STR - Does Home Size Matter During A Recession?

[Steve Uekert]

Happy Wednesday everyone,

I have a question that I've been pondering. After sitting on the sidelines for a long time, my wife and I are finally moving from interested, to serious in our pursuit of a STR. We're likely going to be staying in our backyard (so to speak) of Orlando for our first since we can learn and be close to it before we start out of state investing.

Anyway, my question revolves around the size of home, but it's not from a typical angle I think.

In this market, it seems like the larger the property you can afford, the more you can expect from cash flow. This of course assuming you have the right theming, manage it great, etc.

So as a loose example, a 5 bed home might get revenue around 50 to 60k a year, a 10 bed home has the potential to earn a couple of hundred thousand a year. I know these figures depend on a lot of things, but I've seen research from quite a few properties and they all seem to point to the same thing.

All of that might point to "get the bigger house" but my concern as a newbie is, what about a recession?

If we assume we're looking at recession over the next year or two, the first thing to typically dry up is peoples discretionary budget so trips to Disney get postponed or cancelled altogether.

Therefore, from a planning perspective, if the STR market dries up or slows WAY down like it is in other markets, it would seem to be to be an easier thing to potentially shift to long term rental for a year or two if you were renting out a 4 or 5 bed home, versus trying to LTR in a 10+ bed home.

I'm just looking at this from a strategic perspective and trying to play this as smart as I can. I know there will be risks regardless, but I'd like to try and mitigate as many as I can as smartly as possible.

Or maybe I'm just over thinking this too much.

I would appreciate any thoughts or feedback on this.

Thank you everyone!

Steve

[Scott E.]

I have a few thoughts on all of this...

1. Bigger cash flow number does not mean better. Yes a bigger home will provide more cash flow. That's a given. But a $2,000,000 home that generates $200,000 per year is generating a 10% return. Compare that to a $400,000 home that generates $65,000 per year, which is generating a 16% return. Which is a better investment?

2. The economy has already been experiencing pain for about a year at this point. Whether we are "in a recession" or not, people have been crushed by high interest rates, layoffs, and inflation. So I don't think we need to wait for the government to label us as being in a recession. Our economy isn't in the greatest place right now, and people are still traveling.

3. IF the economy does get worse, I think the "cheaper" and smaller short term rentals will get crushed more than the luxury short term rentals. People will still be traveling even in a severe recession. But who will be most likely to be still traveling at that point? People with money...