STRs - can I be convinced they are a good idea...

[Chris Gerard]

Does anyone have any thoughts on my current perspective: Properties have appreciated at a crazy rate in a short amount of time. Interest rates have since increased and may stay that way or go higher for the forseeable future. The more that an area becomes popular for STRs, the more likely the laws, fees, taxes will become increasingly burdensome. Then, consider airfare, fuel costs, general inflation higher, gets more expensive for average folks to travel. This article says there is more of a demand for STRs but it seems like there are plenty of STRs available since it became such a popular idea. I think this happened because interest rates were so low and buyers got in before prices went up, and before laws became more stringent.

It seems like STRs should ultimately be valued like an income producing property would be. For example, if a property was purchased $500K in 2019 at 3ish%, and maybe they put 20% down, and owner boasts about how profitable of an STR it is; and then now they put is on the market for $900K because that appears to be the market rate (at least this seems to be the case in high appreciation areas such Colorado, Hawaii, and several other areas), however interest rates are now 7.5%, how can this same STR now be cashflow positive? Maybe if you put 60% down payment it can be..., but most buyers can find a better place to park their money if they really need to put down $500K on a $900K property to make it cashflow. Something just doesn't seem to add up, but maybe I'm wrong and enough wealth is being passed down through inheritance from baby boomers and the supply is so low that we are at a "new" normal. Be interested to hear other people's thoughts.

[Carlos Ptriawan]

Quote from @Chris Gerard:

Does anyone have any thoughts on my current perspective: Properties have appreciated at a crazy rate in a short amount of time. Interest rates have since increased and may stay that way or go higher for the forseeable future. The more that an area becomes popular for STRs, the more likely the laws, fees, taxes will become increasingly burdensome. Then, consider airfare, fuel costs, general inflation higher, gets more expensive for average folks to travel. This article says there is more of a demand for STRs but it seems like there are plenty of STRs available since it became such a popular idea. I think this happened because interest rates were so low and buyers got in before prices went up, and before laws became more stringent.

It seems like STRs should ultimately be valued like an income producing property would be. For example, if a property was purchased $500K in 2019 at 3ish%, and maybe they put 20% down, and owner boasts about how profitable of an STR it is; and then now they put is on the market for $900K because that appears to be the market rate (at least this seems to be the case in high appreciation areas such Colorado, Hawaii, and several other areas), however interest rates are now 7.5%, how can this same STR now be cashflow positive? Maybe if you put 60% down payment it can be..., but most buyers can find a better place to park their money if they really need to put down $500K on a $900K property to make it cashflow. Something just doesn't seem to add up, but maybe I'm wrong and enough wealth is being passed down through inheritance from baby boomers and the supply is so low that we are at a "new" normal. Be interested to hear other people's thoughts.

 Your thinking is very valid HOWEVER

if today is 2019, then your comparison would be why buy now in 2019 since in 2016 price is way cheaper .....

I think the problem of STR is not really the rate but more like liquidity (there're lot of more STR supply these days).

Also please bear in mind, when you invest at STR, actually you intentionally make Airbnb rich while their cost is zero, and while they may not be making you rich. So you may understand this logic as well

[Dan Heuschele]

Quote from @Luke Carl:

If you have to be convinced why bother? It's like going on a date with a chic that's out of your league. You'll spend all night trying to prove you're good enough. Or vice versa.

1. Most of us buy vacation homes in vacation towns where there's nothing but vacation homes and the local
2. government loves us because we pay our taxes and feed the economy.
Anything under 5 units is not considered commercial real estate therefore it doesn't matter if it rents for a million bucks per night the income is not accounted for in an appraisal.

 >Anything under 5 units is not considered commercial real estate therefore it doesn't matter if it rents for a million bucks per night the income is not accounted for in an appraisal.

I have a slightly different view. Clearly the value of less than 5 units is based on comps. But in large vacation markets, such as your smoky Mountains, the comps (sold prices) are heavily based on the income potential. The RE would not be worth as much if it were not for the STR income potential. This is similar where two of my STRs are. 600' bungalows for over $1M. The location is nice and is part of the reason for the high valuation, but the STR income potential also plays a role in the high valuation. there is a correlation between income potential and value in the vacation markets even when the value is based only on comps.

[Mike Dymski]

Unless you are just interested in a theoretical conversation, I recommend focusing on investing...and real properties/opportunities.  The best way to be convinced (or not convinced) is to analyze real opportunities and make offers on properties at prices that meet your return criteria.  Everything else is just mental masturbation (thoughts/talk with limited reward).

[James Hamling]

Quote from @Luke Carl:

It's like going on a date with a chic that's out of your league. You'll spend all night trying to prove you're good enough.

I thought it was that you just act like that 10 is a 3, and lucky to be in your presence....... It's like, chapter 17 of the "Man manual" we all get, right after how to not castrate yourself while "trimming the lawn", right. Lol.

[Jay Thomas]

It's true that real estate appreciation rates can be incredibly high in certain vacation spots, and this can make it difficult for people to buy into these areas. Not only that, but governments also need to consider zoning restrictions when approving new developments. For example, Hawaii has created vacation destination zones specifically for this purpose, and other counties across the country have similar measures in place. What do you think about these limitations on where people can purchase property? Is there a better solution to ensure those who want to own a home in their desired location don’t get priced out of the market? Let me know your thoughts!

[Todd Goedeke]

@Chris Gerard you might take a look at Short term vacation rentals, not STRs. In addition , learn about triple net leasing property/properties that you own.Leasing allows you to lock in fixed returns(16%+ with leveraging, mortgage) in return for no participation in profits the property manager makes in running the STVR business on your property.

[Lisa Loesel]

Just closed on an STR at the end of February. 20% down, with a rate of 6.25%. I've been a Realtor and owned STRs for over 10 years so I know my market pretty well. Conservatively, this property is 25% Coc, I'm actually hoping for closer to 30% based on Airdna, Awning.com & comparative analysis. I think most investors on here would agree 25% Coc is a solid return. To be fair, I did buy off-market & feel good about my price. Last year I introduced an agent who works on my team to a local investor looking to offload some properties. He ended up buying a duplex from him with seller financing. Decent price, amazing interest rate. After credits and pro-rations, he showed up to closing with a $6500 check to buy a $200,000 cash flow positive duplex.

My point is, although in a general sense you may be right, there are still plenty of opportunities out there for good investments. You might need to expand your search & look in other areas. Just like at any point in history, the investors who adjust their strategy and learn to think outside the box make money. They always have and they always will despite what the market is doing. My advice would be to stop spending your time researching reasons why not to invest and spend that time networking. Once you find that first good buy, you won't be questioning the overall market.

[Mike D'Arrigo]

@Chris Gerard I think what you're missing is that there are still a lot of affordable markets that are good for STR and will cash flow well. If you're looking at markets where you'll have to pay $900K then of course they won't cash flow. It's a mistake eto look only at expensive vacation destinations that are becoming oversaturated with STR's. People use STR's for more than vacations. They are now used as just an alternative to hotels for anyone traveling or even staying for exptended periods of time. Any city that has a high number of travelers can be a good STR market. As an example, Kansas City has 25 million visitors annually. You can be all in for $200K including furnishings and net $3000 per month.

[Kim Tucker]

The problem with STR is the numbers might make sense today with current regulations. But the city, can, and in many cases have, changed the rules, and the STR is no longer allowed. The investment no longer makes sense.

The value of the STR was in the income from STR, so people paid huge numbers that no longer makes sense when the income is no longer available.

[Todd Goedeke]

@Chris Gerard 1. Regarding appreciation; you don t have to buy appreciated property in vacation areas. Build STVRs in vacation areas. You can build for far less per square foot if you know what you are doing.

2. Zoning is not going to change in vacation areas where there have been vacation homes and cabin rentals for decades. Tourist areas depend on tax revenue and and tourists for jobs.