As the housing market stabilizes post-pandemic, a notable trend emerges: Many short-term rentals, once seen as lucrative investments, are hitting the market. During the pandemic, urban professionals flocked to mountain communities, driven by sky-high city housing prices and the allure of remote work. They envisioned living short-term in these idyllic settings, later leveraging the property’s equity or converting it into a vacation rental for income.
However, the reality of managing such properties – a genuine business involving stringent regulations, taxes and maintenance – soon clashed with this ideal, particularly as companies summoned employees back to the office.
This shift has left many vacation rentals up for sale, highlighting the challenges and diminishing allure of managing short-term rental properties. A recent study by a major real estate investor, in collaboration with rabbu.com, sought to pinpoint the best markets for these rentals in 2024. Analyzing factors like median sale prices, return on investment, occupancy rates and more, the study revealed that even the top-performing location, Tampa, Fla., only achieved an average 45 percent occupancy rate over a year. This level of occupancy is hardly sufficient to cover mortgage costs, let alone yield a profit, unless managed by those with deep experience in hospitality.
Spoiler alert: Our mountain communities came nowhere near the Top 10 in this study, underscoring the regional challenges. Data from CRMLS for Lake Arrowhead’s Arrowhead Woods shows the current average listing price for a property identified in the listing with the box checked for licensed vacation rental is $858,250. These homes typically feature four bedrooms and three bathrooms across 2,353 square feet, remaining on the market for over 101 days. A review of these homes shows they have been renovated with custom color palettes and updated with trendy fixtures to create a Pinterest-perfect appeal. Despite their attractive, move-in-ready condition, the financial figures present a stark reality.
For example, an owner-occupant purchasing with a 30-year conforming loan at 6.875 percent interest and 10 percent down would face a monthly payment of approximately $6,741. For investors, who are often required to put down 20 percent, the payment drops to $5,887. To merely cover this payment at the national top occupancy rate would require a nightly charge of around $450 exclusively to break even. This calculation doesn’t factor in additional costs such as Transient Occupancy Tax, cleaning or ongoing maintenance. In today’s economy that’s a lofty financial target.
The narrative unfolding around short-term rentals suggests a reevaluation of their viability as a sound investment strategy. As appealing as owning a picturesque vacation property may sound, the economics, particularly in less-favored markets, often do not support the dream. This evolving landscape invites potential investors to tread cautiously, armed with a clear understanding of the market dynamics and a realistic assessment of potential returns.
If you’d like to learn more about the current local market conditions, reach out to Theresa Grant, Real Estate Broker (DRE #01202881), at Theresa@HomesInLakeArrowhead.com. You can also follow on social – Instagram: @theresagrantrealtor|YouTube: @theresagrantrealtor. Theresa is a Broker Associate with Coldwell Banker Sky Ridge Realty.
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