STRs converted to LTRs and impact to LTR market

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STRs converted to LTRs and impact to LTR market

Ryan K.
Investor · Richmond, VA · Member since 2015 · 139 posts · 43 votes

I know it's early to try and predict the total impact of the current pandemic on the STR market, but wanted to start a discussion -

How many STRs will ultimately get converted to LTRs in each market? Any thoughts on how it could affect your specific market and what that affect may be? Possibly an increase/flood of LTRs hitting the market soon or within the next year with an impact to supply/demand and rental rates? Just a short term (year or two) impact, or maybe longer?

In my local market the city (Richmond) was already getting close to passing new rules that would prohibit many of the currently operating STRs/AirBNBs, and I originally figured at least a portion of the the hundreds/thousands of STRs would ultimately get converted to LTRs. With the pandemic I’m thinking for some STRs it may  speed up that process or have a larger impact. 

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Jesse Lynch
Real Estate Agent · Minneapolis, MN · Member since 2015 · 59 posts · 43 votes
6y

It probably goes without saying, but it depends hugely on the market, and as a rule, the worst run airbnbs will be the quickest to move to LTR (or get sold).  

Vacation areas probably won't see that change, since they exist largely for STR purposes and couldn't be profitable at long term rates. But, I believe urban areas, like Minneapolis/Saint Paul where I am, will see a large temporary loss of STR inventory, and most of that loss will be from the bottom of the barrel, because they aren't profitable enough to justify the risk, but the highest performing STRs will of course stick around, because they're doubling or tripling income from LTR.

I also own a duplex in Rochester, MN a few blocks from Mayo Clinic, that I'll be putting half of onto airbnb when it's done (I wish it was ready so I could help some healthcare folks out).

I think it's like most industries though, the most robust and efficient businesses will withstand this crisis, while the weaker, unfortunately, might not.

Just to predict, I think across the airbnb platform we'll see a temporary (maybe up to a year after the crisis comes to an end) drop of inventory around 10-15%, but I think bookings will drop by less than that amount (after the quarantines stop).

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  • Jesse Lynch
    Real Estate Agent · Minneapolis, MN · Member since 2015 · 59 posts · 43 votes
    6y

    It probably goes without saying, but it depends hugely on the market, and as a rule, the worst run airbnbs will be the quickest to move to LTR (or get sold).  

    Vacation areas probably won't see that change, since they exist largely for STR purposes and couldn't be profitable at long term rates. But, I believe urban areas, like Minneapolis/Saint Paul where I am, will see a large temporary loss of STR inventory, and most of that loss will be from the bottom of the barrel, because they aren't profitable enough to justify the risk, but the highest performing STRs will of course stick around, because they're doubling or tripling income from LTR.

    I also own a duplex in Rochester, MN a few blocks from Mayo Clinic, that I'll be putting half of onto airbnb when it's done (I wish it was ready so I could help some healthcare folks out).

    I think it's like most industries though, the most robust and efficient businesses will withstand this crisis, while the weaker, unfortunately, might not.

    Just to predict, I think across the airbnb platform we'll see a temporary (maybe up to a year after the crisis comes to an end) drop of inventory around 10-15%, but I think bookings will drop by less than that amount (after the quarantines stop).

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  • Nick Stageberg
    Rental Property Investor · Rochester, MN · Member since 2016 · 45 posts · 25 votes
    6y

    I have 40 LTRs and 4 STRs in Rochester, MN, and at this time I am converting the three of the four STRs into LTRs. The STR market will absolutely come back, but it's tough to say when, and in my market is very easy to place LTR tenants this time of year.

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  • Adam TafelBusiness Member
    Real Estate Agent · St. Paul, MN · Member since 2017 · 585 posts · 399 votes
    6y

    @Nick Stageberg - have you been seeing an influx of nurses trying to book? I would think that having STR in Rochester right now wouldn't be too bad. I'm in St. Paul, just accepted another longer-term booking (3 months). I gave them a major discount, but it's still above market rent. I have 3 more vacant units but I'm hoping to fill them with medical staff in the next few days. Fingers crossed !

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  • Nick Stageberg
    Rental Property Investor · Rochester, MN · Member since 2016 · 45 posts · 25 votes
    6y

    Unfortunately there are a MASSIVE amount of airbnbs in Rochester to service elective patients, and Mayo has taken all elective care off of their schedule for quite some time. 

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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    6y

    @Nick Stageberg as mentioned, I have seen a lot of STRs go long term, or at least take month-to-month or longer term leases through Airbnb.  Just like with LTRs, I think the effects will cull the crowd.  We have only run an Airbnb for 14 months now, and when we check other listings, there are 3-4 new ones each month popping up in our neighborhood alone. 

    Like real estate in general, the word spread that you can make a lot of money and everyone jumped in putting downward pressure on prices and occupancy.  Mix that with, what I consider, a poor decision that required all hosts to refund regardless of policy, and you have a lot of hosts that are doing what you say, going LTR or selling. (We are actually expecting an unsolicited offer today to buy ours).

    This is coming from someone that has been super host since we launched (or as soon as we were first eligible), offered but declined Plus, low acquisition and rehab costs, and maintain 9 months of capital reserves.  But going from 90+% occupied to about 30% just proves it isn't worth it.  And I think a lot of people, good and bad operates, are having their eyes opened to the true risks.

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  • Amber Gonion
    Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    6y

    @Evan Polaski I agree, if everyone is talking about doing something it is already too late to get a deal. We saw str units in Minneapolis being priced based on str rates, we warned our investors that the were overpriced and that they needed to base price on ltr, little did we know our country would have something like this happen and dry up the market. I am sure it will come back, but I am sure some people are in a tough spot.

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  • David BarnettPro Member
    Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
    6y

    @Amber Gonion I was wondering what you're seeing in the Twin Cities with STR's, and if they are being transitioned over to LTR's? I know that pre-COVID19, inventory for solid rental units were in short supply. It's likely that recent buyers on properties that they were using for STR's are going to be taking a bath (bought with underwriting for STR rents and not LTR rents). Curious your perspective and thoughts on if those STR's that don't cash flow as LTR will be hitting the market for sale?

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  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    6y

    I know STR owners that have already converted ARIBNB to LTR as several couldn't make it with vacancies- I also know a couple that are booked up on longer stays through May. When bookings don't come in, sometimes it's just better to go conservative until the curve comes back.

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  • Amber Gonion
    Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    6y

    @David Barnett we have had a couple of owners approach us to get BPOs (we assume they are seeing if selling is an option). We have to be honest with them and price them at LTR rates so we likely won't get their listing. We have seen a lot of brokers dropping prices on listings during this time. I think this is a temporary issue and it is better not to waste days on the market when everyone is in limbo. I have never seen so many deals On the MLS be cancelled as I have in the last month.

    Most STRs are holding until the summer to sell when we may have lower prices than before, but will at least have stability.  A few I have talked to have converted to LTR since this is a good month for filling rentals, but with covid-19 the rental market is off too.  Lots of looking and inquiries not as much action as normal.

    Right now we have artificially low prices (offers from buyers) due to buyers sitting on the sidelines and sellers that don’t want to give away their property.  It makes for a lot of nothing going on.  Great time to buy right now, but it is a very fluid market.

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