Been digging into why so many STR investors are underwater on deals that looked solid 3-4 years ago. The answer isn't the market softening. It's that the math was never real to begin with.

In 2021 three things were true simultaneously that have never been true at the same time before and likely won't be again:

Mortgage rates were at historic lows 3% to 4% on investment properties. STR demand was surging post-COVID with occupancy rates hitting 70%+ in markets that normally run 50-55%. And home prices hadn't yet adjusted upward to reflect STR income potential.

That window lasted about 18 months. Every deal underwritten during that period was built on a foundation that required all three conditions to hold. None of them held.

Rates are now 7.5%+ on investment properties. National STR occupancy is averaging around 50% down significantly from the peak. And home prices in most STR markets are still near their highs because sellers haven't adjusted expectations yet.

The investors in trouble aren't bad investors. They underwrote deals correctly for the market conditions that existed. The problem is those conditions were a once in a generation anomaly, not a new normal.

What this means for anyone evaluating STR deals in 2026:

The underwriting has to be built on current rates, current occupancy data for your specific market, and current insurance costs not 2021 comps. A deal that cash flowed at 4% rates and 65% occupancy may be deeply negative at 7.5% rates and 52% occupancy. The math is not forgiving at current financing costs.

The markets that still work are the ones where entry prices are low enough that the debt service is manageable even at current rates smaller Midwest and secondary Southern markets where you can buy in at $150,000-$200,000 and still generate $2,500-$3,500 per month in STR income.

Anyone else seeing this pattern in deals they're evaluating right now?