Chris and I recently sat down with Scott Shatford, founder of AirDNA. We talked with him about his background and what led him to found the company, as well as new trends he’s seeing in short term rentals (STR).
- Listen to the podcast “#314: Interview with AirDNA Founder Scott Shatford” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
How Did You Come up with the Idea for AirDNA?
Scott started AirDNA ten years ago after he got laid off from his corporate job. He decided to spend a few months traveling out of the country, and a neighbor suggested he check out Airbnb instead of putting his stuff in storage. After taking some iPhone photos of the space, he had a booking within an hour and was able to rent out his home the entire time he was gone.
When he got back to the US, he couldn’t find his dream job, so he decided to rent out his Santa Monica apartment to get some extra cash. He was cash flowing $3K a month and had a realization—if he could find enough apartments to rent out, he wouldn’t need a day job. Every few months he got another one-bedroom apartment to rent out which worked until Santa Monica became the first place in the US to start regulating Airbnb’s.
Scott decided to combine his background in data analytics with his knowledge of Airbnb to create AirDNA. He sat down with his dad, an engineer, and they gathered as much data as they could from Airbnb. Armed with this information, he figured out how to turn it into a product that people could use to maximize their Airbnbs.
Now, AirDNA has tens of thousands of customers with 50K visitors on the site every month. Users of AirDNA can compare their Airbnb properties with their competition to get an idea of how much they should charge, what average occupancy rates look like, and general benchmarks they should know. AirDNA allows Airbnb hosts to elevate their game and think like a hospitality expert.
How Can a Mom-and-Pop Investor Use AirDNA to Understand the Short Term Rental Market?
The hardest part about the business is data accuracy and data gathering. AirDNA allows users to type in their zip code and compare their home with the local competition. They can subdivide their city into neighborhoods to find out where the up-and-coming areas are, what others are charging, and figure out how much places cost vs how much they’re earning. This data gives people an idea of which areas are appreciating in value quickly and are helping to drive market growth.
How Do Income Properties Compare to STRs?
It’s harder to look at a STR and determine the market rate than it is to figure out the rental rate of a traditional income property. STRs are going to depend more on how they’re furnished: there’s a difference between furniture from Restoration Hardware and IKEA. AirDNA has a tool that allows users to see the rates they should charge based on the value of the home, nearby comps, the market, and the general location.
An interesting trend they’re seeing is that residential and commercial real estate is blending. Knowing that they can turn their home into a hotel leads buyers to pay premiums and bid up the price of homes.
How Do Houses and Hotels Compare?
While there’s probably some correlation between houses and hotels, they’re too different to directly compare. Scott has noticed that hotels have become less competition for STRs in recent times due to people wanting to be in less crowded places. Once people start searching for two or more bedrooms, there’s no comparison to hotels.
In cities where the Delta variant is spreading, they’re seeing a lot of cancellations. This causes hotels to be dirt cheap in most of these areas making it harder for Airbnb owners to get a premium. AirDNA has a feature that allows users to look at week by week supply and demand which allows owners to adjust rates accordingly.
What New Features Does AirDNA Offer?
Their newest and hottest product right now is Rentalizer which is part of their Marketminder platform. This product allows users to put in an address and get an idea of how much a property would make as a STR. Rentalizer has explosive growth with one million queries a month, 20% of which is international.
All users need to do is put the property into the calculator to get custom data for that location. The basic stats are available for free, but the premium component allows people to see the comps, look at trends and seasonality, and get the confidence rating of the calculation.
What Are Some Basic Tips for People to Be Successful in the STR Market?
Scott says the riches are in the niches. Location is key—homes near hospitals, colleges, or national parks tend to do well. Think about where people want to be, especially during a pandemic. People want to drive to their location, and small, remote towns are the hottest areas in the US right now. What used to seem out of the way is exactly what people are looking for.
Beyond that, people want unique stays. They want to be off the grid, in interesting places. These days, people are thinking more about what they’re going to do at a home instead of going out and exploring. It’s important to make sure there are activities for people to do in the home such as indoor and outdoor games. Making it child friendly is a cheap investment that opens up possibilities—getting high chairs and cribs makes families more likely to choose your home. Adding amenities like a hotel would provide also helps.
Operationally, it’s important to tap into how you’re going to get your property in front of every eyeball and platform. Every geography is different, and different areas tend to use different platforms. In Denver, Airbnb is the most popular platform, while rural areas tend to use VRBO. Airbnb is popular in California, while Florida is mainly VRBO. Know what’s popular in your area to make sure potential renters are seeing your property.
Is the STR Market in a Bubble?
A lot of people saw Airbnb or VRBO for the first time during the pandemic. They wanted to travel locally to less traditionally popular destinations, and these platforms allow them to do that. Scott doesn’t see this changing much, as the likelihood of people wanting to go back to hotels is low. However, once the pandemic is over and people can start traveling internationally and by plane, things may change.
Regulation is the biggest damper on STRs. Knowing city council regulations and keeping up with ordinances is helpful for STR owners. It’s good to have the optionality of reverting back to a traditional investment property if trends change.
What Areas of Colorado Are Good for STRs?
A lot of our investors want to buy a vacation home and pay it off by renting it out. Scott’s rule of thumb is that wherever you want to travel yourself is usually the worst place to invest. He advises people not to buy with their own heart, because those are typically popular places and there isn’t a good deal to be had.
Instead, less obvious spots tend to do well. Jefferson Park in Denver, for example, is not a great place to live because of how busy it is. However, its proximity to downtown, stadiums, and museums is exactly what makes it a popular place for tourists to stay.
Colorado as a whole is traditionally a big vacation area, and the prices of homes are high compared to other states. Places like Leadville and Durango that haven’t been traditionally popular are doing well, because people want to stay away from the highest density areas.
How Do Self-Managed Homes Fare against Professionally Managed Properties?
Scott says the story for independent operators is a positive one. In general, people are not happy with property management companies, because they don’t have the same level of detail and care for individual properties.
Companies aren’t as concerned with getting repeat guests, understanding individual metrics, or knowing the demand drivers for properties. All of this leads to lower guest satisfaction. Owners who self-manage can make sure guests have a great experience.
Currently, there are more self-managed owners than professionals on Airbnb, and the company is boosting those properties on its site. Some hotel companies have tried to get into the game, but it’s too individualized for a big company. Scott thinks self-managed properties are the way of the future, and that we will be more likely to find individual people operating three to five properties over a few companies operating thousands.
However, managing properties requires you to be very active, and it’s easy to get burned out. In Scott’s experience, he thinks managing ten properties with a cleaner is the cap for one person. He doesn’t see a benefit of creating a system of processes and handing it off to a property manager unless you can guarantee they’ll follow them exactly.
Is There a Threat of Institutional Investors Moving into the STR Market?
We’ve seen institutional investors buying single family homes for traditional rentals, so it makes sense they would look into STRs, too. Scott has been researching this topic and has data sets on who owns every property. He’s concerned about how bigger entities coming in and buying these properties will affect the entrepreneurial model they’ve built.
So far, the yields aren’t there, and it’s possible they could drop these properties as quickly as they picked them up. If this happens, that could create an opportunity for smaller investors.
What Advice Would You Give to Your Younger Self?
Scott’s two main pieces are of advice are to trust yourself and start early. He got a job at a young age in corporate America, and by the time he was ready to take the entrepreneurial plunge, his wife was pregnant. It was a stressful time for him which could have been avoided if he’d trusted himself and started young when there was less on the line.
To learn more about AirDNA, visit their website. Interested in figuring out your own investment strategy? Sign up for our free toolkit and download free rental property analysis spreadsheets here.