While I don’t always admit it, PART of my motivation for writing these articles is to provide a resource that is available 24/7, so I don’t have to be. In addition, articulating the information in this video when selling my services (yes, I do property management – albeit indirectly – as well) feels awkward. In any event, Teton Valley is seeing a number of property management firms popping up, and they all do a great job. However, some of them sell their services on a much lower fee, whether or not that is a tactic for business or not. This video is not directed at specific firms, but should help level the playing field when considering your options. Enjoy!
Real Estate themes of 2020
As you might imagine, the common real estate theme for 2020 was the craze of city dwellers looking for a rural escape. 2020 was one of the busiest years on record (if not history) when it came to sales volume, velocity and dollar volume. We didn’t quite hit 700 land sales in Teton Valley and Alta, but it was darn close. That’s a far cry from 281 land sales in 2019. Residential sales likely would have been the same had there been the inventory to promote those sales.
Aside from the market itself, I didn’t hear as much in terms of tiny homes, which I would have easily identified as the “theme” for 2019 and the years leading up to 2019. Interestingly, there wasn’t much talk of tiny homes in 2007 either, the last memorable real estate boom. In fact, most people were going big as opposed to building small.
I did hear quite a bit about was vacation rentals. While I believe many of the land sales were simply the usual group that wants to own a piece of Teton Valley, many did ask about the viability of renting in the areas they shopped. This isn’t all that uncommon though. The year started out with what I described, those looking to transition to the area permanently which led to a number of questions related to the school system, hospitals, internet speeds – everyday life in Teton Valley. The last half of the year is where I noticed an influx of second homeowners. Much like those seeing the window close on their opportunity to own a piece of land, it seemed others had a similar feeling when it came to purchasing a home. To justify the increasing costs, and to capitalize on income to offset the cost of ownership, I had quite a few discussions about vacation rentals.
I’ve written articles in the past about short-term rental restriction, mostly a power that only homeowners associations possess. With such a variety of owners and investors in each development, it may become challenging to amend subdivision documents to restrict short-term rentals, but I can foresee that becoming a topic in the years to follow.
2021 will surely be an interesting year in real estate. Most builders are booked out one to two years, and rising construction and material costs haven’t seemed to subside. If the majority of current construction is custom work for individual homeowners, inventory will likely remain low. Property owners that have been waiting in the wings may identify 2021 as the time to sell, if the inventory remains low. I am personally interested to see how National trends and factors impact the market, interest rates and the overall economy can have substantial influence as well. Regardless, I’m looking forward to “normal”, whatever that is.
Affordable Housing Crisis
After attending a routine affordable housing meeting at the Teton County courthouse yesterday, I thought I would follow up and share my view with my readers.
Back in 2014 a survey was taken to determine the extent of affordability problems for housing and the local workforce. It of course showed that housing is difficult to find, is too expensive for the workforce, and that overall living conditions were crowded and less than ideal (all true). Regardless, at the time, I felt like the information was retrieved with a small portion of frustrated tenants. I now feel like the information is probably outdated. I would anticipate the average income has increased, but so have rents. The report also seems to mesh affordable home ownership and lack of affordable rentals, a big difference as pointed out by a commenter in yesterday’s meeting.
Now that you have an overview and understanding of the problem, the question becomes, what is the solution? Build affordable homes both for rent, and for sale. There are two problems that I can see with this tactic.
1) Obvious. Who pays for it? Construction costs exceed the necessary cost to complete a home that will ultimately be affordable, and if it were affordable, who pays for it? I suppose it would be an easier proposition for a developer and investor at that point, however.
2) At the meeting, I played devil’s advocate and brought up the second concern. What is the housing crisis is not as bad as we think it is, we find a way to build the necessary supply ***side note, one commenter mentioned the number of needed units to be in excess of SIX HUNDRED units*** at which point we create a localized bubble and oversupply of homes for purchase and homes for rent. This could have a lasting negative impact on existing homeowners who rely on rental income for their investment. I also mentioned that being in both the real estate and property management business, I did not believe that this number was accurate based on the business that comes through my door. This comment was brushed aside as inaccurate data that could not be measured based on my experience as a business owner, and that they would rather rely on the 5 year old report.
I should note that despite the problems, there was also another issue being discussed during the meeting that according to their analysis was exacerbating the problem. That is short-term rentals. They said that because of the increasing number of short-term rentals, we are taking away from affordable housing supply. I commented that I felt short-term rentals, or even higher quality long-term rentals have very little to do with affordable housing. Affordable housing does not make a great short-term rental, and a second homeowner or investor (or someone who owns a home and moved out of the area) are not going to forego higher rents to help solve an affordable housing crisis. I mentioned this, because it was brought up as part of the solution, which is what I’ll discuss next.
SOLUTIONS: No one at the meeting was threatening to restrict short-term rentals to strong-arm homeowners into renting on a long-term basis, hopefully an affordable one. I believe it was being discussed because of the lack of owners not operating a legitimate rental and paying their proportionate share of local city taxes. I suppose it could be argued that these taxes could help support a housing authority for low-income housing, but I believe this is a totally separate issue that should not be a part of the discussion at hand because it’s simply creates tension with those who are pro-property right and or own a short-term rental, further convoluting the issue at hand.
Even if the local government were to capitalize on tax income to help support the problem, it certainly doesn’t solve it. Another potential solution was to create deed restricted housing that could only be used for low-income purposes. This does help solve one of my two concerns above, that it could create an oversupply problem. If the units are restricted to a certain group of people who actually need the product, both for sale and for rent, it isolates itself and will likely have less impact on market priced homes. It may, in part, help with the second major problem, funding. If these units are restricted to low-income use, it may be feasible that there are available grants to help fund the project.
With the above being said, taxation and grants don’t solve the elephant in the room of funding a project like this in a market where construction costs are exceedingly high. However, discussions are a start. I just think it needs to be an approach that addresses all of the issues, including potential negative impacts. It also needs to be a solution that can be bipartisan from a political standpoint. That may seem silly in a small community like this, but I heard two very clear voices during the meeting. One stated that regulation of short-term rentals, of property rights, and taxation are not the solution to the problem. Another stated that we live in a community with many second homeowners, and even multiple homeowners. I believe the commenter’s exact words were that a person who owns their 7th home needs to participate in funding the problem. While I have no political agenda, I can see the handwriting on the wall. One commenter got it right, he said that both locals who have been here for generations, second homeowners, and even the workforce are here for one primary reason, and that is the opportunity to live in one of the most beautiful places on Earth, with it’s unique sense of community. We all want to preserve that. However, it relies, in part, on the workforce who needs this housing. The 7th homeowner needs those services, and the commenter believes that many of them will take steps to help ensure it remains this ways for generations to come, even if that means providing financial assistance.
If we can find a way to approach this without battling conservative State legislature which is in place to promote property rights, and without creating future problems for ourselves, while supporting a problem that we all can recognize, we should absolutely try. It to happen efficiently, effectively, and it needs to be based on real time, accurate data.
Short-Term Rental Pricing
Price-fixing:
No, I’m not talking about real estate in general, or even real estate commissions. We all know that real estate prices are a collaboration of all of the local real estate agents who determine the market and the commissions the consumer pays. I’M KIDDING.
What I am talking about, however, is vacation rental costs. In my spare time (which is usually between 10 p.m. and 12 a.m. and 7 a.m. and 8 a.m.) I spend countless hours burning my eyeballs out looking at my over-sized smartphone, usually something real estate related. The other night, that was vacation rental prices in along the Gulf Coast. Why? I don’t know. So, what did I learn?
I learned that unfortunately, vacation rental prices in some areas are way. too. cheap. I was looking at 4 bedroom homes along the Gulf Coast for $89 a night. I thought to myself, “How could this be?”then I remembered that I probably know the answer. The vacation rental market is likely saturated and the market is competitive. I love Airbnb, but when somebody down the road is willing to lease a bedroom for $16.37 for the night with a free light beer in the fridge, it makes it a difficult proposition for everyone else.
Being the proud owner of a vacation rental in the Teton Valley area, and having a great knowledge of property management and vacation rental prices after a decade of property management, it got my wheels turning. Are our prices too cheap? Are we headed towards a competitive market place with not enough to go around?
Again, I know the answer to this too. Yes, our prices are too cheap. And no, I don’t think the market is over-saturated with the exception of shoulder seasons, but I guess that’s like anywhere else. Nonetheless, I took a detailed look at some of Teton Valley’s short-term rental offerings through various vendors to understand how how many mistakes are being made with respect to pricing. No, like the title suggests, I’m not price-fixing. I’m simply educating myself with what my competition charges, and looking at how much activity there is during certain times of the year. During this exercise, (I checked out a few dates in July of next year) I learned a couple of things.
1) Fortunately, there isn’t a huge number of short term rental owners that are under pricing during peak season – but there are a few.
2) There are certainly some marketing mistakes being made. One title was talking about how cool the Fall nights are. I’m not looking in the Fall. I don’t plan my vacations last minute like all of you non-planners, fellow Millennials, and Generation Z’s (or whatever you are).
3) Nobody was offering free light beer with a single bedroom stay.
My point with all of this is that seemingly, our market is not making the mistake that I witnessed in the Gulf Coast. At least not yet. It really, really, (really) needs to stay that way. There were a few advertising between 10 and 20% less than they should be, (others more) but I don’t think that’s going to kill the market. It’s just going to kill their return on investment. But, these are also probably the people who complain about a management fee that would probably be absorbed by proper management.
Anyway, I then looked at rates during shoulder seasons. I had to double-check to make sure that I wasn’t back on the Gulf Coast location, because I learned:
1) At least people are taking the initiative to change their prices during different seasons, but it really doesn’t need to be this dramatic.
2) That one guy who has 500 reviews and is renting his guest house for less than a hotel room is an idiot.
3) Nobody was offering free light beer with a single bedrooms stay.
To conclude, we really need to be careful. Idaho is a very pro property rights state. There likely isn’t going to be any restriction with the exception of subdivision homeowners association restriction on short-term rentals anytime soon. This is a good thing and a bad thing. On one hand it protects our interests as short-term rental investors, but on the other it also invites future competitors. As I mentioned at the outset of this article, we have room to grow. We are gaining popularity as a recreational destination for good reason. But, some of these locations I was viewing on the coast were destinations in their own right. It only takes one guy with 500 great reviews to start a revolution, in a bad way. We need to be fair with ourselves as investors and property owners, and we need to understand that people are willing to pay for clean, comfortable accommodations in one of the most beautiful locations in the world.
On that note, cheers!
