3 experienced STR operators share the strategies and skills that have helped them scale their portfolios.
There’s a major difference between purchasing your first Airbnb and building a successful short-term rental portfolio. And one of the best ways to learn how to scale is by talking with investors who have done it before to hear about the lessons they learned along the way.
To that end, Nectar recently hosted a webinar called “Building Your STR Portfolio” with Rabbu Founder Emir Dukic, Nectar CEO Derrick Barker, and STR investor Harrison Yat. The three panelists discussed their strategies for building a niche, underwriting new deals, accessing capital, and investing in our current economic environment.
You may be tempted to focus on diversifying across locations or types of properties when you first start expanding your portfolio, but the panelists all agree that it’s important to create a niche for yourself.
“What I’ve seen work really well is when people find niches that they can dominate, and they’re just going to be really, really good at this one thing,” Barker said. “There’s definitely something to be said for diversification, but sometimes just having the execution advantage of, ‘I know this niche. I know this type of property and this neighborhood and this type of customer, and there’s nobody who does it better or faster or more efficiently,” sometimes that’s better. It gives you an advantage that’s hard to replicate.”
For Yat, that has looked like focusing on investing in properties that are within driving distance of his homebase. This gives him an advantage because he knows the area well, and it also makes operations and hiring much easier.
“Get good at your core competency and get really good at it before you try to add things on,” he advised.
And if you’re not sure what you want your niche to be, start with the things you enjoy, Dukic encouraged.
“If there’s something that you personally like — whether that’s staying in apartments or making sure all your places have hot tubs or pools, whatever the case may be — there’s a really good chance there’s a broader audience across the nation or maybe even the world,” he said. “A lot of it really boils down to, ‘What do I want to experience when I’m in the traveler’s shoes?’ and then doubling down on that.”
There are many different approaches you can take to underwriting, but Dukic and Yat both encouraged attendees to start with simple calculations before diving deep into the specifics.
“Anytime I’m doing underwriting, the first thing I’m looking for is basically, back of the napkin, am I in the high single digits or low double digits of cash on cash return,” Dukic explained. “If that’s the case, then I do a deeper dive into it.”
Yat starts similarly, using online tools and his own experience to evaluate revenue potential.
“When we’re looking at deals for investors, it’s very simple. Annual revenue potential to purchase price plus rehab,” he explained. “If it hits our certain percentage, then we look at it with a deeper dive. And if it doesn’t, we pass.”
The more your portfolio grows, the more restrictive banks will typically become with mortgages and DSCR loans.
All three panelists agreed that building a relationship with a local bank is often the best starting point.
“Don’t spend time going to the Wells Fargos or other big banks of the world, they’re not going to get you there,” Dukic encouraged.
For experienced STR owners and operators, Nectar is another valuable option, as we can provide you with an advance on your portfolio’s cash flow.
“With Nectar, we are really capital stack agnostic. So we can work with any capital stack out there, whether you own it yourself, syndicator, have a mortgage, whatever,” Barker shared.
Even as interest rates are rising and economic conditions seem increasingly unfavorable, there are still opportunities to invest in the STR space.
In fact, STRs are uniquely positioned for this economy because they tend to produce much higher returns than other real estate, Dukic argued.
“It’s harder to find deals as you underwrite with the high interest rates, but if you can find it, a deal is still a deal,” Yat agreed.
And though a rapidly growing supply of vacation rentals has made some operators nervous, Barker argued that the demand is still large enough to warrant an investment.
“Our needs and uses for STRs haven’t changed with interest rates. Interest rates are fundamentally temporary, and the markets will adjust,” he explained. “Even though supply for short-term rentals has skyrocketed, demand is skyrocketing too. And I don't see that slowing down.”