
#219 How to Find Success in Short-Term Rental Investing ft. Philip Kang of Wandery Capital
In this episode, Dr. Peter Kim delves into how to find success in short-term rental investing with special guest Philip Kang of Wandery Capital. Join us as we explore the insights, strategies, and wealth-building opportunities in the short-term rental investment.
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Wandery Capital brings this episode to you.
Wandery Capital, an investment firm specializing in luxury short-term rentals, is launching its second short-term rental fund, offering a passive income opportunity.
Exclusive for PIMD readers, Wandery Capital’s Fund II highlights include annual distribution targets of 8-10% (first payout: Q1 2025), cash-on-cash returns of 10-12%, a gross IRR target of 25%+, an investor-preferred return of 8%*, an equity multiple of 2.8x+, and a 5-year investment term.
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Episode Highlights
Now, let’s look at what we discussed in this episode:
- Short-term Rentals vs. Airbnb
- Returns Compared to Other Investments
- What Makes a Good Short-term Rental?
- How to Manage a Short-term Rental
- Why Choose Short-term Rentals
- Considerations to Have When Investing
- Is Now a Good Time to Invest?
- More on Philip Kang and Wandery Capital
Here’s a breakdown of how this episode unfolds.
Episode Breakdown
Short-term Rentals vs. Airbnb
Philip explained that short-term rentals, like Airbnb and VRBO, fall under the umbrella term of rentals leased for less than 30 days. Airbnb, he elaborated, has become so popular that the term itself is now used as a verb to describe this type of rental.
He also went on to highlight the growing interest in short-term rentals as a unique asset class within real estate investment. He emphasized the potential for high returns, particularly attractive given the early development stage of this market compared to established sectors like office buildings or apartment complexes. He explained that the secret lies in its ability to combine elements of hospitality with residential properties. This allows for the creation of trendy and experiential spaces that resonate with guests and generate social media buzz.
Returns Compared to Other Investments
Philip talks about the potential of short-term rentals to generate significantly higher returns compared to traditional long-term investments in apartments. He shares that these returns could even double those of apartments, but it hinges on several factors. Property type, location, and how efficiently the rentals are operated.
Philip shares how the short-term rental market surged during the COVID-19 pandemic due to the demand for spacious and outdoor accommodations. However, this growth has been challenged by rising competition and varying demand, leading to changes in pricing strategies. Luxury amenities have become crucial for attracting guests.
Though the rapid growth of short-term rentals may have slowed down, Philip highlighted that investing strategically in properties with attractive amenities can still succeed in the competitive market.
What Makes a Good Short-term Rental?
Philip shares key factors to consider when buying a short-term rental property, with a focus on tax benefits for physicians.
According to him, investing in a short-term rental property requires a strategic approach. Before buying, research local regulations in your target city to understand permit requirements, renewal processes, and any potential changes to short-term rental laws. Generally, cities that thrive on tourism and have limited hotel options offer a more favorable market. Look for vacation destinations with high tourist demand, like Sedona or Indio. Avoid saturated markets where competition is high.
To maximize success, prioritize creating a luxurious and well-designed space. Modern tourists seek unique experiences and value high-end amenities over traditional hotels. Invest in professional photography to showcase your property. High-quality photos, including aerial shots and various angles, are essential for attracting guests and maximizing your rental income.
How to Manage a Short-term Rental
Philip talks about the considerations around property management in short-term rentals like Airbnb. He shares that deciding whether to self-manage your short-term rental boils down to a time vs. money trade-off.
Managing yourself allows you to pocket a larger share of the profits by saving on the 15-25% management fee. However, this comes at the cost of constant disruptions. You’ll be responsible for handling everything from toilet repairs to guest booking issues. This hands-on approach requires dedication and might be ideal for those who prioritize maximizing returns and enjoy being involved in the process.
On the other hand, outsourcing property management offers a more passive income stream. While you’ll earn less due to the management fees, it frees up your time and allows you to focus on other priorities. This option is ideal for those who value convenience and have limited time, or for those with other commitments that prevent them from being constantly available.
Why Choose Short-term Rentals
Philip, with a background in renovating and repositioning undervalued multifamily properties, sees short-term rentals as a similar opportunity on a grander scale.
His experience in multifamily real estate has honed his ability to identify long-term trends and he believes short-term rentals, much like multifamily real estate in the past, are currently misunderstood and undervalued. Philip foresees the market becoming more professional and institutionalized, leading to substantial value growth in the coming years. He mentions that he is excited in being a part of this potential future, capitalizing on both current market conditions and the anticipated future appreciation.
Considerations to Have When Investing
Philip sees short-term rentals as a great way for physicians to generate additional income, but choosing between property ownership and fund investment requires careful thought.
He shares that owning a property offers potentially higher returns and complete control, however, it also demands significant time for research, management, and due diligence. He suggests starting small with a unique property and learning from experienced short-term rental owners as a wise first step.
On the other hand, investing in a fund provides a more passive income stream. The fund takes care of research, and management, and offers valuable insights on market trends and risks. However, the downside is that management fees typically lead to lower returns compared to owning a property outright.
Philip emphasizes that there is no need to pick just one option. One can start small by owning a property to gain experience and then leverage that knowledge to invest in a larger property or a fund later. Similarly, a fund allows learning from their investment strategies, potentially applicable to future property ownership. Philip even suggests combining both approaches, benefiting from the passive income of a fund while owning a smaller property for personal learning and potentially higher returns.
Ultimately, Philip believes the most important thing is to get started in a way that feels comfortable, whether through hands-on ownership or a more passive fund investment.
Is Now a Good Time to Invest?
Philip discussed the current market’s uncertainties, acknowledging the apprehension an investor might feel. But he then highlights the potential this creates, particularly in short-term rentals within the real estate market.
He stressed a historical truth: waiting for the “perfect” time often leads to missed opportunities. Philip emphasized the importance of taking action swiftly and with thorough due diligence. He shared examples of how some investors turned perceived risks into opportunities like investing in distressed properties or areas facing negative press.
Philip’s key takeaways were to understand the local market nuances, dive deep into your research, and be open to unconventional options that mainstream media might overlook.
More on Philip Kang and Wandery Capital
To know more about Philip and Wandery Capital, he directs everyone to their website www.wanderycapital.com, and Instagram page @staywandery.
He shares that their focus is on educating the public, particularly physicians, about investing in short-term rentals as a real estate asset class and emphasizes the importance of taking advantage of coming opportunities early on.