How to choose: Fix n Flip vs Short Term Rental
Hint: Location, Location, Location
As a preface to this newsletter, I wanted to be clear on what my goals are and what these weekly posts will entail. I am using this newsletter as a way to document my journey of learning the process of real estate investing, and basically dump all the information I have learned into this funnel. I am in no way trying to act as a “guru” or mentor. I am most likely in the same boat as a lot of you reading this, and I think that brings a lot of value. Most investing blogs and videos are all about those that have done it already and are at the top. I want this to be more relatable to the average person who wants to get started, and can follow along with my wins and losses!
Hey guys and gals. For this week’s newsletter, we are going to be focusing on which strategy you should choose based on your current situation: Fix and Flip vs Short Term renting. The last two weeks we went into depth about both strategies, so if you missed it, definitely read them first. Also as a little life update, I am currently in Vermont viewing cabins and may be purchasing my first property within the next few weeks, so fingers crossed!
Location Location Location
When it comes to deciding which investing strategy is best for you, location is one of the most important things to take into account. Obviously being in a beautiful and safe location is ideal, but it goes beyond that when you are looking around. Is the area you are looking at a tourist destination? Is it a vacation spot with very high seasonality (ex. heavy traffic for the summer but ghost town in the winter)? Or does it have more of a steady flow of visitors coming through year round, with not many quiet months? Hint: these places are typically in the southeast/west where the weather is more mild year round. These are all big factors you must consider when choosing which strategy you are going to run with.
Which do I choose?
So you’ve researched your market, spoke with local realtors, and hopefully had a chance to get out and view some houses. For the sake of an example, I am going to pick an ideal location for each strategy:
Cape Cod, MA- Let’s say you have chosen Cape Cod as the area you would like to begin investing in. It is a beautiful New England destination, that hundreds of thousands of people flood to every summer. This is about as “vacation destination” as it gets. From May-September Cape Cod is the most bustling little island with people from all over the country spending weeks or months with family and friends. As soon as mid October hits, the island goes from backed up roads and 2 hour long reservations for breakfast, to borderline desolate. Businesses close down for the winter, all the vacationers go back to their NY, Boston, and CT homes, and what’s left are the locals, that can finally leave their homes in peace.
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Given the fact that Cape Cod is a highly seasonal destination, it would not be my first pick for a year round short term rental. The peak season of renting is really only June-August, and although you can charge an arm and a leg per week for a rental, the numbers are difficult to make work. Unless you have a multi-million dollar home on the ocean where you can get $10,000+/week for a rental, the more average homes won’t make much profit at end of year.
Let’s move our attention over to a Fix and Flip now. While a short term rental may not be my first choice, a Fix and Flip definitely is. Given the amount of people that come to visit the Cape, and the insane growth the island sees, home values skyrocketed year over year. This past year, albeit not a normal one, some homes on the Cape saw over a 30% increase in value from the year prior. Homes that were selling for $500,000 a year ago were selling in a weekend this year for $650-$700,000. With this information, I can’t help but drool over the thought of buying a rundown home under market value, and fixing it up to flip in an insane market like the Cape. The numbers are mind blowing and potential is infinite.
Asheville, NC- Now let’s head down south to the beautiful state of North Carolina. This would be my pick for someone looking for a solid short term rental market. Asheville is a stunning mountain town with amazing food, breweries, and views. It is right next to the Great Smoky Mountains, which is the third most visited park in the US at over 12 million visitors per year. The weather is mild year round, and there is not much seasonality because of that. Occupancy rates in Asheville are some of the highest in the area, which is one of the most important factors of a short term rental. If you aren’t getting renters, you are losing money! Although the average rental rate is lower than some luxury spots, at just below $200 per night, the consistent traffic you’ll see will make it all worth it. Just think, $200 per night at the cities average 80% occupancy rate is almost $60,000 per year of rental income.
Overview
While there are many markets all over the country that can do well with both strategies, there are some that just seem built for one versus the other. I hope these examples above made it a little clearer on what to look for in your market, and how to know which type of investing you should choose. If you do enough research of your market, and plan out your investment strategy accordingly, I have no doubt you can grow a successful portfolio over the years.
Some of my sources i’ve found useful:
Where I get my airbnb/vrbo data
Another crazy short term rental market
I hope you all enjoyed this weeks newsletter and took something away from it that you didn’t know before. As always if you enjoyed, feel free to share this with someone you know might be interested. You can also subscribe below if you want an extra newsletter every week that shows a full “Deal of the Week” analysis where I pick a property to analyze from start to finish!