STR Rules · Question answered
Should I Underwrite a Hill Country STR as a Long-Term Rental First?
Airbnb revenue projections are a best case, not a floor. Stress-test every Hill Country STR as a long-term rental before you commit.
Short answer
The direct answer.
Yes. Underwriting a Hill Country short-term rental as a long-term rental first tells you how much downside the deal can absorb — a permit change, an occupancy drop, or a shift in platform demand. If the property still works (or nearly works) as an LTR, the STR upside is a bonus. If it collapses without STR income, the risk is much larger than it looks.
Why it matters
STR income is sensitive to city rules, HOA rules, occupancy, seasonality, cleaning costs, management fees, furnishing depreciation, and platform algorithm changes. Any one of those can meaningfully reduce projected revenue.
Hill Country STR markets — Boerne, Fredericksburg, Canyon Lake, Wimberley, New Braunfels, Kerrville, and surrounding areas — each have their own regulatory environment. A property that's a strong STR today may not be tomorrow.
How to Stress-Test an STR as an LTR
Estimate a realistic long-term rent on the property based on comparable long-term rentals nearby, not on STR revenue divided by 12. Then run the same expense stack (taxes, insurance, maintenance, reserves) minus STR-specific costs (cleaning, restocking, furnishing amortization, higher management fees).
If the property produces meaningful negative cash flow as an LTR, ask what happens if STR income drops 30% or if the city changes permit rules. If the answer is 'the deal collapses,' the price is likely too high or the STR upside is being treated as a floor instead of a ceiling.
STR Stress-Test Checklist
| STR Assumption | What Can Go Wrong | How to Stress-Test |
|---|---|---|
| Nightly rate | Competition compresses rates | Use 70–80% of projection |
| Occupancy | Seasonality, algorithm changes, new supply | Model at 55–65% occupancy |
| Local rules | Permit changes, caps, moratoriums | Verify current city and HOA rules |
| Management fees | Full-service STR management is expensive | Include 20–30% of gross |
| Furnishing | Wear and replacement | Amortize furnishing over 3–5 years |
| Fallback rent | LTR floor if STR fails | Run the deal as an LTR |
San Antonio / Hill Country example
Example: A Canyon Lake STR Under Two Scenarios
A Canyon Lake property is projected to gross $72,000/year as an STR. Stress-tested at 70% of nightly rate and 60% occupancy, gross drops to roughly $45,000. After STR management, cleaning, furnishing amortization, taxes, insurance, and debt service, the property produces modest cash flow.
As a long-term rental, the same property might command $2,600/month — $31,200/year. That doesn't cover the debt and expense stack. The takeaway isn't that the deal is dead; it's that the buyer needs a price or a down payment that keeps the LTR floor livable, because the STR upside cannot be assumed.
Common mistakes
- Buying based on Airbnb revenue projections without stress-testing occupancy or nightly rate.
- Ignoring management, cleaning, and furnishing amortization when estimating STR expenses.
- Assuming current city and HOA rules are permanent.
- Skipping the LTR floor calculation entirely.
When to ask for help
- You want an STR underwritten with both an STR and LTR scenario before making an offer.
- You need help verifying current permit rules in a specific Hill Country city.
- You want a second opinion on a wholesaler's or listing agent's STR projections.
FAQs
Frequently asked questions.
Why should I underwrite STR as LTR first?
Because STR income is the volatile line item. Knowing the LTR floor tells you how much risk you're taking if STR income drops.
What expenses do STR investors forget?
Cleaning between stays, restocking consumables, higher management fees, furnishing wear and replacement, platform fees, permits, and STR-specific insurance.
Are STR rules different by city?
Yes — each Hill Country city sets its own permit, zoning, and tax rules. Rules also change over time. Verify current requirements before underwriting STR income.
What happens if STR income drops?
If the property still works as an LTR, the risk is manageable. If not, the investor may be forced to sell, subsidize, or convert use. That's the exact scenario the LTR floor is meant to reveal.
Should I buy based only on Airbnb revenue projections?
No. Projections are best-case marketing numbers, not floors. Always stress-test.