All Forum Posts by: Ross Gallo

Hey @Ross Gallo - excuse my delayed response... holidays got the best of me!

Re: the SBC cap, I was actually referring to a cap on the total # of STRs. But yes, they did put one on the # of permits each person can have recently.  

In terms of 30-day or longer stays, I personally don't mess with those, because then renter's rights can take effect, and the house has a higher chance of getting wrecked the longer a guest stays. I've heard some hosts in other markets have had success with 30+ day stays, but I think those are usually markets where people are traveling for work. Local renters in the hi-desert aren't generally known for taking great care of long-term rentals, from what I've heard. But for that same reason, if I had to choose between renting for 30+ days vs. renting long-term, I'd choose 30+ days, hands-down.

And did I find it challenging to manage the property when I was living in LA? It's a bit complicated... but the short answer is yes. I quit my full-time advertising job to renovate and manage the STRs, so that wasn't an issue... and I also had a property manager, so once the houses launched on Airbnb, all I had to do was make sure they stayed in great shape and that my PMs were staying on top of everything and not letting things slip. That said, even doing just that took WAY more time than I ever imagined, including frequent trips to the desert to do quality control on the houses in person (which I find to be SO necessary, regardless of who your PMs are). So while managing from afar wasn't impossible, I do think it would be much more challenging for someone who has a full-time 9-5 job in LA. So if you go that route, I'd suggest making sure you find a top-notch PM!

Hi! I've had STRs in JT since 2018 (purchased the houses in 2016), and now I'm living here in the hi-desert full-time, so thought it might be helpful to contribute my thoughts...

1) Building a house from scratch, especially in the Joshua Tree area, will probably take much longer than you expected. Whatever your contractor is telling you, you can usually double it. That's been my experience, at least. Who knows, the recession might come and go by the time you're ready to rent.

2) Joshua Tree is definitely over-saturated with STRs at this point. We launched ours in 2018, and in 2019, Airdna listed us as the #1 most profitable STR in Yucca Valley. 2020 and 2021 were AMAZING, but this year, our gross is about 20% less than it was in 2019. And we've put a lot more money into the houses just to keep up with all the new STRs. The culprit for the over-saturation is all the press Joshua Tree has received since covid. And I think us being on Airdna's "top places to invest" list just after the pandemic has been a big contributor to the over-saturation, as well. So you definitely want to make sure your house stands out from the competition with its architecture, amenities, decor, location, etc. I would suggest taking the time to do a deep dive into who your target market is and who your competitors are, and then putting a lot of thought into how to use that info to your advantage.

3) You said you're near Joshua Tree, so not sure whether you're in San Bernardino County or the Town of Yucca Valley, but I hear SB County is looking to put a cap on the total number of STR permits they issue starting March 2023. I hope that doesn't happen, but just something to be aware of. And Yucca already has a cap in place.

4) When deciding whether this will be a good investment for you, it's important to take all the factors into consideration, not just financial. When we decided to invest in the hi-desert, we were living in LA at the time, so we knew we could take our own personal vacations there when a house wasn't rented, and we could use it to celebrate our birthdays and holidays, and one day we could potentially retire there. So in the case of a recession, as long as the STRs are still covering the mortgage and expenses, it's still a good investment for us. For an outside investor who is strictly looking for the financial gain of it all, I'm not sure the ROI makes sense anymore unless you have a SUPER special property or location. But only you can determine whether this will be a good long-term investment for yourself.

4) When it comes to STR performance, I personally don't believe it makes sense to classify the pandemic/post-pandemic as a typical recession and compare it to the recession that everyone's predicting will come in 2023. Following the 2020 lockdown, people were itching to get out of their homes, but they couldn't fly and didn't want to stay in hotels, so they all fled from LA to the nearest Airbnb destination, which was Joshua Tree. In that sense, 2020 and 2021 were anomalies. If we have a recession during a time where there's no social distancing, where people aren't locked inside their homes, hotels aren't a scary place to be, and airports aren't shut down...I doubt we see the same surge in STR bookings. But I also agree that this industry is reasonably recession-proof because those who normally travel out of the country for vacations will probably just do their vacations within the US to save costs.

And that's my two cents!

@Ross Gallo

Like some of the others who commented, I'm on the Florida Panhandle (Fort Walton/Okaloosa Island), so I can't speak specifically for your area. But generally speaking, the destinations that suffer the most are those that require flying, particularly international travel, etc. On the other hand, people who would otherwise go to Europe for their summer vacation, tend to drive to destinations closer to home during recessions. That means Destin/Fort Walton for many from the Southern states. Also, smaller units tend to do better because people are not as able to travel in large multi-generational groups for the bigger condos. Shorter trips are another way that people respond during recession. So some flexibility in that respect would help with bookings. During the Covid "closing" months in FL I booked monthly to travelling nurses and military. It's an option for the off-season and slower shoulder months if that sort of thing is available in your market. I do have to say that during the slower times/recession-like periods getting your rental to be 5-star rated is particularly important, so cleanliness, updates, upkeep, etc become more important. During times when demand surpasses supply of vacation rentals, guests might be more likely to overlook shortcomings. When money for vacation is tight people are going to look for deals, but they are also not going to be very understanding when those "deals" don't have good reviews :-). I have several vacation rentals and just bought a new townhouse to use as VR in May. I expect a slow down. I also expect that people who bought in the peak of the price increases and where hoping to cashflow with minimal personal involvement, might find out that the 20%+ mgmt fees of large management companies are eating all of their profits now. But if you self-manage or use a boutique mgmt company that tailors their marketing to each individual property, hopefully you'll do ok through the dip. Good luck!

STR realtor who works with a lot of buyers in the Joshua Tree area and an STR owner in the area as well here. Where we are seeing the biggest slowdown in bookings is with properties in residential neighborhoods with neighbors directly adjacent on all three sides (left, right, behind). This is where the greatest level of saturation is. At the very least, if buying in a residential neighborhood, it needs to have unobstructed views from the backyard and in neighborhoods that are less densely populated. The 3/2 on an 18k square foot lot isn't going to cut it anymore unless you get it for a damn good price and can set your nightly rate for a massively low price. Buyers need to be a lot more intentional with their purchases. If the subject property is in a neighborhood, it needs to be uniquely positioned so it has no direct neighbors adjacent with nice, unobstructed views from the backyard. Don't let anyone convince you that a plain old "nice house" will do well as an STR because it won't. It doesn't matter that it has a hot tub, hammocks, and a cowboy pool. If it doesn't have a real in-ground pool/spa, don't buy a house in a residential neighborhood and expect it to do well.

I'm re-posting from a similar forum post but adding an extra thought or two. Unemployment and wages are going to determine whether this recession is felt in vacation markets. Nobody cancels a vacation because gas prices are high; they cancel a vacation because they lose a job. The trend of a K shaped post COVID economic recovery is continuing into the recession. Rent, gas, and food, as prominent examples, going up is felt the most by lower income households. I don't know how hard that hits the vacation or family vacation market when employment and savings rates are solid.

All of the concerns that you may have can be researched. Joshua Tree visitation through April this year is 1.386M compared to 1.274M Jan-April last year. As for supply of STRs, I'm sure that you can find that as well. Don't go off of feel and hearsay...look at stats and data. The link below shows recreation visits at national parks going back to 1979. I own a short term rental near Acadia National Park, and the April visitation number this year was 105k, last year was 110k. While that is down - only slightly though - there has never been an April going back to 1979 that saw over 100k visitors to the park. Visitation numbers are STRONG! 

As for a recession, sure, there are some issues. Inflation and consumer sentiment are not great. Look at wages/employment and consumer spending and behavior though. Luxury good spending is up 8% year over year, credit card debt is down over 1/3, savings rates are still very healthy - down 2% in the last six months but still historically very high, home equity has gone up something like 10 trillion dollars nationally in the last year. Wages and employment are rock solid. There are 6 million unemployed Americans (that participate in the labor force) and 12 million current job openings. Until wages and employment weaken, the consumer is very well prepared to weather a recession. All information above is available on bea.gov by the way.

Of course, you have to know how to properly analyze a property and purchase wisely, but the stats and data absolutely still show that this year will be a good year for domestic travel. And most of us are playing the long game here...time is the ultimate multiplier and hedge.

https://irma.nps.gov/STATS/

In Joshua Tree, they are already seeing the impact of way more supply (lots of new STRs) and a decrease in demand -- not really due to fuel prices, or a recession, but due to the fact that the last couple years were anomalies due to the pandemic -- as people return to what more historically normal travel and vacation.  Don't expect demand to be as strong as it was a year or two ago.  And definitely expect more competition than there was a year or two ago.

As far as a recession though, given Joshua Tree is primarily a drive-to market, and less expensive than most LA visitors other vacation options, I wouldn't think that would have as large of an impact as the above.  These drive-to markets that provide reasonably priced vacations (compared to the popular alternatives) tend to hold up pretty well.

@Ross Gallo I think market competition may play a bigger factor than a recession. From what I am reading, there is large influx of STRs in Joshua Tree area. I would be most concerned that I could offer competitive pricing especially with other STR owners that purchased years prior and have a much lower basis.

I think what is going on in the world impacts *who our guests are* quite a bit more than *what our revenue is*. We had so many international guests before the pandemic. The pandemic hits and we had massive numbers of cancellations overnight. Then our city locked down and we decided to rent just long term throughout the next 18 months. So the pandemic did impact our revenue but given the lockdown it impacted who was living in our STRs even more. Last summer we had two 4 day bookings and 2 bookings each over a month long. This spring and summer, we've had 2 bookings from international guests and 1 of those international bookings cancelled because of their country's covid lockdown. All our other guests have been from this country. This spring's & summer's vacation rentals were all mostly 1+ week long and way down from pre-pandemic times and then all of a sudden all these business travelers started booking 2-4 night stays. We are now fully booked with over half of the guests traveling for business. 

Personally, I think a locale's STR saturation has a much larger impact on revenue than the economy or even pandemics. If there are a lot of investors in a particular area, it will drive down your revenue. Prior to my city's regulations pushing other investors out of the market, the nightly rates were not much higher than a long term rental would bring in. That had a much bigger impact on my bottom line than what's up with the economy.

Joshua Tree must be getting pretty saturated by now....but still, if you have the demand, I don't think a recession will hurt business, as a matter of fact, it might help....

I agree with Collin, 

As I also Manage vacation rentals in the GSMNP, the Smoky Mountains are typically more accessible for lower-cost vacations if a recession is looming. 

Owners of cabins/chalets may even see more business than usual as visitors are unable to fly due to cost, we saw something like that during peak COVID in 2021. 

Drive-to destinations are definitely going to continue being popular!