#212 Building Wealth with Luxury Vacation Rentals ft. Philip Kang of Wandery Capital

Why Luxury Short-Term Rentals?

Peter discusses with Philip why he chose large luxury short-term rentals.

Philip emphasized that large luxury short-term rentals stem from a shift in consumer behavior towards group travel and the need for high-end accommodations that cater to such groups. He highlights the rise of short-term rentals as a niche within real estate, particularly focusing on the demand for luxury properties that can accommodate large groups with premium amenities. 

He talks more about the surge in demand for short-term rentals during the COVID-19 pandemic, noting the need for unique, high-end properties and professional marketing to succeed in the competitive market influenced by changing consumer behaviors like the rise of digital nomadism and remote work trends.

Economics Behind the Investment

Peter continues by asking about the economics of short-term rentals, the economy at large, and what happens in times of downturn.

Their discussion revolved around the impact of potential economic downturns on the luxury short-term rental business, focusing on the concept of capitalization rate (cap rate) as a key metric for assessing profitability and risk in real estate investments. 

Philip emphasizes that Wandery Capital targets a minimum cap rate of 10% for investments, highlighting the resilience of short-term rentals due to their high cap rates, which provide a buffer against revenue declines during market downturns. He adds that short-term rentals are seen as having a higher potential for profitability compared to traditional real estate assets, with a focus on maintaining cap rates above 10% to ensure financial stability and growth.

About the Revenue and Expenses

Peter proceeds by prompting Philip to talk about the real numbers when it comes to this investment.

In response, Philip shares an investment in a luxury short-term rental property called the Lazy River House, highlighting its valuation at $6 million and revenue potential of over a million. He emphasizes the property’s high cap rate of around 11%, indicating strong profitability. 

Their discussion then touches on the barriers to entry in the luxury short-term rental market, emphasizing the importance of real estate expertise and the creation of unique, high-value experiences for guests. Philip anticipates growth in the luxury short-term rental sector and emphasizes their focus on large luxury properties with high barriers to entry.

Impact on Inflation and Interest Rates

Philip and Peter discuss the impact of the current inflation and high-interest rate environment on the real estate market, and how it affects short-term rentals.

Philip notes that despite the challenges, their investment fund remains profitable with a target cap rate of 10% or higher. He highlights the importance of understanding market fundamentals and mentions that while traditional asset classes have benefited from low interest rates in recent years, this trend is expected to shift. Philip also emphasizes the need for creativity in dealing with higher rates and distressed deals to maintain profitability, stating that their business plan and execution remain unchanged despite the market conditions.

What it Looks Like for First-Time Investors

Philip talks about how it would be if you invest for the first time in short-term rentals and also answers some questions that are common for those who are just starting out.

He shares that investing in a fund that owns short-term rentals involves buying a share of the membership of the fund, which in turn owns multiple properties in various markets. This approach offers similar benefits to owning real estate directly, such as tax advantages and safety nets, but with the added advantage of diversification across different locations and assets. By investing in a fund, individuals can spread their risk across multiple properties and markets, providing a hedge against potential losses and increasing the potential for returns through diversification.

To answer the question: “Why don’t I just do it myself”, Philip shares his piece of insider knowledge.

He discusses that investing in a fund that manages short-term rentals provides an alternative to hands-on ownership, offering convenience and expertise in property management. He highlights the demanding nature of operating short-term rentals, emphasizing the need for constant attention to guest needs, maintenance, and other issues. While hands-on management allows for learning and control, it also comes with significant time and effort. Investing in a fund like theirs means entrusting property management to experienced professionals, providing passive income with minimal involvement required from the investor. The fund handles property management, staffing, and operational aspects, offering a hassle-free investment experience compared to the intensive responsibilities of direct ownership.

When asked: “Are they investing for cash flow?”, this was his response.

Philip talks about the investment focus on cash flow versus a lump sum at the end, highlighting their strategy of providing 8 to 10% distributions to investors once the property is stabilized. He emphasizes the passive income potential of short-term rentals, contrasting it with traditional real estate models that promise a big return after several years. Philip positions their approach as offering high returns, significant upside potential, and low risk compared to development deals, leveraging the unique benefits of short-term rentals in an evolving market.

Lastly, on the question: “Why don’t just invest in the stock market or into a high-yield savings account?”

Philip compares investing in the stock market with investing in their opportunity, emphasizing the stability and cash flow benefits of their approach compared to the volatility of stocks. He highlights the distinction between valuing assets for long-term growth and valuing income for regular returns, noting that their investment offers both strong dividend payments and value creation potential. Philip suggests diversifying investments across various assets, including stocks, bonds, CDs, and short-term rentals, to balance risk and take advantage of different opportunities for income and growth.

Exclusive Offer for PIMD Community

Peter wrapped up by asking Philip to talk more about what he will be doing in the future and the great things Wandery Capital has to offer to potential investors.

Philip discusses special incentives offered to PIMD investors, including a higher preferred rate of return (9-10% compared to the traditional 6-8%), an improved second-tier waterfall distribution with 72% going to investors and 28% to partners, a reduced minimum investment amount from $100,000 to $50,000, special discounts for personal use, and the possibility of an additional 1% improvement in the preferred rate if a large group of PIMD investors invest together. They aim to create excitement and unity among PIMD doctors and physicians through these incentives, encouraging group investments for potentially better rates.

Philip also talks about the benefits offered to PIMD investors, including better-preferred returns, improved splits, and overall potential returns. 

Additionally, he mentions a special offer where PIMD investors who invest at least $100,000 will have their PIMDCON2024 expenses covered by the company, giving them the choice to attend the conference or take the course.

He provides contact information for those interested in finding out more, suggesting reaching out via email at [email protected] or through their website www.wanderycapital.com, and Instagram page @staywandery.