Update from my neck of the woods in the Smokies

May is soft.  Down about 25 percent over last May.  June and July look comparable to 2021. 

In 2020 and 2021, virtually every class of asset, except for office space, rose significantly in value.  Stocks, houses, collectible cars, Rolex watches, farm land, etc.  Yes, vacation homes were in that bucket.

As part of a normal, healthy economy, contractions (recessions) have to occur as well.  We are heading into one currently, and we see signs of that all around us.  For example, Manheim, a national car auction service, reported that used car sales prices have declined three straight months.  

What does this mean for the prudent vacation rental home owner?  It means that we need to be prepared for fewer nights rented, and at lower rates.  Why?  Because demand is dropping.  High fuel prices, lower stock market, less available dollars to take vacations, anxiety about the future.  

In the vacation rental market, a 10 percent drop in demand doesn't necessarily equate to a 10 percent drop in earnings.  It can be more like 30 to 40 percent.  That's because, as demand declines, the homeowner must often slash rates significantly to continue to get the house rented.  Why?  Because vacationers suddenly have lots of choices for a place to stay. 

The properties most harmed by this are the marginal ones.  Example:  We manage one cabin that is nice enough, but is in the woods with no view.  It's a house.  Last May, it rented for 27 nights @ around $230 per night.  That's because supply was scarce.  This May, it is reserved for 16 nights @ around $210 per night.  We are having to discount it to get it rented.

Our premium properties - those on water or with a great view - are very close to last May.

Morals of the story:  

1.  Vacation rental investing isn't all "milk and honey".  

2.  If your numbers only work based on 2020 or 2021 revenues, I hope you bought quality.

3.  There will be a day soon when you can buy some really good properties on sale.  Stay tuned.