Is the STR boom hurting your market?

Question

Sedona, Arizona is paying STR Landlords to rent to long-term tenants. Are you seeing pushback in your market? What do you think will happen in the future?

https://nypost.com/2022/08/22/...

John Underwood · Answer

I only buy STRs in vacation markets. My local market is cracking down on illegal STR'S.  They are nit hurting me because I buy the distressed properties or from a motivated seller. My COC returns are huge. I aquire a few new properties every year.  I don't need the money but it is fun and what else am I going to do with my time? It's almost time to gear up for the upcoming fall auctions.

Luke Carl · Answer

My STR markets are nothing but short term. Vacation markets. Should be pretty common knowledge by now that if you try to short term in a metro market that you know what you’re getting yourself into.

James Hamling · Answer

I think to best answer this question and all surrounding it, a person has to first realize what STR really is, at a fundamental business level.

AirBnB and it's various iterations, are nearly identical to Uber in it's business fundamentals. When either came out, many like to call either a "new" business/ industry etc. which is 100% incorrect. These are very old, well established, I would say "uber" established industry segments, and it was that very principle that facilitated eithers success actually, as all Uber and AirBnB did was introduce a new WAY in which to perform this long standing, well established business segment.

STR is now entering the waters Uber not so long ago started to experience, and that is when the prevailing industry operators realized they were dinosaurs, and this new "How" was there meteorite of there inevitable extinction. And in response, launched all out warfare to destroy this harbinger of their demise.

STR threatens the prevailing hotel/motel industry, as a whole. No, STR can never 100% replace it, but a 40%+ seizure of market share, without doubt very possible if not probable and that, a 40% market share loss, that's an extinction level event for any business.

STR is going up against a industry ruled by titans, with names such as Hilton. And, as they are now waking up to the very real threat STR poses, they are also waking to the reality this is a "Uber" type threat, and they have seen that story play out which only amp's up there "war efforts" to not just beat STR, but that they must completely stamp out it's very existence.

So now your a multi Billion industry goliath, you know that there is 0 competitive advantage you have to press against STR to destroy it, what do you do? Your advantages is monolithic amounts of capital, and a loosing business model. The answer is simple, you do what you did to take dominion, you bribe and regulate your way to victory. You do not need to beat a competitor who can not operate. So the path is clear, you lobby like your life demands on it, because it does, to politic your way to STR destruction.

The weakness in STR is one of it's best features, decentralization. It is the Achilles heel of STR in this battle, because the motel/hotel industry being as intensely concentrated as it is can descend an army of lobbying backed with mountains of capital, and the reality is YES democracy IS for sale.

So I see this playing out 1 of 2 ways:

- STR operators remain lone wolves, and suffer the consequence of a divided nation; as "fences" eruct to diminish the range and operations, the numbers dwindle until it's a small fringe group subjugated unto the overlords of the industry, content on leaving a small novel number exist.

- STR operators UNITE, leverage the collective power and capital in not just $ but also intelligence, speed, insight, legal and lobbying actions. The "lone wolves" form a SUPER pack, both figuratively and literal. They take on the mammoths, and turn the tables. Putting political powers that be in a position of fear to attack the pack. Institution regulations to DEFEND not diminish free enterprise.

Uber had luck on it's side, it faced a lessor powerful industry, at a later time when the field was more leveled, not to mention Uber was already equally centralized. The STR industry and community faces a fact that they must, for their own security of existence, unit under a common leadership and banner, to then fight as a organized central force. I have strong doubts if it can be done.

I believe the most likely outcome, it becomes AirBnB "a Hilton company", or "VRBO by Radisson". And you the STR investor will be "allowed" to provide your property into there system to receive a share of the profits they derive from your STR investment. Why? Because that is reality, they are more ruthless and willing then sheeple are.

Bruce Woodruff · Answer

Bear in mind that Sedona is an uber-liberal city. So it just figures that they would come up with a hare-brained idea like this. It'll be interesting/fun to watch the results.....

James Hamling · Answer

OR.... How about a $10k incentive to ADD a property to the market inventory?

And before anyone says it is taking one away from home owner inventory, ok, make it applicable to new built property.

Gov. is great at screwing things up when trying to influence things. This is just another example of making 2 problems out of a effort to solve 1.

How about the Gov. goes to the hotels and presses them to convert there units into standard rental apartments?

Collin Chan · Answer

I'm in the Sedona STR market.  I did the analysis and it's just not even close to the STR revenue unless your property doesn't really do well.  The incentive might not be enough to do anything to really shift the market much.

Other markets like Napa have just restricted the number of STRs with permits.  I feel like that is the future to balance increased tourism revenue and taxes but not letting real estate prices get too far beyond what locals can afford.

Mike Dymski · Answer

Whether we like it or not, more enforcement of residential zoning is coming to neighborhoods across the country...and the housing shortage and affordability challenge is only adding fuel to the STR haters' fire.  I am building a hybrid apartment/hotel to meet the need without the residential zoning challenges.  Well, I am trying to...the government is wreaking havoc on the cost of labor, materials, and borrowing.

Nathan Gesner · Answer

That's key. Every time the government attempts to fix a problem, they are more likely to create two problems without ever solving the first one.

Matt Greer · Answer

I'm in Arizona and I've seen it become a problem in a few areas. The biggest problem Sedona has is it's creating a squeeze on the market and it's making it so the people who live and work there can't afford housing which is definitely an issue for the people living there so I understand why that municipality is doing what they are. On the other hand I think investors will start to hit that threshold where certain markets become oversaturated and that will ultimately hurt the investors especially if they planned on the huge returns that STR's provide. It's definitely something that could catch an investor in a bad spot.

Is the STR boom hurting your market?

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