How Hosts Are Making More Money Even As Demand Drops

Rob:
Welcome to the BiggerPockets Podcast show, 835.

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

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

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

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

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

Rob:
I know how it feels.

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

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

Tony:
Yeah. I’ll be there in spirit.

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

Jamie:
Thank you so much for having me back.

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

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

Rob:
Yeah.

Tony:
Yeah.

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

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

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

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

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

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

Tony:
Of course, yeah.

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

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

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

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

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

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

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

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

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

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

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

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

Jamie:
That was huge.

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

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

Rob:
Exactly. Same states.

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

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

Tony:
[inaudible 00:18:35]

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

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

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

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

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

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

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

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

Rob:
Oklahoma?

Jamie:
Yeah.

Rob:
Okay.

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

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

Jamie:
So I was totally wrong on that one.

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

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

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

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

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

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

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

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

Rob:
Just buy it all cash, dude.

Tony:
Easier said than done, huh?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tony:
Yeah, absolutely.

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

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

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

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

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

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

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