 new market for real estate investment. I'm Jay Fidel. This is Think Tech and we like business. We like national business. We like to watch the economy. We watch real estate, including real estate especially. And Erica Muller joins us from Florida and she's going to tell us about real estate investments, a new kind of product that has developed while we weren't watching maybe. Welcome to the show, Erica. Nice to see you. Hi, thanks for having me. So nice to be here. So you're the founder of a company called Rolio, which is the short-term rentals. Tell us what that does and tell us what else you do. Yeah, well Rolio started out as being kind of like a Zillow for short-term rentals as a marketplace and over the last four years we evolved into not just a marketplace but also a data center for short-term rental investment. So I founded the company and I'm currently the CEO of the company and we're actually in growth mode right now. So I do everything. Everything that has to be done. Yeah, we hear at Think Tech, we know about growth mode. Yeah, there's not a role that you don't do when you're growing. So you know. What else are you doing with your busy life? Working. I don't really do much outside of that right now. I do invest in real estate. So that's kind of my hobby outside of what I do for a living, which is also real estate. So I like to invest my own capital into multifamily property anywhere in the world. Actually, there's a good return and I'm looking at industrial warehousing as well. I love short-term rental. So always just following the trends and the data on what's going to be the next best investment and trying to make sure I get in on it. You know, it's like sport investing. I love it. How is the real estate market? I mean, is this a good time to get in in general? Yeah, it's starting to drop. I think this is what a lot of people have been waiting for. We've been watching the data and the numbers, the purchase prices have just gotten so unreasonably high in the last three years. And specifically from short-term rentals, the short-term rental side of it, rental rates didn't raise in proportion with the purchase prices. So what we ended up seeing was markets that were great to invest in three years ago, when the purchase prices were good, they're no longer good investments anymore. So a lot of these markets, people are still trying to invest in, but they're investing five times less of a cap rate than they would have three years ago. So what we try to do is find emerging markets and new markets where it's a great opportunity to invest despite the rising purchase prices. But over the last six months, we're starting to see things pull back a little bit and price drops happen finally. You know, it's fair to say that the real estate market has become, what do you want to call it, more complex in the sense that it goes up and down. It used to be like a utility stock for a retiree, right? You know, it just stays the same and pays a dividend. But now you have to be more Akamai. That's a Hawaii word. You have to be more Akamai about it. You have to follow the trends. And it's more complex, more, I don't want to say volatile, but it moves more. Am I right? Yeah. I mean, you really have to be watching where you invest now. I mean, I think years ago, especially 10 years ago, you could have just thrown your money at any real estate market and you would have seen somewhat of an appreciation over the last 10 years. But the last three years have gotten crazy. So you can't just put your money anywhere right now in real estate. You actually have to back your decisions with data and really know what you're doing at this point. So a lot of people are getting in thinking that they can just buy anything while it's high and it's going to keep going up. And, you know, historically we've seen that everything that goes up has to come down at some point, even if it just corrects itself, it doesn't tank, but it corrects itself. So I think really the name of the game now with real estate is trying not to buy high, but trying to get into the market. So maybe reconsidering where you're investing and take that same money and invest it elsewhere in markets where you can get a better return on a different type of property. Instead of buying one $800,000 property in market X, you go to market Y and buy two $400,000 properties where the return is a lot better. Oh, yeah, that sounds much better. Yeah. I'm sure you're sharing the risk between the two units. Yeah. So what about overseas? You mentioned a minute ago, it's very interesting comment you made about you. You are interested not only in American markets, but markets outside of the US. What kind of markets are interesting to you outside the US? Yeah, you know, I like those typical Southern European markets like Portugal, Spain, Greece, Italy. Those are really well-known tourist markets. Prices there have also gone wild. And one of the things about when you're dealing with international markets, at least from a data perspective, is it's a lot harder to gather historical sale data overseas because they don't have centralized MLSs. So you really have no way of knowing if you're really buying too high or not. And so for me, that's the biggest risk is I have to spend a lot more time doing the due diligence on if I'm buying high, if I'm not, you know, and figuring that piece of it out where when I invest here in, you know, the US, we have a centralized MLS system. It's really easy to know where prices are going, where they've been and where they should be. So that's the only big difference for me when I invest overseas. Yeah, that's one remarkable thing that I've garnered from our discussion. And that is that a real estate, if it wasn't before, it certainly is now a national market. You can't look at it in the same way as you could, you know, a decade or two ago, where you, you know, it's all local. You have to look nationally. Am I right? And has this emerged recently or has this been going on a long time? Yeah, it depends on what kind of a real estate investor you are. So you have people that they're emotional investors and they just are in love with a certain market. And this is where they want to invest. And they don't really care about the numbers. But then you have traditional real estate investors that they're driven simply by the returns, like I'm one of those people. And I do need to look at nationally the real estate market because I don't care where the investment is, I care about the numbers. So when you use the metric of a cap rate to compare properties nationally, that's a pretty standard metric that it doesn't really matter what's happening around you. If you're comparing apples to apples by using the cap rate method, you can be looking at a property in one state and comparing it to another, and you're just purely looking at the performance of the property. Right. And that's how a lot of real estate investors like myself go about it if you are going to look nationally. Yeah. And when you look at the cap rate and the performance, it tells you really a lot of what you need to know, because it wraps around all the other local factors and performance is king. Yeah, even if the other performs or it doesn't. And you have to decide what's your metric that you're willing to buy at. And Ken, is it enough to hold your debt leverage to your mortgage? So if you're taking financing, then you want to look at the cash on cash return. And what I'm finding is that if I'm not looking at at least an eight cap minimum, that's minimum. I'm not even interested because it's probably not going to hold the mortgage and profit. Right. So you start to learn what is your minimum viable investment number. And once you understand that, then you just can discard a lot of the noise that's out there. So what qualifies you to advise in this area? You sound very knowledgeable about it, but what qualifies you to advise? What's your experience in the marketplace? Yeah, so I've been dealing with real estate investments for 21 years. And I've represented a lot of funds, large funds, and helped move their money into the real estate investment market, specifically short-term rentals in commercial, haven't done a lot with just residential stuff. I also own my own portfolio that purchased it at a 21 cap and have exited as low as eight caps on it. So when it comes to putting together a strategy of buying high and buying at a high cap, selling at a low, which is really where you profit, I do have a track record of not only doing that for other clients, but doing it for myself. And I really think that's the name of the game for a lot of investors is like, I want to make money on the exit. So I've got to get it right on the acquisition. And that's really what I've been doing for funds and for hundreds of investors across the country, actually thousands at this point, because I've done over 1500 short-term rental investments alone just for different clients. I've built five different custom financial models that didn't exist before Airbnb hit the market. And then I went back to school to become a data scientist so that I could take all of that information and plug it into an automated process that could analyze properties automatically across the country for investors. So I've been in every part of real estate. I've been in the acquisition side, the exit side, the investment side for myself representing investors and now also in the data and technology side. So I kind of have a lot of knowledge that I can offer on different pieces of real estate, all pieces of it, how to use the technology to power your investments, how to find the right person to represent you, the questions to ask, how to understand what you don't know. That's another big thing is people don't know what they don't know. So what we're seeing is a lot of people jumping into the market and they find a guru that they listen to and the guru doesn't really know much either, but it sounds good to the newbie because they don't know what they don't know. And so we've got a lot of people taking the advice of gurus that don't know what they're doing and getting into these bad investments and then they come to us and we're trying to get them out of it and they're usually losing money at the end of this. And a lot of that just comes from not understanding how to use data and empower those decisions. So I like to help people avoid all that. Are you part of a young generation of knowledgeable people who can provide this advice who have this experience or are you the only one you know that doesn't? So well, when I started out doing this in short-term rentals back in 2007-2008, I couldn't find a single person in the whole country I could even refer a client to in another market because nobody understood short-term rentals yet. It wasn't the thing that people were doing. I happened to be immersed in it because like in Hawaii, in Florida we've always been a destination market. So you're exposed to it by default, but the rest of the country was not really exposed to this unless you were in a destination market like Hawaii. So this was like 15 years ago or so. Now fast forward to today. Airbnb has been around since 2008. It really gained traction in 2012. Everybody knows what the short-term rental is. So there's a lot more people out there that are starting to do it. So in the last three years, I've noticed more and more people coming into the scene that I feel like, okay, I can start to work with these people. They know what they're doing. I also created a training course to teach real estate agents how to sell these type of properties and how to do this. So I'm trying to help facilitate the education around that as well because it is a huge thing and people need to know how to work with it. Yeah, it is a huge thing. Back in the, I guess it was the 70s, my law firm represented some vacation rentals type operators and at first, they would find properties and rent them for short-term rental. And that was a new idea. This is in Hawaii. Later on, I found that these same people were buying the properties that they were renting short-term and they were doing very well. I don't know if this was established as a new idea in Hawaii, but when you talk about Airbnb, you're talking about a revelation of a market that has been there, was always there, and now has been revealed. And where people before, they would sign up for a hotel, maybe on the low end of hotels, so they could spend weeks or months, whatever it is, in a short-term rental. Now, you can do much better. Airbnb really showed us the way, didn't it? Yeah, I think it put it on the map. Like you said, short-term rentals aren't a new thing. People just now hear about them because of Airbnb, but they've been around since the 70s. And even prior to that in Europe, this was a normal way to travel for so long. And that was usually who was staying in these short-term rentals, even in the 80s and the 90s here in the US were foreign travelers coming here renting these houses. And they would find them as classified ads and call and book them that way before VRBO existed. So then VRBO came on the scene. I don't remember the exact year, but it was definitely before Airbnb. And they started to streamline everything, but still the US market didn't adopt short-term rentals yet. It was still mostly outliers and foreign tourists that were using them. And then all of a sudden Airbnb gets traction in 2012. And now all these millennials especially are staying in them and want to have them. And now the mainstream real estate investor wants to own them. This all happened in the last five years and people think it's new. And you and I know that this is not new. I mean, you remember it from the 70s and I've been working this for 15 years in short-term rentals. So it's kind of weird how we've been doing this so long, we've been exposed to it so long and we hear people talk about it like it's a new concept. And we're like, this is not, but it's like electricity. It was always there, but then it was discovered. But you talk about millennials and people, you know, on a relatively speaking people on a budget. But you know, there's another side to the market. I don't know if you touched that side. It's the side of mansion houses. It's the side of extraordinary properties, you know, in extraordinary locations at extraordinary values and rentals long-term or short-term. Are you involved in that? Can you talk about it? Yeah, you know, we've always handled a lot of luxury short-term rental investments now, and they're tricky because if you don't get them in the right market and you don't follow the right formula, they can be a huge money pit. You know, they might not work. So when it comes to those type of investments, they were doing really well two years ago, even last year, the big luxury houses. But we've seen sort of, they start to get priced out. Even the mega mansions, even these like extraordinary homes, they're starting to get priced out really of profitability. So what I want to know is who's buying them and why? Because if you're buying them as an investment, I'd like to see how those numbers are working because we don't have a performer that exists in any market showing profitability at today's prices for even those mega mansions. But we did see them hitting a lot of profitability at two prices two years ago. So I have noticed a dip in the average sales price of the investor and what they're buying on short-term rentals. Last year, the average sale price was at $850,000, was what investors were spending on average, right? Some more, some less, but that was average. This year, we've seen it drop to almost $690,000 as the average purchase price. So what that's telling me is people are starting to realize that spending more doesn't mean profitability. But those mega mansions and those extraordinary short-term rentals, they are absolutely beautiful. I love to stay in them. I don't know that I would own one right now. And we have two issues about short-term rentals in Hawaii and they still alive and controversial. One is the issue with the hotels. I mean, we're loaded with hotels where a hospitality industry state is our most important, honestly, it's our most important industry for sure. And they don't particularly like short-term rentals because it eats their lunch. So can you talk about that? How do you deal with that? Because sometimes you run into economic and political resistance by other formats. Yeah, you know, hotels have a lot of lobbying power too and a lot of money behind them to push against this. And I think it's unfair to the homeowners that are renting responsibly. Now, I want to say the difference between people that get these properties and they allow parties and they disrupt the neighborhood and they allow all kinds of things to happen at these houses that should not be going on, right? Those need to go. But people that own these properties, and this is actually an investment for them that helps pay their bills, that helps fund their lifestyle. This is their income. I feel like it's not fair to have to push them out of the market and make them pay for what other people are doing wrong. Because it's all about the right to do with your property what you should be able to do. It's your property. And if you're not hurting anybody and you're following the rules, why should you not be allowed to do that? There's more than enough tourism in Hawaii to feed everybody, right? When I see hotels getting involved and trying to shut down the average owner who's following the rules, who's, you know, this is their income, I just agreed. And I don't think it should be happening. You know, I do think there needs to be regulations in place that restrict the way you run a short-term rental and those rules absolutely need to be followed. And if you can't follow those as an owner and you're not responsible, you should be shut down. But why should somebody who does follow the rules pay the taxes and do everything they've been asked to do get shut down because hotels don't want you taking money out of their pocket? To me, that's just corporate greed. But, you know, I know other people have different opinions, but I strongly believe in the right to do what you want with your property if it's within the rules. Well, this has got to be changing the hotel industry. There's a certain part of the market, you know, the visitor market, if you want, the tenant market, you know, who comes and now their choices are broader. And they will often want to do a vacation rental instead of a hotel. I mean, there's a lot of good reasons for that. And as you say, hotels are greedy. They want to recover from you every minute of every day. They want some kind of revenue from you. And that's not so in a vacation rental. It's almost like you're home away from home. And it doesn't have those burdens. So would you agree with me that the hotel industry in a given destination city is, in fact, negatively affected by the growth of a vacation rental property? Well, I do agree that because they refuse to pivot and they refuse to adapt to the needs of today's traveler that they're hurting, not that other people are hurting them, because other people are willing to adapt and understand how people want to travel today. If hotels understand that the need of today's traveler is changing and they don't want to adapt to that, but they want to shut other people down that are adapting to that, to me, that's nobody's fault except for the hotel. I mean, any business, whether you're a hospitality business or any company, you have to pivot with the market. So people want to stay in short term rentals, one because it's safer, especially after COVID, they don't want to be in a hotel and be exposed to all these people that are touching everything in public bathrooms. A lot of people don't want that anymore. They feel safer staying in a hotel. A lot of people have food allergies, right? That's a big thing, peanuts, gluten, all kinds. It's hard to find places that accommodate that in hotels sometimes. So they like to cook their own meals when they travel. They need a kitchen. Hotels aren't putting kitchenettes in. So if hotels want to start accommodating today's tourists, they might be able to win back some of that business if they change their model a little bit. But it seems to me like they don't want to listen to the needs of what people want today and they just want to shut everyone down and continue to force people to travel the way they want people to travel. And that's what I see happening, not necessarily that because there's more of this option, it hurts that option. Hotels can be beautiful. And if they did adapt in that way, I believe they could win back a lot of the business. Good point. So let's talk about the nuts and bolts of how you do this. We're talking about Vrolio and your advice and counsel to people and real estate agents. Are we talking about, at least in the ideal sense, right now, investing in certain entities that own properties? Are we talking about investing directly in the properties? Is it collaborative? Is it individual? And how is it structured, at least as far as the deals that you see happening? Yeah, there's so many different ways that people are doing it. The most common way is you have a regular person who has a full-time job that has money they need to move somewhere and start creating investments for themselves. Those people usually start by forming an LLC and then buying a property in an LLC and getting up and running that way. And what I usually recommend to people is if this is a business plan for you and you're going to build out more than one property and you want to generate and replace your own income with real estate, it's best to find one market that you feel good about and scale it out in that one market with properties because you scale out easier with management and you can make the most of your advertising dollars as well. So if one property is booked, you can move them to another one that's just almost exactly the same or right up the street. But if you have one property in this market and another in a different, you're having to start your marketing and management model up in every single market for one property. That doesn't make any sense. So it's easier to scale out and earn more profits if you stick to the same market. And if you do it in an LLC, it definitely makes more sense from that perspective, especially for taxes and whatnot and liability. So a lot of people are doing that. Another way people are investing is they're putting their money into a real estate fund that is buying short-term rentals and then giving them a preferred return. So if they don't want to deal with any of it, they just put their money in this fund, the fund pays out the preferred return. And some of these funds are even offering the ability to stay at these properties as part of a perk of being a part of the fund. Another way is I've seen fractional ownership popping up all over the short-term rental world. So there's companies out there that allow you to buy in as a fractional ownership on these short-term rentals. I don't trust that model too much because when you start doing the fractional thing, you take the human component out of the short-term rental ownership. And from what we've seen based on the data with reviews and how it affects your revenue, the most profitable short-term rentals are always the ones that are run either by the owner or a local management company that puts a personal touch on there and brings those people back every single year. And a lot of those big corporations that try to just do this from a big corporate approach down, they're losing that personal touch and they're not getting as good of a result with repeat guests and reviews. And that actually hurts the owner because you just hired this person to run your investment for you. And if the person that's running your investment for you is really just like a computer somewhere and it's not really putting a personal touch, your competitors are going to get better reviews than you and you're going to have to cut your rates down to compete with them. So there's a whole strategy behind it. You just have to know all of this going into it. Yeah, it strikes me though that when you're selling an interest in LLC or a corporation or a fractional interest in property and giving assurances of a specific return, cap rate, what have you, that sounds an awful lot like it's touched by the securities laws. And I wonder how these entities get around that. Yeah, that's a really good question. And I never really dove too deep into that because I kind of stayed away from fractional ownership. But I think there is a way to get around it because you are buying an interest in real estate and real estate doesn't really fall under that unless you start to either tokenize it or turn it into some kind of like shared stock or whatnot. So I do think that they're protected in some way from the securities, but I don't know for sure because that's not my specialty and I don't really do fractional. So it's a cool thing for us to dive into maybe on another another call or show. Yeah, okay. Well, and that, you know, that takes me to what I want to ask you about the show. We would like you to do a regular series on ThinkTech Erica. And I wonder if you could describe what you have in mind as to the coverage of that series. And if you could give us some examples of the kind of episodes, the kind of guests that the kind of content you would want to roll out. Yeah, so I really like to do content around emerging markets, where to invest, how to analyze those markets, what is the data say, why should you put your money there, where you should actually put your money right now, is it best to put it in one property or multiple properties. So a lot of talks about around the acquisition side of it. And then also the exit side of it, like what is the landscape like right now if you own these kind of properties and you want to sell them? What does it look like? Is this the right time to do it? Should you wait? How should you approach it? And then I'd love to bring on different owners of short-term rentals, especially from the Hawaii market, and really talk to them about what they're doing to create a profitable rental. What's the strategy behind it? Some of the struggles they're going through right now, what they're dealing with in terms of trying to make sure they achieve this profitability in a down market. And then I'd love to also talk more about restrictions and regulations that are happening around the country and keep people informed of like this market is looking like they're going to start restricting short-term rentals. This one you might want to pull back on, here's what's happening here. Like I know in Hawaii, I think in November, you guys have in Honolulu some restrictions going into place on 90-day minimums and that's really going to affect a lot of people. So anyone that was thinking of buying a property in that market, they might still want to do that. But we need to talk about a strategy about how to approach it to achieve those 90-day minimums because before it looked like your strategy was to do one week here, two weeks there. So not push people away from a market, but re-strategize about how to enter into that market. Wow, that sounds interesting. We'll set that up and we'll publicize that Erica and we'll settle on a title for it, maybe something about short-term rentals America, something along those lines. Go ahead. Oh, I said that would be really fun, thanks. Yeah, I want to ask you one last question. In this show with you and me today, we've covered a lot of the possibilities and a lot of the issues. There's a lot of issues here. And we live in an economy which is up and down. Some people are optimistic. Some people are very pessimistic about the world today. And I just want your thoughts to close here about where you think this slice of real estate activity, this slice of real estate investment is going, the dynamic into the future. Where does it fit in the American economy and the American real estate market in general? How do you see it changing and changing our real estate community? That's a great question and I'll be quick on that because I know we're out of time. Short-term rentals are the future because we see that the way that people want to live their life is inching more and more towards the digital nomad lifestyle. People ever since COVID don't want to go back to work and now that they've had a taste of being able to stay home, work from home and travel anywhere, we've seen the results of that just in the last year. Longer stays, I think it was 30 plus stays were the top booking category and top growth category on Airbnb in the first quarter of this year. So what that's telling us is that more and more people are demanding these short-term rentals across the country and across the world because they're starting to live their life differently. People aren't spending it behind a desk anymore. They have the freedom and flexibility to travel. So short-term rentals are the future. We're watching the growth happen with it. It's not going anywhere. And it's not even just from people that are going on vacation anymore. It's traveling nurses. It's digital nomads. It's people that are coming in for football games. Like we've seen all kinds of trends in this. So this is just the beginning, definitely not the end. This is going to be, this is already a billion-dollar asset class, but it's going to be as big as commercial real estate. So definitely like don't write it off yet because it has a lot of room to grow. Erica Muller, looking into the future of short-term rentals in America and otherwise, thank you so much for joining us today. Thanks so much for having me, Jay. Aloha.