Month: October 2022

Is the Toronto real estate market still one of the most expensive housing segments in Canada and the world? Yes.

Is the Toronto real estate market coming down from its record highs achieved during the coronavirus pandemic? Yes.

Before the once-in-a-century event, the Toronto housing market recorded exceptional gains, from single-detached residential properties to condominium units. Housing affordability was the talk of the town before February 2020. But, when the COVID-19 public health crisis decimated the global economy, it transformed into a situation of “you ain’t seen nothin’ yet.”

North America’s fourth-largest city enjoyed unprecedented gains on every front, be it sales activity or property valuations. The major urban centre skyrocketed amid falling interest rates, changing homebuyer trends, and fiscal and monetary expansion. Although the condo sector weakened in the first year of the pandemic, conditions started improving in the summer of 2021.

Now that the economy is on the other side of the pandemic, which means higher interest rates, the Toronto real estate market is adapting to this new landscape. This, of course, equates to some stabilization in housing sector.

So, how is the Toronto housing market performing as of late?

What You Need to Know About the Current Toronto Housing Market

According to the Toronto Regional Real Estate Board (TRREB), home sales plummeted 34.2 per cent year-over-year in August, totalling a little more than 5,600 transactions. Demand has considerably eased as prospective homebuyers weigh current conditions, whether higher interest rates or falling prices.

Price growth has slowed down at a notable pace. Association data show that the average selling price of all homes combined edged up just 0.9 per cent from the same time a year ago, rising to $1,079,500.

But TRREB added an important point: “The average selling price was also up slightly month-over-month, while the HPI [home price index] Composite was lower compared to July. Monthly growth in the average price versus a dip in the HPI Composite suggests a greater share of more expensive home types sold in August.”

Here is a breakdown of different property types based on sales and price year-over-year:

Detached

• Sales: -26% to 511 units
• Average Price: -1.7% to $1,648,209

Semi-Detached

• Sales: -29.6% to 159 units
• Average Price: -7.3% to $1,127,429

Townhouse

• Sales: -44% to 182 units
• Average Price: +0.4% to $913,410

Condo

• Sales: -40.6% to 1,028 units
• Average Price: +2.6% to $736,940

Supply has been mixed. New residential listings slipped 0.7 per cent, totalling 10,537 units in August. But active listings soared more than 62 per cent to 13,305 units. New housing construction activity has also been robust in the Toronto real estate market, Canada Mortgage and Housing Corporation (CMHC) data show. In August, housing starts climbed 12.55 per cent to 4,535 units. Year-to-date, there have been more than 27,000 units under construction, up nearly 4.5 per cent from the first eight months of 2021.

Mortgage Rates Weighing on Toronto Housing Market

Mortgage rates are north of five per cent – and climbing. The Bank of Canada (BoC) is expected to keep raising interest rates until inflation decreases significantly. This is expected to keep lifting the cost to service a mortgage during its amortization period.

“While higher borrowing costs have impacted home purchase decisions, existing homeowners nearing mortgage renewal are also facing higher costs,” said TRREB President Kevin Crigger in a statement. “There is room for the federal government to provide for greater housing affordability for existing homeowners by removing the stress test when existing mortgages are switched to a new lender, allowing for greater competition in the mortgage market. Further, allowing for longer amortization periods on mortgage renewals would assist current homeowners in an inflationary environment where everyday costs have risen dramatically.”

In other words, a rising-rate environment could leave new homeowners vulnerable to higher mortgages. The polls already confirm a concerning trend is forming in the mortgage market: Households have taken on too much debt, and they are not taking their mortgages seriously.

Experts contend that the Office of the Superintendent of Financial Institutions (OSFI) should think about weighing on the present stress test and determine if it continues to be applicable throughout the market correction.

“Is it reasonable to test home buyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle?” asked TRREB CEO John DiMichele. “In addition, OSFI should consider removing the stress test for existing mortgage holders who want to shop for the best possible rate at renewal rather than forcing them to stay with their existing lender to avoid the stress test.”

The mortgage stress test was designed to determine if homeowners could withstand a potential rate shock, which is typically about two per cent higher than the current rate. In June 2021, the minimum qualifying rate was revised: the rate offered by your mortgage lender plus two per cent or 5.25 per cent – whichever is higher.

A recent IG Wealth Management survey learned that more than half of Canadians are anxious about being able to afford their mortgage payments as interest rates increase. According to the online poll of 1,590 adults, just 39 per cent of respondents include mortgages in their monthly budgets.

“In many cases, monthly mortgage payments, along with taxes, account for one of the largest monthly expenses Canadians face,” stated Alana Riley, head of mortgage, insurance and banking at IG Wealth Management, in a news release. “So, while it is encouraging that so many reported having a monthly budget, it’s only providing a partial snapshot of their overall cashflow situation if they don’t factor in their mortgage.”

Meanwhile, with higher rates potentially extending the decline in prices heading into 2023, affordability will continue to play an important role in the broader Ontario real estate market.

“There are other issues beyond borrowing costs impacting housing affordability in the Greater Golden Horseshoe. The ability to bring on more supply is the longer-term challenge,” added TRREB Chief Market Analyst Jason Mercer.

How much higher will mortgage rates go? Will the Toronto real estate market continue easing? Can homeowners withstand the current inflationary and rising-rate climate? While 2022 might have been the start of the latest downturn, next year could be the more interesting time for buyers, sellers, analysts, and public policymakers.

Mindy:
Welcome to the BiggerPockets Money Podcast Finance Friday edition where we interview Steven Phan and talk about having a baby and setting up your financial runway before starting to invest.

Steven:
I grew up kind of poor. I talked to my grandma about the other day because I remember there was a point where we couldn’t afford $29 marching shoes. And so I’ve never had more than 50, maybe even a hundred bucks to my name ever in my life. So I get to college and they gave me a $2,000 refund. And so I believe there’s two types of people in this world that didn’t grow up with money, either you didn’t grow up with money and you save every penny, or you didn’t grow up with money and you spend it. I spent all my money. Oh my gosh.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today is the inimitable J Scott, master of everything.

J Scott:
Mindy, I have absolutely no idea what that word means, but I’m going to assume you didn’t just insult me there. I am thrilled to be here.

Mindy:
It means you’re okay.

J Scott:
I’ll take it.

Mindy:
J and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone no matter when or where you are starting.

J Scott:
And whether you want to retire early and travel the world, whether you want to go on to make big time investments and assets like real estate, or maybe you just want to start your own business, we’re going to help you reach your financial goals and get money out of the way so you can launch yourself toward your dreams.

Mindy:
J, I am super excited to talk to Steven today. He has an interesting set of circumstances where his investment portfolio is on the low side, but the reason for that is because he has $100,000 in debt that he and his wife just got finished paying off. That is something that we need to celebrate. Hooray, because that is, yay, that’s a big deal. $100,000, that’s like a whole salary. Or let’s be honest, that’s like two or three salaries that they paid off in two years and now they can start their investing journey, their financial independence journey. This is their story.

J Scott:
It’s a great story, but here’s the thing, they paid off $100,000 but now Steven’s in a position where he’s getting ready to move on to the next job and he’s got some hard decisions to make and hopefully we’ve been able to help him make those decisions or make that decision and put him on the right path.

Mindy:
I think that’s a really great point. Episode 157 of the BiggerPockets Money Podcast is Scott Trench and I talking about how to have a money date with your spouse. And that is something that I recommend not only Steven and his wife do, but anybody who is in a position where they’re not quite sure where they want to go or what path they need to choose. I think having a money date with your spouse to figure out what path you want is a really great opportunity to just get a read on what your spouse is thinking, what is their opportunities that they’re looking at. Episode 157 is a good thing to listen to, help guide you down your money journey path.

J Scott:
My wife and I like to do this and a lot of Friday nights we’ll open up a bottle of wine, we’ll talk about our financial situation, where we want to be in the next six months or 12 months or 24 months. And it’s really, it’s not a formal sit down, have a serious conversation, it’s really just a let’s get to know each other from a financial perspective and what we’re thinking because financial perspectives change over time. And if you’re not staying up to date with what your spouse or significant other is thinking, you’re really, you’re running the risk of diverging and falling behind each other.

Mindy:
I heard this quote from somebody I can’t remember, but I love it so much. “It isn’t you against me, it is us against the world.” The two of you need to be on the same page and having a money date or a money check in is the best way to make sure that you’re on the same page, so it’s the two of you against everybody else.

J Scott:
Teamwork makes the dream work.

Mindy:
Teamwork makes the dream work. Before we bring in Steven, I am compelled by my attorneys to say the contents of this podcast are informational in nature and are not legal with tax advice. And neither J nor I nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate. Steven Phan is 29 years old and fantastically, happily married with a baby on the way. Yay, babies. They have just paid off a whopping $100,000 in debt. Hooray. That is something we should celebrate. Nice job Steven and your wife and are fantastically debt free. Now they’ve got a journey ahead of them. Steven, welcome to the BiggerPockets Money podcast.

Steven:
Thank you. Thank you so much for having me. I actually can’t believe I’m talking to you. I watch you almost every day. So it’s like you know of my existence.

Mindy:
Now we’re best friends.

Steven:
BFFs.

Mindy:
Okay Steven, we are BFFs and as your best friend I have some things I’d like to talk to you about. Let’s talk about money.

Steven:
Let’s do it.

Mindy:
I’m going to show your financial situation to the world. I’m going to share it with my friend J Scott who is here joining us today. And we’re going to look at what you have coming in, where it’s going and what we think you could do a little bit differently to improve your financial situation. First of all, let’s celebrate that $100,000 in debt that you paid off.

Steven:
Let’s go.

Mindy:
Okay. What did that consist of?

Steven:
It consisted of $50,000 in student loans, $40,000 in cars and $10,000 in credit cards.

Mindy:
And you still have the cars, you still have the education, but now you don’t have the debt. Hooray, hooray, hooray.

Steven:
I only have one of the cars now.

Mindy:
Okay, well still the debt’s gone and that’s what matters. Let’s look at salaries. Right now we have a salary of $5,600 a month, with a side gig of $810 a month and another side gig of $650 a month. And we’ll get into that in a little bit because I think that’s very interesting. But right now it’s just the really quick personal financial situation. Monthly expenses, this is where I’m going to focus a little bit more attention on Steven. And the reason is I think we can tighten some of these up. We have rent of $1,200 a month, which I think is great. I mean where can you rent a property for less than $1,200 a month? You’re really getting into some snatchy.

Steven:
We got lucky because of my wife, with that rent.

Mindy:
That really seems like a great thing. That’s not what I’m going to focus on. We have approximately $800 a month in bills, which are $430 in utilities, $270 in subscriptions. And those subscriptions is where I’m going to focus on. We’ve got YouTube TV at $70, HBO Max at $16, YouTube premium at $20, Disney plus at $15, netflix at $20, Experian $43. The gym at $27. Microsoft 365 at $10.81. I don’t have a problem with the gym membership. I’m wondering why you need YouTube TV, HBO Max, YouTube premium, Disney plus, Netflix, that’s a lot of TV.

J Scott:
And here’s the thing, I don’t even care about the money you’re spending, that’s a hundred bucks a month. Big deal. $1,200 a year. Obviously you could save $1,200 a year. But here’s the real question, how much time are you spending watching TV and doing things when you could be doing other things that could potentially be supporting your financial growth?

Steven:
Well, personally for me, I don’t really watch a lot of the subscription stuff. The only thing I really watch is YouTube TV for all my sports. I got to watch my Cowboys, I got to watch A&M. I wish there was a TV, a YouTube TV, but only sports. So the other subscriptions, it’s mainly my wife because she works nights and so she only works three days a week. So she’s at home four days a week. At night she can’t really go anywhere, so really it’s to entertain her throughout the night.

Mindy:
I will put a pin in this and she’s not here so-

Steven:
She’s sleeping. She works nights.

Mindy:
That’s a research opportunity to say maybe you remove one of those over the course of a month and see if you really miss it or you remove two or three of them. But that’s an opportunity.

Steven:
One thing I was thinking about doing is a carousel where she’ll watch just two of them for one month and then cancel it. Then the next month she’ll watch the other two or three and then just do a ping pong thing to save money.

Mindy:
Or like J said, is there something she could be doing? There’s a baby coming, so maybe there isn’t. Those first few months there’s a whole lot of nothing that you’re doing, you’re just taking care of the baby who’s like, hey, no schedule whatsoever. Then we’ve got normal weekly spending as $600 a week. That seems reasonable. $2,400 a month. And then when we look into this, we see personal spending of 2250 for you, personal spending of 1750 for your wife. Fun money for $10. Gas, 105. $25 for household expenses. $15 for cats. $100 for groceries. This all seems fine and good. And then a whopping $330 for restaurants. I am going to call you out right now and say we can cut that down to $0 a week for restaurants, maybe you will increase your groceries a little bit. That is J, do the math really quickly. What’s 330 times four?

J Scott:
1320.

Mindy:
1320 that you could be saving every month just not going out to a lot of, that’s a lot of restaurants, $300 a week, not a month. That is also a research opportunity. You do have $14,000 in savings, which is awesome. Savings for the baby. And your investments, your wife has a 403(b) with just under $2,000 in it. Again, they did just pay off a whopping $100,000 in debt, and your wife’s pension plan has $12,000 in it. So overall I think you are sitting fairly well. I think you don’t need to do anything. If I was in your position, I would look at my expenses and see what I could cut out and still live a happy, fun life.

J Scott:
Here’s something to consider. I’m a big fan of projecting into the future and doing the math. And if you do the math, if you can literally just cut out $100 a month and whether that’s in eating out, whether that’s in your subscriptions, whether that’s a combination of those or other things, literally just $100 a month, and you take that money and you put it in a typical real estate investment that returns 10% a year. We can talk about what investments you should be in. But let’s say you’re in an investment that returns 10% a year and you can take out $100 in expenses right now, every month. When your child turns 18, you’re have over $60,000 in savings. That’s right now two years of public college. So you can literally, just by cutting out $100 in expenses per month, you can literally save up two years of college expenses for that child.

Steven:
Oh yeah, I’m having a baby. I forgot about college. Oh man. That’s another thing I got to worry about.

Mindy:
That’s another thing to add to the growing list of things to think about when that baby is born.

J Scott:
But I did want to ask, your expenses, do those factor in the changes that you’re going to be seeing when the baby comes?

Steven:
I love making spreadsheets. The only thing I really accounted for was that in the budget we were just going to probably add about an extra $125 a week to all of her, our daughter’s needs. Most of the things we’re going to keep consistent, but I think for now, initially, because we’ll probably adjust as she gets older or depending on how it goes. We’re just going to add about $125 extra to our weekly spend for her, that includes diapers and formula and any other things that the baby needs.

Mindy:
If that’s diapers and formula, that’s going to get eaten up really fast with that $125.

Steven:
Oh yeah. Luckily though we had our baby shower on Saturday so we’re good on at least a little bit of the diapers right now. And then I think my wife is planning on breastfeeding for a little bit.

Mindy:
Okay. Well let’s look at your money story. How did you get to this point in time?

Steven:
Okay. My money journey actually started when I was a junior in high school. So when I was a junior in high school, I was able to go to this program called the TAMS program here in Texas where it allows you to skip junior and senior year and you start your freshman and sophomore year in college. And so by doing that I was eligible to get the Pell Grant at 16. And so I’m going to back up a little bit. I grew up kind of poor. I talked to my grandma about it the other day because I remember there was a point where we couldn’t afford $29 marching shoes. And so I’ve never had more than 50, maybe even a hundred bucks to my name ever in my life. I get to college and they gave me a $2,000 refund.
And so I believe there’s two types of people in this world that didn’t grow up with money, either you didn’t grow up with money and you save every penny or you didn’t grow up with money and you spend it. I spent all my money. Oh my gosh. And so got to A&M, and this time I had a full ride and I ended up getting a five, $6,000 refund. And throughout college I didn’t spend my money wisely, I spent it on women, which is a big regret of mine. That happened. After I left college I met my wife, and I remember in the beginning of our marriage we were living minimum. We worked minimum wage jobs, maybe 10, 12 bucks an hour. We had apartment, we had savings. I mean it was a good life. But nothing changed really until she passed her nursing board exam.
That was the first time any of us had made serious money. I’ll never forget her first paycheck as a nurse, $1,722.14. We had never made more than 800 bucks in a paycheck. And that was more than double. We worked in the same hospital. I worked on the corporate side and so I made a little bit of money as well. And oh my gosh, we thought we were balling. We tried living the normal American life getting two new cars. We had a house, we got a cat who’s sleeping behind me right now. And so on the outside everything looked great, but on the inside we were hemorrhaging, because we were in just so much debt.
And so one day you’re probably going to think I’m a nerd because sometimes I’ll do things because I’ll do the pythagorean theorem because I remembered it from high school or I’ll do derivatives and intervals. One day I did a TVM calculation on our day, because I just remembered that was my favorite thing to do back in economics class. And I did an-

J Scott:
What is this TVM?

Steven:
Time value of money. I did an amortization schedule where I put like, hey, we pay this much month, but this much goes to principle, this much goes at interest. And man, that was the most eyeopening experience of my life. And I was like, why is this bank getting five, $6,000 from me? Why is Sallie Mae getting this much money from me? I realized my credit card interest was like 26.99%. So they were getting a lot of money from me. I know it’s pretty high. And so that was an eye opening experience for me. And this is before I even, I’m a big Dave Ramsey guy, but this is before I even found Dave Ramsey. I didn’t even tell my wife. I just said, we’re paying off all this debt.
That’s what I love about my wife. She’s a very easygoing, I have a plan, she just goes with it. March of 2019, that’s when we started our debt free journey and we’ve just been on a journey ever since and finally paid off $100,000 worth of debt.

Mindy:
That is awesome that you paid off $100,000 in debt. That is absolutely fantastic.

J Scott:
I love that because I remember I started my financial journey, I awoken like you did. When I was your age, when I was 29 years old and I had $30,000 in college loans and other debt. I was right around the place where you were and it basically started the same way it did with you. It’s like I’m running some numbers and I’m looking and I’m thinking like, wow, how much money am I spending? And one of the things I thought that was really interesting that you said was when people grow up without money they fall into one of two buckets, they either end up spending lots of money or saving lots of money. I was like you, I spend money, I am a spender. Money burns a hole in my pocket.
But what I’ve learned over the years is that as long as I’m focused on spending on things that add to my financial value, cash flowing assets and other investments, that’s a good thing to be spending on. So for anybody out there that’s listening to this and you empathize and feel like, yeah, I’m in the same spot, I like to spend money, I can’t hold onto money, I grew without money. Just remember there are lots of people like us out there. But focusing on spending that money on investments and cash flowing assets, that’s a great way to be in both camps. You can be somebody that’s a spender, you don’t have to change your personality, but you can still be doing right for your financial future.

Steven:
Investments over women. Wait, did you spend your money on women as well?

J Scott:
I didn’t. It wouldn’t have helped.

Mindy:
Okay. So Steven, what is your greatest money pain point? How can we help you today?

Steven:
Well, so over the years I feel like I’ve slayed the personal finance dragon. I’ve slayed the credit card dragon and I’ve slayed the debt dragon. I think the only dragon left to slay is the investment dragon. So investments, investing is really new to me. So that’s pretty much one of the pain points that I have. And also I would like to be part of the FIRE movement. I don’t have a lot of friends or family that are aware of it. There’s certain things I can’t talk to them about. I’ve mentioned the FIRE movement to my sister and how I wanted to retire in 10 years and she thought I was the craziest person on the planet.

Mindy:
I have to continually remind myself when I’m talking to people who don’t live by me, I live in a five bubble. I live in this like fine Mecca. I live in Longmont, Colorado, which is where everybody comes. I am constantly surrounded by people who are in this space. Honestly it’s really great to be able to have these conversations with people, we nerd out a lot. But I’m not the only person who lives by people who are in this space. Have you been on Facebook? Do you have a Facebook account?

Steven:
Oh yeah, I’m a millennial.

Mindy:
Okay, well listen, listen, some people, my kid is like, oh my god mom, Facebook’s for old people.

J Scott:
Mindy’s still in MySpace.

Steven:
I tried logging into MySpace, I’m surprised it’s still active.

Mindy:
I don’t know how to use that. Anyway, BiggerPockets Money has a Facebook group. And there’s also the podcast, ChooseFI, has done a really good job of creating local ChooseFI Facebook groups. So where you are at, I know there’s a local ChooseFI Facebook group. There are people in my Facebook group who are local to you. Have you ever thought about starting a local meet up group?

Steven:
I actually have started it. Not started it, but I have started thinking about it. But sometimes I’ll have a thought but then I don’t go through with the thought. I think you’re going to give me the push that I need, because it would be nice to have a FIRE group here in Dallas with me.

J Scott:
Also keep in mind that you don’t need to have a local group of friends. We’re in a digitally connected age where you can have friends from all over the world. My core group of mentors has grown through BiggerPockets. I jumped on BiggerPockets in 2008 when I wanted to learn how to invest in real estate. And many of the people that I met back in 2008, nine, 10, 11, 12, I’m still in communication with. Some of them. I’ve literally only met once or twice at BiggerPockets conferences or other BiggerPockets events. But these are people that we share a WhatsApp group or a text messaging group and we talk as if we’ve been best friends forever. And we in a way are, but we’re each other’s mentors. But we do it digitally. We don’t live near each other. Some of my friends are literally the other side of the world, but we can still communicate. I can ask them advice, they can ask me advice.
One of the things I would recommend is in addition to trying to build a local community of people that you can see in real life, also use the internet, build up relationships with people that you can have a digital relationship with. And again, start a WhatsApp group, go on BiggerPockets and make friends on BiggerPockets. Start a Facebook group, start a text message group, whatever it is. Because these days that’s just as powerful as meeting people in-person a couple times a week.

Steven:
That’s true. But it would be nice to have local people around too, because I did spend a few years pretty lonely. The past year was the first time I’ve reconnected with the old friends and this has probably been the best year of my life. So it would be nice to have local people and the digital people as well.

Mindy:
I think both approaches are absolutely valid. But having a support system, having a local support system so you can go out to a park and have a nice little picnic with a bunch of different people and have these conversations. Here’s the thing, my local groups don’t get together and talk about Roth IRAs and 401(k) contribution. I mean we do. Of course we do.

Steven:
That sounds like a great party.

Mindy:
But the conversation flows in other directions and we talk about a great beer that we had or a movie that we saw or what our kids are doing. It’s not just all this money nerd stuff, it’s this giant flowing conversation. It almost feels like, because I know we’ve got this huge frugality or financial independence mindset in common, that’s taken care of and now I know we’re instantly friends, like you and I, Steven are best friends now.

Steven:
BFFs.

Mindy:
BFFs. I know that we already can talk about a ton of other things. We don’t just have to talk about money. Today we’re just going to talk about money, but we can go out and do these things. That is a research opportunity for you, is to figure out how to start a local financial independence minded meetup group. You mentioned that you’re in the Dallas area, that’s an enormous area. That’s like half of Texas, is the Dallas-Fort Worth area. There are going to be a lot of meetups where it’s like in the southwestern corner, but you live in the northeastern corner, it’s going to take you three hours to get there. Start one by you because there are people who are just like you everywhere across America, across the world, there are frugal people, people who are into financial independence who may feel isolated like you and just want to connect with somebody else.

Steven:
I’ve never given that a try. Because I think I just realized I’m actually on the BiggerPockets Money Facebook page. I think that’s where you posted about being on this show. That’s where we first talked.

Mindy:
Well, welcome and go in there, and if you are in the Dallas-Fort Worth area, we’ll start a conversation in that group. Let’s make a note about that. We’ll start a conversation in that group. Let’s start a meetup in that area so you can have conversations about financial independence and not feel so alone. Because it can feel really lonely when it feels like you’re just you and you talk to other people, they’re like retire early. What you mean like 62? And you’re like, no, way earlier.

Steven:
I’m talking 40.

Mindy:
Are you going to win the lottery?

Steven:
No, I’m going to invest.

Mindy:
Invest in real estate. No, you’re going to be a slum lord. You want to invest in real estate? Oh let me tell you, all these horror stories, those are not the people that you talk to about investing in real estate, the people who tell you how bad of an idea it is. You talk to people like me and J Scott, Hey J, do you like real estate as an investment class?

J Scott:
Let’s talk about it. I love real estate. What are you doing in real estate?

Mindy:
I love real estate too. It’s my favorite investment class.

J Scott:
It’s so important to have the right people around you. And as somebody who’s a good bit older than you are, what I’ve found is that over the years you’re naturally going to be attracted to people that think the way you do, that have the same goals as you do. I know when I was younger it was really tough for me to say there are certain friends in my life that probably aren’t good for me, because they didn’t think the same way. And didn’t mean we couldn’t stay friends, it just meant that they weren’t going to be my core set of advisors and mentors and people that I really grow with financially. And so in a lot of ways I have separate groups of friends where some are in the same boat I am financially speaking and thinking and other people that aren’t.
And so you just have to make sure that you surround yourself with enough people who are in the same boat and who do think the same way so that you’re not demotivated and you’re not constantly trying to fight to have these thoughts that nobody’s supporting.

Mindy:
Absolutely. I can’t stress what J just said enough. You don’t have to dump your old friends, but if they’re not supportive in what you want to do, you need to find somebody who is. Let’s look back at your financial situation. Let’s go to the income part of your financial situation. We have a salary of 5,600 and this we talked before we started recording, this is your wife’s salary, you don’t currently have a job, but you do have two on the horizon. Let’s talk about what they are and which one you’re going to accept.

Steven:
Okay. So that’s like, I’ve been asking a lot of people because I’m really torn between the middle, between these two jobs. And so I want to get y’all’s opinion and whoever wants to comment in the section as well. So job one is with an investment bank and it pays about $50,000 a year. However, it’s a hybrid schedule, so I have to be one week on campus, one week at home. But there’s so much growth opportunity with this position. Job B is with an insurance company. The first job involves talking to customers all day. And so we would have to take our daughter to daycare. Something about taking our daughter to daycare makes me a little nervous or I wanted to spend as much time with our daughter as I can.
But the second job I get to be, it’s a work from home, fully remote, no talking to customers and me and my grandmother will get to watch our daughter, well, my daughter full-time. And so there wasn’t a lot of growth opportunity with that job though, but I believe it pays about 60 a year. I have to also mention for 401(k) nerds out there, the job with the investment bank has a 17% match. And so that’s why do I take the 17% match or do I get to stay at home and watch the baby full time while working?

J Scott:
The job that would allow you to stay with the baby also pays more. Did I hear that correctly? 60,000 versus 50,000?

Steven:
Right. But pretty much I think I’d just be at 60 for like, assuming I stay at that job it would just pay 60 pretty much but no growth. But I could take the 50 kind of I wouldn’t say be miserable, but it’d be very tough because that’s, customer service is like I’ve done that for pretty much throughout my whole career, wanted to get a job more productivity based. But at least they pretty much said after a year if you wanted to go to another department, you can. It’s more of just to get your foot in the door. There’s so much growth to where I’m pretty sure I can make 80 in five. I have a spreadsheet of a plan of how I would invest and what I would do if I started making 80 in five years. But 17% match I need to emphasize the 17% match. That’s ridiculous.

J Scott:
Okay. How much would you estimate your daycare expenses would be if you took the job that’s paying less at the beginning?

Steven:
We found a daycare near us and it was the cheapest one, it was about $800 a month.

J Scott:
So on day one, your options are basically the $50,000 job with the 17% match, which gets you to like 58, $59,000 a year. But you also would have to pay about $10,000 per year in daycare costs. That job would grow somewhere around 48, $49,000 a year. Safe to say?

Steven:
Safe to, yeah.

J Scott:
Okay. So 48, 49,000. The other job is $60,000 a year. You don’t have the match, but you don’t pay daycare and you get to stay home with your child. So on day one, that first job is paying $12,000 less and you don’t get to stay home with your child. That to me, even though the first job might have growth potential, do you think that, let’s say a year out, you could still go back to that job that had growth potential if you chose?

Steven:
I was thinking about that. I’m pretty sure I would still have an opportunity to do something a little bit better than the original offer that was offered if I got back. That’s something to think about I guess. But I think I’d still have an opportunity.

J Scott:
So for $12,000 in additional income plus, and again this isn’t always just about the money, being able to stay with your child for the first year of your child’s life is huge. And so certainly I’m not trying to tell you what to do, but I would seriously consider the job that will net you an extra $12,000 a year and allow you to stay with your child for that first year and then reevaluate after that year and say, hey, maybe I now want something that has higher growth potential, maybe I have another option with childcare or daycare. But basically take the opportunity to be with your child for that first year because you’ll never get that back. Plus you get an extra $12,000 that first year.

Steven:
That is true. I don’t know if this helps with the decision too, but job A has a three months of paternity leave, but the job B doesn’t offer any paternity leave. Does that factor in at all?

J Scott:
Certainly it does if you plan to only stay at that job for a year, if it’s going to be short term. Long term, again, there’s a lot of personal decisions that go into this. When it comes to family and raising children it’s not always just about the money. That certainly could factor in. But again, I would seriously consider that job that pays more and reevaluate after a year.

Steven:
I’m even more to torn now.

Mindy:
Well I have something to throw at you, your side gig is taking care of your grandmother to the tune of $810 a month. So that tells me that she does need help.

Steven:
She does. Yeah.

Mindy:
You are taking job number two so that you can watch your baby at your grandmother’s house while you’re working. How much opportunity is your grandmother going to have to help out with the baby if she herself needs help from you for care? And how much opportunity are you going to have to actually take care of your baby when you’re working? When the baby first comes, they just lay there like a lump and sleep until they wake up and then they’re hungry and they need fed now. Thank you very much. And grandma most likely could sit in a chair and hold a sleeping three day old infant and feed her. But can grandma wrestle a nine month old baby to hold her if she’s super active and moving all over the place while you’re on a phone call?
I don’t know all the ins and outs of this job, but I don’t know a lot of employers who are like, take off all the time you need during the day to take care of your baby and we’ll still pay you for a full-time job.

Steven:
That’s a plot too. I didn’t think about that. I’m only thinking short term.

Mindy:
And is this a couple of days a week while your wife is working nights and then she’ll take the baby on days that she’s not working? Or is she sleeping during the day? There’s a lot of things to think about. The first couple of months are real easy, but also your wife’s on maternity leave. The first couple of months are pretty easy because the baby really doesn’t do anything, they’re not mobile. But once they can flip over, once they can start crawling and really start moving around, is your grandmother’s house baby proofed? What is the real reality of this baby being at your grandma’s house?

Steven:
You’re right, that is tough. Because the first six months she’ll be able to watch the baby no problem. But once that baby starts getting energy and running around and crawling around, yeah, I don’t think she’s going to be really equipped to handle that. My grandma, the only main thing with my grandma is more of medication management and just taking her to places that she needs. So she’s still really high functioning, but I think with her being 80, taking care of a nine month old might be a tall order for her. And another plan that we were trying to have is mainly my wife working on the weekends and then I’d work on the weekdays. So at least a parent would be with her at all times. So that’s another. Having a baby is a struggle, a joy but a struggle.

Mindy:
There’s a lot of things to think about that you know may not think about at the beginning. So your wife would work on the weekends and you’re working during the week?

Steven:
Pretty much. Yeah. I would work Monday through Friday. She’d probably work Friday, Saturday, Sunday. That’s one of our plans. But she has to talk to the boss, see if that’s a possible schedule.

Mindy:
And how much of your side gig is still doable if you’re working full time, you have to take your grandma to places she needs to go, is that doctor’s appointments and they’re only open when you’re working?

Steven:
Well mainly though she gets rides through a Medicaid hotline. I take her to the doctors when I can, but sometimes if I can’t then I have a backup. Medicaid has a ride program. I think mainly though, just be like before I get to work, it’s just medication management for about an hour and a half and then after work another hour and a half of medication management. At least with her it workout, it’s just trying to figure out how does a baby play in all this.

J Scott:
And so you’re making $810 a month by watching your grandmother-

Steven:
Pretty much.

J Scott:
Does that go away with either of these two jobs or is that going to be consistent regardless of which choice you make?

Steven:
It’ll be consistent. The clocking in is through remote system too. So if I take the remote job, I’ll pretty much just double dip for three hours while I’m at the remote job. Or if I’m taking the other job where I have to physically go to the office, I’ll just be there for an hour and a half before work, hour and a half after work.

J Scott:
There’s a lot to be said for having the flexibility of being able to work from home. Even if you do have daycare, there’s going to be, child might get sick or your grandmother might be sick or just holidays and days when the daycare might not be open. And so there’s a lot of things to think about. And I’m a big fan of when you have children if you can be in a situation that’s more flexible, it’s probably better than a situation that’s less flexible. Especially if you’re making more money at the same time.

Steven:
I should just be a stay at home husband then now. Right?

Mindy:
I tend to agree with J that while I love the 17% 401(k) match, I like job number two a little bit better. Here’s the plot twist. How do you work from home? Are you somebody who can sit down in your home office and get work done or are you somebody who is a little distracted? And the reason that I ask this is my husband was working, he’s retired now, but when he was working they were all in the office and then the office decided to remodel. So everybody got sent home and some people really thrived in the environment of working from home. And some people were like, I’m going to go on a walk and I’ll just do it a little bit later and I’ll do it in a little bit later. Not everybody thrived in that environment and some people were fired because of it, which wasn’t really fair, they took away their office and then fired them when they couldn’t work from home.

Steven:
I know that struggle. Because it actually happened to me.

Mindy:
It is a struggle to work from home sometimes, you’re like, I could just do laundry really quick. Well yeah, if you’re throwing laundry into the washing machine and then coming right back down to the computer, that’s one thing. But doing laundry and then cleaning the bathroom and doing all of these things that require a lot of time, that’s not what you’re getting paid for at your job.

Steven:
That’s true. Because when I was working from home, I actually ended up being more efficient, more productive, and so I ended up doing more extracurricular things around the house and they found out about that. I ended up getting let go. You’re right, probably taking care of a baby while working probably won’t fly with them.

Mindy:
So something to think about. Do you have offers in hand from both of these jobs?

Steven:
I only have the one offer from company A, the investment bank. Waiting. It’s been three weeks for offer number two and I think my recruiter left. So there’s that.

Mindy:
You think your recruiter left?

Steven:
Yeah, because I tried emailing him, because you know how sometimes after interview you send a thank you email? Well, it’s like it got blocked so I assume the guy left.

Mindy:
He left from the company?

Steven:
Probably. I can’t reach this guy. It’s been three weeks.

Mindy:
Well then I vote for job number one because if-

Steven:
If that’s the only one.

Mindy:
… that’s the only one. That right now is the only job that is on the market.

Steven:
The job number two could come available.

Mindy:
And baby goes to daycare, which is not ideal. I wonder if there is a hybrid daycare solution. I don’t think there is though. I know that there are people listening saying, you only have to pay for daycare when the baby’s there. I don’t think that’s true. You pay for daycare the whole time even if the baby isn’t there.

Steven:
We called about doing part-time, they said no, you still have to pay $200 a week whether she’s here or not. So well there was option number three, which actually was our original option before I decided to apply for these jobs. Originally we were going to move back to Houston and have an unlimited babysitter with my mother-in-law, my wife’s mother. And then my wife was just going to work as a nurse in Houston. But mainly we were just staying here now because of job offer number one.

Mindy:
Well, I don’t know if you know this, but there was a little bit of a pandemic going on and there’s healthcare opportunities everywhere.

Steven:
Oh yeah.

Mindy:
What are the options in Houston?

Steven:
Well, because originally we met in Houston, so she still has a lot of connections in Houston, there’s a lot of hospitals, they’re always in need of nurses. And so she was also considering case management too as well. She could work fully remote as a case manager. Originally that was what we were going to do, we were just going to move to Houston, she was just going to find a job there and then we were just going to live in Houston and have an unlimited babysitter because my mother-in-law is retiring once this baby’s born.

Mindy:
Okay. I think one big research opportunity for you and your wife is to sit down right now before the baby comes and list out the different opportunities that you each have. If there’s nothing really holding you in Dallas and Houston has a different opportunity in the healthcare or the baby care, look into that. Now that would take you away from working with your grandmother.

Steven:
The hard part too, it’s a lot of moving parts, just life is fantastic. We got to figure out how we’re going to make it fantastic.

Mindy:
Is your grandmother willing to move to Houston?

Steven:
Absolutely not. I tried asking her. Because we’ve actually lived in, well, I grew up in the same apartment, she’s lived in that apartment pretty much my whole life, all pretty much 30 years. So she’s like, yeah, I’m not leaving. She’s pretty hard headed that way.

Mindy:
Okay. I think that makes sense.

Steven:
Let’s ask America what y’all would do in my shoes.

Mindy:
Yes. In the Facebook group, which can be found at facebook.com/groups/vpmoney. Please let us know which job you think Steven should take, and well, I’m going to go with the first job because there’s not really another job right now. But should he stay in Dallas or should he move back to Houston?

Steven:
I prefer to stay in Dallas, but free babysit. I don’t know, life is just hard right now, so I got to make a decision.

Mindy:
Sitting down. Well, you don’t have to make a decision, you singular, you plural have to sit down and make a decision. So right out you, like making spreadsheets, you self described nerd, make a big spreadsheet on staying versus going and what are the pros and the cons of all these different things. And maybe moving for a year is a good idea or maybe not moving is a good idea. Your mother-in-law is going to retire when the baby’s born, maybe she moves to you, and then you still get to work with your grandmother.

Steven:
Both women in my life are hardheaded, they’re going to stay where they are. They’re both hardheaded.

Mindy:
Welcome to lady. But you’re having a baby girl, she’s going to be hardheaded too. You’re welcome.

Steven:
Oh gosh. Yeah.

J Scott:
The takeaway here I think is that you have some good options. A lot of people would love to be in the situation that you’re in, whether you take job number one or you have an opportunity to take job number two. And maybe even if you move back to Houston, it sounds like your income is likely to be in the six figure range, which is fantastic for a small family. You do have a lot of options. That’s the income side. Let’s talk a little bit about the expense side. We’ve already talked about the fact that you may have daycare or you may have that expense. And we’ve talked about your subscriptions. Let’s talk about your discretionary budget. How much you’re spending for things like food and having fun and eating out and things like that. Do you want to give us an overview of what your budget looks like for those sorts of things?

Steven:
When we started our debt free journey, we had to sit down, we compiled all the bills and see what we can cut, and pretty much the current bills, which is $800 a month, which is about $400 per paycheck, this is stuff that we’ve just been paying for the past two years. And so pretty much, and mainly it’s just nothing but subscriptions, car insurance you can’t avoid, cell phone you can’t avoid. The only thing that’s variable with our budget is just the electricity bill. I like it cold. I like at a 68, even in the summers when it’s 110 degrees here in Texas. That’s when our bills are the highest. But it’s pretty much just an overview. I think the main thing is cutting out a lot or some of the subscriptions, which I don’t know which one to cut out.

J Scott:
Well I noticed here on your expenses, on a weekly basis you have 22.50. $22.50 allocated. For your personal money. $17.50 allocated to your wife’s personal money, $10 for fun, $25 for house budget. Are those realistic? What are you doing with $22 a week? What’s your wife doing with $17 a week? What’s the $10 a week in fund budget?

Steven:
Okay. I’m glad you brought that up. Again, we had to sit down and we talked about our budgeting and stuff like that. Pretty much one of the pain points when we started our budgeting was, she’s like, well how am I going to get my nails done? How am I going to get my haircuts? Well really what we do is we budget on a monthly, biweekly, weekly categories. And so my, her personal is more of on a biweekly schedule. So she gets about 35 bucks every paycheck for her nails, and I get about 45 bucks to get my haircut. The reason why there’s a discrepancy, and I’m glad you brought that up. I’m begging my wife to be involved in the finances. Most people don’t even let their spouses involved with the finances. I’m begging her to come in.
And so I just gave myself an extra 10 bucks to see if she’ll ever notice and she hasn’t noticed yet. So nobody tell her that I’m taking $10 more for my own personal money. And so the day she notices, that’s when I’ll give her 45 bucks every two weeks for her nails instead of 35.

Mindy:
Okay, well I’m going to call her up when we’re done.

Steven:
Little small-

Mindy:
Now that we’re best friends.

Steven:
… financial infidelity. And then $10 for fun. Because during the pandemic, even before the pandemic, we pretty much cut out all friends, all family, we just stayed home and just like every dollar went towards our debt. And so ever since we got debt free, that’s when I reconnected with a lot of my old friends. And so this year has just been amazing. We could get about 40 bucks a month to have fun. We don’t drink, we mainly just go karaoke once a month. It’s pretty much our karaoke money. Or if we don’t go karaoke with our friends, we’ll go to a movie. It’s just 40 bucks a month. It’s just for us to have a little bit of fun, because I don’t believe in the whole Dave Ramsey rice and beans, beans and rice thing. We got to have a little bit of fun.

Mindy:
Okay, you just said you cut out all friends and all family when you started your debt free journey. And that makes me a little sad because you can still have a lot of fun without spending a ton of money. Sarah Wilson is YouTube’s budget girl or go budget girl, I should look that up. Sarah Wilson’s been on the show several times. She has a fantastic story. I want to say she was on episode number six, she shared how she paid off $30,000 in debt over the course of three years while making $30,000. And one of the things she would do, this is my favorite story, is she would have people over to her house and she would have a big potluck. We’re going to have baked potato night, I’ll bring the baked potatoes. How much is a 10 pound bag of potatoes? It’s like $5, or maybe it’s even $10 now with inflation, but that’s $10 and you’re feeding your whole family, all of your friends.
10 pounds of potatoes goes a really long way. So you bake the potatoes and J will bring the butter and the cheese and I’ll bring the sour cream and the broccoli and somebody else will bring bacon bits and somebody else will bring chili and somebody else brings, all these little things and then nobody is spending a lot of money. Everybody’s having a good time because it isn’t about what you’re doing, it’s about spending time together. So you don’t have to cut out all your friends and all your family, you just have to cut out all of the expensive stuff that you’re doing. You don’t need to go out to restaurants and have a super expensive meal to have a good time. Which brings me to my next comment about food. I think you’re doing great with $100 a week on grocery budget. I think that’s a great grocery budget.
Your restaurant budget, as I already said at the beginning of the show, I really don’t like that in regards to your financial situation. You don’t have a huge investment portfolio and that is because you just paid off a ton of debt, which is awesome. But I would rather see you go out to restaurants once a week or maybe once every other week and take that money and put it into an investment. J had talked about how you can take $100 a month and put it into a cash flowing investment and by the time your baby’s 18, you’ve got $60,000. Here’s a way to take $200 a week, maybe even more and put that into cash flowing investments. I’m what, 200 a week is 8Xing J’s amount. So do your math, J. Eight times 60,000 is?

J Scott:
Almost $500,000.

Mindy:
So that’s more fun than going out to restaurants multiple times a week, in my opinion.

Steven:
That’s True. Yeah.

Mindy:
Something that I have really enjoyed doing lately is going on Pinterest and finding authentic recipes for, I’m really on a big Mexican food kick right now, so I will find authentic Mexican food recipes and make them, and yeah, you have to go out and buy bunch of ingredients, but you buy those and then you only use a bit of these fun specialty ingredients, but you can use them again and again and again because Mexican food is the same 87 ingredients in different packaging all the time. It’s all the same thing, just wrapped in different ways. And if you focus on one type of food, you can buy the specialty ingredients and then just continue to make these recipes over and over again and get really, really good at it. I’m now a really great Mexican chef. Come over for dinner, Steven.

Steven:
I will make a trip to Colorado right now.

Mindy:
Now that we’re best friends.

J Scott:
He doesn’t seem very excited about cutting back on the eating out.

Steven:
Well my doctor would be excited that I cut out Whataburger and Chick-fil-A.

Mindy:
Steven, is there anything else that we can help you with today?

Steven:
There’s a lot of things y’all could help with me today. So many things. Let’s start with investing because as I said, the one thing I do regret was I did drink the Dave Ramsey Kool-Aid and didn’t invest during the debt free journey while I was working. And so I feel like we’re a little bit behind since I’m almost 30. All of it is kind of new to me, and so I think when I was helping my wife picking her asset allocations for her 403(b), I just did target date funds. I don’t know, are there any principles to investing? I think I’ve heard people, they’re like 25% total stock market, 25% total bond, 25 international, 25 something else. What are some rule of thumbs that y’all would follow or some people are like 100% in S&P 500 index. What rules of thumbs do y’all follow?

J Scott:
I’m a big fan, especially when you’re young, you’re going to go one of two directions and you have to decide at some point over the next 10 years which way you want to go. For some people they really get excited about a certain type of investing and they can become what we call specialists. So somebody might become a specialist investing in real estate and decide I really want to spend time learning about real estate investing, studying real estate investing, understanding how the numbers work, in which case if you are really knowledgeable about some area of investing, and I’m using real estate as an example, but obviously there are plenty. But if you are willing to spend the time and the effort and the energy to become really proficient in one area of investing, it’s less important to diversify because you have more control over your investments based on the knowledge and the experience that you have.
That said, if you would rather spend that time not learning a specific area of investing, you don’t want to study real estate, you’d rather spend that time with your child or doing whatever other stuff you want to do, in that case, I would recommend going with a diversified model. And the more diversified the better. Now you can be aggressive diversified, you can be conservative diversified, as somebody who’s young like you are, I would say you can be more aggressive but still be diversified. And when we talk about diversified, we’re talking about different asset classes. So the stock market is an asset class, real estate is an asset class. Precious metals is a reasonable asset class. There are a lot of different asset classes.
And then you can even be diversified within each asset class. So like you said, in the stock market, you can be diversified across large cap or very large companies and mid-cap, mid-sized companies and small caps, smaller companies, you can be diversified across companies, in different regions and different countries and emerging markets. In real estate you can diversify using passive investments in different asset classes like multifamily or self storage. There’s lots of different ways to diversify, but the first question you need to ask yourself is, do I want to become a specialist in some area of investing? Do I want to spend time learning some area of investing or I’d rather use that time for something else and then just diversify my investments across different asset classes. I guess I’ll turn it over to you. Which of those two seems more appealing over the next few years?

Steven:
Why not both?

J Scott:
Well, certainly both. There’s no reason you can’t do both. The nice thing about getting knowledgeable and spending time is that typically that effort, that energy, that expertise translates into higher returns. With the diversified portfolio, you may be making six, seven, eight, 9% per year, which is fantastic. It’s more than a lot of people make relatively safely. With an expertise in some area of investing, and again, I’ll use real estate as an example, just because it’s the area I know the best, you may be able to boost those six, seven, eight, 9% returns to 10, 11, 12, 13% returns based on the knowledge and experience. So when we’re working hard to learn about some type of investing class, when we’re learning hard to gain an expertise, the value of that hard work or the benefit of that hard work is that we get to raise our returns.
And so I guess the question is, are you comfortable with those lower returns diversifying not spending a lot of time focused on learning and building an expertise, or are you excited about some type of investing where you can learn the area you can really become an expert and you can boost your returns? That’s the benefit.

Steven:
I think knowing me, I really want to get into real estate, but I think I’m just debt reverse after getting out of debt. That’s always been one of those, do I want to get into real estate? But knowing me I would want to really learn to get into real estate, but at the same time I think practically or realistically, I’m going to end up just being conservative with it and being more passive, just putting my money in the stock market. That’s it. And just diversifying.

Mindy:
Okay. You said that you really want to get into real estate. We are maybe, maybe not on the verge of a recession. The Fed keeps raising interest rates. Right now is a great time to start learning about real estate even if you’re not quite sure you want to get into real estate. There’s a lot of properties on the market. There isn’t the frantic spring selling season that we had this past spring where everybody was like, you couldn’t even get into houses to see them. Now is a great time to start learning. And it just so happens that episode 70 of the BiggerPockets Money Podcast featured J Scott, the man you see right here, talking about preparing for a recession, and he’s talking to people who aren’t quite ready to start investing in real estate, giving you advice on all the things you can do in preparation for it.
You can start doing your research, learning your market, deciding which market, all while saving up so that when you do decide, yes, I want to be investing in real estate, you’re investing from a position of not only financial strength but also educational strength. You’re not just jumping in with both feet on a whim and deciding I’ll figure it out as I go. That doesn’t seem like the person you are. Being debt averse means you don’t want to be staying up late at night thinking, how am I going to handle this? Be prepared, know what you’re getting yourself into and then you’ll have a more comfortable position when you finally get into it. If in fact you decide you want to, you could decide after doing some research, you know what, this is not for me. That’s the best time to know that real estate is not for you is when you don’t own properties.

J Scott:
And along with those two things, Mindy mentioned use this time to research, use this time to become financially prepared. There’s also a third thing I really like to do during these times of transition in the economy and transition in ourselves, is building relationships. This is a great time, we talked earlier about going out and building a local community of investors that you can become friends with and that you can learn from. But specifically if real estate is something that you’re interested in investing in, now’s a great time to go start getting involved in the local real estate communities. Go start getting involved in the local BiggerPockets meetups or the local real estate investor association meetings or the local meetup groups that are focused on real estate.
It’s a great time to build your network, build your relationships, because once it’s time to actually start investing, you’re not going to be doing it alone. Nobody invests by themselves. We invest with teams and now’s a great time to start building that team and building those relationships so that when the time comes, you’re ready to hit the ground running.

Mindy:
Do you have a BiggerPockets account, Steven?

Steven:
No, I think the only thing is I’m just like, I don’t. I’m sorry, I don’t.

Mindy:
That’s okay. I am going to give you a free pro upgrade, but first you have to make an account. So make an account at biggerpockets.com and then send me an email, [email protected] and I will go and upgrade you to a pro account so you can have access to our calculators, almost said calendars, they’re calculators. Access to our calculators, access to the different parts of the site that you don’t get with a free account. And then you can really start doing research, because once that baby comes, you’re going to have a lot of downtime where the baby is sleeping on you and you don’t want to move because then they’ll wake up.
Another research opportunity I’m going to give you is to check out the new BiggerPockets and Fundrise collaboration podcast called On the Market. They are giving you weekly updates about the state of the real estate market. They talk to economists, they talk to different people who are in the market right now, to discuss the just what’s going on and where it’s going. That’s a great podcast to listen to start your educational journey. I’m going to send you a copy of The Simple Path to Wealth by J L Collins. He recommends in the book Investing in VTSAX, that’s the Vanguard Total Stock Market Index Fund. This is something that, J L Collins is even older than I am and he’s been investing since God was a boy.
Shut up Jay. You’re older than me. Finally somebody’s older than me on this show. He recommends the Vanguard Total Stock Market Index Fund, set it and forget it. You don’t have to do research. You put your money in there. This is every stock that is out there.

Steven:
I’m actually getting fired up about real estate now too.

Mindy:
Awesome. Awesome. Let’s get you all of this stuff. Make an account, send me a note and I will upgrade you and then you can really get started educating yourself to decide if this is really what you want to do.

Steven:
All right, sounds good. Thank you so much.

Mindy:
Okay. Awesome. Well, Steven, I really appreciate your time today. This was a lot of fun. I am super excited for your baby. You better send me pictures as soon as she comes.

Steven:
Absolutely, BFF, you’re going to get the whole shebang.

Mindy:
Okay, Steven, thank you so much. And where can people find out more about you?

Steven:
So me and my wife, we do have a YouTube channel where we did talk about our weight loss journey and our debt free journey. So you can follow us on Instagram and on YouTube at Our Phantastic Life. Phantastic with a ph instead of an F.

Mindy:
I love it. Okay. Playing off your last name, fantastic is my favorite word. Okay. Steven Phantastic. Thank you so much for your time today and we’ll talk to you soon.

Steven:
Cool. Thank you all so much.

J Scott:
Thanks Steven.

Mindy:
J, that was Steven Phan. I think you had some excellent advice for him and I appreciate you joining me today and stepping into Scott Trench’s shoes. Thank you so much. What are you up to, J?

J Scott:
Well, first of all, I am thrilled that you had me here. This was so much fun. Hopefully we’ll get to do this again soon. In terms of what I’m up to, we just released, BiggerPockets just released my fifth book Real Estate by the Numbers. I’m excited about getting that out. High five. I hope everybody will check it out. And now I’m just relaxing and figuring out what the next book I’m going to write is. We’re you going to write a book together, Mindy?

Mindy:
I would love to write a book with you, J. Name the topic and I am there.

J Scott:
Excellent. Let’s do it.

Mindy:
Who did you write that book with?

J Scott:
I wrote that book with the amazing Dave Meyer, who is VP of Analytics at BiggerPockets. Probably one of the most brilliant analytical minds that I know and it’s just, he made that book worth reading.

Mindy:
You know J, you’re okay too, but you are right, Dave is wonderful and I am going to give a little plug again for Dave’s podcast called On the Market. It is a BiggerPockets and Fundrise Collaboration and Dave is the host of that show. And if you love numbers, if you’re a huge number nerd, that is the show for you because holy cow is Dave big nerd and he talks about real estate and numbers and the economy and it is great, big fun.

J Scott:
My second favorite podcast behind this one.

Mindy:
I’ll send you a check in a minute. Okay, that brings an end to this episode of The BiggerPockets Money Podcast. J, thank you so much for your time. He is J Scott, and I am Mindy Jensen saying, I hope you get everything you need centipede.

 

 

Dave:
Hey, what’s going on everyone? Welcome to On The Market. I’m your host, Dave Meyer, joined today by James Dainard. James, what is going on, man?

James:
Oh, doing well. Just grinding through this market right now. We are in rapid wrap things up. It has definitely been transitioning pretty aggressively in the last four to six weeks.

Dave:
Well, as we’re going to hear from our guest today who is incredible, the guest today is Cris deRitis, who is the Deputy Chief Economist at Moody’s Analytics. He specializes in assessing the economy’s impact on household financing, housing credit markets, and public policy. He’s incredible guest. We had an amazing discussion. He talked about, spoiler alert, he thinks markets are going down over the next couple years and he’s going to explain that in more detail, but with that information, maybe, do you have a quick tip for anyone listening to this on how to keep investing and keep improving your financial position in a market that is potentially declining in the next year?

James:
Yeah. It’s all about just proper underwriting and buying right now and just mitigating risk. I think the biggest thing that we’ve been doing and we’ve been talking to our clients about is just not rushing into that deal, really running your core metrics numbers, putting some padding in your proforma, putting some padding in whatever your exit plan is. Like what we’re doing or my favorite strategy in 2008 to ’12 was I just ran everything so worst case. As long as I knew I would break even no matter what on the deal, we would buy it. So just be super conservative on the numbers.
We are seeing extremely good buys right now in the multifamily sector, though. I mean, we are getting pricing I haven’t seen in a while. So just really look for where the actual opportunities are, and if you were doing something in the last 24 months, you might want to switch it up and look at in a different investment platform at this time.

Dave:
Awesome. That’s great advice. Yeah. Everyone listening to this, I mean, it’s what this show is about, right? There’s always opportunity. You just have to adjust your strategy to the market conditions. I think you’re going to learn a lot from this episode. I loved this episode. This was really helpful. Finally, we’re talking to someone who really does economic forecasting and modeling and has, I think, a very sound understanding of what’s going to happen in the housing market, not just in the next two years, which is important, but over the next 10 or 20 years, which is perhaps even more important for real estate investors who are trying to build a long-term strategy, trying to find that financial freedom. So definitely stick around for this. We’re going to take a quick break, but then we’ll be back with Cris deRitis from Moody’s Analytics.
All right. Let’s welcome Chris deRitis, who is the Deputy Chief Economist at Moody’s Analytics to On The Market. Cris, thank you so much for being here.

Cris:
Oh, thanks for having me. Looking forward to it.

Dave:
Well, James and I have been nerding out about some of your economic studies and we will get into some of the Moody’s forecasts for the next few years, but first, can you just tell us a little bit about yourself and your role at Moody’s?

Cris:
Sure. So I am the Deputy Chief Economist at Moody’s Analytics. That’s distinct from the rating agency that most people think of when they think Moody’s. We have a different division that focuses just on risk analysis. Particularly, my group focuses on economics and economic scenarios. So we do a lot of forecasting across the United States. We’ve got a lot of local markets, as well as international forecasting as well. So we’re constantly looking at the data, trying to figure out where economies are headed, and hopefully providing some guidance that leads to better or more useful decision making.

Dave:
Well, we’re super excited to have you. We do a lot of speculating on this show where we read a lot and I think we’re all pretty informed about what’s going on in the housing market, but none of us actually maintain for economic models or do our own forecasting. So we’re really excited to have you on and talk about what you all see happening in the short-term and, perhaps more importantly as we were just discussing before we started, the long term trends in the housing market.
So before we pin you down and ask you what you think will happen next year, can you just tell us a little bit about the variables? What are the factors that you’re looking at that impact the forecasting you’re doing for the housing market at least over the next few years?

Cris:
So forecasting housing is like forecasting any other asset. We look at both supply and demand. On the supply side, we’re looking at the factors that impact builders’ ability to build homes, so construction costs, how much are building materials. Lumber prices had been a big issue throughout the pandemic, for example. Wages of construction workers and even availability of construction workers is an issue when it comes to building homes. Perhaps more than anything right now, the builders tell us that it’s zoning restrictions and other regulations that they face, which really limits their ability to find buildable lots and put up housing.
Then on the demand side, we’re certainly looking at the cost to borrow. That’s the major factor impacting home buyers. Most homes are still financed in the US. So as interest rates go up, demand comes down, and we’re seeing demand come way down, of course, as affordability gets impacted. So those are just some of the factors that we’re looking at, household formations, right? So how many households are actually being added to the population? Well, that’s a direct corollary or highly correlated with demand, right? You have more households coming in, you have more immigration or higher birth rates. That’s going to impact the demand for housing that we need in the country.
Aging of the population might impact how many second homes or vacation homes people want as well. So there are a number of factors that we’re looking at, but it helps to really break it down into that supply and demand side of the equation. Then from there, we can try to estimate what an equilibrium level of housing might be and where we are today relative to that equilibrium.

Dave:
Now, I’ve seen there’s been a lot in the media coverage of Moody’s forecasts and it seems, I’ll just summarize and let you do the detailed analysis, but I’ve seen that on a national scale, Moody’s is predicting year over year price declines in 2023. Can you tell us a little bit more of the details about those predictions?

Cris:
Sure. So we run models, as I mentioned, that look at those supply and demand factors, and we are estimating what the equilibrium or trend housing values should be. What should house prices be if we just considered incomes or rents and look at historic ratios between prices and incomes? So that is a core or fundamental basis of our model. That then defines what the fundamental value is, and we compare that to what values we are currently observing in the housing market.
Right now or during the pandemic, we saw tremendous run up in home prices, about 40% increase from the beginning of 2020 till today. That far outstrips what incomes did during that time. Although we’ve had some nice income growth, it’s nowhere near 40%. So as a result, our calculation leads to the conclusion that most housing markets across the country are indeed overvalued. So of the 400 plus metropolitan areas that we have in the country, we stated that about 80% of them are above their fundamental value.
Now, there’s some measurement error in the models as we know, and you said you’re a data nerds, so you know there’s a lot of volatility in the data. So you don’t want to get overly excited by a market that’s only one or two percent overvalued, right? So you want some threshold or some cutoff that really sticks out. So we tend to look at those markets that are more than 20% overvalued as being once that we might be particularly concerned with, and then we rank order the markets to see which of these metropolitan areas we particularly want to be focused on.
When we do that, what we find is that many of the markets in the South, and particularly in the Mountain West did experience very sharp rises in home prices relative to their incomes, and those would be the ones that are most vulnerable to a double digit type of correction here. So we’re thinking about Boise, Idaho, Phoenix, Arizona, Austin, Texas, some of the major markets, but then particularly concerning to me are some of the second tier or third tier markets as well that might be sitting next to major metropolitan areas that also saw a big run up in prices, and my concern there is that as things turn, they might start to weaken.

James:
So Cris, you were just talking about and I was reading online as well, so Moody has predicted some decline in the market about five to 10 percent over the next 12 to 24 months, but what you were just describing to me is the perfect mixture of what also could be a disaster where cost of housing going up by 40%, cost of money now up about 40% on the mortgage cost and then salaries just haven’t quite kept up with that pace. I know even in the expensive markets like our tech buyers or our tech markets, we saw salaries increase 15 to 20 percent. They made a lot more money on their stock growth than they did anything else, which is now also down.
So it is looking like this perfect mixture of what also could be a disaster as well, not just a five to 10 percent pullback, but it could rapidly bring pricing down. Why are you guys predicting more of a conservative drop rather than a rapid with all these things going on?

Cris:
Yeah, great question. Parallels to the housing crash in the late 2000s are obvious. So what’s different this time are really two key factors. One is demographics, right? So back in the housing crash of 2006, 2009, we had a small Gen X population turning 30 or in their earlier 30s, prime age for home buying. At the same time, we were building over two million units, new housing units per year. So we had the supply-demand imbalance there. We had a lot of flipping and speculation going on.
Today, we don’t have that. We have actually the reverse. We have a very large millennial population that is looking for housing. We have a housing deficit in this country because we haven’t been building over the last decade. By our calculations, we’re about 1.5 million housing units short of where we should be. That’s on top of just what we should be building each year to keep up with population growth.
So you have that underlying demand out there. You have the lack of supply. So the demographics are actually more favorable today. So even as prices start to come down, our expectation is you will have buyers stepping up as prices come back into a more reasonable zone. You’re right that the interest rates are a big weight in terms of affordability, right? So that is the reason why we do expect to see house prices come down, housing demand coming down over the next couple of years to begin with, but to really cause more of that snowball effect you’re referring to, you’d really need to have labor market declines, so higher unemployment, people actually losing jobs, losing their incomes, and unable to make their mortgage payments.
The other key difference, of course, today is that the lending standards for mortgages have been much, much stronger than they were back in ’06 and ’09, right? Back then, we had very loose lending. People didn’t have to put a whole lot of money down on their properties. Today, home buyers are much more qualified. They don’t have these crazy option ARMs or negatively amort using ARMs or adjustable rate mortgages, and they have much more equity in their homes.
So even as prices coming down, most home buyers are still going to be in a positive equity situation, and the fact that they have been able to lock in very low interest rates, record low interest rates over the last couple of years means that they are more likely to fight for their homes, right? They’re not going to let those homes go quite so easily into foreclosure, right? They’re going to do what they can to avoid a default because the consequence is going back into the market and then facing a much higher interest rate, facing much higher rent prices as well. So for those reasons, expect to see the market cooling here. We allow time for the market to catch up in terms of incomes and rebalance the price to rent or price to income ratios.

Dave:
Yeah. Cris, I saw something the other day, just to reiterate one of your points and all those are very helpful, thank you, but just about the adjustable rate mortgages and how that got us into a big part of the mass in 2008, that back then 40% of mortgages were adjustable rate and now it’s less than 2%. So that just shows you the scale and difference of how lending standards have changed.

Cris:
Yeah, and even the adjustable rates we have today, the adjustable rate mortgages are quite different than what we had back then, right? Today, we do have adjustable rate mortgages. You can get a five one ARM or 10 one ARM, but even those have very limited or more limited risk than the adjustable rate mortgages we had back then, which may have been adjusting every month or every six months, may have had negative equity. So very different situation.

Dave:
Okay. So I have this question I’ve been longing to ask someone and it seems like you’re the person for the job. So you said that the basis of your model is that you derive this intrinsic value in home prices based off income and home prices, and traditionally what people pay. That makes sense, but in other countries, like if you look at Canada or Australia or New Zealand over the last couple of years, that dynamic has just fundamentally changed, right? The proportion that people are paying for their home out of their total income has gone up and up and up, and we’re probably seeing corrections in those markets too, but I’m just curious, is there risk of that happening? Is there maybe a chance that the United States is heading in this way where people are just going to have to pay way more for housing than they have historically?

Cris:
Yeah. I think it goes to certainly the demographics and the demand side of the issue, right? So from my viewpoint, we do have this housing deficit. We have much more underlying demand than we have supply. So you obviously see the homeowners and you see the renters out there and you get a sense of housing market from those populations, and you can look at the home ownership rate to see what that looks like in terms of are people able to buy homes, are we seeing home ownership rates increase.
What gets unnoticed is that whole population of young adults in particular who are unable to access the housing market in any way, they’re not able to rent because the rents are too high relative to their income, they’re not able to buy because of the affordability issues, and so they’re living with parents or they’re living with roommates. So they fall out of our housing statistics. We don’t really have visibility into them.
So at the moment, given the demographics, yes, I would agree with you that there’s so much demand out there that is forcing individuals who want to join the game, want to start their own households to face even higher house prices because of the supply issues. If you look ahead, and I think we’ll get to this a little bit later, the demographics are forecasted to change here, right? We have falling birth rates, immigration rates remain low. So this dynamic could change very rapidly as you go 10, 15 or 20 years out.
So I don’t expect to see these types of constraints in terms of how much households are spending on their housing costs to persist forever. I don’t think they can. I don’t think that’s sustainable. So over time, it will adjust as those other demographics adjust, but in the meantime, you certainly can have a bit of a pressure on those households and see that they’re spending a lot on housing.

James:
Well, yeah, because there’s no other logic behind this that you can come up with. If you look at certain parts like Vancouver, Canada, it’s just very expensive real estate, very expensive housing. Right now, even with what we’ve seen in the market pullback, we’ve seen about a 20% drop off of the peak, peak pricing, not medium home, but the highest comparables that we were seeing. I was even talking to Dave about this earlier is that you would think it would have more impact with the cost of money. If the cost of money’s up 40% and we’ve just seen this, I would almost think that the housing price would come back even further, almost drop as fast as it appreciated over the last 24 months. We’re seeing a pullback, we’re not seeing that free fall, and that’s where I’m like, “Yeah, we might just be in an expensive housing, but housing might just be a privilege going down the road.” You’re going to have to expend a lot of money and that’s going to go into a lot of your earned income. It’s going to be going towards housing costs, but that’s obviously not the healthiest housing economy in general. So how do you even fix that before it just goes off? I think once it water falls over, it’s going to be stuck there for a while.

Cris:
Yeah, I’d agree with that. So again, our forecast does have the prices coming in, but basically going flat for the foreseeable future until incomes can approach the type of house price to income ratio that we’ve had historically. Supply, though, is the real barrier here, right? Obviously, rates matter and higher costs do restrict the opportunities for folks to actually purchase homes, but without more supply of housing, this is going to persist, right? You’re still going to have too few homes and too many people looking for housing. So that involves changing zoning laws. That involves changing other regulations, things that are very difficult to do because of the NIMBYism or the other trends that we’ve seen.
Another fact I can throw out there in terms of a Vancouver mark is also the reduction now of foreign home buyers given the strength that the dollar, in particular you are seeing that foreign home buyers no longer find the US or Canada particularly attractive for them to invest in. So that actually could have some beneficial effect for the home buyer, the domestic home buyers who might be looking to buy. So that could have some offsetting impact, but, yeah, that is a delicate equation there in terms of how that dynamic plays out over time.

Dave:
Yeah. Cris, I really want to get into that supply issue and some of the long-term things, but before we get off the short-term forecast, you had mentioned Mountain West markets, Boise, Phoenix, you named a few. What is the downside forecast for that? How bad do you think it could get in some of those markets? Then on the other side, are there any markets that you think will keep growing even in this environment?

Cris:
Yeah, great question. So I think 15, 20 percent down from the peak. So peak was probably second quarter of 2022 for most markets or maybe a little bit of variation there, but if you tell me Boise is going to be down 15, 20 percent over the next couple of years, I wouldn’t debate that, but that’s off of a 40, 50 percent increase, right? So for the homeowner who’s been there a while or the homeowner who tends to stay there a while, this isn’t catastrophe, right? This is something they, to a large extent, could ride out. It’s the buyer who bought recently, bought at the peak, that’s the one, of course, that’s most at risk. So there is the chance that things could snowball a bit, but by and large, there’s a lot of equity that folks have that we have to burn through until we really start to do damage to those markets.

Dave:
So the second question there, are there markets that are going to grow? I think we saw some in maybe the Midwest or Northeast. Do you think, maybe not even grow, but at least be a little bit insulated from downside risk?

Cris:
Yeah. There certainly are markets that didn’t experience quite the run up that others did in the Northeast and the Midwest. There was a lot of migration out of those areas into the South and to the Mountain West states that drove the prices up. So there are values there and certainly, again, for these millennials or younger home owners or home buyers looking for a place that there are more opportunities perhaps in some of those areas than what they face in those more competitive markets, and with remote work being an option for more and more people that I would expect to see some stabilization in those markets, even potentially some growth for the ones that really didn’t experience much of a rise during the pandemic.

James:
So is that how you guys came up with most of those metrics was … I saw Albany, Georgia, Columbus, Georgia, where areas that you guys predicted would it actually have 5% growth in those markets. The basis behind that is based on housing prices and income, right? Those are the two main factors that they’re looking at, and because those markets didn’t skyrocket in the second quarter, that’s why you’re predicting more steady growth. The ones that basically didn’t hockey stick up in that second quarter are the ones that are going to be the healthiest.

Cris:
Yeah, for the most part. There are some markets that actually did experience a lot of price appreciation that we don’t have as being at high risk because they maybe were dominated by individuals who brought a lot of wealth with them, right? So you did have folks moving out of the Northeast accelerating the retirement from wealthier individuals moving to Naples, Florida, for example, and prices in Naples really did go up or Miami. They went up a lot, but they also brought a lot of income with them or a lot of other wealth that might offset the risk that they would have to or be forced to sell in any type of downturn. So you want to be a little cautious to just jump on the markets that saw a lot of house price increase and assume that they’re going to reverse. There are some other factors out there that might offset those risks.

Dave:
All right. Well, that’s super helpful, Cris. Hopefully, everyone listening to this appreciates that. It’s really, really good, informed analysis of what might happen in the market over the next couple year or two, but real estate investing is a long-term game for most people and we’d love to pick your brain about what’s going on long term. I mean, you said it very succinctly and I loved it. You just basically said we need more supply. That’s the problem with affordability in the United States. That seems to be causing a higher, maybe I’m wrong here, but it seems like there’s a higher degree in pricing variance than we’ve seen traditionally in the housing market. Can you just tell us a little bit more about the nature of the housing supply shortage in the US and then James and I will ask you a hundred more questions?

Cris:
Yeah, absolutely. So there’s definitely a shortage, particularly at the lower end of the market, and we do break out home prices in these different markets by tier, right? So we’ll group each market into low, medium, high tiers by price in that market. What we’ve seen is that prices have risen the fastest at the lower tier. There’s lots of demand in that lower tier. People are looking for starter homes, looking for homes that they can then maybe live in for a while and turn into investment properties, right? So there’s a lot of demand in that particular segment, much more than the available supply.
So prices have gone up across the board. I want to say that high tier markets or high tier homes aren’t rising as well. They just haven’t risen as fast as the lower tier, and that’s very much a consequence of the fact that you do have so many people looking to enter the housing market.
You do have regional variation as well when we think about the affordability of housing where people are wanting to live or choosing to live, right? So there is quite a variation in terms of affordable housing in terms of the demand. Then on the supply side, there are certainly land constraints that will drive up home prices as well and limit the amount of affordable housing that you might be able to build in a San Francisco or in the Bay area versus areas like a Dallas, which until recently at least have a lot of land to build on, but now are actually facing constraints in terms of travel time and other considerations that buyers may have. If you have to commute to work still and you’re living two, three hours away, that’s not going to work either.

Dave:
It’s not commuting, that’s traveling. Yeah. So that’s fascinating. So you mentioned at the top of the show some of the issues that are contributing to this, but I’d love to talk about a few of them. One of them is this idea of NIMBYism, which is not in my backyard, what it stands for and is this phenomenon where people always speculate that they want more housing but they don’t want it built near them because that would add more supply in their neighborhood or maybe they don’t want multifamily units in a single family neighborhood, something like that. Can you just talk about that phenomenon and how that specific issue is contributing to the housing shortage?

Cris:
Yeah, it’s pretty interesting, right? What I find particularly interesting is that it seems to cut across the political divide, right? You ask folks on the left, “You want more housing?” “Of course, we want more housing. Housing is right and everyone needs a place to live. We want more housing.”
“Okay. How about we build it? There’s a nice lot not too far away from you. We’d like to put a multifamily complex there. We need to achieve density. That’s one of the ways we can lower housing costs as well or build up a lot of housing units in a short period of time.”
“Oh, well, well, wait. Wait, well, no, there’s traffic congestion issues or there’s a million different reasons why we want more housing but we don’t want it near us.”
The same talk does apply on the right as well. The argument typically given over on that side are, “Well, everyone should have a right to do with their property what they wish then.” So there’s property rights issues, and yet then there’s still this concern about traffic and congestion, “oh, well, maybe we do need some zoning and restricting things.” So it’s very difficult when we have local control of communities that are deciding on their own zoning laws to then impose or change the system, right? There are ingrained interests, right?
If you’re already in the club, if you’re already a homeowner, it is in your interest in some sense to keep restricting the supply that does drive the price of your individual property upward. So it’s a very difficult situation to get around. There are a few states now that are challenging or have introduced some relaxation on zoning and that will help, but even those will take some time, and even though you might have the right to build multiple units on your property today in some jurisdictions, it’s still maybe difficult to actually execute on that option in a cost effective way. So it’s not a short-term solution. It is part of the solution, but it’s not something that gets us there rapidly.

James:
Yeah, and that’s actually been a struggle for us in the local Seattle market is we had a lot of upzoning over the last 24 to 36 months, where they actually allow you to expedite your permits to put in affordable housing or detach ADUs and DADUs, and what they’ve gone with the zoning, they want no more McMansions. They actually shrunk the FAR ratio, the floor air ratio coverage or floor area ration coverage, and they’ve done that because they don’t want these big houses getting built and they want a bunch of smaller properties and more affordable housing, but the main issue is the cost to build is extremely expensive because the units are so small and you still have kitchens, you still have bathrooms, and the core costs.
So there was this big fad of these things getting built throughout all of Seattle for 18 month period, and now the brakes have been hit because the cost. That’s the problem is they’ve upzoned it, but they haven’t thought of it all the way through because the replacement cost is still so high you can’t really make it work right now in today’s markets with the current rates and the current pricing.
So we actually did see this oversupply and we have seen a little bit of pushback. A lot of the people in Seattle, they wanted the affordable housing, but now with all these little detached ADUs throughout, it does affect the neighborhood profile. It affects how the neighborhood feels in the character, and then the parking and the traffic is an issue. These are things that I think it was working well in some markets for a two-year period. Now, it’s like, “Here, here’s this pause. We need to rethink a couple things through.”
Mostly, I think that inventory’s going to stay lower though just because the cost to build is too high. It was costing us. We build town homes in Seattle for around $300 a foot start to finish, and the ADUs and the DADUs or the cottages that you could build were costing us nearly $400 a foot because they’re just so small. So why would you build them at that point? It just didn’t make any mathematical sense, and then that’s caused the dirt to come down quite a bit over the last two months.
It’s like they’ve started to figure out the affordable housing, but it’s like they haven’t figured out how to make it affordable. So it’s just the pricing is so high on these things. It didn’t fix the issue. I think the only way to really fix it is, to be honest, the government’s probably going to have to subsidize building costs a little bit on those. If they really want affordable housing, they’re going to have to keep that number down because it’s causing pricing to be up 20% across the board.

Cris:
Yeah. Well, one problem in housing in general is just the haphazard nature of the rules and regulations, right? It’s not that we plan these things in a very systematic or well-thought out way. It’s reacting, right? We make a change here. We don’t fully think through all the consequences. Maybe we can get there is a fad or a trend that starts in one area, but now all of a sudden we do have congestion and all these concerns of the NIMBYs do have some legitimacy. So how do we think through those in a more constructive manner?
You’re right. The builders, they have a profit motive, obviously. So even to the extent that they want to build more affordable and they’re onboard with building more affordable housing, they face challenges, and when it comes to building costs, availability of labor, so it’s a shifting market from that perspective as well.

James:
Yeah, and going to your point, the inefficiencies of the city, the debt cost is actually one of the worst costs of the whole thing because it takes so long to get permits with the pandemic and supply chain. I mean, labor shortages, plans, permits, everything take 30% longer than it used to. So the debt cost too, so unless they can figure out how to build that faster and cheaper, it’s not a solution that’s really working in today’s market.

Cris:
Yeah. I would think that a shorter term play could be to focus a bit more on all the vacant housing that is out there. Now, there are millions of vacant homes that are not used even seasonally or occasionally. They’re just in need of repair. They need some attention to be brought into active use, but they do tend to be scattered, right? So along the same lines of, “Okay. It’s great we can build accessory dwelling units,” but that’s not the same as open tracked development, right? The costs are much higher because they’re one-offs, right? It’s one unit here, one unit there. So there is an opportunity, I think, to rehabilitate vacant homes and bring them online a bit faster because they don’t have all those permitting restrictions. The home already exists, right? Just needs to be fixed up, but I think that only happens with some type of support to kickstart the process as well.
An individual is going to face a lot of challenges. If they want to fix up their home, bring it back in the market, they may not be able to capture the full value in terms of the market rent until all the other properties around them are also reaching the same level of amenities or building quality. So I think you do need to see some government support out there to provide the incentives for the builders to either fix homes or build new homes and provide that additional housing. So I think there are other solutions that we can come up with here beyond just trying to find another place to build and facing all the permitting and regulations that you mentioned.

Dave:
Are there any other solutions? I know you’re not a politician or a policy firm necessarily, but are there any other proposals or ideas that you think could help alleviate building costs and bring more supply online?

Cris:
Well, now, there’s this whole idea of office conversions, right? So now, we have another imbalance caused by the pandemic, retail and office. We have too much retail space, too much office space. Should be converting that. That’s, I think, a lot of analysts say, “Oh, it’s obvious, right? It seems like a coincidence of wants, right? You have these empty office buildings that are getting underutilized and you still have a lot of need for housing, right? Why not just convert them over?” That’s a promising solution, but as we know when we talk to builders, it’s not that easy, right? The footprints of buildings are quite different. The location of office buildings may not be zoned for residential. So you have, again, some regulatory or zoning issues.
So I think there is opportunity there to do some of these conversions, but that, again, is going to be a slow process. It probably needs to happen, right? We don’t want empty billings sitting vacant all over the place. So there is economic value to them, but no, I don’t see any quick fix. A lot of the proposals that have been put forward really are focused on the demand side, right? They’re looking to bring down the cost of financing, and that’s all good, provide more opportunity, open up the credit box. That’s good. We need to focus on those opportunities as well, but until we fix the supply issue, I don’t see that we’ll really address the needs of all the people who want to start homes or start households and buy homes.

Dave:
Yes. I’m so glad you said that because I agree. Short-term demand side alleviation can help and people need housing. We need short-term stuff, but the only solution is more supply. I just don’t understand how. It seems like not even in the either side, political discourse, people are talking about long-term housing issues and how it’s going to be addressed over 10 or 20 years.

Cris:
Well, so that gets to long term if you look beyond the next 10. So next 10 years are going to continue to be a struggle because you do have this millennial population that is the largest generation, in their early 30s, looking to buy homes. They’re delaying those home purchases because they can’t afford it, but they’re going to continue to want to purchase homes over this period. At some point, they will start to age out, right? At the same time, we have baby boomers, their parents, who at the moment are choosing to age in place and they even have two, three properties, a vacational, maybe investment property as well. So they’re actually soaking up some of the demand for housing as well.
Well, eventually, they’re going to be downsizing as well, either by choice or as they move on, right? Then you’re going to have more supply coming online from them. So there is a potential here for the verse problem to occur in terms of oversupply of housing, I should say, 20 years from now. So as the population ages, as the birth rates come down, if we don’t change our immigration policies, we could be in a position at some point where actually you have too many houses, not too many houses. It’s likely that we have houses in places that people won’t want to live. So I always look to Europe as my guidepost or I look to Italy as a good idea of where the future is. You have this aging population.

Dave:
The $1 houses?

Cris:
Yeah. So very possible that you will have some areas of the US where people will no longer want to live. It won’t be cost effective for them to live there, so you could have that phenomena, and perhaps even more importantly, you might have housing structures that are incompatible with the demand, right? So we have these five-bedroom, six-bedroom homes, but in the future we’re going to have even more single person households or one child, two child households. So we might not need those types of structures. So how do we then redesign or redeploy that housing as well? So when you think about how does this housing deficit get resolved, well, it will resolve itself to some extent because of the demographics, but it still might not be efficient use of all the housing stock we have once we get there.

James:
There’s going to be a lot of house hacking going on where people are just renting out these big mansions room by room.

Dave:
Where you’re just living in by yourself, just partying, staying in a different bedroom every other week. Well, to your point, Cris, I was joking, but in Italy, there is a dollar, they do offer these incentives to people to move where there’s housing supply and no one wants to live. Obviously, it feels like we’re very far away from that in the US, but to your point, with a declining population, that does seem like where we’re heading unless something changes in terms of population or lower construction rates or something like that.

Cris:
Yeah. So I would assume that the construction rates will adjust if that plays out. So it’s really the demographic story, the immigration. If birth rates all of a sudden start to pick up, then that’s maybe a different story, but we don’t see those trends, right? Even on the immigration front, either from domestic policies, it doesn’t look like we’re changing anything, but then we may even miss the boat. Other countries are experiencing the same type of population slow downs or declines. So there may not be as many immigrants globally that are available or they may choose to go to other countries, go to Canada. Other countries may soak up some of that immigration as well. So I do see a slow down certainly as we start to look at 2040 or 2050, start to go out aways. In our forecast, we have construction coming down as household formations are coming down as well.

James:
If you guys are predicting that, as demographics population shrinks, that there’s going to be oversupply of housing or affordable housing for people to actually purchase, there’s still going to be … What about the rental market and the apartment market? Do you feel like there’s going to … We’ve seen a rapid amount of rent growth too over the last 24 months. Do you guys feel that there’s going to be oversupply in that space too or because of the need for smaller households, that’s going to be in high demand and there could be higher rent growth on those areas because they don’t need the three-bedroom house, they just want a one-bedroom apartment, is that going to be where you think there still could be a lot of growth over the next 10 to 20 years because that’s just where the demand is, small living, affordable costs instead of buying? Is that something that you guys have forecasted out or looked at on the smaller apartment scale? Is that where the major growth’s going to be?

Cris:
Yeah, I think so.

James:
Because there has to be growth somewhere.

Cris:
Right, right, no, and the other thing is these demographic trends, right? they play out over decades, right? It’s not something that you’ll see very obviously, right? You’ll see things slowing perhaps, but you also have the cyclical volatility in the economy. So you might not actually recognize it year to year if you’re looking at things. Next year, it could very well be an up year when it comes to construction if things were to turn around, right? There is still this housing deficit that I mentioned. So I think short-term, multifamily apartments, clearly, there’s a lot of demand. So the lack of affordability and home buying does mean that you will have more households renting, looking for rentals, but even there at some point, as you mentioned, you do have these double digit rent increases over the last couple of years and affordability is being hit hard there too as well.
So I don’t expect to see those rent trends continue at this pace, but I do expect to see the demand for rentals hold up better than the demand for purchases in this current environment, but there will be demand destruction, right? You have households that would’ve been formed if they could that just won’t because it’s just too expensive to either buy or rent. So I do expect to see that rental market hold up reasonably well. I don’t think we should count on those double digit type of rent growth rates coming back anytime soon. I think that was a unique situation when it comes to the pandemic, but going forward, I would expect to see that demand, certainly in those particular markets where people want to live, continuing for the foreseeable future versus building those larger luxury single family homes.

James:
The McMansions are over.

Dave:
Yeah, and maybe so. We’ll see. People really like them, so we’ll see.

James:
I’ve seen about the affordable housing that actually, this is a sidebar, but in California, they outlawed the big mansions in some areas. So now, they’re doing McMansion basements-

Cris:
I saw that as well.

James:
… because you’re not going above ground, so you’re allowed to do that. People have pools and gyms and they’re like, “All right. Well, you won’t let us do it above ground, so we’ll just do it below ground,” and these things are massive. It’s like a whole city underground. So I think no matter what, there’s always going to be a demand for McMansions as well.

Dave:
The amount of people will find a way around any rule never ceases to amaze me. It’s just like they will figure out the way to do it if they want to do it and still stick to this letter of the law.

James:
I mean, it is pretty cool.

Dave:
Yeah, a basement pool, it just sounds weird. All right. Well, Cris, thank you so much for being here. This has been super helpful. I have a whole line of questioning. Maybe you can come back sometime. I’d love to talk more about not even just housing, but the economic implications of declining population because I think that is a big juicy topic we’d love to talk about again, but this was phenomenal. Super helpful for myself and I’m sure James and for all of our listeners. So thank you so much for being here. If anyone wants to connect with you or follow up, where can they do that?

Cris:
They can follow up with an email, [email protected] or I’m on LinkedIn or Twitter. MiddleWayEcon is my Twitter handle.

Dave:
All right. Thanks again, Cris.

Cris:
Thank you. Thank you.

Dave:
All right. We got to debrief about that, but did your lights go out during the middle of that recording?

James:
It did. All of a sudden, it got into mood lighting. All of a sudden I’m like, “There we go.”

Dave:
Yeah. It looks like there’s like a spotlight on you right now if you’re not-

James:
I’m looking pretty oily right now, actually, but-

Dave:
Well, you got a beam right in your face. I mean, yeah, if you’re not watching this on YouTube, right in the middle we had a little snake bit recording here. We were having a lot of technical issues and we finally resorted them and then James’s light went out. I was like, “What the hell is going on? Why is everything breaking right now?”

James:
It just auto turned off. As we’re doing the recording, I was like, “Did anybody notice that?” Obviously-

Dave:
I was messaging Kailyn about it. It must be a full moon or something today. I don’t know what’s going on.

James:
Yeah. That is a first.

Dave:
Anyway, that was awesome. I mean, that was super interesting. I’m curious what your main takeaways were.

James:
My main takeaway was I’ve always thought real estate is this super safe investment over a 20-year period and it’s really actually making me double fit, not that I do believe in real estate and it’s always an asset you want to own, but going forward, just with the demographics and how we ended it, and I definitely want more information about this because where you buy and how you buy today can make a big, big difference down the road for you. Now, I am glad we’ve transitioned out a lot of a single family into apartments over the last five years because the demand’s going to be there.

Dave:
Yeah. It was really interesting just the timeline and it makes sense, right? We’re probably going to see a pullback over the next year or two, but the 10-year horizon, just based on demographics alone, pretty encouraging for the housing market as a whole, but beyond that remains a question, right? Once the millennial demand is done and we get to Gen Z, which is a smaller generation and with declining birth rates and declining immigration rates, that could potentially lead to less demand, but like we said, that doesn’t necessarily mean there won’t be demand because we’re at a shortage right now. So it’s something I think we need to look at more, right? Is the declining demand just going to reach equilibrium and then we’ll actually be in a better place or is there a potential that prices or demand could fall so much that we actually get in the opposite where we have too much housing? We’ll have to look more into that over the next couple of years, but luckily, we’ve got five to 10 years to figure that out.

James:
Yeah. We got some breathing room, and that’s why it’s so important to really watch these trends over into the next. We just came out of the craziest two-year run and I think the data’s all messed up everywhere, to be honest. It’s really paying attention over the next 24 months of what’s trending is going to make a big difference in how you’re going to invest down the road.

Dave:
Absolutely. Well, thank you for joining us, James. For anyone listening, we appreciate it. Just a couple of things. First and foremost, if you like this show, I think you will because this show was awesome, I love talking to Cris, share this. We would really appreciate if you share these episodes with your friends or if you have people who are freaking out about the housing market, want to know what’s going on. This is a great episode. Share it with them. Help inform other people in the investing or home buying communities about what’s going on in the market, and give us a review if you liked it. If you have any feedback about this show or thoughts, you can message me. I’m on Instagram, @TheDataDeli. James, where can people find you?

James:
Best way to get ahold of me is on Instagram, @JDainFlips.

Dave:
All right. Sweet. James. Thank you so much. Appreciate your time today, and thank you all for listening. We’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

 

RE/MAX has proudly supported Children’s Miracle Network (CMN) and their member hospitals since 1992, raising over $89 million and counting. With donations through the Miracle Home program and fundraising that takes place throughout the year, our affiliates continue to show their generosity. Recently, RE/MAX® affiliates participated in fundraising events at the 2022 Activate Canadian Conference in Quebec City, to raise more than a record-breaking $160,000 for CMN! RE/MAX agents and brokers gave generously through events that included a live auction, Flip for Kids Coin Toss, a 50/50 draw, and the RE/MAX Run for Kids. Proceeds directly supported CMN and its member hospitals. Read on to learn more about how RE/MAX gives to CMN.

Run for Kids (RR4K): Raising heart rates and cash 

RE/MAX Run for Kids^* is a healthy way to raise money for kids’ health at RE/MAX conferences. Founded in 2013 by Craig Pilgrim of RE/MAX Professionals, based in St. Albert, AB, the run has raised over $35,400.  At this years’ Activate Conference, RE/MAX agents and brokers hit the streets of beautiful Quebec City to contribute close to $4,500.

Motorcycles for Miracles: The true meaning of travel rewards

This charitable initiative started by Bruce Johnson, of RE/MAX By the Bay based in Wasaga Beach, ON, is one that continues to get good mileage in more ways than one. To honour his daughter and support Children’s Miracle Network and its member hospitals, Bruce set out on his bike and rode over 73,000 kilometres across 15 countries. Since 2013, Motorcycle for Miracles has raised over $1,000,000 for CMN. That number along with the one on the odometer keeps climbing. This year’s Motorcycles for Miracles Champion Flag was auctioned off at 2022 Activate for a whopping $32,000! This current flag has travelled 10,000 km across Canada and has raised just over $265,000.

Spirit of Giving is Alive and Well at RE/MAX

RE/MAX agents and brokers attend real estate conferences such as Activate, to help them stay on top of their game. (Nobody in Canada sells more real estate than RE/MAX^*). They also take the opportunity to participate in fundraising events to give back to the communities in which we work and live.

Moving Won’t Take a Miracle But it Might Cause One

Ready to sell your home and give back? Many RE/MAX agents choose to participate in the Miracle Home and Commercial Property Program, whereby a portion of their sales commission is donated to CMN.

*Total transaction sides in 2021.

You’ve likely heard people lauding the benefits of home ownership. Canadian real estate has historically seen solid long-term gains, which bodes well for existing homeowners and those who plan to buy and keep the place for the long term. There are several other benefits of owning a home, including a roof over your head, a place to plant roots, pride of ownership, and a part of retirement planning. However, as with all investments, there is that initial cost of owning a house in Canada, and unlike other investment vehicles, a home also comes with ongoing expenses. So, down to the nitty-gritty: How much will it cost to buy a house?

Here’s How Much Will It Cost to Buy a House:

The price of the home and the services associated with the purchase are all relative to the type of property, its age/condition and location, so do your research to ensure it remains a good investment. A real estate agent can outline what you can expect to pay and maybe some unexpected expenses. In the meantime, here’s a list of hidden costs to factor into your budget.

Deposit

Depending on the price of a home and the market conditions, you should factor an up-front deposit into the cost of buying a home. You’re expected to pay a deposit when you make an offer on a home.

The deposit is a security measure to ensure you don’t lose the home to another interested buyer. The deposit also assures the seller that you’re serious about the purchase. If you are required to pay a deposit, it will become part of your down payment once you have purchased the home—it comes off the home’s purchase price. There’s no standard deposit amount, as it varies between provinces. But your real estate agent can advise you based on the home’s asking price and the market conditions.

Down Payment

In Canada, the minimum down payment on a home depends on the purchase price. If the house is below $500,000, the minimum down payment will be five per cent. If the price is from $500,000-$999,999, the down payment is five per cent on the first $500,000 and 10 per cent on the remaining amount.

While five per cent is the minimum down payment, anything below 20 per cent is considered a high-ratio mortgage and requires mortgage loan insurance. To avoid this, you’ll need a down payment of 20 per cent or more. This insurance is paid in a lump sum or added to your mortgage and included in your payments.

Land Transfer Tax

When you buy a home, you are required to pay a land transfer tax on closing to the territory or province where you are buying. This tax is based on the amount paid for the property, as well as the remaining amount on any mortgage or debt assumed as part of the arrangement to buy it.

Cost will vary depending on your municipality, the size of the land and other factors. Alberta, Saskatchewan, and parts of Nova Scotia do not have Land Transfer Tax at all, while other provinces use a tiered system—meaning, the higher the purchase price, the higher the percentage you pay. Meanwhile, homebuyers in Toronto are hit with a double whammy, having to pay a municipal land transfer tax on top of the provincial land transfer tax.

Appraisal Fee

An appraisal is essential for the buyer. It lets the lender know they are providing a mortgage for a legitimate price and that you are paying fair market value for the home.

A property appraisal will typically cost in the ballpark of $300, but can vary depending on the appraiser and your location. However, this is an essential step, saving you from borrowing more than you need to, and preventing lenders from giving you too much.

Home Inspection

Though it is not required, a home inspection is recommended in the home-buying process, helping you avoid many potential pitfalls. In hot real estate markets, many homebuyers will waive a home inspection from their conditions. It is a wise investment, helping you avoid costly repairs and renovation. A failed home inspection could be a negotiating factor or a deal-breaker.

A home inspection will generally cost an average of $500 depending on the size, age and condition of the home, but it’s well worth the spend for the peace of mind you’ll have.

Property/Home Insurance

Most lenders will require you to have enough home insurance to cover the total cost of the property. Lenders will ask for proof of insurance before providing the funds to purchase the home.

While property insurance is likely already something you have factored into your budget, it’s important to do your research and find a reasonable quote that will ensure you are covered should anything unexpected happen. The more coverage you add to your home insurance, the higher the annual premiums.

Mortgage Insurance

Your lender will most likely offer you mortgage life insurance. If you pass away while the policy is valid, the insurance company will pay out what you owe the lender, ensuring that your family can remain in your home without making any payments.

An alternative to mortgage insurance is factoring your mortgage into the payout of your life insurance policy. This way, your beneficiaries get the money directly and can pay your mortgage lender, unlike mortgage insurance, where the payout goes to the lender first. Talk to your financial advisor about which option works better for you and your family.

Mortgage insurance is not to be confused with mortgage loan insurance, which protects the lender against mortgage default. Mortgage loan insurance is required if your down payment is less than 20 per cent of the purchase price. Premiums for this type of insurance range from 0.6 per cent to about 4.5 per cent.

Lawyer Fees

A real estate lawyer or notary is required to complete the purchase of a home. They prepare and review all legal documents, with the agreement of purchase and mortgage as the primary documents. Additionally, they ensure there are no previous claims on the property to help provide you with a clean title to the property.

The fee you will be charged by your lawyer will vary depending on the person representing you and must be paid upon closing. Ask your real estate agent for advice, as they likely have a preferred trusted lawyer they can refer you to.

Title Insurance

Title insurance is a one-time fee that protects from losses related to the property title or ownership. Though not required, it protects you from unknown title defects, existing liens on the property, structural encroachment issues, title fraud, and errors in surveys and public records. Talk to your lawyer about title insurance and if it benefits you.

Property Taxes

Property tax is billed annually and it is expressed as a dollar rate for every $1,000 estimated to be the market value of your property. The tax is paid on property owned by an individual or an entity and is one of three taxes a household pays in Canada, the others being sales tax and income tax.

When you’re looking at homes to purchase, your real estate agent will be able to tell you what the property tax was for previous years. This information will allow you to plan for this ongoing expense.

Maintenance and Energy Costs

Potentially your largest ongoing homeowner expense, these costs include lawn care/ yard work, professional services, additions/upgrades and the cost of keeping the house running year-round. Ensure that you factor these costs on top of your mortgage and property taxes when determining if you can afford a home.

Moving Expenses

It’s easy to forget about the small things when moving, but it’s important to remember they can add up quickly! Consider the cost of cable, Internet, electricity, natural gas and other utility installations. Don’t forget about movers, a moving truck, and feeding your friends who are helping out!

Land Survey

A land survey is a legal document that evaluates your home’s boundaries. Though it is not a requirement to sell your house in most jurisdictions, it will establish trust, outlining the size of the property and defining future possibilities of expansion. The cost of the survey depends on how much work is involved and the time of year, but you can expect to pay at least $1000.

Time to Create a Budget

Now that you have a better idea of the cost to buy a home, it’s time to hit the books to find out how much these services will cost in your area. Make a list, create a budget, and get started!

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Housing affordability may be the hot-button issue across Canada. British Columbia is not immune to the same pricing issues, especially as interest rates climb, making housing more out of reach for many buyers. This is particularly the case with Vancouver real estate, where prices are about 30 per cent higher than the provincial average.

The British Columbia Real Estate Association (BCREA) recently published a pathway to greater affordability in the BC real estate market. A collaboration between real estate boards from across the province, the article outlines how housing supply and affordability have impacted the whole province. In response, the BCREA outlined several ways to improve the current situation, including a more diverse housing supply that includes multi-family dwellings and greater collaboration between government and stakeholders.

The financial pinch is found across Vancouver real estate as well. Home prices have soared throughout the pandemic, with the average home in Greater Vancouver selling for $1,1195,428. Compare this to the provincial average of $918,378. Affordable is top of mind for many in the Vancouver area, forcing some residents to examine other nearby cities.

With the increase in remote workers, people are no longer bound to the office and can seek out a more affordable option for their families, avoiding a scenario where they are house poor. Here are some options outside the Greater Vancouver area but still close enough that you can visit and take in everything that makes Vancouver great.

5 Affordable Areas Outside of the Vancouver Real Estate Market

#1 Kelowna

One of the fastest growing cities in Canada, Kelowna feels like you’re living an extended vacation. Live on the water in summer and on the ski hills in winter. Boating, hiking, biking, golfing and skiing are popular activities that keep you busy year-round. On top of the lifestyle, affordability is another critical reason to choose Kelowna.

According to data from BCREA, homes in the Okanagan sell for an average price of $775,967, a far lower cost than what you will find in Vancouver real estate. The pandemic caused a real estate frenzy in the region, with a record number in August 2021. However, the market seems to be returning to a more balanced state with sales of 1,205 in August of this year, a 32.6 per cent dip from those record highs.

“The market seems to have started turning the corner with respect to overall inventory levels. With an increase of properties available, this could bode well for sellers and buyers who have been sidelined for much of the year,” notes the Association of Interior REALTORS® President Lyndi Cruickshank.

#2 Victoria

Like Kelowna, Victoria also saw a dip in record sales and prices in August of this year. According to the Victoria Real Estate Board (VREB), sales fell 42.5 per cent in August 2022 compared to August 2021.

“After two years of market conditions that favoured home sellers, sales have diminished in the past few months, and inventory levels have been slowly increasing,” says Victoria Real Estate Board President Karen Dinnie-Smyth.

This shift is welcome news for homebuyers in Victoria. As Victoria moves toward more balance between buyers and sellers, it will continue to make it a more affordable option than Vancouver.

Victoria is regularly featured among the best cities to live in in Canada. Its unique geography and natural charms make it a popular place for those wanting to flee snowy winters and, just a ferry ride away from Vancouver, for those wishing to live close to BC’s largest city.

#3 Kamloops

Kamloops is one of the most beautiful cities in Canada, so it’s not surprising that this riverside city is drawing homebuyers from the Vancouver Core and from across the country. Although the demand is strengthening, the average residential price remains reasonable for new market entrants.

With an average sales price of $580,128, according to data from BCREA, this is one of the most affordable cities in the province. Interest rate hikes have helped calm the market, pushing it closer to equilibrium between buyers and sellers.

Lyndi Cruickshank, President of the Association of Interior REALTORS® (Kamloops Branch), says that “sales activity dropped to its lowest July level in over a decade as rising interest rates have dampened affordability for many would-be buyers…When the market reaches an equilibrium after the dust settles on the remaining rate hikes over the remainder of the year and sellers adjust their price expectations, it will be a slightly different market that buyers return to compared to now but one with more ample options.”

#4 Surrey

Named the City of Parks, Surrey is considered part of Vancouver but has its own identity and, thankfully for homebuyers, lower housing prices. Residents find the cost of living far lower in Surrey than in downtown Vancouver, which is only 29 km away.

The city boasts restaurants, breweries, bars, numerous parks, and a diverse population. Surrey is an ideal place to get a full complement of urban living options without Vancouver real estate prices.

Like the other markets on this list, Surrey is beginning to stabilize. Though the average detached home will cost almost $1.5 million, townhomes and apartments are much more reasonable, at $822,400 and $530,400, respectively. Many are hoping that these prices are going to come down.

“The sales slowdown we’re seeing reflects a level of caution exercised by buyers, who are likely waiting for the market to settle further before jumping in. In the meantime, we anticipate prices may continue to decline across all categories,” says Sandra Benz, President of the Fraser Valley Real Estate Board.

#5 Powell River

Do you want to be a ferry ride away from Vancouver but feel like you are in a new world? Well, the Sunshine Coast may be for you. The price may be right, too, with an average sales price of $707,707.

The Sunshine Coast is rich in natural beauty, with coastal mountains in your backyard and the ocean just steps away. Powell River is the residential centre of the Sunshine Coast and features a vibrant arts and culture scene.

Though prices are still climbing in the region, they are substantially lower than you will find in Vancouver.

Is Affordability Gone from British Columbia Real Estate?

If you do not have the option of sitting on the sidelines and waiting until prices fall to submit an offer on a property, there is plenty of value outside Vancouver if you know where to look. Many BC cities are beginning to witness new inventory coming to market, which could relieve some of the higher prices this year.

David:
This is the BiggerPockets Podcast, show 680.

Mark:
If you are a host or a property management company that is looking to grow and scale, and if you are more than 90% reliant on one channel for your revenue coming in, you’re playing a very dicey, dangerous game, because all it takes is for your account to get hacked, your listing to get locked down, or a couple of crappy reviews, or a total algorithm change by Airbnb where suddenly, you’re on page one, and the next day, you’re on page five or six where nobody looks. So, it’s really important that we flip that around, and we look to get everybody to a 65% direct, and then at 35% relying on third-parties AKA OTAs.

David:
Hello, everyone. I’m your host, David Greene of the BiggerPockets Podcast here today with my lovely co-host, Robert Abasolo. In today’s show, we’re going to be interviewing Mark Simpson, owner of Boostly and UK Resident, who has some fantastic advice for us on how to book your short-term rentals without using the online travel agencies, Airbnb, Vrbo, and their ilk. Rob, first off, how are you today? And second, what do you think about the show?

Rob:
First of all, my hat’s off to you because you really went all in on that and we did it all in one take. Most of the time, we would do that five times, but you nailed it first time. So today’s episode is really great, man. I’m super excited. We even get to hear me dabble a little bit with my accent repertoire, and we get into the art of hosting and the idea of getting into direct bookings and when you should possibly consider making your own direct booking website over just staying on all the typical OTAs, online travel agencies out there. So, I’m excited to jump into it because I think if you listen to today’s episode and you’re a short-term rental host, it might crack your brain a little bit and you might think, okay, maybe I should try something else, maybe I should diversify a little bit.

David:
Well, if we’re just being honest, this is a very relevant topic in the short-term rental space. And so much of real estate investing is starting to become dominated by the short-term rental space. This is what everybody’s talking about. This is where the highest returns are. In a lot of ways, this is the future of real estate investing is you got to do more than just buy a property, set it and forget it. You got to learn how to host something, create an experience, and outshine your competition. And in today’s show, Mark gives us some examples of how to do just that. Mark actually came from a background of hospitality. He grew up with people in his house as they ran a bed and breakfast, and his mind was formed and forged in the fires of hospitality. And he gives us some tremendous advice for what you could do to make your place stand out.
And frankly, I think if you’re going to try to be in this space in the future, you have to know how to do it without relying on Airbnb or Vrbo. Rob, you could probably speak to this better than anyone, but it’s getting harder and harder to stand out on those sites. Airbnb recently just redid their whole algorithm. And people’s entire business models were shaken as they’re trying to now scramble and figure out, how do I make my place unique? How do I make it different? How do I make it clichy sort of so that it can stand out with Airbnb? What’s your experience been like since they switched things up?

Rob:
You know what? It’s still the same thing, right? We’re still booking and everything, but there’s a game to it, right? All algorithms out there, whether it’s YouTube or Airbnb, there’s a game that you got to play and you got to play by their rules. So, [inaudible 00:03:20]. You know what? I think that’s a good segue, David, into today’s quick, quick, quick tip. Pretty good, pretty good. I like the combo here. So today’s quick tip is really going to be to diversify where you’re listing your short-term rentals. I know as hosts, a lot of the times, our go-to is going to be Airbnb, but it’s really smart to consider putting your different units and homes on other websites, Airbnb, Vrbo, Booking.com and even considering going direct, right? Direct booking website where people can directly book from you and you can cut out the middleman and be the customer service.
You can be the person that’s dictating all the fees. You can be the person that’s providing that one-on-one experience with your guests. I think that this is very important and relevant today because I’ve just seen a lot of people getting locked out of their different accounts on several OTAs. And when that happens, it can be a really big, stressful moment for you and your business. But if you diversify and you have your short-term rental listed on different websites, if one of those websites crashes or it goes down or locks you out, you still can get booked on all the other different websites out there. So, diversify as you move into your short term rental journey.

David:
Absolutely. I love it. And this is sort of cutting edge information that we’re sharing with you here at BiggerPockets because we love you. And with that, let’s bring in today’s featured guest, [inaudible 00:04:37], Mark Simpson. So Mark, welcome to the BiggerPockets podcast. How are you today?

Mark:
Amazing. Thank you very much. Thank you very much for having me. Nice to speak to you two today.

David:
Yeah. First off, I want to compliment you on your hair and your beard. You’ve inspired me. I may copy it. It looks incredible on you.

Mark:
I went to the barber shop today and said, “Can I have the David?” And he just said, “I know what you mean, the David Greene.” And he just went-

Rob:
He said, say no more, fam.

Mark:
Say no more.

David:
That’s when you know that you have made it. First off, you’re known by one name, right? Madonna, Fabio, J-Lo. When you’re known by one name, you know you’re famous. Now Mark, I understand that you and Rob have a previously established relationship, so I’m a bit of the third wheel here. Can you tell our audience how you two know each other?

Mark:
I mean, I can go first, Rob, if you like. I’ve been a massive fan of Rob’s channel for about, I’d say, the last year and a half. I’ve been really digging into it and I would just [inaudible 00:05:34]. Every now and again, when something comes up on Instagram, I slide in the DMs and just saying, hey, massive fan, [inaudible 00:05:41]. As our relationship grew and he started to actually look at the messages because he gets so many, I said, “Hey, let’s have a chat about direct bookings sometimes.” And every single time I’ve seen videos this year in 2022 of BiggerPockets, and any time Rob talks about direct bookings, I’ve slowly seen him get a bit more gentler towards it. And I like to feel like my influence in the DMs has been a little part of that to where now, we’re doing little bits together behind the scenes and super excited.
But I do actually have an Instagram story about you, David. I actually sent you a message about a couple of months ago and it was just as I feel like me and Rob are starting to chat and I said, oh, because you followed me on Instagram. And I was like, oh, no way. Mr. David Greene has followed me, so I sent a little message back saying, “Hey, massive fan. Thank you very much for the follow.” And then you send back a reply, which is kind of like, “Hey.” And I was like, “Oh, he must be busy.” It’s a very short shot message, and sent a couple of more messages back and forth. And then all of a sudden, you sent me a message back and you started talking about crypto. This has taken a turn. So before I knew it, I was giving over my Bitcoin wallet and the rest is history. But it turns out, it wasn’t you [inaudible 00:06:51]. It turns out I was chatting to a David Greene impersonator.

Rob:
And now, Mark lives under a bridge.

Mark:
And now, I’d have to sell everything.

David:
Yeah. And yet, Instagram still just won’t give me the freaking blue check mark. It’s like, how many people have to get ripped off from this? I’ve tried about 25 times.

Mark:
[inaudible 00:07:09]. Here we are.

David:
Well, I’m sorry about that, Mark. Hopefully, you didn’t spend any money.

Mark:
I’m good.

Rob:
No, I think he was just kidding. Yeah, but I did, I’ve sent you several Bitcoin, David. And I like that return please. So yeah, I got locked out of Airbnb not too long ago for a very short amount of time. I think it was for less than a week. But that’s a big deal for Airbnb hosts, short-term rental hosts altogether. I’ve been seeing more stories like this pop up. My students have been locked out. And yeah, Mark, he’s been very tenacious, I guess, on Instagram. And we were chatting back and forth. And then all of a sudden, I got locked out and I was like, wait a minute. I know a guy. I know a guy that is all about direct booking so that this never happens again. So it all came together and culminated into a beautiful, beautiful relationship. And fast forward to today, he was speaking to my students not too long ago and actually delivered a Chipotle burrito to me in the middle of the presentation and he instructed the Uber Eats eater specifically to interrupt my Zoom presentation when the burrito got here. So, I had a burrito on camera not too long ago. And that’s our relationship.

David:
You really are, Rob, like the personification of a millennial in so many ways. The shirt you’re wearing right now, your very eccentric hairstyle, your obsession with Chipotle for 80% of your dietary needs, you’ve got that millennial [inaudible 00:08:32]. You’ve got it down really, really good. But Mark, I don’t know you and I want to know a little bit more about you, so tell us. I’m fascinated. Other than where do you live and where does that accent come from, how did you get started in real estate? What is your story, your origin story of how you ended up getting your first house?

Mark:
Yeah. So I’ve pretty much been born into hospitality pretty much. I grew up on a 200-acre farm in the middle of nowhere in the United Kingdom. As you can tell, this accent is over the pond. So I’m from the UK, grew up on a farm. And in the 90s, my parents turned a 200-acre farm and they converted a ban and put a bed and breakfast on it, and then they converted another ban and put some holiday cottages. And this is before the time of social media, this is before the time of Airbnb and all that good stuff. And they literally relied on very old school methods to advertise their business. It was word of mouth and it was magazine advertisements and newspaper advertisements. And I just grew up in a world where I was so used to strangers being in our house, being in my kitchen, all 24/7, 7 days a week.
And I grew up serving breakfasts and doing all of the things before school. And then eventually as I grew older, I had an opportunity to move away from the farm and do soccer coaching and spent pretty much my 20s traveling around America, coaching soccer, an amazing time, then eventually moved back to the UK, and that’s when I came back into the business. It was me and my wife and my eldest. We moved back into the family business in 2011. And by this point, [inaudible 00:10:05] for 25 years, but we’re still doing everything pen and paper. And my job was to get it online. Being a millennial, my parents looked at me like, well, you’ve been on the internet once, you should know how to do this. And that’s literally what we did. We grew that offline word of mouth and put it online and utilized online reviews.
We utilized Facebook and social media to grow the business, as well as the online travel agents. In the UK, Booking.com is probably the biggest, was the biggest. And Airbnb has slowly been playing catch up over the years. But we built up a business where we didn’t rely on Airbnb. We focused on our direct bookings and we grew that. Yeah, and then fast forward to 2016, I started to go to hospitality meetups in our area, in the area of Scalby, United Kingdom and started to chat to other hosts, other hosts that were either one property in or 5 or 10 properties in. And the big annoyance there was they were having to rely on Booking.com and the whatnots for their bookings. And that’s when I started doing Boostly. That’s when I started helping hosts figure out how they can generate their own bookings and not have to rely on Airbnb or Booking.com.

David:
It sounds like you’re out there doing God’s work, and I want to thank you for that. So, Rob actually called me the other night in a complete panic as he often does, 2:00 o’clock in the morning and freaking out. And he told me a story about a guess we had at our Scottsdale property that wasn’t happy. Actually, he wasn’t in a panic at all, it was one of those like, if I had hair, I would be pulling it out of my head. I have another person asking for a discount over nothing. And apparently, this guest had actually pulled a gun on our cleaners and then had the audacity to turn around and ask us for a discount. And Rob was like, “And you know what? I had to freaking give it to them.” Because you get in this position with Airbnb where you’re being held hostage. And if you don’t give this person what they want, they threaten you with a bad review. You end up playing this really just disastrous game of chicken with the guests where Airbnb has to figure this problem out because sometimes, you’re a normal person.
I’ve never even thought of asking for a discount. If I go to an Airbnb and they run out of toilet paper, I just go buy more. I don’t think about threatening the person with a bad review if they don’t give me what I want or hand-delivering toilet paper, but I’m finding out many people do. And it sounds like it’s turning in some ways into Craigslist where you’re offering a bicycle for $200 and someone offers you 75 bucks. It’s like a bidding war. It turns into an auction. So I wanted to ask you, Rob, not just with our house, but with your experience on Airbnb in general, how big of a problem is the threats of bad reviews and hurting your standings with getting bookings? And how important is a direct booking system like what Mark is talking about to the operator’s chances of success?

Rob:
I have always considered Airbnb walking on a tightrope of sorts where it’s just a game of balance. It is a hospitality business, and so in some regards, I do feel like Airbnb, which I use anonymously with just any OTA, OTA stands for online travel agency, I’m sure we’ll use that term several times today, but in any platform, whether it’s Airbnb, Vrbo, Booking.com, there is some push and pull here with customer service and the checks and balances of the different securities that they offer to their hosts and everything like that. And it does force me to stay very hospitable, keep up the hospitality aspect of my business. I’m happy to do that. But there is a very interesting moment where a guest might damage something, they might leave you damages anywhere from 50 to 500 bucks. Usually, anything that’s under $50, I’m not really going to charge a guest back for, but over $50, it starts getting hairy, right?
And it’s like 51 bucks, I don’t know, am I really going to charge a guest for that? $75, as hosts, we get very scared to charge that back to the guest even though it’s within our right to do it because the moment you send a guest a message and say, hey, you stained our rug, it’s going to be 75 bucks to get it spot cleaned or whatever, then now, they have a tainted experience at your place. They’ll be like, oh, come on, it was an accident or whatever. It was just a wine glass. You really want to charge me for that? And so, you get into this mindset where you ask yourself, is charging a guest $50 worth a four-star review? And if you’re just starting out your Airbnb business or your Airbnb listing, it’s not worth it because if you have five five-star reviews and then one four-star review, guess what? Your ranking just went down to a 4.7 or a 4.75 all because a guest, and it was their fault, broke something in your house and you charge them for it and it forced them to think of all the negative things that happened during their stay when it would’ve just been a five-star stay otherwise.
So, this is a huge pain point for Airbnb hosts, and that’s just on small things, right? But then you get into other situations, like the Scottsdale guest that you were talking about, David, where they smoked a bunch of pot in the house and it smells like pot in there right now. And that can affect future bookings and that can leave a bad experience for other people. We got to charge these people 500 bucks, whatever, to fumigate it, do the ozone treatment and all that stuff. And now, we know that they’re probably not going to leave us a five-star review. So, it’s a whole thing, right? It’s like the customer service aspect of Airbnb. It’s a hospitality business, but at the end of the day, it’s still a business and you still do have to make money. So yeah, when you’re at the mercy of the checks and balances of OTAs, it makes it tough to be profitable in certain situations, if that makes sense.

David:
So here’s my understanding of how OTAs have of evolved over the years, Mark, and I want to get your professional opinion on if I’m accurate. At first, people put a house on Vrbo, Airbnb. It booked like hot cakes you almost couldn’t miss in the short-term rental space. Everyone was crushing it. The money started to move in that direction, the market got really hot. It became hard to get cash flow of any kind if you weren’t doing short-term rentals, and so more and more people got into this space. Now, it’s become somewhat saturated. In some areas, you’re okay, but in others, you’re competing with other people over these guests, and it’s pushing the prices down to the point it’s almost not making sense.
And now, you’re at a point where the tenant has the leverage and the relationship. There, they get to choose which properties they want to book. They get to ask for discounts if they come. They break the rules, you’re afraid to say anything because you don’t want a bad review. The owners of these properties not only do they have to deal with problems of neighbors, problems of the possible city changing regulations, the evil landlord clause that sort of reigns over the industry right now, and the tenants having power. You seem like you’ve figured out a way around that. Just don’t go through those means where you don’t have the leverage. First off, am I accurate with my understanding of the evolution of the industry? And then second, what is Boostly now doing to try to fix this?

Mark:
Yeah. No, you’re 100% spot on. And for a lot of people, and especially a lot of people who are coming into the industry right now, believe it or not, there was a time in this industry that was before Airbnb, before OTAs, before instant book. I mean 2015, you go onto any of these online travel agents and it was request a book. Even like early days, Airbnb, there was no instant book. The only reason that they bought that in was to compete with Booking.com, which is the Booking Holdings Group and Vrbo, which was HomeAway, which is the Expedia group, which owns Expedia and all that jazz. And with instant book coming in and with commission being a big thing because back in the day as well, to be on a listing site, you paid an annual subscription fee, but then people started to come along like Booking.com, et cetera and say, hey, don’t pay as any annual subscription fee, just pay as a commission if a booking comes in.
And for a first time host, it’s like, wow, this is amazing. For marketing and for advertising, if it doesn’t work, I don’t have to pay any money. And we are in an industry, [inaudible 00:18:11] hospitality, short-term rentals, midterm rentals, whatever you want to call it, all of this is hospitality as Rob alluded to. And in this hospitality industry, we are in the industry of making memories. So it’s not like when you buy [inaudible 00:18:23] from Amazon, it’s just a one-off purchase, that’s fine. We are in an industry where people literally come and stay with you and they will remember it for years. They will talk about it with their family, with their friends, et cetera. And because of that, it is so in demand. You both now can look at your calendar and you’ll just know there’s dates in that calendar for all your properties that you could book three or four times over depending on the time of the year.
And because it is so in demand, it is so easy to get bookings. And Airbnb, Booking.com, Vrbo [inaudible 00:18:52] spent billions making sure that they’re in the right product placement. So again, when you first start and you’ve got that one property and you’ve got all those plates that are spinning, everything that you have to know to do, when it comes to marketing, you can just take a couple of pictures on your phone, you can upload it to a website, Airbnb, and be pretty much be guaranteed to get bookings. And because it is so easy, you then become over complacent and lazy and over reliant on one platform. So it becomes a problem when, for example, you get a bad review from a guest or a guest complains to Airbnb and they side with the guest or for whatever reason, your listing gets taken down.
And it’s happening more and more and more now. And if you are a host or a property management company that is looking to grow and scale, and if you are more of a 90% reliant on one channel for your revenue coming in, you’re playing a very dicey, dangerous game because all it takes is for your account to get hacked, you’re listening to get locked down, or a couple of crappy reviews, or a total algorithm change by Airbnb where suddenly, you’re on page one and the next day, you’re on page five or six where nobody looks. So, it’s really important that we flip that around and we look to get everybody to a 65% direct and then at 35% relying on third-parties a AKA OTAs.

Rob:
Yeah. I do you want to add to that list because you were saying all it takes is a hack or this or that. It also takes things that are not even actual [inaudible 00:20:20]. Okay, let me articulate this correctly. We had a bedbug scare in one of our properties three or four months ago, maybe five months ago. And the guest sent over a photo of a bug. And we sent that over to our pest control. People were like, oh my gosh, is it a bed bug? And they’re like, we don’t think so, but we’ll go check. So they go and they report that to Airbnb, obviously. I mean, I don’t necessarily blame them for that, but Airbnb immediately locked that listing, they deactivated the listing, and then we got the pest control people to come out. And then the pest control people were like, oh, actually, it’s not bedbugs, it’s a thing called bat bugs, easy to treat. They found all the different places to plug the home.
All that type of stuff, we had it resolved in a day or two. But even with that, we had to submit a report that basically vowed that we didn’t have bedbugs and we had to do all this stuff. And that account could not be booked or that listing could not be booked for six weeks. And that was a property that we had with an investor. So we’re over here scrambling, trying to make it happen as much as possible. Luckily, it did end up getting resolved. We’d been booking like hotcakes otherwise and we still are making a lot of money on that property. But for people that are just starting out, if that’s your first experience with a short-term rental, that can really taint the rest of your journey, right? And so luckily, I’ve done this a while now, so I’m able to stay calm whenever there’s a bedbug scare or whenever a guest pulls a gun out on our cleaner, all that kind of stuff.
It doesn’t phase me quite as much, but it is interesting to hear you say that, Mark, because really at the end of the day, using different OTAs, like Airbnb and Vrbo, it gives the guests all the leverage. They have all the leverage to basically do whatever they want. There’s some good and some bad, right? With short-term rentals in general like Airbnb, they’re going to bring the marketing, they’re going to bring you the guests. You don’t have to go and market your listing. But certainly now as I’ve done this for five, six years, I’m definitely starting to feel this stat of 65% direct bookings that you referenced there because yeah, it does make sense to bring it all in-house at the end of the day.

Mark:
Yeah. And I feel like it all boils down to when you are so reliant on Airbnb for your bookings, you literally have a boss at that point, and you are literally building your house and your business on somebody else’s land because they can turn around at any point and change the rules. Or like you said, if a guest book’s through there and they complain to Airbnb, they are going to always side with the guest over the host. It doesn’t matter what you’ve got, systems and things in place. It just happens more often than not. And it’s scary to see. Now, if a guest book’s direct with you and you’ve got your systems and structures in place, which is what we will talk about, then that situation with the bedbug, you would’ve had direct communication with the guests, right there and then, you could have sorted it on your terms, on your rules, and you’re not then having to have that little niggling doubt in your head that there’s going to be somebody looking over you making all of the calls and the decisions and you’re worried about it.
And the best example I can give on this and one that I feel that any host that’s been around since 2019 will be able to relate to is that in March 2020 when the world went a little bit upside down and all of these regulations and rules were starting to put in place, Airbnb in the middle of March just sent a notification out to all guests and all hosts at the same time, so no word of warning to hosts, so at the same point, everybody woke up with a notification saying that obviously with everything that’s going on in the world, any guest can cancel their stay free of charge, it doesn’t matter what the policy is. Now, that ended up ending so many management companies and host businesses because they just couldn’t survive it because straight away, guests went and canceled. There’s no one in to host.
Now the kickback that I get when I talk about that story is, well, just because a guest booked direct doesn’t mean they didn’t cancel. Yeah, sure. But what we did at our family business is in March, we were able to have the phone number and the email address of every guest that booked of us direct. All we did was we literally called them. We’re real vulnerable and just said, hey, everything that’s going on in the world, obviously, you’ve got this booking coming up with us. Obviously, you can’t make it. But instead of canceling it, let’s change it. So, we adopted a change, not cancel approach. And we were able to save five figures in reservations and just move it to later on in a year or next year and we’re able to help get us through that part. Guests and hosts that relied solely on Airbnb weren’t so lucky. They literally had no way of communicating with the guests because Airbnb don’t share email addresses, they don’t like you communicating with the guests. Those that were reliant solely on one platform didn’t make it out the other end.
And this is why it’s really important that we actually now start to turn this around. And this is why I’m trying to help 1 million hosts cut down over reliance on the OTAs because if we can do so, if we can do this, we will get a foot at the table at these OTAs. At the moment, all of these Airbnb, Booking.com, Vrbo, they look at hosts as just a number. They just look a number [inaudible 00:25:19] their massive stock list. We are not partners as they keep saying, partners [inaudible 00:25:24]. We have to get aware of them. And at the moment, they don’t think that hosts as an Airbnb hosts want to do their own direct bookings. I’m a stubborn [inaudible 00:25:36] and I want to show them that we can do this. It is simple to do this. And my whole thing is about going old school to go new school. So what old school tactic can we do to drive in bookings and revenue?

Rob:
Yeah. So knowing what you know here, obviously, that the hosts are a number and everything like that, is there a dystopian outlook for using one or two major listing websites?

Mark:
Yeah. So very recently, Skiff, which is a big industry publication, put out a graph and it showed the reliance on where the bookings are going on these platforms, and they took the top five. And out the top five was the free standout, so Airbnb, Booking.com and Vrbo. And in 2017, Airbnb had 15% of the market. So 2017, about five years ago, they had 15% of the market. The wave that the graph is going, the prediction is by 2025, so only a couple of years away, they’ll have 60% of the market. Airbnb are not only playing catch up, they’re going to dominate this industry in terms of where the bookings are coming from. My belief and my opinion is that Airbnb want to become the Amazon of the short-term rental industry.
And if they get to that point, there’s nothing from stopping them from turning around to hosts all on their platform and saying, you know what, Dave, Rob? We feel like this relationship isn’t accurate, isn’t fair. You only pay us, say, 14% commission at the present moment in time. Let’s bump that up to 20. Let’s bump that up to 25, 30, 40, 50%. Amazon, they take up to 66% commission for everything that is sold on that platform. That is crazy. And there’s nothing from stopping from Airbnb doing something similar. And they’re making all of the rules tighter, tighter, tighter. And at the moment, we’re lucky. At the moment, we still… Some hosts only pay 3% commission. If you’re a pro host, you actually have to pay a little bit more if you’re connected up to a property management software, but we’re going to talk about it soon. You’re going to pay a little bit more.
But the worry is that this industry becomes so reliant on Airbnb that they can dictate the rules at any point. And when that happens, and it’s bad enough now, if that happens in the future, then more and more hosts are going to be going out of business or having to pay deep, deep commission costs for something that is simple that we can stop now by starting to think about marketing ourselves, marketing our own businesses, which is what every other industry needs to do. We do website design at Boostly. There’s no listing site that I can go and put Boostly websites on and generate revenue. I have to brand myself. I have to go on podcasts and do all of the social media things. Short-term rental hosts have to start doing that now if we don’t want to go down that route of being very reliant on Airbnb.

Rob:
100%. I mean you’re talking about marketing your listing, right? If you want to market your listing out to the masses, I know that you have to have a ideal audience or demographic or avatar in mind. And I’ve heard you say that most people don’t know their potential guest avatar. So, do you think you could just really briefly explain what this means and why would not knowing your avatar be impacting your bookings?

Mark:
Yeah, it’s a great point and it’s a great question. And when you say avatar, I guarantee [inaudible 00:28:44] so many listening to this or watching this will be like, what is even an avatar? And the most simplest way to put it in terms of hospitality short-term rentals is that the ideal guest that you want to walk through the door. And when you really nail down who that avatar, who the ideal guest is, it makes everything so much easier because at the end of the day, you haven’t got an Etsy store, you haven’t got an Amazon store, you haven’t got unlimited downloads. There’s only a certain amount of heads that you can fit on beds. There’s only a certain amount of inventory that you have.
And the biggest problem that I see in this industry with the millions of hosts that are out there is that we’re trying to appeal to everybody. When you appeal to everybody, you appeal to nobody. And another cliche phrase, “The riches are in the niches.” So if you can really figure out, number one, who is your ideal guest? So, who is the type of guest that is coming to my location, Scottsdale, wherever it may be? Who is the type of people that are coming to here? Is it all leisure? Is it a mixture of business and leisure? Is it families? Is it solo people? Is it digital nomads? Whoever it may be. So, you figure out who that is. So, who’s coming to the area?
And then what you do is you look at your property and it’s like, okay, so what is my property good for? And then, has it got a pool, has it got a real good bed to bath ratio, has it got private parking, really good wifi? And then what you’ll then do is you go, okay, so this is who’s coming to the area, this is what my property’s good for. Now, what can I do with my property to really speak to my niche? And as a prime example, a person that I was speaking to, she had a couple of properties on the coast, some amazing seaside properties. You could see the beach sea, see the sea literally from the window. And the location where she was at was well-known for surf. And she was trying to decide on who her avatar was.
And the property, the way it was laid out, it was repelling who her ideal guest was because that was ideal for surfers to come away for a surf break, but she was doing the exact opposite. So a little couple of tweaks. So for example, by stipulating in the listing on a marketing, on a social media literally how close the property was to the beach by putting in some surf racks, private parking, all of that stuff, she was able to really focus and niche down on her avatar and her ideal guests. And with that, the people that walked through her door were the ideal people. They literally, as soon as they landed in the door, it was like an instant five-star review because it matched everything what that guest wanted and needed, so you didn’t have people rocking up and pulling guns on cleaners and all that stuff.

David:
I love that. So here’s what I like about it, as a real estate investor, we don’t have to think about the avatar of who’s going to be staying at our house. It’s someone who needs a place to live. Maybe I might think, what kind of job does this person have, so what kind of rent can they afford? That’s about as far as it goes. But as a host of a hospitality asset, you do need to be thinking about that. So, what are some of the mistakes that you see people making, Mark, that are real estate investors approaching it with the real estate investor mindset that don’t understand that they’re actually becoming a hospitality host?

Mark:
Well, this is the main thing is that everybody comes to it and they sort of take off the hospitality hat. I don’t mind. I don’t care where you’ve come from or what niche or [inaudible 00:31:54] you’re coming into. As soon as you have strangers coming to stay in your property, you’re in my world of hospitality. So, you always have to think hospitable first. Hospitality is the main part of it. And if you can, always think about making sure that that guest has got the most amazing stay in your property, then you’ll win time and time again. There’s a saying that I came up when I created The Book Direct Playbook, which is the book that I put out this year that the tagline was, “There’s a story behind every booking.”
And I don’t care if a guest is staying with you for work or for leisure or for a family stay, but there’s a story behind the booking. It’s up to you as a host or it’s up for you as your team to make sure that you can uncover what that story is and how can you make that stay memorable because if you can make that stay memorable, what it means is that you will not have to market your business. Your guests will become super fans and they will market your business for you. The referral networks, the comeback ability, all of that is there for years to come. But the first thing you’ve got to do is you’ve got to take off that real estate hat, take off the numbers hat, take off the Airbnb hat, and just put on that hospitality hat for a second and just think, okay, what can I do to make sure that I can make my guest stay as best as possible?

Rob:
That’s super fair. I always say this, and I think I was telling you this too, David, because you just bought 15 short-term rentals in two hours. I don’t know. It took you a month. But either way, you were talking about the idea of getting a property manager and I was like, well first, I honestly think to anybody that buys 15 properties or that’s really getting into this, that you should really be in the weeds of your business for a little bit. If you want to go the property manager route, that’s totally fine, do that. But give yourself 2, 3, 4 weeks out of minimum to just understand how guests communicate, how they communicate specifically about your property, what are the common questions that come up about your property.
Because I have a lot of different Airbnb listings, and the common questions that I get for each listing are wildly different. You never really know, right? And people ask you things and you’re like, wow, okay, there’s something not clear about my property or there’s something super appealing about my property, and you find out your guest avatar, kind of to your point, Mark. But either way, for me, I like people being entrenched in the nuts and bolts of their businesses before they hand it off just because if you learn how to drive up the hospitality and how to be a good host, then you know how to manage a property manager. That’s always been my stance.

David:
Well, let me just say, I would not recommend anyone else do what I did. 15 short-term rentals at one time has turned out to be a very taxing endeavor that I don’t think was very wise to get into. I do that often.

Rob:
Mentally taxing, not financially taxing. That should probably help you out [inaudible 00:34:41].

David:
That’s exactly what I’m getting at. I had somebody who was helping manage my portfolio that I had to let go because they couldn’t keep up with the strain of all that goes into this, plus a lot of them had rehabs. It’s a very challenging time for me right now trying to keep up with all of this stuff that’s going on. So I think you’re right, it would be much better to have taken this at one or two at a time. So, I don’t want anyone to hear this and think that they should go copy. What I did there, it’s been a little bit crazy. And I actually was thinking, Mark, maybe I’d hire you as a consultant to see what could be done to get some of this stuff off the ground a little bit quicker.
But you do make a very good point there, Rob, that you want to understand the asset class that you are getting into. Mark, I think our audience would really benefit from any specific examples like the one you gave of the surfer home where someone approached it thinking just like an investor, like oh, on a spreadsheet, this is what it should bring in and this is my occupancy, and it’s all science, there’s no art. And then you seeing, hey, here’s some tweaks somebody made on the art side. They added surf racks, they advertised it, it was very close to the beach that it actually impacted the numbers that the property brought in.

Mark:
Yeah. Well, there’s another great story as well. And when we talk about of hospitality and how you can really make sure that your business will thrive on the other end, we had a lady that was part of the Boostly community and she had a lakeside property, and this is what I’m talking about, like old school market and how it can really help your business. She had a person book at her lakeside property. And they booked direct. And on the note it said, “We’re really looking forward to come and stay at your lakeside property. Little Timmy’s 9th birthday. He’s wanting to learn how to fish.” And what the host did is… What most people would do, and the most problematic thing that people would do is they would just look at that note and go, oh, that’s nice, little Timmy’s birthday. Well, that’s fantastic. But what this lady did was on the day of arrival, she went to the fish and bait and tackle shop and she bought a fish and rod and just a couple of other things, like some bait tackle, et cetera, and went 5 to 10 minutes out of her way. So, she did a meet and greet with the family.
And before the family arrived, she put the little gift with a little card on the dock just as the people parking up and going up to the property. The family arrives and they see that note and they opened it and it go, “Dear Timmy, have an amazing 9th birthday. Here’s a little gift from us, the property manager, just to get you on your way in your fishing journey.” And instantly, that was a little tweak that they had made to their business, a little gift that cost no more than 30, $40, and it impacted massively because what happened was that guest instantly pictures Instagram, social media, so they had the social proof right there. And then when they went home, they were talking about it to their friends and the family members. And then it was that same guest repeat book for the next five years, brought their friends with them and told all of their coworkers, et cetera. So, a little gift like that, a little shift, a little look at the property, a little, okay, what can I do to make this guest experience even better, and it resulted in thousands upon thousands of dollars worth of direct bookings. And it’s all because of one little tweak that they made.
And that’s just one little example. I think one thing that every host should be doing right now, everybody that has got a short-term rental business, whether it’s one property, five properties or 10 properties or more, you should all be looking right now and just look at the property, look at the area and go, well, what can I do to make sure that I can make sure that the ideal guest that I want to walk through this door make sure that it’s as easy as bookable as possible and making it stand out. One of the easiest things you can do right now is to get a little floor plan, a little cartoon floor plan drawn. You can get someone on [inaudible 00:38:34] cost about 20, $30. And what it does is it lays out your property instantly from an Airbnb listing or a Vrbo listing or even a social media because there’s so many people that book with you first time without properly knowing the layout of your property. So, little tweaks like that you can do that will really make sure that your property stands out really will help gain those heads in beds.

Rob:
Yeah. So Mark, we covered the idea of what hosts are neglecting as they move from real estate into the hospitality side of things. We’ve also covered why relying on one platform is bad. I mean, I think one of the big reasons there obviously is guests have a lot of leverage. And if you have all your eggs in one basket and you get shut down or hacked or whatever, your business is effectively over until you’re able to restore your account. So for people that are going into the direct booking option, and even to clarify this for people at home that may not know what we mean, we mean if you were to buy a domain like robuilthomes.com, I should have brought that before I said this, but robuiltholmes.com, and you can go and actually book your stay through my personal website and I’m the one that controls basically all the customer service and everything like that. For people that are going that route and just for people that are still even using OTAs, do you feel that hosts are neglecting the security and the guest screening that comes along with guests that are booking stays at their home? And what are some tips here for people that are still booking on those sites and even through a direct booking website?

Mark:
Yeah. This is definitely something that is a big pain point. And so many people are saying a guest has booked and they’ve shown up with X amount of people. It started really during the lockdowns where, especially over here in the UK, all of the nightclubs were closed. You couldn’t really go on a proper night out. So, what was happening was people were booking a stay, they were booking a stay in their town or their city. They say, yep, two people are turning up. And then before you know it, there’s 16 people and there’s a party going on in your short-term rental business. So, there’s a big problem with security and guest screening. Luckily now, compared to when I first got started in 2011 properly in short-term rentals, there’s so many providers and software and service tools that are available to short-term rental hosts, people who’ve 1, 2, 3, 4, 5 properties that wasn’t there before.
So, one of the best things that everybody can be doing is looking to getting guest screening software set up as soon as possible. There’s one over here in the UK that is a worldwide brand that’s called Superhog, S-U-P-E-R-H-O-G, that’s a really good one. And what it basically does when a guest books, what happens is they get a little notification, they have to verify who they say they are, so as that guest screening element. And when it comes to it, even if a guest books via a platform or if they book direct, you’ve got to make sure that you are protecting your investment at the end of the day. And a lot of people talk about making sure that you’ve got exterior cameras set up. Obviously, don’t do the interior cameras, that’s gets you into a lot of trouble, but the exterior cameras, making sure you’ve got relevant guest screening. But again, it’s still something that so many people don’t do, and it’s those guests that don’t put those simple blueprint in place, the foundations in place to have a very successful short-term rental business are ones that you see that come onto Reddit, that come into the Facebook groups and complain about X, Y or Zed [inaudible 00:41:58].

David:
All right. That’s a great point, Mark. I like that you highlighted guests screening. And protecting your investing is another part of the hospitality business that you don’t have to think about with typical real estate investing. When it comes to what hosts are putting on their profile, what are some things that are commonly missed?

Mark:
Yeah. So, one of the big things that I show hosts how to do is how you can take someone from an OTA into a direct booking. And one of the best ways and the best places to start is your listing, literally your profile on Airbnb. And everybody has the ability to make your listing on Airbnb look super professional but at the same time showcasing your business and your brand. And so what it will end up doing is it’ll take a guest from Airbnb to a Google Search where hopefully they will then click on your direct booking website. So one of the main things that people can do is go onto your Airbnb listing right now and you’ve got your first six pictures, which are obviously your most important pictures, we call them your hero images or your unique selling pictures, and what you can do on there is you can watermark them with your business and your brand.
So say that you’ve got the Rob House and the David House, but the overall brand is, let’s just say, the Mark business brand. Then what you can do is on these individual listings, you can put your logo of your business on there, so instantly to the user because as a user, as a generation of people that are using these, we skim read at best. So you’re looking at the images and instantly, every single one of them is watermarked, so the user knows that, okay, so this is a proper business. This isn’t somebody who is just listing a house for a hobby, this is somebody that’s properly doing this as a business. And then the next hack that you can do is in your profile, so everybody on Airbnb, and this is really cool, you don’t get this on Vrbo and you don’t get this on Booking.com, but everybody on Airbnb has a profile and you’d be amazed at how many people when the guest is going through. So your future potential guest is going through the booking process. They actually go and check out your profile and you can actually put a little bio in. This is one of the most undertapped resources that I see on the platform from host that we do marketing reviews for is you’ve got that first little bit of the bio.
And the first line in particular, you can introduce yourself as, hey, my name is Mark, I’m part of Boostlybnb, please check out our online reviews. They’re really good. Now, we’re not directly saying on our Airbnb profile to go check out boostly.co.uk. We’re not directing people to a domain because Airbnb will obviously shut that down. But what we’re saying is we’re introducing ourselves as being a business, being ourselves as a property management company or just a professional business on Airbnb, but to go and check out our online reviews, they’re rather good. So instantly, what happens there is that the guests will see that, they’ll go to Google, they’ll type in your business name in the location where you’re at, and obviously then, your website will pop up, any social media that you have, and obviously your Google business listing. So, those are two things that everybody can do right now. It’ll take a couple of minutes, but it instantly will separate you from everybody else. When everyone’s zigging, you got to zag in this industry. And so, that’s one of the two core things that every Airbnb host should be doing.

Rob:
Yeah. Oh man, as an educator in this space, it does kill me whenever someone has a listing that they’ll ask for feedback on it, for example, and be like, what do you think? And then they have one sentence for the whole entire listing and then photos that were taken on a cell phone and I’m like, dude, you got to spend an hour just writing what this place is a writeup about it, and then spend like 250 to 500 bucks on professional photos. And if you do that, you’ll increase your booking significantly. So in the vein of you got to zig when others zag, a lot of people in this space think beds and heads, that’s all I really need, right? To have a successful Airbnb business is just putting as many people I can into a house. What are your thoughts there?

Mark:
Yeah. No, you’re right. And this is more than just a heads on beds game. It really is about the guest experience. And now more than ever, your guests that are staying in your property, they’re looking at the amenities as much as it is for a real good pillow and a real good comfy bed to sleep on. So for example, one of the most important things that Airbnb is going to be focusing on in 2023, and this is based on all of the searches that they get and all of the data that they have is WiFi. Your WiFi speed is going to be crucial, even more so the… It’s only a matter of time before in the filter of your Airbnb listing will a future potential guest be able to filter the internet speed, depending on what property you show. So right now, you can go into your property, you can open up your Airbnb app, and you can do a speed test, and you can submit that speed test to Airbnb and they’ll say if it’s poor, good or excellent.
So if you have really good WiFi, you should be definitely tapping into that and taking full advantage of it because again, it just makes your property stand out so much more. And not only just talk about it on Airbnb and your listing sites, but talk about it on social, talk about it on your website as well, talk about that because the digital nomad or the slomad, which is going to be a new phrase in 2023, this is going to get even more popular. Brian Chesky even said in an interview that he believes that it’s only a matter of time before 50% of the US workforce is working from home or working from a short-term rental property, so amenities is massive. Also as well, the other massive thing is the kitchen. Go into the utensils that you provide, whether it’s an air fryer or whatever it may be, a decent coffee machine, a decent coffee bar. Make sure that you put in a little bit of time and an extra bit of budget into the amenities as much as it is that real comfy pillow and that real comfy bed.

Rob:
100% agree. I think probably over the years, the number one, I won’t say complaint, but I guess feedback that people give me, and it’s less now because I’ve addressed it, but it’s usually people that are like, hey, love your place, would love for your kitchen to have been stocked a little bit more. And so now, when I’m teaching people how to do this, someone was like, look, just go to TJ Maxx, I don’t know if you guys have TJ Maxx over there, but like Ross Michaels, wherever, some of these more bargain places, they have a whole section that’s just kitchen stuff, like can openers and wine openers, all that kind of stuff. And just spend like 100 bucks on all the little knickknacks and the lemon squeezers and all that kind of stuff because people are always super excited when it’s there and really bummed when it’s not.
And even to that point, these days, when a guest says, hey, do you have this item in the kitchen? I’m usually the first person to say, hey, I don’t, but tell you what, go buy it. I’m sure I could use it in the listing and I’ll reimburse you for it. And people are always like, oh my God, that’s amazing. Most of the time, they don’t, but I’m always willing to, right? If it’s like a $10 lemon squeeze or whatever [inaudible 00:48:39], other guests will probably use it. So, I think that the kitchen is so important these days because a lot of people tend to book Airbnb so that they can actually cook there.

Mark:
Yeah. And also as well with the coffee bar, if you go and do something a little bit unique by getting local coffee beans and whatnot, it instantly makes your property Instagrammable. And the more you can make your property Instagrammable, the more that your guests will take a picture and they’ll upload it to their socials because the number one time when your guests are taking pictures is when they’re on holiday, is when they can show off to their friends back home that they’re on vacation, staycation, workation. So the more that you can make your property Instagrammable and they can tag you in, then that’s how you get that social media word of mouth and that virality just thriving.

Rob:
Yeah. So effectively, let’s juice up the amenities, right? Let’s make sure that the kitchen is great, that the internet is fast. I’m curious, is there any tactical advice there on increasing internet speeds? Is it a special router, like a mesh system or anything like that or is it just going with the fastest package that your internet provider provides?

Mark:
It all depends on what you have available. So at the end of the day, you could put all of the little cool mesh things and all that jazz, but if you’ve only got a certain amount of speed coming into your house, then you’re screwed. Luckily, now, it doesn’t matter where you are in the world [inaudible 00:49:50] solutions, these satellite solutions are making more people, rural or wherever, you’ve got more options available. But it’s only going to come a matter of time where having WiFi and having quick WiFi, especially for the Gen Z generation, and people think Gen Zs like teenagers, Gen Z now in 2022 is 25. These are people that are going to be paying money to stay at your properties, so you’ve got to make sure that a generation that are literally born with one of these cell phones literally in their hand 24/7, you’ve got to make sure that you’ve got WiFi and you’ve got good WiFi. Don’t just have like, say, I’ve got WiFi and it’s like two megabytes speed. It’s got to be decent. It’s got to be double digits.

Rob:
Yeah, for sure. I’ve got a couple of listings that don’t have WiFi and we make it as well-known as possible and it’s like, hey, it does not have WiFi. And then sure enough, they check in and they’re like, what’s the password? I don’t see it. I’m like, I told you there’s no WiFi. We would offer it if we could, but that’s something I’m always happy to spend 100 bucks a month on simply because it’s super important.

David:
Okay. I have to ask you, Rob, is the location not offer WiFi, is that why you don’t have it?

Rob:
Yeah, it’s too secluded. We can’t even get HughesNet out there, which is like eight megabytes per second.

David:
Wow. So, there’s just it’s not internet. Well, what about the thing Elon Musk is doing? What’s that going to be called?

Rob:
Starlink. There’s a wait list for that everywhere. I mean, it is possible. Finally, one of the properties, my Gatlinburg property, I got the email from Starlink to set it up and I was like, oh, it actually happened, but it’s not always readily available.

David:
Do you think that Starlink will change all the emails that old people use that have SBCGlobal.net as their email domain name? Are they all going to change [inaudible 00:51:23]?

Rob:
Are you sweating over there because you still have the SBCGlobal.net and your Hotmail, [email protected]?

David:
That’s right, Rob. I’ve got a Hotmail account. It’s back when email was created. So Mark, we’ve talked about having a great experience, amenities, everything that leads up to this moment, but there’s comes a time where a guest leaves, right? And that’s the end of the stay. So, what aren’t hosts doing to follow up with their guests? And do you feel like this is a crucial aspect for marketing your business in the future to those guests?

Mark:
Yeah. And this is where you can get those juicy direct bookings so easy and simple. And this is the cool thing is that it doesn’t cost any money. Literally, it takes a couple of minutes of your time, but you just got to reach out to your guests. We are very lucky that Airbnb, for example, they give you the phone number. They don’t give you the email address, but they give you the phone number of the guest. And this is where… For a lot of people, it may be a little uncomfortable, but it’s all about becoming comfortable, about feeling uncomfortable. Pick up your phone, call your guest just when they check out. If it’s not you, if you are super busy, get a member of your team to do it and just say, hey Rob, I really appreciate you supporting our local business and coming to stay with us. Can I just ask why did you book with us?
Ask a lot of who, where, why, when questions. What did you do when you were here? Why did you go into that X, Y and Zed? And then at the end of the conversation, if it’s going well, just say, hey Rob, we really appreciate you. We really loved you as a guest. Thank you very much for that five-star review, hint, hint. By the way, do you know anyone? So, really important four words that so many people don’t use, but it will be everything in your business in terms of marketing and getting more bookings is, do you know anyone? So do you know anyone who’s coming to the area? Do you know anyone who’s coming here for work? It’s a really good one to ask anybody who’s stayed for a business day. Do you know anyone that needs to come to X, Y, or Zed?
And at that moment, that person will say a couple of things. Number one, no or yes, or maybe I’m not sure. So if they say no, just say, listen, no worries. By the way, if you ever do know anybody who needs a place to stay, please bear us in mind, recommend us. And if they book, we’ll give you a X in return, like Amazon vouchers or whatever it may be, bottle of beer, burrito, whatever floats your bought. But in the other time, if they say yes and say, actually, I do [inaudible 00:53:38] friend David who’s coming to town, then say, brilliant, do you mind sharing his contact information or setting up a group chat on Messenger or whatever it may be, on email? And if they book and they mention you, then I’m more than happy to give you a X in return. X could be $50 Amazon voucher or whatever it may be.
Because when you ask that question and you want somebody to do something, you’ve got to dangle the carrot. By dangling the carrot, they’re more likely to take action. And that’s the most crucial thing. But if you do that consistently, if you can do that for, say, of every five guests that check out, if you can call one out of five, I guarantee that what will start to happen is you will build up a pool of referrals. And if you can do that successfully, like I said at the start, you’ll never have to properly market, pay money for Google ads, Facebook ads, again, because you’ll have a referral network of your guests who will be your super fans who will just keep referring you and referring you to their friends, family and coworkers for months and years to come. And I know it works because that’s exactly what we did. Our business, The Grainary [inaudible 00:54:33], the farm stay business.

Rob:
Yeah. This is a really great approach in my mind simply because screening is such a big deal, right? And so if you have a guest that comes, you’ve screened them, they’re staying with you, let’s say, through Airbnb and they leave your place in decent condition, then we can probably make the assumption. Obviously, you don’t want to always assume, but if you reach out to them and they book through your direct booking website for a second time the next year, they’re probably going to leave your place in good condition again. And then if they’re referring you to all their different friends in the network, then again, good people tend to know good people and hopefully, you build up this referral network of people that treat your house pretty well, right? So it alleviates the concern of having strangers in your house.

Mark:
So 93% of purchases are made on the back of social proof. So if it’s you as a friend, is Rob recommending David? And [inaudible 00:55:26] David is much more likely to book, then if it’s just me straight messaging David saying, hey, come and stay at our place. You know what I mean? So with that social proof, it’s everything. So yeah, it goes a long way.

Rob:
For sure. Yeah. I mean, even on my end, I’m looking at the social proof, like guests that are trying to book my place. And if they have no reviews, I’m definitely going to be a little bit more apprehensive about accepting that booking over someone that has 25-star reviews on Airbnb. And then if I see someone that has a 4.5 as a guest, I’m always like, well, why is that? I’ll go in and I’ll read all the reviews. And if most of the reviews are good, usually, it’s nine good reviews and one so-so review, then I go forward with that because it’s nice to know the proof, the reviews of the people that are staying at your place and vice versa. People that are staying at your place probably want to know, right? And so that’s why you say in your listing, hey, go read our online reviews, and then they can read about it and then feel assured there.

David:
All right. So, we’re going to move on to the next segment of our show. It is going to be a modified version of the Deal Deep Dive called the Direct Deep Dive. Mark, in this segment of the show, Rob and I are going to take turns asking you questions about your direct booking system. Question number one, where can you set up a direct booking? Is there a specific portal to use?

Mark:
So, the main important thing that you need is a property management software, otherwise known as a PMS. The unfortunate thing is there is 1,400 plus property management software tools. The good news is that there’s about 10 to 12 top ones, and those are the ones let’s focus on. You may have heard of a couple of them, Guesty, Hostaway, Hostfully, et cetera. If you want a blog post about this, I literally don’t want them on Boostly. So boosly.co.uk/PMS, that is where you get started because when you’ve got a property management software tool, it helps you create everything that you need to put in place to build a direct booking business. So the guest screening that we spoke about, it will link into that. If you want to be on more than one platform, for example, Booking.com, Vrbo and an Airbnb, it’s all programmed via the PMS and it all directly speaks to it. And the best thing is you can then create a Stripe account to take direct payments and you can also create your own direct booking website. So, this is the most important thing to get started with is getting a property management software tool.

Rob:
Question number two, how do you build out the communication with the potential customer?

Mark:
My old school favorite is picking up the phone and giving them a call. And I like to do it at the end of this day but also the start of the booking process as well. So when a reservation comes in, the best thing to do to not have any cancellations, to make sure that there’s no miscommunication, pick up the phone, give them a call, have a chat with them, figure out why they’re booked, what can you do to make that stay even better. That’s one of the best things that everybody can be looking to do, take in this old school in a new school world.

David:
Awesome. All right. If somebody wants to do this, what does it cost to set up a direct booking website?

Mark:
So, the cool thing is as you are getting started in this game, so let’s just say one property, it’s actually free. You can go to so many free providers to have a direct booking website or just with anything in the world. As you level up your business, you need to level up your tech stack. And as you get to maybe three, four or five properties, then you’ll have to pay a little bit of money to actually do so. There’s many providers out there. There’s many ones that do it. Boostly obviously, the elephant in a room, we offer a service that we can help with that. Just got to boostly.co.uk.
But you can start off by anywhere, sort of a couple of 100 bucks. And then the more you grow, let’s say, you get past 10 properties and 15 properties, then you want to look for a pro solution where guests can book directly on your site. You can have things like live chat, retargeting and all those cool stuff, and that’s going to cost you a couple of grand. But when you get to that level of 10 plus properties, the money that you will spend on a website hails insignificant with what you’d be paying to commission cost, to Airbnb and all these other online searches. So, the best thing to do at that moment in time, invest the money as you level up your business and you’ll be set for years to come.

Rob:
Awesome. Question number four, how do you measure your success? Are there any KPIs or key performance indicators for measuring success in this world?

Mark:
The best one for me, and not only do I look at this, but investors or potential buyers of your short-term rental business will be looking at a very high ratio of direct bookings coming into your business. So if you are looking to sell your business and say you are 90% reliant on one platform for your industry, for your reservations coming in, they won’t look at you as well as if you’ve got 65% direct and then 35% reliant on other people. The way that I like to describe this is you got to look at Airbnb as your banker. Now, the banker basically is when I was… I’m a happily married man now, but when I was single and I would go on a night out, I would be basically looking to take a lady home to do some horizontal dancing with at some point during the evening, but as the night go on, it got to 2:00 o’clock in the morning, I would always have my banker on hand that I could call if I wanted to do so. And this is exactly how we need to look at Airbnb, they need to be your banker. So Airbnb is your banker, direct bookings is the one that you marry. And so, this is the main thing that what you need to do to measure your success. 65% direct, 35% OTA.

David:
Is banker like backup plan, like you got one in the bank?

Mark:
That’s the bank, that’s the backup plan, that’s the to 2:00 AM call. And it worked both ways. I was the banker, but this is where you got to look at Airbnb. Airbnb need to be your banker. You go and marry the direct bookings.

David:
There’s a lot of business principles that work that same way. You’ve got the home run pitch you’re looking for and then you’ve got, well, if I don’t get what I want, here’s my backup plan, at least I can get on base. And so, I think that’s very wise and also very funny analogy. All right, last question of the direct booking deep dive. Let’s say you want to convert an OTA, like an Airbnb or a Vrbo listing into a direct booking, what can you do?

Mark:
So, the two things that we spoke about are very handy in a reactive way, but a proactive way could be when a booking comes in. So the premise is that you’ve already knocked off number one where you’ve got your PMS portal. So when a booking comes in from Airbnb or Vrbo or Booking.com, if your PMS is set up right, an email notification will go out to the guest. And a real proactive way of converting an OTA booking into a direct booking is in that email template, you basically say to the guest, and this is something you can set up once and you can set and forget, and the terminology used should to go, hey Rob, thank you very much for your booking a stay at Boostlybnb. Just to confirm, the date of arrival is the 1st of December. You’re checking out on the 4th. Please make sure you read the rest of this email because your check-in information is really important.
And the way it should go is if you have booked of us directly, I email, phone call or website, your check-in time is 1:00 PM. If you have booked via an OTA, i.e. Airbnb, VRBO or Booking.com, your check in time is 5:00 PM. So what you are doing right there, psychologically, you are punishing somebody from booking via a third-party, and they will see that and they will go, well, hang on a second. If I had booked direct, my check-in time is one, but because I’ve booked via Airbnb, the check-in time is 5:00 PM. The next line of text is important. But if you want to amend anything about your stay, here’s my personal cell phone number and email. Call me at any point and we can rectify that for you. We would do this for our emails that went out to everybody. And we had about a 60 to 70% success rate of them calling us. And they would go, Hey Mark, I’ve got your email about the check-in time. If I’d have booked direct, I would’ve obviously got an earlier check-in at 1:00 o’clock.
And the main thing to realize here is that when somebody comes and stays with you, they’re going to be traveling from a couple of hours, flying in maybe, maybe it’s for an event or maybe it’s for X, Y or Zed, and they don’t want to be hanging around before they can check-in with you. So, they’re much more likely to take action and book of you direct. So the conversation would go, can I flip it to a direct book and how do I do that? And it’s super simple. This is where you just take over with a little bit of nose and you say, yep, sure thing, Rob, no problem. So all I need, just for security reasons, can you just confirm what your email address is? Again, you don’t get that email from the OTA, so you get the email. Just say, can you just confirm your card details? Brilliant. And you’ve got everything that you need. And just say, just do me a favor, can you just open up the Airbnb app or the Booking.com app? Can you cancel that stay for me because I can’t do it for you. Fantastic.
As soon as you’ve done that, I will bucket you in and you’ll get a confirmation directly for us and you’ll get that new check-in time. And it works in so many levels because number one, the major kickback I get to that, people say, well, hang on a second, you are canceling an Airbnb listing. Why would you do that? I’m not canceling the reservation. The guest is canceling it. One in three OTA reservations results in a cancellation. So because it’s them doing it and not you doing it, it doesn’t flag up on any radar, on any OTAs, and it’s totally within the Ts and Cs as well. And by doing that, again, you’ve basically canceled an OTA reservation, you’ve got a direct one in the bag and [inaudible 01:04:37] we had about 60 to 70% success rate on that just from having one little email template that went out after a booking.

David:
All right. Thank you for that, Mark. That is going to move us into the last segment of our show. This is the world famous-

Speaker 4:
Famous four.

David:
In this segment of the show, Rob and I ask every guest the same four questions and we will fire them off at you. Question number one, Mark, what is your favorite real estate book?

Mark:
So I’m going to keep it Bigger Pockets, Avery Carl, Short-Term Rental, Long-Term Wealth, love the book. And I’ve got to know Avery quite well. And yeah, I think that’s a really good one for everybody in real estate we’re looking to get into short-term rentals.

Rob:
Cool. Number two, favorite business book.

Mark:
I’ve always got it at hand, I’ve got it with me now, it’s Tools of Titans by Tim Ferris. And I’m a massive Tim Ferris fanboy. I’ve been listening to him and watching him since 2016. That book is amazing because it took 200 of his best episodes, all of his interviews with his guests. There we go, David, it’s right there. And he put it into a book. It is a huge book and it’s one that you don’t have to read it from page one to page 500 or whatever it is. You can just dip into different chapters as you go. And as far as business, it’s got a section on health, it’s got a section on wealth. And it’s, by far, the one that I always come back to is Tools of Titans.

Rob:
All right. I thought you were going to say Who Not How since you… Fun story here, Mark mailed me a copy of Who Not How with a note that said, “This book is going to change your life, I think.”

Mark:
Funny you mentioned that because there’s so many books that you could give. And I remember when you interviewed Alex Hormozi, his answer was, “It depends on where you are in your journey.” Now, me personally, right now, I’m on a massive hiring spree, and Who Not How is top of mind, Clockwork, Who Not Ho and [inaudible 01:06:27]. I sent it to Rob because there was a lot of things that he said that resonated, but the one that I always come back to is Tools of Titans. A massive fan. And I feel it doesn’t matter where you are in your journey, Tools of Titans is one that you can come to at loads of different stages.

Rob:
All right. I’ve got that noted. I have a notepad here. Whenever guests say their books that they recommend, I always write down the ones that sound intriguing for the day that I possibly read a book again. I’m still working through Burr right now, but honestly, this is going to be my year. I’m going to get two books in.

David:
I do the same thing with interesting hairstyles that I see guests come in and the odds of me actually acting on that are about the same as Rob reading a book.

Rob:
Oh, that’s probably accurate, that’s probably accurate. Three, when you’re not busy creating direct booking websites and just totally shaken up the short-term rental world, Mark, what are some of your favorite hobbies?

Mark:
Well, at the moment, it’s sleep. Like I mentioned at the start, I just had a baby girl three weeks ago, so whenever I can have sleep, that’s a big part. And the other thing is my basic, my main passion is soccer, football, Liverpool Football Club. I’m actually going to go after this episode and watch them probably lose tonight, which is a shame because they have very good soccer team. But yeah, let’s say Liverpool. And if we’ve got any Liverpool fans watching, please send me a message on Instagram. Come and say hi at boostlyuk. And yeah, that’s my big passion is Liverpool and creating children, it looks like

David:
You don’t sound like you are from Liverpool. Are you from that area?

Mark:
I am not from that area. It’s the other area of the Pennines. But my granddad got me onto Liverpool when he was alive, my first ever game my granddad took me to, me and my cousin. He was a big fan back in the day. And I will never ever forget that experience. But I’ve had it ever since the age of 10 or 11. But yeah, good scout knowledge there, David.

David:
Well, which part of the UK are you from? I’ve been trying this whole time to peg it. It sounds like you’ve got a British accent with a hint of Irish that just keeps showing up and I can’t place it.

Mark:
So, I’m a little bit of a rogue. Because I’ve traveled so much, America and Australia and everywhere, I’ve sort of lost my proper accent. But I’m one of these chameleons where if I hang around somebody for so long, I will just tap into their accent. So if I go and stay in Liverpool for a week, I’ll come out sounding like I’m from Liverpool. If I hang around in Australia [inaudible 01:08:53]. So basically, yeah.

David:
That’s how I sound with this cold. That sounds like I’m from Liverpool there. They’ve got that Middle Eastern [inaudible 01:09:02] with everything they’re saying. So here, I want to do this before I ask you the next question. Rob, speak in your English accent and Mark, you’re going to tell us where Rob’s accent would be placed if he lived in the UK.

Rob:
Not really my bag.

Mark:
See, the movie Forgetting Sarah Marshall when Russell Brand gets [inaudible 01:09:22] has a surfing accident and then Paul Rudd’s character goes and comes over and goes, “You sound like you are from London.” That is basically.

Rob:
So I’m Paul Rudd in that.

Mark:
You are Paul Rudd in that [inaudible 01:09:31].

David:
You sound like someone trying to sound like they’re from London, that’s what he’s telling you.

Rob:
Not really.

David:
All right. Now, we’re going to do mine, Mark. It’s not going to be necessarily British, but it will be from somewhere in the UK. If you had to say what do you think I’m talking from, what does this accent sound like, Mark?

Mark:
That’s two hours north of me. That’s good old Scotland.

David:
Aye, that’s right. [inaudible 01:09:55] from Glasgow. They’ve spoken like this my entire life.

Mark:
Good, good.

David:
As a little kid, I thought everybody’s grandparent sounded like they were Scottish. I just thought that’s like a grandparent thing. I didn’t know that that was my grandparent. So the first time I met someone else’s grandparents and they didn’t sound that way, my five year old brain was like, what? Why do they sound like your mom and your dad? They’re supposed to sound different. That’s how I thought that it worked. All right. Next question. In your opinion, Mark, [inaudible 01:10:21] pun worked together pretty well [inaudible 01:10:23]. I didn’t even expect that pun to have a pun. It’s a pun within a pun. It’s punception happening on the podcast. In your opinion, Mark, what sets apart successful investors from those who give up, fail or never get started?

Mark:
Procrastination is the killer of all good ideas, plans and businesses. And somebody once said to me when I first got going in this is the key to success is imperfect action applied at speed. So, I always stand by that. Just [inaudible 01:10:49] perfect, just go and get it done.

David:
That’s beautiful. Strikingly similar to Rob’s dancing style.

Rob:
That’s true. I’m more of a vertical dancer. I’m still mastering the chop chop slide.

Mark:
Well, I’m a horizontal dancer. That’s why I’ve got four kids.

David:
And what was the strategy, the imperfect action done, what was it?

Mark:
So imperfect action applied at speed is key to success.

David:
Yes, that describes Rob perfectly. All right, Rob.

Rob:
That’s right. Hey, don’t trample on my… This is my question. This is the one question I get all podcasts, Dave. Number five, that’s actually more of a statement, Mark, tell us where people can find out more about you on the internet.

Mark:
So one place only. Just head over to Amazon and go grab this, Book Direct Playbook, go grab that copy please. And in there is my Instagram where you can come and find me on Instagram. Thank you very much, chaps. Much appreciated.

Rob:
That’s right. We got it.

Mark:
[inaudible 01:11:36] freeway. There we go. Lovely. Really appreciate [inaudible 01:11:39].

Rob:
It’s on my goals to read this as my second book.

David:
You are one of the 100 books competing to be the second book that Rob has ever read. We will see how the book Hunger Games works out in Rob’s leg.

Mark:
[inaudible 01:11:50].

David:
May the odds ever begin your favor. All right. Before we get out of here, Rob, where can people find out more about you?

Rob:
Oh, you can find me on Neil YouTube where I put it all out there. I put everything, my emotions, my trauma, my successes, my victories, my how to win playbook. And yeah, soon enough, you’ll probably see Mark on the channel too. So you can find me on Instagram over at robuilt. And then if you want to see me dance and do funny little trends on TikTok, you can find me at robuilto with an O. What about you David?

David:
You could find me at davidgreene24 on just about all social media and then on YouTube at David Greene Real Estate. I’ve also been going live on YouTube on Friday night, so join us there. I’m going to start bringing in guests. Maybe Mark himself will join us, one, to answer all your questions about OTAs and avoiding corporate travel, crazy lunacy that we’re starting to see within those industries. And if you would be so kind, please go to your favorite podcast app, be it Stitcher, Spotify, Apple Music, whatever that’s called now, Apple Podcast, and leave us a review. Those help a ton. We want to get the message out there that Bigger podcast is preaching to more people. We want to get more people exposed to messages like Mark’s and Rob’s and the other BP influencers. So please, if you would go leave us a review, we would love you for it, as well as following us on our YouTube channel, which is growing as well. This has been a fantastic show, Rob. I want to give you any last words before we get out of here.

Rob:
HI just want to say, you called me an influencer, that’s the nicest thing you’ve ever said to me. I really appreciate it.

David:
You’re such a millennial that that would be the best compliment anyone could ever give you.

Rob:
I hope so. I don’t know. It depends on who you talk to.

David:
You are the millennial.

Rob:
That’s right.

David:
Are you old enough to remember that movie, Weird Science, where those nerds create this really hot girl in a lab and they fall in love with her?

Rob:
What year was that? I mean, I’m a 80s baby. I was born in ’89.

David:
Yeah, it’s this movie where these two really nerdy guys create a woman in a lab and she’s beautiful and then she falls in love with them, I think. Well that’s like Rob. If two people created a millennial, it would be him. He is the personification of how that looks. Well, Mark, I want to appreciate you for being here. And Rob, thank you for recommending Mark for the podcast. This was fantastic show, full of very practical, tactical advice that we don’t always get. So I want to thank you for that, Mark and I will let you get out of here. This is David Greene for Rob imperfect action [inaudible 01:14:15] Abasolo. [inaudible 01:14:17].

 

 

15% ROI”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/05\/large_Extra_large_logo-1.jpg”,”imageAlt”:””,”title”:”SFR, MF & New Builds!”,”body”:”Invest in the best markets to maximize Cash Flow, Appreciation & Equity with a team of professional investors!”,”linkURL”:”https:\/\/renttoretirement.com\/”,”linkTitle”:”Contact us to learn more!”,”id”:”60b8f8de7b0c5″,”impressionCount”:”285910″,”dailyImpressionCount”:”452″,”impressionLimit”:”350000″,”dailyImpressionLimit”:”1040″},{“sponsor”:”The Entrust Group”,”description”:”Self-Directed IRAs”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/11\/TEG-Logo-512×512-1.png”,”imageAlt”:””,”title”:”Spring Into investing”,”body”:”Using your retirement funds. 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