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
- Member since 2021 · 11 posts · 1 vote4y
I have a similar doubt ... I own a 2/2 Jr suite in Destin, FL. Just closed on it a couple of months back. Want to know if recession generally affect the Destin STR market. The unit is in a condo-tel type resort with all the required amenities (3 swimming pools, hot tub, tennis courts etc) and is about 10 min walk (3/4 mile) from the ocean. The rental numbers and bookings look strong so far but am a bit concerned as to how a recession may affect the income.
- Real Estate Agent · Tampa, FL · Member since 2018 · 464 posts · 452 votes4y
@Samson Paturi - It sounds like you're at The Palms of Destin from your description - If so, great choice :) As far as stressing about what could happen, I recommend just focus on maximizing your investment in the near term. If another 2008 recession happens, I expect we'll see a slow down, but nothing too catastrophic. We are a regional, drivable destination in Destin FL, so if a recession were to hit, the more expensive, luxury vacations will be the first to be affected (i.e. destinations where you need to fly), but people will still want to go on vacation. We'll be alright ~
@Ross Gallo - To answer your question, I think it depends on your market. I don't know Joshua Tree personally, but if it's like the panhandle of Florida (regional location for vacation like I described above), you should be fine. If it's heavily dependent on one business (i.e. oil worker, traveling nurses, etc), you may be okay depending on if/how that industry is hit during the downturn. Regardless, my initial advice holds true - focus on maximizing current revenues. Stressing about the future 'what ifs' won't help anyone. Just ensure that you have adequate reserves if/when the bad day hits -- My personal reserves for all of my investments is 6 months of expenses.
Best of luck to both of you!
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes4y
I must add to what some here have mentioned. My Airbnbs hit records through the pandemic. I have condos at a ski resort. For our summer season when there are various events we get bookings here and there, but this summer has been very slow so far. Not sure what to make of it now.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Like @Mark Cruse we had great traffic during the 'pandemic'. No real noticeable slow-down yet because of the 'recession'. Time will tell, but I suspect that STR people will continue to travel, at least locally. They are higher income earners generally......
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes4y
@Bruce Woodruff I never stopped traveling myself. I assume others have similar mentalities. A recession in general does not impact me much. Hopefully it's this way across the board.
- Cambridge, MA · Member since 2015 · 652 posts · 736 votes4y
@Mark Cruse I suspect a long lasting recession will impact my travel plans. I have my heart set on a December holiday luxury river cruise down the Danube. If a recession comes and it is deep enough and long lasting enough, it will impact those plans. The question will be, if a recession nukes my dream vacation plans, will I look closer to home for a vacation getaway?
For some people, the answer will be "yes." For me, I doubt there is anything closer to home that can replace that river cruise on the Danube.
There have been so many recent events that have impacted my bookings. Prior to the pandemic, 60% of my bookings were from international guests. That is down to 1% this year but domestic travelers, including many business travelers, have more than filled the vacuum.
The fact is, how a recession will impact your bookings depends on a bunch of somewhat complex variables.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Mark Cruse:
@Bruce Woodruff I never stopped traveling myself. I assume others have similar mentalities. A recession in general does not impact me much. Hopefully it's this way across the board.
Yessir, I agree! No change to any travel plans I have. But I'm only going a few states away. Flights are up, but not that bad, and lodging is pretty constant. No reason for anyone to stay home.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Carolyn Fuller:
I have my heart set on a December holiday luxury river cruise down the Danube. If a recession comes and it is deep enough and long lasting enough, it will impact those plans. The question will be, if a recession nukes my dream vacation plans, will I look closer to home for a vacation getaway?
I might rethink that too. But I think most folks will still have the urge to get away and will just look more locally....locally might mean within 1000 miles though.
- Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes4y
Like some of the others who commented, I'm on the Florida Panhandle (Fort Walton/Okaloosa Island), so I can't speak specifically for your area. But generally speaking, the destinations that suffer the most are those that require flying, particularly international travel, etc. On the other hand, people who would otherwise go to Europe for their summer vacation, tend to drive to destinations closer to home during recessions. That means Destin/Fort Walton for many from the Southern states. Also, smaller units tend to do better because people are not as able to travel in large multi-generational groups for the bigger condos. Shorter trips are another way that people respond during recession. So some flexibility in that respect would help with bookings. During the Covid "closing" months in FL I booked monthly to travelling nurses and military. It's an option for the off-season and slower shoulder months if that sort of thing is available in your market. I do have to say that during the slower times/recession-like periods getting your rental to be 5-star rated is particularly important, so cleanliness, updates, upkeep, etc become more important. During times when demand surpasses supply of vacation rentals, guests might be more likely to overlook shortcomings. When money for vacation is tight people are going to look for deals, but they are also not going to be very understanding when those "deals" don't have good reviews :-). I have several vacation rentals and just bought a new townhouse to use as VR in May. I expect a slow down. I also expect that people who bought in the peak of the price increases and where hoping to cashflow with minimal personal involvement, might find out that the 20%+ mgmt fees of large management companies are eating all of their profits now. But if you self-manage or use a boutique mgmt company that tailors their marketing to each individual property, hopefully you'll do ok through the dip. Good luck!
- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votesHey @Carolyn Fuller! If you can't make the Danube, you could try an American river cruise. I have know some folks who have done them and they said they were awesome!
- Member since 2020 · 14 posts · 3 votes3yThank you Villy! I like the idea of renting to traveling nurses or military doing the “shoulder months” - that is smart and makes sense. Sort of MTR between slow STR. THanks!
Quote from @Villy Ellinger:
Like some of the others who commented, I'm on the Florida Panhandle (Fort Walton/Okaloosa Island), so I can't speak specifically for your area. But generally speaking, the destinations that suffer the most are those that require flying, particularly international travel, etc. On the other hand, people who would otherwise go to Europe for their summer vacation, tend to drive to destinations closer to home during recessions. That means Destin/Fort Walton for many from the Southern states. Also, smaller units tend to do better because people are not as able to travel in large multi-generational groups for the bigger condos. Shorter trips are another way that people respond during recession. So some flexibility in that respect would help with bookings. During the Covid "closing" months in FL I booked monthly to travelling nurses and military. It's an option for the off-season and slower shoulder months if that sort of thing is available in your market. I do have to say that during the slower times/recession-like periods getting your rental to be 5-star rated is particularly important, so cleanliness, updates, upkeep, etc become more important. During times when demand surpasses supply of vacation rentals, guests might be more likely to overlook shortcomings. When money for vacation is tight people are going to look for deals, but they are also not going to be very understanding when those "deals" don't have good reviews :-). I have several vacation rentals and just bought a new townhouse to use as VR in May. I expect a slow down. I also expect that people who bought in the peak of the price increases and where hoping to cashflow with minimal personal involvement, might find out that the 20%+ mgmt fees of large management companies are eating all of their profits now. But if you self-manage or use a boutique mgmt company that tailors their marketing to each individual property, hopefully you'll do ok through the dip. Good luck!
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Two things I want to point out
1. Make sure there isn't a over saturation of airbnb's. You want to be the best product on the market, not the same
2. People with money will always take vacation, recession slows down a lot of people, but not the top earners. Make sure the demographic you are catering to chooses yours everytime
- 3yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
@Ross Gallo I hope I can share some insight from someone who has done STR for 7 years now. We have had ups and down through COVID but no recession. However, looking back to the Great Recession Florida tourism was down about 10-13%. This is not apples to apples but if your profit margin (in FL) is 15% or greater you should be able to keep your head above water. FL beaches will always attract people. If I were you I would try to find historical data to help with the decision for Joshua Tree
Vacation Rentals of Florida53 Reviews - Rental Property Investor · Landers, CA · Member since 2016 · 38 posts · 59 votes3y
Hi! I've had STRs in JT since 2018 (purchased the houses in 2016), and now I'm living here in the hi-desert full-time, so thought it might be helpful to contribute my thoughts...
1) Building a house from scratch, especially in the Joshua Tree area, will probably take much longer than you expected. Whatever your contractor is telling you, you can usually double it. That's been my experience, at least. Who knows, the recession might come and go by the time you're ready to rent.
2) Joshua Tree is definitely over-saturated with STRs at this point. We launched ours in 2018, and in 2019, Airdna listed us as the #1 most profitable STR in Yucca Valley. 2020 and 2021 were AMAZING, but this year, our gross is about 20% less than it was in 2019. And we've put a lot more money into the houses just to keep up with all the new STRs. The culprit for the over-saturation is all the press Joshua Tree has received since covid. And I think us being on Airdna's "top places to invest" list just after the pandemic has been a big contributor to the over-saturation, as well. So you definitely want to make sure your house stands out from the competition with its architecture, amenities, decor, location, etc. I would suggest taking the time to do a deep dive into who your target market is and who your competitors are, and then putting a lot of thought into how to use that info to your advantage.
3) You said you're near Joshua Tree, so not sure whether you're in San Bernardino County or the Town of Yucca Valley, but I hear SB County is looking to put a cap on the total number of STR permits they issue starting March 2023. I hope that doesn't happen, but just something to be aware of. And Yucca already has a cap in place.
4) When deciding whether this will be a good investment for you, it's important to take all the factors into consideration, not just financial. When we decided to invest in the hi-desert, we were living in LA at the time, so we knew we could take our own personal vacations there when a house wasn't rented, and we could use it to celebrate our birthdays and holidays, and one day we could potentially retire there. So in the case of a recession, as long as the STRs are still covering the mortgage and expenses, it's still a good investment for us. For an outside investor who is strictly looking for the financial gain of it all, I'm not sure the ROI makes sense anymore unless you have a SUPER special property or location. But only you can determine whether this will be a good long-term investment for yourself.
4) When it comes to STR performance, I personally don't believe it makes sense to classify the pandemic/post-pandemic as a typical recession and compare it to the recession that everyone's predicting will come in 2023. Following the 2020 lockdown, people were itching to get out of their homes, but they couldn't fly and didn't want to stay in hotels, so they all fled from LA to the nearest Airbnb destination, which was Joshua Tree. In that sense, 2020 and 2021 were anomalies. If we have a recession during a time where there's no social distancing, where people aren't locked inside their homes, hotels aren't a scary place to be, and airports aren't shut down...I doubt we see the same surge in STR bookings. But I also agree that this industry is reasonably recession-proof because those who normally travel out of the country for vacations will probably just do their vacations within the US to save costs.
And that's my two cents!
- Member since 2020 · 14 posts · 3 votes3y
Quote from @Kristi Kautz:
Hi! I've had STRs in JT since 2018 (purchased the houses in 2016), and now I'm living here in the hi-desert full-time, so thought it might be helpful to contribute my thoughts...
1) Building a house from scratch, especially in the Joshua Tree area, will probably take much longer than you expected. Whatever your contractor is telling you, you can usually double it. That's been my experience, at least. Who knows, the recession might come and go by the time you're ready to rent.
2) Joshua Tree is definitely over-saturated with STRs at this point. We launched ours in 2018, and in 2019, Airdna listed us as the #1 most profitable STR in Yucca Valley. 2020 and 2021 were AMAZING, but this year, our gross is about 20% less than it was in 2019. And we've put a lot more money into the houses just to keep up with all the new STRs. The culprit for the over-saturation is all the press Joshua Tree has received since covid. And I think us being on Airdna's "top places to invest" list just after the pandemic has been a big contributor to the over-saturation, as well. So you definitely want to make sure your house stands out from the competition with its architecture, amenities, decor, location, etc. I would suggest taking the time to do a deep dive into who your target market is and who your competitors are, and then putting a lot of thought into how to use that info to your advantage.
3) You said you're near Joshua Tree, so not sure whether you're in San Bernardino County or the Town of Yucca Valley, but I hear SB County is looking to put a cap on the total number of STR permits they issue starting March 2023. I hope that doesn't happen, but just something to be aware of. And Yucca already has a cap in place.
4) When deciding whether this will be a good investment for you, it's important to take all the factors into consideration, not just financial. When we decided to invest in the hi-desert, we were living in LA at the time, so we knew we could take our own personal vacations there when a house wasn't rented, and we could use it to celebrate our birthdays and holidays, and one day we could potentially retire there. So in the case of a recession, as long as the STRs are still covering the mortgage and expenses, it's still a good investment for us. For an outside investor who is strictly looking for the financial gain of it all, I'm not sure the ROI makes sense anymore unless you have a SUPER special property or location. But only you can determine whether this will be a good long-term investment for yourself.
4) When it comes to STR performance, I personally don't believe it makes sense to classify the pandemic/post-pandemic as a typical recession and compare it to the recession that everyone's predicting will come in 2023. Following the 2020 lockdown, people were itching to get out of their homes, but they couldn't fly and didn't want to stay in hotels, so they all fled from LA to the nearest Airbnb destination, which was Joshua Tree. In that sense, 2020 and 2021 were anomalies. If we have a recession during a time where there's no social distancing, where people aren't locked inside their homes, hotels aren't a scary place to be, and airports aren't shut down...I doubt we see the same surge in STR bookings. But I also agree that this industry is reasonably recession-proof because those who normally travel out of the country for vacations will probably just do their vacations within the US to save costs.
And that's my two cents!
Thank you Kristi! I 100% agree with all you said here and have found this to be the case. It's the reason why I have been on pause to re-asses. SBC did put a cap on STR permits to 2 per person. While this doesn't necessarily affect what we are looking to do. I think our location is good and near town, but would consider building something unique in terms of the technology of the build and structure - our market would probably be more affordable small home for families and or couples - stackable structure, but not containers. What are your thoughts on medium term rentals for the area - do you feel there is a market for this in terms of people wanting to stay longer than 30 days? Do you think you can rely on this being consisting enough? Did you find it challenging to manage your property when you were still living in LA? Thank you again for your time and generosity here with your experience.
- Rental Property Investor · Landers, CA · Member since 2016 · 38 posts · 59 votes3y
Hey @Ross Gallo - excuse my delayed response... holidays got the best of me!
Re: the SBC cap, I was actually referring to a cap on the total # of STRs. But yes, they did put one on the # of permits each person can have recently.
In terms of 30-day or longer stays, I personally don't mess with those, because then renter's rights can take effect, and the house has a higher chance of getting wrecked the longer a guest stays. I've heard some hosts in other markets have had success with 30+ day stays, but I think those are usually markets where people are traveling for work. Local renters in the hi-desert aren't generally known for taking great care of long-term rentals, from what I've heard. But for that same reason, if I had to choose between renting for 30+ days vs. renting long-term, I'd choose 30+ days, hands-down.
And did I find it challenging to manage the property when I was living in LA? It's a bit complicated... but the short answer is yes. I quit my full-time advertising job to renovate and manage the STRs, so that wasn't an issue... and I also had a property manager, so once the houses launched on Airbnb, all I had to do was make sure they stayed in great shape and that my PMs were staying on top of everything and not letting things slip. That said, even doing just that took WAY more time than I ever imagined, including frequent trips to the desert to do quality control on the houses in person (which I find to be SO necessary, regardless of who your PMs are). So while managing from afar wasn't impossible, I do think it would be much more challenging for someone who has a full-time 9-5 job in LA. So if you go that route, I'd suggest making sure you find a top-notch PM!
- Member since 2020 · 14 posts · 3 votes3y
Quote from @Kristi Kautz:
Hey @Ross Gallo - excuse my delayed response... holidays got the best of me!
Re: the SBC cap, I was actually referring to a cap on the total # of STRs. But yes, they did put one on the # of permits each person can have recently.
In terms of 30-day or longer stays, I personally don't mess with those, because then renter's rights can take effect, and the house has a higher chance of getting wrecked the longer a guest stays. I've heard some hosts in other markets have had success with 30+ day stays, but I think those are usually markets where people are traveling for work. Local renters in the hi-desert aren't generally known for taking great care of long-term rentals, from what I've heard. But for that same reason, if I had to choose between renting for 30+ days vs. renting long-term, I'd choose 30+ days, hands-down.
And did I find it challenging to manage the property when I was living in LA? It's a bit complicated... but the short answer is yes. I quit my full-time advertising job to renovate and manage the STRs, so that wasn't an issue... and I also had a property manager, so once the houses launched on Airbnb, all I had to do was make sure they stayed in great shape and that my PMs were staying on top of everything and not letting things slip. That said, even doing just that took WAY more time than I ever imagined, including frequent trips to the desert to do quality control on the houses in person (which I find to be SO necessary, regardless of who your PMs are). So while managing from afar wasn't impossible, I do think it would be much more challenging for someone who has a full-time 9-5 job in LA. So if you go that route, I'd suggest making sure you find a top-notch PM!
Thank you again Kristi. You actually just gave me some great insight here to be cautious of. I really appreciate you taking the time to be so generous with your advice here. Would like to keep in touch for when we start on our project perhaps you could see our plans - would also be cool to see your properties and what you did. Thanks again!
- Rental Property Investor · Landers, CA · Member since 2016 · 38 posts · 59 votes3y
@Ross Gallo You're very welcome! Yes, let's definitely keep in touch. And let me know if you happen to need an interior designer or someone to do 3D renderings, as well
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