Are STR's headed for trouble?

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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
3y
Quote from @Greg Scott:

Victor Minasce has some compelling data suggested there may be trouble ahead for Short Term Rentals.

https://podcasts.apple.com/us/...

I'm in Scottsdale. I just bought a house to make into a high end STR in Phoenix.

Think of it this way, if you sell bananas and everybody decides to sell bananas, there is still a demand for bananas even though there is more competition.

But, those selling nice bananas will always have an audience and those selling bruised, rotten, spoiled bananas will no longer have an audience.

It's called "capitalism". Those who offer the better product will do well and those who go cheap will eventually fade into the night.


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  • Jeff Langley
    Member since 2021 · 167 posts · 141 votes
    3y

    Sure, some will be in trouble and some will succeed. That’s no different than a lot of things. If you buy on strong fundamentals and truly focus on location location location, you should have no issues. I increased my nightly rates and already have strong bookings for next summer. 

    I think most educated investors could have seen this coming in Phoenix, as the podcast suggests. 

    3Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    3y
    Quote from @Greg Scott:

    Victor Minasce has some compelling data suggested there may be trouble ahead for Short Term Rentals.

    https://podcasts.apple.com/us/...

    I'm in Scottsdale. I just bought a house to make into a high end STR in Phoenix.

    Think of it this way, if you sell bananas and everybody decides to sell bananas, there is still a demand for bananas even though there is more competition.

    But, those selling nice bananas will always have an audience and those selling bruised, rotten, spoiled bananas will no longer have an audience.

    It's called "capitalism". Those who offer the better product will do well and those who go cheap will eventually fade into the night.


    14Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Greg Scott

    I believe there will be trouble brewing in STR because too many people got into them and do not know how to manage them, no different than fix and flippers 15 years ago from the hgtv movement

    When you have a large enough segment doing something they had no business doing except getting into it because of FOMO then bad things will happen

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    2Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Account Closed:
    Quote from @Greg Scott:

    Victor Minasce has some compelling data suggested there may be trouble ahead for Short Term Rentals.

    https://podcasts.apple.com/us/...

    I'm in Scottsdale. I just bought a house to make into a high end STR in Phoenix.

    Think of it this way, if you sell bananas and everybody decides to sell bananas, there is still a demand for bananas even though there is more competition.

    But, those selling nice bananas will always have an audience and those selling bruised, rotten, spoiled bananas will no longer have an audience.

    It's called "capitalism". Those who offer the better product will do well and those who go cheap will eventually fade into the night.



     Good Analagy!

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Jeff Langley:

    Sure, some will be in trouble and some will succeed. That’s no different than a lot of things. If you buy on strong fundamentals and truly focus on location location location, you should have no issues. I increased my nightly rates and already have strong bookings for next summer. 

    I think most educated investors could have seen this coming in Phoenix, as the podcast suggests. 


     Exactly!

    Some of those that overpaid for only ok properties in only ok areas will certainly feel the pain.

    0Reply
  • Wyatt Johnson
    Flipper/Rehabber · Billings, MT · Member since 2017 · 35 posts · 17 votes
    3y

    We've been seeing an STR slow down up here, and I've been hearing about it happening in different parts of the country. It makes me wonder if all the demand for short term rentals was more a product of all the free covid money than it was of actual necessity. Definitely agree that there will always be demand for a nice STR in a great location, but we might be a little oversupplied

    7Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    I probably come across as a Debbie Downer on this topic, but I'm optimistic for short-term rentals as a whole. I think the problem will be the people that jumped into short-term during the last two years. A lot of them purchased with equity gained in their primary home through appreciation, which means they didn't sacrifice to make the purchase and they have less skin in the game. Then they purchased in hot markets based on performance from 2020-2021 where numbers were higher than usual and unlikely to sustain. And a lot of them did this without any knowledge of the market. They heard about short-term from a YouTube video or friends or co-workers or Reddit or the nightly news and jumped in without any research or preparation.

    Long story short, many of them may change their mind when the going gets tough. People that have been in it for 4+ years will have more stability and can likely weather the storm, particularly if the newbies start pulling rentals off the market and the competition decreases.

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Greg Scott:

    Victor Minasce has some compelling data suggested there may be trouble ahead for Short Term Rentals.

    https://podcasts.apple.com/us/...


    The problem with Airbnb listing is it's extremely hard to calculate the liquidity ratio which is the demand for STR and supply of STR.

    This is different with LTR or when selling houses in the way that the liquidity ratio can easily be calculated.
    However, it seems the problem with STR is more related to higher liquidity ratios in cities like Vegas and Phoenix.

    If Airbnb could have indicators similar to the "Zillow Home Index or the ZORI", this problem could easily be deciphered. 

    I know buying STR is extremely risky as it's a market for the hospitality/hotel sector, not regular long-term housing.

    2Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y

    Meh. Just one man's opinion. And indicative (maybe) of one market. 

    Although like with any business, if you are not prepared, and don't run it like a business.....you will pay the price. I think STRs are here to stay and will grow in popularity as the years go by. As I've mentioned before, a majority of the people we are getting at our STRs are first timers, and older folks too. They are just discovering the beauty of STRs and say they will start using them every time they travel now that they know about them.

    Of course, due to the economy, there may be a dip in numbers for those that are not well run/managed.

    3Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    The one's that just got into it and that don't appeal or produce a top end(top 10-15%) product will suffer. 

    You'll see the market share chop off the bottom feeders. I think to answer the question, yes, lots will suffer. But the top one's will really win it out big. I have LTRs as my first 2-3 acquisition targets, then a STR one around this time next year. I think a lot will fall flat on the face, you just got to make the place really, really good. Like amazing. So definitely higher up front costs.

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y

    Maricopa is the fastest growing county in the country.  Lots of moving parts.

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @V.G Jason:

    The one's that just got into it and that don't appeal or produce a top end(top 10-15%) product will suffer. 

    You'll see the market share chop off the bottom feeders. I think to answer the question, yes, lots will suffer. But the top one's will really win it out big. I have LTRs as my first 2-3 acquisition targets, then a STR one around this time next year. I think a lot will fall flat on the face, you just got to make the place really, really good. Like amazing. So definitely higher up front costs.


    100, actually the story of STR would be the same like the realtor.

    Only the top producer realtor makes money the most, the rest ..... meh, maybe switching jobs ?

    0Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    3y
    Quote from @Mike Dymski:

    Maricopa is the fastest growing county in the country.  Lots of moving parts.


     That's an affirmative. Lots of high paying jobs moving into Maricopa Area 

    1Reply
  • Brian Barch
    Member since 2022 · 272 posts · 253 votes
    3y

    I’m not worried. We are in a recession, and thus the economy is going to temporarily slow down.

    Bottom feeders in every industry will fallout. STRs normalizing is a good thing.

    if someone bought for the short term….shame on them, I wouldn’t have advised that recession or not.


    STR demand is still growing, albeit not as fast as supply

    1Reply
  • Account Closed
    Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes
    3y

    Our property management company manages about 20 of these in a large area of SW Montana from Madison, Gallatin, Park, and Sweetgrass Counties. I've been an investor here since 2007, and I've been selling real estate here since 2016. I would agree with most sentiments that we are headed for a huge downturn in STR. Our market is still very strong, but the outer limits out in the county, or anywhere further than 30 minutes from a town like Bozeman or Livingston, and in more isolated pockets are taking a huge hit right now. I'm not really worried about my rentals, as we have a niche market that we manage, which is very amenity rich, unlike those el-cheapo illegal 1 night specials you are seeing everyone and their cousin posting in Bozeman.

    The main problem is that many investors out there predicated their purchase of a residential property on a strictly STR operations and income. I never ever advise that to potential buyers, and also point out that a bank will not accept STR income, but only LTR income, market-rate at a 75% occupancy...

    Our real estate market is down over 50% from last year and rates are killer right now at 20-30% down with a 7+ rate right now, so you can imagine how that is killing our market. In other words, when it comes to a sale, these investors will be the first to lose money as their equity in the property fizzled away as the Fed fights inflation. I think deals will be hitting the market so keep your eyes peeled.

    Besides the STR market taking a hit, I've been expanding my own operations for accommodations, plus additional complementary businesses in under-serviced areas. In the next few years, we are planning on opening a few businesses, regardless of the state of the economy. We don't bother with residential property or land zoned residential anymore. We don't buy in city limits. We don't even build with concrete anymore. Everything is modularized, and we pack our properties with amenities. Not seeing many exciting STR's out there when I travel these days, which I assume is just owners not really caring about the experience their guests are having, but only about the money they are paying. It does, however, make me feel better about my properties!

    Good luck out there! Merry Xmas and Happy New Year!

    3Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    Over saturation will affect STR's as it affects all businesses.

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  • Jon Tungsten
    Philadelphia, PA · Member since 2014 · 10 posts · 8 votes
    3y

    From the podcasted referenced by OP:

    “Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year.“

    Seems like many of these operators are going to be in a dire financial position. 

    1Reply
  • Leslie Anne Morris
    Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
    3y

    I respect Victor's opinion and he makes a lot of good points. But, as he states, real estate is hyper local.  He doesn't know every market.  Only you can know what's going on in your market and respond accordingly.  Surround yourself with a strong team moving forward.

    1Reply
  • Brian Barch
    Member since 2022 · 272 posts · 253 votes
    3y
    Quote from @Jon Tungsten:

    From the podcasted referenced by OP:

    “Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year.“

    Seems like many of these operators are going to be in a dire financial position. 


    I'd imagine a good portion of the STR market is still passive people listing out their primary residence at various times.

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Brian Barch:
    Quote from @Jon Tungsten:

    From the podcasted referenced by OP:

    “Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year.“

    Seems like many of these operators are going to be in a dire financial position. 


    I'd imagine a good portion of the STR market is still passive people listing out their primary residence at various times.


     I think cities are going to tighten this up very quickly. 

    0Reply
  • Trent Reeve
    Atlanta · Member since 2022 · 706 posts · 634 votes
    3y
    Quote from @V.G Jason:
    Quote from @Brian Barch:
    Quote from @Jon Tungsten:

    From the podcasted referenced by OP:

    “Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year.“

    Seems like many of these operators are going to be in a dire financial position. 


    I'd imagine a good portion of the STR market is still passive people listing out their primary residence at various times.


     I think cities are going to tighten this up very quickly. 


     they are getting people to buy license, pay tax. why do you think they would want to give up that revenue?

    0Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    3y

     maybe but it also seems like a tough thing to enforce if they keep the listing hidden most of the time. 

    2Reply
  • Joshua Myers
    Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes
    3y

    STRs in urban centers, rural getaways, or blue chip vacation markets? Running STR's in these markets are all completely different business models. Owning an STR in Phoenix or Dallas is not the same as owning one in Destin or the Outer Banks. Those are as similar as an LTR single family home in an area with great schools and a handful of mobile homes.

    Personally, we purchased a condo to be used as an STR in Destin this summer. We plan on it turning a profit by 2024, but the bonus depreciation was a huge factor in the short-term calculation. I'm not comparing this investment to a single family home in the suburbs.

    5Reply
  • Matt Mertz
    Leander TX · Member since 2020 · 179 posts · 150 votes
    3y

    I think the primary factor is increased supply (and therefore increased competition). I personally know two other families jumping into the STR market in the last month. It's anecdotal but I don't think there's any denying that there's more competition in this market. You need to stand out.

    2Reply
  • Brad Jacobson
    Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes
    3y

    This is probably an oversimplified perspective but with my personal STRs, I got spoiled with a lot of expensive, long, and unprecedented stays thanks to Covid.  The numbers were far better than I expected them to be when I bought the properties. 

    Now that Covid is not a driving factor in travel or stays, we're simply going back to the traditional STR supply and demand. If investors were basing their numbers of the Covid boost, they're going to be underperforming. If they're crunching numbers like we all were back in 2019, they'll be fine.

    We're just cruising into the new normal like any other faucet of real estate.  Demand and competition will continue to grow as the market levels off.

    1Reply
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