations and restrictions on short-term rentals, which can lead to legal issues and fines if not followed.
4. Operational Demands: Managing multiple short-term bookings requires time and effort for tasks like guest communication, check-ins, and housekeeping.
5. Seasonal Fluctuations: Income can vary significantly based on the season and local events, making it challenging to predict cash flow.
6. Property Wear and Tear: Frequent guest turnover can accelerate wear and tear on the property, necessitating more frequent repairs and upgrades.
7. Security Concerns: Short-term rentals can be more susceptible to security issues, such as theft or damage by guests.
8. Lack of Stable Tenants: Unlike long-term tenants who may establish a stable presence, short-term renters constantly change, making it harder to build a sense of community in the property.
9. Initial Setup Costs: Furnishing and equipping a property for short-term rentals can be costly upfront.
10. Competition: The market for short-term rentals is highly competitive, and pricing must be carefully managed to attract guests.
11. Limited Tax Benefits: Some tax advantages available to long-term rental property owners may not apply to short-term rentals.