STR saturated? Changing strategy?

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STR saturated? Changing strategy?

Marcelle Abel
Member since 2022 · 43 posts · 25 votes

Hi all! We own one STR on the West Coast (just listed) and our strategy so far has been to acquire more STR's specifically on the East Coast since the buy in is a lot cheaper but I'm hearing conflicting opinions about the STR world and am considering switching strategies. Id love to get some thoughts….Do you feel that the STR industry is saturated? Should we keep moving forward or start to look at other investment strategies?? Newbie here getting a little nervous but still excited to create our investment portfolio somehow. Thank you!!

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Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
4y

I'll second @Dave Stokley - if you do some digging, you'll find markets that have terrible listings that are booked out like crazy. Find and go to a place where you don't have to be a rock star to beat the competition. Stalk airbnb/vrbo listings in a few markets until you find one or several good comps that are absolute hot garbage but are booked out and succeeding. They exist, but you're going to have to do your own research and get out of the markets that get discussed in these forums the most often. 

It's also fun to buy a house down the street from one of those terrible but successful listings and absolutely crush them from day 1. It's more satisfying than it should be and honestly reveals some of the darkness in my heart that I take such joy in watching our calendar book up before theirs. 

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  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    4y

    STR, like any real estate, is local/regional and not national. Some markets may be saturated with STRs while there is still plenty of room to grow with others. It all depends on the market.

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    9Reply
  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    4y

    One Property and switching strategy? I think I'd try to get to 10 first.

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  • Marcelle Abel
    OP
    Member since 2022 · 43 posts · 25 votes
    4y
    Quote from @Luke Carl:

    One Property and switching strategy? I think I'd try to get to 10 first.

    Our switching strategy potentially has nothing to do with how our current property is doing, it’s more about hearing the chatter around the industry as a whole being saturated. 
    1Reply
  • Joshua MessingerBusiness Member
    Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
    4y

    Hey @Marcelle Abel! 

    I agree with @Avery Carl on this one. I do not believe the overall STR market is saturated. I believe it is only saturated in certain places. As more and more people get on Airbnb and try to make extra cash flow most are clueless on actually what to do leading to non-performing listings that are just outliers in the area which in turn creates "saturation" in some markets and turns away investors from wanting to invest there. Don't get me wrong there are markets that are actually saturated out there (Joshua Tree, CA seems to be on the come-up on this) but now most listings I see that are non-performing are just being ran by someone who has absolutely no idea what they are doing or they are not treating their property like a hotel.

    Hope this helps and I'd love to talk more over DM! Feel free to reach out whenever :)

    -

    Josh

    [email protected]484-986-5012
    5Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    You need to get more granular in your questions/analysis. What is saturated and what does that even mean? These "sky is falling, market is saturated" conversations around STRs is counterproductive and worthless. I do understand where you are coming from though...it's scary to put the time, energy, and money that it takes to get a property off the ground and listed. 

    All of these conversations are market specific. Having domain expertise in a particular market and the skill set to execute on a specific property is what matters. The unit economics of a property and your ability to analyze that is the better conversation to have. Asking whether the STR market is saturated is like asking if the stock market is overvalued or ripe for growth. It depends on the individual stock/fund or individual property/market.

    Where are you looking on the east coast? We went through this process last year and ultimately landed on a property in Maine that is performing very well. Please shoot me a message if you think that I can be helpful. 

    7Reply
  • Dave StokleyBusiness Member
    Property Manager · Cleveland, OH · Member since 2015 · 699 posts · 799 votes
    4y

    I'm seeing tons of micro-markets that are vastly UNDERSERVED. You just have to do the research to find them. If it were easy and obvious everyone would already be doing it.

    3Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    I'll second @Dave Stokley - if you do some digging, you'll find markets that have terrible listings that are booked out like crazy. Find and go to a place where you don't have to be a rock star to beat the competition. Stalk airbnb/vrbo listings in a few markets until you find one or several good comps that are absolute hot garbage but are booked out and succeeding. They exist, but you're going to have to do your own research and get out of the markets that get discussed in these forums the most often. 

    It's also fun to buy a house down the street from one of those terrible but successful listings and absolutely crush them from day 1. It's more satisfying than it should be and honestly reveals some of the darkness in my heart that I take such joy in watching our calendar book up before theirs. 

    10Reply
  • Dave StokleyBusiness Member
    Property Manager · Cleveland, OH · Member since 2015 · 699 posts · 799 votes
    4y
    Quote from @Travis Timmons:

    I'll second @Dave Stokley - if you do some digging, you'll find markets that have terrible listings that are booked out like crazy. Find and go to a place where you don't have to be a rock star to beat the competition. Stalk airbnb/vrbo listings in a few markets until you find one or several good comps that are absolute hot garbage but are booked out and succeeding. They exist, but you're going to have to do your own research and get out of the markets that get discussed in these forums the most often. 

    It's also fun to buy a house down the street from one of those terrible but successful listings and absolutely crush them from day 1. It's more satisfying than it should be and honestly reveals some of the darkness in my heart that I take such joy in watching our calendar book up before theirs. 


     Hahaha I love this! A couple weeks ago I told our team that I wanted to "crush our competition into a fine dust and blow them away in the wind" or something diabolical like that and I'm pretty sure they all thought I was nuts. 

    2Reply
  • Leslie Anne Morris
    Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
    4y

    Hi Marcelle, I am with you on going where it is cheaper! I was investing in California and pivoted my entire strategy to Tennessee. It’s not a bad move. But to @Luke Carl’s point if you have a performer just go hard in your niche. 

    1Reply
  • Dominic A.
    Property Manager · Nova Scotia · Member since 2021 · 78 posts · 52 votes
    4y

    Great answers so far; I really like how short and sweet @Avery Carl kept it.

    Any real estate strategy is going to be based on you and the "strategy" part itself. STR's will always exist; the question is will YOU (or your PM/team) have the plan to make yours work?

    Prior to 2019, the STR market was really heating up; in many cases, it almost seemed to be a race to the bottom though in terms of who could offer the lowest price. Covid showed up on the scene, and almost overnight, more than half of those rentals disappeared from the STR market. Some switched to LTR and some sold (both ok plans if you can manage to not lose money). 

    We were fortunate that our ongoing  strategy allowed us to operate at lower occupancy (and do some renovations) during the slow down, and then we were able to work to the top of the market for the folks who still needed to travel or isolate. I hate not to credit a good amount of luck on these sorts of things, but the point is that even in a global pandemic with no travel, the STR market was still a good one.

    So to your actual question; the market is saturated in many areas, so you can either shop for a different market, or you can do what it takes to stand out and weather the storm. 

    Double "or" you could have a different type of investment strategy altogether.

    Not knowing your current situation, I would say this: 

    You have one rental on the west coast, and you are planning to expand on the east coast. If you feel confident about your why and how then go for it (with an appropriate amount of caution (because I'm very cautious)). However, could you also add a few units in your local market (is that the west)? Use that expansion and learning opportunity to inform your strategy in new markets? That might be the option I'd look at, especially if you're feeling uneasy.

    0Reply
  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    4y

    I am finding some of my markets have a huge influx of competition over the last couple years, some near none at all.  I suspect the larger markets are going to get saturated faster, as data service providers and larger players identify large and medium markets more easily.  Some of the smaller markets aren't as easily on the radar.  Also niche properties are more likely to fly under the radar from the major data services, as they tend o report in some type of aggregate.

    I am concerned that as data services get better, and everyone gets better at exploring new markets, the time to "saturation" will continue to get shorter, all other things held constant.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Hey @Marcelle Abel, I am curious where you hear about the issues. Recently, we have had a few posts where someone saw a TikTok video or YouTube or a social media post saying that STR was dead or no longer worth it or they suck or people hate AirBNB. Those are not good bellwethers of the STR markets.

    Like so many others have said, some are saturated, some are not.

    As in any kind of investing, it is never a bad idea to diversify. Add in a LTR or multi familiy and you will create a more healthy portfolio.

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Marcelle Abel

    Conflicting info on a topic in today's world?  What?  Lol.

    Hearing multiple sides of any opinion is just that, an opinion.  It's no different when there are competing views of what is going to happen in a specific market or with interest rates in the near or far future.  We don't really know and you have to gather info and do some research to form your own opinion.  Rates are a great example as the news/media talked about how rates were coming down just two weeks ago meanwhile the lenders were NOT dropping rates.  It's simple, the investors who buy the loans on the secondary market had different opinions of where the market was going and were not buying new loans at lower rates, therefore, the lenders won't lower rates.  The news and financial "experts" like Forbes are often incorrect.  Instead of opinions, look at facts.

    AirBnB just released a report a few weeks ago about how the STR markets were growing and more properties being added across the US. The supply and demand were in check at that point. Will it change? Absolutely! Which way will it go and when? Who knows. GUC for Multi-Family Housing is booming in some areas of the country and not so much in others... the law of supply and demand says that at some point the supply will outpace the demand and then the rental rates will begin to slow as well...

    The real question here is do you have good timing to work in this space right now? To be fair, no two STR markets are exactly the same. It may be great to invest in Sevier County TN right now but not great is Southern California. From what I see on the lending side of things, lenders are hungry for GUC, Fix and Flips, and purchases in TN, TX, FL, and AZ right now. These markets are still very strong, generally speaking, but they are slowing along with the rest of the country, just a little slower than most others...

    Cheers!

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    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Every other post lately has been about STRs being dead and gone, nothing but a fad whose time has ended. I hope this is repeated until everyone believes it.

    I'm sure there are some markets where the model won't work any longer, but equally there are parts of the country where they are still new with tons of room to grow.....

    Your game-on is to find the latter.....

    2Reply
  • Brian Tibbs
    Member since 2022 · 1 post · 3 votes
    4y

    Marcelle, I think the general consensus here is correct. Owning 27 STRs myself, I am not abandoning the strategy. In fact, if we switch strategies every time our market softens, we'll never get really good at any of them. It takes time to develop systems, teams and stabilize properties. Do you hard work on the research phase (including staying away from hostile regulation areas) and you should have no problem being successful in STR. It's a category that will continue to grow.

    3Reply
  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    @Marcelle Abel
    I think the STR space is saturated with half-baked STR's. I think the days are done of you being able to just put a property on there and putting minimal work in. You need to create an experience for guests and have a well-thought-out and furnished STR, professional photos, guest communication, etc. That can mean each rental is a different theme making each unique and a stand-alone not like the other.

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    4y
    Quote from @Marcelle Abel:

    Hi all! We own one STR on the West Coast (just listed) and our strategy so far has been to acquire more STR's specifically on the East Coast since the buy in is a lot cheaper but I'm hearing conflicting opinions about the STR world and am considering switching strategies. Id love to get some thoughts….Do you feel that the STR industry is saturated? Should we keep moving forward or start to look at other investment strategies?? Newbie here getting a little nervous but still excited to create our investment portfolio somehow. Thank you!!

    I believe that yes it is saturated; however, this is like any industry. There are a lot of people getting into rentals, flips, wholesaling etc. You need to find your niche and it maybe a value add, or buying it with the STR permit already in place. There are a lot of places cracking down on STRs because they are challenging for the cities to manage with the citizens that pay taxes there and have businesses there. The best thing to do is pick 2-3 areas you want to go, research the city rules and regs to confirm they are for sure good to go in the STR permit process and then dig deeper on those markets on the best streets/night life and all
     
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  • Mike Eichler
    Realtor · Pocono Pines, PA · Member since 2019 · 183 posts · 108 votes
    4y

    I believe that any strategy in real estate can become saturated especially STR. I also believe that if you are in the top tier of listings you don't have as much to worry about, even if you are not there are some options that you have... I actually just recorded a podcast on this and would happily share it with you ( feel free to DM me). Some of your exit options might be to switch to Furnished month-month rentals or LTR. and if applicable, student housing. Not sure exactly what your area is like but here in Philly we have had some success switching some of our STRs to furnished month-to-month as regulations to ban STR are looming.

    Hope this helps, let me know if you have any further questions and I would be happy to answer them for you.

    All the best, 
    Mike

    1Reply
  • Michael Glunk
    Real Estate Agent · Evergreen, CO · Member since 2015 · 126 posts · 73 votes
    4y

    Agree with @Avery Carl as well. Real estate is local/regional. And to build on this a bit further, how are you defining saturation and in come cases, does saturation matter?

    What do I mean by this? 

    I'd hypothesize that to most, "saturation" means there are too many STRs in a particular location. And while there may be a lot, there might be niches within the STRs in a given area that are underserved. Creating hidden opportunities for those that seek them out. Example: I have property in a ski town that many consider "saturated" based on the number of STRs, but it is saturated with 2-4 bedroom properties. I differentiated myself with a larger STR option, a 6 bed ski property (among other design aspects of the home) and have little competition.

    1Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 818 posts · 639 votes
    4y

    Not only has STR gotten saturated with supply, but valuations have gone crazy in some markets because everyone sees the "STR" pot at the end of the rainbow. It has even gotten to a point where STRs trade on par with LTRs offering no premium (once you account for added expenses associated with turnover); just more headache.

    There is also serious regulatory risk - a town can just change their view on STRs overnight and that can really impact your "business". 

    Make sure a deal is sound as a LTR and then optimize via STR if needed, but the STR path to quick money is gone.

    Now that the market is saturated, valuations are high and demand has pulled back (no more COVID - duh!) - we are going to see who has been swimming naked. 

    2Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Maybe in some areas, but I am getting bookings for 2024 right now. An 2023 is filling up fast. If you buy right in the right area, there is plenty of upside to be had.

    2Reply
  • Joseph Medina
    Houston, TX · Member since 2021 · 72 posts · 35 votes
    4y

    @Marcelle Abel If you have a worry, then 'zoom out'. There are 320+ million people in the US im sure you can find a way to attract some of that money your way! I know all of us like BP but Ken McElory also has some great content out there on STRs. So listening to him is a great resource too. you have the author of a book on this very topic in your response @Avery Carl and her husband @Luke Carl. I would say make a move and react. because just like in chess  not making a move is a move. 

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Alexander Szikla:

    1 but the STR path to quick money is gone.

    2 Now that the market is saturated, 

    3 valuations are high 

    4 demand has pulled back

    5 (no more COVID - duh!) 

    1 - No it is not 

    2 - The market is not saturated everywhere, just in some areas

    3 - Not everywhere

    4 - Not where I'm looking, either as a host or guest

    5 - Covid had little to do with STR growth, as a matter of fact, it hurt it in some areas....

    2Reply
  • Jossalyn Wallace
    Real Estate Agent · Destin, FL · Member since 2019 · 116 posts · 111 votes
    4y

    I always think its smart to diversify if you can! I live in a very strong STR market on the Fl Panhandle but we also have a great long term market because of the military bases surrounding us (LOCATION LOCATION LOCATION). It always makes me feel good knowing I can rent my properties out either way if there's ever a shift. Our STR here have very low vacancy so I don't see the demand going away any time soon.

    1Reply
  • Lucie Tighe
    Property Manager · Tampa, FL · Member since 2022 · 147 posts · 66 votes
    4y

    Well said @Joshua Messinger. 

    1Reply
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