2024 Market Predictions… where should you put your money?

So here we are, 2024. Oh my gosh, I can't believe it. So much happens in a year, doesn't it? I would encourage you, if you're out there and you're an entrepreneur, you have your goals set just to take a look back at 2023 and write down maybe your top 20 accomplishments, the top 20 things that you got done last year. Because a lot of times we're looking forward to the things we haven't done, but. But we're making a lot of progress along the way. I get bogged down personally by looking into the future. And so this is a good practice that I do to go back and revisit the year and see all the things that I'm grateful for and all the things that we achieved. I promise you, you've got a lot of things hiding in there that you achieved last year. And so it's a good practice and you will enjoy it and you will just feel good afterwards. So looking forward into 2024, I definitely do not have a crystal ball. Before we get into that though, I highly encourage you to set some goals. Make sure you write them down. Remember, less than like 5% of the population actually writes down their goals. And if it's just a thought, then it's really just a dream. Right? So if you haven't acquired your short term rental yet, well, 2024 could be the year for you if you plan accordingly and you get that down in your goals. I'm getting ready to head out on a cruise from California to Florida actually. So it goes all the way down Central America, goes through Panama, then up the other side. Ironically, it goes back to Columbia where I spend a lot of my time. But it's going to be a good trip. Apparently they have good Internet on the cruise. I know I've been on cruises in the past, have good Internet. Now a lot of them, I believe, are using Starlink. And so this particular cruise line said that it's got pretty good Internet because I do plan on working during the cruise. Part of what I'm going to be doing is planning for 2024. My goal is really revisiting everything. So make sure that if you haven't set aside any time for that, just take at least a little bit of time because again, a goal without a plan is just a dream. I want to do just a bit of recap on how I see the macroeconomic environment in regards to real estate before we jump into short term rental specifics. So I did talk about this a little bit on episode 213. So if you missed that one, go back and check that out. But I'm just going to kind of recap it here real quick. I like to break the real estate market in two pieces and so do most real estate professionals out there. We have a commercial real estate market and we have the residential real estate market. The residential real estate market does not have a lot of supply because interest rates are high. And people are just basically not selling their homes because they know if they're going to buy another one that it's going to cost them more because interest rates are higher. And so the other side of that, people are having a hard time purchasing homes. So properties are sitting on the market longer. It is now a buyer's market. It has been for a while. And I expect that to continue into 2024. Even though we're very likely going to see a few interest rate declines. I'm going to get more into the actual interest rates here in just a second. But we have essentially restricted supply in the residential real estate market, which means those prices aren't changing too much. Although if you've honed in on a few markets that you've been looking at, I guarantee those properties have been staying on the market long. You have more negotiation power. And a lot of markets I've been looking at, prices have been dropping. So I think that will probably continue into 2024. If we look at the commercial side, remember these are apartment buildings, for example, that are five units or more. This is office space, industrial, all of this. They use a totally different type of loan structure typically, which is shorter. A lot of times it's a higher interest rate. And because it's a shorter loan, it means that they have to refinance more often. And if we just look office buildings, for example, there's a lot of outstanding debt right now. You know, a trillion and a half, excuse me, of outstanding commercial debt right now that's going to be coming up for refinances in the next 2ish years. A lot of those people are going to be in trouble if their properties are not staying rented and their properties are not cash flowing. And so I think there's going to be a lot more opportunity in this segment. We're already seeing it in the multifamily space. That's where I have my eye. Five unit plus apartment buildings. This could also be boutique hotels, things like this. There's a lot of opportunity coming up in this space, so I'm excited for that. My heart also goes out to those of you that Maybe got into a deal and had expectations or maybe got a deal with someone else that put the whole thing together. And maybe it's not working out that well. But this is just the reality. Interest rates change our buying patterns and they're affecting the commercial market a lot more than the residential market right now. Quick note on construction, we're seeing that drying up. Less people are pulling permits to do construction because yes, for them the costs have gone up too. The cost for lending, for construction loans have gone up, not to mention the cost of materials, mainly because of inflation. So as construction dries up in the next two to three years, that's going to put more demand on rents. So I do think that rents are at least going to hold steady. Remember there's the other side of that too though, where our renters need jobs, right. And they need stable incomes. And if people are losing their jobs or they're getting squeezed because of inflation, maybe they're on a fixed salary, then that means they're very likely gonna move from more expensive properties into maybe B and C class properties, which would put even more demand on those B and C class type properties. And this is the same for short term rentals. So if we are operating in a space, it's sort of like mid luxury, but not ult luxury. A lot of those people, a lot of us out there are very likely going to be opting for a little more affordable markets, a little more affordable short term rentals. So I see that as a Trend Continuing into 2024 as inflation is still higher than what the Fed wants and where people's real wages are not staying up with inflation, especially over the last couple years. Okay. And that brings us to inflation and interest rates. So interest rates are how the federal government can help control inflation. Right. If they raise the cost of money, less money will get borrowed, which means there's less money in the economy and that helps control inflation. So they've been raising, in fact they've raised 11 times since March of 22, the fastest raise ever in history. And they're still not quite at their target of 2%. So they've definitely gotten a lot closer. But because they still have not reached their target, I don't believe in 2024 we're going to a ton of rate decreases. We might, they can certainly ease off, but until they actually reach their inflation target, I don't see us going back to lower interest rates like, like we had for several years there. In fact, I don't really see us going back to those two, 3% interest rates that were available to the market for purchasing properties, maybe in my lifetime. I think we really want it out there. And again, these aren't just my own thoughts. These aren't like my own predictions. I am not an econom, but I certainly follow quite a few, especially in the macroeconomic space as it is in regards to real estate. Okay. So even if rates go down a little bit in 2024, which I think they might, it doesn't mean that it's going to be easy for us to get loans. Right. A lot of these banks are in a tough spot because they have all these commercial loans coming into the picture that are going to be really hard on their balance sheet if the owners of those properties can't pay for the properties anymore. Right. We don't want a scenario like we had in 2008, 2009. But the reality is that might start happening. And so banks have to tighten up across the board. A lot of banks lend on commercial properties and residentials. So remember, even if rates come down doesn't mean it's going to be really easy for us to actually get loans. And if it's not easy for us to get loans, then less people will continue to buy. Right? So I think properties will continue to stay on the market for a longer period of time, even if the rates come down in the next year quite a bit. So remember, as real estate investors, we also get the benefit of inflation and everything that's been happening over the last few years at crazy inflation levels if we own assets, right? So if you don't own a property yet, I really encourage you to get in there, start doing some research, select a few markets that you are interested in and do some research, ideally through zip codes where you might want to find your property. And you can start benefiting from inflation as well. Remember, if we're borrowing for a fixed period of time and inflation is raising the price on everything but our mortgage payments staying the same, then we're benefiting from that. So inflation helps us as real estate investors, but then the other side of inflation, it's bad for the majority of people, is the sad truth. Everyone on a fixed income gets squeezed with inflation. So if inflation went up 7% in one year and your salary or someone's salary on a fixed income only went up 5%, then in real terms, they're actually making 2% less that following year. In other words, they have 2% less purchasing power. So that is the sad truth for a lot of the US really, for a lot of the world, a Lot of people on fixed incomes, including baby boomers or those of you out there that are on retirement, that is difficult because your retirement payments stay the same. But inflation's taking away that purchasing power. So ultimately this means that affordable places are going to become more attractive to the majority of people. It also means that less people are going to be able to afford to buy properties. So I think we'll continue to see increases in rental demand. Doesn't necessarily mean that the rent prices are going to go much, much higher. It depends on the category of rent that we're looking for. So again, like those B and C type class properties that aren't ultra luxury, they're probably going to see more demand as people are looking for affordability, whereas the ultra luxury and the more expensive rents are probably going to come down a little bit more. Every market is of course different and this always depends on supply and demand. If there's a whole bunch of new construction being finished going into a certain city, that could drastically affect rent prices as well. But in general, people are going to be seeking affordability and they're going to be seeking more affordable rents. And so my prediction for 2024 is to continue investing in affordable markets. Remember, if we can find a market that's great for short term rentals, meaning it has a lot of reasons for people to visit, that market could be vacation, work, universities, hospitals, whatever it happens to be if it has that component, but it's also affordable market, that means your property is going to be usually less expensive relative to the rest of the US but it's also going to receive the benefit of more demand coming into that market. That is a good scenario for any real estate investment. So let's talk a little more specifically about short term rentals and where you might be in what you might call a safe haven. So as the economy changes each and every year, each and every month, some parts of the economy don't really get affected as much. And one of those segments you could say is the ultra luxury, right? The people that have a lot of money, they're gonna continue staying in really nice accommodations. So if you happen to have a super luxurious short term rental, it's very likely that you can continue to do very well, even if a lot of the market is seeking more affordable places. Remember, two short term rentals can operate completely differently. One can way outperform the other, even if all the amenities are pretty much the same. We have the hospitality component, right? We have to make sure our communication is really good and everything in between having a Good property and good communication that goes into our management and that can really boost your returns. Another safe haven might be if your short term rental has a permit in a place that has significantly increased regulations or created a limited supply of permits. So congrats to you if you're in one of those situations. I think demand for short term rentals is going to continue to increase as people still discover it. Believe it or not, there's a lot of people out there that still stay in traditional hotels that haven't quite discovered short term rentals. So if you're in a market and you have a permit in an area where they're no longer issuing permits, that could be a jackpot. If people continue to seek more affordable places and they have less and less spending power, then you could still do really well if you're in one of those markets, even with a lot of supply, if you have a long history of reviews and you have a lot of reviews. So we know that the online travel agencies like Airbnb and vrbo, they prioritize these listings, right? You get the benefit of being on their listing sites for longer period of time and having more history, you get more visibility. So let's talk about tech and a few predictions just around that in terms of the short term rental industry. So remember, we're still in the beginning stages of this industry. Hotels accommodations have been around for centuries, millennia. But short term rentals are still sort of in their infancy, at least in my eyes. And so the technology is changing super, super quickly. A really big thing that's happening now is AI. So we've talked about that before, and my team and I use a lot of AI. We actually have a whole prompt sheet, the actual prompts that we use for ChatGPT to help us with things like discovering what our guests are looking for and how to write our listing descriptions. It will write listing descriptions for you, photo captions, all that fun stuff. You can get a copy of that for free. It's a living, breathing document. Just go to restmethods.com AI and we'll send you a copy for free. So AI is making its way into the short term rental industry in a really big way. Airbnb in 2024 is going to be implementing a lot of AI. I don't know the actual specifics, but I know that they're going to implement it a lot on their support end because they have tons and tons of different policies. And the reality is, is that a bot can read through those policies a lot faster than a human can. So AI is coming. Whether we like it or not. It's entering the industry. I think personally that's gonna be really, really helpful for us. It is again, a tool, so it's something we need to learn how to use. I think Google Vacation Rentals is gonna continue to get more and more market share. Keep in mind, we're talking about Google. This is the largest search engine in the world and they've entered the short term rental industry space. Right. Right now they allow for us to list our properties on Google Vacation so someone can actually booked directly, which means we don't have to pay any commission fees like we do on Airbnb or booking.com, so I do think that they'll probably charge a commission fee at some point in the future. But in the meantime, I think that they're going to make a lot more headway in the short term rental industry in terms of market share. That's a easy segue into my next point, and that is just that there's going to continue to be more and more visibility. I touched on that just a second ago. But don't let all the doom and gloom out there let you think that there is really an Airbnb bust, because there isn't. People enjoy staying in short term rentals. They have much more use cases than a traditional hotel. And so visibility will continue to increase in regards to hotels though. They obviously see this, right? And so in 2024, I think that we're going to continue to have more hotels building their hotel rooms, more like short term rentals, more set up for longer term stays. For example, maybe they'll have more kitchenettes in there. We're also going to see more properties using policies a little more similar to short term rentals. For example, self check in. This is available in a lot of hotels. So the two industries are sort of merging. But don't let that scare you. They're changing because they see the potential with short term rentals. And I hope that you do as well. Along with more visibility and more hotels is more money. More money will continue to enter the industry in 2024, especially in the tech space. So a lot of venture capital coming in. We know that there's basically a new tool for short term rental every single day. From smoke monitors to property management software, to pricing tools, to digital guidebooks, all of these things. There's so much technology out there. I love technology, but we're still sort in the infancy phase. I think what will happen is that some of these larger players are going to start acquiring more of the smaller tech companies. So property management software companies like Streamline or Guesty or Hostaway, for example, they're very likely going to be acquiring some of their competition, maybe incorporating some of the features and things that they don't already have. All these software programs across the board are going to continue to get better and better. That's the good news for us. It's going to make it easier and easier for us to operate our short term rentals. And along those lines, my last idea or thought for 2024 is that more and more people are going to be using virtual management as a management approach instead of traditional property management. If the average person out there has a little less money because inflation's been eroding a lot of their savings and their salaries or their purchasing power, then we might need to look for ways to save on our expenses. Right? Remember, if we're saving on our expenses, that's the same thing as making more money. It goes right back into our pocket. And traditionally in the short term rental industry, Companies charge between 20 to 40% for vacation rental property management. You see this a lot more in markets like Destin or the Smoky Mountains, where vacation rentals have been a thing for a long time. There's some really high property management rates there. But as you know, if you've been following the podcast for a while, we have so many tools available and you can 100% operate your property virtually like a professional, as a professional, remotely, just like I do with all of my portfolio and like our team does with all of our partners portfolios now too. So I think as some people are getting squeezed, maybe seeing a little bit more demand as people are chasing more affordability, a lot of people out there are going to look to virtual management as an approach to help save a little more on their expenses, but still maintain the same quality professional management. So I'm really excited for 2024. I've been studying in on markets I'm planning on acquiring in 2024. I actually have not acquired anything in over a year and a half, so I took a little break there. Although I have been working on building development in Colombia. It's going slowly but, but it's still moving along. So I'm looking forward to acquiring more properties and I think there's a ton of opportunity. This is a really awesome space. I actually left out one thing there and those are medium term stays. So I think there's a ton of opportunity in that space as well for a lot of you out there. I hope this gave you A little bit of insight hopefully excites you. Make sure to get your goals down on paper. I'm really excited for 2024. I think there's a ton of opportunity. I hope that you'll stay in tune with me and catch the podcast with. Please let me know if you have any feedback. You can catch all of our prior episodes@str riches.com and until next time, I hope you have a fabulous week.

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