Smoky Mountain Short Term Rental Income: How Much Do Cabins Really Make? (Episode 3 of 10)

Avery Carl [00:00:03]:
Welcome to the Short Term show special episode series on the Smoky Mountains in Tennessee. We are doing a 10 episode deep dive into buying short term rentals in the Smoky Mountains.

Avery Carl [00:00:15]:
So we’re going to talk about a.

Avery Carl [00:00:16]:
Lot of things in these episodes and we’ll probably be doing a quarterly update from here on out after we finish these 10. So make sure you hit that subscribe button so you get those delivered straight to your phone when they come out. We do have some supplemental materials for you in addition to the content on this podcast. So any information that you need on current property pricing you can find on our website at the short term shop.com and we also have, courtesy of our friends over at airdna, current air DNA data for this market on our website as well. So you can check that out on the Shorttermshop.com and if you guys are interested in buying a property in the Smoky Mountains with a Short Term Shop agent, you can email us at agents@theshorttermshop.com or if you just want to learn more about buying short term rentals in this market, you can join our Facebook group. We’ve created a 50,000 person community on Facebook all about investing in short term rentals. You can join that. It’s the same title as my book.

Avery Carl [00:01:15]:
It’s called Short Term Rental, Long Term Wealth.

Avery Carl [00:01:18]:
See you guys over there. Hey guys, welcome back to the Short Term Shop series on investing in the Smoky Mountains. Today we’re talking about a very fun but also very confusing topic for especially new investors. We’re talking about data and analysis. So we have another episode that covers expenses that are specific to the market. So this is kind of a two part analysis episode. But right now we’re going to talk about really the data and how to analyze and what you need to be able to analyze a property and things that you need to pay attention to. So, so I’ll go ahead and introduce my panel.

Avery Carl [00:01:58]:
You might be, you might be familiar with some of them. First we have Julie McCoy. Julie, who are you?

Julie McCoy [00:02:04]:
Hey. I am an investor and an agent in the Tennessee Smoky Mountain market. I own seven short term rentals here and I manage an eighth for my parents. And yeah, I’ve been an agent for a few years here and part of been part of the Short Term Shop since its inception.

Avery Carl [00:02:24]:
Yeah. And then next the infamous Chuck Kramer.

Chuck Kramer [00:02:28]:
Infamous. Okay. Been around the industry for a while. Currently we’ve got nine listings split between the Smoky Mountains and the Destin Miramar beach area. Two that are a lot more similar than most people think. Been around the short term shop for a while and recently hopped on board with sharing my knowledge and educating people.

Avery Carl [00:02:55]:
And we really appreciate that. And last but not least, the data man himself, Mr. Kenny Bedwell of STR Insights. How’s it going, Kenny? Tell us about yourself. Introduce yourself.

Kenny Bedwell [00:03:05]:
Good, good, thanks. So my name is Kenny. I am the CEO and founder of STR Insights, which is a data platform that allows investors to identify the right markets to invest in for them. I also own six short term rentals myself. I live in of New York. My short term rentals are all throughout the state of New York. And yeah, excited to be here.

Avery Carl [00:03:27]:
All right, thank you everyone. I’m really excited to talk about this and I’m going to apologize to the listeners that I’m a little bit sick. So I’m sorry that I sound like this. Hopefully you can look past it and find the value in all of our wonderful panelists. So first, the first thing I want to talk about is metrics. So you hear a lot of words and phrases and jargon thrown around when it comes to analyzing and measuring the performance of short term rentals. So there’s a lot of those that get thrown around and really only one of them, well, one and a half of them. And I’ll, I’ll circle back to why I said that, but really only one of them is applicable for measuring the performance of short term rentals.

Avery Carl [00:04:11]:
And that is cash on cash return. So does anybody want to hit on what cash on cash return is?

Kenny Bedwell [00:04:19]:
Sure, I can take it. So cash on cash return is basically how quickly you get your money back that you put into the property. Now it’s important to keep in mind that, you know, the money that you put into a property isn’t simply just the down payment and the closing costs, but you know, furnishings, any sort of rehab or renovation that you put into the property, that would be considered the cash that you put into that property. So how quickly do you get that cash back? So for example, let’s just take a rough, do a rough example. Simple math here. So if I purchase a property for $500,000 and let’s say I’m all in. So down payment, closing costs, everything in at $100,000. So I’m all in at $100,000.

Kenny Bedwell [00:05:03]:
I bought this property for $500,000. So my cash on cash return. So let’s assume that at the end of one year of income I net. So this is important. I net $33,000. So don’t worry about the gross. Just what is the net income on that property after year one. So that’s $33,000.

Kenny Bedwell [00:05:25]:
So in three years, so if I say 33 times three or 100,000 divided by 33,000, I get three. So in three years I will get my money back. So the cash on cash return is a percentage. So it’s 3, 33%. So that’s a 33% or you know, we’ll say 1/3 cash on cash return for that particular property, which is really high in this example. But.

Avery Carl [00:05:52]:
That was a great explanation of that. One thing that I want to clarify. So I’ve kind of not gotten into arguments, but I’ve gotten into disagreements before about what’s included in cash on cash return. And for me, and I think for most people, unless I’m wrong, in which case all of you feel free to correct me, it’s the cash that you put into the property, like the tangible dollars that you put into or the countable dollars, I guess they’re not tangible versus what you get out net at the end of the year. So what I mean by that is your down payment, any repair or updates, costs, things like that, like hard, not hard money, like a hard lender. This is just like hard money that you’re putting into the property. What where I’ve seen people mess up is they want to put all these extra nebulous things in there. Like I had somebody one time who wanted to include debt pay down and appreciation into cash on cash return.

Avery Carl [00:06:51]:
And is that correct, guys?

Julie McCoy [00:06:53]:
No. No, it’s not.

Chuck Kramer [00:06:59]:
Are we going to fight over this?

Avery Carl [00:07:02]:
No, I don’t think anybody’s going to argue with that. But especially appreciation is, obviously it’s wrong, don’t do it. But this is why appreciation can change in a minute. Appreciation can change external factors of our overall economy, the local market, things like that. So that should not be included. And debt pay down shouldn’t be included either. So it’s just the dollars you put in versus the dollars you put out. You got something, Julie?

Julie McCoy [00:07:27]:
Well, and I was going to say I’ve also heard people talk about like the tax benefits, you know, whether that’s through a cost segregation study, accelerated depreciation, things like that. Again, I think that just muddies the water. Those can be important in other ways and other ways of measuring whether a deal is worthwhile or not. But it’s not part of the cash on cash metric. And another thing I want to point out that I know I found confusing at first is when we talk about the expenses that go into the property. This is like your Initial setup, you know, everything that you’re doing before it starts to operate in cash flow. I’m not counting, like, my monthly utility expenses, the occasional maintenance, you know, or six months down the line or replace the sofa. That’s not stuff that I’m factoring in.

Julie McCoy [00:08:17]:
I’m just looking at my upfront expenses because again, otherwise you get into this really messy accounting situation that I don’t think serves a good purpose. And once the property is operating and. And cash flowing, then your expenses get taken out of your gross to leave your net. So I think you should be considering your upfront expenses until you’re in operation, you know, and then you measure that against your. Your net at the end of the year. Do y’ all agree with that? I’m interested.

Chuck Kramer [00:08:51]:
Yeah. Yeah. And that would be, you know, whatever costs you need to start your operation, things that you may not think of right off the. Right off the bat, a license fee, an application fee, anything that you wouldn’t have had to pay if you weren’t going into this. So that’s out of pocket.

Kenny Bedwell [00:09:10]:
And I think it’s important to note, too, that cash on cash can change year to year. So I do want to back up to the cost segregation thing. A lot of people, I’ll see people run a cost segregation and they. They maximize that benefit in the first year. So let’s say that they have a cash on cash return. Expected cash on cash return with no cost segregation at 15%, they do the cost segregation and that changes to 35%. Well, that’s 35% in the first year. But in year two, it’s going to go back down to that 15% again.

Kenny Bedwell [00:09:44]:
So that’s something that a lot of people don’t. Don’t think about or talk about. Is that okay? Well, in year two, it’s going to go back down to that. And is that still at the level that you want it to be at? You know what I mean? So that I do think you’re right. It does muddy the water. It is good to know. And it does show the power of what a cost segregation can do, especially for those high W2 income earners.

Julie McCoy [00:10:08]:
Yeah. And so I think it’s just important to consider these different areas in, you know, in the appropriate context. So this. That’s one of the reasons why I don’t consider any sort of tax benefit that I get from a property as part of the net revenue on it. Like, I’ve got big cost segregation for 20, 22. You know, I’m going to net whatever you know, I’m going to get X amount of dollars in tax benefit from it. But I’m not counting that as like money the property made for me as a, you know, as a net profit on it. I treat it as an entirely separate thing.

Julie McCoy [00:10:44]:
So it doesn’t go into my cash on cash calculation at all. But another point to saying how it can change year over year too is okay up front. You’ve got these startup expenses, you’re getting your business off the ground. When you have a second entire year, you usually have some momentum. You’ve got a base of reviews, you’ve got a lot of other things that put you in a more favorable position for, you know, just a higher revenue in your second year than in your first. And so your cash on cash can increase for that reason. It can increase because the market rates are going up. There are a lot of other reasons why your cash on cash will vary, you know, year over year.

Chuck Kramer [00:11:25]:
Part of that initial calculation need to do is, is to look at the cash on cash over several years. What’s the current economic environment? We’re living through this now where we’re, you know, we’re seeing inflation somewhere around 8% or so a year. Well, our costs certainly go up probably even a little bit more than that. But we can’t necessarily raise our rates 8%, at least not across the board. So you need to do that math for more than just the first year.

Julie McCoy [00:11:52]:
Oh, and so Chuck, I’m interested if you’re looking at year two, are you still considering your initial cash in to be your down payment and startup costs or are you looking at any sort of operating costs going into that? Because I wouldn’t consider, I wouldn’t consider like my ongoing expenses going up due to inflation as a reflection on my cash on cash at all just because it wasn’t part of my initial startup expenses.

Chuck Kramer [00:12:18]:
Well, except that that’s going to decrease your, your net income. So it all. Okay, right. Okay.

Julie McCoy [00:12:29]:
Yes.

Chuck Kramer [00:12:30]:
So.

Kenny Bedwell [00:12:30]:
So when, when I run my proforma, I have a, you know, I have an A line item for ongoing maintenance, you know, and it, I’ll usually set it at a percentage and that typically. Yeah, and that’ll carry over year over year. Whether that hits it or not. Obviously some years are going to be better than others. But you know, it’s good to. Yeah, I, I think it’s good to have that so you can calculate in the year two.

Avery Carl [00:12:56]:
So all great thoughts. So the next thing the, so that was the one metric that definitely applies. And this is kind of the Half metric I was talking about. So cash flow. So some people, and some people will analyze based on cash on cash return, others will analyze based on what they want their monthly cash flow to be. And the same investor can use both ways of analyzing at different points in their career. So when I first started and I was like scraping pennies out of the bottom of like our cars to make down payments, that cash on cash return number was really, really important to us. And then now that we’re a little more flexible, I.

Avery Carl [00:13:38]:
When we’re buying something, we’re more looking at, okay, yeah, it needs to like, kind of sort of hit the cash on cash return number. We’re not scrutinizing that as hard as like, okay, we need to kind of unload some of this cash because of inflation and, you know, get this deployed. And what is that going to add to our monthly cash flow? And we’re a little more concerned with what it does for us monthly than really scrutinizing that cash on cash return anymore. So, Julie, you give a really good explanation of how those two metrics are the invert inversely affect each other. Do you want to hit that really quick?

Julie McCoy [00:14:17]:
Yeah, yeah. So I run into situations a lot where, you know, buyers want to maximize their return. Of course, we all do. And then they are looking at both cash on cash and cash flow, and they want to maximize both. And you have to understand that these two metrics are inversely related. And so, as we discussed before, cash on cash is measuring your initial cash outlay against your net at the end of the year. So in order to achieve an, you know, your cash on cash is very heavily affected by like your down payment. If you are have able to do something like a 10 or 15 down payment, your cash on cash is going to be a lot higher than if you’re doing 25% down because all other things being equal, you’re deploying more cash in that down payment.

Julie McCoy [00:15:16]:
Now what that’s also going to do though is. And did I say that wrong? I’ve what the. So the larger your down payment is, the lower your cash on cash return is going to be because you’re deploying more cash upfront.

Kenny Bedwell [00:15:32]:
That’s right.

Julie McCoy [00:15:33]:
But your cash flow will be higher because your mortgage payment is going to be lower as a result of that higher down payment. So you cannot have a incredibly high cash on cash and an incredibly high cash flow because of just the down payment alone. There are other factors that could, you know, could play a part, but that’s the biggest one. So if you want the most cash flow and you’ve got the extra cash to put into a down payment, that’s going to be the way to go. Because your mortgage, you know, your debt service is going to be lower. But if you have limited cash and, and want to get it working for you, you can have, you know, a much better cash on cash return with your lower down payment. But be aware that your cash flow is going to be impacted because of the higher mortgage payment.

Avery Carl [00:16:24]:
Yeah, I’ve had a situation where a client came to me before and said, hey, I’m having trouble making the numbers work on this property. Can you look at it? And I said, okay, yeah, I’ll look at it.

Julie McCoy [00:16:33]:
And.

Avery Carl [00:16:34]:
And they said, okay, cool. So here it is. And it was a great deal. And they said, I looked at it, did my little quick analysis of it, and it came out to like, I can’t remember, like 27% cash on cash return. It was like really good. And he said, well, wait a minute, no, I want to increase my cash flow, so I’m going to put down 35%. I had run the numbers at 20% down, so that cash on cash return looked fine to me. And he said, well, you know, I’m putting down 35% and, and I can’t make the cash on cash go above X.

Avery Carl [00:17:06]:
I don’t have it in front of me. And I can’t do the math in my head. And I said, well, it’s because you’re putting down 35% is why the higher amount you put down, the lower your cash on cash return is going to be. But like Julie said, because the more you put down, because your debt service is going to be lower, the higher your monthly cash flow will be. And they, the reason they were putting down 35% instead of 20 was because they wanted that higher cash flow. And I said, well, you’re just going to have to kind of dismiss what the cash on cash return is then. You can have one or the other, but typically not both, just depending on your down payment. And that’s not to say that, you know, a 20% down payment isn’t going to get you a good cash flow.

Avery Carl [00:17:46]:
Like, it’s not. I’m not saying that a good cash on cash return always means not good cash flow, but it’s just basic. The more money you put down, the lower your debt service, the higher your cash flow will be.

Julie McCoy [00:17:58]:
Yeah, you can’t have the best of both worlds. It’s just a scenario where you realize that emphasizing one will come at the expense of the other. But it doesn’t mean that one is bad. It, you know, they both should be in an acceptable range, but you’re not going to have the highest possible cash on cash for that deal as well as the highest possible cash flow.

Chuck Kramer [00:18:18]:
It depends on what your goals are. If your goals are to, to live off of it, then your monthly cash flow is probably going to be more important than the total cash on cash return.

Kenny Bedwell [00:18:29]:
Yeah, I, I’ll add into this too. Like you can go out for, for anyone listening, if you’re trying to grow your portfolio quickly, then you’re going to lean more towards trying to get that cash on cash. So you can quickly, you know, take that cash that you get and redeploy it and you’re not spending, you know, sinking a lot of money into a particular property. I mean think, think, think about it this way. You know, you can go out and buy a bunch of 12 bedroom properties and they’re going to have a great cash on cash return compared to say a five or six bedroom property. But your cash flow is a lot less. So a part of it too is how, how much do I need to be making for it to be worth it for me to manage that particular property? Especially if you’re self managing as well. So what I mean by that is, you know, the last property I purchased was this big seven bedroom property and the cash flow is going to be around $50,000 yearly.

Kenny Bedwell [00:19:25]:
So I won’t buy a property that doesn’t cash flow less than $50,000 because it’s not worth my time. And but if you have that time, you’re able to trade for money. So time for money then yes, you can buy smaller properties and get that high cash on cash return. So it’s really depends on. I love what you said Chuck. It depends on your goals. So where are you in your investment stage? What are you really looking for? If you’re really just looking to, you know, quickly grow your portfolio, you’re getting started, focus on cash on cash. If not focus on the cash flow, put more money, a larger down payment on that property, have that equity and then also be building that cash flow.

Avery Carl [00:20:05]:
So all great info. I think that the listeners are really going to get a lot of value out of this. So I’m really excited. Let’s talk about, I almost said numbers. Let’s talk about terms that you hear often in real estate investing that don’t really work as well for short term rentals because they are really more of like a commercial asset number the first one that I want to talk about is NOI or net operating income. Can anybody give me a definition of what that is?

Julie McCoy [00:20:35]:
I can. Net operating income is looking at your gross revenue minus your operating expenses. So that’s going to be your expenses, not including your debt service. And that’s really, really key. That’s going to be your, your utilities costs. That’s going to be, you know like landscaping, maintenance, any, any of those aspects of the property that go into the day to day operation. But it does specifically exclude your debt service. So your principal interest, taxes and insurance.

Julie McCoy [00:21:09]:
Or is it just principal and interest? Actually Avery?

Avery Carl [00:21:12]:
I guess, well, I guess it’s kind of subjective on if you have your taxes and insurance escrowed into your debt service. I don’t know what the exact definition is. Chuck, do you know?

Chuck Kramer [00:21:23]:
Well, I mean it typically excludes taxes to begin with, but insurance is an ongoing operating cost so it should include that. You tend also not include debt service as well. So any appreciation or amortization, any of those afterward items.

Julie McCoy [00:21:45]:
I was just going to say if I’m looking at a multi family listing, an apartment complex or some other commercial property, a lot of times the listing will talk about what the NOI is. And that’s a really important number for you know, analyzing something like an apartment building where your expenses are pretty, pretty. You know, your expenses and revenue are relatively fixed. You know, you’ve got the units that are leased out at X number of dollars per month. It’s going to be that way for the full term of their lease. So it’s very predictable in that respect. But, but because you are coming into the property with a new debt, they’re not accounting for the expense of your debt. And it’s a nice neat metric that’s really easy to work with.

Julie McCoy [00:22:28]:
But I think the real key is you still have to take the debt service out of that equation. So if that you know, any is, you know, is $50,000 or whatever, just remember that’s not your cash flow, that is, that is the profit before the debt service. So make sure you back that number out to get your true profit or cash flow. And the other thing with short term rentals is your revenue and expenses are a lot more variable than they are with with long term rentals or commercial properties. So just know that you need to be a little more flexible and work with ranges when estimating expenses and revenue than you might have to with a commercial property.

Avery Carl [00:23:19]:
Yeah, so guys, where I don’t want you guys to get tripped up on this is when you’re watching YouTubes or you know any, any of the vast amount of content out there about analyzing short term rentals. When people use the word noi or net operating income, that’s not your cash flow, that is not your net income at the end of the year. I don’t want you to be confused by that because if you’re watching and they say, okay, well on this property there you have 20, 20,000 NOI, your mortgage could still be 25,000 a year and you could, that could be a property that, if you mess up the definition of that metric that you’re now in the negative. So thing to remember, when people are using noi, that does not include your debt service, AKA your mortgage. All right, the other, the big metric that a lot of people want to use, that just does not work for short term rental. And we’re all about to explain why is cap rate. So does anyone want to give us a definition of cap rate?

Chuck Kramer [00:24:22]:
Well, at the simplest level, cap rate is taking the net operating income and dividing it by the property value. But it doesn’t really work well for single family homes. It’s meant more for better analysis of properties where there are shared properties or community properties, shared walls and the kind of things that you can’t break down into an individual home. Not to say that people don’t do it. And there, there’s some places that will still push it as a way of measuring the profitability of a short term rental, but it’s not as good a measure as general return on investment net operating income or the cash on cash returns that we’ve been talking about.

Julie McCoy [00:25:06]:
Well, and I think another important thing to understand is cap rates are frequently how, how commercial properties are valued. So when commercial properties change hands, there’s generally a market cap rate or range of cap rate that that type of property fits within. And so it becomes an advertising point. Well, the cap rate on this is higher or lower, but it’s usually within a certain range that’s appropriate for that. And that’s how they assess the value of the property. It makes X amount of dollars. The going cap rate for this type of property is 6%. So you do the math and you arrive at more or less your asking price.

Julie McCoy [00:25:50]:
And, and single family properties are not valued that way. Single family properties are valued according to, you know, comps, residential comps. An appraiser will go out and determine the value based on similar properties that have sold recently. It is not related at all to the revenue that the property generates. And that’s a very Very different way of assessing value.

Chuck Kramer [00:26:17]:
That’s particularly true if you’re in markets that are not heavy. STR markets, Smokies, you know, up there, the STRs have actually brought the rest of the market up. Don’t get me wrong. It’s still not a good measure, you know, but if you’re out in, you know, Smithville, Illinois, I hope that’s not a real place. But, you know, and you’re the only STR in town. No, it’s, it’s not going to make any sense to you whatsoever to use a cap rate.

Avery Carl [00:26:48]:
So in summary, the cap rate is evaluated partially by the income of the property and the cap rate using the income determines the value of the property. That’s how commercial properties are valued, is based on their income. Whereas single families, which most short term rentals are single family residential, are valued based on sold residential comps. So an appraiser is, if you’ve got two houses next door to each other, one’s a short term rental making a hundred thousand dollars a year. One is just a second home that’s not rented making $0 a year, an appraiser is going to value those the same. You know, assuming square footage and finishes and everything are similar. So those are going to be valued the same. It doesn’t matter that one is making a hundred thousand dollars a year.

Avery Carl [00:27:38]:
So now where it can get a little fuzzy is that it can, the income can indirectly affect the desirability of a property for investors, which can drive the price up because they’re willing to pay more. So you might get into a multiple offer situation. But in terms of the straight appraisal, it’s cap rate does not work for short term rentals that are single family residential homes. Now that we’ve got those definitions out of the way, we’re going to get into the data and analysis which is, can get really, really hairy and we can get way off in the weeds on this. So there’s a few places that you can get short term rental data, a few websites, some of them are better than others. I think they all pull things a little bit differently. Kenny can speak more to that than I can, but one place that I do not put any stock in for getting short term rental income data is that property specific rental history. Sorry, I totally lost my words for a minute.

Avery Carl [00:28:42]:
So the rental history of a property is not data. It is one random data point. It’s not data plural and I don’t like to use that because you don’t have a reference point. So if you’re just looking at the income that a property’s done with the property manager or the owner. That is one random property performance with one random property manager. And you don’t have any frame of reference for, oh, is that good? Are they blowing it out of the water or are they underperforming or are they performing about average? So it really doesn’t mean anything because it’s just one piece of data. So the other places you can find data, obviously STR Insights, Kenny’s company, Air DNA is another one. Rabu is another one.

Avery Carl [00:29:27]:
I don’t know enough about data to really know the differences between how things are pulled. But Kenny, do you want to kind of share some insight on, onto, like how that data, how we, how we get this data, basically?

Kenny Bedwell [00:29:41]:
How do we get this data? Yeah, sure. So data Raboo. I mean, everybody. I really don’t want to speak for any companies in particular, but I pretty much know I’ll just speak for us. How about that?

Avery Carl [00:29:54]:
So, sounds good.

Kenny Bedwell [00:29:56]:
Yeah. So we are getting, pulling data from Airbnb and vrbo. Now. A lot of people, you know, they say, well, what about, you know, direct booking sites? Well, we can’t, we don’t see those sites. We don’t track every direct booking site. However, whenever someone makes a booking and blocks off dates in either the calendars, if they’re synced with Airbnb and vrbo, we pick those up and we can see those rates. So there is a little bit of estimation with that. When it’s a direct booking, I’m just throwing that out there, getting it out front.

Kenny Bedwell [00:30:31]:
But basically, you know, that’s what, that’s what everybody’s doing and that’s how we’re, we’re tracking all of these listings. I think you, you brought up a good point going back to seeing, you know, especially if a property management company is, is running a particular, they might not be listed on Airbnb or vrbo, you know, so getting that, that’s an opportunity part of the market that they haven’t even attacked yet. So I really think there’s a lot of value in understanding where you currently are. You can look at that data point like you said, but you’ve gotta start trying to forecast and look at other properties in that market, how they’re performing and are similar to that property you’re trying to analyze.

Avery Carl [00:31:16]:
That’s a good, a good definition. So I see people a lot of times who will say, like, yeah, I want to see the quote, real data though. And I think that it’s important for Everybody to understand, like Kenny said, like, they can’t measure direct booking sites. There’s no way to know the quote, real performance of any property without every single owner in every single market opening up their books and metrics to us to see. So, yeah, that’s what you really need.

Kenny Bedwell [00:31:45]:
Is their bank account.

Avery Carl [00:31:46]:
Yeah, yeah. So these are what we have. And another thing that I see a lot of people say is like, well, I went on one site and it said this property should do X. And I went on another site and it said this property should do Y. Which one’s right? Well, my advice would be to maybe to like, take an average of those because I don’t think any one is necessarily, necessarily more right than the other. What’s probably happening. And Kenny can speak to this more than I can, you know, maybe one is picking up a few different properties than the other. I’m not exactly sure how that would, how that plays out.

Kenny Bedwell [00:32:20]:
Yeah. So what they’re doing, and this is why I don’t like to use free calculators, this is why we don’t offer a calculator is because it’s, it’s picking up a radius around the particular property that. And then within the, the radius, it’s giving comparable properties that fit a bed, bath and maybe accommodates like, so how many guests that can be accommodate, accommodated. However, there are so many different factors when we’re evaluating a property beyond just the bed and bath. We need to know the property type, we need to know the quality of the property, we need to know the amenities, the views, the, you know, access to the beach or, you know, where it’s located. And so the problem with doing that radius method is it discounts the location and the quality of the property. And so a better way to do it is if you’re on two different sites or three different sites and you’re seeing different numbers, you need to be looking at a range rather than an exact number. So exact numbers are not great for, you know, when I, when I run performance my own properties, I, I run three, I run a good, better best model.

Kenny Bedwell [00:33:25]:
So what’s a good, you know, good scenario that I think this property can do? What’s a better and then what’s a best and, and that’s taking a range. And so I would, you know, you can take the average like Avery said. Or for me, I’m looking at a range, you know, from this site to this site. What are they saying? And it’s going to be a range and you can use that to do your analysis.

Avery Carl [00:33:44]:
So one thing I really want to highlight about that is I 1000% agree. I do not like any of the property specific calculators. So what I mean by that is a lot of the companies will have them. Some of them like I know air DNA is, you can buy like license theirs and put it on your website and like put it, brand it to yourself. But I don’t like the property specific analyzers because what it, what they do is they take this big huge market wide sample size and shrink it down to like four or five properties and we’ll get to the enemy method in a second, which you almost went to. But if there’s an outlier in any of those five properties. So if you’re looking at and like a four bedroom and there’s a four bedroom next door to you that accommodates the same amount of people that yours that you’re looking at buying accommodates and it’s picking up that data. But that property looks terrible in pictures and the pictures are blurry.

Avery Carl [00:34:42]:
It’s like got somebody’s thumb in it and it looks like a haunted house. And the roofs, there’s shingles missing and the windows are broken. Like people are not booking that house. And so that’s dragging the data artificially down. Same thing on the other side is if you’ve got a house across the street from you that again sleeps the same amount of people, same number of bedrooms, but it’s like the coolest house in the history of the world and it’s, you know, a rocket ship that blasts off three times a week. They’re going to be getting more than you and that’s going to like wildly more. That would be an outlier on the higher end dragging that data artificially up. So those property specific analyzers where you go type in an address and it tells you can vary wildly and be very inaccurate in both directions.

Avery Carl [00:35:23]:
So I try to stay away from those. And Kenny kind of started to go this direction of, of looking at the properties around you and there’s things that, that the data can’t tell you, like why the property is performing the way that it does. And at the short term shop we use what we call the enemy method for that. Chuck or Julie, do you want to give a definition of the enemy method?

Chuck Kramer [00:35:46]:
Well, the, the simple version of it is that you’re going to be looking at those properties yourself. Simply look them up, track them down on Air D or Airbnb or Verbo or even some of the other sites, determine what their, how close of a match they are to you. You’re going to look at what their performance is, look at their reviews, you’re going to look at their daily rates that you can see, maybe even, you know, fill in a couple of dates on the calendar to determine what they’re charging and then try to estimate from that what their annual revenue is. You have to keep in mind, you know, you have to look at seasonal time. So to use the Smokies as an example, you certainly need to look at June, but you also need to look at January, May and October and the shoulder seasons and get a, get a really good picture of what you think that property is doing and then repeat that process. You also do want to look at the reviews though, because reviews can have a direct effect on the amount of revenue. So you don’t want to be looking at one Property that’s near a 5 and then using it, comparing it to another Property that’s a 3.8.

Julie McCoy [00:36:52]:
Well, I think number of reviews is important too because you can get a more consistent picture from a property that has, you know, a substantial amount of reviews versus one that might just have five reviews. Maybe that means it’s new or maybe it means it’s not well managed. But I think looking at the quantity of reviews can also be helpful.

Chuck Kramer [00:37:11]:
Yeah, I personally, I think that if you’re doing the, the enemy method and you, you should be doing the enemy method, you have to spend at least 15 to 20 minutes looking at each listing, probably a little more. And while you’re doing it, you’re not just looking to determine the pricing. I mean, you can use it for other things too. Are people going out of their way to mention great cleaning in their reviews? Well, you want to make a note to find out who that cleaner is because you’re going to need that information later. But you can solve multiple research projects at one time by doing this on the properties around you.

Avery Carl [00:37:46]:
Kind of a real world example that I want to share. So you guys can kind of like put these, these two pieces together and then I want to dive further into the data with Kenny. So a real world example where I’ve seen why you have to use both. Like you have to use the data to get your range of what the property of that size should be able to do. But then you have to always add in the enemy method for those intangibles that data can’t tell you. Like data can’t tell you that the pictures are bad. Data can’t tell you that it has, you know, better a better like a larger living room or what have you. So in a specific instance that I’ve seen and I’ve given this in other, other scenarios, other podcasts, sorry if you guys have already heard this.

Avery Carl [00:38:30]:
So people, let’s say as it relates to the Smokies, people, will you say you’re looking for a four bedroom and you’re looking at the Smokies numbers, like the Sevierville numbers? Well, right outside of Sevierville is an area called Newport. And it’s not a short term rental area. There’s not pretty rental cabins. It’s like a small town, not a super nice town. So you’re going to be looking at kind of the same data or people. Where I’ve seen people do is apply the true Smokies data to like a Newport or like to a Dandridge, which is up north, like on, depending on where you are in Dandridge, it’ll be better closer or not as close to Smokey’s numbers. But they’re applying that data to areas that are 30, 45 minutes away, that are really a separate market. But they’re applying it as if it were inside the radius of the Smoky Mountain locations.

Avery Carl [00:39:28]:
Or what they’re doing is they’re applying the data to a property that is not the type of property that tourists like to rent in that market. So for this example, people are renting cabins, they come to the Smokies, they want to stay in a cabin or a chalet, and you know, somebody buys a 70s brick ranch house and they’re trying to apply those same numbers to a four bedroom brick ranch house. That is not what tourists come to rent in the Smokies. It just doesn’t work, which is why you have to use both. You have to use the data and you have to use the enemy method to apply those intangibles. Kenny, so we’ve talked a lot about, you need this data, you need to look at this data. So I’ve got all this data. I think I want a four bedroom.

Avery Carl [00:40:14]:
How do I know that that’s the right decision? So I’m looking at this data. What am I looking for to kind of help me decide what to buy? And I know that’s a very open ended question. I’m hoping you can bring it in for me.

Kenny Bedwell [00:40:25]:
Yeah, sure. So what I would, I would back up a little bit here and say we want to identify not just the, the size, the property size that you can afford in a market, but, but where in the market should you be purchasing? So I call these micro markets or their neighborhoods or communities where in the markets are performing the best. And you can use data to identify those areas. And then you can call Julie or Chuck or yourself and understand why are those neighborhoods doing the way that they’re doing? You know, I don’t personally, I’ve been to Gatlinburg once, and so I, you know, I can look at the data and kind of say, okay, well, when I was there, I think this is probably why. But using the enemy method and then using professionals or experts in that space who know that market, they can tell you why that area is performing the way it is and, and to, to explain the data behind it. So for me, going back and answering your question is sweet. I can afford four bedrooms, but you need to know where in the markets you should be targeting four bedrooms. So looking in the markets for the properties that are performing really, really well, a good analogy of this is I like to think of like the.

Kenny Bedwell [00:41:39]:
This was one of my friends told me about, this is the, the Burger King model. So when you’re, you know, McDonald’s, they spend millions of dollars researching and trying to identify the right perfect location to buy, you know, McDonald’s, where they’re going to sell the most and the real estate’s going to be the best. Well, what does Burger King do? They wait till McDonald’s finds their place and they go buy a property across the street. They save all that money and do that. And so where I’m going with this is don’t go and try to forge your own path in a market that’s already been established. Look where the people who are winning and excelling, what are they doing to win in Excel, and then copy that. Either that’s location. Most of the time it is location, or it’s the quality or the views of the property.

Kenny Bedwell [00:42:20]:
But identify those things, create, you know, your, your buy box or your criteria and then go in and, and give that to, you know, Chuck or Julie and let them say, this is what I’m looking for. These are the numbers. Why? Explain, you know, give me some content context behind it and that’ll give you enough to know and kind of give you a safer purchase as well.

Chuck Kramer [00:42:45]:
Yeah, we have lots of. Go ahead, Julie.

Julie McCoy [00:42:48]:
Oh, I was just going to say, you know, I think so many of these vacation rental markets have, have these corners where they’re mostly cabins or mostly the beach houses are mostly, you know, the places that the tourists like to rent versus the areas that are more, you know, more primary residences, more just kind of, you know, town going about its business sorts of places. And there’s always some overlap and understanding, you know, where those are and the pros and cons of each, I, you know, I think are important. It’s not necessarily a rule out, you know, this area, that area specifically, but just understand, you know, why it is the way it is. Is it something you have control over or not? A lot of times it’s not. Sometimes it could be a scenario where, you know, you can make improvements to the property and make it really stand out in that particular, you know, little micro market. So you just got to consider those things.

Chuck Kramer [00:43:45]:
And not. Not to overuse a term that in the industry, but you have to look at who your customer avatar is going to be. You know, what are you trying to attract? Are you trying to track the first time and the people that may just come once every 10 years and charge maximum and hope that there’s enough of those people, or are you going to try and track people that want to come back, that come back every year, and you want to have the kind of amenities that they come back to. So, I mean, the top of the mountain views in the Smokies are great. The beachfront in Destin is great. But not everyone’s going to want to drop that amount, that money every year, so.

Julie McCoy [00:44:21]:
Or drive those roads. In the case of the mountains. There are lots of people who don’t want to drive to the top of a mountain, no matter how great the view is.

Chuck Kramer [00:44:29]:
Right.

Julie McCoy [00:44:29]:
And, you know, they would rather have something that’s, you know, in town with close neighbors and they’re not worried about wildlife that they’re not familiar with or things like that. So there’s, you know, as. As one of my colleagues likes, likes to say, there’s a but for every seat. So it’s just understanding what, you know, what that person is looking for and making sure you’re serving them and not trying to be all things to all people.

Chuck Kramer [00:44:53]:
Right.

Kenny Bedwell [00:44:54]:
Yeah. And going back on the data side, though, I. I really think that you can. You can use it for. I love what you said, Julie, about, you know, like, not everybody wants to be on top of the mountains. You know, I’m thinking Gatlinburg. Exactly. I mean, there’s like museums and, and theme parks and stuff in the city.

Kenny Bedwell [00:45:12]:
I mean, that’s where the families want to be. You know what I mean? And so where in that area is the best place to buy a rental? Like, that’s a little micro market in and of itself. And I think having that, you know, that knowledge and then coming to you and saying, okay, I Think this is it. And you can say yes, because, you know, Ripley’s is next door or, you know, the giant pancake house or whatever, you know, is right there. And that’s where everybody wants to be. Gives you that confidence in that. That knowledge to get ahead.

Chuck Kramer [00:45:40]:
Yeah, no, you’re right. Especially with all the car shows and things that go on a pigeon forge. Those kind of things are important to. To the people that come. It’s also. Well, it’s important that people come for the car show, and it’s important to people that come during the car show but want nothing to do with it.

Julie McCoy [00:45:57]:
Yeah, basically, if you don’t want anything to do with car show, come another weekend. But that’s a whole other story. Well, and Kenny, you said something too, and Avery, forgive me if we’re getting a little ahead of things, but since you mentioned, you know, like, what amenities are important? You know, what do you use to kind of figure out if you’re new to a market? You know, how are you looking at amenities and figuring out what things are the most important?

Kenny Bedwell [00:46:25]:
Yeah, so the biggest thing for me, I think it kind of goes back to the enemy method, really, looking at the enemy method across the entire market and then the little micro market. So, you know, what do the top property amenities have that stand out from everybody else? And then looking within and saying, you know, I call it the barrier of entry. So within my micro market, what does everybody else have that I need to have just to compete versus, you know, do I need to have that hot tub or that game room or, you know, a new hot amenity? I’ll drop this right now. EV chargers. Do I need to have an EV charger? You know, that’s become popular. A lot of people are driving electric vehicles, but that might not be what Chuck said. Your guest avatar. Your guest avatar might not be driving a Tesla.

Kenny Bedwell [00:47:12]:
So, you know, that might not be relevant. So you need to understand these different factors in terms of your competition, and then. Then you can start saying, okay, what? Now that I know what my competition has and I know my guest avatar, what can I add to improve their experience to get ahead that competition?

Julie McCoy [00:47:31]:
I want to just put in a vote for EV chargers. I drive an ev, and if I’m in a market where there’s not convenient public charging, I definitely want access to that at my vacation rental.

Kenny Bedwell [00:47:43]:
So drive in destinations. It’s really. There’s some really interesting data behind it. I was looking at. I mean, it can definitely. I wouldn’t say, like, it depends. You got to make sure You’re. It’s towards your guest avatar.

Kenny Bedwell [00:47:55]:
If they’re not driving electric vehicles, then it’s not going to do anything. But it’s not that expensive to add it to your property. But, for example, we’re looking at Banner Elk, North Carolina. It’s a nice ski resort area. There’s only two public EV chargers as of today. Two. So people can’t drive their electric vehicles there and expect to charge it. So now that you have one property.

Julie McCoy [00:48:16]:
You can go, I literally went through that thing. I deliberately drove a gas vehicle there because there was nowhere to charge my car.

Kenny Bedwell [00:48:23]:
There you go.

Julie McCoy [00:48:25]:
Yeah.

Avery Carl [00:48:26]:
So, Kenny, I want to change the subject a little bit. We can come back to this, but I just want to make sure that we hit this before the end. You mentioned something offline to me last week about people getting tripped up on the percentiles and analyzing 50th, 75th, 90th. Do you want to talk about that really quick?

Kenny Bedwell [00:48:45]:
Yeah, I’ll keep it brief. So as times change, I think before we kind of got. I, I did this too. I’m. I’m guilty of it, I should say. But it worked. We got into this habit of saying, you know, we were used to these percentile revenue percentiles, which is just the performance of how properties are performing. They fit into a percentile.

Kenny Bedwell [00:49:07]:
So there was a 50th, a 75th, and a 90th. And the rule of thumb was, okay, you know, property management companies or people who really weren’t trying to be good hosts, they fell with 50th or less. And then, you know, the average. In people who are trying, you know, the. A good number would be the 75th percentile. And then really top performers is 90th and above. And so if you’re running your performance and you’re trying to be conservative, you would just use the 75th percentile. And, and that worked out.

Kenny Bedwell [00:49:35]:
So the, the, the. The biggest problem and the issue with this is now that everybody’s kind of caught up in terms of competition and they’re improving their quality, and really, that’s changed the numbers. And you can’t just use the percentiles to say that your property will do this regardless of location, regardless of the quality of the property and the type of property you’re offering. So you have to be careful. I have a number of people coming to me saying, I use this, and I’m not seeing the numbers that I was projecting. And they’re. They’re on the beach, but they’re like, you know, five blocks away from the beach and they’re trying to use the 75th percentile to run their numbers and it’s just not going to work. So that’s the danger of the percentiles.

Kenny Bedwell [00:50:16]:
It’s a good kind of backup, but it’s not a way to know this. You really need to use that enemy method is going to be the best way to evaluate what a property can do in a specific area.

Chuck Kramer [00:50:27]:
So Kenny can, if I can change the subject or move it in a slightly different direction. The numbers that people are going to get from an air DNA or even STR insights, what is in those numbers that folks need to know before they add it to their analysis.

Julie McCoy [00:50:46]:
So like if you’re talking top line revenue, what sorts?

Avery Carl [00:50:49]:
Right.

Julie McCoy [00:50:50]:
What goes into that? Is that including cleaning fees or taxes and those sorts of things or not?

Kenny Bedwell [00:50:56]:
Yeah, that, that’s a great question. So it’s all gross. So it’s like what is the gross revenue of these properties? And it’s really important that when you’re doing your analysis that you, you know, you do like this is just a gross number. This isn’t taking into account expenses. I mean a lot of people get caught up, you know, oh, I want to invest in, I’ll pick on beach markets, for example. I want to invest in a beach market and you know, they’re dead set on it and, and then they go and they look at the numbers and STR insights, they look great, cool. And they go and they’ll start looking for properties. But then they call the insurance company and the insurance is like, yeah, it’s going to be $18,000 a year here, you know, and they didn’t take that into account.

Kenny Bedwell [00:51:36]:
So the data is great in terms of giving you kind of this high level bird’s eye view of kind of market health and overall maybe little areas within, but you’re gonna mark it’s property, property specific when you really dive into the numbers. So there’s a lot that’s, that’s really not there that investors do need to know about before they just start diving into, you know, calling agents up and really trying to find a property property.

Chuck Kramer [00:52:02]:
Find out what’s, find out what’s in those numbers. Yeah, yeah, you can estimate what the real, real costs are too. I mean if you’re in a market that’s heavy or even slightly heavy and people that accept pets, you know, and take a 150, 200, 300 pet fee, you need to figure that out. In some cases, I’m guessing security deposits may also be a part of that gross number?

Kenny Bedwell [00:52:31]:
No, no. So I guess if you’re asking about what goes specifically into the gross number, taxes, additional fees, security deposits, anything like that are not going to be in the gross numbers. So it’s just going to be cleaning fees and then what? They’re 80, like. So we’re running numbers, and I’m, I’m just going to make an assumption that everybody else is doing this too, but we’re doing this, so I’ll speak for us. We’re running numbers based on adrs, and the adrs in Airbnb and VRBO do not include the taxes and any other type of random fees that might be associated with a particular property. So deposits, things like that.

Avery Carl [00:53:12]:
But it does include cleaning fees, right?

Kenny Bedwell [00:53:15]:
Yes.

Chuck Kramer [00:53:15]:
Okay, now let me touch on that for a second. With Airbnb, if you’re using a property management system, a guesty or, or hospitable or. Or owner as. And you say put an admin fee or a management fee, let’s say you’re trying to recover the, the cost of your $20 damage insurance policy. Airbnb doesn’t recognize those, and it folds them into the adr. It recognizes a very small number of fees.

Kenny Bedwell [00:53:45]:
Sure.

Chuck Kramer [00:53:46]:
So you’re in those cases, you’re still not going to get a true rent number. Because what I choose to add on for a fee may not be what a new owner would add on for a fee.

Kenny Bedwell [00:53:57]:
Right.

Chuck Kramer [00:53:58]:
And so recently, they didn’t even do that with pet. Pet fees. They were folded into the rent, too.

Kenny Bedwell [00:54:04]:
Yeah, exactly. So I guess, I guess the easiest way to do it is to know what, like what the data companies are actually getting is if you go into, you know, Airbnb and you select dates, it will say, you know, 500 times. However nights you selected, they’re going to grab that 500 and then, you know, the nights. And then there’s also cleaning fees, which is stag or static, so they’ll grab that as well. And that’s it. If anything else pops up, any other additional line items, like, you know, pet fee, or, you know, you looked at my listing fee. I don’t know, like, whatever else. It’s not.

Kenny Bedwell [00:54:44]:
We’re not going to grab it.

Chuck Kramer [00:54:45]:
Okay. And since I brought up Airbnb, let me talk about the other guy for a second. So if you’re integrated into vrbo, either through a software package or you’re one of the big property managers that are, and you collect a refundable security deposit, that’s going to be part of the gross, but it’s not going to be reported back later when it’s refunded because you, the, the property manager or owner are processing the credit card transaction. So.

Kenny Bedwell [00:55:16]:
So it’s not necessarily so. It’s not calculated in the ADR itself. It’s calculated in the overall amount. So when you break out that fee structure, it’ll say like this is the non refundable thing. And so we’re tracking people’s calendars and the rates on those. So it’s not baking that into the, the rates of what we’re tracking. So it wouldn’t be picked up.

Julie McCoy [00:55:36]:
Fair enough.

Kenny Bedwell [00:55:38]:
Yeah, that’s great.

Julie McCoy [00:55:39]:
Questions.

Avery Carl [00:55:40]:
Leave it to Chuck to get away in the weeds. Good job, Chuck. Because people, people are going to want to know these things.

Julie McCoy [00:55:44]:
So why he’s here.

Avery Carl [00:55:48]:
Yeah. Okay, so I want to hit on saturation really quick because that’s a word that a lot of people love to throw around anytime there’s a market that has a lot of listings. So Kenny.

Kenny Bedwell [00:56:01]:
No, no, no, let’s back up. Anytime they don’t get bookings. Oh my. Market saturated?

Avery Carl [00:56:06]:
Or I see people all the time say the short term rental market is saturated, like the entire thing. And I’m like, okay, is the entire multifamily market saturated also? The entire entire single family long term rental market saturated? Come on, stop.

Julie McCoy [00:56:19]:
What about the hotel market?

Avery Carl [00:56:21]:
Yeah, the, the entire real estate market of any asset class is saturated. Okay, so is just because a, or if, if a market has a lot of short term rentals, does that mean it’s saturated or does it mean that there’s a reason that there’s a lot of rentals?

Kenny Bedwell [00:56:45]:
Okay, I’ll, I’ll take that one. So from the data side, I’ll, I’ll let, I’ll let the, the, the, the agents explain. You know, the, the other, the second part to your question there from the data side, the way we measure saturation is by looking at essentially what we call revpar or revenue per active rental year over year. So it has the number. So it’s not necessarily the number of listings. Yes, it increases year over year, but guess what? So does revenue. Revenue has been increasing as well. Demand has been increasing as well.

Kenny Bedwell [00:57:19]:
So what’s that, like equilibrium line? So, for example, what’s the revenue per active listing from. You know, we’re in February. So what’s the revenue from February 2022 to February 2023 the difference? And if the revenue per active listing is higher now, then there’s no saturation in the market. If it’s lower than there is saturation in the market. That’s how I look at it from a data perspective. Most markets do not have saturation, believe it or not, because the revenue has been increasing, the demand has been increasing higher than the actual supply. And with regulations as well. Regulations have been keeping supp down because you can only short term rent in certain designated areas and not hoa.

Kenny Bedwell [00:58:02]:
You know, it depends on the neighborhood, but certain areas. And so that helps put a cap on supply, on where you can do it and keep that saturation down as well.

Avery Carl [00:58:10]:
So, yeah, and to give a personal experience, I was looking at this for a presentation for a conference coming up that Kenny will also be at. And I was. I looked at the number of rentals in the Smokies market, or I think it was Sevierville when I bought my first one, and it was under a thousand. And that year, the first year I had it, that Property did about 45,000. And then last year, it’s there, it showed that there were over 8,000 rentals, which there are more than that, but it’s Sevierville only, not Gatlinburg and Pigeon Forge. And that same property did 85,000. So that is something that I want. Well, there’s two things I want to hit on there.

Avery Carl [00:58:55]:
One is that just because there’s a lot of rentals does not mean it’s saturated. You know, according to that data, there were 10 times more rentals and I still made double the income. Something else that I want to point out when you’re looking at this data is that especially in a market like the Smokies, where up until 10, maybe not even 10 years ago, up until the last five to 10 years ago, there were thousands of rentals from the 60s all the way to 2010, and none of them were on Airbnb and Verbo or those things hadn’t fully. Those OTAs hadn’t fully established themselves. So when you’re looking at the number of rentals in a market, so those companies that are tracking the number of rentals are typically getting their data from Airbnb and VRBO. So when I first started, were there only 800 rentals in the Smokies? No, there were only 800 that were on platforms that were able to be tracked by these data services, but there were thousands of rentals. So that’s something that I want, that I think a lot of people don’t think about, is that that number of 10 times more isn’t exactly accurate. Because what’s happening is that all these properties that have been short term rentals for decades and decades are now moving on to the Airbnb and VRBO platforms.

Avery Carl [01:00:12]:
So it looks artificially, the increase looks artificially high when it’s not that, oh my gosh, these people are buying what used to be primary homes and long term rentals and converting them to short term and flooding the market with all that. That’s not what’s happening. Everything was already a short term rental. It’s just changing management styles off of these local mom and pop property management companies that were not using the OTAs that are being tracked by the data services and now they are. So it’s just a changing of hands and management style.

Julie McCoy [01:00:45]:
Yeah, and I think another thing, people worry about saturation and oh, there’s so much competition. Well, yes, but it means that, you know, you need to be thoughtful about what you’re buying and make sure that you can, you know, you can beat out the next guy. It, you do not have to be the best in the entire market. You just need to not be the worst is kind of how it boils down because there’s so much demand. There’s, you know, especially in the high seasons, but even year round, if you are making the effort to run your property well, have good pictures, you know, to just keep things fresh and updated. And I just mean in, you know, in small cosmetic ways. I don’t mean you’re redoing the kitchen every five years. You know, that goes a long way because there’s a ton of these properties that again, have been around for decades and decades and a lot of times they haven’t really been touched in that long.

Julie McCoy [01:01:35]:
And, and so don’t get so caught up in, in like, oh my God, there’s 10,000 other cabins in the Smokies. Like, how can I possibly compete? Well, there’s millions and millions of people who come through here every year. They all need a place to stay and, and there’s, there’s a lot of room for a lot of different types of properties. It is not set it and forget it. This is not a completely passive endeavor. This is running a small business. But it, it’s not impossible to outperform, you know, even the majority of the market. It’s, you know, it’s, it’s a way of thinking about like, what is, what am I really competing against? And you are not competing against the other 8,000 or 10,000 rentals.

Julie McCoy [01:02:24]:
You are competing against a certain data set for a certain type of customer. And, and there are a lot of ways that you can set yourself up. Part to do that.

Avery Carl [01:02:36]:
Yeah. And of those millions of people that are coming to the Smokies every year, depending on the size of your property, you really only need to capture 50 to 100 of those people to book. And Kenny, this is a complete assumption on my end. Maybe you, you’re familiar with the data to back it up. If a market were to become saturated, not every single property in that market is going to feel that reduction in income. It would typically be the bottom 15 to 20% that feel it. Is that correct or incorrect?

Kenny Bedwell [01:03:12]:
Yes, yes. So I, I mean, we, that that is supported in the data too. So a lot of markets, what we’re seeing is this like growth. So I’ll call it the wealth divide of short term rentals. So properties that will say percentile, so 75th and above, 80, 80 percentile and above, on average are doing better year over year. And properties that are in the 50th percentile or less are doing worse year over year. So it’s like this growing divide between the top performers and the bottom feeders. And so, yeah, so as markets, as competition increases or saturation into that market, the, the people who are below average are, are going to get hit even harder and not make the returns they were expecting.

Avery Carl [01:03:58]:
Interesting. I like being told that I’m right. Does anybody else have anything that maybe we didn’t touch on that you think would be beneficial for the listeners to hear? That was everything I had on my list.

Chuck Kramer [01:04:14]:
I have one smoking.

Kenny Bedwell [01:04:16]:
Go ahead, Chuck.

Julie McCoy [01:04:17]:
I’m sorry.

Chuck Kramer [01:04:18]:
It gets back to sort of our enemy method and a few other points. When you have a market like the Smokies or like here at the beach, the beach where owners want to use their properties, you have to keep in mind that, you know, the times that they use them, they’re not always going to wait to the worst time of year. That’s not usually not why somebody buys a property that they have a desire to use. They want to come during the better times a year, which is also the higher revenue times of year year. And that’s going to at least slightly depress numbers. It’s something that’s worth asking about is to, to use your words, Avery, it’s just another single data point when you’re looking at numbers. So if, you know, if you have reason to think that a property is going to do $80,000 a year and you’re talking to the seller, you say, how much did you use it? Say, oh, well, you know, we came out maybe three or four weeks a year, a couple during summer. And One during winter.

Chuck Kramer [01:05:12]:
Well then you know, the number for that property may be a little higher or a little lower depending on where you got the number from. Just keep that in mind.

Kenny Bedwell [01:05:21]:
I want to add on to that Chuck, because I think that’s a lot of people don’t understand that. They’ll say, well yeah, the owners used it for a couple, you know, a couple weeks out of the year. Well, when did they use it? If they use it in high season, that’s huge. Ask them that. Don’t be afraid to ask that question and get follow up because that, that should be like you said, you need to consider that in your, you know, evaluation. So I love that.

Avery Carl [01:05:44]:
Kenny, you were going to add something, weren’t you?

Kenny Bedwell [01:05:48]:
Yes, I’m trying to remember.

Avery Carl [01:05:53]:
Anybody have anything they want to hit on before we sign off?

Julie McCoy [01:05:56]:
I think we covered a lot.

Avery Carl [01:05:58]:
Yeah, I think we did. So I think the main takeaway here is that, is that there’s. It’s always going to be a range when it comes to short term rentals. You’re never going to be able to analyze down to the dollar exactly what sales something is going to be able to do. The numbers are always going to be a little fuzzy. Like I said, a range and you’re going to have to be comfortable with that range. It’s not like analyzing an apartment building that’s a long term lease, that the rent is what the rent is every single month until that person moves out. And it’s very easy to analyze and fit into a spreadsheet.

Avery Carl [01:06:30]:
Short term rentals. I think the most difficult part is getting over the hump of the analysis because it is going to be very subjective depending on what type of loan you’re getting, how good of a manager you are, how good at optimizing the listings you are. So that’s something to keep in mind is that it’s a range, it’s very subjective and it’s going to, it’s. It’s just something that is going to have a lot of moving parts that you’re going to have to get comfortable with. If you guys have any further questions on any of this, definitely join our Facebook groups called Short Term Rental, Long Term wealth. Follow us on YouTube or we have a weekly call every Thursday with myself and Luke who teaches all of our management education here at the Short term shop. It’s str questions.com. you can hop on that any old Thursday and talk with us.

Avery Carl [01:07:22]:
So also guys, do you want to buy a property in the smokies? We’ve got 35amazing agents in the Smokies are happy to help you. And again, you can get connected@strquestions.com.