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Interview questions always have a purpose behind them—whether it’s “What are your strengths?”, “Where do you see yourself in five years?” or “Why are you interested in this position?” Standard questions are generally considered standard for a reason, as they’ve been tried and tested at generating the information the hiring manager needs to make their decision.

However, it’s often the nonstandard questions that can really tell you a lot about a person. Here, 13 business leaders from Young Entrepreneur Council share the questions they love to ask during interviews and why. Consider adding one or more of these options to your list to see what you can learn about your next job candidate.

1. If you could be one item in the kitchen, what would it be and why?

This question always generates the most interesting responses—often things you hadn’t even considered. It is also unexpected, but in a fun way, and is meant to make you want to answer with what comes to mind first. Candidates’ answers can tell you a lot based on both the item they select and the reason why. It can also break the ice and give you the chance to see if the potential hire has a good sense of humor! – Kristy Knichel, Knichel Logistics

2. What’s a time in your life when you overcame the odds and succeeded?

“Tell me about a time in your life when the odds were stacked against you but you overcame them and succeeded.” This question is designed to help me understand how the candidate handles adversity. It can also reveal how well they handle pressure. – Mauricio Cardenal, Roofing Marketing Pros

3. Can you explain a time when you disagreed with a supervisor?

I find this question insightful because it allows candidates to showcase their ability to handle workplace conflicts professionally. It reveals their communication skills and their capacity to navigate disagreements in a constructive manner. Moreover, it shows whether they can balance their own perspective with the need to respect authority, which is essential in a collaborative work environment. Their answers often provide insight into their problem-solving abilities and willingness to learn from experiences. It allows candidates to demonstrate how they’ve handled past conflicts and whether they can reflect on those situations to improve their approach in the future. – Sujay Pawar, CartFlows

4. What don’t you like to do?

This question serves as a valuable gauge for several qualities. It assesses the candidate’s level of self-awareness and their willingness to be open and honest. It also offers clues about whether the candidate would be a cultural fit for the role based on their preferences. Additionally, the way they manage tasks they don’t enjoy can shed light on their problem-solving capabilities and overall maturity. – Anna Anisin, DataScience.Salon

5. How did you manage your work and time while cooped up during Covid?

This question is insightful because it tells me how much discipline the candidate has, and it also tells me about their management skills. This works well for me because our company is 100% remote and we look for people who know how to work through the distractions of everyday life while working remotely. – Benjamin Rojas, All in One SEO

6. What’s something you learned recently that made you pause and think?

“Tell me something you learned recently. It doesn’t have to be work related per se, but just something that made you pause and think.” What I want to hear is: first, the level of depth when sharing something that is interesting to them; next, if they really are constantly learning or curious about information and if they have awareness of retaining knowledge and are potentially applying it too; finally, the vulnerability of showing they are not perfect. To say, “I don’t know the answer” is difficult, and we need consultants to be confident in their knowledge and even more confident that it is okay if they don’t have all the knowledge. – Marjorie Adams, Fourlane

7. What’s a professional goal you failed to achieve, and what did you learn?

One of my favorite questions to ask a potential hire in an interview is, “Tell me about a professional goal that you failed to achieve in the past. What did you learn from that experience?” The answer to that question usually reveals if the person can reflect on their past failures, whether they were able to grow professionally and how that failure in particular triggered the growth. – Andrey Shelokovskiy, 360 Painting of Dallas

8. Can you describe a challenging situation you faced at work and how you dealt with it?

This question is particularly insightful because it sheds light on the candidate’s problem-solving skills. Through their answer, I can discern whether the candidate is methodical, innovative or perhaps reactive in their approach. For instance, if the challenge revolved around team conflicts, the answer might reveal their conflict resolution abilities and communication skills. A candidate’s description of how they navigated unexpected hurdles can offer a glimpse into their adaptability quotient. Additionally, candidates who reflect on their experiences and contemplate alternate approaches exhibit a commendable degree of self-awareness and continuous improvement. – Julia Rodgers, HelloPrenup

9. Why should I hire you?

Turnover rate in the restaurant industry is high, so I’m used to interviewing lots of potential hires for various positions. One of my favorite questions is, “Why should I hire you?” Their responses tell me how confident they are with themselves and their skill sets. Sometimes, I don’t even base their hiring on their resumes. Their accomplishments and experiences matter to me just a little bit; what matters the most is who they are now and how they present themselves. Of course, this depends on which position they’re applying for. For example, if they are applying for front of house (server, bartender), then their personality and communication skills must be on point. On the contrary, if they are applying for back of house (chef, dishwasher, line cook), then it’s more based on skills. – Fritz Colcol, Simply Thalia

10. Can you describe a project or situation where you had to collaborate with a diverse team?

My favorite question to ask potential hires in an interview is, “Can you describe a challenging project or situation where you had to collaborate with a diverse team to achieve a goal?” This question provides insights into their teamwork, communication, adaptability and problem-solving skills. Their response demonstrates their ability to work effectively in a team and reveals their attitude toward diversity and challenges—essential qualities for success in today’s workplace. – Alfredo Atanacio, Uassist.ME

11. What has your experience with our product been like?

I think that it’s very important that any hire uses our products and is familiar with our business. The answer they give will tell us everything we need to know about how prepared they are and whether they know what they’re going to be working with. I would use this question or a variation depending on the role and the brand the person is going to work for. It will help decide which candidate is best and most likely to fit with the company the fastest. – Syed Balkhi, WPBeginner

12. Can you tell me your story?

Opening up the floor for candidates to paint a picture of who they are will help you understand many of their attributes. Storytelling is an important quality for any creative job or client-facing position. Being able to decide what’s important is also a quality many managers look for. This question also puts people on the spot, and how the potential hire acts under pressure might reveal some other attributes that would be beneficial to learn before hiring the individual. – Chase Williams, Market My Market

13. What has been the toughest form of feedback to swallow in your career?

How candidates handle feedback and how they interpret it is vital to organizational success. Where someone levels blame on someone else or deflects a question like this can be a red flag. On the other hand, when someone discusses how they are able to digest tough feedback and take accountability, it shows strength of character and their willingness to lean into feedback culture. We always have something to learn. Entrepreneurs should pay very close attention to how candidates describe experiences with both negative and positive feedback to look for accountability cues or lack thereof. – Matthew Capala, Alphametic

David:
This is the BiggerPockets podcast show, 836. How did you know, Lindsey, what you should listen to from other people and when you should say nope, I don’t care what they say, I’m going to move forward?

Lindsey:
Good question. I thrive a little bit on beating the odds, and if somebody tells me no, I take that as a challenge. Whether that’s you probably can’t become a doctor. Well, I’ll prove you wrong. That was a long 11-year challenge to get to that point. But similar to real estate, when I first started, the very first broker I spoke to said, I don’t have time for you. And that was a big challenge to me to keep going forward and prove them wrong too. So I like a good challenge.

David:
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 in the world every week, bringing you the stories, how-tos and the answers that you need in order to make smart real estate decisions now in today’s market. And we have got a show for you today. Rob and I will be interviewing Lindsey Duguet, who is a multifamily operator, a small multifamily operator, a little bit single family mixed in there. She’s done a lot of things, but she’s done well with the BRRRR method and long distance real estate investing, two things that we both know that I’m passionate about, and she’s proven a lot of people wrong along the way. Rob, what are some things that you think people should look out for in today’s episode?

Rob:
I think for anyone that’s at home listening to this podcast, if you have reached a plateau in your real estate investing journey and you’re trying to scale and you’re trying to figure it out and you’re struggling with it, this episode is going to be particularly impactful for you because we’re going to uncover some of the secrets that Lindsey uses to scale her own portfolio. But on that note, David, what’s one thing that’s fueled you that people have doubted you in?

David:
I’ve been hearing for years hateful messages in my DMs, shade thrown my way that I will never have a beard like Brandon’s. And I finally said, enough is enough that I’m going to prove the doubters wrong. I’m going to show them that they’re wrong about that. That in fact, just because I don’t have hair on my head does not mean I can’t grow hair. I’m going to grow twice as much underneath my chin, and that’s what I’ve gone and done.

Rob:
Well, I wouldn’t say… I mean twice as much would be like an eight-foot-long beard, I feel like.

David:
No, not twice as much as Brandon, twice as much as I would normally have on my head. You got to run your own race, Rob.

Rob:
Well, hey, it’s a marathon, not a sprint.

David:
Yeah. Before we bring in, Lindsey, today’s quick tip is simple. Do your homework before you partner. We often talk about partnerships and they’re portrayed on many podcasts as if they are this catchall magic pill that will solve all of your woes. But many partnerships can make things trickier and more problematic rather than helpful. And be sure to listen all the way to the end of today’s episode because Lindsey is going to share with you her four questions she asks every partner before committing. Rob, anything before we bring in Lindsey?

Rob:
No, no. Just that nowadays, I’m thinking about starting a little side hustle raising peacocks, and you’ll soon find out why.

David:
That’s exactly right. If you want to learn a little bit more about the buy and hold peacock method, we’re going to get into that soon.
Lindsey Duguet, welcome to the BiggerPockets podcast. How are you today?

Lindsey:
I’m excellent. How about yourself?

David:
Excellent. I can’t quite say I’m that good. I clearly am the number two in this equation, but I’m doing pretty good, Rob, how are you?

Rob:
I’m doing really good. I’m doing really good. I got 10,000 steps in and we’re only halfway through the day, so I mean, there’s many more steps to come.

David:
Oh, you’re not going to become one of those people, are you, that counts that as a workout?

Rob:
I track it a lot. I just need to know.

David:
Tracking is fine, but is it a substitute for your workout?

Rob:
Well, it’s a pillar of wealth, I’ll tell you that.

David:
There’s nothing against the Fitbit people. I just don’t like it when people don’t exercise, but they say they did by counting their steps. Steps are not bad.

Lindsey:
They got that circle check. Yeah.

Rob:
I did work out at 5:40 in the morning.

David:
Yeah, that counts, right? I don’t know. I’m not a fitness expert, obviously, but walking is a pretty efficient movement that human beings are pretty good at doing. Doing something hard, I think counts as exercise. But that is neither here nor there. Speaking of hard things, Lindsey, you’ve done a lot of hard things and you are very financially fit, much like Rob’s physical fitness, and I’m excited to get into your story today. A little background for everybody who’s listening, 476 units across 18 properties, and you’ll be crossing the 500 mark in just a few weeks. Congratulations on that. Fingers crossed.

Lindsey:
That’s right. That’s a big landmark. Yeah. Yeah, it didn’t close yet, so.

David:
Now some of these properties are partnerships, which is awesome that you disclose that because it’s very common in the world of podcasting for people to claim that they have 7,000 units, but they really are just a limited partner in other people’s investments. You’ve got a mix of single family, duplex, fourplex, tenplex, all of the plexes, including large multifamily with 212 units. You live in Pennsylvania where you also invest as well as Indiana, Chicago and South Carolina, Kansas City, and Springfield, Missouri. We’ve got a long distance investor in the house here.

Lindsey:
But not the West Coast yet. Haven’t made it over there. So it’s all the East Coast.

David:
And you’ve been doing this for the last five years, if 500 units in five years sounds unattainable, I get it. But we’re going to be focusing on the early days of Lindsey’s investing and break down how she paved the way to get from there to here so you can too. And a fun fact, Lindsey raises peacocks.

Lindsey:
Right. I’m a crazy person. That is for sure.

Rob:
Do you own them or do you raise them? Do you train them for other people?

Lindsey:
Yeah, they don’t do any tricks for me, but I grew up on a horse farm and full disclosure, now I live in a neighborhood. It’s at the end of the cul-de-sac. Thank God we don’t have any HOA fees or I 100% would’ve get kicked out. But a couple of years ago, I missed having some of my fun little animal friends and one of the other physicians that I work with said, Hey, do you want to raise or try to hatch some peacock eggs? I said, yeah, absolutely. It sounds fantastic. So five years later here we are doing it every single summer. So yeah, my neighbors, I’m sure they love hearing them and seeing them.

David:
Did you feel like Khaleesi from Game of Thrones holding your peacock eggs?

Lindsey:
Yeah, I didn’t step out of any fire, so I’m not that cool.

David:
Nothing like that?

Lindsey:
No.

David:
But did you have the moment where you felt like it, for Halloween, maybe you dressed up that way, you’ve got the blonde hair, you held the eggs?

Lindsey:
No, but I don’t have a Halloween costume yet for October, so I think that’s a good idea.

David:
Yeah, you could change your Instagram name to breaker of chains. The conqueror mother of peacocks, have that really long title.

Lindsey:
Passive peacocks, I don’t know, something real estate investing related.

David:
Before we get into your backstory, tell us in one quick sentence what’s working for you in real estate right now?

Lindsey:
Conservative underwriting is definitely a key for us right now. Times are a little bit different now than when we started five years ago. It’s a little bit easier and you had more of a buffer than you do right now.

David:
That is such a good point. And this is something that doesn’t get talked about a lot. It is not, how do I want to put this? When it comes to real estate investing, there’s always going to be some art to the science. So the last five years of multifamily investing, really any type of properties that were based on commercial lending, there’s a formula that we use and it’s basically your NOI and the cap rate combination of those two things create value. Well, nobody saw interest rates tripling or that fast, and that has a massive impact on the cap rate. And even if you did everything right as an operator, you could have doubled your NOI and you could still get stuck with these interest rates increasing.
And to be fair, I don’t know how much I blame some of these operators. They did a great job and they still ran into problems because when they have to refinance their property, that doesn’t debt service anymore at today’s rates or when they go to sell it to somebody else, there’s less people that want to buy it and those that are going to buy it, they can’t pay as much because of this cap rate problem.
So I say all that to say that conservative underwriting can be a win. And many people that did not buy in the last five years that felt like, oh man, not taking action. I know all this stuff, but I’m just nervous. What if rates go up? Some of those people are looking pretty smart, and the ones that did buy in the last five years are probably feeling really good if they paid more to get a 10-year fixed rate, not the three-year balloons that some people took out. So I appreciate you saying conservative underwriting is working for you right now because that doesn’t get glamorized. We are always like, what did you acquire? How many units did you get? Here’s a picture of me signing my documents on Instagram. Everybody gets to see it, right? But you don’t see a lot of people say, here’s a picture of me taking a haircut on this property rates skyrocketed on me.

Lindsey:
Yeah, we’re definitely not closing as much as we had been, but the ones we are, we’re very confident and their little cash cows, so that’s good.

David:
Now, one of the things I hear a lot of other multifamily operators, commercial operators talking about is that the cashflow itself is incredibly hard to find. They’re focusing on value add or rent growth. Are you finding something that you feel like is cash flowing right out the gate year one?

Lindsey:
So everything we’re buying there’s a degree of cashflow to it unless we’re getting a few of these off market ones where there are complete renovations where… We can talk about some of the ones that we bought before where there’s literally grass growing in the front living room and everything like that. But we’re really trying to get cashflow from day one with still having value add that we can go in and then refinance and still pull out the majority if not all of our money.

David:
Okay. Well that’s good news for you, Rob, because you got that grass growing on the top of your head. Apparently it grows in more places than just front lawns.

Lindsey:
Oh, I give my whole family haircuts, so yeah, I can come over. I’ll give you one too.

Rob:
Will you be at BP Con? I’ll wait to cut it.

Lindsey:
No, not, but-

David:
So not only are you a barber, but you are also a doctor, and that wasn’t the expectation that your parents had for you growing up. What did they say when you told them that you wanted to become a doctor?

Lindsey:
For all intents and purposes, I shouldn’t be a doctor. I definitely shouldn’t be a doctor who is doing real estate investing and definitely not a doctor doing real estate investing with peacocks in my garage. But I grew up in a very small town. I was the first person in my entire family to go to college. Nobody invested. My parents absolutely thought I was going to lose all my money when I first said that I was going to go into real estate investing. So my mom, she was very happy that I went to college. God bless her, I love her so much. But when I said, “Hey, I think I want to go become a physician,” she’s like, “That’s a lot of work. That’s a lot of time. That’s a lot of money. Why don’t you be a nurse? Your cousin’s an LPN. She makes a nice amount of money.”
There was definitely some dissuasion from my own family members to become a physician. I still have one of my birthday cards from my dad. He’s a man of few words, but what he speaks, you listen to him, he speaks volumes. And I have it up in my office actually, and he said, “Don’t listen to the negativity. You can do anything you want and you’ll be good at it.” So I still look at that quote to this day, so I figured I have the grit, I have the determination, I can become a physician. So I went for it.

David:
You didn’t ask where was this when I was in pre-med and you were telling me not to do it?

Lindsey:
Yeah.

David:
Yeah. I had a similar experience. My dad actually said, you’re not going to be a cop. You’ll never make it. You’re not tough enough. Which is crazy. I don’t know where that often comes from. I know that the people that are naysayers don’t often mean to be as discouraging as they can be, and it can be tricky sometimes they’re trying to protect people from delusion. There are some people who would say, I’m going to be the next Gary Vaynerchuk, and someone needs to put them in their place and say, no, you’re not. You can’t even hold a regular job. But then in other cases, there are people in our lives that mean, well, that can be discouraging. So how did you know Lindsey, what you should listen to from other people and when you should say, “Nope, I don’t care what they say, I’m going to move forward?”

Lindsey:
Yeah, good question. I thrive a little bit on beating the odds, and if somebody tells me no, I take that as a challenge, whether that’s you probably can’t become a doctor. Well, I’ll prove you wrong. That was a long 11-year challenge to get to that point. But similar to real estate, when I first started, the very first broker I spoke to said, I don’t have time for you. And that was a big challenge to me to keep going forward and prove them wrong too. So I like a good challenge.

David:
Yeah. So speaking about challenges, what was your upbringing? Did you have challenges when you were a child you had to overcome as well?

Lindsey:
Yeah, like I said, I was the first person to go to college in my whole family. It’s not like we were poor, but we certainly lived in more of a scarcity mindset instead of an abundance. Nobody taught me about investing stocks or otherwise. My mom literally has $30,000 in her entire retirement fund right now. It’s not like I grew up with a silver spoon or anything like that. I mentioned I grew up on a horse farm. There were no neighbors around me. I really was a friend to all the animals and everything like that, so I did a lot of reading. I love to learn obviously, I wouldn’t have spent 11 years becoming a physician. So yeah, I spent a lot of time reading and learning.

Rob:
Sure, sure. And so I mean, you go on to become a doctor. This is a huge feat, congratulations by the way. And tell us about what it was working as a doctor in your early days.

Lindsey:
Yeah, so it’s a long road. You go to college for four years, medical school for four years, and then depending on what specialty you want to go into, it’s another three to seven years of training and residency. So yeah, it’s a lot. It’s a long time. It’s not a small thing to want to do. So in residency, you’re working 80 hours a week. It’s an average of sixty, sixty-five thousand dollars for salary. So when you break that down, it’s like $16 an hour as a physician. And my specialty is emergency medicine and trauma. I’m surrounded by people who didn’t think they were going to end up in the ER. You never wake up thinking you’re going to be in a car accident, have a heart attack or a stroke or anything like that. So I realized, okay, if I am not going to work and putting in these hours, I’m not getting paid.
And when I was in residency, my husband and I had our first kid, he’s six and a half now, but we realized, okay, we need to do something where we are more financially secure and if God forbid, I’m not here or something, we’re still having money come in instead of just relying on my W2, which I have to physically be there for. So that’s when we started to look into, okay, what are we going to do? How are we going to make some money besides my W2 job?

Rob:
Sure. I mean, obviously there’s the perception that doctors seem to do well. Is sixty-five thousand dollars? Is there kind of a point where it’s supposed to be more than that? How does that work for doctors?

Lindsey:
When you become an attending? So once you’re done that three to seven years of residency training, then your salary does increase to varying degrees depending on what type of physician you are. So there is a light at the end of the tunnel, but most of us have hundreds of thousands of dollars in medical school debt when we come out. I had $230,000 in medical school loans. That’s not an asset. That’s a big liability. So a lot of debt to pay down too.

Rob:
Sure, sure. Okay. So at what point was it where, how, when did you know something needed to change? Because obviously you get into this groove, you’re like, all right, I’ve got this W2 job. All my time is being soaked up. I need to change something. What was that turning point for you?

Lindsey:
Yeah, my husband and I, we started to look into what can we do to invest in. All the physicians that I worked around are very stock heavy, so we started to look into the stock market. It didn’t excite us very much. And then my husband listened to the book, Rich Dad Poor Dad, gateway book for a lot of us, I’m sure. And he said, “Hey, I think you need to listen to this and see what you think.” As soon as I read it, I was like, Okay, this is it. We need to do real estate investing. And it was mindset shift and full force ahead.

Rob:
Okay. And so was that the spark for you that got you actually into real estate? Or when did real estate actually come into the picture?

Lindsey:
So as soon as I read the book, I said, okay, we’re going to do this. And I signed us up for a three-day real estate investing course. There was good and bad to that. It was almost a little bit like a time chair sell that they pump you up and then at the end there was this upsale. So we were like, okay, we’re going to join this group for $30,000, and we definitely… And that part wasn’t worth it. So it wasn’t maybe the best start to it, but it did teach us about real estate investing, leverage, and it got us… Well, first of all, I learned about BiggerPockets through that. I didn’t know what that was until five and a half years ago.
I remember standing in line for coffee and one of the other guys said, “Hey, have you heard of BiggerPockets?” I was like, “No, what’s that?” So we learned about local real estate investing groups, and I went to one of those with my husband the very next month, and that’s actually how we got our first deal. So there was good that came out of the first course we took.

Rob:
Okay. And so is it sort of like you’re all in, you want to go into buying properties, investing, is it more you want to be a realtor? What exactly did you want to get started in when you were like, all right, I know I want to be in this career?

Lindsey:
So just like in medicine, we have this saying, you don’t know what you don’t know. So I at first thought I was going to be a wholesaler. I was like, oh, okay. That sounds okay. I can find these properties and then I can sell them to somebody else. Not thinking, okay, well that’s not really actually passive income. That’s not something you’re going to hold and still get cashflow from it every month. So the first local meetup that we went to, there was a guy, his wife is a physician, and that resonated with me, obviously, and he at the time owned 20 units and he said he got 20 units in five years. To me, that sounded unattainable at that time. I’m like, wow, 20 units in five years maybe I can be like him. And the next meetup we went to, he said, “Hey, I have two single family properties,” and it was a D class area, which we didn’t know what D class was or anything at that time, but he said, “I am sick of these two properties. They’re too far away. They were an hour from where we live.”
But he said, “I’ll give them to the highest bidder in this room, basically.” So I ended up saying, “Okay, these will be our first properties.” So we got them sight unseen for $2,500 each. So we got two properties for $5,000. I was like, that’s it. I’m an investor. He came over to my house, we had this paper contract we signed. He’s like, okay, just go to the courthouse. This is going to be your deeded. Here’s the keys. And he walked out. So I remember we had a bottle of Korbel champagne. My husband and I popped and we’re like, yeah, we’re real estate investors. This is before we even went to see the properties.

David:
I’ll sell this to the highest bidder in the room.

Lindsey:
In the room in a local real estate meetup. Yep.

David:
That is a ballsy move on their part.

Lindsey:
Yeah, it created some FOMO in the room.

David:
100%. And of course, you’re targeting to people who don’t know anything about investing, so-

Lindsey:
That’s right.

David:
… you hear everyone else talk about the success stories of real estate investing. You assume being an investor is a good thing. You’re not thinking about what you’re actually buying. Can you describe what a D class neighborhood is for the listeners?

Lindsey:
Yeah. So D class is where you don’t want to buy. It’s the crime areas. That was not the property that ironically had grass growing in the front living room, but it did have squatters that we found when we finally opened up the doors. So there tends to be some drugs, high crime rate in those areas versus C class, which we have some C class areas a little bit better, more working class. You want to find the B or C property in an A class neighborhood ideally. So the A class are the very, very good education ones, the perfectly manicured front lawns and everything like that, but maybe tend to be less value add. So these were in very bad areas.

Rob:
Yeah. Okay. So you foreshadow a little bit here. You buy two properties for $2,500 each.

Lindsey:
Yep. 5,000 total for two properties.

Rob:
And then they appreciated greatly and provided insane cashflow, right?

Lindsey:
Oh yeah, we walked in. They were perfect. We didn’t have to do any rehab. No, not at all. So yeah, we walked in. First of all, we didn’t ask because again, you don’t know what you don’t know. And he neglected to give us full disclosure that he was behind on a lot of taxes. There were squatters in one of the houses which he tried to remove. So he cut all the pipes and that did not dissuade them to stop living there. So when we walked in, there were urine bottles all over the house. It was a mess, to say the least.

David:
Let me ask you a question. Looking back in hindsight, how much would he have had to pay you to take these over to make it worth it?

Lindsey:
Yeah, it would’ve been a hard pass knowing what we know now. Yeah.

David:
But I mean, was there a number, like a hundred grand would’ve been worth it or 500 grand?

Lindsey:
A hundred grand. Yeah, I would’ve taken them for a hundred grand.

David:
Yeah. And that’s just a thing that never gets talked about, right? You bought a job basically.

Lindsey:
Yeah. Oh, yeah. We bought a job. We learned a lot. We Googled local contractors and we found a guy and we paid him upfront. So that was a really wise thing to do with no contract. So yeah, lots of good things. He still has-

David:
Every mistake we all made in the very beginning. Hit you on the same deal.

Lindsey:
So many mistakes.

Rob:
Okay, so you learned some lessons here. You said you don’t know what you don’t know. What would you say some of the questions should have been? What were some of the questions that you wish you could have go back and asked to help avoid this?

Lindsey:
Yeah, I think we asked zero questions basically, other than where are the properties?

Rob:
So really just any question?

Lindsey:
So any questions to start. But yeah, I mean I definitely want to ask, do you currently have anyone in there? What are the rents, all the things that you should be underwriting for, right? What’s the property taxes? What’s the insurance you’re paying for? Are you up to date on taxes? So all the questions.

Rob:
Sure. Let me ask you this. In that exact moment, you buy these houses, what did you think was going to happen? Were you thinking, oh, I’m going to buy these houses, I’m going to rent them out and I’m going to cashflow? Or was it sort of like, yeah, let’s buy it and yeah, I know real estate is good, let’s just figure it out. What was the actual mindset there?

Lindsey:
Our mindset was knowing that this was going to be some learning properties. I mean, $5,000 isn’t nothing, but it’s not huge. It wasn’t going to break our bank account at that time. So we took them as some learning opportunities. We learned more than we thought we were going to have to, but we did buy them. We did end up getting them fixed. We did a lot of the work ourselves. My husband’s from France, he moved to the US 13 years ago, and I joke that when he moved here, he was the fancy French guy who couldn’t even change a light bulb, and now the poor guy knows how to rehab everything. He changed an entire sewer line on one of these properties. So we ended up rehabbing them. We did the BRRRR method here, if anybody’s heard of that, David Greene.
And we pulled out, oh yeah, over 100% of our money on the property. So we owned those for five years. Actually, we just sold them six months ago. So we had bought them for $2,500 each. The one unit we put $15,000 into, and the other unit we put $20,000 into because they were an absolute mess, but we ended up selling them for $60,000 and $70,000 each in the spring.

David:
As well as parts of your soul.

Lindsey:
Parts of it, yeah. But we can never get some of that back. I had a nail go through my knee when I was taking the carpet off of the stairs on the one property, trying to learn how to [inaudible 00:22:52].

Rob:
When you sold that property, certainly there must’ve been some aspect of like, wow, I’m really letting go my first set of bad memories who shaped who I am today or were you like, hell yeah, get these things out of here?

Lindsey:
Yeah, it was a combination of both because even though we had a really rough start once they were rehabbed and we ended up getting some good tenants in there, they were cash flowing $400 to $500 per unit, and we had bought a duplex in the town a month after we got the first. So we were really rehabbing four at the same time. But all of them were cash flowing very well despite being in a bad neighborhood.

Rob:
Yeah. I always like to ask this just out of curiosity, if you could go back to younger Dr. Duguet, do you wish you could have avoided these houses or are you happy that you went through that journey, because obviously you’ve gone on to do a pretty amazing thing with your portfolio?

Lindsey:
Yeah, I joke about how bad they are, but we did learn a lot and I don’t think we would have some of the same grit and determination if we hadn’t gotten through all of those landmines and troubles that we had with those first properties. And we can help guide other people as well. I mean, people, they know how bad they are. They’ve seen the pictures on my social media and everything, so they’re like, Hey, I saw your bad properties. How did you get over this? So we did learn a lot and we can teach now on what not to do.

Rob:
Okay. So you buy these properties, you’ve sold them or there’s a little bit of resolution there. How did you scale up from there?

Lindsey:
Yeah. So we had those first four that we acquired. We ended up doing the full BRRRR on those. Then I started doing some direct mail campaigns, so handwritten letters, handwritten envelopes, sending them out, and we had some people reach back out from those. We ended up getting a couple of single families in more, B plus a minus neighborhoods at a lake really close to us. We still have all those properties. We got a four unit from one of the off-market campaigns from a seller in New York, and you think we would’ve learned this lesson, but we also bought this one sight unseen, and this was the grass in the living room that we ended up walking into. We got it for $20,000, very big building. They’re just over 1,100 square feet per unit. So those were full rehabs. We ended up pulling out 126% of our capital on that property too. So another perfect infinite return BRRRR on that one.
And then we ended up getting our 10 unit that was our seventh deal, just between my husband and I. So we were doing everything ourselves. I was working extra shifts at the hospital, moonlighting to fund the properties, buying them cash or traditional 75% LTV from local banks that we were using and starting to form these good relationships with. But then each property we were buying, we were running out of capital. So instead of paying an actual contractor to do it quickly, my husband was learning along the way and doing a lot of these rehabs himself. He was also managing the tenants and the properties and everything. None of this was passive the way we thought it was going to be when we first got involved, so we really reached a cap where we’re like, okay, this is another job, we’re not scaling the way we want to, and our resources are getting tapped out here when we got to 22 units.

David:
Passive income is one of the greatest marketing statements ever in the world. Just that anything would be passive. How people have been able to fool others into thinking that you’ll buy real estate and never touch it again when nothing else in life works that way. Have you ever met a married couple who’s like, I worked really hard to get my wife and then I married her and I never had to do anything again. She just loves me every day, and it’s passive love at this point. It’s like-

Lindsey:
My husband would definitely disagree with that statement.

David:
And there’s no passive fitness. It’s just funny how we’ve done that. Now, Lindsey, you’ve clearly read the BRRRR. You understand that strategy. I’m curious if you guys guys ever read Long-Distance Real Estate Investing?

Lindsey:
Yeah, yeah. That was an audiobook at the beginning we listened to. Again, I’m a good learner. The first year that we started investing, I literally listened and read over 100 different books. Not just real estate, but mindset and everything. So yeah.

David:
So with the principles in that book, was that something that was skipped when you guys bought a house without seeing grass was in there, or had you not read it yet?

Lindsey:
We probably got through that the half year. We were already a good eight units in deep and in the rehab process at this point. But it sounded like, pun intended, a long distance concept to us too. At the beginning. We did want properties that we could feel and see and drive by at the beginning, but that got old after we got to 22 units, and that’s when we started looking for partnerships in other people.

David:
But you just didn’t get a video made that showed what the condition of the property was, right?

Lindsey:
No.

David:
Because there is a way to invest sight unseen. I do it all the time, but somebody has to see it doesn’t have to be us, right? So that’s another learning lesson.

Lindsey:
We have JV deals where we have not set foot in the properties, but we own them. We’re partners. We’re very active in the JV deals. But yeah, we haven’t physically set foot in them.

David:
Me too. I have lots of properties I’ve never been in, never seen before, but someone did, right? Somebody went through, took a video, there was still due diligence that was done.

Lindsey:
Whether that’s a boots on the ground partner or yeah, another realtor or something. Yeah. Exactly.

David:
So that’s a learning experience. You learned from that as well. And speaking of learning, I understand that there’s a method that you learned in your medical residency that has helped you improve how quickly you learned. Can you tell us about that?

Lindsey:
The see one, do one, teach one, that’s the one you’re talking about. Yeah. Yeah. So in medicine, we have that saying, so say you’re going to learn how to do an intubation. You watch somebody do it, then you do one yourself, and hey, now you’re an expert after one, so now you can teach one. I mean, we definitely do that in medicine, but it’s applicable to real estate investing too, and it’s all about learning processes and perfecting them to get a method going. So I mean, just like the single family BRRRs that we did, we initially read about it, watched some podcasts, listened to the podcasts about it, talked to some of the other investors. We did one ourselves, a couple of them, and now we are mentoring people and teaching them about it as well.

Rob:
Now I’m a little nervous to get intubated knowing that the doctor may have only done it one time.

Lindsey:
Not with every procedure, but yeah.

Rob:
So you’ve said that your seventh deal was really a big turning point for your career. Can you tell us about that deal?

Lindsey:
Yeah. Oh my God, I love this deal. We still own this property. So this had been a direct mail campaign.

Rob:
What does that mean for-

Lindsey:
Oh, yeah. We use a software, it’s called RE Property Finder. You can search for any number of units, any amount of equity in the property. And at that time, we were targeting the mom and pop type owners. My criteria at that time had been owned for 20 years. They had 100% equity, so they had no loan with a bank, and we were hoping that these people weren’t running it quite like a business like they should, and these are the properties that we ended up buying. So we bought this one, it was 10 units, eight of them were rented at the time, but they were significantly under rented. The average rent in that area at the time was about $850. He was renting them out for 500, 525. He had owned it for 25 years. It was well maintained, but it was very, very dated.
And then two of the units in the back on the bottom, they were basically just being used as storage. They were uninhabitable. So we negotiated this down to $250,000 and then the bank financed the whole construction loan for the two units in the back. We learned a lot with this property too. My husband learned in this one that cockroaches can fly and that ceiling tiles can hold 13 pairs of dirty underwear too. It fell in his head when he was doing one of the rehabs on the properties. I don’t know what that tenant had in mind, but we ended up rehabbing the units. We are now getting between 1,000 per unit and $1,200 per unit. So we over doubled the rent. It appraised for just under $800,000 when we did our refinance last August on this property, and we got 275% of our money out and after the refi, we are still getting between five and five-fifty per unit cashflow.

David:
So it’s these BRRRR principles that you’re employing. You’re just doing it in the commercial space, not residential. And I’ll clarify what that is. When you BRRRR basically the fundamentals here, are you trying to buy it below market value? You’re trying to add value to it. Once you’ve done that or combination of those two, you’re going to refinance. Now, we typically describe this from a residential framework where the way that you add value to it is by increasing its comparison to a better comp. You’re looking for a residential property that is worth more, and you’re either changing the floor plan, the square footage or the condition of the property to match a comp, because that’s how residential real estate is valued. It’s actually kind of silly how that works. It’s like, well, what the Joneses pay for their house? All right, I’ll pay that. It doesn’t make any objective sense.
Commercial real estate makes a lot more sense from a financial perspective. What does the property make? How much can I expect to earn from this property if I buy it? So what you’re doing is you’re buying properties below market value because they’re being operated inefficiently. The rents are too low, the expenses are too high, maybe there’s some deferred maintenance and so the owners are like, well, let’s not raise the rent on them because then I’d have to go fix something up. And you’re adding value to it by fixing those things, you’re improving your income and you’re decreasing expenses, which improves the NOI.
Now you’ve got a property that’s worth more and hey, sometimes you catch some tailwinds. Sometimes interest rates go down, cap rates go down, the property becomes worth more. Just like in the residential space, values have been going up as we printed a bunch of money, and so it made it easier to pull your money out of a BRRRR. The same thing has been happening in the commercial space. It’s just as simple as residential real estate. You’re just pulling on slightly different levers because commercial real estate’s value differently.

Lindsey:
That’s exactly right. Yeah. We implemented what we did with the single families and the duplex, and we took it to the commercial 10 unit, and it worked wonderfully.

Rob:
Well. That’s amazing. I want to go back a little bit because you said you got 275% of your money back. What the heck did that feel like? That’s insane.

Lindsey:
I remember the day that we got our refi check and I was sitting in my husband’s truck, which the business pays for. It’s another great thing about real estate investing, business expense. And I remember sitting there in his truck and crying because the refinance check was $301,000 and refinance checks are not taxed, and I was literally just crying in the truck thinking, oh my goodness, this is more money than I made seeing thousands of patients in the last year at my W2 physician job, and we were already very much into the real estate game, but that was when I truly realized we can do this as a career and this can completely replace my salary and what we’re doing.

Rob:
That’s so crazy. Wow. I want one of those. Give me one of those. So that deal was also a turning point in another way as I understand it. Tell us about getting stuck and how you were able to get unstuck.

Lindsey:
Yeah, so like I said, this was our seventh deal, just my husband and I, and that took us to 22 units, but it was a full-time job. I mean, I was still doing more than full-time at the hospital with the moonlighting shifts to finance these deals. My husband was doing rehabs, he was doing the property management, he was doing the tenant management, everything. And we realized we were scaling, but not as fast in the way we wanted to. And we sat down, we’re like, okay, what are we going to do? Do we want to keep doing it this way? Or what can we do different to make this easier on ourselves and continue to grow our portfolio and not get burnt out? So we decided, okay, we need to leverage more, but in this time we need to leverage other people’s money and other people’s knowledge and time as well, because my time was basically maxed out. I can’t make two of me as much as I wish I could. So we decided we need to start looking at some partnerships and working with other people.

Rob:
That’s amazing. So tell us a little bit more about, you said, at this time you’re sort of taking on more properties, you’re in scale mode, but are you trying to figure out what’s the next step from here? Well, where did you turn the corner exactly?

Lindsey:
Yeah. So we started going back to some meetups. We started looking more into partnerships, and we joined a mastermind group, and that was really a huge turning point and piece of leverage for us as well. Tons of masterminds out there. Obviously a lot of free ones, a lot of ones focused just on short-term rentals, just on commercial property. We joined, it’s called Make It Happen Mastermind, and we have weekly, sometimes monthly group calls, a lot of accountability, and we’ve formed partnerships with other people in this group, and that’s how we started to scale up into JV deals, which obviously we’re still very active in as well as being GPs on some syndication deals.

Rob:
So that’s interesting because you mentioned at the beginning of this, you bought a course or you got enrolled in a course, it was really expensive, wasn’t particularly a winner for you. Now you end up going and you joining a mastermind. Was there a difference as to why one was so much more pivotal for you the second time around? Was it the people, the connections?

Lindsey:
Yeah. We had looked into a couple and this one just felt right, the vibe of the people. We were interviewing different groups to see which one we were going to vibe with. This one in particular was focused on the people in the group, do they have good ethics as well as doing deals together. And that’s what we wanted to do. We didn’t want to focus just on the education component. We wanted to scale with some more properties.

Rob:
You wanted to do.

Lindsey:
Yes, we wanted to do not just learn, which obviously we’re still learning all the time, but yeah.

Rob:
So I’m pretty curious here because I’ve got to imagine, especially early on in your career as a doctor that you’re taking a ton of calls, you’re on call as a doctor, you’re intubating people for the first time, possibly, second time. At the same time, you’re also managing your real estate portfolio. Was there ever a moment where you’re just taking insane amount of tenant calls during the workday?

Lindsey:
Yeah, it’s really hard to do CPR and take a toilet call at the same time from a tenant. Yeah, I mean, luckily my husband dealt with a lot of that. He kind of has the pager, I should say, for the tenants, and I have the pager for the patients. But yeah, I mean it’s tough to manage because at that time when we reached our 22 unit ceiling, we also had two very small kids at home. There were two, a baby and a toddler, so I had the mom aspect and the family aspect going on as well. So it was a lot to balance. So they’re tiny.

Rob:
Yeah. You said they were three and what was the other one?

Lindsey:
I think she was a year and a half old at that time. Time is fly now because right now they’re six and a half. My daughter just turned five last Thursday, and our son is 22 months old, our second son.

Rob:
Listen, hey, I got a two and a three-year old right now. First of all, it’s a hard age gap, but second of all, to be in the throes of your real estate career is absolutely crazy. Were they coming to job sites with you? Were they your makeshift handy people? How was it juggling all that?

Lindsey:
Yeah, our six and a half year old now, he actually really likes it. He says, my houses when we will go past some of the local ones. And he picked up a quarter a couple of months ago, he said, you need money to make money. So he’s definitely listening to some of the things that we’re saying about investing.

David:
So you hit a point where you recognize, okay, we need some support. We cannot keep going at the pace we’re going, we have kids, we have jobs, these properties that we bought. You’ve done really well, now, on the other end of that is that’s because you put a lot of effort into these. You pulled 275% of your equity out because you were hyper-focused on turning these things around. It is not passive, it’s passiver. It’s less passive than having to be a doctor, but it’s still not completely passive.
Once you recognized partnership was the road you were going to take, what are the questions you came up with that you recommend people ask a potential partner to vet them out?

Lindsey:
So one question that I always ask other people, especially as we’re doing some of these bigger syndication deals, is what other full cycle deals have you done? It’s one thing to say, I closed X amount of properties, but if you closed a whole bunch of them in the last year, but you’re running them poorly, it doesn’t matter. Anybody can take a great deal and run it into the ground if you’re not managing it properly. So I like to see what the other partners have done full cycle and full cycle well to make sure they can be good operators. So that’s number one big question that I’m looking for in other partners.

David:
And why is it important to see full cycle?

Lindsey:
So just like in medicine, if you get into med school, yeah, it’s a great feat to say, okay, I am in med school to become a doctor, but that doesn’t mean you are a doctor yet. You still have four more years in med school and residency. There’s a lot of opportunities to fail until you actually can be a practicing physician on your own. It’s the same as real estate. Just because you buy the property doesn’t mean that it’s going to be successful. So full cycle means you’ve bought it, you’ve managed it well, and you’ve refied it out well, or you’ve sold it successfully and not in a sale as in a foreclosure. You didn’t operate it well if that happened.

David:
And that’s just because you don’t want your partner getting stuck on something that they don’t have experience with.

Lindsey:
Correct. Yeah. Yeah. And some of the teams that reached out to me to see if I wanted to join, they were all brand new teams. They didn’t have any experience. And syndication’s a little bit of a dirty word right now too, because there are a lot of people with bridge debt that are getting into some financial trouble right now. And of course, those are the big ones that you’re seeing about on the news, and everybody thinks multifamily is bad now.

David:
Good point. Okay. What’s the next thing that you’d ask someone to vet them out?

Lindsey:
I like to see are they vertically integrated in their own company? And that’s not something that’s a deal breaker for me, but especially some of the bigger deals that we’re doing, if they successfully have their own property management company that can save a lot of expenses. One of our properties in South Carolina, it’s 110 unit, we vertically integrated this summer, and the operating expenses have gone down significantly, which means our NOI has gone up a lot too. And-

Rob:
Can you just briefly explain yeah, what does vertically integrated mean?

Lindsey:
Yeah, so having our own property management company in the building and not using a third property management company and doing that across a couple of the properties that we own.

Rob:
Okay, carry on.

Lindsey:
So that’s something that I like to see, but it’s definitely not necessary.

Rob:
And what’s the next question you’d ask?

Lindsey:
Yeah, so another one asking for their details of underwriting. Underwriting is to me, one of the most, probably the most important thing that you need to have in a successful real estate deal. Anybody can make numbers look good on paper, but that doesn’t mean they’re accurate. I cannot tell you how many times other people have come and presented a deal to me saying, Hey, do you want to do a JV? Do you want to partner? Do you want to put some of your money into this? It’s a great deal. The equity multiplier, you’re going to double your money in five years. So I always say, okay, show me the underwriting. And my husband, he’s a mechanical engineer by background, so he’s very, very nitty-gritty on the underwriting. And he’ll start going through it and he’ll look up and see, okay, your taxes are not written down correctly.
He talks to our insurance broker and they’ve underestimated what the insurance is going to be by 10,000, $20,000 at some cases on some of the properties. There are many, many things that can go wrong that if you’re not doing your own due diligence and looking at how they’re underwriting the deal can go very poorly. Sometimes they’re not putting in property management fees. If they’re using a third company, they’re missing huge things that are really going to affect your property in a negative way, and you’re not going to be making money on it if you’re not underwriting well. So that is huge.
And one of the other things that I like to see is how are they researching the area of the property? We mentioned that some of these properties we haven’t even walked into yet that we’re doing partnerships with. So are they really doing their market research? They might give us the operating memorandum or a piece of paper saying, okay, subjectively they think that this is a great area because oh, our friends, our family’s moving in, they’re building a new gas station here. It is a really growing area, but that’s just them thinking that. But then when you actually look into the numbers and the demographics, it’s losing 2% year over year for the last five years of population growth. So I don’t want to be investing in an area that is not increasing.
So mainly you need to be doing your due diligence, whether you are an active operator, whether you’re a limited partner, limited partners, that’s the most passive you can get, but you still need to be able to look at numbers and understand if the deal is good or not.

David:
Great questions there. I really like that, and that’s something practical that we can all move forward with. Really quickly, Lindsey, give us a snapshot of where your portfolio stands today in terms of the number of properties, the equity in the properties and your cashflow.

Lindsey:
Right now we have a total of 472 units. Actually next Tuesday we’re closing a 72 unit in Springfield, Missouri. So that one is going to take us over the 500 unit line, which is going to be a huge landmark for us. So this is a mix of… Yeah, it’s a big landmark for us. So that’s over some of these single family lake houses. We have a eight unit JV deal in Indianapolis. We have a 21 unit in Chicago, which is a short-term rental, hostel hotel type and bar restaurant. We have the 110 unit in South Carolina, a 212 unit in Kansas City. The 72 unit that we’re going to close, we have the 10 units in fourplexes around this area. And then across from the medical school at my hospital, we’re actually under contract to close in October, a 19 unit medical student. So obviously that’s up my alley. And then two houses down, it’s a big mansion that we’re converting into a 13 unit, also medical student building, so we have some other properties in the works here too.

Rob:
Wow. Well, let me ask you this. Is there anyone else in your life that you’ve proven wrong in reaching this point? Because I mean 500 units is a lot, but I’m curious, are there people or naysayers that may have data you at the beginning that now might say like, wow, that’s a crazy feat?

Lindsey:
Probably the first broker that I spoke to after that three-day seminar. They’re like, okay, you need to find your core team. You need to get a lawyer on your team, you need to get a broker. So I was like going down the checklist, doing my good due diligence and my action steps, and I called a local broker and he’s like, okay, well what type of properties are you looking at? What are your criteria? And I didn’t really have criteria, so honestly, to him, I probably did sound like I didn’t know what I’m doing because I didn’t, but he straight up said to me, I don’t have time for you. And that one really got to me because I was like, wow, if I can’t even get any brokers to give me time, how am I going to close any properties? So yeah, I’m sure he would be shocked to see where I’m at now.

Rob:
And to close, just curiosity, can you also give us a snapshot of what your life looks like today? I’m sure it’s very different than when you started. I’d love to hear.

Lindsey:
Yeah, the life is definitely very busy. Probably if not even busier because now we have three kids instead of just the one when we started. So I’m still working at the hospital as a physician. I actually was there this morning and I’ve actually become the regional director of my hospital system as well. So now I’m managing a whole bunch of other doctors and everything too. But I had on my vision board earlier this year that I didn’t want to do any more night shifts and I wanted to cut down at the hospital. And specifically for the night shifts, I wasn’t quite sure how that was going to happen. And since I took this role, that has happened, so that’s great. I’m a big believer in manifestation and vision boards and everything like that, so that’s very good. I’m having more time at home with the family now, some more weekends off, so more time for real estate and more time to do things like this.
I’m holding some local meetups now, so we usually get between 50 and 75 people. We’re doing quarterly. These are free, we’re giving back to the community. I love to talk about real estate investing, so it’s very fun for me to talk and help teach other people this as well. And then spending a lot of time with the three kids, obviously. They have a lot of new hobbies as they’re getting older. My husband coaches our son’s soccer team, so that’s fun for them. And real estate’s definitely helping us to give more time.
On paper now, as of the summer, we are officially financially free with our real estate investing. So it’s a good feeling to be able to work at the hospital because I want to, and not because I have to. I’ve worked very hard to become a physician. I never want to give it up completely, but it is a weight lifted off the shoulders to feel that.

Rob:
What does financially free mean for you guys?

Lindsey:
Meaning we’re having enough cashflow from our investments that if I would lose my job today, we are okay paying bills.

Rob:
Amazing. Well, congratulations.

Lindsey:
Thank you. So now we’re working on generational wealth, which is another goal. Next step.

Rob:
You’re five years in and you’ve created something that 99% of our listeners want. I’m sure in the next five years you’ll crush that one out too. Thank you so much for sharing with us. If people want to learn more about you and connect with you and do all that good stuff, where can people find you?

Lindsey:
Yeah, so I’m the only Lindsey Duguet on Facebook, so you can type me in there. I have Instagram. Cloverkeycapital.com is our website. So I’m very responsive to everybody messaging me. So again, I love to talk about real estate investing, so I’d love to talk to anybody else too.

Rob:
Cool. And David, what about you?

David:
Davidgreene24 on all social media. Go give me a follow there and check out davidgreene24.com and spartanleague.com. You can learn a lot about me. How about you, Rob?

Rob:
Cool you can find me over on YouTube @robuilt if you want long form video, and then if you want really wacky real estate reels where David makes appearances on my lists, you can go follow me on Instagram too.

David:
Go check that out. That was a very funny video that made… If you want to know what Rob looks like in lipstick, it’s a can’t miss. Lindsey, thanks for being here and thanks for sharing the story and thanks for not listening to the people that told you that you can’t do it. Keep going.

Lindsey:
Thank you guys.

David:
This is David Greene for Rob, putting the man in manifestation, Abasolo. Signing off.

Jaret Seiberg, housing policy analyst at TD Cowen Washington Research Group, joins ‘The Exchange’ to discuss Fannie Mae and Freddie Mac reform, lowering home borrowing costs, and more.

Ron Shaich built two unicorns in the food industry – Panera and Au Bon Pain. His life and new book, Know What Matters, offers 7 lessons that can help entrepreneurs develop their own lean unicorns.

1. Start with Passion.

Entrepreneurs need passion because passion fosters persistence. Shaich found his in the fast-casual food industry. His first job was in the cookie industry and his first venture was a Boston cookie shop that he started in 1981 when he was 28 years old. When he realized that few people buy cookies before noon, he pivoted and became a licensee of Au Bon Pain, a 3-store French bread chain. When he realized that he could improve the management of Au Bon Pain, he merged with the licensor, got 60% of the combined entity, and built Au Bon Pain into a national chain of 250 stores. He then acquired the St. Louis Bread Company and used its business model to create and build Panera Bread
PNRA
into a giant with annual sales exceeding $5 billion. Find your passion. Pursue your passion.

2. Get Skills.

Passion is good but not enough. You need skills. By graduating from Harvard Business School and working in the cookie industry before starting his own venture, Shaich was well prepared to start his own cookie venture. He used his business skills to license products and expand his offering, merging with the licensor who could benefit from better management, and building the merged entity, Au Bon Pain, into a national chain. He then used acquisition skills to buy and build Panera, Shaich also demonstrated the skills to find and implement the growth strategy in an emerging trend where few succeed.

3. Find your Emerging Trend.

Billion-dollar entrepreneurs, from Sam Walton to Brian Chesky and Joe Martin, mainly started in emerging industries. The fast-casual food industry started in the early 1990s and boomed in the 2000s. Shaich entered the emerging trend when Au Bon Pain bought the St. Louis Bread Company in 1993, became Panera in 1997 and expanded. As Shaich notes, “the job of leadership is to figure out where the world is going and make sure your organization is there.” Jump on the right emerging trends.

4. Finance for Control.

Shaich financed and built Panera with control. When he merged his cookie company with Au Bon Pain, he kept 60% of the combined entity. When he bought the St. Louis Bread Company, he paid $23 million and stayed in control. That is one reason he was able to mold Panera in his vision and keep the lion’s share of the wealth created.

5. Grow with Cash Flow.

Shaich notes that the managers of Au Bon Pain, when he was a licensee of the company, did not always bill him for the license fee because they were “out of control.” Shaich obviously did not make that mistake. By monitoring his growth, he built Panera and controlled it.

6. Exit at the Right Time with the Right Strategy.

Know how to exit and when. Shaich considered selling Panera to McDonald’s and Starbucks
SBUX
. Neither worked out. McDonald’s was on an acquisition spree, but many of its acquisitions did not work out or did not fit, and were divested. Shaich made the right decision in not selling to McDonald’s. Shaich also discusses the problems with going public before the venture is ready. In their search for returns, VCs push their ventures to go public as soon as possible, especially if the stock market is hot. That is one reason why many ventures that are taken public prematurely often end up failing as SPACs have proved. Managing a failing venture with public investors is not simple – but VCs are fine with it since they sell their interests as soon as they can.

7. Build the Right Team.

Shaich is always on the lookout for talented individuals whose objectives align with his own. When activist investor Noah Elbogen was on Panera’s board, disagreements arose between Shaich and Elbogen. However, when Elbogen launched his own investment venture, Shaich recognized his talent and invited him to join forces. It’s all about pairing the right talent with the perfect role.

MY TAKE: Shaich follows many of the fundamental guiding principles of billion-dollar entrepreneurs. Learn these common rules and apply them to your business to build your lean unicorn.

Home equity sharing agreements, which allow property owners to get a lump sum of cash in exchange for a portion of their home’s future appreciation or value, are moving from a niche product to a more popular option for funding a variety of needs. 

In July, DBRS Morningstar, the fourth-biggest credit ratings agency in the world, became the first to develop a methodology for assessing home equity investment securitizations. That will allow securitized notes backed by home equity sharing agreements to become more mainstream. 

About two years ago, finance company Redwood Trust announced a deal with fintech company Point, which became the first securitization solely backed by home equity sharing agreements. But the first rated securitization of notes backed by home equity investments came this fall, with $224 million in notes backed by home equity agreements originated by Unlock Technologies and issued by Saluda Grade. The transaction shows heightened confidence in the asset class as an option for investors.  

Home equity sharing agreements are a way for homeowners to access some of the equity in their home without taking on debt or making monthly payments. But are they a good option for investors looking to leverage their existing equity to expand their portfolio of properties? And do these speculative investments pose a threat to the market in the long term?

What is Home Equity Investment?

Home equity investments, often known as shared equity or shared appreciation agreements, provide homeowners with access to cash in exchange for a portion of their home’s future value or future appreciation above a starting point. These contracts aren’t loans, which means they often come with more lenient credit and income requirements, if any, and aren’t impacted by today’s high-interest rate environment. Homeowners can use the cash to make renovations, pay off high-interest debt, or even buy a second home, all without a monthly loan payment. 

However, the agreements are secured by your property and typically come with repayment terms ranging from 10 to 30 years. During that time, you’ll usually have the option to repurchase the company’s share of your home equity for more money than you received initially, or you can pay the company their share when you refinance or sell your home. 

If the term ends and you don’t have the money for repayment, some contracts may force a sale. Home equity agreements are also nonstandard contracts, unlike home loans, and may have burdensome stipulations for renovations or other terms that may be difficult to comprehend. 

Additionally, most agreements come with closing costs and an origination fee, plus a share of your home’s future appreciation or value that equates to a high APR. For example, Unlock allows you to access 10% of your home’s current value in exchange for 20% of your home’s future value. 

Some companies, including Unlock and Splitero, have a cap that protects homeowners from owing too much in the event of rapid appreciation. Splitero uses a shared appreciation model, which means the company shares your losses in the event of depreciation as well. 

“In the event your home or property value drops significantly, your investment repurchase amount to Splitero may be less than your initial investment,” says Michael Gifford, CEO and co-founder of Splitero, in a conversation with BiggerPockets. However, the company calculates appreciation from a starting point that is less than the appraised value to account for the risk. 

Is Home Equity Investment a Good Option for Real Estate Investors?

To ensure that a home equity sharing agreement is a favorable way to fund an investment property, you’ll want to ensure that the property would generate returns that exceed the cost of accessing your equity. You’d also want to compare your net revenue over the term with the expected net revenue you’d get financing the property with a traditional mortgage, home equity loan or HELOC, hard money loan, or alternative financing arrangement. 

But entering into a home equity investment agreement isn’t the same as borrowing, and it comes with other benefits, which means it’s difficult to compare apples to apples with traditional financing options.

Explains Gifford: “Because it’s not a loan, there are no additional monthly payments affected by the rising interest rates or new debt associated with a Splitero HEI. This means it won’t add to your debt obligations or affect your debt-to-income ratio. Splitero HEIs also don’t have income requirements to qualify, which means if your wealth or income is tied up in a property, you can still access it.” 

Splitero accommodates both owner-occupied and non-owner-occupied properties. 

In other words, it’s an option for investors who can’t qualify for other types of financing. And if not having a monthly payment allows you to use your cash flow to grow your rental property portfolio faster, you could potentially see earnings well above what you owe the originator of the agreement. But you’ll need to crunch the numbers and, given the complexity of these nonstandard contracts, you’ll likely want input from an attorney. 

It’s also important to understand that while most companies offer calculators you can use to estimate the price to repurchase your share, these tools are based on assumptions about the market that may not hold true.  

The Risk of Home Equity Investment Securities as a Mainstream Asset Class

Securitization of home mortgages began in the 1970s. Most mortgage-backed securities have long been considered relatively safe investments since mortgages are collateralized by real property, and government-sponsored mortgage companies like Fannie Mae and Freddie Mac guarantee payments in much of the secondary mortgage market.

However, home equity investment agreements are typically secondary liens. If the homeowner defaults on their mortgage and the home is sold in foreclosure, the home equity sharing company would only collect after the primary mortgage lender is paid. 

Therefore, shared equity securities may be a high-risk, high-reward investment. While real estate tends to appreciate in the long term, the housing boom and subsequent crash of 2007-2008 revealed how typical trends can go awry. Research suggests that housing speculation was partly to blame for the economic downturn, coupled with the packaging of low-quality mortgages, including subprime loans, into securities. 

DBRS Morningstar rated the Class A and B notes included in the Unlock HEA Trust 2023-1 as BBB (low) and BB (low), which means that analysis shows the notes to be of “adequate credit quality” and “speculative, non-investment-grade quality,” respectively. 

DBRS Morningstar’s rating system may help institutional investors view the asset class as reliable, and it’s possible that the government-backed mortgage companies could go as far as becoming players themselves. Under current regulations, Fannie Mae and Freddie Mac can’t buy mortgages constrained by private transfer fee covenants, which are used to enforce home equity investment agreements, but the Federal Housing Finance Agency (FHFA) is considering permanently removing restrictions on shared equity loans. 

The move is intended to support affordable housing by allowing shared equity loans administered by land trusts, governments, and nonprofits to be securitized. These programs typically provide down payment assistance to low-income homebuyers in exchange for a share of the home’s future appreciation or value. 

The FHFA not only provided a waiver through 2024 that allows Fannie Mae and Freddie Mac to buy shared equity loans but also removed income limits. The agency is requesting comments on whether to make the waiver permanent for the banks it regulates and whether the income limits should be reinstated. Looser standards could contribute to the rising popularity of home equity investment agreements, but that can also mean speculative danger.

But with the average homeowner in the U.S. now sitting on more than $274,000 in home equity, Gifford doesn’t foresee problems for Splitero, even in an economic downturn, adding: “It would take a never-before-seen, catastrophic event of greater than 50% declines for the average homeowner to be underwater like we saw during the GFC. After such a correction, most homeowners will still have equity in their homes and are unlikely to sell those properties at that time. It is far more likely they will hold on and ride the value of their home back to higher price levels.” 

The Bottom Line

Home equity investments may be evolving from a niche product to a mainstream financial tool for property owners. For some, the agreements may be a favorable alternative to taking on new debt. The first-rated securitization of equity-sharing agreements could increase confidence in the validity of the asset class, promoting the growth of home equity investment providers and leading to new, competitive product options for homeowners.

However, because home equity sharing agreements are often costly options for property owners looking to leverage their home equity, caution is advised. Furthermore, the economic consequences of lower-quality securities should not be overlooked. 

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What’s got 38 trillion microorganisms and almost as many products to tame it? The microbiome.

It’s boom time for gut health. Or products aimed at the gut anyway, which is said to affect the immune system, inflammation and even our moods. If some of the claims these products make seem dubious, well, that’s by design says Seed Health co-founder (and co-CEO) Ara Katz. Her company aims to disrupt the $50 billion global probiotics market with their first consumer product, the DS-01 Daily Synbiotic, which is clinically validated and—in layman’s terms—makes you poop better.

Seed’s probiotic works on the microbiome, a community of 38 trillion microorganisms that live in and on the body, and perform critical functions like digesting food and synthesizing essential nutrients. Unlike other probiotics, this one arrives in a glass jar so chic you might actually leave it out on the counter. But the product, developed with co-founder Raja Dhir, is also something of a Trojan Horse. In 2021, Katz led a $40 million, Series A round for the company, which includes an environmental research arm called SeedLabs, which studies how to use microbes to tackle the impacts of climate change. (Gwyneth Paltrow, Karlie Kloss and Cameron Diaz are investors; Founders Fund, which has backed SpaceX and Stripe, also participated.) SeedLabs’s early work includes creating a probiotic for honeybees and sending microbes into space.

In a previous life, Katz was the co-founder and CMO of Spring—a mobile commerce platform backed by LVMH. (Spring helped launch ApplePay on the iPhone.) But a personal loss inspired her to pivot. Over breakfast for the new Forbes series “Cereal Entrepreneur,” Katz talks venture capital’s love-hate affair with the microbiome, working with Bob Dylan, and what she learned from her father-in-law, CAA founder (and one-time Disney CEO) Mike Ovitz.

MICKEY RAPKIN: What are we eating today?

ARA KATZ: It’s oatmeal with flax and wild blueberries. And a lot of cinnamon and fresh ginger. I make it for my kids all the time. (laughs) It’s my microbiome breakfast.

Planting A Seed

RAPKIN: Let’s start with Seed. Did the VCs you were pitching understand the microbiome? Or did their eyes glaze over?

KATZ: It was actually worse—contextually. You had this surge of capital. I always feel venture capital is a big immune response. It’s like there’s an infection and everyone goes to it. Then all of these companies didn’t end up yielding anything. We can go into why we think that happened. You almost didn’t want to say “microbiome.” Then it comes back. Basically, every time there’s a scientific discovery in microbiome that shows you can lose weight or look younger the field blows up again. Which is maybe human nature. But we actually had two decks.

ERIC RYAN: For different investors. Smart.

KATZ: We had to articulate things very differently when you’re speaking to the life science-tech investors and the CPG world.

RYAN: What ultimately sold investors on the product?

KATZ: All of these health and wellness brands were telling people that they do all these things—things that you would never be able to say on a package in Europe. Which is a big part of how I got into this. We’re working with scientists that never put their name on a consumer business before. When people think science they think cold, clinical, complex. They think pharma. We had that kind of schism. Who doesn’t want brands that are beautiful? Who doesn’t want that life on Instagram? It was really about reconciling those two worlds. There was an opportunity to re-brand science.

RYAN: Re-branding science. I love that. There is no greater marketing challenge than translating complex science into a simple expression for a package or Instagram.

RAPKIN: It’s almost like the beautiful, glass package was the Trojan horse so you could go deep on the R&D front. Is that how you see it?

KATZ: The world—particularly in business—likes to look at your LinkedIn and decide who you are. Which is a terrifying and dangerous proposition. Fundraising is like storytelling. What would I uniquely be able to take a check for? Where someone sitting in a partner meeting would be like, “That person gets money for this. That makes sense.” The pitch was primarily around DTC probiotics and even a subscription. Certainly there was some bigger vision to it but primarily it was: How are we going to create a differentiated product? The evangelism for the category was way ahead of the evidence. How could we package the movie differently?

RAPKIN: With the probiotic and consumers, is it as simple as telling people, “Hey, you’re gonna poop better?”

KATZ: You have to meet people where they are. Not to get into more gendered attributes of products, but I remember years ago we did a partnership with a media platform that was very focused on sports bros. And it was like, “Best shit of your life.” That’s what converted and that’s what people loved. But I can tell you all the biohackers and a lot of the practitioners in healthcare—both allopathic and integrated functional—they want to talk about gut barrier integrity, they want to talk about NRF2 expression. The best brands in the world provide 1,000 doorways for people to walk through.

A Personal Journey

RYAN: Entrepreneurs always talk about “moving fast and breaking things.” Has that been your path?

KATZ: Absolutely. I come from bro-tech world. Almost everything I did until Seed was move fast and figure it out while you’re going. Building digital products­—there’s user testing. But you really do push something out into the world and kind of don’t know. When I launched Spring we were breaking things with 420 of the world’s best brands who are not used to moving fast and breaking things.

RAPKIN: Spring was back by LVMH. You helped launch ApplePay on the iPhone. Then you left the company. Of that moment you once said, “As a woman in tech, it wasn’t cool to resign from a company.” Would you unpack that for us? Did you feel you were disappointing investors? The team?

KATZ: Resigning as an employee is one thing. Resigning when you’re a co-founder—when you are one of the faces of something, and you were named on all of these lists? I actually have a very different experience than a lot of women in tech. I’ve had great mentorship and support from so many of the men in my life. I did feel very deeply that I was letting my team down. A lot of us go through these moments of our life where work is entangled in our identity in a way we’re not aware of. Then we go through a lot of work and growing up to disentangle our identity—or just to redefine what the work means, which is more my story, and understand what it looked like to prioritize life and create a better source of alignment. The most truthful version of the letdown—it was probably feeling that I had let myself down. It was a heavy moment. I think what’s missing in your question is that it was catalyzed by a miscarriage.

RAPKIN: I had read that. But I wasn’t sure if you’d want to talk about it today.

KATZ: I talk about it very openly. I think they’re biological miracles, which is maybe a different podcast. That life wasn’t viable. And the life I was living is not viable. I don’t want to live on planes. At a certain part in your career you realize what you’re capable of building and creating. Then you have to say, Where am I going to point this? It happened very quickly and was a beautiful, pivotal moment.

RYAN: What a beautiful thought. Thank you for sharing that.

Like a Rolling Stone

RAPKIN: The through-line in your work really is creating. Before Spring, you worked in film, producing an adaption of Howard Zinn’s “The People’s History of the United States.” Bob Dylan was in it. Do you have a good Bob Dylan story?

KATZ: That book changed my life. It’s the history of our country—not told by the victors and cis white men. It’s one of the most profound moments where you realize that your reality, and in this case our history of this country, is perceived by who tells it. Chris Moore—if anyone remembers Project Greenlight—he had the option with Matt Damon and Ben Affleck. Chris asked me to come produce it with him. And it was a beautiful experience. But Bob Dylan—he’s impossible to schedule with. It was unclear when he was going to show up. That was weeks in a row where it was like, He’s coming. No, he’s not coming. He’s coming! No, he’s not coming. I would say that I did not expect him to be so particular. He has his hat in a very specific way, the lighting has to be very specific. But at the same time, he’s Bob Dylan. And he’s earned it.

RAPKIN: Your parents were both psychologists. When did you realize you had the entrepreneurial bug?

KATZ: I grew up probably lower middle class. I had a wonderful childhood in so many ways, and I certainly did not want for food or clothing. But I definitely grew up with this sense that a lot of kids around me had a lot more. I also saw that my parents had no financial acuity whatsoever. But I had hustle. I remember where I placed my lemonade-and-brownie stand on Martha’s Vineyard one summer. It was very strategic. It was at the end of the bike path and right where the beach access was. I just remember at eight years old being like, “That’s a more strategic place.”

RAPKIN: You’re now married to a serial entrepreneur, Chris Ovitz. What kind of challenges does that present? When you’re a founder, it can be all consuming.

KATZ: Interestingly, we’ve ridden different waves at different moments. Somehow our intensity has lined up pretty well. By the way, he’s started and sold three companies since I started Seed. Me and my co-founder are always like, “What are we doing wrong?”

Exit Strategy

RAPKIN: What is your off-ramp then? Do you hope to sell to, I don’t know, Pfizer? What’s the plan?

KATZ: I know what the plan is not. Right now I don’t think the plan is to go public—with Seed Health at least. The public markets don’t really understand the microbiome. Ultimately, it really comes down to distribution for us. There is a moment where you have to decide, Do I need to take more dilutive capital to go try and build the infrastructure to get what we’ve built out to more of the world? Or do I go partner with somebody who basically can turn that on overnight? We’ve been quietly building for so long. We’re such an iceberg. No one is like, Oh God, you guys have a great bioinformatics team. They’re like, “I love your Instagram.”

RAPKIN: I see that. SeedLabs worked on a probiotic to help save coral reefs. That’s the part of Seed’s story that we don’t often hear about.

KATZ: We also sent microbes to space with NASA and the MIT Media Lab to look at how microbes could degrade—and then upcycle—plastic in space. The team got to experience a launch and the launch getting delayed. Actually, it was very much like working with Bob Dylan. It was like, You’re launching. No, you’re not.

RYAN: (laughs) Bob Dylan in space.

KATZ: I got an email from my son’s science teacher yesterday. He’s in second grade. And she said, “I just want you to know that we’ve been learning about this recent astronaut who went up to space, Francisco Rubio, and your company was featured in a news clip. And Pax told me about the microbes that you’re sending up to space to degrade plastic and create new biomaterials.” And I’m like, My son told you that? But yeah, that one was very exciting because it really is the embodiment of everything I didn’t put in those first decks when we were raising capital. But it’s something our whole team felt was a really historic moment in our journey.

RAPKIN: Your father-in-law is Mike Ovitz, the founder of CAA. What’s the best advice he ever gave you?

KATZ: I’ll say one funny story and one thing that I take away from it. We were negotiating something and he said, “This is what you do. You sit down with them and you say, Look, this can go one of two ways.” (laughs) I was like, “Michael, I am not in the mafia.” He goes, “I want you to just call them. And you tell them, This is what we’re going to do.” And from that, we raised the whole rest of the round. But it was very much, like, you just tell people what you want to do. Don’t waste time. Tell them exactly what you want. And that’s how you’re going to do it.

RAPKIN: Meaning we want X amount of money and this is what we’re going to do with it?

KATZ: No, these are the terms on which we’re going to take the money. Michael is known for creating the package—packaging the movie. He fundamentally understood that one plus one is three. When you put this actor with this director and this piece, that’s how you create these beautiful constellations of value and also how you get a lot of shit done. That’s how Raja and I have been packaging the movie since day zero.

RYAN: It’s so interesting. Because I always talk about myself as a showrunner—where I create concepts, bring together capital and a team. But I’ve never heard it articulated in that way.

RAPKIN: Coming back to cereal, what gets you out of bed in the morning?

KATZ: Well, literally, I have a seven-year old and an 18-month old. But existentially? I f— love what I do every day. I love the impact we make.

This conversation has been edited and condensed for clarity. In episode four, Vela co-founder Justin Kosmides talked about the luxury e-bike market, his company’s sudden move to Detroit, and why losing a fight with Walmart was the best thing to happen to his business.

Rob:
Welcome to the BiggerPockets Podcast show, 835.

Jamie:
That was definitely one of the predictions that we expected to come in for 2023 and to be a tailwind for demand. But for large city urban areas, they’re still seeing some of those slowest demand growth across the country. And those markets are really highly dependent on international travelers. It’s really still a function of the strength of the dollar and dollar is still really strong. We had expected it to weaken some as we got towards the summer travel season and that didn’t happen.

Rob:
Welcome back, everyone, every week, bringing you stories, how-to’s and the answers you need in order to make smart real estate decisions now in the current market and in the future markets. And today, we are taking over bigger news. So move aside Dave Meyer because it’s me, Rob Abasolo, and my good friend Tony Robinson. Tony, how you doing, man?

Tony:
I’m doing good, Rob. It’s always good when we get to share the mic together, man. Our producers called us the power couple. I’m going to embrace that. I’m going to embrace that title, man. We got a good conversation teed up for today, Rob. We’re talking to none other than Jamie Lane. Jamie’s official title is SVP of Analytics and he’s the chief economist for AirDNA. This guy is just like an encyclopedia of all things Airbnb. So every time we get to chat with him, I totally love it. Rob and I go over, what about those bust rumors? Are they real? How did Jamie’s predictions from when we interviewed him back on episode 712 hold up, and what markets are on track for growth this year?

Rob:
Yeah. We’re also going to be covering how you can stay one step ahead and hack your growth in the ever-changing market. Look, a lot of stuff has changed since he came on the show back in January, and he’s just giving us good insights on really how to look at your overall short-term rental investment. He talked about how investors should be looking at their investments in the long-term, which makes a lot of sense. So even if you’re not in the short-term rental game, I do want to say if you’re a midterm or a long-term rental investor, keep listening to get ahead of how new short-term rental regulations might impact your market. And we’re also going to be talking about Jamie’s predictions for the overall economy or potential recession and everything in between. But before we get into it, we’re going to do a quick tip brought to you by our good friend, Tony Robinson.

Tony:
Oh, we are? Okay. All right. Quick tip number one, head over to biggerpockets.com-

Rob:
I know how it feels.

Tony:
Quick tip number one, head over to biggerpockets.com/tools. You guys will find an Airbnb or short-term calculator that’s there. It’s a free tool to help you figure out how much money your property could earn on Airbnb. And second quick tip, I want you guys all to go to Rob’s upcoming event Host Con. Rob, give them details. Where can they go? How can they find out more about that?

Rob:
Wow. You can go to hostcon.com and it’s October 28th through the 30th. It’s right after BP Con, so I’m going to meet all of you there. And then we’ll migrate over to Houston, Texas to hear from a lot of the people we’ve heard on the podcast, Pace Morby, Avery Carl. Would’ve been Tony, but you’re having a baby. That’s all right. You’ll catch the next one.

Tony:
Yeah. I’ll be there in spirit.

Rob:
You will. You will. All right, well let’s get into it. Jamie Lane, welcome back to the show. Glad to have you.

Jamie:
Thank you so much for having me back.

Rob:
You brought up just right before this that the last time you were on the show was actually Tony and I’s first duo together on the BiggerPockets Podcast.

Jamie:
Yeah. I was so happy that I could be the reason to bring you guys together and now we get to chat again. It’s been, what, nine or 10 months since we chatted last?

Rob:
Yeah.

Tony:
Yeah.

Rob:
That’s crazy. That’s crazy. Well, we know you and it’s great to have you back, but can you tell all the new listeners a little about yourself for those of the listeners that didn’t catch the episode about nine months ago?

Jamie:
Yeah. So I work at AirDNA. We are a short-term rental and data analytics company. I’m the chief economist and SVP of analytics at AirDNA. And it’s my job to dig into the data and help interpret what’s happening in our industry and make sure everyone stays informed on how the industry is performing, how do we expect it to perform going forward so you guys can all plan your next investments, figure out your strategy, and hopefully make good investments going forward.

Rob:
Well, like I said, glad to have you back, man. I think the last time you sat down with us was the start of the year and the Airbnb bust rumors were flying and it was doom and gloom. Sky is falling. You came in and you broke down the data on short-term rental so our listeners could keep their edge and I think we gave a lot of good useful data for everybody. I think the market now is a little different and we’d love to have your insights again. So if it’s cool with you, let’s get into it and sort of talk about the actual general pulse for the short-term market in 2023.

Jamie:
Yeah, so when we talked last and we were calling for a recession in 2023, and I think I was a little bearish on the outlook for the year ahead. We haven’t had a recession. It’s actually held up pretty strong on both the economy and the short-term rental industry. It’s part of the reasons why we actually talk about multiple scenarios when we forecast. So we have our baseline, we have our upside, and downside. And so we had an upside forecast that essentially called for 13% demand growth and it’s ended up about 11%. And our baseline was below that about 9%.
So I’ve actually felt really good of how the years played out. It’s outperformed our expectations. The economy has outperformed our expectations. We’re still at 3.5% Unemployment. We’re adding 150, 200,000 jobs every month. And that’s sort of the key metric for me when I look at the economy is what’s happening in the job market is if people have jobs, they’re going to keep traveling. And that’s what we’ve been seeing. So our outlook did call for some weakness this year. As of the beginning year we were expecting RevPAR, that’s revenue per available rental to be down about 1.5%.
Rates are ADRs up about 1.5% and that implicitly means occupancy is going to be down 3%. And that’s what happened. That essentially has perfectly pegged what the industry has performed, how the industry’s performed through October. So not great given that everyone is earning a little bit less money this year, but not a catastrophic collapse in revenue. Maybe some of the things we’ve been hearing on Twitter these past few months.

Rob:
There was a very viral tweet that was Phoenix and Austin are they’re half down and something like that. I believe you responded to it.

Jamie:
Yeah. Did you guys see that tweet? Did people Tweet it at you?

Tony:
Of course, yeah.

Rob:
Yeah. All the naysayers and haters were so quick to jump on that one.

Tony:
Yeah. We ended up doing a whole YouTube video as a response to that tweet also. So there was a lot of folks that were riled up by that one.

Rob:
Well, let me ask you this, Jamie, because I believe… And refresh me. I mean I don’t expect you to remember exactly what happened back in January, but I thought there was some trend where maybe occupancy was down, but ADR, which is average daily rate was up. Was that what it was back in January.

Jamie:
Yeah. And that’s what we are seeing in January and that’s continued throughout the year. So for the first… And through August. So back up, we break up the US in a lot of different markets. There’s 265 markets for the country and of those 265, 218 of them have seen declining occupancies through August. And essentially everywhere is seeing declines. Nationally, we’re seeing about essentially flat ADR. So no one is really increasing rates, but how that breaks out among the markets is just over half of them are seeing ADR declines or you’re not able to charge as much for the same property this year as you were last year.
You’re getting a little bit less revenue per night and that’s pushing and resulting in weaker RevPAR. At the beginning of January, we’re seeing slightly higher rates. Now rates have clearly gone into the flat to negative realm.

Tony:
Jamie, I want to just touch on something really quickly because there’s a lot of debate not just as real estate investors, but just as people in the United States and really I guess across the globe about what exactly is a recession. I just want to sidebar here quickly because I think it’s an important thing to call out out because you have this consensus idea that a recession is two consecutive quarters of declining GDP, which has happened, but there’s a more… Educate me and the rest of the listeners here, but there’s a more formal education of what an actual recession is. Can you just talk about the nuances? Why are we not already in a recession even though we’ve had two quarters of declining GDP?

Jamie:
Yeah. So that two quarters of declining GDP, that’s like a rule of thumb that people are taught in high school, but it’s not actually how we define recessions. And there’s this whole economic board, the National Bureau of Economic Analysis, and they actually look at the data and decide whether or not we’re a recession or not. It’s mostly PhD economists and the definition gets into that. We have to see broad based economic decline.
What we saw last year with the two consecutive quarters was not a broad-based economic decline. We saw some weird things happening with inventories around the pandemic, and we are at record below unemployment. We are seeing 300,000 new jobs being added every month. We are seeing five, 6% increases in wages each month. We are in no ways in a recession by really any different way you define it.
There are certain aspects of the economy that might’ve been in recession, like manufacturing tech industry saw a really strong pullback and actually saw some layoffs. But in terms of overall economic decline, we weren’t there. And even in the real estate industry and with rising interest rates and sort of a pullback in transactions, we’ve seen quite a few real estate companies go under because of the lack of transactions, but it is in no way sort of a broad base economic decline.

Rob:
Interesting. So relatively, do you have a POV, a point of view on what the next year or two looks like in terms of recession? Do you think it’s looming? Is there something big coming up or do you think we’re just going to kind of, “Tell us everything”? No, I’m just kidding. Do you think we’re going to hold this pace?

Tony:
And, Jamie, if I can just add one piece to that, because the goal of the Fed, what you keep hearing is that they want this “soft landing” where they’re able to tame inflation without causing massive unemployment. But I mean, there’s some things happening. You have student loans that are kicking back in October 1st. There’s the strike that’s going on. There’s potential government shutdown. So with all these things happening, I guess to Rob’s point, do you think that soft landing is even possible still?

Jamie:
Yeah. It’s still possible. It’s still highly likely that we go into recession over the next year. And with what the feds had to do in terms of raising interest rates so high so quickly, and there’s just such a high likelihood that something could break, and then you add on top of that, all those things that you mentioned, the government shut down, which more than likely could happen, and we’re recording here at the end of September, and at the end of the week, the government could shut down.
Now, expectations are that that’s a two or three week shutdown. If it pushes through the end of the year, that could have a meaningful impact and overall economic output. To the short-term rental industry too, if you’ve got a rental in and around a national park, that national park is more than likely going to be shut down, and that could really impact the earnings through fall.
So if you think you’ve got a property in Gatlinburg, and the biggest driver to that market is people going to visit the national park seeing lease change, and that could have an impact on that market. And then resuming student loan payments sort of impacting consumer spending. The UAW strike, actor writer strike impacting specific markets like LA and Atlanta. All these things have both direct impacts to the economy and our industry.

Rob:
Wow. I hadn’t really considered that, but that’s so true because national parks have always felt we’re sort of protected in the sense that… I call them Mother Nature’s Disneyland. You don’t have to market the Smokies. You don’t have to market Joshua Tree. You don’t have to make a billboard for the Grand Canyon. People are going to go by the millions. But yes, if they shut down due to government regulation, that’s going to hurt a lot of hosts.
So maybe that changes some of the POVs on the government shutdown, because I see both sides of it pretty much every single day at this point. Now, that we have a general understanding of where the economy stands, I sort of want to punch in a little bit and talk more on the municipal or even on the state level because we’re seeing a lot of regulations come in. I’m sure you’ve heard about Dallas and New York, all the big bands, and that is definitely shaking up the short-term rental market for a lot of those operators. Which markets are being most impacted by regulations and what impacts are you seeing?

Jamie:
Yeah. It’s funny how that’s now turned into that conversation that you have with your cab driver of when they ask you what you do and I say I analyze the short-term rental industry. They’re like, “Ooh, regulations must be really impacting you guys.” And it’s true. The New York regulation has really brought it into the forefront of essentially a defacto ban on Airbnb as the beginning of the month when it started going into effect. We saw almost an 80% decline in short-term rental listings in New York. And that was one of Airbnb’s biggest markets essentially decimated.
Now, the listings didn’t leave. They’re not off of Airbnb. It’s essentially people moving from a short-term rental strategy to a mid to long-term rental strategy. So they’ve changed their minimum stay requirements from short-term stays to 30 plus stays or longer, which we’ll see how much demand there is to support that strategy for 17,000 listings all moving to long-term stays at once. I suspect that there’s quite a bit of demand to support it, and we see that in a lot of other cities, but that is playing out and we saw it play out or will play out in Dallas.
We’re seeing that change or a part of that change in Atlanta. We’ve seen it in other large cities like Los Angeles, Boston, Chicago, that have put into place pretty onerous laws going after short-term rentals. But on the flip side, there’s also been significant pushback from the host community sort of banning together working with the local municipalities. We saw that in Atlanta essentially getting the ordinance going to effect delayed and delayed, and delayed, and delayed.
We saw there was a lawsuit on the Austin laws back in 2016 that just sort of came to fruition where they overturned the ban on short-term rentals. And I’m distinctly saying that there cannot be a distinction between different kinds of homeowners and how they can use their property.

Rob:
This is a huge one. That was a big one.

Jamie:
That was huge.

Rob:
I saw that that article came out because Austin has been… They’ve never really enforced it, and there were ways to get the permits and everything, but I saw an article, it was back at the beginning of August that said federal court strikes down Austin short-term rental laws and basically called them unconstitutional. And so it’s interesting because it’s like if that’s a federal court striking down an Austin one, I mean, how does that actually affect the rest of the country?

Tony:
You think about Dallas, right? Dallas just effectively banned single family short-term rentals also and now you have this neighboring major city. It’s like how does that impact Dallas short-term rental plan and all these other places?

Rob:
Exactly. Same states.

Tony:
Yeah. But one thing I’m curious, and Rob, I want to get your insights on this too, because what I’ve shared with people is that regulations are coming. It’s a definitive thing. It’s just how is each city and municipality going to choose to regulate short-term rentals? But they are coming. So my focus has always been on investing in true vacation markets where the primary economic driver is vacation and tourism because I feel like there’s a little bit more insulation there. And if you do choose to go into markets that are more residential, call them suburban cities, major metros.
My thought has always been, “If I’m going to go into that market, I need to make sure that either one of two things are true.” Either first, I can still cashflow on this deal as either a midterm or a long-term rental. Or second, it should be a strategy that I can get out of relatively easily, which is arbitrage or co-hosting. Actively, we’re launching three units in Dallas next week through arbitrage, but I’m not worried about those because, A, it’s arbitrage. I can get out of those with breaking the lease and walking away, or B, I can flip them over to midterm and they still make sense.
So Rob, what’s your take on that, man? A lot of people are afraid of regulations. What’s your advice to folks who want to navigate that the right way?

Rob:
Totally. Yeah, I mean there is a lot to cover there. I think most of the time I am trying to find a city or a municipality that has some level of regulations because at least they’ve had the conversation and we know that they’ve already voted on it. And if there’s a process like getting a permit that’s been put in place, I usually feel a lot better than that, better about that than going to a place that’s like, “Well, what is that?” I don’t know. You can just list it. And then one day it gets-

Tony:
[inaudible 00:18:35]

Rob:
Yeah, exactly. Which that’s how it was back when I started in 2017 or whatever. But I have really accidentally stumbled onto the midterm market back during the pandemic because everything shut down and then travel nurses needed to stay at my place in LA. And so I was like, “Yeah, sure, why not?” And then they stayed and I never heard from them. They were mega clean and I made just about as much money as short-terms. And so I fell in love with that from the get-go.
I would say most of the time, you’re going to do yourself a disservice if you’re not trying to actively create a hybrid midterm rental and short-term rental strategy. My personal preference, and again, this isn’t going to work in vacation rental markets like Gatlinburg, but if I could mostly have a midterm rental strategy and fill in the gaps with short-term rentals, oh man, I would do that all day.
Really what it is, it’s mostly a short-term rental and then midterm rentals come in and I have to work around that. So I honestly think that 2023, for any host that’s scared of regulations, they’re coming, but you really do have to actively be working on those contracts with housing companies and relocation specialists and travel agencies, nursing relocation specialists, all that kind of stuff. You want to be working on your rapport with them and your relationships with them so that, yeah, if a regulation hits, you don’t have to shut down your business. You can just pivot straight into midterm rental.

Tony:
Jamie, one last follow-up for me on the regulation piece. As some of these cities become more regulated, what do you think the impact will be on actual property values of short-term rentals in those markets? Do you think that presents an opportunity for short-term rental hosts to get into this game, or is it more of a disadvantage?

Jamie:
Yeah. So there’s actually been a lot of academic research on the impact on property values and what regulation and means for it, and what a lot of it shows is that the option to be able to do short-term rentals is very valuable when you go to resell the home. So if you’re in a neighborhood, let’s say that has an HOA that you vote as your neighborhood to restrict short-term rentals in that neighborhood, you’re going to severely restrict the value of homes in that neighborhood compared to the rest of the market because now future buyers know that they cannot, even if they never even thought about doing short-term rentals, but the fact that they couldn’t now sort of reduces the option value there that they could go and do it in the future. So I think that’s one of the downstream implications of these laws going into effect is that you can overall reduce home values in specific areas of cities and specific neighborhoods with restrictions like that going into place.

Tony:
And Rob, you and I both we’re in the Smokies, we’re in JT and I can’t imagine what would happen to home values in those two cities if they severely limited. The economy, I think would collapse. That would be a forced wave of selling if they really limited short-term rentals in those markets.

Rob:
Big time. Interestingly, there’s so many people in those markets that want the short-term rentals out, but those specific markets, the economy is propped up by the short-term rentals, not just by occupancy taxes, transient taxes, all that stuff, but also the actual employment of the Airbnb Avengers, like pest control pool, maintenance cleaners, handyman contractors, all of them make a significant portion of their livelihood from the short-term rentals side of things. So I don’t know what would happen, but I hope to never find out.

Jamie:
We did a study looking at both short-term rental and hotel revenue for different markets, and Joshua Tree was number three in terms of short-term rental revenue compared to hotel revenue where there’s six times more revenue being generated by short-term rentals in that market than hotels. It just shows a market that is so dependent on tourism and it’s almost 6X and coming from short-term rentals to the hotels. So if short-term rentals went away, it would just decimate that market.

Tony:
Jamie, what was number one and two? Because you said Josh Tree was number three.

Jamie:
Yeah. So number one was Broken Bow Lake, a great market in Oklahoma.

Rob:
Oklahoma?

Jamie:
Yeah.

Rob:
Okay.

Jamie:
And then number two was Santa Rosa, Rosemary Beach area, so 30A in Florida.

Rob:
Wow. Man, that’s super interesting. Okay. Can we talk a little bit about international short-term rentals as well? Because I think the last time we had you on the hypothesis or the thesis in general was that the pandemic basically slowed down a ton of international traffic and we were going to start seeing the floodgates reopen. And seeing a lot more international travelers coming to the US, how has that held up? Where are we at in that specific regard?

Jamie:
So I was totally wrong on that one.

Rob:
Sorry. I wish I could have given you a softball.

Jamie:
Yeah. That was definitely one of the predictions that we expected to come in for 2023 and to be a tailwind for demand. But for large city urban areas, they’re still seeing some of the slowest demand growth across the country. And those markets are really highly dependent on international travelers. So you think areas like Miami, Boston, San Francisco, even going out to Oahu, as much as 40% of demand is coming from international travelers into those markets and staying in short-term rentals.
It’s really still a function of the strength of the dollar and the dollar is still really strong. We had expected it to weaken some as we got towards the summer travel season, and that didn’t happen. We have seen overall international travel being really strong, but it’s just everyone leaving the US and traveling within Europe.

Rob:
I mean, that makes sense. A lot of trips were canceled. A lot of marriages postponed. A lot of anniversary trips. I mean, there’s so much. I think it’s going to be a trickle effect of people that their lives carried on, they had kids, everything is delayed. I haven’t traveled internationally really since the… I plan on going international as soon, as I can as soon as my kids are just a little older because being on a plane with a two and a three-year-old is very difficult. But I want to travel a lot internationally. So it does make sense that a lot of people in the US are sort of going to these destinations or these dream vacations that they had to push pause on.

Jamie:
We’re actually seeing that impact now in the data where some weakness in demand and occupancy that we’re seeing is those destinations that people were maybe going to because it was a domestic destination. I live in Atlanta. Everyone was driving down to 30A in 2020, 2021. Now friends, they’re flying to Nice, and Cannes, and Greece, and they’re not driving down to 30A anymore. You’re definitely seeing some weakness in that market because of that.

Tony:
Jamie, let me ask. So I don’t own anything internationally, but do you think that this kind of exodus of American travelers overseas presents an opportunity for folks stateside to look internationally? And if so, maybe what are… And I know obviously the world is a big place, but if so, what are some international markets that you feel are good spots for folks to get started in?

Jamie:
Yeah. There’s great options out there. It is a little bit more difficult to sort of navigate deploying capital in different countries. It’s not just buying a house in North Carolina, but there are opportunities. Demand is now fully back across Europe. It’s playing into different areas, just like in the US where some cities are still really impacted negatively. They’re seeing even more regulation than we’re seeing in the US, especially in some of those major cities.
So in Amsterdam, there’s 80% fewer listings now than pre-pandemic, and a big piece of that is restrictions. So Dave Meyer is not going to be getting a short-term rental in Amsterdam, though it is a great location to travel to. So there’s all the same sort of dynamics you have to work with in the US of seasonality, I be it more so. Essentially all of Europe takes off August. There’s some demand in July from Americans, but it is very much a July and August dominated market where if you’re not getting the majority of your revenue during those two months and you’re not going to be profitable. It’s like owning a short-term rental in Maine or Cape Cod.
It’s like there’s a very short season you have to optimize for that short season. So it’s a little different than some of the markets maybe we’re used to investing in.

Rob:
Yeah. It’s definitely a different territory. Tony, what’s your appetite for investing internationally? Is that something that you want to do? Is that something you dream to do?

Tony:
Absolutely, man. I love Costa Rica. Sarah, my wife, she’s like a Mexican citizen, so we always think about buying something in Tulum or Playa Del Carmen. So I would love to go international, but to your point, Jamie, I just haven’t taken the time to really figure out the financing portion of it, like how to make that piece work. But once I do, I would love to do something out there.

Rob:
Just buy it all cash, dude.

Tony:
Easier said than done, huh?

Rob:
Yeah. A lot of people ask me and everyone always asks me with the hope of being like, “I love it, let’s do it.” And I’m always like, “I mean, it’s hard enough to run a business in the US.” I mean, long distance investing, you can build your dream team, I believe all that. But I have other places in the US that I would prefer to buy anyways. I’ll just rent Airbnbs if I ever want to travel. But that’s really interesting you say that, Jamie, because I don’t really think about the risks, I think. Or not the risks, but the risks of regulation in the US.
It’s hard to keep up with regulation in the US because there’s so many cities and counties and neighborhoods that restrict differently. You go to an entirely different set of countries and it’s like, “You don’t really know what you’re getting into unless you’re doing a ton of research.” So let’s segue a little bit here because we’re talking to international. We talked economy. We talked regulation in general.
Now, I also want to talk about another component of the short-term rental market, and that’s natural disasters and how they’ve impacted short-term rentals this year, because that’s not something we really cover all that often on the show.

Jamie:
And it’s I think a growing and growing risk. We’ve seen it really specifically in certain destinations this year. The fires in Maui were devastating. We saw it essentially wipe out entire towns. We’ve seen hurricanes over the past few years. We saw Cape Coral, Fort Myers last year, Sanibel Island, and really get hit hard. We saw infrastructure being knocked out, the bridges there where you couldn’t even access your short-term rental if it even still existed.
We saw more hurricanes hit Florida, and we’re still in the middle of hurricane season. So no telling what’s going to happen. You’re seeing insurance rates continue to go up. So even if you have a short-term rental in these markets, one, can you insure a new investment? And then secondarily is your existing investment, are you going to be able to continue to get insurance on it?
So there’s more and more risk happening. And back through the years, we saw fires in Gatlinburg, we saw fires in Tahoe. We’ve seen more wind events like tornadoes hit the Midwest, I think, than any other recent year. So all sorts of… My parents have four short-term rentals in Maine, and they got impacted by the hurricane that came up there that caused I think two weeks to essentially be canceled out because of guests didn’t feel comfortable getting up there with the hurricane coming.
So it definitely impacts different markets in different ways. And I think most importantly for investors is getting a sense of the type of markets you’re going in. What is that risk? And if you were going to be shut down for a month or two and you think about… And people now avoiding traveling to Maui, even though most of the island is up and running, and we saw I think 30% decline in occupancy in August.
We’re seeing another 20% through the first half of September. So even though the islands are telling people, tourists, please come and people are avoiding that area just because. Any number of reasons, yeah.

Rob:
Yeah. I mean, I think perception is probably going to… I think whether or not it’s okay to travel there, I know that Hawaii was… The governor was like please keep coming. But I think a lot of people in their head are probably like, “Oh, I’m not going to go. Obviously, everything is closed or whatever.” So I think that’ll probably be a lasting effect.

Tony:
Yeah. I want to transition, Jamie, if that’s okay, to talk a little bit more just about supply and demand. You’ve mentioned before that supply has slowed in terms of the rate of increase. Post pandemic, you saw a massive boom in the number of people that were listing their properties in Airbnb, and it seems like that slowed down a little bit. Demand though seems to continue to be kind of growing at a healthy pace as well. So we’re waiting for that balance between supply and demand.
I guess let me take a step back first. My first question is how do you know if a market is unquote saturated? How do you know if a market has too many Airbnbs to support the demand in that market? What data point should I be looking at? Where inside of AirDNA can I even go to see that?

Jamie:
And saturation point is all going to be around occupancy, right? So is there enough demand to support the listings that are out there in a profitable way? So when I’m thinking about saturation, I’m looking at both year over year change in occupancy. So is the market that I am in absorbing the supply that has come into that market? If it’s absorbing it, we’re going to see occupancy maintaining or increasing. If it’s not able to absorb it fully, and you’re going to see occupancy decreasing.
Now, one year of occupancy decreasing is not a market sort of oversaturated. Most properties take some time to ramp up and it takes time to get bookings. It takes time to and sort of figure out your niche in the market. I tend to not like to look at this on a very short-term basis of like, “Oh no, we saw one month of occupancy down four or five, 10%.” This market is way oversaturated. You’ve got to be looking at it over time.
So I do like to look at it on a sort of 12-month average. And then also looking at it relative to prior years. So 2018, 2019 is indexing off the high of 2021. I think we talked about this last time is not fair. And maybe if you underwrote it in 2021 and had that expectations to continue, that’s a different conversation. But in terms of market saturation, there’s a lot of demand coming into this industry. There’s a lot more listings that need to be able to come in to support the growing demand.
I’d argue that very few markets are actually oversaturated. It might take one or two years of slow supply growth, which we’re seeing now for that supply to get fully absorbed. But if you’re investing for a five, 10 year hold, just because a weak patch in occupancy today doesn’t mean that that’s going to not be a great investment long-term.

Rob:
Wow. That’s interesting. I feel like most of the short-term rental peeps, we expect it to kind of hit when we list. So is the case that… I would say, I guess underwrite conservatively and expect growth from there. Because it does seem like if you’re telling someone, “Hey, yeah, get into the short-term rental, but it’s going to take you two to three years to really start hitting good revenue,” that’s an interesting conversation to have because I think a lot of people just wouldn’t do it.

Jamie:
Yeah. When I’m helping people underwrite properties, I maybe don’t do a three-year ramp, but I definitely do a two-year ramp that it’s going to take you one year to figure out your market, to figure out to get good reviews. Reviews definitely help get bookings. And it’s going to take you a few months, six months to get a bunch of good reviews so you can start raising rates and really profit maximizing that property. I came from the hotel industry 10 years helping people underwrite hotel investments, and there we typically did a three-year ramp of getting occupancy from when you first open the property to when you’re going to stabilize that in terms of occupancy. It does take time to grow into that market.

Rob:
That makes sense. I mean, our Scottsdale property, we bought one and it opened up a little slower than we had thought a year in everything is up pretty considerably. I mean, the reviews I’m sure have helped. We’ve also added amenities like a pickleball court and that pickleball court has increased revenues by, I don’t know, 60 to 80,000 at this point. So it’s paid for itself two or three times at this point. So I think it’s the profit maximizing that you’re talking about. That’s really the thing that I’m focusing on with my current portfolio where a lot of people keep asking themselves, “How do I get into my next property after they’ve purchased one?”
What I’m trying to steer people towards is instead of trying to get into your next property, how can you maximize the revenue of the current property that you have or the portfolio that you have? Because if you can invest, let’s say $20,000 back into your property and increase your revenue by 10,000 bucks, that’s a 50% ROI. That’s so much better than what you could get if you just go and buy a new property. So this year, I’m trying to still buy just because I’d like to consistently purchase, but really I’m putting a large majority of my capital back into my portfolio, which gets me a little impatient because all I want to do is buy.
But I do think there is a case to be made for reinvesting back into the property. Tony, have you guys gone in and ever optimized a property with amenities or have you added anything after the fact?

Tony:
Absolutely, man. Actually, I’m going to Joshua Tree on Thursday because our newest listing, we’re adding a really cool in-ground pool with a rock slide and just really trying to beef up the amenities because I feel like we’re out of space right now where because so many new hosts have come onto the platform, the table stakes have increased, right? And what it takes to be a good listing today is significantly higher than what it took to be a good listing in 2019, 2020, even 2021.
Like you said, Rob, we haven’t purchased a ton this year, but we’ve been going back to our entire portfolio, adding new game rooms, adding the pools, adding hot tubs, adding whatever we can to make those listings stand out. And it’s crazy, man. I have three properties in 29 Palms, which is the city adjacent to Joshua Tree and the one property where we invested a lot into the game room is doing 3X the monthly revenue of the other two properties that don’t, which is crazy, and it’s the smallest one. So it really just goes to prove the point that reinvesting into your current properties might be a better investment, like you said, Rob.

Rob:
Definitely. Wait, what was the amenity that you said you added to the 29 Palm ones?

Tony:
It was just a really cool game room. We’ve got a really cool game room as an extension of the house.

Rob:
Yeah, for sure. I built a epic tree house deck at my Gatlinburg property. I built a mini golf course in my backyard in Crystal Beach. I did a pickleball in Scottsdale. I’m adding a pickleball court to a property in Austin, Texas right now. I’m probably going to add pickleball to my tiny house in Joshua Tree. So for me, again, it does suck to not be buying, but I do think it’s going to be a much better return for me overall. So with that, Jamie, can you just tell us a little bit… I mean, since we’re kind of talking about Joshua Tree, how have established tourist markets fared this year? Are they holding strong? Has it been pretty consistent compared to some of the other areas out there, like a metropolitan area?

Jamie:
Yeah. So there’s definitely more weakness there in some of the established destination markets. I thought it’d be fun to sort of do in sort of an exercise where we walked through what we were seeing in one of the markets, and I actually pulled out a Gatlinburg, Pigeon Forge area, just to give you a sense of… It was also one of the ones called out in that sort of doom tweet by the Doom Squad of revenues dropping 40%.
So in the Gatlinburg, Pigeon Forge market year over year, we’re showing RevPAR down about seven and a half percent. But these markets, especially market like Gatlinburg where supply is growing 20%, you have churn, listings leaving, it’s really hard to get a sense of what is the average host actually increasing or decreasing the revenue. So we took it down further. So there’s 23,000 listings with the lease one night sold in Gatlinburg over the past year.
Only 12,000 of those were available full-time. So 270 nights of the year, and then only 7,500 of those were available both full-time this year and last year. So a small subset of the 22, 23,000 listings out there. And when we look at just those 7,500, overall RevPAR was down about 9%. And it was down most at the budget and luxury end. So the middle tiers were held up the best. What I thought was really interesting was for individual hosts, so those with just one to five properties, RevPAR was only down 7% where the large property managers in that market saw 13% decline in RevPAR.

Tony:
Interesting. Why do you think that is, Jamie, just out of curiosity?

Jamie:
Yeah. So that same question. So large property managers did such a better job of increasing occupancy in 2021 and 2022 in raising rates. And now they’re seeing bigger declines. But if you look at what they’re earning relative to 2019, they’re still well outpacing individual hosts. So it tells me that most of those individual hosts are not using revenue management software. They weren’t able and didn’t push rates when the times are good. Now, they’re not seeing as much declines when the times aren’t as good, but they’re still not earning as much as some of the larger PMs are in that market.

Tony:
And Jim, you hit on a really interesting point because I’ve kind of in my heart felt that that was part of what’s driving some of the decreases is that because so many of these hosts are new and they’re not leveraging dynamic pricing tools, and they don’t understand what their average booking window is in their market, if they’re not fully booked out every 30 days, they’re just dramatically dropping their prices.
And now it’s impacting the entire market because now you have guests that are able to choose a $60 listing that’s brand new versus the more mature host that’s charging a hundred bucks per night. So I’m literally launching a property management company right now because I feel that there are so many hosts that don’t know what they’re doing that overall they’re pulling down the revenue potential for the market. So that’s why Rob and I are both so focused on educating people about how to do this the right way, because if more people understand the basics of dynamic pricing, how to do it correctly, then as a host community, we all end up winning.

Rob:
It’s always so annoying, dude, when you’re comping out a property in a place like Gatlinburg and you’re looking at the neighborhood and this person has this insane 20,000 square foot placed with a helicopter pad and it’s like $70. It’s like, “What are you doing, man? What are you doing? You’re ruining this for us.”

Tony:
Well, Jamie, I want to ask you one last question before we start to wrap things up here. And for all of our listeners that are thinking of buying that first Airbnb, that first short-term rental right now at the tail end of 2023, what would your advice be to that person?

Jamie:
One, it’s make sure you’re leveraging data to find the right market to invest in. I don’t love the old adage of invest in a market that, you know, that you grew up going to. Find markets that make sense to invest in because they may not be the right market. It might not have been in the same market as a year ago, two years ago, on the cost basis of investing in homes right now has shifted dramatically over the past five years. And then the opportunity to grow revenues in these different markets has shifted dramatically.
So, one, I do a lot of research on finding the market, and then I think some of the conversations we’ve had on amenities are going to be really important for the type of property you can invest in going forward is don’t just look for current cashflow, look for that property that you can actually evolve and sort of grow into a good long-term investment. I try to help people think longer term like five to 10 years on that investment. Like Tony, that property you’re going to in Joshua Tree, if you didn’t have the ability to put in that in-ground pool, that would totally change that investment thesis for that property. Right?

Tony:
Yeah, absolutely.

Rob:
Sure. Yeah, that makes a ton of sense, man. So for people that, if you could give some advice on where people could find some of these markets, I agree. Going to a place where you grew up, not necessarily, I do like the familiarity… Oh gosh, let’s not try this on air. How familiar it is. How about that? How about that? How familiar? How familiar it is should not necessarily be the driver for why you buy it. I think that’s a way you can do it, but finding good markets that work, I think that’s what you’re saying. How can people find some of these good markets?

Jamie:
Yeah. So thanks for the tee up. We just rereleased AirDNA this past month, and one of the tools is all around market discovery. So you can look at a list of all markets across the US, filter down to the type of investment you’re looking in. So if you’re looking for, in one bedroom, unique listings, you want to go in on the luxury tier and you want to find markets with the highest occupancy, highest ADRs, highest investability, we now give you that ability to dig, filter in, find the right comps, rank markets against each other, and where you can find those hidden gem markets.
We actually did a piece recently where we talked about hidden gem markets. Maybe low percent of property managers, relatively small markets, like a 100 to 500 listings where you could go in and really dominate that market by running a property well. And all that can now be done with the new tools. So you can really customize it, find markets that really fit your investment strategy, your risk tolerance, and the type of markets, mountain, coastal, urban, suburban, and find those type of cities, find those good investment opportunities.

Rob:
Well, awesome, man. Well, thank you so much, Jamie. For people that don’t have familiarity into how to find you on the internet… See, I knew I could say it. I knew I just had to think it through a little bit. How can people find you and connect with you?

Jamie:
Yeah. So I’m active on Twitter @Jamie_Lane on LinkedIn and AirDNA. I host a podcast called the STR Data Lab where we talk about data and interview professional managers hosts on the data that they use to run their business.

Rob:
Super cool, man. Well, maybe Tony and I can be guests one day, the power duo, the power couple here in the short-term rental market. Well, awesome, man. Well, thank you so much, man. I do love getting into this and talking about the data with you. I think this makes me feel really good, honestly, just being armed with the proper data. So we appreciate you coming in and speaking some of these truth bombs. Tony, for anyone that wants to reach out or connect with you, how can they find you online?

Tony:
Yeah. First, Real Estate Rookie Podcast. We put out episodes every Wednesday and Saturday. And then personally, you guys can find me on Instagram @tonyjrobinson. And if you’re on YouTube @therealestaterobinsons.

Rob:
Dang. All right, man. That was like three of them. All right. Well, I’ll do four. You can find me on YouTube @robuilt, on Instagram @robuilt, on MySpace @robuilt, and TikTok on Robuilt. How about that? Well, thank you so much, Jamie. We appreciate it. Tony, thanks for doing this with me, man. It’s always fun to share the mic with you. And for everyone at home, if you like this episode, if this inspired you, if this make you feel better, feel free to go and leave us a review on the Apple Podcast platform or wherever you download your podcasts.
This is Rob Abasolo. I’m not going to do the David thing because I know I’ll mess it up. But thanks everyone and we’ll catch you on the next episode of BiggerPockets.