Get Out Now

[Collin Hays]

I've been thinking about expressing my sentiments for several weeks on this forum. As a Property Manager and STR investor, it's a hard thing to do. I still feel like investing in vacation rentals can be an outstanding investment, but you've got to score a good deal when you buy, and you cannot be counting on a fresh buy for much, if any, positive cash flow unless you scored a crazy good buy.  

This is post is intended for 90 percent of the investors out there that bought a vacation rental in 2021 and 2022.  Most paid way too much, based on multiples that were based on weird years.  You are going to have an opportunity this spring and early summer to GET OUT.  Things are NOT going to be getting better in this space for a while.  Here is where we are:

1.  Extreme oversupply of STRs in a bunch of markets, due to irrational exuberance and massive overbuilding in 2020, 2021, and 2022.

2.  Lower volumes, retreating to 2018 and 2019 levels.

3.  Investors are in a huge squeeze right now because the "new normal" numbers aren't working.

4. High(er) interest rates are way exacerbating the problem - if the numbers aren't working for YOUR deal at 3.5% APR, they sure don't work for anyone else looking to buy your home at rates that are twice that.

5.  As the pinch hits harder, investors trying to sell are going to find themselves deep underwater - owing money at closing and a whole lot of it.

6.  Many of these houses will either be sold short, or go back to the bank, 2010-11 style.  They will eventually end up in the hands of an investor, at a price where the dollars DO work.  And that new investor is going to be able to rent his/her rental at rates way lower than the previous owner could afford to do.  This will put FURTHER pressure on the owners who paid way too much.

So...if you are NOT in a good financial position with your rental - if you are relying on it for INCOME and things have gone sideways, GET OUT THIS SPRING OR EARLY SUMMER.  Prices are going to do nothing but go south for a while.  It's going to be 2027-28 before things are sorted out.  

That's my two cents.  Sorry guys.  Just telling how it is from my view.