#219 How to Find Success in Short-Term Rental Investing

Welcome to the Passive Income MD Podcast where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now, let's get on with the show. Hey everyone. I'm excited today to talk to a friend, a partner of pimd. His name is Philip Kang. He is the founder of Wandery Capital and He has over 20 years of real estate experience with at least 15 years plus focus in multifamily apartment department investing. He has experience in all aspects of real estate, including asset management, operations, reinvestment development, all of these things. And he's been involved in transactions worth over $20 billion in terms of the total assets that he's been involved in some way across multiple states. California, Seattle, Texas, Colorado. And now he is running a company called Wandery Capital. We'll talk about that a little bit later. For me, I'm going to just preface it by saying it's an investment company that manages unique investment funds, specializ in luxury short term rentals. That's the conversation we're going to have today around luxury short term rentals. How everyone listening to this can take advantage of what's in that market, what it is. Talk a little bit about the finances and just going to try to find out as much as I can about it by extracting as much knowledge from my good friend here, Philip. How you doing?

I'm good. Thanks for having me. Looking forward to it.

Yeah, I'm excited to talk to you because you're someone who's really knowledgeable in this area. We're going to get to your story about how you're doing all this, but do me a favor and did I do a good job introducing you? Is there anything else that you want to add to that?

That's perfect. Your, your description was accurate. For what we do specifically for our investment fund, we do focus on large luxury short term rentals, but other than that. Spot on.

Yeah, all right, sounds good. I mean, we're going to talk about short term rentals. Like please explain to me, like, is there a difference between that and. Some people have heard of like just renting Airbnbs. Is that really the same class and asset class? Can you mind just kind of shedding a little light on that?

Yeah. So the, the technical terminology is short term rentals, which is less than 30 days. Short term rentals were predominantly assigned to hotels and motels back in the day. Then Airbnb comes onto the scene and now people use Airbnb as a verb. They say, I'm Going to Airbnb this, I'm going to Airbnb that. But an Airbnb, just for the record, is a short term rental. So short term rental, Airbnb, vrbo, these are all the same thing.

And so when people are thinking about investing in that way or you know, getting their own short term rentals or investing in funds in short term rentals, like what do they initially get excited by it, like versus just renting maybe a, or just buying a standard investment property, whether it's a single family home or buy an apartment building. Like, what makes short term rental investing stand out for you?

Well, I'll give you two answers. One is sort of the generalized masses, like how they see it. And I'll tell you what excites me. But this is a unique, not asset class yet, right? And so people know, office people know, warehouse people definitely know multifamily. These are traditional asset classes. They are priced a certain way. There's an intersection between supply and demand and that's how the market is run. Short term rentals are exciting because we are the infant stage. And so Airbnb short term rentals have been around 15 years. Airbnbs, you know, over the last 10 years have really grown. But professionally this is just the beginning stages. So Airbnb is the biggest disruptor in the last 10 years. And now professionals like myself who specialize in real estate are really starting to take a look at this because the returns are so great. What makes it exciting is that you are piggybacking off of hospitality. It's not just, hey, this is a 12 month rent, my rent is $2,000 a month, I'm going to get my check is fine. This is a new pioneered venture path where you're combining hospitality, such as hotels, together with residential homes such as single family rentals. And you're combining it together and it's becoming this really cool hospitality driven real estate investment. But it's based a lot of it on experience, aspirations, architecture, design, amenities. These are the things that really boost short term rentals, which is exciting for the guest that stays there, but also for onlookers through Instagram or just through the Internet that looks at these awesome like lazy rivers and murals and pickleball courts. And so it draws a lot of excitement. Even influencers who they may not have a personal need to stay at a short term rental, they will drive to certain destinations just for their own content because their followers want to see it. The technical viewpoint on short term rentals is that because it's early, the return on investment is very, very high. And so we can get into kind of where is. And it's not universally high, but in the right places. But when you compare traditional investments to an early stage investment like short term rentals, the return on investment is very high. So investors are extremely, extremely excited about this opportunity. Cool.

I mean, let's talk about those returns real quick. Again, this is, you know, real estate is variable depending on location. You said type of thing. But how is that different in terms of expectation for what people will receive for in terms of returns for like short term rentals versus maybe the good comparison is like investing in apartments or buying your own rental properties for that long term rental might just share. Just kind of comparing those two real quick.

This is a generalized statement. Again, there's nuances as location, seasonality, what type of house and is it large or luxury or not. But generally for a very sought after short term rental investment that is accretive can get almost double the return of apartments today. So you know, if you say a 5% cap rate, for those who understand that, we look at a 10% cap rate. Right. If a syndication says they will send out 4% distributions, we are 8% distributions. And so look, sometimes more, sometimes less. But if you find the right short term rental operated by the right investment group or general partner, you know, we like to see returns that are double and it needs to be double because again, this is not an asset class yet. Right. There isn't like all this historical data and resources that tells you in the last 10 years the market has done this like we are pioneering, trailblazing a new path and so it is considered alternative. Some equate that to risk. I see that as a hedge against risk, which we could talk about later. But since it is alternative, the returns have to be better. But again, not all short term rentals get those returns. Right. You still have to buy the right one and operate it well or join an investment group that will do that for you.

I mean it was all the rage a couple years ago. Is that just because Airbnb just became more well known? And then where is it now after all that kind of craze of all the short term rental type stuff over the last couple years?

Yeah. So there's an excellent site called Air DNA and they are not affiliated with Airbnb, but there were some smart guys that basically took a scraping software, started scraping data from Airbnb, created analytics for pricing for short term rentals across the nation. I find that to be very useful. Looking at trends in macroeconomic trends. So I started looking at that before COVID and started to realize that the Airbnb space was starting to grow and they were going pretty fast even then. What happened was Covid happened, right? Economy would shut down. Hotels, cruise lines, any type of public space was all shut down. And the only thing that was open were these short term rentals with limitations. And that in itself put a booster shot, a steroid shot to short term rentals. And if everyone remembers, it was this huge craze where everyone, everyone, it's all about suburban. You know, everyone's going away from urban areas and towards suburbia. They wanted more space, they wanted outdoor, they had to, you know, they didn't want to shelter in place. All of that kind of led to the fact that people were starting to use Airbnbs and short term rentals regularly. And along with that, what we saw was the rise of the digital nomads and the influencers, right? All they need is a cell phone and a wi fi signal and they could work. And so we see this huge rise and in 2021 it just exploded. And obviously when there's that type of growth, investors will start to come onto the scene. And so what we saw was that there was about a 12 month window, maybe 18 months, most where you could purchase any short term rental in any decent destination. And you crushed it, like crushed. It did very well. What happened is the economy opened up, right? The hotels opened up, cruise lines opened up, right? All the public spaces opened up and the, the artificial or the temporary demand, that's a better word, started to subside, but a lot of supply continued to enter into the space. What happened there was that we saw prices fall. So like there was that hashtag of Airbnb crash or the fall of Airbnb happened. And some of that was real. That was definitely real in certain places. And what we saw, this applied to us as well as others were the homes that were carefully designed with great amenities, luxury based, high tier and great destinations continue to do very well. And it started to progress. People were becoming more luxurious and you know, with, with cooler amenities. And those today continue to do very, very well. And so like it's on one hand the competition has become very, very fierce. On the other hand, there's still opportunity if you execute it right. And so that's where we stand today, is that sort of the, the temporary boost where everyone makes money using short term rentals has pretty much died off. But the investment opportunity in certain short term rental destinations, correctly executed with the amenities and the size continues to do well.

Have you ever thought about investing in luxury short term rentals? If so, let me introduce you to Wandering Capital, a powerful, distinguished investment firm. And they're shaking up things in this whole space. They're currently launching their second short term rental fund and I want to tell you it's a passive income opportunity that might work for you. It's hard to ignore this one because they're all about enhancing the travel experience for larger groups, focusing on thoughtful design and having special amenities that make a stay truly unforgettable. It's stuff that you and I would want to stay at. So what I love about this company, Wandering Capital, it's their dedication to delivering exceptional results. And their experienced team makes sure that investors not only enjoy robust, really nice returns, but also benefit from the highest standards of quality. So whether you're an individual investor or you're part of an institution, they treat you the same. Wander Capital offers a truly unique opportunity that blends short term rentals. Those are luxury ones like think Airbnb with solid financial returns. So to learn more about Wander Capital, check them out at www.wanderycapital.com laundry fun 2 w a n d e r y so www.wanderycapital.Com wandery fund 2 all right, thanks everyone. Back to the show. Let's say somebody wants to get into it now and someone wants to buy their own Airbnb short term rental. As you know, with physicians, there are some, potentially some, some really nice tax benefits getting into shorter term rental tax. The short term rental tax loophole I've talked about in previous podcasts. Yes. So there are a lot of, there are a lot of physicians are high net, you know, high income earners that are looking to get into that. And I'm sure there's some fear about, hey, how do I do this and where do I, you know, what kind of investment do I get into? What, what are some of the top criteria or that you maybe just advise people to look for went against that so that they can make sure that they get into the right property versus running to one of those things that you talked about where maybe again those. The crash. Right. Or they got into somebody's power. Like what distinguishes one good one versus a bad one.

So first and foremost, the number one most important thing is you need to understand the short term rental ordinances in that city or market. It's critical. Right? It's not a recession, it's not these international wars. It's not the rise of interest rates like these all play a Role in everything. But you must understand where does that city or that market, where do they stand with short term rentals? Do they approve it? What is the application process? You know, what do you need to get a license, Will it get renewed? What does city council say? What percent of hotel tax revenue does that city take from short term rentals? And so like these are the things that you have to look at. In theory, any city can get short term rentals overturned. Like the approval of short term rentals in it won't happen, but in theory they can. And so what we look at is we love to focus strictly on vacation travel destinations where there is a great need for hotels but there's not enough. And there's these venues and there's these events and there's a draw that will take people there because that city lives off of that. Right? It lives off of these events. For example, we never looked at the city of New York, which there was these tough ordinances that basically shut down short term rentals. We never looked at it. Right. We passed on Phoenix, not Pooh in Phoenix. It's, it's a nice city but it's more of a pass through. And you know, there's some talks about pushing back on short term rentals. We looked at Sedona, which is an awesome destination for short term rents. Hillside, Mount Thunder mountain views, very little hotels. People will go out of their way to drive there and they want luxury and there's not and there is not enough of that. And the other example is the city of India, which in my personal opinion is the safest short term rental destination. However, that has become known to the public and there's a huge influx, there's enormous supply of short term rentals in the city of Indio. And what we have seen is that like in 2021, a three bedroom house, 1800 square feet with a little pool did well. Great. That has changed. 2022 has become more competitive. We started buying homes that are larger, probably 3,500 square feet, seven bedrooms on 10,000 square foot lots. Those continue to do pretty well for us. If you, if you don't invest in design and luxury in the amenities that we do, then that'd be, you know, that'll be very hard. And so like number one, long winded short term rental ordinances, you need to understand that number two is design and luxury. I pushed this forward because it has brought a lot of success to us. And people these days really vacation based on experiences and they like to move in groups. So there's sort of a change in consumer behavior where instead of getting four hotels at the St. Regis where you don't have your own kitchen and living room and private pool, they will come together and just stay at a large luxury short term rental. And actually that is more affordable on a per night basis than that. Right. So design and luxury. And third are photos. You need amazing, amazing photos. Lot of people use their cell phones. No, can't do that. Some people pull out their own high powered cameras. We actually bring in professionals and we take multiple shots. We do twilight, we do dusk. Right. We do aerials and then we enhance them as well. And it's, it's very, very, very important. Do not go cheap on photos.

I mean, what are the, what are the. I mean one of the questions I hear quite a bit actually is, but how it must be a pain to manage or management's like really expensive. Can you share a little bit more about how you guys deal with property management on that and maybe share some of the concerns that you might have or how to choose, like you know how to choose a good one or kind of deal with that situation going into short term rentals.

Yeah. So I mean the argument goes both ways. If you were to manage it yourself, you will make more money. It's pretty simple because you're not paying a 15 to 25 management fee. Right. The problem is you don't want that phone call on a Friday night when you're hanging out with your kids that the toilet doesn't work. Right. Or you want to go on a family vacation to Paris but your weekend isn't booked and now you're scrambling to try to find guests or somebody can't turn on the, the pool heat, which is always a, it's, it's always a question. And so like it, it's a decision based on time. If you dedicated your time to it, most definitely you can manage it. You should manage it. You'll probably do a better job because it's your own property. You will make more money. However, you're introducing a lot of things that will suck your time away. Right. And so I, I always ask people, hey, like what are your priorities? Like it's to maximize my return on my investment. I must make the most money I can. You should manage it. Right. If your priority is decent income or passive income or you know, I need a tax write off, I want to use it personally and I want to make some money off of it, then you should outsource it or, or just invest in a fund that will do that. All for you. Right. So it's really a trade off. I think the public has sort of demonized both sides to it. Either romanticized or demonized both sides to it.

Right.

So it, it just really depends on what your priority is and what your comfort level. Like, we tell our investors, you invest, you get a check, no work, you literally the only work you do is you take the K1 we give you and you hand it to your CPA. That's all the work you do. But then I do know people who, you know, are very active with their short term rentals. They like engaging with the customer, they like the logistics of it. It's like they're building something and using the different part of their brain that's different than, let's say in the medical field. Some people like that and they should definitely do it. Hi everyone.

I'm super excited to tell you about PIMDCON, the Physician Real Estate and Entrepreneurship Conference happening on September 26th through 28th this year, 2024. As always, we're bringing together some of the smartest minds in real estate, investing and entrepreneurship live to speak at the event. Now, I've been to a ton of other conferences, but what really sets this conference apart from other conferences and this is totally intentional, it goes way beyond the speakers. It's being part of the community that's created at our live events. We have different tracks focused on real estate, investing or entrepreneurship, so you can customize your experience and focus on what matters to you the most. We have a ton of expert speakers, we have panelists, we have workshops and masterminds that will help you gain the knowledge and confidence you need to take your next step towards achieving financial success and independence way beyond medicine. And it's not just about the information you're going to learn from the speakers. It's about the conversations you're going to have with other attendees that I know will spark new ideas and inspire you to take action. Every single year, people leave our conference behind and they launch their real estate investing careers, while others grow their portfolio or expand their entrepreneurial ventures in really incredible ways, even in ways that none of us would have imagined. So this year will be no different as you leverage your big ideas to expand your vision for what's possible. You just have to show up. We're so, so excited to announce a new location for our annual event. We're doing it different this year. We're also offering in person specials and tickets, especially if you're getting your tickets early. So join us in person this year in Dallas, Texas. The middle of the country. So everyone can make it on September 26th through 28th. Just so you know, there's a virtual option for those who can't join live. So don't miss out on this opportunity to connect with a community of like minded individuals and gain practical skills and knowledge to help achieve your financial goals. I'm excited to see you there. Click the link below to learn more. I'll see you there. How did you get into this space? Because again, your background is you, you know, you've done real estate but at a different level. Like how did you end up in this short term rental space?

Well, like, I've always loved to look for value that's hard to find. So when I was in multifamily, I specialize in distressed and broken old, you know, C product in great locations and spending millions and millions, millions of dollars renovating it and adding value. And so everything is kind of linear, sequential looking. I see the property as it is now, an ugly duckling and I look at the market, I'd be like, wow, there's a good gap there. What do I need to do to this piece of real estate? So I get the higher rents and is that incremental higher rent enough to justify the brain damage and all the costs that I'm going to put into. Right. Transforming that real estate? And that's how, that's how I cut my teeth. I'm very construction oriented and so I like taking broken pieces and making them into masterpieces. Not to sound corny, but that's what I like to do. And so when I looked at the, at Airbnbs, it was the same thing but more on a macro level. And so I've been doing real estate for almost 25 years. Residential 20 plus and multifamily 15. And when you have that experience, you see the long term view and you, and you can recognize patterns. Right? And so I'll give you two quick examples. Multifamily is highly institutionalized and professionalized. We all agree in the 1960s and 70s it was mostly high net worth individuals and families that owned it. It was not institutionalized. People laughed at you. If somebody said we're gonna trade Wall street, you know, like Wall street is gonna start buying and operating apartments with billions and billions of dollars. You got laughed at in the 70s and 80s. And then, you know, REITs came onto the scene and all these like investment grade investors came on and the most recent one is single family rentals. If somebody said that you were going to operate single family rentals, institutionally or professionally, you really got laughed at, right? It's like, how do you scale? You got 5,000 homes scattered all over the place. Long story short was you see these patterns and I saw them and I was very excited to look at the potential of short term rentals since it was so misunderstood. Buy it right now at a really good investment on your money, but also lay the foundation and harvest sort of the investment so that three to five years from now you would get this really big pop. Because the market does not understand short term rentals accurately is considered sort of a mom and pop. More people are starting to professionalize it, like ourselves, but it's misunderstood. And so I really, really got excited about taking an opportunity, looking into the future, adding value, making money today along the way, but also getting that pop to say, yeah, we looked into the future and we were right. And make no mistake, short term rentals will be institutionalized soon. Exactly when, I don't know. But all the pieces are starting to come together. And so like, that's what really excited us about it.

I mean, it's such a cool journey. I mean, for a lot of people that are on this journey to figure out how to create, especially in this audience, how to create other streams of income, a lot of people are doing it through real estate, some people building businesses, short term rentals definitely comes up here and there. And so you talked about time and you talked about these different needs or interests for people that are investing in this type of asset. So for a lot of people that are out there, a lot of them are physicians, high net worth individuals, when they're trying to decide, okay, I want to be in the short term rental game, but whether I own my own property or invest in a fund that actually manages short term rentals, like, what are some of the considerations that they have to have also in terms of, hey, where do I go? I mean, again, it doesn't have to be mutually excluded, exclusive, right. I mean, people could do both. But when you start thinking about it, like, what are some of the differences for people when they start thinking about one versus the other? And in terms of pros and cons and advantages.

Yeah. So I always tell people they're not mutually exclusive, right. It's not like a zero sum game and you have to pick one, you can't do the other. When I've, I've been at PIMDCON 2022, 2023, I will see you at 2024. But my advice is, you know, just get started, right? So one is you can start to do your own research and network with other fellow physicians who have short term rentals and just copy them just by the house next door or across the way. They will disclose their revenue, they'll show you their expenses, assuming you know, they're willing to open their books. But that's the type of, of due diligence and underwriting. It's real data and if you feel comfortable with it, you should go forward with it. You can buy a smaller one, I would say just to try to make it unique. And I have found that luxury with higher end finishes helps, but that's one way to go. And the other way is, you know, one can, one can consider investing within an investment group like ourselves. Like we will do the work for you, but we are pitching you like, right? We want you to invest with us, we want your capital. Almost every fund or syndicator has some type of investment deck. The market, the opportunity, the risk, you know, the next three years. What does the medium term, long term look like? Like these are things that you should think about that, that, that like a fund will just give it to you on a silver platter. And you can look at that as a framework and just to analyze short term rentals to see if it makes sense to you. You could even apply that to your own short term rentals. So one avenue is do some due diligence on people like ourselves. And if you feel comfortable, you can make an investment. But then you will have their dec use it as a framework of how you could do it yourself later maybe on a bigger scale. Right. Maybe as you get more comfortable you can, you can combine it with some other physician doctors and do a little consortium of investors and buy something bigger or something like that. So again, it's not mutually exclusive. You need to get your feet wet, you need movement, got to start somewhere, right? So you can either tap into it yourself slowly on a smaller scale to avoid risk, or you can invest in an investment fund or you can maybe do both.

I mean considering where we are at in the market today, there's a lot of talk of, I mean interest rates are probably going to be here for a little while, higher interest rates. There's always this talk of inflation. There's concerns about where the market is going, especially the housing market. We've seen what could happen in commercial space, but residential homes are still relatively high and resilient there in terms of the pricing. So do you think this is a good time right now for short term rentals or is this something that people should be waiting on Is this a opportunity type of opportunity? Like, how do you feel about that?

No. There's a deal to be made all the time. Let's just be clear. I've been doing this almost 25 years. I've been through the Great Recession of 2008-11 and 12. A lot of people who've been waiting since the Great Recession or even thereafter for the next recession have missed out on a lot of opportunity. Just so people know history is your friend, but can also be your enemy. What happened in 08 never happened in the history of the world. When mortgage bonds imploded, they said that can never happen, right? For those who actually acted right and started hedging against it, not to get too technical, made a lot of money. Then there was a rise right after the Great Recession and everyone was buying real estate. And then there was a little bit of a lull in 18. A little bit. And some people said, it's been 10 years since the recession, there's going to be another big recession. Everybody should get out. People who bought at the right time did very well. 18 to 20 was a really good time. And then during COVID right, During COVID many people were afraid because the economy was closed, stock market crashed, everything closed. And there were those who still did their due diligence and purchased it. Anyone who bought in 2020 real estate, you know what I'm talking about, like you had, you achieved returns that were massive, hence the great inflation, right? We went through the great inflation. And when inflation happens, guess what? You want to be holding real estate. So now we're at a slightly different time because we're in 2024. The Fed is trying to fight inflation, interest rates are high. But right now there's uncertainty and fear. And when there's uncertainty and fear, I have found that that trumps fundamentals and there's opportunities. It's not easy to see, but you have to look for it, right? And so like we purchased deals in Sedona, right, when interest rates were spiking 2022, and everyone was afraid and it became one of our best buys. We came in all cash, we undercut everybody. It was a great buy for us. In the city of Palm Springs where they're actually starting to ban short term rentals. Everyone ran for the hills, right? That's what normal people do. We looked at that and said Palm Springs is a travel vacation destination that will never change. Everyone knows Palm Springs, there's going to be high short term rental demand. But we, we're not buying residential because it, it's not safe. So what do we do? We bought these broken, distressed hotels in Palm Springs, right? And we started, we, we converted those in these awesome Airbnb hotels. And it's starting to do well. And now I don't want to think negatively upon a city, but if they did ban Airbnbs, that would be a huge windfall for us, right? And so in every situation, there is an opportunity to buy, but it's not going to be so apparent. Like, you can't look at the Wall Street Journal and say, well, this is what this article said. Now I'm going to buy there. It's too late by then, right? And again, we spoke about this at your last conference and there's some advice to physicians is you can't do your due diligence based on major publications. They just want advertisements, right? You have to look in, down in the trenches, right? You have to get. The real estate phrase is eat the dirt. Get close to the dirt. You have to eat the dirt and understand, like, is it the city? Then there's the block, and then it's the lot and orientation of the lot. And you have to know the property managers and the brokers and, and do your homework, right? Or you can invest in a fund who will package this up for you. And you should be asking these questions anyways, right? So, so, like, you know, those are the things that, like, come to mind.

I mean, this is a great overview. I mean, there are so much more I want to ask you about the space, considering your, your experience, and we'll do that in another show. I want to be, I want to be conscious of your time, how valuable it is. People, some people might listen to this and they might be interested in finding out more about you and what you do and wandering capital, where's a great place for people to do that so.

They can find us at wanderecapital.com www.laundrycapital.com and we just launched our Instagram Stay Wander. So if you, I think it's a hashtag, or if you do stay wandering Instagram, you will find us. We are the home of the Lazy River. We just purchased a big, awesome Lazy river house that a lot of people have asked us about. So definitely reach out. There's a lot to talk about here. And whether you invest with us or not, it's, it's one of our, one of our endeavors is to really educate the public, right? Since, since, since day one, when, when I started speaking to physicians in 2022, we were just trying to educate them, saying just you can ignore it, but it's coming your way. Short Term Rentals will be a real estate asset class. It's up to you how to take advantage of that earlier on and and it's still a little early, so.

Awesome. Well, thanks for your time. This was a lot of fun. Again, we need to do this again soon so that dive a little bit more into details. I'm sure people want that, but really appreciate you what you're doing and in your partnership with pimd. But thanks and just keep up the amazing work. Let's talk again soon.

Absolutely. Thanks for having me. Appreciate it.

All right, thanks. Bye. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. Learn more at our Website, passive income md.com thanks again for allowing me to be a part of your journey. See you next time.