How I Acquired My Short Term Rental: Part 1

Market Selection, Research & Acquisition

Today I own one short term rental property located in the beautiful city of Savannah, Georgia. I purchased this home sight unseen and got it up and running as an AirBnB all the while living and working full time in Colorado. 

This was no small adventure so if you’re curious how it all began, buckle up. But really quickly, if you’re unfamiliar with the words short term rental, check out my introductory article first; An Introduction to Short Term Rentals. If you’re already well versed, read on to hear how I determined my market, conducted research, and actually acquired this property.

Getting Started: choosing my buy box

So, how does a girl who has never even been to Savannah, Georgia wind up purchasing a home there? Well, carefully but it all started with a buy box. Essentially, before most investors seek out their next purchase, they sit down and determine the specific details that ultimately organize their search and help them get really clear about what they can and will buy so that when they begin looking, they don’t get distracted by the zillions of homes that they might, potentially, somehow buy. Buy box parameters sound limiting but they are crucial if you want to be focused and efficient with your time.

Most buy boxes include a certain price range that you can afford, square footage or layout specifics that are feasible for your investment strategy, the desired location, state of the property (as in, how many repairs will be necessary), and so on. Each investor will have their own criteria and will make choices based on their particular situation. 

For this property, my buy box started off with a maximum all-in price of $300,000 having reviewed my liquid cash available, current interest rates and loans that were available to me. From there, I was looking for a layout that could accommodate a short term rental. This latter detail was quite open ended because I would have to customize the layout specifics like number of beds, baths, etc. once I got to know the area I’d be buying in. As an example, if I could afford a property closer to downtown, the layout would likely be a little more compact versus a property further out in the suburbs where a guest might expect to have more space.

Right away my price range eliminated the Colorado market from my search entirely. Sure, I might’ve been able to continue saving or slightly adjust my parameters but I stuck to the number one rule of buy boxes; stay in the box. I half expected this outcome anyway due to my price point but it meant that I’d have to buy a home out of state and deeply research other markets where this venture could work. Even though I’d never done this, I felt confident that I could figure it out because I’d seen other investors succeed with out-of-state investing, had read up on the basics and was fortunate enough to have mentors by my side that had been through all these firsts. Without spending too much time worrying about everything that could go wrong, I dove in.

Research: understanding your market

My first reaction when I kicked off the research phase was to cross Colorado off my list and then weed out all other states, one at a time. There’s only 49 more after all! Thankfully though, the impatient yet efficient side of me instead started thinking about states I’d visited in my lifetime that I’d really enjoyed, were geographically close by (or could be easily reached via plane) and that also had an average cost of housing in my budget. My list narrowed significantly to Florida, Kansas, Missouri, Alabama, and Georgia.

Admittedly, I was feeling a little bit blocked at this stage. Even with my list narrowed to five states, there were SO many cities to choose and I didn’t know where to begin. I went back to the books I’d read, the investor forum I followed and the other short term rental investors that served as mentors at this time. All of these resources advised looking at the most visited cities in these states, possibly skipping over the capital city entirely and zeroing in on what exactly attracted visitors to the area in the first place. Was it a national park, a university, a landmark, an amusement park or even just great BBQ? They reinforced that to be successful, a short term rental has to be located close to a destination where people want to reside for a handful of nights, has to be a convenient home base during the visit and should accommodate the corresponding profile of travelers who’d be attracted by the area. That last part is so important and to do this, I recommend putting yourself in a visitors shoes to think as they might when they are planning their trip.

“A short term rental must be close to a destination where people want to reside for a handful of nights, be a convenient home base during the visit and should accommodate the corresponding profile of travelers who’d be attracted by the area.”

For example, a family with three children wants to visit an amusement park in Florida. It’s a few states away and they’re roadtrippin’ rather than flying. Dad wants a home close enough to the amusement park that it minimizes the amount of driving time to-and-fro. Mom wants at least three bedrooms and would prefer to have a kitchen where they can make a quick breakfast and avoid the insanity that is the cost of one meal at an amusement park. Thus, an investor should consider homes as close to the park as possible with as many bedrooms as they can afford. As a bonus, they should consider a garage to make the home more desirable for families with cars. Having a yard might be unnecessary because chances are you won’t bring your pupper along if you’ll be spending all day at an amusement park.

Note, this is where the flexibility of the home layout surfaces again; if you are buying in an area that is attracting families like the one above, you probably want to have a minimum of two bedrooms, maybe three. In contrast, if you’re buying in an area that is located next to a university, a place that attracts parents to visit their student, perhaps you only need one bedroom.

Going back to my own list of cities, I selected a few with specific types of tourist attractions or popular destinations and began considering the type of visitor I could reasonably expect. With my profiles and desired home layout for each city, I was able to start tracking new listings popping up on Zillow that met my criteria and begin tracking them closely. I used Zillow to document the purchase price on each listing and other short term rental data websites to inform the potential monthly income, occupancy, and market saturation. 

My actual property analysis for potential STR locations.

Spreadsheets helped me track pricing trends, average monthly rent in case I ever converted to a long term rental, the average daily rate for STRs in the area and an estimate of cash flow after expenses.

Recording data taught me so much about the market and further refined my list of cities. I found that Tampa consistently sat at the very top of my budget and I ultimately decided that it was too risky with the rising costs of insurance. Kansas City and St. Louis had an abundance of available short term rentals listed on AirBnB that were vacant for months at a time, a red flag of oversaturation. Then between Birmingham and Savannah, the deciding factor was simply that I found a realtor in Savannah whom I really trusted. And that was that!  

Acquisition: finding the house

With a realtor now on my proverbial team, I leveraged his expertise in the market to improve the accuracy of my data and get the downlow on each neighborhood. Despite my property analysis spreadsheet highlighting enticing cash flow potential on some listings, a second opinion from a local was priceless. Only someone who knows the area can tell you what’s really going on and luckily I got the scoop on houses which appeared perfect on paper but less so in person. 

It’s worth underlining two learnings here; first, data is a vital piece of the puzzle but it’s not the full picture. How you or your team feel about a location, a house, the neighborhood, etc. - an immeasurable data point - should supplement the data. Second, I’ll always be an advocate for working with a realtor. It is their job to know the market and if you forego their help to save money, it may cost you down the line. Even as a realtor in Colorado I still worked with a local because I obviously don’t know the Savannah market like someone who sells homes there for a living.  

Together, we selected a few homes on my list and “previewed” them, me watching live on FaceTime while he perused with his camera phone. I wanted a three bedroom, two bathroom home where families with at least three kids would be comfortable, a yard for a dog, a garage for a car, and a space large enough for everyone to gather around the TV in the evenings. There were one or two homes I quickly gravitated to and so we started making offers. 

I’ll save you the details from the rollercoaster of emotions that is offer-making. I can’t even commit to one sentence that would generalize the experience because it can depend on current market demand, your realtor’s experience, the strength or weakness of an offer or even just how the seller feels that day when it’s received. I’ll instead emphasize that this process is easiest when you remain unattached to homes and outcomes (unlike me). Just keep at it, stick to your buy box and the homes you’re confident in, learn from each offer and eventually one will be accepted. 

Upon acceptance, the transaction status immediately changes to under contract. This fancy term means you’ll now follow the flow of your contractual terms to obtain financing, investigate potential problems with the home, request fixes, close out the deal and take possession of the home. I opted for a thirty day time period to work through these details and used every bit of the month to navigate the challenge of closing on a home while being physically located in another state. The biggest difference was that I needed a power of attorney, or a legal document that authorized another person to act on my behalf so that the deal could close in Savannah while I remained in Colorado. 

After a relatively uneventful inspection (always a win) and a smooth engagement with my lender, I had financing, I paid the down payment and I closed on the home.

Next Steps:  turning a home into a short term rental

With keys metaphorically in hand, I was now a proud homeowner! I’d still have to actually travel to Savannah, physically collect the keys, and see my home for the first time. Crazy enough, all of this work was just to acquire the property… Nothing about it so far actually made it a short term rental either than it’s potential. From here, there was still a ton of work to do to get this home in operation.

If you’re curious about how this empty home became a functioning short term rental, check out Part 2 next.