Buying in the covid craze

13 Replies

Just thought I would start a thread on the current STR market. We have been looking to invest in one for the last month but it seems like all the places you hear about now have already exploded like Joshua Tree, CA and Gatlinburg Tennessee as examples. Do you think it's crazy to jump in the mix when EVERYONE is trying to buy STR and the competition is so crazy. Do you think that cities will start to place stricter rules on them since there are so many popping up making it hard to turn a profit? The short term rental market is crazy hot right now

The debates on this are endless.  It all depends on why you are buying.  If you are buying for long term income, then you can grossly overpay for a property and still make out like a bandit.  I way overpaid for a house in 2005, just before the crash, but the house has paid for itself in gross rents at least 2 - 2.5 times since then, and of course the house is worth triple what I paid for it.  But if I had sold in 2009, there would have been some pain.

@Sean Harris It's hard to say but I don't think cities will place stricter rules because that could hurt the tourism industry. With so much pent up energy for travel that's a terrible idea. I'm a classic example as I already have Airbnb's booked for a big road trip in August to NC/SC and Myrtle Beach. Without those STR being available we wouldn't go.

I do think if you're planning to jump into STR investing it's wise to connect with local investors. See if you can figure out the demand for the area, average bookings per month, etc. etc. and find a location where you can fit it. Sure you'll be adding to the competition but so was EVERYONE ELSE who starting investing in the hot locations you mentioned. Connect with locals and support there listings as too. I wouldn't want to make enemies if you're an OOS investor. If you want to BUY real estate BUY real estate. It's scary to jump into REI right now but people are still doing it and paying way over asking. It's hard for me to stomach buying anything like that but to each there own.

We are buying to replace our income within the next 5 years. My current job will be no longer available in the next 5-7 years so I want to be ready for when that happens. I have a friend who just bought two places in Gatlinburg Tennessee and is absolutely killing it so that made me rethink my investment strategy. The big question I feel like is where to do it that will work for us. I have big time analysis paralysis, which is good and bad. Home prices are absolutely nuts but I don't want my money in the bank just to watch it dwendle down. We want assets to provide the income we need.

I echo what @Collin H. said. If your in it for the long haul then time in the market is better than timing the market. 
The other question to ask yourself is if you’re not putting your money into real estate then what are you putting your money into? 

Are you just holding it in dollars? Then you have to worry about inflation. Are you putting it into the stock market? Then you have the same risks as real estate only it can crash faster. Are you starting a business? Well that's what STR is.

Originally posted by @Sean Harris :

We are buying to replace our income within the next 5 years. My current job will be no longer available in the next 5-7 years so I want to be ready for when that happens. I have a friend who just bought two places in Gatlinburg Tennessee and is absolutely killing it so that made me rethink my investment strategy. The big question I feel like is where to do it that will work for us. I have big time analysis paralysis, which is good and bad. Home prices are absolutely nuts but I don't want my money in the bank just to watch it dwendle down. We want assets to provide the income we need.

"Home prices are nuts" is a subjective term. If you think Gatlinburg prices are high, do a search of comparable mountain towns out west - Vale, Sun Valley, Tahoe, Aspen, Breckenridge, etc.   Gatlinburg is still CHEAP compared to these places.

@Sean Harris

A deal is a deal. Run the numbers and if they work, go for it. Trying to predict future rule changes will make you crazy. One can never know what will happen with local governments 5 years down the road. The best hope there is that you get grandfathered in. That’s usually the case except in the most extreme circumstances.

An argument can also be made for looking in markets that already have some tough rules on vacation rentals.  If there are no rules at all, expect the local authorities to make some in the future.

Base it off numbers. Yes market is hot and prices are rising but if the deal makes sense then buy it. You can also look into other markets not as saturated but everywhere is hot. I'm seeing with the first STR we bought that it's been booked like crazy. So many people are looking to travel and AirBnb is one of the best ways to do it

You have several factors in play:

1. COVID has caused vacation patterns to change. Normally cities like NY, LA and San Francisco have heavier tourism. People also travel overseas or to Caribbean. These destinations have fallen out of favor as people are looking for domestic destinations outside the city. Cities are still rebounding and travel outside the US has been harder. The point is someone deciding between going to a big city for vacation or the mountains, will choose the mountings this year. Next year they will choose the city so some of this uptick is temporary.

2. COVID has hurt the hotel and resort industry as people have shifted to STR as a way to avoid larger shared settings. Some of this is already shifting back. This is less of an issue for destinations that have less hotel options, but it will have an effect in areas with more hotels. This has artificially increased demand on STR over the last year.

3. Built up demand for vacations since most people were unable to vacation last year. This is why national parks have record attendance. People put off their vacations or decided life is too short so they take their dream vacation. This means 2021 is a higher than normal vacation year.

4. Stimulus money has given people extra disposable income which many decided to use on vacations. A family of four could have gotten over $11K in money, which is enough for two family vacations. The question is next year after that money is spent, will they choose to sit out a year for vacation?

5. On top of all this, low interest rates and a hot housing market has made real estate investing popular. This brings tons of new investors into the market, which drives up demand. Even existing STR owners are emboldened by the first four factors, which have made STR perform really well through the pandemic.

The risk is what happens after the pandemic effects wear off? Also remember that vacation spending is tied heavily to the economy. During a deep recession people are more likely to skip a vacation as a way to save money. I wouldn't worry too much of STR regulations when buying in vacation destinations. These regulations are more of a concern when you are buying in residential neighborhoods. The two markets you mentioned should perform well over time.

Just keep in mind that when the economy turns, it is the experienced investors who are better positioned to weather the storm. They generally have lower expenses, more scale and experience to avoid the pitfalls. Proceed with caution, get educated and hold cash reserves for a rainy day.

This is the new normal not a bubble. I have heard this over and over again from the pros.

Like everyone else is saying, if the numbers work then take the plunge.

I am still finding deals for non STR properties that aren't on anyone's radar and paying cash.

I think same could be done for a STR property. Look for probate or estate properties, go to foreclosure auctions. Drive for dollars etc and find that gem in the rough when everyone else is only looking on zillow or MLS.

I have a lead on an ocean front house close to Hilton Head. They might even owner finance it. Got the lead from a friend of a friend via networking.

I appreciate all the feedback, you all had some very good points. Thank you! 

Another thing is finding out the consistent numbers the property grosses in a year would be harder to figure out now because I figure you can't base numbers off of last year 2020 because of how weird the world was and alot of people weren't traveling but if they were they often stayed in STR to avoid large hotels. This year will be weird also because I feel like everyone is purging and going on trips due to the stimulus payments we received and the fact that we were locked down so long. I feel like the only numbers to accurately go off would be from 2019 and below but how do you get that information from that far back on a property? I appreciate all the feedback, you all had some very good points. Thank you!