Are the home prices worth it for STR in Bend, Or?

Question

Hi. I'm considering buying an STR in Bend, OR. The city has limited permits, so converting an existing house to an STR is not an option. The prices I am seeing are essentially $450 sq ft, so ~$800K for 1800ft. The NOI is about $25K but with a mortage, it doesn't cash flow. How are you owners of STRs in Bend making it happen at current rates?

Do you think the STRs are overvalued currently?

Twana Rasoul · Answer

@Aaron Coldiron I would not be buying a property right now that is priced per STR income. If you buy, make sure it works at LTR for now. Best of luck!

Michael Baum · Answer

Hey @Aaron Coldiron, we looked at Bend first quite a few years ago for our vacation rental. It is a great area with 4 season visitors. Skiing and other winter sports and a great spring/summer/fall for all the other types of outdoor activities. Having said all that, the cost of homes in the area are off the charts from when we were looking. Sunriver is a short term rental mecca so that would be your best bet, but you are going to pay through the nose. Nightly rates in Sunriver run the gamut from $100 all the way up to over $1000. Average without the outliers is around $300 a night. Calendars are showing quite a few bookings still intact. Summers of course are premium. Most folks who are doing the STR rental thing in Bend successfully have owned their homes for a long time. Others have bought for themselves and just try to offset the ownership somewhat. Personally I don't agree with the assessment that no one will vacation for 2 years plus. People are already getting restless and protesting the way things are going now so I think things will get reopened sooner rather than later. People will want to get away and drive to destinations will be on the list more than flying, IMHO.As for waiting, I doubt you will see a drop in prices. Best to keep a close eye out for a deal, but Bend is very popular and growing so prices will stay high.

Josh Garner · Answer

Seems like a good bit of wisdom in this thread already, but one thing I will add - don't expect Bend home prices to fall much at all, if any. Nationally, 40% of homes are owned free and clear....of the 60% with a mortgage, the average home equity is $177,000. In Bend, the average home equity is much, much higher, due to the accelerated appreciation of the last 10 years and the number of cash buyers who pour into our town from more expensive cities (SFO Seattle, LA primarily). In general, people aren't desperate to sell around here and certainly don't need to sell for a loss. I expect that home prices will stabilize a bit locally and not have the 10% appreciation that we've had every year for a decade, but likely not fall much, if at all. By the way, $450/sf is pretty accurate for the downtown (prime STR) spots and is by far the most expensive part of town. That being said, there are STR's all over town that have lots of success and many can be bought for $250/sf. Also, cost of basic construction in Bend currently is approx $250/sf. Best of luck in your search!

Joey Morea · Answer

@Aaron ColdironThat does not look like a good STR market if those are what the numbers look like. What’s the avg nighly rate vs amount of days booked? I would think bend would have a short season? I would look in other markets if you want to make the numbers work better probably somewhere in the southeast USA area with a longer season and much better price point.

Ken Latchers · Answer

Karen Margrave · Answer

Account Closed not everyone buying is doing so for cash flow, but STR often cash flow even in the very expensive markets, such as coastal areas, or high end homes in popular ski resorts, etc. To you $800,000 may seem outrageous, but that's a very low end fixer upper in coastal California. Buyers buy for various reasons. Some may purchase for a home to retire in one day and want to lock in todays prices. Others may want a house that at least breaks even but will appreciate. With a large enough down, anything cash flows!

Karen Margrave · Answer

First off, whenever you are looking for advice, find relevant information. It's important to understand the market. Mt. Bachelor is one of the top 5 places for winter snowboarding and skiing in the country, yet it's actually the Spring/Summer and holidays that bring in the highest number of tourists. However; there is demand year round. Granted, winter months are cheaper, and the most money is made in Spring/Summer. However; up until the restrictions due to Covid19, the STR market was still very strong with people coming into Sunriver, and our loop was packed. Some areas are busier than others due to proximity to parks, community center, observatory, etc. Sunriver Oregon is a part of the Bend market. Sunriver was designed for STR owners. Many of the owners rent homes out in the winter by the month, then in May begin STR use. Most owners schedule themselves vacations 1-2x per year at their homes. The Village at Sunriver has breweries, coffee shops, gifts, groceries, restaurants, fun zone, sports rentals, etc. There's miles of trails for biking/walking. Along the Deschutes River for floating, kayaking, swimming. A Community center complete with waterpark and wave rider. Parks throughout the resort, basketball, rock climbing walls, pickleball (which strangely is huge) and so many other things. It's very unique. I'd suggest that no matter where you are considering investing for STR you look at set policies. I wouldn't recommend going into someplace that has no policy concerning STR, as it's a huge gamble. Many neighborhoods and cities are getting upset about their SFR neighborhoods becoming boutique hotel sites, changing the character of family neighborhoods, as they add traffic, transients, take parking, etc. In addition, STR take a large portion of rental housing off markets, and squeeze local housing, so there's starting to be a backlash. On our house in Sunriver, we had it leased from Sept-April, and were planning to switch to STR May 1. However; Deschutes County is discouraging tourism until at least May 15th due to the virus, therefore; we are probably going to lease again until next year. We get $2500 per month for LTR. STR bring considerably more (You can look on Airdna for rental data on various areas, etc.) Not sure how many other STR in Bend/Sunriver areas will do the same. As with anything, compare apples to apples. Size of homes, neighborhood, age, quality, income, expenses, etc. It's not just comparing cost per square foot. Know what the cost per square foot actually includes. For instance,(Since it's what I know) look at what's included in the amenities at Sunriver with a stand alone house in a residential neighborhood at Bend. What are the pros and cons of each? Which property would bring highest rent and be more marketable to wider rental base? The devil is always in the details.

Aaron C. · Answer

Yes, thank you. I realize the market is in disarray and appreciate the caution. Waiting sounds like the right move. What is interesting is that the Seattle market is still hot, and I hear relators from Bend saying that homes are still appreciating. And with the above numbers, they don't really work for long term or short term rentals. There are really two questions I am interested in:- How do/were people making the numbers work at those price points? Or were they? -Do you expect prices to fall? My quick math on the present value of the leases or STR revenues says the homes are about 25% over valued. Are you seeing that too?This makes me think I should wait for prices to fall, and wondering what you think.

Kevin Lefeuvre · Answer

Yeah , me too I am surprised to see new buyers interested in STR given the whole travel industry is in chaos if not collapse right now.And yes there will always be some mountain or lake chalets working for STR but there is no way the occupation rate will be as high as before and due to the competition prices are down.

Chris Gottshall · Answer

Following this thread because I would love to get into Bend, OR, too, and I am really curious to learn more about that market.