News of a potential housing market correction often causes many Americans to be concerned about the global economy, but this concern may be unfounded. A correction isn’t necessarily a bad thing. It may help to improve housing demand and inventory when property values increase faster and higher than the norm.

Housing market corrections impact people differently, and there are both pros and cons to consider depending on whether you are buying or selling. For the real estate investor, a market correction may represent a great opportunity to purchase a property at a discount and grow your investment portfolio.

What Is a Housing Market Correction?

A housing market correction is when the real estate market experiences a downturn and property values decrease. Housing market corrections may be regional or national and occur when prices exceed what the market can sustain.

Instead of being a cause for concern, a correction may benefit the overall economy as the real estate market returns to sustainable levels. The overall value of the real estate market typically decreases by 10% or less in a correction.

A housing market correction differs greatly from a housing bubble and market crash. A housing bubble is when a rapid increase in home prices occurs due to limited supply and high demand.

In a housing bubble, home values are driven far above what the market can sustain when bidding wars break out. Speculators hoping to generate quick profits also contribute to the rapid price increases. The bubble then bursts, and prices crash when the demand decreases or the supply increases (or both).

Unlike in a housing bubble where prices decrease rapidly and significantly, housing prices drop much less and slower in a correction. The lower prices allow buyers to get better deals and have more homes to choose from. On the other hand, sellers may get less, and their homes may take longer to sell.

What Causes a Housing Correction?

Several factors may contribute to a housing market correction. However, all of the factors do not have to be present for a correction to occur. Property values could decrease with just one.

First, the availability and affordability of mortgage credit may cause the housing market to contract. Mortgages may be harder to obtain due to economic uncertainty. For example, news of the closing of a local manufacturer that employs many people could cause local lenders to be more cautious in approving home loans.

Lenders may also tighten their lending standards during recessions or when analysts predict a recession is near. Fewer people will then qualify for mortgages, resulting in decreased housing demand.

Job losses are another important factor. During an economic contraction, many companies downsize their workforces to save money, streamline processes, and stay competitive. This results in fewer people who can qualify for mortgages.

Finally, rising interest rates directly impact the cost of borrowing. Depending on the amount borrowed and the loan term, a 1-2 point interest rate increase could add tens of thousands of dollars to the total cost of borrowing over the life of a loan. The increased monthly payments make homeownership unaffordable or force buyers to settle for lesser expensive homes.

How Do Housing Corrections Impact Buyers?

If you are thinking about investing in a property during a housing correction, there are some important pros and cons to consider. Be sure to consider these and other factors carefully before making an investment decision.

Pro: Properties are more affordable

As an investor, the primary benefit of a housing correction is that you can take advantage of lower home prices. This could allow you to get a great deal on new assets or buy more properties.

Pro: You may have more buying options

If fewer people buy homes because of economic uncertainty or rising interest rates, there may be more inventory on the market to choose from. This may allow you to buy a property that suits your preferences and needs better. It could also mean less potential for a bidding war to break out among buyers.

Pro: You may have more demand for your rental properties

When fewer people buy homes, the demand shifts from buying to renting. As a real estate investor, the demand for your rental properties may increase during a housing correction. This may allow you to charge a premium or be more selective with tenant applications. 

Con: You may have fewer buying options

This isn’t a contradiction to the previous point. When real estate prices fall, some sellers may take their homes off the market to wait for better market conditions, resulting in less inventory in some places. Whether there is more or less inventory in a correction will vary depending on the location.

Con: Stricter lending requirements

If market uncertainty is a factor that contributed to the correction, lenders may tighten their lending standards and make obtaining a loan more difficult. However, this doesn’t mean you can’t get the funding you need to grow your portfolio. 

If obtaining a loan through a traditional lender isn’t possible, you may be able to get the funding you need through a hard money loan or private lender. Although these lending options typically charge higher interest rates, you may be able to refinance after the correction ends and the economy stabilizes.

Con: Higher interest rates

Because increasing mortgage rates are a common cause of corrections, you may have to pay more in interest over the life of the loan. This could represent a significant increase in the cost of borrowing.

Con: Potential decrease in home value

If you buy a home in a market correction, the home’s value may decrease after you buy it, reducing the equity you have in the home. It could also result in a situation where you are underwater on the home, which means you owe more on your mortgage than the home is currently worth.

How Do Housing Corrections Impact Sellers?

Due to falling prices, a housing correction may not be the best time to sell. There are some important considerations for investors; however, that may make selling during this time a smart move.

Pro: Sell an underperforming asset

Although a housing correction is when national prices fall, selling may make sense if you have an underperforming asset or a property that is challenging to maintain. Removing it from your portfolio could allow you to reinvest in an asset with greater long-term potential.

Pro: Reduce or eliminate debt

If you are experiencing cash flow or liquidity problems, selling a house or other investment property in a housing correction may allow you to reduce or eliminate debt. Whether this is a viable strategy depends on how much equity you have in the property and how much revenue it generates.

Con: Your home may sell for less

Because home prices decrease in a correction, you may get lower offers than before the market downturn. This may not always be the case, however. The home’s location may be an important factor. If the house you want to sell is in a popular tourist destination with a strong demand for short-term rentals, your home may sell for a premium.

Con: Your home may take longer to sell

When interest rates rise, and there are signs of economic uncertainty, fewer people may be interested in buying homes. This could result in more properties for people to choose from, which may mean you get fewer offers and your home stays on the market longer.

Con: Buyers may be more demanding

When prices fall, and there is less competition, buyers may request more seller concessions to sweeten the deal. For example, they may ask the seller to pay for part or all of the closing costs. They may also request upgrades to the home or for the seller to include furniture and accessories.

How Long Do Housing Corrections Last?

How long a housing market correction will last is often difficult to predict. It may continue until the factors that caused it stabilize. If a housing market correction is caused by increasing mortgage rates, for example, the correction may continue until the Federal Reserve stops increasing rates, inflation cools, and consumer confidence increases.

Because the duration of housing market corrections is uncertain, waiting until the market stabilizes to make investment decisions may not always be beneficial. Depending on your objectives, long-term goals may outweigh the negatives of buying or selling when housing prices decrease.

What Does the Market Look Like After a Housing Correction?

A housing market correction will typically end when housing prices begin to increase again. Key indicators of stable prices include an increase in both the supply of properties for sale and an increase in market demand.

Although some people are forced to move in unfavorable market conditions due to job transfers and other reasons, many buyers will wait to shop for larger homes or look for better neighborhoods until they believe their investment will increase in value over time. No one wants to be underwater on a mortgage.

How Does a Housing Correction Affect Real Estate Investors?

Although a housing correction may present an opportunity to acquire new properties at a discount, some may need a new investing approach to achieve their goals. This could mean investing in different types of properties or using different investment strategies to diversify your portfolio and minimize risk.

Investing in different types of properties may allow you to enter new markets, increase revenue, and stabilize cash flow. If you are currently investing in storage facilities, for example, acquiring single-family homes to rent on the short-term market in popular tourist destinations may allow you to take advantage of a local rental shortage. 

If you primarily focus on single-family homes as long-term rentals, you could acquire additional homes to rent in the mid-term market. This could allow you to take advantage of the need for corporate housing for travel nurses and other professionals in growing markets.

Focusing on a new investment strategy may also be beneficial when real estate markets are contracting. If you currently use a short-term flipping strategy, like fix and flip, you will get progressively less when you sell as the market contracts. This may be a great opportunity to try a mid or long-term strategy to take advantage of the eventual market rebound.

The Bottom Line

A housing market correction may be a great time for real estate investors to obtain properties. Because the length of a correction is difficult to predict, timing the purchase of investments to minimize risk may be challenging.

If you sell a home in a housing market correction, it may sell for less than it would when prices increase. It may also take longer to sell, and buyers may demand more seller concessions. Selling a house or other property in a correction may still be beneficial if you need to reduce or eliminate debt or remove an underperforming asset from your investment portfolio.

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From masters of the digital universe to pariah figures peddling a machine-dominated dystopia. Well, perhaps that’s not quite the journey that AI developers have been on, but in the last few months the debate around the benefits and risks associated with artificial intelligence tools has intensified, fuelled in part by the arrival of Chat GPT on our desktops. Against this backdrop, the U.K. government has published plans to regulate the sector. So what will this mean for startups?

In tabling proposals for a regulatory framework, the government has promised a light touch, innovation-friendly approach while at the same time addressing public concerns.

And startups working in the sector were probably relieved to hear the government talking up the opportunities rather than emphasising the risks. As Science, Innovation and Technology Minister, Michelle Donelan put it in her forward to the published proposals: “AI is already delivering fantastic social and economic benefits for real people – from improving NHS medical care to making transport safer. Recent advances in things like generative AI give us a glimpse into the enormous opportunities that await us in the near future.”

So, mindful of the need to help Britain’s AI startups – which collectively attracted more than $4.65 billion in VC investment last year – the government has shied away from doing anything too radical. There won’t be a new regulator. Instead, the communications watchdog Ofcom and the Competitions and Market Authority (CMA) will share the heavy lifting. And oversight will be based on broad principles of safety, transparency, accountability and governance, and access to redress rather than being overly prescriptive.

A Smorgasbord of AI Risks

Nevertheless, the government identified a smorgasbord of potential downsides. These included risks to human rights, fairness, public safety, societal cohesion, privacy and security.

For instance, generative AI – technologies producing content in the form of words, audio, pictures and video – may threaten jobs, create problems for educationalists or produce images that blur the lines between fiction and reality. Decisioning AI – widely used by banks to assess loan applications and identify possible frauds – has already been criticized for producing outcomes that simply reflect existing industry biases, thus, providing a kind of validation for unfairness. Then, of course, there is the AI that will underpin driverless cars or autonomous weapons systems. The kind of software that makes life-or-death decisions. That’s a lot for regulators to get their heads around. If they get it wrong, they could either stifle innovation or fail to properly address real problems.

So what will this mean for startups working in the sector. Last week, I spoke to Darko Matovski, CEO and co-founder of CausaLens, a provider of AI-driven decision making tools.

The Need For Regulation

“Regulation is necessary,” he says. “Any system that can affect people’s livelihoods must be regulated.”

But he acknowledges it won’t be easy, given the complexity of the software on offer and the diversity of technologies within the sector.

Matovski’s owncompany, CausaLens, provides AI solutions that aid decision-making. To date, the venture – which last year raised $45 million from VCs – has sold its products into markets such as financial services, manufacturing and healthcare. Its use cases include, price optimisation, supply chain optimisation, risk management in the financial service sector, and market modeling.

On the face of it, decision-making software should not be controversial. Data is collected, crunched and analyzed to enable companies to make better and automated choices. But of course, it is contentious because of the danger of inherent biases when the software is “trained” to make those choices.

So as Matovski sees it, the challenge is to create software that eliminates the bias. “We wanted to create AI that humans can trust,” he says. To do that, the company’s approach has been to create a solution that effectively monitors cause and effect on an ongoing basis. This enables the software to adapt to how an environment – say a complex supply chain – reacts to events or changes and this is factored into decision-making. The idea being decisions are being made according to what is actually happening in in real time.

The bigger point, is perhaps that startups need to think about addressing the risks associated with their particular flavor of AI.

Keeping Pace

But here’s the question . With dozens, or perhaps hundreds of AI startups developing solutions, how do the regulators keep up with the pace of technological development without stifling innovation? After all, regulating social media has proved difficult enough.

Matovski says tech companies have to think in terms of addressing risk and working transparently. “We want to be ahead of the regulator,” he says. “And we want to have a model that can be explained to regulators.”

For its part, the government aims to ensourage dialogue and co-operation between regulators, civil society and AI startups and scaleups. At least that’s what it says in the White Paper.

Room in the Market

In framing its regulatory plans, part of the U.K. Government’s intention is to complement an existing AI strategy. The key is to offer a fertile environment for innovators to gain market traction and grow.

That raises the question of how much room there is in the market for young companies. The recent publicity surrounding generative AI has focused on Google’s Bard software and Microsoft’s relationship with Chat GPT creator OpenAI. Is this a market for big tech players with deep pockets?

Matovski thinks not. “AI is pretty big,” he says. “There is enough for everyone.” Pointing to his own corner of the market, he argues that “causal” AI technology has yet to be fully exploited by the bigger players, leaving room for new businesses to take market share.

The challenge for everyone working in the market is to build trust and address the genuine concerns of citizens and their governments?

The 1% rule is a real estate investment guideline indicating the minimum monthly rent you must charge to break even on a rental property. The rule states that your rent should be at least 1% of your property’s sale price. 

While the 1% rule can be a helpful metric for investment properties, it’s meant to be more of a filter than anything. You should take it with a grain of salt, especially when accounting for current home prices.

This post will detail the 1% rule, what it doesn’t account for, and other metrics you should consider. 

How the 1% Rule Works

The 1% rule helps you calculate how much rent you should charge a tenant. The rule accounts for the property’s purchase price plus the cost of necessary repairs. For example, if you purchase a home for $230,000, then spend $20,000 on repairs, you should charge your tenants $2,500 monthly if you follow the 1% rule. If your property is duplex, you’d instead charge $1,250 per tenant. 

The guideline can give you a basic idea of whether or not a property is worth investing in. If your mortgage payment is going to be greater than what you’re charging in rent, then, in theory, it’s probably not an ideal investment.

What the 1% Rule Doesn’t Account For

If the 1% guideline was your only necessary calculation, you’d make your money back in 100 months or 8.33 years. However, real estate investing is far more complex than that. Here’s a list of just some of the things that aren’t factored into the 1% rule: 

• Mortgage interest rates
• Homeowner’s Association (HOA) fees
• Insurance premiums
• Property taxes
• Property management fees
• Ongoing property maintenance and repairs
• Atypical markets, such as San Francisco, New York, and other large cities
• Utilities
• Legal fees
• Additional income from rent, laundry, storage, etc. 
• Marketing
• Vacancy periods
• Cash reserves
• Appreciation
• Depreciation
• The real estate market (in general)
• Rent increase per year
• Expense growth per year

Dave Meyer pointed out that the 1% rule is an outdated suggestion created in a different market. While it was a great metric to use shortly after the financial crisis, it’s not as helpful today. If you’re basing your investment strategy solely on the 1% rule, you’ll miss out on many potentially great investments with rent-to-price ratios below 1%.

Alternatives To The 1% Rule

Many investors analyze dozens—if not hundreds—of deals before investing in any single one. In their initial research stage, investors try to quickly disqualify properties that don’t meet certain thresholds before getting into the nitty gritty.

While you’ll never know exactly how much you’ll make on an investment, a few other calculations you can make will help you narrow your search when determining what you invest in. 

Cash flow

Focusing on an immediate return may make your monthly cash flow a better metric. 

Cash flow calculates your gross monthly cash flow minus your total operating expenses. Typically, “good” cash flow is when you net $100-$200 per unit monthly. However, that all depends on how much your initial investment is. If you’re making $200 monthly on a $100,000 investment, that’s not an attractive return. However, if you’re making $200 monthly on a $10,000 investment, that’s a 2% monthly return. 

Here’s how to calculate cash flow:

Gross monthly cash flow (including rent and additional income, such as parking, pet fees, etc.)	$2,000
Operating expenses
Monthly mortgage payment (principal and interest)	$950
Property taxes	$150
Homeowner’s insurance	$50
Property management fees (10% of rental income)	$200
Repair reserves budget (10% of rental income	$200
Vacancy reserves budget (5% of rental income)	$100
Additional expenses (e.g., other insurance, gas/mileage, supplies, etc.)	$100
Net monthly cash flow (or net operating income—NOI for short)	$250

Based on these calculations, you will make $250 each month or $3,000 per year, not including any tax benefits. Cash flow can tell you how much you make monthly, but this knowledge only gets you so far. 

Cash-on-cash return

Most investors prefer to calculate cash-on-cash returns.

Your cash-on-cash return is how much money you profited in annual pre-tax cash flow divided by how much you initially invested. Cash-on-cash return calculates the percentage of the investment you made back this year in cash flow. It’ll help you determine if that $250 per month you’re making in profit is worth it. Most investors prefer this method of calculating their operating income. 

Let’s say you purchased a property for $200,000. You put 20% down ($40,000), paid 2% in closing costs ($4,000), and made another $6,000 in repairs. Altogether, you spent $50,000. If your new annual cash flow is $3,000, then $3,000 / $50,000 = your cash-on-cash return of 6%.

If this property was a duplex and you made $500 monthly instead, your cash-on-cash return would be 12% ($6,000 / $50,000). You’ll want to aim for a cash-on-cash return between 10-12%, preferably closer to 12%, to outpace the S&P 500 and other popular stock market funds. 

Keep in mind this is your annual pre-tax cash flow. It doesn’t account for your tax burden or depreciation. Your cash-on-cash return never accounts for the following:

• Equity
• Opportunity costs 
• Appreciation
• Risks associated with your investment
• The entire holding period

Internal rate of return (IRR)

IRR determines the potential profitability of your property investment by estimating the entire holding period, compared to cash-on-cash return, which only focuses on the profitability of your initial investment. 

If you’re planning on holding onto your investment for a few years, calculating your IRR is probably your best bet (even though many investors prefer the simplicity of solving for cash-on-cash return). Here’s a full breakdown of how to calculate your IRR. 

Should You Use the 1% Rule?

The 1% rule was never an actual “rule.” It was a helpful guideline once upon a time, but you can make several more accurate calculations when narrowing the scope of which properties are worth investing in. You’ll likely miss many great investment opportunities if you live and die by the 1% rule. Calculate your cash-on-cash return or IRR instead. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

By Nic DeAngelo, CEO at Saint Investment Group, an award-winning real estate investment platform.

Leadership is a quality that comes naturally to some and requires a conscious effort from others. Being an effective leader can be the difference between the success and failure of a business or team. As such, it is essential to learn from experience and gather insights to help navigate the path to success. In this article, I will discuss seven key leadership lessons that can help individuals achieve business development success.

1. Know Yourself And Own It From Top To Bottom

The first lesson in leadership is to know yourself. This means exploring your experiences and thoughts to fully embrace and accept yourself. Leveraging your strengths, weaknesses, flaws and unique qualities can help you achieve success and boost your self-esteem. These practices can also help you build confidence and develop a more authentic leadership style.

2. Be Laser-Focused And Curious

Focus is a superpower in today’s age. You’ll need a focused mindset to set yourself apart from the competition and yield astronomical results. Lack of focus can lead to distraction and hinder long-term fulfillment and results. To excel at something, it’s important to intentionally choose what to focus on for the long term, as wasting time on uncertain interests can be detrimental.

To provide an example of focusing in the investing place, say an investor wants to specialize in a specific industry, such as technology or healthcare. Instead of trying to invest in every industry, they would focus their research and analysis on companies within their chosen industry. This would allow them to gain a deep understanding of the industry and make informed investment decisions. By staying focused on their area of expertise, they can better identify potential opportunities and potentially outperform the market.

However, curiosity is crucial for companies and leaders to innovate and develop new ideas. If they don’t make progress, they risk being replaced or left behind. It’s not just about learning from others through books, podcasts, etc., but also about taking the time to record and reflect on personal experiences so you can bring the insights you gain into the future.

3. Get Your House In Order

Taking care of one’s own personal housekeeping is crucial to staying on track and achieving goals. It’s easy to let small things slide, but they can quickly snowball into larger issues. Make sure to hold yourself accountable and practice discipline in handling whatever needs attention, including your health, fitness and spirituality.

4. Learn To Forgive In Order To Make Progress

Forgiveness is a powerful tool that can help one move forward in life. It’s easy to hold onto resentment and bitterness, but ultimately, these negative emotions only hurt the person who harbors them. Learning to forgive is not only beneficial for others but also for yourself. When you forgive others, you release the emotional burden you carry and allow yourself to move on. Similarly, if you can forgive yourself for your past mistakes and shortcomings, you’ll be better able to let go of shame and guilt and focus your energy on achieving your goals.

In a business or workplace setting, practicing forgiveness can improve relationships and promote a positive work environment. For example, you could accept apologies instead of holding grudges, let go of past mistakes to move forward with a positive attitude, and offer second chances to colleagues or business partners who may have made mistakes. By practicing forgiveness, it’s possible to resolve conflicts more effectively and improve productivity and teamwork.

5. Stay Curious And Embrace A Growth Mindset

A growth mindset involves developing one’s abilities through dedication and hard work. I believe this mindset is crucial for business development success. Staying curious and open-minded is essential for growth. A leader should never stop learning and should seek out new experiences and challenges.

To develop and implement a growth mindset, it is important to embrace challenges, adopt a positive attitude and prioritize learning and improvement. This may involve setting goals, seeking feedback and trying new things outside of your comfort zone. If you’re working to overcome mental barriers, I would recommend reframing negative self-talk, practicing more self-compassion, and acknowledging that your mistakes and setbacks are opportunities for professional growth. To put a growth mindset into practice, make sure to reflect on your progress and challenges, seek out new opportunities for learning and development, and stay open to feedback and new perspectives at your company. With time and practice, a growth mindset can lead to increased resilience, creativity and success in business and in your personal life.

6. Communicate Effectively And Listen Actively

Leaders need to learn to communicate effectively in order to be successful. They should be able to clearly communicate their vision, goals and expectations. Active listening is equally important. A leader should listen to their team members, clients and stakeholders and take their feedback into account. This information can give them a deeper understanding of what motivates team members and clients, resulting in better outcomes.

7. Lead By Example

Leading by example is one of the most powerful tools a leader has available to them. A leader who models the behavior they expect from others inspires trust and respect. If they work hard, are honest and have integrity, they’ll likely encourage their team to do the same.

Leadership is a journey of self-discovery, focus, discipline and forgiveness. By embracing these seven key lessons for business development success, we can create a strong foundation for our personal and professional growth and lead ourselves and others toward excellence. Let’s commit to becoming better leaders and inspiring others to do the same.

Institutional investors (those who own 1,000 or more homes) have been selling off their inventory in 2023. These big investors have reduced their buying activity by nearly 80% from Q4 of 2022 compared to Q4 of 2021, according to John Burns Research and Consulting. 

This change in activity has led to 90% fewer purchased homes in January and February of this year than in the first two months of 2022. 

This is a sharp contrast to the pandemic purchasing of houses in the U.S. These were times when it was easy to borrow money and interest rates were at rock bottom—coupled with rising rents and soaring home prices making it a perfect storm for institutional homebuyers to add to their portfolios. So, why has the trend reversed? 

We’ll take a closer look at the trends of institutional homebuyers, the reasons why they are backing out, and what this means for individual investors.

Selling Homes and Shrinking Portfolios

American Homes 4 Rent and Invitation Homes have been net sellers in the first quarter of this year. As of March 31, 2023, American Homes 4 Rent—a leading builder in single-family rental communities—had a portfolio of 58,639 homes, which was reduced by 354 homes compared to 58,993 homes (666 homes sold, while 299 newly constructed and 13 acquired) as of December 31, 2022. 

In the first quarter of 2023, Invitation Homes purchased 194 homes and sold 297. As the U.S.’s biggest owner of single-family rentals, its portfolio decreased from 83,113 to 83,010 single-family homes.

What’s more, data from Redfin shows that institutional investors are fleeing once sought-after towns such as Las Vegas, Nevada, and Phoenix, Arizona, due to home prices dropping. How much have they dropped? Newly built homes in Phoenix dropped 15% year over year in March, according to Realtor.com. 

Rising interest rates

With the Fed increasing rates rapidly, it has caused mortgage rates to creep up. According to Forbes, a 30-year fixed mortgage rate was 3.22% in early 2022 but has since risen to an average of 7.17%. Consequently, the deals aren’t as lucrative compared to during the pandemic. 

What’s in store for the remainder of the year? Experts—including Dave Meyer—are predicting more volatility in interest rates and that we may have or will reach a peak during the summer, with rates steadying by year-end. 

Housing prices are fluctuating

We’re seeing limited inventory as new home listings have reduced by over 20% compared to last year, according to Realtor.com. In an April report from the National Association of Realtors (NAR), data shows that the median existing-home sales price dropped 1.7% from one year ago to $388,800. 

Overall, we’re seeing limited inventory and a decline in home sales, along with home prices bouncing back in half the country, while the other half is declining from pandemic peaks.

Rent growth has declined

Recently, rent growth in the U.S. has been flat. In April, asking rents in the U.S. increased by only 0.29% annually to $1,967—the smallest year-over-year rent growth in 37 months. New Orleans, Louisiana (-15%) and Austin, Texas (-14%) were the hardest hit. During the pandemic, we witnessed millennials starting families and buying homes, but now households plan to stay put.

Even though rent growth may have slowed, renter demand will likely increase. The issue of housing affordability will make it challenging for Americans to become homeowners. 

Are Institutional Investors Scooping Up All the Inventory?

Contrary to popular belief, institutional homebuyers aren’t sucking up inventory and pushing prices even higher. In fact, according to NAR, although institutional homebuyer share increased in 84% of the states, they only made up 15% of single-family home purchases in 2021. So, everyday investors shouldn’t worry too much about a battle scenario between David versus Goliath. 

What This Means For Everyday Investors

These factors mean the return on investment isn’t nearly as lucrative during the pandemic. Ultimately, with rising interest rates, overinflated housing prices, and rental growth slowing down, the financial gains aren’t what they used to be. 

However, you may have noticed higher-than-usual institutional homebuyer activity if you live in certain Sun Belt regions, including Texas, Georgia, Oklahoma, and Alabama. These regions have made up a larger portion of overall homebuying activity. So, it depends on where you live in the U.S. to determine how much of an impact this will have on you. 

Another study by Yardi Systems shows that in 2022, institutional investors who owned single-family rentals made up only 5% of the market (700,000 out of 14 million). Furthermore, MetLife Investment Management (MIM) predicts it could grow to 40%, or 7.6 million homes, by 2030. 

Is It a Good Time to Buy a Rental Property? 

Only time will tell when institutional homebuyers will get up from the sidelines and actively buy more inventory. If mortgage interest rates and home valuations decrease, we may see an uptick in purchasing activity. Sheharyar Bokhari, a senior economist at Redfin, predicts it’s “unlikely that investors will return with the same vigor they had in 2021.” This is welcome news for mom-and-pop real estate investors who feel they are competing with institutional investors. 

What’s more, it comes down to crunching the numbers to see if it makes financial sense. With mortgage rates inflated and low inventory, we’re seeing Americans holding out as well. But with rising home prices nationwide, there will be growing demand for renters in the long term. You’ll need to determine whether any potential rental property will add value to your portfolio based on your individual financial goals.

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At the heart of harnessing this transformative power of Synergy is team coaching.

Recently, I have found myself deeply contemplating the profound concept of Synergy, particularly its transformative role within a team context. One quote that has incessantly resonated with me is from Stephen Covey, the author of “The 7 Habits of Highly Effective People”: “Synergy is better than my way or your way. It’s our way.” These words serve as a compelling reminder of Synergy’s immense power. They evoke the notion of collective effort, the value of shared solutions, and the extraordinary potential that lies in unity. More than an idea, Synergy is an empowering force, a catalytic energy that can propel a team to surpass achievements that would be impossible to reach individually.

Synergy is often discussed in abstract terms, especially in business. But in reality, it’s far from just a conceptual idea; Synergy represents the dynamic heart of high-performing teams. The true power of Synergy is its capacity to drive a group of individuals toward unprecedented levels of success. This potent force underscores the principle that a cohesive, harmonious team can achieve outcomes that far outstrip the combined achievements of its members. But the magic of Synergy isn’t simply additive—it’s multiplicative. It lifts the potential of a team from simple aggregation to a high-octane fusion of talent, creativity, and productivity.

At the heart of harnessing this transformative power of Synergy is team coaching. A proficient team coach excels at transforming a collection of individuals into a single, symbiotic entity. They are essential in blending individual skills, talents, and strengths into a powerful concoction culminating in exceptional team performance. Under the guidance of a skilled coach, communication becomes seamless, goals align harmoniously, and collaboration occurs as naturally as breathing.

A significant part of a team coach’s role revolves around honing communication skills. They work diligently to ensure that ideas, feedback, and knowledge flow freely within the team, creating an environment ripe for innovation and problem-solving. The coach also meticulously facilitates the alignment of team goals, another crucial element of Synergy. This alignment forges a shared vision and purpose that each team member can passionately support and rally behind.

The coach’s interventions significantly amplify the lifeblood of Synergy—collaboration. A team coach fosters a culture where team members highly value their colleagues’ contributions. They help everyone understand that each role, regardless of its perceived importance, is vital to the team’s success.

However, the genius of team coaching extends beyond merely fostering Synergy—it also lies in sustaining it. A coach works tirelessly to ensure the team’s synergistic functioning becomes ingrained, almost second nature. Through continuous feedback, reinforcement of positive team behaviors, and celebration of shared successes, the coach helps the team maintain its peak performance, even as challenges and setbacks occur.

Team coaching represents the ignition and maintenance of Synergy’s rocket fuel, driving teams to reach new heights of success. It’s a dynamic process that transforms individual potential into an unstoppable collective force, helping teams surpass what they could have achieved. The power of Synergy through team coaching is undeniable, proving that together, we indeed are more than the sum of our parts.

Creating a synergistic team starts with improving communication, aligning goals, and fostering collaboration. Then, the power of Synergy is within your reach. Start today, and unlock the full potential of your team. You can turn “my way” and “your way” into “our way” for unprecedented success.

There are plenty of platforms that short-term rental real estate investors can use to market their space, but two of them make up the lion’s share of the industry: Airbnb and VRBO (Vacation Rentals By Owner). While their primary functions are similar, Airbnb and VRBO have many key differences in the types of properties available, target audiences, fees and commissions, and much more. 

Let’s match Airbnb vs. VRBO to determine which platform best suits your investment strategy.

What is Airbnb?

Airbnb’s mission is “to lock the power of sharing space, resources, and support in times of need.” The platform started in 2007 when two hosts welcomed three guests to stay in their San Francisco home. Sixteen years later, the platform has grown to more than 4 million hosts and over 220 countries and regions across the globe.

As of December 31, 2022:

• Over 100,000 cities and towns have active Airbnb listings
• There are 6.6 million active listings worldwide
• Hosts have accommodated more than 1.4 billion guest arrivals

What is VRBO?

VRBO’s mission is to “find every family the space they need to relax, reconnect, and enjoy precious time away together.” They have been pairing homeowners and families seeking places to stay since 1995 and have grown into a global vacation brand with more than 2 million whole homes actively available on their platform. VRBOs are currently available in nearly 200 countries.

Airbnb vs. VRBO: Property Types

The most distinct difference between Airbnb and VRBO is the types of homes available on each platform. 

Airbnb offers nearly every space imaginable. You can stay in mansions, treehouses, houseboats, tiny homes, private islands, caves, containers, windmills, and everything in between. 

These spaces are broken up into four distinct categories:

• Entire space: Guests have the whole place to themselves, which typically includes a bedroom, bathroom, kitchen, and a dedicated, separate entrance.
• Traditional hospitality spaces: These rooms indicate that the host provides the same customer service and hospitality that guests would experience at a hotel. Hostels, bed and breakfasts, and comparable properties are also included in this category. Hotel rooms typically have a common area for guests to interact with one another.
• Private rooms: Instead of getting an entire space to yourself, you’re renting a room in a property others may occupy. They’re great for guests who want a little privacy but don’t mind sharing common areas. 
• Shared rooms: Shared rooms are great for travelers who want to socialize with others and don’t mind a lack of privacy. You’ll sleep in shared spaces when booking a shared room. 

VRBO only offers entire spaces, such as condos and vacation homes. This is one of the reasons why VRBO has around 2 million listings, while Airbnb offers more than three times that amount.

Related: Ultimate Guide to Top-Notch Airbnb and VRBO Listings

Target Audiences

Airbnb markets to a wide range of people looking for an alternative to hotels. VRBO’s target market is more specific. It markets to families who are vacationing together and want to spend more quality time with one another.

Here’s a breakdown of who stays at each:

Fees and Commissions

Airbnb and VRBO let you set up and list your property for free and offer liability coverage at no extra cost. Both platforms require you to pay host service fees when monetizing your property but offer different options for you to consider. 

Airbnb host fees

Airbnb offers two fee structures: a split fee and a host-only fee. 

Split fees let you split the costs between the host and the guest, with the guest paying the lion’s share of them. Here, the host pays a 3% fee (or more if you have “super strict” cancellation policies or are listing in Italy) that’s determined by the booking subtotal and gets automatically deducted from your payout. The subtotal calculates:

• Nightly rate
• Cleaning fee
• Additional guest fee (if applicable)

The guest service fees usually come to less than 14.2% of the booking subtotal, including the abovementioned fees.

Here’s what this looks like if a guest books your Airbnb for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 3% = $27 host service fee
• $900 – $27 = $873 total profit for the host
• $900 x 14% = $126 guest service fee (including taxes and occupancy)
• $900 + $126 = $1,026 total cost for guest

Host-only fees mean that you, as the host, cover all of the added costs, usually between 14-16% of the booking subtotal. This fee structure is mandatory if you offer a traditional hospitality space (i.e., hotel rooms, hostels, bed and breakfasts, etc.). 

Here’s what this looks like if a guest books your Airbnb for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 15% = $135 host service fee (including taxes and occupancy fees)
• $900 – $135 = $765 total profit for the host
• $900 = total cost for guest

VRBO host fees

VRBO also offers two fee structures: subscription and pay-per-booking methods.

The subscription model covers unlimited bookings for an entire year for $499, paid a year in advance. This plan is the way to go if you make more than $6,250 in bookings annually. 

The pay-per-booking model charges you 5% of the booking subtotal and an additional 3% payment processing fee for the total amount. Like Airbnb, the subtotal includes: 

• Nightly rate
• Cleaning fee
• Additional guest fee (if applicable)

Here’s what this looks like if a guest books your VRBO for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 5% = $45 host service fee

Let’s assume the taxes and extra fees come to $150:

• $900 + $150 = $1,050 total payment amount
• $1,050 x 3% = $31.50 payment processing fee
• $45 + $31.50 = $76.50 total host fees
• $900 – $76.50 = $823.50 total profit for the host

Airbnb vs. VRBO: Property Damage Protection

Compared to other rentals, vacation homes are more likely to incur property damage because more people use them. Understanding this risk, Airbnb’s Aircover for Hosts and VRBO Host Insurance offer host damage protection.

Aircover for Hosts provides “top-to-bottom protection for hosts,” including: 

• Reservation screening
• Guest ID verification
• $3 million for host damage protection
• $1 million for host liability insurance
• $1 million for experiences liability insurance
• 24-hour safety line

Aircover for Hosts protects your property while you’re hosting guests. However, you’ll still need personal insurance if something happens to your property when you don’t have guests. 

VRBO Host Insurance offers $1 million in primary liability coverage at no additional cost, which protects you against any property damage or travel injury claims made against you. If you file a claim, it’s recommended that you do so as quickly as possible. VRBO’s insurance services are available 24/7. 

Airbnb vs. VRBO: Cancellation Policies

Airbnb and VRBO each have several cancellation policies. Here are your options for each:

Airbnb cancellation policies

• Flexible: Guests are fully refunded until 24 hours before check-in. If they cancel within that window, you’ll be compensated for each night they stay + one additional night.
• Moderate: Guests are fully refunded until five days before check-in. If they cancel within that window, you’ll be compensated for each night they stay + one additional night + 50% for all unspent nights.
• Firm: Guests are fully refunded until 30 days before check-in. If guests cancel between seven and 30 days before check-in, you’ll be compensated 50% for all nights booked. You’ll be fully compensated if they cancel within seven days of check-in. Also, if a guest cancels within 48 hours of booking, they can receive a full refund if they cancel at least 14 days before check-in. 
• Strict: If guests cancel within 48 hours of booking, they can receive a full refund if they cancel at least 14 days before check-in. If a guest cancels between seven and 14 days before check-in, you’ll be compensated 50% for all nights booked. You’ll be fully compensated if they cancel within seven days of check-in. 

Airbnb hosts can also set long-term “firm” and “strict” policies, “super strict” policies, and a non-refundable option. 

VRBO cancellation policies

• No refund: All bookings are non-refundable.
• 60-day policy: Guests are fully refunded until 60 days before check-in. Bookings are non-refundable within 60 days of check-in time.
• 60/30-day policy: Guests are fully refunded until 60 days before check-in and receive a 50% refund (minus service fees) if they cancel between 30 and 60 days of check-in time. Bookings are non-refundable within 30 days of check-in time.
• 30/14-day policy: Guests are fully refunded until 30 days before check-in and receive a 50% refund (minus service fees) if they cancel between 14 and 30 days of check-in time. Bookings are non-refundable within 14 days of check-in time.
• 14/7-day policy: Guests are fully refunded until 14 days before check-in and receive a 50% refund (minus service fees) if they cancel between seven and 14 days of check-in time. Bookings are non-refundable within seven days of check-in time.
• Custom policy: Hosts can set their cancellation policy terms.

Which Platform is Best for Me?

Airbnb is more flexible simply because you can offer all kinds of spaces, while VRBO requires renting out an entire space. However, Airbnb and VRBO are great platforms for beginning investors and homeowners interested in entering the short-term rental space. 

Many real estate investors have turned hosting into full-time jobs by operating multiple vacation rentals all at once, and with enough experience and know-how, you can too! 

Build long-term wealth with short-term rentals

Vacation rentals can be an extremely lucrative way to boost your monthly income—but only if you acquire and manage your properties correctly. This ultimate guide to analyzing, buying, and managing vacation rental properties will set you up for immediate success and long-term wealth.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.