How sustainable can STR be in crowded markets?

Question

Lots of investors are looking to STR as some of the last places where we can find cash flow. However, I am thinking it might get a bit crowded in a couple of years and in some places like Orlando, there might be no secondary exit to the market in case the principal attraction loses value or there are just too many options and there is an oversupply. I know, I know, right now its not the case as there is a huge demand and lots of people are travelling and stuff, but if you are asking for a loan for 30 years you might want to think about everything that might happen.

I want to know what you guys think about STR in general? I am liking the idea but I am really concerned if something big shifts. What are some STR that are not very crowded and there is little to no supply creation? Do you think that going to some attraction areas is the best place for STR? or something like a metro area where you have lots of option? Is it really easy to just have a property manager supervising everything? what are your thoughts?

Shawn McCormick · Answer

@Mateo Arias Gómez, valid questions. That is why picking the right market and understanding why it exists should be a starting point. If you buy in an area that depends on skiing and they have a couple mild winters, you aren't going to last. If you buy near a beach and flooding, insurance, hurricanes, local ordinance changes or a combination of all of those, you will lose.

I'm in Orlando and believe me, Disney, Universal, Seaworld and all the things that feed it aren't going to vanish in our lifetime, so to me, it is one of the safest bets out there long term. Orlando was built for STR and as others have mentioned, do your job, stand out and you will do great.

Good luck!

John Underwood · Answer

You have to have a good property in a good location with good amenities. You have to communicate well on inquires and answer questions during stays.

There are opportunities for you to be better than the competition and still charge top dollar, even in a crowded market. When you self manage you can put all your efforts into your property where a PM has to service all their clients.

Don Konipol · Answer

@Mateo Arias Gómez

Long term implications for the StR market are positive. It took apps like AirBNB and VRBO to unleash the supply that met the demand. While short term situations can cause difficult markets, a large segment of the population is not satisfied with typical hotel/motel type accommodations, especially for 30 day plus stays.

That said, as in any real estate, location, pricing and amenities are of vital importance. An added feature is that the STR provider is as much a￼￼ business as it is real estate; hence operations defining the customer experience plays an outside roll in success or failure. The problem with property managers in STR market is that they tend toward the mediocre, being left in the dust by the highly motivated owner operator whose total livelihood depends on providing a “superior” customer experience. Most successful BP participants in this forum state how easy management of your STR business is with all the online tools available. My suspicion is that these owner operators are very skilled at what they do, very motivated, and very knowledgeable. Probably not that easy for the rest of us.

Quinn Olivarez · Answer

A crowded market just gives you more opportunity to stand out. It’s really simple. If you don’t think you have what it takes (financially, time wise, etc) to compete, then working on building that confidence is the next step.

Bruce Woodruff · Answer

It all depends on the market, right? But the age old 'cluster effect' has been used for a reason. Get in a hot market and out-perform the rest. I can't see STRs going away, they are becoming a main part of the world travel/lodging concept...unless they are banned in some areas....got to do research on that.

Thomas Loaiza · Answer

It’s really going to depend on the specific market in my opinion. As the market does saturate, I believe LOCATION is going to even more important than before.

Mateo Arias Gómez · Answer

@Shawn McCormick thanks for your insights! I just wanted to try doing the devil's advocate to see if someone thought something different. I guess its really hard to argue the obvious: lots of demand and a huge attraction to the market.

How sustainable can STR be in crowded markets?

How sustainable can STR be in crowded markets?

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