is Joshua tree good place for both STR and LTR?

Question

Hi,

Today, I saw there are many listings in Joshua tree, Twentynine palms, yucca valley, etc.

I know real-estate market is slow. However if they do good STR business, then there is no reason for them to sell their house.

Can someone let me know if there is an issue for property in those area?

I guess it became red ocean(too many airbnb), and demand might be decreased, or permit issue?

Thank you.

Jason Kudo · Answer

First, before I specifically address your question about "too many airbnbs", let's go over the overall factors contributing to the reduced STR occupancy rates all across the country.

1. Over 30% of all Airbnb's in the United States came online in 2022. This means that nearly a third of all Airbnbs are new so if we're going to talk about over-saturation, we can't specifically call out Joshua Tree as if it is alone in this "over-saturation" phenomenon.

2. Rising cost of living has forced many of us to reduce our discretionary spending. Fewer people are going on vacation.

3. The overall global macro environment. Global inflation, global recession, hawkish fed which is making mortgage interest rates rise, potential for WW3, an administration that is more concerned with overseas affairs than within the country. All these things are raising concern and doubt in people's minds and people are concerned, they generally take a "wait and see" approach to their spending.

Year over year, Airbnb bookings have increased; demand is up but this demand is spread out over more inventory which contributes to occupancy levels being down on average all across the country.

Having said this, there is over-saturation in a specific segment of STRs in the Joshua Tree area. The STR in a residential neighborhood with neighbors on all sides using the now cookie cutter "Joshua Tree STR" template is struggling due to the sheer amount of competition. Purchasing a home in a residential neighborhood to use as an STR in Joshua Tree was never a good idea to begin with since the vast majority of guests are looking for privacy and separation in Joshua Tree and now this truth is playing out.

If you have a unique offering, invest in good interior decorating/design and marketing photos, and have a great operator, you can still do well. As this sector of real estate matures, it's not going to be about operating in places that have less saturation. It's going to be about the operator's ability to stand out and offer a superior product amongst the saturation.

San Bernardino County (Joshua Tree) is still issuing permits and the permitting process is relatively easy. The town of Yucca Valley has allocated 10% of the housing stock to STRs and the town of 29 Palms has allocated 500 permits for STRs. The town of Yucca Valley is projected to reach this cap by the end of 2022 and the town of 29 Palms has already reached its limit. These limits will grow as new housing stock becomes available and there are areas of Yucca Valley and 29 Palms that are governed by San Bernardino and not bound by the town cap limits.

Considering all this, it does look like the worst of the recession is still before us and the operators who think they won't be able to weather this potentially 18-24 month storm are the ones most likely selling. Keep in mind though that even in down times, people need a break and although they may not take those long road trips or book flights, they may still be willing to take a staycation and the Joshua Tree area is a perfect staycation destination and there are over 20 million people in Southern California that will still potentially staycation in the Joshua Tree area.

In conclusion, can you still make money in the Joshua Tree area? Yes. Do you have to be even more intentional in developing your product and conservative with your numbers? Yes. Are home prices coming down in the Joshua Tree area? Yes.

Tyler Solomon · Answer

I would second what Ryan has stated here. I know that the city was aiming to crack down on STR permitting in that area as you highighted. Joshua Tree is a very cool and unique area to visit, however i do believe that the market there has become a bit saturated. I know many lenders are starting to take a more conservative approach to lending in areas as such. Best to reach out to someone in the area who operates out there.

Jason Kudo · Answer

This may not be the right forum to talk about the climate but since we're talking about the fear-inducing article, is there climate change and do human beings contribute to the carbon footprint of the planet? Yes. Are we in a climate "catastrophe" like ESG and climate activists claim? No. The data suggests otherwise. In the last 100 years, climate related deaths have decreased by 98%. In terms of the age of the universe, the planet earth came out of an ice age yesterday so of course temperatures are rising. Should we care about the planet and do what we can to SMOOTHLY transition from fossil fuel-based energy to cleaner forms of energy? Yes. Basically what I'm trying to say is that the jury is still out on what the climate will look like in the year 2100 so don't make your purchasing decisions based on what-ifs 80 years from now that may never materialize.

Regarding LTRs, you need to get the property at a great price in order for it to generate a monthly cash flow in the Joshua Tree area because rents are still low in the area. That said, there is a huge shortage of LTRs in the Joshua Tree area.

Ryan Moyer · Answer

Firstly, there are plenty of reasons why a lot of people would be selling properties even in a strong market.  Gatlinburg remains very strong, and you can find a ton of properties listed there.

Secondly, however, is that yes Joshua Tree does seem to be a bit oversaturated as much of its demand boost was as a temporary covid market (not all of it, but a lot), and I would imagine some people are trying to get out of that market now.  I don't actually own there, but that's the impression I've gotten.

Kevin Kim · Answer

I'm thinking to do cash for around $250,000 house.

I thought it might be good time to find a nice house at a discounted price.

However I was not sure about how STR and LTR works.

By the way, can we still get a permit easily in JT?

..

I just found that an article about climate changing  in JT

"By the year 2100, 80% of the iconic plants will be gone in the national park that straddles the Colorado Desert and the Mojave Desert, according to recent studies. "

If 80% of Iconic plants will be gone, then I guess it will affect STR and LTR a lot.

Robert Reynolds · Answer

Hi Kevin,

You can definitely find some good deals in Joshua Tree and Yucca for STR. The STR permits in 29 Palms have been capped and you can still invest there in LTR. I’d love to send you some of the best properties I think are out there. Reach out and let’s connect soon.

Jason Kudo · Answer

@Kevin Kim, where to invest $250,000 is going to depend on what your goals are. Are you willing to carry a mortgage or looking to purchase outright for $250k?

As far as cap, as long as you are purchasing in San Bernardino County (Joshua Tree, parts of Yucca Valley, parts of 29 Palms, Landers, Morongo Valley, etc.) there is no cap, yet. Of course this could change as the regulation landscape is always changing.

As far as safety, any home that is left unattended for an extended period of time, no matter the location, is going to be a potential target. As a property owner, you have to stay somewhat engaged whether that means visiting the property personally periodically or having someone visit the property for you if you foresee an extended period of vacancy.

As far as crime prevention, there is really no 100% guaranteed method of preventing crime. If a criminal wants to commit a crime, it's going to be hard to stop the criminal. But in general, the Joshua Tree area is safe for visitors even in the neighborhoods where homes are less densely populated.

Kaja Baum · Answer

@Kevin Kim I agree with the assessments above. I live in the area and the local town councils have cracked down aggressively on permitting, making it more expensive and harder to get. That along with over saturation has really slowed the market.

The problem you'll run into with long term rentals is even though inventory is low, rents have not caught up to the higher prices. Most folks in the area are working class and can't afford to rent at the prices needed to even pay the mortgage. I'm hoping that changes soon but looking at the long-term listings, it's hard to even get comps. There are very few and prices are all over the board. I know that's not a very substantive answer, but I think like many markets, J-Tree is in transition right now.

Andres Murillo · Answer

I helped a client close a property in Yucca Valley near Joshua Tree. That property earned almost $20k in December and is scheduled to make $19k in January. Yes, it's a good market.

Brandon Carlson · Answer

Kevin, I recently went live with my first short-term rental in 29 palms a month ago. If your curious to know the good, bad, and ugly feel free to message me. I can also share with you potential long term rents. I'm licensed RE agent in California.