Once a week, we take a deep dive into an existing short term rental that is listed for sale.
This week we’re taking a deep dive into a property in Yucca Valley, CA, just outside Joshua Tree. As with all of our deep dives we find short term rentals with a history of success on AirBnB that are currently for sale and analyze the potential return on investment.
8426 Paradise View Rd, Yucca Valley, CA 92284
Summary
This week we’re doing something a little different. A lot of our readers have asked about some of the hotter markets for short term rentals so this week we’re taking a look at a property just outside Joshua Tree, which is probably the hottest market for short term rentals in all of California. Unfortunately this property leaves a lot to be desired and perhaps is a good example of a market that is overheated and oversaturated. The property is 2BD/2 Bath on 5 acres with nice views and unique architecture. The current owners have rented the property on AirBnB for several years and have 117 reviews, with a total rating of 4.75 stars. According to the listing agent the property does around $4,116 in average monthly revenue.
Economics
Asking Price: $699,000
Cash-on-Cash Return: 4.31%
RevPAN: $136
Monthly Profit: $655
Deep Dive
Pros
Unique property with in demand features for location
Proximity to national park
Close proximity to large population centers
Cons
Cash-on-Cash return is very low
Regulatory headwinds
Low occupancy likely driven by oversaturation of smaller properties (<2BD) in area
Areas for Improvement
Recent reviews indicate that this property is in disrepair with broken appliances and other superficial things like paint chipping and cleanliness.
Stress Scenarios
Unfortunately there were very few scenarios where the numbers even remotely made sense. The RevPAN for this property is substantially below similar comps in the area, but in speaking to investors and brokers in the area, the general feeling is that smaller properties have become really hard to differentiate given the explosive growth in the area in the last two years. However even assuming an increase in RevPAN to median levels for the area, the returns are still only in the low teens.
At a lower purchase prices the returns slightly improve, but per the above the low returns are driven by subpar RevPAN. For context, turnkey properties with success on AirBnB have recently sold for as high as $675,000 in the last few months, although with higher occupancy and likely much better RevPAN.
Regulation
As if things couldn’t get worse - in the last six months this area has seen some strict regulations on short term rentals go into effect. At the end of last year the town council put a moratorium on new short term rentals in Yucca Valley. Just last month, the town council passed new regulations that limit the number of short term rentals to 10% of the town’s total housing stock and capped the total number of occupants in a property at 8, regardless of size. Importantly, the town council also made it a lot easier to add additional restrictions in the future.
Conclusion
This property is definitely unique and has a lot of things to like from a design perspective. However the numbers just don’t make sense. Even assuming a lower purchase price and an increase in RevPAN, the looming regulatory threat make this property an easy one to pass on.