Latest / Real Investor Radio Podcast / Episode 19 | The State of the Short-Term Rental Market

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Episode 19 | The State of the Short-Term Rental Market · Real Investor Radio Podcast

• Craig Fuhr (00:06.462) Well, hey everybody, welcome back to Real Investor Radio. I'm Craig Fuhr with famed investor, Jack BeVier. Jack BeVier (00:15.133) Hey guys, how's it going? Good to see you, Craig. Craig Fuhr (00:16.862) It is great to see everyone. Jack, good to see you. This is episode, where are we here? Episode 19. We're currently recording in the month of October. These should be out very shortly for everybody. And in our last discussion, if you guys didn't catch it, you probably should. We talked at length, Jack and I just this time, no guests. We talked sort of about our feelings on the economy, just really a big sort of a macro and micro talk on predictions, what we're seeing currently, sort of the trajectory of the country over the last 20 plus years. And I would invite everybody to go take a listen to that episode. And then honestly, give us your thoughts. Love to hear from you guys. Reach out at Craig at craigfure.com or Jack at thedominiongroup.com. Send us both some comments or just comment anywhere you might in either YouTube or on the platform. So Jack, today, really love to have a discussion short-term rentals, the emergence of the market, sort of the players within the market, the whys of why we think it became such a such a thing really very quickly and overnight. And you know where it's going, the ups and the downs. And so let's just jump in, man. I'll let you I'll let you start on this one. So yeah. Jack BeVier (01:42.609) Yeah. So the short-term rental, you know, I would say now industry, um, has really emerged over the past 15 years. Um, I think Airbnb was started in 2008 around that timeframe. The idea at the time being, uh, you know, kind of the, one of the big trends in tech was that to find anything that was on Craigslist and, you know, put tech or put a tech packaging around it and automate it so that people could do it on a more platform basis rather than Craig Fuhr (01:48.066) Mm. Jack BeVier (02:11.997) going to Craigslist and so couch surfing was, which was a thing on Craigslist back in the day turned into a short term, you know, the short term rental business where, you know, what it started with, if you have an extra bedroom, you could, you know, bring someone in and offer them a place, a cheap place to stay at night. But then as the consumer got used to that idea and that didn't become such a weird issue and you know, the security concerns people just got over it. It became a great way to get very high rent per square foot on either a nightly basis or for longer stays as well. And so, you know, entrepreneurs have kind of taken that six ways from Sunday in terms of niche models to be able to increase the rent per square foot that they are getting with some additional operating load. Right? Like there's more operations to a three day lease than there is to a 12 month lease for obvious reasons. But given the extra rent per square foot that you can get, it's been a very, very profitable strategy for a lot of investors. And some folks have kind of used it as a strategy, you know, an arrow in the quiver for a particular situation. They may have, you know, 30 properties and three of those are Airbnb or VRBOs. And other folks have made an entire business model where they're almost hoteliers really, right? They're really kind of. Craig Fuhr (03:46.163) Is there any significant difference, Jack, between Airbnb and VRBO? Jack BeVier (03:50.961) I'm sure there is. I think that the Airbnb market generally is just marketing to a younger audience than VRBO. I think VRBO tends to be it was it was tends to have an older demographic to it. I think less investors are on using the VRBO platform. Jack BeVier (04:10.633) So the data around this has actually gotten really interesting. There is even now a very popular data company called airdna.com or.co, sorry, that says that they monitor all of the short-term rental sites and can give you a sense of what's going on in the market in real time. Because that's a pretty heterogeneous market, properties come off the market. you know, come on and come off based off of just, you know, frankly owner preferences as to when they want to put stuff up there. So the supply and demand, trying to figure out the supply and demand dynamic for a particular sub market for given the unique offerings of your property is a tough, is a tough lift. It's a heavy lift. And so AirDNA tries to help folks do that, do that better. So, and then when COVID hit, I think the industry got a huge burst of interest because folks were looking to... It was a way to vacation without going too far. And the traveling nurses became a theme, a thing. Yeah. And then real estate investors responded to that. You could rent your... Craig Fuhr (05:27.499) an investment theme at that. Jack BeVier (05:33.213) write your place for a month or two or three months. And so that was kind of a nice in between, right? You didn't have to be super hands-on and like getting a phone call at 11 o'clock at night from somebody who was concerned because the heat wasn't working on a Friday night, right? You could at least get like a two month lease out of somebody who was just in the area for work. So. Craig Fuhr (05:55.354) And generally, at a much higher return or rent than you would if you were to get a market-based tenant. Jack BeVier (06:04.561) Yeah, absolutely. So I mean, I think we've seen like, you know, tremendous, tremendous amount of creative strategies for real estate entrepreneurs who have created very special properties to get premium rents. And, and there's some extremely talented entrepreneurs that have really kind of come on the scene in the past, you know, five years, three years specifically, around this business model. Now it's, there's an argument that it's, you know, from a risk point of view, it's not pure residential. right? Because these are not 12 month leases folk, you know, these are vacation rentals. So it's a bit more in the hospitality realm than it is purely resi. And so with that comes some different risks than kind of your core resi. And so, you know, given the kind of the macro economic environment they're in right now, there are some concerns about the short-term rental business. There's, Craig Fuhr (06:43.998) Yeah. Jack BeVier (07:00.709) in a lot of articles that I've seen headlines saying, Airbnb, you know, Airbnb and bust question mark to get you to click. So there are, but there are some, you know, there are some concerns as to, you know, going into the next 12 months, what, how that business model is gonna do. Is it gonna hold up? So Craig talks a little bit about what you're seeing. Craig Fuhr (07:16.749) Yo. Craig Fuhr (07:21.846) Yeah, man. Well, you know, before we get into sort of where it's going and the people talking about the crash and the bust of Airbnb, one of the things that I think has always concerned me about that evolution of it is it started exactly the way you said it did. It was, you know, hey, I got an extra room in my house or I got a basement and I can put somebody down the basement. And while that feels a little crappy, you know, I could use the money and man, the money that I could get for that. It's pretty insane. And I think you're right, there was initially that stigma, at least I certainly was like, I would never do that. And then it just becomes a thing where, well, it's perfectly acceptable now. And I actually knew a woman once in Arizona, funny story, Jack, that she needed some money and she was out of work and she decided she's going to do an Airbnb. She's going to purchase an Airbnb. What she didn't tell me was she said, I'm very excited. I just got my first Airbnb customer and I think they're gonna stay for like close to a month. I'm so excited. And I said, well, that's fantastic. Tell me about the house. She goes, it's the house that I live in. And I said, where are you going to live? And she said, I'm gonna go take my camper out to the middle of Arizona and live in my camper with my two dogs. I'm like, that's not a business plan. That's not that's not how that's not the strategy. So I think that the in terms of sophisticated operators and versus not sophisticated operators and sort of the evolution of Airbnb evolved into this thing that I find a little bit alarming. In fact I was just at a house just two weeks ago Jack where. I was, well, I won't say why I was there, but this house was literally in the middle of a county neighborhood here in Maryland. I wasn't on the eastern shore where Ocean City, Maryland is. I wasn't up in the mountains where Deep Creek Lake is. This was not a vacation setting. This was a white collar neighborhood house just sitting in the middle of nowhere. And this guy who I was speaking with. Craig Fuhr (09:45.898) was going to Airbnb and I said to myself, who wants to stay here? Why would I wanna stay in this house? Why would I wanna rent this house when I could, for a short term? And that's what I find was this evolution that I saw as sort of a little bit alarming that like people, these folks would go buy houses just sort of anywhere and assume. just because they threw it up on the Airbnb platform that it was going to be rented for $400 a night. In fact, that may be true, but I don't see the big market of, hey, I'm just some Joe Schmo, and I need a big market of houses located in any neighborhood. I always looked at the model as it was a room or it was maybe a house near a college or... you know, something like that. And that was the, I guess, you know, maybe you could speak to that in terms of how it evolved into something far more than just a vacation platform or houses near vacation areas, houses in high demand areas. Jack BeVier (10:59.693) Yeah. So I think that, you know, it started off as like very, like the lowest hanging fruit is that, you know, it's, you know, it's a minor inconvenience for you to rent out a room and you get some, some pocket change. And then you then as a business model, you're really starting to compete with hotels, right? Which is one of the reasons that there's been a lot of, you know, a lot of pushback from, from cities, particularly, yeah, the inherent hotel industries, the incumbent hotel industries that are there, because it is competition for them. Craig Fuhr (11:14.827) Yeah, yeah. Craig Fuhr (11:20.278) hotels. Jack BeVier (11:29.021) Absolutely. And I mean, I got to the point where I think, five years ago, I just stopped staying in hotels. Like I was just, it's just, when I got used to the experience, like you got a more unique product at the same or cheaper price. And so, from my own firsthand experience, I was certainly, it changed my consumption behavior relative to hotels. And then, Craig Fuhr (11:53.654) Yeah, at what point at what point Jack did we say, you know, instead of saying in this nice hotel, I think I'd rather go say in someone's house. I think it became that way when people when people stopped using their houses as Airbnbs, these houses were purchased solely as hotels, right? Like as, yeah, go ahead. Jack BeVier (12:14.813) Yeah, yeah. And as real estate entrepreneurs go, right, like we pushed that we pushed that idea and, you know, and then it got into, you know, into vacation rental markets, right, the beach lakes, you know, but the mountains, that all made sense, right. Like there's no hotel in the mountains, but you can run a hotel business because it's a, you know, it's a relaxing place to go. There was an obvious draw. Craig Fuhr (12:27.478) Mm-hmm. Jack BeVier (12:39.389) And then COVID hit and then the traveling nurses idea became more and more popular and just people just wanted to get out of their house for a little while. So that, you know, pushed a little bit further and then more and more fit financing came into the market. Facilitating all of those really smart, you know, totally logical, great business ideas, entrepreneurial business ideas. And then, but of course, as humans do, we push it, we, and we push it to X, you know, things to their extreme. And so, you know, kind of think with the popularity of that and the fact that there were so many people talking about all this money that they made, uh, doing short-term rentals, then they tried to just, you know, to, um, to a hammer, everything's a nail, right? So when you get excited about a particular strategy, you just want to apply it absolutely everywhere. And you, and then we take it to, we probably, and I think we've probably taken it a little too far at this point to the exactly what you just described. Craig Fuhr (13:29.842) Yeah. I, I can't, I, you know, how many times have you heard, I only have to rent this thing out four nights out of 30 to make my mortgage payment. And it, you know, if the thing, everything after that is just pure cash flow. Yeah, that's all good. When you're, when you've got a vacation market with high demand, you know, that, that really nice product, my wife and I have stayed in some unbelievable. Airbnbs, but I'm not going down to Prince George's County, Maryland in, you know, some neighborhood for vacation. And so I wonder about these about the business plan, Jack, of those type of folks who, you know, would with a house make up just a better rental long term rental, or would it have been a better deal if they purchased it rehab and sold it. And I find that Jack BeVier (14:05.213) Mm-hmm. Craig Fuhr (14:24.846) there are a lot of folks out there who did not buy VRBOs or Airbnb's in these high demand vacation areas, which by the way, we'll talk about in a minute Jack, how many of those areas are seeing steep declines in revenue and in demand. But yeah, man, I'd ask you to maybe consider that Jack, how many of those guys out there are in these sort of residential neighborhoods that really don't really make much sense as a short term rental? Jack BeVier (14:53.149) Yeah, I think, you know, get rich, you know, super high rent per square foot means, hey, I, you know, makes you think, hey, I can, I can make a lot of money really quick, get rich quick schemes, attract knuckleheads, knuckleheads don't do diligence on economics and running, you know, running something as an actual business. And we've got, we've, and we have had a financing environment that is not screened for that idea. Craig Fuhr (15:20.194) Yeah. Jack BeVier (15:21.337) And so I think that there has been probably, you know, not enough diligence on the financing side to screen out short term rental as the business model. There's been some, I mean, there's been some certain, I would say for like the DSCR loans that we do, short term rental is an eligible product for some of the loan purchasers, but not for all. And everyone's got their their take on what the appropriate overlays are for that. The Craig Fuhr (15:55.118) Can we jump into that Jack? Like by the way, Rachel, if you're listening, I, on the next t-shirt that we put out for RIR, you have to, what was it? Attracts knuckleheads Jack? Get rich quick schemes attract knuckleheads. That goes on the back of the shirt. Thank you Jack, that's fantastic. So talk about that. Like I'm a guy, I go out and you know, it's let's say four years ago, pre pandemic. Jack BeVier (16:06.089) Get rid of screams. Craig Fuhr (16:22.622) I go find a house. I want to turn it into a short-term rental. How am I getting financing? And what did the financing look like back then? Jack BeVier (16:32.501) Pre pandemic, pre pandemic, pre pandemic. It was tough. For, I think you were going to your local bank and your local bank had his eyebrow raised at you cause he'd maybe had stayed in one time, but didn't really consider it like a business yet. Um, for me, the, Craig Fuhr (16:33.642) Yeah, yeah. Craig Fuhr (16:37.803) What would it look like? Craig Fuhr (16:48.714) And so was it, were you getting financing just like, hey, it's an investment house, this is our investment loan, maybe not asking about the business plan on it. He just saw it more as a rental than a short-term rental. Jack BeVier (16:59.617) Yeah, yeah, I think people, yeah, exactly. It was it was a rental property. And then if you went and you chose to go do some short term rental, like, hey, have fun with that. Like, I mean. Yeah, I'm not going to check in on you. Yeah. But and so people just went and did it. But then more and more did it and then more and more said, hey, here's what I'm doing. Look, you know, look how smart I am. This is the business plan that I'm going to go do. Craig Fuhr (17:09.458) Oh, got a better idea, right? Like the thing I told you. Right, right, exactly. Craig Fuhr (17:24.082) When did the loan product sort of become available, Jack, for that? Jack BeVier (17:28.477) I would say, yeah, that was like late 2020. Really? It's really kind of a 2021 thing. I would say probably first quarter of 2021, short-term rentals became explicitly eligible under in DSCR loans. And then a lot of it happened. Craig Fuhr (17:41.226) All right, so explain what that looked like. What did that, like give us a typical scenario. Guy comes, he's got a $400,000 house, maybe needs some rehab. What's he bringing to the table? What were the rates back then? Why did it work so well? Why did the guys who buy up the DSCR loans, why were they like really excited about? Jack BeVier (18:05.541) I think in the beginning of 2021, Wall Street was generally skeptical of short-term rental, but it was, hey, if you want to go do that, that's fine, but we're going to underwrite the DSCR loan based off of the 12-month market rent. I think that still tends to be the fallback position, but there's been a little bit of a wave to it. It got more and more and more aggressive throughout the course of 2021. Craig Fuhr (18:19.854) guys soon. Jack BeVier (18:34.073) Interest rates were incredibly low. Real estate was going up. And because of the dynamics in the world at the time, short-term rental operators were having great success. So you didn't see, you only heard stories about how everyone was killing it doing short-term rentals. There wasn't any down, didn't feel like there was much downside to it. As long as, you know, again, there was some like logic to the location as to why this was a short-term rental property and not just some house in some subdivision. Craig Fuhr (18:49.154) Yeah. Jack BeVier (19:03.529) But then coming into 2022, as interest rates started to increase and the world started to perceive, you know, the industry started to perceive that there's more risk in the world. And as soon as the people started to talk using the R word recession, as soon as recession became part of the vocabulary of the forecast, the economic forecast, a number of loan purchasers eliminated short term rentals altogether and just said, hey, it's an opera, it's an operational business. We really, we're not, you know, we think that the world's going to be, you know, hotels are highly volatile businesses and a recession, you know, hospitality industry doesn't do as well. This is really hospitality and we just want to do 12 month resi. You know, we went out of this. Craig Fuhr (19:51.554) So hold on, so can I stop you right there? So if a guy comes in or guy or gal comes in and they say, hey, I'm a big Airbnb person, you're literally walking away from the loan at that point? Because certain servicers, I guess, are walking away at that point. Jack BeVier (20:06.51) So Jack BeVier (20:10.193) Yeah, certain loan purchasers just decided that just wasn't an area they wanted to be in. They didn't frankly care, you know, who dealt with it, just not with my money, you know. Craig Fuhr (20:17.39) can I so that yeah, that leads me to the question of so if I'm a guy who's buying up Airbnb is if I'm an operator, why would I walk into you and say, Hey, I'm using this as a short term rental? Why wouldn't I just say it's a rental? Jack BeVier (20:30.557) And a lot of people started to do that. I think a lot of short-term rental operators got wise to the idea that it wasn't as popular anymore and they stopped talking about it, stopped bragging about it so much. They kept doing it, but they started talking about it less. Then I think AirDNA really became an industry standard and an underwriting tool, like an accepted underwriting tool. This is probably late 21, early 22, so kind of in the middle there. Craig Fuhr (20:39.624) Mmm. Jack BeVier (20:59.185) And so other loan purchasers, though, started using overlays like the AirDNA report to substantiate the idea that this wasn't a knucklehead Airbnb, that this was in an area that had significant demand for that product, for that service. And they charged a premium for somebody who had short-term rental as a business model, for example. And show me your... trailing 12 operating statements, we're still gonna get a market rent determination of what the 12 month rent would be so that we can kind of like put belt and suspenders on the underwriting. And then I think that, and so there's been kind of, the market's been kind of in between right there. You can still get a short-term rental, a loan secured by a short-term rental property. You don't necessarily have to have operating statements. Sometimes you're charged a little bit more. I'd say it's become a thinner market. Craig Fuhr (21:59.426) How can you have operating statements if you're going to purchase the thing you have to your? Oh, it's all refi. I say so you can't. So in some cases you can't get that loan unless you have unless it's a refi and you've got some sort of history in the place. Jack BeVier (22:04.041) I'm talking about a refi. Yeah, if you already owned it, yeah, yeah. Jack BeVier (22:17.289) Yeah, they'll make other adjustments if you don't. Like if you have 12 months of operating statements, they'll be more aggressive than if you don't. They'll still do the loan, but on slightly more conservative terms. Yeah. Craig Fuhr (22:27.234) I see. What's the premium, Jack, for a loan that is a short-term rental? Jack BeVier (22:34.021) I think it got to as high as 50 basis points of rate. But today, there are a couple loan purchasers who have once again gotten comfortable with it. And for high FICO borrowers, there's no premium to the fact that it's a short-term rental. So it's interesting in that some loan purchasers have shunned it altogether. Other purchasers have perceived it as a slightly higher risk product. And other loan purchasers are totally fine with it. So I think, you know, given the given that we haven't seen that model truly stress, stress tested in the past, right? Like the only stress test we had during the Airbnb, you know, the short term rental industry, it was COVID, which like accelerated everything, right? So there's no real stress test. We haven't gone through a recession, you know, since short term rentals have become a thing. And so the jury's out is the point, right? The jury's out on as to how this is going to perform. There's folks who think that it's going to perform like much closer to single family rentals, which are generally, rents are very resilient, even in a downturn. And there's other folks who think that these are hotels and that it's going to be a high beta, high risk, higher risk model. And that you should be underwriting them much more like a hotel than a... a single family property. Craig Fuhr (24:01.57) So based on your knowledge of the market, how many of these people given a downturn in the hotel model, I'm going to rent this thing out for 10 nights a month and I'm going to make my cash flow, make significant cash flow off that. Let's say that model, we see a downturn in that. How many of these people based on their all in price and the cost of the mortgage each month? their costs, how many of them have a viable model if they have to go to long-term rental based on long-term rental rates? Jack BeVier (24:40.249) I think generally speaking, the loans were underwritten as if, with that kind of like belt and suspenders approach, that if they have to pivot to a long-term rental, they could still make, in theory, they can still make their debt service payment. So now the question is, do they personally, does their personal financial situation survive if they're living off of this idea, right? Like if they're still making their car payment and their home mortgage payment, you know, the personal residence payment off of this, and then they have a bad turnover in two months, you know, a couple of bad turnovers and two months of light vacancy, does that, you know, do they have enough savings to go through a quiet spell? And this past summer was that for a lot of people. It was a... Craig Fuhr (25:10.263) Yeah, yeah. Craig Fuhr (25:31.694) Speak to that. What do you mean? What did it look like? Jack BeVier (25:34.525) Well, it was a tougher summer from an occupancy point of view and from a rates point of view. It was far, it was not as lucrative. Yeah, exactly. Not as robust as it was a year ago, the same time. Craig Fuhr (25:44.162) Robust. Craig Fuhr (25:49.828) Are you speaking Jack in vacation markets or just in general? Jack BeVier (25:55.985) I think in general, I think there was more short-term rentals that hit the market. So there was more supply from that perspective at a point in time where people were a little less eager from a consumer spending point of view. They were vacationing less, spending less money on their vacations, more staying in their houses, less just going off to, hey, I need to meet a weekend away. And that all cumulatively led to... led to much lower occupancy and daily rates on short-term rentals than previously experienced. Craig Fuhr (26:31.838) which I have to believe put downward pressure on rent asking prices as well. Jack BeVier (26:36.433) Yeah, exactly, exactly. And so obviously, this is an uber local, like Airbnb is like a micro market thing, right? You could have like, if you have the most special property in some random place, hey, you could have a phenomenal occupancy rate and daily rate, but you could be around the corner with a not so special property and just get crickets. So. Craig Fuhr (27:00.542) Yeah, you know, you and I talk about that all the time. I think a lot of what we talk about here on the podcast is, you know, when you paint with a broad brush, real estate is still very local until it's not. And, um, you know, I think the same could be said for many markets around the country that like it's real hot in one place and then not so hot in another. We're going to talk about that in a second, but man, I think there's, um, there's a, in the time that we have left, You know, there's two things that I find interesting about the time that we're in right now, and particularly the short-term market. If you ask any investor around the country, including yourself, it's a tough time to be finding deals. It's a tough time to be finding inventory to either add to your rental portfolio or to add as a potential flip, you know, and make some quick money off of. Speak to guys all the time that are like, man, when is inventory gonna loosen up? And I was doing some research. And we talked about Robert Kiyosaki in the last one. He sent out a tweet. September 6, it said, Airbnb to lead the real estate market crash. If you want a new home, your happy days are around the corner, Jack. Same for rental properties. The best time to get rich is in a crash. Good luck. And so basically, I think that led me to go down a bit of a rabbit hole in terms of. Why is he saying this? And what is he saying that we're not? And so if you check the show notes for today, I would ask anybody to go out and take a look who's interested in reading more. I did some research and Redfin put out a pretty good size report. And you know, Redfin obviously, Jack, no slouch in the market. I think they probably do some pretty good research. They did a report called demand for vacation homes is down more than 50% from pre pandemic levels and they gave the top 10 cities around the country where we are seeing a significant downturn in demand and revenue. Sevierville Tennessee, which is a vacation town is number one. Maybe I should, Jack, do you like going from 10 to one or from one to 10? Craig Fuhr (29:15.274) I'm a 10 to one guy now that I've given it away. I'll never do that again. 10 to one from here on out. We always go the opposite direction. So Sevierville, Tennessee vacation market down 47% year over year. You've got Phoenix, Arizona down 47% year over year. Austin, Texas, Myrtle Beach, San Antonio, Asheville, North Carolina, Salisbury, Maryland, Jack, our hometown. Don't know why anybody would want a vacation there, but okay. Jack BeVier (29:39.655) Hmm. Craig Fuhr (29:44.382) Nashville, Tennessee, Denver, Colorado, Breckenridge, Colorado, all down an average of 40% year over year. Now, if I'm an operator in that space, Jack, I don't know how they make the numbers work at that point. If they're down 40 to 50% Jack BeVier (29:54.083) Good. Jack BeVier (30:02.941) Yeah, well, I mean, but the rent per square foot was so high that being down 40% could still be better than your monthly rental rate, right? Like yeah, then your long term rental rate. And I think that was, you know, that so, you know, that's, that's the TBD on like, you know, how this is gonna, how this is gonna fall out or, you know, play itself, play itself out like there's super high performing markets, you know, like Austin, like you could get a, when I went to visit Austin, I would just Craig Fuhr (30:12.458) long-term rental rate. Jack BeVier (30:29.085) get a get a condo, one of these Airbnb condos. There was a whole building and it was nothing but condos. And there was like 90% Airbnb's and it was nicer than the nicer than the hotels, better, better centrally located. And those people were getting like insane. Like I was, you know, I was paying like 300 bucks a night to stay in one of these things where the monthly rent for that place would have been two grand, you know, like, you know, 7, 1800, two grand. Craig Fuhr (30:32.694) Oh yeah. Jack BeVier (30:54.673) So like they're and you know, and they're doing very high occupancy rates. Like they're just murdering it from a cash flow point of view, even down 40%. They may be fine. You know, like I think that there's so I think there's, you know, gonna be a big distinction between the markets. Now, that said, that's a different set of scenario. That's a different fact pattern than the one that you were talking about, where the guys like where someone's just trying to like, you know, to every to every to a hammer, everything's a nail, right? Where they're just trying to like short-term rental, freaking everything, because they're just like, hey, I can get three times my rent per square foot if I do it as a short-term rental. And even if it's down 40%, I'll be fine. And they're just wrong, right? Like, no, you're gonna be down 80% actually, because there's nothing interesting about your property. And in any kind of like, you know, adverse environment, your house is the first one to not get rented. That guy... Craig Fuhr (31:34.22) Mm-hmm. Jack BeVier (31:52.781) know, he's the walking dead, right? That's TBD as to whether he makes it through the winter. Craig Fuhr (31:57.842) Yeah, exactly. And if that guy's got five or six of those things, and two of them go vacant, he's not gobbling up any cash flow that he has on the other three. And he's hemorrhaging. And we've seen that play out the way that plays out pretty quickly, Jack. That's like strike one, strike two, and strike three comes pretty quickly after that because he ain't reaching in his pocket very long because he doesn't have much to reach into. And I think that is what the Kiyosakis of the world are saying that like, there's your inventory. You and I talked about this the other night, Jack, where if you're looking for opportunity, you know, I would make a list of all Airbnb's in my town and go after those guys as potential. Hey, is this the time you might be interested in selling? I don't know how much equity you got there, but I'm buying for pennies on the dollar if you are. Jack BeVier (32:38.729) Sowers. Jack BeVier (32:47.109) Yeah, I agree. And I think part of his comment was talking about just first time or not first time home buyers, but just home buyers in general, right? Like that inventory is going to get stressed or may get stressed operationally has been stressed. It's probably going to continue to be stressed operationally. So if you're looking for any motivation in the world, you know, that may be the place to get it. Even folks who got very cheap mortgages in the post covid environment. Craig Fuhr (33:01.454) Mm. Craig Fuhr (33:04.939) Mm-hmm. Jack BeVier (33:16.753) Um, where, you know, it's painful for them. It, you know, they prefer not to pay off a 4% mortgage, but if they have a bunch of equity there and they're not, and not, they're now no longer getting as much cashflow or they're just tired of operating, right? Cause it's an operational business. It's it's, you know, much more operationally intensive than running a single at 12 month rental, you know, single family rental business. So also I think there's just going to be folks who just get tired of working. Craig Fuhr (33:32.935) Absolutely. Jack BeVier (33:46.182) tired of dealing with phone calls. Craig Fuhr (33:48.846) When they find out that their projections and their rosy, their get rich quick scheme is probably not as easy as they thought it would be. I think there's, yeah, I just think there's a lot of like low level, I wouldn't even call them operators. These are hobbyists. These are people that have a side hustle in a market, in an asset class that is not a side hustle. You cannot run a hotel as a side hustle. Jack BeVier (33:56.177) And it's just a job. Craig Fuhr (34:14.11) with the cleaning, with the grass, with all of those things that come along with short-term tenants that tear the place up. You know, I think that that's one of those things where people bet wrong when they thought it was going to be an easy side hustle. And those are the ones, Jack, that fall out the quickest and that's where the opportunity I think will be for guys who are ready to pick up the pieces there. Jack BeVier (34:34.673) Yeah, and those people, those people can clean the property up and list it and sell it to a homeowner. And though they prefer not to pay off their 4% mortgage, it's not like their personal residence where they like they need a place to live and there's nowhere to go. Right? Like, for them, it's just an investment. And, you know, and, you know, and tapping the equity verse, it's just a hey, how much cash can I get for the house today versus how much cash do I get each year? You know, offset by the work that I have to do to get that cash flow. And so it's much more of a rational economic decision than an emotional one that people who are thinking about selling as their primary residence have to go through. Craig Fuhr (35:03.658) You know what's funny, Jack? Craig Fuhr (35:15.134) Yeah, I'm sorry to interrupt. I think there's a lot more people out there, Jack, that weren't smart enough to get all the cash that they had in these things out. And what I mean, either they spent it or, hey, I know I can borrow up to this much, but I gotta rehab this place. They probably weren't a great rehabber, so they went over budget, and they've got a significant amount of their own. Jack BeVier (35:29.382) Well, they spent it. Craig Fuhr (35:46.79) I don't know what that means in terms of, you know, Craig Fuhr (35:53.93) I guess the, you know, the viability, the opportunity to come swoop in and take it. But I think those are the people who get very tired very quickly. I've got my money in this thing. I can't get it out. I got this crazy mortgage on the thing. I can't pay it because I'm not getting the rents that I hope I were. And that is the guys who tend to fall out the fastest. I'll take a loss. Hey, man, I had 50 grand of my own money tied up in this thing. you know, whatever, I can just walk away and be done with it. It was a, it was, it was a thing that didn't work out. You know, we saw a lot of that back in the 2007, eight, nine, 10 time period. I think we're going to see, I think we're going to see a similar things there, you know, where people have a lot of cash tied up in these things that they're just willing to walk away from. Jack BeVier (36:37.065) Something that I'm something that I'm curious about is that I think that what you just said is absolutely correct. And the, but in those markets, those tend to be kind of like the high flyer, high beta markets where like big ups and big downs, like your, your second homes, for example, like during COVID second home prices, went up tremendously. Also demand for Airbnb went up tremendously. And so there's a lot of Airbnb operators in those areas that are also have a lot of. Craig Fuhr (36:49.122) Mm. Jack BeVier (37:04.601) Second homes, which you know, not surprising, right? Vacation areas. But when that Airbnb operator says, you know, throws in the towel and says, hey, I just want to get out of this thing. That market is weaker, much weaker, right? Like, you know, like luxury second homes, you know, a little, you know, below, a little bit, but below luxury, like affordable down here from a risk point of view, right? Like which markets fall first. So like, if you're getting ready to sell your, you know, your Craig Fuhr (37:18.598) Mmm. Oh yeah. Jack BeVier (37:34.065) your house that's a mile, you know, it's two miles from the beach. You know, you were operating as a short-term rental and you just don't want to do it anymore. Those sellers could find themselves putting inventory into a market where there's just no bid and now you're continuing to pay that mortgage, but you don't have the short-term rental income because you took the thing off the market because you wanted to get, you know, showings with a listing agent. So yeah. So, and, you know, in those areas, you could find yourself, people are really catching a falling knife. Craig Fuhr (37:55.362) Keep it clean, right? Jack BeVier (38:03.953) where they list the property they throw in the towel at the same time that everybody else throws the towel in. Right. And now we've just got like, you know, a year and a half of inventory sitting there on the market. Craig Fuhr (38:15.19) Well, it's funny you should bring that up, Jack, because there are, and I'm going to go 10 to 1 this time, not 1 to 10. We'll talk about some areas of the country where we're seeing some fairly steep price declines already in some of these areas, Jack, down to pre-pandemic lows. So back to where the prices were for the asset prior to the pandemic and the meteoric rise. So we've got number 10, Boise, Idaho. down. Let me see if I've got the actual statistics here. Jack BeVier (38:48.261) Is this a short term rental list or is this the markets period? Craig Fuhr (38:52.794) market in general. But I think, I don't have the story here in front of me, but they were trying to make a correlation between sort of inventory price declines and a fair amount of the inventory coming on as a result of rentals that are coming onto the market. Dallas, Texas, probably one of the hottest economies in the country, but their housing market right now is seeing some... Jack BeVier (38:53.769) Hmm. There's a correlation. Craig Fuhr (39:20.574) not only price declines, but people putting their houses on the market and then taking price reductions that I think we're actually seeing around the around here as well, Jack, where we are. Number eight, Sarasota, Florida, one of the one of the, you know, high flyers during the pandemic with everybody moving to Florida. Incidentally, Pensacola is also on the list at number three, Sevierville, Tennessee, which I mentioned Nashville, Tennessee, Phoenix, Arizona. So revenue down 14% in Tennessee, but projected, this is short-term revenue Jack, down 14% projected for this year down 32%. Nashville, Tennessee is seeing the largest downturn in their luxury with big, big price cuts happening. Mentioned San Antonio, Pensacola, No Shocker, San Francisco at number two, and then Austin, Texas, really tough market right now in the country at number one for price cuts. Jack BeVier (40:19.069) I just, uh, I just financed a short-term rental through a DSCR loan, a $2.4 million gorgeous house in Pensacola that was being operated as a short-term rental and the person's going to continue to operate it as a short-term rental. Uh, I mean, gorgeous water, you know, ocean front property right on the beach. Yeah. Sick. Like it's really nice. Um, Craig Fuhr (40:35.57) right on the beach type thing. You know, and when you think about that, like if I, so I have no idea what the weekly rent would be there, I shudder to think, but that might be one of those ones, Jack, where yes, it is luxury and yes, there is a, you know, kind of a niche market for that. It's a great location. It's not that house that just sitting sort of in the middle of nowhere. That's that one where we say it's location specific. If you want to stay on the beach, there's only so much of that. So, okay, why not? but what are your feelings on that now? Jack BeVier (41:10.886) is $20,000 a month. That was the market rent for it. I was just curious because it was such a pretty house. Absolutely. I was, yeah, I just happened to be curious. So yeah, I mean, those are still viable markets, right? There's a ton of that. Like the Outer Banks in North Carolina is like, that's become a short-term, you know, that whole place is a short-term rental market. It already was really. They've just gotten more and more sophisticated. Craig Fuhr (41:14.462) When when will we be doing the podcast from there? Craig Fuhr (41:20.554) Yeah, so... Craig Fuhr (41:34.006) Well, not but it's gotten more and more sophisticated. It's gotten more and more saturated by less sophisticated operators. Look, I've been staying in the Outer Banks of North Carolina for the past 15, 20 years. And when I first started staying there, you were renting from a very large property management company who probably was one of two or three on the entire island. Now I'm renting from like Uncle John, who's got like, you know, the VRBO one house. Jack BeVier (41:38.994) Mm-hmm. Jack BeVier (41:43.197) That's fair. Craig Fuhr (42:03.938) And he's, you know, psyched because he thinks he can get it rented up while he's not down there. Right. And that's and that was his hope too, because he ain't he doesn't have the money to pay the mortgage when the place isn't getting rented up. So, you know, let's we got about three minutes here. Any last thoughts on sort of the Airbnb market or the short term rental market, we should say, and where that might present some opportunities and or pitfalls. Jack BeVier (42:30.865) Yeah, I mean, I think that people are watching that market. We're watching that market because I think that it is since it is the most operationally intensive aspect of single family real estate investing that if we are going to see fallout from operators, right? Like I feel like that's part of my, you know, mental model is that whether it's multifamily or single family, you're going to see cracks. in the bad operators, they're the, you're, they're going to be the ones who throw in the towel first. You know, maybe there's a microwave that hits everybody or even, or, you know, a microwave that hits everybody doesn't show itself all at the same time. The worst operators throw in the towel first, the best operators throw in the towel never or last. Right. So I'm always looking for, for cracks, right. Craig Fuhr (43:13.218) Mm-hmm. Jack BeVier (43:21.861) So to the extent that any of you guys listening have anecdotes about these topics, I'm super interested in those stories. But I'm watching the short-term rental specifically because it's the most operationally intensive. So one would expect that if there are bad operators, and there are, right, there's always bad operators in every market, that we'll start to see those stories play out first. And that'll be the canary in the coal mine for what may be a larger trend, what may lead to... a larger opportunity. And so that's why we're paying specific attention to that area of the business because I think it's kind of the canary in the coal mine if and when there's going to be some larger waves of distress and therefore corresponding opportunities. Craig Fuhr (44:05.742) It's a lot of inventory, man, that is out there in that market. And so you're absolutely right that the bad operators will obviously bubble up to the top the quickest. And I'm anxious to see, like you said, will it be sort of a wave or will it be a trickle? But there is just a tremendous amount of inventory in that space. And so Jack BeVier (44:21.885) Mm-hmm. Craig Fuhr (44:30.038) We'll only see how it plays out over the next 12 to 24 months, but I think it will be an interesting time for sure, especially if we start to see some recessionary times where, you know, people just aren't, aren't going out and staying in short term rentals, frankly. So yeah, lively discussion. I would actually look forward to having more discussion on this where we might maybe brought in some guests who are, you know, who are either operators in that market or analysts in that market. I think that would be a really interesting discussion to have. Jack BeVier (44:42.025) Mm-hmm. Craig Fuhr (44:57.61) And so we'll do that hopefully in the future, but anything else, Jack? Jack BeVier (45:01.829) No, I enjoyed the conversation. I think it's topical. It's something we're paying a lot of attention to. So hope everyone got value out of these ideas. Craig Fuhr (45:09.418) Yeah, man. Let us know your comments. I'm at Craig@craigfuhr.com. Jack is at Jack@thedominiongroup.com. You've been listening to Real Investor Radio. Thanks so much for taking the time. We'll talk to you next time.