Ep 77 – How to Evaluate Short Term Rental Properties and Markets with AirDNA’s Alex Haler

The short term rental market had a rough start to the pandemic, then saw a boom in some places as people took vacations to more remote areas. AirDNA’s Alex Haler joins Adam Schroeder and Zach Lemaster to discuss what the trends were during Covid, and what the NEW trends are for the rebound.

The three also dive into what to look for when evaluating possible deals, how to vet short term rental property managers, and what types of properties work best in certain areas.

Learn more about Alex and AirDNA HERE

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Transcript:

Adam 00:22
Hey, run through attires it’s Adam Schrader here with Zach master once again and we are

joined this time by Alex hailer with the company, air DNA. Alex, welcome to the show.

Alex 00:32
Thanks. Appreciate it. Thanks for having me on.

Adam 00:35

Absolutely. So today we’re going to talk a little bit more about short term rentals, which is not something we delve into a ton here. But people have seen short term rentals on our website, people are looking to expand maybe out of their long term rentals and get into some short term rentals. So tell us a little bit about air DNA and how y’all work in the short term rental market.

Alex 01:00

Yeah, thanks. Thanks again for for having me. So air DNA is a website that has been basically tracking data and analytics for every Airbnb and VRBO listing in the world since 2014. So we have a pretty rich data set on occupancy, average daily rates, you know, we can tell with a

pretty high degree of accuracy what a prospective property should generate, as a short term rental, how certain markets are doing, whether they’re growing or contracting. So we just put data in the hands of our users, so they can, you know, make the most informed decisions on short term rentals, Airbnb and VRBO. Specifically,

Zach 01:44

Alex, I think that a lot of our audience and investors would be particularly interested to get more short term rental data on how either their property may perform like Is that an option for them to use as a successful short term rental in the market that they own it in? Or use this to base their investment decision on which markets to look at? So I have a few questions for you. But for someone that just owns a property? I mean, can you explain like how this would be valuable to someone that owns a few investment properties? Is this data that they are going to kind of allow them to see, you know, is there a high demand for a short term rental in this area? I mean, are there potential rent comps, they can look like? What is the information available to them to help them see if that property would be a viable short term rental?

Alex 02:32

Yeah, it’s a really good question. So our flagship product on market minder is what we call the rental iser, and so you can type in any address in the world, enter the rental iser, and populate the bedroom, bathroom and occupancy count for that property. And it will give you a 12 month projection on what that property should generate as a short term rental. It also gives you the average daily rate for that property as well as the occupancy

Zach 03:05
is that dynamic rates as well throughout. Yeah,

Alex 03:08

yeah, we have that information. And for the rental iser, specifically, it’s pulling in from very specific, geo located comps in your area. So if I typed in my address here, where I’m at, and I said, you know, this is a three bedroom, three bath, in Joshua Tree, what can I generate as a short term rental, it’s actually going to take the address, I give it sort of pull a circle of all the similar size properties in my area, and give me a weighted average projection based off of that.

Adam 03:41

So with so with the pandemic, obviously, people were very concerned about short term rentals to begin with. And then we saw some markets come back pretty strong. Can you talk a little bit about what areas have done? Well, and what areas have gotten hit hardest? by what’s happening and kind of what you’re expecting to see, you know, in the next year to year two, is that like, is that trend going to continue? Do you think? Is everything gonna kind of come back? Or what are you What are y’all expecting in the, in the market?

Alex 04:12

That’s a really, really interesting question. It’s been kind of kind of fun to watch how the numbers have moved since that. So I was actually running a property management company when COVID hit and it was, you know, one of the, you know, scariest times I’ve had professionally you know, we had six figures worth of reservations cancelled virtually overnight. government mandated that, you know, we were supposed to shut down all the rentals. I was a real estate agent at the time as well. So your stop doing all showings best of all worlds. So it went from you know, I think February 2020 was our best month ever, and we were just tons of momentum. We were really excited about it. March 2020 hit and everything shut down. It became very scary. But now like fast forward just two or three months by June, the short term rental market, which is absolutely booming, and my market, which my my primary space that I operated in was in the mountains in Colorado. And so to answer your question, specifically, a lot of the destination markets close to national parks, mountains, lakes beaches, they did extremely well, during COVID, people, you know, felt trapped in their apartments or homes, they got tired of working from home and seeing the same space and being in the same location 24/7. So we saw a lot of those destination markets just absolutely thrive during COVID. On the flip side, a lot of the urban environments where, you know, mandates and regulations, whether they be you know, restaurants, shut downs, wearing masks and certain places, different COVID protocols, those areas got hit pretty hard. So fast forward to 2020, to where we’re at now, I think you’re starting to see both of those revert back to pre COVID levels, where we’re seeing a lot of growth and urban areas, those are starting to sort of pick back up and hit grade occupancies. And a lot of those destination markets that just had a banner time, rental wise, obviously, you know, everyone had their struggles during COVID. But rent alized they did really, really well, I think are starting to slide back down to some of the more normal market conditions as far as seasonality and demand and overall bookings for the area.

Zach 06:39

Interesting, I’m going to ask you to draw a little bit more on your managerial experience in the short term space. For someone that is a newer investor that’s never owned a short term rental, or that has limited experience, and they’re looking to get into the short term space. I mean, what what advice can you give them to set themselves up for success? In terms of identifying location? I mean, anything with with a property specifically? I mean, does it have to be a really large house with multiple bedrooms and bathrooms cannot be just a regular can you use you know, in the right location, just a regular 32333 or whatever, and turn it transition it into an air air b&b or short term rental versus, you know, just using it as a long term rental?

Alex 07:23

Yeah, good question. lot there. I would say that, I mean, this the smallest place that I’ve short term rented is a 330 foot studio, essentially, essentially a closet, I marketed as a studio, just trying to get a bit more bookings, and then all the way up to like a 10 bedroom, like, you know, Victorian mansion from the 1800s. And anywhere in between, I think that there’s going to be demand for all sorts of different types of properties. I think, you know, what’s important for a new investor looking at this is, you know, number one, how much time and energy Do you long term rental, I mean, you’re talking about furnishing a place, taking photos, doing pricing, you

know, managing calendars, potentially listing it on multiple different sites, you know, you’ve got Airbnb, Airbnb, VRBO, booking.com, etc. So it’s, you know, identifying what sort of time you have to dedicate to this, you can, of course, outsource it to a property manager. If that’s what you want to do, then it becomes a question of, you know, do I want one of these lower cost tech enabled options, which are great for some people? Or do I live out of state? Or is this rental just too far away? And I need a full service, higher cost option for it? I mean, there’s, there’s a lot of considerations that go into that. And I think another pretty important component of it, as well, as you know, is this a place that you’re actually, as an investor going to want to spend even at least a little bit of time that and I say that because I think that, you know, a lot of the best short term rentals are ones where their owners are personally invested in it, you know, maybe they stay there once or twice a year. But I mean, even things as little as you know, making sure that kitchen is really stocked out and conducive to cooking a nice meal or, you know, all the closets and cupboards have, you know, extra throw blankets and extra toiletries, I mean, all those little things really add up and make the difference between a four star and a five star listing. So I think there’s, there’s a lot of different things to consider when you’re going to purchase a short term rental is, you know, how much time do you have to dedicate to it? Is it a place that you’re gonna want to sort of actively monitor and manage? Or is it you know, purely an investment where you want nothing to do with it, you want to hand it off to a property manager. Then once those considerations are met, and once you sort of have an overview of where you want to invest and how you want to invest, then you can sort of look at the data and figure out, okay, if I know I want a beach location in Florida or I want a mountain location in Colorado, then you can start to look at the individual markets and the individual data to make the best decision there.

Adam 10:15

So if someone’s getting into this in the first place, and they want to be passive, what are some general numbers like we know, with our company kind of in general, what your maintenance is going to be what your vacancy is going to be, what your management is going to be. But, you know, it’s a lot easier to figure that out on long term rentals, then short term. So what are some general numbers that you suggest people use for vacancy management? And those assume maintenance is going to be roughly the same. But you know, for vacancy and management, what should people be plugging in as they’re doing a rough estimate? Obviously, I’m not. You don’t know every single market, but roughly, what would you recommend?

Zach 10:56
I would argue maintenance is much higher, probably in short term rental just because you have

people coming and going. You know, but anyways, yeah, let’s let’s hear from you, Alex.

Alex 11:05

Yeah, the the maintenance thing is, is kind of an interesting piece, I’ll answer the first question. But to touch on that, when I first got into this, I, I was sort of under the notion that short term rentals were going to be much harder on the property than long term rentals. But I found kind of the opposite, because short term rentals, they know that their credit cards on file, they know that you’re gonna write a review about them, you could charge a security deposit to them, and

you have cleaners there once or twice a week, you know, sort of cleaning the property and maintaining the property. Whereas some long term rentals, I mean, they could potentially let a leak under the sink fester for months to the point where it’s no longer just, you know, tightening some plumbing, it’s replacing cabinets. So I think I think it can go both ways on the maintenance piece. To answer your question about property management costs I’ve seen, there are a couple sort of national booking behind the scenes engine only options that are as low as about 10%. But they don’t really offer many on the ground services. As far as you know, cleaning and maintenance goes. So that would be something you’d have to find and source separately. And then there are some full service property managers out there that charge as high as you know, 35 40%, I’ve seen as high as 50%. It’s about the highest I’ve seen, but I think a good way to average across the nation for full service, you’re probably looking at 20 to 25%, I would say is, you know, a reasonable, attractive rate.

Zach 12:41

And then as far as like vacancies go and things like I mean, that was kind of looking into the rental analysis of you know, what a typical occupancy time is based on dynamic rents. Obviously, a lot of these places have seasonality to them, where the majority of the money may be made in a quarter of the year or something like that. So that’s probably a variance where you can’t just plug in a 5% vacancy, you really got to just look now says I know when because we do sell short term rentals from time to time. And when we do we keep the vacancy at zero, because it’s already factored into the rental estimates of hey, this is what your your estimate is if it’s rented for 300 days a year at these these dynamic rents. So just a little bit of a different analysis. I mean, this is probably very geographically dependent. But what would you say would be a good performance for occupancy time throughout the year for a typical

vacation rental

Alex 13:39

does vary a lot from market to market. So for like a really, really good well run, say, like two bedroom condo in the mountains in Colorado, you are probably doing really well if you’re hitting somewhere between 60 and 70% for annual occupancy, and it’s going to be really heavy during the ski season and during the summer. Or as you know, spring when all the snows melting and fall and it’s you know, likely to cold the hike but no snow to ski on. You’re gonna be have,

you’re gonna have really soft shoulders. And so the good occupancy there of 60 to 70% is probably going to look a lot different than urban area like, you know, Atlanta, Chicago, Denver, I would imagine most well managed two bedroom condos in those markets, you’re probably looking at more like 80 to 90% occupancy, if you use dynamic pricing.

Zach 14:34

Sure. And then some locations that tend to have more draw year round. I mean, a lot of stuff that we do in Florida, especially if it’s like Orlando, I mean, super high occupancy rates there just because you’re around it’s attractive to travel. Kind of switching gears here. When When would you say or when have you seen Alex short term rentals not be successful or Fail.

Alex 15:03

One of the not been successful, I would say, you know, I’ve, I’ve seen it a couple of times in this sort of, you know, high priced, hectic real estate market that we’re in, where, you know, a lot of I wouldn’t say a lot of, but I’ve talked to a few people who this seemed to the short term rental that they purchase seem to have been a stretch for them financially. So maybe they, you know, use too much leverage, have too high of a monthly costs based off of what the property’s projected to do. And yeah, just, I think a lot of people got caught up with, you know, being again, with COVID stuck in their homes and wanting to have a place to escape to. So I would say, you know, where you can run into trouble is just, you know, I’m sure you, you guys talk about this all the time on the podcast, but it’s just making sure that you really understand your projected revenue, projected expenses, and then, you know, build some vacancy and emergency costs and cushion in there to make sure that your investment is going to be okay. I think that in this in this real estate market that we’re in, not everyone is fully considering that the way that they should. So I would say that’s probably one of the bigger risks is just spending too much or using too much leverage to to acquire a property.

Zach 16:24

Yeah, definitely, my opinion would be to your point having an additional reserves, there could be definitely potential more fluctuation, for whatever reason. And being able to, I mean, don’t make it an emotional decision. Absolutely. Being in an area that you want to personally visit is great. But I would not recommend just buying it from an investment perspective. If you know, I mean, it’s hard sometimes with it, their price points are at but to really I mean, even break even on on the property, but with your with your mortgage and expenses. But yeah, don’t make an emotional buy, run the numbers. And if it makes sense. And it’s going to be positive cash flow, and you have the reserve amounts. And then it might make sense, what we’ve seen, and maybe you can speak to this, but with more people working from home or being able to work remotely, we have seen some locations that you typically wouldn’t think about using it as a short term rental, or as kind of like a hybrid, maybe you have people coming in and living in a market while they’re waiting for housing, because we have this huge housing shortage, you know, so maybe they’re in waiting for three to six months, and they’re renting out just on kind of a short term basis, or an area where people are traveling more. And we’ve seen a lot of investors in some of these random Midwestern markets that have actually been successful turning their regular long term rental into short term rental, and actually doing doing better in terms of the rental performance on it. And that’s where something like your software in your guyses platform could be very useful of just kind of initial starting point, right is joining looking at comps I mean, what other advice would you give to someone that already has an established long term rental that’s looking at, hey, what would the performance be? If I wanted to explore doing a short term rental? I mean, obviously, getting quotes from local managerial team starting with maybe an analysis with air DNA, what other suggestions would you have for someone in that scenario?

Alex 18:06

Yeah, if you if you already have the property, and you know, you, you have the use case, you have the town you already have the long term rental, using our software is going to be really cost effective. I mean, we charge generally speaking by either the city or the zip code. And so for certain people, they say, Hey, I have no idea where I want to purchase the short term

rentals. So maybe I need to purchase a statewide subscription or a nationwide subscription, which obviously cost more than, you know, a zip code or city level. So if you already have the home and you wanted to, I mean, the rental as a tool that I mentioned earlier, where you can just type in an address, tell it the bedroom bathroom count, and it will give you a 12 month projection on what a property should generate. That’s free to use as far as the sort of like the most important numbers that it will give you 12 month revenue, average daily rate and occupancy. So anyone can go there and just sort of get a baseline idea of what their property

Zach 19:11
audit free write on the platform parse tree. Yeah, absolutely.

Alex 19:15

Then the paid version, which again ranges from 20 to $40 a month for really small markets where there aren’t a ton of short term rentals, up to $100 a month for a huge market that’s got a ton of short term rentals. So I mean, the free version gives you sort of a general idea of what the property should generate, but it just doesn’t include all the all the detail that frankly, you’d probably want to take a look at if you are seriously considering making this decision. So I’ll give you an example my house here in Joshua Tree. If you put in my address into the rental iser and say it’s a three bed three bath with this address, it’s going to show 100 And $22,000 per year on the rental iser, but then when I scroll down and look at all the actual comps for the property, some are doing close to $200,000 a year, and some are doing as low as 60 or $70,000 a year. And in my particular case, in my neighborhood, the only difference between those two properties are ones that have a pool, and ones that don’t. And so the comp set is something that we don’t include in the freemium again, you get those top most important three numbers, you just don’t get the detail to sort of digest and sort of analyze those those numbers, if that makes sense.

Adam 20:40

Yeah, so what is, if I was just kind of kind of think I’m looking for, you know, a short term rental property? What are some of the ones that perform best? Is it like a three bed or four bed, you know, is it two is there kind of a sweet spot of what to look for in terms of bed and bath combination for short terms?

Alex 21:00

I think, I mean, pretty much all sizes of properties have their place, I would say, the larger you go, generally speaking, the lower your occupancy is going to be and the smaller you go, studio, one better, and even two bedroom, specially in more, you know, urban and city environments, then the higher your occupancy is going to be. But that said, I mean, some of the bigger homes perform really, really well in certain destination markets and markets that have, you know, different events, you know, Coachella Valley, which is, you know, maybe an hour away from me, a lot of the bigger homes do really, really well there because they’re having all sorts of different music, festivals, big live events, and so why people will, you know, gather with their

friends and rent a four or five bedroom house. So the larger homes do really, really well out there. Whereas, you know, if you have a studio or one bedroom in a popular city where tourism is pretty much year round, then it’s pretty much always going to have demand. So it really depends on the market. But I would say, you know, for most markets, you can’t really go wrong with a two or two or three bedroom.

Zach 22:19

What about insurance? And this may be something you may not be able to speak to but, you know, typical homeowners insurance, is it? Is it more for a short term rental? I mean, typically, you require the I mean, this is speaking more to your management side as well. Are you requiring the tenants who also have their their insurance as well or put a deposit down or?

Alex 22:44

So for insurance, there’s a few different areas on it. One is, you know, do we need insurance for any incidental damage that the rental renter’s might do to the property? You know, if they spill a glass of wine on a rug, or if they accidentally break the window, you know, is there going to be some sort of incidental insurance to cover that that’s sort of one aspect that’s becoming pretty popular in the short term rental industry, for homeowners insurance. And like from a homeowner perspective, you would need to talk with your insurance company and make sure that you have some sort of short term rental rider on the policy just to make sure that you know, any sort of damages, adverse pie, you know, something catastrophic to the house would be covered by short term rentals. When I started doing this back in 2014, that was pretty rare. And honestly, like a lot of insurance companies hadn’t even heard of it and didn’t offer it. And then the ones that did charge a ton for short term rental riders, I think that’s changing now, and it’s getting much more normalized. And I think that there’s a lot of different providers that will cover short term rentals within their policies, that a lot of property managers will, you know, have some sort of additional liability insurance. And then Airbnb and VRBO also have similar incidental damage policies that, you know, they use to sort of assuage the fear of, you know, something terrible happening to your house, although I would recommend, you know, insuring it on your own as a homeowner versus relying on a property manager or a third party like Airbnb or VRBO.

Adam 24:29

Do you all of those air DNA records? How many do you recommend property managers in areas like if you wanted to get them more detailed? Does it give you like, you know, this is the returns you can get and these are some good property managers in the area or is that something that kind of people are going out and finding on their own?

Alex 24:50

Yeah, so we do have that on the Overview tab of our of our market minder software. So if you type in a city you know it will show you you know, how many listings there are, what the occupancy is how those numbers are changing over time. And then we do have a box on that

overview page of like the top, you know, four or five property managers in a given area based off of reviews and number of listings. So we provide a bit of that context. And there. There’s also, you know, all sorts of different resources out there and blog posts that not only we’ve done, the other players in the short term rental space have done as well, that you can look at for it. But yeah, we do provide an overview for property managers on our software.

Adam 25:36

Excellent. So what is your I mean, I know you talked a little bit about it. But if you were going to look at one spot to invest in maybe not necessarily I can, no specific neighborhood. But is there one area where you’ve seen like kind of an explosion in short term rentals that y’all are thinking is going to continue for the next few years?

Alex 26:00

So it’s a really interesting question, as we’re coming down from the height of the pandemic, I would say that, you know, the answer to this question just a couple of years ago, is probably a lot different than it is today. I think that a lot of urban areas, midsize cities, I mean, just personally, the the Midwest is pretty interesting to me right now. Reason being is I think a lot of the area’s in the Midwest have a lot of, you know, desirability, and people will go to them, but a lot of them have not experienced the same massive surges in real estate costs that other markets and California, Colorado and Florida have had. So I think that there’s going to be a lot of interesting spaces and in urban areas, Midwest, specifically, and just a lot of those areas that didn’t have, you know, the big price pops that that other places had during COVID.

Adam 27:03

Okay, excellent. All right. Well, Alex, thank you so much for joining us today. Really appreciate it. The website is air dna.co. Is there any thing you want to leave our listeners with or anything about your company you want to promote? Before we wrap it up?

Alex 27:19

Yeah, I would say you know, if you’re interested in learning more, we have just a ton of resources. On our website, we have a really active blog with all sorts of different, you know, best places to invest posts, how to get started. Again, a lot of the data on our site is completely free for people to use. And then you know, once you start to get a little more interested and a little bit more serious about it, we have pretty reasonably priced us subscriptions for it. We have a really good customer support team and we’re available for questions. We’re more than happy to be a resource in your journey of exploring short term rentals.

Adam 27:56

Excellent. Well, thank you so much for joining us. Once again. Err dna.co. You can find Zach and myself at rent to retirement.com. That’s rent to retirement.com. You can see the properties

we have which as we mentioned, we definitely do have some short term rentals and Alabama

we have which as we mentioned, we definitely do have some short term rentals and Alabama and Florida specifically for the most part, but that’s rent to retirement.com really appreciate you leaving us a review on whatever podcast platform you’re using. If you have any questions, email us podcast and rent to retirement.com and we’ll see you on the next episode.

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