Are STR Recession proof

[Andrew Chime]

I've been getting mixed answers about STR during a possible recession. Is it smart to buy in 2023 and 2024 despite the status of the economy?

[Jay Hinrichs]

Quote from @Mike Hern:

Quote from @Andrew Chime:

I've been getting mixed answers about STR during a possible recession. Is it smart to buy in 2023 and 2024 despite the status of the economy?

Are houses painted white? Yes and no. Some are, some aren't and it depends on what "white" is.

It's always smart to buy the right property in the right location for the right reasons. People continued to use STRs during covid. My wife and I spent 6 weeks traveling the USA staying at STRs. The areas we stayed at in Santa Fe NM, Branson MO, Nashville TN, Gatlinburg TN, Charleston SC, Inlet Beach FL all were packed, restaurants were busy, traffic was heavy and beaches were filled with frolicking familes.

Now, I can't speak for where we didn't go, crime infested Seattle WA, crime infested San Francisco CA, Memphis, St Louis, Chicago, New Orleans LA, Atlanta GA, you know, the usual hell holes.

STRs good in nice places, STRs not good in crime infested places. Pretty simple actually.

Charleston is a very good STR  highly regulated so if you have a permit that adds hundreds of thousands to the value.. I have a client that bought one there when I was doing all my new builds on the penninsula and she really likes it.. But the key is the permit.. I think if your in a hot area were permits are required that is much safer as competition is held at bay. Plus Charleston has huge tourist trade and high end tourist not a johnny lunch bucket crowd.

[Mike Hern]

Quote from @Jay Hinrichs:

Quote from @Mike Hern:

Quote from @Andrew Chime:

I've been getting mixed answers about STR during a possible recession. Is it smart to buy in 2023 and 2024 despite the status of the economy?

Are houses painted white? Yes and no. Some are, some aren't and it depends on what "white" is.

It's always smart to buy the right property in the right location for the right reasons. People continued to use STRs during covid. My wife and I spent 6 weeks traveling the USA staying at STRs. The areas we stayed at in Santa Fe NM, Branson MO, Nashville TN, Gatlinburg TN, Charleston SC, Inlet Beach FL all were packed, restaurants were busy, traffic was heavy and beaches were filled with frolicking familes.

Now, I can't speak for where we didn't go, crime infested Seattle WA, crime infested San Francisco CA, Memphis, St Louis, Chicago, New Orleans LA, Atlanta GA, you know, the usual hell holes.

STRs good in nice places, STRs not good in crime infested places. Pretty simple actually.

Charleston is a very good STR  highly regulated so if you have a permit that adds hundreds of thousands to the value.. I have a client that bought one there when I was doing all my new builds on the penninsula and she really likes it.. But the key is the permit.. I think if your in a hot area were permits are required that is much safer as competition is held at bay. Plus Charleston has huge tourist trade and high end tourist not a johnny lunch bucket crowd.

Yep. We were on the beach and the price reflected the "very high end". :-) But, we enjoy Charleston thoroughly and had a great time. Interesting point about the permit. 

[Mike Hern]

Quote from @Daniel Purcell:

@Mike Hern

With all due respect this is a generalization. Majority of my STR's are in NOLA and cash flow very well. We also bring quality and treat the ones we own as a business. We have cleaners and managers that walk through the properties after every stay. We do our best to create a safe, clean, and great experience. We also are working on QR codes that guests can follow for discounts at nearby restaurants or codes that lead to videos of us explaining why we did things and the process go doing so.

I understand cities have issues, New Orleans being one of them, but there are great areas to STR. If you're smart and live by location it is a great experience.

I lived in the Garden District in the early 70's. I loved NOLA then.
We visited in 2021 and I couldn't have imagined how far it had fallen. Burbon Street was a cacophany of noise beyond the decibel of painful, not the smooth jazz, ragtime, creole, dixieland and so on. It was simply today's radio hits played by loud speaker at every door on the street. No class in my mind and I can get that experience in almost any city.

The streets are as bad as any third world country, the crime has skyrocketed and the river is filthy. The city has never recovered from Hurricane Katrina as far as I could tell. Frankly, for a city I used to love, I don't see any reason to go back. But, I do wish you well with your STRs and that you live long and prosper.

[Travis Biziorek]

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

[Dan Heuschele]

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

[Travis Biziorek]

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

 I'm a fellow data lover as well. That said, I like to make sure I'm understanding the inputs before accepting the outputs for the whole story.

Taking Q4 2005 data is perfectly cherrypicking Detroit's housing market high. Obviously, all markets took a hit during the GFC but I'm not aware of many others that had to file bankruptcy in 2013. It wasn't until around this time that Detroit really started turning around again.

If I were to cherry pick that date, you'd be quite happy with the appreciation.

That said, Detroit is generally viewed as a cash flow market. But it provides an interesting opportunity right now because there is so much investment and revitalization happening. I try to be strategic about my purchases there, first drilling down for cashflow and then taking a step back to see if I can put myself "in the path of potential future appreciation" as I like to say.

It's worked phenomenally well for me and I'll continue investing in Detroit until the masses are beating the drum on the city.

[Peter Lee]

Although STR can seem lucrative, many hosts are quitting Airbnb or VRBO because of the recent Airbnb Bust. If you have a mortgage payment or rent to pay, and if you don't have a large cash reserve, I wouldn't recommend starting now. Even experienced hosts like Airbnb Automated are losing money. However, if you have enough cash reserves to buy luxury or huge vacation houses for the upper class(very rich people) then I could see it being more recession-proof than other average Airbnb or VRBO since it's only for the rich, who won't get affected as much by this recession.

I've seen hosts like Chris Choi going full into extra luxurious houses for the ultra-rich and stating it's recession-proof, but again if you're just starting out, I wouldn't recommend it. Your location would matter greatly as well, so the best answer might be to wait things out a little if you don't have a large cash reserve, and gain more knowledge(SEO, dynamic pricing, no cleaning fee, how to deal with potential squatters, no coffee machines, etc) until the economy starts to get better, and then start. You don't want to have a mortgage payment or rent to pay when you don't have enough people booking your place.

Lastly, look out for potential new laws coming out in texas. Although not in Austin, Dallas had some discussions going on to ban Airbnbs in certain residential zones, so you would want to watch out.

[Dan Heuschele]

Quote from @Travis Biziorek:

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

 I'm a fellow data lover as well. That said, I like to make sure I'm understanding the inputs before accepting the outputs for the whole story.

Taking Q4 2005 data is perfectly cherrypicking Detroit's housing market high. Obviously, all markets took a hit during the GFC but I'm not aware of many others that had to file bankruptcy in 2013. It wasn't until around this time that Detroit really started turning around again.

If I were to cherry pick that date, you'd be quite happy with the appreciation.

That said, Detroit is generally viewed as a cash flow market. But it provides an interesting opportunity right now because there is so much investment and revitalization happening. I try to be strategic about my purchases there, first drilling down for cashflow and then taking a step back to see if I can put myself "in the path of potential future appreciation" as I like to say.

It's worked phenomenally well for me and I'll continue investing in Detroit until the masses are beating the drum on the city.

I did choose market high but 1) I indicated there was better timing possible (I did not explicitly state i was using market high but I believe it was clear to most readers) 2) there are very few markets that have not recovered from the Great Recession and have current RE values lower than prior to the GR in inflation adjusted value.  This places Detroit in a small group of areas that historically have poor long term appreciation (also reflected by neighborhoodscout 1 of 10 on appreciation for this century) 3) you can cherry pick your start time and it will still not compare with the higher appreciation markets for appreciation.  When was the last time Detroit showed up on any annual list of top appreciation cities?  My market shows up on that list virtually every year (but I question if that will be the case for 2022).  

The reality is people do not typically invest in Detroit RE for the appreciation.  They may invest there for the low cost of entry.  Possibly because they are local to that market (IMO the best reason to invest in Detroit RE), or for the initial cash flow. 

I am all for investors local to Detroit investing in local RE.  They leverage their local knowledge, they can perform heroics if needed, it is easier to self manage than distant properties saving precious money when it is very critical when starting as an RE investor.  

[Travis Biziorek]

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

 I'm a fellow data lover as well. That said, I like to make sure I'm understanding the inputs before accepting the outputs for the whole story.

Taking Q4 2005 data is perfectly cherrypicking Detroit's housing market high. Obviously, all markets took a hit during the GFC but I'm not aware of many others that had to file bankruptcy in 2013. It wasn't until around this time that Detroit really started turning around again.

If I were to cherry pick that date, you'd be quite happy with the appreciation.

That said, Detroit is generally viewed as a cash flow market. But it provides an interesting opportunity right now because there is so much investment and revitalization happening. I try to be strategic about my purchases there, first drilling down for cashflow and then taking a step back to see if I can put myself "in the path of potential future appreciation" as I like to say.

It's worked phenomenally well for me and I'll continue investing in Detroit until the masses are beating the drum on the city.

I did choose market high but 1) I indicated there was better timing possible (I did not explicitly state i was using market high but I believe it was clear to most readers) 2) there are very few markets that have not recovered from the Great Recession and have current RE values lower than prior to the GR in inflation adjusted value.  This places Detroit in a small group of areas that historically have poor long term appreciation (also reflected by neighborhoodscout 1 of 10 on appreciation for this century) 3) you can cherry pick your start time and it will still not compare with the higher appreciation markets for appreciation.  When was the last time Detroit showed up on any annual list of top appreciation cities?  My market shows up on that list virtually every year (but I question if that will be the case for 2022).  

The reality is people do not typically invest in Detroit RE for the appreciation.  They may invest there for the low cost of entry.  Possibly because they are local to that market (IMO the best reason to invest in Detroit RE), or for the initial cash flow. 

I am all for investors local to Detroit investing in local RE.  They leverage their local knowledge, they can perform heroics if needed, it is easier to self manage than distant properties saving precious money when it is very critical when starting as an RE investor.  

 You seem to be very hung up on appreciation. I get that... most folks are in one camp or the other. I very much explicitly stated that Detroit is primarily a cash flow market. But if you're doing it correctly, and actually understand what's happening in the city (not just looking at data on paper), you can get both cash flow and appreciation.

[Dennis Nguyen]

Pretty sure nothing is "recession proof" :) but I think if you are in the top 5-10% of the STR's in your area you will be able to weather the storm. The bottom 50% of STRs in terms of quality/customer service will most likely feel the most pain during the recession.

[Bruce Lynn]

I think it depends on where they are and what your target market is.

Places for example like Orlando and trips to Disney could get hit hard by recession....fewer families will be able to drop $5000 on plane tickets, park tickets, accommodations, and food.

3 day getaway place from a major city with lots of activities for kids or multi gen reunions.  That might stay strong.  Maybe Boomer Grandma is paying for it.  Maybe the places that are more basic, vs expensive luxury will fare better.

Very tough to tell though....American Airlines says something like 75% of their corporate travel contracts have busted this year, so that means business travel down.  Kind of makes sense if you're laying off people to also watch T&E budget as well.

Credit card debt is way up, so many people are leaving beyond their means it seems.  So that may cut back on travel as well.

Of course if people that got laid off from tech jobs had banked good money during their working time, might be 3 month spike in longer stays while they have the chance to take extended vacation before looking for next job....or LFM....look from Mexico.....

[Bruce Lynn]

Quote from @Travis Biziorek:

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

 I'm a fellow data lover as well. That said, I like to make sure I'm understanding the inputs before accepting the outputs for the whole story.

Taking Q4 2005 data is perfectly cherrypicking Detroit's housing market high. Obviously, all markets took a hit during the GFC but I'm not aware of many others that had to file bankruptcy in 2013. It wasn't until around this time that Detroit really started turning around again.

If I were to cherry pick that date, you'd be quite happy with the appreciation.

That said, Detroit is generally viewed as a cash flow market. But it provides an interesting opportunity right now because there is so much investment and revitalization happening. I try to be strategic about my purchases there, first drilling down for cashflow and then taking a step back to see if I can put myself "in the path of potential future appreciation" as I like to say.

It's worked phenomenally well for me and I'll continue investing in Detroit until the masses are beating the drum on the city.

How do all the Rocket layoffs affect Detroit and the revitalization of the city.  I understand the owners and maybe other affiliated with Rocket were dumping tons of money in the the city to make it a nicer place to live and work and attract younger workers.   Are they still doing that? or has that ship sailed?

[Travis Biziorek]

Quote from @Bruce Lynn:

Quote from @Travis Biziorek:

Quote from @Dan Heuschele:

Quote from @Travis Biziorek:

Quote from @James Hamling:

Quote from @Cassidy Burns:

Location is recession proof. 

Detroit begs to differ on that. 

What seems a "recession proof" market today, may in years to come, be the next "getto". 

STRATEGY, and only strategy, can defend against recession. All else can be changed by various factors. Strategy IS change. 

Real Estate is a river. It is constantly flowing, cutting new bank, ever changing. Anything of stillness will at some time be great, horrible, and all points in between. 

 James, curious when you've last dug into Detroit? It's a great market and I think too many folks are dismissing it still.

 FRED Detroit house price index shows current value is still less than Q4 2005 when adjusted for inflation. Neighborhoodscout shows Detroit’s RE appreciation 1 out of 10 for this century which is the lowest ranking).

Sure with the right timing it could have appreciation in excess of inflation, but the long term appreciation has been poor.

This is not to imply that investors local to Detroit cannot succeed investing in Detroit RE.  I believe investors should start local.  

 I'm a fellow data lover as well. That said, I like to make sure I'm understanding the inputs before accepting the outputs for the whole story.

Taking Q4 2005 data is perfectly cherrypicking Detroit's housing market high. Obviously, all markets took a hit during the GFC but I'm not aware of many others that had to file bankruptcy in 2013. It wasn't until around this time that Detroit really started turning around again.

If I were to cherry pick that date, you'd be quite happy with the appreciation.

That said, Detroit is generally viewed as a cash flow market. But it provides an interesting opportunity right now because there is so much investment and revitalization happening. I try to be strategic about my purchases there, first drilling down for cashflow and then taking a step back to see if I can put myself "in the path of potential future appreciation" as I like to say.

It's worked phenomenally well for me and I'll continue investing in Detroit until the masses are beating the drum on the city.

How do all the Rocket layoffs affect Detroit and the revitalization of the city.  I understand the owners and maybe other affiliated with Rocket were dumping tons of money in the the city to make it a nicer place to live and work and attract younger workers.   Are they still doing that? or has that ship sailed?

I know Rocket has offered to buyout some employees (not sure how many) and has recently laid off 50 employees. Fifty. They employ something like 18,000 people in Detroit last I checked.

But let's pretend it was more severe. Dan Gilbert was absolutely a catalyst for Detroit's resurgence that started over a decade ago. But the momentum reaches far beyond just one man, billionaire or not, at this point. 

Four years ago people were telling me Dan's health issues were going to be the end of Detroit. Like if he died Detroit went with him. It was laughable then and is even more so today.

I like to pay attention to headlines just enough to understand what the masses are thinking and make sure my own thoughts, theses, plans, etc. are not aligned. News sensationalizes garbage stories. That's the business they're in. It's a great tool if you recognize that and have the confidence in yourself to go against the crowd. 

Most don't.

[Account Closed]

No. You're also one act of legislation away from losing your business model. Example Frisco Colorado. When you compare discretionary travel spending for lodging vs mandatory spending for long-term residence, I'd rather get my rent from someone who has to pay vs. someone who has the option to either stay home or travel. 

[Bruce Lynn]

@Travis Biziorek  Interesting they only cut 50 people when their business has probably been cut in 1/2....but I don't know a lot about them, just seemed like they were pumping a lot of money in town.

Are kids flocking from the rural areas to Detroit to work?  Are there jobs?

How does the migration out of the state affect Detroit?   I understand a lot of people are leaving MI, but not sure if that means Detroit or other places.  Like a lot of places could be people leaving small towns and moving to the big city.

[Aaron T.]

STRs are not recession proof. You can see this is the booking data right now. Since October many areas bookings have fallen off a cliff. When guests have to chose between food, gas, etc.. or going on vacation, you better be offering a lot of value and have good marketing to get them to come. 

If you can pay your bills with guest income through this recession, then you are still in good shape. 

I have seen a lot of STRs lately for sale. or seeing a lot of furniture sales from STRS. or the STRs are moving more to medium term rentals. You have to flex as the economy flexes.