Short Term Rental Bust

On today’s show we are taking a deeper look at what is happening in the world of short term rentals.

This industry has become so developed that there are specialists in virtually every aspect of short term rentals. There are products designed to automate so many aspects of owning and managing a short tern rental.

There are tools to manage help you integrate the calendars and portals associated with multiple booking systems, whether it’s AirBnB, VRBO, Booking.com, Home away or Expedia. These systems don’t talk to each other. So if a client books your property using Expedia, then all the other platforms need to be aware of the change in availability. There are tools to do that.

Many people whose homes were underwater in the wake of the GFC were based in Phoenix or Mesa or Scottsdale,

There are currently over 7500 rental listings in Maricopa county. That’s in addition to the 23,000 for sale listings. The sale listings represent 4.5 months of inventory and the average days on market was 56 days in November 2022.

There are 27 municipalities in Maricopa county. Based on this simple but very crude analysis I can confidently say that there are many thousands upon thousands of empty homes available in the Phoenix area in the middle of January for short term rental. That’s in addition to the 7500 rental listings and the 23,000 sale listings.

Let me get this straight. This is the time of year when the snow birds leave the cold and go south to places like Phoenix and Vegas and Florida to spend the winter. This is supposed to be the peak season for that market.

I’ve been saying for more than a year that I believe the short term rental market is getting overheated.

As always, real estate is hyper local. What’s true in Phoenix may not apply in Aspen or Raleigh North Carolina.

Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year. I may not know the specifics of these properties. But I can tell you with confidence that occupancy of less than 25% is not going to be enough to provide positive cash flow. I don’t care what you think the nightly rate is. Only 111% of properties had occupancy between 50% and 75%. Only 3% had occupancy above 75%. When I owned a portfolio of short term rentals on the edge of Banff National Park, our annual occupancy was near 80% throughout the pandemic. I always felt that 80% was a good number. But as I look at the statistics across multliple markets, I’m seeing that 80% was an outlier and definitely not the norm.

For this reason, I’m expecting to see a surge of second homes on the market, and eventually a wave of defaults on these properties. Many of these properties were secured with loans at below 3%. If forced to renew those loans today, they would be above 7%. These rates will put downward pressure on prices for sale. 

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Host: Victor Menasce

email: podcast@victorjm.com