What is your STR vacancy, and is your market saturated yet?

Question

You might have heard this one before... A small town in a beautiful location, with an under priced real estate market, gets swamped by investors who bought up all the property to rent to tourists. Sound familiar? It is happening more and more around the World, not just in the US. I recently got interviewed by Business Insider on the topic, and you can read my thoughts about this here:

https://www.businessinsider.co...

But essentially, the market is no longer healthy, and those properties which don't stand out aren't getting the bookings, in an over-saturated STR environment. Bozeman's STR proportions are about 3-5% of total housing units. We have a diverse economy here compared to the rest of Montana towns, but yet tourism always is a foundation of our economy. And real estate plays into that. So in my opinion, 5% of total housing units being STR is too much. The City has run into a $1.4M education deficit, and I can tell you they won't be banning STR's anytime soon, but enforcement has gone up on them. The Bozeman Tenant Union, which is fighting for to ban STR's would have an easier time banning these around Disneyland, than here, as we have strong property rights, lowish taxes, and the City is aware of who pays the bills to keep our town shiny and new.

As the prime rate gets higher, and more buyers are pushed out of the market, it becomes very appealing to buyers to have some option to cashflow. Something like an ADU can make a first time home purchase possible now for a family, if they rent out that unit for example. But more and more, if a property doesn't have amenities, guests will either book a hotel for a cheaper price, or go find a better STR.

So let me ask you a few questions: How long have you owned a STR? What is your vacancy now, vs before the STR boom (pre-ABB IPO)? What proportion of your town is STR/total housing units? I'd love to hear about insights into your areas.

Andrew Steffens · Answer

Unique and well thought out properties are still doing well.  It is also important to be on solid financial footing and allowing for more time to get going (getting a few good reviews up etc).  Gone are the days of buying dated houses and using cheap furniture and raking in cash.

Lauren Kormylo · Answer

You interview a realtor in the article who estimates that "50% of the real estate in the city is now owned by people who don't live there full time."

So STRs are 5%, and second homes are 45% ?  Yet there's no uproar over second homes - people are only focused on STRs and not the elephant in the room?

John Underwood · Answer

You can't apply this to every property in every area. Sure some areas are this way.

I still have solid occupancy and am steadily increasing prices because I have great properties.

Brian Barch · Answer

Owned since Nov of 22.

occupancy has been 60-80% in the slower months even. My market does not yet feel saturated. We do have new regulations that have discouraged outlandish growth without preventing it.

Michael Baum · Answer

5% of total housing units doesn't seem crazy to me. Especially in Bozeman which gets a quite a few people coming through.

Our area isn't saturated and we are doing pretty well. It can always be better, but we are happy.

Michael Rutkowski · Answer

I'm certainly not implying this is the case with all properties, just what I've seen in our saturated market, as a manager and agent. Mine are great also, but there is no way that is the case for everyone.

Jordan Stoner · Answer

Certainly applies. My Bozeman realtor has also made the observation that downtown hotel owners align with the view that STR's are what is driving up LTR rates despite the fact that many of these STR's are ADU's that wouldn't have been built without the STR market dynamics in play. It's also true that the demographics of folks moving to town are highly skewed towards the age group of 20-30 year olds with no kids that often rent and work remote jobs that defy the compensation framework which has applied to jobs in small markets for decades. Suspect that is the case in many other 'posh' mountain/beach towns as well. That being said, I understand the frustrations of having your rent raised and certainly empathize with folks that are in that boat.

Dan H. · Answer

We have 4 STRs.  Each managed by the same PM company that we have used since last May and are fairly happy with (ecstatic compared to previous management company)

- Long time (since 1999) STR in great location has near 100% occupancy.  We switched PM companies almost a year ago and did not realize that with the loss of hundreds of reviews how much our occupancy would be affected.  It seems to be at near what it was prior to switching PMs (one day vacancy for the April).

- Long time (since 1999) STR in great location has near 100% occupancy.  Switched PM companies a year ago with same results as above.  Except this unit somehow was not selected in the STR lottery even though it had maximum lottery entries and had 23 years operating legally as an STR (in order to get max lottery entries, I had to show 5 years of paying all the required taxes, etc.).  It has one week as a traditional STR.  We are going to try 30+ day furnished rentals combined with a limited use STR permit to potentially fill any gaps in the bookings.

- 2 STRs since late last summer.  Their location is just pretty good (about 0.5 mile from the beach, a couple of miles from Sea World, maybe 5 miles from the zoo, and less than 10 miles from downtown).  The market rent on these units as a LTR is $4200/month each.  After Mgmt fees, neither of these units have produced income that would have matched their LTR income.  We are hoping this changes with its first full summer of being an STR.

My results are mixed but I do not believe over saturation is the cause of any of our current challenges.  The results would be a lot better if the 2nd STR listed above had been picked in the STR lottery as the unit is doing great but has only one week left as a traditional STR. They also are mixed because 2 of the units are not outstanding STR locations and are both still fairly new with limited number of reviews.

I will state that we had 23 years of outstanding STR success with our initial STRs with few rough periods (Great Recession, Covid lockdowns, and now not getting a traditional STR permit).

I believe not all areas will produce good STR results.  I believe some areas have too many STRs for all to be successful.  I believe you have to be cognizant of the STR regulations and sentiment.  The regulations will often catch up to the sentiment.

In summary, do you research before purchasing an STR.  This includes hot markets that may be over saturated as well as less known markets that may resent STR visitors.

Good luck

What is your STR vacancy, and is your market saturated yet?

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