Short-Term Rentals: Management Considerations and When to Transition to Long-Term Properties

In this episode of The Same Day Podcast, Mat Zalk invites Hannah Shelburne, Steve Howard, and Yonatan (Yoni) Schmidt of the Keyrenter Property Management team to speak about short-term rental management. Together, they share the differences in managing short- and long-term rentals, how to maximize cash flow on short-term rentals, and the influx of short-term rentals in Northwest Arkansas.

Short-Term Rentals: Management Considerations and When to Transition to Long-Term Properties

Hannah Shelburne is the Business Development Manager at Keyrenter Property Management in Arkansas, where she manages short-term rental properties. With experience managing both long- and short-term rentals, Hannah closes real estate deals by identifying clients’ pain points and offering top-notch services to resolve them.

Steve Howard is the Business Development Manager at Keyrenter Property Management in Wichita, where he manages short- and long-term rental properties.

Yonatan (Yoni) Schmidt is the Regional Vice President of Sales and Marketing at Keyrenter Property Management, which has offices in Tulsa, Oklahoma City, Wichita, and Arkansas. After working as a financial analyst at a private equity firm, he founded Tulsa Property Lad to offer clients a better way to buy, sell, manage, and invest in real estate. Yoni provides comprehensive Oklahoma real estate services and listings, supported by first-class customer service.

Here’s a glimpse of what you’ll learn:

• The management differences between short- and long-term rental properties
• Hannah Shelburne addresses the proliferation of short-term rentals in Northwest Arkansas
• Management and cost considerations for short-term rentals
• How to maximize cash flow on short-term rentals
• What are the risks of listing and booking properties on rental platforms?
• Transitioning from short- to long-term rentals

In this episode…

With more people leasing their homes temporarily on platforms like Airbnb and VRBO, many real estate investors have considered investing in short-term rentals for consistent cash flow. However, the management process for these properties is considerably more strenuous than traditional long-term rentals. What should you consider before entering the short-term rental market?

With extensive experience managing short-term rentals for landlords, management executive Hannah Shelburne maintains that while this method is high-risk, it can be profitable for investors wanting to diversify their assets. However, you must recognize that short-term rentals necessitate an ongoing management process involving maintaining property and yard cleanliness, sourcing technicians to resolve frequent issues, restocking inventory, and assessing if anything was damaged. Additionally, long-term rental expert Steve Howard warns against listing and booking short-term rentals on commercial platforms since they merely facilitate fast transactions rather than source quality tenants. If you’re struggling to obtain a consistent cash flow with short-term rentals, versatile property manager Yoni Schmidt recommends assessing market trends to consider converting the property into a long-term rental.

Resources mentioned in this episode:

• Mat Zalk on LinkedIn
• Keyrenter Property Management
• Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas | Wichita
• Keyrenter Property Management email address: [email protected]
• Chris Lile State Farm 
• Chris Lile’s phone number: 918-878-7771 
• Hannah Shelburne on LinkedIn
• Yonatan (Yoni) Schmidt on LinkedIn
• “The Value of Private Money in Real Estate Investing” with Jay Conner on The Same Day Podcast
• “Successes and Failures in Real Estate” with Deren Huang on The Same Day Podcast

Sponsor for this episode…

Chris Lile at State Farm Insurance:

This episode is brought to you by Chris Lile at State Farm Insurance.

Chris Lile at State Farm helps you protect your most precious assets and investments, including home and auto.

To learn more about how you can save double digits on all your insurance needs, visit dialliale.com or call Chris’ office at 918-878-7771.

Keyrenter Property Management:

This episode is also brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 0:05

Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.

Mat Zalk 0:16

Mat Zalk here on the host of The Same Day Podcast where I connect with top business leaders and real estate experts past guests include Jay Conner talking about raising private money and Deren Huang owns 100 units under management and a host of industrial properties. Today’s episode is brought to you by Chris Lile State Farm Chris Lile State Farm helps you protect your most precious assets and investments whether it’s your home in auto investment rental properties or other valuables called Chris Lile State Farm for a quick and painless phone call to potentially save you double digits on all of your insurance needs visit diallile.com. Or call his office at 918-878-7771 Today’s episode is also brought to you by Keyrenter Property Management. Keyrenter Property Management is a full service property management company helping your clients buy renovate and operate real estate assets. We help our clients build wealth we’ll take the headache out of property management. No matter what rental you have single family homes, condos, townhomes, we have the management solutions you need to go to keyrenterpmc.com More [email protected] If you want to email us Today’s guests are three in number Hanna Shelburne is Business Development Manager for Keyrenter Northwest Arkansas Steve Howard is the Business Development Manager for Keyrenter Wichita and Yoni Schmidt Yonatan Schmidt is the head of marketing and sales for Keyrenter Property Management, Hannah Shelburne, Steve Howard Yoni Schmidt, happy to have you guys on the show. How are you? Doing Right? Hello. Today we’re talking about short term rentals versus long term rentals for the real estate investor. On this, in this panel, the four of us we’ve got a ton of experience doing both I’ve managed short term rentals, both my own and others. In the past, I can speak to how much of a pain it is. Hannah, you actively currently manage short term rentals. And you are the BDM, the Business Development Manager for the Arkansas region. So you have a ton of experience doing both short term and long term rental. And we’re getting a bunch of leads for both clients that want to discuss the differences between short term rentals and long term rentals. That is the revenue possibility. The bottom line, how intensive management is the pros and cons along a bunch of different I guess aspects of those two types. And, Steve, I know you’ve got some experience doing both also in the Wichita market. Yoni not really sure why you’re here. But I love that you’re here. So I’m hoping that you had some serious value to our listeners.

Yoni Schmidt 2:56

Thank you, I guess on rentals for a very long time, my first investment property was short term and still okay,

Mat Zalk 3:05

you can add some value. For sure. You’re a seasoned regular guest on The Same Day Podcast. We’re happy to have you, Hannah, why don’t we start with you. Tell us a little bit about what you’re seeing, and maybe some of the differences between short term the management of short term rentals and long term rentals.

Hannah Shelburne 3:25

Yeah, I in the northwest Arkansas market specifically when it comes to short term, I’m seeing a lot of listings come on the market. I think most of those listings were acquired within the past 18 months. And so maybe there might not have been a ton of strategy or thought process on placement within that. So they’re off boarding because it just didn’t make sense to have it as an SDR in the first place and never was profitable. Then just kind of like in the management aspect. I think it’s a level of there’s more engagement on the front end, a lot of questions, a lot of answering all of those aspects for those guests and those inquiries and just being really on top of that. I work really diligently to make sure everything is automated or as automated as possible. My entire company runs on 92% automation. And I’m really proud of that because it means I only have to really be there 8% of the time because it can anticipate most every question. I think in just like kind of looking at that short term versus long term and thinking through where what whether it’s a good decision, you have to weigh a lot of different perspectives and risk tolerance is probably one of the biggest aspects to consider. If you have a really low risk tolerance or you don’t have room to cover vacant months, then you probably shouldn’t pursue short term that maybe you have some really like a lot of liquid that you need to diversify and utilize that. It can be a strategy that works really great but I Think location and seasonality plays a huge factor that people don’t necessarily pay attention to

Mat Zalk 5:05

what has caused the proliferation of short term rentals in Northwest Arkansas, you say to people have acquired them in the last 18 months? And maybe they’re not doing that well, but why did they? Why did they believe that short term rentals was a good strategy to begin with 18 months ago or whenever they bought? Yeah, and

Hannah Shelburne 5:21

I mean, I’ve been managing in Northwest Arkansas for over 13 years. So I understand those shifts and changes. I know, in the past two and a half, three years, the mountain biking trend and everything that has been pushed into this area of the world, as far as my mountain biking is concerned, has just blown up and caused a lot of that tourist expectation. So, in that, I think that’s why a lot have come online. And people especially in Bella Vista, and Bentonville have really just like bought any kind of property and listed it as a short term rental. Some of the areas that I’m mostly seeing those cells happening are in the Centerton and the like, not really the most desirable areas of Bellavista and really removed areas of Bentonville. So out by the, the airport and things along those lines, those locations, just, they don’t really make sense for the market that you’d actually want to target for. So that’s kind of what I’m seeing is it’s more of two locations that probably never should have been listed as an STR in the first place.

Mat Zalk 6:20

There were a ton back in the original days of Airbnb, it was what I experienced was listings, where people were literally just gonna move out of their house for a week while I live there. And they realized they can make a couple of extra bucks and cover like their entire month’s mortgage with just, you know, my rental for the week. And then it transitioned into people. Like doing it more professionally taking their house and, you know, staging it properly and doing it, right. And then it transitioned into people buying investment homes, solely for the purpose of making it an Airbnb. And we see the same thing with rental cars and Turo and a bunch of other stuff. But the the, the downside of doing that, I guess, in terms of intensity of management, I mean, yours is automated, but the average person that just wants to do one of them, I want to understand the intensity of management. And I also want to understand some of the ways that people try to cut corners and ultimately are not successful. So like being in the outsides outskirts of Bella Vista, the outskirts of Bentonville. And just thinking, like, I don’t really need to decorate that, well, I can just put up a sign that says opportunities missed by most people because it’s dressed in overalls and looks like work, you know, and then think I’ve got a great Airbnb and people come in and go, this is not, I don’t know, 2015 when people just rented out their homes, and you could leave your toothbrushes in the corner. This is now like a hotel. So I want to understand both the management intensity, kind of some some keys there. And also where people are failing, why they’re not being successful, apart from Geography, because I suspect that you can, you could put a Europe in the middle of Utah, and people will seek it out as an adventure place. If it’s done, right. But if you put a year in the outskirts of Bentonville, and it’s done poorly, it won’t. So maybe you can speak to those a little bit.

Hannah Shelburne 8:11

Yeah, so I mean, as far as the intensity of management, it is more ongoing than it is in the long term. So every single time a guest books, there is coordination of that clean that turn of the property and making sure that everything top to bottom is not only restaged, but it’s completely clean and free of the hair and all of those processes, because the goal is to really have that guests walk in and feel like they’re the first guest who’s ever stepped into that property. The Lawn Care is also ongoing, it’s just a constant process. In the short term, you have your utility. So if anything, were to ever go wrong in that aspect, then you have to make sure that you can mitigate that and make sure that stays on top. I think the biggest aspect of the management is maintaining the cleanliness of the home, the yard being maintained, and then the restocking aspect. And that’s a due diligence. And it’s a constant having eyes on there checking on that process. So I mean, in my companies with donuts, my cleaners come they turn on the property and then someone on my team shows up and does a visual inspection to verify that everything has actually been staged appropriately, and that no cleaning aspect has been missed. And then we take an inventory of all the items inside of the home and in the restocking cabinets to make sure that nothing was taken or stolen, or that nothing was damaged. And my cleaners just didn’t notice it because they’re not there all the time or they don’t have all the details. And so one of those were just like in a long term side, you know, appliances go out, but in the STR world it can. I think the guests feel like it’s a you have to fix this within the day. And so really just having those contacts and that ability to make those calls and get those technicians in there to resolve issues as soon as you possibly can. And knowing what you can do as a manager to either compensate that and help smooth over that guest experience or what your owners are kind of allowing for you to do in that. So just keeping good, really good notes is another piece of, you know, what leeway do I have within my owners? And what agreements Am I operating on? And so there’s lots of moving parts and all of that

Mat Zalk 10:19

you get the feeling that short term renters are more abusive is the wrong word, but are more like intensively using the property? Like, would we have more? Is there a sense that when you get a rental car, you just slam on the gas, you slam on the brake, you slam on the gas, you slam on the brake, because this just rental car hurts, we’ll figure this out or whatever. And so do people treat an Airbnb the same way as opposed to being a long term renter, and they’re, they just show more ownership of the property? Or is that not really the case, people don’t actually do it. So highlighted demographic,

Hannah Shelburne 10:53

I mean, the risk of a an, excuse me, an event taking place, and there being some form of damages is higher, in short term, my experience with guests because my house rules and my rental agreements that they have in place, and that I get signings for, I think really helped me avoid those types of guests, because there’s a lot of extra fees that they’re going to get hit with if they do cause those damages or have those events. So as far as the wear and tear, I mean, it’s higher traffic, and I think it’s more the furnishings that actually get the wear down than the actual property in the real estate. The physical real damages to property I have had zero of it has been appliance related and furnishing related. So it’s that deferred maintenance of the furnishings, you might have a stained pillowcase or a throw pillow. Okay, that’s usually a pretty quick result, you might have set of sheets that gets stained, like those are typically what you see in a short term rental as far as damages are concerned. And I think in it, there’s a lot of strategies of how you can work as a company or as an individual to safeguard and actually collect either insurance policies on those guests so that if damages happen, you can immediately get payouts or having additional fees in place, and then you just have to actually get the payment from those from those guests. Steve, I

Mat Zalk 12:13

wanted to ask you about the the pros and cons of long term rentals or short term rentals in terms of the status of cashflow. And I know kind of Hannah was saying around these, you know, the furnishings getting damaged. It reminds me that oftentimes we hear people do kind of back in the envelope or back of the napkin calculations and they go well, I’ll get $300 at night, there’s 30 nights in a month, that’s $9,000 a month I’ll pay my management fee 20 or 25%. So take out 1800 bucks, I’ve still got seven grand, like that’s it and they’re going great. And it’s I just think you’ve got utilities where people are not as concerned about whether they’re pumping the heat to 90 degrees in winter or pumping the AC to 65 and leaving the house lights on. But also Cox cable and also the wear and tear on furnishings. What’s your perspective on the on the cyclicality or steadiness of cash flow between between short term rental long term rental?

Steve Howard 13:15

Yeah, that’s a great question. You know, I’ve seen this both ways as somebody that’s managed the property but also as a digital nomad for about three years and staying in properties myself all over the Southwest in Austin Austin was actually a city that was an early adopter of Airbnb, Airbnb actually semi launched in South by Southwest during the sharing economy. And it’s exactly as you said, you were sharing a space with somebody, right? I think a lot of one of the things that’s important remember is Airbnb spent a lot of money marketing, the ability of people in the easy money era of the last couple of years to buy a second property or buy more properties and put them on the market. So they spent just as much money marketing to owners, as they did to potential guests. And I’ve seen just anecdotally in a lot of our markets. But even in Wichita, especially where people were, had the allure of, you know, you get to decorate, you get to buy the songs and you get to buy the chair. And again, you get to put the label maker on everything, the fun stuff, right. And then they forgot about the overall part. Right? They forgot about the actual work part. And I think some of the interior design aspects kind of were off books weren’t really necessarily considered as part of the investment strategy. And then that note is coming due when Hannah says you got a replacement cost, right? You got to fabric on a couch to claim long term rental, you’re not furnishing the house, right? You typically have an appliance costs that you look up up front, you can amortize over time, but in a situation where you’re really decorating it and putting all the stuff in there. I don’t think a lot of people really thought about three replacement costs, especially those people like canister that have come in the last 18 months. Those costs are now coming in years. During the scramble because again, one of the attractions is that high nightly rates you can get Well, the short term rental because a lot of people have, just like you think you can plan a long term rental based on the max rent, a lot of people planned around that Max nightly stay, which, depending on their location, they may never get right. And a lot of these problems Krypton when Airbnb started really having platform problems, especially over the last year. So I think when you have a management service, like Kana who can actually be on site and have a direct relationship, it’s a little different than these platform dependent models where you’re on Airbnb, you might not even be a localized owner, right? You may have just bought it set it up in thought you could forget it. And I think that’s where a lot of people that I’ve seen come to us lately say, How do I switch this to a long term rental? Or what should I do? Because now I’m underwater on the short term? Well, I think it was just a lot of people didn’t think to book all those costs into their plan. didn’t, didn’t really, they thought of the fun side of it, decorating. And they didn’t think of the long term. It’s not just appliances. Now, it’s not just utilities. Now. It’s it’s everything, and I’m responsible for it.

Mat Zalk 16:15

But what would you say on average, you spend a furnish, let’s just call it a three bed, two bath house as a startup cost going into making a property and Airbnb.

Hannah Shelburne 16:28

I mean, the rule of thumb in short term industry is to equate 1% of your purchase price to your furnishings. So if you’re sorry, 10%. So in that, you know, if you’re buying a $300,000 house, you should be able to furnish it with 330 $1,000 Well, where it’s a

Mat Zalk 16:47

significant investment. And then if it doesn’t work out, now you’re selling $30,000 worth of furnishings at 20 cents on the dollar and 30 cents on the dollar.

Steve Howard 16:57

Or you got that trapped value on a place that you’re trying to now sell or rent and, you know, we have a lot owners and investors coming to us and like well, can you rent this furnished and the reality is you really, you really are so

Mat Zalk 17:10

annoying, you’re like, I’m gonna go ahead and take inventory of every single item in the house, the plates and the sofas and the pillows and throw pillows, the blankets, and then at the end of the lease, I’m also going to go back and, and ding the tenant for a stain on the, on the sofa, a stain on the, you know, for the throw pillow and turn to collect from a security deposit that just doesn’t make any sense at all. And

Steve Howard 17:35

you’re starting to see that on Zillow, too is, is you’re seeing in fact, this whole topic came up when Hannah and I started chatting a few months back about seeing the Zillow listing show up for its impeccably furnished house. And I kind of call it the curae gifts act right if you see the Keurig machine in the kitchen with to the full setup bar, you know, it was a failed Airbnb experiment, right?

Mat Zalk 17:59

Welcome home with a rager,

Steve Howard 18:01

the same Tuesday morning Art Deco theme, right? Yeah. And so I think you can tell because the square footage price isn’t remotely in market, because they’re trying to they’re trying to recapture this trapped value, and they’re never going to be able to do it. And so an empty house on a 200 square foot, they’re trying to compete at 500 square foot because they think it’s just the most beautifully decorated thing ever. So I think that’s where we’re starting to have these conversations saying if you’re gonna think about transferring short term to long term, maybe you have viable short term business, and it just needs to be managed or optimized better to Hannah’s point, but if you’re going to transition it, we really need to think about a different model for that and fitting it more into a long term strategy, I think that is going to be an opportunity for investors, either to take property away from an owner or just didn’t really have a, you know, foundational strategy in place to do that, or help somebody transition to more of a long term game.

Mat Zalk 19:03

Yeah. In terms of just stability of cash flow, Hannah are you seeing your best owners with consistent occupancy across months or even are some of the best owners experiencing periods of vacancy in excess of five or 10% annually?

Hannah Shelburne 19:30

My best properties are in 85% occupancy category. So I’m really proud of that because like industry, what your goal is, is in the 70s so super proud that I have multiple owners in that 80% portion but in it there’s still that you know, ebb and flow up and down in that process. My strategy and my company is in the the slower seasons, we look for those more midterm guests the 123 months travel professionals or who I target and all of my marketing strategies. And every single one of my properties has midterm guests in there in the slower months. So I’m, like, really proud of those processes and the ability to be able to make that happen. And I should clarify that all of my properties of my owners are willing to do midterm guests that I have them that way as a few owners that only want short term and they are absolutely fine with those like months that have complete vacancies or maybe one weekend booking but that’s reality as as those properties are within one mile or half a mile of the University of Arkansas and the football, basketball and other sporting seasons pay for their mortgage times. Let’s see my highest on one of my properties has been seven and a half times their mortgage in one weekend. I’m proud of that. Super awesome to secure that. But it doesn’t happen every weekend. And so you know, in those, they’re able to weigh that like, Okay, well, we might actually only be in the 40% occupancy, but when we’re occupied, we are making five, seven times of anything else we would ever anticipate. So it kind of evens out for them in their strategy.

Mat Zalk 21:10

So why not short term rental?

Hannah Shelburne 21:13

Why not? Why not do a short term rental? Yeah,

Mat Zalk 21:17

I’m already on bottom. So let’s do seven location.

Steve Howard 21:20

I think one thing Heather brings up right is in something Yoni always preaches is location and placement. Right. And I think if you’ve got that Eureka Springs that said fill that Tulsa Bok center, that Oklahoma City or whatever. But I’ve seen people try to do Airbnbs in Wichita wood in in suburban cookie cutter neighborhoods, and that’s just never going to work.

Yoni Schmidt 21:44

Yeah, it’s inconsistent. It’s completely inconsistent. Your guests are you know, coming in when your team is winning, and they’re booking when your team is winning. But I think if your team is losing, right, the Razorbacks aren’t aren’t doing so great that season, less people are going to come to Fayetteville to stay at an Airbnb.

Mat Zalk 22:07

Only do Airbnb is near colleges with winning teams.

Yoni Schmidt 22:09

With winning twig. Yeah, I mean, that might work a lot better. But it’s also probably inconsistent, you can’t really model on, you know, you can’t really model on a team’s ability to win or lose a lot of these, a lot of these opportunities are sold on pro formas, rather than on performance, which, you know, we really shouldn’t be looking at the performance of the asset, the potential for the performance of the asset placement is a big thing. People always talk about location, but you could be backing out, you could be in the best neighborhood in whatever city that you’re in, but you’re backing up to a Turnpike, when you know, if your two two turns into the neighborhood, and you’re backing up to the park or to the you know, community pool or something else, you’d be you’d be at a much better place in terms of, you know, your your your geographic placement within a neighborhood. I think also a lot of a lot of investors. Yeah, like you said earlier, they neglect to they don’t really think about the upfront costs, right? They don’t really think about, okay, so it’s $30,000 to furnish the house, it’s ongoing utilities, four to $600 a month in water, electrical gas, cable internet, in terms of insurance, you have to add that into that into the, into the policy, but also that’s probably

Mat Zalk 23:34

they’re probably levered their initial investment now they’ve got to come out of pocket $30,000 cash Hannah, I don’t know if you’ve seen differently, but I would figure that people are not generally rolling in the furnishings budget into their initial mortgage, and then conventional that you would do it

Yoni Schmidt 23:53

a conventional lender would probably not do it. And if you’re on a five year fixed, and you’re coming up on that, on that period, then now you’re refinancing at a much higher rate and you’re gonna have to command higher nightly rates the CEO of Airbnb just came out I think a couple of weeks ago saying get or then he was saying hosts need to reduce the cost the nightly cost of Airbnb. The reason is because guests in and they’re expecting a certain level of experience, if they can just go to a hotel and get a similar experience for 30% Less Than why wouldn’t they? If it’s a if it’s in a better location closer to what they’re trying to go visit closer to the area that they want to be in? I would say that Airbnb nowadays may be a little overpriced, and guests are starting to notice it. Well,

Mat Zalk 24:51

the the fees are pretty tremendous. I mean, the Federal Reserve fees from the from the the investor side right from Hannah side here but there also as the Booker, you’re also paying a substantial fee, they’re taking a huge spread on the in the middle Hannah, I know you don’t generally or maybe at all use Airbnb you don’t use the platform’s right you everything is directly listed

Hannah Shelburne 25:12

on there. But I try to avoid bookings on there like the plate. Yeah, interesting. I would rather have everything direct. I don’t want platform bookings if I can have

Mat Zalk 25:22

two issues that I’ve seen come up wondering COVID When they were massive cancellations of booking, Airbnb, in a dramatic fashion took the side of the of the of the guest rather than the host. And they overrode, I guess all of the cancellation policies of the listings and gave all the people their money back. So now you are, even though you had a mortgage payment, and the fact that you had purchased the house and taken all Brian Chesky is advice to go get a new property and put it on Airbnb, you are stuck paying your mortgage with a bunch of empty bookings, essentially. And the second thing that I’ve seen is that Airbnb will so often side with the guest, when there are reports of damage from the host side. And they can you talk to us a little bit about any experiences you’ve had where something had been broken, you said nothing’s been broken, maybe you don’t have any experience with some of your friends, or anybody else that you’ve read anything on the internet, where they’ve learned, like, hey, this thing’s broken, you know, every visa, no, sorry, it’s not the guests fault. This was done previously, or whatever it would be.

Hannah Shelburne 26:28

Yeah, I haven’t had anything major as far as breaks inside of any of my properties. But I’ve definitely had house rules broken and had to go through the platform process to get Airbnb, or VRBO, to actually pay out those things. It’s why I don’t love platform bookings, I had a party thrown in one of my largest properties that I manage, and they had smoked marijuana all throughout it. And there were cigar smoke and stains. And there were a few burns on a couple of throw pillows. But those were minor, that in my house rules and want this guest had fully agreed to was very clear that they owed me a certain amount for a fee that was disclosed, they had signed the rental agreement. And they had agreed to that process, I had to fight the platform to get payment for that and send all of the proof that they already had in front of them. It’s just that side of annoyance. And what ultimately happened was the guest who stayed there didn’t actually book through the actual property, it was her husband. And so that’s how the platform was able to say, Oh, well, actually, she didn’t stay there. So you’re out your luck. And I was able to throw their policy right back in their face and say, No, you had a very clear process to host and an agreement that the actual individual booking and making the booking would be the one staying there. So I was able to win because I knew the policies on both sides. But that’s just kind of one of those aspects that you have to be aware of. It’s not fun going through those processes. And it’s why I take out an insurance policy on every single guest who stays at a property of mine, because that pays me out way faster than a platform after well.

Yoni Schmidt 28:01

Well, that kind of very in depth level of involvement on the manager side is what commands is there 20 30% management fee that people have to pay for managing short term rentals, because it’s just so involved on the day to day communication wise, Mat you your experience is that, you know, inevitably on a on a Friday night at 10pm You’re gonna get that, you know, text message of, you know, oh, I can’t get into my apartment or to my unit or to my Airbnb because, you know, someone’s drunk and they’re not paying attention or reading the instructions. It’s a it’s a nuisance, and that’s why people outsource the management, but they have to pay a higher fee for that.

Mat Zalk 28:42

It’s a nuisance, and you’re so beholden and scared, beholden to and scared of that rating drop, that you don’t want to tell them, hey, the rules that you agreed to stipulate that you will check in between 9am and 9pm. And now it’s 11 o’clock and you’re trying to get in and you forget that you haven’t watched the instructional video I sent her read the instructions, but you’re trying to get in at 11 o’clock and you’re disruptive. You’re disrupting my sleep. And by the way, I’ve got a new child at home, etc, etc. But I guess I’ll bend over backwards, capitulate and let you in. Or give you a code to a lockbox that’s sitting out there. You know, that’s ancillary to the code that gets you in the door or come do this personally, because you’re really really dumb. It’s just so annoying. I mean, and I respect you for doing it in the patients that you’ve got, but it was not for me.

Yoni Schmidt 29:33

And becoming a super host or getting, you know, really good reviews is in fact not that difficult, I would say because we’ve seen instances where people will drop the nightly rate to nothing basically have a friend book it right. Then it’s a confirmed reservation. Then they go in and they review your Airbnb, you get a five star review on everything. And those those reviews are Have inflated and not in fact, always true

Mat Zalk 30:02

Yoni, it sounds like you’ve done this, this seems to kind of predict variants. But

Yoni Schmidt 30:07

I’ve seen it happen,

Mat Zalk 30:08

a friend of a friend, a friend of a friend.

Steve Howard 30:13

One of the things we’re talking about, it’s really the Achilles heel of a lot of these tech platforms, we’re seeing the same thing with Uber, right. And that’s well publicized is they really are at the mercy of reviews from users. And they’re dependent on new users adoption, adopting the platform for growth. So they allow supply surplus on the House side and the baby models or in the car driver side, but they’re actually really not managing anything. They’re just enabling a transaction. And so I think that’s the mistake a lot of people make when they think, Well, I’m going to put this on Airbnb, and I’m just going to make money. There’s actually a management piece unless you have somebody, you know, like a trusted partner like it like Hannah doing it for you, because you’re just all you’re doing with Airbnb is you’re facilitating a transaction, and they’re finding a buyer for your night. And so I think that’s the problem is, is these platforms mature, and you the fee creep, we just talked about starts to come in, people start realizing and start running into these problems, multiple bookings at a place or this isn’t really as advertised, right, because there’s no way in the world or BB can control the quality of their bookings, just like Uber can roll the quality of their drivers. And so I think we’re just seeing kind of a maturation point, a bit of a tipping point happened in that short term market. And I do think some investors are gonna have to start looking at balancing their portfolio a little bit better, short term could still be a great moneymaker. If you’ve got the right location, and you got the right mix, or maybe you have a second property that you will use a particular amount of time. And so that that is a great thing to be able to share. But I think ultimately, we’re returning to real estate being more of a longer term value play. And I think some of these investors are gonna have to start looking at some of these other properties that aren’t making it in the short term market is something probably need to start addressing the short the long term market, because where do you have a higher need at the moment?

Mat Zalk 32:16

I mean, Yoni, you, you mentioned that part of the increased intensity management and cost goes to having people like Hannah do the management, I would argue that the vast majority of people managing short term rentals are not as diligent and prudent as Hannah, like we didn’t have, we weren’t taking out an individual insurance policy and housing now was doing five and it was a side hustle, because we had some clients that really wanted us to do it. And it was never, we had a bunch of cool systems and software, you’re also very automated. So we had invested in the technology, but we weren’t nearly as professional as Hannah is on on all the issues discussed. So I think two considerations, one is that your risk is greater unless you have somebody that really is doing a phenomenal job, and to the intensity of ownership is also more because it doesn’t matter. Whether Hannah or your property managers is caring for 7080 90%, you’re still going to be way more involved, because you are thinking, one is there going to be enough money coming in this month for me to cover my mortgage. So you’re gonna you’re thinking about it more frequently long term rentals, you’re going to think about it much less frequently. Number two, you’re going to have greater intensity of issues. So again, it’s the it’s the HMI going out has to be addressed today, or we’re getting space heaters, it is the stove is more likely to break because of repeated use. Maybe Maybe that’s kind of a silly argument. But like just generally more intensive intensive things things are going to break your furnishings are complex you’re gonna have, even if the manager is handling the vast majority of the stuff, you’re still having more frequent conversations with somebody about something. And for people that are just set it and forget it types, they want to hire a management company, they want to not be bothered with it. And I think we talked about this a lot internally at Keyrenter because we always try to improve our communications. And we were so focused on the business of management, the process and business of management that we forget that many of our owners are like, guys, I don’t even want to know your names. Don’t call me unless there’s something emergent. Don’t call me unless you’re planning on not sending me any money. But in in an ideal world, you’re going to send me the rent check every month direct deposit in my account, I’m going to assume it’s there. You don’t even generally look and assume it’s there. And I’m not going to look at my understatement or anything else. You are not the center of my universe, I understand that you’re the senator of yours. So it’s this. It just depends. I mean, we spoke a little bit about strategy and objectives like it depends what you want as an owner of real estate investment if you love the asset class, because you generally believe that you can lever your money take for $4 of the banks for every dollar of yours. And that real estate appreciates over time because as the old adage goes, you know land, they’re not making more of it. And you’re in an environment in a geography where there’s population growth and business development and proof, then you might want to just be hands off and take the asset class for what it is and hold it for 25 years and not be involved. If you are in a cash flow game where you really want cash flow every month, and you want it to be you’re willing to stomach the ride, you may be willing to do short term rental. The other thing that’s really interesting Yoni that you and I learned the other day is for investors that want to take advantage of active depreciation against their active gains. So active salary, so for example, you’re a doctor, and you don’t have the A you make $400,000 a year and you want to take advantage of depreciation, but you cannot do it if you’re purely passive, because you don’t have $50,000 of passive gains from stock market appreciation or sale of stock market of stocks, then you can actually do the short term rental game for a year, you can take advantage of some of that bonus depreciation, and then you can transition it back into a long term rental, the question then becomes what do I do with all that furniture? Right? What do I do with it, so maybe you go to rent a center, you do it, you know, for a little bit, you’re not gonna have super nice stuff, it’s going to be cheap, you know,

Yoni Schmidt 36:11

where you’re going, if you’re compromising the quality, then you’re going to be ultimately feeling it on the on your net operating income. To to if you want to operate in an area and me, my argument is that you have to do it right, you can’t just throw together a bunch of furniture from Rent a center or overstock.com. And then you know, expect the performance of your Airbnb to be at the at the high level of you know, furnishing it from you know, Whetstone or fabric or whatever. It has to be done, right? It has to be done to a certain level, guests will have expectations. And, you know, if they, if they see that you’re compromising on the quality, then you know, you’re going to get that bad review, or they’re going to end up noticing it in the photos, noticing it in the listing, noticing it in the reviews that have been left by other guests, and ultimately opt to go to a hotel where they know exactly what they’re going to receive. And it’s a consistent level of service, it’s consistent level of quality, and they don’t have to worry about, you know, is something gonna break, are they? Are they going to blame me? Will someone come out and fix it? I mean, just my last experience booking on Airbnb for almost just about a month in Wichita, the furnace went out four times, and she kept sending out, you know, an HVAC guy to come out and fix it, I ended up kind of just befriending this person and getting his phone number because I thought, well, you know, if you’re a licensed HVAC guy, you know, maybe Keyrenter could also throw you some work and, you know, hire you as a contractor. Turns out, he wasn’t really a licensed HVAC contractor, or he was using to just, yeah, come out. And, you know, almost like it felt like almost like pretend to fix the problem. And it happened four times. And ultimately, I did write a review. And I mentioned that, that she needs to find licensed contractors to do the work so that you can fix it once fix it, you know, for good not have to come? Because that’s gonna erode your profits every time you send out something. Yeah,

Mat Zalk 38:20

she’s still paying for it, presumably. Crazy. Let’s talk about transitioning. This is Hannah, you know, and, Steve, you’ve seen a number of these leads come in. Also, we’re seeing more and more transitioning from short term from unsuccessful, most likely short term rentals to long term rentals, what does an investor need to do consider, and when when making the transition.

Hannah Shelburne 38:51

I mean, we have to weigh that cost of what their mortgage is or what their monthly bottom line is, and see if we can actually match that in the long term realm. And I think sometimes a lot of what I have experienced with the leads that have come my way and just realizing that we’re not going to be able to hit their bottom line simply because their interest rate was too high, they buy it not maybe the ideal time that they were purchasing it for that strategy of str, and then didn’t have the performance to back it up. You know, in it, and it really comes down to talking through like we might be at a loss. But this long term will create stability, maybe this first year we’re at a loss. But when the interest rates begin to come down, we can explore those refinancing options. When we get to a point of renewing, then we can increase that rental rate and we can continue to get you towards that line. And just really setting that expectation of you know, the reality is, is in your short term round for the past eight months, you’ve only had seven bookings and so we’re going to be able to get you more monthly income on a consistent and very regular basis for you

Mat Zalk 39:53

as you want but it will be consistent and it’ll be a known entity. So if you need to bring $400 a month to the table to cover your mortgage your interest and your pay it taxes and insurance. And at least you know that you can save for it as opposed to being caught off guard and you get a whole month of no bookings. Right.

Hannah Shelburne 40:09

Right. I also think that people in the str to Lt switch are forgetting that their insurance policies change drastically. And that when you’re switching from an STC, and all of those added liabilities that that insurance policy is going to go down. So just always be very clear, make sure you’re talking to those people. And then their cost of utilities also goes off of their their bottom line in their consideration, because I think their mindset has been on Oh, I have to make $3,200 per month to cover everything. Well, now we’re taking the cost of utilities out, we’re taking that internet outwards, and we’re reducing that insurance rate potentially, in all of those aspects. So it can just really help to alleviate, to have, it’s not that $3,200 mark. In reality, it’s closer to that actual mortgage and insurance. And that’s all you really need to worry about or considering your bottom line.

Mat Zalk 40:58

Steve, what do you think?

Steve Howard 41:00

I think a lot of people immediately think about the furniture, and what am I gonna do with all the furniture? In the reality? I think what Hannah just mentioned is a lot more important, what are your true costs? And then the other thing, I think, to pay attention to seasonality, right? What market are you when, when are these down troughs, you’re experiencing our job as trusted advisors, we need to talk about when is the highest and most likely time for an ltr to get a good tenant in there. And try to try to make sure that that gap is bridged, so to speak. You know, I do think midterm rentals, for example, are interesting where you know, Heather, as mentioned before, like traveling nurses and other stuff, maybe they maybe they can, you know, start it just depends if their bookings have really fallen through the floor. And if you look at the Red Air Airbnb cluster that has happened to a lot of people I have up there just bookings disappeared, that may be a different situation at triage. But ultimately, we want to try to bounce the blow of the switch, because the sheer reality is there’s going to be a month or two of switching over that they’re gonna have to financial

Mat Zalk 42:06

Yeah. The other thing is we and I don’t know if you guys have seen this, or I’m just totally making this up. We definitely see it in long term rentals where owners try to do the management themselves. They flow right through peak leasing season, and then come October, November, they bring it to us and go I wasn’t able to do it. Can you do it? I’m like, Look, we had 50 applications per week, last month. And now we have five applications per week because there’s a seasonality is a very seasonal period of leasing. And in South Florida, that might be all year and in South Florida that might be winter, but in our markets, it is not winter. So if you bring me a property in October, and I get it rent ready, and listed in you know, around Halloween, we’re not going to have very much success and until February, things don’t really start picking up again. So if you waste if you squander the year months of short term rental attempts, and then decide in October that you want to make the switch it’s a bad time do it bring it to any manager whether us or doing it yourself or or any other manager in peak leasing season make the decision in March so that you have a full three or four months of leasing potential to get top dollar for your long term rental instead of suffering foolishly through all the terrible months of short term rental assuming that you’re not doing seven times your mortgage in one weekend, suffering through that that you know SLOG and then bringing it to a manager or trying to lease it long term in November. It’s just not it’s not a good it’s not a good look. And we can’t really hear him we can do to help or to help drive demand.

Yoni Schmidt 43:41

Yeah, also making sure that you’re keeping your hand on the pulse of the market and looking at those average days on market for you know, whatever type of asset class you own three bedroom homes, four bedroom homes, small apartment complex, making sure that you’re aligning your expectations with what is truly going on in the market. And if you ever have questions about those, I guess if anyone ever has questions in the in the viewership or audience, feel free to go to any of our social media pages, and Facebook or Instagram. And soon also to be on our website and check out those market summaries so that you can see what those average days on market are. And you know what those mean for landlords and tenants, right? We know that when inventory turns over, you know very rapidly and it creates good opportunity for landlords but when things kind of slow down, you have to place your rental in a more competitive and a more competitive landscape and maybe price it a nickel below what the market can sustain so that you can find a good tenant find someone who stays long term sign an 18 month lease sign a six month lease, have that lease expire on you know a more favorable lease cycle and, you know operate with that in mind. Yeah. Right.

Mat Zalk 45:08

Hannah Shelburne, Steve Howard Yoni Schmidt, thank you for being on the show today talking about short term rentals, the benefits, the drawbacks, and then potential transition to long term rentals. Really appreciate it.

Yoni Schmidt 45:19

Thank you. So you guys

Outro 45:24

thanks for listening to The Same Day Podcast. Tune in to a new show each week and be sure to subscribe to get future episodes