Norris Bruce
Jul 03, 2019

AirDNA and Vacation Rentals With Leslie James #650


Aaron Norris is joined this week by Leslie James of AirDNA.  This was an interview that was a long-time coming. They were nice enough to help The Norris Group back in September of last year to create a very beefy chapter on vacation rentals that they ended up doing for their portal and live. Just six months later, they helped him do a lot of research down in the Florida market because they’re investing out there and building new homes to rent. The data that’s provided there was a referral, and he is just completely grateful to know that this data is even available because they’re data nerds. 

Episode Highlights

  • How did she first get involved with AirDNA?
  • How did AirDNA first get started?
  • What is the market share space Airbnb and VRBO take up in the vacation rental space?
  • What are the different products they offer that they have displayed on their site?
  • How are homes positioned on HomeAway’s web site as compared to Airbnb?
  • What steps are they taking to solve pricing solutions when it comes to pricing and rates on their properties?
  • What do they have in store in the future for AirDNA?

Episode Notes

Aaron began by asking her how she got involved with air AirDNA. She said she didn’t have a background in real estate investing or short-term rentals, but specifically, she worked in the tax IRT space in the Denver area over the last 10 years.  She was intrigued by what was being built and the obvious growth of the market segment overall for both Airbnb and VRBO.  She was really interested in the intersection between and empowerment of the every-man user in that Airbnb is democratizing worldwide as well as the enterprise case for uncovering emerging markets and the global expansion of this sector. She is really excited to be taking the products into the next chapter of their business.

This is going to be one of those shows where if you’re listening on the radio show, they will do their best to talk about what they’re looking at. But for those of you on LinkedIn and Facebook and YouTube, you’ll be able to see some of what they’re looking at today as she’s sharing her screen and a little bit behind the scenes of what they have access to. He next asked how AirDNA got started.  She said they got their start in 2015 after their CEO was running a successful short-term rental business in California.  He had scaled his portfolio to about seven properties at the time and really realized the transformative power and revenue potential of short-term rentals. As he was doing that, he realized there was a real lack of data in the market. This included the decisions you should be making and what local comps are doing.  It really came from the perspective of them really wanting to understand the market.

In late 2017, they launched a product called Market Minder, which is a subscription product for market intelligence.  The historical data goes back to 2015 on Airbnb and back to mid-20117 for Homeland VRBO on every available listing. This includes all the supply side for both of those platforms. You can see seasonality, revenue trends, occupancy to make informed decisions and better optimize your listings. They also have several tools therein that help real estate investors identify the revenue potential of properties.  You can do address level head to head comparisons for 80,000 markets worldwide.  As they continue to evolve, they have added more feature sets and tools for the investor and the revenue manager, both for a vacation rental major and or a really tech savvy host. They’ve been moving a lot more into dynamic pricing solutions in the recent months and will walk through some of it today.

Aaron was blown away with the amount of information that was available, and he just found out last week that he’s been saying VRBO wrong.  I’ve been seeing V R B O. The rebrand happened only a month or two ago.  She pulls in all the data from Airbnb as well as VRBO. Aaron asked if she knows the market share that those two sites take up for the vacation rental space.  She said she doesn’t know right now.   There’s a little bit of variability, and they hope to pull in that data set. But overall, combined, they represent about 10 million listings on their platform.  Airbnb’s latest numbers list about 6 million. They count things a little differently on their side than Airbnb or HomeAway on both of those platforms. They are focused on supply, so any listing on their site can count towards the numbers that you would hear in the press.

Most recently, Airbnb was announcing that they had more than 6 million listings on Airbnb.  At AirDNA, they actually looked to see whether a listing had an active reservation in the last month. Their filtering is a little bit more in-depth and comprehensive than the way Airbnb looks at them.  Overall, they also match listings. One of the great benefits of the platform is that they’re not just focused on listing performance across the different channels.  They’re focused on overall property performance in the short term rental. So as their machine learning gets better for their matching algorithm, they will probably see the number of properties represented on their platform decrease slightly, even as the listing counts continue to grow.

They next went on to talk about their users.  Aaron was referred to her as a fellow real estate investor that’s in this space and who people use all the time. Aaron asked if there are other use cases. She said hosts are their bread and butter and where they got their start.  VRBO owners are a corollary to an Airbnb host, but they work with a lot of enterprising governmental organizations as well, so destination marketing organizations, or DMOs.  This is similar to tourism bureaus or economic development councils being really big clients as they try and get their arms around what’s going on in their markets. Oftentimes that does have a regulation component to it as well because many of them are funded via taxation. So it covers people trying to understand what’s happening in the market as well as large scale consulting firms, banks, and institutional investors as well who are really trying to understand not only the destructive impact of Airbnb, but really understand how that’s changing supply and demand in that market.

You’ve got government officials signing on trying to find out all those illegal Airbnbs in their market.  The one positive on things is they do not provide any property level contact information and details.  All the data that they provide at the property level is publicly available. They are not out to get any lender to get anything shut down.  The overall business is pro-short term rental, and there is a balanced measured approach to being able to regulate as well as support the economic growth that’s created from this industry.

They have only been around a few years, and the industry has exploded. To have access to this kind of data is incredible. Aaron was fascinated looking at the California and the Florida markets alone and how much they’ve exploded, just with the number of listings in the last five years alone. It seems to have leveled out a tiny bit. He thinks some governments are regulating it because of the affordable housing issue, but it’s incredible the kind of information that’s available.  Having to do this on your own would be nuts.

They next went on to discuss the different products that they offer and showed off some of the really good stuff.  Leslie began with the Market Minder, which is their flagship B2B fast product for market intelligence, investing, and pricing for short-term rentals. The city they focused on was Orange County Anaheim was either supposed to not have vacation rentals or were supposed to be winding down on them.

Anaheim, California is currently listed as an A market grade. Pretty much every data point here on what they would call the Overview tab of Mmarket Minder is publicly available.  You don’t need a subscription to see many of these high-level stats.  Once they actually start to reveal Market Grade and things like that, that’s really where the paid subscription comes in. Overall, this is a really good baseline for comparing particular markets. When they drill down into neighborhoods, you’ll see that the actual market grade will change just depending on the localized area within. But for a property investor looking to compare an Anaheim as opposed to like a Fullerton property, you can see that overall they’re still pretty similar score with a little bit of variability in terms of viability in the market.

For those listening, the market grade is an overview of rental demand, revenue growth, seasonality, regulation, and investability to give it a grade from 0 to 100. She asked if she had any information on any of those five categories from where she is pulling the data.  She says they do and that Investability, in particular, is really one of those stocks that is only available in the US because it is based on Zillow data. They compare the potential of a short term rental property compared to a full-time rental property. They also have other tools if you are specifically looking at the investing use case and you really don’t know where you want to go.  They can set the Market Minder to be a bottom-up tool. If you have a sense of what localized markets you’re looking in, you’re really just drilling it down into neighborhoods within the market or more specific properties within the market. If you really don’t have any idea where you want to go, Investment Explorer is another tool that’s really a top-down approach to investing.  You would use this if you don’t really care where you are but want to see which properties and criteria meet your investing strategy and emerging hot spots where you can rent to rent or buy to rent.

Specifically, with Market Grade, you can see how often things are being booked.  Overall occupancy goes into that number.  It also includes revenue growth in terms of change of ADR over time, seasonality, specifically how seasonal a market is.  When they look at seasonality, a high score means low seasonality. There is a consistent demand for short term rentals year-round around.

There is also regulation. This is not the crux of their business. They get asked to comment a lot on regulation in certain places.  Generally, they refer folks back to Airbnb and VRBO in the local markets. But this is a kind of lagging indicator. It takes about two months for their data to fully catch up to know any new regulations that have been put into place. The reason they have it here is that what they’re seeing as markets professionalize overall is that even if there are pretty stringent regulations in place for short term rentals, there are people successfully navigating the red tape and who are still in compliance. Oftentimes those are some of the more savvy and professional folks.  There can still be money to be made and short term rentals, even in heavily regulated markets. That really is more of a decision point for you as an individual investor and what your tolerance for that is and the level of bureaucracy you’d like to deal with in your market.

High-level stats look at ADR, which is average daily rates.  Occupancy rate and revenue are the three main metrics that they consider.  Right now their data is through May of 2019, and they’ll update to June data here in the next day or two. You can see a kind of min and max in the market, specifically for ADR in Anaheim.  On an average daily rate, in July, it was as high as $307 dollars while in May it was low to $245. That’s not actually a tremendous swing.  In some markets, particularly highly seasonal markets, you could see a swing upwards of $500-$600 ADR in high season and down to a couple hundred dollars in most seasons. It’s pretty consistent. Revenue, on the other hand, is a bit all over the map in the sense that people may not be consistently renting in the same ways, although in high season they might be a full-time rental and in the low season end up taking if off the market and using it personally for some points in time.

Something else interesting is the percentage break out by market. What this often identifies for a lot of the real estate investing folks is where you need to pay attention and where there is really market opportunity. This market is geared toward Airbnb with 67 percent of the listings in the market coming from Airbnb and about 17 percent on HomeAway. In terms of distribution strategies for any new investments that you would be bringing online, there may be a chance to get more coverage and exposure by listing on both platforms. Trending rental growth has seen consistent growth over the last two years.  You also have features that are critically necessary, like air conditioning in a market, and what features maybe are in less demand that could be a good differentiator. For example, 65% of folks in the market have a pool.

They have done some pretty big UI updates, especially on these individual property cards.  So the baseline for the app is really thinking about who is playing in the space and how they are doing. They have these cards on the map that really show you the individual listings from the Airbnb and HomeAway. The one she was hovering over was a HomeAway listing, but you can see what ADR was for this last year as well as occupancy and revenue.  You can also see some additional ones, like one that was Airbnb only and are positioned a short walk to Disneyland. This gives people who really want to take the time and jot down a good way to see their local competition and overall positioning in the market for short term rental success. There are also easy ways to filter them out as well.  Another change they have made is your ability to easily hop.  You used to only be able to hop to change specific regions. But if you subscribe to multiple markets, you now actually can hop to several within a 500-mile radius so that it’s easier to navigate around to different areas in a major metro area.

She next went through two of the key differentiators that she sees in Market Minder for a real estate investor use case.  Overview gives you the high level in a market.  Rentalizer is really one of their most powerful tools for property level analysis.  Oftentimes, using filters gets you the most accurate analysis of a property. Looking at one particular property, she was given a visual indicator on the map of where her property is. The other one’s nearby, so she can get a sense of how much of a spread there is as wells as rental revenue. Then she gets a full analysis of annual revenue, ADR occupancy, revenue forecasts throughout the year. She gets a visual component of the local comp, so she can see what she thinks a potential investment property could earn as a short term rental.

She would go on as a real estate investor and type in the address of a property she was looking for.  This would spit out not only her competition but the likely potential revenue and occupancy rate. That’s really powerful. Even the occupancy forecast, as far as seasonality, is interesting. If you went to them without having registered for an account, you’d be able to see just the top line numbers here. But, as long as you register for a free, account you’ll actually get the full report here. With this, generally, this feature is strongest for what they would consider to be the majority of the market, that 25th percentile to 75th percentile in terms of performance and in terms of overall size. When you start to look at a market that has tons of six bedroom properties and you’re the only studio in the market or vice versa, that’s where you can see a bit more variability in the revenue numbers. They’ve consistently heard that they might be slightly low on the projections versus slightly high. You would need to know that from a baseline perspective.

Similarly, top properties really great in a market. When she looked at Denver, she could really see who was grossing the most in terms of revenue on each of the properties and where they’re listed and links to the individual listing pages as well. You can see how they position themselves slightly differently on HomeAway than they have done on Airbnb. You can really get the sense to where those are distributed.  In the city of Denver, they’re pretty broadly distributed.  In other markets, you’ll often see them cluster.  Back in Anaheim, they might actually be clustered around key attractions like Disneyland. That proximity to the park really does have a pretty high threshold, as well as larger properties.  For families coming into town to Disneyland and you’re close by, there’s really great revenue potential.

Aaron was looking at some of the numbers of what people are making in revenue a year.  Some are big at around $250 grand a year.  The difference with this is this tool does not take into account any of your operational costs for actually maintaining your property or running your short-term rental business. All of these numbers are the reason that they do a lot of that kind of analysis.  You can make different decisions for your property.  Some people like to keep their ADR really low and their cleaning fee really high. They actually make up the revenue on the back end, and then vice versa. There are different strategies for optimizing the pricing of your individual listings.

A new feature that is their sweet sweet sauce and the crux of their differentiators is their calendar.  Because they have so much historical data going back to 2015, they have a really good understanding of blocked versus booked reservations.  These help them get those revenue numbers. They are able to take not only supply-side analysis, but also demand-side analysis. This is a calendar that looks up to six months into the future and is showing you what the demand is for certain dates based on what’s actually happening in the market. This changes daily.  For example, on the 12th of November, they can set a 7 out of 10e for demand because 250 properties have already been booked.  They have been booked at a median of $259 a night.  The median for the remaining 687 rentals is currently about $213. If we were to start adjusting this and put in high-end property, you can see the numbers start to change.  On high-end weekends, they are already 69% booked.  Median booked is 269; available ones are 223 while a certain percentile is getting $343 in the market. This is a great opportunity to bump up your rates and drive additional revenue.

She can tweak it based on the size of the property.  It’s interesting that those are so much more strongly booked compared to something that’s in the middle.  Take into account a lot more families. If you get too scientific with your filters,  depending on the size of the market you may end up kind of throwing a message that says there isn’t a lot of data here.  If you constrain it to 4-6 plus bedroom properties, you can see even there the higher percentile of this is getting another $150-$200 over what the other rentals are being booked for in that region.

Everything in the research is historically looking. Pricing is forward-looking.  Seasonality is historic as well, but generally what folks like to see, especially investors, is just a good visual representation of how seasonal the market.  So, strong weekends throughout the spring. Clearly a great summertime, and then holiday time. Aaron could just imagine the mom and pop investors that are doing the pricing on their own. It is cool to be able to see.

They next went on to look at personalized property information. If you are actively managing rentals right now, one particular property she was looking at was subscribed to Denver.  This is similar to what they looked at before. If she were to select one of the properties after unboarding it and you know the property is a one bedroom studio that can accommodate less than 5 people, you can actually see how they serve up recommendations for you.  She already booked her property at $125 a night. Right now her property is listed on the site at $119 or $110. She said she really should raise the rates on her property to actually be at that fiftieth percentile in the overall market. As we’re looking into the future, she might be priced too high. Overall, the market and what the demand is based on what properties are being booked, they are actually being booked slightly lower. If she wants to ensure that she gets booked for those dates, she might want to drop the rates. This is the first step towards a more dynamic pricing solution. It’s really the deviation of your property from the market. They assign your percentile performance, and you have the ability to set that based on your previous performance or what you are trying to target within the market.

She went on to say the next iteration of this will actually be able to base your choices on your past property performance. They will take away some of the complexity of that so that you really just get a number that you could use on any of your listing sites to dynamically price your property.  This site involves finding your properties all the way to managing them. At the end of the day, this is what they like to consider as a lifecycle. You potentially are always on the hunt for your next property. You’re at some stage of optimizing your current properties and working with your property manager to do so.  They have an end to end tool that helps you at each stage of your journey. What that looks like is entirely up to you.

Aaron asked if the pricing is still the same and if it is a ninety-nine dollar prescription per market for the market analysis.  She said it actually varies.  It is based on overall listing count in a market. Many of the neighborhoods are as low $19.95 for five months.  Most major metro areas at the high threshold city level is $99.95. It depends on which markets you’re looking at.  The audience here might be most interested in U.S. properties at this point, but they are in 80,000 markets worldwide.  They’re starting to see some really interesting trends happen in Vietnam, and rural Africa. There’s some cool stuff going on in inland Croatia right now. There’s lots of really interesting opportunities for an international investment.

Since they do offers for Tennessee free here, they sometimes get some feedback from investors sometimes in Tennessee who are amazed by the product.  You’ve happened to get it like yes I am I am I guess. With this tool, you can run other rent to rent scenarios and drill down into high performing zip codes and look at percentiles to adjust your overall strategy. You can get a line item analysis of the current Airbnb listings and look at that revenue potential compared to mortgage costs to run a profit analysis. You also have occupancy rate, average daily rate, days listed, booked days.

This one is Airbnb only.  Long term, they hope to actually add some new features from this particular tool into the Market Minder product as well, but really serve two different use cases on either end of the market. For those who think the data is not granular enough, they file raw data. So they have pretty much everything down to a property performance level. They often see large scale property managers purchasing this data to both identify laggards in their portfolios as well emerging opportunities to bring on new clients. That’s a really interesting use case for more of the raw data.

Aaron asked if there is there anything else on the horizon for them.  She had mentioned the predictive pricing solution which is modeled on the actual market supply and demand as well as your personalized property performance. So that will make it a lot easier for you to be able to get granular recommendations for how to price your properties. You hear a lot in the news right now about you know Booking.com versus Airbnb versus VRBO. All of the revenue numbers that they spit out in many of our products are truly in short term rental revenue that’s channel agnostic, but they are still seeing requests for a supply-side analysis of Booking.com. So that’s also their nearer-term roadmap to be able to have a complete supply-side picture within the product.

They will be launching a new version of the website today, so even more changes.  We iterate pretty quickly.  Marriott is getting into vacation rentals, and there have been several brands.  Some have been successful, and some have been not so successful. What they’re really seeing is the number of professionally managed listings is increasing pretty dramatically. What that change is user and traveler expectations and what they’re getting. The shift for Airbnb has been more of an experience-driven platform.   With those big brands getting into that space, it’s really starting to be a kind of micro-level branded experience as well. So what are you doing with your properties to really set yourself apart and deliver the same kind of an experience that someone like Marriott could deliver?  How are you really differentiating with your insider community knowledge in those places that you invest?

Being able to see her tracking the data and being able to see down at the different features all in one spot as well as the calendar and their revenue that they’re making because they’ve made some maybe some changes that she hasn’t yet is so incredibly cool.  Aaron was really grateful for all of her help over the last year. He is tuning in probably twice a year, pulling data from different markets just to do some research on all this since it changes a lot. The amount of data she has available is super nerdy and cool.  The website is airdna.co, not com. If you would like more information, you can also give her a call at 720-372-2318-. This will get you to their customer success team who is available at about 20 hours a day or so to help you can find the right products.

Aaron was grateful to her for agreeing to come in just 24 hours before, and he hopes you all find this tool useful.   For anyone else out there who is looking for kind of continuing education, Leslie said they do post weekly to biweekly on their blog with actual information. Next month is the 2018 US analysis for emerging investment opportunities. So be sure to stay tuned for that.

The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

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