 vacation rentals are the future. Today I have one of my good friends and a complete bad ass business woman. I have Kate Birch here with me today. She is the founder of Property Protect and we're going to talk a little bit about what that is, but she's also previously lived in Hawaii for many years, owned short-term rentals there, knows everything about them, and the landscape of what's going on right now. We're going to be talking today about investing in Hawaii versus investing elsewhere. Without further ado, I'm going to go ahead and introduce Kate. Kate Birch with Property Protect is a short-term rental insurance product. Thanks for joining us today, Kate. Can you tell us a little bit about your time in Hawaii? Hi, Erica. Thanks for having me. Yes, I moved out to Hawaii in 2013 and lived on Oahu right back in the middle of Waikiki, in the middle of all the action. Shortly after I moved, I purchased a short-term rental in 2015, and then 2016 purchased another short-term rental and managed them myself while I was living there up until 2019 when I moved out of Hawaii. But it was a beautiful experience, beautiful island, wonderful people in Hawaii, and it was a great business investment at the time as well. Yeah, okay, great. Kate, I want to talk more about that because I had Alana on last time, Alana Schroeder, who also owned in Hawaii for a while, and then she sold her short-term rental recently. What was the reason that you decided to sell and you didn't keep holding when you were with your short-term rental? We were in a gray area because we were in the middle of Waikiki. There was an area that's marked as a resort zone, but we just, over time, it was hard to find help that was consistent. It was also just challenging with the regulation. We were constantly battling with the hotel lobbyists and Airbnb and VRBO were there involved, on the ground, mobilizing, but over the course of five or six years, it just got so prohibitive to operate there, almost to the point of infringing on our property rights. Gotcha, so that makes a lot of sense. I've heard that from others as well, especially with the new regulations that are coming down the pipeline in October, and I know you know a lot about that, which is really hitting hard some of the tourist areas. Let's talk a little bit about that because here at Verlio we work a lot with data-driven investments. We have data for every market across the country, and we know cap rates and the cash on cash returns of how they're producing. I pulled up Hawaii's best markets that were doing upwards of a 10 cap before we got on this call, and I sent it over to you. You had a chance to look at it, and one of the number one markets on there in terms of investment potential for Hawaii, I think it was Kailua, and you know much about that market, Kate, because it looked like the townhomes there were bringing in the two-bedroom townhomes were doing like a 22 percent cap rate, which is really high, and it was around 700,000 to purchase those. Can people do that right now, actually, or is this like a special niche that's going on? No, and Kailua dates back to probably, I don't know, six or eight years of having some friction with the short-term rental market. There's a lot of activism there with the residents owning homes right along the beach and pushing back with some of the bad actors that have unfortunately run short-term rentals up in Kailua, and it got to a point where they mobilized and were able to ban all short-term rentals in Kailua. Even though there's some wonderful figures as an investment standpoint, they will quickly shut you down because it's not properly zoned. You don't have proper permitting or licensing to operate there. Okay, so basically what I'm seeing then in the data is people that have already owned short-term rentals for a long time, they were grandfathered in, and they can't transfer that when they sell that license to rent, right? No, they cannot. Okay, yeah, so it kind of makes me wonder, like where can you go right now in Hawaii if you want to invest at today's prices and find something that's returning at least a 10% cap rate? Because I mean for those of you watching, I don't know how much you know about cap rates, but a cap rate is what determines the performance of a property. That's how we measure the performance, and it's how we compare it against other like properties. So we would look at one property and see that it's doing a 10% cap rate. It's performing at that 10%, and then we would compare it to like product to see how if it's performing less or better, and that's how we determine where to invest. The reason we don't use cash on cash return when we're talking is because cash on cash return is very specific to the individual investor's financing scenario, whereas the cap rate is more of like a single metric that works across the whole board of properties. So having said that, Kate, like there was a couple of other markets, and you're kind of making me wonder if like this is in Hawaii kind of like the trend, right, is like there are good opportunities, but they're not able to be transferred over to new owners. So anyone coming into the market now based on the data that we're looking at can be expecting under a 10 cap. So just looking at some of these markets that I sent you, do any of the, if you can run through them, I don't know if you have it in front of you. Do you have that one in front of you right now, Kate? I do. Okay, if you can run through some of the names of those towns that I sent you and tell me if you think anything out there right now is a good opportunity or if like we really need to start talking about regulatory issues blocking this. So the list includes Kailua, Waailua, Waimanala, Lohui, and Pearl City, and all of those unless there's a condo tell that has had previous grandfathered in notice of compliance, they, none of these areas would be applicable for any sort of short-term rental investment. And the majority of these are on Oahu, Lohui's on Kauai, but the majority of properties unless they are dated back to, you know, being a hotel at some point and have that proper licensing they wouldn't apply. Okay, so then I can say with confidence after you sharing that with us that, you know, investors coming into the market right now in anywhere in Hawaii and we have the data kind of backing that right now that they can expect less than that 10 percent cap rate, right? So this needs to be lifestyle investors in my opinion coming into the market, not investors looking for a high ROI because from what I'm seeing is this probably isn't the most profitable time to invest probably like you said due to regulatory issues and also combination of due to prices going up so much because I know that the demand for tourism hasn't slowed down and I know the demand is still there. But what's your thoughts on all that? So regulation depends island by island and there are some areas where you can still invest like in Maui and Lahaina and Kihei where you can purchase a condo they have the proper use of land and you can operate it as a short-term rental you do have to go through all of the permitting process just like you would from the very beginning there's no transfer over of notice of use but it is a tedious process and permits I don't know if you followed but permits in Oahu are taking months and almost to the point of years where folks are getting frustrated because of the length of time it's taking to get permits passed through the office and so you just have to be prepared that as you're setting up your investment as you're getting ready to run it as a short-term rental you could have a delay in the launch date of operating. So basically when you say permit for those listening you're talking about the permit to actually do a short-term rental to be able to legally operate that way right? Correct. Yeah so then like what I'm hearing is that people that are taking mortgages right and I know that you know the barrier to entry to Hawaii prices right now you're like 500 plus you know you were talking condos easily up from there so you're holding that mortgage for quite a long time while waiting on those permits with no income coming in I feel like that is something that people need to know before jumping into it and do you think that there's like a lot of real estate agents out there that are just hyping their market because they know that it's a sexy market that they can get investment in there but maybe they're not telling investors some of this and they could maybe have people coming into the market that are just not going to be able to sustain the property. Yeah I would say over the course of the last 18 to 24 months there was a lot of controversy around new owners or investors that had purchased in buildings or in areas where the realtor advertised in the MLS that you couldn't operate it as a short-term rental because it was operating as a short-term rental it doesn't mean that it's legal but they falsely advertised that and there were a few lawsuits where it tracked back to the realtor for misrepresenting the property so as an owner and investor I would encourage you to do some due diligence and look into the CCRCs of the building talk to other owners really call the the department of planning and really do your you know research and find out if you can in fact operate as you're intending to run it. You know and that kind of makes me feel like as an investor myself you know in a realtor for 21 years I'm like that's exhausting like I have a you know full-time job I'm investing in another state that's like halfway sometimes halfway across you know the world because there's people coming from my side in Florida all the way out there investing who has time to do all of that like we just need to be able to trust the agent that we're working with and transparency wins in my opinion if if that's what's happening I need the agent to be transparent with me if I want to invest in Hawaii I am a lifestyle investor because I know right now with the data that I'm not investing there for big returns right I'm investing there because I want to have a property that pays for itself so I can handle the truth do you think that there's this situation where maybe realtors are afraid that if they either it's that they're afraid to tell the client because they don't want to lose the sale or they just don't know like do you think it's one of the two of those things. I think there's a combination of the both there was regulation was so up in the air a couple of years ago that nobody kind of knew the direction and what was you know final there were bills being passed around and talked about and now it's really kind of come down to they passed a recent law where you aren't able to rent any property for less than 30 days they proposed a bill that was listed that you can't rent for less than 90 days and now there's actually a lawsuit with I think Greg Kugel leading point you know starting to call on the Supreme Court and say hey you're actually taking away property rights of mine as you know a property owner you can't tell me how to use my property so it is exhausting and I would definitely do your research when talking to realtors you know and don't just believe everything they say there's some very good realtors in Hawaii and there's some that are you know part time so just make sure that you're aligning with a professional. Yeah I kind of feel like a quick and easy way to to figure that out is like you can ask a couple of qualifying questions and if everything is like just sounds great too good to be true if everything's yeah yeah it's great you're gonna make money like I'm looking for someone to give me the good and the bad and I'm okay with them telling me something negative it's not going to turn me away and I think too that's an experience issue sometimes with agents where they haven't worked with a lot of investors or the ones they have might be amateurs and so they came looking for the wrong reasons anyway at Hawaii they need to be educated I think first investors but not to go down that rabbit hole I want to come back to what you were saying about regulations because I happen to agree with that I feel like it is taking away somebody's rights as a homeowner when you tell them what they can and can't do with their property I also see the other side of that we're trying to protect the integrity of the neighborhood the community there has to be you know regulations in place that dictate how you can manage it and how you can run it and operate it and if you don't follow those things you need to have your your ability to rent taken away but you know I feel like telling someone that they can't rent their property for less than 30 days after people have already bought expecting to do this I mean I just feel like that's extreme and I feel like too that there might be a little bit of a hotel monopoly going on you know I don't want to speculate about that but what do you think 100 percent I mean the politicians are deeply ingrained with the hotel lobby association and you can actually track back the campaign dollars from the politicians to the hotel lobbyists and on the day the short-term rental bill was passed there's a famous photo of the mayor with all of the hotel lobbyists standing behind him and so it's a very very traditional market the hotels have operated for a long time they're not enthusiastic about short-term rentals moving in the problem that and the message that gets misconstrued really often is you know there's a lot of activism around affordable housing there's activism around you know keeping dollars in Hawaii and not having it go back to the mainland but what the message doesn't include is all of these hotels are mainland global companies they're not Hawaiian companies they're not hiring you know small businesses and housekeepers you know as a as a goodwill effort they're doing it to increase their top line as a global hotel so I think that position needs to be elevated a little bit more in addition with the balance like you talked about you know and making sure there is regulation to keep the bad actors out so that there is a balance in being able to offer different types of accommodations besides just the hotel option yeah that's really interesting K about you know the global operations operating in Hawaii and that's okay but for the locals and the people that are investing in their money in Hawaii that's not okay it's like a double standard because I know you know from experience short-term rental owners they use local operators they use local property managers local cleaners they source their products usually locally and that stimulates the local economy and like you said I don't see hotels doing that I mean even on the employment perspective like I've seen hotels bringing employees in from other countries because the labor is cheaper and I don't know if they're doing that over in Hawaii I don't want to make I don't want to speculate on that but I've seen it happen elsewhere and everything is about the bottom line so I just can't imagine there being a good reason other than follow the money for this type of ban to be coming out on short-term rentals and I really I really feel like locals and the local property owners as well that want these rights need to fight harder I'm not saying they haven't but don't stop you know you have to keep pushing back because when this happens if you're quiet and you back down it's just going to set a precedent for them to keep doing it more and doing it more we really do have to as short-term owners continue to fight back for the rights of our property and how we use it and but you know have a middle ground be willing to agree to the terms on how we rent it out okay so Kate I know I want to we talked a lot about Hawaii specifically but I know investing in the mainland is so different than Hawaii because we don't seem to have as many issues on the mainland with getting help with things you know finding supplies things like that so can you talk a little bit about your experience in investing in Hawaii versus doing it on the mainland not as good or bad it's just different that's okay absolutely I think a lot of people look at the picture of Hawaii and they think oh this is the perfect place to have a vacation home or a second home I'm going to operate it as a short-term rental what they don't resonate with is it is an island and everything that gets to it is usually by boat or plane so that includes any sort of construction materials any sort of supplies any sort of housewares so when you're outfitting or renovating your property it takes a lot longer to one get on the schedule of a reputable contractor and then two you know order any sort of construction material I looked at windows one for my condo and it was a six to eight month lead time for them to come in so you need to just account for those types of delays because it is an island and the other thing too is you know it's got island climate so you want to prepare for you know windows open tropical breezes humidity all of those things that come into play that may not in different mainland cities you know you typically have mold and cockroaches sometimes that just crop up because it's part of the environment there and so that's something that you don't have to think about in some other cities on the mainland but just take into account that you're also in a different type of city and culture entirely you know Hawaii is a melting pot of Southeast Asia and Asian influence and so what might work for you on your pace is not necessarily dialed in for others at their pace so have a little bit of grace when working with folks over there yeah I think that's really good advice too I see that happen a lot not just over in Hawaii but also expats going to other countries even I mean Hawaii is part of the US but it's a different culture like you said it's so many different influences so a lot of mainlanders will come over there expecting things to work the way it does on the mainland and it's just it's not the same and I think it's kind of ignorant too to go somewhere where the culture is very different and expected to cater towards what you want if you're there as a property owner you should assimilate into the local culture and make that effort to understand before you invest if this works for you because there's nothing there's nothing worse for the locals I think then having people go over there invest their money being demanding being impatient not knowing what they walked into I feel like that has to maybe create some tension even with the locals not wanting this investment capital to come in and these kind of investors to come in have you seen that at all as a situation that's come up 100% you know you'll have a lot of tourists that don't they're not considerate of the beaches they'll leave trash behind you know as a resident in Hawaii every time I went to the beach I took trash bags with me because I knew I'd have to pick up after other folks and I was doing it also because that was the beach I love to go to and I wanted it to maintain its beauty and not have plastic and trash everywhere so I think you're spot on with you know really coming into Hawaii and accepting the culture accepting aloha accepting you know the different types of ways that people do things and but also being respectful and leaving places like you would your own home you know I wouldn't be throwing trash out the window you know at my personal home so why would I do it on vacation and I think you know just being considerate of there's communities there and your vacationing in a community learn about it you know learn about the history of Hawaii learn about Pearl Harbor like learn about all the culture around it rather than just the beaches and the shave ice and all that fun stuff so that's such great advice for investors considering to invest over there is to be culturally sensitive and I think too now that the returns are not as hot as they used to be three or four years ago a lot of the investors that are I think maybe a little more I don't want to call them ignorant but they're not as willing and open to have that mindset I feel like they've moved on to different markets where they're chasing the returns and you're going to start to see more of just the lifestyle investors that just have a deep appreciation for the Hawaiian culture coming in and investing because they're not there for the money they're there to just be a part of that lifestyle and then the short-term rental component allows them to do that financially because it helps pay the mortgage so hopefully over the next few years we're going to see a little bit of that shift unless property price is dip and then those cap rates go back up so we'll get more of those other investors not to say you know their money coming in isn't good or their money is coming in as bad I'm just saying that overall what I noticed is that people that are lifestyle investors that are buying for that reason tend to have more of an appreciation for where they're buying because there's an emotional component involved whereas with you know just cash cash flow driven investors it's all about the numbers so another point about investing in the mainland versus Hawaii would be how is the transaction part any different Kate do you notice it to be easier on the mainland or does it flow pretty smooth in Hawaii absolutely so for the escrow part of it it's pretty much the same one thing that a lot of folks don't realize is there are no mainland banks in Hawaii so Chase Wells Fargo Bank of America don't have branches there they don't have ATMs there so as part of your transaction you actually need to establish a banking partner at one of the Hawaiian banks um I believe I use Bank of Hawaii for a long time in a credit union there and they were really great um but it's a it's a little bit different in that sense and the other thing that plays into account is your HOACs any folks that buy into a condo association typically that HOACs are quite high um half the time they include a lot of the electricity or utilities but you will absorb a little bit of a sticker shock when you're looking at the list price plus the HOAC that you have to qualify for and so there's an equation that you have to do if you're looking at condos to account for that extra fee because I think at one point my HOACs were close to $900 a month so just take that into account when you're doing your calculation yeah that's going to put your expenses your expense column up to like 60% on that um with just all the other operating costs that are there usually okay so Kate I just want to thank you and I want to shift a little bit of the focus to you now because you're one of the most impressive business women I know I've known you for a long time you know you know I'm not just flattering you this is this is real you've accomplished so much especially as a woman founder which we know how hard it can be to raise money build a company be taken seriously and you've done a lot for the vacation rental and short-term rental world with your product and your company can you talk to us a little bit about property protect how it got to where it is and what it does yeah thank you so much for that property protect is a short-term rental insurance product we offer per stay and per night damage policies for short-term vacation rentals through an owner or a property manager and primarily that covers anything that a guest might damage on the interior of the home and we've also offered an annual tenant renters insurance policy so any investors that do long term rentals we can offer that type of insurance coverage to those renters as well how often does it happen where people damage things on the inside of the home like is it common or is this because I know a lot of people that own properties like short-term rentals don't think about getting that nightly insurance but I feel like you kind of need it because Airbnb only covers you so far can you tell us like what could happen or maybe like a crazy story that you've experienced goodness um I can't give you a ratio because it all depends on the types of guests that folks um invite and also the markets like you're always going to experience more parties in in markets like Las Vegas and Daytona beach and Miami and Los Angeles um Hawaii we typically have always gotten really good guests um and and not a lot of damage because people invest a lot to get to the destination so um the quality of the guest I think is a little bit different but um we've had uh claims that vary from you know somebody putting sparklers on a birthday cake inside a house and burning through a a wooden floor to guests urinating on furniture to um bullet holes in a window at a at a Airbnb that had a driving range or a shooting range next to it so uh all sorts of things I I've never uh stopped being amazed at what comes through claims sometimes so it's always good to have that extra layer of uh coverage that's so wild yeah absolutely I would I always say like you can never be too insured on your investments ever because there's some crazy stuff out there so um real quick how can people find you and what's next step if someone wants to connect with you sure um feel free to look me up on LinkedIn uh Kate first or you can look up Property Protect um we also have a Facebook page uh facebook.com backslash my Property Protect um and feel free to reach out I'm happy to talk about short-term rentals or Hawaii or investments anytime it's my favorite topic to talk about and you should definitely take your up on that she is everything all right thanks Kate for being here today thank you guys for tuning in and we'll see you next time on Vacation Rentals is the future thank you so much for watching Think Tech Hawaii if you like what we do please like us and click the subscribe button on youtube and the follow button on vimeo you can also follow us on facebook instagram twitter and linked in and donate to us at ThinkTechHawaii.com Mahalo