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Episode #18: Short-Term Rentals with Matt Bray and Matt Argersinger

Matt Bray, Director of Millionacres and Matt Argersigner, Lead Investment Analyst for Millionacres Premium Services are both successful Airbnb hosts and long time real estate investors. While neither of them originally set out to become short term rental landlords, through hard work and planning they have excelled in this challenging investment strategy. 

In this episode, Millionacres Editor, Deidre Woollard, interviews the Millionacres Matts about their experience as short term rental hosts. They discuss the host experience on the Airbnb platform as well as the unique challenges that 2020 has presented. 

Transcript

Matt Bray: Yeah. The interesting thing we saw, we lowered our prices during that timeframe to try to get as many bookings as possible. Then May turned around and just everything just snapped back to normal. Some of the bookings were a little longer. We didn't have a lot of bookings. As I said, we have a lot of meds-and-eds bookings and that still existed. We've had a really random booking type that we had multiple times during the summer which was a quarantine booking, meaning they were going from one place to another and they were using our apartment as a place to basically quarantine for 10 days prior to going to the next location.

Matt Argersinger: Fascinating.

Matt Bray: Yeah. I had more than a handful of those. Sometimes, it was transit where they were going in to like someplace else in Philly or in Pennsylvania. Other times, literally it was like they were coming here for 10 days prior to going to their family's house to stay for an extended period of time and they just wanted a place to quarantine. I can see why people would be seeking out Airbnbs for that more so than a hotel simply because there's less people around.

Matt Argersinger: Yeah, and most hotels in many places, probably Philly, certainly in DC, they were really restricted in terms of what they can actually do for occupancy.

Matt Bray: Yeah, absolutely.

Matt Argersinger: That brings up another point just about the help for hosts that we've been talking about. One of the real estate stories of 2020 is that there was a lot of stimulus and help for renters, whether it's rental subsidies or eviction, disallowances, and things like that. But if you're a Airbnb host or landlord, 2020 was really tough, especially if you're a small-time landlord like Matt and I are. As soon as you start going out without that rental revenue, your mortgage payments are still there, your utility costs are still there, and those costs don't really go away, and no one's out there handing out money to landlords. At least that's not usually a politically popular thing. So that to me is one of the stories which 2020 was. There was a lot of outpouring of support, as there should have been, for renters, workers, etc., like that, but small landlords, even midsized landlords with apartment buildings, it was tough time if you had a lot of renters who suddenly stop paying rent or are unable to pay rent. [MUSIC] There's a lot of negative vibes thrown at that base but not a lot of support, which there probably should have been more. [MUSIC]

Deidre Woollard: You are listening to The Millionacres Podcast. Our mission at Millionacres is to educate and empower investors to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out to seasoned pros with decades of experience. At Millionacres, we work every day to help you demystify real estate investing and build real wealth. [MUSIC] Today, I'm talking with Matt Argersinger and Matt Bray. They are two members of our Millionacres team who, besides having the first names in common, we have a lot of Matts on our team, lucky that we are, they also share another trait; that they are very successful Airbnb hosts. We're going to do a deep dive into Airbnb. I know the IPO is coming up this week, and so it's a great time to talk about short term rentals in general and Airbnb in particular. Matt Argersinger is our lead investment analyst on our Millionacres premium services, including Real Estate Winners and Mogul, and Matt Bray is our director of millionacres.com. Welcome, guys. Thank you for doing this with me.

Matt Argersinger: Yeah, thanks, Deidre. Great to be here.

Matt Bray: Thank you.

Deidre Woollard: Awesome. Let's start with the definition of short-term rentals. I generally think of this as rentals that are shorter than 30 days, but wondering what average tendencies you both are seeing.

Matt Argersinger: I'll go first, Matt. That's an interesting question. I think my thinking has evolved. I agree, Deidre. I think for a long time, less than 30 days felt like a short-term rental to me. But it's funny. Our Airbnb, the ones that I manage with my wife, they're located in Washington, DC, and there, it really goes by the taxes. If the stay is 90 days or less, you're taxed at the hotel tax rate in DC. In my brain, I've always thought of 91 days is now a long-term rental, or even shorter than that is a short-term rental, so it's how I thought about it because it actually makes a huge difference. In DC, the hotel tax is 14 and a half percent. If you're an Airbnb guest and you're looking to book one of my rentals, you're not only paying the Airbnb fee on top of my rental rate but you're also adding a 14 and a half percent tax on it. I don't know, Matt, is that the case in Philly?

Matt Bray: I'm not sure if it's 90 days but it is similar to that. We have the luxury that we're literally about a mile outside of the border, so we actually are not regulated by Philly laws even though we're extremely close to the city when it comes to those things. But I do think it's very similar in the Philly area in regard to taxes like that. I know that I think it's like a one percent fee that's tacked on in Philly as well. I could be wrong though, it's something like that. We're in a meds-and-eds area so we have a lot of families that come in to visit kids at schools. We have a lot of medical facilities, so we get a lot of guests that are staying for 30 days, 60 days, for rotations or traveling, doctors, nurses, etc. So we tend to see a lot of stays from two weeks to eight weeks as a whole. I think a lot of it has to do with your location.

Matt Argersinger: That's interesting. I agree. One of our rentals in DC is right near Union Station, which is the big train station in the city. Early on, I'd say that, Deidre, the vast majority of our stays were like 2-3 days; people coming in for the weekend a few days to go walk around and see the sights, maybe they're on their way to New York City, they're an East Coast tour and they'll stop in DC for a few days. I think my thinking has evolved, but whether it's 30 days, 90 days, or three days, when we think of Airbnb and as hosts of Airbnb, it feels relatively all short term to me at least.

Deidre Woollard: Great. Well, I wanted to get each of you to tell your story about how you became a host. Matt Argersinger, let's start with you. How did you become an Airbnb host?

Matt Argersinger: Sure. Well, I feel like my wife and I, she was my fiancee at the time, we fell into it. We bought our first property in DC, and when we were looking for our first house to buy, we had been renting for a few years and we're about to get married and we wanted to buy a house, and we liked the Capitol Hill neighborhood of DC. It happens that in the historic part of Capitol Hill in DC, almost every townhouse, row house comes with an English basement apartment, a separate apartment. A lot of places will call it inlaw suites, however, you want to phrase it, with a separate entrance. The idea was, buy the house and rent out this English basement apartment, help with the mortgage. Great. So we bought the house, we settled in, we were fixing up the basement, just trying to get ready for rent. My wife happened to read this article in The New York Times about this new company called Airbnb. I actually think it said, "air bed and breakfast" in the article if I remember, and this is 11 years ago. She said, "Well, this is interesting. There's this new company and they're doing short-term stays. Maybe we should try that instead of going to a full-time rental". I was skeptical and nervous actually, but we did it, we went to the site. I forget that the Airbnb site at the time was so different than it is today. When we checked, it was funny, we were only one of three rentals at the time, Airbnb rentals listings in Capital Hill in this huge part of DC at the time, and so we had very little competition early on. So we listed in Airbnb, and the demand was just extraordinary. We couldn't keep it not rented. Then people would email us and say, "Oh, your place is booked. I'll pay you more." It was a feeding frenzy for a while, so we had this crazy success early on with Airbnb and that evolved our thinking. As we went to purchase more rental properties in DC in the future, in the coming years, we always went in with the mindset, "Well, we can always Airbnb these", and it's a really great, lucrative way to rent properties.

Deidre Woollard: Great. Thank you. Matt Bray, I know you've also been a host for a long time. I believe you're also an Airbnb Superhost. What was that process like for you?

Matt Bray: Yeah. I think similar to Matt A., it was a lark. We were not looking to get into really the rental market at all. We were moving back from South Florida back up to the East Coast and we were looking for someplace that had a mother-in-law suite. We happened to come across this really beautiful 1890s Colonial Revival building that had been converted to a multi-unit in the '50s. They had been on the market for ages, about 300-something days, and it just wasn't moving. But we immediately saw the opportunity to effectively move back up to the area, live rent/mortgage free while we learn the area where we wanted to be, etc., and then continue to have it as an investment property even if we moved on beyond that. We did actually moved in a little bit for about two years, and we ended up moving right down the street because a house went into foreclosure that we saw as a great midterm fix-and-flip. Technically, we're right down the street now living in a midterm fix-and-flip while we're still running the Airbnb right down the street. It all works out in that way.

Matt Argersinger: It's mad.

Matt Bray: Exactly, the opportunity and get it. In terms of Superhost, it really is a key difference between what long-term rentals are versus short-term rentals because the passiveness of short-term rentals just isn't there. It's a job. You're running a hotel. That's what Superhost really rewards. It takes a bit of time to get it. You have to have, I think it's something like 100 nights booked during a 12-month timeframe along with very high communication scores.

Matt Argersinger: Great reviews.

Matt Bray: Great reviews, etc. So it takes a while to build up to it, and you're rewarded for that in terms of better positioning, etc. But it's the goal for everyone, but it really is the thing that you have to work to take advantage and get the most opportunity you cannot actually out of the platform.

Deidre Woollard: What benefits do you get from being a super host?

Matt Bray: I think the biggest is just the greater visibility on the Airbnb platform itself. They tend to give Superhosts better positioning on search pages. There's a search engine optimization aspect to it. As well, you get a nice sense of authority, of trust that Airbnb has put on you, so they promote it with a large Superhost label right next to your name, etc. So it helps you sell the property because it is as much a sales game as it is anything else when you're talking about Airbnb.

Deidre Woollard: Yeah, that is a very good point. You mentioned that you have to run a hotel. Obviously, that's a lot of work. Is that the worst thing about being an Airbnb host? Is it having to deal with people coming in and out? Is it the complaints? What's the worst part of it for you?

Matt Bray: We just talked about that, yeah, it's work. For me, it's a family-run business, my wife and I, along with her mother. My mother-in-law actually still lives in the Airbnb. She lives mortgage and rent-free based off of what we do there, so it's a great family business. But you have to be prepared to work as you would a hotel; considering how you're staffing for cleanings, making sure that you have enough people who can handle handyman-type work on a day-to-day basis, because guests are not going to wait a couple of days to get something fixed. They want the experience. They want it right now. You have to be thinking about all of those things at the same time. Not being at the ready with those and being ill-prepared makes it very difficult to be a very good Airbnb host.

Deidre Woollard: Yeah, that definitely makes sense. How about you, Matt Argersinger. Any horror stories?

Matt Argersinger: [laughs] Oh, gosh. I've been doing it for a long time and we've had some stories. There was one guest who stayed several years ago that ended up having a big party. I'm sure that's probably happened to Matt maybe a couple of times. But where we live in DC, it's easy for people to come in in the city. We've had experiences where we'll put like a four-guest max limit right on the property and then we find out that 12 people stay there. [laughs] You deal with that from time to time. But really, I have to be honest, when we first started out thinking about doing Airbnb, I was nervous like heck. I just thought, well, somebody comes in, he's going to steal your stuff, or they're going to wreck the place. Really, over roughly 10 years now that we've been doing it, I can recall maybe two, three instances where maybe there was guest misbehavior and then it cost some money and cost much of your time. But for the most part, knock on wood here, but the experience that my wife and I have had on Airbnb has been fairly positive. I'd say 99 percent of the time, we've not had issues. Of course, you can be selective with your guests. Later on, as we started getting so much demand, we would parse that guest who didn't have any reviews, and Airbnb let's you do that by the way. If someone just joined the Airbnb, they don't have a review, they don't really provide any information about themselves, usually we're going to decline that. Usually, we want someone to at least explain why they're coming into DC, or explain why they want to stay at our place and maybe they have a review or two. That's always really helpful. So you get to do a little bit of filtering on the guest side. But for the most part, the experience has been pretty positive over the time we've been doing it.

Matt Bray: I'll echo that too, because I think that Uber-like star rating that both we as hosts and guests receive as well key people on very good behavior. We had very little theft, very few issues as a whole, and most of our guests have been extremely friendly. I have a lot of really interesting stories to tell, frankly. If you happen to be around while they were around too and you get a chance to talk, it's a really interesting way to meet new people.

Deidre Woollard: I think that's an interesting aspect too and it's something that Airbnb touched on a little bit actually in their S-1. They did talk also about the party houses, and I know that Airbnb has made some moves recently. They've stopped one-night-only rentals in certain areas and try to really curb those kinds of parties. But I think the other aspect of it is that there's a lot of enjoyment for both the host and the guest when it's done right.

Matt Argersinger: Yeah, absolutely. I love what Matt said and what you just said, Deidre, because you get to interact with a lot of interesting guests. We had a film crew come in and rent one of our Airbnbs for a few days to do a film shoot in the house and around the house in the neighborhood, which was just neat to see that happen. You almost think of it as, I've got a space and I want other people to experience that space if they're visiting or if they're doing other things or in town for work. I recall one where a guest came in and asked, "Hey, it's just me renting the place, but I'd love to have a group of friends over that live in DC over for a dinner party. Is that okay and can you recommend any catering or anything like that?" My wife ended up being the caterer for them and stuff and doing their home party, their whole gathering for two days. That was just a neat experience and so you get to do a lot of those things that you normally wouldn't get if you just have a standard lease with a renter that's renting your place for six months, 12 months, or a couple of years. There are challenges to Airbnb and we'll probably talk more about those as well, but the interesting part of it is it's much more interesting than your typical rental, obviously.

Matt Bray: Airbnb is really leaning into that as well given the fact that they're really double-downing in terms of experiences on the site and looking at that as actually a secondary income stream, whether it be for a host, or people that the hosts work with in a certain area, to offer unique experiences to guests coming in. They're really walking the talk of it. I haven't personally taken advantage of the experiences aspect. I'm not sure, Matt A., if you have it all.

Matt Argersinger: Yeah, my wife has. In fact, my wife was visiting Paris two years ago, and like three or four days in a row, she did nothing but Airbnb experiences. She went to a cheese tasting, a wine tasting, and then a tour, and it was all through Airbnb. The great thing is, it's really very local. You get experience where you talk to people who live in the neighborhoods and who show you around and take you to do things, so that's wonderful experience. I haven't really personally done the experience stuff yet, but I know that's certainly an emerging part of their business.

Deidre Woollard: That's really fascinating too because, you mentioned it being a growing part of their business when you looked at the Airbnb S-1, their total addressable market for rentals almost seemed not quite as large as their total addressable market for experiences. So they're really seeing that there's so much more runway for what they can accomplish in terms of experiences. When you're looking at it from an investment standpoint, do you agree with that, that the experiences are going to be a larger part of Airbnb going forward?

Matt Argersinger: Sure. Whether you believe the TAM, the total addressable market numbers they're throwing out there, what Airbnb certainly has is a very strong network of local experts, if you will, millions probably at this point, but certainly tens of thousands of experts that live around the world who know these places, who understand the stories that they can tell a guest and the experiences they can give to guests. That's just not something hotels necessarily are going to be great at. Hotels can sell you a great experience. They can take you surfing and provide a tour of things like that. But if you really want the local flavor, if I want to know what the best restaurant is in this one small street, because the host I'm staying with has lived in the neighborhood for 20 years, you just can't get that through the typical hotel experience. Airbnb really has that and I'm glad to see that they're investing in it because I do think it adds another value layer to their business.

Deidre Woollard: Let's talk about the website in general and the Airbnb experience from the host's perspective. Both of you have been on Airbnb for a long time so you've seen how it's changed for the good, and potentially, for the bad, so [laughs] let's talk about that. What do you love and what would you really like to change?

Matt Argersinger: Why don't you go first there, Matt? Since you have a thought or two.

Matt Bray: [laughs] Yeah. It's actually some of the things that they've just released, because communication is such a big piece of what they do. I've been using actually another program, I think it's called Smartbnb. It's an application. It's like $18 a month or something like that. You can automate communication, but even more importantly, you can pre-craft communication that's typically things that will often come up, whether that be Wi-Fi signal going bad, or whether I'm looking for a great X, or I'm looking for a great Y. It certainly just helps you from the standpoint of keeping things in its scope and being able to scale the business. As you get more and more Airbnbs, and both Matt A. and I have multiple Airbnbs, just the guest communication can really become a job in its own right. Having ways to scale that communication and select answers in an easier way is crucial. They've just started releasing some of that stuff actually on the Airbnb website recently. I haven't completely dug into it yet but it's definitely in my to-do list to do simply because, time, we don't get that back. So the more places we can save time in regard to what is a critical part of this business, the better off we are. So I'm glad to see that they're taking those initiatives, adding a cottage market off on the side for other software as a service platforms to fill that role, but it's good to see Airbnb is trying to find ways to really streamline that communication.

Matt Argersinger: Yeah, I would add, the experience for the host on Airbnb has not always been, let me just say, friendly. Like Matt, my wife and I have been Superhosts on and off for certain periods of time, but I felt like Airbnb, and I'm not going to be very specific here because of course on top of my head, I can't think of any specific examples, but I think from the guest's point, they've done a lot of innovation to make the guest's experience better, more secure, safer. From the host's side, I feel like the one thing about Airbnb is, the onus is on you in almost every case too if something goes wrong, if something happens. We've had some instances where the transaction part of the relationship has not worked out, especially if you do multi-month Airbnb. Airbnb's got this thing with long-term rentals, and we do some long-term rentals on Airbnb where rent is collected on monthly basis, which makes sense. But what happens is sometimes, for some reason, this happens a lot where the guest pays up for the first month, but then when it comes the time to pay rent for the second month, there's just always been problems sometimes with collecting that next month's rent, and it just takes a lot of back and forth with Airbnb to resolve those issues. I always feel like even if you've been a host for many years, the trust is really in the guest. It's to get the guest's experience right. Host, you got to figure things out. You've got to navigate some landmines and the customer support's not always that great. That's been a little bit my issue. Now, the problem is the network on Airbnb is so great in terms of renters and visibility and brand that even though I think, honestly if you ask me, I think Zillow's experience for the landlord is better or superior. You don't have near the network that Airbnb has, even for long-term rentals. We advertise our rentals on Airbnb, Zillow, Trulia, a few other places, even Apartments.com in the past, and the reception or demand that we get from Airbnb is three or four X what we get on places like Zillow and elsewhere. They definitely have the eyeballs and the traffic. I just think if I was Airbnb, if I'd step in the CEO of Airbnb's shoes, I would say, you've got this network of great hosts as well with great properties. This huge network that you're building out. By definition, you're the biggest hotel company in the world if you just go by the network of rooms that you have on your network and all over the world. Do whatever you can to really make sure that hosts are sticking with you for the long term. I love what they do for Matt and other Superhosts. Do more of that. Because the more you can make the experience sticky and friendly for hosts, which I think ultimately are the assets of the business that you're trying to support, the better. I would just say, maybe I'm grizzled and all, but I feel like the experience is skewed a little bit. Really, guests are the most valued part of the business. That's the network that Airbnb tends to focus on, versus the hosts, they're kind of, "Great. You want to be a host? Great. Well, hey, if you run into trouble, good luck." [laughs] But here's a number you can call. [laughs]

Matt Bray: Yeah. I'd agree with that, though I think the point I wanted to echo in here, which I think is really interesting, we had also been on HomeAway and Zillow, etc., with these apartments at different times. We actually just recently, I think about maybe three months ago, pulled away from all of those to focus solely on Airbnb. Simply, as you said, just the network is so big, we had zero problems basically keeping up our room rate, reservation rate just solely with them, without the headaches of having to deal with multiple platforms and all of the issues that come with basically the syncing between the two so you're not double-booking, and all those other things that occur when you're trying to have three or four or five different locations that you're booking apartments from. Just going simply to Airbnb, we've seen zero, in fact, it might have only gone up. I mean, I'm sure we'll talk about this a little bit, but we've had a banner summer in regard to just the amount of guests we've had.

Matt Argersinger: That's amazing given COVID and everything.

Matt Bray: Yeah.

Matt Argersinger: That's great.

Deidre Woollard: Yeah, let's talk a little bit about that. I wanted to find out how you guys saw your bookings change after COVID. Also, how do you think Airbnb has been handling it? They've gotten some criticism in the press for not helping hosts as much as they should. They had a fund but a lot of people said they didn't get money from it, and so there was a lot of discussion about that this year.

Matt Argersinger: Yeah, I'll start out and just say that we definitely saw a bit of a downturn in DC, because normally, for example in DC, summer internships are huge. I think for five or six years in a row, for these two apartments that we Airbnb, we've always had summer internships. What happened this year though is back in, I would say, March or April, we had bookings for summer internships, but then a couple of weeks out before those internships were supposed to start, they were of course canceled with COVID and we were out that booking, which is totally understandable. With long-term rentals, when someone decides to cancel on you, you do usually get some prorated share of that first month's rent. Well, understandable because of COVID and the situation there that Airbnb wasn't giving those out. So it was really tough actually for a couple of our rentals just because of this situation. We weren't able to get them really consistently booked through the summer. Luckily, for a couple of our other units, we have long-term renters in place and those went pretty smoothly. We had one renter who ran into trouble and then we gave him a month's free rent, but we were able to lease the place shortly after that. But, yeah, it was noticeable in DC, and I think that's because maybe unlike Matt's situation in Philly, DC is more transient. So people are used to coming in for business trips or internships or things like that or short-term stays for government purposes. That just didn't happen with COVID. That was just all shut down.

Matt Bray: Yeah, we had a very similar experience to start. March and April were just chaos. Nobody knew what was really going on and Airbnb didn't have answers for hosts. As you talked about, everything was very much an answer to the guests themselves, not to the hosts themselves, how were the hosts going to continue to make a living, especially for hosts where this is their sole source of income. There was really no good answer other than, hey, all these people are going to not show up and we're going to give them all their money back. After some time there, they did release that fund. I think they were for bookings that canceled that were within certain timeframes. They paid 50 percent of that booking, which was certainly very generous on their part. Though they did have a lot of push-back from all the hosts who did have a rightful point of like, how are you supporting us during this timeframe. Otherwise, there will not be hosts on the other side as well. So that did exist.

Matt Argersinger: Yeah.

Matt Bray: Go ahead.

Matt Argersinger: No, go ahead, Matt. Finish your thoughts. Sorry.

Matt Bray: Yeah, the interesting thing we saw, we lowered our prices during that timeframe to try to get as many bookings as possible, then May turned around and everything just snapped back to normal. Some of the bookings were a little longer. We did have a lot of bookings. As I said, we have a lot of meds-and-eds bookings, that still existed. We've had a really random booking type that we had multiple times during the summer which was kind of a quarantine booking, meaning they were going from one place to another and they were using our apartment as a place to basically quarantine for 10 days prior to going to the next location.

Matt Argersinger: Fascinating.

Matt Bray: Yeah, it really is. [laughs] We had more than a handful of those. Sometimes, it was transit whether they were going into someplace else in Philly or in Pennsylvania. Other times, literally it was like they were coming here for 10 days prior to going to their family's house to stay for an extended period of time and they just wanted a place to quarantine. I can see why people would be seeking out Airbnbs for that more so than a hotel simply because there's less people around.

Matt Argersinger: Yeah, and most hotels in many places, probably Philly, certainly in DC, they were really restricted in terms of what they can actually do for occupancy.

Matt Bray: Yeah, absolutely.

Matt Argersinger: Matt brings up another point just about the help for hosts that we've been talking about. One of the real estate stories of 2020 is that there was a lot of stimulus and help for renters, whether it's rental subsidies or eviction, disallowances, and things like that. But if you're a Airbnb host or landlord, 2020 was really tough, especially if you're a small-time landlord like Matt and I are. As soon as you start going out without that rental revenue, your mortgage payments are still there, your utility costs are still there, and those costs don't really go away, and no one's out there handing out money to landlords. [laughs] At least, that's not usually a politically popular thing. So that to me is one of the stories which 2020 was. There was a lot of outpouring of support, as there should have been, for renters, workers, etc., like that, but small landlords, even midsized landlords with apartment buildings, it was a tough time if you had a lot of renters who suddenly stop paying rent or are unable to pay rent. There was a lot of negative vibes thrown at that base but not a lot of support, which there probably should have been more of.

Deidre Woollard: Yeah, I totally agree. That's one of the things we've talked about on a previous podcast too, that there hasn't been support for landlords at all. We've seen eviction moratoriums and things like that, but that hasn't really existed. There hasn't been support on the other end of it. One of the things that we've been talking about is that, is that going to make that there will be less mom-and-pop landlords. When you think about Airbnb, will there be fewer hosts? A lot of people ran into problems this summer then start to think about maybe it's time to sell the property and get out of Airbnb. One of the things I want to ask you guys is, are you an Airbnb host for life? Are you seeing yourself as doing this in five years, or is this something that you did for a while and maybe you're going to do something else, maybe transition toward long-term rentals?

Matt Argersinger: What do you think, Matt?

Matt Bray: I can start. It's interesting because this is actually something my wife and I were just talking about the other day. We're in the process of moving about 20 minutes away from our current rental, and we both agreed that there was a point somewhere on the scale where the time value doesn't outweigh the financial value, and that's where you've got to find it for yourself. I think it does exist for us. It could be a couple of years from now, it could be 10 years from now, it could be next month, but I doubt it. You are making much more revenue typically on short-term rentals, but all of a sudden, if our network of support dries out, meaning we don't have quality help for cleanings, we don't have our [inaudible 00:33:44] handyman that we use that tend to be able to get to things on a timely basis, it's just the drive back and forth that we have to deal with, to get back and forth to the property, because you do need to stop by a lot more often simply because things tend to happen. With an Airbnb apartment, that becomes a grind. So I do think there's a point, and that we've talked about, it might make sense at some point just to convert them back into long-term rentals, but for right now, the revenue tends to trump that.

Matt Argersinger: Yeah, I couldn't have said it better, Matt. It's time versus money, or however you want to say it, the value put on your time versus the value you put in just dollars in your bank account. My wife and I recently, the timing was amazing, last December, we moved out of DC after living in DC for almost 15 years. [laughs] We bought a place that's about an hour outside of DC. We tend to do all our own property management and maintenance including cleaning. We do hire cleaners for, I'd say, half the time. We do a lot of cleaning ourselves and my wife is really handy. She does a lot of plumbing and electrical work, which is [inaudible 00:34:56] [laughs]

Matt Bray: Good for you.

Matt Argersinger: Yes. We're living out of the city, and now, we have a son that's almost two years old. I think we're in that transition process. We've been gradually over the past few years going towards longer term rentals just because it's easier not to have to come to the city every week or two. We'd rather come to the city on maybe a monthly basis or every two months. That was especially the case this year with COVID. We're trying to stay out of the city as much as we could. I think it might be an age thing as well, but I think as you get older, maybe other things become more important and money becomes less important. That said, I think if you're in your 20s or 30s and you're getting into the real estate game, Airbnb is a fantastic hack. It's what my wife and I did. It's what Matt did when he moved to Philly, which is just you've recognized an opportunity to generate cash flow. If you can do that to offset costs elsewhere in your life and to make your property more profitable, I think it's a great opportunity. But your life circumstances change. If you do put a lot more value on time and so you don't want to spend your time communicating with guests, going back and forth, fixing problems, communicating with your cleaning company, all of the things that Matt's been talking about, it may not be the thing you want to get into for sure. I think my wife and I are certainly transitioning to long-term rentals gradually, but we also might get to the point a few years where we look to sell the properties as well.

Deidre Woollard: You mentioned young people. I've also seen the other side of that equation where I've seen older people do it as a retirement gig to bring in a little income, so that also works. The other thing is, I want to ask you both, would you ever consider having a vacation home or something like that in another market that you'd operate as an Airbnb sometimes and then also use for yourselves?

Matt Argersinger: Matt, I can see him on Zoom. It's almost like there's clouds coming over his head, "yes, I've thought about this every day."

Matt Bray: Well, we kept a long-term rental in Florida though. We were living in before when we moved back up here. We kept it as a long-term rental for four years, and it was a painful four years. Handling any rentals out of market, it can be extremely difficult and very pricey because you have no built-in relationships with contractors, etc. You haven't built that around yourself. You're not there basically to double-check on things. You need some sort of property manager to handle things. You're going to have to hire someone from an unofficial Airbnb standpoint to handle guest check-ins, if there's issues, etc. You start chipping away basically at the cost pretty quickly given the fact that there's got to be something or somebody there close by to help handle situations. Running an Airbnb at that point, the revenue starts to dip, in my opinion, drastically. To me, if you're going to do it, it's almost better as a long-term rental. I get it from a vacation rental standpoint, that makes a little bit more sense because it's as much basically just to cover the cost of that place so you can enjoy it as much as possible. That certainly starts to make sense as long as it's not the primary revenue generator, it's not like you trying to make every last dollar. There's another value to that kind of house.

Matt Argersinger: Yes. Real quickly, Deidre, my wife and I, we love skiing, so we've always dreamed about having this great ski condo somewhere that we could [laughs] go there a few weeks in a year, rent it the rest of the time of the year. Unfortunately, you really can't do that in Airbnb, because a lot of those places, resorts have their own management committee that they want you to exist under. But yeah, it's definitely a thought. The beautiful thing is, Airbnb enables that a lot more than you might've been able to have that in the past, that there's this network out there, people who want those experiences. There's just a whole new layer of demand out there for properties like that, vacation properties or interesting properties out there.

Matt Bray: Know your local laws and know your HOA rules. Because a lot of HOAs, if you're buying into a place, read it front to back, you may not be allowed to, or there's certain amounts of time per year that you're allowed to. Just be sure to check those.

Deidre Woollard: That's really good advice. Let's pivot a little bit and talk about Airbnb as an investable company since that is coming up. I'm wondering, how has Airbnb communicated with hosts during this process? I know that they're creating an endowment fund. Have they sent communications to you guys about the IPO process or about anything in regard to going public?

Matt Argersinger: I want to say, starting several years ago when Airbnb was first talking about going public, they did send a message saying, hey, we're thinking about going public. As a benefit to hosts, we thought we might allow hosts maybe to participate in our IPO in some way or fashion. That was always out there. Airbnb wanted to go public, then stop going public, it was like a start and stop process for the last bunch of years. I forgot about it. Then, I'm curious if Matt got the same thing about it, about two weeks ago, I got a message saying, hey, you're a host. You can participate in our directed share program which allows hosts, I guess longtime hosts, but they weren't really explaining what that means, if you've been a host for a long time, you'll have priority. The fine print was lacking, let's just put it that way. But yes, they're allowing a certain number of their hosts to participate in the IPO by buying the shares at the IPO price, whatever that may be, it's still being determined. I know that they raised it. Seems the last time, it was raised to a range of $55-$60 when it was originally at 40-50. Whatever that leads to, full transparency here; my wife and I are going to participate, not because it's going to be a great moneymaker, and by the way, buying into an IPO is historically not been that huge of an advantage, [laughs] but we're doing it mostly just because we've never really participated in an IPO before, and so it'd be fun to go through the process and see what happens. [laughs]

Matt Bray: Yeah, we got the same message two weeks ago and we decided on our side not to participate mainly because we're renovating another Airbnb. That's where everything is tied into at the moment. But yeah, I agree that the message was relatively basic, exactly what Matt said. Beyond that, everything's been public for the most part in regard to what's going on beyond that. Most of us haven't heard more to my knowledge.

Matt Argersinger: Yeah, and who knows? Again, I'm doing this more of as an experiment and just to fall through the process, see how it goes. But David Gardner will tell you this, The Motley Fool will tell you this; usually he gets excited about IPOs because he likes to see companies come public, and Airbnb is one of those exciting rule breaking companies say he loves to see go public, but he usually waits a year. I remember working with David and he would tell me, when a company goes public, see how it does in the first year. If after a year, it's beaten the market and it seems like there's momentum behind the business and the market's recognizing that momentum, that's usually the time you should get interested, even if you miss out on a little bit of gains post IPO. I tend to agree with that. I think that's a great way of looking at things. It's rare that a company goes public and then it just skyrockets higher and it never goes back to near its IPO price I think. Of course, I haven't done studies on this, but I bet you 99 percent of the time a company goes public at a price, shoots up higher first day sometimes, but inevitably over the course of a year or two, it always finds its way back to its IPO price at some point just because life happens. So we'll see. The valuation behind Airbnb, as with a lot of [inaudible 00:43:06] IPOs, it's just massive. I think the implied market cap is 40-45 billion. That's a huge number based on the company's current revenue rate and things like that. I think it's a fantastic business because, again, we talked about the network effect that they have, the pricing power they have with the fees that they charge. Extraordinary if we can get into that, but we'll have to see what kind of growth Matt and I can sustain, especially given the challenges. You experience it with Airbnb, and Matt alluded to this; every market is different. Every government agency is different. The DC government decides to regulate short-term rentals a lot differently than other markets. I know it's gotten a lot more stringent in DC for us in recent years as well. That's going to be tough, that's very challenging for hosts and for every [inaudible 00:44:01] to navigate. Anyway, lots of risk out there, we can go into them. I'm not saying, "It's going to public and I get to buy at the IPO price. I don't think it's going to be that big a deal. [laughs]

Deidre Woollard: Well, I think it's interesting. Whenever there's an S1, I think maybe we work PTSD, but it's always a good sign to see that the S1 has been out for awhile, nobody really panicked. One of the things that I've heard people say is that Airbnb is a technology company too. Tim Beyers who hosts a lot on The Motley Fool Live said that. Do you agree with that? Do you believe that it is a technology company in some ways just because of the platform it's created?

Matt Argersinger: Yeah, I agree. Well, a technology company, technology is such a loaded word. I think it's a platform company and I think they've built a very impressive platform. Even going back to the early days of Airbnb, and I think about the website, one of the things that was so attractive about Airbnb was just the ease of the website and the ease of the experience. It's so easy to become a host. It's so easy to become a guest and start looking at hotels. They did such a great job on the innovation part early on with Airbnb. That I think was a big reason why the growth has been the growth that it is and why they've developed such a brand power. But at the end of the day, my feeling on Airbnb is it's a relationship business, it's a platform business, it's connecting users, guests with hosts, hotels, rooms, etc., and trying to create a seamless good experience and layer value onto that technology. Do we call Netflix a technology company? Netflix has built a great, very sticky platform that's easy to use, but we would probably call Netflix an entertainment company or a movie TV company. Internet TV is what I think Reed Hastings tends to call Netflix. That's how I feel about Airbnb. I think they're in the experience hospitality business but they've happened to build a great technology platform behind it, and I think that explains a lot of their success for sure.

Deidre Woollard: Yeah. I think that makes sense, because if you call it a hotel company or a hospitality company, it probably gets valued a little bit differently than if you think of it as a technology company.

Matt Argersinger: That's a great point, you're 100 percent, yeah, [laughs] especially these days.

Matt Bray: Especially these days. Just to wrap up with this, what would be your advice for a first-time host just getting started?

Matt Bray: I have actually three things I think. Know your market. Before you even purchase, go on to Airbnb. Look at every single Airbnb in that area. Are they full apartments? Are they rooms? Who are you going to compete against, and what are the prices there, to make sure that you can support it, as well as looking at the hotels because they're a major competitor. How many hotels are around you? Are those hotels value hotels? Are they more expensive hotels? It's really going to change basically what you can [inaudible 00:47:22] pricing standpoint. Know your target audience. It means a lot in Airbnb. Are you close to schools so you want to really market to parents and kids who might be coming just for timeframes to visit other friends? Or is it something that's downtown and the people are going to want to be trying to figure out how close you are to X, Y, and Z? All those things really play into the marketing of the place itself. Then one thing that I alluded to earlier was really lining up your support network. Matt A. has got some great handiness in the family. We don't as much so we really rely on others to help support that aspect. It can be a pretty painful experience if you're not prepared right out the gate, like having who would you call in X situation, who's your backup. Same thing if you're not cleaning yourself, who is cleaning? Who's your backup? People leave early. Sometimes, you have a changeover, that's a three-hour time frame, and you got to be ready. So having that support network built out before you begin really paves the way to being a much easier experience.

Matt Argersinger: Yeah. I agree with all that, and I would say also, if you're starting out as a host, just try to knock it out of the park with the first few bookings that you have. That means probably going out with a rental rate or a daily rate that's below what you're seeing at competitive places, and then just really providing a top-notch experience for those first few guests, because then, they're going to leave a great review for you. That review then gets you a lot more marketability on the Airbnb site. Literally, if you're going in and you're thinking, I'm going to be an Airbnb host for the next five years, well, you should work hardest those first 3-6 months because that'll set the baseline for everything. Then as Matt said, during that time, you can build out all of those really key relationships as well, or honestly even just watching YouTube all day about how to fix things. That's what I've done in my life when we have issues, either do that or find someone like Matt said. The first few months I think are critical. If you're really successful those first few months with your property on Airbnb, you're setting yourself up for a lot of long-term success.

Deidre Woollard: Great. Well, thank you very much, you guys. It was really, really informational and interesting, so thank you.

Matt Argersinger: You bet.

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