Blog

Dave:
Hey, what’s going on everyone? Welcome to On The Market. I’m your host, Dave Meyer, joined today by James Dainard. James, what is going on, man?

James:
Oh, doing well. Just grinding through this market right now. We are in rapid wrap things up. It has definitely been transitioning pretty aggressively in the last four to six weeks.

Dave:
Well, as we’re going to hear from our guest today who is incredible, the guest today is Cris deRitis, who is the Deputy Chief Economist at Moody’s Analytics. He specializes in assessing the economy’s impact on household financing, housing credit markets, and public policy. He’s incredible guest. We had an amazing discussion. He talked about, spoiler alert, he thinks markets are going down over the next couple years and he’s going to explain that in more detail, but with that information, maybe, do you have a quick tip for anyone listening to this on how to keep investing and keep improving your financial position in a market that is potentially declining in the next year?

James:
Yeah. It’s all about just proper underwriting and buying right now and just mitigating risk. I think the biggest thing that we’ve been doing and we’ve been talking to our clients about is just not rushing into that deal, really running your core metrics numbers, putting some padding in your proforma, putting some padding in whatever your exit plan is. Like what we’re doing or my favorite strategy in 2008 to ’12 was I just ran everything so worst case. As long as I knew I would break even no matter what on the deal, we would buy it. So just be super conservative on the numbers.
We are seeing extremely good buys right now in the multifamily sector, though. I mean, we are getting pricing I haven’t seen in a while. So just really look for where the actual opportunities are, and if you were doing something in the last 24 months, you might want to switch it up and look at in a different investment platform at this time.

Dave:
Awesome. That’s great advice. Yeah. Everyone listening to this, I mean, it’s what this show is about, right? There’s always opportunity. You just have to adjust your strategy to the market conditions. I think you’re going to learn a lot from this episode. I loved this episode. This was really helpful. Finally, we’re talking to someone who really does economic forecasting and modeling and has, I think, a very sound understanding of what’s going to happen in the housing market, not just in the next two years, which is important, but over the next 10 or 20 years, which is perhaps even more important for real estate investors who are trying to build a long-term strategy, trying to find that financial freedom. So definitely stick around for this. We’re going to take a quick break, but then we’ll be back with Cris deRitis from Moody’s Analytics.
All right. Let’s welcome Chris deRitis, who is the Deputy Chief Economist at Moody’s Analytics to On The Market. Cris, thank you so much for being here.

Cris:
Oh, thanks for having me. Looking forward to it.

Dave:
Well, James and I have been nerding out about some of your economic studies and we will get into some of the Moody’s forecasts for the next few years, but first, can you just tell us a little bit about yourself and your role at Moody’s?

Cris:
Sure. So I am the Deputy Chief Economist at Moody’s Analytics. That’s distinct from the rating agency that most people think of when they think Moody’s. We have a different division that focuses just on risk analysis. Particularly, my group focuses on economics and economic scenarios. So we do a lot of forecasting across the United States. We’ve got a lot of local markets, as well as international forecasting as well. So we’re constantly looking at the data, trying to figure out where economies are headed, and hopefully providing some guidance that leads to better or more useful decision making.

Dave:
Well, we’re super excited to have you. We do a lot of speculating on this show where we read a lot and I think we’re all pretty informed about what’s going on in the housing market, but none of us actually maintain for economic models or do our own forecasting. So we’re really excited to have you on and talk about what you all see happening in the short-term and, perhaps more importantly as we were just discussing before we started, the long term trends in the housing market.
So before we pin you down and ask you what you think will happen next year, can you just tell us a little bit about the variables? What are the factors that you’re looking at that impact the forecasting you’re doing for the housing market at least over the next few years?

Cris:
So forecasting housing is like forecasting any other asset. We look at both supply and demand. On the supply side, we’re looking at the factors that impact builders’ ability to build homes, so construction costs, how much are building materials. Lumber prices had been a big issue throughout the pandemic, for example. Wages of construction workers and even availability of construction workers is an issue when it comes to building homes. Perhaps more than anything right now, the builders tell us that it’s zoning restrictions and other regulations that they face, which really limits their ability to find buildable lots and put up housing.
Then on the demand side, we’re certainly looking at the cost to borrow. That’s the major factor impacting home buyers. Most homes are still financed in the US. So as interest rates go up, demand comes down, and we’re seeing demand come way down, of course, as affordability gets impacted. So those are just some of the factors that we’re looking at, household formations, right? So how many households are actually being added to the population? Well, that’s a direct corollary or highly correlated with demand, right? You have more households coming in, you have more immigration or higher birth rates. That’s going to impact the demand for housing that we need in the country.
Aging of the population might impact how many second homes or vacation homes people want as well. So there are a number of factors that we’re looking at, but it helps to really break it down into that supply and demand side of the equation. Then from there, we can try to estimate what an equilibrium level of housing might be and where we are today relative to that equilibrium.

Dave:
Now, I’ve seen there’s been a lot in the media coverage of Moody’s forecasts and it seems, I’ll just summarize and let you do the detailed analysis, but I’ve seen that on a national scale, Moody’s is predicting year over year price declines in 2023. Can you tell us a little bit more of the details about those predictions?

Cris:
Sure. So we run models, as I mentioned, that look at those supply and demand factors, and we are estimating what the equilibrium or trend housing values should be. What should house prices be if we just considered incomes or rents and look at historic ratios between prices and incomes? So that is a core or fundamental basis of our model. That then defines what the fundamental value is, and we compare that to what values we are currently observing in the housing market.
Right now or during the pandemic, we saw tremendous run up in home prices, about 40% increase from the beginning of 2020 till today. That far outstrips what incomes did during that time. Although we’ve had some nice income growth, it’s nowhere near 40%. So as a result, our calculation leads to the conclusion that most housing markets across the country are indeed overvalued. So of the 400 plus metropolitan areas that we have in the country, we stated that about 80% of them are above their fundamental value.
Now, there’s some measurement error in the models as we know, and you said you’re a data nerds, so you know there’s a lot of volatility in the data. So you don’t want to get overly excited by a market that’s only one or two percent overvalued, right? So you want some threshold or some cutoff that really sticks out. So we tend to look at those markets that are more than 20% overvalued as being once that we might be particularly concerned with, and then we rank order the markets to see which of these metropolitan areas we particularly want to be focused on.
When we do that, what we find is that many of the markets in the South, and particularly in the Mountain West did experience very sharp rises in home prices relative to their incomes, and those would be the ones that are most vulnerable to a double digit type of correction here. So we’re thinking about Boise, Idaho, Phoenix, Arizona, Austin, Texas, some of the major markets, but then particularly concerning to me are some of the second tier or third tier markets as well that might be sitting next to major metropolitan areas that also saw a big run up in prices, and my concern there is that as things turn, they might start to weaken.

James:
So Cris, you were just talking about and I was reading online as well, so Moody has predicted some decline in the market about five to 10 percent over the next 12 to 24 months, but what you were just describing to me is the perfect mixture of what also could be a disaster where cost of housing going up by 40%, cost of money now up about 40% on the mortgage cost and then salaries just haven’t quite kept up with that pace. I know even in the expensive markets like our tech buyers or our tech markets, we saw salaries increase 15 to 20 percent. They made a lot more money on their stock growth than they did anything else, which is now also down.
So it is looking like this perfect mixture of what also could be a disaster as well, not just a five to 10 percent pullback, but it could rapidly bring pricing down. Why are you guys predicting more of a conservative drop rather than a rapid with all these things going on?

Cris:
Yeah, great question. Parallels to the housing crash in the late 2000s are obvious. So what’s different this time are really two key factors. One is demographics, right? So back in the housing crash of 2006, 2009, we had a small Gen X population turning 30 or in their earlier 30s, prime age for home buying. At the same time, we were building over two million units, new housing units per year. So we had the supply-demand imbalance there. We had a lot of flipping and speculation going on.
Today, we don’t have that. We have actually the reverse. We have a very large millennial population that is looking for housing. We have a housing deficit in this country because we haven’t been building over the last decade. By our calculations, we’re about 1.5 million housing units short of where we should be. That’s on top of just what we should be building each year to keep up with population growth.
So you have that underlying demand out there. You have the lack of supply. So the demographics are actually more favorable today. So even as prices start to come down, our expectation is you will have buyers stepping up as prices come back into a more reasonable zone. You’re right that the interest rates are a big weight in terms of affordability, right? So that is the reason why we do expect to see house prices come down, housing demand coming down over the next couple of years to begin with, but to really cause more of that snowball effect you’re referring to, you’d really need to have labor market declines, so higher unemployment, people actually losing jobs, losing their incomes, and unable to make their mortgage payments.
The other key difference, of course, today is that the lending standards for mortgages have been much, much stronger than they were back in ’06 and ’09, right? Back then, we had very loose lending. People didn’t have to put a whole lot of money down on their properties. Today, home buyers are much more qualified. They don’t have these crazy option ARMs or negatively amort using ARMs or adjustable rate mortgages, and they have much more equity in their homes.
So even as prices coming down, most home buyers are still going to be in a positive equity situation, and the fact that they have been able to lock in very low interest rates, record low interest rates over the last couple of years means that they are more likely to fight for their homes, right? They’re not going to let those homes go quite so easily into foreclosure, right? They’re going to do what they can to avoid a default because the consequence is going back into the market and then facing a much higher interest rate, facing much higher rent prices as well. So for those reasons, expect to see the market cooling here. We allow time for the market to catch up in terms of incomes and rebalance the price to rent or price to income ratios.

Dave:
Yeah. Cris, I saw something the other day, just to reiterate one of your points and all those are very helpful, thank you, but just about the adjustable rate mortgages and how that got us into a big part of the mass in 2008, that back then 40% of mortgages were adjustable rate and now it’s less than 2%. So that just shows you the scale and difference of how lending standards have changed.

Cris:
Yeah, and even the adjustable rates we have today, the adjustable rate mortgages are quite different than what we had back then, right? Today, we do have adjustable rate mortgages. You can get a five one ARM or 10 one ARM, but even those have very limited or more limited risk than the adjustable rate mortgages we had back then, which may have been adjusting every month or every six months, may have had negative equity. So very different situation.

Dave:
Okay. So I have this question I’ve been longing to ask someone and it seems like you’re the person for the job. So you said that the basis of your model is that you derive this intrinsic value in home prices based off income and home prices, and traditionally what people pay. That makes sense, but in other countries, like if you look at Canada or Australia or New Zealand over the last couple of years, that dynamic has just fundamentally changed, right? The proportion that people are paying for their home out of their total income has gone up and up and up, and we’re probably seeing corrections in those markets too, but I’m just curious, is there risk of that happening? Is there maybe a chance that the United States is heading in this way where people are just going to have to pay way more for housing than they have historically?

Cris:
Yeah. I think it goes to certainly the demographics and the demand side of the issue, right? So from my viewpoint, we do have this housing deficit. We have much more underlying demand than we have supply. So you obviously see the homeowners and you see the renters out there and you get a sense of housing market from those populations, and you can look at the home ownership rate to see what that looks like in terms of are people able to buy homes, are we seeing home ownership rates increase.
What gets unnoticed is that whole population of young adults in particular who are unable to access the housing market in any way, they’re not able to rent because the rents are too high relative to their income, they’re not able to buy because of the affordability issues, and so they’re living with parents or they’re living with roommates. So they fall out of our housing statistics. We don’t really have visibility into them.
So at the moment, given the demographics, yes, I would agree with you that there’s so much demand out there that is forcing individuals who want to join the game, want to start their own households to face even higher house prices because of the supply issues. If you look ahead, and I think we’ll get to this a little bit later, the demographics are forecasted to change here, right? We have falling birth rates, immigration rates remain low. So this dynamic could change very rapidly as you go 10, 15 or 20 years out.
So I don’t expect to see these types of constraints in terms of how much households are spending on their housing costs to persist forever. I don’t think they can. I don’t think that’s sustainable. So over time, it will adjust as those other demographics adjust, but in the meantime, you certainly can have a bit of a pressure on those households and see that they’re spending a lot on housing.

James:
Well, yeah, because there’s no other logic behind this that you can come up with. If you look at certain parts like Vancouver, Canada, it’s just very expensive real estate, very expensive housing. Right now, even with what we’ve seen in the market pullback, we’ve seen about a 20% drop off of the peak, peak pricing, not medium home, but the highest comparables that we were seeing. I was even talking to Dave about this earlier is that you would think it would have more impact with the cost of money. If the cost of money’s up 40% and we’ve just seen this, I would almost think that the housing price would come back even further, almost drop as fast as it appreciated over the last 24 months. We’re seeing a pullback, we’re not seeing that free fall, and that’s where I’m like, “Yeah, we might just be in an expensive housing, but housing might just be a privilege going down the road.” You’re going to have to expend a lot of money and that’s going to go into a lot of your earned income. It’s going to be going towards housing costs, but that’s obviously not the healthiest housing economy in general. So how do you even fix that before it just goes off? I think once it water falls over, it’s going to be stuck there for a while.

Cris:
Yeah, I’d agree with that. So again, our forecast does have the prices coming in, but basically going flat for the foreseeable future until incomes can approach the type of house price to income ratio that we’ve had historically. Supply, though, is the real barrier here, right? Obviously, rates matter and higher costs do restrict the opportunities for folks to actually purchase homes, but without more supply of housing, this is going to persist, right? You’re still going to have too few homes and too many people looking for housing. So that involves changing zoning laws. That involves changing other regulations, things that are very difficult to do because of the NIMBYism or the other trends that we’ve seen.
Another fact I can throw out there in terms of a Vancouver mark is also the reduction now of foreign home buyers given the strength that the dollar, in particular you are seeing that foreign home buyers no longer find the US or Canada particularly attractive for them to invest in. So that actually could have some beneficial effect for the home buyer, the domestic home buyers who might be looking to buy. So that could have some offsetting impact, but, yeah, that is a delicate equation there in terms of how that dynamic plays out over time.

Dave:
Yeah. Cris, I really want to get into that supply issue and some of the long-term things, but before we get off the short-term forecast, you had mentioned Mountain West markets, Boise, Phoenix, you named a few. What is the downside forecast for that? How bad do you think it could get in some of those markets? Then on the other side, are there any markets that you think will keep growing even in this environment?

Cris:
Yeah, great question. So I think 15, 20 percent down from the peak. So peak was probably second quarter of 2022 for most markets or maybe a little bit of variation there, but if you tell me Boise is going to be down 15, 20 percent over the next couple of years, I wouldn’t debate that, but that’s off of a 40, 50 percent increase, right? So for the homeowner who’s been there a while or the homeowner who tends to stay there a while, this isn’t catastrophe, right? This is something they, to a large extent, could ride out. It’s the buyer who bought recently, bought at the peak, that’s the one, of course, that’s most at risk. So there is the chance that things could snowball a bit, but by and large, there’s a lot of equity that folks have that we have to burn through until we really start to do damage to those markets.

Dave:
So the second question there, are there markets that are going to grow? I think we saw some in maybe the Midwest or Northeast. Do you think, maybe not even grow, but at least be a little bit insulated from downside risk?

Cris:
Yeah. There certainly are markets that didn’t experience quite the run up that others did in the Northeast and the Midwest. There was a lot of migration out of those areas into the South and to the Mountain West states that drove the prices up. So there are values there and certainly, again, for these millennials or younger home owners or home buyers looking for a place that there are more opportunities perhaps in some of those areas than what they face in those more competitive markets, and with remote work being an option for more and more people that I would expect to see some stabilization in those markets, even potentially some growth for the ones that really didn’t experience much of a rise during the pandemic.

James:
So is that how you guys came up with most of those metrics was … I saw Albany, Georgia, Columbus, Georgia, where areas that you guys predicted would it actually have 5% growth in those markets. The basis behind that is based on housing prices and income, right? Those are the two main factors that they’re looking at, and because those markets didn’t skyrocket in the second quarter, that’s why you’re predicting more steady growth. The ones that basically didn’t hockey stick up in that second quarter are the ones that are going to be the healthiest.

Cris:
Yeah, for the most part. There are some markets that actually did experience a lot of price appreciation that we don’t have as being at high risk because they maybe were dominated by individuals who brought a lot of wealth with them, right? So you did have folks moving out of the Northeast accelerating the retirement from wealthier individuals moving to Naples, Florida, for example, and prices in Naples really did go up or Miami. They went up a lot, but they also brought a lot of income with them or a lot of other wealth that might offset the risk that they would have to or be forced to sell in any type of downturn. So you want to be a little cautious to just jump on the markets that saw a lot of house price increase and assume that they’re going to reverse. There are some other factors out there that might offset those risks.

Dave:
All right. Well, that’s super helpful, Cris. Hopefully, everyone listening to this appreciates that. It’s really, really good, informed analysis of what might happen in the market over the next couple year or two, but real estate investing is a long-term game for most people and we’d love to pick your brain about what’s going on long term. I mean, you said it very succinctly and I loved it. You just basically said we need more supply. That’s the problem with affordability in the United States. That seems to be causing a higher, maybe I’m wrong here, but it seems like there’s a higher degree in pricing variance than we’ve seen traditionally in the housing market. Can you just tell us a little bit more about the nature of the housing supply shortage in the US and then James and I will ask you a hundred more questions?

Cris:
Yeah, absolutely. So there’s definitely a shortage, particularly at the lower end of the market, and we do break out home prices in these different markets by tier, right? So we’ll group each market into low, medium, high tiers by price in that market. What we’ve seen is that prices have risen the fastest at the lower tier. There’s lots of demand in that lower tier. People are looking for starter homes, looking for homes that they can then maybe live in for a while and turn into investment properties, right? So there’s a lot of demand in that particular segment, much more than the available supply.
So prices have gone up across the board. I want to say that high tier markets or high tier homes aren’t rising as well. They just haven’t risen as fast as the lower tier, and that’s very much a consequence of the fact that you do have so many people looking to enter the housing market.
You do have regional variation as well when we think about the affordability of housing where people are wanting to live or choosing to live, right? So there is quite a variation in terms of affordable housing in terms of the demand. Then on the supply side, there are certainly land constraints that will drive up home prices as well and limit the amount of affordable housing that you might be able to build in a San Francisco or in the Bay area versus areas like a Dallas, which until recently at least have a lot of land to build on, but now are actually facing constraints in terms of travel time and other considerations that buyers may have. If you have to commute to work still and you’re living two, three hours away, that’s not going to work either.

Dave:
It’s not commuting, that’s traveling. Yeah. So that’s fascinating. So you mentioned at the top of the show some of the issues that are contributing to this, but I’d love to talk about a few of them. One of them is this idea of NIMBYism, which is not in my backyard, what it stands for and is this phenomenon where people always speculate that they want more housing but they don’t want it built near them because that would add more supply in their neighborhood or maybe they don’t want multifamily units in a single family neighborhood, something like that. Can you just talk about that phenomenon and how that specific issue is contributing to the housing shortage?

Cris:
Yeah, it’s pretty interesting, right? What I find particularly interesting is that it seems to cut across the political divide, right? You ask folks on the left, “You want more housing?” “Of course, we want more housing. Housing is right and everyone needs a place to live. We want more housing.”
“Okay. How about we build it? There’s a nice lot not too far away from you. We’d like to put a multifamily complex there. We need to achieve density. That’s one of the ways we can lower housing costs as well or build up a lot of housing units in a short period of time.”
“Oh, well, well, wait. Wait, well, no, there’s traffic congestion issues or there’s a million different reasons why we want more housing but we don’t want it near us.”
The same talk does apply on the right as well. The argument typically given over on that side are, “Well, everyone should have a right to do with their property what they wish then.” So there’s property rights issues, and yet then there’s still this concern about traffic and congestion, “oh, well, maybe we do need some zoning and restricting things.” So it’s very difficult when we have local control of communities that are deciding on their own zoning laws to then impose or change the system, right? There are ingrained interests, right?
If you’re already in the club, if you’re already a homeowner, it is in your interest in some sense to keep restricting the supply that does drive the price of your individual property upward. So it’s a very difficult situation to get around. There are a few states now that are challenging or have introduced some relaxation on zoning and that will help, but even those will take some time, and even though you might have the right to build multiple units on your property today in some jurisdictions, it’s still maybe difficult to actually execute on that option in a cost effective way. So it’s not a short-term solution. It is part of the solution, but it’s not something that gets us there rapidly.

James:
Yeah, and that’s actually been a struggle for us in the local Seattle market is we had a lot of upzoning over the last 24 to 36 months, where they actually allow you to expedite your permits to put in affordable housing or detach ADUs and DADUs, and what they’ve gone with the zoning, they want no more McMansions. They actually shrunk the FAR ratio, the floor air ratio coverage or floor area ration coverage, and they’ve done that because they don’t want these big houses getting built and they want a bunch of smaller properties and more affordable housing, but the main issue is the cost to build is extremely expensive because the units are so small and you still have kitchens, you still have bathrooms, and the core costs.
So there was this big fad of these things getting built throughout all of Seattle for 18 month period, and now the brakes have been hit because the cost. That’s the problem is they’ve upzoned it, but they haven’t thought of it all the way through because the replacement cost is still so high you can’t really make it work right now in today’s markets with the current rates and the current pricing.
So we actually did see this oversupply and we have seen a little bit of pushback. A lot of the people in Seattle, they wanted the affordable housing, but now with all these little detached ADUs throughout, it does affect the neighborhood profile. It affects how the neighborhood feels in the character, and then the parking and the traffic is an issue. These are things that I think it was working well in some markets for a two-year period. Now, it’s like, “Here, here’s this pause. We need to rethink a couple things through.”
Mostly, I think that inventory’s going to stay lower though just because the cost to build is too high. It was costing us. We build town homes in Seattle for around $300 a foot start to finish, and the ADUs and the DADUs or the cottages that you could build were costing us nearly $400 a foot because they’re just so small. So why would you build them at that point? It just didn’t make any mathematical sense, and then that’s caused the dirt to come down quite a bit over the last two months.
It’s like they’ve started to figure out the affordable housing, but it’s like they haven’t figured out how to make it affordable. So it’s just the pricing is so high on these things. It didn’t fix the issue. I think the only way to really fix it is, to be honest, the government’s probably going to have to subsidize building costs a little bit on those. If they really want affordable housing, they’re going to have to keep that number down because it’s causing pricing to be up 20% across the board.

Cris:
Yeah. Well, one problem in housing in general is just the haphazard nature of the rules and regulations, right? It’s not that we plan these things in a very systematic or well-thought out way. It’s reacting, right? We make a change here. We don’t fully think through all the consequences. Maybe we can get there is a fad or a trend that starts in one area, but now all of a sudden we do have congestion and all these concerns of the NIMBYs do have some legitimacy. So how do we think through those in a more constructive manner?
You’re right. The builders, they have a profit motive, obviously. So even to the extent that they want to build more affordable and they’re onboard with building more affordable housing, they face challenges, and when it comes to building costs, availability of labor, so it’s a shifting market from that perspective as well.

James:
Yeah, and going to your point, the inefficiencies of the city, the debt cost is actually one of the worst costs of the whole thing because it takes so long to get permits with the pandemic and supply chain. I mean, labor shortages, plans, permits, everything take 30% longer than it used to. So the debt cost too, so unless they can figure out how to build that faster and cheaper, it’s not a solution that’s really working in today’s market.

Cris:
Yeah. I would think that a shorter term play could be to focus a bit more on all the vacant housing that is out there. Now, there are millions of vacant homes that are not used even seasonally or occasionally. They’re just in need of repair. They need some attention to be brought into active use, but they do tend to be scattered, right? So along the same lines of, “Okay. It’s great we can build accessory dwelling units,” but that’s not the same as open tracked development, right? The costs are much higher because they’re one-offs, right? It’s one unit here, one unit there. So there is an opportunity, I think, to rehabilitate vacant homes and bring them online a bit faster because they don’t have all those permitting restrictions. The home already exists, right? Just needs to be fixed up, but I think that only happens with some type of support to kickstart the process as well.
An individual is going to face a lot of challenges. If they want to fix up their home, bring it back in the market, they may not be able to capture the full value in terms of the market rent until all the other properties around them are also reaching the same level of amenities or building quality. So I think you do need to see some government support out there to provide the incentives for the builders to either fix homes or build new homes and provide that additional housing. So I think there are other solutions that we can come up with here beyond just trying to find another place to build and facing all the permitting and regulations that you mentioned.

Dave:
Are there any other solutions? I know you’re not a politician or a policy firm necessarily, but are there any other proposals or ideas that you think could help alleviate building costs and bring more supply online?

Cris:
Well, now, there’s this whole idea of office conversions, right? So now, we have another imbalance caused by the pandemic, retail and office. We have too much retail space, too much office space. Should be converting that. That’s, I think, a lot of analysts say, “Oh, it’s obvious, right? It seems like a coincidence of wants, right? You have these empty office buildings that are getting underutilized and you still have a lot of need for housing, right? Why not just convert them over?” That’s a promising solution, but as we know when we talk to builders, it’s not that easy, right? The footprints of buildings are quite different. The location of office buildings may not be zoned for residential. So you have, again, some regulatory or zoning issues.
So I think there is opportunity there to do some of these conversions, but that, again, is going to be a slow process. It probably needs to happen, right? We don’t want empty billings sitting vacant all over the place. So there is economic value to them, but no, I don’t see any quick fix. A lot of the proposals that have been put forward really are focused on the demand side, right? They’re looking to bring down the cost of financing, and that’s all good, provide more opportunity, open up the credit box. That’s good. We need to focus on those opportunities as well, but until we fix the supply issue, I don’t see that we’ll really address the needs of all the people who want to start homes or start households and buy homes.

Dave:
Yes. I’m so glad you said that because I agree. Short-term demand side alleviation can help and people need housing. We need short-term stuff, but the only solution is more supply. I just don’t understand how. It seems like not even in the either side, political discourse, people are talking about long-term housing issues and how it’s going to be addressed over 10 or 20 years.

Cris:
Well, so that gets to long term if you look beyond the next 10. So next 10 years are going to continue to be a struggle because you do have this millennial population that is the largest generation, in their early 30s, looking to buy homes. They’re delaying those home purchases because they can’t afford it, but they’re going to continue to want to purchase homes over this period. At some point, they will start to age out, right? At the same time, we have baby boomers, their parents, who at the moment are choosing to age in place and they even have two, three properties, a vacational, maybe investment property as well. So they’re actually soaking up some of the demand for housing as well.
Well, eventually, they’re going to be downsizing as well, either by choice or as they move on, right? Then you’re going to have more supply coming online from them. So there is a potential here for the verse problem to occur in terms of oversupply of housing, I should say, 20 years from now. So as the population ages, as the birth rates come down, if we don’t change our immigration policies, we could be in a position at some point where actually you have too many houses, not too many houses. It’s likely that we have houses in places that people won’t want to live. So I always look to Europe as my guidepost or I look to Italy as a good idea of where the future is. You have this aging population.

Dave:
The $1 houses?

Cris:
Yeah. So very possible that you will have some areas of the US where people will no longer want to live. It won’t be cost effective for them to live there, so you could have that phenomena, and perhaps even more importantly, you might have housing structures that are incompatible with the demand, right? So we have these five-bedroom, six-bedroom homes, but in the future we’re going to have even more single person households or one child, two child households. So we might not need those types of structures. So how do we then redesign or redeploy that housing as well? So when you think about how does this housing deficit get resolved, well, it will resolve itself to some extent because of the demographics, but it still might not be efficient use of all the housing stock we have once we get there.

James:
There’s going to be a lot of house hacking going on where people are just renting out these big mansions room by room.

Dave:
Where you’re just living in by yourself, just partying, staying in a different bedroom every other week. Well, to your point, Cris, I was joking, but in Italy, there is a dollar, they do offer these incentives to people to move where there’s housing supply and no one wants to live. Obviously, it feels like we’re very far away from that in the US, but to your point, with a declining population, that does seem like where we’re heading unless something changes in terms of population or lower construction rates or something like that.

Cris:
Yeah. So I would assume that the construction rates will adjust if that plays out. So it’s really the demographic story, the immigration. If birth rates all of a sudden start to pick up, then that’s maybe a different story, but we don’t see those trends, right? Even on the immigration front, either from domestic policies, it doesn’t look like we’re changing anything, but then we may even miss the boat. Other countries are experiencing the same type of population slow downs or declines. So there may not be as many immigrants globally that are available or they may choose to go to other countries, go to Canada. Other countries may soak up some of that immigration as well. So I do see a slow down certainly as we start to look at 2040 or 2050, start to go out aways. In our forecast, we have construction coming down as household formations are coming down as well.

James:
If you guys are predicting that, as demographics population shrinks, that there’s going to be oversupply of housing or affordable housing for people to actually purchase, there’s still going to be … What about the rental market and the apartment market? Do you feel like there’s going to … We’ve seen a rapid amount of rent growth too over the last 24 months. Do you guys feel that there’s going to be oversupply in that space too or because of the need for smaller households, that’s going to be in high demand and there could be higher rent growth on those areas because they don’t need the three-bedroom house, they just want a one-bedroom apartment, is that going to be where you think there still could be a lot of growth over the next 10 to 20 years because that’s just where the demand is, small living, affordable costs instead of buying? Is that something that you guys have forecasted out or looked at on the smaller apartment scale? Is that where the major growth’s going to be?

Cris:
Yeah, I think so.

James:
Because there has to be growth somewhere.

Cris:
Right, right, no, and the other thing is these demographic trends, right? they play out over decades, right? It’s not something that you’ll see very obviously, right? You’ll see things slowing perhaps, but you also have the cyclical volatility in the economy. So you might not actually recognize it year to year if you’re looking at things. Next year, it could very well be an up year when it comes to construction if things were to turn around, right? There is still this housing deficit that I mentioned. So I think short-term, multifamily apartments, clearly, there’s a lot of demand. So the lack of affordability and home buying does mean that you will have more households renting, looking for rentals, but even there at some point, as you mentioned, you do have these double digit rent increases over the last couple of years and affordability is being hit hard there too as well.
So I don’t expect to see those rent trends continue at this pace, but I do expect to see the demand for rentals hold up better than the demand for purchases in this current environment, but there will be demand destruction, right? You have households that would’ve been formed if they could that just won’t because it’s just too expensive to either buy or rent. So I do expect to see that rental market hold up reasonably well. I don’t think we should count on those double digit type of rent growth rates coming back anytime soon. I think that was a unique situation when it comes to the pandemic, but going forward, I would expect to see that demand, certainly in those particular markets where people want to live, continuing for the foreseeable future versus building those larger luxury single family homes.

James:
The McMansions are over.

Dave:
Yeah, and maybe so. We’ll see. People really like them, so we’ll see.

James:
I’ve seen about the affordable housing that actually, this is a sidebar, but in California, they outlawed the big mansions in some areas. So now, they’re doing McMansion basements-

Cris:
I saw that as well.

James:
… because you’re not going above ground, so you’re allowed to do that. People have pools and gyms and they’re like, “All right. Well, you won’t let us do it above ground, so we’ll just do it below ground,” and these things are massive. It’s like a whole city underground. So I think no matter what, there’s always going to be a demand for McMansions as well.

Dave:
The amount of people will find a way around any rule never ceases to amaze me. It’s just like they will figure out the way to do it if they want to do it and still stick to this letter of the law.

James:
I mean, it is pretty cool.

Dave:
Yeah, a basement pool, it just sounds weird. All right. Well, Cris, thank you so much for being here. This has been super helpful. I have a whole line of questioning. Maybe you can come back sometime. I’d love to talk more about not even just housing, but the economic implications of declining population because I think that is a big juicy topic we’d love to talk about again, but this was phenomenal. Super helpful for myself and I’m sure James and for all of our listeners. So thank you so much for being here. If anyone wants to connect with you or follow up, where can they do that?

Cris:
They can follow up with an email, [email protected] or I’m on LinkedIn or Twitter. MiddleWayEcon is my Twitter handle.

Dave:
All right. Thanks again, Cris.

Cris:
Thank you. Thank you.

Dave:
All right. We got to debrief about that, but did your lights go out during the middle of that recording?

James:
It did. All of a sudden, it got into mood lighting. All of a sudden I’m like, “There we go.”

Dave:
Yeah. It looks like there’s like a spotlight on you right now if you’re not-

James:
I’m looking pretty oily right now, actually, but-

Dave:
Well, you got a beam right in your face. I mean, yeah, if you’re not watching this on YouTube, right in the middle we had a little snake bit recording here. We were having a lot of technical issues and we finally resorted them and then James’s light went out. I was like, “What the hell is going on? Why is everything breaking right now?”

James:
It just auto turned off. As we’re doing the recording, I was like, “Did anybody notice that?” Obviously-

Dave:
I was messaging Kailyn about it. It must be a full moon or something today. I don’t know what’s going on.

James:
Yeah. That is a first.

Dave:
Anyway, that was awesome. I mean, that was super interesting. I’m curious what your main takeaways were.

James:
My main takeaway was I’ve always thought real estate is this super safe investment over a 20-year period and it’s really actually making me double fit, not that I do believe in real estate and it’s always an asset you want to own, but going forward, just with the demographics and how we ended it, and I definitely want more information about this because where you buy and how you buy today can make a big, big difference down the road for you. Now, I am glad we’ve transitioned out a lot of a single family into apartments over the last five years because the demand’s going to be there.

Dave:
Yeah. It was really interesting just the timeline and it makes sense, right? We’re probably going to see a pullback over the next year or two, but the 10-year horizon, just based on demographics alone, pretty encouraging for the housing market as a whole, but beyond that remains a question, right? Once the millennial demand is done and we get to Gen Z, which is a smaller generation and with declining birth rates and declining immigration rates, that could potentially lead to less demand, but like we said, that doesn’t necessarily mean there won’t be demand because we’re at a shortage right now. So it’s something I think we need to look at more, right? Is the declining demand just going to reach equilibrium and then we’ll actually be in a better place or is there a potential that prices or demand could fall so much that we actually get in the opposite where we have too much housing? We’ll have to look more into that over the next couple of years, but luckily, we’ve got five to 10 years to figure that out.

James:
Yeah. We got some breathing room, and that’s why it’s so important to really watch these trends over into the next. We just came out of the craziest two-year run and I think the data’s all messed up everywhere, to be honest. It’s really paying attention over the next 24 months of what’s trending is going to make a big difference in how you’re going to invest down the road.

Dave:
Absolutely. Well, thank you for joining us, James. For anyone listening, we appreciate it. Just a couple of things. First and foremost, if you like this show, I think you will because this show was awesome, I love talking to Cris, share this. We would really appreciate if you share these episodes with your friends or if you have people who are freaking out about the housing market, want to know what’s going on. This is a great episode. Share it with them. Help inform other people in the investing or home buying communities about what’s going on in the market, and give us a review if you liked it. If you have any feedback about this show or thoughts, you can message me. I’m on Instagram, @TheDataDeli. James, where can people find you?

James:
Best way to get ahold of me is on Instagram, @JDainFlips.

Dave:
All right. Sweet. James. Thank you so much. Appreciate your time today, and thank you all for listening. We’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

David:
This is the BiggerPockets Podcast, show 680.

Mark:
If you are a host or a property management company that is looking to grow and scale, and if you are more than 90% reliant on one channel for your revenue coming in, you’re playing a very dicey, dangerous game, because all it takes is for your account to get hacked, your listing to get locked down, or a couple of crappy reviews, or a total algorithm change by Airbnb where suddenly, you’re on page one, and the next day, you’re on page five or six where nobody looks. So, it’s really important that we flip that around, and we look to get everybody to a 65% direct, and then at 35% relying on third-parties AKA OTAs.

David:
Hello, everyone. I’m your host, David Greene of the BiggerPockets Podcast here today with my lovely co-host, Robert Abasolo. In today’s show, we’re going to be interviewing Mark Simpson, owner of Boostly and UK Resident, who has some fantastic advice for us on how to book your short-term rentals without using the online travel agencies, Airbnb, Vrbo, and their ilk. Rob, first off, how are you today? And second, what do you think about the show?

Rob:
First of all, my hat’s off to you because you really went all in on that and we did it all in one take. Most of the time, we would do that five times, but you nailed it first time. So today’s episode is really great, man. I’m super excited. We even get to hear me dabble a little bit with my accent repertoire, and we get into the art of hosting and the idea of getting into direct bookings and when you should possibly consider making your own direct booking website over just staying on all the typical OTAs, online travel agencies out there. So, I’m excited to jump into it because I think if you listen to today’s episode and you’re a short-term rental host, it might crack your brain a little bit and you might think, okay, maybe I should try something else, maybe I should diversify a little bit.

David:
Well, if we’re just being honest, this is a very relevant topic in the short-term rental space. And so much of real estate investing is starting to become dominated by the short-term rental space. This is what everybody’s talking about. This is where the highest returns are. In a lot of ways, this is the future of real estate investing is you got to do more than just buy a property, set it and forget it. You got to learn how to host something, create an experience, and outshine your competition. And in today’s show, Mark gives us some examples of how to do just that. Mark actually came from a background of hospitality. He grew up with people in his house as they ran a bed and breakfast, and his mind was formed and forged in the fires of hospitality. And he gives us some tremendous advice for what you could do to make your place stand out.
And frankly, I think if you’re going to try to be in this space in the future, you have to know how to do it without relying on Airbnb or Vrbo. Rob, you could probably speak to this better than anyone, but it’s getting harder and harder to stand out on those sites. Airbnb recently just redid their whole algorithm. And people’s entire business models were shaken as they’re trying to now scramble and figure out, how do I make my place unique? How do I make it different? How do I make it clichy sort of so that it can stand out with Airbnb? What’s your experience been like since they switched things up?

Rob:
You know what? It’s still the same thing, right? We’re still booking and everything, but there’s a game to it, right? All algorithms out there, whether it’s YouTube or Airbnb, there’s a game that you got to play and you got to play by their rules. So, [inaudible 00:03:20]. You know what? I think that’s a good segue, David, into today’s quick, quick, quick tip. Pretty good, pretty good. I like the combo here. So today’s quick tip is really going to be to diversify where you’re listing your short-term rentals. I know as hosts, a lot of the times, our go-to is going to be Airbnb, but it’s really smart to consider putting your different units and homes on other websites, Airbnb, Vrbo, Booking.com and even considering going direct, right? Direct booking website where people can directly book from you and you can cut out the middleman and be the customer service.
You can be the person that’s dictating all the fees. You can be the person that’s providing that one-on-one experience with your guests. I think that this is very important and relevant today because I’ve just seen a lot of people getting locked out of their different accounts on several OTAs. And when that happens, it can be a really big, stressful moment for you and your business. But if you diversify and you have your short-term rental listed on different websites, if one of those websites crashes or it goes down or locks you out, you still can get booked on all the other different websites out there. So, diversify as you move into your short term rental journey.

David:
Absolutely. I love it. And this is sort of cutting edge information that we’re sharing with you here at BiggerPockets because we love you. And with that, let’s bring in today’s featured guest, [inaudible 00:04:37], Mark Simpson. So Mark, welcome to the BiggerPockets podcast. How are you today?

Mark:
Amazing. Thank you very much. Thank you very much for having me. Nice to speak to you two today.

David:
Yeah. First off, I want to compliment you on your hair and your beard. You’ve inspired me. I may copy it. It looks incredible on you.

Mark:
I went to the barber shop today and said, “Can I have the David?” And he just said, “I know what you mean, the David Greene.” And he just went-

Rob:
He said, say no more, fam.

Mark:
Say no more.

David:
That’s when you know that you have made it. First off, you’re known by one name, right? Madonna, Fabio, J-Lo. When you’re known by one name, you know you’re famous. Now Mark, I understand that you and Rob have a previously established relationship, so I’m a bit of the third wheel here. Can you tell our audience how you two know each other?

Mark:
I mean, I can go first, Rob, if you like. I’ve been a massive fan of Rob’s channel for about, I’d say, the last year and a half. I’ve been really digging into it and I would just [inaudible 00:05:34]. Every now and again, when something comes up on Instagram, I slide in the DMs and just saying, hey, massive fan, [inaudible 00:05:41]. As our relationship grew and he started to actually look at the messages because he gets so many, I said, “Hey, let’s have a chat about direct bookings sometimes.” And every single time I’ve seen videos this year in 2022 of BiggerPockets, and any time Rob talks about direct bookings, I’ve slowly seen him get a bit more gentler towards it. And I like to feel like my influence in the DMs has been a little part of that to where now, we’re doing little bits together behind the scenes and super excited.
But I do actually have an Instagram story about you, David. I actually sent you a message about a couple of months ago and it was just as I feel like me and Rob are starting to chat and I said, oh, because you followed me on Instagram. And I was like, oh, no way. Mr. David Greene has followed me, so I sent a little message back saying, “Hey, massive fan. Thank you very much for the follow.” And then you send back a reply, which is kind of like, “Hey.” And I was like, “Oh, he must be busy.” It’s a very short shot message, and sent a couple of more messages back and forth. And then all of a sudden, you sent me a message back and you started talking about crypto. This has taken a turn. So before I knew it, I was giving over my Bitcoin wallet and the rest is history. But it turns out, it wasn’t you [inaudible 00:06:51]. It turns out I was chatting to a David Greene impersonator.

Rob:
And now, Mark lives under a bridge.

Mark:
And now, I’d have to sell everything.

David:
Yeah. And yet, Instagram still just won’t give me the freaking blue check mark. It’s like, how many people have to get ripped off from this? I’ve tried about 25 times.

Mark:
[inaudible 00:07:09]. Here we are.

David:
Well, I’m sorry about that, Mark. Hopefully, you didn’t spend any money.

Mark:
I’m good.

Rob:
No, I think he was just kidding. Yeah, but I did, I’ve sent you several Bitcoin, David. And I like that return please. So yeah, I got locked out of Airbnb not too long ago for a very short amount of time. I think it was for less than a week. But that’s a big deal for Airbnb hosts, short-term rental hosts altogether. I’ve been seeing more stories like this pop up. My students have been locked out. And yeah, Mark, he’s been very tenacious, I guess, on Instagram. And we were chatting back and forth. And then all of a sudden, I got locked out and I was like, wait a minute. I know a guy. I know a guy that is all about direct booking so that this never happens again. So it all came together and culminated into a beautiful, beautiful relationship. And fast forward to today, he was speaking to my students not too long ago and actually delivered a Chipotle burrito to me in the middle of the presentation and he instructed the Uber Eats eater specifically to interrupt my Zoom presentation when the burrito got here. So, I had a burrito on camera not too long ago. And that’s our relationship.

David:
You really are, Rob, like the personification of a millennial in so many ways. The shirt you’re wearing right now, your very eccentric hairstyle, your obsession with Chipotle for 80% of your dietary needs, you’ve got that millennial [inaudible 00:08:32]. You’ve got it down really, really good. But Mark, I don’t know you and I want to know a little bit more about you, so tell us. I’m fascinated. Other than where do you live and where does that accent come from, how did you get started in real estate? What is your story, your origin story of how you ended up getting your first house?

Mark:
Yeah. So I’ve pretty much been born into hospitality pretty much. I grew up on a 200-acre farm in the middle of nowhere in the United Kingdom. As you can tell, this accent is over the pond. So I’m from the UK, grew up on a farm. And in the 90s, my parents turned a 200-acre farm and they converted a ban and put a bed and breakfast on it, and then they converted another ban and put some holiday cottages. And this is before the time of social media, this is before the time of Airbnb and all that good stuff. And they literally relied on very old school methods to advertise their business. It was word of mouth and it was magazine advertisements and newspaper advertisements. And I just grew up in a world where I was so used to strangers being in our house, being in my kitchen, all 24/7, 7 days a week.
And I grew up serving breakfasts and doing all of the things before school. And then eventually as I grew older, I had an opportunity to move away from the farm and do soccer coaching and spent pretty much my 20s traveling around America, coaching soccer, an amazing time, then eventually moved back to the UK, and that’s when I came back into the business. It was me and my wife and my eldest. We moved back into the family business in 2011. And by this point, [inaudible 00:10:05] for 25 years, but we’re still doing everything pen and paper. And my job was to get it online. Being a millennial, my parents looked at me like, well, you’ve been on the internet once, you should know how to do this. And that’s literally what we did. We grew that offline word of mouth and put it online and utilized online reviews.
We utilized Facebook and social media to grow the business, as well as the online travel agents. In the UK, Booking.com is probably the biggest, was the biggest. And Airbnb has slowly been playing catch up over the years. But we built up a business where we didn’t rely on Airbnb. We focused on our direct bookings and we grew that. Yeah, and then fast forward to 2016, I started to go to hospitality meetups in our area, in the area of Scalby, United Kingdom and started to chat to other hosts, other hosts that were either one property in or 5 or 10 properties in. And the big annoyance there was they were having to rely on Booking.com and the whatnots for their bookings. And that’s when I started doing Boostly. That’s when I started helping hosts figure out how they can generate their own bookings and not have to rely on Airbnb or Booking.com.

David:
It sounds like you’re out there doing God’s work, and I want to thank you for that. So, Rob actually called me the other night in a complete panic as he often does, 2:00 o’clock in the morning and freaking out. And he told me a story about a guess we had at our Scottsdale property that wasn’t happy. Actually, he wasn’t in a panic at all, it was one of those like, if I had hair, I would be pulling it out of my head. I have another person asking for a discount over nothing. And apparently, this guest had actually pulled a gun on our cleaners and then had the audacity to turn around and ask us for a discount. And Rob was like, “And you know what? I had to freaking give it to them.” Because you get in this position with Airbnb where you’re being held hostage. And if you don’t give this person what they want, they threaten you with a bad review. You end up playing this really just disastrous game of chicken with the guests where Airbnb has to figure this problem out because sometimes, you’re a normal person.
I’ve never even thought of asking for a discount. If I go to an Airbnb and they run out of toilet paper, I just go buy more. I don’t think about threatening the person with a bad review if they don’t give me what I want or hand-delivering toilet paper, but I’m finding out many people do. And it sounds like it’s turning in some ways into Craigslist where you’re offering a bicycle for $200 and someone offers you 75 bucks. It’s like a bidding war. It turns into an auction. So I wanted to ask you, Rob, not just with our house, but with your experience on Airbnb in general, how big of a problem is the threats of bad reviews and hurting your standings with getting bookings? And how important is a direct booking system like what Mark is talking about to the operator’s chances of success?

Rob:
I have always considered Airbnb walking on a tightrope of sorts where it’s just a game of balance. It is a hospitality business, and so in some regards, I do feel like Airbnb, which I use anonymously with just any OTA, OTA stands for online travel agency, I’m sure we’ll use that term several times today, but in any platform, whether it’s Airbnb, Vrbo, Booking.com, there is some push and pull here with customer service and the checks and balances of the different securities that they offer to their hosts and everything like that. And it does force me to stay very hospitable, keep up the hospitality aspect of my business. I’m happy to do that. But there is a very interesting moment where a guest might damage something, they might leave you damages anywhere from 50 to 500 bucks. Usually, anything that’s under $50, I’m not really going to charge a guest back for, but over $50, it starts getting hairy, right?
And it’s like 51 bucks, I don’t know, am I really going to charge a guest for that? $75, as hosts, we get very scared to charge that back to the guest even though it’s within our right to do it because the moment you send a guest a message and say, hey, you stained our rug, it’s going to be 75 bucks to get it spot cleaned or whatever, then now, they have a tainted experience at your place. They’ll be like, oh, come on, it was an accident or whatever. It was just a wine glass. You really want to charge me for that? And so, you get into this mindset where you ask yourself, is charging a guest $50 worth a four-star review? And if you’re just starting out your Airbnb business or your Airbnb listing, it’s not worth it because if you have five five-star reviews and then one four-star review, guess what? Your ranking just went down to a 4.7 or a 4.75 all because a guest, and it was their fault, broke something in your house and you charge them for it and it forced them to think of all the negative things that happened during their stay when it would’ve just been a five-star stay otherwise.
So, this is a huge pain point for Airbnb hosts, and that’s just on small things, right? But then you get into other situations, like the Scottsdale guest that you were talking about, David, where they smoked a bunch of pot in the house and it smells like pot in there right now. And that can affect future bookings and that can leave a bad experience for other people. We got to charge these people 500 bucks, whatever, to fumigate it, do the ozone treatment and all that stuff. And now, we know that they’re probably not going to leave us a five-star review. So, it’s a whole thing, right? It’s like the customer service aspect of Airbnb. It’s a hospitality business, but at the end of the day, it’s still a business and you still do have to make money. So yeah, when you’re at the mercy of the checks and balances of OTAs, it makes it tough to be profitable in certain situations, if that makes sense.

David:
So here’s my understanding of how OTAs have of evolved over the years, Mark, and I want to get your professional opinion on if I’m accurate. At first, people put a house on Vrbo, Airbnb. It booked like hot cakes you almost couldn’t miss in the short-term rental space. Everyone was crushing it. The money started to move in that direction, the market got really hot. It became hard to get cash flow of any kind if you weren’t doing short-term rentals, and so more and more people got into this space. Now, it’s become somewhat saturated. In some areas, you’re okay, but in others, you’re competing with other people over these guests, and it’s pushing the prices down to the point it’s almost not making sense.
And now, you’re at a point where the tenant has the leverage and the relationship. There, they get to choose which properties they want to book. They get to ask for discounts if they come. They break the rules, you’re afraid to say anything because you don’t want a bad review. The owners of these properties not only do they have to deal with problems of neighbors, problems of the possible city changing regulations, the evil landlord clause that sort of reigns over the industry right now, and the tenants having power. You seem like you’ve figured out a way around that. Just don’t go through those means where you don’t have the leverage. First off, am I accurate with my understanding of the evolution of the industry? And then second, what is Boostly now doing to try to fix this?

Mark:
Yeah. No, you’re 100% spot on. And for a lot of people, and especially a lot of people who are coming into the industry right now, believe it or not, there was a time in this industry that was before Airbnb, before OTAs, before instant book. I mean 2015, you go onto any of these online travel agents and it was request a book. Even like early days, Airbnb, there was no instant book. The only reason that they bought that in was to compete with Booking.com, which is the Booking Holdings Group and Vrbo, which was HomeAway, which is the Expedia group, which owns Expedia and all that jazz. And with instant book coming in and with commission being a big thing because back in the day as well, to be on a listing site, you paid an annual subscription fee, but then people started to come along like Booking.com, et cetera and say, hey, don’t pay as any annual subscription fee, just pay as a commission if a booking comes in.
And for a first time host, it’s like, wow, this is amazing. For marketing and for advertising, if it doesn’t work, I don’t have to pay any money. And we are in an industry, [inaudible 00:18:11] hospitality, short-term rentals, midterm rentals, whatever you want to call it, all of this is hospitality as Rob alluded to. And in this hospitality industry, we are in the industry of making memories. So it’s not like when you buy [inaudible 00:18:23] from Amazon, it’s just a one-off purchase, that’s fine. We are in an industry where people literally come and stay with you and they will remember it for years. They will talk about it with their family, with their friends, et cetera. And because of that, it is so in demand. You both now can look at your calendar and you’ll just know there’s dates in that calendar for all your properties that you could book three or four times over depending on the time of the year.
And because it is so in demand, it is so easy to get bookings. And Airbnb, Booking.com, Vrbo [inaudible 00:18:52] spent billions making sure that they’re in the right product placement. So again, when you first start and you’ve got that one property and you’ve got all those plates that are spinning, everything that you have to know to do, when it comes to marketing, you can just take a couple of pictures on your phone, you can upload it to a website, Airbnb, and be pretty much be guaranteed to get bookings. And because it is so easy, you then become over complacent and lazy and over reliant on one platform. So it becomes a problem when, for example, you get a bad review from a guest or a guest complains to Airbnb and they side with the guest or for whatever reason, your listing gets taken down.
And it’s happening more and more and more now. And if you are a host or a property management company that is looking to grow and scale, and if you are more of a 90% reliant on one channel for your revenue coming in, you’re playing a very dicey, dangerous game because all it takes is for your account to get hacked, you’re listening to get locked down, or a couple of crappy reviews, or a total algorithm change by Airbnb where suddenly, you’re on page one and the next day, you’re on page five or six where nobody looks. So, it’s really important that we flip that around and we look to get everybody to a 65% direct and then at 35% relying on third-parties a AKA OTAs.

Rob:
Yeah. I do you want to add to that list because you were saying all it takes is a hack or this or that. It also takes things that are not even actual [inaudible 00:20:20]. Okay, let me articulate this correctly. We had a bedbug scare in one of our properties three or four months ago, maybe five months ago. And the guest sent over a photo of a bug. And we sent that over to our pest control. People were like, oh my gosh, is it a bed bug? And they’re like, we don’t think so, but we’ll go check. So they go and they report that to Airbnb, obviously. I mean, I don’t necessarily blame them for that, but Airbnb immediately locked that listing, they deactivated the listing, and then we got the pest control people to come out. And then the pest control people were like, oh, actually, it’s not bedbugs, it’s a thing called bat bugs, easy to treat. They found all the different places to plug the home.
All that type of stuff, we had it resolved in a day or two. But even with that, we had to submit a report that basically vowed that we didn’t have bedbugs and we had to do all this stuff. And that account could not be booked or that listing could not be booked for six weeks. And that was a property that we had with an investor. So we’re over here scrambling, trying to make it happen as much as possible. Luckily, it did end up getting resolved. We’d been booking like hotcakes otherwise and we still are making a lot of money on that property. But for people that are just starting out, if that’s your first experience with a short-term rental, that can really taint the rest of your journey, right? And so luckily, I’ve done this a while now, so I’m able to stay calm whenever there’s a bedbug scare or whenever a guest pulls a gun out on our cleaner, all that kind of stuff.
It doesn’t phase me quite as much, but it is interesting to hear you say that, Mark, because really at the end of the day, using different OTAs, like Airbnb and Vrbo, it gives the guests all the leverage. They have all the leverage to basically do whatever they want. There’s some good and some bad, right? With short-term rentals in general like Airbnb, they’re going to bring the marketing, they’re going to bring you the guests. You don’t have to go and market your listing. But certainly now as I’ve done this for five, six years, I’m definitely starting to feel this stat of 65% direct bookings that you referenced there because yeah, it does make sense to bring it all in-house at the end of the day.

Mark:
Yeah. And I feel like it all boils down to when you are so reliant on Airbnb for your bookings, you literally have a boss at that point, and you are literally building your house and your business on somebody else’s land because they can turn around at any point and change the rules. Or like you said, if a guest book’s through there and they complain to Airbnb, they are going to always side with the guest over the host. It doesn’t matter what you’ve got, systems and things in place. It just happens more often than not. And it’s scary to see. Now, if a guest book’s direct with you and you’ve got your systems and structures in place, which is what we will talk about, then that situation with the bedbug, you would’ve had direct communication with the guests, right there and then, you could have sorted it on your terms, on your rules, and you’re not then having to have that little niggling doubt in your head that there’s going to be somebody looking over you making all of the calls and the decisions and you’re worried about it.
And the best example I can give on this and one that I feel that any host that’s been around since 2019 will be able to relate to is that in March 2020 when the world went a little bit upside down and all of these regulations and rules were starting to put in place, Airbnb in the middle of March just sent a notification out to all guests and all hosts at the same time, so no word of warning to hosts, so at the same point, everybody woke up with a notification saying that obviously with everything that’s going on in the world, any guest can cancel their stay free of charge, it doesn’t matter what the policy is. Now, that ended up ending so many management companies and host businesses because they just couldn’t survive it because straight away, guests went and canceled. There’s no one in to host.
Now the kickback that I get when I talk about that story is, well, just because a guest booked direct doesn’t mean they didn’t cancel. Yeah, sure. But what we did at our family business is in March, we were able to have the phone number and the email address of every guest that booked of us direct. All we did was we literally called them. We’re real vulnerable and just said, hey, everything that’s going on in the world, obviously, you’ve got this booking coming up with us. Obviously, you can’t make it. But instead of canceling it, let’s change it. So, we adopted a change, not cancel approach. And we were able to save five figures in reservations and just move it to later on in a year or next year and we’re able to help get us through that part. Guests and hosts that relied solely on Airbnb weren’t so lucky. They literally had no way of communicating with the guests because Airbnb don’t share email addresses, they don’t like you communicating with the guests. Those that were reliant solely on one platform didn’t make it out the other end.
And this is why it’s really important that we actually now start to turn this around. And this is why I’m trying to help 1 million hosts cut down over reliance on the OTAs because if we can do so, if we can do this, we will get a foot at the table at these OTAs. At the moment, all of these Airbnb, Booking.com, Vrbo, they look at hosts as just a number. They just look a number [inaudible 00:25:19] their massive stock list. We are not partners as they keep saying, partners [inaudible 00:25:24]. We have to get aware of them. And at the moment, they don’t think that hosts as an Airbnb hosts want to do their own direct bookings. I’m a stubborn [inaudible 00:25:36] and I want to show them that we can do this. It is simple to do this. And my whole thing is about going old school to go new school. So what old school tactic can we do to drive in bookings and revenue?

Rob:
Yeah. So knowing what you know here, obviously, that the hosts are a number and everything like that, is there a dystopian outlook for using one or two major listing websites?

Mark:
Yeah. So very recently, Skiff, which is a big industry publication, put out a graph and it showed the reliance on where the bookings are going on these platforms, and they took the top five. And out the top five was the free standout, so Airbnb, Booking.com and Vrbo. And in 2017, Airbnb had 15% of the market. So 2017, about five years ago, they had 15% of the market. The wave that the graph is going, the prediction is by 2025, so only a couple of years away, they’ll have 60% of the market. Airbnb are not only playing catch up, they’re going to dominate this industry in terms of where the bookings are coming from. My belief and my opinion is that Airbnb want to become the Amazon of the short-term rental industry.
And if they get to that point, there’s nothing from stopping them from turning around to hosts all on their platform and saying, you know what, Dave, Rob? We feel like this relationship isn’t accurate, isn’t fair. You only pay us, say, 14% commission at the present moment in time. Let’s bump that up to 20. Let’s bump that up to 25, 30, 40, 50%. Amazon, they take up to 66% commission for everything that is sold on that platform. That is crazy. And there’s nothing from stopping from Airbnb doing something similar. And they’re making all of the rules tighter, tighter, tighter. And at the moment, we’re lucky. At the moment, we still… Some hosts only pay 3% commission. If you’re a pro host, you actually have to pay a little bit more if you’re connected up to a property management software, but we’re going to talk about it soon. You’re going to pay a little bit more.
But the worry is that this industry becomes so reliant on Airbnb that they can dictate the rules at any point. And when that happens, and it’s bad enough now, if that happens in the future, then more and more hosts are going to be going out of business or having to pay deep, deep commission costs for something that is simple that we can stop now by starting to think about marketing ourselves, marketing our own businesses, which is what every other industry needs to do. We do website design at Boostly. There’s no listing site that I can go and put Boostly websites on and generate revenue. I have to brand myself. I have to go on podcasts and do all of the social media things. Short-term rental hosts have to start doing that now if we don’t want to go down that route of being very reliant on Airbnb.

Rob:
100%. I mean you’re talking about marketing your listing, right? If you want to market your listing out to the masses, I know that you have to have a ideal audience or demographic or avatar in mind. And I’ve heard you say that most people don’t know their potential guest avatar. So, do you think you could just really briefly explain what this means and why would not knowing your avatar be impacting your bookings?

Mark:
Yeah, it’s a great point and it’s a great question. And when you say avatar, I guarantee [inaudible 00:28:44] so many listening to this or watching this will be like, what is even an avatar? And the most simplest way to put it in terms of hospitality short-term rentals is that the ideal guest that you want to walk through the door. And when you really nail down who that avatar, who the ideal guest is, it makes everything so much easier because at the end of the day, you haven’t got an Etsy store, you haven’t got an Amazon store, you haven’t got unlimited downloads. There’s only a certain amount of heads that you can fit on beds. There’s only a certain amount of inventory that you have.
And the biggest problem that I see in this industry with the millions of hosts that are out there is that we’re trying to appeal to everybody. When you appeal to everybody, you appeal to nobody. And another cliche phrase, “The riches are in the niches.” So if you can really figure out, number one, who is your ideal guest? So, who is the type of guest that is coming to my location, Scottsdale, wherever it may be? Who is the type of people that are coming to here? Is it all leisure? Is it a mixture of business and leisure? Is it families? Is it solo people? Is it digital nomads? Whoever it may be. So, you figure out who that is. So, who’s coming to the area?
And then what you do is you look at your property and it’s like, okay, so what is my property good for? And then, has it got a pool, has it got a real good bed to bath ratio, has it got private parking, really good wifi? And then what you’ll then do is you go, okay, so this is who’s coming to the area, this is what my property’s good for. Now, what can I do with my property to really speak to my niche? And as a prime example, a person that I was speaking to, she had a couple of properties on the coast, some amazing seaside properties. You could see the beach sea, see the sea literally from the window. And the location where she was at was well-known for surf. And she was trying to decide on who her avatar was.
And the property, the way it was laid out, it was repelling who her ideal guest was because that was ideal for surfers to come away for a surf break, but she was doing the exact opposite. So a little couple of tweaks. So for example, by stipulating in the listing on a marketing, on a social media literally how close the property was to the beach by putting in some surf racks, private parking, all of that stuff, she was able to really focus and niche down on her avatar and her ideal guests. And with that, the people that walked through her door were the ideal people. They literally, as soon as they landed in the door, it was like an instant five-star review because it matched everything what that guest wanted and needed, so you didn’t have people rocking up and pulling guns on cleaners and all that stuff.

David:
I love that. So here’s what I like about it, as a real estate investor, we don’t have to think about the avatar of who’s going to be staying at our house. It’s someone who needs a place to live. Maybe I might think, what kind of job does this person have, so what kind of rent can they afford? That’s about as far as it goes. But as a host of a hospitality asset, you do need to be thinking about that. So, what are some of the mistakes that you see people making, Mark, that are real estate investors approaching it with the real estate investor mindset that don’t understand that they’re actually becoming a hospitality host?

Mark:
Well, this is the main thing is that everybody comes to it and they sort of take off the hospitality hat. I don’t mind. I don’t care where you’ve come from or what niche or [inaudible 00:31:54] you’re coming into. As soon as you have strangers coming to stay in your property, you’re in my world of hospitality. So, you always have to think hospitable first. Hospitality is the main part of it. And if you can, always think about making sure that that guest has got the most amazing stay in your property, then you’ll win time and time again. There’s a saying that I came up when I created The Book Direct Playbook, which is the book that I put out this year that the tagline was, “There’s a story behind every booking.”
And I don’t care if a guest is staying with you for work or for leisure or for a family stay, but there’s a story behind the booking. It’s up to you as a host or it’s up for you as your team to make sure that you can uncover what that story is and how can you make that stay memorable because if you can make that stay memorable, what it means is that you will not have to market your business. Your guests will become super fans and they will market your business for you. The referral networks, the comeback ability, all of that is there for years to come. But the first thing you’ve got to do is you’ve got to take off that real estate hat, take off the numbers hat, take off the Airbnb hat, and just put on that hospitality hat for a second and just think, okay, what can I do to make sure that I can make my guest stay as best as possible?

Rob:
That’s super fair. I always say this, and I think I was telling you this too, David, because you just bought 15 short-term rentals in two hours. I don’t know. It took you a month. But either way, you were talking about the idea of getting a property manager and I was like, well first, I honestly think to anybody that buys 15 properties or that’s really getting into this, that you should really be in the weeds of your business for a little bit. If you want to go the property manager route, that’s totally fine, do that. But give yourself 2, 3, 4 weeks out of minimum to just understand how guests communicate, how they communicate specifically about your property, what are the common questions that come up about your property.
Because I have a lot of different Airbnb listings, and the common questions that I get for each listing are wildly different. You never really know, right? And people ask you things and you’re like, wow, okay, there’s something not clear about my property or there’s something super appealing about my property, and you find out your guest avatar, kind of to your point, Mark. But either way, for me, I like people being entrenched in the nuts and bolts of their businesses before they hand it off just because if you learn how to drive up the hospitality and how to be a good host, then you know how to manage a property manager. That’s always been my stance.

David:
Well, let me just say, I would not recommend anyone else do what I did. 15 short-term rentals at one time has turned out to be a very taxing endeavor that I don’t think was very wise to get into. I do that often.

Rob:
Mentally taxing, not financially taxing. That should probably help you out [inaudible 00:34:41].

David:
That’s exactly what I’m getting at. I had somebody who was helping manage my portfolio that I had to let go because they couldn’t keep up with the strain of all that goes into this, plus a lot of them had rehabs. It’s a very challenging time for me right now trying to keep up with all of this stuff that’s going on. So I think you’re right, it would be much better to have taken this at one or two at a time. So, I don’t want anyone to hear this and think that they should go copy. What I did there, it’s been a little bit crazy. And I actually was thinking, Mark, maybe I’d hire you as a consultant to see what could be done to get some of this stuff off the ground a little bit quicker.
But you do make a very good point there, Rob, that you want to understand the asset class that you are getting into. Mark, I think our audience would really benefit from any specific examples like the one you gave of the surfer home where someone approached it thinking just like an investor, like oh, on a spreadsheet, this is what it should bring in and this is my occupancy, and it’s all science, there’s no art. And then you seeing, hey, here’s some tweaks somebody made on the art side. They added surf racks, they advertised it, it was very close to the beach that it actually impacted the numbers that the property brought in.

Mark:
Yeah. Well, there’s another great story as well. And when we talk about of hospitality and how you can really make sure that your business will thrive on the other end, we had a lady that was part of the Boostly community and she had a lakeside property, and this is what I’m talking about, like old school market and how it can really help your business. She had a person book at her lakeside property. And they booked direct. And on the note it said, “We’re really looking forward to come and stay at your lakeside property. Little Timmy’s 9th birthday. He’s wanting to learn how to fish.” And what the host did is… What most people would do, and the most problematic thing that people would do is they would just look at that note and go, oh, that’s nice, little Timmy’s birthday. Well, that’s fantastic. But what this lady did was on the day of arrival, she went to the fish and bait and tackle shop and she bought a fish and rod and just a couple of other things, like some bait tackle, et cetera, and went 5 to 10 minutes out of her way. So, she did a meet and greet with the family.
And before the family arrived, she put the little gift with a little card on the dock just as the people parking up and going up to the property. The family arrives and they see that note and they opened it and it go, “Dear Timmy, have an amazing 9th birthday. Here’s a little gift from us, the property manager, just to get you on your way in your fishing journey.” And instantly, that was a little tweak that they had made to their business, a little gift that cost no more than 30, $40, and it impacted massively because what happened was that guest instantly pictures Instagram, social media, so they had the social proof right there. And then when they went home, they were talking about it to their friends and the family members. And then it was that same guest repeat book for the next five years, brought their friends with them and told all of their coworkers, et cetera. So, a little gift like that, a little shift, a little look at the property, a little, okay, what can I do to make this guest experience even better, and it resulted in thousands upon thousands of dollars worth of direct bookings. And it’s all because of one little tweak that they made.
And that’s just one little example. I think one thing that every host should be doing right now, everybody that has got a short-term rental business, whether it’s one property, five properties or 10 properties or more, you should all be looking right now and just look at the property, look at the area and go, well, what can I do to make sure that I can make sure that the ideal guest that I want to walk through this door make sure that it’s as easy as bookable as possible and making it stand out. One of the easiest things you can do right now is to get a little floor plan, a little cartoon floor plan drawn. You can get someone on [inaudible 00:38:34] cost about 20, $30. And what it does is it lays out your property instantly from an Airbnb listing or a Vrbo listing or even a social media because there’s so many people that book with you first time without properly knowing the layout of your property. So, little tweaks like that you can do that will really make sure that your property stands out really will help gain those heads in beds.

Rob:
Yeah. So Mark, we covered the idea of what hosts are neglecting as they move from real estate into the hospitality side of things. We’ve also covered why relying on one platform is bad. I mean, I think one of the big reasons there obviously is guests have a lot of leverage. And if you have all your eggs in one basket and you get shut down or hacked or whatever, your business is effectively over until you’re able to restore your account. So for people that are going into the direct booking option, and even to clarify this for people at home that may not know what we mean, we mean if you were to buy a domain like robuilthomes.com, I should have brought that before I said this, but robuiltholmes.com, and you can go and actually book your stay through my personal website and I’m the one that controls basically all the customer service and everything like that. For people that are going that route and just for people that are still even using OTAs, do you feel that hosts are neglecting the security and the guest screening that comes along with guests that are booking stays at their home? And what are some tips here for people that are still booking on those sites and even through a direct booking website?

Mark:
Yeah. This is definitely something that is a big pain point. And so many people are saying a guest has booked and they’ve shown up with X amount of people. It started really during the lockdowns where, especially over here in the UK, all of the nightclubs were closed. You couldn’t really go on a proper night out. So, what was happening was people were booking a stay, they were booking a stay in their town or their city. They say, yep, two people are turning up. And then before you know it, there’s 16 people and there’s a party going on in your short-term rental business. So, there’s a big problem with security and guest screening. Luckily now, compared to when I first got started in 2011 properly in short-term rentals, there’s so many providers and software and service tools that are available to short-term rental hosts, people who’ve 1, 2, 3, 4, 5 properties that wasn’t there before.
So, one of the best things that everybody can be doing is looking to getting guest screening software set up as soon as possible. There’s one over here in the UK that is a worldwide brand that’s called Superhog, S-U-P-E-R-H-O-G, that’s a really good one. And what it basically does when a guest books, what happens is they get a little notification, they have to verify who they say they are, so as that guest screening element. And when it comes to it, even if a guest books via a platform or if they book direct, you’ve got to make sure that you are protecting your investment at the end of the day. And a lot of people talk about making sure that you’ve got exterior cameras set up. Obviously, don’t do the interior cameras, that’s gets you into a lot of trouble, but the exterior cameras, making sure you’ve got relevant guest screening. But again, it’s still something that so many people don’t do, and it’s those guests that don’t put those simple blueprint in place, the foundations in place to have a very successful short-term rental business are ones that you see that come onto Reddit, that come into the Facebook groups and complain about X, Y or Zed [inaudible 00:41:58].

David:
All right. That’s a great point, Mark. I like that you highlighted guests screening. And protecting your investing is another part of the hospitality business that you don’t have to think about with typical real estate investing. When it comes to what hosts are putting on their profile, what are some things that are commonly missed?

Mark:
Yeah. So, one of the big things that I show hosts how to do is how you can take someone from an OTA into a direct booking. And one of the best ways and the best places to start is your listing, literally your profile on Airbnb. And everybody has the ability to make your listing on Airbnb look super professional but at the same time showcasing your business and your brand. And so what it will end up doing is it’ll take a guest from Airbnb to a Google Search where hopefully they will then click on your direct booking website. So one of the main things that people can do is go onto your Airbnb listing right now and you’ve got your first six pictures, which are obviously your most important pictures, we call them your hero images or your unique selling pictures, and what you can do on there is you can watermark them with your business and your brand.
So say that you’ve got the Rob House and the David House, but the overall brand is, let’s just say, the Mark business brand. Then what you can do is on these individual listings, you can put your logo of your business on there, so instantly to the user because as a user, as a generation of people that are using these, we skim read at best. So you’re looking at the images and instantly, every single one of them is watermarked, so the user knows that, okay, so this is a proper business. This isn’t somebody who is just listing a house for a hobby, this is somebody that’s properly doing this as a business. And then the next hack that you can do is in your profile, so everybody on Airbnb, and this is really cool, you don’t get this on Vrbo and you don’t get this on Booking.com, but everybody on Airbnb has a profile and you’d be amazed at how many people when the guest is going through. So your future potential guest is going through the booking process. They actually go and check out your profile and you can actually put a little bio in. This is one of the most undertapped resources that I see on the platform from host that we do marketing reviews for is you’ve got that first little bit of the bio.
And the first line in particular, you can introduce yourself as, hey, my name is Mark, I’m part of Boostlybnb, please check out our online reviews. They’re really good. Now, we’re not directly saying on our Airbnb profile to go check out boostly.co.uk. We’re not directing people to a domain because Airbnb will obviously shut that down. But what we’re saying is we’re introducing ourselves as being a business, being ourselves as a property management company or just a professional business on Airbnb, but to go and check out our online reviews, they’re rather good. So instantly, what happens there is that the guests will see that, they’ll go to Google, they’ll type in your business name in the location where you’re at, and obviously then, your website will pop up, any social media that you have, and obviously your Google business listing. So, those are two things that everybody can do right now. It’ll take a couple of minutes, but it instantly will separate you from everybody else. When everyone’s zigging, you got to zag in this industry. And so, that’s one of the two core things that every Airbnb host should be doing.

Rob:
Yeah. Oh man, as an educator in this space, it does kill me whenever someone has a listing that they’ll ask for feedback on it, for example, and be like, what do you think? And then they have one sentence for the whole entire listing and then photos that were taken on a cell phone and I’m like, dude, you got to spend an hour just writing what this place is a writeup about it, and then spend like 250 to 500 bucks on professional photos. And if you do that, you’ll increase your booking significantly. So in the vein of you got to zig when others zag, a lot of people in this space think beds and heads, that’s all I really need, right? To have a successful Airbnb business is just putting as many people I can into a house. What are your thoughts there?

Mark:
Yeah. No, you’re right. And this is more than just a heads on beds game. It really is about the guest experience. And now more than ever, your guests that are staying in your property, they’re looking at the amenities as much as it is for a real good pillow and a real good comfy bed to sleep on. So for example, one of the most important things that Airbnb is going to be focusing on in 2023, and this is based on all of the searches that they get and all of the data that they have is WiFi. Your WiFi speed is going to be crucial, even more so the… It’s only a matter of time before in the filter of your Airbnb listing will a future potential guest be able to filter the internet speed, depending on what property you show. So right now, you can go into your property, you can open up your Airbnb app, and you can do a speed test, and you can submit that speed test to Airbnb and they’ll say if it’s poor, good or excellent.
So if you have really good WiFi, you should be definitely tapping into that and taking full advantage of it because again, it just makes your property stand out so much more. And not only just talk about it on Airbnb and your listing sites, but talk about it on social, talk about it on your website as well, talk about that because the digital nomad or the slomad, which is going to be a new phrase in 2023, this is going to get even more popular. Brian Chesky even said in an interview that he believes that it’s only a matter of time before 50% of the US workforce is working from home or working from a short-term rental property, so amenities is massive. Also as well, the other massive thing is the kitchen. Go into the utensils that you provide, whether it’s an air fryer or whatever it may be, a decent coffee machine, a decent coffee bar. Make sure that you put in a little bit of time and an extra bit of budget into the amenities as much as it is that real comfy pillow and that real comfy bed.

Rob:
100% agree. I think probably over the years, the number one, I won’t say complaint, but I guess feedback that people give me, and it’s less now because I’ve addressed it, but it’s usually people that are like, hey, love your place, would love for your kitchen to have been stocked a little bit more. And so now, when I’m teaching people how to do this, someone was like, look, just go to TJ Maxx, I don’t know if you guys have TJ Maxx over there, but like Ross Michaels, wherever, some of these more bargain places, they have a whole section that’s just kitchen stuff, like can openers and wine openers, all that kind of stuff. And just spend like 100 bucks on all the little knickknacks and the lemon squeezers and all that kind of stuff because people are always super excited when it’s there and really bummed when it’s not.
And even to that point, these days, when a guest says, hey, do you have this item in the kitchen? I’m usually the first person to say, hey, I don’t, but tell you what, go buy it. I’m sure I could use it in the listing and I’ll reimburse you for it. And people are always like, oh my God, that’s amazing. Most of the time, they don’t, but I’m always willing to, right? If it’s like a $10 lemon squeeze or whatever [inaudible 00:48:39], other guests will probably use it. So, I think that the kitchen is so important these days because a lot of people tend to book Airbnb so that they can actually cook there.

Mark:
Yeah. And also as well with the coffee bar, if you go and do something a little bit unique by getting local coffee beans and whatnot, it instantly makes your property Instagrammable. And the more you can make your property Instagrammable, the more that your guests will take a picture and they’ll upload it to their socials because the number one time when your guests are taking pictures is when they’re on holiday, is when they can show off to their friends back home that they’re on vacation, staycation, workation. So the more that you can make your property Instagrammable and they can tag you in, then that’s how you get that social media word of mouth and that virality just thriving.

Rob:
Yeah. So effectively, let’s juice up the amenities, right? Let’s make sure that the kitchen is great, that the internet is fast. I’m curious, is there any tactical advice there on increasing internet speeds? Is it a special router, like a mesh system or anything like that or is it just going with the fastest package that your internet provider provides?

Mark:
It all depends on what you have available. So at the end of the day, you could put all of the little cool mesh things and all that jazz, but if you’ve only got a certain amount of speed coming into your house, then you’re screwed. Luckily, now, it doesn’t matter where you are in the world [inaudible 00:49:50] solutions, these satellite solutions are making more people, rural or wherever, you’ve got more options available. But it’s only going to come a matter of time where having WiFi and having quick WiFi, especially for the Gen Z generation, and people think Gen Zs like teenagers, Gen Z now in 2022 is 25. These are people that are going to be paying money to stay at your properties, so you’ve got to make sure that a generation that are literally born with one of these cell phones literally in their hand 24/7, you’ve got to make sure that you’ve got WiFi and you’ve got good WiFi. Don’t just have like, say, I’ve got WiFi and it’s like two megabytes speed. It’s got to be decent. It’s got to be double digits.

Rob:
Yeah, for sure. I’ve got a couple of listings that don’t have WiFi and we make it as well-known as possible and it’s like, hey, it does not have WiFi. And then sure enough, they check in and they’re like, what’s the password? I don’t see it. I’m like, I told you there’s no WiFi. We would offer it if we could, but that’s something I’m always happy to spend 100 bucks a month on simply because it’s super important.

David:
Okay. I have to ask you, Rob, is the location not offer WiFi, is that why you don’t have it?

Rob:
Yeah, it’s too secluded. We can’t even get HughesNet out there, which is like eight megabytes per second.

David:
Wow. So, there’s just it’s not internet. Well, what about the thing Elon Musk is doing? What’s that going to be called?

Rob:
Starlink. There’s a wait list for that everywhere. I mean, it is possible. Finally, one of the properties, my Gatlinburg property, I got the email from Starlink to set it up and I was like, oh, it actually happened, but it’s not always readily available.

David:
Do you think that Starlink will change all the emails that old people use that have SBCGlobal.net as their email domain name? Are they all going to change [inaudible 00:51:23]?

Rob:
Are you sweating over there because you still have the SBCGlobal.net and your Hotmail, [email protected]?

David:
That’s right, Rob. I’ve got a Hotmail account. It’s back when email was created. So Mark, we’ve talked about having a great experience, amenities, everything that leads up to this moment, but there’s comes a time where a guest leaves, right? And that’s the end of the stay. So, what aren’t hosts doing to follow up with their guests? And do you feel like this is a crucial aspect for marketing your business in the future to those guests?

Mark:
Yeah. And this is where you can get those juicy direct bookings so easy and simple. And this is the cool thing is that it doesn’t cost any money. Literally, it takes a couple of minutes of your time, but you just got to reach out to your guests. We are very lucky that Airbnb, for example, they give you the phone number. They don’t give you the email address, but they give you the phone number of the guest. And this is where… For a lot of people, it may be a little uncomfortable, but it’s all about becoming comfortable, about feeling uncomfortable. Pick up your phone, call your guest just when they check out. If it’s not you, if you are super busy, get a member of your team to do it and just say, hey Rob, I really appreciate you supporting our local business and coming to stay with us. Can I just ask why did you book with us?
Ask a lot of who, where, why, when questions. What did you do when you were here? Why did you go into that X, Y and Zed? And then at the end of the conversation, if it’s going well, just say, hey Rob, we really appreciate you. We really loved you as a guest. Thank you very much for that five-star review, hint, hint. By the way, do you know anyone? So, really important four words that so many people don’t use, but it will be everything in your business in terms of marketing and getting more bookings is, do you know anyone? So do you know anyone who’s coming to the area? Do you know anyone who’s coming here for work? It’s a really good one to ask anybody who’s stayed for a business day. Do you know anyone that needs to come to X, Y, or Zed?
And at that moment, that person will say a couple of things. Number one, no or yes, or maybe I’m not sure. So if they say no, just say, listen, no worries. By the way, if you ever do know anybody who needs a place to stay, please bear us in mind, recommend us. And if they book, we’ll give you a X in return, like Amazon vouchers or whatever it may be, bottle of beer, burrito, whatever floats your bought. But in the other time, if they say yes and say, actually, I do [inaudible 00:53:38] friend David who’s coming to town, then say, brilliant, do you mind sharing his contact information or setting up a group chat on Messenger or whatever it may be, on email? And if they book and they mention you, then I’m more than happy to give you a X in return. X could be $50 Amazon voucher or whatever it may be.
Because when you ask that question and you want somebody to do something, you’ve got to dangle the carrot. By dangling the carrot, they’re more likely to take action. And that’s the most crucial thing. But if you do that consistently, if you can do that for, say, of every five guests that check out, if you can call one out of five, I guarantee that what will start to happen is you will build up a pool of referrals. And if you can do that successfully, like I said at the start, you’ll never have to properly market, pay money for Google ads, Facebook ads, again, because you’ll have a referral network of your guests who will be your super fans who will just keep referring you and referring you to their friends, family and coworkers for months and years to come. And I know it works because that’s exactly what we did. Our business, The Grainary [inaudible 00:54:33], the farm stay business.

Rob:
Yeah. This is a really great approach in my mind simply because screening is such a big deal, right? And so if you have a guest that comes, you’ve screened them, they’re staying with you, let’s say, through Airbnb and they leave your place in decent condition, then we can probably make the assumption. Obviously, you don’t want to always assume, but if you reach out to them and they book through your direct booking website for a second time the next year, they’re probably going to leave your place in good condition again. And then if they’re referring you to all their different friends in the network, then again, good people tend to know good people and hopefully, you build up this referral network of people that treat your house pretty well, right? So it alleviates the concern of having strangers in your house.

Mark:
So 93% of purchases are made on the back of social proof. So if it’s you as a friend, is Rob recommending David? And [inaudible 00:55:26] David is much more likely to book, then if it’s just me straight messaging David saying, hey, come and stay at our place. You know what I mean? So with that social proof, it’s everything. So yeah, it goes a long way.

Rob:
For sure. Yeah. I mean, even on my end, I’m looking at the social proof, like guests that are trying to book my place. And if they have no reviews, I’m definitely going to be a little bit more apprehensive about accepting that booking over someone that has 25-star reviews on Airbnb. And then if I see someone that has a 4.5 as a guest, I’m always like, well, why is that? I’ll go in and I’ll read all the reviews. And if most of the reviews are good, usually, it’s nine good reviews and one so-so review, then I go forward with that because it’s nice to know the proof, the reviews of the people that are staying at your place and vice versa. People that are staying at your place probably want to know, right? And so that’s why you say in your listing, hey, go read our online reviews, and then they can read about it and then feel assured there.

David:
All right. So, we’re going to move on to the next segment of our show. It is going to be a modified version of the Deal Deep Dive called the Direct Deep Dive. Mark, in this segment of the show, Rob and I are going to take turns asking you questions about your direct booking system. Question number one, where can you set up a direct booking? Is there a specific portal to use?

Mark:
So, the main important thing that you need is a property management software, otherwise known as a PMS. The unfortunate thing is there is 1,400 plus property management software tools. The good news is that there’s about 10 to 12 top ones, and those are the ones let’s focus on. You may have heard of a couple of them, Guesty, Hostaway, Hostfully, et cetera. If you want a blog post about this, I literally don’t want them on Boostly. So boosly.co.uk/PMS, that is where you get started because when you’ve got a property management software tool, it helps you create everything that you need to put in place to build a direct booking business. So the guest screening that we spoke about, it will link into that. If you want to be on more than one platform, for example, Booking.com, Vrbo and an Airbnb, it’s all programmed via the PMS and it all directly speaks to it. And the best thing is you can then create a Stripe account to take direct payments and you can also create your own direct booking website. So, this is the most important thing to get started with is getting a property management software tool.

Rob:
Question number two, how do you build out the communication with the potential customer?

Mark:
My old school favorite is picking up the phone and giving them a call. And I like to do it at the end of this day but also the start of the booking process as well. So when a reservation comes in, the best thing to do to not have any cancellations, to make sure that there’s no miscommunication, pick up the phone, give them a call, have a chat with them, figure out why they’re booked, what can you do to make that stay even better. That’s one of the best things that everybody can be looking to do, take in this old school in a new school world.

David:
Awesome. All right. If somebody wants to do this, what does it cost to set up a direct booking website?

Mark:
So, the cool thing is as you are getting started in this game, so let’s just say one property, it’s actually free. You can go to so many free providers to have a direct booking website or just with anything in the world. As you level up your business, you need to level up your tech stack. And as you get to maybe three, four or five properties, then you’ll have to pay a little bit of money to actually do so. There’s many providers out there. There’s many ones that do it. Boostly obviously, the elephant in a room, we offer a service that we can help with that. Just got to boostly.co.uk.
But you can start off by anywhere, sort of a couple of 100 bucks. And then the more you grow, let’s say, you get past 10 properties and 15 properties, then you want to look for a pro solution where guests can book directly on your site. You can have things like live chat, retargeting and all those cool stuff, and that’s going to cost you a couple of grand. But when you get to that level of 10 plus properties, the money that you will spend on a website hails insignificant with what you’d be paying to commission cost, to Airbnb and all these other online searches. So, the best thing to do at that moment in time, invest the money as you level up your business and you’ll be set for years to come.

Rob:
Awesome. Question number four, how do you measure your success? Are there any KPIs or key performance indicators for measuring success in this world?

Mark:
The best one for me, and not only do I look at this, but investors or potential buyers of your short-term rental business will be looking at a very high ratio of direct bookings coming into your business. So if you are looking to sell your business and say you are 90% reliant on one platform for your industry, for your reservations coming in, they won’t look at you as well as if you’ve got 65% direct and then 35% reliant on other people. The way that I like to describe this is you got to look at Airbnb as your banker. Now, the banker basically is when I was… I’m a happily married man now, but when I was single and I would go on a night out, I would be basically looking to take a lady home to do some horizontal dancing with at some point during the evening, but as the night go on, it got to 2:00 o’clock in the morning, I would always have my banker on hand that I could call if I wanted to do so. And this is exactly how we need to look at Airbnb, they need to be your banker. So Airbnb is your banker, direct bookings is the one that you marry. And so, this is the main thing that what you need to do to measure your success. 65% direct, 35% OTA.

David:
Is banker like backup plan, like you got one in the bank?

Mark:
That’s the bank, that’s the backup plan, that’s the to 2:00 AM call. And it worked both ways. I was the banker, but this is where you got to look at Airbnb. Airbnb need to be your banker. You go and marry the direct bookings.

David:
There’s a lot of business principles that work that same way. You’ve got the home run pitch you’re looking for and then you’ve got, well, if I don’t get what I want, here’s my backup plan, at least I can get on base. And so, I think that’s very wise and also very funny analogy. All right, last question of the direct booking deep dive. Let’s say you want to convert an OTA, like an Airbnb or a Vrbo listing into a direct booking, what can you do?

Mark:
So, the two things that we spoke about are very handy in a reactive way, but a proactive way could be when a booking comes in. So the premise is that you’ve already knocked off number one where you’ve got your PMS portal. So when a booking comes in from Airbnb or Vrbo or Booking.com, if your PMS is set up right, an email notification will go out to the guest. And a real proactive way of converting an OTA booking into a direct booking is in that email template, you basically say to the guest, and this is something you can set up once and you can set and forget, and the terminology used should to go, hey Rob, thank you very much for your booking a stay at Boostlybnb. Just to confirm, the date of arrival is the 1st of December. You’re checking out on the 4th. Please make sure you read the rest of this email because your check-in information is really important.
And the way it should go is if you have booked of us directly, I email, phone call or website, your check-in time is 1:00 PM. If you have booked via an OTA, i.e. Airbnb, VRBO or Booking.com, your check in time is 5:00 PM. So what you are doing right there, psychologically, you are punishing somebody from booking via a third-party, and they will see that and they will go, well, hang on a second. If I had booked direct, my check-in time is one, but because I’ve booked via Airbnb, the check-in time is 5:00 PM. The next line of text is important. But if you want to amend anything about your stay, here’s my personal cell phone number and email. Call me at any point and we can rectify that for you. We would do this for our emails that went out to everybody. And we had about a 60 to 70% success rate of them calling us. And they would go, Hey Mark, I’ve got your email about the check-in time. If I’d have booked direct, I would’ve obviously got an earlier check-in at 1:00 o’clock.
And the main thing to realize here is that when somebody comes and stays with you, they’re going to be traveling from a couple of hours, flying in maybe, maybe it’s for an event or maybe it’s for X, Y or Zed, and they don’t want to be hanging around before they can check-in with you. So, they’re much more likely to take action and book of you direct. So the conversation would go, can I flip it to a direct book and how do I do that? And it’s super simple. This is where you just take over with a little bit of nose and you say, yep, sure thing, Rob, no problem. So all I need, just for security reasons, can you just confirm what your email address is? Again, you don’t get that email from the OTA, so you get the email. Just say, can you just confirm your card details? Brilliant. And you’ve got everything that you need. And just say, just do me a favor, can you just open up the Airbnb app or the Booking.com app? Can you cancel that stay for me because I can’t do it for you. Fantastic.
As soon as you’ve done that, I will bucket you in and you’ll get a confirmation directly for us and you’ll get that new check-in time. And it works in so many levels because number one, the major kickback I get to that, people say, well, hang on a second, you are canceling an Airbnb listing. Why would you do that? I’m not canceling the reservation. The guest is canceling it. One in three OTA reservations results in a cancellation. So because it’s them doing it and not you doing it, it doesn’t flag up on any radar, on any OTAs, and it’s totally within the Ts and Cs as well. And by doing that, again, you’ve basically canceled an OTA reservation, you’ve got a direct one in the bag and [inaudible 01:04:37] we had about 60 to 70% success rate on that just from having one little email template that went out after a booking.

David:
All right. Thank you for that, Mark. That is going to move us into the last segment of our show. This is the world famous-

Speaker 4:
Famous four.

David:
In this segment of the show, Rob and I ask every guest the same four questions and we will fire them off at you. Question number one, Mark, what is your favorite real estate book?

Mark:
So I’m going to keep it Bigger Pockets, Avery Carl, Short-Term Rental, Long-Term Wealth, love the book. And I’ve got to know Avery quite well. And yeah, I think that’s a really good one for everybody in real estate we’re looking to get into short-term rentals.

Rob:
Cool. Number two, favorite business book.

Mark:
I’ve always got it at hand, I’ve got it with me now, it’s Tools of Titans by Tim Ferris. And I’m a massive Tim Ferris fanboy. I’ve been listening to him and watching him since 2016. That book is amazing because it took 200 of his best episodes, all of his interviews with his guests. There we go, David, it’s right there. And he put it into a book. It is a huge book and it’s one that you don’t have to read it from page one to page 500 or whatever it is. You can just dip into different chapters as you go. And as far as business, it’s got a section on health, it’s got a section on wealth. And it’s, by far, the one that I always come back to is Tools of Titans.

Rob:
All right. I thought you were going to say Who Not How since you… Fun story here, Mark mailed me a copy of Who Not How with a note that said, “This book is going to change your life, I think.”

Mark:
Funny you mentioned that because there’s so many books that you could give. And I remember when you interviewed Alex Hormozi, his answer was, “It depends on where you are in your journey.” Now, me personally, right now, I’m on a massive hiring spree, and Who Not How is top of mind, Clockwork, Who Not Ho and [inaudible 01:06:27]. I sent it to Rob because there was a lot of things that he said that resonated, but the one that I always come back to is Tools of Titans. A massive fan. And I feel it doesn’t matter where you are in your journey, Tools of Titans is one that you can come to at loads of different stages.

Rob:
All right. I’ve got that noted. I have a notepad here. Whenever guests say their books that they recommend, I always write down the ones that sound intriguing for the day that I possibly read a book again. I’m still working through Burr right now, but honestly, this is going to be my year. I’m going to get two books in.

David:
I do the same thing with interesting hairstyles that I see guests come in and the odds of me actually acting on that are about the same as Rob reading a book.

Rob:
Oh, that’s probably accurate, that’s probably accurate. Three, when you’re not busy creating direct booking websites and just totally shaken up the short-term rental world, Mark, what are some of your favorite hobbies?

Mark:
Well, at the moment, it’s sleep. Like I mentioned at the start, I just had a baby girl three weeks ago, so whenever I can have sleep, that’s a big part. And the other thing is my basic, my main passion is soccer, football, Liverpool Football Club. I’m actually going to go after this episode and watch them probably lose tonight, which is a shame because they have very good soccer team. But yeah, let’s say Liverpool. And if we’ve got any Liverpool fans watching, please send me a message on Instagram. Come and say hi at boostlyuk. And yeah, that’s my big passion is Liverpool and creating children, it looks like

David:
You don’t sound like you are from Liverpool. Are you from that area?

Mark:
I am not from that area. It’s the other area of the Pennines. But my granddad got me onto Liverpool when he was alive, my first ever game my granddad took me to, me and my cousin. He was a big fan back in the day. And I will never ever forget that experience. But I’ve had it ever since the age of 10 or 11. But yeah, good scout knowledge there, David.

David:
Well, which part of the UK are you from? I’ve been trying this whole time to peg it. It sounds like you’ve got a British accent with a hint of Irish that just keeps showing up and I can’t place it.

Mark:
So, I’m a little bit of a rogue. Because I’ve traveled so much, America and Australia and everywhere, I’ve sort of lost my proper accent. But I’m one of these chameleons where if I hang around somebody for so long, I will just tap into their accent. So if I go and stay in Liverpool for a week, I’ll come out sounding like I’m from Liverpool. If I hang around in Australia [inaudible 01:08:53]. So basically, yeah.

David:
That’s how I sound with this cold. That sounds like I’m from Liverpool there. They’ve got that Middle Eastern [inaudible 01:09:02] with everything they’re saying. So here, I want to do this before I ask you the next question. Rob, speak in your English accent and Mark, you’re going to tell us where Rob’s accent would be placed if he lived in the UK.

Rob:
Not really my bag.

Mark:
See, the movie Forgetting Sarah Marshall when Russell Brand gets [inaudible 01:09:22] has a surfing accident and then Paul Rudd’s character goes and comes over and goes, “You sound like you are from London.” That is basically.

Rob:
So I’m Paul Rudd in that.

Mark:
You are Paul Rudd in that [inaudible 01:09:31].

David:
You sound like someone trying to sound like they’re from London, that’s what he’s telling you.

Rob:
Not really.

David:
All right. Now, we’re going to do mine, Mark. It’s not going to be necessarily British, but it will be from somewhere in the UK. If you had to say what do you think I’m talking from, what does this accent sound like, Mark?

Mark:
That’s two hours north of me. That’s good old Scotland.

David:
Aye, that’s right. [inaudible 01:09:55] from Glasgow. They’ve spoken like this my entire life.

Mark:
Good, good.

David:
As a little kid, I thought everybody’s grandparent sounded like they were Scottish. I just thought that’s like a grandparent thing. I didn’t know that that was my grandparent. So the first time I met someone else’s grandparents and they didn’t sound that way, my five year old brain was like, what? Why do they sound like your mom and your dad? They’re supposed to sound different. That’s how I thought that it worked. All right. Next question. In your opinion, Mark, [inaudible 01:10:21] pun worked together pretty well [inaudible 01:10:23]. I didn’t even expect that pun to have a pun. It’s a pun within a pun. It’s punception happening on the podcast. In your opinion, Mark, what sets apart successful investors from those who give up, fail or never get started?

Mark:
Procrastination is the killer of all good ideas, plans and businesses. And somebody once said to me when I first got going in this is the key to success is imperfect action applied at speed. So, I always stand by that. Just [inaudible 01:10:49] perfect, just go and get it done.

David:
That’s beautiful. Strikingly similar to Rob’s dancing style.

Rob:
That’s true. I’m more of a vertical dancer. I’m still mastering the chop chop slide.

Mark:
Well, I’m a horizontal dancer. That’s why I’ve got four kids.

David:
And what was the strategy, the imperfect action done, what was it?

Mark:
So imperfect action applied at speed is key to success.

David:
Yes, that describes Rob perfectly. All right, Rob.

Rob:
That’s right. Hey, don’t trample on my… This is my question. This is the one question I get all podcasts, Dave. Number five, that’s actually more of a statement, Mark, tell us where people can find out more about you on the internet.

Mark:
So one place only. Just head over to Amazon and go grab this, Book Direct Playbook, go grab that copy please. And in there is my Instagram where you can come and find me on Instagram. Thank you very much, chaps. Much appreciated.

Rob:
That’s right. We got it.

Mark:
[inaudible 01:11:36] freeway. There we go. Lovely. Really appreciate [inaudible 01:11:39].

Rob:
It’s on my goals to read this as my second book.

David:
You are one of the 100 books competing to be the second book that Rob has ever read. We will see how the book Hunger Games works out in Rob’s leg.

Mark:
[inaudible 01:11:50].

David:
May the odds ever begin your favor. All right. Before we get out of here, Rob, where can people find out more about you?

Rob:
Oh, you can find me on Neil YouTube where I put it all out there. I put everything, my emotions, my trauma, my successes, my victories, my how to win playbook. And yeah, soon enough, you’ll probably see Mark on the channel too. So you can find me on Instagram over at robuilt. And then if you want to see me dance and do funny little trends on TikTok, you can find me at robuilto with an O. What about you David?

David:
You could find me at davidgreene24 on just about all social media and then on YouTube at David Greene Real Estate. I’ve also been going live on YouTube on Friday night, so join us there. I’m going to start bringing in guests. Maybe Mark himself will join us, one, to answer all your questions about OTAs and avoiding corporate travel, crazy lunacy that we’re starting to see within those industries. And if you would be so kind, please go to your favorite podcast app, be it Stitcher, Spotify, Apple Music, whatever that’s called now, Apple Podcast, and leave us a review. Those help a ton. We want to get the message out there that Bigger podcast is preaching to more people. We want to get more people exposed to messages like Mark’s and Rob’s and the other BP influencers. So please, if you would go leave us a review, we would love you for it, as well as following us on our YouTube channel, which is growing as well. This has been a fantastic show, Rob. I want to give you any last words before we get out of here.

Rob:
HI just want to say, you called me an influencer, that’s the nicest thing you’ve ever said to me. I really appreciate it.

David:
You’re such a millennial that that would be the best compliment anyone could ever give you.

Rob:
I hope so. I don’t know. It depends on who you talk to.

David:
You are the millennial.

Rob:
That’s right.

David:
Are you old enough to remember that movie, Weird Science, where those nerds create this really hot girl in a lab and they fall in love with her?

Rob:
What year was that? I mean, I’m a 80s baby. I was born in ’89.

David:
Yeah, it’s this movie where these two really nerdy guys create a woman in a lab and she’s beautiful and then she falls in love with them, I think. Well that’s like Rob. If two people created a millennial, it would be him. He is the personification of how that looks. Well, Mark, I want to appreciate you for being here. And Rob, thank you for recommending Mark for the podcast. This was fantastic show, full of very practical, tactical advice that we don’t always get. So I want to thank you for that, Mark and I will let you get out of here. This is David Greene for Rob imperfect action [inaudible 01:14:15] Abasolo. [inaudible 01:14:17].

Ashley:
This is Real Estate Rookie episode 229’er.

Ryan:
I preferred the method of not being an imposter syndrome, but just telling people, “Hey, I’m looking for property. I’ve had property in the past, just primary residents that I ended up selling. I didn’t know about house hacking or really major flips.” And then when I met the guy that I bought the duplex from, I just jumped right in at him. I figured I was nervous. I was waking up at 3:00 AM sweaty and like, “I’m going to screw it up,” because there’s something I had to have missed, right? And I just keep kind of researching and then realizing that once you get in it, you just learn so much.

Ashley:
My name is Ashley Kehr and I am here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information and stories you need to hear to kickstart your investing journey. We oftentimes like to start the show with a quick shout out to folks in the rookie community who have left an honest rating and review for us on Apple or whatever podcast platform you’re listening to.
Today’s review comes from BraveSmith28. Brave Smith says, “This podcast has been constantly pushing me in my real estate investing career. Listening to this podcast has gotten me to think about different strategies. I’ve bought three single family houses since listening to this podcast. I’m about to do my first short term rental. I wouldn’t have thought about it without this and the other BiggerPockets Podcast. The tips and tricks are easy to follow with whatever strategy you use.”
BraveSmith28, congratulations to you on the success. We appreciate you giving us a shout out. And if you haven’t yet, please do leave us a five star rating and review on Apple Podcast, whatever platform it is you’re listening to.

Ashley:
Tony, what’s new? How’s California? I bet the weather’s great because it’s pouring rain here.

Tony:
It’s actually blistering hot today. There’s like a massive heat wave warning this weekend, supposed to get into the triple digits. But outside of that, not too bad. But actually before we hopped on, I was a little late hopping on this morning because we were negotiating with a seller for a motel in Utah. So we’re hopefully getting close to maybe getting a signed LOI on that property. We still have the Big Bear deal that we’re working on so there’s a high possibility we end up having two hotels under contract at the same time, which I guess isn’t a bad situation to be in. We just have to figure out which one makes the most sense. But we’re moving. It’s progress.

Ashley:
That’s exciting. That’s awesome. I knew you went to Utah a couple weeks ago, but I didn’t realize that was to look at a property, so that’s awesome.

Tony:
Yeah, it was super last minute. We’ve been going back and forth with the seller and then we got pretty close on terms to like, “Hey, the seller’s actually going to be at the property if you’re willing.” So I actually ended up driving up there. I was trying to fly but there were no direct flights and I would’ve had to have landed in some other part of Utah and still drive an hour and a half from the airport to the hotel. It was only a six hour drive from my house, I was like, “Ah, whatever. I’ll hop my car and I’ll drive.” So it was a little road trip up to Utah.

Ashley:
Nice.

Tony:
Yeah. What about you Ash? What’s new?

Ashley:
Not much. Finishing up our A-Frame, started to refinance on that to pull our money back out this week. So it’s always good to get money back. It’s exciting to wait for the appraisal to see what the appraisal says. Our attorney says we should be closing on our lake house in 10 days or so, so that’s awesome except for that lake season is coming to an end so we can’t really enjoy it, but-

Tony:
It’ll build the anticipation for next year.

Ashley:
Yeah, the downfalls of trying to close in New York state, it takes forever, so yeah. But we have a couple closings. Campground we have under contract, we have the signed LOI on it. But now that we’re actually putting the contract together with our attorneys, the seller’s trying to change some things.
One thing that he has all of a sudden decided that he wants is he wants 10 years of timber and mineral and oil rights to the property. So there is a lot of timber on this property that’s valuable. New York State also offers kind of a tax incentive. If you sign up for their 10 year forestry program, they will actually come in and slowly harvest the timber over 10 years. So it’s not just you’re going in, you’re killing the forest all at once, you do it throughout time. And that actually helps the forest grow because you’re getting rid of trees that need to be cut down. You’re opening up where it’s not so much coverage. I don’t know the technical terms of it or whatever.
So sunlight gets in and more trees can grow, something like that. So you get a big tax savings on your property taxes if you do this, where if we give him the timber rights, he could just go in the first year and slash all the trees and we don’t have those rights to get the tax credit anymore. So that’s something we went back and said no, we’re not even considering willing to budge on that especially with it being a campground too. We just don’t want him to be able to come in at any time and just start cutting down trees.

Tony:
It’s crazy how every market is so nuanced. If I were negotiating with the seller and they asked me for timber rights, I would have to figure out what that meant. I know minimal rights, but I’ve never heard of timber rights before so that’s interesting.

Ashley:
Yeah. You know what I was thinking about too the other day is you didn’t know what a well was for the water.

Tony:
Yeah.

Ashley:
Yeah. And it’s just because it’s not common in your area and Daryl is actually working on getting a new well or getting one rehabbed on one of the properties, I was thinking like, “We should actually do a video on this for…” And I was like, “Well, what would people care?” And I’m like, “Well, there’s actually probably other people that don’t know what a well is and kind of [inaudible 00:05:42]-

Tony:
I would love to see that.

Ashley:
… what goes into it.

Tony:
And if you can let me know… I’m still nervous. We have a property that’s own a well, we bought one last year in Tennessee. I’m just still so curious what happens when the water runs out. What am I going to do? But they keep saying that it’s not going to happen, so I don’t know. We’ll see.

Ashley:
You know what? That actually has happened on this property, is the well water is so low.

Tony:
No way.

Ashley:
That actually happened at my house, like my primary residence. When we built our house, we ended up just tapping into the well. There’s two other houses on our property and we just tapped into one of those wells. Last winter, the well actually ran off water because there was more people living in the other household and it just like we weren’t getting enough water to keep up with the water usage in both. So as soon as spring came, we actually put our own well in now.
But learning about the wells with this other property we have and Daryl kind of dealing with that is there’s not enough water in there to pump up to the one house that’s up on a hill, so we’re going to try and rehab it. The people think that there’s actually some kind of blockage in there. He said, “Yes, it’s very hard for a well to actually go completely dry, but there could be issues in it that it’s just more cost effective to actually put in a new well than to rehab this one.” So as of right now, we’re going to spend $2,000, we’re going to have them attempt to rehab it and see if that fits the issue. And then if not, then we’re going to go into doing a new well.

Tony:
We got to do a well episode. If for no reason other than my own interest and curiosity, we got to do an episode on well water.

Ashley:
Okay, well we’re going to have to have Daryl do that because he knows way more than me.

Tony:
Well, we’ll have all of five listeners for that episode.

Ashley:
Yeah. Well, maybe we’ll do well and septic together.

Tony:
There you go. There you go.

Ashley:
Well today anyways, we actually have a friend of mine as the guest on the episode and we’re doing it in person. So Ryan joined me at my house to record this podcast. His name is Ryan John. We are actually childhood friends, and just say we actually weren’t super close for probably since high school even, but I started riding a motorcycle and knew he rode a motorcycle. So last summer we rode motorcycles a couple times and we started talking about real estate investing, and here we are today where Ryan is now a real estate investor.

Tony:
Man, I’m super excited for this episode, not only because Ryan shares a tremendous amount of embarrassing memories about Ashley as a child, but he also has a fantastic story as a real estate investor. One of my favorite parts of this episode is where he talks about how he recently went to his first real estate meetup and how the very next day a big massive change occurred in his life as a result of that meetup. So make sure you guys listen towards the end because he shares kind of how that experience changed his life.

Ashley:
I thought you were going to say he talks about his first all-girls sleepover he went to [inaudible 00:08:41].

Tony:
That as well. It also changed his life. It probably just as equally changed his life.

Ashley:
Well Ryan, welcome to the Real Estate Rookie Podcast. Let’s start off with you telling everyone a little bit about yourself and how you got started in real estate.

Ryan:
Yeah, my name’s Ryan John. I’m let’s say a year and a half into the real estate game. I started by nagging Ashley with questions I could have answered off of Google and then she sent me some books and then I continued to dive from there.

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

Ryan:
A whopping two units. I house hack a primary residence that I’m currently living in with my girlfriend. And then I have a duplex that originally was an in-law suite that I finished the conversion on that’s rented right now.

Ashley:
Well Ryan, we are very happy to have you on today and dive into your story. I know you said a whopping, sarcastically only, those units, but that is great and that’s part of the reason we wanted to have you on, is because it’s so fresh in your mind as to how you got started in real estate. So why don’t we kind of talk about why you even considered real estate investing. What made you reach out to me? What was the first thing?

Tony:
And Ryan, if we can, before you answer that, just also give us some backstory on how you know Ashley and how she was as a child and any other embarrassing stories you can share that we can use as leverage for future podcasts.

Ryan:
I had my first all girl sleepover in fifth grade with all her and her friends, so that was fun. Basically with the property that I got, it started off just asking people for help, like Ashley. And then I had other friends in the industry too so I was kind of always intrigued by it. And then to be honest, seeing her on the boat having fun, I know it’s not all fun all the time, but I was intrigued. I was like, “Okay, maybe the 9:00 to 5:00 isn’t for me,” so I just wanted to dive in and get dirty and start learning.

Ashley:
So once you started learning about it, how long until you actually did your first deal? You said you’re house hacking your primary residence. Did you start doing that right away or did you get your duplex first? What did that look like?

Ryan:
I moved into the primary first. I wasn’t house hacking it at the time. Probably a month or two ago I actually just started house hacking it with my girlfriend. And then the duplex, it was a year or so of just reading podcast, avoiding the shiny object, I was just like, “Oh maybe I’ll do this. Ooh wait, let’s do this. Oh wow, that sounds fun.” And then I believe it was the lapse thing where you narrow down what you want to pick and I did that. I figured small mal multi-family is going to bring a little bit more income than just a single family. I wanted to take a little bit more of a risk. So that’s when I decided to go that route.

Ashley:
Okay. So once you made that decision, how did you take action? There’s lots of people probably listening now that want to get into real estate. So what are some tips or advice you can give them so that they actually go out and get a deal?

Ryan:
I preferred the method of not being an imposter syndrome, but just telling people, “Hey, I’m looking for property. I’ve had property in the past, just primary residents that I ended up selling. I didn’t know about house hacking or really major flips.” So I just put it out there. And then through meeting a lot of people at my old job, the deal… I got denied on a lot of offers. I only put five or 10 in so not really a lot, and then just kept hammering down and meeting people. And then when I met the guy that I bought the duplex from, I just jumped right in at him. I figured I was nervous, I was waking up at 3:00 AM sweaty and like, “I’m going to screw it up,” because there’s something I had to have missed, right? And I just keep kind of researching and then realizing that once you get in it, you just learn so much.

Tony:
Ryan, I just want to follow up with that because I’m glad you mentioned that fear and waking up in the middle of the night. I think so many rookies that are listening have that same fear around getting started. At what point did you realize that you were ready to actually submit that first offer? Do you remember that moment? What switch went off in your mind to say, “Okay, today’s the day. Here’s the property I’m going to put this offer in”?

Ryan:
Well, it really started fast because basically I was at my old job and the guy walked in the building and talk to the owner of the business and he said, “Hey Russ,” the guy’s name was Russ, he’s like, “Can you sell my house for me?” And I was like, “Boom.”

Ashley:
That’s where the ears perk up.

Ryan:
Yeah, I barged right in the conversation. I’m like-

Tony:
Do you work at a real estate brokerage? Or why [inaudible 00:13:49]?

Ryan:
No, I used to be an insurance appraiser so I would go out basically when you screwed up and tell you how bad you screwed up when you crashed your car. I was able to meet a lot of people through that, which I’m glad about that. But basically, the guy, he said, “Yeah, it’s right in Boston.” I live in Colden, Glenwood and kind of in Ashley’s market too, so it’s right down the road, it was 15 minutes away. And he goes, “I’m going there now.” The driveway’s not plowed. I’m wearing sneakers, two feet of snow, I’m like, “Okay, I don’t care. Let’s plug through there.”
Walk through. I’m not a home inspector, I’m literally a rookie with all this. I just kind of used my sense of judgment. The market was hot and I thought the price was reasonable. He denied a few offers that were a little bit lower than what he was asking. So I just walked around for 30 minutes and shook his hand and then called everyone after and was like, “Can you look at this and make sure I didn’t pay too much or it’s going to fall over?” stuff like that. So I just kind of dove in with it.

Ashley:
Did you give him what he was asking for it? What did you pay for it?

Ryan:
Yes, this was before I read the Chris Voss negotiation book. I was a professional negotiator at my old job, but I was kind of so excited to get going. He turned down a lot of offers. I just gave him his asking price, it was 185,000. I shot at 175,000 and he just shook his head and I just figured, “Why go back and forth? He’s pretty set on his price. The market was fair.” Long story short, with some of that stuff, the appraiser came back higher than my bid.

Tony:
What was it about this property, Ryan, that like… Because you said you had been studying for a year, give or take, leading up to that point. What was different about this property, this opportunity as opposed to all the other properties you had seen before that moment?

Ryan:
I like off market stuff. My first home was off market. The primary one I’m living in now, that house hacking was off market. And so was this. I just like the thing of not having to go through a realtor and being in control of doing all that myself because I was a little bit familiar with it and had a lawyer. And then the main thing was the fact that I walked downstairs and it had everything to be a full apartment besides a stove and a gas line for a stove. It was just an in-law basically right there and it just needed that little extra. I don’t think… Maybe other people didn’t see that when they looked at it, but to me that kind of stood out.

Ashley:
Let’s go through that process of buying an off market property. So you’ve done that what? Three times now?

Ryan:
Yes.

Ashley:
Okay. So what does that look like? Can you kind of walk somebody through who’s maybe never bought a property before or only used an agent what that process looks like?

Ryan:
Yeah, basically the first one is going to be the sweaty syndrome a lot. You’re going to be all nervous and, “Oh, did I not fill out that form?” or something like that. But basically, I just called friends and family and just asked for a lawyer who specializes in doing real estate transactions, I did that. And then basically just be married to the bank for the next three months when they call and say, “Hey, I need this form. Hey, I need this.” Just a little bit more legwork that I think maybe would scare someone off. I mean, it is easier to do a realtor. I sold my house with a realtor. It was a breeze. But just a little bit more legwork when you don’t have a realtor.

Ashley:
What tips do you have for somebody who’s looking for off market deals besides just being in the perfect place in the perfect time when you hear somebody talking about it and eaves dropping? But what are some other ways that people can find off market deals? How did you find your other ones?

Ryan:
The old school drive for dollars sort of thing. At my old job, I did a lot of [inaudible 00:17:49] at the time as my boss used to call it. I just drove all around Western New York, I mean roads that I didn’t even know existed, literally stuff that was dirt road, not even on Google Maps yet probably. I didn’t really know about all this stuff yet, so I would kind of take pictures and then jot down every bad address that I saw.
But I recently just did one too. It was down the road. I sent a letter. I didn’t act fast enough. They emailed me back and they’re like, “Oh it’s already listed.” But just doing the homework that not a lot of people want to do. Maybe go to the town halls, kind of get familiar with the code enforcement, maybe trouble properties because I’m starting off and I just don’t have that big bank yet so that’s the way I choose to look at it.

Tony:
One follow up question and then I want to talk a little bit about the small multifamily piece, but you said driving for dollars. First, can you explain what that is for folks who aren’t familiar with that term? And then second, once you found properties that you liked, what was your process from there? What was the next step?

Ryan:
Yeah, basically I took the advice from your guys’ podcast too actually. But just looking for stuff that’s like overgrown, there’s not a lot of cars in the parking lot, maybe the roof lines bad, like it just looks like it’s just been left to die essentially. Obviously you want a turnkey, like get right in there and get rent, but there’s a lot of meat left on the bone normally if you can get the right price. And then this is, honestly, I want to get better at this because I’m still kind of struggling with this part, but is tracking down the owners. I know there’s a lot of tools online and stuff, but sometimes they’ve passed away or there’s no will and stuff like that.

Tony:
But say you do find that person, what do you do when you find that person?

Ryan:
So the recent letter, full transparency, I’ve done two letters at all because there’s market that a lot of the houses just sell really fast, so the drive for dollars might not work all the time. But my girlfriend has wonderful handwriting, I don’t. So I printed up a sheet with my information on the bottom typed because I didn’t want to blow smoke or anything like, “I’m new to the game but I wanted to be a little professional with everything.” And then just a nice handwritten short message just to show that I’m not kind of one of these computer generated lists that just send out thousands of things every day. So once it works, I’d love to come back on here and explain how well it went. But so far I’m striking out but that’s part of the game.

Ashley:
What’s her cut, her percentage if you end up getting a deal from one of her handwritten letters?

Tony:
That’s a great question.

Ryan:
I can’t get her on the pay. Well, I don’t like the word can’t right away, but right now I’m not set up to put her on the payroll. So basically, I took my tax return, I bought myself some gold and then I gave her my old gold bracelet to get her…

Ashley:
She gets the old gold, you get the new gold.

Ryan:
… and the asset. I wanted her to get the asset trading and buying commodities that are valuable instead of clothes and stuff. I said I wasn’t going to talk about her too much in this, but oops.

Ashley:
Like my Gold Mike, hot commodity.

Tony:
There you go.

Ryan:
Yes. See, I love the Gold Mike. I was like, “We can get along with this.”

Tony:
Ryan, I want to ask a little bit about the small multifamily piece. A lot of new investors when they first think of investing in real estate, they think single family house, long term tenant, buy a property, manage it, do your thing. You went the small multifamily route. What was it about that asset class that intrigued you more than going the traditional single family route?

Ryan:
Honestly, probably listening to the BiggerPockets stuff I heard a lot of people starting off because it’s safer in the single family, but I’ve also heard the returns were a little bit less so I was just kind of under the impression, “Well, if I get a duplex and let’s say one of the tenants is bad or I can’t book it, at least I have some cash coming in to cover the rent or the mortgage costs and everything like that.” So kind of to mitigate a little bit of the risk with it. It’s weird though, with mine, it’s a duplex but I only have one tenant so technically it is a single family. He has a large family, he ended up taking the whole unit himself

Tony:
Really?

Ryan:
Yeah, it’s kind of a weird thing. He was striking out. A local real estate agent reached out because he works at a local plant down here and they ship in a lot of workers from out of state. He was in an Airbnb for two months, he was bleeding out from that. So he was thrilled that there was an option for him to get in. Honestly, I’m pretty happy about that too because he seems like a great tenant and I’m not negotiating between noise complaints or anything like that being that it is a new duplex and everything like that.

Tony:
It’d be really weird if he was complaining about noise, you know?

Ryan:
It’s just like, “The kids out.” Kick the kids.”

Tony:
Like, “Dude, can you…”

Ashley:
“My kid’s in the lower unit,” right? But to touch on like that, how you said if one tenant isn’t paying rent, then you know have the other tenant. And it’s kind of like that security, at least there’s some income coming in from other units. You have more units under one roof, there’s less overhead per unit. And so if you had 10 in a complex, that was 10 units under one roof. Compared to 10 single family homes, there maybe cost differences there because they’re all under one roof. But you do have that side of tenant complaints then, people living wall to wall to each other that there will be disputes over different things that you have to be the one that they think is the mom in the situation and take care of it, which it’s not always the case. You’re adults, you could take care of yourself and figure it out.
But my biggest complaint about that is the tenants that they don’t even talk to their neighbor first. Sometimes that’s all it takes, is for them to say to the neighbor like, “Hey, just so you know, I can hear you screaming at night” or something like that in a way nicer way. But that was the thing I always did. We’ll have you talk to the other tenant first and talk to them about it and they would be like, “Well, no.” And that would always be the first step, is to take that from there.

Ryan:
I like that.

Ashley:
Yeah. But Daryl and I went to a property today too, which reminded me of the point that you made. The more units under one roof was, there was an eviction there, the tenant hasn’t paid since June and so the eviction’s been done and it’s time to get rid of her content. So we went in. I mean, there’s just stuff everywhere and just the garbage removal’s going to be $1,100. We have to repaint, we have to put new flooring in the two bedrooms, just all these costs and we’re just thinking like, “Wow, this was a single family home. This would’ve taken away your whole cash flow for the year. Maybe even more and you would’ve broke even.” But since there’s other units on this, then it’s not going to hurt the property as much, this one unit out of 40 not making any income this year. I mean, it’s still obviously sucks, but that idea of having more units under one roof.

Tony:
That’s it. That’s such a good point, Ashley. I think the only thing I would add to that is that for those of you that are listening, what’s most important is that you just get started. If you buy a single family, you buy a small multifamily, you buy a mobile home park, you buy an Airbnb, whatever it is, I think you just get started.
This is what I like about your story, Ryan, is that you educated yourself, but as soon as you saw that opportunity, you’re like, “I’m not letting this pass me by. Maybe I’m ready, maybe I’m not, but I’m going to figure it out.” And it was that one decision that’s led you to the success you’ve had so far. So for all of you that are listening, try not to get too caught up on which path, which model, which asset, which this, which that. Just make the decision and get started because eventually you’ll learn the lessons you need to learn to make it a successful thing for you.

Ashley:
There’s so many pros and cons either way you go. I mean, it’s like not one way, it’s multifamily, lots of units is the perfect way. It’s not. There’s tons of advantages to having single family too.

Tony:
Even me, right? I’ve made a name for myself in the Airbnb space. And even so I’m like, “Man, should I be buying self storage right now?” I have those questions with myself all the time. So it’s like whatever asset class you’re in, the grass always I think feels greener or seems greener on the other side.

Ashley:
Well Ryan, do you want to talk us through the numbers on one of your deals? You want to go through the duplex?

Ryan:
Yeah, I’ll go through the duplex.

Ashley:
Okay, I’m just going to rapid fire questions at you and then you can tell us more of the story of once you closed on it, what has kind of happened. So what was the purchase price?

Ryan:
Purchase price, like I said earlier, 185,000.

Ashley:
Okay. And how did you finance this?

Ryan:
Just a traditional finance through a local Nickel City Funding in Buffalo.

Ashley:
So like a 30-year fixed rate?

Ryan:
30-year fixed. Yep.

Ashley:
What was your interest rate on that?

Ryan:
My interest rate was very nice. It’s 3… That’s another reason why-

Ashley:
Okay, you already said three, and yeah we’re all like, “Yep, that’s good.”

Ryan:
We’ll go quick to my primary residence, that was 2.62 which wow, I love that.

Tony:
Wow.

Ashley:
Wow.

Ryan:
The iron was hot, I wanted to strike again. I got 3.36 something like that. So yeah-

Ashley:
Yeah, that’s awesome.

Ryan:
… just that alone was huge for me to get the loan.

Ashley:
Okay. And then would you do just 20% down on the property?

Ryan:
I was able to do a 15% just because I got referred through another client that they work with.

Ashley:
Oh cool.

Ryan:
They gave me a little bit of a break, which was nice.

Ashley:
Yeah, that’s awesome. I didn’t even realize that places would do that. That’s cool. So definitely something to ask if a bank will do that and then you go and find one of their clients and get referred and get a discount on your down payment. Okay, so you purchased it from 185,000. How much did you put into the rehab of the property?

Ryan:
This is a true rookie statement because literally I have rough accounting done. I need to sit down and just QuickBooks it out. I’m very good with the receipts because I had to do that with my old job with expenses and everything. So I’m going to ballpark, it was probably 10,000 but I want to say closer to 15 grand. It was just adding appliances, flooring. I just wanted to make it nice to bring in a better tenant.

Ashley:
Did you do a lot of the work yourself or did you hire it out?

Ryan:
Yeah, and I recommend… Halfway through I learned to get off my wallet and just pay professionals because I would say I paid my flooring guy like 700 bucks and next thing you know I’m demoing the basement, drywall and doing all that. I come up and upstairs is done, where before I was banging my head against the wall trying to do everything, work till midnight. I think it’s good to DIY because you learn it, but you got to start treating it like a business even though it’s new, you got to learn to outsource, which is hard for me.

Ashley:
I think too, just the time, at least for me, I know how to install vinyl plank flooring, it’s just going to take me two days longer than paying the professional. So what is my time valued at? Am I actually saving money by doing it myself or is it costing me more because now for three days I’m installing flooring instead of paying a contractor who could get it done in one day and then I’m actually working my regular business in what I do in those two other days and making even more money because I didn’t have to be stuck installing flooring. So looking at that opportunity cost as to what your time value is too I think makes a big difference if you should pay a contractor or not to.

Tony:
Yeah. Can I add just one thing to that? I love what you said. You said get, “Off of my wallet.” I’ve never heard a phrase that way, but it’s such a smart way to do it. Obviously what you said actually is so true. It’s like people want to hold on to the $5 not realizing that they’re costing themselves $10 by doing it themselves. But one caveat I will say is that a lot of times when you’re starting, you maybe can’t afford to hire it out. So when you a rookie, maybe sometimes you do have to realize that, “Okay cool, I am going to invest a lot of time into this, but it’s because I don’t have the funds or the resources to hire it out to somebody else.” So for those of you that are listening, just know if you have the money, definitely spend the money. If you don’t have the money, don’t feel bad about it. You’ll figure it out.

Ryan:
I would say get creative too because I mean every state’s a little bit different with contractor rates and stuff, but I would get ahold of a friend that used to work doing trenches or drainage or general contracting and you say, “Hey, can you come over here? I’ll give you, I don’t know, 25, 30 bucks cash” and they’re like, “Okay cool. Yeah.” I mean it’s going to cost you 75 to 100 to get a licensed contractor, but if you know someone in the game and experience and not that you’re being a boss, but be a good leader/boss, don’t be brutal and beating up your people with work they’re helping you out. So just kind of incentivize them because then I’ve noticed the ones I pay the most, they’ll just come back and help me. They’ll come over for a couple hours and they don’t expect anything. That’s kind of nice. It goes a long way.

Ashley:
I think too when you’re starting out too, it’s great to barter. So if you have a friend that is really good at something, maybe exchange services with them for them to help you too with something. Daryl, he’s had bartered for stuff before and it’s been really great for me. Huge advantage for me. I don’t have to do anything or pay anyone.

Tony:
Wait, can I tell you guys about a time I failed at negotiating? It was the funniest thing. For my 30th birthday, we had a 2000s throwback party and I wanted to dress like I would dress in the early 2000s, so I wanted to get a really big old school basketball jersey. They only sell those at the swap meet by my house, right? So I went to the swap meet. Swap meet’s all these different vendors kind of doing their thing. You can usually like, “$5?””No.””$10?” And you guys go back and forth. So I find this jersey, it’s like a replica of this Michael Jordan jersey and I see it hanging up, I’m like, “Okay cool, this is the one I want.” So I go up to the guy, I’m asking him, I was like, “Hey, this is a nice jersey.” He’s like, “Yeah, it’s a great jersey.” And I was like, “All right, cool man.” I was like, “Look, I really want to buy it but I’ve only got so much money.” I was like, “I’ll give you 40 bucks for it.” He was like, he turned the jersey around. And on the backside of the jersey there was a price tag and it said 40 bucks. So I’ve completely failed at negotiating. Because what can I do at that point? Can I go back and say, “I meant to say 30.” So anyway. Double check the price tags before you start negotiating was the point of that story.

Ashley:
I think another way too to save money with contractors is also if you continue using them. So today, even when we got the estimate from the junk removal company, this is only our second time using them and right off the bat, we didn’t even have to ask, he said, “Usually this job I would say 1,300, but since you guys are a repeat customer and you’ve talked about using us for other work, we’re going to do it for 1,100.” And yeah it can be blown smoke or whatever, but we do appreciate that for sure. And it still was. Our other quote we got was $3,000 so no matter what, we were receiving tons of money going with them and we’ve used them before and they were great. So I think too using those same contractors and sticking with them I think can be super beneficial. If they do do a good job and they do give you good rates, keep using them.

Tony:
That’s a great point, Ashley. Honestly, you can even leverage that before you’ve done work with them. If you can say, “Hey, I’m a real estate investor. I plan to buy X number of houses this year. Every time I buy a house I’m going to hire you to do my trash haul,” that by itself can kind of help give you some leverage to get a discount. So that’s a fantastic point.

Ashley:
And giving the contractor out for referrals. I think a lot of people like to hoard their contractors because they don’t want them to get too busy. But even Ryan has sent me your electrician that you use and other people’s referred me to them and I’m sure they appreciate it as much as I appreciate it. So next time Ryan needs a referral, I’m going to go through and see who I can connect him with. And I think having that and the contractors knowing, “Oh, Ryan has been referring me, I’ve been getting tons of work to him. I want to give him a deal too because of that.”

Tony:
Can I ask one follow up question, Ashley? Are there certain people who you work with that you won’t refer out?

Ashley:
I would say yeah, there’s one person right now that I won’t because I want to really use him for one project and I know that he’s super busy already, but I think everybody else I would. Yeah.

Tony:
Yeah, same. I have our main guy who runs all of our rehabs in JT and I will never give his name out to anybody. But our subs, our electrician, I’ll refer him out. Our countertop guy, I’ll refer him out. Our garage door guy. But our main dude, I’m taking that name to the grave. No one’s going to know who he is.

Ryan:
I got a friend like that too. He was like, “You can call him, but wait six months.”

Tony:
Yeah, that’s how it goes.

Ashley:
Okay. So now that the rehab is done, what is the property renting out for?

Ryan:
I’m going to be a little long winded with this because it is a single family home with an in-law suite, so it would’ve cost a lot of money to get separate meters. So essentially it’s two units. I had 200 per month for utilities. So 400 since he’s taken the whole thing. But 2,400 and then the 400 is included in that. Honestly with our market it’s a little bit high, but the more I talk to people, people are running sides of a duplex so they don’t even have a whole backyard, a whole house themselves, shed, deck, there’s a lot of amenities at this property. They’re 1,900 to 2,200. So I’m right in line with it. I think a good lesson is I bit the bullet and ate the first month’s mortgage because I was looking for a good tenant. I think an extra 100 to $200 isn’t nothing if you have a good tenant and you don’t have issues. I think that’s goes a super long way.

Ashley:
So 2,400 is what you’re getting in total?

Ryan:
Yeah.

Ashley:
Okay. So you say you account 400 to that in utilities, which especially when winter comes, is it gas for heat?

Ryan:
Yeah.

Ashley:
Yeah, so you’ll definitely need [inaudible 00:36:40].

Ryan:
And there is two central layers, you know?

Ashley:
Yeah, so running AC. Okay, yeah, great point. Okay, so what does your cash flow end up being after you pay the utilities and you pay your mortgage payment?

Ryan:
It spreadsheet it out at 700. I’m not taking this money or running to the bank and smiling and laughing, but last month the guy… Actually, when he moved in the, he was helping me seal up all the windows. He go, “Oh this window’s not sealed. If I’m running the AC…” And I’m over here like, “Yeah, it’s like this guy gets it. He’s not going to be just burning stuff up on me.” So I appreciated that and I was hoping it was going to go smooth. And then last month it was 1,017. I mean, well above what I projected, but like I said, I’m not too high on that knowing that the winner is coming and he’s from Texas.

Ashley:
Okay. Ryan, nobody cares. That is amazing, okay? Your first investment property outside of your primary, a thousand dollars cash flow, even $700 cash flow. How much money did you end up putting into it? The 10,000 rehab. And how much was your down payment on it?

Ryan:
There was some I gifted or took a loan out from a family member, but I think all in right now I’m at 32,000 we’ll say.

Tony:
Yeah, I just did the math. That’s a 27% cash-on-cash return.

Ashley:
Tony, I was going to ask you to calculate it and I was so happy you read my mind.

Tony:
Yeah, that’s a 27% cash-on-cash return.

Ashley:
Good. That’s awesome.

Tony:
But dude, that’s amazing.

Ashley:
Yeah.

Ryan:
This is why I want to do my accounting so I can be like, “Oh okay, it’s going okay. Good.” I’m having the numbers in front of me, but…

Ashley:
Didn’t you know we do deal analysis live to let you know the results of [inaudible 00:38:25]? Well that is super cool, Ryan. That’s awesome. Congratulations on that first find. So what’s next for you now? What are you looking for next?

Ryan:
As much as I would love thousand dollars returns each month, I’m looking at just doing more duplexes and conservative even if it is a couple hundred dollars. I know all the deals aren’t going to be a home run deal. But even last night, I looked at, there’s a ski resort by us and there’s a little mobile home. It’s built in ’76. I started learning you can’t do a traditional mortgage on anything older than ’87. But I figured, “Hey, let’s look at it and all that.” But as I’m looking at it, I’m like, “Is this really going to be in line for what I want to do?” Just because there’s a deal out there, I don’t want to jump on it, because if it doesn’t line up with what I’m trying to do, then I’m jumping around doing too much and I’d rather master, let’s say, one asset class and then move away from there.
I mean, I wouldn’t mind getting a campsite with her. We used to camp all the time. I got it all the time in the world to manage something like that now.

Tony:
Can I ask, Ryan? You say you have all the time in the world, what does that mean?

Ryan:
I went to my first ever real estate meetup a month ago. Ashley sent me the link for the local stuff.I just had a really good time, hit it off with everyone. There’s people with no units and then there’s 5,000 units there, so you get a taste of everything. I was talking to a local agent and I’m like, “Yeah, I’m kind of an investor.” And he’s like, “No. No, you are an investor. You tell yourself you’re an investor.” I’m like, “Okay. Yeah. Yeah.” And it helped my self esteem all that. And then the next day I go into work and we had a disagreement and we parted ways.
I’ve been listening to the Quitter Podcast of the BiggerPockets. I was planning on doing that three to five years, but hey, my hand was pushed a little bit sooner. So I’m just trying to take advantage of the time and not feel forced to jump back into the traditional job market.

Ashley:
Well, I think Ryan too is we even talked about this a couple months ago, I think it was, where you’re like, “I really don’t have that much living expenses.” You’ve always lived way below your means. You never made a huge income at this job anyways and you’ve bought a house. You’ve never had a car payment, right? You always had your cars paid off. I think that you had that foundation that you set, your personal finances up like that has put you in a great situation so that when you did leave your job it was okay. You weren’t panicked to go, and you have your duplex money now.
I think that is such a big thing that even if you’re not ready to invest now, start getting your personal finances in order so that when you’re ready to leave your job, you do have that option and you have some time to breathe and figure it out, “Okay, here’s what I’m going to do now.” I think you’ve gotten a lot of people having you do different stuff anyways during this time. I think just the time you’ve been able to put into your investing and the research and everything has been kind of awesome.

Ryan:
That’s an awesome point because that’s why I like hanging out with Ashley and other people in the business because they have just such a cool mindset where if I talk to friends after I left the job, they’re like, “Aren’t you freaking out?” I’m like, “I’m never been this relieved In eight years.” I realized I wasn’t doing stuff that “aligned with me” and what I enjoy. I’m glad you made the point about low expenses because it was always hard on myself, like, “Man, I wish I had 50 grand cash reserve to just do whatever.” But when I went to finance the duplex actually, they’re like, “What did you drive here?””My vehicle. Why?” They’re like, “You’ve never had a loan on a vehicle.” I’m like, “Yeah, I don’t know. I’m like a country boy. I don’t know. I just buy beater trucks and they last me five years and cost me two grand.” So you start doing the math and then you realize how there is a lot of people with a lot more money, but kind of like Ashley saying, if you’re just rolling a bigger ball and you’re buying flashy stuff and you’re buying liabilities, you’re not going to get to the goal you want to be at. You can just, I don’t want to say struggle and don’t have pleasure in your life, but just realize that you might not need all the things you think you need. It might be more of a want or trying to impress somebody. Just own what you can own to survive and save for the cash assets I think is smart.

Tony:
Ryan, can I ask next, so now that you have no day job, what’s your plan here? Are you thinking about entering back into the workforce? Is this more of like a sabbatical or are you planning to go full force into real estate and never go back to the 9:00 to 5:00?

Ryan:
Well, since I… I want to be clear with all the rookies, because I’m a rookie too, this is not passive, doing the duplex stuff obviously, unless you were to let’s say have a property manager handle all that stuff. So in the theme of being passive, I’ll say this now because I know Ashley’s too busy, so she’s not going to snipe this idea, but my friend, I actually looked at these a couple years ago, but when you go to a wedding event and they have those luxury toilet rentals, I just went to my friend’s wedding and he actually told me a year ago, he goes, “If you get in this business, I would rent it from you.”
So I go to his wedding and get slapped in the face with, “Oh there it is, there’s a trailer. It could have been mine.” So I’m actually working right now to get a little bit of private money. It’s in the theme of real estate because it is a rental entity and I look at it as the cash flow is equivalent in a weekend to what a month of rent is. I like the pressure of I could go work for someone. We all know friends who we could probably do side work or cash or sell off some toys or something, but I like the pressure that kind of motivates me to try a new business and make myself a little uncomfortable again.

Ashley:
Ryan’s known me a long time, but obviously not long enough because he made the mistake of posting on Instagram in a story of where he was getting a quote on these toilet trailers from and I already went in, got my quote, and it should be delivered any minute in my driveway.

Ryan:
Yeah, she’s going to rub it in and deliver this bad boy and I’m going to sink into my chair.

Ashley:
But I think I shared with you too Codie Sanchez on Instagram and she has YouTube too.

Tony:
Oh, yeah. She’s cool.

Ashley:
Talking about boring businesses and you can be a real estate investor, but also investing in businesses too just to diversify and create some income and how to make them as passive as possible too. So she’s really awesome to follow if you guys are interested in doing something like the toilet travel trailers and things like that.

Tony:
Yeah, I mean just one thing to add on to that, not having that steady paycheck from a job is definitely a scary thing because as a society we are so heavily programmed to think that that’s the one and only way to make a living for yourself. And even if you’ve been setting real estate investing and even if you’ve been deep in this world of entrepreneurship as a real estate investor, it’s still scary when that moment actually happens because you’re like, “Oh it’s here. Oh my god, it’s happening,” right? And it’s scary. But I can tell you, my business had a tremendous amount of growth the day that I stepped away from my day job because it’s like you said, there’s this pressure to make sure that you’re able to provide for yourself and provide for your family.
When you have a day job, you know that check is coming every two weeks. But when you don’t have that, the check is only coming if you do the work and it does kind of motivate you in a way that this never happened before. I think that’s why when people take that leap, they see this hockey stick kind of growth because everything’s on your shoulders now. So I’m glad you recognize that and I’m glad that it’s motivating you to take that action as well.

Ryan:
Yes, and I’m being hesitant too because I’ve had opportunities like you kind of just said of getting back into the workforce and people trying to transfer businesses. And it’s so funny, it’s like people want to do that but then they almost just want the worker be, because the minute you ask, “Hey, what would the buyout be or what is your monthly payment that you would like?” because I’m trying to look at it like she looks at stuff, business stuff, I don’t want to have to be in the field doing everything. I would love to be able to hire it out. You can employ people, give some the freedom and all that. They just keep a lot of older mentality or something like business folks think you just got to do it all yourself and they think, “Oh, if something’s ‘easier,’ it’s not going to last and it’s not real.” I’m all good with hard work. I think you should work hard and smart, but not just hard.

Ashley:
It’s kind of like Robert Kiyosaki how he has the four quadrants. The first one is you’re the employee, you work the 9:00 to 5:00 job, you have a boss. And then it’s also the business owner, and it’s where basically you own the job. Like, yes, so I think of, I always think of a chiropractor for example. You own your chiropractor business, but you’re not making money unless you’re there cracking backs. So you have to work every single day to make money. You take off work, you are not there.
And even my dad, he is a mechanic and he owned a mechanic shop forever. It’s always been really hard for him to take off work because he’s the one that does everything, runs everything. He has a few employees, but he never had that person that could really take care of things for a long time because he’s always put himself as… He’s the reason people come to his shop because they want him to work on their vehicle, not other people. So I think kind of having the difference between that. And then there’s becoming the investor where you are just investing in the businesses and it becomes a lot more passive. Tony, what’s a fourth one? Which one am I missing?

Tony:
I think it’s employee, self-employed, business owner, investor.

Ashley:
Yeah, so the self-employed one would be the one where you are the chiropractor example. Yeah.

Tony:
Right. Right. Awesome. Well thank you for sharing that, Ryan. I appreciate the trans transparency, man. It’s always a scary moment, but being able to take that leap, it’s like the matrix, right? It’s taking that red pill and you see this whole new life that you didn’t even realize existed before.

Ryan:
[inaudible 00:49:29].

Tony:
There you go.

Ashley:
I feel like it would be impossible for me to go back to a job. I would have to find a sugar daddy or something. I don’t think I could dust in my mind.

Tony:
I would also look for a sugar daddy if I had to go back to, so I’d be right there with you.

Ashley:
Yeah. Ryan, we’re going to take it to our Rookie Request Line now. This is where anyone can call in and leave us a voicemail at 1-8885-ROOKIE and we may choose your question to be played for our guests to answer. So Ryan, here’s today’s question.

Dom:
Hi, my name’s Dom. I’m new to this podcast. I’m a student college. Right now I have just about $20,000 saved up in my account. What would your advice be to me to get started in real estate and what books to read and what other things I could do to prepare if I want to get into it?

Ryan:
I would read… For the book thing that’s easy for me to answer, is I got The Richest Man in Babylon in my duffle bag over here, and Relentless from Tim Grover. Those are just really good, like going back to what Tony said, is like we’re so ingrained that the only way you make money is trading your labor for time. The more research you do on success, the most successful wealthiest people trade their money for money, like let the money work for them.
And then in regards to the 20 grand, I mean I guess I don’t want to dodge the answer, but I guess it would depend on what market you’re in. I mean, they always say you can go partner with someone too, which I think is a great thing. Me personally, in my first one I love doing it single, by myself, just because you got to take on all that responsibility. You learn a lot more. I feel like on a partnership you could maybe push some of the pressure on someone else and there could be issues. But honestly with the 20 grand, I’m assuming you’re working and you’re not a bum like moi, you could get financed really easy on that luxury restroom rental too. And that might be a way to learn how to do the passive sort of income. It’s going to take a couple hours of your weekend to get going on that.
I mean, obviously you want to buy a house right away, but I have a friend who’s in a similar position where he renovates vans and does that and he’s like, “Maybe I should keep doing that until I get some cash going and then buy one.” And I’m like, “Dude, you’re renovating these vans, they look awesome. You’re doing interior design. The house is the same thing, it’s just on a bigger scale. So you’re building up experience right there.”

Ashley:
Yeah, that’s so true. I think a lot of people have a skill set they don’t realize is a huge advantage that other people don’t have. That if they got started, they might have it a little easier because they have the skill that they can use and apply to buying their first investment property. I think asking the $20,000, people get too hung up on finding the perfect, the best way, the biggest return on that first investment. Don’t get hung up on that. Look at all the different scenarios you can do with that money. First of all, congratulations, you have $20,000 saved up. You’re way ahead of the average American I would say with that money ready to invest.

Tony:
Especially in college, right?

Ashley:
Yeah.

Ryan:
Yeah.

Tony:
I was negative in college.

Ashley:
I think that just look at the different ways you can get started and pick one, okay? Run the numbers. Look at the property the way you invest it. If you put a $20,000 down payment and maybe you buy two houses and do a $10,000 down payment on each and they’re just smaller houses, if you partner with someone in five years, what are you going to end up with? You don’t have to make the perfect investment, you don’t have to have the best return on your money because once you get started, you’re going to figure out so many other ways to keep buying properties and keep going because you become addicted.

Ryan:
Momentum is a real thing.

Ashley:
Mm-hmm. Yeah. There you go.

Tony:
Fantastic advice. All right. So Ryan, I want to take us to our next section, which is our Rookie Exam. So these are the three most important questions that you’ll ever be asked in your life. So are you ready for the exam?

Ryan:
Yes, my deodorant stopped working an hour ago.

Tony:
All right. So question number one, what’s one actionable thing rookie should do after listening to your episode?

Ryan:
Well, I’m assuming you’re already reading, but it’s hilarious that you brought that up because me and her just chatted the other day and just reading even if’s 10 pages a day, just enamor yourself in the mindset of doing real estate business. It doesn’t even have to be a real estate book, right? Just something that you’re learning constantly every day. And then let’s say you were like me and you were reading and going down the rabbit hole of everything and talking yourself out of it and talking yourself into it and all that, and on the fence of just going in on it, even if you know an Ashley in your neighborhood or someone like me just starting and they need help, I don’t know, framing up a duck something, just trying to get used to the terminology and just dealing with people and the tenants and stuff like that because that’s just inevitable when you’re on the job site and picking people’s brains for information.

Ashley:
I would just want to add in too because I know people are going to ask Ryan this question, is like, “How do you find somebody like Ashley to talk with you?” or whatever? First of all, it’s taking me out to eat. So free food always works. But he will bring a piece of paper like a notepad and he will have all of his questions ready to go and he will take notes. I feel like sometimes I talk to people and they just ask very generic questions. And Ryan even said to me the other day, he came to my son’s football practice and sat with me for two hours-

Ryan:
Whatever it takes.

Ashley:
… and kept me occupied a while and just we talked real estate the whole time. It was great, but he was willing to come and just sit there with me. And it’s the same thing, he had his questions ready and he is like, “I remember you saying before not to ask generic questions. It’s super specific so that you can actually help me through my situation.” And I thought that was awesome that he is actually listened to things that I’ve said and that he comes prepared. He has his questions ready and then he takes notes too. I always think that people that do take notes, it shows that you are generally interested and you really want to take action on what that person is saying instead of someone just like, “Oh yeah, cool. Okay” and then listening. How can you actually remember all of that? When I go to a restaurant and they don’t write down my order, I have severe anxiety that they’re going to mess it up.

Tony:
Hey, Doug. Hey, Doug. Like, “Doug, if you don’t just write this down like every other server in this restaurant…”

Ashley:
I know. So yeah, I think having great questions prepared, asking detailed questions and then taking notes I think is… And that Ryan’s obviously taking action too

Ryan:
I don’t want to toot your guys’ horn too much, but the more I immerse myself in this stuff is I realize my time is very valuable. And I can only imagine, I don’t have kids, you guys have kids and stuff. Your time is valuable and I can understand the frustration with being in a position of having the knowledge and then being asked like Ashley said of generic stuff, like you can go on Google. Because that’s what I started with her. I was bugging her and then I’m like, “Wait, I got to just take some action.” And then once I do it and trip over myself and then be like, “Hey, how do I fix this or what about this?” And it kind of helps add value to each other because I don’t want to leech on her, that’s why I’m offering her and Daryl some help on their property. Anything I can do.

Ashley:
Yeah. He came out to one of our properties and worked for a day with Daryl. That was awesome that he did that.

Ryan:
Not a lot of hardwork. I was handing tools and stuff. Daryl’s smirking over here but…

Ashley:
Okay, so our next question is, what apps, tool or software do you use in your business right now?

Ryan:
Boom, I was waiting for this. I got a good old Rent Ready from her and then I’m sure there’s probably promo codes still active for all that. So if you guys want my referral because I don’t need her to send you the referral, I could use that hundred too. No. But no, it’s very convenient. And being me that I’m scatterbrained and stuff, that’s why I do jot down notes when I do ask questions with everyone because I think it’s just a society thing. Our brains are so overwhelmed with information, it’s hard to keep all that together.
So I think it’s good to be organized. It’s on a spreadsheet. Everything’s right at the app portal and it just helps organize a tenant and yourself, because you’re running a business so you tell the tenant, “Hey, this is how the business operates.” A lot of people are like, “Oh I used to just give cash or run a check over.” Well what if you’re on vacation going back to the job thing? What if you’re out somewhere and it is the end of the month and you can’t get your rent checked because you’re on vacation? Something trivial like that. And then it helps with accounting, which I’m not good at. So that’ll be all organized and just make it a little easier at the end of the year I would say.

Tony:
Awesome. So last question. Where do you plan on being in five years?

Ryan:
Five years I originally thought, okay, when I first bought my duplex, I’m like, “Oh man, I get five of these?” And I do the math, I’m like, “That’s more than I made working.” But the more I thought about it, my friend said, “Hey, are you going to buy one next year?” I’m like, “I want to buy one this year. I don’t want to wait that long.” But as the more I thought I want bigger multi-units because there’s less grass, I mean our environment out here is we have all four seasons and it can be horrible. So there’s just a lot of expenses involved with like say you had five properties, that’s a lot of grass, a lot of driveways. So my goal would be to buy in the 10 to 15 unit range because I just don’t want to bite off too much right off the bat, but I just like the versatility of having that much income and value add opportunities and stuff like that.

Tony:
I love that, man. So moving into our last segment here, this is the Rookie Rockstar, and super excited for this one because it’s a great story. Today’s Rookie Rockstar, it’s Patrick Eldridge. Patrick says, “My wife and I are no longer employees as of today. Our real estate journey started just under two years ago. After working so incredibly hard we were able to acquire a whopping 32 doors following the BRRRR method.” So Patrick, but congratulations to both you and your wife and welcome to the Matrix.

Ryan:
Yes, call me.

Ashley:
Did you just watch The Matrix recently so [inaudible 01:00:44] couple times to reference it?

Tony:
I didn’t. I just feel like putting your job and doing the thing. I don’t know.

Ryan:
I respect it.

Ashley:
You know what, Tony? You’ve been on with this podcast for what, two years? I think this is the first time you’ve ever quoted movies. You’re trying to make up for never watching [inaudible 01:01:01].

Tony:
For never watching it.

Ashley:
Well Ryan, can you tell everyone where they can reach out to you and find out some more information about you?

Ryan:
Yeah, I’m not going to give you my other personal page because I’m kind of a crazy man on that. But my real estate page is BND Rentals. Boy, Nancy, David Rentals. I’m on there a lot because I am a professional bum. So if you have questions or a deal or help, I mean even if it’s something I can’t personally do, like Ashley said, maybe we’ll know somebody. I just love reaching out and following just the like-minded people so we can just get to the path we want to go on.

Ashley:
Awesome. Well thank you so much for joining us.

Ryan:
Thank you guys.

Ashley:
Ryan’s computer conveniently wasn’t working during his audio check yesterday, so he had to come over and do it in person.

Ryan:
I wanted to check out this massive empire, this Real Estate Empire in person.

Ashley:
Well thanks so much for coming over and dealing with all our tech set up and everything. So thanks again. I’m Ashley, @wealthfromrentals, and he is Tony, @TonyJRobinson on Instagram. We’ll be back on Saturday with a Rookie Reply.

I know what I am about to say may be unpopular—even controversial. But I believe that my advice on deciding which lender, or lenders, you will work with will resonate with many experienced investors. 

How do I know? Because although I am the co-founder of a lending company, I am also an accomplished investor with hundreds of projects under my belt. 

So, here’s my statement: When choosing a lender, their rates should not be an investor’s first consideration. I understand that many people teach this approach, but I strongly disagree. Here is why.

What Could Be More Important Than A Lender’s Rates?

Yes, rates are important, but in terms of priority, I think they should be at number three or lower on your checklist.

If you are looking to be an investor for the long term, you will get farther faster if you:

1. Choose lenders that are also investors

2. Choose lenders with reliable capital

In full disclosure, these points mirror two of the primary marketing aspects of my lending company, but that is not why I am talking about it here.

I am saying it because, as an investor and a lender, with experience in a variety of market conditions, I have seen the major effect that these two criteria can have on an investor’s game plan and their ability to grow. These two things impact individual investors on a much larger scale than the slight differences between lender rates. 

To prove my point, I am going to share specific examples of how choosing lenders who understood investing propelled several investors forward rather than holding them back.

I will also explain how counting on a lender, who does not have reliable capital, can stop your project mid-stream and potentially shut you down.

Finally, I will provide a mathematical example to show you how getting the lowest interest rate on a loan is not as important as you might think it is, particularly when viewed in the context of the velocity of money for investors doing multiple projects.

Lenders As Investors

You want a lender who understands your business on a gut level. Why? Because lenders who are entrepreneurial and who understand the real estate space can use both traditional and creative means to help you access capital and grow your portfolio. 

These types of lenders see things differently than other lenders, calculate risks and rewards on a more insightful level, and see project pitfalls and potential based on a full range of investing experience, not just numbers on the spreadsheet.

You already know the importance of creating a team with knowledge and experience. Imagine what a game changer it would be if you had a lender who was not just someone you called when you needed money but who was an integral part of your investing team.

Here are a few examples of what that looks like, taken from our own client experiences:

We recently had a developer with over $20 million and 660 stabilized units and apartments. This highly experienced investor wanted to enter a new market, but his bank relationships and other outreaches would not support his effort. 

It took lenders who were also investors to understand the potential in the developer’s team and their ability to execute. Because we are also investors, we were willing to learn alongside this client by visiting the market area in person, meeting his team, and seeing his plans. All of this allowed us to get comfortable enough to partner with this developer to make a big move into a growing market that would not have been possible otherwise.

Experienced investors who raise capital also look for higher leverage, and many would gladly pay higher rates to get more leverage. Because lending exposure is higher with an alternative lender versus the bank, and this developer wanted greater leverage to enter the new market so that he could make a larger impact, working with us was advantageous for him.

In another example, we had a borrower who was an extremely seasoned builder with 1,100 stabilized units, who ran into major liquidity issues when construction costs rose, and local municipalities were understaffed and slow to issue permits. Local banks, who held the paper, told the investor they would not refinance him and that he would have to come up with the cash to complete his project. 

As investors, we understood that the last thing this builder needed was a lender who was riding him because his loans were coming due. We knew that even the most experienced builders would not have been able to forecast what took place during Covid, and the subsequent supply issues, along with the rapid rise in interest rates. This investor needed a lender who understood how commodity and labor prices were affecting his situation and who could help figure out how he could creatively use what he had already built to get him back into a position where he could keep moving forward. 

As lenders and investors, we felt his pain. We were all over this, and together, we got it figured out. Because of the added leverage that alternative lenders can provide, we were able to structure the deal for the investor creatively. We allowed this investor to recover some of the imputed equity he had created thus far in the project and adjusted his construction budget to reflect the new cost of completion. This allowed the investor to continue to buy more real estate while having the correct working capital needed to complete his projects. 

If you are a newer investor, having a lender who understands investing on your real estate team is a huge benefit. You want a lender who is willing to sit down with you and go through the nitty gritty of your proforma and co-underwrite your deals alongside you to help determine the viability of your investment. 

This is an invaluable service for new investors and a partnership that could mean the difference between you making a great move or a problematic one. If you are not using a lender who is willing to work with you on this level, you get absolutely zero value from what could be one of your most important resources. 

Speaking of resources, your lender should also be a full professional investment resource for you—willing to share connections for everything from reputable architects and reliable contractors to trustworthy attorneys, title companies, and real estate agents.

Find an Agent in Minutes

Match with an investor-friendly real estate agent who can help you find, analyze, and close your next deal.

• Streamline your search.
• Tap into a trusted network.
• Leverage market and strategy expertise.

Reliable Capital

A lot of investors have just gone with what is easiest in terms of the lowest rate for accessing capital. They treat lenders like commodities and always look for the lowest bid.

But some investors who approach lenders this way and who lack strong, long-term relationships with lenders that have reliable capital are experiencing major project setbacks in our changing market.

Over the past few months, we have had many investors calling us whose lenders have either temporarily stopped their loan draws or who have ducked out on them altogether.

This has happened because some lenders do not have the liquidity to withstand market fluctuations (and others are simply brokers masquerading as lenders). When Wall Street recently stopped buying loans from retail lenders, who loan to real estate investors, lenders who lacked the depth on their own balance sheets to carry their investor’s loans had to temporarily or permanently stop lending. Some lenders even left buyers and sellers at the closing table!

So, especially now, you want lenders who have reliable capital—meaning, they have enough resources to back you if things get even more unpredictable. 

In addition to assuring your lenders have reliable capital, find lenders with a full range of loan products. When you want to go from a 1-4 unit multifamily home to a 1-30 unit apartment building, it is important to know that the lender you have put the time into developing a relationship with can get you there.

In practice, most experienced investors have relationships with more than one lender, not to play their interest rates against one another, but because they offer various products for distinct reasons that could be more optimal as you grow. (A lender’s product offerings are largely driven by the amount of capital they have on their balance sheet and the relationship they have with institutional investors.)

Regardless of which lender you choose, treat them not as commodities but as integral parts of your ecosystem. The most successful investors treat their lenders like family—trusted members of their inner circle who have the invaluable knowledge and resources they need to help them get where they want to go. 

How Much Do Rates Really Matter?

Don’t misunderstand me. It is not that rates are not important—they are just not the most important thing when choosing a lender, especially when you consider how moving more quickly with non-bank loans can allow you to accomplish more with your money faster.

Here is a mathematical example to show this:

The Deal: Fix and flip project that takes five months to complete.

Purchase Price: $375K

Rehab Cost: $100K

Total Project Cost: $475K

After Repair Value: $575K

LTC (Loan to Cost): Assuming all lenders are lending at 85% LTC*

Loan Amount: $403,750

Bank loan: 7% interest-only loan payment is $2,355/month x 5 months = $11,775.

Alternative loan: 9.5% interest-only loan payment is $3,196/month x 5 months= $15,980.

Cost comparison: Alternative loan costs $841 more/month in interest ($4,205 over 5 months).

The benefit of fast loan closings to the velocity of your money: You can close an alternative loan in three weeks, versus closing a bank loan in two months. For ease of showing this point, everything else being equal, this means that you could theoretically complete two of these same projects in 11.5 months with an alternative loan and two of these projects in 14 months with a bank loan.

Alternative loan profit = $100K/project x 2 = $200K – $8,410 (the additional alternative loan interest versus a bank loan)/11.5 months = $16,660/month

Bank loan profit = $100K/project x 2 = $200K/14 months = $14,286/month

In this scenario, the additional profit you gain by using an alternative loan versus a bank loan, after factoring in the higher alternative loan rate, is $2,374/month.

*The additional benefit of higher leverage: The above example does not take into account the added benefit you gain by getting higher leverage from an alternative lender (85%) versus the typical bank’s leverage (75%). For simplicity in this example, we used an LTC of 85% for both. This is one more factor to consider, as less money out of your pocket means you have more to put down on your next project. 

Challenging Long-Held Assumptions In Institutional Lending

The entire landscape of lending is changing. 

It is time that we, as both lenders and investors, challenge some of the long-held assumptions of traditional institutional lending systems. One of those assumptions is how investors should be making decisions about which lenders are the most optimal for them to use across a range of scenarios.

Prioritizing your lender choice based more on their investment experience and their reliability of funds, rather than solely on their rates, will give your investments the advantage over the long run.

Find a Lender in Minutes

A great deal doesn’t just sit around. Quickly find a lender who specializes in investor-friendly loans that are right for you and your investment strategy.

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