EPISODES
Episode 42.
Jonathan Klunk, CEO at Key Source Properties and Founding Partner & Realtor at Six Degrees Real Estate.
Saddle up your stallion. We Are Trotting Right into Louisville, Kentucky, home of the Derby. This Week Jonathan clunk and I unpacked the market and dive into short term rentals. I’m Dalton Elliott. This is the real estate of things. You’re listening to the real estate of things podcast. Jonathan back again. Thank you for carving out time to record some back to back episodes. Happy to all right, for those of you who didn’t catch last week’s episode, Jonathan Clunk, CEO of key source properties, big in the Louisville short term rental space. Uh. Jonathan is also founding partner at six degrees of real estate. We kind of focused on the short term rental side of the fence last week. Let’s do a little bit of a change up here. We’re gonna focus on the you know, not second hat you wear, but the other one of the other big hats you wear on six degrees real estate side. I Talk Through Louisville, so talk to me about just what you’re seeing in the Louisville market. As we said today, what are some of the head winds? Tail winds? We have a rising interest rate environment. How our home prices holding up there. Just just give me a bird’s eye view of Derby city. Sure you know, Louisville is a very unique market and historically, I think almost has always been in comparison to other cities our size. Um, we see steady growth. Um, we don’t have huge spikes going in either direction. And you know, we like to refer to ourselves or look at ourselves as inside of a bubble. We’re protected from a lot of the massive inflation and prices that you’ll see in markets like Austin, Texas, Miami. Nashville, I mean to the south of us, is the biggest example. I mean a just we blinked and they just took off…
…and, you know, left us in their dust kind of with the growth at the city is experiencing. Um, but I think you know, from a real estate standpoint it’s not really an environment that we want to be in. I mean it looks great when you’re selling and leaving Nashville, but don’t forget that you still have to buy in that market too if you’re staying there. So Louisville is is a very steady, very protected market. Um, just something that our economy has done over the years. So it’s great for homegrown investors and investors who have been priced out of their own markets. I work with a lot of Nashville investors who just can’t afford to buy there anymore, especially for their buying hold strategies. Um. We’re also seeing a strong growth in Um year over year rents that are charged. So you know that happened during the pandemic. You know, pretty good growth, especially like for two bedroom apartments, so that we’ll need to plateau. Also in our sales side, you know, they we’re starting to see a little bit more inventory set. Actually just checked yesterday and single family residents is in Jefferson County, which is all of Louisville, were eight hundred and sixty five, so that’s down. Whenever I checked about six months ago, it was about six hundred. So our inventory is slowly starting to rise because I think, you know, there are some buyers who don’t have to buy right now who are just waiting to see what’s gonna happen with the interest rates, and there’s also more people coming to market and listing because they might be afraid that they’re gonna miss their window to actually list and get a sale if those interest rates do continue. To rise and more people leave the market. But when we’re looking at our sweet spot of about three hundred fifty thousand to five hundred thousand, we’re seeing a lot of intense competition. These are the ones where you have your cash buyers waving all of the contingencies, you know, fifteen day clothes that anybody who’s financing just almost can’t compete with. That’s slowing down a little bit. Instead of getting twelve offers, you know, maybe they’re getting six or five Um, but it’s certainly still there, for sure. Yeah, it’s absolutely interesting times right now and it’s this is a good example of like it.
It’s so market specific. Uh, just poking around, looking at what’s in Greenville, South Carolina, which is rapidly growing, there are a lot of Um, I’ve been here eleven years. Came up here for college. I grew up on the coast of South Carolina and very different growing up in a tourism focused town, like a beach town, Myrtle beach area. I grew up in Myrtle’s inland, just south of there, but tourism is a lifeblood of that. And then you you know, even the opposite side of the state up in the mountains. You have just a more stable environment. You have, I guess, like not to not to throw a knock or anything, but you have more culture, more community, because it’s less transient city, right. And so, yeah, a lot of that kind of resonates with me. And on the pricing side of the fence, yeah, you’re like you can, like I can sell today and spectacularly happy versus when I bought six years ago. But then, yeah, what am I going to do? I’M gonna buy into just a nasty, nasty market that is very different than what it was, um, even two years ago. And even if you look back, uh, was looking at a couple of places the beginning of April, end of March this year, so a few months ago. Drastically different environment, right. But interest rates aret up over two hundred basis points in those few months. Home prices have continued to go up, although, at least in our market. Just scrolling through Zelo very qualitatively, I’m like you see price cuts, whereas two months ago you didn’t see price cuts, you saw increase, recent increases across the board. Like starting to see some price cuts. So it seems like, uh, there may be some price discovery that’s now saying, you know, over the last few months, that’s now saying, like we’ve we’ve tipped the ceiling and and you…
…know, there’s a there’s more hesitancy. Uh, the supply piece in the market helps bolster prices from a truly foundational standpoint, but nonetheless, like this is uncertainty. Yeah. Well, from a price cut perspective, you’ll generally see price cuts for two reasons. Um, either one, yes, the property is sitting on the market because, Um, there’s more competition, there’s more inventory, or number two, that they just priced way too high. A lot of people do come out of the gate and want to test the market. You know, I have a lot of conversations with buyers where they want to list higher than than I do. Sometimes I want to list higher than they do, you know. So we kind of have these conversations because we don’t want to let our clients down and, you know, price, they price where we want and then we get an offer right out of the gate full ask. And then they wanted to go higher. So then there’s that doubt in your mind. Should we have gone higher and try to get more money? So a lot of people don’t see harm in testing the water, you know, and I still don’t either. I think that whenever people see a price drop, they instantly think, oh, what’s wrong with the house? Why does nobody want it, since it’s sitting Um, you know, or something like that. But I think that it’s possible that you just asked too much. You know, you look at the property, you think it has one value based on the comps, and then you just overshoot it. So you can always reduce your price, but it’s very difficult to try and increase it after you’ve listed it, you know. But another strategy that people are really implementing in order to get multiple offers Um and above asking offers, is that they’re listing one to two percent below where they should be. Like there are houses in our market selling for like four fifty, four, seventy five, but the list price was and just being under that four hundred it gives people so much hope that they’re like, might as well just throw an offer in there, because I think that the price is definitely where the house is definitely valued more than that. So there’s two different strategies. Start High and you might sit for a little while and have to reduce or come in low and, you know, try and get multiple offers on your property.
Yeah, that’s that’s the first place my mind goes to, isn’t that? There’s some material defect. But yeah, like you, you just price a little aggressively for that market at that time. Be surprised how many people ask. Yeah, so many people say, you know, hey, what do you what do you think? This has been sitting. It’s price too high. What do you think they’ll come down? I don’t know. What’s place an offer. I mean you never know where somebody is. They could say no, no, no, no for months and then all of a sudden they could decline your offers and then somebody else come in. It’s active under contract. You wait and see what it closes for and it’s less than what you’re going to offer them, because the market, you know, can be crazy if you don’t play your strategies right. Every part of its dynamic. I think you know it could be oversimplified sometime. Like you know, this is what it’s listed for, this is what I’m gonna do, this is the game plan. But every part of this market is dynamic and you have you throw in, uh, some people who have to come to agreements and make decisions and then that it gets all the more complex. But but yeah, I don’t. I never have so many different moving parts, and this is very where it gets very interesting. I Love I have two two quotes. One is real estate waits for no one, because if the property has been on the market for a year, you know it’s going to get an offer the day that you want to go and see it. Number two is that everything is different every single time, every property, every buyer and seller, every agent. You put two agents together who don’t get along, they might make this transaction miserable or be the reason that certain things happen. If you have a novel a Novice Seller and an expert buyer, then they’re not going to see head to head on some things. If they overprice it and they don’t want to lower the price. You know, every situation is unique and different and you really have to have patience and be able to step back and calmly assess what’s going on and make good decisions. Yeah, just keep your rational head about that’s a it’s a good general life tip for sure.
Um, yeah, cross a, cross bonders, this is true. This is true. Uh, what what else? So is your focus? Uh, let me ask this. So how? HOW CLOSE IN PROXIMITY? And forgive me, I know I’m not terribly well informed on all things Kentucky Derby. It’s it’s on the checklist. I’ll get there sometimes, I’m sure. I know, I know. I’m terribly ashamed, Jonathan. I’m that’s okay. We’re here to educate as ambassadors for this great city. Is So. So what in terms of let’s stick on the short terminal piece, right, the windfall from everything derby. What does that look like like? What’s the time frame that you know? You know, I bet the farm that everything is gonna be booked. WHAT’S THE PROXIMITY? Uh, that like you you know? Is it within a mile, two miles, ten miles? That you know? This holds true? Like well, it looks like there’s nothing to do with that. There has nothing to do with that. And believe believe me, actually the properties right around Churchill downs, it’s not where most of our guests want to stay. We’ve had a few properties there in the past and, believe it or not, they don’t necessarily feel safe. Um, and that’s because directly around the track it’s a little rough. You know, you’re not gonna see it on TV. You’RE gonna definitely have to visit and drive around to to get that feeling. But where Churchill downs started and grew and what was actually around it. You know, there’s a lot of people who have worked at the track over the past hundred and how many years of its existence. I think that the race itself over a hundred and forty years old, so it’s organically evolved that way. I live in Old Louisville, so I’m about one a little over one mile from the track. So some of those horse races are further of a distance than where I live from the track and it’s in an old part of town with Victorian House is.
My house was built in nine and we’re right between downtown and Churchill downs, and Churchill downs is close to like University of Louisville. But we’ll open our calendars on short terminal sites about six to twelve months in advance. Um, believe it or not, most of the booking activity will happen about three to four months out. But even if we get a last minute cancelation, you’ll get somebody who comes right back in behind it. You might lose some money, you know, because just like the real estate market. You start with your higher price and the closer you get to Derby you kind of reduce your price. So somebody wants to come in and wait for the best value, wait until the end, but what you’re gonna have to pick from is not going to be maybe exactly what you want, unless new properties are coming on, and new properties are always coming on, because this is the time of the year where people who just rent out their primary residences, um they’re going to get on AIRBNB and do that for a few days, whereas they don’t do it all throughout the year. They’re not permanent operators. So we have a lot more inventory that comes to market during Derby as well, and sometimes some years we’ll have a property that will rent for five thousand dollars for three nights and then the next year it will be fifteen thousand dollars. You know, I’ve had celebrities stay in some of our properties that you know they can get thirty to forty thousand dollars for three nights. You know, if it’s a multimillion dollar property with a pool, even though the pool isn’t open in May, that early. Um, you know, it’s really all over the place, but this is where people can sometimes make or break their years, because one derby weekend is the equivalent of between one and three months of what you would normally make doing short term rentals, depending on how well your properties do. Makes Complete Sense. I’m kind of taking it back to you growing up at the beach. Like restaurants. I’ve rentals on the beach. It’s very, very seasonal. There’s a window that you make your money there and then after that is very slim picking. So the difference there in terms of, you know, different market and differences and stability. But yeah,…
…that isentually one to three months. And you know, Louisville isn’t Louisville. We do have the Derby, we do have the Bourbon trail. I mean that’s something that we are gaining a lot of tourists for. But one number that really blew my mind is right before the pandemic hit, before March fifteenth, and we had to refund, you know, a million dollars worth of reservations. Um We had about twenty two million visitors per year to Louisville and that was expected to exceed about twenty six million within the next few years. And a lot of people don’t realize that, but that is because we have major conventions that come into town like two hundred, three hundred thousand people at a time. Then we have the Derby we have several major music festivals. We have, you know, Um Louder Than Life. We have hometown rising just back to back, three weekends in a row in September. We used to have a big iron man in October that brought people from around the globe. We’d have people from Amsterdam, from China staying with us. Um, we have a lot of corporations that are headquartered here who have people who come to town. So all of those things combined, we have between twenty two and twenty six million visitors per year who are staying in our hotels and short term rentals, you know, and there’s no end in sight for that. So we’re also a stable but very, very transient city relying on tourism, especially kind of close to downtown where the desirable areas are. Great Point, great point. I want to in the last minute tell me about your podcast. Jonathan in, a spectacular name by the way. Thank you. Thank you selling Derby city. Um, it sounds, you know, like some other things that are out there, but I think that a really just fit. It has a nice ring to it. Um, we have a TV component of that. We were working on for just youtube, self published, self produced. Um. We’re working with a great group here in town. So we have three of those episodes that will be releasing. Our podcast has nine episodes right now. The entire first season is all about short term rentals,…
…from zoning to technology to how to design them. We brought in interior designers to talk with us about that. We brought in technologists to talk about their peace. So I kind of got to be Um, the guy who asked all the questions. You know that the things that I wanted to know how other people operated and I learned things as well. So I don’t even know everything. I have a long way to go to get to that point, but you know, we do know a lie Um. So we shared all of our trials, tribulations, experiences and best practices. So, Um, you don’t have to be in the Louisville market to benefit from it. Definitely listen to it. It’s on spotify, apple podcast, anywhere you listen to your podcast, Um, selling Derby city, I love it. You you in this episode in the last episode. You did a spectacular job of very clearly laying out what can be some abstract concepts a lot of times. So I’ve I have learned from you in this episode, in the last and for anyone who has any interest in short term rentals, absolutely go check out Jonathan’s podcast. You will learn a boatload. UH, Jonathan. Again, thank you so much for joining me and we’ll have to check in with you soon. And also another short term rental resource for you is follow me on Instagram at top Louisville agent, with periods in between each of those. At Top Louisville agent. Um, we share a lot of information about short term rentals links to everything that we have going on. So another great resource for everybody and I like to entertain as well. So hopefully you’ll you’ll come for the information and stay for the song and dance. Fifteen point three thousand followers, Jonathan, you’re getting after it, my friend. I love it. I love it. I just followed you, so you have one more follower. I thank you again. I can’t thank you enough. Thank you. Thanks everybody for listening. Take care. Are you a real estate investor looking…
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