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Ashley:
This is Real Estate Rookie, episode 188. My name is Ashley Kehr and I’m here with my co-host Tony Robinson.
I know, but honestly, I feel like we never even got to see each other that much, even though we were, yeah, confined into a hotel resort for three days and barely got to see each other, but we just attended the first ever Real Estate Rookie boot camp weekend in Denver, Colorado. And we got to meet over 300 rookie investors that maybe had one or two deals.
Some people actually had quite a few deals under their belt already, but a ton of newbies, rookie investors that haven’t done a deal yet. We were really excited that they took that step, took that action to come and learn and get that motivation to get that first deal done.

Tony:
Yeah. Many of you know BiggerPockets recently started launching these boot camps, which are essentially online courses. And I ran the short-term rental boot camp. Ashley ran the rookie bootcamp. And what Ashley did was she took the concept of her bootcamp and turned it into an in-person event. Like she said, it was really catered towards folks that were at the beginning of their journey and man, what an amazing event it was.
And as we were going through that, Ashley and I said, “Well, it might be cool to really talk about the power of networking and coming to some of these events and what benefit you get as a new investor.” Ashley, I know you talk about this a lot and you shared this story a little bit over the weekend, but I guess you talk about the impact that networking has had on you because you came. You’re an investor in New York, near Buffalo, you felt there weren’t a lot of investors around you. Just give that story that you shared from the bootcamp weekend.

Ashley:
Yeah, I was lonely. When I started investing, it was only because I worked for an investor. And so, I partnered with his son, who was basically like, “I don’t have time to do anything. You do it.” And I took care of everything and he just didn’t really care to engage much in conversation about real estate, 24/7, like I did.
And then, a couple years later I found my next partner. It was me and him talking about real estate. And I finally found BiggerPockets. And from there, just diving into the forums. And then, BiggerPockets had their first conference. Well, actually it was technically their second conference. I think they had one a long, long time ago and then didn’t have another one until 2019. And it was that conference where I met a ton of people.
And since then, they’ve become my best friends. My best friends are littered across the country. And it feels like we see each other every single month because we’re attending an event or just getting together for something special for someone in our group. But I don’t think that I would be where I am today without this network of people. I would lose motivation. I would lose inspiration. I wouldn’t have the tools and resources if I didn’t have the network of my friends to help me and guide me, give me advice.
And also, I’ve been able to get opportunities because of my friends and hopefully, I’ve provided them opportunities in return. When I was in 2019, I attended that first BiggerPockets conference. And then in 2021, I attended a Maui mastermind event. And since then, just meeting these group of people has really made an impact on my life and even more excited about real estate.

Tony:
And I think the networking piece, Ashley, is so important, especially at the beginning phases of your journey, because a lot of times you stumble into real estate and you stumble into it by yourself. And it’s not necessarily because your best friend is interested or because your siblings or your parents or whoever. It’s because you read some article, you had some idea and you start going down this rabbit hole.
And before you know it, you’ve consumed all these books and you’ve listened to these podcasts. And you’re all juiced up about becoming a real estate investor, but you have no one to talk to about it with. Your friends are driven crazy already. If you’re married, your spouse is overhearing you talk about real estate investing and you kind of need someone to connect with.
I think early in your journey, going to, whether events like the Rookie Bootcamp weekend, bigger events like BPCON, or even smaller events like in your local area, going to local meetups or REIA Meetings or whatever it is, just find a way to get with other people that are doing what it is you want to do, because you get so much value from having those kinds of conversations.
And I’ve shared this on the podcast before, but a really pivotal change in my life occurred at a meetup. I’ve talked about him before, but his name is Alex Sabio. And Alex and I met at a local meetup here in SoCal. And he was the person that eventually convinced me to buy my first short-term rental. And I think, man, had I not met Alex at that meetup, how different would my life be today? You never know where one relationship, one connection can take you.

Ashley:
Yeah. I completely agree with that. And I took my business partner, Darrell, with me to this rookie weekend. And it was his first ever conference of any kind, any type. And he is so pumped up, so jazzed up. Just in the airport on the way home, he’s looking up all this stuff he learned or people he talked to. And so, he’s like, “Man, I really did get so motivated by that.” And he’s like, “When’s the next one? Where do we go to the next one?”

Tony:
Totally.

Ashley:
I think that’s really awesome is if you get that opportunity to go to a networking event. Even if it is just a local meetup, then that’s even better because you’re meeting people that are directly in your market and get that market knowledge from them too, and share ideas.
Going to a networking event, just some tips I have. Along with meeting people is, if there’s somebody you want to talk to, so maybe it’s one of the speakers, something like that, have your questions prepared ahead of time. What do you want to get out of that conversation with that person? Because it’s very easy to go up and just be like, “Hey, how are you? I love your podcast or I listened to you on YouTube,” well, something like that. And then, “Okay, yep. Nice to meet you.” And then walk away. Or think of something, but prepare yourself, so that when you do go into that conversation and just be like, “No, I have a quick question for you, a couple quick questions.”
And then have them prepared so that you’re not just stumbling or frantic, because that’s something I always struggled with. Even Brandon Turner, the first couple times I met him. I’m like, “I don’t even know what to ask him. I feel like I can’t waste my conversation with him. What do I say to get value out of that conversation and take advantage of that opportunity?”
Steve Rosenberg had met with this person that does a lot of motivational speaking and a big coach and very successful person. And he was told, “You get five minutes with them.” He sat down with them and the guy’s like, “Five minutes, go ask me your questions, no small talk.” And Steve’s just like, “Blah, blah, blah.” And the guy at the end was like, “I say that to you because your time is just as valuable as mine. And I know you only got five minutes with me, so that’s why I wanted to cut right into the chase.”
I think having questions prepared and knowing what you want to get out of the networking too, and the conversations or even what are you looking for? Who do you want to talk to too? Planning that ahead of time too.

Tony:
That’s just such a good point, Ashley, because someone literally came up to me at the bootcamp weekend and said that, “Hey, Tony, big fan. Really enjoy everything you do on the podcast.” And then I was like, “Oh, thank you so much. And then he was just kind of smiling.” And I was like, “Can I answer anything for you?” He’s like, I don’t really know what to say. I just wanted to come talk to you.” And then 10 minutes later, he ended up coming back to me and said, “Hey, I actually do have a question for you.” I love the idea of come in prepared to maximize that time.
I think the other thing that I’d encourage folks to do when you’re going to some of these networking events, two big things. First is try and get out of your comfort zone. It’s really easy to go to these events. And especially if you’re going with someone that you know, to just stick with your click of people.
And it happens in most conferences, if it’s a multiple day conference, wherever you sit on day one, you’re probably going to end up sitting there on day two again. And you’re going to be sitting around the same people. Really try and mix up where you’re sitting or who you’re talking to because the goal of these events are to meet other people. If you’re going with a friend, try and separate every now and again, try and sit in different parts of the room throughout different parts of the day. That way, you’re exposing yourself to more people. That’s the first thing, is try and get outside of your comfort zone.
The second thing is, I know not everyone is really good at doing that. Just the idea of going to these networking events is scary enough, but having to actually talk to someone might be too terrifying. For me, whenever I go to some of these events and I don’t really know anyone in the room, if I’m walking in to a meetup and there’s already a group of people talking, I’ll just walk up and say, “Hey, do you mind if I join you guys?”
Not once has someone told me, “No.” I’ve never been told, “No, you can’t join us.” Everyone’s usually like, “Yeah, of course. Come on in.” And then I’ll just ask, “Hey, so where are you at in your investing journey?” And it’s an easy way to break the ice. And you guys can start talking, getting to know each other, but it’s that easy. “Hey, mind if I join you. Where are you at in your investing journey?” Those two questions are a great way to break the ice.

Ashley:
That’s a great point as to, okay, getting to somewhere. And, okay, where do I stand? Where do I go? Who do I talk to? But one thing that I used to do when I was going to local meetups or I was attending a conference, I would find somebody online that was going to that same event. And I would just message them, start a little conversation. Just like, “Oh, I saw you were going to this.” And then I had a face. I had somebody when I got there to look for and that I already kind of knew. And that was my strategy, I guess, so that I didn’t end up just awkwardly standing there.
I remember the worst was when a meetup was held at a bar in the city. And so I walk in. I’m like, I don’t know which group of people this is. I asked the hostess, I think. And she’s like, “Oh, I think that’s the real estate like meetup thing is upstairs.” I go upstairs and there’s all these people and dressed in corporate clothes, a suit and tie and girls in dresses and heels.
And I’m like, “There’s no way this is real estate investors.” And so, I look around and I realized the restaurant actually had two locations and I was at the wrong location. And so, I ended up going to their other location. But yeah, that was so uncomfortable for me that moment, not knowing who to go. If you can find somebody online who is attending.
BiggerPockets, you can add… Meetups are advertised on there all the time and you can actually see who’s going. People click the attend button. All I have to do is message a couple of those people and be, “Hey, I saw you were attending this meetup. I’m going to be there too.” And maybe give them a little bit about yourself. And just say, “I wanted to introduce myself before meeting and I look forward to seeing you at the event.”

Tony:
Yeah. Our friend Tyler Madden talked about that too, about making relationships online before getting there in person. And what an easy way, a low risk way to break the ice beforehand, say. I love, love, love that advice. But at the end of the day, for all the rookies that are listening, what’s most important is that you start building that network, whether online, whether in-person. Or however you want to do it, but just start surrounding yourself with people who have the same dreams, ambitions, and aspirations as you.

Ashley:
Yeah. Okay. Any other takeaway? Oh, one thing that I do want to add to this is when going to a live event is especially, if it’s like a couple day conference, or even if it’s just one meetup, take a break during the conference. Or even if it’s just every night. And write down the people you met, how they had an impact on you, what you learned, what you want to implement, what you want to take action on. Because the conference is such a whirlwind that, by the time you get home, it’s like, “Oh wait, what did I learn? What was I going to do? How do I implement these things?”

Tony:
Sure.

Ashley:
I think going back and recapping, because it’s going to be someone had to explain this to me. And so me remembering people’s names as a fire hose, just shooting at my face all day with people’s names. That’s the real estate contents that’s coming at you. And even if you’re just going to a local meetup, when you get into your car, write down, “Okay, these are the people I met. This is what they do. Here are my connections I made. And this is what I learned. This is what I want to research more,” or something like that to, taking those notes.

Tony:
Yeah. One thing, yeah, what I would do. And I haven’t been to a really big conference in a while where I didn’t know a lot of folks there. But one of the things that I would do when I go to some of these big meetups is when I would meet someone and I get their phone number, I take a selfie with him. That way… Because even if you save the name, sometimes you forget the faces of who’s who, but if you have a selfie with you and that person, next time you see him like, “Oh shoot. Yeah, I remember that face.” And so, it’s a little bit easier to make that connection on who’s who.

Ashley:
Yeah. There was also a guy that attended the event this weekend, who was an extremely successful real estate investor from the Denver area. And he just wanted to come and be around all the rookies and get inspiration and motivation from all the excitement.
And so, he said that one thing he noticed was that nobody has business cards. And he said, “I completely understand that because they don’t really have a business yet. They don’t have their first deal. They don’t have an investment property, they don’t have a business.”
And he said, but he’s like, “I would recommend that go and get them printed anyways. It doesn’t have to be a business card. It can just be your contact information.” And he said, “That would be so nice for them to give out when you attend these events.” And I thought that was a great tip is being able to give the cards out. And I know a lot of people today use the QR codes too. So that you just show someone your QR code and then it automatically imports into their phone, which is pretty convenient too.

Tony:
Yeah. Yeah. I love. I’m not much of a business card guy. Even people hand them to me, a lot of times, I end up just losing them. I like the idea of the QR code.

Ashley:
The QR code.

Tony:
So I can scan and it’s in there right away. Yeah.

Ashley:
Yeah. Okay. Well, thank you, guys, so much for listening. And for those of you that attended the rookie weekend, I hope you had a great time. I know, I sure did. And I got to talk to so many people and it really was inspirational and motivational to me.
One little exercise that we did do at the end was have everyone write a letter to themselves in three months, giving themselves encouragement support and also, talking about what they have accomplished in the next three months. Those letters are going to be sent back out to the people that attended the rookie conference.
I brought an extra suitcase, just to bring them all home with me, and then I’m going to mail them back to them at the end of August. If you want to participate in this exercise, just go ahead and write yourself a letter. We did it dated for August 1st. And write yourself a letter, giving yourself some encouragement and say, “Wow, in the past three months, you bought your first rental property. You paid off some debt.” Or whatever it is that you want to accomplish in the next three months, write yourself a letter like you did accomplish it. And then, you can just stick it in a drawer, set yourself a little calendar reminder to pull it back out and open it up in three months.
Okay. Well, thank you guys for listening. I’m Ashley at Wealth from Rentals and he’s Tony at Tony J. Robinson. Don’t forget to like and subscribe to our YouTube channel, Real Estate Rookie. And please leave us a five star review on your favorite podcast platform. We’ll see you guys next time.

Doug Bauer, Tri Pointe Homes CEO, joins ‘Squawk on the Street’ to discuss the state of housing, what Bauer is seeing in orders and backlogs and what this economic cycle and previous economic cycles are telling Bauer.

Rental properties have tremendous potential to generate revenue. However, the success of your investment rests heavily on the quality of your property management. Finding a quality property manager (PM) isn’t as cut and dry as one might think. Many factors must be considered when assessing a property’s needs.

This article will explain what a property manager is, why they are important, and how to find the right one to maximize your rental property’s earning potential. 

What is a Property Manager?

A property manager is defined as any person or firm that carries out the various tasks involved in operating a residential or commercial rental property in exchange for a fee. In short, you pay them to take care of the grunt work so that you can invest your time elsewhere. 

The tasks involved in managing property will vary depending on the type of property, size, location, and personal preferences. That being said, here are a few of the general responsibilities of a property manager:

• Listing and advertising 
• Scheduling showings 
• Screening potential tenants
• Leasing agreements/contracts
• Collecting deposits and rents
• Property maintenance 
• Responding to tenant requests and emergencies 
• Handling evictions

Not all property managers are the same. In many cases, a property manager or management firm will specialize in a specific area of expertise. Not all experienced property managers are suited for the same role. For example, a PM may have years of experience managing single-family residential properties but may fall short when managing a multi-family unit such as a residential apartment complex. 

PM responsibilities also depend on what role you’d like them to assume. You can appoint specific duties, such as responding to tenant emergencies, scheduling routine maintenance, and rent collection, while outsourcing other tasks like leasing, marketing, and legal matters. Or, you can choose to hire a management firm that can handle 100% of your property’s needs. 

Why Hire a Property Manager? 

If you have the time and resources to manage a property on your own, you can save yourself a little money. However, managing a property can be a full-time responsibility. Many investors don’t have the time or desire to manage a rental property’s nuances. Here are a few common reasons to hire a property manager.

Time

As I mentioned before, rental properties are time-consuming. Whether you have a full-time job or simply prefer to invest your time elsewhere, hiring a PM will free up your schedule. If you want to avoid 3:00 A.M. maintenance emergencies, requesting quotes from vendors, or trying to squeeze showings into your busy schedule, you’ll need a property manager. Delegating the property’s responsibilities to a PM will allow you the freedom to earn without the hassle. 

Stress

Managing a rental property means spending a great deal of time solving problems. Rental properties are not all fun and games. Sometimes you’ll find yourself in uncomfortable and challenging situations. You may face expensive repairs, storm damage, difficult tenants who don’t pay rent, or complicated evictions. It’s easier to make logical decisions when removed from a potentially emotional or stressful situation. A good PM can take some of the burdens off of your shoulders. 

Location

It is common for investors to purchase rental properties outside the state or town they reside in. Distance can make it challenging to respond to emergency maintenance requests or ensure that tenants honor lease agreements. Out-of-state investors prefer to choose a property manager that is local to the rental property. It is beneficial to hire a local PM because they know the area, can assess the property in person, have vetted lists of vendors, and can respond quickly if any issues arise.

Efficiency

A quality property manager can help to maximize your property’s earning potential. Many PMs have the expertise and reliable resources to work efficiently and prevent loss. Most PMs will know tenant/landlord laws and regulations and can handle legal disputes, leases, and money handling. They will have vetted vendors to handle maintenance and repairs efficiently. Most importantly, they will likely have established processes for vetting tenants to reduce turnover or vacancies. 

What to Look For in a Property Manager

Choosing a property manager to handle your investment property can be tricky. You’ll want to be sure that whoever takes on this vital role will meet your needs and expectations and do so efficiently. 

Here are some of the essential qualities to look for in a property manager.

Integrity 

Choosing a property manager with a reputation for trustworthiness and integrity is vital. You should feel confident that your PM will make decisions in your best interest and conduct themselves to reflect your values. Choose a property manager that you’re confident will treat your tenants with respect and fairness and make financial decisions to optimize your property’s success. A property manager who cuts corners to cut costs can negatively affect your revenue when tenants decide to take their money elsewhere. 

Expertise 

Too often, people confuse experience with expertise. Unfortunately, the amount of time a person has spent in an industry is not a reliable way to gauge their competency. 

Rather than focusing on the number of years they have under their belt, focus on these key indicators:

• What professional licenses and certifications do they possess?
• Do they have a good reputation?
• What are their vacancy rates?
• Do they have established policies and processes?
• What does their client base look like? Do they have properties similar to yours?
• Are their contracts transparent and accurate?
• Do they have insurance, and what does it cover?

Communication and compatibility

Communication style & compatibility are not qualities that you can screen for on a job application. This is something that can be easily overlooked during the hiring process. However, the quality of your communication and compatibility with your property manager is key to successful management.

Think about it, a vast majority of the conversations you will have with your PM will be regarding some sort of problem that needs to be solved. In my experience, communication and compatibility play a pretty substantial role in the ability to work with someone towards a solution. 

You may find someone that checks off all the qualities of a great property manager. Still, if you cannot effectively communicate or work together, it can become a burden or even a liability. 

How to Find the Best Property Manager

Now that you have a better idea of what qualities to look for in a property manager, you may be wondering where to start. Here are a few tips to get you started with your search.   

Consult with your broker

One of the best ways to build a trusted property management team is to establish a strong relationship with a local real estate broker. Brokers can provide valuable insights and referrals. 

Ask for referrals

It never hurts to ask trusted colleagues and other investors for referrals. Be sure to get specific details about why they recommend a particular property manager. 

Do your research 

When interviewing property managers, make sure to request references. Research the PM online, read reviews, and speak to their references. Have a list of specific questions to ensure the PM fits all your needs. 

Warning Signs to Watch Out For

Unfortunately, there are bad seeds in every industry. Things can go downhill quickly when property managers aren’t upholding their end of the deal. You’ll want to pay attention to avoid a property manager that isn’t up to snuff.

Here are a few red flags when searching for a property manager:

• Poor communication: If the PM you’re interviewing is slow to respond, late to appointments, or unwilling to meet in person, this behavior will likely be the norm.
• Spelling and grammar mistakes: If you’re receiving emails riddled with spelling and grammar mistakes—that’s a bad sign. It shows that the PM does not pay attention to details.
• Unprofessional behavior: Ensure that the PM you hire represents you in the highest light. Pay close attention to how they conduct themselves during meetings. Imagine how they will treat your tenants if they speak, dress, or act unprofessionally with you.
• Lack of references: If a potential PM does not have references or refuses to provide them due to “confidentiality,” it’s best to cross them off your list. A lack of references means they are inexperienced or don’t have any good references to provide. Either way, it’s not a good look.
• Services are not 24/7: Life happens. Water damage, burst pipes, and broken HVAC systems don’t wait for business hours to cause issues. If a PM does not have an emergency line with 24/7 assistance, move on down the line. Waiting to address maintenance emergencies can have serious consequences. Not only must tenants be provided a habitable living space, but your property can sustain severe and costly damages.

Conclusion

Hiring a property manager can help alleviate stress, free up your time, and keep your property in tip-top shape so that you can reap the appreciation benefits. However, every investor will have unique goals, preferences, and resources, and a PM might not be for everyone. Before deciding to take on landlord responsibilities or hand it off to a property manager, I recommend assessing your availability, resources, and industry knowledge.

Find financial freedom through rentals

If you’re considering using rental properties to build wealth, this book is a must-read. With nearly 400 pages of in-depth advice for building wealth through rental properties, The Book on Rental Property Investing imparts the practical and exciting strategies that investors use to build cash flow and wealth.

Andy Walden, Black Knight vp of enterprise research, joins ‘The Exchange’ to discuss the drop in mortgage demand and what it says about the housing market.

There’s a lot of uncertainty surrounding the economy, real estate market, and the role of inflation in the economic environment.

When it comes to inflation, it’s important to identify how we got here. By here, I mean on the verge of an economic downturn with near record high inflation.

The Cyclical Nature of the Economy

Our economy is cyclical. It goes up. It goes down. And repeats. If you’re familiar with historical economic cycles in the United States, it should be no surprise that after a nine-year bull run, things were poised to peak back in 2019 and 2020. That nine-year run was historically long and, in many ways, driven by the fact that inflation was low for most of the decade.

Typically, a cycle results in a downturn after economic growth leads to inflation, triggering the Federal Reserve to raise interest rates. A rise in interest rates makes it more costly to borrow and more beneficial to save, so people stop spending, start saving, and the economy slows down, which alleviates inflation.

But we weren’t seeing much inflation, so interest rates stayed relatively steady for much of the decade, and things kept chugging along. Who knows for how long they might have kept going. Then the pandemic happened.

The economy came to a screeching halt, and it looked like we were on the verge of an economic depression. So the Fed stepped in again.

The Fed controls interest rates and the money supply. They use these two things to manipulate the economy in an attempt to avoid large swings or catastrophic events. At least that’s the goal.

Unfortunately, when it comes to avoiding economic risk, the Fed historically over-corrects. They move too much or too quickly. That’s exactly what happened here. COVID-19 caused panic over what could become an economic catastrophe, and the Fed reacted by over-correcting.
They lowered rates excessively and quickly, released a bunch of new money into the system, loosened banking regulations, and more.

Those actions stimulated economic growth, which led to inflation, which drove the fed to raise interest rates, which is now (likely) leading us into the downturn.

A recession at this point should surprise nobody. I’m surprised we didn’t see it sooner. But again, we weren’t seeing huge inflation levels prior to last year, so the cycle got stretched out.

Why is Inflation as High as It is Now?

We came dangerously close to a severe economic catastrophe in 2008. Back then, the Fed also released a bunch of new money into the system and lowered interest rates, but we didn’t see sky-high inflation.
What’s the difference between then and now? Why was inflation at 2% for much of the decade after the Great Recession and now at 8% a year after this latest round of interest rate drops and money printing?

Inflation is all about supply and demand, so there are really two sides to inflation. The supply side—when supply is low, prices go up. And the demand side—when demand is high, prices go up.

This time around, we’re seeing inflationary pressure from both sides. On the supply side, thanks to global shutdowns, many small businesses going bankrupt, raw material and transportation pipelines getting sent into a tailspin, and a host of other things, supply chains have been a global mess for two years now.

You might be looking around and saying that the pandemic is over and things are back to normal, so there shouldn’t be any more supply chain issues. But, the U.S. is a very consumer-centric nation, not a producer-centric nation. We import stuff. We don’t produce stuff.

It doesn’t matter what you see when you look around the country regarding shutdowns and businesses operating. What matters is what you see in those countries where we get most of our products. There are still lockdowns, war, and political unrest in those countries.

Shipping logistics are upside down, energy prices are in the sky, chip manufacturing is slowed, there are global labor shortages, and while we don’t talk much about the trade war anymore, that 20-year-old battle is still an issue.

Long story short, supply is still constrained, which will naturally drive prices up.

The even bigger issue is on the demand side, though. Where’s the demand coming from? It’s coming from people, companies, and institutions spending the $9T that was created over the last several years.

Why is Inflation Higher Now Than It Was After the Great Recession?

In 2008, the Fed and the Treasury infused a lot of liquidity/money into the economy. But they did it indirectly. They mostly gave it to the banks, allowing them to open up their lending to businesses and consumers. That allowed all the extra money to trickle into the economy slowly.

This time around, after the pandemic began, we did things differently. Instead of putting money into the banking system and allowing it to trickle into the economy over time, the Fed decided that they needed to get the money out there much more quickly.

The Fed pumped a lot of that $9T into equities directly, companies through PPP loans, and sending checks to all Americans.
Injecting directly into the economy’s bloodstream was effective for its intended purpose. People had direct access to cash and didn’t have to work through banks. But, the aftershock is what we’re dealing with now. Off the rails inflation, making day-to-day life for the average American more and more difficult.

Long story short, the injection of cash directly into the economy served its purpose. It effectively stimulated everything to the point that there was no economic collapse. But, as usual, the Fed overcorrected, didn’t let off the gas soon enough, and here we are.

Of course, there is a solution, but it’s not pretty. We must manually contract the economy by raising interest rates, which has already begun. You can read more about that here.

Prepare for a market shift

Modify your investing tactics—not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing.

Nancy Davis, Quadratic Capital Management founder and CIO, joins ‘Closing Bell: Overtime’ to discuss volatility in the markets and what investors should expect this month.

As a short-term rental investor, I’ve been asking if it’s still profitable to invest in short-term rentals (STR) with rising interest rates? 

There is a lot of uncertainty in the market right now, and many are asking if certain real estate assets are still profitable with rising interest rates. We’re all quick to jump to the Great Recession and compare it to what we’re currently or soon could be facing. 

Though it is important to study market cycles to figure out if we could be moving into a recession, I would caution you to understand that every market cycle is unique. Many of the attributes that caused the last recession probably won’t cause the next recession.

According to AirDNA’s 2022 Vacation Rental Outlook Report, “The pandemic has accelerated STRs into the mainstream. Demand is already 10% higher than during the pandemic, the industry is generating 40% more revenue, all with 10% fewer listings. As more investors add supply to capture the growing demand of the industry, it will evolve and adapt to changing consumer trends. Expect to see more unique properties in off-the-beaten-path locations providing one-of-a-kind experiences that will accommodate guests seeking an alternative to traditional lodging options.”

According to the graph, the average revenue for short-term rentals is climbing higher and higher. While the projection shows revenue evening out and moving into a slight decline, it’s still higher than in years past.

Another interesting statistic that the report highlights is the rise of remote work during the pandemic. 60% of workers returning to the office are expected to choose a hybrid approach for returning to the office. Most of the guests who book my properties on the weekdays work remotely during the day and explore the city at night. 

In essence, a lack of STR supply and the rising popularity of remote work will be the driving factors in the continued demand for short-term rentals throughout the rest of 2022 and into 2023. 

If anything, the competition will become fiercer, and property owners will be looking to differentiate themselves from the crowd. The most significant trend I see is developers building unique properties such as log cabins, A-Frames, treehouses, and tiny houses to differentiate themselves from “normal-looking” properties on the market.

Case Study: What Doubling Your Interest Rate Could Do To Your Cash Flow

The first short-term rental I ever invested in was a 900-square-foot A-Frame that I did a ground-up construction on. After renting it out for nearly three years, plus appreciation, I had built a good amount of equity. 

This led me to a cash-out refinance to pull some of the equity out as working capital in some of the future short-term rental development deals I had going on with my partners. 

I knew that the new interest rate would not be as good as the current rate I had because I was transferring from a residential loan to a more commercial-like loan.

After shopping for lenders, I chose one that specialized in short-term rental loans, and we started the process of getting an appraisal on the property. 

The current rate I was operating with stood at 3.25%. After working through the details, my 30-year rate became 4.25%. Unfortunately, it was variable too.

However, the property was grossing about $82,000 per year and netting over $50,000, so I was not worried about the extra percent on the interest rate. I was slightly concerned about the variable part, but the refinance proceeded. 

Fast forward a couple of weeks, and we had completed the appraisal and scheduled a closing date. It seemed as if everything was good to go until two days before closing, when I received the closing disclosure stating that the interest rate was hiked to 6.9%.

I called the lender wondering what happened to the 4.25%. It turned out that there had been three interest rate increases over the 45 days leading up to closing. I was speechless. 

Going from a 3.25% to a 4.25% interest rate was fine. But to go from 3.25% to 6.9% seemed like a major problem. I was ready to step away from the deal because I could not fathom more than doubling my interest rate. 

Before scrapping, though, I was curious to see if the property would still cash flow at 6.9% interest. I ran the numbers based on the 3.25% rate, the 4.25% rate, and the new 6.9% rate, and even plugged in an 8% interest rate. 

To my surprise, the property at the 6.9% and 8% rates still had significant cash flow. The loan amount increased from $178,000 to $225,000. The difference in the mortgage payment between the original rate I was quoted (4.25%) and the new rate of 6.9% was only $375 extra. 

I was already charging $270 as the daily rate for that rental. I could make up the difference with just two extra bookings. Given that occupancy over the past three years hovered around 95% on average, I felt comfortable going through with closing. 

Final Thoughts

The best part of this case study is that I learned a valuable lesson. 

As we dip into a period with rising interest rates (albeit still low historically), short-term rentals will be one of the most resilient real estate investments to rate hikes, making this one of the best times to invest in them. 

Do not let the sticker shock of higher interest rates discourage you from moving forward with a deal. Don’t sit on the sidelines and wait for interest rates to drop back to where they were over the past two years. If you do that, you’ll probably never invest in real estate. It took a unique set of circumstances for interest rates to become the lowest they had ever been in history. But as inflation grows and takes a tough toll on the economy, you’ll find that those same easy money policies are well behind us.

Interest rates are increasing. Don’t let that be why you aren’t going out and looking for good deals, even if they double. With a well-placed STR, you’ll find it easy to make up the difference.

John Kim, BMO Capital Markets analyst, joins ‘Squawk on the Street’ to discuss why he downgraded three office REITs with high exposure to the tech industry.