We apologize for the sound being muffled. For a clearer description, refer to the transcription below.
Aaron Norris is joined this week by Iris Veneracion. Iris began her full-time real estate investing career back in 2003 when she quit her six-figure corporate job in mortgage finance. She has now purchased, wholesaled, and rehabbed, or sold over 200 properties in Southern California. She is the director of InvestClub, formerly known as InvestClub for Women. Last fall, she helped the Norris Group create a very beefy chapter on short-term rentals, which Aaron had been wanting to cover for a long time. She is now also a proud mom of two twin boys.
- What made Iris first decide to get into real estate and mortgage?
- What are her overall thoughts and philosophies on the vacation rental market currently?
- Where does she see it going in the future, including new trends?
- What are some of the biggest mistakes and misconceptions investors working in this space can have?
- What are her rules regarding what tenants she lets stay in her rental?
- What are the main things Iris says a place needs to have to be a good place to stay?
- What is the worst thing she has experienced as a tenant?
Aaron asked Iris why she first got started in real estate and mortgage. She said her background was in mortgage finance. When she left that industry, it was at a time when they were doing crazy refis. Anyone with a heartbeat could get a loan. She was working 16-hour days, and during this time a lightbulb clicked and she asked herself what the other part of the real estate equation was that she was not doing. During this time, one of her colleagues was talking about flips, and Iris wondered about this. She decided to try it out on a house and made a ton of money on it. She became hooked after this.
Shortly after this, she quit her job and decided to work at this full-time. When working in California, she asked herself what she would do with all the cash once she flipped it. She started buying rentals out of state since California was so sensitive at that time. Today, she is happily flipping here in Southern California and can do what she wants without having to hop on a plane.
Aaron said things have definitely changed a lot over the last ten years as well. Aaron met Patrick Diamond back in April when he began working on the chapter for vacation rentals. Airbnb has not been around very long, while vacation rentals have been around a very long time. It has become very commercially viable. Their system is brilliant if you think about it. Connecting to things like social media to verify that people are who they say they are and with the owner of the real estate being able to review the person renting the property, the trust factor is really brilliant in the social media aspect of what they have brought to the table.
It has changed and is professionalized, and Aaron is fascinated with how many tools are available. He got Air DNA involved in helping provide the metrics. Even in California, there are so many markets, rules, and regulations to where every city is handling this differently. Aaron’s biggest concern is as we move forward with the accessory dwelling unit conversation, vacation rentals will be more heavily regulated because the cities are upset with the state for overregulating it.
Aaron asked Iris what her overall feeling on the market is right now when it comes to vacation rentals. Iris said the whole vacation short-term rental thing is part of the economy we are in, and this is why she gets so excited about it, especially with things like InstaCart and all these services that are available out there. Airbnb and all the other platforms completely turn this industry upside down. The reason she loves Airbnb is because it is a great alternative when you are going on vacation or out of town for longer than a couple days. Who does not want to be in a house? Here, you can cook and relax and not have to be in a hotel going out to eat all the time. It was one of those platforms that was very natural for her.
Iris said as an entrepreneur, it felt like a natural progression to incorporate this into what she already knew. Utilizing Airbnb for the short-term rental platform, you could get twice to three times the rent. It is a great way to increase your cashflow. When asked where she saw it going and if people should do it, Iris believes you should still make sure you can cash-flow the properties without having to 100% rely on the Airbnb income since it can change at any given moment. Iris had a condo that just got converted back to a more long-term rental since the HOA had come to them and told them they could not Airbnb it. This was after doing it for two years, so they had a successful run on it.
She said they actually transitioned very easily. She was able to flip other properties through things like Furnished Finder, which works directly with furnished places. She found they could still charge almost the same amount of rent they were getting with the Airbnb. Furnished Finder works primarily with nurses and doctors, and a lot of the local hospitals will hire them for a minimum of 2-3 months. In Iris’s situation where she already had a fully-furnished rental and was no longer allowed to do short-term rentals, she had signed a contract with future nurses coming in who could afford the higher rates.
Aaron is surprised when people call telling him they are stuck already. He wonders who they priced it out in the first place. Turned out they only priced it out based on the income they would get from a fully-rented, all-year round vacation rental. He will ask them if they looked at seasonality and at the local rules. The same goes with accessory dwelling units. We are all seeing what a pain it is when you do not have regulation at the state level and have to consider every municipality. This not only means what they have on the books, but also what is coming.
If you are in Orange County and have a Palm Springs ADU and not paying attention, the rules could completely change. If you are not receiving updates or reading the local paper, you could get in trouble and not even know. In Anaheim, by 2021 you have to convert your property to a long-term rental or sell it. If people have a delay, they would definitely need to check with the city. Even with great resources like Air DNA, Aaron wanted to put notes in their book on the latest regulation since they did not have the most up-to-date information. However, how could you follow almost every municipality across the United States?
Co-living is another thing that is good for rent control. It is an interesting play against the rent control side to where you will hopefully not run into as many problems when you get into that longer term rental situation. The Norris Group just had a radio show with Shayna Golbaf on vacation rentals, and Iris and Patrick both had different philosophies when it came to vacation rentals. Iris had an interesting philosophy that the beach was the benefit and experience. Patrick is all about it being the local art and culture. Aaron asked Iris if she has a specific philosophy across all vacation rentals or if she tailors it to the market. She said for her it was strictly business. She ran it like a business and tried to streamline as much of the responsibilities as she could. She still handled it herself.
Patrick was all about experience, but she did not have time for that. Most of her vacation rentals were close enough to the beach that she could see this as one of the future benefits in having easy access to the beach. She would make the people feel welcome through offering them water or a little snack. This was the extent to how hospitable she was. Typically what people look for is the location and what is around you. In addition, it is very important that there is internet and that the place is clean. If you have these things, you have all you need. Although people will go for the experience, Iris has found most people just need a place to stay. As long as it is clean and in the right area, that is all you need. Cleanliness, internet, and snacks is basically his takeaway.
Aaron wonders if a lot of people in this space do not think about it. Airbnb has diversified into the experienced category, so it is no longer just about the real estate. Let those people take care of it. Tiffany Humsfeld in Long Beach does it uniquely by creating these cute experiences, such as a mermaid experience. Sometimes you want somebody to introduce you around town, or you may provide a dinner experience. This is like another platform that is part of the new economy. Aaron does not think it will go away and is an interesting strategy. As the accessory dwelling unit conversation continues to unfold; you have to understand a lot of cities are making it to where if you have a rental or ADU, one has to be a primary residence. On top of that, you cannot do short-term rentals. Not only do you have to watch what is available now, you have to call the planning department to see if your local council members or country supervisors are regulating the space further.
Aaron next asked Iris what some of the biggest mistakes or misconceptions are that she hears from real estate investors who think it is great to be in this space? Iris said one of the greatest fears investors have that would keep them from getting into the space is they think tenants will mess up the place. This is a fair fear to have, and this is why she loves using the Airbnb platform. They have great liability insurance in place to protect the homeowner. Because it is so driven by that social interaction, you can see the hosts who are reviewed. If you give people a bad review, it will be hard for them to rent again.
Iris has certain rules in her mind as far as what tenants she takes on. This includes where they are coming from before booking them. She doesn’t want someone from Santa Ana booking a place in Torrance because it might look suspicious. She will ask them straight up why they would need a place to stay if they are local. Most of the times people are honest. One person tried to rent her place that was in Orange, and this person came from Santa Ana. He literally said it was because he didn’t like his mom’s rules. She declined him right away. She also does not want people filming in the place. There are just certain rules you have to be comfortable with as a host. It has not been 100% perfect, but nothing was unmanageable. The hardest thing she ever had to go through was when some kids stayed in her place who damaged the mattress. They had someone else coming in that same day, and she had to buy a brand new mattress.
One of the things Aaron did not think about until he started working on the chapter for the portal was how you will typically have a cleaning person come in every other week at minimum. Aaron asked if she has seen her place being kept up more than if it were a long-term rental. Iris said absolutely and that the place gets cleaned all the time. If something is wrong, she will know right away and things can be easily fixed and maintained. With a long-term rental, you can offer to clean the place, but they may not hire someone to do it. This is why Iris prefers short-term rentals because of the maintenance and it is in better condition. It would make sense for it to be cleaned better than when your long-term rental people are in there.
Aaron asked what some of the trends are she sees coming up in this space in the next few years. She simply said there should be less defiance against it and more people using it. She really feels this space is going to stay. There will be opportunities for people in their own homes if they are okay with renting a room. There could be opportunities for senior citizens to make extra income if they have an empty nest. There is much potential in this arena. Aaron said with smart home technology, in the next couple years he expects to see more technology geared toward this. We are already seeing smart locks and decibel monitors that notifies you when people are getting too loud. Iris said there was a case where a friend was working for a company that made sure tenants had these types of decibel monitors. She said she got called out for one that was in Anaheim because the decibel monitor was going off during the day. She went over there and could not find anything wrong. Turned out it was the children living in the house who were running around the living room being children.
Another thing Iris wants to see happen is an exterior camera on your door so you see how many people are coming into your unit. The only thing Aaron wants to be cautious about with smart home tech is he is avoiding inside cameras. You want to make sure you disclose, especially have California contracts, and a lot of the technology platforms are more on top of things. There is a relief knowing the professional platforms are thinking about this and probably seeing more lawsuits than Iris
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