EPISODES
Episode 47.
Alex Haler, Strategic Account Executive at AirDNA
Welcome to a crash course update on the short term rental market, courtesy of my friend Alex Haler of Air D N A. Market forecasts, regulatory debacles, we cover it all. I’m Dalton Elliott. This is the real estate of things. You’re listening to the real estate of things podcast. Alex. thank you for joining my friend. Yeah, thanks for having me, Dalton. Absolutely so very excited about today’s episode. We’ve had a couple of episodes lately about short term rentals and you know you’re the you’re the short term rental data guru there, your strategic account executive at Air D N A. Anything data related to short term rentals, you guys are the go to. Uh. So I’m excited to jump in here. Yeah, likewise, uh, happy, happy to have a discussion. There’s there’s a lot going on in the industry. So, uh, you know, interesting time to be watching it. Yeah, so let’s we’ll start high level and then we’ll get more and more granular. So rolling into two UH, record revenue right for short term rentals. I’ve a lot of, you know, you could say a lot of headwinds coming up travel. Everything but travel included in that pocket of everything. It’s more expensive than seems ever before. Uh So, so what’s you know, would you say bullish or bearish on you know, call at the back half of twenty two and rolling into twenty three in terms of short term rentals? Yeah, I mean all signs point to a pretty bullish industry in the short term rental space. I mean we’re seeing demand nights way up this summer compared with last summer. Um We’re seeing a return to international travel and travel to urban areas and suburban areas Um. Obviously the pandemic was a huge disruptor for the industry. If you remember, back in you know, like March, there were a bunch of articles that came out saying, you know, is this the end of Airbnb? You know, is this the end of short term rentals? And then just a couple of quick months later, all the destination markets out there, whether you’re in the mountains, on the coast, by national parks, they just absolutely exploded and both occupancy a D R and supply. And so it’s been interesting in two so far. Is You’re seeing a lot of those type of markets sort of go back closer to their to their average before the pandemic, and you’re seeing a pretty huge uptick in urban areas, suburban areas and international travel. Um. So it’s just been kind of really interesting to watch how travel trends have have swung with all the different, you know, covid considerations and restrictions that are out there. Yeah, you shared over a deck from Air DNA and I was cruising…
…through and one slide I stopped on and it was interesting, talked about the most booked Um cities in the country for the fourth of July weekend for two and I was surprised at kind of the Um the cities that were listed there. I think Orlando was number one, myrtle beach was number three. Uh, just interesting cities. And what do you what do you pull from that Um slide whenever you look at it and see the types of cities that are the most booked? Yeah, I think you know, especially when you’re looking at it from a year over year standpoint and you think back to one when you know vaccines were we’re becoming more more widely used. You know, you had different considerations in lockdowns. What we’re seeing now is that a lot of those places are seeing a big return to travel with them. I mean a lot of the urban areas have had just huge year of year occupancy increases and demand increases. A lot of that was because they were essentially, you know, ghost towns, are shut down more or less during the pandemic, and so a lot of that you’re just sort of seeing those open up Um. But then also there’s you know, I don’t say just sort of a new travel trend in the short term rental industry where a lot of people decided that, you know, a short term rental, a single family home, was going to be safer and have less contact with, you know, the public or strangers than a hotel would. And so there’s just been increasing demand for for short term rentals over the past couple of years and you know, we’re seeing that through this summer. I mean we’re we’re seeing demand nights up quite a bit. Overall UM supplies up even more, though I mean it throws in some some weird calculations when you look at overall occupancy and everything. But I mean all around the market looks really, really strong and pretty much every category, rural, urban, suburban, mountains, coasts, I mean, demand is more or less up in every single area this summer. Yeah, so so good. Coverage on demand and you mentioned supply. So let’s move over to that piece, right, and you and I were chatting a little bit and uh, saturation, right like. That’s uh an interesting move here. And whenever you look at it from the financing side of the fence, right, like short term rentals, the financing of short term rentals is something that you know, on my side of the fence, from a lender standpoint, it’s just become more and more of a requested product. That talk. That speaks to the demand piece. But how has supply been? It’s been growing at a pretty incredible clip the past couple of years. Um, one interesting stat I was just talking with Jamie Lane, our VP of research, before this, just asking for for some of the June numbers, which which…
…we haven’t published yet, but he he did have the figures ready for me. So, year over year in June occupancy is actually down nine percent from where it was and so just looking at that one stat you’re thinking, Oh, is you know, it’s a short term mental industry struggling or things slowing down. Once you look a little bit deeper, though, you see that demand was actually up sixteen percent year over year. The reason occupancy went down, though, is because the supply is up twenty percent year over year. So you’re having just an incredible amount of new supply added. I think, you know, we’ve been averaging eighty thousand new short term mental listings coming online for the past, you know, four or five six months, and so supply is growing just at a much faster pace than demand and so when you look at the overall numbers after that, they could almost look like occupancies down the industry struggling. It’s just that so many people are interested in this space that that that’s that’s where the real occupancy downtrend is going towards. So I mean, you know, when you’re looking at you know, on your side of the fence, financing a short term rental or if you’re a real estate investor or someone who wants to get into this space, that’s going to be one of your primary considerations. Is, you know, is occupancy in this area going up? Is it going down? Is it staying flat? What’s happening with supply? Obviously there’s a huge risk of investing into an oversaturated market because not only able that lowerer occupancy and lower rates, but if too many of the homes in a particular area become short term rentals and, you know, there becomes housing crunch in that area, your odds of regulation and restrictions are also going to go up as well. So, while there’s still a lot of good opportunities out there, you know there’s just I would say, the increase in supply just makes it that much more important to look at the data and make smart, informed decisions on where a good long term position is. Not to not to beat you up over data, but are there any markets that you know of off hand that are trending more quickly towards the oversupply arena? Yeah, I would say a lot of them that you saw do exceptionally well during covid are the ones that look to be a little saturated, where you’re seeing occupancy slide more than the rest of the overall market. Um, I have a couple of short term mentals myself. Um, in the mountains here in Colorado and that that’s the market in particular where I would say that occupancy is going down more so than the than the overall average as a country. Reason being is, you know, during covid a lot of people wanted to go of the mountains. A lot of them ended up purchasing places…
…in the mountains and so the amount of supply over demand that happened in the mountains is just way, way higher than a lot of like the suburban and urban areas, which a lot of those areas saw supply being pretty flat. Um. So I mean it’s it’s gonna be specific case by case, market to market, but I would say a lot of the markets that did really, really well and had explosive growth during code are the ones that are looking a little saturated and a little heavy on on the amount of short term rental listings out there. Yeah, when I think about short term rentals and you have kind of that inherent risk of kind of oversaturation, but you also have generally the ability to reposition that asset to a long term rental like like in a in a worst case scenario. So you know, from a safety and security standpoints, like if you believe in the underlying collateral, which is a peace of property, a piece of real estate, Um, you know you’re not not necessarily locked into a short term rental strategy. Um, and that, I guess that kind of ties into the next thing I want to touch on, uh, which is regulation. Right, that’s something from the lending side that it is. Probably one of the biggest pains in the tail is that regulations are so disparate. That’s not a you know, state or federal level, it’s just each Um, you know, each municipality, some counties, but it’s it’s so disparate and it can change Um, just overnight, right, and you can have massive consequences, uh, just completely out of the blue. And so how you know, how do you navigate those waters? And what have you seen lately from a regulatory standpoint? Um Popping off? Yeah, I would say it’s a topic of discussion and pretty much every city or county, municipality that has a big portion of short term rentals. You know, on one hand they provide tourism and tax dollars to areas. You know, a lot of these people are on vacation, they’re going out to eat, they’re doing all the activities. So like they’re generally much more active when they’re there, and so that’s the positive side of it. There’s great tax revenue benefits, local job benefits. The flip side of that, of course, is that you know, as as a country, we haven’t been building nearly enough housing supply for the amount of demand that’s out there. So in a lot of markets that are out there there’s a housing shortage and that’s a huge consideration for short term rental regulation where if a talency is that too much of their housing stock is becoming short term rentals, they’re pretty likely to look at that seriously and and make regulations to sort of stop the growth, main you know, sort of equalize the growth, whatever you want to…
…call it. And it’s just it’s it’s going to be totally dependent area to area, like you said. I mean they’re just they’re very spread out as far as you know. One town might have this regulation and then a couple of miles over there’s a totally different regulation. Um, so it’s it’s changing fast. It’s oftentimes hard to track because, again, it’s not something that is appearing on a state announcement or a nationwide announcement. It’s something that you generally have to find on like a local city or county website. And so you know, if you’re looking to buy a short term rental, I mean obviously it’s going to be a really important part of your due diligence process. And I mean more often than not. If you can’t find updated Info on their on the municipality’s website, you’ve got to just pick up the phone and call them and ask, you know, hey, what are the existing regulations and rules and also, is it a current discussion that’s going on with the planning and zoning team or the city council, because we’ve seen just a ton of them pop up. We we as a company, Air DNA, went to VR m a a couple of months ago in Chicago. Uh, it’s a vacation rental manager association trade show and that was probably the number one topic of discussion on a lot of the panels. It’s just how regulations evolving, how it’s changing, how to prepare for it. You know what to consider and I think you made a really good point that you always want to have sort of like a backup plan or almost perform like a litmus test of like if this home that I’m buying cannot be a short term rental, can I at least cover all my expenses, or a bulk of my expenses as a long term rentor or as as a long term rental? So I mean you always kind of want to look at, you know, a second or third scenario, just to just to protect yourself and to protect your your investment. Yeah, definitely on the on the landing side of the fence. That’s how we view it and I know because of private lending industry, that’s that’s always checked the box. It’s like worst case, if this has to be repositioned to a long term rental, does this make sense? Just because the ground shifts beneath one’s feet? You know that, depending on where you are geographically constantly. And are there any, Um, can you paint in broad strokes, like, are there any regions or areas that are like super friendly to short term rentals or the opposite, that are just like absolutely terrors when it comes to regulating? Yeah, it’s a really good question. Um. So the ones that are incredibly restrictive, I think, are gonna be pretty heavily localized. Like, for example, Um, one of one of my personal short term rentals is in Joshua Tree, California, and that’s a market where there’s virtually no hotel presence in that area. So for tourism purposes, the…
…town in the county basically rely on short term rentals there. So they’re they’re pretty open and pretty willing to take new short term rentals. But if you drive two hours west to Los Angeles, it’s going to be an incredibly restrictive market. So where regulation is bad versus good or restrictive versus not, is it’s going to be just heavily localized, depending on, like the city and the local climate. Um, there have been a few states that have passed laws basically protecting property owners rights, excuse me, on to to operate short term rentals. Um. Florida’s generally a pretty friendly state towards them. Um, Arizona, Tennessee are a couple of others that I think have statewide laws that sort of limit the amount of restriction that places can impose on property owners. Um. But again, and I think even those markets there’s going to be certain pockets that are that are more restrictive than others. But as a whole I think the southern part of the country tends to be more more open to u to the short term mental space. And again, a lot of the places in Florida, uh in Arizona and others in Texas. I mean there are touris and towns that sort of rely purely on tourism revenue coming in. So they’re they’re very open to, uh, having reasonable regulations on short ter mentals. Makes Sense. Makes Sense. I’m yeah, what any you know? We talked about regulations. You have just kind of broad economic headwinds. Are there any kind of scary beasts out there? On the short term mental side? We talked about saturation, potential oversupply. I guess this is still relatively still relatively early right. Short term rentals still kind of in the infancy growth wise. Uh. So this push towards uh, you know, drastically increasing supply probably not all that terribly surprising. It’s probably expected. Uh. Do you see kind of a supply normalization from a timeline perspective? Like do you think that, uh, we’re gonna be not undersupply, not oversupply, but kind of at Supply in twelve months, twenty four months? Any reading of the tea leaves there? Yeah, I think honestly, like twelve to twenty four months sounds like a pretty reasonable time frame. I mean right now, I think the the excitement in the industry is that in a lot of these tourism heavy markets you can generally earn more of a more of a income and higher revenue as a short term mental than you can as a long term mental. But obviously with you know, just general supply and demand.
Uh, you know, basic economics. Once supply hits a certain point and there’s, you know, just so many of these rentals in the particular area, it’s going to normalize and the outside returns you can get within short term rentals will sort of come closer in line with the with the normal rental Um. So so when that happens in a lot of places I’m not totally sure. You know on the timeframe of that. I would say we’re already starting to see the market sort of equalize itself with, you know, just how how much UH supplies being added. You’re you’re seeing that in the occupancy numbers and the overall revenue numbers. I mean they’re they’re starting to equalize a little bit and some of those really saturated markets. So you know, our our research team is looking at it closely and watching the trends. But I would say we’ve already started to see it happen. Um. But when it like fully stabilizes, I mean that’s that’s a really good question. With, you know, the potential looming recession, rise in interest rates I mean there’s there’s just a lot of different factors out there that are affecting the broader real estate market that makes it kind of difficult to predict exactly when that will happen. Yeah, any anything is a guess right now and I don’t I don’t even know if you’d say educated guests a quasi educated guess. Anything real estate related to so many variables moving at such a rapid pace right now more uncertainty than at least any of my short time frame. But seven years in the mortgage space. UH, look, Alex, thank you so much for carving out some time giving a little crash course on where we are and where we’re looking ahead in the short term rental space. I can’t thank you enough. Yeah, absolutely, we’ll have to do it again sometime as the as the market continues to evolve. Absolutely, if you want to learn more, Alex, where should people go? Who should they reach out to? Yeah, so our website is air D na, DOTS CEO Um. So from there you can, I mean essentially type in any market in the country get some, you know, sort of free high level information on what the market looks like. And, of course, you know, we have a paid subscription for every market as well, where you can get much deeper information on there. Um that we have a team of really sharp people keeping a close eye on this. So we’re always posting, you know, market outlooks and updates and keeping a really close eye on the industry. We’re essentially tracking every single listing in the world on a daily basis to watch how they’re performing, how they’re trending and what’s going on in the space. So you know, reach out and get in touch with us if you if you want to learn more or happen to have any other questions. Yeah, I’ve I’ve used the platform before. The platform, the data behind it. It’s super intuitive, incredibly helpful, really plug and play and and can’t Um. Yeah, if you have an intra send short term rental, if you’re poking around in an area considering…
…it, or if you have a short term rental, absolutely an advocate of linking up with their DNA and just a great product you all have. I appreciate that. Thanks again, Alex, and yeah, we’ll definitely have to get you back on here for an update. Thanks everybody for listening. Take care. Are you a real estate investor looking for the right lender that can finance all your deals and help you scale. Lima one capital has the best suite of loan products in the Industry Barnet. Whether that’s fixed and flips, fix and holds, building new construction or buying rental properties, they have incredible financing solutions for it all. A reliable, common sense lender is one of the most important parts of your investment team, and that’s exactly what you get with Lima one. Let Lima one capital show you how they’ve helped thousands of real estate investor scale and increase their wealth. CHECK OUT LIMA ONE DOT COM or call eight hundred to five nine zero five nine five to speak with a consultant and preparation for your next project. Thank you for joining us today on the real estate of things podcast. Subscribe and tune in weekly for new content from the industry’s best while we continue to unpack the nuances of this dynamic market. Follow US across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review and share the show.
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