Q1 2022 in short-term rentals. 2022 was the year cheap money ended and the phase-down clock started, and january through march has its own shape on top of that. Here is what moved, what it meant for an owner, and what the quarter was actually for.
What was happening across the market
2022 split into two halves. The first looked like 2021: strong demand, rising rates, aggressive competition for inventory. The second was defined by the fastest rise in borrowing costs in decades, which changed what a property had to earn to work.
Revenue held up better than most expected while the cost of capital rose underneath it. Deals underwritten in the spring frequently did not pencil by the autumn on the same purchase price.
Rates rose sharply through the year as the Federal Reserve tightened, and the cost of financing a purchase in December was very different from March.
The seasonal shape of Q1
Q1 is the widest spread of the year between markets. Southwest Florida, the Arizona desert and the Gulf snowbird markets are at peak, while the Smokies, the Poconos and most lake markets are in their thinnest stretch. A portfolio that peaks together has one revenue season; a portfolio built across both shapes has two.
Reading a quarter in isolation is how owners talk themselves into bad decisions. A thin quarter in a seasonal market is not underperformance, it is the shape of the asset, and it should have been in the model at purchase.
What Q1 is actually for
Q1 is also when last year's tax position becomes final and this year's becomes changeable. The participation log either exists or it does not, and the running average period of customer use for the new year starts accumulating from January.
2022 was the last year at 100% bonus depreciation, which pulled some purchases forward into December as buyers tried to place property in service before the step-down.
This is an explanation rather than tax advice. My BnB Accelerator, LLC is a real estate acquisition firm, not a CPA firm. Our independent partner firm is AE Tax Advisors.
The Q1 checklist
- Compute last year's average period of customer use from booking-level data before filing, rather than estimating it.
- Total participation hours by person and by property, including managers and cleaners, because two of the seven tests depend on that comparison.
- Start this year's log in January rather than reconstructing it in December.
- Book preventive maintenance for the spring: HVAC service before summer, and pool or hot tub servicing before the season turns.
- Review pricing for the coming peak against the comparable set as it stands now, not as it stood when you bought.
The risk carried into Q1 2022
Supply caught up in several markets during 2022. The properties that struggled were the ones bought at 2021 prices on the assumption that 2021 occupancy would persist.
The discipline that mattered in 2022 was stress testing against a higher rate and a normalised occupancy at the same time, rather than one or the other.
The consistent thread across every quarter on this site is that the environment changes and the discipline does not. Twelve individual monthly revenue figures, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.
What to carry into the next quarter
January through March is one quarter of a business that is measured annually. The number that matters is not what this quarter produced but whether the year is tracking to the model, and whether the reserve is intact.
If the year is behind the model, the useful question is which input was wrong: revenue, cost, or the assumption about the market. Each has a different fix, and discounting is the right answer to only one of them.
If the year is ahead, the useful question is whether that is the property or the market. A property outperforming a flat market is a property to buy more of. A property matching a rising market has told you nothing yet.
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Frequently asked questions
What happened in the STR market in Q1 2022?
2022 split into two halves. The first looked like 2021: strong demand, rising rates, aggressive competition for inventory. The second was defined by the fastest rise in borrowing costs in decades, which changed what a property had to earn to work.
Which markets peak in january through march?
Q1 is the widest spread of the year between markets. Southwest Florida, the Arizona desert and the Gulf snowbird markets are at peak, while the Smokies, the Poconos and most lake markets are in their thinnest stretch. A portfolio that peaks together has one revenue season; a portfolio built across both shapes has two.
What was bonus depreciation in 2022?
2022 was the final year of 100% bonus depreciation under the TCJA schedule before the step-down to 80% in 2023.