Vacation Rentals in a Recession -What size property to target?

Question

Hello BP - my wife and I have a few vacation rentals in San Diego (3 bedroom homes and granny flats). I've been researching what happens to the vacation rental industry in a recession, and so far what I've seen is that if your property is in an accessible area, there will still be demand, though the luxury properties may lose demand. My question is this, for our next properties, should we be looking at smaller (1-2 bedroom) properties, assuming that if the economy is in recession, the smaller more affordable vacation homes will be fine? Or, would additional bigger properties be the better strategy because people will want to take group trips and lower the cost per traveler? It's been our experience that the 3 bedroom properties in San Diego have a higher revenue per room than the 1 & 2 bedroom properties, but the concern is that if a recession comes along, the bigger properties would lose demand. Thanks!

John Underwood · Answer

I think there will still be plenty of demand. You may have more local vacationers than people who have to travel a longer distance.

Colleen F. · Answer

Family size is what it is. Families of certain sizes will always go on vacation.  And family groups stay in houses.   To me one and two bedrooms are too small for other then couples with maybe a kid. You have more flexibility with a 3 bedroom.   You can have two couples, with kids, one couple with kids and grandma for some childcare.  Now the super size rentals like 6/8 bedrooms maybe demand decreases in a downturn but midsize not so much.

Dan H. · Answer

We had a duplex STR (both units 2 BR, 1 Ba) at the time of the GR in a San Diego vacation area (Mission Beach: 1 block from the beach, 2 blocks North of Belmont Park).  Our STR occupancy rates fell significantly.  When we purchased the units, both of them were LTR. We converted them to STR.  Then the GR hit and we did a hybrid, we LTR them through the academic year (offered option of furnished or unfurnished - some college students have minimal furniture) and STR them through the summer.  We tried to keep one unit STR through the non-summer months as 50% occupancy would have provided better return than the LTR, but we could not get even that close to 50% occupancy (today we have virtually 100% occupancy on both units).

I think a recession as bad as the GR is unlikely but in the event that there is another recession that bad, and it behaves similarly, the vacation rental occupancy in the non summer months will decline significantly and the summer months will decline.  I suspect the number of BRs will have minimal impact on this.  I think it would likely hit most units regardless their luxury level.

Fortunately, I am not thinking we will have another recession as bad as the GR any time soon.  Never the less, being in a position to weather such an event is prudent as no one wants to be wiped out financially by a recession (or anything).

Good luck

Vacation Rentals in a Recession -What size property to target?

Most Popular Reply