How realistic is it to get into STR now?
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?
It's no secret that the Real Estate market can be quite competitive. But it's important to remember that oversaturated is just a myth. Rather than choosing to sit back and wait for opportunities, by taking the right steps you can find success in even the toughest Real Estate markets. So don't let anyone fool you into believing that Real Estate is too saturated - with determination and an eye for opportunity, you can make your Real Estate dream come true!
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Real Estate Agent Texas (#005416)
- 832-889-5607
- http://www.buywithjaythomas.com
- [email protected]
Less likely to get "lucky" in 2023.
Disposable income decreases significantly during market downturns so choose wisely.
Now more than ever, investors should be looking for necessities, not nice to haves.
Not to hijack this post, but I had a related question about if there is a service (like a one-time fee) to have them post your STR on every available "Site" out there... For example, I pay $$ and they take my 1 listing I have on Airbnb and they list it on everything, like Booking.com, etc.?
I know there are "Property Management" companies that charge you 10% to do something similar, but not wanting to give up 10%.
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
As real estate investor Jason Hartmann always says, “compared to what?”.
If one is comparing to 2021, then sure. But REVPAN is up over pre pandemic levels still. Demand is up, although supply is up more.
Also, if one is comparing interest rates to historical lows of sub 3%, then sure.
I advise someone to take a long term view of the investment. Can you find cash flow today? Yes. Do you have the ability to refi in the next decade while raising rates? Yes.
is any of this as easy as 2 years ago? No, but that was a historical anomaly in a dozen ways
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Quote from @Andy Whitcomb:
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.
totally agree. please do note the commentator in BP usually reflect their own local experience, while someone else has totally different idea of what's going on. You can't compare smoky mountain's STR with airbnb in toledoville or somewhere in indianapolis, it's way too different. But the key principle is the same. Saturation is possible, and being foreclosed is very possible for STR owners if they don't do it right and not have a business plan. Check your competitor as well. Have backup plan.
I would say STR owners actually have a higher risk compared to LTR owners.
@Benjamin Furney- thanks 1) sounds like you need to broaden your market search in order to make the math work ..think of areas that might be near the cities you intially considered 2) if you are needing to use a loan to buy ..make sure to get formally pre approved for whatever scenario you want to use before you begin agressively looking
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?
Do you have a preferred cash on cash return and price point for the markets you are exploring?
Thank you everyone for your tips! I read through each and every one!
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?
This.
Also would add, Saturated does not mean there is not room for entrance. Just because there a ton of listings in an area does not mean that they are operating at optimum potential. Find a market you like where the numbers make sense, and then find what you can do better than your competitors. Plenty of sub par operators out there looking for a quick buck by throwing their home on AirBnB, VRBO, Etc. Find ways to differentiate your self. It takes work, and you will likely have to scan through more than one market, but opportunity is still there. This thread alone is a testament.
There isn't an STR Market, there are different markets where investors rent properties short term. A STR in a geographically restricted tourist area is not in the same market as an STR in a major metro area or an STR in a rural area with plenty of room for development.
I would highly recommend not investing in STR right now UNLESS you are able to get a very, very unique type of property - one that stands out from the rest. If you're in the top 2-5% STRs in the area you'll be good. However, a lot of STR owners are hurting right now. The STR market is extremely volatile right now. With an economy that's getting weaker by the day with layoffs increasing and inflation raging, it's safe to say that leisure travel is going to decline.
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
This is great advice, and you should be slightly cautious but always looking for deals. Telling people to just jump in is not the most sound advice. All fields become saturated over time when margins are too high. The same happened for myself in poker. I buckled down and became a wizard at Game Theory Optimal approaches to stay at the top over the years. If I had stayed the same, I would have died off. However, I would have made a lot more than I did in the bigger poker games if I had transitioned to real estate earlier. See what is for you, run numbers and get very sharp at it, be ready and pounce if it makes sense. The game is tougher though, so if you're not willing to out maneuver your opponents and stay ahead on the curve, then you'll fall behind just like in all other fields.
@Benjamin Furney Plenty of the more hyped markets have seen an incredible run up in prices and the number of STR properties, making it much harder to make the ‘20% cash on cash' return that has been heavily promoted. And to perform at the top required a lot more work and attention to detail than it used to. Having years of experience in most aspects of real estate myself, I would say be very care of who you take advice from (what is their motive) and be very careful and detailed in running your pro formas. Along with that, if you decide to buy something that needs work, assume at least a 20% cost overrun and add a few months to your timetable. It can still be profitable, just much more difficult than it was even a year or two ago.
Choosing a true vacation market for your Real Estate investments can be a daunting task. You have to make sure that you assess the saturation in the market, and analyze whether it is worth taking the risk. Fortunately, BP's STR Bootcamp offers great insight into these markets and helps you decide which ones are ideal for investment. Do your research, run your numbers and if they check out - go for it! Investing in Real Estate is always risky but with proper guidance, you can make informed decisions that will bring good returns on your investments.
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Real Estate Agent Texas (#005416)
- 832-889-5607
- http://www.buywithjaythomas.com
- [email protected]
Very realistic! You are just starting out. All it takes is 1 deal and you are off and running. KEEP ANALYZING and be ready to strike.
That deal might become available TODAY. The key is being ready to strike!
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?
I think you should consider buying something that is affordable with a good nightly rate close to the beach. STR closer to the beach or a few streets off are still producing strong rentals and booking quickly into the season. You can always renovate something to build your equity and properly stage it. The majority of STR I've seen struggling don't offer strong enough branding, updated enough with proper design or presentation.
Realistic is a funny term.
People are buying in those "oversaturated", and "overpriced" markets every day. It's realistic for them. I think as investors we often fall into a trap of trying to engineer the perfect investment decision. We have so much data and so many ways to analyze properties but we'll regularly lose bids to investors with fewer resources.
You can absolutely still do well with STRs today. Find yourself an agent resource who understands how to balance cash flow analysis with the reality of owning investments.
@January Johnson what type of gross revenue can be expected at those price points/property types?
I think 10-15% of the purchase price is a good rule of thumb for GRI.
@January Johnson where did you come up with 10-15% of purchase price formula? Have you seen that works even with a mortgage?
Quote from @Michael Weir:
@January Johnson where did you come up with 10-15% of purchase price formula? Have you seen that works even with a mortgage?
Yes I've seen it work over and over for GROSS rent, not net profit. : )
What is different here is insurance is higher than most people expect, so buying properties built after 2001 can help with that (if not a condo). And we have flood insurance in some areas (but not all!). If a seller has a federal flood policy, it is usually transferable at the same rate, but their dwelling and wind coverage will be higher than the current owner's rates.
Quote from @January Johnson:I'd be interested in seeing what you could suggest for me.
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.