Are short term rentals a good asset class to invest in? Tim Hubbard will share all the knowledge he has acquired over the last 10 years investing in real estate, and managing thousands of bookings online since then.
Tell us a little bit about you.
I’ve been investing real estate for over a decade, but I started focusing on short term rentals six years ago, and I haven’t looked back, it was mainly just because the revenues have been three, five, sometimes higher than I was getting on my long term rentals. Since then, I’ve been focusing on finding properties that fit that model. I’m from California originally, and I do a lot of my investing in Tennessee, and some in Oklahoma. A few years ago, I moved out of the US to Colombia and I’ve been spending the last several years here.
We met about 3 years ago and I’ve seen you expand your short term rental portfolio and be super successful at it. When I met you all I could think about is wow how much work is that. But now there’s a lot of interest out there just because the numbers make a lot of sense, as you were saying. What are some of the benefits of investing in short term rentals?
There are quite a lot and there are some that I just realized recently, like eviction moratoriums, for example. That was never a thing with short term rentals because if someone is staying in our properties less than 30 days, normally they don’t have any tenant rights. So we had quite a lot of flexibility there. Along these inflation lines, all the money that we printed to help the economy with everything that’s been going on, we’ve had a lot of inflation, and that’s one of the reasons that rents are going up. With short term rentals, we can change our rents every day. We don’t get locked into a year lease and under-rent our properties, we can use tools, and there are tools to do all this. We can set up a tool that’ll change our price everyday.
The biggest reason or advantage that I’ve got into short term rentals is literally the fact that some of my properties making five, eight times the amount of rent I was making with a traditional long term rental, like a single family home. Back in the day, if I was thinking that I want X amount of dollars a month to become financially free through properties, I could literally divide that number by five times. And that’s the amount of short term rentals I need to accomplish the same amount of money. That was the main reason, the biggest advantage, coming down in income.
And that has been consistent over the last six years, every single year?
With COVID it was interesting, I have properties in three cities and properties that have been short term rentals for a long time, and some that are new. It was different during COVID, because we had less travel, the properties that I had around for a long time still did really well, much better than long term rentals. But some of the newer properties were a little more vacant, but still also better than long term rentals. I would say they have been very consistent. And I’m super bullish on the future because the way people are living has changed, more people are working remotely now than ever before. And even if a lot of them go back to the offices, there’s still going to be more people working remotely than there was prior to COVID.
We have people staying in our short term rentals for longer periods. Before, when they booked a vacation for a week, they had to go back to the office on Monday. But now, people can work from wherever they are. So they don’t have to go back to an office. And they can stay in a short term rental for a few weeks or a month, or they can go to another state that maybe they’re interested in moving to and just live there temporarily. I think it’s just a trend, the way that we’re living. Even venture capitalists are starting to recognize this as well. We’re starting to see people, venture capital firms enter the space. I’m really bullish on it. It’s been consistent. And I think that it will be going forward.
That’s one of the things that I think about all the time, I would love to spend a month somewhere and just get to know that city. And obviously, we would do that through a short term rental. How do you choose a market within this asset class?
I choose the market as I have always chosen markets, based on the fundamentals, a place where people are moving to and not moving away from, where the employment is diverse, there’s not just one industry, and it’s landlord friendly. And that’s a big thing, because aside from all the traditional fundamentals we look for, for a good real estate market, we have to take it a little further if we’re looking at finding properties to do short term rentals. And the big one is regulations. But before that, I’m looking for places that has good fundamentals, where people are moving to, and there’s population growth. The Sunbelt areas in the US have been growing a lot. So I think those are good areas. But then the landlord friendly one is a big one. And I found that there’s a pretty good correlation between landlord friendly cities or states and short term rental regulations. If the city’s very landlord friendly, then it’s probably a little more likely that they’re going to be more friendly towards short term rentals as well.
When I’m buying my short term rentals, they’re actually long term rentals to begin with. So I’m buying properties that make sense as long term rentals. Most of the time, they’re already occupied, they already have long term tenants. I’m just looking for properties that would work well if I converted it to a short term rental. That way, I always have that backup plan. If something does change, I can go back and rent it as a long term rental. But if not, I can put some furniture in there, throw it online and potentially make three, five or more times what the long term rent is.
So you don’t necessarily look for hot vacation spots, because they might not be great fallback plans if something does change, is that correct?
That is correct. And that’s not to say that vacation rentals in these hot areas can’t do extremely well, because they definitely can. I’m just a little more comfortable knowing that it’s always going to be a good rental, whether it has a short term guest in there or long term.
Very wise way of approaching it. I can think of a billion things that are so scary about short term rentals, managing these properties, and dealing with this volume of people. What are some of the scariest things about short term rentals?
We’ve had almost 9,000 reservations, and over 16,000 guests. Anything that you could imagine, we’ve probably come across it. For someone that’s just getting started with short term rentals, the scariest thing that someone’s going to trash my house and have a party. And that’s possible, that could happen. But there are lots of ways to prevent that. And COVID really disrupted the travel industry. We used to not rent to locals, for example, because we found that a lot of locals would rent a place and they’d throw parties. When COVID happened, we were only renting to locals. And we had to add in some extra measures to make sure that we weren’t renting our properties to people that were going to have parties. There are lots of tools now like noise sensors, that can notify you automatically if the noise goes above a certain level. Of course, you can put security cameras on the exterior to monitor how many people are going into your property. We have all of our rules and regulations before someone makes a reservation, you can hold deposits. There are lots of ways to combat all these things. I think that’s probably one of the scariest things for someone that’s new to short term rentals. But there’s lots of ways to to prevent that.
Another thing that might be scary is, when you first start, if you’re taking a long term rental, for example, and you’re going to turn into a short term one, you wonder, How good is this actually going to do? How do I forecast occupancy and things like that? What if I put all this furniture in there, and it’s vacant all year, so that can be scary as well, because it can be a big investment to put all the furniture in there. But there are lots of ways to forecast that now, too. We’ve got websites like airdna.co, that provide a lot of good data down to the zip code. It’s so much easier than it was six years ago when I started to be comfortable with short term rentals. We have so much data, there are so many more tools that allow us to manage the whole process, and there will continue to be more. So I would say the biggest or the scariest things for someone getting into it, is what if someone has a party? And what if my property doesn’t make the amount of money I think it’s going to?
I can see that. And I also agree on the ability for us to remedy all of these things. I just did an episode on how do I manage my properties remotely. I’m curious about how do you do that with so many properties, so many moving parts, so many people in and out, so many things that can go wrong?
I didn’t figure it out in one day, but it all comes down to systems. It’s similar to how someone can manage 1,000 single family homes as traditional rentals with software and a good team. And there are so many tools now. As far as short term rentals, we can automate almost everything. Probably 75, or 80%, or more of our reservations are instantly booked, which means they’re not messaging us to ask us. The other day, I was trying to figure out the average amount of messages that we send to a guest, we send about 16 on average per guest. Half of those are automated, which means we’re sending about eight responses, essentially, we always want to have the last message. So most people aren’t asking a lot of questions and we can answer almost all of them. Before someone even checks in we send them a guidebook, or just by providing them all the info.
Managing remotely comes down to the automation. We use property management software, like you would with long term rentals, that monitors all those messages, it sends out all those automatic messages. We have automatic door codes that are created, we have a digital guidebook that goes out automatically. You can really break down your property. The more info you give your guests, the easier it’s going to be. And you can automate all that.
What were your top three biggest lessons learned over the last six years?
Budgeting has always been a challenging one. And that not specifically to short term rentals since a lot of these properties aren’t short term rentals when I get them. It’s pretty easy to figure out furniture costs, and things like that. But in when it comes to renovations, a lot of my properties are old and historic properties over 100 years old. There are a lot of unknowns with those. When I was getting into those homes, probably budgeting a little better.
Another one would be to trust these numbers. When I was first getting started, there were some opportunities that I passed on, because I was nervous about the occupancy. But I think the demand is only growing, there’s more and more demand than there has ever been. I would trust the numbers that we can see around our properties, and there are lots of stats and info available.
A third one is something I wish I knew, which is that you can manage these from wherever. I left the US several years ago, and I would almost say that it has made my business better. Because I’ve had to figure out these systems. I’m not there to do anything. So it has made me focus on the things that are most important. And figure them out and come up with systems. And the cool thing is when we come up with these new systems, or new tools, or anything that we’re implementing, it’s better for the guests most times as well. Things are more transparent, they happen quicker. To combine this third one, I’d say it almost gets easier, the more you do it. So the first one you do is going to be the toughest, and then it’s only going to get easier.
Short Term Rental Riches Podcast