Richard

Established by Barclays Bank and now receiving government funding to support the U.K. startup community, Eagle Labs has launched an online directory platform aimed at connecting founders with investors. Given that fundraising can be difficult and time-consuming at the best of times, anything that makes the process easier should probably be welcomed. But investment – as we’re constantly told – is a people business. So what role can an online matchmaking service really play?

Even when you know what to do, raising capital is no easy undertaking, especially if it’s a first foray into the world of VCs and angels. Attracting the attention of investors usually involves researching the market, building a profile at startup fairs, making countless phone calls to arrange meetings, and participating in pitching events. For others, however, fundraising is quite simply a mystery. How do you do it? Who do you contact? Frankly, who knows? Without the necessary market knowledge, it’s very easy to conclude that securing investment is something that other people do.

In announcing the launch of its “Demo Directory” Barclays Eagle Labs is potentially helping both of those groups by providing an easier and more efficient way to take the first tentative steps towards attracting investors.

But how will it work in practice? I spoke to Benjamin Storey, Head of Demo Directory at Barclays, to find out.

A Problem For Both Sides

As Storey sees it, the new platform is helping both startups and investors. From a founder’s perspective, too much time has to be devoted to finding investors. Meanwhile, angels and funds face problems of their own. “Investors spend time sifting through businesses that aren’t relevant,” he says. And at the same time, VCs and angels are missing opportunities because they aren’t aware of some of the businesses that would be appealing to them.

That much is well known. But can the Barclays Demo Directory provide a solution that works for both sides?

The concept is simple and familiar. To sign up for the platform, founders must answer a series of questions. “They tell us about their businesses, their teams and the technologies they use,” says Storey. “All the questions we ask have been defined by investors.”

That last point is important. To operate successfully a platform of this kind requires investor buy-in. Or to put it another way, unless it’s providing some sort of value to the VC and angel communities, they may feel that sifting through hundreds of hopeful pitches is a further drain on their already limited time.

Storey says Barclays has worked closely with investors to ensure that the questions asked of businesses provide necessary and useful information on the startups hoping to catch their eyes. To avoide overload, there is a barrier to entry. Companies hoping to list on the directory must provide evidence that they are viable and investment-ready. Storey says helping companies to become investible is one of the functions of Eagle Labs.

An Early Stage Focus

The focus is on early-stage companies. Drawing data from the pilot and the first few weeks of operation,” Storey says 65 percent of participating startups are seeking to raise between £250,000 and £2.4 million. “The most popular range is between “£250,000 and £500,000,” he adds.

So what happens when a company joins the directory? “The power is then very much in the investors’ hands,” says Storey. If members of the VC and angel community like what they see, they can get in touch directly. At that point, the process of engagement begins in earnest.

A Better Chance?

That question is, does the platform actually improve a startup’s chance of securing investment? Storey thinks it does. “Data from the pilot shows that 49.3 percent of companies raised capital within six months of joining the platform. That wasn’t just about us but we helped to get them in front of the right investors,” he says.

Equally important, Storey points to the ability of the platform to connect investors to founders who are not located in one of the major innovation economy hubs. “It’s very important to give people an equal opportunity to raise capital,” he says.

And there’s a geographical bias. Storey cites the angel community. “Seventy-five percent of angels invest in their own region. Sixty-five percent of them live in London and the South East of England. Thus, the tendency of companies in the most prosperous region of England to suck up the lion’s share of investment becomes self-perpetuating. The good news, Storey says, is that angels are keen to invest outside their regions should they be able to identify opportunities.

Seeding Diversity

In that respect, the platform provides an opportunity to spread investment more widely, not only in terms of geography but also across gender, socio-economic and ethnic lines. To date, 54 percent of applicants identify as being from an ethnic minority background, 39 per are female and 48 percent are from outside the London, Oxford, Cambridge triangle.

Of course, the concept of this kind of platform isn’t new and success or failure depends – as previously mentioned – on investor buy-in and the quality of the startups. Around 350 investors were involved in the pilot, suggesting a good degree of engagement. Meanwhile, Barclays is engaging with thousands of startups through its Eagle Labs program, which operates physical hubs across the United Kingdom. Barclays also says that this the first initiative of its kind operated by a major UK bank, so there are opportunities to promote the scheme to business customers.

Another useful tool for U.K. startups.

Ashley:
This is Real Estate Rookie, Episode 337. My name is Ashley Kehr, and I am here with my co-host, Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kick start your investing journey. Today, we’ve got an amazing episode. I feel like this episode could have gone on for hours. We’ve got Zoey on the podcast with us today. She’s going to be talking about glamping, about yurts, about unique stays, about land hacking, and all these different strategies that you might not know about but that are great ways to break into the world of real estate investing and really position yourself as a solid Airbnb host.

Ashley:
She ended up living part time in something which was not technically a house. When she no longer needed to live there anymore, she decided, “Let’s turn this into a short-term rental.” It ended up being more successful than she could have imagined happen to her. Then we’re going to go on and talk about her focus on unique experiences. Towards the end of the episode, she’ll give us a list of the top… I think there’s maybe five things that you need to put into your properties to consider them unique. When she says these things, they’re almost like light bulb things. It’s not like, oh, you need to have this crazy wild thing, like a tiger in a cage that’s on the property. It’s like things that you-

Tony:
Although that would help.

Ashley:
Yeah, that would. It’s these things that you’re like, “Yes, it’s actually not that difficult of a thing to do, and that little amenity really does help create that unique experience. Then one of my other favorite things, and then we’ll jump into the episode, is how she actually takes her money and, instead of buying another property, what she did with it to get an even greater cash-on-cash return.

Tony:
Last thing I’ll say, Ash, before we kick it over to her, we also talked a little bit about analyzing some of these unique stays. Yeah, she’s got her approach, but I’ve got a totally free Airbnb download. It’s a calculator I think I’ve shared on the show before, but if you guys just DM me the word calculator on Instagram, you guys will get it sent to you for free. It’s a good tool to make sure that you’re crunching those numbers before you dive off deep end here.

Ashley:
When I do short-term rentals, I use Tony’s calculator, too. It is super great. Zoey, welcome to the Real Estate Rookie podcast. Thank you so much for coming on with us today. Let’s start off with hearing a little bit about you and how you got started in real estate.

Zoey:
Thank you guys for having me. I’m so excited to be here. We actually got started, I like to say, a little bit by accident. We started off in the glamping realm, which is not the most common way to start, and we went right into short-term rentals. We had a yurt that we were kind of living in part-time and we weren’t in it all the time. So I told my husband, “We should rent this out.” He was like, “There’s absolutely no way. No way someone’s going to rent a tent. They’re not going to pay for this.” He’s like, “It’s not ready.” I’m taking iPhone photos as he’s telling me, like, “There’s no way.” I’m like, “I think it’s going to work.”
So we ended up putting it on Airbnb. It was our first go around. I didn’t know anyone that was doing short-term rentals. I didn’t have the podcast that everyone has today, the resources. We literally in a way made ourselves homeless that summer. We were living basically in a rooftop tent and letting people rent out the yurt that we were staying in. So that was our first intro to short-term rentals. After that first summer, I was like, “We are onto something. There is something here.”

Tony:
Zoey, you threw out a few phrases that hopefully you can educate our rookie audience. You talked about glamping. You talked about a yurt. What are these things? Break it down for the rookies.

Zoey:
Glamping is, in a sense, luxurious camping, I like to say. A yurt is a… We have a 28-foot dome, you could say, so it has that lattice. It’s a canvas tent. It is more durable than a tent you would take camping, and it does have some of those creature comforts. So there is shelter, there’s a roof, but you are not in a single-family home where those walls are standing, the drywall’s there. So it’s those that are looking to be out in nature, engulfed in that experience. That’s who our clientele is and was from the beginning, honestly.

Tony:
Let me ask a couple of follow-up questions here, if that’s okay. First, what location are you in? What city was this yurt in?

Zoey:
We are in Colorado. We’re about three hours from Denver, so we’re not in that metropolitan, but there are yurts there. We’re more so… It’s called the Western Slope, 45 minutes from Aspen, an hour from Vail, kind of centered in the middle of the ski resorts. So the Rocky Mountains have their own challenges as well to be hosting in. But Colorado, you get those nature-inspired folks as your guests already.

Tony:
I want to dig in just a bit, if that’s okay, on the yurt specifically because I do think it’s a creative way to get started. I guess, first, what was the total investment for the yurt itself?

Zoey:
We do kind of pride ourselves on land hacking as a term that you guys have used with Kai, and that’s a good way to put it. It’s multiple sources of income on one property. That’s what we really try to look for. With our yurt, it is on a property that has also other structures, so that gets factored in. But the yurt itself was about $40,000, let’s say $20,000 for the 28-foot dome. It comes in a box, and in 72 hours, that yurt was set up with three guys and then about a month to two months of build-out to make some walls, paint a little bit and make it a little nicer. Within the first six months of renting, we made $30,000.

Tony:
Wow.

Zoey:
So just taking the cost of the yurt and what the yurt brought in, it was definitely a profitable endeavor after year one.

Tony:
Zoey, that is phenomenal numbers. To spend 40K, get back $30,000 in revenue, that’s a really good return on your investment there. One question that I have, and this is me never having stepped foot in a yurt before, but is there plumbing?

Zoey:
That’s where, as the owner, you get to decide what is the experience you’re going to give your guests. Are you going to have those creature comforts, or are you going to be more of that off-grid setup? What’s cool today is, with glamping, there are so many options. There’s the composting toilet. There’s vault tanks that you can set up a septic miniature in your yurt setup. Ours, because it was that land hacking, we were able to pull off utilities that the single-family home does have. So I do think that factors in our nightly rate, being able to offer water and a kitchen and a stove. We’re on propane, we have a little miniature septic set up, and then we pulled power from the main home, so we do have those creature comforts. But not to say you couldn’t do solar composting toilet and bring in those similar amenities.

Ashley:
Zoey, I want to know, what were you doing that you ended up living in the yurt? How did you get to here?

Zoey:
Yes, I ask myself the same thing sometimes. I like to say, my husband, he’s definitely the visionnaire of the two of us, and I kind of put things into action and the detail that he doesn’t want to do. So he had a unique vision to own a yurt before he even thought of a short-term rental. Sometimes, things, they fall into place and it makes sense. So when he purchased this land, the yurt was the first thing to go up to kind of be a home base while the build was happening. That happens with a lot of us that do… We only do ground-up builds, renovations. We don’t do anything, as of now, that has been a turnkey purchase. Sometimes I wish we did. That is something… People live in campers while they’re building. They live in yurts. They live in tiny homes. That’s pretty common, especially up here in the mountains. Almost every single neighbor we have has lived in a camper or a tiny home. It sounds crazy, but it kind of fell into where we were.
We were, like I said, going back and forth, and I just saw a huge potential that, when we weren’t in it, why couldn’t we try to make money? We were in it already. Because it’s on a land hacking situation, the utilities are very minimal for the yurt. I let the house pull the main expenses because that holds the mortgage, that holds the value, so really 100 bucks maybe every month and a half in propane and some cleaning supplies is about all we’ve got in terms of expenses. So you can deem glamping, sometimes it’s considered pure profit or however you want to look at it.

Ashley:
Zoey, you had mentioned that you do land hacking, like Kai Andrews who was on Episode 107. Can you define that for us?

Zoey:
Land hacking, I like to say there’s a wide variety of options with land hacking. You don’t have to do one way or the other to fall into that. But I like to think of it as, if you can generate multiple sources of income on one property, you’re in a way land hacking. Land specifically, that could pull into Christmas tree farms, lavender farms, apple orchards, putting a house on it. But I also like to give people the opportunity to think about maybe you have an ADU and a single-family home, that’s two sources of income on one property, or a single-family home and glamping. Or you could even think of it’s almost like a land hacking/house hacking duo where you could have an ADU downstairs and you could have a short-term rental up top, and that’s still two sources of income, whether you choose to short-term both of them or long-term/mid-term one and short-term the other. So we always try with every deal to get our best bang for our buck and get multiple sources on that investment. It’s nice, like plan A, B, C you can have with that property.

Ashley:
Before we go any further, what does your portfolio look like today?

Zoey:
We have four short-term rentals, all in the unique stay approach. We’ve kind of dabbled with a build ground-up single-family home. We have the glamping aspect. We’re doing a 1940s historic cabin that came down from Aspen, which is in pure shambles right now, but it’s going to be for a short-term rental for us, which will have two units in itself. So we have really kept into the mountains as our market. I think next market, we’ll try to offset our peak and low seasons with a different market so we can capture year-round consistence with our properties.

Ashley:
I definitely want to get into more of these different properties and their uniqueness. But when you first decided to rent out that first yurt, what did you have to do? What kind of steps did you have to take to get it rent ready? Was there anything you had to do different to the property compared to living there to have a tenant there? Also, did you just put it on Airbnb, throw it up, and you’re done? Talk us through that first initial process of “I’m going to rent it.”

Zoey:
I think there’s what we did do and now years later what I would suggest you do is looking a little different. When we first started, and this is such a blessing now that I look back on it, we literally just started, I didn’t have the what ifs or the fear, “What if someone steals this?” none of that crossed my mind. Maybe it should have at the time now looking back. I literally just took iPhone photos, made an Airbnb listing, made sure with insurance that we were good, no one could get hurt, we were protected there, and just let it go up and see what came. Now in today’s market, you might want to have those professional photos, make sure that decor looks on par. But it is to say that it worked.
I think a lot of us, when we get started, we think it has to be picture perfect. That keeps a lot of us from starting because it can cost a lot to have something professionally designed or everything picture perfect. That’s something we also like to do is we kind of consider properties in phases because that makes it a lot more realistic to start earning that revenue and understand that in a year you might do another round of improvements to the property. You don’t have to have every single dollar mapped out in the very beginning because that’s going to keep you maybe years from starting.

Tony:
Zoey, one of the things you mentioned was that you haven’t purchased anything that was turnkey, and instead, you focus more so on these projects and the, quote/unquote, unique stays. So first, I guess, define what a unique stay is, and why have you focused on that niche specifically?

Zoey:
So unique stay, I think everyone has a little bit of a different definition. Once upon a time, I think we might’ve only considered a glamping or a really unique structure as a unique stay. But I actually want to broaden people’s horizon, that I think a lot of things can fall into unique stay if you do it right and you market it correctly. It’s not everyone’s goal to own a yurt or a tiny home, but that doesn’t mean you couldn’t buy a single-family home that does fall into a unique category. So I want to expand people’s vision about what unique can be for them because I don’t think you have to be a builder or a contractor to really fall into that.
For us, it has looked like, location has been a big aspect. We’re big on the views or what the home is encompassing in terms of the environment. So Joshua Tree, people go to Joshua Tree to feel like they’re in that setting. They want to stay in a house that they feel like they’re in the national park in some degree. So we’ve really factored in that, and that has looked like for us a single-family home ground-up build, which is more of a modern… It’s a newer build, so it’s not super old or anything. It’s not some crazy shape. Then we’ve also done glamping. Then we’re doing a huge renovation to a historic cabin. It is a historic home in Colorado, so that brings in a unique touch in itself. So don’t think that you’re limited that if you don’t want to build something from the ground up that you can’t fall into that unique aspect.

Tony:
Airbnb, I think it was last summer, they did their 2022 summer release where the app really started to highlight a lot of the unique stays that are found within the app. This is me theorizing, I guess, because obviously I don’t know the CEO of Airbnb, but my thought is that Airbnb, as they continue to gain market share from traditional hotel stays, I think they’ve realized that the unique experience is something that they have an advantage over when it comes to Hilton, Marriott, all these other traditional places. Because I can’t go to Hilton and book a yurt, or I can’t go to Hilton and book a tree house, or I can’t go to Marriott and book a submarine, all these crazy things that I’ve seen on Airbnb. So as a platform, I think they’re really trying to incentivize and encourage people to build more of these unique experiences because it draws more people onto the platform. So the fact, Zoey, that you guys are, I think, leaning into that before most people have caught on, I think it’s really going to do you guys well.

Zoey:
Yeah. That’s a big part of why we’ve stayed in the unique space. It has its pros and cons. It, I will say, brings its profit. When you’re in the renovation phase and you feel like there’s no end in sight, the profit will come in the unique space. Something we’ve been… We started in the pandemic. People like to tell me, “Oh, it’s not going to last during a pandemic or a recession.” That was when we started, and we still are doing it to this day. So I don’t think that’s a big excuse that I can listen to many times. But it is growing in the Airbnb space, and I do think it brings a level of protection for your short-term rental business knowing that you have that different approach. That’s why we’ve continued to go in that direction, and, like I said, it has looked like a different angle for every property we have.
But I personally believe the unique category is what’s growing. It’s keeping us apart from the rest. It’s not as easy as maybe it was a few years ago to just go buy that neighborhood home, furnish it, make it look cute, and call it a day. We’re seeing competition increase, and people are getting better at short-term rentals. They’re just getting better as hosts, better as investors. So that’s where we also have to level up our investing game as well.

Tony:
Zoey, you just said something I got to comment on because you said, “You can’t just go buy that regular single-family home, throw it up on Airbnb, and expect to still do well.” I think when you hear of the Airbnb bust, a lot of those hosts that are being significantly impacted are the ones that did exactly what you just said, where they’re just focused on, “Hey, let me buy a traditional single-family home. I’ll put a bunch of IKEA furniture in there and cross my fingers it all goes well.” Whereas now, in 2023, in order to be a good host, you really do have to focus on providing your guests with an experience, providing your guests with exceptional customer service, and reinvesting into your properties from before. Maybe they were just these big cash cows where you didn’t have to worry about trying to make them better for the next guest.
This last year has really been a year of retooling for us, where a lot of our properties, we’re going back and investing additional capital into them so we can make sure that, in 2024 and 2025, we can continue to be competitive in those markets. Because you have two options as an Airbnb host. You can either try and compete on pricing, where all you’re doing is pulling down your prices to try and be the lowest-priced option in your market, or you can compete on experience. Airbnb guests have shown time and time again that they’re willing to pay a premium if they can get the right experience. So you have to choose which host you want to be.

Zoey:
I love that you said that. Because reinvesting back into a property, I think some people might feel like, “Well, with that profit, I could go get another property.” But having two subpar short-term rentals or one great one can look a lot different in your portfolio and in your workload as an owner and if you’re self-managing. So we actually, about a year ago, chose to reinvest about $35,000 back into our property, which was all profit and that could have put us in another deal. But by doing that, we invested in professional design, professional photos for both of our peak seasons and a hot tub. When we did that, it took our revenue from about $4,000 to $5,000 a month to a consistent $10,000 to $12,000 a month. The house didn’t move. The location didn’t change. I’m not going to say there was much that could have factored in that difference besides the reinvestment we did, and that is proof that it really does pay off to reinvest.
I knew, just seeing what the market was coming into, investors were coming in with big dollars, that if we wanted to stay in the top 5%, we had to make that reinvestment. We couldn’t keep operating at a level where we just wanted to take that profit and go elsewhere. So I think it’s super important that people understand that it may slow your portfolio growth for a year or six months, but that property now generated double every month in revenue, like consistently. I have now year by year to compare. That’s definitely worth the reinvestment, I would say.

Ashley:
Yeah. People get so caught up on the unit count-

Zoey:
Mm-hmm.

Ashley:
…but if you would’ve went and invested that into another unit, that would’ve been another listing to manage, another rehab to manage, just more overhead. The fact that you went and you reinvested it into this property might’ve even had a better cash-on-cash return then taking it and putting it into another property even. I don’t think that we’ve actually had a guest that has come on here and talked about how they actively chose to upgrade and put a large chunk of money into one of their current short-term rentals instead of going and investing and buying, buying, buying, buying more.
We had Chad Carson on recently who wrote the book, Small and Mighty Real Estate Investor, where he talks about, “I don’t want a ton of units. I like my small portfolio. But I optimize my properties. I stabilize my properties.” And I think that’s great that you brought that up. For somebody who wants to get into land hacking, what is the first step they need to take? Is it doing market research? Is it determining their strategy? Walk us through that path they should take.

Zoey:
There’s a few ways I like to approach it. One, you do need to determine, what is your strategy? Are you a short term? Are you trying to go long term, midterm? That’s going to help you really decide your location and your market, which is kind of the next step of, “Okay, what’s realistic for me to purchase in? Do I want to own a property in California for a lifestyle and profit play, or do I want to invest in my backyard?” That’s really important to decide. When you decide if you’re going to do short term or long term, that’s going to look different in terms of markets.
But my biggest thing I tell people and the biggest misconception is land is created equal, which is not the case. You really need to understand when you go into these deals, whether you’re wanting to build or purchase a property that already has a structure and bring glamping to it or another structure, like in ADU, or you want to do a glamp site, you really need to understand when you look at land, what are you looking at in terms of the value it has? That can consist of understanding, is it raw land or is it developed land? Are the utilities already pulled to it? If not, what does that look like? Pulling utilities can be one of the most expensive parts of developing land if you don’t factor in that land location accordingly.
So I really like to encourage people, if you can look at a raw piece of land and feel confident at what that land can bring to you or what it’s capable of having built on it, that’s going to really be a great fundamental for you to get started in actually building or developing or putting glamp sites on it. That’s not to say you have to build. You can land hack with the current structure already on it and maybe put an ADU in it or bring glamping to it. But you have to know if that land is suited to support multiple structures with the county.

Ashley:
What’s the first step to figure that out? Who should you be talking to? What do you need to research? What do you need to learn?

Zoey:
I always like to understand, when you’re looking at land, are you looking at raw, which means completely undeveloped, so that is just dirt on the ground? That’s what we all probably think of when we think of land. Or are you looking at somewhat developed land? Meaning, there’s utilities. Maybe there’s power nearby. Maybe there’s been power pulled. Is there a well already drilled? Is it city water, and are you working with city sewer or septic? So when you look at a price tag on land, I want people to understand why it’s priced that way. When you see something that’s $5,000 or $150,000, it could look a lot different in terms of if there’s utilities pulled on the one that’s more expensive, and that could save you a lot in the long run. So I always like to encourage people, start framing the way you look at parcels and listings a little bit different in terms of what are they capable of. Then also, your county is going to be a super helpful resource in terms of what’s legal to actually do.
I had someone who asked me about this land parcel. It was in a floodplain, and it was completely not buildable. But to them, it looked like a great deal because it was a great location. It was right near where they wanted to be. I was like, “But if we checked with the county, we would understand that this can never be built on. So this investment is not going to support the vision you have for the property.”
Your county’s a great resource. It’s always good to go online, check with what the county’s stating about that property or where it may be. Does it fall within city limits? Unincorporated? What is available to be built on the structure? You can always call them. Your county’s not scary to deal with or your potential county before you invest. We always call, if we can, we’ll go in person, because those are the people you’re going to be working with before that property is actually live in the short-term rental phase.

Ashley:
The property I’m actually sitting in right now, when we purchased it, there was a lot of site work that we had to do. Site work can get very, very expensive, very fast. Just to put in a driveway… because it was literally just grass. There’d been a driveway at some point in time, but the grass was growing. There was no gravel brought up anymore. It was $27,000 for the new driveway, for a gravel driveway, not even blacktop. It is a long driveway. But then also the well was dry, so we had to dig a new well, and that was another $7,000. These things can all add up.
Because you can look at the actual property, you’d be like, “Okay, I need a roof. I need siding.” But you got to think about everything that’s around it, too. We also had flooding. There was a pond here, and the pond actually flooded into one of the cabins, so now we got to put drainage tile in. Even the animals, we’ve had to have trappers come for beavers and stuff that were damming up the ponds and creating more overflow. All these things that, when you are dealing with land, especially acreage, there’s maintaining… There’s a dead tree, dead tree. You got to take those down or else they’re going to fall on the house. All these different things that come into play and they can be very expensive if you are not considering them into your budget and you’re just looking at the building as whole. Now that we kind of talked about where you can find out about the utilities, things like that, what’s kind the next step in your development phase, after you’ve done your research, you found out your information?

Zoey:
That’s where, what is the vision or what is your strategy that you have in mind? The property you’re looking at, is there already a structure on it? Would you have to put budget into that property to then also do the second structure you want to do? Or are you doing complete ground-up builds? I honestly will say I do think, in the next five to 10 years, we’re going to see more builds for short-term rentals. I think it’s just a reality that, as the unique space grows, these homes that are oddly shaped in triangles and whatnot, no one has built 30-year homes to live in for their own primary residence to look like that. But now there’s a market that you can actually make income off those.
Builds, even though they have their pros and cons, I do think it’s a huge tool in your toolbox to be able to take that on because we’re going to see more of them. So if you are looking to build, that’s where you’re really going to work hand in hand with your county in terms of, what does that permitting look like? What do you need to get that build into the county to get approved? Every state, every county is going to be completely different.
This also can fall into a renovation as well. So we’re on a recent renovation with the same county we also built in, and we almost had to go through the same process of getting an architect, a structural engineer in there. We had to get the entire… To me, it’s a renovation, how complicated can it really be? But we had to do almost the same steps we had to do for a ground-up build in terms of having the engineering and the architecture done, the building plans submitted. The county had to approve those for a 25-day window. Then once those come back redlined and approved, you have the go ahead to just go. But there’s also counties in Montana that they don’t have building code, so you are literally able to put whatever you want up there. That’s why I tell people, if you’re going to invest in those counties, you might be better off building than buying because you’re kind of buying someone’s word of mouth.

Ashley:
Yeah, that’s true, no permits. This is how it’s going to be done.

Zoey:
Right. It was not built to code. There was no permitting. It’s like, who knows if that thing’s going to stand. So counties, they’re going to be your best friend, sometimes your enemy at times, but you have to know they’re in it to ensure that their structures are safe, they’re sound, nothing’s going to collapse. It’s your benefit to build to code.

Tony:
Zoey, let me ask one question. In terms of playing nicely with the county or expediting that process of getting your plans approved, have you found anything that, okay, if you do this on your first submission, the chances of you getting revisions back is decreased?

Zoey:
There’s a few tips we’ve learned. One, if you can try to work with an engineer or architect that is more local in that county and has worked in that county before, that’s going to help you a ton. If you go to our county, they work with the same 10 builders. They could list off their main builders in the area that are building houses. Those are people that are in your benefit to try to get in your team because they know what the county’s stickler’s on, what they’re probably going to come back with. They can try to keep those redlines from happening.
So when we went to find an engineer, we wanted to find one more local that has worked in this county. We also, with an architect, made sure they had experience in the Rocky Mountains, so like snow load, wind load. We can’t even buy the same windows that other states can. We had a glass slider on order and it’s not legal to have in the state of Colorado. These are things that you want your team to know of. Because we’re dealing with elevations, we had a fireplace that we were about to order, and the head of the Building Department called us and he said, “That fireplace is not legal at our elevation because it will not act right. It’s not going to operate the same way a fireplace in zero elevation is going to act.”

Ashley:
Oh, that’s interesting. I never knew that was even a thing.

Zoey:
When he said that, it made sense because we’ve had guests tell us that our oven will sometimes act up. At 9,000 feet, we’ve literally come to the conclusion that it’s not the oven, it’s the elevation. It’s just a matter of temperature outside and what they’re working with.

Ashley:
Oh.

Zoey:
So these are things that, especially if you’re doing this from afar and you’re not engulfed in that county or in that area all the time, you really want to have people on your team to know these things. We also try, every time we talk with the county, we obviously call them, but if we can and if it’s possible for you, go into the county and actually shake their hand, get their names. Our head… Building Department, he calls my husband by first name. He leaves him voicemails. They’re like buddies. It sounds silly, but that’s the guy to know, and we didn’t have one round of revisions on our renovation. Given it was a 1940s cabin, we were ready for them. My husband’s convinced that, because of his relationship with the Building Department, they let it go.
We called them. We explained our situation being so old and historic, and they really said, “We want to work with you and keep the history. We appreciate you’re not just tearing it down, so we’re not going to hold you to the code of a brand new build in 2023, but we need to increase the R-value. We need to increase the insulation.” But they still worked with us, so I’ll take it.

Ashley:
Yeah, definitely.

Tony:
You mentioned a few times, Zoey, about if you’re doing this remotely or even if you’re somewhat local about having the right team. So who exactly is that team that you need to build out, and what is your recommendation for finding those people?

Zoey:
Great question. So depending the strategy and vision you have, I’m going to say most of these people are going to be pretty common to meet on your team give or take, so don’t take my word for it exactly, depending on what your situation is. An architect is definitely someone to have in your back pocket, especially if you’re doing a build or an extensive renovation that you’re taking structural walls.
This was a learning curve for me was at one point I was so confused what the engineer and the architect is doing and what’s different and why I’m paying for both of them that I literally was like, “Can you explain to me what you do and what he does and why you’re not the same because I don’t get it at all?” So don’t think that you have to be a master at this. They’re professionals in this field. So an architect is great to have in your back pocket. They do a lot of the work in terms of the build or the renovation, getting something together. The engineer, surprisingly to me, was way cheaper, and he was way quicker. He was like a four-day… He just makes sure the thing’s going to stand. It’s not going to fall down. It can support the load of snow, wind, whatever you may have.
Then you’re going to want to have that contractor, unless you’re the GC, but most aren’t, especially if you’re doing this from afar, is that contractor’s going to be your right-hand man. He knows how to read plans. He knows how to read those redlines. He is really going to be the central part of that build or that renovation or that glamp site. You’re going to bring in plumbers and electricians. They’re going to come in, do their job. They really have their moment for a two, three-day window, and then they’re out of there
The biggest thing I once heard actually at a conference, Robuilt, was the best way to find a contractor is going to Home Depot at three or four in the morning and seeing who’s in that parking lot. That’s who you work with, and that’s who you go up to because those are the guys working. Finding the contractors or the drywall installation guys or whatever it may be on Google, you’re finding the people that are smart enough to market their business, but they’re not in it every single day working as hard as the guys that are at Home Depot at six in the morning. It was kind of a funny way to hear it, but he was like, “I’m not kidding. I’ve done tens of builds and renovations, and that’s how I find my guys.”
It’s very word of mouth. We found our contractor because we had to do log exterior work on this cabin. The log guy said, “Hey, you should talk to this guy. He’s a really good contractor for log homes.” We called him. He’s the one we’re now using. So you really do have to pick up the phone and get those chain of commands going to find the right guy. It doesn’t mean you have to do it, but that’s been the way that we found everyone.

Tony:
I love the idea of putting yourself out there. I’ve never done the 6:00 a.m. Home Depot thing to find potential contractors. But what I love doing is when I see other active job sites, no matter where I’m at, I always try and stop and get that person’s phone number. Sarah and I, we’ll do walks to the local Starbucks, it’s across the street from our house, and there was construction going on in the unit space next door to Starbucks. So us being real estate investors, what we do? We walk over there, and there’s two guys who were drilling out the concrete to put the plumbing in, and we reached out to them. We said, “Hey, we’re real estate investors. Do you guys do residential stuff too?” They were like, “Yeah, we do residentials.” “Do you guys do just plumbing?” “No, we do plumbing, we do electrical, we do drywall, whatever you guys need.” So now we’ve got a contact that fast from just sparking up a conversation.
So if you’re a rookie and you’re struggling on, “Where can I find these people?” Home Depot is good, but just pay attention as you’re driving around your neighborhood to see where those jobs are being done and just hop out of the car and introduce yourself because most people aren’t going to turn down an opportunity to get a new client. What about the architect and the engineer, Zoey? Just really quickly, what’s a good way to source those people?

Zoey:
There’s a few different ways you can find them. We honestly started kind of similar to that. We knew of someone who was building, so we called him. We walked by and said, “Who’s your engineer on this project?” We had two different quotes from two different engineers. I always try to encourage people, if you can, if you have the resources in your area, to get two to three quotes for any job if you can, because you are going to get a wide variation of the workload, the timeline, everything that’s going to consist in that bid. So we found our engineer, I literally think, through just word of mouth. We picked up one phone call. They said, “Hey, you should call this guy.” We called that guy. He said, “I’m completely booked out, but this person might be able to.”
The engineers in the area know the other engineers. There’s only so many that really are working in that area. With an architect, we actually called… We knew we wanted to go towards a metropolitan city because there’s going to be a lot more availability. We had an architect that was local come out, and we had an architect that was about a two and a half hour radius. He came out. We got bids from both of them, and it was astronomically different the responses we got. Same with engineers. We had engineers come in that were like, “You’re going to have to put beams in this thing, steel beams. You might even just want to tear it down.” Then we had an architect come in, an engineer that was like, “This thing has been standing for 80 years. It’s probably not going to fall down. Let’s just support it a little bit more and call it a day.” I could not believe the difference of the two. That’s an example of always get two to three if you can, because obviously you can probably assume who we worked with.
But even with another big job we had, we were quoted $25,000 to $45,000, and we didn’t pick the cheapest. We picked the one in the middle, but it was a good gauge on the scope of work. Was the first bid a fair bid knowing that that second one came in? So if you can get a few different bids for a lot of different jobs, that’s going to be in your best interest. Even with contractors, they’re going to quote you a lot different. Always ask for their past work. Please look at what they’ve done. Don’t take their word for it. If you know someone that they’ve worked with or they have a client that they’re like, “Oh, I just finished a job. Call that person,” ask them how the experience was working with them because that can really make or break… Someone’s word is great, but knowing how their actions were in that job is way more important.

Tony:
I guess as you’re doing the analysis phase of these unique stays, I found that to be a challenge at times. Because it’s like if you’re building something that’s really unique for that area, how do you accurately comp out or project the revenue for that property if you’re the only 1920 log cabin in that area, if you’re the only yurt that has the creature comforts in that area? So what are your steps for projecting the income on some of these unique stays?

Zoey:
That’s a great question. I think we’re going to see the analyzing of unique stays get better, so that should give everyone some hope, if you’re diving into the unique stay space. AirDNA just did a huge update, and there’s actually a way to filter by unique homes in searching on AirDNA and what they’re bringing in. So we’re just starting to see more come to the table. But what I always like to do is take into account, let’s say, if you’re running a yurt, you’re probably going to be a one-bed/one-bath, maybe if you have that bathroom, spot. So start there. In that market, start looking at what is your competition of one-bed/one-bath. You do need to take into account that you are bringing the unique aspects, so you can consider that more in your nightly revenue. Maybe you look at locations. There’s no unique stay around you, but there’s a few houses in that area or region that you would be hosting. You kind of have to take the pieces you can get and really piece it together.
Then I also like to look at… There’s no dome within 75 miles of us, so obviously I don’t have a direct market to compare to. But what I will do is I will go into the state of Colorado on Airbnb and look at the domes that I do have insight on and start really analyzing those listings. Even though they’re not in your specific market, if you’re confident that your clientele in that state or market is going to want that type of experience, you can take that as market research.
That’s why I also encourage people, please think of your climate and your temperature and your environment. Before you are sold on a dome or a bubble, let’s make sure that your region or market is going to support that. Even for us for the yurt, it can be all year round, and I 100% will not host all year round in a yurt. It’s my host boundary that I know it’s going to sound good, it’s going to look good on paper, it’s going to sound good in photos, and it is going to be treacherous of an experience to be in 30 degrees in a yurt in the Rocky Mountains. It is not ideal. So maybe an A-frame would’ve been a better build for a short-term rental because it could have been all year and still withhold the snow load and everything.
So please think of, one, your logistics you have with your market and location, but also, what does your clientele want? I have seen in different markets, some people really attract domes and some really attract storage container homes and some love A-frames. So that’s where you need to know who is your demographic and what are they willing to pay for and what do they want, because they all fall into unique stays. But which one is going to do the best for you?

Ashley:
I have this vision of staying in some kind of dome where it’s snowing out and just pretending that I’m living in a snow globe. So if anyone has that kind of short-term rental, let me know, because I’d love to stay there where it’s just the clear dome and it’s just the snow falling. You’re in the middle of nowhere. I would probably go and try and stay at one and it wouldn’t end up snowing the whole time I was there anyways.
Zoey, what are some of the unique things that you have done to your properties that make you stand out? You had mentioned earlier in the episode hot tub. I was actually at Tony and Sarah’s conference, and Sarah got everybody to chant, “Say yes to the hot tub! Do the hot tub.” So that is one amenity, but what are some of the unique things that you are doing?

Zoey:
So hot tub, I’m on Sarah’s wavelength with that. Do the hot tub. I have never seen it hurt someone, and it always increased the revenue. I will say something I learned as a host was, please, if you can, professionally maintain the hot tub. Because I got it and I was like, “Oh, we’re good. We can train our cleaners on this and whatnot.” I got burned one time, and it was the one time I needed to be burned, and I won’t do it again. The hot tub was down. We couldn’t get the chemicals to just balance out. So I was like, “We’re draining it. I’m not risking that.” That was a $500 refund that I was just like, because I wasn’t willing to professionally maintain it for $50 a week, I had a $500 refund that I went through. The guest didn’t request that, but it was a big reservation that I was like, that was a huge bonus for her to have that. She even said she wanted the hot tub. So please, if you can, professionally maintain it or have someone who is trained to do hot tubs so you don’t backfire. Because having that thing down could really hurt you in reviews and just future stays.
But also something we are doing… For example, our cabin is on a 40-mile infamous bike trail, so we are doing e-bikes that will be with the stay. So if you stay with us for seven days, you’ll get those e-bikes for free. If you’re less than seven days, you can pay, I haven’t mapped out the number yet, but let’s say 100 bucks for your stay or something.
Also, we are doing a sauna, which I do think saunas are going to see a big growth, similar to hot tubs just because hot tubs are becoming so mainstream that you can go to Costco and buy one for $4,000 or $5,000 and put it at your property. I think the barrel saunas are going to be really cool. Cold plunges, that’s something we’ve talked about at the yurt is doing a cold plunge tank.
These are things that you, as a consumer and as an owner and investor, you are also consuming and choosing where you want to stay and what you like. So please, it’s not as complicated as we might think it is. Yes, look at what your competitors are offering. That’s a big thing too. But there can be amenities that you would also enjoy, and there’s no reason why someone else probably wouldn’t enjoy it as well. So that’s a big thing that I like to factor in.
Also, when you’re doing a unique stay, there’s things you’re going to learn as a host that you have to treat differently than a traditional stay in your listing before your guest books with you, which we can touch on that if need be. You don’t just treat every guest… It’s not as turnkey as you might think when it’s unique. You’ve got to do your due diligence to make everyone’s experience a lot better.

Ashley:
Let’s touch on those little things real quick. We have a little time left. What are some of those things that you were talking about that you put into your listing?

Zoey:
The first year, which… Obviously, we have winter seasonality, and what I like to tell hosts is what’s obvious to you is not obvious to someone else who’s traveling there. You might have been traveling to Joshua Tree for the last 10 years. You’ve been there yourself. You’ve actually stepped foot in Joshua Tree. That does not mean your guest has. So something that you may think is obvious to you is not to them. For example, in our listing, which I was fearful in the beginning of doing this, which is why it didn’t because I thought it was obvious, but in the long run it paid off, to in our listing say, “A 4×4 is required in the winter seasons from November to March. If you don’t have a high-clearance vehicle, we’re not the property for you.”
To me, in the beginning this felt like turning guests down and bookings down, which why would we want to do that? But after the first season, I actually learned that by giving that education and giving that disclosure in the beginning actually made for a way better hosting experience that season and for the guest. I know Robuilt, he touches on that too. He’s like, in your glamping units saying, “Please read the entire description before booking because WiFi could get spotty or there’s solar, so it’s not always going to charge every device you have.” When your guest knows those things before booking, it leads for a way better experience for them. They know what they could be getting into. As a host, you’re not getting burned with those reviews and those mentions and those problems, your job gets a lot easier.
So we disclose a lot of that. We’ve kind of learned our pain points that directions are… Our house doesn’t even come up on Google Maps, so I had to find a way to direct people to a house that doesn’t have an address. We don’t even have a mailing address to ship things to. So there’s just little things like that that you might not think of going into the unique space that a normal home does have those creature comforts. So disclose that to your guest.
Also, anytime a guest has an issue or something keeps coming up, I always take note, is this an issue that more guests and future guests are going to have, or was this a one-off? Like, was this just the person I’m working with who’s just not getting it? Once you get something a few times, that’s your sign as a host that you could be doing a better job to educate them before those questions come up. So when people leave feedback and questions, take those into consideration to improve the experience for everyone and improve your business.
Yeah, there’s just little things that… We’ve even had to put a red solar light at the end of the driveway because people come up so much at dark that now I say turn right at the red light because I’ve literally got so sick of answering phone calls about, “Where is it? I can’t get there.” I tell people, “Arrive during the daylight. The mountains get really dark. There’s no light. That’s the point of the mountains.” So those things seem obvious to us or someone who’s living there or hosted there, but it’s not to a guest that’s coming from across the country.

Ashley:
I recently had an experience, it was actually this past weekend, where a guest checked out early because they heard a critter or a mouse or something in the cabin, and then they found mouse droppings. They sent pictures and everything, and they said, “We understand this is a cabin, but we’re going to leave. Would you mind refunding us for the two more nights they were going to stay?” I refunded them for the whole trip. I felt so awful, so bad about it. So my manager and I, we went into our listing, and we just put a full disclaimer in there: “This is a cabin in the woods. There are…” We didn’t use the word mouse. We said, “There are critters and bugs that may be around.”
It ended up working out kind of nice. Once they left, the cleaner was able to come right in. Then me and my kids went and stayed there for the weekend. It was our first time staying in our fully furnished A-frame. But I had somebody come in and seal everything in spray foam, and we set traps in areas where people and pets can’t get into that are locked, like some of the closets and things like that. But it was just terrifying to me, like, “Oh my God, what are we going to do?” So I posted a Reel about it, and there was a lot of other investors that gave really good advice. One of those was to just put that full disclosure, like, “This is an old, old cabin. Yes, it’s been renovated to the tee, but there still may be that little tiny crack or something that a mouse is coming in at.”

Tony:
It’s a really good point, Ash. I think what a lot of people forget, that your listing, your digital guidebook, your automated messaging sequences, those are living, breathing documents that should be updated based on the feedback that you’re getting from guests through messages, through your reviews. I have a meeting with my team every Tuesday, and we review our reviews for our properties on that Tuesday meeting. It’s very common for me to say, “Hey, we need to update the listing so people understand this,” or, “Hey, we need to update the digital guidebook so people see this before they get there,” or “Hey, we need to update the…” whatever it is.
You’re always trying to make sure that you’re setting clear expectations for your guest. Because it’s not always the lack of an amenity or the lack of something at your property that gets you to have a bad review. It’s the failed expectations that lead to bad reviews. So as long as you’re setting really clear expectations upfront of, “Hey, the WiFi’s spotty. Don’t come here if you’re trying to stream whatever, Fortnite, and watch your favorite UFC fight. Don’t come here if you’re afraid…”

Ashley:
You’re being interviewed on this podcast.

Tony:
Yeah, “If you’re being interviewed on a podcast.” So it’s setting those expectations up front. Man, Zoey, what an amazing conversation so far. I feel like we could keep going for hours here. But I want to take us to our next segment, which is the Rookie Request line. For all of our rookies that are listening, if you want to potentially have your question featured on the show, head over to biggerpockets.com/reply, and we just might use your question for the show.
Today’s question comes from Miranda Weber. Miranda says, “We are planning on getting a cash-out home equity loan on our paid-off home for about $240,000 to use as down payments across three to four rental properties. Our goal is purchase those rental properties this year. We have excellent credit. But my question is, what does this do to my credit each time we take out a loan for the investment? I know it will lower, but will it affect our interest rates as we take out more loans?” Zoey, I’m not sure what your experience is here with the home equity line of credit, but what would your advice be to Miranda in this situation?

Zoey:
It’s a great question and definitely a dynamic question. There’s multiple different situations that are going to answer that, I would say. But I will give an example with the HELOC. This might just challenge what they’re thinking of doing with it. I think in real estate it’s always good to hear what everyone’s doing and then decide what’s best for your strategy. We actually chose to take out a HELOC. We put it into a property that we knew the main goal of that property was the equity and appreciation we were going to get with that property, because we wanted that property to then appraise for a lot more than we purchased it for so then we could take out money from that property to do a next property.
Something that’s interesting is you guys want to do maybe three or four properties, but this is where kind of what Ashley was mentioning earlier is, as an owner and self-managing, that’s three to four listings, properties, units that you’re now going to have to worry about. Where, if those are just, let’s say, three subpar units that are bringing in $8,000 total, $2000, $3000 each maybe, maybe it could be a better investment to take that whole HELOC and put it into one property that could be a stellar property for you guys. This is just where you guys get to decide what’s best for you.
We took, let’s say, a $350,000 HELOC and put it into a property that was $395,000. We actually had the appraiser, this just happened, it happened yesterday, the appraiser walked down the street. I don’t know how many times that happens in life. But he walked down, and he actually said, “Oh, is this your guys’s spot?” He knows everything. “Oh, you bought it for $395,000. I can see when you bought it.” He said, “I just appraised a cabin down the street for $760,000, and they don’t have one renovation that’s been done. It’s full 1920s still. If you guys call me when this is done, this should be appraised well over $800,000 to a million dollars.

Tony:
Wow.

Zoey:
That was why we bought it. We knew our short rental’s going to do great, it’ll look good, it’ll be a cool property, but we’re in this for appreciation and equity because we want to then take that property to leverage the next property. So it’s a great plan, and I think you guys have the great credit you mentioned. But something to think about is, as an owner, what are you taking on logistically and what can you? Can you take on three properties in the next six months physically? It’s not for the faint, by any means.

Tony:
Let’s go to our next segment here, which is the Rookie Exam. Zoey, these are the same questions we ask every single guest that comes onto the Rookie Show. Question number one, what is one actionable thing rookies should do after listening to your episode?

Zoey:
I would encourage any rookie that is in the short-term goals of unique stays is go out there and actually explore and research what your ideal, unique short-term could look like, so kind of build a vision for yourself. A lot of people, they’ll ask me, “What do I do?” I tell them, “Go on Airbnb, the platform you’ll eventually host on, and search those categories that Airbnb is pushing. Where can you actually fall into those? What is your ideal vision?” Like you said, Ashley, you guys have an A-frame. That didn’t just pop up out of nowhere. You had a vision that you wanted that to be an A-frame.
If you really feel this unique space, you’re aligning with it, it’s growing, I can confirm, the category is just going to keep getting better and better, you need to understand where is your place in that because I believe there’s a place for everyone. If you’re not that builder or you don’t have a desire to bring something to life, then maybe you’re the rehabber of a property or you’re really focusing on a certain location or something. So really do your research, spend time on it because it can be a lot of fun. Some of my favorite time passing things to do is go on Airbnb and find those unique stays. I always like to encourage people, create a wish list so you have those on your Airbnb account, and just start favoriting properties you really like. Whether they’re doing a great job with photos or their listing description or their actual stay is phenomenal, go and actually start favoriting those so you can build your dream portfolio that you want to go off of.

Ashley:
Zoey, what is one tool software app that you are using in your business right now?

Zoey:
I would say the biggest thing for short-term rentals is a property management tool, a PMS system, that’s really going to help dial in your business. I talked to some people who say, “I’m so burnt out after the summer season. What do you do to recoup a little bit?” My response honestly is, “You shouldn’t be that burnt out.” If you have the processes in place for your businesses, I’m sorry you feel burnt out, but you shouldn’t because they really take a lot of the heavy lifting off of us as hosts. There are so many different ones out there that you can use, but really making sure you have one that integrates with your business well is going to take a lot of that weight off of you so your time is better spent working on the business, not in the business. I use Guesty For Hosts right now. I’ve seen a few more pop up in the industry. Some are integrating with AI, which I think we’re going to see AI really play into the short-term rental space in managing your businesses. But I’ve heard great things from quite a few of them.

Ashley:
Yeah, I use Hostfully, and Tony, Hospitable?

Tony:
Mm-hmm, yeah. Zoey, are you using any virtual assistants in your business?

Zoey:
At the moment, we do not. I’m on the verge of… Winter is our toughest season, so I’m like, “Okay, is it time to bring someone in as we approach winter?” But with our software and processes, we’ve been able to really keep those expectations to what the guest is expecting, and we really don’t have a lot of those one-off nuances. Because we’re in a unique area, remote locations and stuff, we really rely on our boots-on-the-ground team more than our virtual team per se, because we own two plow trucks, a skid-steer, snowblowers. There’s a lot in the back end of the business to keep something like this open all year round.

Tony:
All right, final question for you, Zoey. Where do you plan on being five years from now?

Zoey:
Five years from now, we would like to continue to grow our unique stay portfolio. We’re young, we have the energy, we have the desire to keep going. We’ve been lucky and very fortunate that our business allows us to travel basically full time and do this when we want. Short-term rentals are very ebbs and flows. You work really hard for a few months, and then you get those months back in your pocket and you get to do what you want. So we really do enjoy, even when the days are hard, being in it and building something and seeing it come to life. There’s really nothing that humbles you more than looking at a half-built house and you’re like, “It looks so good. This is so good.” To most people, this looks like a tear down. So we want to keep scaling that portfolio.
I heard a funny thing, Kristie Wolfe, she’s huge in the OMG category space, and she literally said, “I build stays that I think are cool, and people come to them.” She is probably not like the most of us. She says, “I don’t run numbers. I don’t look at markets. I find things that are cool, and I would want to stay at and that’s how I build my portfolio.” I’m not encouraging that. Run your numbers. But I just thought it was such a great way to… It’s not that complicated. We’re all consumers out there. I thought it was so funny. She’s one of the biggest ones in the space of Airbnb for OMG stays, and that was her response on how she finds properties to do.

Tony:
She’s braver than I am because I got to run some numbers before I do anything. I don’t know if I have the courage just to let my heart sing in that way.

Zoey:
Yeah.

Ashley:
Well, Zoey, thank you so much for coming on and taking the time to share your knowledge and your experience with us. Can you let everyone know where they can reach out to you and find out some more information about you?

Zoey:
You guys can find me on all social channels, Zoey Berghoff. Feel free to shoot me a DM if you have questions, if you’re developing. I’m right there with you in the thick of it, so I would love to touch base with any of you guys. I do have some free resources if you’re interested. Just DM me BiggerPockets, and I’ll send them your way. Those are just the kind of things that have started in my business.

Ashley:
Cool. Thank you so much. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson on Instagram. We will be back on Saturday with a Rookie Reply. (singing)

Henry Chin, Asia-Pacific head of research at CBRE, says, however, that the uptick came mostly from mainland China and Japan.

David:
This is the BiggerPockets Podcast show, 841. What’s going on everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast. The biggest, the best, the baddest real estate podcast on the planet. Every week, bringing you the stories, how-tos and the answers that you need to make smart real estate decisions now in the current market. I’m joined today by my co-host, Rob Abasolo, with an incredibly insightful show on the topic of bringing you up-to-date information. We have Ben Miller of Fundrise who is talking about our current economy, what’s going on with it, and how we can position ourselves to survive or maybe even thrive in the face of some pretty serious changes. Rob, what are some of your thoughts after today’s show? What should people keep an eye out to listen for?

Rob:
I think that we’re going to get some mindset changes from the people that have been in very aggressively acquiring, that set of investors make change how they think and approach real estate over the next couple of years. Very good, insightful, philosophical talk from Ben. He really brought it man. This guy is, I mean a recession genius, if you will, which is a very weird accolade to have, but he knows his stuff.

David:
Although this is a bigger new show, it’s more like bigger conversations and Ben brings a lot of insight as someone who has studied actual recessions. You don’t find a lot of people who have dedicated so much of their life to studying something so depressing, but I’m sure glad we got them. Before we bring Ben in to talk about what’s going on in the economy and specifically the world of real estate, today’s quick tip is very simple. Take some time to redefine what success looks like for a decade. We have only defined success by how much real estate you acquired, and it may be time to look at if keeping the real estate that you have or improving your financial position, if cutting down on your debt might be a bigger flex than just adding more. Let’s get into it. Ben has a long career in real estate and finance/tech. He’s the CEO of Fundrise that currently has over $3 billion in assets under management. A father of three who resides in Washington, DC. As a fun fact, his dog Zappa is the company mascot for Fundrise. Ben, welcome to the show.

Ben:
Yeah, thanks for having me.

David:
What kind of a dog is Zappa?

Ben:
Pound puppy.

David:
I remember pound puppies. Rob, are you old enough to remember those?

Rob:
Are they puppies that weigh a pound? Just kidding. Just kidding. No, I don’t know what a pound… Are you saying like a pound? Do I remember the concept of a pound?

David:
It was a toy for kids. It was like a type of stuffed animal that were called pound puppies.

Rob:
Got it.

David:
They still have them. I actually saw it in the Target toy section. They’ve made a comeback there again. Have you noticed those, Ben?

Ben:
I didn’t even realize when I said that it was like dating me.

David:
Welcome to my life. Rob always pretends like he doesn’t know anything I’m saying. He’s only five years younger than me, but he acts like he’s 25 years younger than me. What are you referring to? A pencil? What is that? How does that work in a tablet?

Rob:
I’m so sorry. A pencil? Ben, you mentioned you’re obsessed with the recession. I don’t think I’ve ever really heard those words in that order when it comes to recession. Why are you obsessed or what are you obsessed about? Just to clear that up for us.

Ben:
I guess it’s a little bit like somebody who’s hit by a car or something and they’re afraid to cross the street afterwards. I’ve been through two major ones. I went through 2001 and 2008. I worked for a tech company in ’99 to ’01, and that company went out of business and tech basically was destroyed. Destroyed for three to four years after that. Then I was in real estate after that and real estate was destroyed, absolutely destroyed in 2008, ’09 and ’10. I came away from those experiences saying 80% of what happens in the world happens during these crises. We just saw it. The last few years has been, it’s just been crazy. The amount that’s happened in a short amount of time. It’s just made me obsessed with these periods.

David:
It’s the fear of it happening again and being exposed when the music stops and you got no chair to sit in.

Ben:
It’s a combination of fear or I would say appreciation of the full power of the ocean, like if you swim, if the ocean is so vast. Also, opportunity. Because I watched a lot of companies survive and flourish out of recessions, a lot of people. It’s like most of the time you spend your day-to-day doing the same thing, it’s pretty stable days. Today is like tomorrow, yesterday was like today, and then sometimes it’s not. It’s really like those times of not that’s the greatest risk and opportunities.

Rob:
David, you mentioned you’ve been a skeptic for a while. The past couple of weeks you’ve changed your mind. Specifically, is that because of anything that you’re experiencing in your market or anything like that?

David:
I don’t know if I’d say I’d changed my mind yet. I hold these things with an open hand. As I’m looking at it, I see like, it looks like we’re heading in this direction, but I’m not going to be making these videos that we are heading to dooms day and it’s going to be the worst ever. Because you go back five years and there’s people that have been calling for these crashes the whole time and they don’t happen. Then some news comes out that changes things like what if tomorrow all of a sudden, they drop rates from seven and a half to three? Probably would have an impact on our economy. I can’t guarantee that it wouldn’t stop a recession, but it very well might. It’s hard when you’re trying to predict what’s going to come in the future with all of the moving pieces that we have. My take on a lot of this, or I guess to answer your question Rob, of why do I see this happening? I’m noticing a lot of companies are laying people off.
In my 40 years of wisdom in life that I’ve developed, what I’ve noticed is that a lot of the economy is a momentum thing, and it depends on psychology. When you feel wealthy, you spend money. When you spend money, you make other people wealthy, they feel wealthy, they spend money. Your real estate goes up in value, you feel like you’re wealthy. Your stock portfolio goes up. You go out to eat more often. You buy a more expensive car. The restaurant owner and all the waiters, they get more money. The person who sold the car, they get more money. Now they take a vacation. The hospitality industry does well. They start hiring more people. Those people start to get more money. They can pay higher rent on their houses or they go buy a house. Everyone does better when money is changing hands faster.
When we raise rates, we slow the velocity of money. Money starts changing hands slower. People feel less wealthy, they spend less money. Now the momentum is going in the opposite direction. It’s often psychological. It’s very difficult for us to pin and say what we could do to stop it. It’s often what you could do to make people feel like it’s okay to spend money or how you get money changing hands. Frankly, I’ve just noticed a lot of companies have been looking at their PNLs and saying, we don’t need this many employees, and they’re laying people off. People at one point were complaining about having a W2 like it was the worst thing ever. They were a victim because they couldn’t get financial freedom by 25 and they had to have a job. I think a lot of these people are now saying, “Oh, man. I wish I had my job. Can I get another job?” It could get a lot worse. How does that sound, Rob?

Ben:
That’s good. I think you’re getting at this point that I call it magnitude, but you described it a similar way, which is essentially there’s a feedback loop. What happens I think, is that when things go well and things get hot, they get hotter than anything could possibly make sense. We saw that with meme stocks and crypto and things just got crazy in 2021. The exact reverse can happen too. When things go bad, they can just get totally illogically bad. I think that when people are looking at the odds of recession, they’re not adjusting for the magnitude of how bad it could get. It’s just not logical. It would get as bad as it does in 2008 or 2001. We got beyond logical. It’s because it’s not logical. You said it’s psychological, it’s emotional. People are forced sellers by events outside their hands. That magnitude, I think it’s really hard for people to appreciate without going through one or two yourself. Every time I think of my odds, I always try to adjust them to the scale of the risk, the scale of the problem, not just the odds of it happening.

David:
You’ve studied data from the past nine recessions. Based on that, you’ve come to some conclusions. What are some of those things that you’ve realized after looking at other recessions, patterns that you’ve picked up for what to expect?

Ben:
Well, so one of the things I’ve learned is that if you want to understand the future, you should look at the past. I was convinced there was going to be a recession. I’ve been convinced since basically when Russia invaded Ukraine. I was perplexed by why there hasn’t been one yet. I just went back and looked at the last, I guess I went back to how far fed data goes. Fed data goes to mid-1950s and there’s been six, maybe if you think March 2027 recessions in that period since 1969. They actually all follow a pattern and the pattern is really clear. This was the thing that surprised me because I didn’t know. The Fed starts raising rates because they’re trying to cool the economy down.
They raise rates slowly and it usually takes them about a year to 18 months to fully raise rates. Then once they finish raising rates at a peak, there’s a lag. There’s a lag that lasts on average 10 months from the peak of when they raise rates. They peaked raising rates in July and the average lag is 10 months. 10 months from July is when the recession would on average hit. That’s like May 2024. That’s a long time from now. That’s what happens. It happened in 2006, it happened 2000, in ’89 in 1980. I was like, “Oh, wow. I didn’t appreciate, that’s such a long lag.

Rob:
Why is that, Ben? Why does it take 10 months or however long you’re talking about? What’s the reason for that?

Ben:
I mean there’s general reasons and specifically what’s happening today. The general reason is that monetary policy is a very indirect way to affect the economy if you get into it a little technically, like basically nobody borrows from the Fed. No, people do. Banks are the one who borrow from the Fed. You have to slow banks down and then the banks have to then slow down consumers and companies. That credit channel they call it, it’s really slow. We’ve seen it. We’ve seen from 2008 to 2020 interest rates were relatively zero. That’s like almost, what is that? 12 years. Took a super long time for all that monetary, it’s like printing trillions of dollars. It took a long time for that to feed into the economy. It’s actually funny, I’ve been reading this paper. Milton Friedman, famous economist, he’s a conservative economist, some would say monetarist. He has this famous quote. I just found it reading this paper, “The central empirical finding in my conclusions that monetary actions have a long and variable lag on economics and economic conditions.”
He wrote that in 1961. Generally, that’s how it works. Then specifically, we just have $5 trillion of stimulus, fiscal stimulus that went into the economy. That has to work its way through the economy. Then it’s like, we juiced the economy. That’s working against the monetary policy that’s trying to slow everything down. Those two things will eventually, that fiscal stimulus will and has, it’s going away. Student loan payments are resuming. I don’t know if you saw this, but child poverty rates, we’re at 5.5 I think a year ago and they’ve jumped to 12.2. They’ve doubled in the last 12 months because a lot of the program supporting SNAP and welfare and stuff have basically diminished. There’s a lot coming out of the economy. The essence of it is that just 350 million people, hundreds of millions of different actors, companies, it’s slow. It’s so slow.

David:
Is this something like where somebody eats a pot brownie and they’re like, there was nothing there. I don’t feel anything. Let eat three more of them and there’s a lag and then it all hits you, all that stimulus hits you at one time. Is that what you’re describing?

Ben:
That is not the analogy I was imagining, but that’s a decent one. Then the problem is you can’t really unwind it. You just have to work your way out of it slowly too. Because by the time it’s hitting you, hitting the economy, to unwind it has the same long and variable lag. The Fed, just to look at what’s happened recently, inflation hit the economy May 2021. If you’re in real estate, you saw it in your rents, just everything. The economy woke up May 2021 with the vaccine and all this stuff and it just roared. We had inflation, I don’t know what it was, I feel like rents were up 20, 30% for us. That’s May 2021.
If Fed doesn’t start raising rates till a year later, a year. There was zero all through that period. You look back and you’re like, “Well, that was crazy.” Now just flip that. Inverse it is what Warren Buffett always says, invert it. You flip that and say, now all of a sudden, everything’s going bad and they keep rates high despite all that. There’s a great quote, I know if you know this quote, the Fed talks like a traitor, but acts like an accountant. They talk a good game, but they always look in the rearview mirror when they make their decisions.

David:
If we’re understanding the lag well, it’s because when you make the decision, the effect isn’t instant. Again, an oversimplified analogy here. We took some caffeine and it took a minute to kick in and we just kept right to zero and then we feel great and we realized we’re feel a bit too great. This kid needs to go to bed at some point, let’s give them some NyQuil. Then there’s a period of time after you take the NyQuil before the NyQuil kicks in and these economic decisions that they’re making are always, well, we have a problem. How do we fix the problem? It takes a minute before that kicks in. As we’re sitting here making financial decisions, trying to decide what we should buy, what we should invest in, where we should put our money, we’re trying to make those decisions in real time. Your argument is that there’s going to be a lag after the Fed makes big jumps and so you’re not going to feel it right away. Is that pretty accurate?

Ben:
Yeah. That’s 100% accurate. The debate I thought we were going to have, David, was like there should be a soft landing because unemployment is so low and job growth has been so strong and households are so healthy. Even though that’s always how it has worked, this time is different because it’s just like a special moment.

David:
Well, let me give you the fight you were looking for because that is going to be more fun. I don’t want this to be clipped and someone puts it on TikTok and say, “David is saying there’s no recession.” That’s always the fear you’re going to have. Let me play that hypothetical role. I do think there is a chance that some other president gets elected and says, “I need to make the economy look good. I’m going to come in and I’m going to lower rates again and we’re going to create some new form of QE.” Maybe they don’t do the exact same thing because that would look reckless, but they come up with a fancy name and they do it a different way. It effectively is a new form of stimulus. Then just when we were supposed to crash, we go and then the plane flies even higher than ever, which theoretically could cause an even bigger crash later. What do you think about that?

Ben:
A different way to say is like, during these lags, new things can happen. We have peace in Ukraine. That’s another thing. I think that’s actually could be the most positive dis-inflationary effect. In your specific scenario, it would still be lag. You’re talking about 2025. This is why it’s so hard because you have to take in the psychology of the institutions we’re talking about, is the Fed likely to want to drop rates again? We know about the Fed, if you’ve read about their history, because there’s a lot of history. I understand the Fed, there’s great, great books about the history of the Fed. Thing institutional character of it is that they are slow, super slow and they have biases or preferences, if you want to call it preferences.
For example, they idealize Paul Volcker who was a fed chair in ’79 to ’88, I think. He’s a fed chair that battled inflation and won and goes down in history. Everybody wants to be like Paul Volcker. Then there’s this other guy, Arthur Burns, who was fed chair before Volcker. He goes down in history as being a disaster. What he did, there was rampant inflation in the 70s, like 20%. There was a recession in ’74 and inflation came down and they then dropped rates. In ’75, he drops rates again because inflation had come down and inflation came back. That goes down to one of the fed’s biggest mistakes in history. All institutions always fight the last battle. They don’t fight. That’s just the bias towards fighting the most recent. I just think there’s a huge institutional bias or preference away from dropping rates and QE, even if there’s political pressure. Anyways, let me go back to the magnitude point. If anybody knows Nassim Taleb, who wrote Black Swan and Antifragile and tons of really good books, I recommend all of them.
He has this point he makes, which is that when you look at the risk of drinking a glass of water, I said there’s a 1% chance, it’s a really small chance, 0.1% chance that it’s poison and you’re going to die. What’s the chance you’re going to drink that water? The magnitude matters more than the chance. Whether you have a business or your career, we’re talking about real risks here. We’re not talking about if it’s going to be really good or kind of good, we were talking in 2020 or in 2019 or ’18. We’re talking about real risks. The downside risk is not worth what you’re getting paid to taking it. That’s why I’m obsessed with the magnitude. Then I always adjust my chance by saying, I say 80% chance of recession. I don’t mean probabilistically, I just mean on a weighted adjusted basis. Because you look at all of the countervailing factors in the world, China, Russia, inflation, deficits, and I say, well, this is a time for caution. That’s just my bottom line.

Rob:
I’d like to follow up on that. The interesting thing in the real estate side of things, it seems like a lot of people are scared of selling their property because then they can’t get into a new property and they’re going to have a higher interest rate. Going into the recession, do you feel like real estate itself will be impacted pretty adversely or do you think the housing stalemate will continue?

Ben:
Real estate is typically highly impacted because it’s very sensitive. Interest rates and things that are sensitive to capital flows are more impacted. Things that are not impacted, just an example, like food. Food is typically not very, or liquor not very impacted by this type of change in the economic environment. Typically, real estate, which has a lot of debt and that’s why it’s so interest rate sensitive, is heavily impacted by it. Then some real estate is worse than others. You asked about housing. Housing is actually usually less impacted, but it depends on what kind of housing. It’s already, real estate, at least in the commercial world or institutional world, is definitely in a recession. The institutional real estate is in a recession. That’s a fact.

Rob:
Can you define what institutional real estate is for everyone at home?

Ben:
I would say it’s when it’s being bought, owned or sold by a company, by a certain scale, I would say. Like when you’re talking about in the tens of millions or hundreds of millions or billions. Not individual who’s buying a house or two houses.

Rob:
You mentioned that typically things that are so interest rate sensitive are going to be hit. We’re talking about real estate in this capacity. Can you help us understand, because it tends to sound a little doom and gloom, which it’s a recession, it’s a very serious thing, but how can investors take ownership during a time like this? Do you have any tips for people that are looking to get in the real estate space or looking to just maintain what they have?

Ben:
My theme here is caution and I’ll just go to the greats, the GOAT here. Warren Buffett and Charlie Munger, they always talk about being patient. They say sit on my hand, sit on my butt. I have this quote from Charlie Munger. He says, “It takes character to sit with all that cash and do nothing.” I believe that it’s going to get worse before it gets better. Stanley Druckenmiller who’s a famous investor also, he says he’s waiting for the fat pitch. I think that being patient is very much underestimated. It’s undervalued by people because they feel like the activity is what drives value. Then the older you get, the more you realize that it’s activity during certain periods that really matter. It’s like if you think back, look on your career, list the top five decisions you made that were most impactful to your life. You can know it’s super concentrated. It’s a magnitude thing again. I think it’s not what generally you get from social media, that’s all this activity that’s going to matter. It’s actually inactivity. In 2021, most people should’ve been more inactive. All those day traders.

David:
It’s a contrarian stance. It’s saying, if you follow what everybody else does, you join the party and then there’s a lag that you may be jumping in during the lag and then once you planted your flag there, the consequences hit and you’re caught off guard, in a sense.

Ben:
There’s another quote for you by Andy Grove who’s one of the founders of Intel. He says, “Make reversible decisions quickly and irreversible decision slowly.”

David:
You know what? I’ve heard of that described by Jeff Bezos in Amazon. He has a policy, because Amazon is growing incredibly fast, they almost cannot keep up with the speed of their growth. With his leadership team, he talks about one-way doors and two-way doors. A one-way door is the decision that once you go in that way, you cannot come back out. It cannot be reversed. A two-way door is a decision that you make that if you realize this isn’t where I wanted to go, you can come right back out. What he says is, if this is a two-way door, if you could make the wrong call and then reverse it, just make it.
Don’t sit here in six months analyze what to do. This is a one-way door, you need to stop and actually put the time in to making sure you made the right decision before you invest a significant amount of resources, capital, energy, whatever the case may be. I thought that was really good. When it comes to our own point of making decisions, if it’s a two-way door, it’s okay to go a little bit quicker. What I’ve told people before is when it comes to house hacking, for instance, here’s a practical example. I don’t know, do I want to buy in that part of town or this part of town and what if I end up not liking my neighbor and I don’t know about the color of that?
They just sit there, and for five years they’re analyzing what they should do. When I look at it, that’s obviously a two-way door. You buy that house, you rent out the rooms to other people or it’s several units. If you don’t like it, you just make it a rental and you move out and get another one. As long as you make sure it would cash-flow if you didn’t live there, that does not require an intense amount of decision making. Or you start a business very low actual money that you had to put into it, it’s just going to be elbow grease. You don’t like it, throw it out the door, go somewhere else. Versus some investments, significant down payment, going to be very difficult to sell to somebody else. That’s when you really want to take some time to think about. Ben, on that note, what are some areas where you see could be two-way doors and some that you see could be one-way doors moving into a potential recession?

Ben:
I love all the things you just said. A lot of times that first step, you don’t realize it, but actually what you’re buying is learning. You’re trying to get up the learning curve to mastery. I’ve learned this entrepreneuring in the beginning of Fundrise. I was obsessed with trying to plan things out and then I learned that you can’t plan anything out and that you have to learn by doing. Taking many low risks is really smart because you actually end up learning more than you think. Being inactive doesn’t mean you’re not putting yourself out there. A lot of people I find what they’re worried about is actually looking dumb. They’re worried about making a mistake, they’re going to be embarrassed by. That’s a huge barrier. That doesn’t matter. The sooner you can get to that place, the sooner you’re going to actually get to mastery and excellence. If you’re trying to basically get started, I would just say go and then just size the opportunity to the amount you can afford. Don’t get over your skis.

Rob:
What about in terms of if you are deploying money during this economic climate, where would you recommend people deploy money outside of real estate? Are there other ways that people can be diversifying outside of the real estate side of things?

Ben:
Well, we are a real estate investment platform. We have $7 billion real estate and I think we have 37,000 doors or something. We have a lot of real estate scale and I can talk really specifically about what we’re seeing in real estate, which you asked. I got to the philosophy. We launched a venture platform, so we’re investing in late-stage tech. Because I think tech is actually going to do pretty well even if we have a recession because AI is a generational breakthrough, like the personal computer. Goldman Sachs, it says it basically has a chance of being 500 times more productive than the personal computer. I’ve been actively investing for our investors in high-tech. I can name companies, Databricks and DBT, and that’s been I think really, really productive and I think it’s been awesome. Then on the real estate side, probably going to have confirmation bias for you guys, but I’m going to bear on downtown cities. I’m old enough to remember when DC and San Francisco and New York and LA were just absolute horrible. Downtowns were just like, you didn’t go there.

Rob:
LA, for sure.

Ben:
That cycle is happening again. It’s not going to be the same. Something like that is happening because the work from home is not going away. It’s going to get worse. Better, worse, whatever your perspective is. Because soon we’ll have immersive VR and we’ll have AI and you’re not going to go to the office. I think that if I were buying and we are buying, I’d be buying in housing for families and riding the demographic trend, trying to build being in the suburbs. I’d be focused on rental housing, not for sale housing, not flipping. Flipping, I think has got a lot of risk right now because I think the music could stop. Absolutely stop. That’s what happens usually in a recession. Music stops and you don’t want to be in a position where you have an expensive loan and you can’t sell the house.

Rob:
I’m feeling that a little bit. I feel like I’ve seen so much changes in the flipping thing. What I like about the rental side of things is at the very least, we’re trying to break even here. If it does go south and you aren’t exactly hitting your numbers, it’ll take a very long time to really feel that impact. Whereas if you go into a flip, it’s possible to lose a big sum of money, 30, 40, 50, 60,000. I know people that are going through that right now and that’s a very difficult thing to absorb in one gut punch.

Ben:
Actually, one of my big learnings about real estate, I’ve now done it for 20 years, is that you really want to get in a position where time works for you in real estate. Time is at your back. It’s a tailwind. There’s a lot of real estate deals where time is working against you, speed. I think that’s always a mistake. It may work out occasionally, but really, the power of real estate is this compounding growth over time. It’s sneaky how much that can really work for you. I always try to look for deals that are like, well, if it doesn’t go well and I have a year, the next year will be better. Time is the most valuable asset. The bottom line is time is most valuable thing in the universe. Seeing it at that, it’s so powerful. Once you see the power of time, whether it’s I’ll wait the person out or I’ll wait. That’s why rental housing I think is ultimately the much better risk-adjusted return. I don’t think you make that much more money on flipping, considering how much more risky it is.

David:
How much more taxes that you pay, how much more closing costs you have. It’s a very inefficient way. I like to look at money like water in a bucket, just because to understand how much money is worth is so tricky when the value of the dollar moves around so much. Instead of trying to figure out exactly how much money this would be, I think about how much energy it would be. In a flip, I buy a property below market value where I added some energy to a bucket and then I improve the condition of the property, which hopefully, improves the value, which adds more water in the bucket. Then when I sell it, I pour all of that water into a different bucket, which would be my bank account. During that process of selling, you’ve got all of these hidden costs that you weren’t expecting. You’ve got the closing costs of the realtor, you’ve got capital gains taxes, all that water spills.
Even if you did a great job of putting the water in the bucket originally, which is the part you control. In the best-case scenario, your win is still a lot less than what it should have been, versus what you’re describing buying rental property and waiting for a long time. The energy stays in the bucket. When your property goes up in value, you’re not taxed on that. You have options of getting the energy out of the bucket like a cash-out refinance that you’re in control of. You do that when you want to. When rates benefit you. You don’t have to because you have to sell this property. Where the market is, is where it’s at. It really gives you the control to monitor the stuff you’re talking about, Ben, the condition of the economy and make the decisions to extract your water and reinvest it somewhere else when it benefits you. Is that what you’re getting at when you’re talking about playing the long game with real estate?

Ben:
Totally. Also, think about it, if you sold in 2021 versus if you’re selling in late 2023, you’re selling in 2021, there’s a hundred buyers and it’s really a good time to sell. I’m closer to the commercial real estate, but I’ve sold stuff in 2021 where I had 30, a hundred bidders. It went for millions above the price we thought we’d get. If you sell now, there’s like maybe two and they’re going to low ball you. Having the ability to basically, sell on your timing. You can be filling that bucket up, but if the tsunami comes and knocks you down, like my experience in 2008, I learned that the macro will swamp the micro. You can spend so much energy doing that flip and having the perfect design and 2008 hits or the pandemic hits. It’s so much more powerful than you are.

David:
That’s one of the things frankly that’s frustrating about being a real estate investor. Because we listen to podcasts like this, we take courses, we read books. We like the feeling as a human of control. If I just learn how to do this. That’s why I think a lot of us, like spreadsheets, is they give you a feeling of control. You can create order out of chaos and it makes you feel safe. The reality is, like you said, it’s maybe 10 to 20% how good of an operator you are, and 80 to 90%, what the conditions are that you’re operating in. We just don’t like it. It’s uncomfortable. I was thinking when you were talking about the nature of commercial lending. It’s got balloon payments and it’s based on the NOI of a property. You can have a property that has a really solid cashflow, you’re crushing it. Your balloon payment comes due and you got in at a 3% rate.
Now rates are 8% and it’s not going to cashflow at that time. Or it happens to come at a time like right now where office space is not as desirable as other spaces. We’re in this flux period, there’s a bit of a lag there. Is office valuable? Is it going to be valuable? Where are we going? Are people going to work from home? No one knows. No one really wants to jump into that game until we get some stability there. You could have a property with office space that you’ve increased the NOI on, maybe you’ve doubled your NOI. You’ve done everything an operator is supposed to do. You’re a stud. Like you said, the macroeconomic conditions work against you. The tidal wave wipes you out no matter how much you’re working out your legs and how strong you got. It’s a bummer. I don’t know another way to say it when somebody has committed themselves to mastering their craft and then some of the decisions that happen from the overall economy just wipe it out. Is that what you’re getting at?

Ben:
Definitely. They lemonade out of the lemons thing is like, that’s definitely going to happen to you anyways in your life. It happened to me. Essentially, the learning you get out of it and the reputation you get from how you behave during that period and you see a lot about other people. You see how this person behaved in that situation. I mean you get a lot out of those periods. It doesn’t feel like it at the time. You’re probably in your 30s. You have decades left to make it up. That’s why I’m obsessed with the recessions. Lots of people worked a decade to get here and they can get wiped out just because of the tidal wave. I don’t think there’s going to be a tidal wave. I’m not saying it’s going to be as bad as ’08, but it is for office. It’s worse. The lack of control is something people, emotionally, it’s a cognitive bias, you don’t want to believe how little control you have over your life.

David:
It’s a solid point that you’re getting at there. I think we judge people that fail a lot of the time as don’t look at this person, they failed. Based on what you’re saying, you’re making a good point. Sometimes the best person to trust is the person that has already failed. They learn the lessons who you can trust when something happens. How to maybe see it come in the next time a little bit better than the person that’s never failed that has this. I guess maybe an analogy could be you have a fighter that’s undefeated because they’ve only fought bad opponents. Gives this impression that they’re the best. The person who’s fought the best in the world may have much more losses on their record, but they’re going to be the better fighter. I think when it comes to finances and real estate investing, there’s an argument to be made for that.
You see things coming that other people wouldn’t. What I’ve been thinking about lately is just how do I start playing more defense? The last 10 years, the metrics of success we measured. How many doors did you get? How much real estate did you buy? How much cashflow could you acquire? That’s what everybody at every meetup or every event or on social media, everyone’s posting the same stuff. Like, this is how much I acquired. As we’re slipping into what could be a recession, and by the way, we didn’t get into it, but I do think we could go into an economic recession and residential real estate could still stay strong. That might’ve been the fight.

Ben:
I agree with that.

David:
We can’t fight over that either, unfortunately.

Rob:
Dang it.

David:
As we’re heading into recession, victory to me looks like surviving. A lot of the competition is going to get wiped out. How many of our assets, our businesses, our net worth, how much can we hold onto? You just have to assume you’re going to lose some. Rob, what are some steps that you’ve been thinking about taking when it comes to a recession? The fact that you and I are both heavily exposed with short-term rentals. That’s probably going to be a factor that’s more sensitive to people feeling like they’re less wealthy. They’re less likely to go take a vacation to a nice property if they feel like they’re poor. Now’s the time to start thinking defensively. Let’s get some ideas from you about how you’ve positioned things.

Rob:
Sure. Well, first and foremost, most of where I invest are national park markets. The Smoky Mountains and stuff like that. I think that those markets tend to be a little bit more resilient, simply because people are always going to go to the Smoky Mountains. Maybe they can’t buy plane tickets for eight people in their family and go to Disney World, but they can go to what I always call, Mother Nature’s Disney World, like national parks. I think for people that are looking to maybe get into the game, those for me always seem to be markets that perform relatively well. I’m not acquiring quite as viciously as I was, but for a multitude of reasons. It’s not necessarily because I’m scared or I’m like, I don’t want to buy things during a recession. I actually am such a big believer. I’ve just had this realization over the past few months, which is a very simple realization, by the way.
What I’m about to say isn’t really the newest idea. I think the best defensive tactic anyone who’s already heavily invested in short-term rentals or really anything is just portfolio optimization. I think that this is a huge, huge thing for me right now. When you put into perspective of a short-term rental, let’s say you’re buying a $400,000 house, well, you’re going to need 20 to 25% down. You’re looking at $100,000 to close on that loan, plus another 20 or $30,000 to actually set it up and get it ready. 130,000 bucks, that’s not a small amount. Then on that 130,000, you’re trying to make a 10 to 20% return. That’s what we’re fighting for in any deal these days on the short-term rental side. What I’ve come to the conclusion that instead of doing that and spending a ton of money trying to get a great return on a new house, what could I do to actually raise the revenue of my current portfolio? How can I make more money with my portfolio?
I’ve talked about this a bunch of different ways. I’m adding amenities to my properties that cost way less than buying a house but will have a really big impact on my revenue. I built this really crazy tree house deck. An outstanding amenity at my house at the Smoky Mountains. I think that it will increase my revenue by 15 to 20,000 because we added a hot tub. If that is true, I’ll have a 50% return on that specific investment. When I start calculating my portfolio, I’m like, what are these five to $20,000 investments I can make to make that much more every single year in gross yearly revenue? My defense is just really solidifying every single property and maximizing revenue to the highest extent. I think a lot of people do get into this mindset of, I need to get another short-term rental. I need to get another door. It is a very, very popular methodology and mindset. Not enough people focus on just making the most amount of money from the actual properties that they already have. That’s what I’m doing right now. What about you?

David:
I think I’m operating under the pressure that inflation is probably going to keep happening even as we raise rates that it’s odd that we’ve raised rates this much and residential real estate values haven’t dropped, and food is still more expensive and gas is still more expensive and cars are still more expensive. It’s odd that raising rates hasn’t actually dropped the price of a lot of things. It’s just caused money to change hands less frequently, which has caused people to feel less wealthy. I feel like you have to still put your money in smart places. Now, that doesn’t necessarily mean buy more real estate. That could mean putting it in reserves. That could mean doing exactly what you’re describing, Rob, if I spend X amount of dollars here, I can increase my ROI in this place.
I’m thinking about the type of asset I’m putting it in, much more than just how do I maximize ROI? I think that when your economy’s doing very well, your thoughts are, how do I get the most return on the money I possibly can? As we head into a recession, I operate under the understanding that I want to keep as much of this as I can and be positioned when we come out the other side to be able to go run after the stuff you’re getting and get into the acquisition and play offense again. Ben, what’s your thoughts on victory in a recession is winning at defense? Do you think am I off on that? You’ve studied this a lot more than I have.

Ben:
I think you’re right on the money. You just said this, Rob, your goal is make 10 to 20% on your investments. You can go get that in the market today. There’s good mortgage REITs that have yields of 13%, current. If interest rates fall, which I think they will, that will appreciate and they’re liquid, you can then sell that and get into a property. Same with treasuries at 5%. It just seems like the Fed wants you on the sidelines and there’s the saying, don’t fight the Fed. Go on the sidelines because they’re going to punish you for not being on the sidelines.
Any good sports team, they’re good at defense and offense. The team that only can play offense, you watch them, you’re like, and they just get beat time and time again. I think that’s right. I wanted to say one more thing, David, you said about two-way doors. The funny thing about two-way doors is that a lot of times people, they get invested in the decision they made. It’s called the endowment effect. It means basically, once they made a decision, they feel like to unmake it, they made a mistake. If you own, I don’t remember, Rob, maybe you own 10 short-term rentals and you need to sell one at a loss, so now you have cash to hold the other nine. That’s okay. That’s the long game.

Rob:
Interesting.

Ben:
You said portfolio thinking, it doesn’t matter what you paid for something. You look at this exact moment, what’s the best decision? Are you a buyer? Are you a seller? Because interest rates are so high, it pushes you into the liquid market.

Rob:
It’s mega interesting that you say that. Because as real estate investors, I think over the last few years, we have been in this mindset of deploy, deploy, deploy. If you have cash in your bank account, you’re a dummy. You need to be moving that cash and making money. That’s this mindset that I’ve always had that I’ve been deploying a lot and recently, I’ve been holding onto a lot. I’ve been saving a lot. I’ve got multiple companies, I pay a lot of people now. I have a lot of real estate. I just like to make sure that I have reserves. I was talking to Codie Sanchez a couple of weeks ago and I told her, I was like, “I feel weird being a real estate investor that has any amount of liquidity because I’ve always been trained to just deploy it.”
She was like, “Yeah. Real estate investors are kind of weird like that. Rule number one, don’t go bankrupt.” I was like, “Wow, that’s a good rule.” She’s like, “Keep money. Hold onto it. Don’t go bankrupt. That is rule number one above all the other real estate principles or investing principles. It’s never going to be a bad thing to have some cash in your savings.” I think I am starting to move into this mindset a little bit more of saving. It’s interesting that you say, maybe I sell a property at a slight loss or I take an equity hit so that I have reserves for the other 40 properties. I think that’s honestly, something I hadn’t really considered.

Ben:
The CEO of Zoom, if you ask his advice, you’ve seen him on a podcast where he said, “Survive. Survive, survive, survive, survive.” He repeats it like 12 times. Look at Zoom, I mean just like, he was in the right place at the right time. He had to get there and that fat pitch came and worth whatever, tens of billions.

David:
Such a good point. You know what, Ben? It comes back to your perspective that the macroeconomy is so much more impactful than the micro. In an environment of plenty of prosperity and peace, winning is about acquiring more wealth or more friends or better relationships. Whatever you’re measuring, it’s by getting more. If you’re in a war, winning is about surviving. Nobody’s in a war worrying about, I want to be driving a Ferrari instead of a Civic. They just want to live. I think the environment dictates what the rules of success are. What the question that we’ll get a lot here is, David, how do I make money in this market? Well, that’s a good question.
It also presupposes that the goal is if we’re going into a recession, you should be trying to make as much money as you can. I would tend to think the goal is how do you keep as much of the wealth as you’ve been able to create? How do you survive this and position yourself so that when we come into a time of peace, you’re ready to go forward? Now, none of us are going to turn down an opportunity to make money in a recession. I think my expectations just drop that I don’t feel bad if I’m not increasing my net worth by as much or I’m not adding more doors as it would be if we were in a time where it was easy to do that. Right now, holding onto the real estate you have, not losing as much money, seeing your revenue not drop as much is a win. Have those thoughts crushed your mind yet, Rob?

Rob:
Definitely. That’s the big one now. It’s like, you grow at such a fast rate when things are going well, I guess it is just a weird feeling to say, it’s still a victory to just have what you got. If you’re keeping your net worth where it’s at, that’s much better than losing it. I think it’s just a lot of people are having to kind of, they’re being forced to settle a little bit. I think that makes people feel like they’re failing, but it’s the opposite. I think it’s the very opposite of failing to hold onto what you have. It’s a new thing that I’m going through myself.

Ben:
Like a race car driver. If you never hit the brakes, you would definitely crash. An all-around player plays the highs and the lows.

David:
That’s a great point. Nobody in a race car is smashing on the gas when they’re in the middle of a hard turn. It’s when you hit the straightaway. I love that analogy right there. Some economies are a straightaway and it’s all about how fast can you go. There’s other economies that are dangerous with a lot of twists and turns, and it’s all about how safe can you go. You make wealth in the straightaway as you maintain wealth when you’re in these turns and studying the track lets you know what you should be doing. I really appreciate being here, Ben, to explain why this is important to study. If people want to reach out to you and learn more, where can they go?

Ben:
I’m on Twitter, BenMillerise and fundrise.com. Hit me up.

David:
Awesome. Rob, what about you?

Rob:
You can find me over on YouTube at Robuilt, R-O-B-U-I-L-T, on Instagram, too. Depends on what you want. You want short form, funny reels, or do you want long-form videos that teach you how to do real estate? You can pick your poison. What about you, David?

David:
Find me at DavidGreene24, the most boring, yet stable screen name in the world. Going into recession, you definitely want stability. Go give me a follow on social media at DavidGreene24, or visit davidgreen24.com and see what I got going on. We here at BiggerPockets are dedicated to giving you the real, the raw, what’s actually happening and racking our brain to come up with strategies that will work. In times of feast or famine, there’s always something to study and there’s always something to do to improve. Ben, thank you for being here today and sharing your wisdom. It’s not often we get to talk to someone who actually studies worst-case scenarios and how to survive in those. Everybody, go give Ben a follow and reach out and let him know that you appreciate him on today’s show. If you’re watching this on YouTube, leave us a comment. Let us know what you thought. This is David Greene for Rob, the short-term speed racer, Rob Abasolo, signing off.

Dave:
Hey, everyone. Welcome to On the Market. I’m joined today by James Dainard for the start of short-term rental week. I feel like we need echoey music for that, or some sort of big announcement for our first ever short-term rental week. I’ve talked about this with Henry, James. Are you a short-term rental guy? Staying in one, not investing in them. Do you like staying in short-term rentals? Do you prefer hotels?

James:
I have no problem staying in them. I’m definitely good staying with them, but I go with whatever’s cheapest is what I go with, especially when I’m traveling for work. Now, if I’m with my wife and kids, they like hotels, the amenities trump it all, and so we do hotels on vacation. But I will do them. If I can find them and they’re cheaper in hotels, I will definitely rent them.

Dave:
That is something that we’ll get into throughout this week, but it’s interesting to see how Airbnb and hotel prices compare to one another. Because I think Airbnb started as sort of this cheaper option, but both have gotten so expensive that you never know, depending on what market you’re in, which is actually a better deal.

James:
Yeah, I feel like for me, I look on both and they seem like they’re about the same. But one thing I have learned, if you plan ahead, it’s way cheaper than hotels. If you’re doing it last minute, it ends up being flush. So, whatever I can do to save a dollar is what I’m chasing.

Dave:
Yes, of course. Well, this week we have two excellent episodes for you to talk about short-term rentals. Today, James and I are going to be interviewing Jesse Stein, who is the global head of real estate for Airbnb. So, we’re going to be talking about what’s going on in the short-term rental market. And Jesse’s also going to share with us a couple of strategies, new developments, new products at Airbnb that I think are really interesting, particularly for investors and particularly for people who are just trying to get into short-term rental investing right now. They have a new product line that we’re going to get into.
So, that’s what we got for you today. Interview with Jesse Stein. And then, on Friday for our second episode this week we are bringing on Vacasa, which if you don’t know, is one of the largest property management firms for short-term rental industry. And they’re going to be sharing with us some research about the best markets to invest in for short-term rentals. So, we’ll be diving into market data on Friday. So, hopefully these two shows combined will help you understand the state of the short-term rental industry and where the market is going in 2024, and what opportunities might exist. James, are you ready?

James:
I’m ready. I really do love this concept we’re jumping into. It’s save money, reinvest it. It’s a great way to do it.

Dave:
All right. Well, with no further ado then let’s bring on Jesse Stein, Airbnb’s global head of real estate.
Jesse, welcome to On the Market. Thank you for being here.

Jesse:
Thank you guys for having me. I look forward to the conversation.

Dave:
Well, we’re excited about it. So, Jesse, you have a very cool title. You are the global head of real estate for Airbnb. Can you tell us what that means?

Jesse:
Yeah, it’s a great question. I mean, what does the global head of real estate for an asset-like company actually do? Because we don’t own any real estate.

Dave:
I didn’t want to say that, but yes, that’s true.

Jesse:
But I joined Airbnb from the private equity community. I used to lead investments for a private equity company, investing in hotels. I did that for roughly a decade. I was really brought on to be the conduit between the institutional real estate community and Airbnb. Airbnb has grown from zero to 7 million listings without ever partnering or creating opportunities to partner with large institutional real estate investors. So, I was really brought on to create a team, to come up with new verticals, to bring the institutional real estate community to partner with Airbnb. And that’s kind of been my role for the last couple of years. And my team consists of software engineers, policy individuals, marketing individuals, as well as a go-to-market team. So, across all assets, I’m basically a general manager within Airbnb in the real estate area.

Dave:
Very cool.

James:
That’s pretty vast. That’s the bigger money in the Airbnb space. Hey Jesse, real quick. So, you came from the hotel business. How similar is the hotel business to the Airbnb or is it a totally different game when you’re looking at operating those?

Jesse:
I would say I have different roles in each different organization. And when I was in the hotel space, I was in charge of investments, so I was really running around the country, looking for opportunities to buy real estate, renovate real estate, stabilize real estate, and sell real estate. So, it was very detail-oriented on a micro market. So, for your consumers, if they’re looking to buy a single family home or they’re looking to buy a duplex, I was basically doing that on behalf of institutional investors, mostly college endowments. So, at Airbnb it’s a little bit different. Airbnb, the overall offering, we are a travel company at this point in time. We are starting to blend into more of a living company, but the majority of our business is travel, which is akin to hotels. But over 50% of our nights booked offer for stays over seven nights at a time across Airbnb.
In our hotels, the hotels we owned, I don’t think we ever had a stay over seven nights in any of our hotels. We were an urban hotel company. The name was Kimpton Hotels. And it was mostly corporate consumers staying for two or three nights, and then we got the leisure consumer on the weekends. At Airbnb, it’s really a different use case for travel and that’s kind of accelerated with COVID. So, similar dynamics and also different, because now I’m overseeing a team which is growing supply, where previously I was leading a team to actually make investments and dispose of real estate, and make returns for our investors.

Dave:
Jesse, I do want to jump into what you and your team are doing, but given the name of the show and the focus of the show, I want to just take a step back before we talk about what’s next, and just talk about what’s going on in the short-term rental industry. Is there anything Airbnb and you and your team have uncovered that you think our audience, a lot of whom are short-term rental investors, should know about market trends?

Jesse:
From a macro perspective, the marketplace has never been stronger. In Q2 of 2023, yes, that’s the year we’re in, I lose track of time sometimes Q2 of 2023, we grew our host base more than we’ve ever grown our host base from a nominal perspective and consumers booked more nights and experiences than ever before. So, the marketplace is strong and we are continuing to grow. So, I would say that the consumer now may have less disposable income than they did historically, but they’re choosing to spend that income on travel and experiences, where during COVID it was more on Home Depot, renovating a house, so on and so forth. Today, the consumer’s strong. The consumer is traveling on Airbnb. And our hosts are looking at the opportunity to host to keep up with the cost of living and the cost of inflation, and it’s really a healthy marketplace at this point in time.

James:
And I think that’s fairly interesting right now because I think a lot of people’s perception is that it’s not right, because the transactions have slowed down, travel’s slowed down a little bit. And a lot of that’s sometimes just all mental where people are like, “Okay, this is going bad. I’m going to shift out,” and it kind of becomes this trend or in the headlines. They put the rainy day out on all these investments. Have you seen many hosts pull out recently because of changes? Even though it’s strong, I feel like we’ve been seeing some operators selling off their properties over the last six, 12 months, wanting to get out of the space, which really contradicts… If it’s strong, you’d almost want to keep your money there with the inflation and the other economic factors going on.

Jesse:
Yeah, when I speak to it, I speak more on a global perspective. And at the end of the day, more hosts were added in Q2 2023 than ever before from a global perspective. Now, consumer trends are shifting. So, consumers are starting to travel to different places. So, what may have been a good investment a couple of years ago may not look like a good investment today because consumers are looking to go to different places. So, I would say from a macro perspective, the marketplace is really strong, consumers are doing really well, hosts are doing really well. From a micro perspective, it just depends on where your investment may be. And the old rule of real estate, location, location, location, it really, really matters. So, some individuals may have bought homes in X, Y, Z market, and that specific market may be down a little bit year over year, but other markets are up year over year. So, from a macro perspective, the marketplace is strong. And obviously, there’s pockets that are doing better than others.

James:
Do you feel like right now since travel’s increased a lot globally that the US local market is slowing down compared to… You’re seeing some markets are doing better than others. Is it more of an international presence that’s still growing, or is it also locally still staying strong? I’ve definitely noticed when I travel overseas, the planes are packed and everything’s packed, but then when I travel throughout the US, it’s actually a little bit less busy in a lot of cities.

Jesse:
Oh, really? That’s interesting because every time I fly, James, there’s never a seat left on the plane. I don’t know about you. Domestic or international, I always somehow end up in 42B on Southwest because I’m in section C, to be honest. So, we are seeing it strong across the board. And as we announced in our last earnings call, the US is still growing. So, it may be growing in different pockets than it was during COVID, but from a macro perspective in the US, it is still growing. And obviously, some other places were later to open up after COVID, international, for example. People feeling more comfortable going cross border. So, that is doing really well. But I would say domestic is also doing well.

Dave:
Jesse, there are some pundits, me, who loudly believed this year that there is going to be risk of oversupply in the short-term rental market just because we saw it, like you said, really rapid acceleration of owners. And I get that total revenue is probably up, but on a per property basis, are there declines in occupancy rates?

Jesse:
What I really would like to speak about is more so Airbnb-friendly apartments and where we’re seeing occupancy in adoption of that space. So, when it comes to broader Airbnb, I think we’ve kind of disclosed in our earnings call how we’re doing, and I’ll stick to that data and I would say it’s strong. Obviously, some markets may be oversupplied. But where there’s supply, usually demand follows. So, that’s the greatest thing about the marketplace, supply and demand are kind of in balance to a certain degree. And obviously, during times of compression, things are more occupied than not.
But when it comes to Airbnb-friendly marketplaces, and maybe we can shift to that conversation, it’s really providing an opportunity for renters that haven’t historically had the opportunity to host to get their feet wet. I was looking at BiggerPockets today, actually, and one of the questions I kept on seeing is, “How do I get started? How do I get started? How do I get started? How do I get started?” And Airbnb’s never made it easier to get started in your journey and Airbnb-friendly apartments is really part of that opportunity to grow because you can now host your primary home part-time on Airbnb.

Dave:
Okay, cool. Well, so that is something we did want to talk about. So, can you just explain this to us? This is Airbnb-friendly apartments, and this is for primary residences exclusively? Is it a different product offering?

Jesse:
It’s a totally different product offering to a certain degree. It’s really getting back to our roots of Airbnb. When Brian Chesky started Airbnb in 2008, he started it to really pay his rent. Airbnb has been so successful, Airbnb has now basically been banned in 45 million rentals across the US. That’s the overall rental stock in the US. So, we wanted to create a product that allowed consumers, like Brian, when he was 28, to get started in their journey to keep up with the cost of living. So, we partnered with some of the largest landlords in the country, Greystar, Equity Residential, UDR, household names, Starwood Capital, Brookfield, so on and so forth. And we now market their buildings to our consumers for 12 month unfurnished rentals.
So, now consumers can go to Airbnb, find their next 12-month unfurnished rental that embraces and encourages them to host part-time. And once they move in, then they can start their hosting journey. And we’ve built all the tools to ensure it’s actually a primary residence, not an individual looking to rent a place and run a dedicated Airbnb in there. It’s really meant for the individual trying to keep up with the cost of living and get their feet wet in their investment journey. When I was 28 years old, when I was 35 years old, I lived in an apartment and I was struggling to pay my bills. If I had the opportunity to Airbnb it when I was traveling, or when there was a event in town, I could have paid the majority of my rent for that month by hosting one weekend. So, it’s a really new opportunity and it’s really catered to primary home individuals that want to host part-time.

Dave:
Okay. So, I just want to make sure I understand this. So, normal Airbnb people can and still do rent out their primary residence, but this new product is basically if you’re signing a new lease, you can sign a lease with a landlord who has maybe pre-approved you or is inclined to allow you to sublet or allow short-term rentals within your unit right from the get-go. Is that correct?

Jesse:
Yeah, exactly. So, it’s really creating a quality across asset classes. Most homeowners have the ability to Airbnb or sublet their home if they own it. If you rent it, most leases have a do-not-sublet clause in them. And there’s 45 million rentals in the US, which is 35% of the overall housing stock. So, if you’re a renter today, for the most part, you don’t have the same opportunity to capitalize on the benefits of Airbnb that a homeowner would. And so, this product is really catered toward the renter that wants the ability to make some extra income when they travel, which is the same as a homeowner today that has that opportunity. So, it’s really opening up and democratizing the idea of Airbnb and rentals that exist today in owned assets.

James:
When people are looking at this and they’re looking at this kind of product, have you seen any developers or just specific buildings really marketing for this to that they’re friendly… I kind of hear this as it’s for owner-occupieds, so a lot of owner-occupied are people living there as their primary, as a renter, they don’t want tenants coming in and out around them, but I guess if it’s one big community that’s all doing it, they’re way more open to it. Is this entire buildings or is this just more located throughout specific cities?

Jesse:
So, high level, all of our partners are starting to market the ability to Airbnb your home part-time on their websites. So, if you go to Airbnbfriendly.com, and you were to look at one of our partners’ buildings, there’s a link to their website. So, if you look at an Equity Residential building in Denver called the Theo, they are actively marketing the ability to Airbnb it part-time. With that being said, not everybody in the building does it. It only works for a certain percentage of the building. So, what we’re really, really focused on is ensuring that the people that are not doing it are having just as good of as an experience in the community as the people that are doing it.
And in a certain building, maybe 5% or 10% or 15% of the residents host on Airbnb. We need to make sure it’s a great experience for the other 95%, 90% or 85% of residents that do not do it. So, there are no dedicated buildings per se that 100% of the people are doing it. It’s just providing an amenity to the residents that live there that they’re now allowed to do it if they so choose.

Dave:
Jesse, this is a very interesting concept, very clever. And I want to ask you more about it, but I did want to ask you about if and how you ensure that it’s actually the person’s primary residence. Because you’ve probably heard of this concept of short-term rental arbitrage, where people sign leases and then are subletting out, and are doing this all over the place. Is there any controls against that?

Jesse:
Yeah, 100%. So, our partners enforce night limits. So, let’s take San Francisco at the moment. Currently, you’re allowed to host your primary home 90 nights a year in San Francisco. So, our landlords enforce those night limits on the residence, and it’s virtually impossible to have a rental arbitrage business if you’re only occupied 90 nights a year. It can help really offset the cost of living by hosting 90 nights a year, but the opportunity is really for the landlords to enforce these night limits on the residents to ensure individuals are not doing the rental arbitrage game that you mentioned, Dave.

Dave:
Smart.

Jesse:
The economics just don’t prove out.

Dave:
Yeah. Awesome. So, who should consider doing this? Obviously, people who want to supplement their income, to offset some of their rent payments to, like you said, begin your journey. If you’re interested in becoming a short-term rental investor, this sounds like a good first step. But what makes a successful host? If people are not currently short-term rental hosts, who should consider this line of business?

Jesse:
It’s interesting. I always thought it was for the 28-year-old that was traveling a lot and living a flexible lifestyle. We have a single mother of three in one of our buildings that is hosting on the weekends every so often to help fund her vacations with her kids. So, the use cases are up and down the spectrum. From the consumers of Bigger podcast, you’re thinking about getting into the real estate investing game in the STR space, there’s no better way to test it than doing it on your primary home. So, that’s obviously one use case. Another use case is somebody that travels for work a lot, or if you live in a market like Denver and there’s a big convention in town, you can go up to the mountains and pay for the entire trip. So, it’s across the board the use cases of individuals that do this. From the single mother of three, we have a active duty military in San Diego, she’s hosting to pay off her student loans and actually use the money to create a new business. She created a fitness studio for herself and she’s now doing it.
So, it’s up and down the spectrum. And to get started, it’s actually really, really easy. Airbnb has launched a bunch of new features and tools called Airbnb Setup and other things. And you can easily get started in these buildings. And our partners in these buildings help the residents get started with hosting. And you kind of learn what works and doesn’t work because not every market is the same. Consumers want different things for different markets. So, getting started is number one and using Airbnb Setup to do that. And then, you learn, you iterate, and things come up over time depending on the demand use of your unit.

James:
This is a very interesting concept and I’ve heard this touched on over the years, but it’s kind of like the pre-house hack. What a lot of people do, especially with the short-term rental, was they were optimizing these first-time home buyer loans. They can get into a property with 3%, 3.5% down, or sometimes even zero down State Farm programs. So, that allowed a lot of access for investors or new people to become investors over the last four years. But then, as rates have gone up, the mortgage payment won’t work, and I know the cost of rent’s a lot lower in major metro cities than the cost of purchase.
And so, are you seeing more of a trend right now because A, traditional short-term rentals just don’t mathematically work out? And B, I mean if you think about the average condo, let’s say, in Seattle is going to be like 600 grand, your down payment on that even with a low down is going to be $18,000 to $25,000, whereas you can probably rent that with first last and deposit and get into the deal for 6,000, which will increase the cash on cash return. Is that where you’re seeing some demand for this jump up because you just can’t traditionally do it with the FHA loan in a lot of metro markets right now?

Jesse:
I would say demand is coming from a lot of sources. Right now, it is basically cheaper to rent in almost every market in the US than it is to buy because of where interest rates are and down payments. And so, this is an opportunity for renters that aren’t able to buy yet to try to save some incremental money to get them into their home in the future. We’ve had a few of our hosts that started this way, and then they use the extra money they earned to actually buy a home, that they also host by the way.
The house hack, it’s 100%. I wish this was around in 2010 when I was struggling to save money for a down payment on a home. It was so hard. And I was blessed with low interest rate environment when I bought a home in 2015. It’s so hard to save money for a down payment, and this is a great way to kind of house hack that. And you can use the money to potentially get into that ownership, but that is definitely helping adoption of the program is the imbalances right now in the cost to own versus the cost to rent across the US.

Dave:
All right. Jesse, I only have one short-term rental, but the way I can mentally deal with it is that it’s not my stuff in the house. So, how do people deal with this? If it’s their primary residence and they’re living there, how do people protect themselves or rent out something that they’re also living in?

Jesse:
Yeah, that’s always a question we get. So, from a host perspective, a lot of our hosts store their special belongings, whatever that may be. And our partners have storage lockers, so our partners do offer storage lockers in a lot of buildings to the hosts, or our hosts lock a closet. So, small simple things can really enhance your security. And if something were to go wrong, which by the way, UDR is a large partner of ours [inaudible 00:23:36]. They’ve had over 10,000 nights in their portfolio so far it with zero issues. So, it’s kind of like the boogeyman in the closet kind of concern. We do have protections if for, on some forsaken reasons, something happens, like AirCover, where we protect our hosts in situations like that.

Dave:
Jesse, I mean it sounds like a very interesting strategy and hopefully it creates mutual benefit between guests and hosts. How much of this is a reaction to some of the regulations around short-term rentals that are mostly focusing on allowing primary residence rentals and in many places, not everywhere, obviously, disallowing or discouraging the investor driven short-term rental, taking up all the supply, I guess?

Jesse:
I wouldn’t say it’s reactive. I would say it’s proactive. Where regulation seems to be going with some of this primary home thing that is beneficial to the program to a certain degree, because that’s the nuance of the program, but really the integrity of it with or without regulation because our partners still have enforced night limits in markets that do not have night limits, they still do that, is really to create affordability for renters in today’s market. Because even though it’s cheaper to rent than it is to buy, it’s still really expensive to rent and that really has to do with just the lack of overall housing and we just need to build more housing. But it is really helping these renters afford their homes, and we’re really focused on that at Airbnb.

James:
And Dave, sometimes you just got to use the cashflow to buy new things. You’re saving a ton of money-

Dave:
That’s honestly what I do. I’m just like, “This is not my house. This is purely an investment. I’m just going to take the cashflow and I’m going to buy a new shovel because someone decided they wanted my snow shovel.” I don’t know.

James:
Jesse, as you guys are expanding this out, what regions are you guys really focusing on, or is there certain areas where this doesn’t really make sense? Every asset class, it can work in every market, but sometimes you avoid different markets. Like flipping, for me, I avoid different types of markets just because of certain things that impact the deal, and I could do it there, but it’s just not worth it. Do you feel this is going to be more affordable housing areas or more mostly focused on those metro expensive areas where that $100,000 a year to $150,000 a year renter is trying to subsidize it, right? Because back in the day, if you were making 100 grand a year in college, or at least when I was in college, I thought I was rich. Now you need four roommates. And so, do you see this more growing in the metro areas or every type of region?

Jesse:
You know what’s really interesting about that is it is totally different than house flipping? And I want to make that clear because house flipping is so localized. Here, it really does work everywhere. I think the question is what is success? And so, we have buildings in Addison, Texas, which is suburban Dallas, and there’s roughly 30 hosts in one of these buildings, and they’re making pretty good money relative to their rent. We also have buildings right in the heart of the Gaslamp District in San Diego, roughly the same amount of hosts. But what’s interesting is rents also kind of ebb and flow based on urban location, city center, suburban, so on and so forth. So, the percentage of money one can make is kind of relative to the location they’re in. So, it really works everywhere. We have hosts in Addison, Texas. We have hosts in Downtown Miami. We have hosts in Downtown San Francisco and we have hosts in Cleveland. So, it’s across the board. And it’s not really a flip, if you will. It’s trying to make incremental income to go buy a shovel, like Dave’s doing for his Airbnb.

James:
Yeah, I was more talking about different asset classes. Sometimes it’s just not worth it as much. I’m a firm believer, Airbnb’s location, location, location. If you’re going to start a short-term rental business in itself, it should be in an area that has demand or a reason people are coming there, not just to do it to do it. Because we have seen that over the last four years, people just went and bought a property because they could. But this is also not just subsidizing your rental, this is an investment strategy. Build up cashflow so you can build up some extra cash to go buy your next house. I think it’s a great pre-step for house hacking, but depending on how fast you want to move and depending on what you rate as success, that’s going to tell you where to go.
Because if you want to get out of the renter pool, but you want to be in the best possible area you want to focus on… If I was a tenant right now going, “Hey, I want to subsidize this and buy in two years,” from your guys’ analytics is being in those metro, it doesn’t matter or is it more like those metro areas are more attractive because rents are a little bit lower versus purchasing power, or there’s a bigger gap between there they can cashflow a little bit better and save more money versus affordable… A lot of the affordable markets, cost of rent and cost a buyer are very similar, so there’s not as much spread. Whereas I’m looking as the rent is the spread on this.

Jesse:
What’s actually really interesting is we’ve built a custom calculator for this program. So, we’ve kind of outlined what rents are for each one of the buildings and what you could make by hosting part-time. So, a consumer can go to a market… Because a consumer might not move from Dallas to Miami to potentially make an extra 500 bucks a month or whatever it may be, just making up locations. A consumer lives where a consumer lives. So, he or she can go to Airbnb-friendly apartments and look at our custom calculator and then kind of determine which building is right for them. So, obviously if you live next to American Airlines Arena in Dallas, you’ll probably make more money than you do in Addison, Texas, but then you have to take into account the cost of the rent in that building as well, which may be higher.
So, this custom calculator really helps our consumers understand what the underlying 12-month unfurnished rent is and what they could potentially make by hosting on Airbnb. So, I would just recommend that consumers of the show go and play with it and kind of see what the data is telling them because the data doesn’t lie. The data is based on historical demand in the market and we’re pulling in the actual rents from our partners PMS feeds. So, it’s really interesting. I mean personally… It also depends on their lifestyle. Do they want to be closer to the family? Do they want to be next to the convention center, X, Y, z?

Dave:
Awesome. Jesse, well, thank you for telling us all about this. I have to ask, with your very broad job, is there anything else interesting coming down the pike that our audience should know about in addition to the Airbnb-friendly apartments?

Jesse:
There’s definitely other verticals we’re looking at. We did our first ever Airbnb-branded condominium in Miami with The Related Group, where consumers can go and buy a condo, a second home, and Airbnb it so they know upfront that this condominium or vacation rental allows Airbnb and encourages Airbnb. So, that’s something we’ve already done. We’ve done a couple of those developments in Miami. And there’s a lot more under the hood that we’re going to announce that can’t announce it right now as a public company, but we are definitely expanding the concept. And Dave, hopefully I can come back on the show and we could talk about what we announced.

Dave:
All right, fine. We’re going to drip it out slowly. And so=

Jesse:
I apologize.

Dave:
… we would love to have you back, but we won’t force you into any SEC violations.

Jesse:
Thank you. My comms team really appreciates that, Dave.

Dave:
Yes. So, Jesse, is there somewhere people should find out about it? Do you just go on Airbnb and you can look for these places like you look for a traditional apartment?

Jesse:
You can go on Airbnb and you can go to the host landing page and find Airbnb-friendly apartments. The easiest way to find it is honestly just a Google Airbnb-friendly apartments, and it pops up at the top of the page and you can learn more. If you’re a consumer, you can look for your next rental that allows you to host. Or if you’re a building owner, you can get in contact with my team through Airbnb-friendly apartments, and we can discuss how it could benefit your program.

Dave:
All right. Jesse Stein, thank you so much for joining us.

Jesse:
Thank you.

Dave:
All right. Well, big thanks to Jesse. James, I have some questions for you. But before that, I just want to clarify. I asked Jesse a question about occupancy rates because it’s something I always want to know, and he explained after we were done recording that he can’t tell us that because literally today, within a few hours of recording this, is Airbnb’s investor relations call. So, he can’t disclose that information before the investor call. It is an SEC rule, so that’s why he was not able to answer that question. We will put a link to the transcript to Airbnb’s earnings call, so you can check that out. I will just tell you that anecdotally, we do see some evidence that occupancy per unit is down, but revenue is still doing pretty well. So, it’ll be interesting to see what Airbnb records this week.
James, what do you think of this concept of Airbnb-friendly apartments?

James:
I really do like it because as we go through different phases, because we’ve been hearing for the last 12, 18 months, I think I’ve probably said it, that Airbnb is really tough to get done right now with the rates as high as they are and the pricing has not came down. Median home prices creeping up, rates are up, it’s hard to do. So, this is just a way for if you want to get going and saving on your housing costs, that traditional house hacking method is you can get in and have a lower payment. The lower payment, which is your rent, is going to allow you to actually cashflow it to make it work. So, I do like it. It’s about adjusting how you do the investment to continue for it to grow. Airbnb is not dying, it’s just being changed right now as rates are too high.

Dave:
I think it’s a great idea because a lot of the STR regulations right now are in response to really high rent and the lack of affordable housing and housing shortage. And just to be clear, even with the increase of supply in the market, Airbnbs and short-term rentals make up about 1% of housing units in the United States. So, that obviously impacts people and some markets more than other, but it’s not dominating the housing market. But this seems like a really interesting and good balance. It helps maintain supply of Airbnbs, which obviously there’s demand for. People want to stay at Airbnbs, so having them go away altogether wouldn’t be good because that would probably just sense hotel rates skyrocketing. But at the same time, you’re not taking a potential rental away from someone else. So, this just seems like a really interesting way to adapt to ongoing regulation changes.

James:
Yeah, and people want more affordability in their lives, and so giving them that option of bringing… I mean credit card debts are at all times high. Everybody’s still spending a lot and things are crunching them. So, I think this is a great concept and it’s a matter of making sure… I will be curious to see what big buildings will think of this. Is there going to be more regulation sweeping through because tenants will complain?

Dave:
That’s interesting. Yeah, so you’re in a building with 100 units. If 20 or 30 people do this, are the 70 people who aren’t doing it going to be annoyed by all the short-term rentals?

James:
Will that building have a higher vacancy rate, which then they’re going to say, “No…” But there’s always a season. It could work for 24 months and then things change, then you got to pivot again.

Dave:
I just think this would work really well, and I have very limited short-term rental experience, just one. But a big problem in a lot of vacation towns is the lack of affordable housing. For people who work in the tourism industry, for example, this could work really well for places like that. So, I bet it’ll catch on. But yeah, I guess it will be a market-by-market, building-by-building experiment.

James:
Well, you know what, Dave? I have my first short-term rental coming live. I haven’t had one in seven, eight years. Mine’s coming live in two weeks.

Dave:
I was going to say, I was going to ask you, because you own a real estate business in every strategy, in every sector of real estate investing, but I’ve never heard you talk about short-term rental.

James:
It’s a lot more work, and I believe in it… It’s kind of like when people are like, “I don’t want to flip because it’s a lot of work.” We have a lot of doors, and so we just manage it in a traditional way. But there is a purpose. I’m going to be doing it. I bought a duplex in Bellevue. I travel a lot. I’ll probably be in there 12 nights a month, and the other nights I’m renting out. I mean, hotels are all-time highs right now there, and I think I can get 200, 300 bucks a night.

Dave:
Wait, dude, you can’t do this. You can’t do it. This was the only part of real estate investing where I was more experienced than you because I had one and you had zero. Now, if you get one, we’re going to be even and I have nothing on you.

James:
But that means I still have to operate it in an effective way, so I need to be coached first.

Dave:
All right. Well, good luck with that. I mean, it sounds great. Obviously, you’re traveling back and forth. It’s a perfect way to do it.
All right. Well, thank you all so much for listening. Hopefully this was helpful. And remember to join us again for our second episode this week where we’re going to be joined by Vacasa to talk about some of the best markets to buy a short-term rental in for the following year 2024. James, thank you for joining us, and thank you all for listening. We’ll see you next time.
On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

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