The Definitive History of Pre- and Post-Pandemic Joshua Tree (with shocking numbers)

Pre-Pandemic: The Good Ole Days

There was a time when Joshua Tree might have been the most profitable STR market on planet Earth. You could buy a house for $180k and it would gross $120k that year.

For background, it’s always been a popular destination for millions of tourists. It's a short drive from extraordinary wealth in Los Angeles, San Diego, Las Vegas, and Phoenix. It also draws from San Francisco. It's a classic weekday hotspot for European travelers who love to road trip through Page, Moab, and Zion.

A key feature that lures people to Joshua Tree is its back-to-basics, raw nature. Think Burning Man or camping.

Before 2020, there weren't many operators in the market and virtually nowhere upscale to stay. Hotel rooms were limited and luxury hotel rooms were non-existent.

Let's talk guest expectations.

Read Airbnb reviews in an established market like Paris, and you'll see a lot of 4.1 - 4.5 ratings, and loads of bad reviews.

Travelers have sky-high expectations in Paris. The expectations in Joshua Tree in 2016 and 2017 were to have no expectations.

Guests were happy with enormous skies, stars, and simplicity, so they didn’t care about a nice house. You went to Palm Springs or Los Angeles for that.

Rugged, unkempt, and lowbrow was a badge of honor for guests and hosts. Your guests' expectations matched your offer. 5 star reviews across the board were effortless.

Labor was easy. Because there wasn't much construction work in the area, it was easy to find a small, dependable crew of tradesmen. Cleaners were tougher to hire, but it was doable.

Many houses had unpermitted work, so they couldn't get financing. This depressed the prices, and you could buy these unbankable homes on 5 acres in cash for around $200k.

The arbitrage was unbelievable:

? You could add an Airstream on a 2.5 acre property and gross $7k per month.

? You could buy a cabin on five acres for $80k in 2018 and generate $40k per year.

? There were properties with no power and no water, with dozens of perfect five-star reviews.

You could make 50% on cash, and own the property free and clear in 2 years. No power, no water, no bathroom. Just four walls, perfect five star reviews, and piles of cash.

It was unbelievable.

One thing to remember: Joshua Tree is a special place. It's not a regular place with regular folk and regular infrastructure. For example, most of the place is still dirt roads.

Not many operators and developers from big cities like Los Angeles and San Diego were interested. Building there was tricky. You had to find a solid GC, which is not easy from a distance.

You had to commit to living there if you wanted to build, and people weren't willing to do that.

A competent real estate/Airbnb host operator could have painted by numbers to a 25 million dollar net worth if they started in 2017. Within a small number of years you would have been at a $100k per month in free cash flow!

If you aggressively recycled that cash into more property, fixing up unbankable properties, assuming a consistent 4% appreciation over time and factoring in only 20% unlevered returns (though actual returns were much higher), the growth was substantial.

If you cleaned up and rented out 2 houses a year, you could have achieved a $25mm net worth in much less than a lifetime with 20% unlevered returns. This was good through late 2019/early 2020.

2020: We know what happens next

The pandemic hits. People were locked down and they wanted to escape cities. They could work remotely from anywhere. Joshua Tree was the ideal destination, so demand spiked to outer space.

Property values shot up overnight. If you purchased pre-pandemic, your 2,000sqft $400k 4 bedroom home on 10 acres was suddenly worth $550k.

The unpermitted properties, while still very attractive, became a bit less attractive because you had to buy them in cash, and they went from $200k to $400k. But there were still fix and flip credit lines for 5-6%, and you could later refinance into better debt. This meant you could buy an unpermitted home on a credit line, remodel it up to code, and then refinance using conventional debt at 2% or 3%. Often with cash you could pull out from the additional value you created executing this strategy.

Of course, prices on the permitted houses went through the roof. Absolutely catapulted.

The good news is that revenues were also up. Nobody cared that asset prices were higher. Think about it in terms of cap rates: you're perfectly fine.

Wild anecdote: A 1,000sqft 1 bedroom on 5 acres was purchased in April 2020 for $170k with an additional $11k required to clean it up. In 2020 during lockdown, this property crushed it, generating $5K per month.

It was sold for $500k in May 2022. That’s up nearly 3x in two years, on a piece of real estate without much of a story behind it.

Why sell it when the value hit $500k?

1) $5k/mo on $500k isn't that interesting, and

2) it was no longer doing $5k per month.

Let's say at $3k per month on $170k, that's reasonably interesting, especially if you put 10% down. 10% down on a $170k one bedroom place on 5 or 10 acres and the mortgage at the time is like $700 per month. You're doing $3k per month and you end up doing ~60% + on cash.

This place now goes up to $500k and you're doing $3k per month, which doesn't make much sense. You're netting $10k per year on $350k in equity that could be better used elsewhere.

Low rates and lockdowns caused many people to go to Joshua Tree to find Airbnb gold. This rapidly increased the supply.

Joshua Tree attracts creativity. Part of its allure came from attracting people willing to take design risks and curate unique experiences.

So it wasn’t just an increase in supply of commodity units, but an increase in fantastic supply. Really awesome unique places.

You started seeing swimming pools, which you hadn't seen in Joshua Tree before.

Pre-pandemic, Joshua Tree wasn't a place that you visited to hang out by a swimming pool. You did that in Palm Springs or Los Angeles. Joshua Tree was for artsy fartsy stuff, grungy stuff, or hippie hiking stuff.

2021: Market dynamics change

In 2021, we saw tourism start to decrease in Joshua Tree. Europe started opening back up. People headed back to big cities like New York, Boston, and San Francisco. They craved the experiences they had been deprived of.

During the early pandemic, people from Los Angeles and San Diego were visiting Joshua Tree every other weekend, over and over and over.

The average person is good for a few Joshua tree trips. Maybe 10 at the most. Our theory is that they got burnt out from overdoing it in 2020 and 2021.

So we had two new issues: tons of outrageously awesome new supply, and travelers burnt out on Joshua Tree.

Starting in late 2021, the country faced a labor shortage, especially in trade jobs. It was tougher during the early lockdowns, and now it's impossible. You couldn’t hire anyone and you couldn’t get reliable workers to stay there.

In 2018, a metalworker in Joshua Tree charged $16 per hour. In 2022 a metalworker replacement would ask for $80/hr.

Projects came to a halt for weeks on end looking for replacements.

Of course, tradesmen became less reliable. They controlled the market. You had no choice because what were you going to do, fire them? You couldn't. Your projects had to get over the finish line.

The labor shortage made your costs go through the roof.

2022: The Airbnb apocalypse?

Bookings are depleted. April, which was usually super high season, is a dud.

People were scratching their heads. What's going on?

What they didn’t realize is that they had 1) over supply, and 2) under demand, at the same time. No one was ready for this.

The market became certain that inflation would take off and rates would rise. In April and May 2022, there was a buying frenzy. Everyone rushed to buy everything before rates increased.

Housing saw yet another 5-10% bump. Houses bought for $200k and renovated sold for $550k - $600k, but Airbnb earnings have dropped. It was a bad setup.

Post rate hikes the prices cool off 20%+ from their peak.

Today and tomorrow

So here we are in October 2023. That same Airstream from the beginning of our story with great reviews only has two reservations on the books. It's averaging $500 per month.

The cabin with 100 five-star reviews that averaged $3k per month for years is now doing $500 per month.

We're seeing revenues slashed 50-70% across the board. Lots of competition, lots of supply, less demand.

Rise of the phoenix

But something interesting is happening with the one of one stuff. Ultra unique properties that we projected to do $300k in 2019 will still do $200k.

To be fair, 2019 was offering some of the biggest returns ever. 11%+ on cash in Joshua Tree and owning a fantastic asset while guests pay down the principle for you is not the worst investment of all time.

There will likely be a lull for a few years in Joshua Tree. I'm guessing it picks back up in 4-10 years. Things cycle.

It went from world class returns for everyone, to decent returns for a few select owners. The ones who went all in on design, presentation, brand and story are doing great. Some of them are killing it.

If you're not pushing the envelope, you're dead in Joshua Tree.

So what does this mean?

I believe the Joshua Tree story is or will eventually be the story nationwide, and people haven't realized it yet.

The commodity properties will get washed out. Units that look like everybody else's units will get crushed.

In an efficient market, all arbitrages come to an end.

At its core, Airbnb is an arbitrage. What happened in Joshua Tree will probably happen in most cities.

Arbitrage hunters find opportunities. People found Joshua Tree. They found Sedona. They found Gatlinburg.

If you don't find a market with legislation that 'protects' your arbitrage or offers a unique experience, your arbitrage will vanish.

Takeaways

1. You must be One of One to succeed long-term in STRs.

2. Continue to legislation hunt for arbitrage opportunities in inefficient markets.

3. Being unique goes beyond the physical property. It's about branding, marketing, and storytelling on social media.

Want to learn how to develop Unique Stays and continue to beat the market in places like Joshua Tree? Follow for more insights.