Curious what the actual numbers look like after running short term rentals for over five years. Now, I’m gonna be honest with you today, the numbers I’m going to share. Might surprise you. They might not be as glamorous or as sexy as you think they would be investing in real estate, and that’s often the case. A lot of times what we see is investors aren’t really showing the whole true story. And so today, I’m gonna break that down with one of my actual properties.

I’m gonna give you all of the numbers, good and bad.

We’re gonna talk about the supply changes in this particular market, but also break down some of the largest supply increases across the nation and how those are affecting you, as well as a bit of a forecast from Air DNA on what to expect.

Then lastly, we’re gonna offer some smart ideas and tips to help you earn more from your properties. Stay tuned. 

Welcome back to the Short Term Rental Riches podcast. I’m happy you’re here again. We all know that across the nation and across the world, we’ve seen some crazy, crazy changes in the amount of Airbnbs, the amount of short-term rentals coming to the market.

I’ve got some of those highlights for you. Today. We’re gonna break down some of the top markets in the nation to fill you in on just how dramatic some of these supply increases have been and what that means for the actual revenue at the end of the day.

We’re also gonna dig into one of my properties and break down the actual numbers. And this isn’t a market that has seen a crazy amount of supply, so let me just go ahead and get into it. I’m gonna read off my list here. I,

First of all, in a recent report from Air DNA, their projections for the rest of the year and going forward are that supply is basically tapered off where it was growing at 10, 15, 20% per year over the last few years.

It’s now just a little under 5% at 4.7% nationwide expected for 2025.

Now, even though that overall number is positive, it doesn’t mean that all markets are actually growing. And so I’ve got a few of them for you right here. I’m gonna go ahead and read off my list. The first one is Destin. So if we go back three years in Destin, Florida, which is a very popular vacation rental market.

They had around 3,700 short-term rental units on the market. Fast forward to today, 5,400, that’s a 31% increase.

And while some markets are continuing to grow and some are pulling back, Dustin seems to sort of just be tapering off. So if you’re already in that market, you can expect that you’re not going to have more downward pressure on your prices in Phoenix. So really big city, right? If we go back to June of 2022, they had 6,100 units roughly.

Now they have more than double that 15,200. Imagine what that does to your overall revenue. Sacramento, another popular market, and one where I have properties as well. If we go way back to June of 2022, there’s around 635 short-term rental units there. Now I have this segmented out to the downtown Midtown area where my properties happen to be.

Fast forward to today, 1400 properties. That is a 55% increase. Now a couple more popular tourist destinations. We have Gulf Shores, which grew from 9,400 to 14,800. As of this year, which is a 36% increase, they are however, not continuing to grow. So they’re sort of holding steady.

And then lastly, we have one market that’s seen quite possibly the biggest amount of growth over the few years in terms of a popular tourist destination, and that is Gatlinburg, Tennessee.

And it’s gone from 8,700 units to 15,300 just in a few years. That’s a 43% increase. Now, if we look at the actual supply in this market, they’re actually decreasing, so a lot of properties come on the market. What does that do to your overall prices and returns? Unfortunately, that brings it down if demand is not staying equal, and that’s what we’re seeing in this market.

Some of that supply is coming off the table and that’s also what we’ll see in the market where I’m gonna break down my actual numbers in Memphis, Tennessee. But before we do, I just want to cover a couple highlights or things that you might wanna consider about big markets if you’re looking to invest in short term rentals.

The first thing is, is that if you are looking to invest in an urban type place, let’s take Phoenix for example, that has a lot of units, well. A lot of those units coming on the market are, are not vacation rentals. Right. Those were probably long-term rentals. People saw the opportunity, they saw that they could earn more than they could as a short-term rental, and of course they pulled them over, which is gonna be very similar to my setup in Memphis, Tennessee.

And just as it was easier for them to convert to a short-term rental, it’s also a little easier for them to go back to a long-term rental. So we can see the changes in these bigger cities happen on a faster pace. If you’re buying a million dollar or $3 million home in Destin, Florida, for example. Well, the buyer pool for that is not as big as a lower price point. So if you have a really expensive vacation rental, well, those just aren’t going to move as fast as a lower price property.

And there’s also not as many backup plans for a designated vacation rental, right? It’s usually not going to make sense to convert that back to a long-term rental. And so we’ll see in these vacation rental markets that a lot of time the supply is not moving as quickly as it would in a larger city.

So let’s jump to Memphis, Tennessee. I’m from California originally. That’s where I started investing. but I started investing in Memphis in 2017 because I saw a lot of opportunity there and it really was a gold mine and it’s been really great. It’s still is great to this day, but things have definitely changed.

If we go all the way back five years, 2021, this property was earning around $157,000 a year. Now, fast forward to today, it’s actually making about the same amount of money, but that’s not what the market’s done, and it hasn’t been consistent over the years. So twenty twenty one, a hundred fifty seven, twenty twenty two, it earned.

A little over $200,000. Now, this was right after COVID, right? Remember, everyone had been bottled up in their homes and looking to get out, and money was just floating through the air because the government had printed so much money. And so you’ll see this across the nation, across the world that 2022 was this sort of anomaly.

That is probably not going to happen again. And we’ll see the following year that those numbers returned all the way back down to around 156,000, uh, twenty twenty four, a hundred fifty 2000 and year to date, 85,000. And if we look at the year to date numbers, I’m actually pacing ahead of where I was the years before, so I’m making more money this year.

Now if we jump over to the supply five years ago. There was only around 287 units in this small little market that I’ve segmented out. This is Midtown Memphis, Tennessee. Fast forward to 2024 last year, 718 units. That is a 60% increase in supply. Now, you would imagine that that is really going to have a big impact on your revenue, and it has had an impact on my revenue, but not quite like the market.

 so the market in general has dropped about 18% in RevPAR. So that’s your total a DR, your average daily rate multiplied by your occupancy rate. Meanwhile, mine has only dropped 2.6%. So there’s a lot that goes into that, right? A lot that we’ve talked about on this channel. Of course, having an active revenue management strategy, having great reviews, having great operations, all of those things can help. But the reality is my price dropped a lot.

In fact, my A DR was actually down 14%, so that means my average daily price dropped 14%. Now I know that doesn’t feel good. I don’t like lowering my prices, but the reality is that had I not dropped that average daily rate, I would very likely be along with the rest of the market and I would’ve made less money overall.

And now I mentioned briefly there that I’m actually pacing ahead of last year. I’m planning on earning more with this property this year, and that is because supply has actually decreased. Now it’s gone down about 10% in this specific market. Again, this is an urban area, so a lot of people converted their long-term rentals over.

And supply went way up. It grew by 60% and they realized, shoot, I am not making enough money to justify paying the utilities and all the additional operational expenses. I’m going back to a long-term rental. That’s very likely what happened. and for those of us sticking around and markets like these where the supply is decreasing, then you’ve got some really good opportunity ahead of you.

All right, now let’s get to the juicy stuff. How much did this property actually make? And I think that this part is going to surprise you. So last year with roughly $152,000 in gross income. So that is before all expenses. It netted. So a net profit of almost 60,000, $58,429. So that includes all the housekeeping I had, that includes all the operational expenses, the utilities, all of that.

And that is a 38% profit margin that is not too shabby right Now this includes my principal pay down, not my cash flow, right? So I had about another $30,000 of principal or a piece of this property that was paid off, if you want to think of it like that.

So my actual cash flow for the property was only about 30,000. To be exact. It was $28,768, which would be almost a 19% net cash flow margin, right on the total gross revenue. Now, you might be thinking, Tim, why are you going through all of that work? This is a multi-unit building as well. There are multiple apartments here.

Eight, in fact, now, I know that sounds like a ton of work, eight units with all the operations, and you’ve only made $30,000 at the end of the year. Well, this is the nice part about it. We really have to look at our overall return, right? How much money have we invested into this property?

Now, I brought this property years ago. I spent over $200,000 renovating it. Putting in furniture, all of those things to make it look nice as a short term rental.

And then the best part about this property is that I increased the value of the property. I went back to the bank. I did a cash out refinance, and every single dollar that I invested into this property. I got back, that means that I have an infinite return. I have $0 invested in this property, and it’s continuing to pay me tens of thousands of dollars each year, and the forecast is looking good.

It’s looking like it’s actually going to get even better because the supply is coming off the market.

So these are my cash flow numbers. These are my margins on the property, but this actually doesn’t account for the tax benefits that I’ve gotten from this property as well. So a recent appraisal on this property brought it in almost at a million dollars.

I’ve already done a cost segregation study, which allowed me to take bonus depreciation. It allowed me to basically write off over $200,000 in income taxes. And so it’s not just that I got this property for free. Of course there was a lot of work that went into it, right? But I have zero invested in it. I make tens of thousands each year, and I also got to write off a whole bunch of money.

In taxes.

So the money that I borrowed to pay for this property came from the bank. That’s the most traditional way.

So the first one is, is that you can use leverage. You can borrow other people’s money. You can borrow money from the bank to buy a property. So that’s the first piece, one of five. The second is that you can rent this property out just like I am. And whether it’s a short-term rental guest or whether it’s a long-term guest, they’re still paying down the principle on your property.

And so in this specific case, this specific property. My guess paid down about $30,000 over the course of last year for this property. As you probably know, an amortized loan pays more interest upfront, and so the further you are into that loan, the more principle you pay.

The third way that you can make money with real estate investing is through the tax advantages. So I mentioned the bonus depreciation. We’ve done another episode on this already actually with Tom Wheelwright. Those were episodes 1 56, 1 57. For those of you that know Tom Wheelwright is Robert Kiyosaki or the Rich Dad Port Dad Author’s actual accountant.

He really knows his stuff. So go back and check out those episodes and that’ll help you, learn a little bit more about this tax advantage if you didn’t already know about it. The fourth way that we earn money with real estate is through cashflow. So I mentioned that I made around 156,000 last year, and at the end of the year after all those expenses was about.

$30,000 in cash flow. So after all the expenses, that’s money that was coming right back into my pocket. And then the the fifth way that we can earn money with real estate is through appreciation. Now, I don’t like to bank on this. We never know what’s going to happen in a market in the future, but I can say that this property’s now worth a million dollars.

And when I bought it, it was roughly $300,000. I had to put a lot of money into it. And so I forced a lot of appreciation, but the market also grew a lot and so that’s, added a lot of equity to my overall portfolio.

Now, of course, that money that I got back from that cash out refinance, I’ve used that to invest in lots of other properties along the way. So my overall portfolio has grown. And one of the nice things about having a larger portfolio is that if you have a year where you have higher expenses, you have to change the HVAC or change the roof or something like that, then you have more of a stable foundation, right?

If you have a lot of different properties, the chances of all the roofs going out at the same time is Is much, much less likely and the reserve that you need per property also goes down.

If you wanna find out more details about how I pulled all that money out of this particular property, went back in my pocket, I used it for other properties. You can go to sdr riches.com where we have all of our episodes. And this is episode number 85. Now, I know a lot of you out there are in some of these markets as have seen a really big increase in supply, so I want to talk about some potential solutions to help you earn a little bit more with those properties.

Some potential backup plans. If your short term rental is not earning as much as it used to or as much as you would like it to, you can evaluate whether it makes more sense to run it as a midterm rental. We’ve talked a lot about that on this channel. I. You do have less expenses, but your overall monthly rate is usually gonna be less than what the short term rental rate would be.

We also had another episode where we talked about pad split. This was a strategy where you don’t rent your whole house or your whole vacation rental. But you actually rent out each room, and now I know that sounds really complicated. It sounds like way more operations. It could be a really good solution for you, especially if you’re in a hard spot.

that company Pad split helps you coordinate and organize renting to multiple people just like Airbnb would if you rent by the room. So you can use both those options.

 on the income side of things. Now remember our return on investment, there’s two sides of it. We have all the income, but we also have all the expenses. And so. If you cut your expenses, your overall return’s going to go up. A couple things that you might consider.

If your insurance has gone up a lot over the years and you have a thousand or a $2,500 deductible, well consider increasing that to their maximum, maybe $10,000.

Another thing that you can do on the expense side, and this could have a really big impact on your actual net income, is that if you’re currently working with a professional property manager and they’re charging you 20, 30, or even more percent, we’ll consider taking it on yourself. We have tons of resources on this channel to help you do that.

And if you’re able to shave 20% off, remember they’re taking on your gross revenue. So if you’re able to shave 20% off, you’re very likely gonna be a lot more profitable with your property. Now another solution is to work with a virtual property manager like our team at Cosley. We’ve been doing this for a really long time.

We charge an industry low rate, and we also help. Our partners earn more than the market does traditionally, just like my property that I went through in today’s example. If you’re interested in chatting with us, you can go to sdr riches.com. There’s a little partner with us button there, and we’d love to talk with you to see if it makes a good fit.

Another thing that you could do is just improve your visibility with your property.

There’s not a lot of certainties with short-term rentals, but one thing that is certain for sure is that the more your property is visible to potential guests, the more demand there is for your property, the more likely it’s going to earn money. 

 So if you’re not on all the channels, make sure you get on all the most important channels.

And lastly, if you’re in one of these markets where you’re seeing the supply actually decrease, like the market where I have a lot of properties in Memphis, Tennessee. Well, hopefully you can hold on, right? Because if the supply is decreasing and the demand is not changing, then your income should start to go up.

Just as I’m seeing with mine.

The last thing you want to do is look at your real estate investment and ask yourself. How well is this real estate investment doing compared to my other options?

So if you were to invest the money that you had invested in the property, in stocks, for example, you have way less control in stocks, right? Uh, it really is out of your hands. It’s up to the market. It’s much more risky, in my opinion. Not that you can’t make money there, but you definitely don’t have five ways to earn money from stocks like you do with real estate.

If you were to put that money in a savings account, for example, at 3% or something like that, well you’re not doing very well there. Right. And if we look at your market, or really any market almost in the whole world, and we look the last five 10. 20 years. Do you know of a market 15 years ago that was worth less than it is now, or a property that’s worth less than it is now?

So if you can hold on, and especially if you’re in a market where you’re seeing supply decrease, well I think you’re gonna be in a really good position.

And again, if you’re a high income earner and you can take advantage of the STR tax loophole by getting bonus depreciation to help offset your W2 income, well then that alone could be enough reason for you to stick with your property or even buy more that aren’t cash flowing.

So there you go. There’s a bit of a recap on one of my personal investments, why I think real estate is still the best place to put your money. You wanna make sure that you use a tool like Air DNA to check the supply changes.

Find out if supplies leaving your market or if it’s still going up and up. Consider the whole investment equation, right? Are these tax benefits reason enough for you to invest in property? Hopefully they are. Do you have backup plans if this supply in your market has grown a lot? Do you have expenses that you haven’t looked at reducing it in a really long time?

There are a lot of things that we can do both from the income and the expense side, and I hope this channel has helped you uncover some of those. Until next time, I hope you have a fabulous week.