Is anyone still buying STVR's
Cole SchlackPro Member
Realtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votesIs anyone still buying STVR's
Most Popular Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votesWe are actively looking for our next property finally. So far what I have seen hasn't penciled out as well as I had hoped, but the higher interest rates don't bother me much. Waiting until the prices drop more is the trick. When to buy at a good price is more important than the rate. You can refi at the lower rate when they come down, but the purchase price is what it is.
Maybe what keeps folks from buying in HI is the difficult nature of the rules and regulations in Hawaii. Everything seems to be fluctuating and changing. You can do it here, but not here. No wait, not here but over there. Nope now nowhere near, but maybe waaay over there.
Plus the COVID lockdowns were among the most restrictive and long lasting which shows how difficult it could be with a STR there.
45 Replies
- Real Estate Agent · The Short Term Shop / Florida Emerald and Forgotten Coasts · Member since 2022 · 217 posts · 126 votes3y
Quote from @Jeremy Horton:
Quote from @Napoleon DeCiutiis:
Here's a great way for you to push your sales with the current interest rates. Tell them to re-run their numbers with the predicted FED hike numbers, compare them to current rates, and ask them which is a better time to buy.
So...a lot of realtors do this, this is just FOMO. The prices will come down as interest rates rise and unaffordability increases. This is literally what is happening right now. It's going to take 6 months at least since a lot of comps are ran 6 months back. That's part of the problem now, running comps to prices 6 months ago, but interest rates are double and people wonder why their places don't sell. Priced too high.
There are a TON of people buying STRs (or have bought) that simply ran their numbers wrong. If you're not calculating repairs/maintenance/Cap Ex and especially the cleaning fee into your ROI then you are doing it wrong. You see this so often. People THINK they made a lot, then you take a look at their books and they actually lost a couple thousand in cashflow (yes you still get the tax benefit and hopefully equity paydown, but you're still losing because that money would have done better somewhere else). Even the STS calculator doesn't calculate cleaning costs - you're talking probably 7-8k a year in cleaning on a basic STR.
That being said - I'm not buying into the hype. If there's a good deal - then great. If there's not, then great - it doesn't make a difference to me.
The people that are doing well are those that bought in early early 2021 and prior - right before the run up. You see them now essentially trying to "flip" their places for almost double what they were bought for 2 years ago. Yea you get awesome cashflow buying a cabin at 350k - not so much at higher rates and at 650k. It's still a sellers market imo, but the tide has definitely shifted.
And remember - there is a sucker born every minute. There's tons of suckers buying STRs and doing horribly and think they're doing well - this is because 1 they bought at too high of a price and 2 they are not educated on RE enough to even run basic calculations.
@Jeremy Horton, I agree with what you are saying here. Numbers run it, and if they don't work for your situation- don't pull the trigger. I think we all agree that point for sure.
We were talking about this in the Tom Ferry symposium. Every one of us has an "I wish I would never have sold that house." When is the best time? Yesterday. Regardless of the rates, there are still great listing deals and loan types to counter the current rise. I think @Raymond J. Rodrigues or @Tyler Solomon would back me up. House prices will continue to rise over time (speaking for my market, there's only so much Beach to build on...)
I just bought a condo on a 30-year, 7.25% (interest-only for 10yr) DSCR...rates will go back down, and I can write off the interest. The FOMO goes to the other side of the selling table, too, and buyer agents can take advantage of that. Thanks for the conversation, and I look forward to your reply! - Rental Property Investor · Marietta, GA · Member since 2017 · 131 posts · 101 votes3y
Quote from @Michael Baum:
Hey @Andrew Simms, so we usually get longer stays and our season is shorter than others. We are solid from May to Oct, then Thanksgiving and Christmas/New Years then done. Maybe get a Valentines day but not always. Sometimes we go over to fix things and do the cleaning ourselves.
We paid our cleaner $3300 for her services so far this year. Our average stay is 13 days.
So you are booked 100% all the time? That is really great.
@Michael Baum we aren't 100% occupied... about 65% through September (not accounting for times we've gone to the cabin). 175 days booked over 39 stays - average 4.5 days per stay... which averages to about 52-53 stays per year @ $175 per turn ($92xx).
Thanks for the info. I was thinking holy crap this guy has a cheap cleaner.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Cole Schlack:
Quote from @Michael Baum:
We are actively looking for our next property finally. So far what I have seen hasn't penciled out as well as I had hoped, but the higher interest rates don't bother me much. Waiting until the prices drop more is the trick. When to buy at a good price is more important than the rate. You can refi at the lower rate when they come down, but the purchase price is what it is.
Maybe what keeps folks from buying in HI is the difficult nature of the rules and regulations in Hawaii. Everything seems to be fluctuating and changing. You can do it here, but not here. No wait, not here but over there. Nope now nowhere near, but maybe waaay over there.
Plus the COVID lockdowns were among the most restrictive and long lasting which shows how difficult it could be with a STR there.
There is so much misinformation out there about Hawaii, This post has been good insight that I need to start with an information campaign. Hawaii is really no more complex that any other state but I think people just lump it into single place. You would not make a blanket statement about Washington State being easy or tough, Im sure some County's , City's and Towns are easy and some are tough. Seattle like Honolulu I assume it tough and working to make sure there are enough units for residents most of what people are hearing is about Honolulu. Every Island is its own county and has it own regulation but the common rule is STVRs are allowed in the resort zones, unlike most mainland states we actually have a clearly allowed area. There have been no changes to these areas but they are limited in size and there is no new rezoning to Resort zones in the foreseeable future. I consider this good as it keeps supply limited and drives up appreciate and rental rates. We are getting 80-90% occupancy rates which I don't think many locations get.So this is what makes this very interesting Cole. Two things:
-After the changes of regulation in Oahu early this year (?) , many Airbnb host outside Waikiki is renting out their Airbnb using different mechanism. They also list their car as a method to avoid the STVR regulation. So if the renter is also renting their car, and the host pickup their guest in airport, then it's okay for the host to renting out their place. I don't know if it's legal or not.
-In BI/Kailua, the regulation is a little bit different as well. Here it's possible to Airbnb the place in a residential zone as long as the owner is living there too, I don't know how true that is either. But seems different than Oahu.
May You have comments? - Realtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes3y
Quote from @Carlos Ptriawan:
Quote from @Cole Schlack:
Quote from @Michael Baum:
We are actively looking for our next property finally. So far what I have seen hasn't penciled out as well as I had hoped, but the higher interest rates don't bother me much. Waiting until the prices drop more is the trick. When to buy at a good price is more important than the rate. You can refi at the lower rate when they come down, but the purchase price is what it is.
Maybe what keeps folks from buying in HI is the difficult nature of the rules and regulations in Hawaii. Everything seems to be fluctuating and changing. You can do it here, but not here. No wait, not here but over there. Nope now nowhere near, but maybe waaay over there.
Plus the COVID lockdowns were among the most restrictive and long lasting which shows how difficult it could be with a STR there.
There is so much misinformation out there about Hawaii, This post has been good insight that I need to start with an information campaign. Hawaii is really no more complex that any other state but I think people just lump it into single place. You would not make a blanket statement about Washington State being easy or tough, Im sure some County's , City's and Towns are easy and some are tough. Seattle like Honolulu I assume it tough and working to make sure there are enough units for residents most of what people are hearing is about Honolulu. Every Island is its own county and has it own regulation but the common rule is STVRs are allowed in the resort zones, unlike most mainland states we actually have a clearly allowed area. There have been no changes to these areas but they are limited in size and there is no new rezoning to Resort zones in the foreseeable future. I consider this good as it keeps supply limited and drives up appreciate and rental rates. We are getting 80-90% occupancy rates which I don't think many locations get.So this is what makes this very interesting Cole. Two things:
-After the changes of regulation in Oahu early this year (?) , many Airbnb host outside Waikiki is renting out their Airbnb using different mechanism. They also list their car as a method to avoid the STVR regulation. So if the renter is also renting their car, and the host pickup their guest in airport, then it's okay for the host to renting out their place. I don't know if it's legal or not.
-In BI/Kailua, the regulation is a little bit different as well. Here it's possible to Airbnb the place in a residential zone as long as the owner is living there too, I don't know how true that is either. But seems different than Oahu.
May You have comments?The Oahu changes are just barely going into effect and there are lawsuits coming that may reverse. I would still avoid those areas and stick to the clear resort areas of Maui, Kauai and the Big Island. Most properties outside of the resorts are not much cheaper and dont rent as well anyway not sure why anyone would take the risk.
- Investor · Washington, DC · Member since 2018 · 93 posts · 54 votes3y
Quote from @Leslie Anne Morris:
... Also folks seem to be waiting and watching.
- Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes3y
I agree with a lot of what others have said here. If the property meets my buy box, and I'm in the position to pull the trigger, I'll buy it. Plain and simple. Sure, I underwrite with current interest rates, but I'm not afraid of them. I also don't think they're going to be around forever. Also, I've seen sellers who understand the market is changing, offer to buyers to buy down the rate so instead of 7.5% or whatever they can buy down a couple points. So whether I'm getting a property at 7% or 4%, as an interest only for 10 years, as an ARM or whatever, I operate taking into account my risks and my being able to refinance or sell in a few years, and does that make sense with the price. There are 3 main components of the deal: Purchase price, Interest rate and Time. If I can pull the levers to make these three elements play nice together than I'm all for moving forward...
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
Quote from @Michael Baum:
Yeah @Jeremy Horton, I am not going to agree with some of what you said.
Regarding cleaning fees, I don't work that into my expenses seeing as it is a pass through cost. I am fairly certain that every STR owner passes through the cleaning costs so the guests pay it. The only time would be if you have no cleaning fee and put the charge in the nightly rate. 7-8k a year in cleaning fees is really high. Our 4/3 2700sqft costs about $3300 a year in cleaning that the guests pay for. Cleaning supplies are less than $200 a year.
I don't disagree with the cashflow on 650 vs 350. Hard to argue with that math.
I don't think most STR owners are so ignorant of the math as you think.
So I hear A LOT of people attempt to explain that cleaning fees are a "pass through cost". If you calculate using the average nightly rate - ok - I'll give you a pass simply because you're not adding the cleaning cost into your gross revenue. However IF you calculate the cleaning cost into your gross revenue it must come back out.
Also if you use AirDNA/Pricelabs - they have the cleaning cost calculated into the gross revenue. The Average daily rate (ADR) is calculated as (nightly rate * # of nights stayed) + cleaning cost. So the gross revenue INCLUDES the cleaning cost. So in order for you to calculate your ROI the cleaning cost MUST be put in as an expense (this is because using the ADR includes the cleaning cost). Lots of people don't do this and think they're making 15% return when they're actually making a 3% return. If you're screening properties and running spreadsheets...the cleaning cost MUST be added in as an expense because it is calculated in the estimated/expected gross revenue numbers. If you don't do this your ROI is completely inaccurate. Cleaning can turn a good deal into a bad one.
So yea you have a cleaning fee that the guest pays that is calculated into your gross revenue. Then you pay the cleaner - so that amount must come back out of your gross revenue. This is simple math.
You would have to subtract the cleaning fees FIRST out of your gross revenue then calculate ROI. When I have guests the cleaning fee goes to my bank account. It then comes back out when I pay the cleaner.
$3300/year in cleaning is incredibly low - you either have very long stays or very short occupancy or you're cleaning yourself. Cleaning costs me $150 for a 2/2, average 3-4 stays a month 4-5 days per stay and yea you're looking right around around 8k. If I invest 100k, I'm ok making 12k net, I'm NOT ok making 4k net. See the difference?
I think you vastly underestimate the ignorance of most investors. I see it first hand regularly. There are very good investors and there are very bad ones...I had a realtor that "invested"...he simply bought properties and rented them out. Very low ROI if not negative. I calculate my ROI AFTER all expenses.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
Quote from @Justin K.:
Quote from @Jeremy Horton:
Quote from @Napoleon DeCiutiis:
Here's a great way for you to push your sales with the current interest rates. Tell them to re-run their numbers with the predicted FED hike numbers, compare them to current rates, and ask them which is a better time to buy.
So...a lot of realtors do this, this is just FOMO. The prices will come down as interest rates rise and unaffordability increases. This is literally what is happening right now. It's going to take 6 months at least since a lot of comps are ran 6 months back. That's part of the problem now, running comps to prices 6 months ago, but interest rates are double and people wonder why their places don't sell. Priced too high.
There are a TON of people buying STRs (or have bought) that simply ran their numbers wrong. If you're not calculating repairs/maintenance/Cap Ex and especially the cleaning fee into your ROI then you are doing it wrong. You see this so often. People THINK they made a lot, then you take a look at their books and they actually lost a couple thousand in cashflow (yes you still get the tax benefit and hopefully equity paydown, but you're still losing because that money would have done better somewhere else). Even the STS calculator doesn't calculate cleaning costs - you're talking probably 7-8k a year in cleaning on a basic STR.
That being said - I'm not buying into the hype. If there's a good deal - then great. If there's not, then great - it doesn't make a difference to me.
The people that are doing well are those that bought in early early 2021 and prior - right before the run up. You see them now essentially trying to "flip" their places for almost double what they were bought for 2 years ago. Yea you get awesome cashflow buying a cabin at 350k - not so much at higher rates and at 650k. It's still a sellers market imo, but the tide has definitely shifted.
And remember - there is a sucker born every minute. There's tons of suckers buying STRs and doing horribly and think they're doing well - this is because 1 they bought at too high of a price and 2 they are not educated on RE enough to even run basic calculations.
I bought my STR in December 2020 and sold mine in Jan of 2022. I flipped it for 2x what I bought it for and with dealing with all the stupid people, I was more than happy to offload it.
I don't think people who are trying to get into the STR game realize just how stupid people can be. You will receive 2 am phone calls over the stupidest of things like, "there is a small blue flame in the fireplace. We didnt want to blow up and die so we turned the gas off." Yea, that's the pilot light for the fireplace dipstick.
I have so many stories banked up in just the one year of ownership that it will be forever seared into my brain just how stupid and careless people will be with your stuff.
Question - did you happen to run STR numbers with your gross revenue and the new purchase price? I'd be interested to know if the numbers still work out. Obviously not as good as they did for you, but I see so many people buying at these insane prices, there is no way the majority of them are doing well. Even if I use AMAZING gross revenue numbers these places still don't work - or they will break even using only the best cherry picked numbers. I can see a large institution buying them simply because they can be ok with smaller margins since they have the volume. But for your average investor, I can't imagine they are working out as well as the STR craze would lead to believe.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Well thanks for giving us a pass @Jeremy Horton. Did you even read my posts? I answered what you are trying to figure out.
I don't need to explain how things work for us to you. I don't personally care. I pay what I pay. You pay what you pay.
If the cost is passed through to the guest, then it doesn't really matter. I put it in the calculations, but if it passed through, then it doesn't affect my ROI.
I don't use AirDNA or Pricelabs. They are highly inaccurate for our area.
I am sorry you think everyone is ignorant except you. I am sure you are a master of all things real estate.
I am not sure what you are trying to accomplish by talking down to everyone.
- Lender · Scottsdale, AZ · Member since 2020 · 8 posts · 4 votes3y
Yes Investors are still buying here in Scottsdale, AZ. Real Estate is all about location and this area Financial/Tech Hub. There is a 40 year interest only loan that helps with more positive cash flow and receives a better cash on cash return percentage. One can always refinance the rate down the road when rates are more favorable. Be sure to message me with any additional questions.
- East Texas · Member since 2018 · 205 posts · 138 votes3y
Quote from @Jeremy Horton:
Quote from @Justin K.:
Quote from @Jeremy Horton:
Quote from @Napoleon DeCiutiis:
Here's a great way for you to push your sales with the current interest rates. Tell them to re-run their numbers with the predicted FED hike numbers, compare them to current rates, and ask them which is a better time to buy.
So...a lot of realtors do this, this is just FOMO. The prices will come down as interest rates rise and unaffordability increases. This is literally what is happening right now. It's going to take 6 months at least since a lot of comps are ran 6 months back. That's part of the problem now, running comps to prices 6 months ago, but interest rates are double and people wonder why their places don't sell. Priced too high.
There are a TON of people buying STRs (or have bought) that simply ran their numbers wrong. If you're not calculating repairs/maintenance/Cap Ex and especially the cleaning fee into your ROI then you are doing it wrong. You see this so often. People THINK they made a lot, then you take a look at their books and they actually lost a couple thousand in cashflow (yes you still get the tax benefit and hopefully equity paydown, but you're still losing because that money would have done better somewhere else). Even the STS calculator doesn't calculate cleaning costs - you're talking probably 7-8k a year in cleaning on a basic STR.
That being said - I'm not buying into the hype. If there's a good deal - then great. If there's not, then great - it doesn't make a difference to me.
The people that are doing well are those that bought in early early 2021 and prior - right before the run up. You see them now essentially trying to "flip" their places for almost double what they were bought for 2 years ago. Yea you get awesome cashflow buying a cabin at 350k - not so much at higher rates and at 650k. It's still a sellers market imo, but the tide has definitely shifted.
And remember - there is a sucker born every minute. There's tons of suckers buying STRs and doing horribly and think they're doing well - this is because 1 they bought at too high of a price and 2 they are not educated on RE enough to even run basic calculations.
I bought my STR in December 2020 and sold mine in Jan of 2022. I flipped it for 2x what I bought it for and with dealing with all the stupid people, I was more than happy to offload it.
I don't think people who are trying to get into the STR game realize just how stupid people can be. You will receive 2 am phone calls over the stupidest of things like, "there is a small blue flame in the fireplace. We didnt want to blow up and die so we turned the gas off." Yea, that's the pilot light for the fireplace dipstick.
I have so many stories banked up in just the one year of ownership that it will be forever seared into my brain just how stupid and careless people will be with your stuff.
Question - did you happen to run STR numbers with your gross revenue and the new purchase price? I'd be interested to know if the numbers still work out. Obviously not as good as they did for you, but I see so many people buying at these insane prices, there is no way the majority of them are doing well. Even if I use AMAZING gross revenue numbers these places still don't work - or they will break even using only the best cherry picked numbers. I can see a large institution buying them simply because they can be ok with smaller margins since they have the volume. But for your average investor, I can't imagine they are working out as well as the STR craze would lead to believe.
I didn’t run numbers on my sold price vs gross revenue. I know that my gross revenue on the mortgage and costs was enough to make a decent profit that was worth the time but I am fairly certain at the selling price, that’s a big negative.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
Quote from @Michael Baum:
Well thanks for giving us a pass @Jeremy Horton. Did you even read my posts? I answered what you are trying to figure out.
I don't need to explain how things work for us to you. I don't personally care. I pay what I pay. You pay what you pay.
If the cost is passed through to the guest, then it doesn't really matter. I put it in the calculations, but if it passed through, then it doesn't affect my ROI.
I don't use AirDNA or Pricelabs. They are highly inaccurate for our area.
I am sorry you think everyone is ignorant except you. I am sure you are a master of all things real estate.
I am not sure what you are trying to accomplish by talking down to everyone.
If you put it in your gross revenue and subtract it out, that's correct and it won't affect your ROI. If you don't subtract the cleaning costs out of your gross revenue (like many people don't do) that's incorrect. I don't care how you do it, I'm just mentioning the correct way to do it (which many people don't do).
Not even going to bother with the rest of your post about your personal feelings...this is not a therapy session
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Not personal feelings, just observations.
- Real Estate Broker · Kaneohe, HI · Member since 2020 · 193 posts · 163 votes3y
Hi @Cole Schlack - here on O'ahu, if priced right, STR's are still going under contract quickly. Not too long ago I represented a buyer where she put in an offer on a unit at the Ilikai the first day it hit the market. Seller required my client's initial earnest money be non-refundable if he accepted the offer, otherwise he was going to wait a week before reviewing offers and it was very likely they would have received multiple offers.
Regarding the recent regulations - Bill 41, a judge recently issued an injunction on the 90 day minimum so any owner can continue doing 30 days rentals (as long as the building association allows it). And on October 24th, the registration portal for STR's went live, and surprisingly it seems to be going rather smoothly. The DPP is giving conditional registration approval once an owner submits the required documentation since it will take time for them to review all the docs. Fee to register is $1000 and is nonrefundable.
Best regards,
- Lender · Austin, TX · Member since 2022 · 223 posts · 244 votes3y
Quote from @Napoleon DeCiutiis:
Quote from @Jeremy Horton:
Quote from @Napoleon DeCiutiis:
Here's a great way for you to push your sales with the current interest rates. Tell them to re-run their numbers with the predicted FED hike numbers, compare them to current rates, and ask them which is a better time to buy.
So...a lot of realtors do this, this is just FOMO. The prices will come down as interest rates rise and unaffordability increases. This is literally what is happening right now. It's going to take 6 months at least since a lot of comps are ran 6 months back. That's part of the problem now, running comps to prices 6 months ago, but interest rates are double and people wonder why their places don't sell. Priced too high.
There are a TON of people buying STRs (or have bought) that simply ran their numbers wrong. If you're not calculating repairs/maintenance/Cap Ex and especially the cleaning fee into your ROI then you are doing it wrong. You see this so often. People THINK they made a lot, then you take a look at their books and they actually lost a couple thousand in cashflow (yes you still get the tax benefit and hopefully equity paydown, but you're still losing because that money would have done better somewhere else). Even the STS calculator doesn't calculate cleaning costs - you're talking probably 7-8k a year in cleaning on a basic STR.
That being said - I'm not buying into the hype. If there's a good deal - then great. If there's not, then great - it doesn't make a difference to me.
The people that are doing well are those that bought in early early 2021 and prior - right before the run up. You see them now essentially trying to "flip" their places for almost double what they were bought for 2 years ago. Yea you get awesome cashflow buying a cabin at 350k - not so much at higher rates and at 650k. It's still a sellers market imo, but the tide has definitely shifted.
And remember - there is a sucker born every minute. There's tons of suckers buying STRs and doing horribly and think they're doing well - this is because 1 they bought at too high of a price and 2 they are not educated on RE enough to even run basic calculations.
@Jeremy Horton, I agree with what you are saying here. Numbers run it, and if they don't work for your situation- don't pull the trigger. I think we all agree that point for sure.
We were talking about this in the Tom Ferry symposium. Every one of us has an "I wish I would never have sold that house." When is the best time? Yesterday. Regardless of the rates, there are still great listing deals and loan types to counter the current rise. I think @Raymond J. Rodrigues or @Tyler Solomon would back me up. House prices will continue to rise over time (speaking for my market, there's only so much Beach to build on...)
I just bought a condo on a 30-year, 7.25% (interest-only for 10yr) DSCR...rates will go back down, and I can write off the interest. The FOMO goes to the other side of the selling table, too, and buyer agents can take advantage of that. Thanks for the conversation, and I look forward to your reply!Agreed! Many folks who benefitted from the get rich quick market over the last 24-36 months have lost sight, or completely forgotten that RE is a LONG TERM game. Always has been, always will be. Sure, there are great buy and sell opportunities across the market, but long term appreciation is the ultimate wealth play. As @Napoleon DeCiutiis said, run the numbers and pull the trigger if it makes sense, hold off if they dont!
- 3yMichael HaasBusiness MemberReal Estate Agent · Redmond, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 724 posts · 3k+ votes
@Cole Schlack which Island are you on?
HouseHack Seattle | Michael Haas & Team572 Reviews - Realtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes3y
Quote from @Michael Haas:
@Cole Schlack which Island are you on?
The Big Island is Home but work on Maui, Kauai and Molokai as well
- 3yCliff H.Pro MemberRental Property Investor · Nashua, NH · Member since 2014 · 587 posts · 477 votes
Here in stodgy New England local STR restrictions are spreading like a virus from town to town… just at the very point where the STR gold rush is already yesterday's news and some investors are starting to realize that 2020-2021 were market anomalies created by a global pandemic that altered how and where people traveled/stayed. Ex: too little supply -> record demand/rates -> over-purchasing/supply -> declining rates -> sale/transfer of STR homes.
The rebalancing of real estate markets in the year to come will be as much about rental term length as it will be about price and rate.
Am I leaving the STRs behind? No, but that's driven by having profitability from day one and well before a global pandemic made all STR investors seem like overnight successes.
- 3yJosh GreenBusiness MemberRealtor · Tampa/St Pete/Clearwater/Bradenton · Member since 2020 · 396 posts · 353 votes
@Cole Schlack
Not sure about the above, but for me absolutely. I'm in the Tampa Bay area. Margins on REI are always going to be on a downward trend as the herd mentality shifts around from market to market and from investment type to investment type.
I see great opportunities now and I'm trying to acquire as much as possible within the next 8 years because it won't stay that way here. Eventually prices will outpace the returns and it will be harder and harder to find good deals or other more creative investment types will need to be found.
Trailer parks, storage units and the FHA 4 Plex on repeat are some examples of investment types that used to be easier to find awesome deals. With information so quickly spread and the viability of out of state investing so much easier now than ever, those margins have all declined and STRs in many places are going to follow suit.
Impact Realty Tampa Bay.4.962 Reviews
Suncoast Vacation Homes4.959 Reviews - 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Quote from @Josh Green:
@Cole Schlack
Not sure about the above, but for me absolutely. I'm in the Tampa Bay area. Margins on REI are always going to be on a downward trend as the herd mentality shifts around from market to market and from investment type to investment type.
I see great opportunities now and I'm trying to acquire as much as possible within the next 8 years because it won't stay that way here. Eventually prices will outpace the returns and it will be harder and harder to find good deals or other more creative investment types will need to be found.
Trailer parks, storage units and the FHA 4 Plex on repeat are some examples of investment types that used to be easier to find awesome deals. With information so quickly spread and the viability of out of state investing so much easier now than ever, those margins have all declined and STRs in many places are going to follow suit.
This is a great point. If people are waiting for pre-2022 type returns they are going to be waiting forever. Even if we forget saturation, interest rates, and the economy for a minute, the biggest thing that will keep those returns away is that the secret is out. This is the normal cycle for any new real estate investment vehicle. The best returns are at the beginning, when people don't know how well it's working, when people are still sitting out because they don't think it's a safe investment style, etc. As that investment type gets more popular and becomes more widely accepted as a legitimate investment vehicle, the returns go down. And will keep going down forever as more and more people get into it.
Just look at long term rentals. It used to be the 2% rule. Then it was the 1% rule. Now you can't even find 1% in most markets. That's for no other reason than there are more and more people willing to buy and undercut each other on the returns.
Same thing for short term rentals. 18 months ago you could get 80% CoC. Now people aren't buying at 20-30% CoC because they want 80%. Well 80% is gone other than the occasional unicorn. And 5 years from now 20-30% CoC will be gone and more and more people come in and undercut each other for less.
I remember being on here in 2019 and the pitching point for the Smokies was that it was this secret STR spot where you could get great returns because all the places there were being managed by old school vacation rental companies taking 30% of revenue and not even listing on Airbnb/VRBO. So people didn't even know how much money they could make by just buying and self managing and sticking it on airbnb/vrbo with little else needed. Needless to say, everyone knows now. So you're not ever going to be able to buy a 5br house with a sweet view for $500k again like you could back when people didn't know you could gross $125k+ on that house.
More and more people will forever move into the space, and returns will forever decay.
Cosmic Vacations4.9172 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.