401 | More AirBnB Law Changes?? Are They Getting Regulated Out??? Not Your Average Insights

New York City led the way with a major crackdown on AirBnB listings, and at the time, we warned this could set a precedent for other markets.

Now, Hawaii, Long Beach, Phoenix, Dallas, and Oakland are all following suit with their own attempts to restrict AirBnB operators.

But what does it mean for the future of the asset class?

THAT is what we're diving into on the 400th episode of the Not Your Average Investor Show!

JWB Co-Founder, Gregg Cohen, and show host, Pablo Gonzalez, will bring you a bold new prediction of where the market is going based on data and perspective.

They'll talk about:

- what these new regulations say, and how they will affect those markets
- how these precedents, plus changing consumer sentiments, could affect the short term rental asset class going forward
- why existing AirBnB investors don't necessarily need to worry because they have great options
- and more!

Be a part of what is always a spirited discussion with our community whenever we talk AirBnB. 

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Transcript

Pablo Gonzalez: 0:00

Today, we're talking about some regulations that have come out. It is a irregular show talking about regulations. We're talking about some new regulations around Airbnb that came out and are they getting regulated out? There's some new regulations around rent control down in a couple areas of the country. And then there's a regulatory body in the European union that's also dropping regulations. So we're talking regulations today.

Gregg Cohen: 0:22

I feel like there's like a Warren G reference here. Regulators. Come on. Oh, no, let's go. All right.

Pablo Gonzalez: 1:46

Welcome everybody to the weekly edition of the Not Your Average Investor show.

Gregg Cohen: 1:50

I'm your host

Pablo Gonzalez: 1:51

Pablo Gonzalez with me as always. Warren GC over here because we call him GC because he's got the genius concepts because he knows how to generate cashflow because he's a great co host. And because his name is Greg Cohen. Say hello, Greg. Hello, everybody. Great to be with you. Good to have you, man. Great, man. You have been really working on your funny today.

Gregg Cohen: 2:14

You know what? I've been practicing, you know, trying to be able to thank you so much. What, what show is this without you helping me? Without the bike shift. Yeah. You know, I mean, it's, it's really hard to, you know, be in your glow of funniness all the time, but the fusing is there every once in a while.

Pablo Gonzalez: 2:29

You know, Martha talks about that all the time. My wife, she did it a lot. Hard to be with such a. Fun. Welcome to the community. Good to have you here. Checking in, in the chat already seeing the ticker go up. I know whenever we talk about this stuff, people show up because everybody's got a take on this. Everybody's excited. And you know, we like to welcome you with a little tradition that we have. What is that you see? The roll call, baby. We got the mama bear checking in first. Cody Abbott. We got the ring master in the house. Drew Barnhill. We got the mystery man. Denny Davies. We got the maven from the mountains of Denver. Ms. Leslie Wilson. We got Jeff Pettijohn checking in from Missouri. Hi, Jeff. Jeff is, Jeff is a semi regular. Semi regular. Semi regular, with the MVP, totally regular. Mr. Lee Bishop. Mr. Lee Bishop. We got our leadoff hitter batting 6 or 7 today. John Henning. John Henning. We got Christopher Lee from Fernandina Beach. How are we doing on the nickname for Christopher Lee? I know, I feel like we've had a nickname and then a forgotten nickname. I'm not perfect.

Gregg Cohen: 3:20

Alright Chris, we need, we need some help. Go ahead. If you have one on demand, ready to go, we would love your insight here. If

Pablo Gonzalez: 3:27

John Moran from Port St. Lucie in the house, all right, John patron Santorio from Northern Virginia, Michael Santorio, Santorio, the Shaw man, Nadeem Shaw shot with his trademark. Good morning. Good afternoon from the West coast. My buddy. Bob Wiesner. Wow. From Bavaria. From bav. Good to talk Germany. Fantastic. Yeah. Beautiful, beautiful part of Germany, man. It's like mountainous and hilly and Yeah. Gorgeous and great food. Sounds amazing. We got the fairy godmother in the house.

Gregg Cohen: 3:51

Miss Jen fil of course, miss

Pablo Gonzalez: 3:52

Jen Filsen. We got our favorite smile in the house. Pamela Myers. Pamela Mars from the Seattle area. We all ride out for Almost Sick. That's right. From the, from the Inland Empire. The, I Bringing it hard. I love it. We got our regulars. Gary and Rosalyn Wright from Marietta, California who regard you for the regulatory show. we'll see. Got in here now. Regulators Jesse Marshall from Panama City, Florida. New name, new name, Jesse. Welcome to the show. Welcome to the party. Good to have you. We'd love to know what brought you here. We got Melissa Brooks Blakeslee from Northern Texas. Another new name.

Gregg Cohen: 4:28

Another new name

Pablo Gonzalez: 4:29

and multiple names there too. That are not separated by a space in this. Valerio Dawson, Valerie.

Gregg Cohen: 4:37

Valerie Dawson. J W B teammate right there. Look, she's celebrating our 400th show and counting. I love it. I love it.

Pablo Gonzalez: 4:42

Robin Schofield. New Hampshire. All right. The live free or die hard or something like that. Is that, was that, is that the Fast and the Furious tagline? Or is that the New Hampshire? You lost me there. Oh, Marilyn Kyman from Homosassa, Florida. Home of the manatees. Marilyn, we missed you. I feel like we haven't said that in a while. I agree. Good to have you, Marilyn. For those of you that are not regulars on the show, the homosassa area is where you swim with manatees. We've sort of made

Gregg Cohen: 5:10

it famous. We've,

Pablo Gonzalez: 5:11

we've put it on the map, baby. We got the first family of The Natural Average of Us show, the patriarch and matriarch canon, Carolyn Malin. We salute you. And we got. Grand Amigo El Grande, amigo de

Gregg Cohen: 5:26

Bill Shield.

Pablo Gonzalez: 5:26

Bill Shields with Amigo. It's good to have you. Alright, gc, let's get into it, man. Let's do it, let's do the usual sharing of stuff here. Mm-Hmm. Um, the first thing is about a month ago we just started seeing Blipping, all these different, like brand new headlines talking about Airbnb. And different new municipalities that are kind of like campaigning against it. Long Beach started going after it. Hawaii started going after it, right? Like we got this one, Hawaii limit vacation rentals in response to a tight housing market. We got this gentleman here campaigning for Long Beach. This article talks about how It's not just Long Beach, Orange County is requiring a minimum stay of three nights. Palm Springs is capping short term rentals Lakewood banning. So like this whole kind of like SoCal West Coast is going to be a little bit of a theme here as we're talking about it, but we decided to talk about it again because I think it was about six months ago, maybe six to eight months ago, there was an article about New York City passed this new regulation talking about. These like unmanned Airbnb rentals, you can't, unless you're there literally hosting somebody in your home, you need to comply by different rules there. And we warned of this idea that this might set a precedent. It might set a template for other municipalities, other cities to follow for air for that are growing tired of Airbnb GC. What are you thinking when you see this stuff?

Gregg Cohen: 6:55

Well, when we, we talked about this investment opportunity back in the day, what I said was, I see there's potential here for short term rentals, but there's a whole lot of unknowns. And one of the things that we talked about was the regulatory risk.

Pablo Gonzalez: 7:10

Regulatory.

Gregg Cohen: 7:11

Regulatory risk. There we go. Let's see how many times we can say regulators. Regulatory. Let's see who's counting at home here. But you know, there are tried and true, predictable, consistent types of investments that have been done for decades and decades and decades. And then there are new ones that sort of seem sort of similar, but have a lot of risks that are either visible or invisible. Short-term rentals, as we have seen, has regulatory risk. It also has risk during recessionary times, which we talked about. And so I think as, geez, I feel like everybody and their mother was jumping into short-term rentals three years ago and four years ago. Oh yeah. I mean, we got the question on the show all the time. Yeah. When are you going to be offering short-term rentals? Will you do property management for us? I mean, it was a constant thing. Yep. And, you know, we took a, a real wait and see approach because you know, a couple of things, right? The responsibility that we have before we actually put our name in, in a, in a marketing and sales channel behind selling something like that is there's risk to our reputation. And if the regulatory risk or the risk of how this asset would do in a recessionary environment isn't really understood, we could underperform for clients. Yep. And so we took a long. Wait and see approach. We invested in short term rentals. We geez, we put about 5 million bucks into short term rentals of our own portfolio. A little bit of cash. Yeah. About 25 properties, about 40 units of short term rentals. And we've sat on those for the last three or four years. Just to see how it would work and you know, what we're seeing now with these headlines, though, this regulatory risk, you can understand why it's starting to happen because against the backdrop of the housing affordability crisis, the regulatory risk of short term rentals is increased. And it's because you're taking existing inventory that could otherwise be affordable. for folks or otherwise be existing housing that people are generally happy about in the neighborhood and you would be taking that out of the housing pool that long term families could either rent or buy. And against the backdrop of housing affordability, it is an even stronger argument that people are making to Put the pause or put restrictions on short term rentals. And ultimately it's that regulatory risk that we identified many years ago coming to fruition.

Pablo Gonzalez: 9:34

Yeah, it's coming to fruition. I, you know, it's funny, man. I've started to see as a student of business and whatnot, it feels like there is like a whole new business model out there these days, right? Because technology moves so much faster than the government. Yes. Right. There is, there, there's been, you know, like a template for how you start one of these kind of like marketplace dual sided solve for some kind of like arbitrage in a market based on a technological platform that is either taking advantage of a loophole or it's moving faster than regulators can move in order to like figure out what they want to do with it or not. You could argue that social media is one of those things because we're, you know, right now in this like whole tick tock conversation and whatnot, but definitely Airbnb did this. Definitely Uber did this, right? Like they expanded to cities where like there was a but they were just kind of like slightly ahead of the Like ahead of the regulation, um, Bird Scooters has done stuff like this, right? Um, PadSplit is now doing these kinds of things, right? Like it is, it is this like proven model of capturing market cap for tech companies that are venture funded and can rapidly expand. But the dangerous side of it is that, you know, while these companies are operating and they know their playbook of profitability, and they know that on the back end, they're going to be able to always kind of like shuck and jive. When it, when it. When it also requires two sides of the marketplace, right? Like the, the user of it can just like benefit from it as it exists. But the person that invests in it, the person that either would in, when it comes to Airbnb that buys a condo or buys a house and like puts their, you know, remodels it in a certain way and markets it a certain way. And it's like counting on that. That is where this regulatory risk pays in. And they're the ones that are most at risk, right? Like, yeah.

Gregg Cohen: 11:30

Well, and I think. Regulatory risk in itself is not a reason to not invest in something, right? Some of the early investors in many of those companies that you just talked about are worth fortunes now because they invested. Correct. But I think what they understood was What is the regulatory risk and what is my reward for taking on that risk? And I think with short term rentals, it's been a little twisted. People have assumed that it is just like rental properties, which does not have expected returns of hundreds of hundreds of hundreds and hundreds of percent rate of return, right? It doesn't have exponential returns on investment. When you were an early investor in Uber, you know, way back in the day, your expected returns were thousands of percent, and you were willing to take on the regulatory risk. In short term rentals, what many people are finding is that they were hoping to get a few more points of return on investment, maybe than long term rentals, and that wasn't, that's not enough risk to take on, at least for JWB and for our clients. to deal with the regulatory risk. So it's that risk and reward trade off that I think many people did not understand when they got into short term rentals. Yeah,

Pablo Gonzalez: 12:42

totally. And we got some good, we got some good points here in the chat. So John Sechinger, the uh, the mayor of Allapattah is what I like to call John. John, good to see you back in here. He's saying, you know, we're using Airbnb rentals and short term rentals kind of like interchangeably. It's short term rentals. These people that do it use multiple different platforms to, to rent it out, including direct marketing and stuff like that. Um, some areas like Kissimmee, Florida, whole neighborhoods are being built solely for short term rentals. I actually stayed in one of those recently when I went to that, uh, medical office building conference. So, so yeah, absolutely. That is happening. And, um, and he's saying it only makes sense to do short term rentals. If you can make at least three X, the long term of rents, which is something that I want to, that I want to dig into with, with UGC. Cause Like you said, I think people were making some numbers work that wouldn't have worked in long term rentals, but they looked really good with short term rentals. Um, at the height of the demand of, of it all happening. And I know you guys put in that money. What are you, what, what What brought you to it? I know that part of it is like the R and D side of it. I know that JWB is always testing with like, Oh, small percentage of like your resources and workforce, um, to like, see what's next 10 years out. Um, but I know that there was also a, Hey, let's, uh, let's look to see if this really is like a three X return. Uh, what are you guys seeing in your, in your profile?

Gregg Cohen: 14:03

I love that objective viewpoint by John of. Short term rentals can make sense if the return is He says three X, the return for long term rentals or whatever it is. Having that objective viewpoint is where we started to because as JWB as a platform, we're always here to try to search for the best risk, adjusted return for clients. And that's where our R and D department comes into play, right? In the past, you've seen us. Be a pioneer of brand new construction homes for turnkey rental properties. Nobody was doing that before us. We started in 2011. We've done the same thing with townhomes. That's another R and D department within JWB that we, um, a success story. We were able to build that out, invest in it ourselves then operationalize it and bring it to clients. We try to, uh, building a, um, Shipping container apartment in downtown Jacksonville, which we did. And that is in the JWB portfolio. But our thesis there is that we were going to be able to drop costs of construction for our clients and maintenance for our clients. Didn't work out that way. That went way over budget. So not everything in the R& D department actually works out. But the important thing is that we spend our own money. To figure it out before we put our name behind it and bring it, uh, bring it to our clients. So where did it go with short term rentals? Well, that was the same idea, right? Three, four years ago, when this was all the rage, the numbers that everybody was looking at are the gross rental income. And if you're getting, you know, 400 bucks a night for a short term rental on a property that you otherwise would rent out for three grand a month for a long term rental, like the numbers are so large out there that it piqued our interest. The promise is way more

Pablo Gonzalez: 15:53

cashflow,

Gregg Cohen: 15:54

right?

Pablo Gonzalez: 15:54

Way more

Gregg Cohen: 15:54

cashflow. And we also understood that as home prices go up, cash flows are going to be harder to come by. And so we're always looking at opportunities like that. And this was a good one for us to. That's why we made the investment that we did. What we didn't know, and what most people didn't know when they got into short term rentals, is what's the net? So like John just said, what's the net operating income of a short term rental? And is it so much more than what a long term rental is? Because there is a lot more headaches. in short term rentals. Anytime you have more humans staying either just a night or three nights or a week or however long, you're going to have more headaches. And there's going to be more costs that go along with that. So our thesis was in order for it to be good enough for our clients and good enough for ourselves, then that return needed to be a lot more than what a long term rental was. As we've come to find out for the roughly 40 units that we have, we haven't seen that. We have seen some of our short term rentals perform pretty well, location specific, right? The ones that we have in Jacksonville Beach. Actually, some of our friends who joined us for the, for the Not Your Average Investor Summit got to stay in one of the JWB short term rental properties. You know, it's, it's a wonderful property for that one. We do quite well. There's a better return on that one than what we would get if we were renting that out long term. But there's a lot of properties of those 40. There's a lot that are the flip side, that there's a lot more headaches and maybe the numbers are the same. Maybe they're not, maybe they're less. And so it became such a less

Pablo Gonzalez: 17:23

than. Long term. Yeah. Less than

Gregg Cohen: 17:25

long term.

Pablo Gonzalez: 17:25

Yeah. So not even less than like peak Airbnb.

Gregg Cohen: 17:28

Exactly. Okay. Yeah. And it's very dependent on the season too, right? And so more variability, maybe even not the same return on investment, definitely more headaches. We've been able to pick and choose winners out of our portfolio, but you know, for a platform like us, You know, if it's not something we can replicate thousand times for our clients, it doesn't make sense for us to try to operationalize the onesies or twosies here, you know, so that's really where we landed overall. It was a good, a good good thing for us to try within our R and D department. And it proved the opposite thesis of what we wanted, which was, it is not worth it for us to start to operationalize this because the returns are just not good enough.

Pablo Gonzalez: 18:09

Got it. So as a, as a service, it wasn't worth it for you. To offer to the jwb investors And also as a asset class It wasn't really worth it for you to like grow it too much. Like you were just kind of like happy with All right. We got a couple here that work Are you gonna are you are y'all thinking about just doing long terms for the other ones or you're gonna keep that test going? Do you know? i'm not sure. Okay. Yeah,

Gregg Cohen: 18:32

I think they could be either I mean I think we're still in the, the figuring out part of this too. Like I said, we still don't know about the regulatory risk of these, right? We still don't know the recession risk of this as well. True. You know, so I think we're, we're early on, maybe we're midway through the, the, the, the R and D phase of this. The other part of this as to why it made sense for JWB is, you know, we're here and growing our property management services. We manage just under 6, 000 rental properties in Jacksonville. We're the largest single family property management company here. And we've acquired many property management companies over the year. I think it's been probably five or six that we've purchased over the years. Well, as we're purchasing those property management companies, many of those smaller property management companies that we would acquire would have a short term rentals. Part of that portfolio. And so we looked at that as a growth strategy for JWB property management as well. And we said, well, listen, as we continue to take advantage of opportunities to acquire property management companies, how great would it be for us internally to do that property management? And so there was, there was an opportunity there. What we realized is that that's not who we want to be, you know, managing short term rentals is hospitality and hospitality. We love being hospitable, right? But hospitality is different than financial services. It's different than a return on investment. And you know, so we made that decision, even though we own those 40 short term rental properties, we don't manage them. There's them internally. We actually made a decision to outsource them. We did that probably about a year ago, okay? And so there there's the R& D department working in full full form Yeah, right like how how different would it be if three years ago? I was like, hey guys, guess what you guys should buy some short term rentals You're doing because we're doing it and then you know a year and a half later I'm like, well, guess what we now are outsourcing that like these are the things that we think about as a vertically integrated Provider who's been here for 18 years and that's how we create the reputation that we have for being able to take care of people's money and continue to instill confidence in the decisions and the advice that we gave in the real estate space for you all.

Pablo Gonzalez: 20:38

Awesome, man. I love the stories of the, the, I like being able to learn from the JWB. R& D department, right? Like, and that like short term approach, like, let us ping pong your cannibals. Let us test this before we roll it out to anything else. I want to answer Jamila's question and then I want to just kind of get your advice on anybody that's already in, right? So, Jamila Banahum is asking, Why can't someone fight this regulation to be able to do what they want as long as no one is bothered to getting hurt?

Gregg Cohen: 21:04

I think it's a great question, Jamila. I think you can fight it. I think it's in that phase right now where there's folks that are fighting it. And if you read some of the articles that we have that pulled up here, and I'm sure we have them in the chat, you'll see the opposing sides as well. I think the main point here is that, you know, in an environment where affordable housing affordability is in crisis mode for the country. Especially in election year you know, issues like housing affordability will rise to the top. You want to be on the right side of the argument. You want to be viewed as a solution to housing affordability. And there's a very compelling argument that short term rentals are not on that side. So that's, that's just kind of the backdrop and the landscape. But there is a, there are a lot of battles that are being you know, debated in different municipalities. You know, before investing in short term rentals, I would highly, highly encourage you to educate yourself not just on that individual property, but for short term rentals, understand what the regulations are, understand what the tenor of the regulations are in that area because you could put your numbers together based on a ton of gross rental income based on this being a short term rental, pay way more for the property than you should, and then ultimately that's. option is taken away from you. And now you have a dud for a, for a rental property. You know, so, so make sure you do your due diligence there.

Pablo Gonzalez: 22:25

Yeah. And I like, I like where you're going with it. Do you see, cause Jamila, you know what I, what I see is as a, as a marketer, what I look at is like, what is the court of public opinion saying? And it feels like Airbnb showed up as a hero. It showed up as like a cheaper way to travel for millennials, a communal experience, right? Like there was on trend with the things that we wanted a way to buy real estate if you couldn't before. And just kind of like what's happened based on the trends and how it's gone is those tides of all just kind of turned it's turned into this like, Oh, it wasn't what millennials were able to buy to afford. It was like people that already had money being able to buy more things and taking those off the market. It was it went from being this community experience to like, Hey, this is a danger to my community. Because as somebody was saying in the chat Tara was saying in the chat, it's like, The, the, the tenants that come to an Airbnb or come to a short term rental that show up that just want to have a party that's not in their own backyard are putting it in someone else's backyard. Right. And then, and then also this idea of. You know people buying it the the the community getting against it And now there's all these like hidden fees and all these things So it's not even the cheaper option to travel, right? So it's just like kind of like taking all the things that made it popular and maligned all those fans Which is why it's kind of hard to fight against it You know so definitely can fight it. It's just, it's just gotten harder and harder because all the things, the reason that she's saying true, all good points, all the reasons why people loved it. Me myself, man. Like I used a ton of Airbnb when it first came out you know, and it's just kind of like turn the tides of like the reasons why people loved it.

Gregg Cohen: 24:02

I used to do that all the

Pablo Gonzalez: 24:03

time and now I'm like, I mean, I still would.

Gregg Cohen: 24:05

Yeah. I'm not opposed to it. Yeah. But I've noticed myself just. And this is just a personal thing with my family. I'm like, you know what? I know more about how the situation is going to go if I just go to a hotel anyways. And so even now I've kind of turned more towards the traditional way. And I think other people feel that way

Pablo Gonzalez: 24:22

too. Okay. So now GC, before we move off of this topic, I think there's kind of like three levels of Airbnb investors here. There's the people that bought it seven years ago and got in when the getting's good. And they're probably in one place. The data has shown that the majority of Airbnb owners have all jumped in post pandemic. So there's folks that have recently gotten into it. And then I think you've also spoken a little bit to folks that are like thinking about real estate and seeing short term rentals as like a possibility. What is your advice for like those three buckets of folks?

Gregg Cohen: 24:53

Well, if you invested seven years ago, you're probably doing quite well. And you know, my overall advice when it comes to short term rentals and long term rentals is you should be conservative with yourself, right? Under promise and over deliver to yourself here. It's very easy to put a pro forma together. And base it off of what a short term rental property would, would do. And let me tell you, you're going to be able to put some really high numbers up there for your, for your gross rental income. It's very easy to do that because you'll see. 250 a night or 400 a night or what, what have you. But my advice would be prepare as if the backup plan is still good enough for you, you know, go through and build a pro forma based on this being a long term rental and make sure it works, make sure it's delivering that return on investment from all five of those profit centers. Like we talk about here for JWB properties or for that other successful turnkey properties. Evaluate the proforma that way, then do a secondary proforma. And then you can go hog wild on exactly what your, you know, nightly rate would be for short term rentals. And then you take that regulatory risk largely off the table because we don't see long term rentals getting regulated out of, you know, the, the national landscape here. And yeah, so that would be my advice. If you bought a long time ago, you're probably doing quite well because you know, I doubt that you put both of those performers together if you bought seven years ago, but you landed in a great spot because right now your rents have gone up so much for your long term that it's going to work no matter which way. You know, if you just bought recently, you know, I just think you have to do so much due diligence on your market. You have to be supremely knowledgeable in what's going on in that area. So if you're not living in that area or you don't have boots on the ground in that area, Get boots on the ground in that area. Team first, right? The team is the most important thing for you. Yeah. And if you find yourself in an area where you no longer can do short term rentals, a 1031 can be your best, best option. You can, you know, see that that is coming down the pike. You can sell that asset maybe in a different market and you can pull that over to a better market for long term rentals. And that way you can still, you know, reach peak profitability for all five profit centers.

Pablo Gonzalez: 27:10

There you go. All right, cool. So good advice. And at the end of the day, if you're looking at it, and maybe you didn't have the backup plan, and now things have changed because the demand has subsided, or you know, you're facing this regulatory risk, and you're not comfortable with it. The idea of 1031ing into a market like Jacksonville, working with JWB who can help you do a 1031 exchange, take that property, take the profits from it, buy multiple properties. Here in Jacksonville is always an attractive option, right? Like if you're, if you're looking to pull the rip cord, the answer is 1031 exchange, right?

Gregg Cohen: 28:24

Absolutely. Vertically integrated companies like JWB are perfect for 1031 exchanges because you have rules and limits on how long you have to find like kind properties can be as short as 45 days. Well, you can come to a provider like JWB and you can have that conversation today or tomorrow and those assets are there for you to identify and move forward on.

Pablo Gonzalez: 28:47

Got it. We're going to move on to the next regulatory conversation. Before that, Paula Pau is asking Where is the best office or site to check if my Bear B& B is no longer allowed? I don't have the answer to that. Do you?

Gregg Cohen: 28:57

I think you just do a search for your local municipality. That would probably be the best advice for that one. Cool.

Pablo Gonzalez: 29:04

All right. You see the next conversation here is more, more regulations, right? More stuff happening here. And this one it's. Still in Southern California, we've got, I'm trying to find the right thing. Here we go. Here we go. L. A. County is now having this conversation around wanting to cap rent hikes at 3 percent and landlords saying that that would push them to sell. I'll put this in the chat. It's from the L. A. Times. G. C. What do you think about that?

Gregg Cohen: 29:31

Man, I know where we're going. We want to solve this housing affordability crisis, but we're, the, the actions like this. are maybe solving one part of that problem, but creating much bigger problems long term. And you know, I, I read this article. I thought it was really insightful. It would encourage, encourage you all to read it as well. If you read it, what you find is that this isn't the first time that LA County has implemented Rent controls, they actually did it in 2019 and when the pandemic happened, the first thing that they did so let me start off in 2019. They put caps. It might have been 3 percent or 4 percent or whatever on rent increases when the pandemic happened. The first thing that they did was say, No rent increases at all. No rent increases for mom and pop investors like we all are here No rent increases on your rental property there. Now. It's been that way up until recently here This is the new legislation that they're trying to reenact of now saying well You can't put rent increases together here, but only at 3 percent or 4 percent or whichever they're they're saying here Well, what happened to rents over since 2019? I mean, rents have gone up 30, 40, 50 percent depending on where you are in the country. So you as a rental property investor, if you invested in LA County, you did not legally, you were not allowed to receive the additional rent. But what's been happening on the other side? Was there a cap on insurance cost increases? Nope. Was there a cap on property tax increases? Nope. No! So, rental property investors in L. A. County have been getting squeezed, and I'm sure they are leaving in droves. And the ones who are staying don't have a financial incentive to continue to keep their properties up and to drive more amenities for their residents. And this is the hidden problem. I know rent increases sound, excuse me, rent controls sound good on the surface as far as solving housing affordability, but you create big problems long term for areas, cities, you know, states, depending on you know, how, how far this, this range is. And so all you're doing is you're plugging one hole and you're creating a much bigger problem somewhere else. So the real solution to fixing housing affordability starts with supply. It starts with supply. Supply is the biggest reason why home prices continue to come up. It's because we don't have enough supply and cities and municipalities and states and governments can do a whole lot to help on the supply side by making it easier to build, reducing the red tape to build, and by allowing

Pablo Gonzalez: 32:19

parking regulations

Gregg Cohen: 32:20

and stuff like

Pablo Gonzalez: 32:20

that,

Gregg Cohen: 32:21

allowing more density, more density means you get more units on the same piece of land. And if you have more units on the same piece of land, you're increasing supply. So, you know, I'm not surprised based on, you know, the, kind of the, the, you know, there are certain parts of the country that are open to rent controls. And I think they're pretty well documented. New York is the one that comes to mind a lot, right? LA County. This is new to me. I didn't know exactly that LA County did this since 2019, but I'm not surprised.

Pablo Gonzalez: 32:52

I was telling you when I live in Southern California, everybody wanted to live in Santa Monica because of the rent control in Santa Monica.

Gregg Cohen: 32:57

Exactly.

Pablo Gonzalez: 32:57

Patron Centorio said Maryland recently did this Montgomery County, Maryland did the same thing as well.

Gregg Cohen: 33:03

There you go. So, you know, again, know where you're going to invest and do your due diligence because there are certain bastions in the country that are more open to rent controls. And there are some that are showing no signs of that. Yep. In Jacksonville. is absolutely not showing any signs of that. And I think that makes a real difference. You know, because rent controls would be terrible, as I'm a rental property investor, it'd be terrible. If I had thought about myself for the last four years as rents went up 30, 40, 50%, As my cost went up a considerable amount as well, you know, that, that would that would lead to a lot of people leaving. That would lead to less new construction in that area. That would lead to more supply problems in that area. That would lead to more affordability problems as well. So just know where you're investing. And if you're in one of these markets, find a different one.

Pablo Gonzalez: 34:03

The big aha for me there, GC, as you were talking about that, I hadn't considered was that idea that rent control is essentially driving the problem of like, if there is rent control, now what you're saying is you need to win by cutting costs, which means that you're going to have a worse Renter experience which means that the neighborhood is gonna degrade which means a community is gonna degrade right like I hadn't thought of it as a anti competition issue Leading to like actual on the street problems for the folks living in there, right? Like if you can't if you're not incentivizing this idea of Hey, let's build a long term relationship. Let's differentiate by providing the best resident experience, the best housing assets, because there's something in it for me. Now what you're trying to do is get people to win by cutting costs, which gets them to think like slumlords and create slums.

Gregg Cohen: 34:56

Yeah, go and look at rent controlled apartments.

Pablo Gonzalez: 34:59

Yeah.

Gregg Cohen: 35:01

Or single family houses. Go and take a tour if you're in one of those areas. and then go somewhere else in the country and go look at other apartments that are in a similar, you know, type of housing environment, you'll see a big difference. And it's just, it makes sense. The incentives are no longer there. And if you're a savvy rental property investor, you're not going to put your money in something that is, is rent controlled. And it's not that I want to make sure I'm not being, I'm trying to find the best solution to housing. And I want to make sure that people know that I'm trying to find the best solution for the resident experience as well. Because the resident experience may not suffer day one when this is passed, as far as the rent controls are in place, but over time that will suffer. And so the real solution here to solving housing affordability is increasing median incomes and increasing supply. And that's one of the reasons we're so passionate about our efforts in downtown Jacksonville, Jacksonville. It's the reason that we invested 68 million dollars and bought about 20 city blocks downtown is because we believe that we can be an advocate and a driving force for raising median incomes in our community. And that's where everybody can win. Our community can win, our residents can win and our investors can win as well. That's, that's really the solution that we think is best.

Pablo Gonzalez: 36:23

As you're saying all this stuff, do you see where, where it goes through my head is like In a democracy, nobody is completely free from regulatory risk. Sure. We talked about Airbnb regulations happening. That is a asset class regulatory risk. Now it seems that something that's proven that's going to stay here forever, which is renting out houses, right? Has a market regulatory risk. So understanding where you're investing, You want to approach it from like a, a market size regulatory risk. There are areas in the country that are prone to this type of stuff that are, you know, the closer you are to another one doing it, the more likely that it's going to, that it's going to happen makes a lot of sense. But on the other side, I also think about this idea of like market size, regulatory risk in the team side of it. The idea that if you are, we've talked for a long time, how there is vertical integration that is limited to within the property lines. And then there's vertical integration that spills out over the property lines, right? Like when I think of you saying that the answer is increasing supply and increasing the median income, I think, well, then I want to be investing with somebody that is working on increasing the median incomes and increasing supply at the same time, not just the developer, but a vertically integrated developer that is in it. That's aligned with those incentives. That is working long term on making the city better so that the asset class is still suitable for the community.

Gregg Cohen: 37:47

And when you work with a company that is focused on one market, you can make that type of impact. I know it sounds like a big, hairy, audacious goal to say that we can be a driver in raising median incomes, but we really can in Jacksonville. And we can because, well, you've seen what we've been able to do downtown. This is a 2 billion development. That's happening in downtown that you know, started from those 20 city blocks that we, that we purchased that will raise median incomes, but you can't do things at that scale. Unless you're focused on one market and you go all in on one market, there's no way we could have that type of an impact if we were chasing inventory in five or ten or fifteen markets across the country. So, yeah, I think we're excited about that that impact. I want to start tracking median incomes over the years here and like seeing the net effect of You know, not just our efforts, all the developers that are pioneering what's going on in downtown Jacksonville. And I think you're going to see outsized gains in the in the increase in median incomes from the activity that are going on really for the last three years and what you'll see over the next five or ten.

Pablo Gonzalez: 38:58

Love it, man. Love it. Yeah, me too. I'm excited for that. I'm excited that the show has created like the platform to incentivize reporting on these data and whatnot. And we've got the receipts of what we talk about. So do you see before we move on to questions, if you are talking to You know, I'm an investor in LA. I have a couple of rental properties. I just found out that these rent controls are going to take place. My insurance costs has been going up. My property taxes have been going up, but I now, and I can't recap all the money I left on the, on the table from when they shut it down during COVID. Now I know that I can only increase three, four or 5 percent and not catch up. What would you say to them?

Gregg Cohen: 39:35

I'd say it's time to find a new market. But before you go and find another market, Follow our advice and find the right team first. Yeah. But consider, there are a lot of reasons to choose another market than LA County for rental properties, even before what we're talking about here, right? Think about the five profit centers, and there are, it is really hard to get positive cash flow in LA County compared to a market like Jacksonville. So there are already reasons that you should have been possibly considering. Mm-Hmm. moving outta that market. Consider this you know, the icing on the cake, right? The, the, the thing that is probably gonna move you over the edge. Then go and find a vertically integrated provider in a market that produces all five of those profit centers. And then think about a 1031 exchange, because a 1031 exchange will allow you to take those assets that have appreciated a lot in LA County, and then to build a, a similar type of rental property portfolio where you don't have rent controls in Jacksonville, Florida, and you don't have to pay the taxes, the capital gains at the time of the sale, which will allow you to build an even. Bigger rental property portfolio allow you to grow your assets through those five profit centers at an accelerated rate. So yeah, consider this, that, that final drop in the bucket. It's time to, time to move from that market and a 1031 exchange is a great vehicle for you to look into.

Pablo Gonzalez: 40:54

And the ringmaster Drew Barnhill of our community is saying, sell one house in LA and buy three to five in Jacksonville. If you're in LA County, I think you're going to like, fall over when we find out that houses cost 225, 000, 250, 000 here. So the bang for the bug goes a long way. Go to chat with jwb. com to set up a call, shoot an email to info at jwbcompanies. com if you'd rather do it that way. That's super easy to get on the, on a call with the team. A couple of questions before we move on to our last story, GC versus Jillian Noel is asking, this is great information. Thank you. Thank you. What do you think about medium term rentals?

Gregg Cohen: 41:27

Yeah. So medium term rentals would be. Yeah, you know, people have to stay at least like 30 days or at least three months and why not, you know, I think it's furnished

Pablo Gonzalez: 41:37

You'd have to provide the furnishing in general for medium term rentals, right?

Gregg Cohen: 41:39

I don't know I don't know if you always have to or not. Okay, I

Pablo Gonzalez: 41:42

understand it. Yeah, I would think so,

Gregg Cohen: 41:44

right? I'm not so familiar with medium term rentals. There are probably others that have more insight into it. Ours are short term not medium term. But I would say that's sort of in between what we've been talking about. I guess that would be appropriate since it's medium term. But in terms of like risk and reward profiles, I would think of this as sort of in between, right? As far as like the, affordability, you're still taking inventory out of the marketplace that could be used to help a family build you know, You know, either rent a home or own a home themselves, and there's, and that's the real key, like, keeping, you know, those costs down and giving access to families to have, you know, their own homes is really key. So medium term rentals are still taken away from that. So I think you'll, you'll face, you know, some, some challenges there. But medium term rentals are definitely more people are more excited about having those than short term rentals in their backyard. So

Pablo Gonzalez: 42:37

as a customer, it does fill a need. Like I know when I moved to Jackson, right in a rapidly moving, in a rapidly growing economy, right? Like when people are moving here and you're like, well, I want to be here and I want to be here like six months before I figure out where I'm going to rent long term or if I'm going to buy or something like that. It does fill a need in a, in a, in a growing economy. Take up

Gregg Cohen: 42:54

like traveling nurses or other professions.

Pablo Gonzalez: 42:56

Traveling nurses or, or just folks that are getting recruited to work in the local market that are bringing their family. Like, well, I want to get to know the school system and blah, blah, blah, before I make a decision.

Gregg Cohen: 43:06

Right. Yeah. I would just go back to that same, you can't lose because, you know, the chances of long term rentals getting regulated out, I can't imagine that. So

Pablo Gonzalez: 43:14

pressure test medium term rentals, the way that you would pressure test medium term rentals.

Gregg Cohen: 43:17

Run that same pro forma for a long term rental. Make sure it works there. Make sure it, it delivers those five profit centers. And then run your scenarios for either short term or medium term. You can't go wrong if you do that.

Pablo Gonzalez: 43:27

Cool. Got it. Pigeon Santorio says, Greg, what I always find interesting is who is exempt from that rent control. A quick search showed that the rental unit was built over after October 1st, 1978 are exempt. There you go. Interesting.

Gregg Cohen: 43:43

I'm glad that they're, that they're doing that because You know, that is encouraging more new construction, which encourages more supply, which is, you know, what the big thing that we need to solve housing affordability makes sense, makes sense.

Pablo Gonzalez: 43:56

All right. You see our last regulatory story of the day here. This is more of a macro regulation, but. As you may or may not have heard, the European Union's central bank has decided to drop their interest rate 0. 25 percentage points, that, I don't know if percent, it's bips, right? Bips. Bips. 0. 25. 25 bips. 25 bips. I, I always struggle with like the, the big fancy stuff, but, um, comes a day after Canada took a similar step and followed a flurry of similar moves in recent months from other countries like Sweden, Switzerland, Brazil, and Mexico. When you first see this story, GC, what are you thinking?

Gregg Cohen: 44:39

My first thought is we know the punchline here. Okay. As a rental property investor, as a not your average investor, the, the key talking point in 2024 is We need to look at what happens when interest rates come down and what happens to home prices. And the data supports that when interest rates come down, there's more mortgage applications, there's more buying demand, and there is increased home price appreciation. So we haven't known when interest rates were going to come down. We talked about this, I think, last show or two shows ago in the context of, we don't know when they're coming down, but when they come down, you want to have bought your properties before they come down. Because you'll set yourself up for some you'll walk in with more equity. You'll walk in with some appreciation built in right off of the purchase, which is always a great spot to be in. So that was the way we positioned it before. This article came out and we've seen what has happened in the European Central Bank and these other banks. Consider that a sign that the rest of the world is already starting the process of lowering their Fed funds rate or whatever it's called in their area, which will indirectly affect their mortgage rates in their country. And then think about the U. S., right? We don't want to lag far behind. Around what the other countries are doing, because these rates that are cut will be a stimulus to the economy. Their GDP will grow more than if they had not cut those rates. And so the U. S. and the Fed are paying attention, you better believe. And they're starting to look at what the rest of the world is doing. And it is another data point in Jerome Powell's mind of saying, Hmm, when do we start to cut? Do you know that When rates go down, home prices are going to go up and you're asking when's the best time to invest. The best time to invest is now. Before the rates go down. And you know, you're already seeing the writing on the wall.

Pablo Gonzalez: 46:45

You're seeing the right on the wall. You know, so a couple of things, right? Like there is a bunch of information that came out this week from the economy. I know that the Fed meets this week to talk about this and whether or not it's going to happen. Here's what I found out. I don't know if, I don't know if you got this email GC, but I, as a client got this email talking about how if you join in JWB elite program and get to five rental properties, then my property management fee goes down 1%. So that gave me the impetus to hop on the call with my portfolio manager and be like, Oh, I want to hear about this Fritz. Yeah. And what Fritz told me is, and this was on Friday, what Fritz told me is that since this announcement came out, there have been a certain amount of JWB current clients that have gotten on the phone and said, Hey, Hey, I saw that Europe cut the rate. I think that this is going to happen in the U. S. soon. I want to jump in front of this. That is confirming what we keep saying, that there is this like pent up demand on the sideline that is waiting for this interest rate cut to Drive up housing prices and people that invest with JWB. I'm sure members of our community are paying attention to this stuff. And these signs are happening, right? So this idea that we know the answers to the test, we know that the one, the interest rates drop prices are going to go up at an above average rate. We know that governments all around the world want to drop interest rates because it stimulates the economy. We also know that last week the jobs report came out, the inflation rate report came out, jobs are doing pretty good, right? I'm sorry. Yeah. Jobs are humming along. So there isn't a risk of like a recession looming. Inflation has dropped, but it hasn't dropped as much as Jerome Powell's. I said, he wants it to drop before this whole thing happens. So he's probably taking a measured approach to this thing. And then the last thing that we know is There's something happening in November that is going to aka the election, that if, you know, if there is like an affordability crisis, if people are worried about the economy, you want to stimulate the economy ahead of an election, both parties are going to want to do something like this. So I don't know, man, I see all this thing happening. I'd be surprised if Jerome Powell says this week we're cut, we're following suit and, and cutting rates. But I would also be surprised if. Before the end of Q3, this isn't happening. And if I'm thinking, you know, I am obviously I'm thinking, cause I'm taking this call with Fritz about, about how do I grow my portfolio right now? You know, I am thinking about how to get ahead of this, capture that home price, you know, appreciation ahead of time, get that equity locked in, refinance later and stuff like that.

Gregg Cohen: 49:29

I love. I just think this is such a beautiful thing. What we just talked about here is us taking what's going on in the economy, breaking it down with a not your average investor take, sharing this message, beating this drum as we have for probably a few months now, hearing stories of clients that are taking this not your average insight and using it and taking steps forward in their financial portfolio and buying more investment properties. Now, thinking about how do I get to that next level of JWB elite, which drops my property management fees, this whole thing coming together. So I, I just, I love this. This is the essence of what the show was, is. And so it's. Give people an

Pablo Gonzalez: 50:09

information advantage. And I'm not your average person. And,

Gregg Cohen: 50:12

and here's the thing. None of us know when these interest rates are going to drop. I mean, we could, we could give a different perspective as far as the health of the economy because the jobs report came out way higher than anybody expected. And inflation is stubbornly higher than we all want at 3. 4, 3. 5 percent. And, you know, the Fed wants it to be 2 percent. You know, and, and the fed doesn't want to make too bold of moves too quickly because overall GDP is continuing to grow. And, you know, so it's a tough thing. Take this. as understanding the punchline. You understand the punchline to the joke here. I don't know exactly how the joke is going to be delivered, but you understand the joke or you understand the punchline here, which is overall, at some point, interest rates are going to come down. When that happens, home prices are going to go up. You want to buy now. before they go down. Do I know if they're going to go down this week? Or if they're going to go down in six months or a year? No, nobody knows. But at some point they're coming down. And the timing of when to do that is really inconsequential in my mind because you're buying and holding this thing for a full market cycle anyways. So, I just love the whole thing. I love, I love it all coming together, man.

Pablo Gonzalez: 51:27

I think it's great, man. When I was on the call, when I was on the call with Fritz and he was telling me this stuff, I was like, yeah, no way. I know. So cool. Right? Like, again, I don't know if these are people watching the show or if it's people reading the newsletter or it's people listening on the podcast, but they're obviously, you know, like your, your thinking are not your average mentality is like permeating. It's out there. And I think it's really, really cool. I feel like the chat today has been particularly valuable. Yeah. Because, you know, thanks to the fact that we have this community, we have folks investing in short term rentals. We have folks investing in medium term rentals. We have folks that are making these decisions. I just want to read out a couple of pieces of advice here. So, Patreon Santorio's Says Greg, I own two short term week to week high grossing rentals in Ocean City, Maryland. Years ago, the high beachfront property taxes, high HOA costs, higher maintenance costs, and 20 percent property management costs took the majority of income and a ton of my time. After running the numbers, I took my appreciation, did a 1031 exchange and purchased three single family homes in 2016. So that is somebody doing that analysis right now in the short term market. Also in that story out here. If you can't be raising your rent somewhere, you know, like costs tend to be going up and we'll continue to squeeze you. Right. So like really great case for a smart decision based around it. And 31 exchange by Michael Santoria.

Gregg Cohen: 52:43

And that's just not anybody doing that. That's Michael Santoria. She's the patron Santoria's for, he's one of our most successful clients. Yeah. Beyond just the dollars and cents such a savvy investor. So that is real world experience from somebody who owns a significant amount of long term rentals. And, you know, did his own R& D when it came to the book, so you're hearing it from a couple sources there.

Pablo Gonzalez: 53:04

Another, another famous member of our community, the Maven, the real estate Maven, Leslie Wilson puts a really interesting testimony here in the chat as well. She puts, I am currently renting out my guest room on furnished finders with a target of hosting healthcare workers. So far I have had four tenants in two years some stay for one month others for six months I had one disastrous tenant who was trying to relocate to Denver from Florida She and her boyfriend ended up stealing some kitchen items when I chose to not renew their stay after two months Now I am hosting a gal from Colombia who works in a golf course grill grill six days a week She has a work permit is applying for asylum. You do meet some interesting folks renting medium term The turnover is easier But the communication with them can be challenging as they post what they are looking for and you have to contact them. Granted, healthcare workers are busy, but this generation does have their communication challenges. So that's another real life story of that in the community. Another reason to show up live, be here, interact with folks, right? Pretty good show today, GC. Yeah, this is great. Oh, I've got a, I got a couple things that I was not expecting. Yeah. We also got breaking news here at

Gregg Cohen: 54:13

the end of the

Pablo Gonzalez: 54:13

hour. GC, what's going on? You guys,

Gregg Cohen: 54:15

Asked such great questions on the show. I don't always know all the answers, but I'm always, I'm always one phone call away or running one report away and try to get back to you with those answers. So you all had asked, how many renters are there in Jacksonville? And it is estimated that there are 543, 400 renters in Jacksonville. Say it again. 543, 400.

Pablo Gonzalez: 54:36

Okay.

Gregg Cohen: 54:38

This data was kind of hard to come by actually surprisingly, because there's a lot of more readily available data for the number of housing units, not necessarily the number of folks, but that data is coming. So somewhere

Pablo Gonzalez: 54:48

between a third to a half of the people that live in Jacksonville are renters?

Gregg Cohen: 54:52

About a third.

Pablo Gonzalez: 54:53

Yeah. Okay. Interesting.

Gregg Cohen: 54:54

About a third. Yeah.

Pablo Gonzalez: 54:55

Data's coming from where?

Gregg Cohen: 54:56

So we get it from John Burns as far as the number of rental units, and then it's from the U. S. Census as far as the number of people per household.

Pablo Gonzalez: 55:02

Okay.

Gregg Cohen: 55:03

Interesting. So about 220, 000 rental units, about two and a half people per house in Jacksonville according to the census, boom, about 543, 000. GC. And then one more here. This is just a super awesome thing that I had to share. So many of you are familiar with the net promoter score. It's a way that successful businesses are able to measure their client experience. JWB has been measuring our own net promoter score for, I don't know. Long time ago director on our team, Lauren Alleman put this together. I mean, it was probably 10 years ago and it was groundbreaking at that time. And so if you all get a survey, I think we send it out once every six months. And I'll ask you one question. How often or how likely are you to recommend JWB to a family or friend? Just one question. So zero to 10 scale. And then you do a score and then you benchmark this across industries and across competitors within your industry. So anyways, JWB's NPS score is 70 percent in Q2. Our four year average is 71%. How does that compare against the real estate industry, you might ask? Yeah, I do want to ask. The industry standard in real estate is 30%. Oh, okay. So, we're super excited. The way you get this percentage is you take the ones who answer 9 to 10, you subtract the ones who enter, you know, answer 0 through 6, you do this calculation and all this good stuff. But 30 percent is industry standard. 71 percent is our four year average. And first of all, thank you all for taking the time to share your experience with us. That one question survey means so much to our team. And what a cool win, right? To have to be able to have a numerical way of saying we're doing a good job with client experience. So there you go. A little bit of

Pablo Gonzalez: 56:40

bragging. Very cool, G. C. Nice brag. Humble brag by G. C. There you go. All right, man. I want to thank the community for being here this Tuesday. Next a week from today, we've got a special show. We've got a, we've got a, not your average investor panel. We got our, the six Fs. Our favorite flat fee fiduciary financial advisor friend is coming to town. Kelly Barenbaum and the MVP, who you may have heard of, Mr. Lee Bishop, Mr. Lee Bishop are going to be together in Orlando. Our house. Yeah. Room. Yeah. It's going to be a powerhouse room. I think, I think the grand amigo might also make a, make a guest appearance at some point. Cause I know they're all hanging out in Orlando. Yeah. But we're, we're talking about this retirement problem that America is having Kelly as a financial advisor, Leah, somebody who has invested in real estate in his retirement. We're just going to talk about at large. Why are these statistics happening? What are we seeing in the market? What are people doing like themselves and others to get to retirement with a little bit better situation than they were in? What the average is right now, because we're not trying to have average results out here. It's going to be a good one, GC. And you know, hope the community shows up at large. You showed up today. We had 80 plus folks hanging out here. Never take it for granted that you take an hour out of your workday to show up here. Ask great questions today, particularly really, really great value in the chat, because we're talking about all these different experiences. We weren't even, yeah, like we weren't the expert in the house today. The chat was right. So. Make time out of your day, be listening in the podcast, show up one of these days, get a nickname, make a friend. But thank you community for showing up week after week. And from now until then, do you see any, any little bit of advice you got? Don't be average.