Is Anchorage, AK a good market for STR?

[Alex S.]

I found a few SFR properties in Anchorage, AK that will cashflow as STR and wondering if it's a good market to invest in. Even taking into account high occupancy during the season and low occupancy during the off-season (avg occupancy 60%):

https://www.redfin.com/AK/Anchorage/2100-North-Star-St-99503...

- Purchase price: 600k

- Strategy: STR (5b4b 14 guests)

- STR income: 132.6k (Aridna data) / 11.05k monthly

- CoC: 17.5%

Here is another example, just a random on-market deal where number works:

https://www.redfin.com/AK/Anchorage/3640-Chiniak-Bay-Dr-9951...

- Purchase price: 550k

- Strategy: STR (5b2.5b 14 guests)

- STR income: 124k / 10.3k monthly

- CoC: 19.79%

Alternatively, I discovered a few small multifamily properties with a mix of LTR+MTR+STR to help with occupancy optimization, and I can see that on-market 4-plexes like this one with a cost of around 600k will cashflow and gross a similar 110k-120k yearly.

I see that population growth slowed down, and maintenance/utilities should be much higher due to harsh winters. 

Does anyone here invest in this market?  

Do I miss something in the analysis of the deal?

[Kaiden Foster]

It really depends on what your goals are for a property. At this point, I'm not usually recommending that folks new to the STR game start more units if they are specifically looking for a passive investment. Few thoughts:

1. Since 2020, there has been a 50% increase in available STR units in Anchorage. This summer, we're seeing 20-30% lower rates than summer 2022. Winters have been pretty consistent - You can usually keep occupancy high, but your nightly rates plummet. I'm not sure if Airdna takes seasonality into their monthly revenue predictions. I can't imagine a house doing $11k during the winter and I'm not sure May-August would generate enough extra revenue to average $11k year round. I'm also assuming Airdna data is recovering from super high revenue in 2021+2022.

2. Another thing to consider is that a large house won't cater to most tour groups during the summer. Many groups are under 10 people, which makes a large house unnecessary. Don't get me wrong, there are large groups that come, you would just have a smaller customer pool. Its a bit different than in Florida or Blue Ridge mountains where all your guests travel by car. 

3. A large majority of our guests during the winter are coming from the villages to meet with friends, doctor visits, and shopping. This tends to lead to more wear and tear than our out-of-state summer guests, but they all leave great reviews and are happy to have a place to stay. It would make me more nervous to have a large nice house as a STR since in-state guests are the main demographic during winter months.

4. With a larger house, turnovers will take longer. Unless you find a super cleaning team (difficult in AK) you may need a day between reservations to provide enough time for a turnover. This will eat into your estimated occupancy.

Regarding 4-plexes - I manage several. We do exactly what you're recommending with a combo of STR and MTR. During the winter there are a TON of MTR rentals available. Many STR hosts try to get MTR renters into their units... Couple thoughts:

1. I prefer the smaller studio to 2 bed units. Best bang for your buck. I'd budget $6-$7k per 1 bed unit to furnish and decorate. I've got a breakdown of everything we put in our units I could share with you. Just finished a new studio unit last week and furnishing/decor + security cameras and locks was about $6,500. If you get a 4-plex, make sure you have an extra $30k cash set aside.

2. Airdna doesn't factor in what you pay for management and cleaning. For a 1-bed unit, its VERY difficult to find someone willing to do turnovers for less than $75 but generally its in the $85-$100 range EACH TURNOVER. Linens alone if laundered at a laundrymat are $25-$30 per turnover.

3. I charge 15% of gross revenue from each payout after cleaning fees are deducted. Take a 3 night stay at a 2-bed unit for example: at $200 a night (summer rate) + $85 cleaning fee. Payout is $685 minus cleaning/management leaves you with $510 or $170 nightly. If booked 25 nights, you would walk away with a healthy $4,250 each month. 

During the winter, the nightly rate will drop to $125 per night, if you're lucky. Doing the math again, gross payout is $460 minus cleaning/management leaves you with roughly $319 or $106 per night. Assuming 25 nights booked per month, if lucky, your net payout is $2,650. That's before utilities, wifi, trash removal, and restocking supplies, all costs you can pass along to the tenant if its a LTR. At the end of the day, you walk away with $2k monthly - which isn't much better than if it was a LTR in the first place.

When I evaluate a property for an STR, I start by evaluating it as a LTR. If the numbers are way off and running a deficit as a LTR, I'd pass. With ever changing legislation around STRs and events like COVID where hosts lost thousands of dollars in reservations overnight, I want my properties to cash flow or at least break even as a LTR.

However, if you want a place in Alaska to visit a couple times a year and don't care about the revenue as much as having the flexibility to visit and already have a place, STR can be a huge win.

TLDR - Skeptical of Airdna predicted revenue. Lots of competition in Anchorage market atm. STR can work fantastic during the summer but be prepared to break even all winter long.

[Alex S.]

Thanks for the detailed responses, this is very insightful, glad I found someone doing STRs in Anchorage!

#1. AirDNA provides yearly revenue, taking into account occupancy and different rates based on a season. It calculates 110k-120k per year, so the average is 10-11k (it includes different rates and different occupancy) thought-out the year.

I think 2023 revenue is down because 2021-2022 are not normal years, and were producing more STR revenue.

#2, #3 great insights into the average group and demographics, thanks!

From what I can see, a small multiplex with a mix of MTR+STR+LTR would work the best taking into account high seasonality, group size, and demographics. This is very helpful, thanks!

[Robin Simon]

one thing to note is that interest rates on DSCR Loans (very common option for STRs) in Alaska are going to be a bit higher than most other states since the state has a prohibition on charging prepayment penalties (one thing to note if you are exploring this as financing option)

[Timothy Chi]

Quote from @Alex S.:

I found a few SFR properties in Anchorage, AK that will cashflow as STR and wondering if it's a good market to invest in. Even taking into account high occupancy during the season and low occupancy during the off-season (avg occupancy 60%):

https://www.redfin.com/AK/Anchorage/2100-North-Star-St-99503...

- Purchase price: 600k

- Strategy: STR (5b4b 14 guests)

- STR income: 132.6k (Aridna data) / 11.05k monthly

- CoC: 17.5%

Here is another example, just a random on-market deal where number works:

https://www.redfin.com/AK/Anchorage/3640-Chiniak-Bay-Dr-9951...

- Purchase price: 550k

- Strategy: STR (5b2.5b 14 guests)

- STR income: 124k / 10.3k monthly

- CoC: 19.79%

Alternatively, I discovered a few small multifamily properties with a mix of LTR+MTR+STR to help with occupancy optimization, and I can see that on-market 4-plexes like this one with a cost of around 600k will cashflow and gross a similar 110k-120k yearly.

I see that population growth slowed down, and maintenance/utilities should be much higher due to harsh winters. 

Does anyone here invest in this market?  

Do I miss something in the analysis of the deal?

Hey Alex. We actually live in the same neighborhood as 2100 North Star. It's a really good neighborhood. We live upstairs, rent by the room, and airbnb our downstairs as an ADU. Also own a 4plex that is 3 units LTR and 1 unit MTR. 

I agree that a large home like north star won't do well enough to cash flow. There has been a huge influx of STRs that have hit the market so competition remains high. I personally like the multi-family route. Spread out your strategies a little more. On my 4plex with 1 MTR and 3 LTR, I'm grossing close to 70k. You can certainly earn more with more STR/MTR units of course.

[Alex S.]

Thanks for the insight, Timothy! Let me reach out to you via messages and discuss specific multi-unit options.

[Connor Dunham]

Quote from @Alex S.:

Thanks for the insight, Timothy! Let me reach out to you via messages and discuss specific multi-unit options.

One of the things I’ve noticed with these short term rental revenue tools - you really need to look at the comps they are using and their model assumptions. Some assume current or past 3 months of revenue will continue indefinitely or only assume the days a comp has had historically available to determine occupancy (not counting the days it isn’t offered. As all rate of returns are denominated in time, this needs to be converted. - I like your rental and location I have almost bought in that neighborhood twice in the last 3 years.

[Timothy Chi]

Quote from @Connor Dunham:

Quote from @Alex S.:

Thanks for the insight, Timothy! Let me reach out to you via messages and discuss specific multi-unit options.

One of the things I’ve noticed with these short term rental revenue tools - you really need to look at the comps they are using and their model assumptions. Some assume current or past 3 months of revenue will continue indefinitely or only assume the days a comp has had historically available to determine occupancy (not counting the days it isn’t offered. As all rate of returns are denominated in time, this needs to be converted. - I like your rental and location I have almost bought in that neighborhood twice in the last 3 years.

 We could be neighbors if you do :)

[Connor Dunham]

Quote from @Timothy Chi:

Quote from @Connor Dunham:

Quote from @Alex S.:

Thanks for the insight, Timothy! Let me reach out to you via messages and discuss specific multi-unit options.

One of the things I’ve noticed with these short term rental revenue tools - you really need to look at the comps they are using and their model assumptions. Some assume current or past 3 months of revenue will continue indefinitely or only assume the days a comp has had historically available to determine occupancy (not counting the days it isn’t offered. As all rate of returns are denominated in time, this needs to be converted. - I like your rental and location I have almost bought in that neighborhood twice in the last 3 years.

 We could be neighbors if you do :)

My renters/guests could be your neighbors :)