All Forum Posts by: Ryan Moyer

The days of buying a random average property in a vacation destination and throwing it on Airbnb when you actually aren't any good at underwriting or hosting and stumbling blindly into 50% CoC returns are dead. That was never going to last. But Airbnb isn't dead. You just have to actually know what you're doing now.

If anything Airbnb is as alive as ever, because it's basically accepted as a investment asset class now.  It used to be if you had money to invest you thought about stocks or bonds or long-term single family rentals or multi-family rentals.  Now short-term rentals are an accepted part of that list.

As with any asset, the more accepted it becomes as an investment asset and the more people get into it, the lessor the returns are.  Just look at how long-term single family rentals have evolved.  It used to be that when you were looking for these deals you used the 2% rule.  That is to say you wanted the monthly rent to be 2% of the purchase price.  That is long gone as more and more people started buying LTR's as assets, and it shifted to the 1% rule.  People at the time freaked out.  1% rule, that is stupid, I used to get 2% I'll wait for that to come back.  Then over time 1% became the new 2%, and everyone accepted it.  Now, you can't even find 1% unless you have connections or value add, and people are happy with even less.

Short term rentals are headed down the same path. My first 2 I bought I had 80% CoC return. That is dead. But that doesn't mean it's still not a viable investment at 20% CoC. 20% is still pretty great even with the extra work involved.

Of course the big elephant still lingering out there is that short term rental revenue isn't as reliably predictable moving forward as long term rental revenue, so when you're putting in that revenue number to get 20% CoC you need to be sure it is a number that you can hit moving forward, and not something that was just a result of a large outlier travel year like we're looking back at now. I'm not confident that's the case, which is why I've put my purchasing on pause for a bit to see how things shake out. But once everything settles back down to reliable levels I'm happy "settling" for the now lower norm of 20%ish CoC. I bet 10 years from now we'll all be pining for the days where you could get 20% like we're pining about the days of 50-80% now.

All of my rentals are STRs so I have no reason to dump on them, but I don't really understand why you touched on and seemed to understand many of the issues people have with them, and then just shrugged them off.

I am active in my local community which is a moderate but growing STR market and in the communities of one of my STR locations which is a ruralish area where STRs have become popular (near National Parks). Trust me when I say the vitriol the locals have for STR is not just made up. They HATE it. That's not just a story. It's very real.

It differs by community, but for instance in the rural town near National Parks the main reason is the lack of affordable housing/rents. That's a big reason here locally as well (ski destination). It just doesn't make sense for anyone to use their place as LTR at traditional LTR rates when they can make literally 5x as much operating as an STR even if they pay a property manager. There's nowhere for the restaurant workers, retail cashiers, etc to live.

In the rural town there are literally ZERO places available to rent as LTRs with occupancy. The local FB groups people will post that they're looking for a place to rent and the response is just 100 people replying that everything in town is an STR now because of greedy owners, etc. The hate is real.

The free market just doesn't have any answer for it. Logically we should think that there is a dearth of affordable long term rental housing then someone will step in and fill that void to make that money. But the problem is there is no scenario where the money spent on that will bring in more profit than spending the same many on an STR in these vacation destinations. You could build some giant apartment complex with $700/mo 1br apartments and they'd be booked up to capacity on day 1 so that sounds great. But that place costs $10M to build and for $10M you could build some insanely awesome short term rentals that would make 5x as much.

That's not even to mention that the loan terms are going to be massively better on the STRs since you can buy them without an investment loan.

Granted all of this is less of an issue in urban centers like NYC where there is still plenty of long term housing, but in these vacation destinations the only reason for a LTR to even exist is if the owner is lazy, the owner hates money, or regulation deems that's the only type of rental they can have there.  Otherwise why would anyone just except 1/5th of the returns for an asset class that isn't really any safer, and can always be used as a fall-back in a worst case scenario?

This is all why I've always said that as STR becomes an accepted asset class (as it is very well on its way to being) regulation is going to massively rise. That's why the best and the brightest on this forum have always said from the beginning to focus on areas where STRs are ALREADY a regulated part of the economy, because this is something that every town in the world is going to have to deal with eventually.

Within the last year is not a good measuring stick.  I bought 2 STRs a year ago and they have both literally doubled in value, all while I got to enjoy the greatest 10 month run in short term rentals in history by a huge margin.  Of course anyone that bought a year ago or 6 months ago is happy.  If I could go back in time a year I'd buy 20 of these properties.  If I could go back in time a month, not so much.

Many realtors in 2022 are the 2008 version of loan officers, getting people in over their head with really bad advice. We're lucky around here on BP to have some of the world's best STR realtors who truly understand the STR market and are realistic about it, but I've come across a ton in FB groups, markets I'm looking in, etc that are really misleading new STR buyers, especially in terms of presenting what the possible risks are.

I actually think a recession could be what saves Gatlinburg, at least for the people that bought at the peak paying 10x 2021 numbers recently.

2021 was a total outlier.  If we returned to 10% better than 2019 gross numbers that would be totally reasonable and that's how literally every other sector has been with regards to its covid boom (IE the boom was only temporary, and the numbers eventually reverted to pre-covid numbers).  Pre-covid Gatlinburg travel numbers are still good but they are not nearly good enough for the home prices people were paying in late 2021 and early 2022.

If people paid $1.3m for a 4br property because it did $130k in 2021 they are screwed if that place reverts to "only" 10% better than 2019 and is suddenly doing $77k in gross rents.  But a recession may actually save them for a little while as recessions are typically good for drive-to markets like the Smokies.  The Smokies got a huge, temporary boom from covid.  A recession could be another one and give people an exit that bought way too high based on temporary outlier travel trends.

Oh god, Blue Ridge.  Like leading lambs to the slaughter right now.

I love the story, but I think there is some creative accounting being done here to make this look better than it is.  The $1100/mo for his loans and PM fee sounds pretty dubious.  It says he has $165k in loans for the down payment alone via personal loan, bitcoin backed loans, and a heloc.  I'm a crypto guy, those bitcoin backed loans are not cheap.

Also worth noting that $1100/mo it looks like only includes the loans (still seems dubious it would cover even that) and PM fee.  Not utilities, homeowner's insurance, property taxes, software, platform fees, etc.  So saying his total expenses are $1100 while not adding in all that stuff again is misleading.

Also worth noting that he paid about 60% of the cost in cash (drained his entire retirement accounts).  Not too terribly difficult to cashflow well when you're essentially putting 60% down.

Still sounds like a good deal overall for him though.

AirDNA is good to get a general idea and get started.  Sometimes it can work beyond that, but generally there are a couple major problems.

1) I believe it bases its projections off of the trailing year.  That means when the market sees large changes, its data lags.  Last year it was way underestimating for everything because there was a big post covid travel boom and the trailing data hadn't caught up to that.  So it was listing stuff that did 60k pre-covid and 120k post covid as 60k.  Now we're seeing a bit of the opposite, as the travel market (especially in non-metro areas) seems to be starting to cool off but the data is trailing and based on last year's outlier year.

2) It doesn't really offer the ability to comp based on amenities and direct locations.  If you search Destin, it's pulling data from houses on the beach, houses with a pool, etc.  So if you just have some random house 10 blocks off the beach that's different than a house that is 2 blocks off the beach with a pool, which is again different than a house that's on the beach.  But all of that data gets combined when coming up with your projection, even if a beach house isn't relevant to your house that's not on the beach.

So you have a long term rental manager who does not find the tenants?  What the heck are you even paying them for?  The occasional call to an HVAC guy or a plumber and in return they get $240/mo to sit on their hands?

Punch the address into airdna or rabbu and see what is says.  Then do the math with 20% fee and utilities expenses.

You can always give it a try.  You really have nothing to lose here.  I'm not sure why you're so worried about using the relationship with your PM.  8% for an LTR where they don't find the tenants, if you decide to switch back and need to hire another PM they'll be lined up around the block for that kind of deal.

I haven't looked at the area closely, though I have vacationed there before, but a quick cursory look seems to me like this is one of those destinations that might make sense if you want a place there to use and you just want STR to cover some of the expenses, or you want to hold for appreciation and hope STR will chip into the mortgage payment in the meantime. But absolutely not a place for good cash flow.

Seems like the double edges sword you get in most ski areas and northern areas.

1) Huge dead shoulder seasons.  No one goes there during the mud season which is almost half the year.

2) Too many people (relative to inventory) that want to own there for themselves and are willing to pay beyond STR underwriting numbers. Somewhere like the Smokies no one really just wants their own cabin there to use and maybe rent a little on the side. It's 99% investors. So cabin aren't going to sell for more than would underwrite for an investor. But places like Jackson Hole, Aspen, etc there are too many people (relative to inventory) that have a bunch of money and want a place there and don't really care if it makes sense as an investment. So they'll absolutely buy a place for $3M that only does $60k/yr in gross rents. Flathead isn't Jackson/Aspen, but it seems to be closer to that than somewhere like the smokies.

Again, that's just based on a VERY cursory look.  I haven't dived in to the market so I could be totally misreading that, and maybe the shoulder seasons there are still packed or the homes there still underwrite, but from a cursory look it didn't seem like it.