Short-Term Rentals, Long-Term Wealth – Tim Hubbard & Tom Wheelwright

This is the Wealth Ability show with Tom Wheelwright. Way more money, way less taxes.

Welcome to the Wealthability show where we're always discovering how to make way more money and pay way less tax. So lots of us have used short term rentals, lots of us have thought of short term rentals, but we are always thinking, wow, that sounds like a lot of work. What if it could actually be passive income? So today we have a very special guest and you're going to discover, and I am too, how to turn short term rentals into passive income. And I have with me a very special friend of mine, Tim Hubbard, who's been doing this for years and years and years. And I want to welcome you to the show, Tim, and if you could just give us a little of your background.

Yeah, thanks for having me on, Tom. I am excited to be here and it's been an exciting journey with short term rentals too. So the real quick background, you know, I started as a, invested in traditional rentals about 12 years ago, long term rentals, single family homes, small, small apartment buildings. And I've been staying in short term rentals for a long time because I love traveling. And at one point I was in, I had started looking in other markets outside of California, where I'm originally from, and I was in a market in Tennessee, but I went to a whole bunch of different places and, and checked out properties and I was staying in a short term rental while I was looking for long term rental investments. And I was running the numbers on the long term rental and I was running them on the Airbnb that I was renting and it just like, you know, light bulb went off and I just switched my focus and I started doing that. So long story short, come a long way and have short term rentals in five cities, three countries. And my team and I have managed like 22,000 guests now. So we've learned a lot.

That's awesome. Well, I'm, we're dying to learn from you. We've all stayed in short term rentals. Of course. The, the, the aha moment I'm sure came is that, wait a minute, the shorter I can rent, something rented out, the shorter the lease, the more money I can make, right? I mean, that's very clear. The shorter I can lease it, the more money I can make. Actually, the smaller the unit and the shorter time I can rent it out, the more money I can make. Which is why hotels, there's so many hotels, right? Because they're like one day rentals and they're a really small unit. So that's the, it's, it's the same proposition here as Airbnb and vrbo, et cetera. So of course I, one of the things that I think about, and I think most people think about, Tim, is, all right, great, that makes sense. But boy, that sounds like a lot of work. So, you know, it's, you know, the objection that you always, that we always get in the long term rental market is, well, I don't want to be fixing toilets. I, I don't want people to call me in the middle of the night, et cetera, et cetera. And we say, well, you put a management team together and you know, but you're talking about a 30 day, you know, 30 days at a time. You know, typically one year leases. That's a pretty easy management, really pretty easy to manage that single family rental, you know, where you got a new tenant every year at the most, right? And you're turning it, you know, every few years basically. But here you're turning it frequently two or three times a week. So the big question is, is how do I not. And this is really what I want to go down the rabbit hole is, okay, we know that, we know there's money here. We absolutely know it. It's, it's actually pushed up the price in a lot of areas like Sedona. You can't buy a house anymore with and actually look at it because Airbnb people will just snatch them up because it's such a good community for Airbnb because, you know, people want to come and stay, you know, for a few days or a week or something. So what's the answer to that, Tim? Let's give it, give us the magic formula here. We're all dying to hear it.

Well, you know, management is key, right? It's key with long term rentals. And so you can have long term rentals that are also a pain in the butt to manage if you don't have good management. So it really does come down to management. And of course there are more operational pieces that go into a short term rental. If the average stay is three nights versus a year, then there's just a lot more going on there. But the nice thing is that we have so many tools available now that we can help manage all of those incoming guests much more easily than we ever have been able to. And the reality is that a lot of our guests that are coming in, we don't, we don't even talk to, we don't, we don't meet them face to face. Right. Because we have self check in, we have remote locks, we have ways of protecting our properties remotely. And a lot of times we have guests come in, we've sent them automated messages. Of course we have someone on the back end too that can respond to whatever we need to. But a lot of times, some we have guests that check in, they have a fabulous day, no matter how long it was, they check out. And we have never actually communicated with them because everything was set up and ready to go. So it really comes down to the systems and the management is going to be more crucial in terms of like backup. You know, if something goes wrong, you.

Gotta make sure, of course, you know, the garbage disposal doesn't work, you know, the toilets backed up, whatever. I mean those things happen anywhere. They happen in our own homes. So how do you handle that?

Well, it's the same way really you would handle long term rentals. You got to have someone there to help you with it. So, you know, having a handyman and having contacts for air conditioning and heating and electrical, all the same contacts that we need for a long term rental, we're going to need for a short term rental too. The thing with short term rentals is that we just don't have a long timeline.

Right.

But usually these are like emergency type scenarios where the AC goes out. We don't, we don't plan on the AC going out. We don't plan on the AC going out with a long term tenant either. So there is an understanding there with the guests. If you do have an issue, of course you have to have someone there to check on as soon as possible. And you know, worse comes to worse, you can't get it fixed. You got to have a place to send your guests or maybe it's a hotel, but those are kind of situations that we can avoid most of the time, especially if we have a good property to start with. It's got good, you know, it's, it's well taken care of.

Okay, so, so let's, let's do this. If you don't mind, Tim. I actually have a property in mind. All right. So I, I love the idea of short term rentals from the standpoint that there's a lot of places where I'd like to own a home, but I'd like to be the home that I want to own. And so, but I want, but, but I'd like the, you know, short term rental gas to pay the mortgage basically. Right, yeah. So that it's not out of pocket. I mean, you like to Travel. I like to travel, but I don't like to travel. I prefer not to stay in somebody else's place. I'd rather stay in the place that I selected and that it's the way I want it. Right. So, okay, so this place is in, it's, it's in a resort town, all right? And.

It'S a, it's got a, it's got a beautiful view, it's got a pool, it's got four bedrooms.

So what, what do I need to look at? So for me, it looks great, right? But what do I need to look at when I'm looking at a property to determine is this a good property for short term rental?

Yeah. Fortunately, we have tons of resources now for finding that data. So it all really comes down to data, right? Comes down to supply and demand, just like long term rental investing does as well. So probably one of the most popular sources for that information is called airdna Co. Airdna Co. And you know, really large companies like CBRE are using their data and basically what they've done is they pull data from Airbnb and VRBO and HomeAway so that we can get an accurate picture of what's already in that market. And you can really narrow it down in terms of, you know, how many one bedrooms do we have, how many two bedrooms do we have, how many three bedrooms we have? Do the three bedrooms have a jacuzzi? Do they not have it? And then we can check the rates, the average rates on a historical basis and see how well those properties are performing. So really good information, honestly, sometimes I feel like better information than we have in the single family long term investment space. So you can really get granular with it. And that is the way to check it. To, to check to see if, first of all, if the market is good for property. Because, because we got to make sure, you know, another step with short term rentals that we don't really have with long term rentals is that they're not allowed in some places.

Right.

And that, so that can really crush your, your investment if you can't actually do it there. And, and that, but that's easy to find, right? I mean, we can Google, we can Google, but we really got to narrow it down to the neighborhood because it might be that a whole city offers or allows short term rentals, but then maybe there's one neighborhood within it that doesn't. So we got to be careful with that one. But it's easy to find out for sure.

HOAs are notorious for wanting to control that aspect of people's lives. Not, not a big fan of hoas, but, and I would try to stay out of an H away probably with the short term rental because the HOA is going to complain. They're going to, you know, they're, wow, what about this? What about this, what about this? If you don't have an hoa, then all of a sudden, boy, life is easier.

Right? Right. Yeah, we never know with HOA too. You know, it could be one day, everything's fine, everyone's renting and then there's a, you know, a board meeting and they make a change, then all of a sudden you can't do it anymore. So if we don't have an hoa, we don't have that additional potential risk.

Okay, so you've gathered that data, you determine that, okay, based on this analysis. This typically it's going to be rented this much time and you can, I presume, get what the rental rate should be and how to, how to rent it out and what can you even find things like. So we just, we did a podcast recently on AI and it was talking about predictability. And you're talking about all this data which is basically can be used in, you know, that's what AI is for, is predicting based on data that you've got. But I presume you ought to be able to predict what's the best rental price, right? What's the about best nightly rate and whether you get discounts for longer term stays.

Yeah, no, that's a whole nother layer of data. And the pricing's really, really important because you can have a perfect property, but if it's not priced right, no one's gonna rent it. And so there's another tool actually that I use for pricing. I can get sort of the initial pricing from Air DNA. You know, it gives averages, it gets historical numbers. But what I use for pricing is called Price Labs.co and it's set up specifically to manage your pricing for a short term rental. And they also have a lot of good data because they need the data from other properties in the area in the market to be able to price your property effectively. So they're kind of doing the same thing as Air DNA, but they give you a whole host of, of features on how to control and best price your property. Everything from, you know, adjusting far out pricing versus, you know, pricing within the next week, adjusting discounts based on occupancy or based on length of stay, adjusting your minimum night stays. There's really a whole bunch that goes into pricing but it's really important. It's nice we have these tools. So if someone's just getting started, they can let these dynamic pricing software tools kind of just do it for you automatically. I mean, you can set a base price and you can set a max price and a minimum price and it will automatically adjust your price based on neighborhood demand, based on seasonality, based on whether you know there's a big event happening in your area. So of course, this depends on which city you're in. Their data is better in some places than other, but it's all information that we can, we can find out before we start using it.

That's great. That's because that's critical. Right? I mean, you know, and typically real estate, you say you make your money when you buy it. I would actually go, but I think there's a, you mentioned it earlier, the bigger step is you in when it comes to rental property, particularly residential rental, which is what effectively this is. It's really about the management. Right. Management is where you make it, make it or lose it. You, you've done all your work on the front end, you've determined, yes, I want to, yeah, this is a good property and it's the right town, it's the right neighborhood. You know, I should be able to make money on this. But then there's the management. The management is the crux of it. So how do you go about building that team and who needs to be on that team for management?

Yeah, great, great question. It's really important. And, and this is different from traditional long term rentals too, where the management ser. Just make or break your property. If we, if we look at a short term rental, for example, and we have, let's say we have two right next to each other, your house, for example, let's say we have an identical one right next to it. But they're not doing as good a job as managing as you are. You could literally make twice as much money as they are based on, you know, things with reviews, how you're pricing it. That doesn't really happen in the long term rental world. Right. If we have two single family homes right next to each other and they're both three twos, there's no way that we can charge three times more for one than we can the other. So just to kind of reiterate how important the management really is, there, there is quite a bit that goes into it. There's two pieces really. There's our online piece, everything we can set up online. So how our property looks, the Type of text that we put in there, the photos we have, the communications, how all that's set up. And then we've got the on the ground part, which is our housekeeping, our maintenance and, and management. Now a cool thing with short term rentals too is you can really centralize management. So like my team, for example, are managing my properties all over the place. But, but they're virtual, so they're centralized a lot of my teams out of the Philippines and Mexico and they can manage properties anywhere. So I can, you know, get a property in Arizona tomorrow and we can plug in the same systems and manage the virtual piece the same way. But then the on the ground piece. Housekeeping is really important and it's probably the number one area where someone's going to get a bad review. And a bad review can really, really hurt you when it comes to short term rentals. So finding good housekeepers is really important. There's also some tools that we have available now that help us with that. So I use a tool called Breezeway, for example, which allows us to create custom checklists per property and for our housekeepers. And it's a checklist that they can use to make sure they don't miss any steps, but also that lets us know that they're not missing any steps. So we could ask them, for example, to take a picture of the bed with the towels folded on it and they can't close out that job until they've actually taken a picture and uploaded it right in the app. So some really good tools to help with the management. After we found some of our team.

Already that, that's amazing, frankly. Um, and, but you talk about. So, so let's talk about one more thing when it comes to management. So for example, this last couple of months ago, I went, used an Airbnb. I tell you what, they did a couple of really nice things. Not only had they actually developed the property to be more Airbnb friendly and you know, actually done the furniture right and all that kind of stuff. I'm sure that you've got lots of resources on that. But in the backyard, while it wasn't a nice backyar, they didn't spend money on the backyard. What they did do is they put in bench, swings, a fireplace, and they left, they left hot dog.

Holders and that, and they, they left marshmallows in the, you know, or marshmallow holders and they left firewood. And that was a little nice thing. And actually that became, that was a big. We used. One evening we had roasted hot dogs and had, you know, chili dogs and, and it actually became part of the experience to do that. How important is things like that when it comes to short term rentals?

It depends. I would say it comes, it kind of comes back to supply and demand. Right. If we have a lot of people going to stay in a place, but we don't have enough properties, I mean, you don't really have to pull all these extra moves, right, because people are going to rent your property anyways. But if you're in a competitive market, that's where these little things become even more important and they really can drive your revenue and your returns a lot more. It also, I guess we got to take a step back though, Tom. There's so many different types of short term rentals. I mean, Airbnb alone has 56 different categories to separate them out. So I mean, to compare, you know, like Oceanside Villa to an inner city apartment, for example, it's really hard to just compare them right straight across the board. But I would say in a property where, you know that like you guys just experienced, where you had the marshmallows and all, that is maybe more of a vacation type property that you might want to go back to every year with your family. And so these types of properties that are maybe an annual getaway for a family, I think that's where some of these little things become a little more important because you can start to fill up your calendar further out in advance if, you know, you leave that property and say, oh, we're coming back to this property next year.

So just like, just like anything else, repeat customers can be really important.

Totally.

I like that. So one of the things you, you talk about is you talk about making it passive income. And none of this so far sounds like passive income to me. It all sounds very active. A lot of work, a lot of involvement. How do you turn that from that really active, you know, you're managing on a regular basis to a passive situation?

Yeah, well, we have to let go of a lot of control, right? So we can't be the ones sending the guest messages. We can't be the ones doing the housekeeping in our properties or checking on maintenance or anything like that. And so that part of it is we just kind of have to, to let go. Now we can do that safely using a lot of these tools that are available now. But that really is, is the biggest step. And I know, you know, I've been doing short term rentals for a long time now, and I live thousands of miles away from most of my properties, I'm down, down here in South America. And so that's always like the first question people ask are like man, short term rentals just seem so complicated and you know, so management intensive and they can be if you don't have the system set up. Right. So I would say it just comes down to delegating and systems and getting some good people on your team.

Well, like any business, right? Yeah, yeah, it's, you can, you can manage it by walking around. You can, that, that, that old idea that you can manage it by looking at it or you can manage it from South America and let somebody else do it and have people in the Philippines and other places which cuts your cost way down. Of course cost is a major, major aspect of this is keeping your costs down. And, and then, and then let's, but for a minute, of course we have to talk about the tax aspects a little bit because of course short term rentals, we do get deductions in short term rentals. We get depreciation and short term rentals. And, and I, I did want to bring up one difference between short term and long term rentals. Long term rental, you have to be a real estate professional in order to be able to use those losses. But short term rentals aren't part of long term rentals. So they're, they're not considered long term rentals. And so therefore we actually can do spend a little less time in our rentals and still get the deductions. So I think that's a, that's an advantage of the short term rental over the long term rental that we ought to, we always ought to keep in mind and never forget that your after tax rate of return that matters not you before tax rate of return. Nobody cares about before tax rate of return. It's all after tax rate of return.

Right, right. Yeah, good point. And there are some additional taxes to transit occupancy taxes, for example, which are something that most people, the short term rental are going to have to pay in addition. Right. That's the same tax that a hotel would pay.

Right.

But that depends also based on the length of your stay and on the city's regulation or I, I think if, if I'm understanding right, but a lot of times when you have a short term stay that's 30 days or longer, you're not subject to those transient occupancy taxes which, that's another really exciting space of short term rentals is that people are staying in them longer and actually people are living in short term rentals now.

Really?

Totally, totally.

So, yeah, because they like all the, all the services.

Well, I think that's part of it, but I also think people are just more mobile than they ever have been. Now that we can work virtually, I mean, we can go stay at places if we're not sure if we want to actually live there. Maybe we rent a place for a few months to try it out. If we don't end up liking it, we can rent another one. And, you know, we are in a renters nation. We've heard that term being thrown around and I think that's increasing, especially with interest rates still going up. So when less people are purchasing homes, you know, they're either going to be renting a place long term or maybe they're waiting around to, to buy their own home. And so they're renting a place for a shorter period of time. So that is Airbnb's fastest growing segment or long term stay.

That's interesting. Yeah. So one of the, I've always thought one of the advantages of Airbnb is the rating system. Right. This is why we like things like Yelp. This is why, you know, we, because we get to see what the ratings are, but the, the, the landlords also get to rate the tenants. Right.

So, so, so that's a little bit of pressure on the tenants because you don't want to be banned from Airbnb. That would be bad. Right. So I, I think that's, that's a little bit of benefit. So if you can think of the top three things that people ought to consider when they're thinking about, should I go into short term rental? Okay, should, is this a market I should go to? What would, what would you want them to be looking at?

Yeah, that's a good, a good question. I think the first thing is that we have to ask ourselves, what actually is it that we want? Do we want a vacation rental where we can spend two months a year and then rent it out the other 10 months? Because that's going to change our decision. It's not 100% investment at that point. Right. So I think that's the first thing that we got to ask ourselves. If we're, if we want to start with a property that's also going to have some personal use, then maybe some of the things I would recommend don't necessarily apply. If you have the personal use there. If it's just a straight short term rental. Well, I think when I look for a market, when I look for a city, I look for a lot of the same things I would, if I was investing in long term rentals to be in a place that's growing, you know, that has more people moving to it, that's landlord friendly. You know, I found a lot of times that in the places that are landlord friendly, they also have friendlier short term rental regulations. Not 100% across the board, but so I look for a lot of the same things that I do. I have long term rentals too. So I, you know, I look for a lot of the same things. And if we're in a place that's growing and we've got more demand, the, the short term rental demand is going to grow along with it.

Got it.

Yeah.

So do you see, so what, what, what areas do you see? You mentioned the longer term, short term rentals. A little bit of an oxymoron there. But what other, what other trends are you seeing in the short term rental market?

Well, yeah, the one where people are staying longer is a really big one. I think after the pandemic, you know, we had everyone leaving urban areas and staying in vacation rental homes and there was a huge like, you know, a huge increase in supply in vacation rental homes while there was a decrease in short term rentals in the, in the bigger cities. And now we're kind of seeing the opposite. There was almost like an oversupply. And again, this is, it's really hard to just lump everything together. Every market's very, very different or can be very different. But I think we're seeing people come back to work. Travel has returned a little bit and I think it's going to continue to. I was on, I joined a webinar not too long ago with some of the really big names like Expedia and Marriott.

And they were most bullish on places they were calling leisure. So sort of a cross between leisure and business travel. Because back, you know, several years ago, when someone traveled for work, usually or a lot of times, you know, they show up on a Monday and they stay there till Friday and then they head home on the weekend. But now since we can work, virtually a lot of us, or at least it's more remote if we can be in a place that has both components. So maybe it's attracting business people, but also has a leisure component. Then maybe that same person comes in the Friday before and they leave the Sunday after and that one week reservation becomes almost a two week reservation. So those are kind of. I've tended to focus on properties like that. I've also found that those types of guests are A little easier to manage too. You know, a business person coming in for work, a lot of times they travel by themselves and you know, they show up and they're not having a big party and stuff like that. So that's what I've kind of focused on. And that's made it easier for me to scale while living really far away from the properties too because it is just a somewhat easier type of management.

But definitely not the only way to do it. I mean there's. You can be successful with all different types of short term rentals.

Yeah. So let me ask you one more which is, do you seem business people going in and staying in the short term rentals instead of hotels?

Yeah, yeah, totally. Yeah. We get a lot, a lot of guests.

It's, it's, it's become a. It depends on the length of stay too. You know, if someone comes in for one night, then maybe they're gonna be a little more inclined to book a hotel or if they're somewhere, you know, like when I go to a conference, for example, I like staying in the hotel where the conference is so I don't have to go off site and do all that. So it depends on the length of stay. But I would say someone is going to be there for a few days. A short term rental becomes a really, really good option for them. And it also to go back to kind of the experience you had, it provides an experience where a lot of times the hotels, you know, they might have 150 rooms, they're all 250 square feet, they all look exactly the same versus some, some short term rental that's got some character, it's got maybe the owner's personal recommendations. So it can provide a lot more experience than, than some hotels might.

Yeah. On top of that, with hotels no longer providing, you know, they're not necessarily cleaning your rooms anymore. They're not services, they're. But they're charging the same amount that it seems to me like that is probably a plus for the short term rental market that the hotels have decided we're not going to do those extra services with those. Not extra, those literal day to day services. So now they don't really have the same advantage that they would have had if they were doing that type of extra service.

No, it's a great point. I, I remember going, I, I checked into one of the hotels on the Vegas strip. Like this was maybe right after Covid and they were doing self check in, right. A big right hotel where that was never available before. I, I saw some Stat recently too, where they had pulled some of the largest hotel names in the industry. And by 2026 they were expecting like the majority of them to at least have the self check in option. So they're sort of borrowing some things from short term rentals and you know, vice versa. But it makes sense. It's, it's a, they have less employees, right? If, or they need less help if, if guests can do a lot of these things on their own. So no, they're, they're kind of, there's like a merging sort of happening.

That's awesome. So short term rental, certainly an option and you know, if you're looking at real estate, certainly an option from a, both from a tax standpoint, from an investment standpoint, certainly the, the, the gross revenue should be much higher because you're renting more frequently. The, the key is to keep the net revenue higher and that, that comes through, as you say, management systems. So if people want more information about your systems and how, you know, how you help people with Airbnb, where would they go? Tim?

Yeah, I have a podcast as well, actually. It's called Short Term Rental Riches and they're bite size actionable episodes for anyone that wants or already has a short term rental. And then also restmethods.com is my website and I've got a bunch of free resources and the software programs I use and everything there as well.

Awesome. Well, thank you, Tim hubbard. It is restmethods.com and be sure to check out his podcast as well. And just remember that, you know, we, we really want to get really good at something. And Tim's clearly his niche has been the short term rentals. He's gotten really good at it. So much so that he can do it from India, from anywhere in the world. He's got people all over the world doing it. You know, for some people, they go, wow, I can't even imagine that you could do that. But Tim's done it and so just encourage you to just, you know, whatever that niche is for you, pick that niche, get, get really good at it and just make the, make a, make a decision, the same decision and just do it over and over and over again. And that's what Tim's done so successfully. So thank you, Tim, for being with us. Thanks everybody. Remember that whether it's short term rental, long term rental, whether it's, whether, whether it's business or whatever you're investing in, whatever your business is, if you do it using systems, building the right team, having the right people in place, you can always make way more money and pay way less tax. We'll see you next time.

You've been listening to the Wealth Ability show with Tom Wheelwright. Way more money, way less taxes. To learn more, go to wealthability.com.