On March 1 2023, Redfin published an analysis of the U.S. Census Bureau’s 1-year American Community Survey 2021. The U.S. Census Bureau’s data discloses U.S. home ownership tenure by median age. Forty-nine percent (49%) of home owners (under the age of 35) have owned their home(s) for three years or less.
Figure I-9 of the Root Policy Research fee study (which you can download here.) disclosed that (according to AirDNA) a substantial number of STR became listed in 2020 and 2021.
That is interesting information because during a BiggerPockets Podcast (January 10, 2023), Jamie Lane (Vice President of Research for AirDNA) discussed that STR luxury rates, in the Colorado mountains, has “been an area of weakness over the past six to eight months”.
STR luxury rates in the Colorado mountains have recently dropped 15% to 20% in order to maintain STR occupancy. Could this be the beginning of an “AirBnBust” happening in the Colorado mountain region?
Has the Short-Term Rental Goldmine Run Dry? by Jamie Lane on BiggerPockets.com
I wonder how many of the STRs that were purchased in Archuleta County in 2020 and in 2021 were purchased by Millennials whom are now turning 27 – 42 years of age? What happens if Forty-Nine percent (49%) of these Millennial STR owners now want to pivot and sell?
I heard recently that local realtors are advising their STR clients to avoid a 6% Fee by not selling their STRs, and instead convert their short-term rental property into long-term rental property. Hopefully this strategy will also help to avoid any pre-payment penalties involved with Debt Service Coverage Ratio (DSCR) loans.
Some DSCR loans are known as NONI (“Non Owner No Income”) loans because no proof of income is required for STR investors whom never plan to be a primary resident (live, work or play with neighbors). These DSCR loans typically include a “step-down” prepayment penalty structure called ‘5/4/3/2/1’. If an STR investor must sell an STR, and pay-off their DSCR loan in year one, then the STR investor must pay a prepayment (5% of Principle Loan Amount) penalty. The DSCR pre-payment penalty steps-down to 4% in year 2, 3% in year 3, 2% in year 4, and 1% in year 5.
Hank Lydick
Austin, TX (now)
Pagosa Springs, CO (soon)