Vacation Rentals Are Officially on Sale: Where They’re Worth Buying

0:00Vacation markets were some of the biggest winners of the pandemic housing boom. But now, a lot of those same markets are starting to look very different. Sellers are cutting prices, buyers have more options, and although some short-term rental operators are struggling, it has made me wonder, could it actually be a good time to get back into the short-term rental market? I'm Dave Meyer, and today I'm joined by Garrett Brown, short-term rental expert and content creator at BiggerPockets, and we're talking about what's happening in the vacation rental and short-term rental heavy markets. We'll get into why sellers of these markets may be more motivated than any other sellers, how to separate real buying opportunities from bad STR deals, and what all this means for investors heading into the next phase of the short-term rental cycle.

0:50This is On The Market. Let's get to it.

0:58Hey, everyone. I'm Dave Meyer. Welcome to On The Market. Today, I am joined by my fellow BiggerPockets content creator, Garrett Brown. Garrett, thanks for joining us again.

1:09Garrett Brown:Always a pleasure. Happy to join anytime. For those of you who do not know, Garrett is an agent, a real estate investor, and although you do different kinds of investing, is our resident short-term rental expert here at BiggerPockets. And so I read this article the other day and immediately messaged Garrett that he had to come on the podcast and talk to me about it. But basically, it was talking about how short-term rental markets are seeing the highest level of motivated sellers anywhere in the country. And although that can spell risk, I was kind of like, maybe this is time. It's time to start buying short-term rentals again, because personally, I like to be a little bit of a contrarian when everyone's worried about one market.

1:54Usually that means that's where the good deals are. So that's what we're going to be talking about today. But Garrett, maybe you could just start by giving us a high-level overview of what is going on in the short-term rental market. How would you describe it?

2:08Garrett Brown:Yeah. So during COVID, and I think a lot of people probably know of this, during COVID, there was a massive influx of supply. I think AirDNA was one of the leaders in data for short-term rentals. I believe during the pandemic, there was about a 20 % supply increase into the market of short-term rentals. This was a booming market, kind of the gold rush. But now this is a maturing market that is now starting to, you know, regulations are really starting to line up how they should. And a lot of people heard about the insane cash flow that can come from short-term rentals, which is one of the biggest things to it.

2:44Garrett Brown:But they also didn't realize that what comes with that insane cash flow is you have to run a hospitality business. This is real estate mixed with hospitality. But demand is still there. That is the one thing that I think COVID, I think AirDNA said it was about 57 % in occupancy across the nation. Right now, it is at 57.4%. So it's actually higher than it was during COVID. So I set that as to set the table for there is a mass exodus, but the demand has not gone anywhere. So I tend to lean to where you're kind of thinking of this might actually be the time to make a few disrespectful offers and get back into it at the level that was not seen before.

3:29Garrett Brown:So that's kind of my quick overview, but we can dive into data and numbers and talk about the report because they weren't wrong. But I think there's some caveats that need to be placed into it to truly understand the data. I think a lot of times what happens is we have these inefficient markets and people react a little late. So people in 2021, 2022. So, oh, my God, there's all this demand for short term rentals. I kind of was under the impression that a lot of that demand came from people not wanting to go to hotels and wanting to like isolate and sort of an effect of what was going on during the pandemic.

4:04and rates were super cheap. So it was easy to buy these homes. And then too many people bought them and that there wasn't enough demand to go around. So what is dragging on the market then if it's not demand?

4:18Garrett Brown:Because it does feel like short-term rental operators are struggling. The supply did increase dramatically past what it probably could have kept up with the demand. But the gap in the market, because hotels definitely have bounced back some too, But the gap in the market that vacation rentals have truly started to fill, and I tell people this anytime I talk to them on bigger stays or even in the bigger pockets ecosphere, if you're getting into the vacation rental market, you don't want to be in the middle where you just have a basic three-bedroom, two-bath, suburban home that doesn't add any value to the person that is looking to book that particular style of place.

4:59Garrett Brown:You either need to go big or go small. And the ones that are going big or going small, and what I mean by that is big like a massive five, six bedroom house that can accommodate family reunions, all that, those people are winning tremendously. My bread and butter has been building out one bedroom, unique cabins in the woods and doing different style of unique experiences. We're crushing it. We're making more money every single year than we ever have before cash flow wise and everything in between. But the people that are really getting squeezed out of the market are the ones that saw this gold rush.

5:36Garrett Brown:They thought, oh, I'll just grab a generic house in Gulf Shores, Alabama, where all the demand is going. And they paid at the top of the market because every single person was trying to buy. So a lot of people just didn't make good deals either. That's one thing that kind of underpins it is everybody did not want to get left behind. So people were overpaying and like 100 to 200K over what the actual house was worth. And no rate is really gonna save you from that when you have to eventually come back to grips of like, all right, well, what's my long-term plan with this? The other big caveat, and this leads into like why they were overpaying and why they're crunched now, is they thought that how much revenue you make on a single family home will increase the value of the home, but they don't realize that you can get a loan based on the rental revenue, but the appraiser that works on that DSCR loan, they don't care about the rental revenues.

6:34Garrett Brown:So they still are going to give you a residential appraisal value. So even if the home is making $200 ,000, if you get an appraiser to come in and say, well, it's still only worth five or$600 ,000 based on comps in the area. And you were hoping that it was an eight or 900. Well, what we're seeing a lot on the market is that people are listing their homes, but they're not cutting their prices dramatically. And they're kind of just like hoping that, you know, they have a pie in the sky buyer come by and we'll offer them what they think it's worth because it made$150 ,000, you know? So there's a lot of stalemate in the market right there.

7:14Garrett Brown:But the people at the top of the 20 % that make revenue in Airbnb, we're all crushing it. It's just the people that are at the bottom side of Airbnb are the ones that are really feeling it. But in the end, there's still a lot of opportunity here and a ton of demand that's still coming in. All right. Thanks so much, Garrett. Super, super helpful. I got way more questions for you, but we got to take a quick break. We'll be right back. Some listeners may wonder why their insurance quote only took 30 seconds. Some listeners may wonder why their insurance quote took 30 seconds. A better question is how long will that policy actually hold up when you need it.

7:52At NREG, the goal isn't just getting coverage in place. It's making sure your investment property is properly protected when a real claim happens. That's why they take time to evaluate each property's unique risks and build coverage design for the realities investors face. Because anyone can sell a policy. NREG focuses on standing behind it. Visit nreig.com slash bplc to learn more. If I had to hire someone to join the BiggerPockets team, I wouldn't just be looking for someone who checks a few boxes on a resume. I'd want someone who understands real estate, can move fast, communicates well, and can jump into a fast-paced environment without missing a beat.

8:34When you need that kind of person, this is a job for sponsored jobs. Sponsored jobs posted directly on Indeed are 95 % more likely to report a hire than non-sponsored jobs. That makes sense to me. In fact, people are finding quality hires on Indeed right now. In the minute I've been talking to you, companies like yours made 27 hires on Indeed according to Indeed data worldwide. Join the 3.3 million employers worldwide that use Indeed to connect with quality talent that fits their needs. Spend less time searching and more time actually interviewing candidates who check all your boxes. Less stress, less time, more results.

9:13When you need the right person to cut through the chaos, this is a job for Indeed-sponsored jobs. And listeners of this show will get a$75 sponsored job credit to help get your job the premium status it deserves at Indeed.com slash podcast. Go to Indeed.com slash podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash podcast. Terms and conditions apply. Need the right hire fast? And this is a job for Indeed-sponsored jobs. Investing in real estate has always been smart, but it hasn't always been simple. Now it's both, thanks to the Fundrise Flagship Fund.

9:51The Fundrise Flagship Fund launched more than five years ago with a mission of delivering low-fee access to blue-chip private market real estate. Today, the Fundrise Flagship Fund has grown to manage more than a billion dollars of real estate on behalf of hundreds of thousands of investors, making it one of the largest funds of its kind. For those who believe real estate has an important role to play in their portfolio strategy, the Fundrise flagship fund has positioned itself as both a simple and a smart option. Whether you're starting with$10 or$10 ,000, the Fundrise flagship fund makes adding real estate's unique potential for both passive income and consistent growth.

10:32Just visit fundrise.com slash pockets to make your first investment today. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement.

10:54Welcome back to On the Market. I'm here with Garrett Brown talking about the maybe hidden opportunities in short-term rentals. Let's jump back in. So all that kind of supports this report that I want to talk to you about, which is that there's a lot of motivated sellers. And it makes me think that what's getting cleared out of the market are bad operators and that the demand remains where it is. And there's a potential that supply could go down, that that could be a buying opportunity, especially because you're saying there's this, you know, kind of stalemate. and these motivated sellers, you might be able to get a really good deal on these assets.

11:38I guess my question though then is based on what you're saying is, are the things that are selling good assets? Because if it's just these like sort of middle of the market stuff that a short-term rental operator maybe shouldn't have bought in the first place, is that just what's coming up for resale? And therefore, maybe it's not an opportunity.

11:59Garrett Brown:One thing I wanted to point out from their data too that I thought was interesting. 97.7 % of the vacation homes that they went through, I think it was 1.5 million homes, they're not selling. So there's only two points. So when you look at it from a bird's eye view, 97 plus percent are still not selling. So obviously there's still some value into this, but if you nail it on the purchase price, if you nail it on the design and the amenities that fit that area by looking at the data, if you nail it on your understanding that you either need to set up an operation that runs itself for you, or you're going to be the operation running the hospitality side.

12:42Garrett Brown:And you also get the right tax benefits set up with your CPA and all the, if you nail all of those things, this is one of the best assets you can buy in real estate. So I just want people to like look at things holistically and understand that any deal could be the right deal, but there's several levers that you have to get to. And the first thing is truly like making some disrespectful offers. I haven't, I've been a real estate agent for 10 years and I can't remember a time that the buyer in my 10 years has had this much power. Obviously wasn't, I wasn't in the early 2010s. So I'm sure there was a lot there too, but you need to lean into that, be patient and understand your numbers.

13:23Garrett Brown:Don't make emotional decisions and take your time. This is also like the best time to truly like walk slowly through all your numbers. You don't have to run a lot of times and just make a decision at this point. I agree with that. I mean, even though the number of vacation homes listed, you said it's just, it's just a handful and you can, we'll link to the article here, but you can see a map. It's basically shows like where vacation homes are being sold. And even like the worst markets, the ones that they have in red are 6 % of vacation homes. So it's not crazy. The thing about it, though, that I think is kind of interesting is that in certain markets, locals are also selling.

14:08So the total number of inventory in that market is going up by more than just the STRs, second home vacation homes being sold. But it's not a ton. But my feeling is that even though it's 6 % of vacation homes, there's not a lot of buyers for that right now. It's just, if you look at any of the numbers, second home, so even people who aren't investors, people who just want to use it second home, second home purchases are way down. A lot of people have turned off of SDR because it's become more competitive, all the things Garrett talked about. So it hasn't. So it just makes me feel like if you are one of the few investors who are seeing opportunity here, even 6 % of vacation homes being on the market, that's a lot of offers you can make in markets like I'm looking at the ones that are in red, Smoky Mountains.

14:59I'm not super familiar with the Smokies. I know everyone bought there. I'm a little skeptical about that one. Places I've been that I know that are like high demand, Palm Springs, California. They're like a lot of sales there. Flagstaff, Arizona. A lot of Colorado, Lake Tahoe. These are places that are awesome.

15:20Garrett Brown:At least the ones that I've been to. You know, like they're cool. I would imagine people are going to want to be there. And so maybe it's the time to get back into it. But how do you do the research here? How do you differentiate a market that is in a correction and has opportunity or one that's really overbought and is going to face a bigger correction and maybe just like a little bit riskier? So the thing that I want people to truly look into when they're looking at this markets right now, besides working with somebody, if you're not in that area, you need to work with a local real estate agent that understands short term rentals because there's there's several things you're not going to know going into it.

16:07Garrett Brown:zoning laws. There may be specific ordinances you're not aware of. Some may just know better areas that tend to perform better. Work with an investor, a friendly agent that truly understands the market and knows short-term rentals. But the main thing I want to harp on is you need to go inside something like AirDNA. B &B Calc is another one that's very popular that I like a lot. There's a couple other software engines out there that do short-term rental data. You need to figure out what are the top performing homes in that area doing? You know, AirDNA and B &B Calc will show you like, oh, the top performing homes in this area are, you know, a five bedroom with a pool, you know, maybe a hot tub and like some other design amenities.

16:57Garrett Brown:And if you're looking across the data and 15 of the top 20 homes fit this type of criteria, you probably need to find something very, very close to that and try to compete or do better than those type of homes. There's two ways you can really get into short-term rentals at this point. You either need a pretty solid budget. And when I say solid budget, like besides the purchase, you probably need$100 ,000 in liquidity to build out the design amenities, all the things that could be successful, and you can truly build an awesome short-term rental. Co-hosting is another way to get into the short-term rental Airbnb world without having to go purchase a home or have$100 ,000 plus liquid to go and build out the amenities to it.

17:50Garrett Brown:And what co-hosting, all it is, is just you're basically a property manager, but at a much lower level. You just help vacation rental owners in the area. And Airbnb even has a platform called the co-hosting platform inside of it where you can just manage these rentals for people that don't wanna do it. It's something I do inside my business to balance cashflow along with units that I buy on my own. But it's not just buying a place and then crossing your fingers and putting it on Airbnb anymore. It is a mature market and there's a lot of really sophisticated players in this game now and institutional money.

18:26Garrett Brown:For sure. You're playing with the big boys at this point. All right. So clearly there are some opportunities if you know how to do this well in short-term rentals. We got to talk markets though and how to pick them. We'll get to that right after this break. A lot of insurance companies compete on one thing, speed. But if you're protecting an investment property worth hundreds of thousands of dollars, should speed really be the priority? NREG believes strong coverage starts with understanding the property, the risks, and the realities of ownership. That's why they don't rush the process. Their policies are designed for real-world claims, not just quick quotes.

19:04If you want insurance built to protect your investment when it matters most, visit nreig.com slash bplc and learn more today. What is Toyota affordability? It all starts with buying smart. And your Toyota dealer has great deals available to qualified customers on reliable cars and SUVs, including the redesigned RAV4, spacious Grand Highlander, sporty Camrys, and Corollas. It means driving for less with efficient hybrid and plug-in hybrid options available throughout the lineup, extending your overall driving range, and delivering great MPGs, saving you money at the pump. And it means trading for more.

19:44Toyota is known for building long-lasting vehicles, and as the best resale value brand, according to Kelly Blue Book, your Toyota can be worth thousands more than average when it's time to trade in. That's Toyota affordability. Buy smart, drive for less, and trade for more. Shop toyota.com or your local dealer for deals and details. Vehicle projected resale value is specific to the 2026 model here. For more information, visit kellybluebookskbb.com. Toyota brand average resale value is 53 % versus the average vehicle at 45%. Toyota, let's go places. You know that thing where you discover a feature you wish your software had?

20:22And it turns out it already exists just on a different platform. Like, oh, you want rent payments processed in two days. RentReady does it. Oh, you want to block tenants from making partial payments mid-eviction. RentReady does that too. Oh, you want full accounting and tax-ready reports without paying for a second tier? RentReady does it. And oh, you want tenant screening that doesn't overcharge your applicants? RentReady also does this. Basically, if you've ever complained out loud about your property management software, RentReady probably already built the fix. It's$12 a month. You're welcome.

20:59Sign up right now for$50 off your first year of RentReady with promo code BPCASH. BiggerPockets Pro members get it completely free. Sign in through your pro account at rentready.com slash biggerpockets. That's rent, R-E-D-I dot com slash biggerpockets. There's a point where basically every investor realizes traditional financing stops scaling with you. At first it works. You qualify with your income, your job, your tax returns. But as you grow, that model starts to break. Now, it's not really about your personal income. It's about the income from your properties. That's where DSCR lending comes in.

21:37And it's why a lot of investors end up working with lenders like Host Financial. Host Financial qualifies deals based on property income, not personal income. So you're not dealing with W-2s or tax returns or DTI constraints. And with 80 to 85 % LTV, you can stay more flexible as you scale. It's just a different framework, one that tends to align better with how investing actually works. If you're buying rentals, refinancing, or growing your portfolio, go to hostfinancial.com. That's H-O-S-T financial.com and see what you qualify for.

22:16Welcome back to On the Market. I'm Dave Meyer here with Garrett Brown. I'm talking about how to find good opportunities in the short-term rental market. Let's get back to it. Assuming though that people do want to do this and they know what it takes. Because I completely agree with you. This is not a gold rush anymore. It was for like a minute. And then people are now realizing that the gold dries up and you have to actually be good at your job. And just assuming that though, like you've talked a lot about the particular asset, which makes sense to me, like that is going to stand out in any of these markets.

22:53But how do you assess competition? Because that, to me, at least in my one experience, has been the hard part. I bought a place that in our little subdivision, I think there was like five Airbnb, you know, short-term rentals out of 350. Now it's like 50. And it's a great asset, and we do a good job. But I have more competition. And so like, I don't know if I were getting back into this market, if even a disrespectful offer would make me do it. And so that's kind of what, um, I mean, I'm sure at a certain price, but it would need to be 30 % below list price, you know, which in a vacation, I don't think people are selling that in this kind of market.

23:35So that's what I'm trying to understand here on top of, yes, got to be good. But like where are the sort of inefficiencies in the market where the drops and the discounts that you can get mean that you're going to be able to rely on your own skill and not be negatively impacted by forces that are sort of outside of your control, which is like how much other supply there is.

24:04Garrett Brown:My main thing I want people to look at when they're looking at some of these numbers is there's a few things that you need to be thinking about inside of it. One, tourism demand is always going to be huge. If you're looking at an area that is not like a majorly tourism area, you need to make sure it works as a midterm rental and works as a long-term rental. if you're looking at a place that is not a traditional tourism place like the Smoky Mountains and things there. The other thing is I can't harp on it enough of just figuring out what are the top performing ones in that area and what sets them apart.