COVID-19 Vacation Rentals / Hospitality Industry Update April 2, 2020 – What the market said today
April 2, 2020 Updates on COVID-19 / Corona Virus updates for the Vacation Rentals / Hospitality industry from Micah Berg Founder & CEO of https://www.thevru.com/ and Justin Jones Founder and CEO of https://imegonline.com/ In this update we talk about how the market responded today to bankruptcy and millions more laid off and what this could mean for your business.
You can get FREE access to https://www.thevru.com/ by using discount code covid19 at checkout.
Watch video below:
Micah Berg 0:05
Hey everyone welcome back Mike here CEO and founder of vacation rental University and, and real joy vacations. You can tell it’s been a long week. Can you remember where we’re at work here with Justin Jones at IMEG-Internet Marketing Expert Group and we wanted to give you another vacation rental cobit 19 update today. Today’s was handed to us on a silver platter because there were 6.6 million new requests for unemployment over the past week. The largest shale oil drilling company in North Dakota went bankrupt and the Dow was up 400 and something points so you know, the sky is falling little chickens running around with his head cut off and the Dow is up investors are happy about that for some reason. And not to mention not not just up but you know, it’s been hovering in neutral territory. Kind of This whole time so since the last really awful unemployment number, so we just want to jump in today and talk about that and what it means. You know, and some ideas around why that might be and how you fit into that as a vacation rental manager in general. Justin from your thoughts just kind of looking around mean, up is down and down is up how you feeling about all this?
Justin Jones 1:28
You know, usually the stock market is a sign of human emotion kind of follows that trend line. And what was odd is you and I’ve talked about this on previous podcast was that, you know, the most I think that ever been announced and one of these reports was 700,000. We were at 3 million. Yeah. And so you would think that the stock market would go down. But it went up last time, and now we’re up another 3.3 million to 6.3 million in the stock market. It’s like, sounds good.
Micah Berg 2:02
That’s great, y’all y’all know what you’re doing?
Justin Jones 2:05
This is good. Um, but I think that and the only thing that makes sense is what you told me was, uh, that wall street is like, is not as bad as I thought.
Micah Berg 2:20
Right? I mean, it’s just not so. Yeah.
Justin Jones 2:24
Because Wall Street is hedging on the future, not the current the future.
Micah Berg 2:29
Yep. And that’s what people misunderstand is they’re betting one to four months in the future. And so that’s what, you know, those things are good. I don’t want to say we’ve seen the bottom I kind of said that last time. We did like, you know, when the 3.3 numbers came out, not that it was a bottom just that it’s probably the bottom. There’s there’s not a lot of downside to that and now it’s twice in a row. So you know, I wouldn’t go bet in your house on stocks by any stretch. I don’t think that’s safe, but I want to break down some things that They’re happening and how do they apply to us? So, as vacation rental managers, one thing we forget, is we are just the hardest hit of everyone. I mean, we just got totally whacked. So some of the goofy conversations we’re having are, okay, I’ve got to lay off most or all of my employees and more or less shut down. I have no bookings for April. Great. Makes sense. So I cut my payroll from however high it was to 10% of that or less, you know, skeleton crew. My employees go home, and they make the same or more than they were making before with the state and the federal unemployment combined for four months. So that’s a long time. I mean, that’s clear out to like, well, this April, May, June, July, August, sometime in August, they come back. And so you got four months runway there. So we also as vacation rental managers, though have to then borrow money from the SBA, right because we have real losses and So, we’re going to go borrow this money from the SBA. Hopefully it’s a lot. But we’re not going to hire. I mean, it’s designed to hire employees back if you don’t, it’s alone becomes alone. Well, I’m not personally going to hire anybody back, except for my core staff. Yeah, well, we’ll hire them back and get them paid well, and those sort of things, but you just can’t hire a bunch of people back if there’s no bookings. What are you gonna do hire them, pay them to stand around? I mean, so the vacation rental industry is the only one that’s literally has to lay off employees to survive, cut a bunch of costs, and then take the SBA loan and use it as an actual loan. And so that’s what you need to do is, is use that as extra runway to buffer you from the real losses you’re taking. You’re gonna have to leave your employees laid off through probably most of that 234 month period and scale them back in because it’s not hurting them and you just can’t afford it.
Justin Jones 5:02
Yeah, the the one question I have, and I think a lot of people would so let’s say whatever the number is just for good, even round numbers, you get $100,000 in the payroll protection program, but you have laid off half of your staff. So you can only spend 50,000 a bat on the qualified expenses that gets deferred, you don’t have to pay back.
Micah Berg 5:21
Well, you can’t. So if you cut more than 25%, the whole thing’s bust. Okay, you should literally look like look at it as alone. I mean, if you’re gonna lay off and leave laid off more than 25% of your staff, any money you take in just look at it as a low interest two year loan,
Justin Jones 5:39
is that 25% a numeric dollar amount? Or is it a percentage of actual staff? So like, if you had 100 employees you laid 20 off that’s 20% of your staff or is it based on how much you were paying them percentage do
Micah Berg 5:52
you know? Good question. I would err on the side of numbers of people numbers just because it’s easier for if there is any tracking or Look back, which surely at some point there will be the things they’re asking on the on the application or a number of employees? Is it very clear,
Justin Jones 6:08
what I had read is the bank gives you the money. And at the end of the eight weeks or 10 weeks, whatever it is, you actually go back with a, you know, financial statements and say, here’s where I spent the money. Yep, that’s what I’m saying. Like, like, if I could not spend all the money on expenses in that amount of time, then does the difference become the loan that I have to pay back. So if there’s 20,000, I couldn’t spend then it goes 20,000 the loan and the rest is forgiven?
Micah Berg 6:35
Only if you kept more than 75% of your stuff. So that and that’s the tricky part is if you go to 26% cuts, you got to pay the whole thing back. And so that’s why I’m saying like, the chance of us being able to hire back 75% of our staff in the next two, three weeks when we get this money is zero. I mean, truly zero there, everybody said a 30 day shutdown And then it and then you have to get re bookings. I mean, most of our bookings are canceled clear through May. And then people have traveled down. And then you have to have checkouts. And so, I mean, you’re going to have a few reservations come back right away a couple owner relations, obviously, maybe you kept some of them your marketing department, but it’s not going to be 75%. Because that’s your, in our world, because we claimed contractors to I mean, over half of our claimed staff or our independent contract cleaners.
Justin Jones 7:30
So on your application, you you claim contractors,
Micah Berg 7:34
yeah, it’s part of the allowable claims. I mean, why wouldn’t I mean that you got to get this number is big. And that’s kind of what I want people to understand is, you got to get this number as big as you can, and then use it as a loan. Now, you don’t have to spend the money. And here’s another tricky thing. If you let’s say you pull in a couple hundred thousand dollars from this thing, and you keep your business expenses low, you lose a little money, but then you bounce back, right? Well, you don’t have to pay a payment. for six months, and there’s no fees, and I think the interest is like half a percent, okay? So you can go the whole six months. And let’s say you didn’t spend any of it, just send it all back. You don’t know a dime, your business was protected. So it’s not forgiven if you can’t spend it on those things. But if you don’t need alone and you think you can recover, you know, if you get the money, and you get it, well, you can just send it back. Right? If you’re worried about if you’re not worried about it, don’t get the money. So for somebody else, but assuming you’re in the vacation rental space, you know, I have a feeling tourism, hospitality, hotels, Vacation Rentals will be prioritized. I know there’s a talk that they’re not doing it by the NCIS code or whatever, but I think they will at some point. Look at that if the if the requests are overwhelming, and they’re going to run out of money. So you know, we can get it use it. If you need to look at it as a two year loan. Maybe it’ll help you amortize some of these losses for the next few months. out over two years, and it’ll help you recover but you Low the interest, that’s no big deal. Don’t try to play these games where you hire back your staff and then you say, Alright, sit there and look pretty. That’s your job. I mean, you’re just wasting money, let them be on unemployment.
Justin Jones 9:11
Now, one of the things I like that you said the other day, because I was getting all like, logical and systematic and all that kind of stuff about who do we get rid of, and what’s the best rank order and all that kind of stuff and filtering it through all these variables, and you’re like, hey, regardless of pandemic or crisis or financial thing, if people don’t have something to do, they shouldn’t be here, right? regardless of what’s going on in the world.
Micah Berg 9:34
Yeah, no matter how valuable they are, and that I remember having that conversation with you about a girl you had to layoff because her particular job just wasn’t going to you just weren’t going to do it for the next 45 to 60 days. It was several
Unknown Speaker 9:49
that way. Yeah.
Micah Berg 9:50
And she’s very, very valuable. And the the concern was, well, because she’s one of the first wave of cuts just based on how the cards fell. She’s gonna feel like she not valuable, well, that’s not the reality she is valuable. And we just need to tell her that you’re super valuable. But we’re not doing XYZ things for the next 45 to 60 days. And honestly, the business and literally you got to tell your employees, honestly the business needs it to support the other people so our clients can stay in business, and we can stay in business and
Justin Jones 10:21
operations but a lot with as much as unemployment is with the help from the federal government. Many people are getting a raise or going backwards a little to none. Yeah,
Micah Berg 10:32
right. So So that’s, you know, to bring this back around about the market. That’s kind of what I wanted to mention is why is there this positivity in the market? You know, a couple of reasons. One, it does look like the curves flattening it looks like the curve flattened in parts of Europe, Germany, Italy, those kind of places. China’s reporting it flattened A long time ago. We don’t know. We don’t really know in the US. Now I know deaths are spiking, but you got to remember Follow illness after a certain period of time. So like, just because deaths are spiking now, mathematically is not relevant. I know it sucks. I’m not saying the deaths are not relevant. All I’m saying is mathematically, people got sick now to eat and that spiked and two weeks later, people are dying. And that has to spike just mathematically.
Justin Jones 11:19
I think the death rate thing is like three to four weeks after Exactly,
Micah Berg 11:23
yeah, that’s just we’re seeing the cases skyrocketed. It doesn’t mean things are getting worse. It just means people are dying because our cases skyrocketed. But if you look at the true charts, it does kind of look like the new cases are slowing down. And so if they’re slowing down now, and we’re just now shutting down for 30 days, that means there’s some hope, because here’s the buckets, the rest of the world, the other 90% of industries that don’t have anything to do with tourism, and I know nine plus almost 10 million people and applying for unemployment big and there are slowdowns nationally. However, a lot of it to all of it is in cruises. airlines, hotels and vacation rentals, right? And so, and there’s way more than 10 million people employed by just those industries way more. And so it hasn’t even really caught up to that. But it’s 90% of the industries look just like this, check this out. And this is why the market looks good. Okay? cases might be flattening. Fantastic. That means in 30 days, we could be close to zero in 60 days, if everybody takes us seriously very likely zero, fantastic. Most businesses have sent people home, deferred their loans, deferred lease payments, deferred all these bills laid off some non essential people install maybe a 10 15% drop in revenue. So some businesses with deferrals and minor minor staff cuts are literally going to be more profitable and more productive in April and May. Okay, that’s just not every business and then there’s some big winners like zoom And you know, some pharmaceuticals probably will win here pretty shortly. drugmakers, hospitals, all those sort of things are making big money. And so they’re actually hiring people Domino’s Publix, you know, all these places, Walmart, Amazon grocery stores, you name it, they’re adding people to payroll. And so you have a sector of the economy that’s actually doing very, very well. You have a sector that’s neutral, you have the minorly affected that are down 1015 20%, but have made cuts and are actually either neutral or positive. And then they also the ones that are minorly affected still might get access to a very large amount of the PMP.
Justin Jones 13:40
I mean, right now, not the numbers are good. I’m not making light of them, and it is growing every second, but as of today was 6.6 million layoffs. If you really put it in perspective and step outside of emotionally, that’s 5% considering everything going on now. 5% of the US workforce, so how 30.6 million they say in 2019 5% have been laid off, right, and stimulus is not even hit. Right. Those people that are getting laid off generally are making the same or more than they were before.
Micah Berg 14:11
Yeah, so check this out that to finalize these numbers, that’s a very valid point. Because that means it really isn’t across the board. But these companies who are minorly, down who the smart ones are making cuts to strategically and deferring payments just because they can, so their profit might be neutral. Now they’re getting a PPP. So some of them are 25 to 55% of their expenses, our payroll, so that’s free for two and a half weeks plus 25%. If they cut less than 25% of their staff, they can literally cut 20% of their staff, put them on unemployment, they were probably non essential anyway, their sales are down 15%. They’re not paying their mortgages and many lease payments. They’re deferring all kinds of stuff. So their profitability is actually up 1020 percent. And their payroll literally now drops to the bottom line. They’re getting a lot of many, and there’s not going to be everybody. But many of these companies who aren’t that badly hurt can get PPP keep their pay on. And that money is not it’s forgiven, because they kept their people employed. That’s how fast the government moved on this. And, you know, I’m so glad that they can move ahead, they have shown that they can move fast, but they’re awfully bad at math. I mean, they, you could have taken three more days, highlighted some industries that needed it, and and actually provided more help to the industries like ours that actually need it. Now, here’s the silver lining. That gives us four months of really solid runway. And when you think about it, these employees are getting time off. That’s their pay is actually going up the companies that are actually making more money. It actually gives us through the end of the year as runway for this thing to recover. I mean, not that we can be shut down that long that would be ugly, but partial reopening and all This slowness really hurts the vacation rental space and hotel space. But actually for the overall American economy is not all that bad of a deal, where it helps us if this is taken seriously. And this virus is dead in 60 days, and we come back, everybody has a whole lot freakin more money than they ever have. The stock market literally hits 29,000 in a matter of a month or two, and goes back to where it was. I mean, it’s quite literally a pause. Now the government’s and I love it, but they’re in you know, they increase the debt 10% overnight, that sucks. Some of it gets paid back. Yes, they’re taking warrants on some companies from what Trump said, which means as those companies recover, the government will increase. They’ll get the value of that increase for bailing those companies out. We’ll see how that plays out. It’s worked in the past, you know, so we got a little bit more debt. 10% more debt. Let’s say it rounds out to be 8% because some spade back. People have a lot more money, a whole host of new ways of doing business. We’re just created. I mean, just ridiculous how innovative people are going to be over the next two months to make some money. I
Justin Jones 17:06
think a lot of the landscape of business is going to be so different. Like, I think a lot of, you know, zoom is having a massive influx in traffic, talking about limiting accounts and stuff like that with high quality because of bandwidth issues and those kind of things. But I think the only vertical that I think, in the tourism space that might be different, and I don’t mean it’s going away like not like this is the end of business travel. But I think during this a lot of people are like, Man working from home is easier and I thought and they are productive. Yeah. Traveling. We used to travel to do this. We just did it on a zoom call. Yeah, I think that, uh, they may be a little bit less business travel because of a paradigm shift. Yeah. Which other than that leisure travel is not gonna change,
Micah Berg 17:54
right? hurts earlier in a
Justin Jones 17:55
business travel market. There may be but if you’re in the United States I think long term and they’ve even talked about this on a government political level is even when we open back up, we’re not open up international travel to its full effect. So the people use and you said this in several others is a lot of people are going to travel more regional and national. So I think even that little dip if you’re in a business market, rich, most vacation rentals are not a business market. I mean, there’s urban markets, of course, but the majority are not. The leisure markets are going to see an influx of business from that.
Micah Berg 18:32
Yeah, yeah. And so, you know, there’s less places to travel, you can’t go on a cruise, you can’t go to Europe can’t go to Asia. You got to stay here, you’re gonna want to travel. So, you know, that’s why you can see 6.6 million people filed for unemployment and oil companies going bankrupt, which actually, the oil companies stuff has nothing to do with the pandemic, the covert stuff. That’s just literally because Russia and Saudi Arabia A little tip.
Justin Jones 19:00
The other part too is we had it. I don’t follow this closely. I’m not that huge in the stock market. But didn’t we have a dip in the stock market before it just slightly before? Because oil prices?
Micah Berg 19:10
Yeah, well, Saudi Arabia and Russia just fought over production and that drove oil prices down oil stocks down. So that’s even different than this.
Justin Jones 19:18
Even the total decline in the stock market, even though it’s up after these announcements, it’s still down. How much of that is the virus and how much of that is all?
Micah Berg 19:27
Good call and how much of that is just it was overpriced anyway? I mean, it was way overpriced. And that’s just numbers. I mean, I’m not saying whether that means nothing other than the average p e ratio was just a little high, it was things were overpriced. And so the first 12% drop was just people taking an advantage to get, you know, the trade back down to normal levels. We probably have well overshot that now, I still don’t know if stocks are like, cheap. I mean, I think they’re good values. You can cherry pick some stuff. But as far as on hold, I mean, I don’t think that this, you know, the world hasn’t lost a third of its wealth or whatever, I think that it was just over bet anyway in businesses are going to pop back. And that’s just what Americans do. We’re going to innovate through this smart people are going to make it through. Thank God for the government that, you know, these, both sides came together and they worked out the stimulus. And even if you hate the national debt, hey, people are not going to go to war in the streets over a couple dollars now. So baiser
Justin Jones 20:32
I’m not an economics expert at all. But if America was alone in this and us raising our debt this much, I would be concerned about inflation and those kind of things, but because the world’s having to do this, yeah, I think it might have some impact, but not to the degree that it would if it was just an isolation of United States problem.
Micah Berg 20:53
Well, the dollar will get a little weaker because we are going to spend money helping other people and that’s kind of you know, so we’re going to incur A lot more debt and we’re going to send it overseas to our allies, Italy and, you know, places like that. That’s okay. I mean, like you’re saying it’s kind of evened out over the hole. The good news is, you know, this is going to fundamentally change the way we operate with China. And so dollar is going to get a lot stronger there. And just in that relationship, as we take more dominance in that relationship, the dollar will strengthen so that’s good. Not that I wish any ill on China, you know, that we don’t want them to fail by any stretch, but then pulling back and just having a little bit more independence will be a good thing. So that’s kind of the update. Hopefully, it was motivating. I mean, you know, I I’ve suffered through both sides of this thinking that the worst is gonna happen through the best is going to happen. And, you know, honestly, I think we’re just in the midst of another month of a month and a half or so of just a pause, and you’ll come out the other side some ways you’ll lose money. Maybe you won’t, maybe you found cuts and new ways of doing business. That As we recover through the end of the year, you just make more money, period and you and you overcome this and, you know, hopefully that motivates you get you a little happier than you were before it looks good. I mean, all those signs we got a long runway to figure this out and all the smart people in the room are trying to kill and kill the virus, create vaccines and create ways to treat it so people don’t die and so you know, we got more ventilators, fewer people are going to die. All this stuff is really good. It’s very exciting. Thank God for American manufacturers and, and the ability for us to do this kind of stuff and we’re going to come out of this thing. So stay motivated, stay safe, and we will see you tomorrow for another update on vacation rentals in the Cova see