Episode Transcript
[00:00:02] This is Short Term Rental Management, the show that is all about short term rental property management with your host, yours truly, Luke Carl.
[00:00:16] It is short term rental management with cash flow. Carl, I'm happy to be here. I'm wearing a metal shirt.
[00:00:26] I was wearing like a, you know, regular shirt a little while ago and I said, nah, we gotta go metal today, man. So Metallica, it is grateful, grateful to be here with you in this new year. Here we go.
[00:00:40] Time to start fresh. Time to start getting, you know, ambitious and kicking some rear end and all that fun stuff. Today we're going to talk about past performance of a property. Specifically in shopping. For shopping purposes. Do I care about rental history on a property when I am buying a property? The answer to that question has always been no. Traditionally you do not care about past performance on a piece of real estate when it comes to vacation rental real estate.
[00:01:15] Now I will say that's where it gets a little weird and, and times have changed. Okay, I'm going to defend the old ways now and say that we don't care. The way this property was managed before has nothing to do with the way we're going to management or it's going to be managed in the future and therefore the income will be different.
[00:01:34] And this is where it gets really weird with income on an overnight rental. And a lot of people have a problem understanding this and wrapping their head around it. And I will say right now, short term shop does not give numbers. We have no way to prove what a house will do. There's no way to prove what a house will make until you have owned it for a year. And then even the second year after that maybe you get lazy and you change your mind. I saw a property recently, it was talking to a buddy of mine with self managed property. They did something like 80 grand gross income and the next year they put it with a property manager and they did 50.
[00:02:10] So we're talking almost cut in half.
[00:02:13] And I'm not saying that every property manager is going to do, you know, 55% or whatever that number is of what a self manager can do. There's self managers out there that will make less than the world's worst third party property manager.
[00:02:30] It's all relative.
[00:02:33] And where this comes into play is with residential rental real estate, commercial rental real estate and you know, apartments.
[00:02:43] Because in apartments we have a lease. We know how much is supposed to come in every month. It makes it a little easier to do some numbers or at least have some sort of prediction. But we don't have that in vacation rental real estate, we don't have a lease, we have no way to prove how much is going to come in until we have some actual, you know, history, some actual evidence of what can possibly happen.
[00:03:11] And up until recently, I would have told you that you were crazy for giving any kind of a crap.
[00:03:19] Can I say that about rental history? It just doesn't matter.
[00:03:25] But now here lately, I do think we're starting to, it's starting to change a little bit. I think that buyers are becoming more sophisticated. This asset class has changed a lot since, since we first started, we meaning the short term shop. And I think it does give a buyer a warm fuzzy when they see some rental history that rocks. Now you and I know that. Well, most people listening to short term rental management know that it is all about the manager and what that manager can do with that property.
[00:03:58] And seven different property managers are going to do seven different gross incomes on a property.
[00:04:03] And if you've got one or two of these things, you should be getting to the point where you can look at a house and say, I can do this much with it.
[00:04:10] But when you're new, you don't have that warm fuzzy. You don't have that. So you want the warm fuzzy of the rental history to maybe push you into buying the deal. Oh, this one can make that much. I want to buy that. So I, I think at this point in time the tables have turned a little bit and the buyers coming in that are brand new, maybe they don't know anything about short term rental or short term shop or you know how sophisticated this can be.
[00:04:36] They've never heard of short term rental management, which you need to turn them on to my show. I'd love to have them listen, give me a five star, please hit me with a five star. I'm out here preaching my guts out. But that person, it makes them feel good to know, oh, this house did $100,000 last year.
[00:04:54] So in the back of your head, somewhere in the very far back, you should be thinking to yourself, the more I, the better I do on this, it's possible that it will be easier to sell. I don't think that it's going to change the value really much, but it might change days on market, how long it's sitting there, et cetera. Because things are as of right now, as a recording of this podcast, early 2025, things are setting for a long time. So if you have two identical houses, identical price, it's possible that the one that has higher rental history might sell before the one that has lower rental history. And that, that does make sense. I can see that argument, you know, and I'm again, I'm talking about the regular old Joe from Tuscaloosa who's got a day job and doesn't know anything about rental real estate. He just wants something for his friend, his family to use and his friends to use. He's a wealthy guy. He's got some extra money to spend. He's going to put it with a property manager. Oh, this one did 100. This one did 80. I think 80. 100 sounds like a better number than 80. Let's buy that one. They're the identical. They're, they're, they're identical. They're the same damn house. You know, that kind of thing.
[00:06:04] So I think because this has become more of an actual, you know, real deal asset class where people understand it a little bit now, people kind of know what Airbnb is. It's not like this new thing that nobody's ever heard of. I think we are finally, as of today, as the launch of this podcast, we do give a rat's rear end about rental history for the first time ever. And I think the reason is, is because it could make it a little easier for you to sell it someday.
[00:06:38] Maybe that's my argument again. I do want to hit home. You probably won't get any more money for it because of your rental history, because at the end of the day, and it's appraised, it's an appraised asset based on the comps and the name neighborhood, not on rental income.
[00:06:53] And I also want to hit something home that the Short term shop does not give numbers on properties. We are not going to say this how we think this house can make that much money. That is a dumb idea. We are not going to do that. But we'd be happy to help you look at properties and guide you in the right direction, which is what we do. Shorttermshopplus stsplus.com this episode of the Short Term Management show is brought to you by Short Term Rental, Long Term Wealth. This is the book in the STR space written by my lovely wife, Avery Carle. It has hundreds of reviews on Amazon and it will teach you literally everything you need to know about str.
[00:07:33] Short Term Rental, Long Term wealth, the book, wherever books are sold.
[00:07:39] Okay, now I do have to give credit where credit is due. I actually got this idea from my lovely wife who happens to be the president of Vacation Rental Real estate, Avery Carl. She's the goat she's the greatest of all time. She has changed so many lives with her endless giving, her relentless quest to give more knowledge to people like you and to me. And I got some knowledge from her on a recent podcast, the Short Term show Avery Carl. And the the title was Surviving the worst Real estate market in 65 years.
[00:08:19] I listened to that episode, came out on December 18th. It was fantastic. And I got motivated and I cut this one for you here on short term Rental Management because they made a few good points on there. I think we are now finally to the point where rental history does matter in some capacity. And again, it's to help it help you possibly be able to sell your house a little quicker than the next guy. So again, just one more reason as to why you should be an awesome property manager and listen to my show and listen and pay attention and do your job. And then I also want to mention again back to the long term rental thing. The apartments, it's very, very common in short term rental for somebody to say, well, it did this much last year, but it could do this much. Well, I could have been the bass player from Metallica if I wanted to be. That's exactly what, that's what you're saying. It could have done this. I could crap rainbows if I wanted to. This house could do 120,000 if it wanted to.
[00:09:28] Who's even telling you this information? Where are you getting this information?
[00:09:33] And in the defense of vacation rental real estate that has been going on in long term rental real estate, regular old rental real estate forever, you can go look at any given average, whatever apartment building complex in the on the planet and it'll say current rents are this much. Market rents are this much. According to who and how much work do I need to do on all those units to get those markets market rents up to where you think they should be or could be. And who are you who came up with this number?
[00:10:08] It's ludicrous. Where are these numbers coming from?
[00:10:12] Because if you don't have a signed lease and residential rental real estate, long term, you know, apartments, what are we just making numbers up now? Are we making numbers up? Well, the rent could be this much. Market rent is this much. And what do you have? This exact same unit next door that's renting for that much. Are there units in that building now? Maybe I'm going to give you the benefit, benefit of the doubt. Maybe there's other units in that same building renting for your market rent and you can bump the rest of the building to that. Now, hopefully that's the case and we find some people with integrity that we can trust. But in general, I think people are just making crap up, you know, and that's been going on forever. Well, market rent is this much. And you. You could buy. Here's the pro forma. Pro forma. You know what I mean? Well, here's what the actual rents are right now. But here's my pro forma.
[00:11:10] Here's what some random dude decided that it could rent for all over while he was having his third cocktail. You know, pro forma.
[00:11:21] Run your own pro forma. Absolutely. Decide what you think it can rent for. Don't listen to some other idiot. This is apartment rental real estate, which I've got a ton of apartments. And this goes on every day. And these people, they try to. The seller or whoever tries to say, well, the pro forma says this, the pro forma says that.
[00:11:44] Well, I'll tell you what, why don't you take your proforma and shove it right up your hoo ha. Because I don't care. I'm going run my own quote unquote, pro forma. And I ain't gonna call it that. Cause it's a stupid name anyway. I'm gonna call it the what I think this property could rent for. And I'm gonna figure out my own damn numbers because I'm good at doing my job. And this is my job to learn how much money this thing could make so that I could create a better future for myself. It all goes back to holding yourself accountable. It's a new year, 20, 25. You gotta hold yourself accountable. You need to be able to figure out what the numbers are going to be on this damn property. And if you can't do that, you need to go get a mutual fund.
[00:12:24] All right, I'm making a lot of sense. I am. I'm making a lot of sense. But I want to hammer it home. Let me bring it back to the actual thing that I was trying to talk about today, which is, does rental history matter? No, it doesn't, traditionally.
[00:12:39] And it doesn't matter in the sense that this house rented for $80,000 last year.
[00:12:45] That's what one can assume. It will rent for next year. But next year it's got a different property manager. Maybe it's you, and it's going to rent for a different number.
[00:12:54] Maybe that guy that did 80 grand on it last year is bored and sick of it and is going to do 70 this year.
[00:13:01] So you have to have the guts to Sit down, run some numbers, figure out what the damn property is going to make. But I will say we are at a point now where rental history does matter when it comes to the ease of selling your house. There's a lot of real estate sitting on the market right now. And if you have a beach house that is renting for more than the one next door that's the exact same house, I think you're going to get it sold a little quicker than the other guy.
[00:13:31] We're finally to a point where rental history, I'm willing to admit it, I think it does matter to a small certain extent. But it does not matter to the buyer that is trying to run numbers to figure out how much he can change his future. Or she.
[00:13:48] If you get into this because you saw a rental history of 80 grand and that was going to work for you on this house and you bought it because of that rental history mistake, you need to do more research, pay more attention. Listen to my show, join Short Term Shop plus, we'd love to have you.
[00:14:06] Okay, rental history does finally matter. We're at a point where it matters. I want to thank Avery again for giving me the inspiration on her show, Short Term Show. Please listen to her. You can contact me anytime, Luke, at the Shorttermshop.com Please leave me five stars. I love you. Don't overthink it.
[00:14:31] It.
