Vacation Homes Are Getting Crushed; Big Bear Is Feeling It; Why STR Buyers Need to Underwrite the RENT Before the Loan
Vacation homes were one of the hottest real estate trades of the pandemic era.
People wanted space.
Rates were low.
Short-term rental income looked amazing.
And suddenly every cabin, beach house and mountain property seemed like an “investment.”
That story is changing.
Recent reporting shows vacation-home markets around the country cooling hard, with some sellers cutting prices aggressively and short-term rental owners dealing with more competition, softer occupancy and much more expensive financing. Big Bear is one of the
California markets feeling that shift.
And for investors, this is exactly why I keep saying:
Do not fall in love with the property before you underwrite the income.
I. THE PANDEMIC VACATION-HOME BOOM IS UNWINDING
During the pandemic, second homes and short-term rentals had a perfect setup.
Borrowing costs were low.
Travel patterns changed.
People were willing to pay heavily for private homes in drive-to destinations.
Investors saw rising nightly rates and strong occupancy and assumed the numbers would continue.
Now many of those markets have more inventory, more competing short-term rentals and buyers who are far more payment-sensitive. Business Insider
That creates a very different environment.
A vacation home that worked beautifully at a 3% or 4% mortgage rate may look completely different when the financing is materially more expensive.
And an Airbnb projection from 2021 or 2022 may not tell you much about what the property can realistically produce today.
II. BIG BEAR IS A PERFECT EXAMPLE
Big Bear became one of Southern California’s most recognizable short-term rental markets.
It made sense.
It is drivable from Los Angeles, Orange County and the Inland Empire.
It has snow season, summer, hiking, lake traffic and weekend demand.
But that popularity also brought a lot of competition.
More short-term rental supply means buyers have to be much more disciplined about assumptions.
A cabin may look fantastic online.
The listing may show impressive gross revenue.
But what matters is what is left after:
Property taxes.
Insurance.
HOA, if applicable.
Utilities.
Cleaning.
Property management.
Repairs.
Maintenance.
Furniture replacement.
Platform fees.
Vacancy.
And the mortgage payment.
Gross rent is not profit.
That sounds obvious, but I see investors skip that step constantly.
III. THIS IS WHERE DSCR FINANCING GETS INTERESTING
DSCR loans can be extremely useful for investment properties because qualification focuses heavily on the property’s rental income rather than traditional personal debt-to-income calculations.
That can be a huge advantage for:
Self-employed investors.
Borrowers with complicated tax returns.
Investors buying in an LLC.
People growing a rental portfolio.
Short-term rental buyers.
But DSCR does not mean:
“Any property works.”
The property still has to make sense.
Some programs may use long-term market rent.
Some may allow qualifying structures tied to short-term rental income.
Some may permit DSCR below 1.00.
Some may offer no-ratio structures at lower leverage.
The exact structure matters.
This is why I want to look at the deal BEFORE the offer goes out.
IV. THE BUYER MAY HAVE MORE LEVERAGE NOW
Here is the upside.
When a vacation-home market cools, buyers can gain something they did not have during the frenzy:
Time.
Negotiating power.
A seller who has been sitting for 60, 90 or 120 days may be much more willing to discuss price, credits, repairs or closing-cost assistance.
That does not mean every listing is a deal.
It means buyers can stop chasing and start underwriting.
I would rather see an investor buy the right property at the right basis with conservative rent assumptions than win a bidding war on a beautiful cabin that never cash-flows.
The best investment property is not necessarily the one with the best kitchen or the best deck.
It is the one whose numbers survive when your assumptions get a little worse.
V. STRESS-TEST THE DEAL
Before buying a short-term rental, I would ask:
What happens if occupancy is 15% lower than expected?
What happens if the average nightly rate falls?
What happens if insurance costs more than projected?
What happens if the property needs a major repair?
What happens if the market shifts toward longer stays?
What happens if the short-term rental rules change?
What happens if you need to carry the property yourself for three months?
If the deal still makes sense after that exercise, now we have something worth talking about.
If the deal only works with perfect occupancy and perfect pricing?
That is not investing.
That is hoping.
THE BOTTOM LINE
The slowdown in vacation homes is not necessarily bad news for buyers.
It can create opportunity.
But the opportunity is not simply:
“Prices are down, so buy.”
The opportunity is:
“Can I buy a better property at a better basis with financing that actually fits the income?”
That is a much better question.
Big Bear, Lake Arrowhead, Palm Springs and other short-term rental markets can still make sense.
But the math has to come first.
Then the financing.
Then the property.
Not the other way around.
About Michael Belfor
Michael Belfor is a Branch Manager and Loan Originator with approximately 24 years of mortgage experience.
He has been recognized in American Pacific Mortgage’s President’s Club and among the company’s Top 1% producers since 2017.
Michael works with homebuyers, homeowners, real estate investors and real estate professionals on conventional, jumbo, FHA, VA, down-payment assistance, self-employed and Non-QM financing, DSCR/investment loans, TICs, condos, renovation financing and other complex mortgage scenarios.
Big Bear Vacation Homes Are Cooling — What STR Investors Need to KnowVacation-home markets are cooling, including Big Bear. Learn why short-term rental buyers should stress-test rental income, expenses and DSCR financing before making an offer. Big Bear short-term rental financing, Big Bear DSCR loan, California vacation home loan, STR financing California, Lake Arrowhead DSCR, Palm Springs STR loan
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