The Exploding Market of Short-Term Rentals | The Unrealest

Kyle Stoner: Hello. Welcome to the Unrealest podcast today. If you wanted to talk about fix and flips, and Airbnb's, today is your day. We have a great guest with a ton of experience that can speak directly to that market. But first I want to talk about our Unreal stat of the day. In preparing for this podcast today, I was looking up Airbnb's and what's going on in that market.

One of the first things I saw was that Airbnb's now represents 20% of the total lodging market, which blows my mind. Even though I'm a user, I would never think that essentially one out of five rooms are now Airbnb's. It's just become a gigantic movement.

It's impacted our clients, people that are buying and selling property, and people that are living in neighborhoods that had these units. I think it's a great topic. Let me introduce our guest today. His name is Brandon Sandifur. He has 22 years of experience.

He owns eight Airbnb's and a farm in Tennessee, which he also operates as an events venue. Fun fact, Brandon's country music song, Walking Backwards, became the inspiration for an international line dance, which is amazing to me. Brandon, welcome to the show. 

Brandon Sandefur: Thank you for having me. I'm glad to be here.

Kyle Stoner: Thanks for being here. Tell me about how you got into this. I understand you have this diverse background in entertainment and now real estate, how did you get into buying and renting out, and investing in real estate? 

Brandon Sandefur: So I guess that's where I begin with: I'm a jack of many and a master of very few.

I started just 22 years ago and I was after my entertainment career had sort of fizzled out - two songs don't make a career. And so I was able to, at that point, transition over into the finance world. And I worked in mortgage finance for 22 years. And at that time, I began to get my arms around the transaction, and what goes into it.

From there we began - my wife and I, my partner in crime - she and I jumped into that together and we started small. We bought one house. Renovated it, fixed it up, and flipped it. And we like to say that we were doing this well before Joanna and Chip Gaines. We were Joanna and Chip before they made that thing popular.

We had a really good handle on what was our niche and how we were doing things. we didn't go overboard at first. We bought something small that we could manage and then began to spin it from there.

Kyle Stoner: Did you have a specific region, whether it's Tennessee or I know you're in Florida now, did you have an idea of like, "Okay, I know if I can buy low in this neighborhood or this city or this town, I know I can flip it if I make these changes?" What was your insight around that? 

Brandon Sandefur: So I was in Nashville at the time. That's where I was residing at that moment. We knew that we knew the parts of the city and the parts of the town that we could go to and buy, purchase a property at a reduced amount, and fix it up. We actually saw this growth trend coming little by little, and we were there boots on the ground already.

So we sort of targeted the areas that we went to, and the things that we did, and the properties in and of themselves, for that reason. We wanted to be able to move them quickly. We didn't want to hold them for long periods of time. The idea was to get into the work, flip it and get out. We were very fortunate from the standpoint that we were informed about our market at that.

Brandon Sandefur: I would offer that to anybody that's getting into this is to really know the market that you're buying in. We're in Florida now. Nine of my properties are down in Pensacola, Florida, but they're all within three tenths of a mile of each other, which is a big thing because we know the area that we're in and we're able to manage them.

That's another big piece of it that people forget about. When you have one or two things that are going awry, you don't want to have to drive 40 miles, 30 miles, 15, even five at times can be hard. That's how we arrived in those markets. We knew the markets that we were in. We did our research and we made sure that we made purchases and acquisitions that were in areas that would be rendered the right result for us. 

Kyle Stoner:Got it. That makes a lot of sense to me. You hear about people, especially during the pandemic, where they were trying to buy second and third properties over the internet. Which is really easy to do now, by the way.

But you know, maybe you're working in New York and you're hearing about the sunbelt being really hot. And so you say, "Okay, I'm going to go pick up a property in Alabama or wherever." People have had some success with that. But it sounds like you have an edge when you can actually be there, servicing the properties, sort of within three tenths of a mile radius that you're talking about. 

Brandon Sandefur: I don't have the confidence to jump out on the internet, nor do I have enough knowledge about markets around the United States. We all get the same publications and the same information is available to me as it is to any other investor out there.

But I'm a big believer in really and truly knowing, and having hands on in that particular area, because when it gets right down to it, if I'm not from there and I really don't know the lay of the land that can be problematic. Because again, when you're buying something out of state, far away, what you deal with is your maintenance and upkeep, and it's very difficult to do a lot of that stuff when you're not in that market that you purchased property in. So it's just difficult for me. Not for everybody. I'll say I don't want to discourage anybody. If there's people out there that are ambitious enough to do it and make it happen and make it work, then to them, my hat is off.

But for me, for us, just the security of being able to get in the car and drive two blocks to see, "What's going on here?" That's important to me. 

Kyle Stoner:Got it. So we talked about Airbnb's a little bit - this unreal stat with essentially Airbnb equaling about 20% of the lodging market. Tell me about your experience specifically in that market, not just the fixed and flips, but when you're buying a property, getting it ready to put on Airbnb, renting it out, these short term rentals instead. Tell me about that market and how it's been evolving. 

Brandon Sandefur: I'm not surprised at the statistics. I'll definitely say I didn't know that was the number. But I knew it was high and the reason I knew it was high is because we've been in it for four years down here in Florida. And I believe four years ago when we got in, it just felt like we were really turning and burning.

We had short term rentals, people coming in left and right, but over the last two years, we've seen a massive deluge of properties coming in online. Now your clientele, everybody that's wanting to travel or rent, they've got so many things to choose from now, that the competition has become very stiff.

Just last week we reduced our rates on our properties to get back in the game because at the end of the day, it's about putting heads in beds, as we say. We've got to get competitive. Some of our properties really and truly are well below what we have rented them for in the years past.

But we've seen so much in the way of choices. People have so many choices now. We've seen a flux of investor groups, say 10 to 12 private equity groups coming in and they buy a bunch of properties. Those folks, they'll turn it over to a management company.

The management company will get that return of 10 or 12% that those people are looking for, and they really are hands off. We're seeing so much more of that institutional type involved, as opposed to the average person, like myself, that started off small and grew into it. So it's become a very hot thing. 

Kyle Stoner:It's funny you say that. I feel like on our platform, we find that sometimes as much as 40% of the activity is institutional just like you're talking about. These are private equity asset managers and it really blows my mind sometimes. I think it's something that's missing in the general conversation among people that are buying and selling real estate, like the regular consumer, not professionals.

I think last year, nationally, about 15% of the homes were purchased by private equity. That's kind of a new thing. My mom and dad when they bought their home, they didn't need to compete against Wall Street when they did it. It really brings a new component and I wonder what that means for homeownership going forward. 

Brandon Sandefur: You know, Kyle, I'll tell you this just from my lending side of experience: I see this trend continuing on for a while, especially in a rising rate environment. Because people just can't buy the home that they could have bought two years ago based on a 7%, 30 year mortgage.

I saw that yesterday, where 30 year fixed rate mortgages have gone to 7%. Now that's not extremely high. Relatively speaking, compared to where we've been for 10 years, yes, it's high. But reality is: it's still a decent rate that you can afford a decent size home. But most people at this point, will probably step back and say, "Instead of spending X number of thousands of dollars at an interest rate that's not palatable to me, I'm going to go into this rental market because now I've got a lot more to choose from. Maybe I'm okay with paying some rent for a while because if not, I don't get the house that supports the things that I'm trying to do." So I would say that that's not a trend that's going to go away anytime soon until rates begin to temper a little bit and we get some more inventory on the market. That's the biggest thing right now, too: we don't have a lot of houses to choose from to buy. There's lots of rent, but there's not a lot out there for sale. 

Kyle Stoner:I know that during the pandemic, there was this dip in travel and then this really amazing spike, especially with Airbnb's, because people wanted space. They didn't necessarily want to be in a crowded hotel. Have you seen that? And I know a lot of people have started investing in becoming hosts and therefore dumping a lot of inventory on the market. But from a consumer standpoint, are you still seeing a lot of activity for people coming into your Airbnb's?

Brandon Sandefur: You know, there is, but I think what's interesting to me now is a lot of people want to get on the bandwagon, right? They're late to the game, so they're jumping in and buying these properties. Now, we're seeing people buy properties at the tippy top of the market.

They're taking mortgages out. They're assuming that they're going to rent. The rental income is going to pay that mortgage. I think a lot of the Airbnb people who are putting their toe in the water, you're going to see people liquidating properties in the spring of next year or sooner because, as we talked about the inventory being so vast, people have the option to go anywhere they want to go.

Rates have been reduced. Maybe that rental income is not covering the mortgage and now they're stuck and they're like, "Oh, wait a minute, I got to get this off of my books." So the next step for an investor, we're sitting back with a little bit of dry powder over here in the corner because we're like, "Hey. Come March, there's going to be some folks that are going to need our assistance." And we'll probably buy some properties in the spring that are at a reduced amount from some of these Airbnb-ers who just jumped in at the last minute or were late to the game, I should say. 

Kyle Stoner:Yeah. It's so funny you say that.

I'm in a couple of group chats and groups online and I keep hearing this thing about spring. Over and over again, there are a group of people that are, I guess I call them a little bit more sophisticated, right? So they're looking at the rates and they're a little bit high, but a lot of these people remember when rates were 18%.

So they look at it and say, "Oh, yeah, everybody. They're high. They're high." But they're kind of waiting and feeling like 2023 is going to be a massive opportunity to pick up a lot of property. I do keep hearing this. It seems like that's sort of an undercover trend. So it's funny that you're saying that.

Brandon Sandefur: It's a pretty common theme and it typically happens when we have a correction. Those corrections will create opportunities . 

Kyle Stoner:So you're deep in this game. You've been doing it for two decades. What are maybe a few things that you would say? What should new investors in the space, new hosts, be thinking about when they want to buy these Airbnb's and get into it? 

Brandon Sandefur: I would say the most important thing is to make sure that you have enough capital to be able to support anything that may go awry while you have the ownership of the property.

For instance, I think we discussed it at one point earlier, we had four air conditioners in one summer go out . It really was an eye opener for us because we never suspected having to make those types of investments in those properties all at one time.

But I would say to the new person getting into the game, make sure that you are liquid enough to be able to accommodate some of those curveballs that you're going to find, that are thrown your way because it was an eye opener for us. We realized at that point, "Okay, we now know that we need to have this much in reserve for the rainy day." You just don't know when things like that are going to happen.

It's always a rush to go do things. You're excited. You're ready to go. Just make sure that you're capable of supporting that venture before you get too far down the road and you wind up having to be one of those that has to sell to get out.

Kyle Stoner:I love that. We've certainly seen the people rushing in. We feel like there's perhaps going to be some sales this spring. What are some other trends that you're seeing in this Airbnb market? 

Brandon Sandefur: I think from the standpoint that we talked about with the investor groups, I think that that's one side of it. I also believe that, more than anything, your trends in Airbnb seem to be moving more toward residential areas. And I would also caution that when you decide that that's what you want to do, going into the Airbnb business, make sure that you're not purchasing a property in an area that is restricted and won't allow those things.

Because we've seen some of that too. As your institutional investors get in and they go buy these properties up in the subdivided areas and they find out all of a sudden that's not allowed here. The next thing you know, you've got a bunch of mad investors going, "Why did we buy these properties?"

I've seen that trend because of, again, the shortage of housing. A lot of people go into these subdivided areas and buy a block of houses up. So that's a trend that we're seeing a little bit of. Also along those lines, those same developers that are building those subdivisions are coming in behind with covenants that say, "Time out, we're not doing Airbnb, you're not doing short-term in this little area here."

Kyle Stoner:I have a couple of friends in Arizona that have told me that it's become a very hot spot for bachelor and bachelorette parties. It was like, you move into your house, you've got your kid, and all of a sudden you don't realize that you've just moved next to the biggest party house. Every week it turns over a new bachelor party. That can be tough. 

Brandon Sandefur: Yeah. Being in Nashville, that's the bachelorette capital of the world. You see that quite a bit in Nashville, a lot . 

Kyle Stoner:Okay so, we touched on this just briefly before, but I think it's interesting. So whether you think about the air conditioner that's going to go out or being prepared for having a little bit more capital, we've always found that, especially with our clients, one of the big places for savings is on the commissions .

When you buy and sell these properties, in fact, it's one of the only places where you can save a good chunk of money. On our platform, people, it's automated and you're immediately saving because there's no sell side commission. I don't think you've used our platform before. So how have you handled commissions, and trying to cut those fees out? Because I know it's critical when you're doing this for profit. 

Brandon Sandefur: I did it the old fashioned way. I went and got my real estate license. I just felt like I wasn't going to sell real estate, but at the same time, I'd like to represent my half of the transaction so that I can save those commissions. That's the only reason. I'm not looking to be the next big real estate tycoon. I just felt like every little bit counts. It all adds up. That's what I did. 

With more sites like yours and more, there's so many opportunities now for people to do it on their own. For me, mine is more from an investor standpoint, but if somebody 's out there, I make sure that I go to a place like your particular website to do what I'm trying to do. 

There's great realtors in this world. Let me now say that not every realtor in this market should be in the market. But there are some really good, informative, educational people that have that real estate license. But there's a lot that aren't. You gotta feel your way through it. For me, that was the best thing for me to do is get my real estate license. 

Kyle Stoner:Yeah. It's an interesting take. Internally, the way we think about it is that we're really not even "anti-realtor" or "anti-real estate agent." In fact, we have a team of agents that help guide all of these transactions that happen on our platform. 

We are anti commission. So we try to figure out a way where you can kind of have your cake and eat it too. In particular, we get a lot of folks like you, even when they have their own license, because we're simply taking out some of the annoying administrative stuff that you would have to do on your own and we're automating it. We find a lot of clients that are investors because trying to figure out, "How do I still sell this home and get the same price for it, but without paying that extra three or six percent?"

Brandon Sandefur: Maximize your profits! You know what I mean? Every bid counts. And when you get into the business where it's what you do. You will watch everything that you spend and those are expenses that you can go to and actually impact.

Kyle Stoner: Especially if you're doing it 8, 10 times , right? It starts to become a really big number. 

I want to do a short recap. It sounds like you've been in this business for a couple of decades. What you've seen is a lot of, what we call, noobs: New people jumping into the market, putting a lot of inventory on and maybe not preparing with the right amount of capital backup.

Capital is really important if you're going to get into this game. I have a couple friends that have been like, "Hey, we should go in together and buy an Airbnb or something like that." And it's the capital, really having that backup. 

The other thing you said that's really important is really knowing your market, which it's hard for us. All my friends are kind of all over the place. And so you have to decide on where you would put this thing. But it has to be somewhere that you really know. 

Brandon Sandefur: When you watched Michael Jordan play basketball, it was effortless, but when you went out and tried to do what he did, it was crazy hard. Right? And I don't liken this to that, but it's that same stream. It really looks easy from afar. And then when you get in the middle of it and you really get the brass tacks of it, you go, "Oh, there's a whole lot more here than I ever imagined." Enter into anything that you're doing with eyes wide open. Be cautious. 

I'm a guy that's glass half full. So I look at the downturn as being a correction. Correction then creates opportunity. We start back over and you cleanse the pallet, if you will. There's a lot of good things that come from a good correction. Just inform yourself, make sure that you know all that you need to know.

Kyle Stoner:I think that's great advice. 

Brandon Sandefur: Shameless promotion here: Grand Sand Properties is my website and you can go and look at all of our properties on the Grand Sand website. Sage Creek Farm has a website. You can get a flavor for what I'm talking about by going to look at these properties and it might just help you as a resource tool to say, "Okay, this is the guy that was on here today. This is what he's doing. Maybe we should try this." I do encourage people to check out our website and come down to Pensacola if you're looking for an Airbnb, we've got some. To me, what I think is most important is just, to inform yourself. 

Kyle Stoner: I love that. That's part of what we're doing here. Thank you for being on the show. I'd love to have you on again. This brought up a million more questions. I appreciate you coming on and we'll talk to you soon.

Brandon Sandefur: Thank you very much, Kyle, for having me.