Invest in Vacation Rental Properties

Mike: Hey, it’s Mike Hambright of FlipNerd.com. Welcome back for another exciting Expert Interview where I interview awesome guests, successful real estate investors in our industry to help you learn and inspire you a bit. Just another reminder of our upcoming REI Power Summit. It’s going to be a very large online real estate investing conference, 100% virtual. You can watch it from anywhere you have an internet connection and you’ll get access to over 50 speakers. If you can’t watch in real time, you get access for about 12 months. So check out REIPowerSummit.com.
For today’s show I’m joined by Tom Bissmeyer. He is a real estate investor that’s been involved in a lot of different areas. But primarily focuses on resort properties and vacation rentals now, where he’s been involved in literally selling hundreds of millions of dollars’ worth of properties.
Tom is a partner and co-founder of Itrip.net, and we haven’t talked about vacation rentals before and kind of the associated opportunities with that so it’s an interesting space especially considering kind of the Baby Boomer phenomenon that’s going on and things like that. So it’s a really interesting space that you might not have considered before. Tom is going to tell us all about vacation rental properties and some of the opportunities associated in that space.
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Hey Tom, welcome to the show.
Tom: Mike, thanks for having me here today.
Mike: Yeah, glad you’re on. Appreciate you being with us today and taking time with us. This is an interesting space. One of the reasons I do this show is that most people in the single-family house space would consider me an expert having bought hundreds of houses and stuff like that. But I never really feel like an expert in many things. Maybe a very narrow niche considering how many ways there are to make money in real estate which you know.
But we’ve never talked about this topic before so I’m excited to learn about it. And I’m actually about to leave on a vacation and I’m always thinking about all these nice places that we see, is that how could we buy one of these and maybe have somebody pay it off for us over the next 10 years until we could spend a lot more time there. So anyway, it’s going to be an interesting discussion today.
Tom: It’s really good to be here. It’s kind of interesting. Mike, my background just real quick for your audience. I’ve got a bachelors and masters in finance and actually bought my first piece of property back in the early to mid ’80s. It was a duplex and it really just was to serve my own needs and to quit paying the man a rental check, and so that’s kind of how I got started.
But I’ve been very fortunate to have been involved in just every kind of facet of real estate out there. And when I really started, I know you’ve had many shows on all that so we’re going to jump right in to the vacation rental space. One of the things I learned early on is if you can rent something in a shorter cycle, meaning like on a weekly basis versus an annual basis, assuming you have a long enough season, typically you can actually generate much more revenue. And being a finance guy, I’ve always kind of looked at the ROI on a property.
Mike: Yes. If you look at, I guess if you consider a hotel, I mean if you’re paying $200 a night at a hotel that’s $6000 a month. And you would never pay $6000 a month to live there on an ongoing basis. So yes, that makes a lot of sense.
Tom: Yes, absolutely. So if you look at it, I also kind of look at trends. You and I were talking just a little bit off line and talk about the vacations that you’ve had inside of a vacation rental. We’re talking about houses, or condos, or townhomes, or cottages, depending on the type of resort environment it may be in.
We’re seeing and even more urban concepts where people are travelling down renting bedrooms in people’s homes and staying in what we call alternative types of facilities whether it’s a bedroom or the entire house. And you know what’s interesting and I’m sure if you and I had a long dialogue on this we’d get into the nitty-gritty details, but it is a much richer experience being in a home environment.
Next thing you know you’ve got grandma and grandpa spending more time with the son-in-law or daughter-in-law maybe over a cup of coffee at 6:30 in the morning versus if you had two separate rooms in a hotel and the grandkids are in one spot and grandma and grandpa are in another. Yes, you’re going to meet downstairs for breakfast, maybe have a cocktail on the veranda at night. But when you’re in the same property, just see spontaneous dialogues kind of start and it just makes it for a much greater experience.
Mike: Yes, so I’ve mentioned to you that my wife’s kind of extended family, her parents and sister and all of our kids, we all get together in a house in Colorado every July to escape the Texas heat. But I’ll tell you, it’s so much better of an experience. You’re staying in a much nicer property usually. But you have a kitchen, you’ve got bathrooms, everybody has a little bit of privacy that they still need.
And in a hotel room, typically in my experience whenever I stay in a hotel room, you kind of try to minimize the amount of time you’re there because there is no comfort, really other than just sleeping. And we only have one child but even, he’s eight years old, but for all these years, even when we stay in a hotel room it’s kind of a burden. He goes to bed at 8 or 9 and I don’t. And so you have some of those challenges. And so now we try to get suite or we’ll try to get some way to have some more of the comforts of home. So yes, I can appreciate that.
Tom: Well it feels more like a commodity, Mike, really. It’s just a pure utility and that is a place to stay versus, think about it, and my guess is most moms are this way even more than the dads are. I’ve got two kids myself and you think back if, especially when your son was a little bit younger, if they’re ready to go to bed at 8:00 at night and everybody is still kind of gathering downstairs, either you or your wife are going upstairs into the hotel room and putting your son to bed, and hanging out up there, maybe reading a magazine and now you’re by yourself.
If you’re in a nice vacation rental your child can be down the hall, maybe you’ve got a baby monitor going. But now mom and dad are still involved in the conversations, still enjoying their glass of wine, still engaging with the rest of the members in that party. And again, I can give you thousands of those types of examples of why vacation rentals have gone from a market acceptance of about 5, 6, 7 years ago maybe in the high teens, 16, 17, 18% general market acceptance in understanding. To today awareness of vacation rentals is over 35%. So it is a growing segment of real state for sure and we’re seeing a lot of investors move into this category.
Mike: That’s interesting. So what are some profiles of a typical investor? I assume you’ve got a combination of people that actually do it for an investment reason or people that know that that’s our vacation home, but we don’t use it half the year or every other month or whatever, and we’re going to find some way to monetize it. Maybe explain what a typical owner or investor would look like?
Tom: It’s interesting. It really runs the gamut from people saying just what you said. Hey, I think I want to have a place in Hilton Head, in Vail, Colorado or Beaver Creek, or Laguna Beach or wherever it may be. And so I’m going to go ahead and buy it today and I’m going to have these rentals over the next 10, 15 years until I’m “ready to retire” or have the flexibility to spend more time there to help offset. Rarely a year, we’re going to have a vacation rental Mike totally cover all of your operating and debt service expenses. You’re asking a property to do too much.
Can you substantially offset those interests, absolutely yes. And so what we’re finding is that a lot of investors that are finding it more challenging today, with today’s prices and the run up of real estate and evaluations in so many markets across the country, is that they’re looking for alternative sources of solid real estate [inaudible 00:09:06] and so guess what? Vacation rentals fit that mix for sure.
As far as the types of properties, that really kind of depends upon the marketplace. We have some markets such as, let’s say Laguna Beach for instance, that you actually have a community, a city wrapped around where vacation rentals kind of intertwine. That’s very normal.
We have other markets such as Myrtle Beach, South Carolina that is predominantly vacation rentals. I mean walls and walls of condominiums right on the beach. That’s where people want to go on when they stay there. They want to do the put-put and the go cart tracks and the ice cream and all those types of things. But I’m sure your sons drag you to over the years like my kids [inaudible 00:09:46], which really is a fun experience. But it’s really a resort community, not so much entwined. I mean yes, there is a town at Myrtle Beach and there’s properties off, golf course type properties and things.
But typically we’re at Panama City Beach, Florida for instance and its very heavily focused on just resort oriented properties versus intertwined inside of the community. So kind of depending on the type of areas somebody’s focused on. Kind of weave in and out of the types of properties you want to focus on.
Mike: Right. And so how is this, we obviously had a downturn in the market a few years back. How does that kind of, maybe the market is really hot right now, I don’t actually know how it is in kind of more of the destinations. But my guess is people have more disposable income so they’re more likely to be traveling now or maybe they didn’t as much five years ago and things like that. But how has the macro environment been impacting this space over the last few years?
Tom: Really great question Mike. The interesting part about this last recession is that we saw continued increases in vacation rental revenue even during the worst years, ’09, 2010. And then obviously we’ve all seen real estate climb out of that since that dip in that economic cycle. But unlike the values of real estate which had fluctuated greatly, I mean we’ve seen resort real estate come back 50, 60, 70% since the depths of the recession, the rentals have stayed solid because here’s what happens during that.
During the good years like we’re in right now, guess what? Everybody moves up a notch. The people that did, it’s called staycation, meaning they vacationed at home, they’re now vacationing. So they’re filling our units. Those that used to fill the units when times were really good, they’re going overseas, they’re taking that European vacation. During the depths of the recession we saw the people cutting out on the $10-$20,000 trips to Europe and pull back and they came into the vacation rentals. Those that used to be in that space that economically couldn’t afford it they pushed down back to the staycation model.
So the neat part about it is right in this middle strata where we focus on these vacation rentals, there’s always been an audience for that. There’s always been a renter for that. So it’s a very recession resistant, not recession proof, but recession resistant and we’ve seen rental rates hold strong even though we’ve seen wild fluctuations and evaluation of the actual asset itself.
Mike: Okay. So let’s talk about some of the opportunities in this space. Of course there is the one where you buy a property and you are an owner, an investor, and your objective could be to make money from an investment stand point or could be to pay something down that eventually you’ll move into when you retire. But I know that your company is involved with a whole bunch of, making that process easy for people that are investors from property management to bookings and all that stuff.
So talk about people that might be listening, saying “Well I’m not going to be able to buy a property of that scale or vacation home in a nice location,” but maybe there’s a business opportunity where they have a vertical where helping facilitate those investors. So maybe talk about some of those opportunities a little.
Tom: Yeah, absolutely. The model that we chose to set up is kind of a model you’re obviously very familiar with as well with your other real estate business you do, and that is to have a local operator in place. Because one of the biggest mistakes that people make especially if they don’t live local.
So let’s imagine you’re in central Texas and you have a vacation rental in Galveston. So that’s four, five hours away from you and you’re going to be like, how hard can that be? There are a lot of moving parts in a vacation rental that people need to stay on top of. And so one of the mistakes we see people make often is they try to do it all themselves or if there’s a nonworking spouse outside of the household, “Hey Honey, I found something for you to do.”
Well I don’t know about you household but every time I try to drag something in the door and dump it on my wife’s desk, she’s looked at me like “I don’t need you to fill my calendar. I don’t need you to find something else for me to do. I’m plenty busy,” especially if you have kids at home.
Mike: That sounds familiar.
Tom: You and I probably aren’t the only ones who have made that mistake and unfortunately I’ve tried that two or three times and it never has worked so I finally quit. But it really is, we wanted to have a professional local manager that would work with investors that are buying properties that are two, three, four hours away from where their primary residence might be. That’s why they’re typically second homes. You normally don’t have a second home just down the street. You talk about escaping the heat of Texas in the summer. You want to come to the mountains in Colorado. A lot of people do that a lot going to beaches or whatever it may be.
So we try to create an environment where we had a local operator in place that then would work with either owners or investors to manage their properties professionally because today in the digital world that we’re in, used to be you ran an ad, and if you’re in the Southeast part of the United States and Southern Living Magazine with an 800 number, and people would send you checks and they’d rent your units.
Well obviously, those days are long gone. It is so important to be digitally savvy to have your property correctly positioned. In fact the changes just recently in all the search algorithms have been, there is a whole science to just that where they want you to be what’s called an authoritative voice in your local space. And so the days of just having an ad or pretty picture or good listing, or even a good domain name, those days are long gone if you want to drive the right type of traffic.
So we’ve built the software both from a digital marketing standpoint as well as from an operational standpoint. How are you interfacing with the cleaners? What about various services whether it’s an HVAC service or general maintenance like lawn service and all that? We’ve automated a lot of those processes. Getting people in and out of the properties.
The days are long gone of showing up, meeting somebody, giving them a key and saying, “Hey, here’s your check-in,” because here’s what happens. You’re trying to get out of the office, your wife’s rented the place on the beach. Your five hours away. You know the rental place is closing at 6:00 on Friday night and the next thing you know, you have an issue with one of your properties, one of your clients or whatever and now you’re getting out of town at 4:00 instead of noon. Well, now you’re racing down there. How are we going to find the place? How are we going to get the key? Your rental manager is sitting there saying, “Well, do I leave it under the mat?” Well this may be a half-million dollar asset or maybe $1 million asset. You don’t want to leave the key under the mat, right?
All these dynamics, you and your wife have got World War III going on for the first two hours because you’re supposed to get out of the office at noon. She had the car packed, kids ready to go and next thing you know you’re running late. And then about three hours down the road you finally start talking again and you say, “Honey did you get those directions on how to check in, the procedures to check-in and where do we get the key that was hanging on the refrigerator for the last two weeks?” “No, I thought you got it.” “Well I thought you’ve got it.” Well there’s World War IV now going on [inaudible 00:16:44] you don’t talk.
Well we already know these things are going to happen. So guess what? The day before our system automatically resends you all the check-in procedures. So you’re going to sit there and say, you know what? I remember those guys, I got an email from our trip yesterday, I didn’t have time to look at it because I was really trying to wrap up my week to get ready to go on vacation. Let me go through my phone here real quick.
Now it’s on the top of your email queue and you look at it and there’s all the check-in instructions and you kind of look over and give that little kind of grin like, I got you. [inaudible 00:17:17] the disaster avoided and by the way the majority of our properties have automated locks, internet-based locks on the door. I don’t care if you get there at 11:00 at night, you go there, enter your code, it’s already been programmed automatically for that property for your relinquished stay.
So I don’t care, get there at 2 in the morning. I’m not going to wait up and give you a key. So all these little simple things we brought into an automated process to really make it a win-win both for you as a potential renter, the guest of our property, but also our local operator and to really systematize that whole process.
Mike: Yeah that’s pretty cool. So people that are listening, there might be some property managers out there, some agents or brokers that play the role of a property manager sometimes or at least helping people find deals, how can people that are not in this space now that maybe fit into one of those categories, property managers, brokers, agents, other investors, how can they fit in that ecosystem and create an opportunity for themselves?
Tom: One of the things that we’ve seen especially with real estate agents or real estate brokers is that they may do this on the side and their “day job” is the actual sale of the asset. So maybe they’re managing three, four or five of these. I had just found any time you’re doing something, you’re doing a full time business in a part-time way, that’s really not a really good fit, especially if you don’t have any economies of scale.
So we have about 100 vacation destinations that we serve throughout North America and thousands of properties that are out there. So we’ve already systematized this and brought in these shared practices. One of the things we found with that part-time type person as you just described, whether it’s an investor or an agent or broker, is that by stepping into our platform it systematizes an entire process of doing the vacation rentals instead of just doing a kind of one-off scenario.
So maybe in your role, think about if you were running your own cruise versus I jump in as a business guy and I’m just going to buy one house and kind of fix it up. Now I’ve got to go find an electrician, I’ve got to go find a plumber. You have systematized that in your process in the business that you’re involved in. You know show your people how to get those economies of scale, exactly the same thing happens on our side, on the vacation rental site.
Mike: Okay. And so yeah, just to clarify. You guys have a franchise model where you bring in local operators. In your experience are those operators that come in, do they have a real estate background or are they more of the operations side or what’s typical there?
Tom: It’s really interesting that the biggest type that have joined us have been what I call displaced corporate professionals. You and I see it all the time about that person that has put in 20, 30 years corporate America, now they’re mid 50 years old, they’ve got a bull’s-eye on their forehead. And next thing you know they’re down sized for a host of reasons or they’ve got the [inaudible 00:20:06] I’d like to say.
Whether they took a package or whatever they were moving out the door. Now they’re looking to replace a professional level income. That’s a lot of the types of individuals. As far as background goes, we run the gamut. We’ve got individuals that ran billion dollar divisions of companies that had that exact scenario take place, now wanting their own business. We’ve had real estate professionals that have stepped in wanting to supplement their income because the reason that real estate professional joined us, they realize real quickly. They’re in a transaction oriented industry. They sell a property, they get paid. They get paid nothing until they sell the next property.
The vacation rental site can really smooth out that income so there’s not this feast and famine in between real estate sales. It’s a really nice level week by week rental income. Now again most vacation locations have a season tied to them. But there’s still a lot of what we call shorter seasons that take place. A lot of people don’t want to be on the beach environment at the 4th of July weekend. They’d rather be there the second week of September. [Inaudible 00:21:16] We’ve got all sort of professionals that are buying our franchises on doing vacation rentals.
Mike: Okay. And in terms of the markets that you and your franchisees serve, investors that have these properties, is it typical that you’re spending your time trying to find people that have these property types that are out there, or do you work with potential investors, to say “I want to buy some properties in these markets, Panama City” or whatever, “I want to buy some properties, can you help me find that? How should we do this? How do kind of partner together,” how does that work?
Tom: One of the things that’s really nice about, one of our little niches is that our operatives they focus on the vacation rental site. They’re not trying to go out and sell real estate. So we go out and build very strong alliances inside the real estate community in our resort environments with brokers.
Many times brokers will have us come in and speak to their entire agent at base at their monthly sales meeting explaining how our process works. We’re real big on giving referrals, feedback to those individuals. All totally disclosed, all run through their broker because that’s how the commission structure works. But we’re very big to be a channel partner. We work very closely with investors. Not uncommon for us to have an investor come in and say, “Hey I’m going to be buying three properties in Southwest Florida,” or wherever it may be, “Can you guys help me? Put me in touch with a great agent but also help me manage that because I live in Cincinnati, Ohio,” or wherever they may be. We work all channels of that.
Mike: Sure, awesome. Well Tom what are we missing here? What have we not discussed yet that could be an opportunity for somebody listening or that we haven’t covered yet today?
Tom: Well one of the things Mike that I was taught early on in all of my formal training in finance is the word diversification. And so one of the things I would say to your audience is this. If you’re loaded up on, you’ve got the duplex down the street, you’ve got your portfolio of single-family homes, maybe you’ve got some small apartment buildings, whatever it may be, why not add some vacation rentals to your diversification of your real estate assets.
Also I’m a big believer in living your dreams while you’re alive. And so, if you love to have a place in the mountains during the summertime, which I don’t blame you being in Central Texas, it’s a great time to be able to be up there. If you’re more of a beach oriented person or if you like the desert in Southern California, wherever it may be, why not have a place. You work a virtual business, I do. More and more people are. So how cool would it be if you could spend your entire summer in the mountains of Colorado at your vacation home and then rent it out during the peak season during the ski season.
Again there obviously IRS guidelines you have to follow as far as number of nights you stay and all that as far as if you’re going to deduct it as a business or a primary residence, but all those things come into play. But I would say diversification would probably be the biggest message I’d want to share with your listeners that you ought to have some of these as well as your other holdings.
Mike: Awesome. Tom, if folks want to learn more about you or about iTrip or anything that you talked about here today, tell us where they should go.
Tom: Yeah well, if you want to find out about our franchising opportunity, and again that’s not the focus of this show, but if you want, interest in that then it’s real simple. You can just go to itripfranchising.com.
If you’d like to have us potentially look at some markets where you’re interested in owning some vacation rentals assuming we have a franchisee there, we’d love to take a look at earning your business with our local representatives. And to be able to do that again, you can contact me directly or you can contact [email protected], either one of those are very fine to do that. My email’s just Tom, [email protected]. I’d be glad to forward it to the appropriate person as well.
But again, vacation rentals are a huge market, the space is coming alive, timing is absolutely perfect. You want to pay off a nice asset then maybe ultimately spend part of your life in it, or part of your year in on a go forward basis.
Mike: Sure. And if anybody is hearing this and they’re excited about booking a trip somewhere to go on a vacation, do they go to a different site for that?
Tom: Yes, absolutely. You can go to itrip.net or itripvacations.net. Two different sites that we have. They have the same information that’s there. And you can look at the various markets that we serve and again we’d love to have you business from just a customer’s standpoint as well.
Mike: Awesome. Well Tom thanks for joining us today. Thanks for sharing. Like I said, we haven’t talked about this space before and it’s pretty interesting so I definitely appreciate your time today.
Tom: You’re welcome.
Mike: All right. Please stay in touch my friend.
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