Over Saturated STR Market?

Question

Hi there!

I am looking at long distance investing in a vacation rental house. My parents are willing to manage it on the ground and I even have 100% financing including rehab costs from a private third party. I manage some AirBNB property where I live for someone else so I have some idea of what I’m getting into, but I am not really set up the same way to have my own rentals locally (out of my price range for one thing). I feel that I am a bit late to the game. I looked at AirDNA stats for the area I am planning on investing in and there has been a huge proliferation of STRs in the last year. So I think we should have a good distinction if we want to stand out from the crowd. I just want to pick y’alls brains here about what I should pay attention to and if I should even try to break into this market?

Benjamin Vail · Answer

On AirDNA, you can find all the data you need to see if the market is over saturated. In my market, the number of Airbnb rentals has gone from 400 to 1400 in one year. (So you might think saturation). But the ADR has also INCREASED over that time from $126 to $134. So actually demand still seems to be out pacing supply still.

I also agree with what has been said about regulations. If they have not yet made some, they will soon. Just always have a back up plan if you get shut down.

Good luck!

I also agree with what has been said about regulations. If they have not yet made some, they will soon. Just always have a back up plan if you get shut down.

Good luck!

Jake Miller · Answer

Wouldn’t expand in any area that doesn’t have some sort of ordinance in place, worse thing that can happen is they come out vehemently against str’s and stop them. I would delve very deeply into the city str council and find out whether they’re pro short term or against it so you can have a better idea of the type of ordinance they’ll be coming out with.

Airdna is a great program to use, but it’s highly recommended to gather as much data from it from all price ranges so you can come up with accurate numbers, any data that is anecdotally used will be innaccurate. I used airdna to gather over 150+ zipcodes throughout the united states that are really net positive for str’s comparative to home prices. I’m using it to expand into a popular area currently.

Find a local agent or local investors in the area and ideally find a place that has accessory unit to it if the market has those types of homes, my first home i ever ourchased was a 4br 2bath with a studio 1bath accessory unit, and i run both as vacation rentals now and the studio essentially pays for the entire mortgage so all the income from my main house is net positive.

Also I’m not sure how inflated the real estate market is in that local market but for me I don’t buy at todays market price, find off market deals, send out letters to the owners, try and score some probate deals. I actually used a program recently to find addresses per parcel and scored a deal on a property for 3x below what i should have paid for it.  The market is so inflated a lot of times you simply cant find deals that pencil even for an str,  Unless you can rent out multiple units like an accessory unit as well; or it needs renovation work so its undervalued and you can do the renovations yourself to save the money.

Richard Dale-Mesaros · Answer

@Aja Leafe-Hall we do see two homes on one lot or a house with a separate cabin from time to time. For Air BNB I guess you guys should brainstorm what attributes are important to vacationers heading up this way, like privacy, views, cable/cell service, proximity to the ski areas or downtown, ease of approach road + driveway, ability to add sleeping #'s, shuttle to skiing etc. There are IRS stipulations on 1031 exchanges when it comes to how many days you can use it yourself, if a 1031 tax-deferred exchange might be something you'd want to do whenever you sell your place later on. Feel free to email or call if you need to....... :)

Dave Sisnetsky · Answer

Peter,

If there is a shortage of cleaning people, why don't you start a company. You could hire college people and contract to your own rentals as well as contract to other rentals.

Just a thought.

Ken P. · Answer

@Aja Leafe-Hall Sorry for the delayed response, totally missed the BP notification from your reply. Take my opinion for what it is because I do not have a short-term rental of my own. I think what you will find in Madison is that in the peak season, you'll do just fine, but in the off season you will struggle to be competitive with those more centrally located. A big pull for Eidelweiss is the lakes, but those don't really do much for folks in the winter and then you're just a bit farther away from skiing in the Valley. I would talk to Pinkham or Badger, they'll be able to tell you more realistically what you could expect from that area. I would be careful trying to blend LTR and STR in one property, especially with shared walls. Short term renters tend to be in vacation mode, and the long term folks who live there will not be too stoked on vacationers staying up late drinking or shooting off fireworks as they like to do. I decided that if I were to go the STR route I'd find a property that worked as a STR and a LTR  (not at the same time) Housing is so tight in the valley that if STR didn't end up working out the way you had hoped, it will be nice to be able to fall back to LTR. The most demand right now seems to be for 2/3 bdrm in the $800 - $1400 /month range. If you can find a property that would at least come close to breaking even on those numbers, that would at least be a way to mitigate your risk a bit as you venture into the STR arena.  Keep in mind those are current rents, so consider a scenario where AirBnB overstaturates, people move properties over to LTR and rents fall. Not sure if that would actually happen, but I would try to run your numbers accounting for the possibilities of lower rents.  Best of luck and please do follow up with whatever you decide on, I'm curious to hear how it all works out.

Aja Leafe-Hall · Answer

@Richard Dale-Mesaros, thinking of a house or multi family. One of my exit strategy is that I or my parents (or both) can move into it someday. Maybe we should only be looking at Multi Families? Or a single family as a “starter” STR. There is one specific one that they like and have seen. It needs work which my dad can do. I am trying to find out how to make the numbers work from across the country!

Paul Sandhu · Answer

You have most of your bases covered.

You need a marketing or promotional plan for your STR.

Find a niche and market towards it.

I rent to rednecks and Spanish people doing contract work.  The guys you see working on the large erections of steel at a petrochemical refinery.

Michael Baum · Answer

My wife and I spent a couple weeks in the White Mountains of NH quite awhile ago. I have always wanted a STR there and I am taking a look at it.

It does have me concerned that the Conway area is thinking of restricting VRBO's

https://www.conwaydailysun.com/news/local/unfairbnb-short-term-rentals-mired-in-controversy/article_8276bd60-01f3-11e8-a0c8-e3c7f407ccff.html

Ken P. · Answer

I live in North Conway (heart of the White Mountains) if you need any local info feel free to bounce it off of me. STR market here is very saturated but I'd hardly say oversaturated, there are so many people that come here summer (hiking and other attractions) , winter (skiing) , and fall (leaf peeping) and it's only growing. If you need market info you could give pinkham or badger real estate a call, they both have short term property rental management services and I'm sure they'd be happy to give you some better insight into the short term rental market. My experience with airdna is it's a decent starting point but I would definitely not rely on it for running numbers or projecting earnings, just my opinion. I will say finding a reliable cleaner may be a bit challenging as there are far more rentals than cleaners here, but it can be done.

Look forward to following your journey, I have been interested in getting into STR in the area for a while but the market is extremely competitive, everyone wants a piece of it.

Also of note, there is some local resistance to STR that you should be aware of. Conway village and the kearsage zone of north conway have had some rumblings of ordinance though nothing in place yet.

Richard Dale-Mesaros · Answer

I'm over here in the Loon/Waterville market so please don't hesitate to reach out if you need some insight..... I have sold 3 homes to folks doing STR and they have all had a good experience so far. Are you thinking houses, condos or multi's? I agree you should always buy with a plan B covered as well as back end resale taken into account up front......  :)

Over Saturated STR Market?

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