Pullback Vacation Rental bookings if we enter recession?
Member since 2020 · 14 posts · 3 votes
Pullback Vacation Rental bookings if we enter recession?
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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votesThere are a number of STR markets that do very well in recessions. I manage vacation rentals in the Gatlinburg, TN area. Our occupancies do not vary much, regardless of the national economic environment.
What we DO see is a shift in where our guests are traveling from: In an economic expansion, travelers are visiting the Smoky Mountains from up to several thousand miles away. Folks will often fly in for their vacations. In economic recessions, travelers are, more often, driving to the Smokies, from places like Nashville, Atlanta, and Charlotte.
If you are operating a STR in what is primarily a "fly-to" destination, your downside in a recession is much greater, simply because airfare can dominate a travel budget. If families can jump in the car instead of head to the airport, they've probably saved several $ thousand on their vacation.
43 Replies
- Cambridge, MA · Member since 2015 · 652 posts · 736 votes4y
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- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Ross Gallo, our experience is that we get more bookings as things trend down. We had our best years during the pandemic and this year is just as good.
I was a bit concerned that we would get some cancellations due to fuel costs but so far, nada.
Our home is 36 miles down lake from Coeur d'Alene, Idaho so it is pretty far out there but people love it and fuel costs don't seem to be an issue.
As far as moving forward into 2023, I have bookings now just starting to come in for summer. If you keep it affordable for families to visit, they will find a way to come and have a good time.
My 2 cents.
- 4yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Michael Baum:
Hey @Ross Gallo, our experience is that we get more bookings as things trend down. We had our best years during the pandemic and this year is just as good.
I was a bit concerned that we would get some cancellations due to fuel costs but so far, nada.
Our home is 36 miles down lake from Coeur d'Alene, Idaho so it is pretty far out there but people love it and fuel costs don't seem to be an issue.
As far as moving forward into 2023, I have bookings now just starting to come in for summer. If you keep it affordable for families to visit, they will find a way to come and have a good time.
My 2 cents.
I agree with Michael.
We also have had record years since the pandemic started. Plus unemployment is very very low currently.
Just make sure your property is where people will want to spend their vacation money and you will be fine.
- 4yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
There are a number of STR markets that do very well in recessions. I manage vacation rentals in the Gatlinburg, TN area. Our occupancies do not vary much, regardless of the national economic environment.
What we DO see is a shift in where our guests are traveling from: In an economic expansion, travelers are visiting the Smoky Mountains from up to several thousand miles away. Folks will often fly in for their vacations. In economic recessions, travelers are, more often, driving to the Smokies, from places like Nashville, Atlanta, and Charlotte.
If you are operating a STR in what is primarily a "fly-to" destination, your downside in a recession is much greater, simply because airfare can dominate a travel budget. If families can jump in the car instead of head to the airport, they've probably saved several $ thousand on their vacation.
I agree with Collin,
As I also Manage vacation rentals in the GSMNP, the Smoky Mountains are typically more accessible for lower-cost vacations if a recession is looming.
Owners of cabins/chalets may even see more business than usual as visitors are unable to fly due to cost, we saw something like that during peak COVID in 2021.
Drive-to destinations are definitely going to continue being popular!
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Joshua Tree must be getting pretty saturated by now....but still, if you have the demand, I don't think a recession will hurt business, as a matter of fact, it might help....
- Member since 2020 · 14 posts · 3 votes4y
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Michael Baum:
Hey @Ross Gallo, our experience is that we get more bookings as things trend down. We had our best years during the pandemic and this year is just as good.
I was a bit concerned that we would get some cancellations due to fuel costs but so far, nada.
Our home is 36 miles down lake from Coeur d'Alene, Idaho so it is pretty far out there but people love it and fuel costs don't seem to be an issue.
As far as moving forward into 2023, I have bookings now just starting to come in for summer. If you keep it affordable for families to visit, they will find a way to come and have a good time.
My 2 cents.
Thanks Michael - yes that amazing considering fuel costs.
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Collin Hays:
There are a number of STR markets that do very well in recessions. I manage vacation rentals in the Gatlinburg, TN area. Our occupancies do not vary much, regardless of the national economic environment.
What we DO see is a shift in where our guests are traveling from: In an economic expansion, travelers are visiting the Smoky Mountains from up to several thousand miles away. Folks will often fly in for their vacations. In economic recessions, travelers are, more often, driving to the Smokies, from places like Nashville, Atlanta, and Charlotte.
If you are operating a STR in what is primarily a "fly-to" destination, your downside in a recession is much greater, simply because airfare can dominate a travel budget. If families can jump in the car instead of head to the airport, they've probably saved several $ thousand on their vacation.
Very helpful, thank you Collin!
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Ruth Blue:
I agree with Collin,
As I also Manage vacation rentals in the GSMNP, the Smoky Mountains are typically more accessible for lower-cost vacations if a recession is looming.
Owners of cabins/chalets may even see more business than usual as visitors are unable to fly due to cost, we saw something like that during peak COVID in 2021.
Drive-to destinations are definitely going to continue being popular!
Thank you Ruth - I concur on this concept now.
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Bruce Woodruff:
Joshua Tree must be getting pretty saturated by now....but still, if you have the demand, I don't think a recession will hurt business, as a matter of fact, it might help....
Yes, and if you are abiding by the rules and permitting. Thank you Bruce.
- Cambridge, MA · Member since 2015 · 652 posts · 736 votes4y
I think what is going on in the world impacts *who our guests are* quite a bit more than *what our revenue is*. We had so many international guests before the pandemic. The pandemic hits and we had massive numbers of cancellations overnight. Then our city locked down and we decided to rent just long term throughout the next 18 months. So the pandemic did impact our revenue but given the lockdown it impacted who was living in our STRs even more. Last summer we had two 4 day bookings and 2 bookings each over a month long. This spring and summer, we've had 2 bookings from international guests and 1 of those international bookings cancelled because of their country's covid lockdown. All our other guests have been from this country. This spring's & summer's vacation rentals were all mostly 1+ week long and way down from pre-pandemic times and then all of a sudden all these business travelers started booking 2-4 night stays. We are now fully booked with over half of the guests traveling for business.
Personally, I think a locale's STR saturation has a much larger impact on revenue than the economy or even pandemics. If there are a lot of investors in a particular area, it will drive down your revenue. Prior to my city's regulations pushing other investors out of the market, the nightly rates were not much higher than a long term rental would bring in. That had a much bigger impact on my bottom line than what's up with the economy.
@Ross Gallo I think market competition may play a bigger factor than a recession. From what I am reading, there is large influx of STRs in Joshua Tree area. I would be most concerned that I could offer competitive pricing especially with other STR owners that purchased years prior and have a much lower basis.
In Joshua Tree, they are already seeing the impact of way more supply (lots of new STRs) and a decrease in demand -- not really due to fuel prices, or a recession, but due to the fact that the last couple years were anomalies due to the pandemic -- as people return to what more historically normal travel and vacation. Don't expect demand to be as strong as it was a year or two ago. And definitely expect more competition than there was a year or two ago.
As far as a recession though, given Joshua Tree is primarily a drive-to market, and less expensive than most LA visitors other vacation options, I wouldn't think that would have as large of an impact as the above. These drive-to markets that provide reasonably priced vacations (compared to the popular alternatives) tend to hold up pretty well.- Member since 2020 · 14 posts · 3 votes4y
Quote from @Carolyn Fuller:
I think what is going on in the world impacts *who our guests are* quite a bit more than *what our revenue is*. We had so many international guests before the pandemic. The pandemic hits and we had massive numbers of cancellations overnight. Then our city locked down and we decided to rent just long term throughout the next 18 months. So the pandemic did impact our revenue but given the lockdown it impacted who was living in our STRs even more. Last summer we had two 4 day bookings and 2 bookings each over a month long. This spring and summer, we've had 2 bookings from international guests and 1 of those international bookings cancelled because of their country's covid lockdown. All our other guests have been from this country. This spring's & summer's vacation rentals were all mostly 1+ week long and way down from pre-pandemic times and then all of a sudden all these business travelers started booking 2-4 night stays. We are now fully booked with over half of the guests traveling for business.
Personally, I think a locale's STR saturation has a much larger impact on revenue than the economy or even pandemics. If there are a lot of investors in a particular area, it will drive down your revenue. Prior to my city's regulations pushing other investors out of the market, the nightly rates were not much higher than a long term rental would bring in. That had a much bigger impact on my bottom line than what's up with the economy.
Well said - thank you again Carolyn. Yes, regulation can definitely be a good thing particularly in an oversaturated markets. Particularly since so much illegal type glamping has been happening in some of these markets.
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Bob Metry:
@Ross Gallo I think market competition may play a bigger factor than a recession. From what I am reading, there is large influx of STRs in Joshua Tree area. I would be most concerned that I could offer competitive pricing especially with other STR owners that purchased years prior and have a much lower basis.
Right, but also if you're not in the main area and can offer a different type of experience that is hybrid remote/town might help with competition?
- Member since 2020 · 14 posts · 3 votes4y
Quote from @John D.:
In Joshua Tree, they are already seeing the impact of way more supply (lots of new STRs) and a decrease in demand -- not really due to fuel prices, or a recession, but due to the fact that the last couple years were anomalies due to the pandemic -- as people return to what more historically normal travel and vacation. Don't expect demand to be as strong as it was a year or two ago. And definitely expect more competition than there was a year or two ago.
As far as a recession though, given Joshua Tree is primarily a drive-to market, and less expensive than most LA visitors other vacation options, I wouldn't think that would have as large of an impact as the above. These drive-to markets that provide reasonably priced vacations (compared to the popular alternatives) tend to hold up pretty well.Very well said - I appreciate your honesty.
Quote from @Ross Gallo:
Quote from @Bob Metry:
@Ross Gallo I think market competition may play a bigger factor than a recession. From what I am reading, there is large influx of STRs in Joshua Tree area. I would be most concerned that I could offer competitive pricing especially with other STR owners that purchased years prior and have a much lower basis.
Right, but also if you're not in the main area and can offer a different type of experience that is hybrid remote/town might help with competition?
Absolutely. I also agree with @John D. thoughts above. So I would focus on how you can make your property stand out.
- Member since 2018 · 71 posts · 50 votes4y
All the comments about pandemic years being good - well, no ****. Pandemic years also saw a ton of money floating around. If there is something opposite of recession, that's what we experienced during covid - last two years. People had no way to spend money and there was a ton of money being injected into economy and created through stock and crypto market expansion.
I don't think there will be doomsday ahead but expecting what went on the past two years will be anything like the next two is simply not true.
- Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes4y
I would plan for the worst. What is the exit strategy if there is a slowdown? Personally, I wouldn't invest in any property for a STR if I couldn't also rent as a long term rental and have cash flow or, at minimum, cover expenses during the off season. I think that area is over saturated, you really need to have something spectacular to stand out. There is a military base in Thousand Palms nearby, maybe look for something that could serve as off base long term rental if the STR slows down.
- 4yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
I'm re-posting from a similar forum post but adding an extra thought or two. Unemployment and wages are going to determine whether this recession is felt in vacation markets. Nobody cancels a vacation because gas prices are high; they cancel a vacation because they lose a job. The trend of a K shaped post COVID economic recovery is continuing into the recession. Rent, gas, and food, as prominent examples, going up is felt the most by lower income households. I don't know how hard that hits the vacation or family vacation market when employment and savings rates are solid.
All of the concerns that you may have can be researched. Joshua Tree visitation through April this year is 1.386M compared to 1.274M Jan-April last year. As for supply of STRs, I'm sure that you can find that as well. 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!
As for a recession, 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. And most of us are playing the long game here...time is the ultimate multiplier and hedge.
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Travis Timmons:
I'm re-posting from a similar forum post but adding an extra thought or two. Unemployment and wages are going to determine whether this recession is felt in vacation markets. Nobody cancels a vacation because gas prices are high; they cancel a vacation because they lose a job. The trend of a K shaped post COVID economic recovery is continuing into the recession. Rent, gas, and food, as prominent examples, going up is felt the most by lower income households. I don't know how hard that hits the vacation or family vacation market when employment and savings rates are solid.
All of the concerns that you may have can be researched. Joshua Tree visitation through April this year is 1.386M compared to 1.274M Jan-April last year. As for supply of STRs, I'm sure that you can find that as well. 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!
As for a recession, 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. And most of us are playing the long game here...time is the ultimate multiplier and hedge.
Absolutely fantastic and informative post. Thank you Travis! Yes, park numbers create protection, but yes, it will all come down to unemployment - this is still too soon to call how many companies that were overinflated by market may have to start cutting jobs and if inflation will effect companies to this level as well. I appreciate your everlasting advice here.
Joshua Tree visitation is not a strong reflection of the short-term rental market. Most people visiting the park do not rent a STR for that trip. Most people renting do not visit the park (during that particular stay). I would not use the national park visitor numbers to guide you.
- Real Estate Agent · Pasadena, CA · Member since 2017 · 276 posts · 255 votes4y
STR realtor who works with a lot of buyers in the Joshua Tree area and an STR owner in the area as well here. Where we are seeing the biggest slowdown in bookings is with properties in residential neighborhoods with neighbors directly adjacent on all three sides (left, right, behind). This is where the greatest level of saturation is. At the very least, if buying in a residential neighborhood, it needs to have unobstructed views from the backyard and in neighborhoods that are less densely populated. The 3/2 on an 18k square foot lot isn't going to cut it anymore unless you get it for a damn good price and can set your nightly rate for a massively low price. Buyers need to be a lot more intentional with their purchases. If the subject property is in a neighborhood, it needs to be uniquely positioned so it has no direct neighbors adjacent with nice, unobstructed views from the backyard. Don't let anyone convince you that a plain old "nice house" will do well as an STR because it won't. It doesn't matter that it has a hot tub, hammocks, and a cowboy pool. If it doesn't have a real in-ground pool/spa, don't buy a house in a residential neighborhood and expect it to do well.
- Member since 2020 · 14 posts · 3 votes4y
Quote from @Jason Kudo:
STR realtor who works with a lot of buyers in the Joshua Tree area and an STR owner in the area as well here. Where we are seeing the biggest slowdown in bookings is with properties in residential neighborhoods with neighbors directly adjacent on all three sides (left, right, behind). This is where the greatest level of saturation is. At the very least, if buying in a residential neighborhood, it needs to have unobstructed views from the backyard and in neighborhoods that are less densely populated. The 3/2 on an 18k square foot lot isn't going to cut it anymore unless you get it for a damn good price and can set your nightly rate for a massively low price. Buyers need to be a lot more intentional with their purchases. If the subject property is in a neighborhood, it needs to be uniquely positioned so it has no direct neighbors adjacent with nice, unobstructed views from the backyard. Don't let anyone convince you that a plain old "nice house" will do well as an STR because it won't. It doesn't matter that it has a hot tub, hammocks, and a cowboy pool. If it doesn't have a real in-ground pool/spa, don't buy a house in a residential neighborhood and expect it to do well.
Thanks Jason!
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