Has the Short-Term Rental Goldmine Run Dry?

Rob:
This is the BiggerPockets Podcast show 712.

Jamie:
Where we see more supply coming in is people that have existing homes, maybe a second home, maybe their primary residence, they’re not looking to use that home in the same way. Maybe they’re moving and they don’t want to sell. They’ve got that 3% interest rate and is very attractive to keep. So now they’re looking to rent it out, find another use. We’ve seen actually a big uptick in recent months from people just looking to find other uses for their homes, and a lot of that is coming into the short-term rental sector.

Rob:
I hope I made David Greene proud. Today, I am interviewing Jamie Lane, the vice president of research for AirDNA, with my good friend and who I have dubbed my Airbnbestie, Tony Robinson. How you doing, man?

Tony:
Dude, I’m pumped, man. This is our first official podcast episode together. It feels like way overdue. The producers are waiting so long to get this together, man.

Rob:
I know, man. Come on. Come on, Eric. What are you doing? I think honestly what I was really proud of is considering we don’t share the mic all that often, we didn’t really interrupt each other that much, and I think that’s a win.

Tony:
Dude, we played nicest like two kids in the sandbox and they just get along from the jump, man. But dude, that’s like me and you from the beginning, right? I feel like the first time we met, which was actually for those of you… This person might be listening. The first time me and Rob met in person, we had lunch at this place called the Local Goat in Pigeon Forge. I remember when I walked out, someone messaged me and was like, “Oh my God, I just saw you sitting with Robuilt, but I was too nervous to go talk to you guys.” So if that person is listening, next time you see us, just please say something, say hello.

Rob:
You know what’s really crazy about that particular instance is I was still working a job. I still had a nine-to-five at that point. I was sitting with you and your wife, Sarah, and y’all were like, “Why do you still have a job, bro?” I was like, “I don’t know. I’m scared of losing my healthcare.”

Tony:
Dude, and I had just lost my job, I think, a month before we sat down because I lost it right before Christmas. So dude, how things have changed over the last couple years, right?

Rob:
I know. It’s so crazy, man. Do you have any purchases coming up, by the way, in the Airbnb front as we get into today’s episode that talks all about the short-term rental market?

Tony:
Dude, I do, and it’s actually kind of a crazy story. So we have a property that was supposed to close this week, but closing got delayed because the appraisal came back, and this was a new construction that we bought, and the appraisal came back and turns out we’re missing a bedroom. So it was supposed to be a four-bedroom property. The appraiser went out and said, “Hey, there’s only three bedrooms here.”

Rob:
Wow.

Tony:
So, luckily, the floor plan is right, but instead of making it a bedroom, they just made it like a loft. So now they’ve got to go back and finish building the house that we bought from them.

Rob:
It’s not that bad.

Tony:
It’s not terrible, but literally, we’re going to close, I don’t know, on the 28th. So we got to fight to get our first guest in between the 29th and the 31st. That way, we can get our tax benefits and all that good stuff. First time this ever happened to me before is buying the wrong house.

Rob:
Yeah. Man, they just have to frame up a wall. It’ll be all right. Honestly, I market loft as a separate bedroom on Airbnb anyways. So if you didn’t do that, you’d probably be fine, but if you paid for it, then it’s time to get litigious. So I actually am closing, I hope, on the 29th on a property in Galveston, and it was a sub two deal. It’s like a $843,000 new construction, six bedroom, three bath in Crystal Beach, all in fully furnished, all in turnkey. It’s ready. It’s set up, $53,000.

Tony:
No way, dude. So wait, we got to do a whole nother episode on that. Just give me the 30-second. How did you find this sub two deal?

Rob:
Well, it found me. Someone sends to me on Instagram, they’re like, “Hey man, I’m a wholesaler. The seller wants to seller finance. Do you want it? He’ll finance $200,000 and then you’ll take over the existing loan.” So I’m taking over a loan of $678,000 at 6%, not ideal, but the other $200,000, or no, the other 150,000, they are seller financing at 2% interest only for the next 10 years. It’s crazy. It’s crazy. It is.

Tony:
Dude, what a good deal, man. I’m happy for you, man. I’m happy for you, but I’m also going to be as equally if that dude also messaged me and I just didn’t see that message.

Rob:
He might be in there. Ryan Emerson, let us know.

Tony:
Dude, I got to look it up. Yeah.

Rob:
Well, what are we talking about today, man?

Tony:
Dude, we got Jamie Lane, VP of research for AirDNA, and this guy is like an encyclopedia of short-term rental data and information. It’s honestly probably one of my most favorite conversations I’ve had about short-term rentals in quite a while. But the reason we brought Jamie on and what we spend the majority of the episode talking about is, is all this fear around the Airbnbust, as it’s called, is it legitimate? Should we be concerned? Jamie has some data to support what his position is.

Rob:
I was really impressed because I kept thinking of all these questions and I was like, “Well, what about this?” And then he was like, “Oh yeah, the answer to that is this.” And I’m like, “What about this?” And then he is like, “Yeah, the answer is this.” I thought that was pretty good. We dive into other things like how to maintain revenue goals in 2023 and more importantly, how you can stay one step ahead of your competition in an ever-changing market. So we really do get into it, and I’m really excited. For people that are reading all the headlines and getting all nervous and all scared about it, I think today’s episode will hopefully make you feel a little bit better. Before we get into today’s episode, we’re going to do a quick tip brought to you by Tony Robinson of the Real Estate Rookie Podcast.

Tony:
All right. I thank you for the honor of letting me do the quick tip. Today’s quick tip is to go to BiggerPockets.com/tools. Under the section that says other calculators, there’s a section that allows you to analyze properties as short-term rental. So it’s an Airbnb property calculator which ties in perfectly with everything we’ve been talking about today, and that calculator is actually powered by AirDNA. So you get to hear all the data that goes into it. Then, once you finish the episode, jump into the calculator, start analyzing some deals and find the one that makes the most sense.

Rob:
Guys, use this tool. It’s literally the rentalizer tool and you can use it as many times as you want over at BiggerPockets. So with that, let’s get into today’s episode.
Today we are interviewing Jamie Lane, vice president of research for AirDNA. Jamie has a decade of experience as an economist, which actually means we have something in common because I’ve read the magazine, The Economist, so we could swap some ideas there. Jamie was a senior economist at CVRE, where his team analysis helped prominent hotel and lodging businesses. He’s got two kids, and a fun fact about Jamie, he plays in a dart league. Jamie Lane, welcome to the BiggerPockets Podcast. How you doing today, man?

Jamie:
I’m doing great. Thanks for having me. Very excited to dive into the short-term rental market.

Rob:
Yeah, I’m excited, man. So I think today’s episode, we really want to gauge what’s happening in the market, right? I think my first question, just diving right into this is can you give us the general pulse for short-term rentals in 2023? Can you help us just cut through a lot of the stuff that we’ve been seeing in headlines and articles all over the internet?

Jamie:
Yeah. Overall, we expect demand for short-term rentals, so the number of people staying in units on a given night to continue to grow, continue to hit records. We’ve seen no weakness in demand. Overall, the health of the industry is strong. Because of that health, we’ve seen a lot of new units come online. A general trend has been is occupancy has been coming down. So there is some weakness on the average bookings per listing. So the average host is getting a bit fewer bookings than they were getting in 2021, which was really the peak of the industry. So, we do expect some weakness. That’s going to play out in different markets more than others, primarily based on where supply growth has been the strongest. But overall, it’s a great time to be in and hosting in the short-term rental industry.

Tony:
Yeah. Jamie, so there’s this big idea around the Airbnbust that Airbnbs are no longer profitable, short-term rentals are no longer profitable as an investment vehicle. I think it’s because everyone’s looking at 2021, where so many hosts got into this space as the baseline not understanding the historical data pre-pandemic. So just what are your thoughts on that? Do you think that this is still a profitable asset class? Is 2021 the only year that this made sense? Should we continue to buy moving forward? What’s the data saying?

Jamie:
The data is saying yes, 2021 was a banner year. Occupancy for the industry reached over 60%. A typical year pre-COVID like 2018, 2019, it was 53%. To this day, we’re still running well over 55% and we expect the industry to be there going forward. So we are not going to get down to 2018, 2019 levels as far out as we forecast. But if you underwrote expecting 2021 levels of occupancy forever out into the future or even that growing further, you’re probably going to be disappointed going forward.

Rob:
Yeah, that makes sense. I mean, it’s tough because a lot of people did start in 2021. In real estate in general, there are times when you feel like a genius and there are times when you feel like you’re dumb, right? No, it just depends on how much time you’re in a market, right? So everyone that got into 2021, a lot of houses that we purchased, we’re like, “Oh my God, we’re so smart, we’re making all these returns.” But if you look at it, I’ve been doing Airbnb now for probably the last five, six years and it’s definitely some years are better than others. Obviously, 2020, 2021 were better, but 2022 is really to me just a very normalized version of what I was seeing in 2018, 2019. What was it like for you, Tony? I mean, I know you’ve had yours for a couple years now too. Did you come in right at the peak, or did you have a little bit of the bookings come in pre-peak?

Tony:
We came in right at COVID, right? So there was all this pent-up demand. So as soon as we took our listings live, everyone was just fighting to get inside of our listings. So I think we came in during that banner year. However, I think we knew going into it that this wasn’t normal, right? Most of our properties outperformed our projections because we were using 2019 data when we projected what 2020 was going to look like. So I think we had a good sense. Now, Jamie, I guess one follow-up question to that, when you look at across the map, are you seeing maybe some markets getting hit harder than others or some markets that are maybe weathering the storm a little bit better? How is that being dispersed across the country?

Jamie:
Yeah, it really varies throughout the country. Mountain, coastal destination markets have seen really strong growth in supply in the past year. Urban areas, some of the largest cities, actually, that’s where we saw the most supply come out as people… Demand wasn’t there. People took their short-term rentals and they converted them to long term. I think that was a lot of people’s backup plan during the pandemic and it played out. Supply in urban areas is still 20% below 2019 levels. So supply hasn’t come back that into those areas, and demand is just about there. Occupancies are back. So there’s still some great opportunities, some of these urban cities. And then the big surprise over the past really three years has been all the growth we’ve seen in small city or rural areas, where there’s essentially double the supply now than there was pre-pandemic, and it still continues to be some of the fastest growing areas of the country and where in the most part, demands keeping up with that supply.

Rob:
Yeah. Because we were talking about the urban markets, right? A lot of supply came out and then a lot of people… They converted it back to long-term rental, the backup plan, right? So, what are your thoughts on the overall supply growth? Do you think that we’re still going to see a crazy amount of supply being pushed into certain markets, or do you think now with everything going on, especially interest rates and just the economy in general, do you think supply will actually start going down at all?

Jamie:
Yeah, we don’t expect supply to drop. We do expect the rate of supply increases too slow. So we’re at about 25% supply growth right now. What scares me is that it hasn’t peaked yet. So we look at it each month, year over year, and it’s still accelerating. We do expect that to start to slow in 2023, and lot of that is from higher interest rates. We’ve plateaued on revenue growth. With interest rates and at where there are, the cost of acquiring those homes has gone up substantially. So that in my mind means that investment should slow. So that piece of supply growth, we expect to come down. Anecdotally, I hear that from a lot of investors that they’re pausing their investment activity or they’re at least looking to slow that investment activity over the next year.
Where we see more supply coming in is people that have existing homes, maybe a second home, maybe their primary residence, they’re not looking to use that home in the same way. Maybe they’re moving and they don’t want to sell. They’ve got that 3% interest rate and is very attractive to keep. So now they’re looking to rent it out, find another use. We’ve seen actually a big uptick in recent months from people just looking to find other uses for their homes, and a lot of that is coming into the short-term rental sector.

Rob:
Now, can you clarify really fast? You mentioned that supply hasn’t peaked yet, so it’s going up, but you said that revenue growth hasn’t really changed a lot. So does that mean that more supplies coming in, the same amount of money is being made, thus the average take-home for host is basically less because of the amount of supply entering the market?

Jamie:
Yeah. So supply-demand dynamics mean that occupancy is falling. So in November, occupancy was down about 5% year over year. But ADR growth, so the average rate that a guest is playing paying has actually been outpacing the declines in occupancy. So we’ve been seeing five, 6% increases in ADRs, which have outpaced the occupancy decline. So average revenue per listing is still positive. People are still making more money than they were last year. So that is held up overall revenues.

Rob:
Dang, that’s interesting. A lot of people don’t even talk about… We talk about being 100% occupied and everything like that. The less occupied you are, sometimes that is better because that’s less people in your property using your furniture, turning on your water, turning on your electricity. So it’s funny that-

Tony:
Consumables.

Rob:
Yeah, exactly. Less wear and tear overall and less utility. So it’s kind of crazy that’s the ADR is actually gone up and that still seems like a net-positive for the overall short-term rental industry.

Jamie:
Yeah. That needs to be a really clear thought for people looking forward. Let’s say you can decrease your rate by 5% and maintain similar occupancy, you’re only losing 5% of revenue. But at the same time, if you could maintain your rates or even increase those rates and maybe only lose two or 3% of occupancy, that’s going to put you in an overall better place in terms of RevPAR growth and more than likely profitability too.

Tony:
Yeah. I mean, there’s so many factors at play here and I just want to go back to what you said, Jamie, about the supply hopefully starting to taper off a little bit. I think you spoke to it so well that over the last couple of years, we saw a record low interest rates, so super inexpensive to buy properties. We hadn’t yet seen this massive run-up at home prices yet. So you had relatively stable home pricing with super low interest rates, which created this really perfect storm for people to enter into the short-term rental space. But I also think what happened is there are a lot of people who saw this Airbnb gold rush and jumped in not with the intentions of becoming professional host, but with the intentions of just trying to make a quick buck. Rob, I think you and I are in a unique situation where we probably talked to maybe more short-term rental host than almost anybody else on the planet. Have you seen maybe some folks that jumped in not treating this a business, but more so like a hobby?

Rob:
It depends. It depends on which audience we’re talking about, but I mean, it’s hard, right? Because I come at an angle from it’s possible for anybody. Real estate isn’t hard, it’s hard work. And so, on my channel, I try to detail that, hey, the money can be good if you put a lot of time and a lot of effort into it and you put good design into it, quality furniture, good photos, but I do talk about some of the crazy stories that happen too, right? The way I talk about it is usually a little bit funnier, right? I talk about bears breaking into my cabin or how the cops went on a manhunt in the forest by my house a couple months ago. I talk about that stuff and I feel like people think that I’m kidding or whatever. And then when that kind of stuff happens to them, they just aren’t ready for it because they aren’t professional level hosts.
So I’d say it’s a pretty good spectrum, but I definitely try not to cater too much to people that are just trying to like, “Yeah, I want to make an extra 500 bucks.” I want people who get into Airbnb to take it as a serious investment that will take time. If you put that time into it and you water that seed, it will grow into a very beautiful portfolio that will sustain your retirement one day. What about you?

Tony:
Yeah. I mean, same exact thing, man. I feel like I have heard a lot of stories from… I wouldn’t even call them hosts, I would just call them investors who bought a short-term rental because I think it’s two totally different types of people, but I’ve heard a lot of stories from folks say, “Man, I bought this property and it wasn’t what I thought it was going to be. It’s way more work and it’s this and it’s that.” I think what separates me and you, Rob, is that we really do focus on building out this hospitality business and making sure that we’re giving guests the design, the amenities, the experience, and we really are taking good care of our guests when they get into our property.
So Jamie, and the reason I bring this up is because… And this is my thought and I’m just curious to see if you think the same and if there is any data to support this, but I think that a lot of people who have entered in over the last two years that as they start to realize that this short-term rental thing isn’t for them, that those units are going to start shifting to other hosts that are more professional that are doing this for a living. Is there anything in your data to support that, or am I just like a crazy guy with a dream?

Rob:
Hey, man, that’s a conspiracy right there.

Tony:
Yeah.

Jamie:
Yes, there’s data to support it. Maybe a finer point on one of the things we’re seeing though, and one of the biggest risks to the industry going forward right now is new regulation. When you look at the type of investor that’s looking to invest long-term in the market, long-term in their properties, really invest in those and really choosing their markets carefully as opposed to hosts looking to make a quick buck, not really investigating the regulations in the markets they’re going into, that can create a lot of pushback in those areas for maybe larger property managers or for hosts that have been there long term, or even hosts that are just making large investments being involved in the community, and that can cause some pushback.
We’re all about finding hosts that are wanting to make long term investments, want to understand the regulations of the areas that they’re investing in and doing everything we can to support that. On the individual investor, maybe short-term host, we are seeing some churn right now from investors in the U.S., so people coming out of the market. All the while we are seeing a big uptick in professional managers. So the largest number of hosts or percent increases in hosts is coming from those hosts with more than 20 units, so those either having their own portfolios and expanding them or for those larger property managers that are bringing on more individual owners into their portfolios. We’re seeing a really significant growth from some of those larger operators, especially in the U.S.

Rob:
That makes sense. I mean, that’s where I’m shifting one of my business plans is I’m becoming… I’ve just launched a property management company really, Tony, for what you’re talking about where there’s a lot of people that get into this, and they realize maybe it is a lot harder than they thought it was. And so, I think there will be a lot of people shifting their portfolios to property management companies for that specific reason, Jamie. So I wanted to back up a little bit because we talked about how some of the tourism markets were faring, but I wanted to see is there any data on what the best tourism markets are? Are there any specific markets that are faring better than others that people can be watching out for?

Jamie:
Yeah. So we do best places to invest report every year. We track quite a few different markets, or we track every market around the world. Specifically, in the U.S., there’s some different trends driving investment opportunities in some of the tour and some markets. Some of the ones that are highlighting to me are ones where revenue gains have really outpaced the housing price gains and the COVID trends, so the expanded seasonality in these markets. So we’re historically had been maybe only a market that had a peak season of two or three months and that’s expanded a five or six months. So it’s really expanded the months where you can really drive profits. Markets like that, it’s like Panama City. It’s the sort of northern Michigan coast on the Great Lakes, the coast in Maine near Acadia National Park, even a market like Virginia Beach, where it still has some urban drive from being near the D.C. area. Those have seen decent opportunity.
And then maybe some prized ones out there are markets where growth has been really strong in the past year and housing prices are now coming down. So these have been some of the peak of move to markets during the pandemic and seen a really strong run-up in housing prices. Recently, we’ve seen short-term rental demand continue to grow and where occupancy of staying really strong, and those are markets like Aspen, Vail, Park City, Telluride, Sawtooth Mountain, Steamboat. Still tough to get into on a yield basis, but in long term, I think they’re very strong demand markets with strong revenue opportunity.

Rob:
Yeah. I mean, I think that the sweetheart of the short-term rental markets is the Smoky Mountains, right? Gatlinburg is one that’s been talked about on this podcast many, many, many times, which I think had something to do with the astronomical pricing increases in that market. Is there any data to support markets like that? Because I think there are two really breakout national parks that have really just… They soared and now I’m not really sure how to take some of the movement on Joshua Tree in the Smoky Mountains. Do you know any of that data off the top of your head on some of these national park type of markets?

Jamie:
Yeah, those are types of markets that I’d group in where supply growth has been really strong. Yes, demand is up. We haven’t seen demand go down in Joshua Tree. We haven’t seen demand go down in the Gatlinburg, Pigeon Forge area, but occupancy is down 10, 15% year over year. Keep in mind that in Gatlinburg, occupancy is still 30% higher than 2019. So it’s all based on where you’re benchmarking from. I think long term it’s still a great market, but that’s one of those areas… You can put in North Georgia Mountains, the Poconos, the Berkshire, Lower Hudson Valley, Broken Bow, all markets that have been really popular to invest in and are seeing really significant supply growth, but where the revenues, RevPARs, occupancies have been down pretty significantly in the past year.

Tony:
Yeah. Jamie, I think it’s super interesting. Obviously, Rob and I both invest in Joshua Tree and in Tennessee so I think we’re seeing some of the same things. But you mentioned earlier the kind of role that regulations play and that’s almost the reason why I’m starting to target markets that have slightly stricter regulations because it almost puts a cap on supply. If there’s a cap on supply, but demand continues to increase, now the hosts that are in that market, they’re in a really good position. So for example, we have three properties in the city of Twentynine Palms, which is the city adjacent to Joshua Tree. Twentynine Palms has a hard cap on the number of listings that they’re going to allow at any point in time, and our three properties made it in under that hard cap. So now supply is fixed at, I think, 500 listings, but as demand continues to go up, we’re in a really good position. So I wonder, Jamie, do you see maybe better returns in markets that are more heavily regulated because there is that cap on supply?

Jamie:
Yeah. A lot of those key markets are seeing the same thing. Supply growth in those markets has been essentially flat and it’s really hard to add new supply in those cities because of the regulations that are in place. Typically, they grandfather in existing properties. So if you’re going out and making investment, regulation is the number one thing I advise people to look at outside of the investment returns and finding areas that maybe a regulation isn’t in place now, but it’s likely to be coming in soon, where you can get in before that is in place, or at least in the markets, you’re being involved in what regulations coming and making sure that it is a fair regulation that puts in place that’s not going to put you out of business. Because there are markets that come in and you got lucky that you got grandfathered in, but other markets have outlawed it completely and it can ruin an investment.

Rob:
Yeah, I will say, I mean, Joshua Tree is the same thing, Tony. I mean, they just started not enforcing, but putting into play a lot more regulations. If you had your permit, your grandfathered in, but I think it’s going to be a lot tougher. It’s one of those weird things where I saw overall revenue decrease in the Smoky Mountains for my cabin. My chalet is very old so it’s not really that surprising. There’s a lot of new development out there, but it’s really funny because yeah, I mean, it’s not ideal to have less revenue, but the return on that property was… It was a 90% cash-on-cash return.

Jamie:
Still great, right?

Rob:
Yeah, it was really good. So it’s like if I make 60 versus 78 or something like that, obviously I want to make the extra 18,000, but my cash-on-cash was still like… The investment is paid back. It doesn’t really matter. Same thing with Joshua Tree. Overall, the one trend that I’ve noticed, and I don’t know about you, Tony, but on my end, bookings come in a lot more last minute. So before, I was booked 30 to 60, sometimes 90 days out for certain dates, not something that’s like the case anymore. I’m now getting booked the night before. And so, if you look at my calendar, it always looks empty. But then if you look at the past calendars, you see that they actually always end up filling out. Is that something that’s more common, Jamie, or does that market to market? Because I feel like I’ve heard a lot of people not necessarily complaining, but venting about the fact that, “Oh, my bookings have dried up,” but really what it is bookings are just coming in last second.

Jamie:
Yeah, it really depends on the market, in the season of the market. So if you’re in high season, people are typically getting booked out in what? Three to four months in advance. If you go into shoulder seasons like Smoky Mountains now, it’s typically people are making more last-minute reservations mostly because they can. You don’t have to book three months in advance to book the Smoky’s in the winter. That said, different revenue management strategies and using dynamic pricing softwares are going to push you to different strategies to maximize revenue during different periods and based on what the supply dynamics are. If you’re really looking to maximize revenue, a lot of times waiting for last-minute bookers, so people booking a week in advance and you can get a significant premium on those bookings based on the time of the year.

Tony:
Rob, I want to ask you, because my approach is actually the opposite, where we start to discount our prices as we get closer to an opening in the calendar. It’s just for me because I want to be able to sleep at night knowing that we’re going to drop the price to hopefully find the right person. But Jamie, what you’re saying is that maybe the opposite should be true, where you almost jack up prices for those last-minute stays because those are the travelers that are maybe most in need of your stay.

Jamie:
Yeah.

Tony:
Yeah, go ahead. Go ahead, Jamie. I’m curious.

Jamie:
Yeah, it really depends on how many listings are still available. So we help people track that on our platform, and then what is sort of booking activity. If you’ve got really great reviews, really highly rated, you might be able to do that. If you’re maybe on the lesser side, that’s probably not something you could do. So it really depends on the type of property and then what are the total number of available listings, how many you expect to get booked. If you know last minute typically and in your comp set or in your market 10 or 15 properties are going to get booked last minute and there’s only five left, you should push that rate because you’re going to get booked, but it really depends on the time in the market.

Rob:
Yeah, I’m with you, Tony. I discount. That’s a scary thought. I don’t know. I discount last minute. I just want to fill it if I can. But yeah, I guess it takes a little bit of faith to drive up those prices at the last minute.

Tony:
Yeah. Yeah. I think I’ve played around with that in some of the holiday seasons, right? If we have a last-minute opening for Thanksgiving or Christmas, then I’ll typically try to bump those prices up. But yeah, I get a little nervous. Maybe I got to spend some more time digging into the data, Jamie.

Rob:
Hey, I’ll do it if you do it. [inaudible 00:33:01].

Tony:
If we can get everybody to do it, then it works, right? But if I’m [inaudible 00:33:05].

Rob:
Oh my God, we’ve done it.

Jamie:
I think that’s called price collusion.

Tony:
Yeah. Okay. All right. Nevermind. We didn’t say that. Yeah. So Jamie, we talked a lot about… Obviously, Rob and I are in and mostly true vacation destinations, but what about the metro markets, like the large urban cities? Rob lives near Houston. I live near Los Angeles. These are big cities. What has the revival been like in those major metros?

Jamie:
Yeah. Revival has been slow and they were the markets that were hit most by the pandemic. People were really avoiding cities. It really held that the less dense you were, the quicker your demand came back, but we really are now seeing the revival of demand to the cities. In reality, 2022 would’ve been a much better year except for the strength of the dollar. So if you’ve been paying attention to that, it raised the cost for foreign travelers coming to the U.S. by about 20%. It made it much cheaper to go to Europe. So a general trend this past summer was go to Europe and how great a value it is, but that really kept people back.
Why I mentioned that is because in a lot of these large cities prior to the pandemic, international demand was as much as 50% of overall stays. So in cities like New York, San Francisco, Oahu, Miami, L.A., Boston, yeah, 30 to 50% of guests were coming from overseas. That now is only about 20%, maybe 15%. So we’re still have a long way to go. 2023, we expect there to be a big increase in international demand coming back and especially if China opens back up to travel. So you think in past three years, Chinese travelers have been sort of cooped up, not allowed to travel outside of their city, much less internationally. Back in 2019, China was the number two country for international visitors coming to the U.S. and could see really an unleashing of those Chinese travelers coming back to the States.

Rob:
Yes. Yeah, that’s anecdotal for me as well, 2018, 2019, that the China was by far the biggest international audience that was staying at my different Airbnbs. One of the things that I was also… I have a couple of questions and then I’ll move us along here, but I feel like I’m just throwing… You’re the king of darts here. I feel like I’m just throwing things at you. I’m like, “I hope he knows the answer to this,” because I’m genuinely curious. So one thing that I was wondering about is during the pandemic, a lot of people were unable to go international, right? And so, once some of that dust settled and people could travel internationally again, people started going, but now we’re heading into a recession. And so, my logic or my thought here is, well, flying internationally is very expensive, so it makes me wonder if in the next 12 months, there will be a lot less international travel and a lot more domestic travel within the United States. Is there any kind of data on that front?

Jamie:
Yeah, it’s some. So you think about travelers that are traveling overseas though, it’s generally higher end travelers, so people staying in more luxury properties, and those are actually the ones that have performed the best over the past three years. So people that would’ve traditionally traveled overseas stayed domestically. We saw luxury properties. Overall, they used to have the lowest occupancy, they actually had the highest occupancy during the pandemic or highest growth in occupancy during the pandemic. They’re now and in 2022 where we saw some weakness. So you think some of those mountain destinations where people were staying domestic all of a sudden started going overseas again. We saw luxury rates in the Colorado mountains and drop anywhere from 15 to 20%. They decided they want to maintain their occupancy so they started cutting rate, and that in a lot of markets that were appealed to luxury travelers, that’s been an area of weakness over the past six to eight months.

Tony:
Rob makes me think of a good question, Jamie, about the recession and how does the travel hospitality industry typically fair? So Airbnb started during the last recession, so there’s probably not a whole heck of a lot of data around Airbnb specifically, but just anecdotally, do you have any sense of how maybe the larger hospitality industry faired during 2008, or maybe even if there were previous recessions, how they typically did? Because I think there’s this massive fear for a lot of people moving into this space when they hear the word recession that their properties are going to sit empty for months on end and I just wonder if there is any data to maybe soften that fear a little bit.

Jamie:
Yeah. So in my prior life, I was an economist for the hotel industry, so looking at decades of data. We actually had data going back to the 1930s on hotel performance. So I’ve done actually a lot of work in looking at prior recessions and its impact on our industry. What I can say is the past three recessions are not representative of what we expect to happen during this recession. So you think back, we had COVID, we had the great financial crisis, we had 9/11, so all recessions that impacted the hospitality industry way more so than the rest of the economy. This upcoming recession, if we do go into one, we expect it to be much more of a goods recession than a travel and hospitality recession.
We actually have forecasts from Oxford Economics, they actually don’t expect even in their downside scenario, where they have GDP going down 2.5%, leisure and hospitality demand to go down at all. That really aligns with our forecast, where we do have a recession baked into our forecast for next year and we still have demand going up 5.5%. Our friends at STR in the hotel industry, their forecast for hotel demand is up 3% with the recession baked in. So overall, even if we do go into a recession, we expect just the tailwinds. People are prioritizing travel over other forms of spending right now. The surveys that we’ve seen is that they’re C going to continue to do that and that’s our expectations for the year ahead.

Rob:
Yeah. Yeah, for sure. Really, Tony, this gets into the people who are sort of dabbling into Airbnb, right? I don’t think 2023… I think it’s the best opportunity really to get into Airbnb in the last two years because we’re going to see a lot of price cuts. I don’t think it’s a good opportunity for people that are just wanting to dabble because this is going to be a hard year for a lot of people to stomach if they’re just reading the headlines and things are slow. But for me, I’ve been doing this for five years, I’m excited for price cuts and I’m excited to jump in at a pretty decent rate. You know what I mean? So it’s like 2023, for me, I’m genuinely excited to actually get offers accepted for the first time in a year and a half, right?
So, Jamie, you talked about your forecast and you’ve honestly put out an impressive amount of answers to my data questions here. So, can you tell us a little bit about where you even get your data? How does AirDNA compile so much data? What are the sources of it? I don’t know. I guess I already asked. How is it compiled? That’s what I mean.

Jamie:
Yeah. We’re a global company, so we’re tracking every listing on Airbnb, Vrbo, and Booking.com. We look at every listing every day and the movements in the calendar, so which listings are available on a given night. We see when they go unavailable. We then model whether that was a booked or blocked night. We take the last rate that night was available as the revenue and then amortize the cleaning fee, so spread that over the length of the reservation. We’ve been doing that as a company since 2014. So we have a really long time series of data so we can understand trends over time, how markets have moved over time.
Our goal as a company is to collect data on 95% of the short-term rentals out there in the world and have 95% accuracy. So we’re not going to get to the long tail of every single niche booking site. We’re not going to get perfect accuracy. We can’t do that with how we collect our data, but we’re going to get really close and that’s our number one focus at our company is accuracy of the data. How we augment that is we get data from individual hosts that connect their properties through our site at AirDNA. So if you’re a host, you can connect your iCal. We’re going to get your actual data. We’re going to allow you to benchmark your property versus competitors, understand is it just me that’s not getting bookings, and how are my competitors, how are the properties around me getting booked out? And then we also get partner data. So, some of the large channel managers, vacation rental management companies give us their data directly and we’re able to augment the scrape data with that data as well.

Tony:
Yeah. Jamie, I’m so happy that companies like AirDNA exist to pull that massive amount of data because in order to make the right decisions as a host, you need the right inputs and the right inputs is everything you talked about. I had no idea it was such a complex process to track so many millions of listings across the globe. So I’m glad you guys are doing that. So I want to keep the conversation moving, Jamie, and I want to talk a little bit about how investors can start setting themselves up to remain competitive given all the forecast and everything we’ve talked about so far. So with this increase in supply, what are you seeing or what advice would you have for someone that says, “Okay. How can I be competitive? How can I protect my return? How can I make sure that my listing is one of those listings that does well?”

Jamie:
A couple different things. There’s different aspects of the industry that are growing faster than others. So unique stays is one, where I’m very bullish on. I think you guys might be as well.

Rob:
Yeah, sure.

Jamie:
The other is the type of amenities. So if you look at a market like Joshua Tree and overall occupancy is going down, but if you look at occupancy for properties that have pools, it’s actually going up. So being focused on what people are going to your market for, what amenities do they want when they’re there and how can you make your listings stand out from the others. And then the third thing is status and reviews. So a property or a host that has Superhost status is getting a 24% higher occupancy than a host without Superhost status in any period.

Rob:
Wow. Really?

Jamie:
Yeah.

Rob:
Dang, that’s crazy.

Jamie:
Last year, they had 21% higher RevPAR controlling for everything. So there is a massive increase in performance and propensity for people to book for higher reviews, for Superhost status and giving people the comfort in booking. We have so many people trying Airbnb for the first time. So last year, of all the bookings that happened on Airbnb in the U.S., 40% were first-time bookers. So if you’re trying a platform, trying a product for a first time, are you going to book with someone that’s a Superhost or not? Yeah, it really makes a difference.

Rob:
Dang, that is honestly astounding. I remember I was at a Airbnb party, I guess. It was a lot of hosts and they were all standing around and we do cool things. And so, we were all standing around and I remember being like, “Yeah. So how long have y’all been Superhosts, or how many times have you been Superhosts?” Because it’s just a little badge that they tell you like, “Tony Robinson has been Superhosts X amount of times.” And then they were like, “Oh, four, seven.” They’re like, “What about you?” I was like, “Oh, I think I’m on 16 now.” Everybody’s jaw dropped. They were like, “What? You’ve been a Superhost 16 times.” It’s something that I’ve been, I don’t know, very proud of for no reason, but now I guess I have a good reason to be proud of it because I’ve gotten 24% more bookings from it. So, that’s pretty crazy.

Jamie:
Also, keep in mind that only 15% of hosts are Superhosts.

Tony:
Really?

Jamie:
It is a small crowd. Even maybe it plays into the Airbnb busting and people that are not seeing the bookings that they expect. If they’re not getting reviews, if they’re not sort of meeting guest satisfaction, that could be a big piece of it as well.

Rob:
Dang. Do you have a fun fact here about Superhost names? What is the most common Superhost name? This is something that we chatted off-air about the other day.

Jamie:
We chatted off-air and then I never actually looked it up.

Rob:
Oh, okay. Okay.

Jamie:
Now that you mentioned that, I remember I did look it up at some point. What is it? Do you have it?

Tony:
Yeah. Jamie, I mean, there’s so many good things we’ve talked about and I love the idea of host having something tangible to focus on to help their listings do better. So you talked about pools and Joshua Tree, which I’m super glad you mentioned because I actually just got my first pool property under contract right now. So I’m excited for that rehab project. But what other amenities are you seeing across these different markets that maybe host should focus on including in their properties?

Jamie:
Yeah. One I get asked out on the press all the time, it’s a super popular one right now is pickleball courts. The other is themed units, so running with a theme that’s popular in your market. Orlando has a lot of them around the parks, but really any city has history and you could create a theme that goes along with it. Some ones that I’m really focused on right now align with the Airbnb categories. Is there new ways to get guests booking your properties? You run through those and some is simple stuff like play. Do you have games? Do you have a game room? Do you have a creative space? Do you have a chef kitchen, a piano? So there’s just new ways that Airbnb’s pushing for people to search. If you could align into one of those categories, you could see a significant uptick in bookings there.

Rob:
I just want to say, David, again if you’re listening to this, listen to Jamie, he said pickleball courts. We have a tattered pickleball court at our Scottsdale mansion and it’s like get a cost $25,000 to get up and running. But I was like, “We should do it.” He’s like, “What? Let’s make some money first.” I was like, “Fine,” but I was really ready because I want a pickleball court. Sorry, Tony, what are you going to say?

Tony:
Have you seen our newest game room in Joshua Tree? We just renovated one of the garages into this really cool Mario-themed game room. So we have a Mario picture, mural that we painted along the wall, all these really cool wood decals that look like the little tubes that Mario jumps in and out of. We have the Nintendo Switch, like the basketball hoop, the air hockey table. We actually pulled that inspiration, Jamie, from Orlando because we saw Orlando does… That’s one of the best markets to go at to look for inspiration on how people are getting really creative with themes. We said, “Man, there’s no really cool themes in Joshua Tree like that at all.” So we literally just took that by-

Rob:
Casita Conejo, but that’s fine.

Tony:
I don’t know. But dude, the Orlando ones are super over the top. So it’s our first foray with the super, super themed like that. So I’m curious to see how it does in that market as well.

Rob:
See, I thought you were going Super Mario because it’s Joshua Tree and Super Mario gets powered up by mushrooms and stars.

Tony:
That’s the connection there. That’s what we’re going for.

Jamie:
In some areas, amenities can be table stakes. You talk about a market like Gatlinburg, it’s like over 70% of properties up there have a hot tub. You look at the ADRs from hot tubs, you’re going to get $40 a night on extra, 70% increase in rate. So if you are making investment, you got to know what do people just expect when they’re booking that market. My favorite way to figure out some of the ways to maybe go over the top or figure out what could you replicate that’s doing well in other markets. On our site, we have top properties, so which markets are earning the most revenue in every market? And that for me, it’s like what… I just go through that, run through different cities and find the like, “Oh, this is killing it in this market. I’m going to copy it in this other market.”

Rob:
Yeah. You mentioned looking at what’s important to your city. Gatlinburg is effectively synonymous with the word hot tub. It’s very, very, very important. It’s annoyingly important because I hate hot tubs and the maintenance that comes along with them, but one of my properties, it’s like a five bedroom, four bath. It’s kind of out there. It’s a bit of a destination, maybe 30 minutes outside of Pigeon Forge. It grossed about $60,000 this year. The mortgage on it was like, I don’t know, 2,200 bucks. So I think it’ll end up being a 25% cash-on-cash return. I was actually expecting it to breakeven. I bought that house not even for Airbnb. It’s actually nice that it made some money, but I know I’ve been wanting to build this epic hot tub that basically cantilevers off the cliff and you can look at mountains, and it’s been really hard for me to find a… Because that’s like requires intense engineering and finding a contractor that can do cliff decks and all that kind of stuff.
But I’ve just been like over the past year trying to find somebody to do that job because I know that if I do that, it will basically double my overall revenue probably for the vision that I’m trying to execute. But one of the things I was going to ask you was you said it’s important to look at what amenities are important to your market. Is there any way someone can research that, or is it really just a matter of going through your Airbnb competition and just going through listings and seeing which ones are the most booked and maybe trying to cross-examine all the different listings out there?

Jamie:
Yeah. For the main amenities, it’s actually something we put on our website at AirDNA.co, and I think it’s not even behind the paywall. So you can go and see for all those top amenities what percent by city, in any city in the world, properties have that amenity or not, so you can get a sense of… For ones like pool, hot tub, Wi-Fi, TV, cable, things like that, see what percent of properties have those amenities.

Rob:
I mean, even if it is behind the paywall, you can use promo code Robuilt for… No, I’m just kidding. Okay. Well, awesome, man. Thank you very much. I appreciate that. Tony, is there anything else you want you wanted to ask before we let Jamie go here? I mean, I feel like I have at least 18 more questions, but [inaudible 00:53:29].

Tony:
Yeah. Man, I feel like we could keep talking forever. We definitely got to bring you back on, Jamie. Maybe we can make this a regular theme because Rob and I selfishly get so much value from having these conversations. But if there’s anything I want the listeners to take away from this episode, and Jamie did such a masterful job of explaining this, is that we can make decisions based on emotion and headlines and what pundits are spouting, or we can make our decisions based on the data and what the facts are saying and use that to inform our decisions. So I don’t think any other questions for me, Jamie. I just want to thank you for hopefully doing away with some of the fears that people have had around the short-term rental industry because this Airbnbust idea I think is permeated so deep in so many of these communities, but what you’re sharing is definitely, I think, fought that in a good way.

Rob:
Yeah, man, thank you so much. Before we let you go, where could people find out more about you or more about AirDNA if they want to reach out or learn more information?

Jamie:
Yeah. AirDNA.co is our website. You can follow me on Twitter and LinkedIn. If you want to hear more about the data, we do have our own podcast, the STR Data Lab, where we talk data every week. So, happy to have people come in and listen.

Rob:
Okay. If people want to follow you on Instagram or Twitter, what are your handles?

Jamie:
Jamie_Lane on Twitter, and I think it’s just Jamie Lane on Instagram.

Rob:
All right. What about you, Tony? Where can people find out more about you if they want to connect or see your golden knowledge bombs on the internet?

Tony:
First and foremost, come listen to the Real Estate Rookie Podcast. We drop episodes every Wednesday and Saturday. Outside of that, on Instagram @tonyjrobinson. And then my wife and I run the Real Estate Robinsons YouTube channel as well.

Rob:
Awesome. Well, you can find me over on YouTube @Robuilt. If you like this episode, if it made you feel better, if it inspired you to get into the short-term rental game, please, please consider leaving us a five-star review on the Apple Podcast platform or wherever else you download your episodes. That’s it for today’s episode of BiggerPockets. Thank you so much, Jamie, and we’ll catch everybody on the next episode of BiggerPockets and scene.