The best time to buy a short term rental property

by The Darwinian Doctor

In today’s PhREI network post, Carpe Diem MD and I discuss when is the best time to buy a short term rental property.

This post may contain affiliate links.

In today’s PhREI network post, Ian Cook from Carpe Diem MD and I discuss a few common themes in real estate investment. Specifically, we ponder this: when is the best time to buy a short term rental property? Ian relates this back to his own experience owning a short term rental during the US real estate crash of 2008. He then outlines the simple approach he uses to decide whether or not to purchase a STR.

I agree that our generation will be forever scarred by living through 2008. Even if you didn’t own real estate at the time, you saw the collateral damage of the crash. The fear of this happening again is now deeply embedded into us. See below after Ian’s post for my thoughts on how I’m approaching buying real estate right now in the midst of the crazy rise in real estate prices.

Take it away Ian!

This post first appeared on Carpe Diem MD.

Well this question gets asked all the time and the answer is……

The BEST time to buy a short-term rental was yesterday…. (with the exception of 2007)

The real estate market is on fire and many people entering the market are concerned about the rapid appreciation and are skeptical about investing at this time.  Honestly, I understand this concern…. It is a limiting belief that I continue to battle. 

To give a little back story…. I purchased my first property in 2007 right before the great recession.   Flash forward and that sad story ended in a short sale but in the end it all worked out…   The process felt devastating at the time but in reality real estate can be quite forgiving.  Click Here to read more about that story 

The real problem is the permanent scar on my psyche that the market is going crash, at any moment.  The truth is that I have dealt with that fear intermittently ever since that experience in 2007.   Now that is an understandable fear but luckily one I have been able to handle even during this most recent severe crisis.

All rational thought would have said that Covid would have crushed the market.  Due to government intervention, supply chain disruptions, increased savings, and low interest rates the exact opposite result has happened.

We bought a triplex in 2020 that has appreciated greatly in the last year… The rational play would have been to avoid it because of the eviction moratorium but it has worked out.

We also bought a Short-term rental during the middle of uncertain short-term rental shut downs.   It is true that we needed to handle some transient decreased rental income but those decreases were offset by rapid property appreciation.  In the long run this property will be a great investment.

If we had allowed our limiting beliefs and fear about the market hold us back,  we would have sat last year out. As a result we would have missed out on great opportunities to grow our portfolio and long term wealth.

The same principle can be applied to the current red-hot market…    Your mind is probably whispering… Maybe shouting… DON’T INVEST RIGHT NOW THE MARKET IS TOO HIGH!!!!… That may be true until it is higher next month.  

There may be a correction soon but it does not feel like 2007…. 

Now I am not an economist but I am actively investing in real estate and I am seeing properties listed for 1.1 million going for 1.3 million in cash. 

In 2007,  I bought a 200k property with 0% on a 35k salary and so did everyone else.  In this market you need to fight hard to get you offer accepted over cash offers.   With that said, there are still deals to be found but the environment is tough.  It might feel like a bubble but with that much cash being pumped out there I don’t believe we are looking at a 2007 correction…. At least not yet.

SO what should you do? 

That is a personal risk tolerance question.  But I can share our plan.

First,  we are planning for a correction…. Even though we don’t buy the bubble theory. 

Second, we are placing offers on properties that still cash flow.

Three,  Short term appreciation is irrelevant.

We practice a buy and hold strategy.    If a property cash flows then we do not focus on appreciation for the first year or even 5 years.  

WE ask ourselves two questions? 

Does the property cash flow? 

Will the property be worth more in 30 days than today? 

If we answer yes to both then it is worth buying.

How much cashflow? 

That depends on your risk tolerance and growth goals.  In high appreciation markets you may be willing to accept low or NO cashflow.  ON the flip side you may be willing accept low appreciation for high cashflow. 

Lauren and I have found a nice mix of both with short-term rental investing.  We accept the high rent volatility for increased yearly cashflow and appreciation potential.  IN addition, we enjoy the lifestyle investment perk of being able to use these properties.  

The best time to purchase real estate was yesterday.  

The second best time is right now… if you find a property that cashflows.

You can dive further into your market specifics.  If you are looking at winter resorts then May, Summer and October are great times to find property… 

IN summer locations you may find more inventory in the Winter season.

Good luck out there.  Keep analyzing your numbers and don’t get discouraged.  You will find something that works for you.

“Enjoy your Journey to Financial Freedom”

Thanks for your post, Ian.

When it comes to new purchases, I’m following Ian’s lead. I agree that the best time to buy a short term rental property was yesterday (specifically last year). The second best time? I think it’s probably still right now.

As the economy recovers from Covid-19, interest rates will rise on both short and long term debt. This will decrease the buying power of consumers, and asset prices will plateau. Will they fall? Perhaps, but I doubt it’ll ever come back to pre-Covid levels.

So if I find a property that seems like a good deal, I’m still going to try to buy it. With a long term investment horizon and ample reserves, I’m not too worried about a short term drop in the value of my real estate.

Furthermore, given the way mortgage underwriters scrutinize my finances every time they lend me money, I do feel that lending standards are still high. This guards against a mortgage default fueled crisis like 2008.

Finally, as I’ve mentioned before, I believe that locking in low interest mortgage debt is always a great thing.

So I’m buying. Full speed ahead. Stay tuned for news about my the deals I’ve got underway!


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Rose Chandler
9 months ago

Ian, your post resonates deeply with me. Your candid sharing of your journey, especially your experience during the 2007 recession, is truly appreciated. It’s inspiring to see how you’ve turned challenges into opportunities, and your insights on the current market are invaluable. Your perspective on the temporary nature of fear and the importance of taking calculated risks is refreshing. Your strategy of focusing on cash flow and potential future value, along with your willingness to adapt based on market dynamics, is a testament to your expertise. I wholeheartedly agree that waiting for the “perfect” time might mean missing out on great opportunities.

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