Short-Term & Vacation Rental Discussions

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Benjamin Furney
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How realistic is it to get into STR now?

Benjamin Furney
Posted Jan 24 2023, 21:46

Hey BP folks! Been doing more research on the STR and have discovered about 20 STR markets. However, basically all these markets have very high median home prices or they are oversaturated. Im wondering at this point, how realistic is it to find a good market, without over saturation or to high price points?

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Jason Bowden
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Jason Bowden
Replied Jan 24 2023, 22:14

Hey Ben! I wouldn't say it's necessarily unrealistic. What markets are you looking at? 

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Michael Baum#1 Short-Term & Vacation Rental Discussions Contributor
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Michael Baum#1 Short-Term & Vacation Rental Discussions Contributor
  • Olympia, WA
Replied Jan 24 2023, 22:26

It's as realistic as flipping a house, or buying multifamily or doing LTRs.

There are deals to be had but you have to keep looking. I agree that it is tough out there.

What kind of market are you interested in? 

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Replied Jan 25 2023, 01:20

You have to run your numbers & make sure they work. If they do, go for it. 

Choose a true vacation market where saturation is not a problem. BP's STR boot camp is a great place to start

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Luke Carl#5 Short-Term & Vacation Rental Discussions Contributor
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Luke Carl#5 Short-Term & Vacation Rental Discussions Contributor
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Replied Jan 25 2023, 02:24

oversaturated is a myth. so much so it's not even a real word. 

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Leslie Anne Morris
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Leslie Anne Morris
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Replied Jan 25 2023, 03:29

Definitely learn underwriting metrics and have criteria you routinely apply to reviewing deals. 
https://www.biggerpockets.com/...

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Jeremy H.#3 Investor Psychology Contributor
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Jeremy H.#3 Investor Psychology Contributor
  • Rental Property Investor
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Replied Jan 25 2023, 04:36
Quote from @Luke Carl:

oversaturated is a myth. so much so it's not even a real word. 


 You wouldn't agree that bookings are down for a lot of places due to the massive increase in supply over the last 2 years? 

I think a lot of places have increased in supply A LOT over the past couple years. It's definitely a lot more competitive than it was 3+ years ago. Returns are going to be lower. Prices are going to be higher. The STR market is a lot more established and "supplied" in a lot of areas. This is just what I have seen.

I'd go so far to say that you very well may NOT generate more income on an STR compared to a LTR property. I had a buddy that bought in PCB (100k downpayment) - net's about 500/month and did well over 75% median for net revenue. I have a cheap duplex here that nets $700/mo ($30k invested). Is it worth the headache and extra time? I'm not sure

I think it can be good for the right people - but I think too, STRs are a shiny object with a lot higher risk. Quite a bit more work, if you choose to self manage over a LTR as well 

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John Underwood#4 All Forums Contributor
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John Underwood#4 All Forums Contributor
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Replied Jan 25 2023, 05:07
Quote from @Michael Baum:

It's as realistic as flipping a house, or buying multifamily or doing LTRs.

There are deals to be had but you have to keep looking. I agree that it is tough out there.

What kind of market are you interested in? 


 I agree. 

Your going to have to work harder to find an area and the correct house at a good enough price that will work.

I would recommend to any of my family to find deals on fixer uppers at cheap prices and make them LTRs before paying top dollar for a STR in a saturated market with these higher mortgage rates.

There are so many other ways to make money in RE.

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Mike Shemp
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Mike Shemp
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Replied Jan 25 2023, 05:21

Agree with @John Underwood. Right now it will be very easy to overpay for an STR.

There may be better opportunities now for finding a property that doesn't seem to fit the STR profile, but with some investment in amenities, remodeling, etc. turn it into an STR.

Mike

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John Underwood#4 All Forums Contributor
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John Underwood#4 All Forums Contributor
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Replied Jan 25 2023, 05:42
Quote from @Mike Shemp:

Agree with @John Underwood. Right now it will be very easy to overpay for an STR.

There may be better opportunities now for finding a property that doesn't seem to fit the STR profile, but with some investment in amenities, remodeling, etc. turn it into an STR.

Mike


Absolutely, better opportunities could surely be found in a Non-Turnkey properties and make them into a STR or LTR. I'm focusing on adding properties to my LTR portfolio right now that I can find for pennies on the dollar and they are out there.

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Scott K.
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Replied Jan 25 2023, 06:07

At least in my area, Poconos of Pennsylvania, the competition is 4x what it was 3 years ago. Before I didn't know what I was doing, I didn't have to interior decorate, I didn't have to have my cleaning practices perfect, I didn't have to know how to deal with customers. I just put a house up for rent, and made a killing. Now I see tons of competitors selling their homes, or converting to Long term rentals, or lowering prices by 2x, 3x just to get people in a few days a week. It's a total nightmare unless you know what you're doing, and you've put in the work to be a better host. I wouldn't necessarily recommend it anymore to people. To put it simply, it used to be a part-time job, now it's a full-time job for the same amount of money.

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Lyndsay Zwirlein
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Lyndsay Zwirlein
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Replied Jan 25 2023, 06:27
@Jeremy H.

Great point. I was listening to BP episode 712 yesterday with a VP at Airdna. The research shows people that owned homes are not wanting to sell due to rates in the 3s so they're "repurposing" them into STRs so there is increased supply for sure. 

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Eliott Elias#3 All Forums Contributor
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Eliott Elias#3 All Forums Contributor
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Replied Jan 25 2023, 06:30

It's as good as your research, if you're asking if every market in the US is saturated? Probably not

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January Johnson
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January Johnson
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Replied Jan 25 2023, 06:59

I sell Florida's Emerald Coast, and we have great, affordable properties that rent well.  STRs is all I do with The Short Term Shop.  

You didn't say how much money you have to invest, but I can get you small condos starting in the low $200Ks (will require 25% down), townhomes in the mid $300Ks (finance like a SFR), and furnished SFRs starting in the low $400Ks.

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Bruce Woodruff#2 All Forums Contributor
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Bruce Woodruff#2 All Forums Contributor
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Replied Jan 25 2023, 07:18

There is always an ebb and flow to everything. This phase of the STR market should have been expected by anyone paying attention.

That said, of course there are many markets in the US that are still relatively undiscovered. The game-on for the newbie is to find them and get in quick. That requires a lot of resources that most people don't have - money, guts, smarts, etc...

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Andrew Steffens
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Andrew Steffens
  • Tampa, FL
Replied Jan 25 2023, 07:27
Quote from @Benjamin Furney:

Hey BP folks! Been doing more research on the STR and have discovered about 20 STR markets. However, basically all these markets have very high median home prices or they are oversaturated. Im wondering at this point, how realistic is it to find a good market, without over saturation or to high price points?


 Hey Benjamin

We are a PM co in the west coast of Florida. We have a mix of traditional STR beach towns that have had rentals for the better part of a century. We also have the metropolitan areas of Tampa and Saint Pete which are new hotspots for STR's. We have some market saturation here but due to near constant demand it is tolerable. If you pick a market that has historic strength, buy good assets at the right price (deals are hard to come by, but they do still exist), manage it well (or hire a good PM!), and you will do fine with normal ups and down in market cycles.  If you are looking anywhere in FL seriously send me a DM we can discuss further.  Best of luck!

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Dan Maciejewski
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Dan Maciejewski
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Replied Jan 25 2023, 07:28
Quote from @Benjamin Furney:

Hey BP folks! Been doing more research on the STR and have discovered about 20 STR markets. However, basically all these markets have very high median home prices or they are oversaturated. Im wondering at this point, how realistic is it to find a good market, without over saturation or to high price points?

High price points are relative.  To the buyer, it depends what they are looking to invest.  If you are spending 250, and everything's 350, that seems high.  It you are spending 700, then that seems low.

To the investor, it depends on the ROI. I would say that a 9%+ cap rate is pretty good, and we're maintain that in Pinellas County for the prime locations and well-run places. But if the prices are 350 and you're seeing 4% cap rates, then the same 350 is very high!

My median price point is sitting at 430 and average price is at 600. That's fairly flat to slightly up for the past few months and up 10% YoY. But the rates for vacation rentals is still trending up for the well-run places. So we're maintaining 9+% cap rates. CoC has dropped due to interest rates, though.

We're in a good area in that SFR housing is not really being built, due to the fact that we're a fairly built up peninsula, so there's no place to build. There have been a lot of purchases for STR over the past few years, and not all of those people will still be in business next year. Many think that they can "set and forget," have crappy PMs or manage themselves like slumlords, and keep their reviews and occupancy. As soon as their ratings drop. bookings fall off, and then their rates have to be slashed -- just like any business!

We are seeing a lot of hotel rooms being built (of all ranges of ADR), so the big money is definitely seeing opportunity.  The industry publications are predicting our market to hold strong on rate and occupancy, too.  There are at least a dozen markets in the country that that holds true for, too.  I would guess that they all have varying median and average price points for SFR.

I think the point that @Luke Carl is making is that if you are in the top 10%, you'll be fine in any market.  I always tell my clients that they have to plan to be outstanding to succeed.  They don't just hand you superhost status, you do have to earn it.

Plenty of my clients are looking for their next purchase, so it's definitely realistic to invest, but as @Michael Baum points out, you have to buy smart and underwrite well.

And remember, I spoke to a LOT of people over the past few years that couldn't make their numbers work and never bought.  I heard that it was a bad market to buy from a LOT of people!  

But a lot of people did buy and look like geniuses.  I guess I'm saying, a cash flowing investment is usually a good buy, no matter the economy, interest rates, median sales price, gas prices, bidding wars, amount over/under asking houses are selling for, or whatever else people use to justify inaction.  

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Travis B.
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Travis B.
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Replied Jan 25 2023, 07:43
Quote from @Luke Carl:

oversaturated is a myth. so much so it's not even a real word. 


 Supersaturated is a word though and it's what everyone is referring to when they say oversaturated. 

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Daniel Denning
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Daniel Denning
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Replied Jan 25 2023, 07:45

A lot of people who don't invest in short term rentals talk about things being oversaturated. The way I see it is if you're able to have a good property that can stand out from all the average STRs, then you can still do well if you're in the right market. I didn't have tons of cash and started out with a condo in Myrtle Beach in 2020 which many would say is saturated. In looking at the market, we realized that a renovated condo with a view would really stand out. After renovating, our condo went from grossing $40,000/yr to $79,000/yr. I manage properties in a variety of markets as well and consistently see those that really stand out having consistently high demand. Most of these properties operate at or close to 80% occupancy for the year. People that are looking to buy but not invest in standing out and putting good systems in place may struggle in STRs. 

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Bob Stevens#5 All Forums Contributor
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Bob Stevens#5 All Forums Contributor
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Replied Jan 25 2023, 07:46
Quote from @Benjamin Furney:

Hey BP folks! Been doing more research on the STR and have discovered about 20 STR markets. However, basically all these markets have very high median home prices or they are oversaturated. Im wondering at this point, how realistic is it to find a good market, without over saturation or to high price points?


Very realistic. Myrtle Beach area is in very high demand. For about 200k you can get a 2 br condo and avg 200 per night over the year. Do the math :) very high ROI. My nahghbor just picked up a 3 br for all in 150k, they avg 250 per night, again do the math super high ROI,

All the best 

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Travis B.
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Travis B.
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Replied Jan 25 2023, 07:48
Quote from @Jeremy H.:
Quote from @Luke Carl:

oversaturated is a myth. so much so it's not even a real word. 


 You wouldn't agree that bookings are down for a lot of places due to the massive increase in supply over the last 2 years? 

I think a lot of places have increased in supply A LOT over the past couple years. It's definitely a lot more competitive than it was 3+ years ago. Returns are going to be lower. Prices are going to be higher. The STR market is a lot more established and "supplied" in a lot of areas. This is just what I have seen.

I'd go so far to say that you very well may NOT generate more income on an STR compared to a LTR property. I had a buddy that bought in PCB (100k downpayment) - net's about 500/month and did well over 75% median for net revenue. I have a cheap duplex here that nets $700/mo ($30k invested). Is it worth the headache and extra time? I'm not sure

I think it can be good for the right people - but I think too, STRs are a shiny object with a lot higher risk. Quite a bit more work, if you choose to self manage over a LTR as well 


You nailed it, man. I run a STR but it was converted from a LTR in a metro area. VERY different ballgame than a vacation market.

I tell people that if there's a bubble in the RE space it's in the STR market. The problem is the folks selling you STR's, mortgages on them, etc. won't ever say that. It goes against their best interests. Reminds of that "this is fine" meme with the dog sitting down having coffee in his flamed-engulfed house.

I digress.

I'm open to the idea I could be wrong, but the risk/reward at this point is atrocious in my mind. I'd much rather target stable LTR cash flowing markets or do something more creative where the numbers make more sense (we're currently building an ADU on our primary, for example).

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Joshua Messinger
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Joshua Messinger
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Replied Jan 25 2023, 07:57

Hey @Benjamin Furney

This really is every market right now and I feel that this is going to be a continuing trend until either prices correct or interest rates fall. Besides that, there still are deals out there but now more than ever it is more than important to be very conservative on your underwriting and to make sure the management company you are using is top-tier. (Find a company that promises a 5-star review or you don't get charged a management fee to ensure they are elite!)  

Regular homeowners are getting destroyed by actual PM companies that treat this as a business. The tides are turning and this industry is really starting to take off! 

Would love to chat more if you ever have the time, don't hesitate to reach out! 

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Joshua Messinger
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Joshua Messinger
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Replied Jan 25 2023, 07:58

It's crazy to see what's happening in the metro areas! Same thing has happened to us and we have now gone the MTR route with most of our STRs in Philadelphia @Travis B.

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Bruce Woodruff#2 All Forums Contributor
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Bruce Woodruff#2 All Forums Contributor
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Replied Jan 25 2023, 08:05

A good STR in a good area, run by a good host will always be fine. Just like a good LTR..... this is just business, it doesn't matter what the vehicle is, LTR/STR/MTR.......

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Replied Jan 25 2023, 08:51
Quote from @John Underwood:
Quote from @Michael Baum:

It's as realistic as flipping a house, or buying multifamily or doing LTRs.

There are deals to be had but you have to keep looking. I agree that it is tough out there.

What kind of market are you interested in? 


 I agree. 

Your going to have to work harder to find an area and the correct house at a good enough price that will work.

I would recommend to any of my family to find deals on fixer uppers at cheap prices and make them LTRs before paying top dollar for a STR in a saturated market with these higher mortgage rates.

There are so many other ways to make money in RE.


 smart answer.

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Andy Whitcomb
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Andy Whitcomb
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Replied Jan 25 2023, 09:10

You can definitely jump in now and be successful, but there are SO many variables. I disagree with the notion that theres no such thing as over-saturated markets, I think there are oversaturated or supersaturated markets and if you are a mediocre operator or have the wrong strategy you will not be successful in those markets. However, a good operator with the right strategies can definitely be successful, especially if they designed their business correctly from the beginning. 

With that said, as new STR investor coming in to the market right now you'll need to not only identify your market, but also your strategy for that specific market. When I say strategy I am referring to all aspects of your business plan. Start with knowing your competitive advantage (for example, my background is in furniture design so my advantage is design) and your guest avatar (who is staying at your property and why), then design your business around that. From there you can narrow down which market, location, and property is best suited for that business plan. It will give you clarity when looking at properties and running your numbers.