 Hi, everybody, I'm Erica Muller, your host of Vacation Runnels Are the Future. And we have some really interesting topics to talk about today, and I've got a really interesting guest as well, Alana Schroeder, who's joining us from California. But before we jump into everything with Alana, I wanna go into a little bit about the topic for tonight. And Vacation Runnels are on everybody's mind. Ever since COVID, they've just been all the rage as far as an investment goes. So we've been seeing this whole new wave of real estate investors jumping ship from long-term rentals to get into the short-term rental game. And what we've seen is just this whole new generation of investors, how they invest is different. What they're looking for in a short-term rental is different. Who stays at short-term rentals has changed over the last two years. We've seen a huge increase of remote workers and digital nomads that wanna just travel the world and work from anywhere. But short-term rentals have been around for over 20 years. This isn't something new, but a lot of people are just now hearing about it. So I brought Alana on today because not only has she been a short-term rental host and owner in Kauai for many years, she's also been in the short-term rental industry as a host for over 15 years. So she remembers what it was like back before short-term rentals became this commercialized investment that everybody wants to get their hands on. So we are gonna be talking to her a little bit today. Before we jump into that, I wanna go over some data with you. Here at Voleo, we do a lot of deep dive data insights on short-term rental investing for every market across the country. And we also have a dedicated marketplace. And Alana's property was in Princeville. And so I pulled up the data tonight on Princeville, which is in Kauai, just to look at where the numbers are landing right now as far as investments go and what the ROI looks like in Princeville. And Alana, I don't know what it looked like when you bought, but right now it looks like the market is mostly in Princeville made up of three, four and five single-family homes. And our data is bringing in really low cap rates for that right now, as low as under 1% and the highest being a 2% cap rate. So I don't know if you guys listening know what a cap rate is, but the cap rate is gonna be your ROI after all of your expenses are paid. But it does not include your mortgage. That would be different for everyone. That would be your cash on cash return. So we're looking at the ROI before your mortgage. And the best performing ones right now are five bedrooms, but they're coming in at an average sale price of 3.4 million. That doesn't seem like a purchase price that the normal investor getting into short-term rentals could afford. So what I wanna talk to you about today, Alana, is what was it like when you invested in Princeville years ago, and then I know you recently sold. So let's just start with, why did you go and buy and invest in Princeville? And we can kind of start there and hear about your experience. Yeah, well, first of all, thank you so much for having me, Erica. I really appreciate it. And Hawaii is just a really interesting market and so different pre-COVID and post-COVID. So we'll definitely touch on a lot of that tonight. But I really decided to invest in Hawaii because I had sold a property in the port of Long Beach, a commercial property and needed to reinvest the money. So I knew I loved Hawaii. I needed to invest the money in fairly short order. So I jumped on a plane, about six months pregnant, flew over there and the timing was just amazing. The market was in a definite low. I looked at a bunch of condos. I knew I wanted to be in a condo because I didn't want the hassle of having to take care of an actual house. I also knew that I wanted to be in a VA zone so that I knew that I was working with a legitimate vacation rental. So I went over there with some pretty specific requirements when I was looking, hired an agent that was very familiar with vacation rental properties. That's a great thing about Hawaii is that they've been in the vacation rental business, not only the municipalities, but investors and owners, probably longer than any other market that's out there. So everybody's like very familiar on what's going on out there and the regulations and what's legal and what isn't and the city and municipalities have been tracking that for a long time there. So the number one thing when purchasing a vacation rental in Hawaii is to make sure that it is a legal and licensed vacation rental property. So I went over, go ahead. Lizzie, are you finding that most agents know this in Hawaii? Because I know in other markets, a lot of agents are still new to short-term rental and they don't understand that, but you did mention that Hawaii's been doing short-term rentals probably as long as Orlando, right? So is that, it shouldn't be a problem to find agents in Hawaii that know that stuff. That's exactly right, but I would start with companies like Veroglio who have vetted agents who really understand the vacation rental business and can then take you and fast track you to a property that really is going to be a legitimate short-term rental because there are requirements in certain areas in Hawaii and certain complexes where it has a 30-day minimum and others have a one-night minimum. So it's not only important to look at the regulations in the area, it's also really important to look at the condo documents as well and a good agent in Hawaii is gonna know what that looks like. So that was like the number one thing I was looking for. Right, so when you bought Alana, you said you got a condo, right? I did, so I ended up with, there wasn't a lot of inventory out there when I was looking, although it was 2013, so it was definitely well into the low of the market from the 2008 crash and I was able to swoop in and for me, take a leap and I found a condo for $550,000 and that was about $100,000 above my price range, but I just figured I'm gonna take the leap of faith and I'll grow into it and it ended up being a great investment for me. I brought a property that needed a little bit of rehab, little painting and some work to it, just generally pretty minor stuff, maybe $15,000 worth of work, including new furniture, be able to salvage some of it and then I was just really able to transition it to my target market, which I knew was dual income, West Coast, California, Los Angeles Bay Area, Seattle families who were traveling with their kids and what I really wanted to give them was an experience that was very on par with boutique hotel where they could get that same sort of experience but having more amenities like a kitchen and a different and probably better price range. And over the years, my strategy seemed to work out really well there because there weren't a lot of five-star hotels in the area and the pool of hotel rooms in the area is very small, especially in Princeville. So as the city started cracking down on illegal vacation rentals, that was really a huge benefit for me and because I was one of the first owners to really model my vacation rental as a boutique hotel, I got a lot of recognition from that and a lot of renters and I was able to increase my rental rates. My gosh, I think that the previous owner was getting like 135 a night to like $200 a night for the holidays, I was able to boost that up too. By the time I left $300 a night and $1,500 a night on holidays. So I want to just jump in and say that these numbers that you're talking about that you were getting per night are still higher than the average nightly rate today. So I pulled the condos, the condo data for Princeville as you were talking and they do actually have slightly better cap rates than the single family homes. They're actually hitting right now around a two cap 2.3 which overall isn't a great return but compared to single family home it is but I'm looking at and how many bedrooms was yours too? I was a three bedroom, three bathroom. Yeah, because I'm looking at the threes right now and this is years later and they're only pulling in on average $231 per night and their average price now to get into those is 1.7. So what that brings me to is the opportunity when you bought was amazing and what happened was the rental rates didn't raise in proportion with the sale prices. Clearly the sale prices tripled since you bought there. So how can someone going into that market right now that wants to do the same strategy as you? How can they get those rates up even higher because they're gonna have to jump to almost four or 500 a night even just to make this viable, right? So I know you started to specialize long before a lot of people did in the whole boutique hotel experience and making your short-term rentals like that. Is that still a strategy you can take and apply today in the Kauai market or has it gotten so saturated with all of that that it's not even a viable option anymore? Well, the Kauai market, at least I can speak to Kauai, I don't know about all of Hawaii, but it's definitely saturated. So I think it would be a really tough market to reinvest in today. I think for me, if I were putting my dollars somewhere, it probably wouldn't be there. I think what's happening is you're competing with all the West posters who left during COVID and wanted a really great isolated place to stay and were able to go in and buy place for cash. And so you're competing with that plus people that just love Hawaii who are willing to pay crazy money for these vacation rentals and run it at a 1% return because that's what they want. I mean, over the long-term hold, you're probably gonna be okay or at least get your money out. Like for me, that's not where I would be investing my money today because it's not just that issue, it's like a supply chain issue that's going to continue on in Hawaii. Let me just give you an example. When I bought my place there in 2013, free bedroom, free bathroom condo, I spent $8,000 painting my vacation rental on the inside of it. Today, that might be $11,000. I know we'll touch on this a little bit later, but I just bought a four bedroom, four bathroom condo in Mexico and I spent $1,000 painting it. Just see the differential. Also, the thing about running a vacation rental in Hawaii or Kauai right now is that a lot of the service providers left during COVID and they weren't able to come back because they basically shut down vacation rental business for 10 months. I was fortunate enough to get a long-term tenant in there who stayed at my place for 10 months and I took a hit on rental rates, but I had somebody in there paying income, so it was amazing, but all the service providers ended up leaving the island and by the time they had the opportunity to come back, it was so expensive they weren't able to. So there's a huge shortage in labor on the island. When I sold in December, the restaurant weren't even open five days a week because they couldn't even get staff to run them. Oh, wow. So it sounds like right now, the opportunity is not really an opportunity for investors anymore. I mean, our numbers are telling us that, but just hearing it from you as well about the supply chain issues and the labor issues, it sounds like the people that are buying there, like you said, they're just dedicated and they love this market and they wanna buy a place that pays for itself in the long run and the rest of this is irrelevant and that does make it hard to compete if you're in there for a profit. So I understand then what we're gonna come to next is to why you sold. I'd love to talk to you a little bit more about what was the decision behind selling your property in Kauai that was very successful that you got at a great price. Nobody can duplicate that right now with these prices and you bought in Mexico and Puerto Vallarta, I think, or right around that area. So let's talk a little bit about that. Yeah, so I decided last year that I needed a change, a good old fashioned change. So I ended up making the decision to sell my vacation rental, but it wasn't just about the change. It was the fact that I always try and keep an eye on what's happening in the market there. So the long-term runner that I had at my vacation rental, he ended up buying a place in the same complex, a three bedroom bathroom. I wanna say that was in like September or October and he'd call me and ask me a bunch of questions about vacation running, et cetera, et cetera. So I knew that when he purchased his place, it was around $800,000 for a two bedroom, two bathroom. I paid $550 for mine. So I was like, okay, it is what it is. Next thing I know, like three months later, three bedroom, three bathroom condos in the area are selling for $1.1 million. And so that really got my attention. And the supply chain had gotten really difficult. It was just difficult to have guests. It was difficult to get things done. I mean, luckily my guests were also patient, which was wonderful and totally understood the supply chain issues where we're having there, but it was really hard to get people in to do work in your vacation rental or schedule cleaning. I mean, I had a wonderful pit crew out there, but just little things were getting more and more difficult to deal with. So just with needing a change, I decided and seeing the pricing, it was time for me to make a change. So I did and I was super lucky. I mean, I probably could have waited a little longer and taken more of a profit, but you know what? I was happy. I basically doubled, my place doubled in price and I was time to just take the profits and go do something else. So I sold it in December of last year and kind of took my time deciding what I was going to do. Thankfully didn't invest that money in the stock market, thankfully. And I was down in Porta Vallarta with some friends and went up to Punta Mita for a couple of days, went home and thought, that might be a fun place for a vacation rental after I swore I was never going to get back into this business. And a few months later, contacted agents, flew down in March and decided I was going to look at a few places and it just so happens my agent knew another agent, he had a place coming on the market, wasn't on the market yet, four bedroom, four bathroom, condo in Sayulita with an incredible ocean view. And went home, thought about it, put a full price offer in on that and I closed on July 25th. And it's been interesting, it's definitely a bigger rehab project than I had before, but labor is plentiful in Mexico and getting things done there has just been unbelievably easy. I can't believe how much I've done in the last 30 days. Oh wow, so it sounds like compared to Hawaii, it's just a totally different experience onboarding your short-term rental and preparing it for rent, which is huge because when you buy one of these, you don't wanna just sitting too long because you're paying a mortgage on that, right? And you need profitability, so getting it going is important. Now, do you feel like anybody can just do this? Cause Mexico has different laws than the US about ownership. And I know a lot of people ask me this, like, well, should I buy in Mexico? Cause there's really great profit margins of Mexico right now. I'm not gonna lie, like they look really attractive, but a lot of people are concerned about the government policies and home ownership there. Can you talk a little bit to that as to what you learned about buying there and maybe what some things people should look out for when buying in Mexico? Yeah, I definitely can because some of it is a little bit of a leap of faith. I don't speak Spanish, so you're relying pretty heavily on your agent and then also like when you're closing on property there, you have an attorney involved. So it's attorney in Mexico who's worked with the agent many times, so they're assisting along the way. And so that gave me some confidence there, but properties along the coast in Mexico can only be bought in a truck because they don't want anybody from a foreign country owning a big portion of the coast. But if you're a certain way is away from the coast, you can hold title as a foreigner's property is what I found out. So I'm on the coast, so I had to buy in a bank trust, which actually in hindsight, I really appreciated because then I also have a bank looking over all the legal documents in addition to my attorney, in addition to my agent. And so for someone who doesn't speak or read Spanish, that was actually ended up being a very nice to have when I was purchasing my property. So yeah, there were times that I was like as this, like what am I doing? Like, I can't understand the language, but sometimes you just have to take that leap of faith because like you said, if you're chasing return, like I am, you sometimes have to take those risks. And I think with the right crew, that can really be beneficial. Yeah, and I firmly believe it's all about the team, right? If any market you move into, if you don't have the right team behind you to help execute this strategy, I don't care how good of a market is, your chances of success are gonna be lower. So let me ask you this, like what is your strategy? Are you gonna hire a management company? Are you gonna do this like yourself remotely? And you obviously have more experience than a lot of people just getting into this. So you could do it either way, but what's the approach here to get it to profitability? Yeah, okay, so interesting question. I always have a strategy. Well, first of all, I wanna be in a beach city. I love the beach. And so that was always a requirement no matter where I invest my dollars because I also wanna go and enjoy my vacation rental home. So for me, it's not purely investment. I also love small towns. So Princeville was a small town where there are barriers to entry. So where my place is in Sayulita, the condo complex I'm in has 24-hour security. It is a five-minute walk to the beach and the closest bar. And then from there, it's another five-minute walk along the beach into the small town. And it's kind of on a little peninsula. So it's fully built out. So there's not really gonna be any more new buildings built in that area that are going to compete with me. It's kind of like, what's there right now is there. There may be a few redevelopments here or there, but nothing major, I guess is what I'm saying. So I really liked that and Kauai was a lot like that too. And there's not a lot of huge hotels there. So if you build a better mousetrap than everybody else, you're gonna benefit. So the first thing I did was hire a designer because I know that people are coming from California and Texas and dual income. And they're looking for places that are like boutique hotels. And so I'm completely redesigning this place to be like a boutique hotel. So I'm going in, I painted it, I'm putting in new solar panels because like Hawaii electricity is super expensive there. So I'll be able to take my electrical bill from like $700 a month to $25 a month. So the payback period on the solar is about a year. And then there was a hot tub on the deck. I took that out. Everybody can fight me about that, but water doesn't belong on the third floor. The particular unit I got has a commercial size elevator. It goes up to the penthouse. So I can have multi-generational families at my place and the ADA access like that. So I really like that. So really my strategy is going to buy places that maybe haven't been very well maintained. Maybe I'm putting like 20 or 30 grand into doing like the basics there. And then of course, design is a whole other budget. But just I bought my place there for $7.95. Hire in places that are well done that are four bedroom, four bath are selling for about 1.1. That may change a little bit. I still think that there's a lot of value to add. I don't think Mexico prices have seen the increase that we've seen like in places like Hawaii because I think people are still looking at it as an up and coming market, but I think we're getting there. And I think people are looking for alternative ways to invest their money where there's still some upside. Right. And so talking about that, what kind of advice would you give somebody just getting into the short-term rental industry? Because again, you and I have been doing this for 15 years. We've been around short-term rentals for a long time before Airbnb was even out there, but there's a whole new wave of investors getting into this. And there's a lot of coaches out there. There's a lot of information out there and a lot of it's mixed information. And I do want to talk to you about the Distinguished Guest, which is your company and what you do because I think that's a huge value add for anybody that wants to buy. But what is like a solid piece of advice you give the new investor of this generation that's just finding out about short-term rentals? If you could say like, whatever you do, just listen to this, that's what we're looking for. Yeah. I mean, I would say if I were giving somebody that advice, it would be to just really tap into someone who's gone down this path before because it can be really, really tricky. Whether it's like hiring a consultant to like help you through the process, someone in the area who's done it before because you do want to make sure you're running your numbers and you're looking and pricing things out. I mean, I had my agent, you know, meet with like 10 different vendors to get me, you know, pricing for rehab. So I knew all of that up front. So, you know, I mean, everybody says how passive and easy this business is, but actually it's not that easy if you want to do it right. And doing it right is the most important thing because if you do it right, you're going to be able to squeeze every last cent out of your nightly rate and that's the most important thing. And as we know from an exit strategy, right, those numbers are going to be capped and that's going to get you a higher sales price at the end of the day. And so really that's the game. But you know, like for me, I know you asked this before, I'm hiring a manager at my place in Mexico because I just don't have the time to manage a place anymore because I have so many other things going on in my life. But you know, hiring a manager for your first vacation rental, it could be important to you. If you don't have the time to do it, if you want to learn to do it yourself, tap into contacts and resources and hire a coach. I love hiring coaches for projects that I work on. I'm like, for example, I learned WordPress because I hired a WordPress coach to teach me, right? Same thing applies to vacation rentals. I promise you like that investment will be a great return on its own because you will get higher rental rates and you know, higher occupancy if you work with somebody who's been down this path before. And I'm a big proponent too on data because that's what we do at Berlio. I'm in data all day long looking at markets across the country. And I like to tell people and that's really all staged by Solana and I agree with all of that. I just want to add, I think people should also start getting, getting used to paying attention to data and not speculation and hype because what I've seen happening in the last two years since prices kind of went crazy is again, there has been a lot of like gurus to hit the scene and some of them know what they're talking about. Some of them are just kind of riding this wave. And if people don't know how to look at the data that's out there or find the right data and put it together in models, they're probably going to end up with something that they thought was going to be profitable but they over, are they underestimated the expenses or they underestimated the ease of how easy it would be to do this. These are people with full-time jobs and they say, oh, we'll just self-manage. I don't think they even understand what self-manage entails. But we're running out of time. So I want to talk about the distinguished Gastolana because you have done amazing things with your short-term rentals. I mean, you were like a straight five-star rated post for the longest time, which is so hard to do in this industry. And you have such a gift for design and finding only the best pieces for the interior, the best mattresses, the best bedding, all of that. Can you talk a little bit about why that's so important and what you do and how you can help owners and buyers coming into this market? Yeah, I mean, thanks, Erica. That's super sweet of you. I guess what I'll say is for me, like when I go to look for a vacation around or when I'm traveling, I always look for design first. I just didn't expect it by my environment, my living environment, even if it's on vacation. So I really want to have a nice environment to be in. So that's always important to me. So I'm like, if that's important to me, that's probably gonna be important to a lot of other people too. And I love staying in hotels, but not everybody has the benefit of doing that. So having a vacation rental that has the best of both worlds is amazing. And so, yeah, so that's where I have decided to really create that differentiation between myself and other owners. And yeah, the distinguished guest, I created a course and it's really a platform to get new owners on board and creating a good platform at their vacation rental properties. Yeah, and you really are a great coach when it comes to this. I mean, you're so patient. You've already been through all the struggles that these new investors are gonna go through. And like you said earlier, hiring a coach is so important. So I definitely urge anyone out there that's thinking about getting into this, just book some time with Alana if you can catch her because she's a great resource and her program is all online. It's easy to take and it's highly recommended. Alana, last thing, what is your opinion on bedding and mattresses? Because I know that's like kind of part of all this. And then we'll wrap it up in 20 seconds. Yeah, so I'm a real huge proponent of commercial linens and sheets and towels just because you could buy the same product over and over and over again. So it's gonna extend your inventory beyond going to like a bed, bath and beyond buying retail and then two years later, they switch up the design so you can't buy it anymore and then you'll have to throw everything away and start over. So I always recommend that my vendors use commercial distributors to help get linen so that they can come up with an entire linen program for their vacation rentals. And I'll be doing the same thing at my place in Mexico. Perfect, great. Well, thank you so much, Alana. We've had Alana Schroeder on today with a distinguished guest, 15-year short-term rental owner, so full of knowledge. And if you wanna learn more about data-driven decisions and short-term rentals, you can reach me at advisoratforolio.com. Thanks for joining us on Aloha. 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 LinkedIn and donate to us at Think Tech Hawaii.com. Mahalo.