Real estate investing changed a lot the last few years, but one asset class consistently punched above its weight: short-term rentals, a.k.a., STRs, e.g., Airbnbs.
In 2020, when people couldn’t go on vacation by hopping on a plane to Europe, South America, or Asia, they got in their cars and drove to national parks and mountain / beach / lake towns. Short-term rentals, often seen as safer than hotels, were on 🔥.
In 2021, this trend exploded. 🔥🔥
In 2022, when flying became a thing again, so did “revenge travel.” STRs accelerated even more. 🔥🔥🔥
With average daily rates skyrocketing the last couple years, hordes of real estate investors snapped up homes to turn them into Airbnbs, trying to chase yield.
Now, in 2023, the market is feeling saturation, with daily rates even contracting in places, and there’s tons of new short-term rental inventory (over half of Airbnb listings added since 2020).
So how can you stand out as an STR real estate investor in the current climate?
In this episode, I interview Diya Liu, a seasoned short-term rental investor who scaled from zero to 9 STRs in one year, netting $100k annual profit, and then quit her BigLaw job to do short-term rental real estate investing full-time. She currently owns three hotels and a dozen STRs.
- Diya’s RE portfolio breakdown – STRs vs. hotels
- Her step-by-step analysis process for screening potential STR vs. hotel deals
- How she analyzes local STR regulations in a market
- Key interior design principles she implements for her STRs
- Marketing strategies to help your STR stand out
- Automation strategies for your STRs – using VAs, messaging guests, etc
- How she met her investment partners and how they split up work
Are you an STR investor? If so, how have bookings changed in the last 1-2 years? Do you see over-saturation in listings inventory in your area? Are you trying out any different strategies this year? Let me know by leaving a comment.
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Andrew Chen 01:22
My guest today is Diya Liu.
Diya is an engineer and lawyer turned real estate investor who now invests in boutique hotels and short-term rentals full-time.
Her transition path from practicing attorney to quitting her law firm job to invest full-time spanned all of one year, during which time she scaled from zero to 9 short-term rentals, earning $100k net rental income annually.
She currently owns three hotels and a dozen STRs in Texas, New Mexico, Arkansas, and North Carolina. She runs the Facebook group “Airbnb Professional Hosts.” And she now travels continuously on prospecting trips for new potential STR and hotel investments, and recently started an STR and hotel investment fund called Welcome Capital.
I invited Diya onto the podcast today to discuss and share tips and insights on short-term rentals and hotel investing – including how to analyze, prep and design, and automate operations for short-term rental properties, as well as to hear her thoughts on her transition from law and engineering to full-time real estate investing, and what has made her successful as a real estate investor.
So, I think it’s going to be an interesting and insightful discussion, and I hope you learn something from it. Let’s jump in!
I’d love to start just by learning a little bit about your background, at least for our listeners. Maybe you could tell us a little bit about your background and origin story: what you were doing before becoming a fulltime real estate investor, how you got into short-term rental investing, and then also later transitioned to hotel investing.
Diya Liu 03:02
I graduated with a double major in biochemistry and chemical engineering from UT Austin. I went to law school with a full ride scholarship in New York City. And then I practiced patent litigation law for about five years.
And then just one day, I realized that I really didn’t want to do the 9 to 9 work schedule anymore. I really wanted to travel the world and experience things beyond just the cubicle life. And so, even though I loved my colleagues at the time in New York City, I decided to move back to Austin and start real estate investing on the side first.
And so, I found a job in Austin as a patent litigation attorney here and was moonlighting, or not moonlighting really, but just taking holiday time and weekends to set up short-term rentals and start buying them like crazy. And so, I was able to reach from zero dollars of rental income and really zero real estate experience to over six figures of net rental income in about 13-ish months.
Andrew Chen 04:19
Awesome. So, now, fast-forwarding, you’ve transitioned to hotel investing. Where was that inflection point, and what prompted or motivated the change?
Diya Liu 04:40
It’s a long story, but we started hotel investing because of a lot of different reasons. The main thing that prompted me to look at short-term rentals, first, was because I love traveling, and I love design, and I love hosting people. So, I feel like with hotels, there’s a lot of similarities in those aspects, because I still love design, I still love traveling, and it’s still a lot of the same concept, just much bigger projects.
And the reason why I decided to do hotels is because, one, the short-term rental space was getting a little more saturated. After larger podcasts like Bigger Pockets started talking more about short-term rentals, I feel like a lot of people started jumping into this space and bidding these house prices up to where sometimes the numbers don’t always make sense anymore.
Or if you are trying to be truly conservative, the returns are not as good as how much any additional risks there might be.
And then the other reason is because I was long-term flipping some of these short-term rentals, meaning that I will buy and hold them, and a year later, they would double in price, and so I was able to sell them for a really great profit. And usually, they appraise for how exactly much I wanted to sell them for and how much the buyer wanted to pay…
…but sometimes we ran into situations where the buyer wanted to pay $500K, I was willing to sell it for $500K, but the appraiser might disagree with our contract and price. The reason is because the neighbor next door might not rent their house out.
It doesn’t matter what the neighbor next door is making, but if the neighbor next door’s house only is worth $400K, then my house is only worth $400K. And it doesn’t matter if I’m generating six figures of income on my property or not.
So, that really is not so ideal, for lack of a better term, and so I wanted to get into commercial assets where the valuation of the property is based on the performance of the property. So, if you’re making more money, then the property should be worth more, which makes a lot more sense to me than with residential real estate.
And then, finally, the reason is because you’re able to scale a lot more quickly, and buying 40-unit hotels is a lot easier than buying 40 short-term rentals in one year. So, you’re able to deal with one set of mortgage, one closing date, one set of broker, one set of difficult seller potentially. And it’s just a lot easier to scale faster.
And then, additionally, this is a bonus which I didn’t think about at the time, when I went into this, but now looking back, this is an additional bonus: that short-term rental regulations are becoming more and more common, so having hotels that are basically immune to short-term rental regulations was a huge perk.
Andrew Chen 08:15
Yeah, that makes a lot of sense. So, to set the stage so folks understand, can you talk first about what is the breakdown of your current real estate portfolio in terms of residential short-term rentals that are, say, four units or less versus non-hotel, multifamily five plus units versus full-on hotels?
Diya Liu 08:38
I co-own three boutique hotels with business partners. I also own a small multifamily STR. So, if you count the multifamily short-term rental plus additional single-family duplex short-term rentals, then I’m around a dozen additional short-term rentals on top of the boutique hotels.
Andrew Chen 09:01
Are those physical structures or doors?
Diya Liu 09:05
Doors. 12 additional doors on top of the hotels. So, with the hotels included, I think I’m at 90 something doors.
Andrew Chen 09:15
And how many of your portfolio properties are ones where you are the sole equity investor versus there being other equity investors co-investing with you, whether as GPs or LPs?
Diya Liu 09:27
I think most of my short-term rentals, out of that dozen, I own a large chunk of it or I’m the sole investor. And I do own a large majority of the hotels as well. I’m the KP on all of these deals.
Andrew Chen 09:48
I’d love to talk a little bit about the analysis process. Could you walk us through your step-by-step process for quickly doing a first pass analysis to screen a potential STR deal in a new market that you haven’t invested in before? And for these purposes, let’s say it’s just residential four units or less, the simple version.
Diya Liu 10:12
I think there’s a lot of simplification if you just walk through a 5-second analysis. But with that said, one of the first things I do is to get to know the market and what kind of amenities that the potential guests, target guests would be interested in that market. Are they interested in five-bedroom houses, or are they interested in one-bedroom condos?
And are they more interested in being as close to the ski lifts or the beach or whatever amenity that is as possible, or do they want more space, more privacy, spreading out, having more amenities, like fire pits and gas grills and stuff like that? So, understanding what it is that drives them in that destination and what micro neighborhoods are going to work well for that destination. And finally, what amenities are going to work well for that destination is key.
And that is not really a simple 1-minute analysis, but looking at the numbers, we’re looking at at least somewhere between 20-25% cash on cash return usually. A lot of my deals are a little bit higher than that, just because I see a lot of enough deals to where I have to be a little bit pickier about what I’m buying, so normally we’re higher than that. But for a lot of my mastermind folks, we’re advising them to look for about 25% cash on cash return.
Andrew Chen 11:45
And that’s assuming it’s levered, it’s 15-20% down. Is that right?
Diya Liu 11:50
Yeah. With short-term rentals, for your first few, you might be able to get what’s called secondary home financing for your short-term rentals. And that’s completely okay with your lenders that you are renting this out on Airbnb and Vrbo, for most of the lenders with regards to secondary home financing.
And there’s a lot of different factors and they’re constantly changing, so I don’t want to give you the wrong updated info whenever someone is listening to this podcast. But if you’re able to qualify, then you’re able to put 10% down on your first short-term rental or second short-term rental.
Andrew Chen 12:35
And you mentioned trying to find out what are the amenities that folks want in the area and what is the setup they want, do they want to be close or secluded, etc. How do you know that? Do you go on Airbnb and just look at what other comparable listings are offering?
How do you develop that kind of insight?
Diya Liu 12:57
There’s a lot of data analytic tools out there. AirDNA is one of them, there’s Data Rabbu, there’s a lot of different tools now, STR Insights. There’s a lot.
So, it’s really to look at all these sites and go on Airbnb and Vrbo as well on top of that to check out your competition, to see how many people are superhosts, how many people have really good reviews, what are those reviews really saying? Which kind of properties are doing best?
Is it those with pools? Is it those with hot tubs? Is it those with beach views, ocean front views, mountain views, etc.?
So, you do have to look at your competitors a lot in your due diligence.
Andrew Chen 13:45
Makes sense. And you see a lot of deals, but probably most of them are not suitable for you, and you’ll only go deeper on maybe a handful. So, in that first pass where you’re just filtering out the wheat from the chaff, it sounds like you do an amenities analysis, you’ll do a quick financial analysis.
Are there any other things that you will do on a first pass analysis?
Diya Liu 14:14
Regulation and zoning. So, if that HOA or that town or that city or that county doesn’t allow for short-term rentals, then that’s a big no-no. Or if there’s potential looming short-term rental regulation or looming short-term rental board meetings to talk about what to do with the problem of short-term rentals…
…then that is also another concern that we have to address right near the beginning, before even making offers or making calls to the agent to walk through the property, to even call your lender. Those are initial things that you want to consider.
And I think that a lot of people, they feel like they can analyze short-term rentals, but in reality, they’re only looking at one out of 12-15 different factors than they should be looking at. And so, they feel like short-term rentals is very easy.
But I think that short-term rentals are easy to acquire, especially when it’s in a booming market, but I think when the market turns downwards, you’ll see the folks that didn’t do their due diligence properly and they are usually the folks who are now complaining that short-term rentals is not making as much money and there’s an Airbnb bust, etc. So, I do want to caution folks from not doing the proper due diligence when analyzing short-term rental deals.
Andrew Chen 14:49
Yeah, that makes total sense. So, you’ve called out some of the factors, like regulation, amenities, looking at pro forma, etc. What are some of the other main factors that are on your checklist?
Diya Liu 16:04
Market saturation, how sophisticated the market is, how easy it is for someone to quickly offset the market and become one of the top listings. There’s a lot more factors. I think it’s really dependent on the situation too.
Flooding risk or hurricane risk or insurance risk. Like Florida as a market, there’s a lot more possibility that insurers are actually exiting out of the Florida market right now. So, for me, personally, even though I love Florida, I love visiting Florida, I wanted to buy in Florida, for me right now, I’m sitting out on the sidelines with regards to Florida because of the whole insurance-related issue.
So, it’s just really state-dependent, it’s locale-dependent, in terms of which factors pop up.
Andrew Chen 16:58
Yeah, makes sense. A lot of the homeowners insurance companies are pulling out. They’re just not getting insured in Florida anymore.
It’s just one hurricane too many, right?
Diya Liu 17:08
It’s not just hurricanes, but also, insurance claim fraud is a very big problem. I don’t want to misquote statistics on the podcast, but I think 70% of insurance fraud claims were brought in Florida. And so, because of all these claims, it’s just cost-prohibitive for insurance companies to stay in Florida.
Andrew Chen 17:38
Yeah, totally. How do you judge saturation? Because when I look at popular places, there tend to be a lot of listings, right?
How do you judge saturation?
Diya Liu 17:50
If you are really nerdy about it, you can really just see how many listings there are per how many visitors a year, and that’s a good judgment of saturation. And you can also see how many people are talking about it on the press. If there’s top 10 places to invest in short-term rentals, a list out there for this property for this location, then it’s probably oversaturated, or it will be in the next year or so.
So, I either have to get a killer deal on that to where if it’s heavily advertising, I’ll probably resell it for a lot higher if the number is no longer a cash flow for me, or I just completely avoid that market.
Andrew Chen 18:33
Makes sense. So, shifting gears a little bit toward the hotel side, where does your analysis process for underwriting a hotel deal differ from an STR analysis? Could you walk through some of the factors that are on your checklist when analyzing a new potential hotel deal?
Diya Liu 18:54
We do have a mastermind for both STRs and for hotels, but I’m going to go through some of the things I teach a lot of my mastermind in detail.
When I started hotel investing, I really thought that it was basically the same thing as short-term rental investing, just larger. I couldn’t be more wrong because hotels are commercial assets, and they really have a lot more in common with other commercial assets than with short-term rentals.
The first thing is data sources are different, so you have to analyze data from CoStar reports, which is a paid subscription. Basically, it provides you how much hotels are selling for in the area. It provides you how much the average nightly rates for different classes of hotels are.
It also shows you what the average cap rate or capitalization rate is in that area for hotels, and whether that’s trending upwards or downwards, or any of those numbers are trending upwards or downwards.
So, those are some of the things that you should be looking at. Is the average nightly rate going up or down, is the occupancy going up or down, is the RevPAR or revenue per available room going up or down, and is the cap rate going up or down? So, those are some numerical things that you should be tracking in any given market that you’re entering.
And how much is this hotel performing in terms of its competitors? Is it underperforming? Is it already above average?
We normally like hotels that are underperforming relative to their competition, or at least to the market average. So, even if it’s an economy brand hotel, but we are able to upgrade it to a much better boutique hotel experience, then we’re okay with the fact that they’re trending with their fellow economy branded hotels.
But normally, we’re looking at hotels that are underperforming, and therefore, based on income-based valuation, their undervalue relative to the market. And it’s not that they’re undervalued because the seller should have charged more for the sale. It’s because they really can’t charge any more because their tax returns just don’t support a higher valuation.
So, those are usually the hotels that are interesting to us. But the parallel with short-term rentals is that location is everything, and so we do look at location and amenities in the same way that we look at in short-term rentals. And so, figuring out what kind of amenities make the most sense for this area, figuring out what the trendier areas are, and whether this can support a luxury branded hotel or is this more of extended-stay hotel for corporate travelers, etc.
So, those are all the data we collect upfront before we even walk the hotel. And when we walk the hotel, we have to have a punch list of all the different things that we need to renovate in this hotel to bring it up to modern day standards.
So, those are some of the big things that we look for in our initial due diligence. And of course, the financials, the franchise agreements, if there are any, hotel permits, zoning, talking to the city. There’s a lot of additional stops in commercial acquisitions.
Andrew Chen 22:34
So, at least as a first analysis, the financials, it sounds like they’re even more important for hotels because there’s probably a lot more data available, the asset is bigger, etc. But you’re still doing some of the amenities and regulatory analysis as well. But they would be different, right, because hotels, as you said, are not subject to short-term rental regulations?
So, I had a couple of quick follow-ups. One is, when you do an amenity analysis, are you comparing against other hotels or other STRs or both?
Diya Liu 23:04
I think we’re looking at both. For example, right now, whether we’re keeping a pool for this hotel we’re under contract for, my argument for keeping the pool is because some of the best short-term rentals and highest performing short-term rentals in the area have pools and hot tubs. So, because of that, I think that we should keep this pool for this hotel.
We don’t have really the same level of transparency to figure out these hotels are performing that much better because they have pools, with hotel data. You really just see, “These are the luxury branded hotels and this is their market average daily rate.”
So, because of that, when it comes to amenities, sometimes I refer back to short-term rentals to figure out what kind of amenities really sell and what kind of copywriting when it comes to listings on Airbnb, what our guests are really saying about this listing, and which listings are ranked first on Airbnb.
Andrew Chen 24:06
Makes sense. And then, because hotels are not subject to short-term rental regulations, what type of regulatory diligence are you doing? Is it just to verify that their zoning, in fact, is hotel zoning, and they have proper licenses and all that sort of thing, or is there more than that?
Diya Liu 24:22
I’ve had instances where brokers are selling what they think is a hotel, but because it was special, it was actually zoned residential, and it did have a grandfather use as a hotel, for example, but it no longer has a grandfather use because they’ve been using it as more of a multifamily use. And so, they have lost that special use permit.
And for that reason, it’s just not as valuable to us, and so we have to move on to understanding how to draft your contracts so that you can do that due diligence and not lose your earnest money, etc. That’s something that is very complicated, so I don’t recommend this for people to just try on their own really for their first time, because it can get really messy really fast with all these different considerations.
Andrew Chen 25:15
Makes sense. Shifting gears a little bit, I wanted to deep dive a little bit more on regulations, so back to STR land. How do you personally analyze a local city or a county’s STR regulations?
Specifically, what are the main red flags or green flags that you look for when researching STR regulations in a new market? What are deal breakers, for example? What are things that are positive?
Diya Liu 25:43
I like it if it’s a market that’s traditionally very friendly to vacation rentals, even before Airbnb was ever a thing. So, if they had tons of vacation rentals before Airbnb was a household name, then it’s likely that they will not have very strict short-term rental regulations.
And at this point in 2023, I think that if the town doesn’t have short-term rental regulations, there’s no literature out there about the negative effects of short-term rentals in this market, knock on wood, it’s probably relatively safe from short-term rental regulations.
If there are literature out there, you probably will find, “We’re considering the negative effects. We’re going to have town meetings about it. We are going to have multiple committees formed on researching the effects of short-term rentals.”
If you see those things, there are probably going to be short-term rental regulations coming down the line. And another positive thing is that if they already have short-term rental regulations, but they’re pretty favorable, so you already know what the landscape is going to be.
It’s very unlikely that once the city has decided to tax short-term rentals, and this is how much they’re going to tax them, and this is the permitting process, that they’re going to completely scrap that system and start with a totally brand new framework. And so, those are relatively safe towns to invest in, as long as you follow the short-term rental regulations.
We also like areas that it looks like, from the outset, that it’s pretty illegal to run short-term rentals, but in reality, there are special zones in the city, or pockets, or zoning, or just different areas that may actually allow for short-term rentals, and so there’s little loopholes that are present right under your nose really. Those are also some of the strategies that we sometimes will use.
Andrew Chen 27:54
Are there any deal breakers, from a regulation point of view, where if you see it, you’re like, “Nope, move on”?
Diya Liu 28:02
I don’t know if there’s really absolutes. I hate speaking in absolutes as a former attorney. I will say that from my past experience, if the HOA is relatively anti-short-term rental, even if they don’t have outright short-term rental regulation in that town, even if their HOA rules don’t have anything with regards to short-term rentals, I’m just going to move on…
…because having neighbors in an HOA that does not like short-term rentals in their backyard is just going to make a horrible guest experience anyway.
Andrew Chen 28:39
I do want to get to HOAs here in a minute, but just to close out on city and county regulations, I hear you that you tend not to view particular items as deal breakers. Are there things that, from a regulatory perspective, when you look at them, you’re like, “Well, I don’t like it, but maybe I can work around it,” and it won’t be a deal breaker, and you can still find a way to make it work?
Are there things that you don’t like but you’ll still do it, given the right conditions?
Diya Liu 29:10
I don’t know if I would have anything at this point where I’m lukewarm about something and I would still do it, just because there’s so many deals out there that I’m brought daily, whether it’s off-market or on the MLS. Because of being on social media and publishing a lot of short-term rental and hotel content, and also owning a 47,000-member Facebook group that’s short-term rental specific, I get brought a lot of deals that most people don’t get access to.
And so, if a deal is not super ideal and there are certain things that I’m uncertain about, I just move on to the next deal. I don’t try to make it work by tweaking this, tweaking that. I just think that there’s plenty of fish in the sea, and I don’t really want to try to make a mediocre deal a good deal, and I only take the most outstanding deals.
We actually have too many deals and not enough operators to where sometimes we have to walk away with deals where the numbers make sense, everything makes sense, we’re just not passionate about the project, and so we walk away.
Andrew Chen 30:19
Do you invest in condo STRs, or have you in the past?
Diya Liu 30:23
I have some condo short-term rentals, and I only will buy them in condo complexes that are pretty much at least 50% short-term rentals already. Those are the only instances where I might buy condos.
And then also in markets where it’s pretty much impossible to buy a short-term rental that is not a condo. Because of regulations and stuff like that, we will look at condos. So, I don’t rule them out, but they’re not my favorite.
Andrew Chen 30:50
Can you say more about why they’re not your favorite? Is it just because of the presence of an HOA?
Diya Liu 30:54
The presence of an HOA, and then just having people above and below you just adds additional variables. Your guests won’t just complain about your property; they might complain about your neighbor and about someone upstairs that left their toilet running and now there’s water running down their walls. There’s so many different variables that you can’t really control, but it will still reflect negatively on your Airbnb listing.
Andrew Chen 31:23
That’s a good point. Interesting. If a condo complex is majority STR, can you still get a normal loan on it?
Diya Liu 31:36
That’s a question probably for your lender, but long story short, I think you can still get a loan. And I’ve run into this issue before. You can still get a 25% down loan; it’s just not a Fannie Mae or Freddie Mac-backed loan.
Andrew Chen 31:57
Shifting gears a little bit, I’d love to talk about design and marketing. I know this is one area that you have particular expertise in. What are some of the most important interior and exterior design principles that you strive to implement in each new STR that you acquire, both to (a) cold start your first initial bookings, and (b) to make them stand out to potential guests in the future?
Diya Liu 32:25
It’s really hard to nail down one or two things. I just really want people to feel like they’re on vacation when they walk into the door.
For my beach rentals, it’s going to be a totally different vibe and theme than for my mountain cabins, etc. because I really try to bring in the local atmosphere into my rentals. So, in the mountains, it might feel a little more like a log cabin or feel a little bit more rustic but contemporary at the same time. And so, I might have more wood or live edge accents, and I might have more fire features, like a fire pit or a fireplace, electric fire panels, etc.
For beach rentals, it might be really cool, funky wallpaper, it might be art deco influence, it might be having wicker and a lot of plants and a lot of palm trees, so you feel like you’re at the beach without going the whole kitschy vibe. So, it really depends, but long story short, you don’t want to decorate this vacation rental like you’re decorating your house.
You also don’t want to decorate it like a flip. Flips try to be as non-offensive as possible to the largest number of people, so it’s usually not really loud colors, it doesn’t really have a lot of personality in their style, and it’s probably mid-century modern or something like shabby chic or something like that. It’s just like really boring stuff.
For short-term rentals, wallpapers are great, accent walls are great, wall murals are great. Anything really goes. Having a whole arcade room is great.
So, just having really crazy themes really flies with short-term rentals. And one of the most popular short-term rentals is a giant potato in the middle of nowhere, and you get to stay in that potato for a couple hundred dollars a night. So, really just the strangest themes book really well because people are looking for experience; they’re not looking for staying at another house away from their home.
Andrew Chen 34:45
That’s a good tip. Do you look to other comparable short-term rentals for any inspiration or ideas, or do you tend to just go already with your own vision when you go in?
Diya Liu 34:56
I actually try to deviate from whatever is already popular out there, because if the number one listing already has a mountain bike theme, maybe I don’t want to do a bike theme, just because why am I just trying to beat the number one? Maybe I want to cater to the artsy folks who want something that’s more modern art-inspired.
So, I try my best to definitely take notes on amenities, what are selling in that market, but I really try not to copy other people’s style, because you want to stand out. You don’t want to blend in.
Andrew Chen 34:35
Makes sense. Can you talk a little bit about what are the most important marketing principles that you follow to help your listing get ranked highly on Airbnb and Vrbo?
And here I’m not necessarily talking about some of the obvious things, like “Use professional photography” or “Get 5-star reviews” or “Write a compelling headline or property description.” Those seem like common sense.
But more tactical. Assuming you will invest in professional photography, how should the photos be shot or sequenced for best visual impact? Are there any tips around staging or wide angles or lighting, things like that?
And similarly, when it comes to your headline and property description, what are some tactical best practices for writing those for evoking the feelings or emotions you want to elicit to persuade the guest to book?
Diya Liu 36:19
Well, I hesitate to say too much detail because Airbnb and Vrbo are living search engines, so their algorithms change all the time. So, what’s relevant right now is not going to be relevant six months from now, because a lot of large Airbnb rollouts have changed how things are ranked in the last year. For example, tree houses and unique listings are now featured a lot more prominently on the Airbnb homepage.
So, it’s really constantly changing. So, you just have to be really good about being part of a mastermind, being part of Facebook groups, being part of communities, and staying up-to-date on these changes on a daily basis and weekly basis.
Hopefully, that wasn’t really vague advice because it really does change from month to month what is the best practices for Airbnb. I will say that in 2023, the largest trend is to get away from using these listing platforms and using your own direct booking site or doing direct marketing a lot more to bring guests back to your unit, and having a little more control over your listing.
In terms of photography, it’s no longer just use your iPhone and take some pictures and just DIY aesthetics everywhere. You really have to be sophisticated. So, hiring an interior designer or hiring a professional to do a mural, or hiring a professional photographer, and paying a couple hundred dollars more to do drone photography, or paying a couple hundred dollars to have twilight photos on top of just having daylight photos.
All those things are going to have a bigger ROI in 2023. You might have been able to get away with mediocre design or mediocre photography a year ago or two years ago, but nowadays, you really have to set it up.
Andrew Chen 38:46
I also wanted to get your thoughts on when it comes to customer service, do you have any guest experience tips, like little unique moments of delight for guests to maximize the chance that you can get that 5-star review? Here I’m thinking from the moment of first interaction in terms of messaging, to the check-in experience, to the stay itself, and finally, check-out.
Are there any tactics that you’ve found that help guests leave their stay with that warm and fuzzy feeling, that makes them feel delighted and makes it a no-brainer to leave a 5-star review?
Diya Liu 39:18
I would say there’s simple things. First of all, even before the guests ever arrive, just don’t skimp on your initial setup: the bed, the linens, etc. Those are things that are very important, so don’t skimp on them and don’t skimp on the renovations.
Leave no detail untouched. Those are really important. But also leaving a personal touch.
I’ve seen people, for luxury vacation rentals, have custom welcome mats. They will say, “Welcome, the Bob Family” or whatever, when they arrive. That’s a huge wow factor which I think will leave a memorable impression.
You can play their favorite song on the TV when they arrive. Even if you don’t have a welcome doormat, you can put that on the TV, if you have a hospitality TV.
You can have a little sign that’s a chalkboard, that’s a little more low budget, low tech version. And you can have a little gift basket for local goods, like local cheeses, local bakery, local snacks, local coffee roasters, local snack bars, local soaps, maybe $30 worth of stuff for a $300/night stay, normally 10% of the one-night stay pricing for your gift basket.
You can have diffusers diffusing essential oils since you don’t probably want artificial scents. A lot of you are allergic to that, so you want to use all-natural, maybe cinnamon sticks. Just having all five senses being touched as soon as you walk into the door.
You might have the fireplace on, if it’s electric fireplace, so that when people come in, it feels really warm and welcoming. You want to make sure that your friends and family have stayed at the place to troubleshoot anything, so “Hey, this plug is a little bit too far” or “Hey, this lamp is a little bit weird in where it’s placed,” “Hey, I keep tripping over this cord.”
All those little things that maybe you, because you set it up, doesn’t seem apparent to you because you just know to step over that cord, or you know to reach a little bit more to the right to find that light switch. But your guest is going to be brand new, and your friends and family who don’t know your house, they’re probably going to be confused.
So, just getting all those little details right, and getting other people to review your listing, and being brutally honest near the beginning is crucial.
Andrew Chen 42:13
Makes sense. If you’re not living in the city where your STR property is located, how do you implement these things?
Do you have your property manager do it? I assume you use one. Do you hire a Taskrabbit?
How do you get the gift basket or the essential oils, or whatever the case may be, actually set up and reset with each turn?
Diya Liu 42:38
It’s going to be really hard if you’re remote, I’m not going to lie. I think that the best way is probably to partner with a local operator who can help you with that initial setup, whether it’s just a one-time thing where they help consult on these tasks and figure out, “This is your sourcing for all these things,” or partnering with a local management company.
I, in the past, have advocated for self-management, but with the new shifts in how Airbnb guest expectations have risen, I think it’s actually more beneficial for a brand new house to now come in immediately from day one, analyze the deals, assuming that you’re going to have to hire a management company and pay them 20-25%, and then just partner with them and let the pros do it.
They know the area. They probably already have access to all the snacks and gift basket ideas. They have seen what things normally guests hate, they have seen what things guests love, and they can be invaluable to you in your journey as an investor.
Andrew Chen 43:48
Interesting. I know generally the take rate for STR property management could be 25%, could be more. It’s probably not going to be that much less. But is it fair to say that you can look to your property manager for these kinds of expectations, for these little bells and whistles and little delight things?
Is that fair game? Is that in their expectation that they will do these things, or is that sometimes extra stuff that you would have to negotiate?
Diya Liu 44:22
It depends on the company. If they don’t do it for their other clients, they’re probably not going to do it for you. But if they already do it for some of their clients, they’ll probably have it as part of their contract.
And I’ve seen it where they have a little checkbox, like “I want a gift basket. It’s going to be $30 every single turn.”
Or “I want your linens instead of my linens. It’s going to be this much additional per month.”
So, it just really depends on the local short-term rental management company. And yeah, you can try to do this by yourself, but a lot of folks that I have as my mentees in my short-term rental mastermind, they’re normally busy W-2 professionals and they’re trying to create financial freedom for them in the near future, but right now they can’t take any additional days off.
So, for those people, for my mastermind folks, I’m able to help in the design and setup of some of these properties, but after that, I really do, at this point, recommend folks to find a local management company.
In the past, my advice was like “If you want to self-manage, you can, and these are the best practices.” But I’ve just seen more and more issues with Airbnb and guests that can be easily resolved and a lot less painful if you had a local management team to begin with.
Andrew Chen 45:48
Makes sense. I wanted to shift a little bit to automation. You’ve got a dozen of these things now, so I imagine you have some automation processes, and that is a really important thing to scaling.
What are automation strategies and tools that you use to help you automate your STR operations? I mean through the whole booking cycle, starting from dynamic pricing for lead generation, to messaging guests before they book, to the booking experience itself, the check-in experience, the actual stay, responding to questions during the stay, check-out, etc.
What are the main tasks or workflows you automate, and what are some of the software and hardware tools you use to do it?
Diya Liu 46:28
Honestly, the tools are changing all the time. What we use the most is really TurnoverBnB for cleaning, and there’s a couple of big players in the space of pricing automation, but we use PriceLabs right now. So, those are usually the two that I am able to recommend.
In terms of booking backend and stuff like that, we have Guesty, we have Hostfully, we have OwnerRez. There’s a lot of different software out there.
Currently, I don’t have a recommendation for those. I talk about all of those, the pros and cons in our short-term rental mastermind, and compare all the different technology, but it really depends on your level of understanding, how technical you are, for example.
Maybe one person that’s really highly technical might do better with one set of tech stack versus another person who is a lot less technical has to keep it really simple, so they have to do better within other different types of stuff.
So, right now, using PriceLabs for pricing automation and using TurnoverBnB as one of the more popular cleaner turnover solutions. Those are probably the big things that we are using and recommending to our students across the board. But depending on the student’s needs, it might be different recommendations as well.
Andrew Chen 48:04
Do you do self-check in, or do you do in-person check-in with somebody on the ground?
Diya Liu 48:11
In most cases, I don’t think it’s industry standard at all to do in-person check-in, just because some guests are going to be checking in at midnight and some guests are going to be checking in at 4:00 p.m.
Andrew Chen 48:24
Yeah, it makes sense. So, do you have Smart Lock that synchronizes and understands when the guest is coming, etc.?
Diya Liu 48:34
Yeah. In our curriculum, we have a whole module on technology and how to sync everything to each other so that you have a seamless tech integration into Airbnb and Vrbo. But yes, we do use Smart Locks for self-check in.
Andrew Chen 48:56
To what extent are you personally involved in messaging guests at this point versus having automated responses?
Diya Liu 49:06
I don’t do messaging of the guests at this point. I’ll answer questions that only I can answer, but I have VAs, I have teams that do guest comms for me.
Andrew Chen 49:23
I was curious. Now you’re investing with partners, particularly in some of the larger deals now, and maybe in other deals, residential STR you’ve invested solo. How did you meet your investment partners?
Diya Liu 49:42
I run a very large Airbnb investors group on Facebook, and that’s a large source. But just posting about what I do and the returns that I get is one of my largest sources for investors. And honestly, people come to me to learn first, and they might have followed my content for quite a while online before they ever reached out to me to invest with me.
So, a lot of times, my investors say that they have known me for a while now. Even though it’s a first initial contact, they basically say that.
Andrew Chen 50:22
Are there any main tips that you have in terms of when you structure partnerships? Key principles that you make sure are captured in your partnership agreements to ensure that incentives stay tightly aligned? I’m not talking about all the details of the partnership agreement, but some of the key principles that you try to incorporate.
Diya Liu 50:42
I don’t really want to talk about legal stuff on the podcast per se, because it’s hard to say what the legal structure is. It really depends on the deal.
But I will say, generally, if it’s a smaller deal, we’ll do a joint venture where they are equity partners. And then for larger deals, we’ll do the standard syndication or we’ll do a fund, and we are raising $10 million as part of our 506(c) fund for investors. It’s hard to really go into the waterfall structure and stuff like that, to make sure that everyone’s interests are aligned.
But long story short, our rates and our returns are very comparable or better compared to a lot of the larger syndications or funds.
Andrew Chen 51:35
Where do you think most STR and hotel investors give up or fail that you’ve been able to overcome to find the success that you have?
Diya Liu 51:50
I think that most investors don’t underwrite their deals carefully enough. And I’ve seen many cases where people analyze deals, for example, at much lower interest rates than what they were actually given, because maybe the rates were going up throughout the whole closing process, it was not locked for whatever reason, or the rate expired or whatever, and they just continued to close on the deal.
So, they just paid too much for their deal, and they didn’t really analyze the deal properly.
Another thing is that I’ve seen people just refuse to spend money on renovating or decorating their property. I’ve had many folks try to reach out to me to set up their property, and their budget was $5000 or $10,000 all-in.
I’m like, “You might as well not do short-term rentals” at that point for a 3-bedroom, 2-bath house. It’s too little. And I will recommend to you not doing short-term rentals if that’s your budget, because in 2023, you really just can’t do a good job if you’re not going to spend what it takes to build out a very memorable experience for your guests.
So, I think people have unrealistic expectations, and they just spend very little and get C-suite executives to stay at their home because they have a really good location or something. I’m like, “C-suite executives are probably going to require a larger amount of amenities than what you’re willing to budget for.”
So, I think those are the main reasons why people fail. Another reason is just not being a people person and not recognizing that early in the process.
I recognize that it’s not the highest and best use of my personality and time and talents to be the guest communications person, so even on a hotel scale, I have my business partner who is an amazing people manager and relationship manager, and he’s able to do a much better job training our staff to communicate with guests, etc. than I am. And I stick to my lane.
So, understanding your talents and where your shortcomings are. For a lot of folks, they don’t have the patience or personality to be really good short-term rental operators. And if that’s the case with them, they need to hire someone to do that role.
Andrew Chen 54:21
All right. Thanks so much for taking the time to chat with me. How can listeners get in touch with you, find out more about what you’re up to?
Diya Liu 54:30
The best way to find out and keep up with me is through social media. I’m pretty active on both Facebook at Airbnb Professional Hosts, which hopefully will be in the show notes, right?
Andrew Chen 54:41
Diya Liu 54:42
And then also, on Instagram: @diyaesq.
Andrew Chen 54:49
All right, we’ll link to those in the show notes. Thank you so much for taking the time to chat with me, and I look forward to sharing this with our listeners.
Diya Liu 54:58
Thank you so much for having me.
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