How to Use Data to Find and Buy Profitable Short-Term Rentals

0:00So, first thing I'm going to do is eliminate anything that isn't available as a full-time rental, which is typically considered 270 days or more. If somebody's just renting Airbnb part-time or only in peak season or only in offseason cuz they live in it, that's not a realistic comp. I'm not able to realistically content. I want to see what are other full-time rentals generating. So, first thing I'm gonna do is filter by, you know, availability. Second is I need somebody who's been around for at least a year. So typically the kind of envelope math on that is 20 or more reviews because if you're actively renting a short-term rental and again depending on your bedroom count and your number of turnovers, you might accumulate reviews quicker or slower, but you're realistically going to do at least one and a half to two reviews a month.

0:45So if you've been a listing for a year, you're going to have at least 20 reviews, if not 30 or 40, depending on again number of turnovers. So, that's the second thing I'm going to look for. Third thing is review gaps. So, if there's a review in September, but there's nothing in August or July, that's a that's a flag. Maybe they booked it out all summer for themselves. Maybe they put an owner's block because again, realistically, if I'm renting it full-time short of a close down for maintenance issue, which again is kind of, you know, where it could break you a little bit, then that's where you you need to understand is I I need to filter that out.

1:25So, if I make those basic filters right there, then I'm only working with data and comps that I feel confident are realistic. Mhm. — The next thing I need to do is start looking for clusters. So, if I see a four bed that's over here doing 205 and then the next one's doing 165 that I'm not saying that data point's wrong. Maybe it's so different. It's the modern, it's the treehouse yurt or it's just so different than everybody else, sure. But if it looks very similar to a lot of the other fourbedroom comps, I know that that data point is probably flawed because again, there is no exact science to this.

2:02So, I need to look for clusters because like I said, if everybody else is 160, 158, 155, 147, and I'm seeing this cluster in between 130 and 150, okay, that's more realistic. And there's just one guy doing 220 in revenue. That's an outlier. You never want to underwrite for outliers. You're going to get yourself in a lot of trouble. You want to look for clusters. It's just more realistic to, you know, kind of go up and benchmark a guess. So, that's kind of how we're going to filter out all of those data points within any market. So, that actually happens before we go into the, you know, the the market example I just told you.

2:37So, first thing is we're going to clean and filter down, then take all those listings, put them on the map, look at the amenities, the data, the the design, all of those things that we just talked about. But yeah, very first thing is we're going to trim that list. So, we're going to download all the raw listings from any market and then start applying those filters, days available, reviews, review gaps, you know, outliers, etc. And that's going to give me a really good, you know, answer. — Yeah. Yeah, that's great. Yeah. You know, it makes so much sense cuz you see those especially in areas where it's very seasonal or it's close to, you know, coastal market or next to, you know, one of the big universities.

3:18Th those there's so much skewed data there with with all these properties that people just list for events and then that drives up the average for the area. So, how do you how do you download that raw data? Is that are you using AirDNA or what's what's the process? Yeah, I mean we have a pretty cushy relationship with all of the largest data providers, you know, them being one of them. So, yeah, our ability to download all the raw data that they collect and scrape and then we start doing our own filters. Granted, you know, anybody can just create an account, you know, go to Rabu ordna.co, whatever, and and you know, start building your own comp sets, but you're kind of constrained to their UIUX and their tools.

4:01We have just learned over time we operate at a completely different level. And so we want to be able to build our own filters, our own sorting, be able to dissect the data our own way. And so, yeah, we've just been, you know, really pulling it into a Google sheet or an Excel file and then building models and algorithms off of that so we can start setting up filters, clusters, you know, looking at different data points, tables, comp sets. But yeah, we're we we've got a pretty cushy relationship with the, the data providers to pull all of that at a raw row level.

4:33So, it's been very helpful to dissect that and obviously gives us probably some of the best data access in in the country. — Got it. Okay. And and when I've looked at it, like I I've looked at it for my own properties and I've seen like the numbers be way off on what they say the revenue was and I can see like obviously I have the data because I've I've owned them for years. Do you find that that's the case because that you can't see actual bookings, right? It's just that like you can't you can't dissect every booking like to see what the revenue was for the bookings like they're they're making projections, right?

5:09Or or is that not the case? — So, it depends on how they are scraping the data because they all scrape it differently. So, that's kind of the other thing is you need to understand how they are getting to the numbers they're getting to because they all arrive their different ways. So, how it's collected, how it's scraped is all different and that is also very important to understand because how AirDn versus Rabu versus anybody else is going to do it. They're they're all going to do a little different. So, you can't really take a one-sizefits-all approach. You have to understand how, you know, how do they do that? You have to read the fine print on how do they collect their data. And, you know, those terms and conditions actually matter because they tell you exactly what it's laid out for.

5:43I mean, I I've heard all the stories like, hey, it's spot on to, hey, it's $50,000 off. So, and everything in between. You know, more often than not, I say it's directionally correct. I I think anybody can cherrypick a one-off to work against them or for them. But more often than not it's directionally correct. So I think again us being able to pull in data from the three largest data providers in the space mixed with the first stand data. So the good news about doing 225 of these is we have arguably one of the best firstand data sets across 12 different states in the country.

6:16So that just continues to improve your data confidence when looking at the raw data is continuing to dump in all of our firsthand data from clients over the last three and a half years. So you really get a good idea of how to know when something seems off and when something is is probably an accurate assessment. You can make an informed decision based off of it. — Yeah, that that makes a lot of sense. Do do you find that any of the the big three is the most accurate to work with? — No, they're they're all going to be the same. You know, they like I said, they all got pros and cons, and you just need to understand what you're working with.

6:49I think it's more the thing people, you know, might say, "Oh, AirDNA is great or AirDNA is off or RAU is great or RAU's off." But like if you don't know what you're working with and that's, you know, that's where I kind of roll my eyes. I'm like, "No, you see, you're not using the data correctly." You know, I I call it user air, but that's, you know, it's a little too hard to explain somebody that on social media. So, you just let them think that they're the best data person in the world despite, you know, this is a weekend kick the tires event, not a full-time endeavor. So, — Got it. Okay. Yeah, that makes sense. And then when it comes to market saturation, which is the next tenant on the the website, what this term has always felt very subjective to me, like somebody says, "Oh, this is this one's saturated compared to this one." I'm like, "Well, is that just like a feeling like you see a lot of listings there, so it's saturated?" Like, so

7:38I guess what is what what's your definition of market saturation? How do you tell if a market is is oversaturated or undersaturated? — I love the sword. Let me tell you right now, there is no such thing as any market being saturated. That to me tells you, you are a very retail or weak investor because there is no such thing as a saturated market. There can be saturated bedroom counts, saturated styles of properties within certain markets, but there is no such thing as a saturated market. If you look at data, there is always a path to win.

8:12Now, that path might be razor freaking thin depending on the markets you go into, but every market if you look at the data has a path to win. And again, some markets are much harder. So, so let's unpack that. See what that looks like. So, if I'm going to go to broken Oklahoma, for example. Now, just based on data, this market had the most supply growth during COVID of any market in the United States. Not not not on total but you know on a per on a per basis. So the growth was the most.

8:44So somebody say a broken bow is saturated. — Well if I go unpack the data one two and threebedroom cabins make up 70% of the supply. — Well yeah if you bought a one two or three I mean I wish you the best of freaking luck you know like yeah 70% of everything on Airbnb in broken Oklahoma is a one two or threebedroom cabin. So the data tells you there's a shortage of the big boys to go appeal to the groups and families. So I see five, six, seven, eightbedroom cabins absolutely dominating in the data in broken Oklahoma, but you buy a 1, two, or three.

9:18You you might say, "Oh, not getting any bookings. You're complaining in the Facebook group, broken bow, saturated." No, it just tells me you bought the wrong product. You know what you're doing for it. Go to a place like Blige, Georgia. You know, there's a shortage of one-bedroom cabins for couples getaways. The the Hampton Inn, the freaking Hampton Inn, not the Ritz Carlton, not the Four Seasons, the Hampton Inn in downtown is getting 180 a night on a Tuesday during summer. If you just have a nice cabin in the woods with a hot tub and a fire pit, you're going to go get two 300 a night with your eyes closed.

9:49If you have a one bed couple's getaway because people leaving Atlanta an hour and a half away or us Flityians who get in their car and drive north, the very first mountain range you hit is Blue Ridge. Well, there's a shortage for couples getaway cabins. So you buy a 2, three, or fourbedroom, which also makes up 75% of the supply in Blidge, Georgia. Yeah. It's going to be hard to stand out. You got to go really big to a five or go to the other in a one. Now, you're probably like, man, there's no one-bedroom cabins for sale. Yeah, most of those are built. And that's kind of the problem is no, nobody really builds a, you know, 6 700 foot and nobody ever sells them.

10:24If they build them, it's built to keep. So, I think you need to understand the market. I mean, even arguably the most cutth through competitive market. Disney, Davenport, CM, there's still a path to win. Granted, it is probably one of the most razor thin paths, but you got to be 10 bedrooms or more to have a shot. Now, again, that's very wild to say out loud, but like, yeah, you go get a 10, 11, 12, or 14bedroom, and you get it in the right community with the right amenities and the right design, you can have a chance to profitability. I I think there's worse ways you can invest capital.

10:56If you really like banging your head against the wall, then like go for it. I'm not going to stop you. But every market has a path to profitability. So when somebody tells me the sword, it just tells me you're just a retail investor, man. Like every market is investable. You just need to understand what you need to buy, what works. I mean, I always love this. Like the Ozarks, Branson, Missouri, you know, everybody loves that. Like two-bedroom condos. I don't know why there's a lot of twobs. That makes up 42% of the supply. M — you you couldn't give me a two-bedroom condo for free. I I wouldn't even take it. It's not even worth it. I'm going to knighfight everybody on a race to the bottom on price and we're all fighting over $49 a night bookings and I've got a lakefront beautiful cab like condo.

11:35I mean, what it's so terrible. And that's the thing is you need to understand what works for this market, what amenities can differentiate, what bedroom counts, but there is no such thing as a saturated market. So, I always I always love rolling my eyes at that one. — Yeah. Yeah. That's super interesting because I I've I've felt the the same thing. And also there's different obviously quality levels within markets too. So like you're kind of saying, well, everyone's going to be treated equally and obviously somebody's going to win in in all those.

12:05It's going to be a lot harder in Branson, Missouri if you have a two-bedroom condo. But the person who's winning, you know, is the best has the best property probably is is still doing much better than the worst. But I kind of learned this I I'm nowhere near as detail oriented in the in the data analytics space as you are. But with we we built a couple properties in Southwest Florida and you know as we're doing it there's a lot of competition there. But I have a friend who's a builder and I was like, you know, I see a lot of single family homes, but you know, our model is is multi-unit together and then we can have the the super listing where we book book them out both together.

12:48And so we built side by side that sleep eight on each side. The super listing sleeps 18 with the shared pool in the back. So we have some diversity that we can book them out individually, but that super listing has just killed it. I mean, it stays booked constantly. It's our highest occupancy because there's not that many affordable properties that sleep 16 people in southwest in in Port Charlotte is where we're at. Even though there's a lot of properties, you know, available in that market, but it's also a a popular destination market, too.

13:20So, so yeah, I think it's just because it's a little bit different and it, you know, has the competitive advantage. So, I think you got to figure out your your competitive advantage. So — yeah, I mean if you want to really go into the modes like based on how Airbnb's set up today, if you are buying a bigger four, five, six, I can't emphasize enough how important it is, assuming your local municipality doesn't have occupancy restrictions, cuz that would be a caveat to this. Getting to that 16 plus mark is huge because if you have 16 guests that you sleep, even on the minimum side, you're going to show up with the properties that sleep 18, 20, 24.

13:57Because remember Airbnb how it's set today is it just shows a 16 plus. So you get free advertising kind of you get to punch above your weight. And so I can't emphasize when people are setting up the beds that like maybe you should drop bunk beds in or take out that king and and drop in two foss or two queens because getting to 16 plus carries so much more revenue power than a five bed that sleeps 14. And you just look at the data. You want to check that box. And then I I have also seen if you can get north of 20 and then you advertise that in your title, sleeps 22, sleeps 24, there's just so few in any market across the US.

14:33Again, Disney probably being the the the biggest supply of them, but in most normal air quotes markets. If you can have that, you're just going to win based on limited availability. You could still have ugly carpet. You could have designed it yourself. Didn't even hire a designer. You took out your listing photos with your iPhone. You're still going to get bookings just based on there's no one else who can even accommodate those groups. So, I like going in when that guy is the top performer and saying, "Oh, well, I'm going to actually hire a designer, actually put in amenities, get a professional photographer, and I'll go wipe that guy's bookings out because there's only a couple of us that sleep 22 guests." So, like, that's another little niche hack is if you're going to play in the big boy space, the fives, sixes, sevens, eights, etc., at minimum, aim for 16 plus.

15:19Don't put a king bed in every room and you're like, "Cool, I'm a five bed sleeps 10." You you're just setting yourself up for failure in 90% of markets. There's a couple carveout markets. You know, of course, where heads and beds isn't your strategy, but that's more of the envelope math for, you know, most normal markets in the United States. — Such a great such a great point. Yeah. Yeah. And the competition at that level, too, is super expensive in a lot of cases. So, if you can be the a little bit more affordable option, I think a lot of people are are are you're going to capture that that side of the market.

15:51So, that that makes sense. And then when it comes to accurately projecting revenue, you know, the the big push back I get or the big, you know, intrepidation that a lot of people have who are just getting started with this is, yeah, okay, so I can see the previous data and I can see what it's done in the past, but I can't predict future bookings, you know, so how do I know what I can expect and if the market's going to change next year? So what what's your thought on that?

16:22How do you accurately project revenue? — Yeah, I mean what you're realistically looking at is T12, so trailing 12-month revenues, which is going to be your best bet in platforms like AirDNA and others. You can forward look 180 days you know of bookings. You can also watch the demand curve of any market and see is demand trending up or is it trending down? So are more and more people traveling to this market quarter over quarter? Yes or no. To predict where it's going to be two or three years from now. I think I think it's pretty impossible. So, you know, if you're if that's what you're holding out for, you'll never buy a short-term rental ever in your life because you're never going to get that answer.

16:58What you can just do is make the best available decision based on the data you have today. That that's really all you can do. You know, like I'll even tie in a personal story here. You know, a couple years ago, me and my wife, we we sold our house, you know, one of those crazy people that had a 3.5% interest rate. I sold for a I traded for a six flat and you know a lot of people in my circle like you're an idiot that was so dumb I can't believe you did again it's a primary it's not investment like could I afford the monthly payment yes is it is it a location a house me and the wife and the fam wanted to go to yes we made the decision it's not an investment — so wait I'm sorry so you it was a sixunit — no no no 3 and a half% interest rate for a 6.0% 0% interest rate.

17:44— Six. I thought you meant like a six flat, like a six. — Yeah. No, no, no. Six. Yeah. Six flat. 6.0. Got it. — And you know, again, a lot of people are like, man, like that that's crazy. Never did. — Yeah. — And that was little over two years ago now. Interest rates when I bought kept going up and they've never come back down. The closest they got was 6.2. And that was when they were on that downward trend. I called my lender and said, "Hey man, get the refinance paperwork ready. Sharpen your pencils cuz once we get down to like 575, man, I'm refinancing.

18:15We we value added a bedroom, put a pool in, you know, I'm here in Florida and I was like, man, I'm going to pull out some equity and it was got right down to 62 and then it went right back up again and it has never come since. So now I look like a genius locking in 6.0 interest rate 2 years ago because it hasn't gotten there since. But to to say, oh well, you can predict the market, it's it's delusional. So, anybody who says you're overpaying based on what? Compared to what? How could you know? If we look back, you know, you might not have any idea.

18:48You know, I think they say that the best time to buy real estate was 5 years ago. The next best time is today because you just never know.