We are excited to bring you another great episode of The Accommodation Show, where we tackle the latest trends, tips, and strategies to help you grow your business and stay ahead of the game in the industry.
In this episode, we dive deep into the world of short-term rental investing and share valuable insights to help you start your business with the end in mind, analyze a property for due diligence, understand the pros and cons, and factor in seasonality for maximum revenue and profit.
We also share how to scale your portfolio faster, use the right systems to manage your properties, and explore the benefits of using Vrolio to boost your business.
Today we have the pleasure of having a seasoned realtor, Erica Muller, on our show. With 16 years of experience and hundreds of deals under her belt, she’s a true expert in short-term rental investing. Erica’s also the founder of Vrolio, a tool helping thousands of investors and agents make informed investment decisions.
What we cover in this episode:
What do consider when starting an STR business 💼?
What to consider to help you gain clarity on the kind of rental you want to buy and where. 🔍
What are the Pros and Cons of Short-Term Rental Investing? 💰
Analyzing a short-term rental property, what should you do for your due diligence? 🔍
Cash flow vs. appreciation and which matters more when it comes to STR investing 💰
What are the four types of short-term rental markets and which ones have the best chance of success? 📈
How to factor seasonality into your revenue and profit calculations 📊
What are the risks of investing in vacation rental markets? 💰
How to scale your portfolio faster. 🚀
Which systems should you use to help manage your portfolio of vacation rental properties 💻
What Vrolio can do for your business. 💼
Should you purchase a property that is already being used as a vacation rental or should you buy a property and convert it into a vacation rental? 🏠
Join us as we delve into the exciting world of short-term rental investments with Erica.
🎙️ Get ready to take notes as she shares her secrets to finding the right market, understanding different types of short-term rentals, and building a strong portfolio for long-term success. This is a can’t-miss episode for anyone looking to grow their business in the short-term rental market!
So, sit back 💺 , relax, and join us as we delve into the exciting world of short-term rental investing. Get ready to take notes and transform your business today! 🚀
Hello and welcome back to The Accommodation Show. We help accommodation owners like you get the knowledge and skills, grow your business, improve your guest’s experience, and increase your profitability.
Bart: Okay everybody, welcome back to another episode of The Accommodations Show. I’m excited because today I am joined by the wonderful Erica Mueller from Rollio Welcome to the show.
Erica: Hi, Bart. Thanks for having me.
Bart: Erica is an absolute legend we met in Las Vegas. We’d been talking the year before. This took us I think over a year and a half for us to finally get together and have a bit of a chat.
Erica: Yeah, I’m so happy to be here. I mean, I always love learning from you. I’m a forever student and every time we chat I always learn something new. So I’m excited to be here today.
Bart: That’s very cool. Look, I’m really looking forward to you sharing with the audience, what you get up to him in your world in your space. But let’s start off with that. How about you introduce yourself, and let everybody know who you are, where you’re from, and what you do in your business?
Erica: Yeah, so my name is Erica Miller. I’m currently in Central Florida. I’ve been here for about 15 years. Prior to that I was living in South Florida my whole life and got into real estate 21 years ago. So I come from a real estate investment background. And I am one of those people that gets to say I survived the 2008 collapse, which short-term rentals actually saved my life during that time. That’s actually how I got into short-term rentals when the whole economy was collapsing. I was a real estate agent and I actually had to leave South Florida and come to Orlando to actually survive the market because it was getting so bad. And there was no business in residential real estate at all. Right, so residential real estate agents were losing their homes. They had no income.
I actually stumbled upon short-term rentals because Orlando happened to be the hub for this and all the international tourists were still coming here. And because you know the economic collapse was pretty much centralized around our country. So you know, internationally, there was still money to be made. I didn’t realize that until I took a job at a short-term rental management company to survive. And my job was literally called the short-term rental liaison where I was supposed to talk to international guests that were staying in short-term rentals about if they’d ever considered buying one and then turn them over to the real estate agents, right? And that’s how I discovered that there were millions and millions of dollars in money flowing into this country into short-term rentals. And this was before Airbnb. So that’s when I jumped ship immediately and started selling short-term rentals in 2008. So that’s how it was actually 2000, 2007 And that’s how I got started in short-term rentals.
My background prior to that was selling investment properties and commercial properties, and I usually worked with high-net and high-net-worth investors that were buying multifamily gas stations, and things like that. So I had a background already in investments. So it was a really great segue into probably the coolest niche in real estate.
Bart: Yeah, right. And that’s, that’s fascinating. I always find it interesting. If I talk to mum and dad investors right now. And if we’re talking about property, typically in their mind, they’ll always be thinking of residential real estate. And this whole you know, people still call it Airbnb investing right or just Airbnb or you do Airbnb rather than short-term rentals. And that shift is still happening right now. It’s not obvious to most people, I would argue that to understand that short-term rentals are an investment class of their own.
Erica: Yeah, recently I mean, it’s been recognized as its own asset class. The real estate industry is really slow to pick up on that we still need more, you know, more regulations around how appraisals are done based on short-term rentals, like how they’re appraised, the income approach versus the residential approach. We’re really working on trying to push that through because they really are businesses essentially. And so when you’re buying and selling them, you’re essentially buying a business and selling a business.
Because it is its own asset class. There’s a lot that needs to happen. But it’s come a long way since I started selling short-term rentals, as I said back in 2007. We actually called them vacation rentals at the time. But then as you know Airbnb hit the scene. People started calling them Airbnbs, which I hated. And I still hate that when someone calls it an Airbnb. And now it’s kind of evolved into just calling it a short-term rental. Because it encompasses so many things right? So I’ve loved watching this evolution.
Bart: Yeah, that’s interesting as well. The vacation rental thing I find more so that that term is in the US rather than here. Here. I think we kind of almost skipped that. That part of it. I went straight to short-term rentals or it’s kind of like Airbnb is then short-term rentals. So people are adjusting. So pretty fascinating. So today, Erica, we’re going to try to get as much value as we can out of you and your business and what you’re up to and we’re going to be talking about acquiring another short-term rental investment. Or if you’ve never bought one before, what it is you need to think about the reason why I wanted to do this episode is that I think that it can create huge value if you are going to approach your next investment. You might think that you know everything, but this is going to be a refresher for you. And if you know nothing, it’s going to help you get there. How does that sound?
Erica: Yeah, that sounds great. Let’s do it.
Bart: Yeah, awesome. So look, I think that there are different parts of the strategy when you’re picking up a short-term rental investment. And obviously, you’ve got the acquisition part and your research part and all of that and then you’ve got the exit part of it, which a lot of people may not think about. Where do you want to start? And is there anything in between? What am I missing in terms of the conversation?
Erica: No, I mean, really, we’re just down to basics when it comes to real estate investing. And you know, real estate investing is just real estate, investing 101, no matter how you do it, no matter what you’re buying, there are some basics that you have to understand before you start layering on the short-term rental stuff, right and, and the basics of real estate investing is just really understanding like what is the return you’re looking for? Is it a lifestyle return? Are you just trying to find something that pays for itself and have this equity play down the road? Are you really trying to replace an income? If that’s the case, that’s a totally different approach to it, because a lot of people will come to us and they’re like, look, we have two incomes to replace so that we can retire in five years. That’s a whole strategy, right? Or is it that you already own real estate and you’re trying to diversify into a different asset class?
You already know what cap rate you need to be buying at so you know, there are a lot of different reasons going into it. But we really need to identify why you’re buying first and how much you understand the basics of real estate. A lot of the basics are knowing the difference between a cap rate, a cash-on-cash return, and a gross ROI and why they matter. Right? If someone doesn’t understand those three metrics, it’s gonna be really easy to get sucked into the info vortex online of all the gurus and coaches that exist out there that are all selling something to you that I would say 90% of it, you really don’t need. You could learn it for free. Online and the other 10% You can probably get from a really good real estate agent, right? So if you don’t know what you don’t know, that’s the first problem with real estate investing. So I would say start there.
Bart: Everything is so brutal, it’s great. But it’s about being honest and I think folks, it’s important that you know that following advice even from someone like ourselves, you’ve got to do your research. You’ve got to hunt around and there’s plentiful information out there can really find out a lot but following one person in general, is something that I advise against even if you’re listening to me following me or Erica, listen to some other people as well and get a mixed bag of opinions. But I want to get back to those three elements that you kind of peppered there, and can you explain the three, I don’t know if we can do it briefly, but if you can explain to them so that people have a starting point to then go and do more research.
Erica: Yeah. Okay. So I’m just talking about these three metrics real quick, that matter. So you’re gonna hear a lot of people talk about the gross ROI, right? And the gross ROI is your top-line metric. I hate this metric, and I think it’s garbage and I throw it in the trash can, but I’m gonna tell you why. I’m talking about it right now. The reason people are using it is because they don’t have a better metric and they don’t have better information for you. So you’re gonna hear people throw out gross this, gross that, gross to me is literally nothing. It just means the total amount of money a property can bring in and it has absolutely nothing to do with what you’re going to put in your pocket. What you put in your pocket is a totally different metric. And that’s what we want to focus on right? And how you get to that next metric of what you put in your pocket is really the difference between an excellent operating home and a bad operating home. A good strategy goes into the investment a bad strategy goes into the investment. So we’ve got our gross ROI, and basically this sort of return on the total amount of money it’s making. Does that make sense?
Bart: That makes sense. So wait, so the total amount of money it’s making, is that without any expenses or we’re taking expenses out of that?
Erica: This is without taking expenses out.
Bart: So no interest rate on the mortgage, cleaning fees, just….
Erica: Gross top line,
Bart: But it’s not a return on investment? That’s gross revenue, right?
Erica: Well, it’s gross ROI. That’s the metric that everyone’s throwing out now, and actually, we never even accounted for that because it was such an irrelevant number. But we saw so many people in the industry starting to push this number, basically, because a lot of the data sites that are out there don’t have expense ratios. They don’t have better numbers. So the best they can do is come up with this gross formula. So I want you to be very cautious as a new investor about doing any kind of investment based on when someone says gross numbers like gross revenue or gross ROI. It really at the end of the day, it means nothing.
The only reason you need the gross revenue is to get to the net revenue. Right? If someone says gross ROI, like, there’s, there’s no reason for that. Like, why would you measure a return on money that you’re never gonna see? So that’s the first thing I would say, we need to know what’s going on with that metric because I’ve seen it so much in the last two years.
The second metric which is what you should care about is the cap rate. A lot of people think the cap rate is an old-school real estate metric. It is absolutely not. This is as basic as you know, math, like one plus one, equals two. It’s never gonna go away. A cap rate measures the actual net return before their mortgage, but it’s the net return of a house against every other house. So the way you will compare one investment to another to know if it’s a good investment is a cap rate. You can’t use a cash-on-cash return which is the third metric to compare properties across the market because that third metric cash-on-cash return only measures your personal return based on what you’re investing out of your pocket. Right. So the cap rate metric is the sole metric that you can use against any house in Australia to compare it with a house in the US, to compare a condo against a townhouse against a single-family house when you want to just see what’s producing the best overall return. Your cap rate metric is going to be the one right?
The number that you have that you’re left with on the cap rate metric is your net, your net income, okay, it does not consider your mortgage because the mortgage scenario is different for every single person. So from an investment standpoint, if you’re measuring the return on something, it has nothing to do with your own personal financial investment into it. It just has to do with like, Does this house in Florida? How does this one compare to this one in Tennessee right now? That’s what I want to know what’s the cap rate so that’s what you’re going to use your cap rate for. Okay, then what you want to know is from that number that’s left off you know, you know, your cap rate you have your net operating income, can you pay your mortgage out of that and still profit? That’s really what it comes down to. What’s left, can I pay my mortgage, can I still profit that’s when we get into the cash on cash return.
ROI, or the cash-on-cash return metric, right? The cash-on-cash return metric is measuring the return on only my money out of my pocket. So if I’m buying this house for half $1,000,000.05 $100,000 and I’m putting 20% down on it, I’m putting 100 grand on it and I’m assuming it needs no work. I’m just assuming it’s just the down payment closing costs $100,000 all in. My return on that investment is going to be on what I put into it, not what I borrowed, but what I put into it is going to be measured on cash on cash return. So if you want to know what investment is going to be the best for you personally, based on how much you’re putting into it, then you’re going to use the cash-on-cash return metric. Does that make sense? Part?
Bart: 100% Cool. Okay, cool. So that all makes sense in terms of those metrics that you’re looking at? And so, I guess what you’re trying to say is that we want to look at these metrics and have these in mind when we are going to make our first investment or our next investment into our next asset. Is that right?
Erica: Yeah. And you want to know how to get them right. So you want to know how you can find them. And there’s, you know, there’s all kinds of calculator tools out there you can use there are free ones, there’s paid ones, happy to direct you to some bar if you guys need suggestions, we have some there are other ones out there but you know,
Bart: Definitely in the show notes. If you can send me a link or two they will put them in the show notes and vote. You can download a calculator from Brolio or whatever they send through.
Erica: Yeah, we have a free one you can use but knowing that those are your metrics you need to be looking at you want to know Okay, so if I’m comparing a couple of houses in the same market or a different market, I’m comparing the cap rate on which one’s going to perform better and then when I understand which is going to perform better then I want to start analyzing based on my own cash-on-cash basis. So those are the numbers you want to look for obviously the higher the number the better, which is the opposite of when you sell because when you sell if we want to make money on the exit, we’re going to sell at a lower cap rate, which is another reason why cap rate matters when you buy and borrowed.
I won’t go into too much on the exit strategy but if you’re buying in the beginning at too low of a cap rate, and there’s not a lot of opportunity to increase the revenue, you’re never going to be able to make money on the exit. It’s just not going to happen. It’s math, right so the higher the cap rate when you buy and the higher you can drive that cap rate to well you own it, and the lower you can sell it when you exit is where all the money is made on the investment. So how you operate it, how you buy it, those are the things that make the difference between a good investment and a bad investment.
If you’re investing and there’s not a lot of opportunity to increase the revenue on this property. Let’s say if you’re buying a short-term rental that’s already operating as a short-term rental, and it’s really poorly managed and you’ve got a really great management strategy. You’re going to come in, you’re going to reduce expenses, you’re going to increase revenue, and that’s going to drive your cap rate upright. You’re gonna have a lot of upsides when you sell because let’s say you bought it at a 7% cap rate when you sell and then you increased the value adds when you own it, you got it up to a 10% cap rate. And then when you sell let’s say you exit at a 5% cap rate, that difference between the 10 and the five that you sold that is your profit in actual it actually calculates into $1 amount based on an income valuation, so that’s why it’s important to know when you buy it. Am I buying this at a good cap rate or am I buying too low, without any opportunity to do any value add to the property?
Bart: I have so many different questions. So if we are looking to acquire a nice property, Are we better off trying to find something which is already established as a short-term rental? Or are we buying something that was a residential and then trying to switch it?
Erica: I like always buying something that’s already an existing short-term rental for a few reasons. One is a low-performing one that’s doing really badly. Someone’s willing to let go of, they just hate it and they want to let go right? But you can see where they’re making their mistakes. If you do the due diligence properly and you dig into their management strategy, you dig into how they’re getting their bookings, how they’re operating it, you can find the opportunities where things are being run poorly and you can come in and apply a better strategy and get that revenue higher.
The other reason I like buying poorly operating ones is because if you’re taking out a mortgage, you will have some income already to help pay that mortgage. So you don’t want to be stuck with that ramp-up time. It could take some short-term rentals as long as three to six months to get really ramped up and start generating that solid income that’s going to pay all your expenses. Do you really want to be holding that for a long time, especially with the way that the market is shifting right now, a lot of people don’t want to be stuck holding things. So any kind of revenue is better than no revenue. That will be my personal advice to somebody who’s just getting into this and doesn’t have revenue coming in from other properties that can carry that mortgage right away.
Bart: Right, okay, picking up something which is there already and now so and then we’re trying to find the opportunities to improve it. So we’re looking for listings that aren’t optimized correctly. We’re looking for unique selling points that they might not already have within their property. We’re looking at revenue management strategies so that they can improve you know, the nightly rate.
Erica: And aesthetic or aesthetic value add like coming in and taking something that just looks horrible inside right and committing to a certain budget and just making it look so much better and modernizing it maybe you can put an ADU in the back and add another piece of revenue in the backyard. You know, there are opportunities like. Everything that you just said plus what I said. You know, that’s how you add value. In real estate. It’s called Value Add Opportunity, right? It’s literally what it’s called, and it’s just buying underperforming properties. And doing the value add opportunities and getting that cap rate in that revenue up.
Bart: How do you calculate that? How do you calculate what you think you know where it is and where you might where think it won’t go?
Erica: Yeah, so I mean, you obviously have to know and look in all in to look into all of the paperwork and documentation that you’re getting to see where the revenue really is. Usually, people tell you, it’s making more than it is. So right off the bat. I would tell you if someone said oh, it’s bringing in 30 grand gross a year, there’s the gross again, remember that’s before expenses, I would take off 20% of that subtract 20% automatically and expect to find it making 20% less. But you’re gonna have to verify that from all the income that’s coming in seeing the money going into the account, looking for hidden expenses in their bank statements that might have been disguised for credit card payments. And then you need to get those statements and find out what those are actually being paid on.
There are a lot of ways that people can disguise their expenses when they’re selling and you can in it could look like it’s actually making more than it is. So first you want to really identify what it’s making, to begin with. But understanding the market you’re buying in and what is the demand in that market and for what kind of property right so if you’re in a ski market and you’re looking at an underperforming condo that needs work. Is this condo you’re buying even going to have the ability to perform at a higher level and this is where you need data based on what kind of condo it is like or is it just the condos that are ski out or in a specific location within this community that is really the ones that are making the money.
Sometimes you could find an underperforming property, but based on the geographic location of it within the community that it’s in, or within a distance to an attraction it’s either too far or just doesn’t have the ability to even run in the race. A lot of this is doing your upfront geographical due diligence as well in that market that you’re in because you can change anything inside of it. But once you acquire that you cannot pick it up and move it somewhere else. So that’s one big thing I tell people, every market is so different when it comes to this. For example, in Orlando. When I was selling short-term rentals here. There was a huge difference in revenue based on a house that had a south-facing pool and a house that did not have a south-facing pool.
The homes that had south-facing pools were doing 20% more revenue than the ones that didn’t because people that were coming here demanded that in the features of the home like that’s what they wanted to book and they were willing to pay a premium for it. Nobody would ever know that unless they had somebody that they were working with like a good agent or a manager that knew these things. If I was that person buying the house that was an East facing pool, and I was paying the same price for it. Somebody with a south-facing pool. I would be pissed afterward. If I found this out after right? I could never change that. And so there are just things like that, that you have to be doing your upfront research on, especially when it comes to value. It’s not just oh, I can change the inside and make it pretty.
Bart: And then how do we when we’re looking at this data and we’re trying to understand how a market is performing and then we can also see that there. There is more competition that’s coming into the short-term rental space. That overall demand is fluctuating, going down pricing is probably under pressure like a negative pressure at the moment in many territories. How are you feeling for 2023 you know, these are the next set of uncertain times, and making sure that we don’t buy something which looks good right now. But it’s potentially gonna get into a lot of trouble very quickly.
Erica: I mean, so you have to remember, I’m that person who literally found a way to survive in the last horrible recession and I didn’t survive, I thrived, right? And so I believe in strategies to thrive in bad economies. You just need to know and be willing to pivot when you discover what that pivot needs. To be. Right. And so our strategy going into this shifting economy and what could happen in the future and 2023 is we know things are going to change at this point. Anybody denying that is just in my opinion living in another world. Things are going to change and we really think that change is going to look like it is moving more toward these midterm strategies as a backup plan. Because our data is showing us that in every single market, almost every single market, the mid-term strategy is outperforming the short-term strategy because of saturation right?
What we’re seeing as college towns, football towns, and sometimes destination towns where there are specific employees that have to come in for a season and stay there drives that midterm stays up. But there are all types of reasons. But we’re seeing like if you’re going into a short-term rental market, where you can do well with a short-term rental and you’re happy with the return, the cap rate that you’re going to get on the short-term rental, but you can actually almost double it with a midterm strategy. Why wouldn’t you buy in that market it’s almost going to protect you against anything happening to that short-term rental market because then you can pivot to the midterm strategy.
And so we’ve seen this, especially in a couple of towns in Indiana where there are colleges there but they’re not like big universities, but they’re their colleges. And there are a lot of people booking anywhere from 31 days to three months and this midterm stays, but they’re paying almost double of what people are getting on short-term stays. And so you could have a short-term rental half the year and then the other half the year, do midterm and you’re actually going to drive even more revenue. But if you’re buying in a market where it’s like only short-term rental exists, there is no demand for anything else. You’re kind of pigeonholing yourself into one specific strategy and there’s really no backup plan for that. Right, which is why we’re leveraging data to identify those mid and longer-term stay opportunities so that we always have a plan.
Bart: Yeah, great. Look, I think that’s a massive, massive tidbit of advice for people or what’s something to look at when you are going and booking your nest opportunities where there’s that saturation in the short-term stays where everyone’s got a very similar product which is coming out or everyone’s upgrading their properties and they all look cookie cutter. You look at opportunities where other people aren’t looking at the moment, right?
Erica: That’s another thing we can look at too is not just that strategy, but also the saturation capacity of the bedroom sizes, so how we approach data is very different. We actually like to break it down by first property type which is single-family, townhouse condo, you never want to blend those together. And then after that, we break it down by bedroom size and look at which bedroom size of this property type has the least competition in this market. And does the occupancy and Return on Investment Support and investment into that be the most non-competitive but most profitable type of investment in that market? You can’t do that without data. It’s impossible, right? So I feel like making data-driven decisions going into this new market is almost absolutely critical. And the kind of data you’re using is just as critical.
Bart: Let’s wrap up on data actually. And that’s something we haven’t discussed before we started recording. There’s a variety of different tools and different places where you can find data and out like I know that you’ve got a bit of a vested interest with your own product, but I’d love you to give me some give people ideas because you’ve got airDNA you’ve got transparent. You’ve got all these different tools that people can use to start on the data journey. For someone that is looking at their next opportunity, what’s the best thing that they could do next in terms of data, and what kind of data is the best to look at then they need to make some good decisions.
Erica: Yeah, look, I’ll be straightforward with you on this. The reason we got into data is because we couldn’t rely on any other data platform and we couldn’t make actual investment advice to people confidently without using those other platforms. So we had to do it. It wasn’t like we were trying to get into data to get rich or anything like that. It was a necessary component to actually making good investment decisions. And we and our team actually use our own data there I’ll tell you just how we approach it and what to look for.
Personally, the reason I create the data that we do is because the data that’s out there is just dirty. There’s a difference between bad and dirty. Dirty data means that you’re just getting a bunch of information that’s thrown in one bucket, and it’s dumped on a map and everything’s blended together. And you’re just gonna get statistics and metrics and results based on all kinds of different things, right? We didn’t even realize how dirty that was until we started cleaning it. We actually have to throw out 50% of that data that’s on these other data sites, because it’s not even usable data that falls into a clean data set that you can work with.
So things like you’re getting data of properties that have not even been performed yet. They’re just listed on Airbnb with a number and they’ve never actually had a booking, so we don’t even know if that’s a proven number. And that’s being thrown into these data sets. You’re getting data showing occupancy that is blended together with the owner stays and the guest stays. We don’t even know if those properties would have been booked if the owner didn’t stay there. So the owner aka the owner says it should never be included in occupancy.
You’re getting data that are blending together a two-bedroom condo with a six-bedroom, single-family house all because it’s under the same zip code. And that single-family house is bringing in 1200 a night that condo is bringing in 100 and then you’re getting an average based on that this is not how you approach data. Right?
So that’s what people need to understand is what I’m looking at, even reliable right now. And should I be using this, it’s better to not use data at all than to use bad data, because it’s really going to mislead you and I’m not saying every data company that’s not us is bad. What I’m saying is every data company that’s not us doesn’t clean it to the level we do. Because we’re super conservative. We’re hyper-conservative with data because we power loan decisions and we also power investment decisions if you are looking at unclean data, which is basically what’s out there. You need to approach it with some level of understanding that hey, I need to shave off like 30% or 40% from this revenue estimate. And I need to understand that this is a gross number based on all kinds of different data sets thrown in here. So I’m if you can’t make the numbers work at like half of what that’s showing you. I wouldn’t even use that as a baseline. Because that’s really what it’s coming down to, is you need to be doing your own filtering of what’s good and what’s bad anymore.
Bart:: Yeah, it’s very complicated. And you’ve brought up some very good points. I mean, quite often people you know, as part of their research journey, you go and you look at your competitors and you check out what their pricing is and whether they’re, they’re occupied or not, and what their forward bookings like but like you said, you don’t know whether the calendar is booked up because the owner is staying there or whether someone’s actually booked it. And then if someone did look at what the rate actually was, how much did they actually pay? Or was it just a pie-in-the-sky dream that someone would spend $1,000 a night for this particular place? And then you’re using that data? So you, you need to use the data in a way that makes sense, I guess and to get it from different places and then put it together and go okay, this is what I think the puzzle actually looks like. And that’s why data is so valuable in some of these companies. We’re talking about being bought out for huge, huge numbers,
Erica: Which is shocking to me, though, because it’s really not valuable what they’re doing. Anybody can scrape data and put it on a map. That’s not a hard thing to do. You could go on Upwork and hire somebody for $2,000 to scrape Airbnb and then put it in a bucket and then aggregate that onto a map. So I’m shocked at some of the acquisitions that have happened based on the type of data that have been acquired. Believe me, I never wanted to have to get into the data business. We just did it out of necessity.
As I said, I wish somebody would have done it better two years ago because it’s such a critical thing to be working with when you’re making such a big decision. You know, and I’ve seen so many people following coaches and different investment platforms that are trying to sell you and teach you concepts and they don’t even tell you that the concepts you’re basing it on are teaching you how to work with data that’s not accurate. And so what I’m seeing is there’s gonna be a lot of people holding real estate and two years from now, that is not going to be able to cover those costs, especially when things start to shift. So there might be a lot of opportunities that come up for our strategy of buying these underperforming short-term rentals from those owners that just didn’t have the right strategy going into it. So there’s always opportunity.
Bart: Look, my top tip for this sort of stuff is you’re going to spend 200$, 300$, $400 million on a property. It’s worthwhile spending an extra 1000 2000 $3,000 to talk to somebody who’s done it before. Somebody that’s bought 10 properties, 100 properties, someone that can say, hey, that’s a dud for these reasons or that looks like a great opportunity because you’ll save yourself tons of money in the long run.
Erica: Yeah, and there are good coaches out there. I want to say that because I don’t want you to think that I think they’re all fluff. There are some good ones out there. We actually work with quite a few of them that send us their clients to help them acquire stuff. And, we’ve seen some quality coaches and we’ve also seen it in the other direction. So it’s really just like you said before, who are you plugging into what you are learning? What you’re learning is actually going to help you. Where are you getting the data from? Where are they getting the data from? You know, what are the strategies in every market, and then working with somebody local in every market is critical because what you can learn from a local real estate agent who actually lives in that market. No data can ever tell you those things.
So part of what we do too is like pairing our data with a local real estate agent on the same call so that we can use that together as a knowledge bomb. So here’s what the data says. good data should pose good questions to ask, not necessarily answers, but good data should drive you to questions you never knew you needed to ask. Right? And then the people answering those questions should be the local experts that can understand why the data says that and when you pair those two things together. That’s kind of right there. Your formula for complete success in a market but leaving one or the other out. I wouldn’t I wouldn’t do that, you know, going into an investment.
Bart: Yeah, beautiful. So look, my last comment is, it’s fascinating how short-term rentals and Airbnb have been pitched as passive income. It kind of just happens. There’s no work involved in any of this. And what’s very clear is if you’re serious, and you want to get into it, you’ve got to do your research. You’ve got to do the work. You’ve got to figure these things out. It’s not as passive as you might think. And the skill set that you learn along the way is incredibly valuable, and that is your asset. But regarding the whole passive income thing I haven’t seen many successful people just have it as passive income without absolutely destroying themselves working hard.
Erica: Yeah, it’s not passive. I don’t know why people say that. It’s passive. Like it’s passive if you don’t want to make a lot of money from it. If you want to spend all your profit on other people to run it for you. And you want to just get whatever’s left over. It’s passive. But if you’re going into it to make a profit, it’s absolutely not hands-off. Like there’s work involved like you said Bart, and honestly, like I have no problem telling people sometimes like look, this is not going to work for you. You’re going to be a terrible host because this is how you’re viewing it and this is what you want out of it. There needs to be expectation management. But it is profitable if you don’t mind getting your hands dirty a little bit.
Bart: I was gonna say that I think the people that are engaged in listening to these kinds of podcasts and getting information which is going to empower them to make the right decisions in the future. I think that’s already half the battle that’s won. It shows that you’re not just expecting to follow one person or go Alright, I’ve got this information now. I’m just gonna go for it. So educating yourself is a huge part of that puzzle. And I think that that’s kind of half of the battle.
Erica: Absolutely everything, it’s like that with anything though Bart Right. Like, if we don’t understand what questions to ask people if we don’t understand if we don’t know what we don’t know, then we’re never going to understand where all their money is going, why we made a bad decision, and how to prevent those decisions. Like I would never get into any kind of an investment without knowing and educating myself on all of the components. Without knowing how to interview property managers correctly. You can interview them, but do you even know if you’re asking them the right questions? Right, like, and if you’re not even asking the right questions, and you’re just hearing good responses like you’re still not gonna succeed, you’re still gonna get a bad property manager.
There are so many pieces like that, like you said, it’s all education and learning, and being able to filter out what’s fluff and like, what’s real, true information, and it doesn’t always feel good. I tell people this all the time. I’m like, and this goes back to also data too. I’m like, You’re not always going to like the data because the numbers aren’t going to be what you thought they were. And that might bother you because you had this idea in your mind of what things were doing in a certain market and how properties were performing. I’m here to just show you the real numbers. I’m not here to make you feel good, right? I’m here to help you not make a mistake. What you do with that information is up to you. And it’s the same with any expert that’s trying to help you. It’s like if they’re a good expert, and they know what they’re doing. They’re not here to make you feel good. They’re here to give you the truth, and then you can choose to do what you want with it.
Bart: And those words, we’re going to wrap up the episode look Erica, thanks so much. for taking the time out of your busy schedule. I know your schedule is incredibly busy to have a chat with us, to share some of your insights, your thoughts, your knowledge, folks, if you are tuned in on the podcast and make sure you give us a like and subscribe.
Same thing on YouTube. It really makes a difference to the channel and enables us to keep on growing and doing what we do, which is trying to provide immense value to the accommodation community. Erica, thank you once again. I do appreciate you. I wish you an awesome rest of the day. Go and get some dinner and we’ll talk again soon.
Erica: You too Bart, thanks for having me.
Bart: Thank you so much. Take care.
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