Rabbu and Turno Partnership

Understanding How to Source Rentals

Rabbu — Fri, 05 Aug 2022 23:09:44 +0000

Taking a Bird’s Eye View of a Market in Flux

Low volatility and high returns have traditionally characterized the real estate asset class, making it a great way to diversify a portfolio and achieve safe but significant gains.

In some ways, the vacation rental market offers an even better equation. Short-term rentals have higher average daily rental rates than traditional accommodations, as well as long-term rentals, and payment events occur more frequently, bringing some liquidity into the investment.

But the recent market disruption of the COVID-19 pandemic has complicated the volatility in the market, and home prices have risen to new heights faster than they normally would move. As purchase prices continue to change along with consumer preference and traveler demand, it’s important to take a big-picture view of the short-term rental market at the sourcing stage.

The Digital Starting Line

A pandemic-era article named browsing homes on Zillow one of the more popular pandemic pastimes. For an aspiring host, this first browse is more than just escapism. It’s important to be thorough in the first digital search, using standard real estate listing sites like Zillow, realtor.com, and others to start to get a sense of the market as it stands.

Using the locational considerations reviewed above, hosts can begin their own online audit, understanding the purchase prices in those areas and what kinds of properties remain on the market. Crossing those findings with a basic revenue predictor analysis, also covered above, can help to give hosts a sense of their potential bottom line.

This aspect of the purchase process is another place that the COVID-hand of innovation has left fundamentally changed.

Today, more artificial reality (AR) empowered open houses, 3D video tours, and automation software can make it easy for hosts to get a real sense of the properties they’re assessing without spending too much time playing phone tag with property representatives or traveling on a whim to see a property that might disappoint.

Hosts can use this new look behind the scenes to their advantage for a fast and effective first phase.

Time to Go Local

When a host has a sense of the market as it’s represented through digital listing sites, it’s time for them to get in touch with a realtor in the surrounding area.

As the ascent of short-term rentals has become more pronounced, many realtors have a strong sense of the Airbnb market in their areas. With their experience and immersion in the dynamics of the specific market a host is targeting, realtors are invaluable at this stage of the property search.

If a host is approaching the property less for personal use and more for portfolio optimization, they might need to further explore the asset independent of locational considerations. Once they’ve narrowed down their interest, they might then need to be in conversation with multiple realtors in the different market segments they’re considering.

Don’t Re-Invent the Data Wheel

Airbnb investing isn’t rocket science, but it is increasingly data-intensive, and as is often the case for fail-proof investing, more data is better. But this shouldn’t deter hosts who might not find their calling in the facts and figures side of things. Partnerships at this stage are absolutely crucial to sourcing a property that has the right potential for each individual host.

Hosts can use the Rabbu platform to set individual and personalized investment criteria, then browse a “Zillow-like” experience (but with specific STR stats) to find properties that match it, or view all sourced properties across the U.S. These on- and off-market deals come accompanied by rich data projections to allow for efficient sourcing and analysis.

With a pulse on how property values and rental demand are changing in real-time, this strategy helps to make sure that investors don’t have to be chained to their desks to have access to a time-sensitive deal. It also reduces the mental fatigue that can set in at this stage of property sourcing, when the numbers blur and all of the properties start to resemble one another.

By leading with specific data inputs, the host will only be alerted to the properties that fit the terms of their interest and correspond with what they’ve prioritized for their acquisition.

Find Your Community, Early

Tech, experts, and data — all of these things are great to have on your side. But there’s nothing like connecting with a community of like-minded people who have walked the same path.

New-to-market companies have online communities in which hosts and experts can connect in casual conversation. Further, the ever-present corners of Reddit, LinkedIn, Discord, Clubhouse, and Quora are full of experienced hosts who would love to help.

It’s always beneficial to survey frequent travelers and guests at the acquisition stage as well. Understand what guests have loved in their own Airbnb experience.

Think of the trips your family has taken that will stay in your memory for the many years ahead. What made those experiences special? What makes people want to come back? Those insights can help guide the sourcing process just as much as a balance sheet can.

Find Calm in the Property Search Storm

A thorough property search takes time. But there’s no reason for hosts to go through the process alone.

Digital searches now have enhanced property viewing capacities, allowing hosts to get a strong sense of the market without leaving the comfort of their homes. Having spent some time on Zillow or other listing platforms, engaging a local realtor will be the best next step.

From there, turning to market partners that have made the data easy to leverage will be crucial. Rabbu’s short-term rental investing platform takes a lot of the stress out of the search and allows relevant listings to find investors, rather than the other way around.

Through it all, keeping in close conversation with an experienced and forward-thinking community will help the property search process feel exciting, engaging, and full of potential.

The post Understanding How to Source Rentals appeared first on Turno.

How to Select the Right Airbnb Investment Property

Rabbu — Fri, 05 Aug 2022 23:01:29 +0000

1. Choosing the Best Location

Your intention for the property will influence the first buy box consideration: location. If the property is slated for ample personal use, whether on the weekend between guests or for full summers away, then you should consider your optimal property destination.

Is it best if the property is close by, or near friends and family? Would you prefer, for personal use, proximity to nature, local immersion, or a vacation spot you love to return to?

If the property isn’t intended primarily for personal use, then other metrics and considerations come into the equation.

Some new-to-market companies are making it easier to access market insights, including the average stay length, occupancy, and price rate for properties across different markets. Study the trends in primary, secondary, or tertiary markets with high nightly averages that can likewise sustain high occupancy rates.

Beginning with those high-demand markets, real estate investors can then get more specific in keying in on their desired location. Properties located near attractions like football stadiums, colleges, conference centers, concert halls, hiking trails, or waterfronts often see improved demand and Airbnb guest affinity.

2. Setting Your Budget

Following location, a crucial consideration is a realistic look at an expected budget. The financial planning stage incorporates important questions regarding the property’s funding strategy.

Short-term rentals are unique in the real estate market, which, as an asset class, has outperformed its market peers for more than 150 years. Holding most investors back from scaling their real estate portfolio is the fact that real estate investments are largely illiquid. Even as properties increase in their value, it’s hard to access those gains in wealth.

But short-term rentals are unique in that along with the property appreciation, frequent tenant payments — as often as every few days — create real returns early on. With a little bit of research, hosts can understand the revenue potential of their property and plan for a multi-tiered performance that’s seasonally adjusted to understand how the monthly returns will impact their financial strategy.

The inertia of real estate investing is that property values are high, mortgage rates are rising, and investors need clarity around their purchase strategy. Do they plan to finance the property, pay in cash, or invest in a small group? Are they hoping to scale their portfolio quickly, or will this one property be the focus for most of their investable capital?

All of these change the host’s initial orientation as they set themselves up for financial success with their rental.

3. What’s Your Type?

The short-term rental market is a niche that’s gained popularity with the ascent of Airbnb and the demonstrable traveler preference toward alternative accommodations after the wake of the COVID-19 pandemic.

But even within this market niche, there are subclasses of property types that hosts need to consider before they source their property. Single-family homes, multifamily units, and properties in condo buildings all have slightly different audiences.

Surprisingly, multifamily properties in buildings with 40 doors or less have seen some of the best returns from travelers in recent months. Hosts can seek more data through free tools as they consider which kind of property they’d like to begin with.

In conjunction with proper data-based due diligence, the property type question also returns the host to their initial objective, and whether or not the property is intended for personal use.

4. A Nuanced Look at Monthly Returns

Having goals for target returns and revenue outcomes is useful in two important ways.

First, goals — when properly researched — can be a way of keeping the property strategy aligned with its potential. They can also highlight opportunities to make changes that might increase the rental income closer to what the numbers say it should be.

The second benefit of proper financial goal setting is the ability to move with those numbers through the months, ensuring that the net operating income (NOI) will be where it needs to be considering both the necessary investments, the expected returns, and the inevitable cash-intensive turns in the road that can happen along the way.

Hosts should have target returns for their short-term rental’s gross yield, cash-on-cash returns, and capitalization rate.

Gross yield: The gross yield of an investment is its profit before taxes and expenses are deducted.
Cash-on-cash returns: Cash-on-cash returns refers to the cash income earned on the cash invested in a property. It’s calculated by dividing the annual pre-tax cash flow by the total cash invested.
Capitalization rate: The capitalization rate measures an investment property’s yield in a one-year time frame. Also known as cap rate, it is used to compare the rate of return on multiple real estate properties. It’s calculated by dividing the net operating income by the current market value of the asset.

In addition to the above, monthly revenue goals should be calculated with real-time, seasonally adjusted data from comparable rentals in the area. It’s important to understand the performance of similar market offerings to understand what a host can expect for market demand, which is highly location- and season-dependent.

With those variables taken into consideration, hosts will have a more accurate understanding of how their property can be expected to create returns at different times of the calendar year.

Do the Math and Choose the Right Airbnb Investment Property

Ideating around location, planning a budget, considering property type, and undergoing a proper target return analysis will leave investors well prepared to take on the next stage of their short-term rental journey.

From there, it’s time to leave some of the math behind and move on to the art of property sourcing.

The post How to Select the Right Airbnb Investment Property appeared first on Turno.

The Importance of Property Underwriting and Analysis

Rabbu — Fri, 05 Aug 2022 21:57:08 +0000

Informed Predictions

In simple terms, underwriting assesses the viability of an investment decision by taking a deeper look into the financials to determine potential returns.

Throughout the process, you should be working through a number of different models to take most of the guesswork out of your revenue prediction. Using the wealth of data that’s available and analyzing it for patterns, trends, and outcomes, you can be very close to accurate in predicting a multi-tiered performance production regarding your monthly income and cash flow.

Those should be the first knowns in the underwriting process.

From there, it’s important to predict the upfront costs associated with the purchase and the equity that can be leveraged as part of the equation. Those two factors will greatly influence the early financial beginnings.

On the same balance sheet should be the predicted gross yield, cash-on-cash return expectations, capitalization rate, and internal rate of return (IRR).

With these factors all taken into consideration, you’re beginning to establish a realistic picture of the risk and the return involved in your short-term rental venture, and that can inform your approach to borrowing, underwriting, and negotiating.

Keep Your Comps Close

Experienced hosts will be familiar with the use of comps in setting valuations. Comps — or comparables — are similar assets that have recently been sold. Their sale can presumably inform the valuation of the similar asset in question.

A recent list of home prices at the point of sale for comparable properties normally informs the value of a home and the line of equity that can be taken out against it.

Short-term rentals are again unique in that when you do their due diligence, comparable properties can inform more than the property’s sale price.

The need to analyze the property’s performance with real-time market data gleaned from similar properties in the surrounding area was touched on earlier. But getting specific and accurate data on the comps at the underwriting stage is valuable. Estimates should be kept conservative, and you should pause here to ensure your model still fits.

Check for Red Tape

Rules and regulations change quickly in the short-term rental space, and there’s nothing like an unexpected dead end to turn a real estate investment upside down. It’s crucial at the final stage of analysis that you search high and low for any regulation or litigation you might’ve missed, especially if you’re operating in new market areas.

Homeowner associations (HOAs), neighborhood laws, and city bylaws change across an invisible grid. There are town and municipality restrictions to take into consideration, and there are county restrictions that might not be common knowledge.

You should not only do a thorough search for laws and regulations in your market, but you should also reach out to that community of experienced hosts to see if any of their peers have experience in your specific location.

Ask for Quotes

Part of a complete analysis and underwriting model is acquiring the quote for the full-scale property management. This is a priority whether or not you plan to self-manage the property.

In the short-term rental space, many proposals include the underwriting, the revenue estimates, and the expected cost of management as part of the proposed offer. It’s to everyone’s benefit that this part of the equation is as accurate as it can be.

Engaging with a property manager to establish an initial quote, or learning from other hands-on hosts about the costs they encountered, will help ensure this fundamental part of the financial model doesn’t go overlooked.

Leave Emotions Behind

This is the stage at which the water can get choppy. The numbers can get big, loaners can misunderstand the short-term potential, and no can be a word that’s hard to hear. But some of the household name lenders have recently made waves in understanding short-term rentals as the business opportunities — not the personal assets — that they really are.

All signs point toward more support and understanding ahead. It’s important that you leave your emotions at the door and commit to making the numbers make sense. When the deal is right, nothing will stop it from finalizing.

One Last Gut Check

With the end in sight, it’s time to return to the beginning. The first exercise outlined in this chapter had nothing to do with the optimal market positioning, the math behind a great investment, or the optimal strategy for property management. It simply asked you to begin with an image of what wealth would mean to you.

The short-term rental market is the kind of boom that comes around, if they’re lucky, once in a host’s career. The market continues to support the Airbnb model with no signs of slowing down, and the personal and financial freedom the venture can bring is unparalleled.

As the housing market climbs further out of reach for many Americans, short-term rentals are a hopeful and necessary strategy to regain some financial security and portfolio diversity.

But none of that means much if the strategy has strayed from your initial intentions.

Take this moment as an invitation to return to that vision of wealth. Are you traveling? Are you sitting on a 50+ property portfolio? Most importantly, does this property model you’ve arrived at set you up in that direction?

If the answer is yes, you have the green light — sign the dotted line and let the short-term rental fun begin.

The post The Importance of Property Underwriting and Analysis appeared first on Turno.

What to Know Before Buying a Vacation Rental Property

Rabbu — Tue, 12 Jul 2022 19:09:00 +0000

Letting the Personal, Not the Potential, Lead the Way

Wealth means something different to everyone. The journey to financial freedom through short-term rentals is best traveled when the end directs the means. New hosts have the important opportunity to truly begin at the beginning. To dream big, but to dream big in their own language of what long-term financial success and personal freedom mean.

Every great Airbnb strategy begins with an audit of a host’s personal intentions. For one host, an incredible outcome might be a full-scale, multi-property portfolio that could employ a small team and become the investor’s major focus. For another, having a rental property for the taking that can earn its cost through occasional rentals might be the dream.

Investors are taught to consider the potential of a venture, a stock purchase, or an acquisition. But for rental property investment, the potential needs to be informed by the investor’s personal priorities. Following are a few questions, considerations, and exercises to model the process.

If Home Is Where the Heart Is…

The first thing to consider for hosts and investors is whether they’d like to use their property for personal use with the financial benefits that renting could bring or if this property is strictly a financial investment.

That may open up location, home type, and several other attributes to more options. Acquiring a dream property in a desirable location where one might have family, friends, or an interest in the local culture, and loaning out that property when it’s not in use, is one business model.

Doing the math for a property that’s solely for guest use, and positioning it in the market with the highest trends in occupancies and stay rates, is a wholly different approach.

What does your personal conception of freedom, in this sense, look like? The freedom to travel back to one place with free accommodations and flexibility of schedule, or the financial freedom from an investment property to go anywhere you want in the world? That integral question will have important ramifications for all things location — it’s important to begin here in the spirit of exploration.

A Big-Picture Investment Landscape

Similarly, property acquisition is best considered in the context of a wider investment portfolio. Personal investors can take stock of their approach as it stands.

What does this investment signify within a holistic portfolio? Is this an asset that’s meant to hedge against inflation, earn quick returns, diversify existing holdings, or some combination of all of the above? What kind of income needs to be liquid, through monthly rental earnings, and how much capital can be allocated to the property itself?

Traditionally, real estate has been the highest performing asset class. The risk-to-reward ratio is unparalleled. Short-term rentals improve further on that, offering hosts a low-risk asset without the illiquidity that’s generally involved in investments that don’t generate the same kind of monthly returns.

For both novice and established investors, a portfolio is a delicate ecosystem, and investing in a vacation rental is best considered in the context of existing investments.

Choosing Time or Team: The Difference Between Hands-On or Hired Property Management

Another crucial question to encounter at the inception of a short-term rental strategy is a host’s desired involvement. A self-managed property is a wholly different operation than a property for which the daily and monthly needs are abstracted through third-party partners.

Hands-on hosts will notice some distinct benefits. First, the cost of property management will certainly be lower, creating better margins on monthly returns. Hands-on hosts might enjoy a closer relationship with their guests. They may also feel more in control of the property design, cleanliness, and ambiance that defines the experience they’re offering to their guests.

Property management here is an experiential endeavor, instead of a hiring initiative. But as is always the case in the world of investments, there are pros and cons of hands-on hosting.

On-the-ground property management can have a profound effect on an investor’s time, mental space, and general stress. Guest problems are sure to arise. A guest is locked out in the middle of your child’s Saturday soccer game, or a pipe bursts just as you’re sitting down to family dinner.

Without a management partnership, guests’ needs have to come first. If a portfolio extends beyond a single property, the hands-on upkeep can easily add up to a part- or full-time job. Hosts who go it alone should be sure that’s a role they want to take on.

Alternatively, passing along the property’s needs to trusted third-party partners means the property is operating more as a passive investment.

New-to-market solutions can integrate almost all of the property’s needs into one cloud-based workflow, with tech-heavy solutions for each need.

The cleaning and maintenance needs can be adaptively staffed for, the marketing and listing strategies can be automatically optimized for algorithmic patterns in market demand, and most guest communications can be similarly streamlined.

This strategy might result in higher upfront costs and some increased planning in the beginning stages. But it frees hosts and investors from being physically and time-bound to their property location.

Time, Money, And Mental Energy as Budget Items

Before engaging in property appraisals and financial models, it’s important that hosts consider the following questions. Would they like to purchase a turnkey Airbnb? Or, would they prefer to convert and capture the upside value of converting an existing rental into an operable property.

The latter strategy offers greater yields but also involves significantly more time and effort; each of which should be included in the financial models as significant line items.

This question again harkens back to the initial question of wealth and freedom as envisioned by the individual host. How much time do you have to spend? Do you have the appetite to be hands-on in experimenting and maintaining a new rental? Or, do you want to pay the cost to acquire a turnkey property with established success?

As long as those answers originate from and align with personal goals, the host will be on the right track to creating their dream rental business.

Wisdom is the backbone of all great investment endeavors. Wise decisions happen when a personalized plan meets a fail-safe execution. By beginning with a personal audit, investors will have the opportunity to be clear on their desired results beyond financial figures — how much time, thought, and effort does an ideal property occupy? How does it factor into an investor’s existing portfolio, or into a family’s desire for travel?

Wherever the needle falls on the aforementioned questions, the next part of the path becomes clear — the path that will lead the investor to their own tailored end destination.

The post What to Know Before Buying a Vacation Rental Property appeared first on Turno.