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Clint Harris
Pro Member
  • Investor
  • Carolina Beach, NC
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188
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Short Term Rental Covid Lessons

Clint Harris
Pro Member
  • Investor
  • Carolina Beach, NC
Posted Nov 25 2020, 06:39

Hey fellow investors! With one day left until Thanksgiving, and having a little time, I’ve been putting thought into all that I have to be thankful for in our up and down year in our real estate journey, and wanted to share some of the positive lessons, some of which came from negative situations. I keep up with quite a few friends in the BP community, and have been getting a lot of questions about how the year has been for us since we’re heavily invested in the Short Term Rental space, so thought it would be easier to put a summary in one place that may spark conversation that I can learn from, or that may help anyone else. I’ll try and give the short version of what happened here, and then some bullet points of what the market has been telling us, and yes, we’re still buying, even in this weird and volatile time.

We are in Carolina Beach, NC, a small island town just outside of WIlmington. We moved here 3 years ago, bought our first duplex in Sep 2018 that was a killer House Hack utilizing AirBNB and short term rentals, did 57k that first year in our downstairs unit. From there we arbitraged a triplex, then arbitraged a duplex, then partnered on a quadplex purchase with my retiring parents, and have since used the money to buy another quadplex right on the ocean access that we are closing on the 30th of this month. In addition, and after getting pressure from other out of town investors, and people looking for a new twist on an old industry, we started Going Coastal Property Management with some partners to bring a data-driven approach to short term rentals in our market, and we do design, renovations, staging, optimization, and of course property management, currently have 25 listings under management, and are on boarding 2-5 units per month. That’s kind of the natural progression of all of this, but the rocky part was back in March/April when our town completely shut down all short term rentals in our market indefinitely.

So Covid hit, our town shut down all short term rentals, and we had 28k in cancellations overnight in my personal listings that we operate. Obviously that sucks, but it is what it is. In my market, we can get hit with a hurricane any year, in fact we have been hit the last 3 years in a row, and can easily lose 1-3 months of peak season depending on the storm. Because of that, we keep a 60k “hurricane fund” that we built up the first year just for situations like that. So we were fine, and just decided to hunker down with our empty units, and wait it out. What we saw across our island was pretty much a blood bath among other hosts. There were quite a few people who had cut the margins pretty thin to get into their listings, and were in bad shape with losing those couple months (keep in mind, at the time, we had no idea how long the shut-down was going to last). So this is when things started getting crazy, all of a sudden, you had hundreds of hosts flipping and trying to put long-term tenants in their units as fast as they could. In a market that usually always has more people looking for long term rentals than there are units, suddenly, the supply was much much greater than the demand. People started dropping prices to be competitive, and units that would do 50k as a short term rental, or should be at $1600 a month as a long term rental were being rented out for $800-900 a month just to try and stop the bleeding. It was wild. Fast forward a little over 2 months, and things opened back up. Since they did, after people were locked inside for so long, the demand for short term rental units at the beach has been INSANE. We were 100% booked across all units, and even with having to charge higher cleaning fees because the Covid cleaning and linen guidelines were strict and took much longer, we were slammed full. Even now in November, we are 10-15% higher average daily rate than this time last year, with slightly higher cleaning fees, and are still booking really well. All of those people that had taken on long term tenants were scrambling for any reason they could find to evict their tenant and get back to making real money, but from everything I’ve heard, those tenants that got those good rates know how good they got it, and have been perfect tenants and aren’t giving any reason for eviction. I even heard a rumor of a cash-for-keys offer to get the long term tenants out, but don’t know how that tuned out. Anyway, our units immediately jumped to doing 6-8k gross per month per unit, so we were rapidly catching back up. Even with those lost months, by the second week of October we had completely caught back up, and are on track for a record year in terms of gross revenue on our personal listings. SO, here are some of the lessons that the market has taught us this year.

-Always keep that hurricane fund. Whatever you want to call it, be ready to have the world stop for 3-4 months and still be able to operate, or at least tread water. If you do, when/if anything happens, there is opportunity to help out other investors, and also build your business at the same time.

-Work Stations! Last year, our questions from guests were always the same. “How close is it to the beach, do you provide beach chairs, is it pet friendly”. This year the questions are completely different. “Is there a work station? How is the internet speed? Can my kid do school remotely? Can I work remotely?” I don’t think thats going to change, many companies aren’t going back to office locations, if you are location independent, there are a lot of people that would rather be working from the beach. If you’re up-fitting a new unit, put in a work station instead of a reading nook or something like that.

-Length of stay. Last year our average length of stay was 3.6 days, and this year its 6.2 days. As a result, our units with washer and dryer have been booking first, and we have started putting larger packs of the fresh ground coffee we get from our local coffee shop as welcoming gifts. Again, people are working remotely, and an STR unit is much more conducive to longer stays than a hotel. In fact, the hotels in our market opened up to 25% occupancy, and still have vacancy, and that leads to my next point.

-Shared space, or lack there of. All the hotels in our market have taken a beating, and it’s the same story over and over. People don’t want shared space. No lobbies, no elevators, no shared pool space or coffee shops, etc. People want a private unit with a separate entrance that they are assured has been cleaned to the highest standards, so thats what we provide. If you invest in multifamily like we do, its important to have that separate parking, entrances, and porches.

-Multiple cleaning teams. With the increase in Covid guidelines and the length of time it took to do each turnover, we were no longer able to offer early check-in, or late check-out, and ultimately, the cleaning team that we had been working with couldn’t handle the increased work load, and we started getting some bad reviews pop up. We ended up amicably parting ways, and hired multiple teams that have a different mix of properties, and we keep a very close eye on the post-cleaning inspections. Cleaning has never been more important than it is now.

The data is skewed! One thing that has been a blessing in disguise in that the data has been skewed. My friends on here know how big I am on data and using other people’s past performance to dictate our future success, and when the occupancy data from those 2 months of being shut down, it tanked the Gross Rental Projection data across our island. The good news for us is that because of our knowledge of the market, and also having the comps in our property management company to look it, it allowed us to pounce on some properties that other buyers seemed to be a little hesitant on because of those bad metrics. We had to put in a strong offer plus use our secret weapon to get our new quadplex that had 6 multiple offers on the first day, but my wife has also sold a couple duplexes in the recent weeks that sat just a bit because of the ugly Rentalizer report, and it was just long enough for her to educate her buyers and get them into great properties.

At the end of the day, very weird, very wild year, and a lot to be sad about, but a lot to be grateful for. Probably a terribly year to start a property management company, but to date we are at $565,460.19 in 2020 gross bookings, and that demand has definitely surged back. I guess all the friends that reached out worried about the volatility of short term rentals, I would say that it is definitely a risk, but so is everything else. In my mind, the difference between the people that either quit or just survived this season compared with those that thrived is recognizing the difference between Risk and Calculated Risk. That’s where a hurricane fund comes into play, and allowed us to keep rolling and start listening to the market. Hope all are blessed and have a safe and happy Thanksgiving!

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