What Does STR Mean in the Housing Market?
Updated: Jul 29
STR stands for “Short Term Rental”
In the housing market and in real estate, STR stands for short term rental. A short term rental is a fully furnished living space or home designed, sometimes referred to as a vacation rental. They are set up to accommodate guests for anywhere from one night to a couple of weeks, similar to a hotel but in a personal residence. The two most popular platforms which connect guests and short term rental hosts are VRBO and Airbnb.
How a Short Term Rental is different than a Long Term Rental
STR’s are generally designed to host out of town guests and temporary tenants. This typically means stays of less than 30 days in a fully furnished home and charged on a nightly basis. Long term rentals, however, are the more common type of rental agreements in the housing market. Long term rentals usually have a 30 day minimum (if not more) and involve a lease between the tenant and the landlord and usually charged on a monthly basis. Long term rentals generally cater to locals looking for a place to live, while short term rentals are more favorable to tourists and visitors.
Short term rentals can often provide a higher ROI
Short term rentals often provide a higher ROI for investors than renting that same property out as a long term rental. However, it also requires more work, oversight, and sometimes additional risk. In order to list your property you first have to make sure it’s properly furnished, which can cost a substantial amount up front. Once listed, you need to make sure it’s properly managed. If you do it yourself you can certainly save some money, but it will require more of your time. Alternatively, if you choose to hire a management company, you’ll lose out on some of the potential profit. Most management companies charge anywhere from 20-30% of the monthly revenue. Also, having an STR often means increased maintenance costs, additional overhead, and increased insurance costs.
However, even with all of these additional costs and responsibilities considered, STR’s can still be an extremely profitable investment. This is especially true in today’s housing market where home values have sky rocketed at a rate much higher than long term rental rates. The key to success is understanding the market so you can keep guests happy while maximizing your occupancy rate and profits.
Local regulations can negatively impact STR opportunities
Short term rentals have become a lot more popular in recent years. Platforms like Airbnb and VRBO have become more popular than ever, making it easy to host new guests. While STR’s provide a great opportunity for homeowners and investors, they are not always embraced by the local community. STR’s often take away rental opportunities previously available to locals, and instead make them available for tourists. Especially in small cities, this can cause problems.
To combat this issue, many cities and neighborhoods are trying to control the growth of STR’s. They are trying to control the housing market by placing restrictions and regulations specific to short term rentals. So before you purchase a home with the intent to list it on Airbnb, make sure you understand your local laws. These regulations vary from city to city, and some cities don’t have any regulations at all. However, when they do they often restrict STR’s in one of the following ways:
Require that the owner show proof of living in the house or on the property
Limit the total amount of guests allowed on the property
Limit the amount of nights the owner is allowed to make the home available
Permit restrictions based on the zoning or the exact location of a property – in some areas STR’s are not allowed at all
Restrict the total amount of STR properties allowed in any city, area, or sometimes even just a block face
Require various permits, additional taxes, licenses, additional insurance, or other legal documents before listing a property
Understanding the regulations is paramount to ensure the long term success of any STR. With an STR, your home becomes a business. It’s important that your home is not only profitable, but compliant with the local laws and regulations. This minimizes risk and ensures the longevity of your investment.