Short-Term Rental Market Update: Q4 2023

Q4 2023 in short-term rentals. 2023 was the year the market cooled and underwriting started to matter again, and october through december 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

2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.

The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.

Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.

The seasonal shape of Q4

Q4 splits. October is a genuine peak in the mountain markets on leaf season and in the Hill Country on the harvest window. November is thin nearly everywhere. The winter holidays are a compression period in cabin and ski markets, and the desert and snowbird markets begin their climb.

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 Q4 is actually for

Q4 is the planning quarter. The tax year is closing, next year's calendar is opening, and the decisions made in December determine which tax year a purchase lands in and whether the property is placed in service in time.

With bonus depreciation at 80%, a cost segregation study still produced a large first-year deduction, and the arithmetic changed enough that the study cost had to be weighed more carefully on smaller purchases.

The Q4 checklist

1. Confirm the running average period of customer use for the year and manage the remaining bookings accordingly.
2. If a purchase is intended for this tax year, confirm it will be placed in service, meaning furnished, permitted and available for booking, before 31 December.
3. Do not rush a December purchase to capture a deduction. A bad property bought for a tax reason is a bad property for far longer than a tax year.
4. Schedule the trough for maintenance, deep cleaning and furnishing refresh, because that work has to happen somewhere and January is cheaper than July.
5. Rebuild the reserve if the year drew it down.

The risk carried into Q4 2023

The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.

2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.

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

October through December 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.

Frequently asked questions