@Daniel733:
You raise some really good questions. Thanks for coming to the Community!
You can start by reading an article I wrote last year. It goes through a lot of the process of setting up a full home as an STR. (https://community.withairbnb.com/t5/Help/How-to-Start-an-Airbnb/m-p/126109#M6481).
Now to answer your specific questions. First, I have been in your shoes. My original STR we started a couple years ago was a guest house located on a parcel we purchased for LTR. We could not rent the guest house so we turned it into an STR that averages 85%+ booked year round. My second STR is a home that had a successful run as an LTR but I wanted more money from it. We debated a while before creating the second STR because of the work involved in running it. (We manage and clean both homes ourselves)
As you mention, an LTR is minimal work. Vet a good tenant and keep the house maintained and all is good for the contract term. However, an STR will keep you busy answering emails, questions, cleaning, increased maintenance, etc. It can be considered a part-time job if you host and clean yourself. I spend about three hours cleaning our three bedroom, two bath STR after each booking.
Secondly, and our main concern, is income. Which model will bring in the highest revenue? To determine your potential income you will need to peruse the Airbnb site looking for rentals that are similar to yours and in your proximity. Look at their rates to determine competition. Get a good average. Most STRs do not rent for as high as the owner would like them to.
In addition, the smallest quirks of a neighborhood can be huge problems for an STR. You might think a nearby park is an asset, but if it causes noise, traffic or loitering the park will hurt your revenue stream. The same goes for major roadways, airports, etc. Since you are planning a purchase then you can mitigate some of these issues through very careful location assessment. Don't get drawn into the property. Stay emotionally remote when looking at houses and locations. Spend time just sitting in the neighborhood watching the people and listening for noise (especially on a Friday or Saturday evening). Location is EVERYTHING with an STR.
Let's get into the nitty gritty of income and what is reasonable. My first STR would have rented LTR for $650/month. Operating it as an STR means I have to pay for all utilities and supplies (electric, water, gas, toilet paper, cleaning supplies, etc.) Those monthly expenses run about $250 per month. Add the expenses to my $650 and I have to make at least $1,000 a month to be equal to an LTR. That particular home grosses an average of $1300 per month. Therefore I make an additional $3600 per year over operating it as an LTR.
My second home would LTR for $900/month. It costs $450 to operate which means I need to make $1300 to be equal. It grosses an average of $2,000 per month with a net of $700 so I make $8000 more per year there as an STR than I would as an LTR.
These are my numbers, but I am sure there are hosts that actually do earn much more and also some that do worse.
Another consideration is insurance. No homeowners inurance will cover an STR. You will need to contract through one of about 3 companies in the U.S. that offer STR insurance and it is not cheap. Think about $1500 per year or twice what you would normally pay for rental insurance. Some people use Farmers as they have a rider you can purchase if already using them. Regular homeowners will not cover LTR or STR.
You mention local laws and HOA's. You must abide by both if applicable. I can't speak to Virginia in particular, but here in Arizona we still have to have a business license, report taxes, etc. to be legal. Although many hosts operate outside the law it is not something you can afford to do if you are making this size of a financial commitment. As the article I wrote indicates it's going to cost you about $8,000 to get a three bedroom home ready with all of the furniture and supplies you need. That money would be completely gone if the government or an HOA shut you down. As for an HOA, stay as far away from them as you can! They are the baine of STR owners.
In summary, I feel that STRs have been an asset to my finances. Although they are much more work, they have provided me with an income roughly equivalent to owning one more LTR. However, my guests are MY GUESTS. Yes it is a business, but I operate my STRs as a HOSPITALITY business. We have rave reviews on our properties because we love our guests and we show that love to them. We answer phone calls in the middle of the night. I respond when there is a problem. I meet each guest at the home when they arrive. These are all issues you must decide if you want to tackle. Even as I write this I am sitting here waiting for a guest that is 3 hours late and has not had the courtesy to update me with a true arrival time beyond, "We are still coming." A succesfully run STR is NOT an LTR. It takes a lot of additional work and if you are not prepared to do it, then forget the extra money and go for an LTR.
I had one more thought. Why would you purchase a brand new house as a rental? A new house is going to cost you more in both mortgage and insurance than an older home that has depreciated, but is still a sound home. I'm sure you have already thought about it, but can you get enough higher rent to cover the cost of a new home as opposed to a used home? Can you earn more per month purchasing a used home? As for things tearing up- new homes are almost as bad as a used home depending on the contractor. If your new home purchase is in a new subdivision you will lose income as an STR if your guests have to listen to or be bothered by nearby construction noises and traffic. (Just a thought).
Please keep me informed as to your decision moving forward and feel free to follow up if you have more questions.
