The "Back Up Boyfriend" of STR Properties
Kate Stoermer 
Delve into a tale of two markets that meet a specific need in the short-term rental investing
When analyzing potential income from short-term rentals (STRs), it's essential to understand the nuances of each market and the submarket or niche for that property. This week I worked on a couple of analyses for clients with some learnings I thought might be helpful to share. I've cheekily dubbed these "back-up boyfriend" properties (or girl-friend or ... I'm sure my 13 year old could tell me the more PC term). Anyway, I digress.
Back up boyfriend properties might not be everyone's first choice, but they've got their own unique
charm that makes them suitable for the right audience. Recognizing these properties and understanding that "average income" data for a market is just that - average. It means average of top tier AND bottom of the barrel and everything in-between. So really understanding income potential and price drivers means leaning in to understand how to analyze these.
Consumer decision-making is nuanced and highly variable - my A-list boyfriend pick in high school was perfect for me but my bestie didn't see the appeal; its not hard to imagine that staying in the ocean front posh retreat or beachfront cozy cottage is top choice for vacation get aways much like "everyone" wants to date the Prom Queen. Except for the fact that its out of budget (or already taken).
But come off season, there is no need for a back up boyfriend because that not quite the perfect palace is available at the right price. I mean, it may not be prom season but why not have that top-tier experience even if its not on the height of summer?
Here's the low down on the analyses I ran this week that got me thinking about this -
Market A: The Budget-Friendly Lakefront Getaway
Location: A serene, rural lake setting situated 30 minutes away from a bustling city with ample tourist attractions.
The Scene: Imagine a quiet, lesser-known area with less than 150 STRs listed. While the larger city close by attracts hordes of tourists, this little gem remains under the radar.
Why Rent Here?
For some, the draw could be family in the vicinity. For most, however, the allure lies in bagging a lakefront property without burning a hole in their pocket, especially when compared to the pricier touristy locales.
Key Characteristics:
Seasonality: Peaks during the high season, but don't expect much activity off-peak.
Mandatory Lakefront: A waterfront view isn’t a plus here; it's a prerequisite.
Ideal for This Investor Type: Those looking at second homes. If you aim to offset ownership costs rather than high ROI, this is your playground. (These are for the Strategists and Lifestylists - learn more HERE)
Market B: The Affordable Beach Hideout
Location: A popular tourist beach destination. We're zeroing in on the submarkets - those that lack beach views and are situated more than 1/4 mile from the sandy shores.
The Scene: Think of properties on the other side of a busy road, distancing you from the sun, sand, and surf.
Why Rent Here?
These STRs offer more bang for your buck compared to their beachfront counterparts. They’re spacious, providing a feeling of exclusivity that densely packed beachfront properties can't.
Key Characteristics:
Seasonal Success: They thrive in the high season. However, once the off-season hits, their occupancy drops significantly and overall show about 30% lower than prime beachfront properties. Why? Reduced demand and a surge in availability as prices of beach-view homes plummet. All of a sudden the golden ticket is available - even if its not quite prime time.
A Ceiling on Profits: While still profitable, these homes can't compete with the income of those flaunting views and direct beach access.
Ideal for Investor Types: Investors looking for a decent profit without breaking the bank - the Chairman, Entrepreneur, Lifestylists. These aren't great for Industrialists who desire stable cash flow (Learn more about the investor types HERE). With a sprinkle of unique amenities, a touch of accessibility, and a dash of marketing flair, these homes can carve a niche for themselves. However, the financial zenith they can achieve remains unmistakably lower than their beachfront brethren.
Can back-up boyfriend properties cash flow?
Much like in relationships, there's no one-size-fits-all in the world of properties. What might seem like a "back-up" to one could be a dream for another. I've seen lots of examples where a "Plan B" property competes with the top dogs - and many examples where they try and fall short. In truth, very few properties actually pull it off and compensate for not possessing the requisite draw for the market. Well done niched properties, accessible properties, highly unique properties (listen, if a potato on a diary farm can be a cash cow STR - with a bit of creativity - and bravery, most anything can be!).
From an investment stand point, occupancy has a hard ceiling for the back up boyfriend properties; it will be lower than the top tier properties - dramatically so in highly seasonal markets. But price can have just as much variability as the top tier properties - just with a lower range.
In less seasonal markets, the price and occupancy differential doesn't follow quite the same mold; but that's a different case study.
Busting through the Income Ceiling
In my analyses this week, in Market A I saw a really well designed, photographed and marketed property getting $100 more a night ADR than any others - and it was a top grossing property despite being much smaller than others in the market.
In Market B I saw a highly niched property catering to families with small kids - slide off the deck, big wheels, sand toys, high chair - everything needed to keep littles happy and therefore parents have a better time. This property's annual revenue was 25% more than others in the submarket - holding its own against the Prom Queen properties!
To be clear, I reviewed dozens of properties in both markets and yet only saw 1 or 2 examples of above average revenue. The reasons were obvious, and I saw many attempting - and failing. But yes - its doable, but I never recommend assuming higher than average income. I always recommend making the deal work at "average" and having an aspirational goal.
Is a Back Up Boyfriend Property For You?
While prime locations and views often steal the limelight, there's a charm (and potential profit) in the understated choices so long as in analyzing the property these considerations are taken into account. So, next time you're scouting for an STR investment or a getaway, remember to consider the "back-up boyfriend" – it might just surprise you!
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Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or have some questions about your existing business, my goal - passion, and career, is to help YOU succeed. I've coached hundreds of folks getting started or looking to optimize, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat!