Current State of the Short Term Rental Market with Heather Nicely – Part 2

During Part One of our conversation with Heather Nicely, we talked about the pros and cons of adding short term rental (STR) properties to an established portfolio of long term rentals.

Today, we’re getting more into the state of the STR market and how you can set yourself apart and serve owners better.

Market Saturation and the Rush to Short Term Rentals

There has been a rush towards short term rentals because investors wanted to capitalize on the rise in travel. Then, a single tweet set off alarm bells about many markets being over-saturated. Articles came out about people who lost money on short term properties, especially during the Super Bowl in Arizona. They were expecting to make more money.

The (incorrect) data in that tweet induced a bit of a panic. The snapshot they showed of a few key markets alleged that there was a drop in revenue of 47 to 49 percent. Everyone thought this meant the Airbnb industry was collapsing.

If you drill into this, it’s not true at all.

You have to know your own numbers to accurately know how the market is performing. Heather says that property managers have a duty to know how the market is actually performing so they can be honest with owners and tell them what’s a good idea and what’s a bad idea.

Grabbing onto every hot take on Twitter is never a good idea.

Panic posts are set off by people who are not even in the industry. It’s very easy to get more accurate data on your own. Even better – study your own data and know your own market.

Heather says you have to give your owners that reassurance. Increasing revenues on their own properties is really all they’ll care about. It’s important to encourage owners to stay focused on their own properties and not latch onto viral tweets.

In Arizona, there was a bit of an exodus after the Super Bowl. People thought they’d be able to pay off their entire mortgage after one good rental season. Now, the gold rush has passed and people who should not have been in the industry have left the industry. That’s not such a bad thing.

Heather works daily with investors, and she knows that her market isn’t the best market for everyone. There are still deals to find in and around Phoenix, but you have to know your numbers and you have to know that costs are higher now. Interest rates are at an all-time high. Insurance costs have risen. There are a lot of economic factors influencing the market that have nothing to do with whether it’s saturated with short term rental properties.

Short term rentals, like long term rentals, are not a get-rich-quick scheme.

Shifting Investment Mindsets

Recently, the behavior of the market has caused a mindset shift with investors.

They’re especially viewing mortgages differently. More capital is going into properties than before. That’s good news to Heather, who often has to have difficult conversations with the investor who only has $30,000 to put down on a short term rental. They have to talk about whether that’s possible with the interest rates so high. They’ll need money to furnish that rental and prepare it for bookings. Will they make it through a month when bookings are down? Short term rentals are seasonal, remember.

Conversations have changed over the years. Rates are higher, and getting approved for more money is often necessary. So, more capital is needed. Heather doesn’t feel bad when she has to talk someone out of a STR investment. She doesn’t want to have to sell that house in a year because they couldn’t afford the property.

As a property manager and real estate professional, it’s often your reputation on the line when an investor wants to make a bad decision. Make sure there’s a back-up plan. For example, if the property doesn’t seem to work as a short term rental, will it work as a mid-term rental for 30 or 60 days? Is it close to a hospital, where visiting nurses may rent it? Or,