STRs: The upside to a pending recession....
Property Manager · Georgia/Florida · Member since 2022 · 3 posts · 2 votes
STRs: The upside to a pending recession....
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Dave StokleyBusiness Member
Property Manager · Cleveland, OH · Member since 2015 · 705 posts · 799 votesSecond post like this this week (at least), and I think people looking at STRs as the magic bullet need to be extremely careful. Recent data suggests that increased supply (ie more people offering STRs) has resulted in lower occupancy this year. Equilibrium in many markets is not far off. Moreover, the regulatory landscape is changing constantly and rapidly.
“Going to be an alternative to hotels”? They have been for some time. I seriously doubt that STRs are going to make hotels extinct. They still fulfill valuable and desirable needs for many people. Heck I’m all-in on STRs and I still stay in hotels for a significant portion of my travel.
50 Replies
- Member since 2019 · 7k+ posts · 4k+ votes4yDepends on the location.
Quote from @Matt Splittgerber:
What’s everyone’s opinion on, in a recessionary environment, would buying one nice luxury unit be better or worse than two mid market units?
For example with real data analysis, I knew in Honolulu 3 BR /luxury is better in terms of cost revenue efficiency but in Maui, 1 BR/studio is better.
Also recessionary environment usually only lasts up to 12-18 months so not good to be used to measure success. - Rental Property Investor · Member since 2022 · 13 posts · 0 votes4y
Quote from @Carlos Ptriawan:
Depends on the location.Quote from @Matt Splittgerber:
What’s everyone’s opinion on, in a recessionary environment, would buying one nice luxury unit be better or worse than two mid market units?
For example with real data analysis, I knew in Honolulu 3 BR /luxury is better in terms of cost revenue efficiency but in Maui, 1 BR/studio is better.
Also recessionary environment usually only lasts up to 12-18 months so not good to be used to measure success.
wkere do you get your data? Is AirDNA the only game in town? It is a pricey subscription. - 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesIt might backfire, Rodney.....I, for one, would choose a Mom and Pop over a corporate entity all day long. I do not like giving my $$ to corporate entities. I would rather support a small business.....
Quote from @Rodney Sums:
- Member since 2019 · 7k+ posts · 4k+ votes4y
Quote from @Matt Splittgerber:
Quote from @Carlos Ptriawan:
Depends on the location.Quote from @Matt Splittgerber:
What’s everyone’s opinion on, in a recessionary environment, would buying one nice luxury unit be better or worse than two mid market units?
For example with real data analysis, I knew in Honolulu 3 BR /luxury is better in terms of cost revenue efficiency but in Maui, 1 BR/studio is better.
Also recessionary environment usually only lasts up to 12-18 months so not good to be used to measure success.
wkere do you get your data? Is AirDNA the only game in town? It is a pricey subscription.There's vacation rental manager that publishes actual rate and vacancy data for every market
- Member since 2022 · 1k+ posts · 1k+ votes4y
Quote from @Bruce Woodruff:
It might backfire, Rodney.....I, for one, would choose a Mom and Pop over a corporate entity all day long. I do not like giving my $$ to corporate entities. I would rather support a small business.....Quote from @Rodney Sums:
Agreed . . . . It is also antithetical to why people choose STRs in the first place. It would be like going out of your way to visit a restaurant in a unique location, only to have it serve food from Applebees.
- Realtor · PInellas County Largo, FL · Member since 2016 · 902 posts · 810 votes4y
Quote from @Jon Martin:
Quote from @Bruce Woodruff:
It might backfire, Rodney.....I, for one, would choose a Mom and Pop over a corporate entity all day long. I do not like giving my $$ to corporate entities. I would rather support a small business.....Quote from @Rodney Sums:
Agreed . . . . It is also antithetical to why people choose STRs in the first place. It would be like going out of your way to visit a restaurant in a unique location, only to have it serve food from Applebees.
Lol -- my Aunt goes to Walmart everywhere she goes. And then buys a T-shirt with the city's name on it! My BIL seeks out Chili's and Bonefish in every town!! Then there's me that loves finding the local restaurants and shops.
- Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes4y
We're doing well still, we are just keeping more in reserves than we used to. Winners in all of this will be the people who kept on securing the assets.
- Real Estate Broker · Cleveland, OH · Member since 2016 · 146 posts · 110 votes4y
@Twila Fortner I recently spoke to a hotel manager that stated the issues are staffing, not bookings. They don’t have enough staff for the demand of bookings. She also confirmed they’re not cleaning as well as they should. They’re not dusting or mopping just turning beds and cleaning the bathroom. It’s sad what’s going on. I’m usually a hotel person but now Airbnb looking better and better!
- Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Bruce Woodruff:
It might backfire, Rodney.....I, for one, would choose a Mom and Pop over a corporate entity all day long. I do not like giving my $$ to corporate entities. I would rather support a small business.....Quote from @Rodney Sums:
@Jon Martin and Bruce,
I'm no expert in the world of STRs. Do travelers value supporting a small business more than brand recognition, amenities offered by chains (i.e. reward points for free stays) and potentially more competitive pricing?
Those are some of the things I find curious about chains making STRs out of SFHs.(excluding extended stay hotels).
I share your sentiments. Large corporations have long been the demise of small business. It's unfortunate.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Rodney Sums:
Do travelers value supporting a small business more than brand recognition, amenities offered by chains (i.e. reward points for free stays) and potentially more competitive pricing?
In short, yes. I think many are like us. I don't care about a brand, unless it has positive value that enriches my life. In my experience, that only happens with VERY expensive hotel branding, like $500 a night 'resort' kinda money. Only then the hotel can separate itself from a typical STR.
Hotel amenities at the pricepoint that most STRs have are a joke. A bowl of soggy Cheerios and an overripe banana. And their points are usually rigged to make it hard to actually use them. Ask me how I know on that one.
And their competitive pricing does not exist anywhere I've found recently. A local Day's Inn is $165 a night which seems to be typical for most decent chains nowadays. My STRs are the same or less and offer kitchens, privacy, and so much more. Which would most people choose? Hence the surge in STRs.....
- Member since 2022 · 1k+ posts · 1k+ votes4y
Quote from @Bruce Woodruff:
Quote from @Rodney Sums:
Do travelers value supporting a small business more than brand recognition, amenities offered by chains (i.e. reward points for free stays) and potentially more competitive pricing?
In short, yes. I think many are like us. I don't care about a brand, unless it has positive value that enriches my life. In my experience, that only happens with VERY expensive hotel branding, like $500 a night 'resort' kinda money. Only then the hotel can separate itself from a typical STR.
Hotel amenities at the pricepoint that most STRs have are a joke. A bowl of soggy Cheerios and an overripe banana. And their points are usually rigged to make it hard to actually use them. Ask me how I know on that one.
And their competitive pricing does not exist anywhere I've found recently. A local Day's Inn is $165 a night which seems to be typical for most decent chains nowadays. My STRs are the same or less and offer kitchens, privacy, and so much more. Which would most people choose? Hence the surge in STRs.....
@Bruce Woodruff All of this. Even the hotel brands that are perceived to be nicer by virtue of their name and that seem really nice when you walk often have very outdated rooms. They dress up the lobby, bar and restaurant but when you get the room, it's oftentimes about the same as a Best Western or a Hampton Inn (and sometimes worse) with a far higher price. Lipstick on a pig. Then they nickel and dime you for WIFI, $6 bottled water, coffee etc. The only exception seems to be the super high end destination resort properties, like you mentioned.
@Rodney Sums I'm no expert either but I like the unique neighborhoods and decor that only individual owners can provide because it reflects their own style and environment. Plus the benefit of supporting an individual or family who is also using independent operators to clean and manage their properties. Hotels will always be beholden to their business model that is built on uniformity and economies of scale, so I don't see them paying the premium to individualize their properties. They will probably try, but I don't think they can do it without it feeling generic.
- Property Manager · Kissimmee, FL · Member since 2019 · 446 posts · 266 votes4y
yes, Marriott has been involved for a few years. Their business model in the STR space is essentially to behave as a marketing channel much like Airbnb or Vrbo. They have fairly rigorous screening for the properties and then the STRs will be listed on the Marriott channel. Unlike other hotel chains that have tried their hand at STR management, the local PM remains in place and Marriott provides the branding and marketing. This way, their rewards customers can take advantage of their points however the STRs retain their local flavor. It remains to be seen how this all pans out. In my opinion this is smart for Marriott as they get to try their hand at STRs without such a huge financial commitment.
- Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Bruce You had me rollin with the soggy banana and cheerios comment. You're right though. Hotel breakfast was rarely anything to get excited about. COVID gave them an excuse to make an even worse "breakfast"
Jonathan those are true points. It is often unsettling to spend that kind of money for a room that is obviously very 1965 on the inside with paint slapped on it and some vinyl flooring, and the furniture looks like an episode of Saved By the Bell
What's even more annoying is how they have their staff come pounding on the door at 9am when check out ain't for 2 hrs and you're trying to get that last hr of sleep in. Hotel staff yelling and bumping their cell phone music in the hall. I may just give STRs another look now
- Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes4y
Quote from @Nathan Gesner:
Quote from @Account Closed:
More and more I'm hearing that STRs are going to be the alternative to hotels as it looks like a recession may be eminent. Curious to hear from the forum if you are seeing the same trends in terms of your bookings. Especially if you are in a vacation destination where hotels/resorts tend to capture the marketshare of the vacation traveler, ie. Hawaii, Orlando?
https://finance.yahoo.com/news/summer-vacation-rentals-144442710.htm
Vacation rentals are primarily owned by mom-and-pop investors. Hotels are typically run by wealthier mom-and-pop investors or corporations. Who do you think is going to win this fight?
Short-term won't go away, but I can see regulations and fees making it more difficult to be successful. I also don't believe the success people saw in 2020 or 2021 will continue forever.
@Nathan Gesner how much of this do you think is market specific? We're buying a beach condo in Destin, Fl. My thought is that some markets have been primarily vacation rentals for some time, so there's less concern about things shifting. But running a STR in a regular city might get harder.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesDude...I'm 2 hrs north of you. Work you a deal, my man......you'll never stay in a hotel again!
Quote from @Rodney Sums:
I may just give STRs another look now
- 4yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesBnbs will be more effected than a true vacation rental. People will still be spending vacation money to rent a Vrbo. The downtown 2 bedroom units would be hurt the most I imagine.
Quote from @Eric Bilderback:
If I had to guess I think STRs would be more effected during a recession then LTRs. STRs will be harmed when the stimy money dries up and consumers balance sheets normalizes.
- Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Bruce Woodruff:
Dude...I'm 2 hrs north of you. Work you a deal, my man......you'll never stay in a hotel again!Quote from @Rodney Sums:
I may just give STRs another look now
Flag? Sedona? Prescott?
Got that good weather now!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Quote from @Joshua Myers:
Every market is different, for sure. My market was off the charts in 2020 and 2021; this year it looks like 2019. Reservations are down, but revenue is up, so our income will probably be 5% - 10% below 2021. I hear people in the Smokeys are still rocking it with no slow-down.
I lived near Destin in 1987-1988 and there were plenty of tourists back then, so you're correct that it will stay a strong destination. However, how many vacation rental homes were there in 1988? 2008? 2018? The numbers have exploded in the last five years. At some point, saturation takes effect. There's also the increased regulation, taxation, marketing, and other factors that will start to eat into profit. Finally, the last two years have seen phenomenal growth for short-term investment income, but I believe that was due to COVID lockdowns. If things settle down - and particularly if we continue to experience inflation - I think we'll see that slow quite a bit.
I was shopping for a short-term in some of those markets and the numbers were pretty tight based on current performance. It wouldn't take much of a shift for a lot of investors to start losing money.
Just one man's opinion.
The DIY Landlord Book4.7247 Reviews - Investor · Greenville, SC · Member since 2020 · 210 posts · 302 votes4y
Smokies are way different than last year. The “top 10%” self-managed rentals won’t see much if any change, but I think the mid-tier rentals purchased in the past year are in trouble. For example the million dollar 3 BR resort cabin that are clones of their neighbor and were purchased at like a 12x multiple seem like they’re going to have major problems. This is why I never bought the real estate agent pitch “the resort cabins are just as good as the unique secluded ones because everyone wants something different and a lot of people love the resort cabins.” While somewhat true, the first cabins to go empty in a time like this are the clones that offer nothing unique, and you have fewer ways of drawing people to your cabin in a down market.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Rodney Sums:
Quote from @Bruce Woodruff:
Dude...I'm 2 hrs north of you. Work you a deal, my man......you'll never stay in a hotel again!Quote from @Rodney Sums:
I may just give STRs another look now
Flag? Sedona? Prescott?
Got that good weather now!
Preskitt......
- Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes4y
The only time hotels are beating out vacation rentals here in Destin/Fort Walton Beach is when people are traveling in very small groups (1 or 2 people) and for just a night or two. For family travel and for longer stays, hotels are no longer the go-to. The only advantage hotels have is the no cleaning fee for very short stays.
- 4yJason MuthPro MemberInvestor · Newburyport, MA · Member since 2015 · 58 posts · 40 votes
Quote from @Matt Splittgerber:
What’s everyone’s opinion on, in a recessionary environment, would buying one nice luxury unit be better or worse than two mid market units?
This is a great question. I'm also interested to hear peoples' opinions.
I think the key is market-dependent and worth researching the local demand and competition for different bedroom / occupancy counts to zero in on the optimal local opportunity. And if that turns out to tilt toward the luxury side, then there's your answer.
I tend to be more of a bet hedger though, so I'd probably try to find two $500k 3/4 bedrooms versus one $1M luxury property.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
2 medium units, especially in a recession. Just makes sense because you enlarge your market pool.....
- Rental Property Investor · Charlotte, NC · Member since 2021 · 71 posts · 49 votes4y
This is a very interesting topic, especially since my company has bought a dozen STR's in Orlando and Maui over the past year. STRs are an alternative to hotels in many instances but can also be a great substitute if set up correctly. In Orlando, our properties are 8-9 bedrooms with a private pool and can sleep 15-20 people. We have identified our target audience and believe we can provide a better long-term solution. To multiple generations, large families, and groups of friends, they would rather split the rent and share a large place than pay for 4-5 separate hotel rooms. We also capitalize on providing the guest's an experience that would demand a premium from hotels. This includes custom murals/theming, in-house movie theatres, personal hot tubs, unique game rooms, etc. These allow us to differentiate from hotels and capture that market of guests.
Other markets, such as Maui, HI target the consumers differently. We purchase properties that are oceanfront, have central locations, have multiple bedrooms etc. These are able to compete with hotels in a different sense. We are providing accommodations with breathtaking views and elegant design. This enables us to provide a similar quality if not better than hotels but at a competitive nightly rate. Markets like Maui, HI are so lucrative due to the forced lack of supply. They aren't building more hotels on the island and they aren't zoning more transient accommodations. This lack of supply allows us to capture the overall demand for the Hawaii scenery that sells itself.
- 4yCliff H.Pro MemberRental Property Investor · Nashua, NH · Member since 2014 · 599 posts · 477 votes
@Account Closed once something appears in a headlines as "the next big thing" the party's already over. The market's getting oversaturated and returns in some markets are no where close to what they were even a year ago. I can have one STR that's red hot and rented 29 days out of 30, another that's 10% occupied in otherwise busy summer months.
What no can disagree with is that there are a lot more STRs on the market today than there were a year ago, platforms have changed the way guests are finding listings, and there's a lot more folks in urban areas hopping on planes in 2022 than there were back in 2021 given relaxed COVID-19 protocols in most major travel destinations.
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