Recession Coming? Is Now A Bad Time To Purchase A STR?
Orange County, NY · Member since 2021 · 47 posts · 21 votes
Recession Coming? Is Now A Bad Time To Purchase A STR?
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Ryan MoyerBusiness Member
Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votesLooming recession is not the issue. People buying properties at prices based on 2021 numbers when 2021 numbers were a temporary outlier is the issue.
It's not easy like it was a year ago where any dolt with a dollar could buy some random cabin in the woods and make 40% cash on cash. But STR is still a very viable asset class, if you are hunting for the right deal.
The people buying some random cabin in the woods for $1.2M because it did $120k in 2021 have extremely limited margins for any kind of travel pullback, and they are likely going to get smoked just as badly as the folks that bought high growth tech at the top of that temporary boom. Underwrite conservatively, and based on pre-covid numbers, and you can protect yourself. Those deals aren't easy to find, but they're out there.
Cosmic Vacations4.9174 Reviews
29 Replies
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
There is never a bad time to buy the right property. All this means is you must become very selective when choosing this first property, as you will not have as much room for error.
Regarding travel plans, it may be true that people will travel less during a recession....but it may also mean that people will just travel closer to home instead of going across the country (or world). During Covid - which was more restrictive than a recession - we found no drop-off in guests at all. I actually think it made people more desperate to get away and travel outside their home area.
Of course, with any STR, location is critical. It will become even more critical with a recession looming....
- 4yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
You can always find a reason not to jump in.
As Buce said, you need to buy the right property in the right location. You should always have some cash reserves too.
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @Bruce Woodruff:
There is never a bad time to buy the right property. All this means is you must become very selective when choosing this first property, as you will not have as much room for error.
Regarding travel plans, it may be true that people will travel less during a recession....but it may also mean that people will just travel closer to home instead of going across the country (or world). During Covid - which was more restrictive than a recession - we found no drop-off in guests at all. I actually think it made people more desperate to get away and travel outside their home area.
Of course, with any STR, location is critical. It will become even more critical with a recession looming....
Thank you so much for your insight. I will definitely take your advise into consideration! Hope you do not mind if I reach out to you again in the future.
- Cambridge, MA · Member since 2015 · 651 posts · 736 votes4y
My recession experience collaborates the theory that a recession can mean that cheaper, closer to home vacations see a bounce.
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @John Underwood:
You can always find a reason not to jump in.
As Buce said, you need to buy the right property in the right location. You should always have some cash reserves too.
Very true! Appreciate how active you are on the forum. I will definitely keep your advise in the back of my head.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes4y
Never a bad time of you buy right
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Would any of you stay clear of a small town that is near a national park? (major driver is outside tourism)
- Member since 2021 · 167 posts · 141 votes4y
Quote from @Adam Gonzalez:
Would any of you stay clear of a small town that is near a national park? (major driver is outside tourism)
If it meets your criteria, i wouldn’t avoid it. I personally love the draw national parks have, especially during hard times. I’ve seen strong demand for the “old fashioned” road trip to national parks.
- 4yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Looming recession is not the issue. People buying properties at prices based on 2021 numbers when 2021 numbers were a temporary outlier is the issue.
It's not easy like it was a year ago where any dolt with a dollar could buy some random cabin in the woods and make 40% cash on cash. But STR is still a very viable asset class, if you are hunting for the right deal.
The people buying some random cabin in the woods for $1.2M because it did $120k in 2021 have extremely limited margins for any kind of travel pullback, and they are likely going to get smoked just as badly as the folks that bought high growth tech at the top of that temporary boom. Underwrite conservatively, and based on pre-covid numbers, and you can protect yourself. Those deals aren't easy to find, but they're out there.
Cosmic Vacations4.9174 Reviews - Investor · Greenville, SC · Member since 2020 · 210 posts · 302 votes4y
I’ve been on the buy train for cabins up until about 2 weeks ago, and my change of opinion has nothing to do with interest rates. For the first time you see some correction in the macro data for summer rental occupancy and nightly rates, and with ultra competitive buyer sentiment giving tight or no margin on current prices because they’re priced not only for historically high COVID rates but for projecting HIGHER than those rates, I have to think that means we’ll see a correlated sale price correction after 2022 summer gross is below 2021 summer. You still win longterm by buying, I’d just wait 3 months to see what’s up.
That said, I'm under contract on a beach property that has totally different market dynamics. Getting an STR is still a lot better than hoarding cash or playing too much in longterm stocks.
Edit: pretty much exactly what Ryan said! Ha… - 4yJake CohenPro MemberRental Property Investor · Denver, CO · Member since 2017 · 200 posts · 126 votes
@Adam Gonzalez One thing people forget in a recession is a percentage of people change their plans, say 20%. If you are in the top 5% of rentals in an area, very rarely do you feel a great pain. It’s the bottom half of rentals that really suffer. Be the best, offer a great experience, get great reviews and you will insulate your self from the downturns.
Good luck what ever you decide.
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @Jake Cohen:
@Adam Gonzalez One thing people forget in a recession is a percentage of people change their plans, say 20%. If you are in the top 5% of rentals in an area, very rarely do you feel a great pain. It’s the bottom half of rentals that really suffer. Be the best, offer a great experience, get great reviews and you will insulate your self from the downturns.
Good luck what ever you decide.
Totally right about that Jake. Thanks for sharing your knowledge and experience!
- Investor · St. Louis, MO · Member since 2015 · 4 posts · 5 votes4y
Like most said before, it's never a bad time to buy. Inflation is my biggest concern. Our hard-earned dollars are becoming less valuable every day.
I think STR investments will need to start becoming a more strategic play with more coming online and unsteady market conditions. By this, I mean looking elsewhere than the booming vacation markets and offering something more unique than the rest of the stays in the area you reside.
I own STRs in a non-vacation market. They are close to nice attractions (a Zoo, and a small Italian-rooted village). While they aren't grossing $100k+ a year, the buy-in is considerably less. Is it riskier? Maybe, but if I can get a 20%+ cash-on-cash return per year on average, the location seems to work itself out. Proper analysis is key. - Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @Andy Leverenz:
Like most said before, it's never a bad time to buy. Inflation is my biggest concern. Our hard-earned dollars are becoming less valuable every day.
I think STR investments will need to start becoming a more strategic play with more coming online and unsteady market conditions. By this, I mean looking elsewhere than the booming vacation markets and offering something more unique than the rest of the stays in the area you reside.
I own STRs in a non-vacation market. They are close to nice attractions (a Zoo, and a small Italian-rooted village). While they aren't grossing $100k+ a year, the buy-in is considerably less. Is it riskier? Maybe, but if I can get a 20%+ cash-on-cash return per year on average, the location seems to work itself out. Proper analysis is key.Andy:
Awesome reply. Thank you! I am actively looking in a not so known area as you described. Definitely appreciate you sharing your experiences. Congratulations on your business.
- 4yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
Don't go off of feel and hearsay...look at stats and data. The link below shows recreation visits at national parks going back to 1979. I own a short term rental near Acadia National Park, and the April visitation number this year was 105k, last year was 110k. While that is down - only slightly though - there has never been an April going back to 1979 that saw over 100k visitors to the park. Visitation numbers are STRONG! The same goes for many other parks, but look it up.
As for a recession, yeah, sure there are some issues. Inflation and consumer sentiment are not great. Look at wages/employment and consumer spending and behavior though. Luxury good spending is up 8% year over year, credit card debt is down over 1/3, savings rates are still very healthy - down 2% in the last six months but still historically very high, home equity has gone up something like 10 trillion dollars nationally in the last year. Wages and employment are rock solid. There are 6 million unemployed Americans (that participate in the labor force) and 12 million current job openings. Until wages and employment weaken, the consumer is very well prepared to weather a recession. All information above is available on bea.gov by the way.
Of course, you have to know how to properly analyze a property and purchase wisely, but the stats and data absolutely still show that this year will be a good year for domestic travel.
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @Travis Timmons:
Don't go off of feel and hearsay...look at stats and data. The link below shows recreation visits at national parks going back to 1979. I own a short term rental near Acadia National Park, and the April visitation number this year was 105k, last year was 110k. While that is down - only slightly though - there has never been an April going back to 1979 that saw over 100k visitors to the park. Visitation numbers are STRONG! The same goes for many other parks, but look it up.
As for a recession, yeah, sure there are some issues. Inflation and consumer sentiment are not great. Look at wages/employment and consumer spending and behavior though. Luxury good spending is up 8% year over year, credit card debt is down over 1/3, savings rates are still very healthy - down 2% in the last six months but still historically very high, home equity has gone up something like 10 trillion dollars nationally in the last year. Wages and employment are rock solid. There are 6 million unemployed Americans (that participate in the labor force) and 12 million current job openings. Until wages and employment weaken, the consumer is very well prepared to weather a recession. All information above is available on bea.gov by the way.
Of course, you have to know how to properly analyze a property and purchase wisely, but the stats and data absolutely still show that this year will be a good year for domestic travel.
Wow thanks Travis. Great information! I will certainly take all your advice into consideration. Thanks for sharing your knowledge on the subject.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes4y
"Is now a bad time to buy?" Interesting question. The trending answer seems to be "never a bad time if you buy right" - I think there's an undertone of caution here. To me it seems like it's not a great time to buy. The prices are the highest. The increase in prices of the last 6 months even has been insane - easily 40% some places, lots of places have doubled in value over the last year. Are there still deals - sure. Are there always deals - sure. Are there a lot fewer deals today than 6 months ago - absolutely. A year ago - even more so.
For me it's not a "bad" time to buy but it's definitely the hardest time to buy. Even locally, in my opinion.
Consumer spending was mentioned to be up. Seems good on the surface. But we've also had a massive influx of $ in the economy in the last year. We've had people sitting at home or working remotely. We've had low interest rates that encouraged spending. Now we're seeing a drop. Stock market is down ~20% for the year. We see a pullback in travel 2022 Q1 travel compared to the 2021 outlier (but properties are still priced at 2021 revenue levels). We see some layoffs starting - tech companies, netflix, uber, real estate companies - it's harder to grow a company when you're borrowing at higher interest rates.
I personally am doing my research and staying ready for a good one to hit the market. But buying at these higher prices before anything has stabilized just seems like making a decision based on changing uncertain data.
Now I don't have the most experience in up/down markets and a lot of us have only seen an up-market. For me, I'm going to wait a little, see how things start to play out. I see prices either stabilizing or even coming down a bit.
- Property Manager · Atlanta, GA · Member since 2020 · 34 posts · 25 votes4y
Even if a recession occurs, which I believe is very likely, historically speaking people still take vacations. There are certain products/investments that are "recession proof", and a great example of that is makeup. People will still purchase makeup during recessions because it is a crucial part to many people's lives. This principle should be extended to STR/airbnb as there are markets that have been used for airbnb/STR for decades, or through multiple recessions already such as the Kissimmee area around Disney or Gatlinburg TN.
- Attorney · Durham, NH · Member since 2019 · 292 posts · 126 votes4y
A few considerations that'd weigh in favor of STR over LTR if a recession (omitting against):
1) reliability of paid-in-advance STR guests, rather than waiting & hoping for monthly rent
2) if rent increases stall, the outperformance of STRs to LTRs becomes more stark
3) if people are out of work and are not disincentivized to take whatever work's available, may become easier to find cleaners for more regular unit turnover between STR guests
- 4yMichael PorchePro MemberRental Property Investor · Boise, ID · Member since 2017 · 220 posts · 101 votes
@Adam Gonzalez, great question. you hit the nail on the head, 'no one has a crystal ball'. The reality people have been screaming for a recession for the last 5 years nonstop. It always happens. However, now there is a lot happening with all that being said where there is likely one coming around the corner at some point. However, it all depends on how you buy. If you buy right, maybe make necessary improvements and add value (if it's there) so that you can pull $ out of the property... consider the long-term rents as well as short-term rents to see if they both cash flow. As long as you are creating a margin for yourself, you'll likely be good even if a recession comes through. This is a question I get all the time but there's ways to secure yourself and lessen the risk, DM me if you got any more questions
- Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes4y
Like you read, it’s a good time to buy the right house in the right market. No one can say with accuracy that we’re at the peak of the real estate market. Data in my areas do not support that, in fact, available supply is even more limited as sellers are hesitant to list in this uncertain market.
Buy right, have a couple of exit strategies, keep emergency funds. Nothing new, different market. - Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Adam Gonzalez:
Morning BiggerPockets community!
I hope everyone is doing well and thriving. I am currently on the market to purchase my first investment property which will be a STR and am extremely excited to finally jump in!
With that being said, it is a little hard for me to ignore the news / financial experts constantly saying we are headed for a recession soon as a result of everything going on. From the research I have done, recessions hit STRs pretty hard as people tend to travel less and spend less during recessions. While I know no one has that magic crystal ball, I wanted to see what you, the experts think? Do you think now is a risky time to get into STRs or is this all hysteria? How did your STRs perform during the last recession if you had them then?
Your feedback is greatly appreciated as always. Thanks so much and I look forward to gaining a lot of insight from your answers. Cheers!
- Adam G.
Congratulations Adam.
I'm basing this response off your introduction and presuming you have little to no experience in real estate investing. I see this would be your first property and I'm assuming you haven't been working in real estate. A bigger risk I see for you than recessions is starting off with a short term rental especially while things are volatile. I'd recommend either starting off with a LTR or working for/interning with a property manager to learn the ropes first.
@Bruce Woodruffis absolutely correct that it's never a wrong time to buy the right property. That is a concise and detailed answered for an experienced person but may be ambiguous for someone who isn't. Unfortunately the right house can become the wrong one depending what your goals are.
I'll throw my 2 cents in and defer the other 98 to experienced STRs that can expound on this for you. After calculating the subject property can perform well as an STR consider what can be done alternatively if adverse market conditions prevent it from profiting as you're concerned about. For example, can it work as a short term but also be leased long term without losing money if needed?
- Real Estate Broker · Staunton, VA · Member since 2019 · 194 posts · 216 votes4y
Listen to recent BP podcast 604 - best 45 minutes you can spend today!
- Orange County, NY · Member since 2021 · 47 posts · 21 votes4y
Quote from @Chase Hoover:
Listen to recent BP podcast 604 - best 45 minutes you can spend today!
Listening now! Thanks.
- Investor · United States · Member since 2020 · 202 posts · 284 votes4y
Quote from @Ryan Moyer:
Looming recession is not the issue. People buying properties at prices based on 2021 numbers when 2021 numbers were a temporary outlier is the issue.
It's not easy like it was a year ago where any dolt with a dollar could buy some random cabin in the woods and make 40% cash on cash. But STR is still a very viable asset class, if you are hunting for the right deal.
The people buying some random cabin in the woods for $1.2M because it did $120k in 2021 have extremely limited margins for any kind of travel pullback, and they are likely going to get smoked just as badly as the folks that bought high growth tech at the top of that temporary boom. Underwrite conservatively, and based on pre-covid numbers, and you can protect yourself. Those deals aren't easy to find, but they're out there.
Everything Ryan said!
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