David:
This is the BiggerPockets podcast show, 579.

Rob: Most of the properties that I’ve purchased have been sub $500,000. But now as my time has grown more rare, I suppose, I’m really not looking to acquire real estate that’s less than a million dollars in the short-term rental game. And then we start looking at the deal that you and me are looking at. That’s a $3.4 million luxury home.

What’s going on, everyone? It is David Greene, your host of the BiggerPockets Real Estate Podcast, the podcast where we teach you how to find financial freedom through real estate. So if you’re looking to have a better life, to have more freedom, to have more control, to build your own destiny instead of someone else’s, you my friend have found the right place to be.

David:
If you don’t know who we are, BiggerPockets is a company with over 2 million members whose sole purpose is to help you find financial freedom through real estate. We do that by bringing on experts, guests, people who have done this before to share what they did right, what they did wrong and how you can do it too, giving away the knowledge that used to cost a lot of money to get access to, and you can now get for free.

David:
In today’s episode, it is a Seeing Greene show, as you can see, there’s a green light behind me. This is where I will be going and taking all of your questions and answering them myself.

Rob:
We now interrupt this episode of Seeing Greene to show you how to make more green in the FTR industry. Hey, what’s up man? I’ve got some questions.

David:
Rob, I am such a narcissist. I totally didn’t even realize you were here.

Rob:
I was sitting here the whole time. That’s okay. Man, I have a question. I have a question for you. Can we continue the conversation on short-term rentals that we started on Thursday?

David:
I think it would only be right. We did promise everybody that we were going to continue that conversation and share the rest of the information today. I’m glad that you’ve been sitting here for three days straight, waiting for me to log back in and do this. What a trooper.

Rob:
I haven’t even used the restroom, man. Come on.

David:
Well, why don’t we take a quick break to let you use the restroom and we will be right back?

Rob:
This episode is brought to you by Nutri-Grain bars, the official bar of the BiggerPockets podcast.

David:
All right, on today’s show, Rob and I are going to finish up part two of what we started on the last episode. We are going to be talking about how to choose your property type if you want to buy a short-term rental. How to figure out the timeline that you want to achieve success by. Is this a long-term investment? Is it something more short term? How quickly do you need cashflow versus how much can you delay gratification to make more money later? And then what work is going to be involved in the beginning? And if you’re going to partner, how to divvy up that work.

David:
Now, Rob and I are actually doing this ourselves. We are buying properties together. This information that we’re giving you comes right out of the systems that we have created for how we stay on track ourselves. After this show, I want you to keep an eye out for a future show where we will talk about how to analyze and underwrite properties right up to the point where you’re going to make an offer. And then after that, we’re going to do a show where we explain how we manage these properties. This is a short-term rental masterclass, and you are being taught by a master classman with my co-host, Mr. Abasolo.

Rob:
Hi. Hi. Hi. Fellow master classman here. Man, I’m excited to dive into this. I think everyone knows I get all giddy whenever we start talking about Airbnbs and short-term rentals and for good reason. I think it’s a really great place for a lot of new investors to start. And today we’re going to be covering a lot of things.

Rob:
We’re going to be covering property types. Are we doing standard single families, multi-family, modified single family, luxury? The timelines associated with it. How do you want to divvy up work? Who are you going to empower? Are you working with a partner? Should you do some of the work? Should you make all your partner do the work? How do we avoid resentment in partnerships? So pretty stacked itinerary I’d say.

David:
Very nice. I imagine that you also might be a little extra giddy, because you went to the bathroom for the first time in three or four days now. So, well done.

Rob:
Well, yes, that’s… I thought we were going to edit this out, but yes, I did use the restroom and I’m back. I’m back, baby. I lost myself there for [crosstalk 00:03:38].

David:
Jedi-like bladder control, incredibly impressive. And that is how I know that I picked the right partner.

David:
Before we get into today’s show, let’s hear a quick word from today’s show sponsors. All right. Thanks to our show sponsors as always. Rob, anything you want to say before we get into it?

Rob:
There is nothing that I’d like to say other than I appreciate you, man. I don’t know if anyone tells you that enough, but today I’m letting know, my friend, I appreciate you.

David:
Thank you, Rob, that warmed my heart.

Rob:
You appreciate me?

David:
Not that I’m going to admit on a podcast for everybody to hear, but you could be worse.

Rob:
We’ll fix that in post.

David:
You’re really-

Rob:
I could be worse. I’ll take it.

David:
You’re very okay. I’ll give you that.

Rob:
Hey, that’s no way to speak to your future social media manager.

David:
That’s a very good point. Rob has done a lot to help me as far as with the camera quality and with social media in general. So if you’re following me on social media, it will look better soon. Thank you for your patience. It’s been under construction for five years, and we’re finally getting around to actually finishing the rehab on my Instagram. Very good point there. Thanks for pointing that out.

David:
Today’s quick tip, if you’re interested in what we’re talking about, if you want to dive even deeper into a specific asset class, BiggerPockets has resources for you. Check out biggerpockets.com/events, where you can find a host of different boot camps, one of which is hosted by Tony Robinson on this specific topic, short-term rentals. So if this has tickled your fancy, if it’s caught your interest, if you have itching ears, go to biggerpockets.com/events and sign up for the short-term rental bootcamp or a different bootcamp that might suit your needs.

Rob:
I’d like to add a bonus quick tip here. If you’re looking to get in shape, just follow Tony Robinson’s workout routine. He’s jacked.

David:
All right. Without any further ado, let’s get into today’s show. All right. Number four. The fourth step we talk about is the property type. You’ve got a couple different options. Why don’t you run through those?

Rob:
Option one here is going to be your standard single family residence. This is most of my bread and butter here. This is a house, basically, just a house that you can go out and buy on Redfin. This to me is perhaps my favorite to go into because you can buy a house, and I don’t typically buy a single family residence within a neighborhood where I have close neighbors. I’m not against it. I own probably one or two that are like that.

Rob:
But I’m usually trying to find something that’s on half an acre or on an acre, something that’s a little bit more secluded. You have that luxury a little bit more in those national park type of areas, because usually houses aren’t stacked next to each other, like in the Smoky Mountains, dor example.

Rob:
This to me is probably one of the less risky ones specifically because you don’t have neighbors that can call the cops on you or get mad at you. You don’t have really too many people that you can make angry. You don’t have next door neighbors in a condo, for example, that they can be loud.

David:
That’s just a huge, huge point. If you’re going to do a short-term rental and the neighbors are super close, you are asking for problems.

Rob:
Happy neighbors, happy life.

David:
Yes. When you and I are looking at properties one of the first things we’re looking at is how close are all the other houses to it? This one’s on five acres and there’s 10 acres on each side of it. There’s nobody else around, that becomes much more desirable than if it’s a track house and they’re all right next to each other.

Rob:
And so then we get into things like multi-families, which is a duplex. I’m okay with that. I actually love the duplex strategy quite a bit. I was buying a house in Destin that wasn’t technically a duplex, but it was a main single family residence home. Then there was a pool, and then there was a carriage house in the backyard.

Rob:
And it wasn’t that I wanted to rent it out to two separate parties. I actually wanted to rent it out to just one really big group of people, like two families, that will pay me a premium to have their own set of bathrooms, their own kitchens, their own spaces. Because if you’re traveling with other people’s kids, if your kids are like my kids, they’re probably ultra wild. I don’t want my kids to be in the same house as other kids at night, when everyone’s trying to go to sleep and we’re trying to cook for each other and it’s like a whole thing.

Rob:
I love the idea of a multi-family where are two separate kitchens and you can rent it out to two families at a much higher premium than if you were renting out two houses separately.

David:
And then next up is we have the modified single family. This is one of my favorite asset classes. What’s your thoughts on that?

Rob:
So this would be if you’re converting a space into any kind of bonus space or anything like that, right?

David:
Yes. Taking a house and basically modifying it by either adding an ADU, converting a garage, splitting it into two different components. It functions as a duplex or a triplex, even though it’s just one property.

Rob:
Oh yeah, man, this is what gave me my jumpstart. I really attribute the wealth that I have today and everything that I’ve been able to build up to my house hack. Like I said, I had this in Los Angeles, it had a 279 square foot studio under it. I rented that on Airbnb. That was making $2,000 to $3,000 a month. And then I built a tiny house in my backyard. I was also Airbnbing that too.

Rob:
And now I don’t live at that house anymore. So now I rent to three different tenants. I rent to the people in the studio. I rent my tiny house on Airbnb and now I rent my main house on Airbnb. And it’s all three different types of stays. It’s long-term stays, short-term stays and mid-term stays. And so I’ll have basically a triplex.

Rob:
And on that property, it’s a $4,000 mortgage. Total, I think it brings it anywhere from eight, on a high month, $9,000. The cashflow is quite a bit for me. And it’s because I’ve modified a lot about that property and converted it to the ultimate house hack/triplex-esque type of place.

David:
And that is what you got to do in today’s market. If you want to be in the best areas with the best properties, you can’t just take it right out of the box. I think that’s where a lot of the listeners that are frustrating saying, “I can’t find good deals.” They’re looking for something that’s already there. In their mind, analyzing it in the calculator, looking at the cash on cash return to writing an offer is the job of an investor. And when that doesn’t work, they say, “Well, real estate as it work.”

David:
But you and I are putting a much, much more creative and detailed look into every single property. We’re sitting here and we’re saying, “This is what it would look as is, this is what it could be.” We’re seeing the vision like a coach that’s drafting raw talent. What can we turn this property into? And then we’re saying, if it was there, how would it be performing? What could we expect out of this player if we got them at their maximum ability?

David:
And then the question is, well, is that worth the time and effort it would take to get it there? Or could we find something else for less time, less effort that would perform at the same point? Just like Brandon and I used to say, you don’t find deals right now. You make deals and you have to embrace that that is what we’re doing.

David:
Not only are we looking to make a deal, but we’re understanding we are competing against all the other people that are trying to do the same thing. It’s not set it and forget it real estate when you get into the short-term game, it’s high risk and high reward. So your unit, your property has to be better than the other options and that’s how you mitigate risks.

David:
So that’s part of why we want to do this show is I’m trying to get people to understand the level of detail that you and I put into what we’re looking to do. And it’s not just run it on a calculator and then move on.

Rob:
And getting into the risky stuff, like luxury, that’s where you and me are starting to transition to. And all previous to now, most of the properties that I’ve purchased have been sub $500,000. But now as my time has grown more rare, I suppose, I’m really not looking to acquire real estate that’s less than a million dollars in the short-term rental game. And then we start looking at the deal that you and me are looking at. That’s a $3.4 million luxury home.

David:
So that’s a great point, that brings us into the last asset class, at least how I see it, luxury real estate. So let’s define what that even means. Because it could mean different things to different people.

David:
In my mind, the way I look at real estate and as I’ve described it in the Sold series I’m writing for BiggerPockets, you’ve got three tiers. You’ve got starter homes, which is where a first-time home buyer, what they’re trying to get into. You’ve got step up homes, which are typically, I got a starter home, I sold it and I used the equity to buy this step up home. These are going to be your B, A class neighborhoods, better schools, bigger house, amenities like pools, a little bit bigger lot, better location.

David:
And then you’ve got luxury homes, and this is going to be, this is more than anyone needs in a house. This is what you do when you have enough money that you don’t have to worry about money basically.

Rob:
It’s a little extra.

David:
A lot extra. A little, that’s exactly right. Now, luxury is not dependent on price point. Because if you call it a million dollar listing, in where I live in the Bay Area, that is not that impressive. It is actually incredibly unimpressive in a lot of different areas.

David:
But if you do the same thing in Kansas, you might have a mansion. So you can’t define luxury by price. You define luxury by its price in comparison to the other homes in the market. I look at luxury like its own asset class, because the people who are going to be renting that property from us are not the same people that are just a traveling nurse who needs a place to lay their head.

David:
This is someone who wants an extravagant experience, who’s going to maybe have a lot of people go with them and they want to have an amazing memory that they’re going to be… It’s not practical is basically what we’re getting at here. That’s what luxury is.

David:
Now some people own luxury properties to live in, so they can have a non-practical experience themselves. Other people like us buy luxury properties to rent it out to luxury people who want to have a non-practical experience, but our purposes are so practical. We’re trying to make money with this thing.

David:
So as you’re looking at different property types, if you’re going to get into the luxury market, you have to understand what you’re looking for and the quality of service you have to provide. Frankly, you can’t run out of batteries in a luxury house. You have to have a property manager on standby that if something goes wrong, the heater in the pool is not working, a bug gets into the house, yes, that does happen. They will call if a big bug ends up in a property. There is someone that, boom, lickety-split is on that and they are taking care of it and that person knows that their experience will be good.

David:
You’re probably going to have to stock the fridge with Cokes and other things that people are going to want. Maybe have a chef go by and cook for those people. It’s a higher detailed experience, but that’s why you’re going to make more money.

David:
So when you’re trying to choose your property type, we have the standard single family. That’s probably the least amount of work. You’ve got the multifamily. That’s going to be a little bit more work, but probably a little bit more profit. Because like you said, Rob, you have extra income streams.

David:
You’ve got the modified single family, which is the way you combine steps one and two into a property that hopefully gets you the best of both worlds, but it will be the most work. Then you’ve got luxury, which is a completely different animal, high risk, high reward, high attention. Anything you want to add on those?

Rob:
No, just a little. I said no, but a little bit. On the luxury side of things, what I’m really excited about, and this has been something that we’ve talked about a lot, because in some senses, we are moving a little bit away from the cashflow side of things. Because one thing that we’re uncovering here is, the more you invest, funny enough in this market, the return is actually going down just a little bit more. But we’re okay with that because if we’re buying the $3.4 million house, while we’re not necessarily cashflowing as much as we want, over 30 years, when someone pays for this house, it’s going to be worth double, maybe triple.

David:
That’s a great point. Now let’s say real estate continues to climb like it’s been climbing. This is something else you and I talk about, we should share. 10% per year is a pretty big number. I wouldn’t assume it’s always going to be that case, but in most of the markets we’re looking in, that’s what we’ve been seeing, sometimes even more. I’m just going to use 10%, because it’s around number. I don’t have to get my calculator out to do the math of 7.2% of whatever it might actually be.

David:
Let’s say that you buy a house for $300,000 and it appreciates by 10%. You’re going to make $30,000, which is nothing to turn your nose at. But this 3.4 million house that goes up by $340,000, the work is going to be roughly the same. The investment on our half will be bigger, but proportionally it’s going to be the same.

David:
Even if the ROI is slightly smaller than that 300,000, so let’s say we can get a 14% return, that other one could get a 20% return. It’s dwarfed in comparison to the increase of 10%. And the increase of the 3.4 property is probably going to be higher than the $300,000 one, because there are less of the $3.4 million properties. There aren’t as many of them to compete with. Builders are not going to be building houses like that. They’re going to make more of the $300,000 home.

David:
And then you throw in how much of the principal is being paid down with every single payment. You look at the whole picture, that starts to be a much more clearly advantageous financial decision, versus the $300,000 one, which it’s still a good deal. I’m not saying people shouldn’t get into it, but that tends to be, the value of that is that you’re going to learn the fundamentals of real estate at a lower risk for yourself. It’s like learning to swim in the shallow end of the pool.

Rob:
And even just going back to what we talked about earlier, let’s just say worse comes to worse, we buy a $3.4 million house, and then we just break even for two years, but it went up $600,000. Well, let’s sell it and make half a million bucks after all of our fees are paid off. It’s not really that sad. It’s not that sad of a scenario to break even right there.

David:
That’s right. And then another thing we’ve talked about just as far as mitigating risk, because I know if I heard you say that my first thought would be, well, you’re assuming it’s going to go up. When they go down by 10%, you’re going to take an even bigger hit. When they go down by whatever, you don’t know you’re going to be able to sell. And that’s absolutely right.

David:
But here’s another reason that Rob and I are looking in the luxury market for ourselves. If we’re getting $2,000 a night for this thing and the market becomes less demanding and we can’t get $2,000, if we drop our price to $1,000 a month, we are a much better option than the other options people were looking at for 800 to $1,000.

David:
So if we’re talking about a 6,000 square foot amazing estate that has its own basketball court, its own pool, its own movie room, its own game room, it’s got a place you can ride dirt bikes, it’s incredible. And you could go pay $1,000 a month to just rent a nice big house that has nothing, you might say, you know what, for maybe 1,100, instead of 1,000, we get that. Let’s just get one extra person in our group and let’s go do it.

David:
So in a sense, our risk is actually less, because we can drop our price more, still hit our nut and be a better option than our competition that can’t do the same thing. So we have thought about both ends of this. The upside is higher and the downside is also better in this situation.

Rob:
There are a lot of reasons to do this and I would ultimately shy away from this for a new investor. I’ve been doing this four or five years. David’s got a lot of experience in real estate too. And it’s like we could do this. We’re built for this. We got the experience.

Rob:
If you’re starting out, I’m probably not going to recommend anyone buy a $3.4 million house starting out.

David:
Great point.

Rob:
But work your way up to it. Scale accordingly. The reason I’ve always hit home runs on all of my portfolio is because I just was really strategic and tactical. And so I really took it day by day and I didn’t scale up too quickly. And because of that, I now have all the reserves and the cash that I need to get into an investment like this and survive if there is a dip.

David:
And have a partner that can benefit you there too. So this is what I want to wrap this one up with, all the fears that someone has as they listen to this, the what ifs, but what if this, but what if that, those are all very good. Instead of letting those stop you from moving forward, get them out of your head and write them down on paper or on a Google document, put them down somewhere.

David:
Then with your partner or yourself or however you’re going to do it, systematically work through every single what if and say what the plan is, if that happens. So if somebody was to get on here and challenge Rob and I, and say, what are you going to do if this happens or what are you going to do if that happens, there is a contingency for every single one of those that we feel confident that we can handle.

David:
Now, even if we don’t make money, we’re not going to lose the property. We’re not going to go bankrupt. That’s what we’re getting at here. It’s okay every once in a while to take an L. You’re going to have that happen in real estate, even buying the $300,000 properties, you can take Ls.

David:
The important thing is that it doesn’t take you out of the game, just like a poker player. You can lose hands. You don’t want to lose your entire pot that you’ve got on your side.

Rob:
You don’t want to re-buy in.

David:
That’s exactly right. And that’s the problem is when people start playing reckless, like I’m going to go big on my first deal. If you don’t know how to ride that bike, you should not be taking off the training wheels. You definitely shouldn’t be getting on a motorcycle that’s 2000 CCs. That’s what we’re talking about here.

David:
But if you’ve been riding them for five years and you feel very comfortable and you know how to handle it, it’s not the same risk as someone who’s new. So thank you for pointing that out. That’s very responsible of you, Robert.

Rob:
Hey, that’s Rob to you, pal.

David:
You got it. Number five. Our fifth step is the timeline. So this is also important. Before you invest in short-term rentals, you need to be thinking about what is your specific timeline for the property, the partnership, everything else? Why don’t you start with what you think we went into, Rob, when we were deciding on our partnership?

Rob:
I think we wanted to start with just one and get it right. And it would be very easy for you and I to be like let’s go buy 15 of these things, because we can. But we’re really focused on setting and solidifying a strategy. We said, okay, let’s start with one. Let’s start with a $3.4 million property. We’re starting here in the big leagues obviously, but let’s start with one and let’s perfect the systems needed to run a luxury property that’s on five acres.

Rob:
Who do we have to hire? Do we have to hire several landscapers because it’s five acres? Do we have to hire a team of cleaners? I think that for us has been the really nice thing is that we’ve been taking it slow. I think once we perfect that one, then we can really assess how quickly we want to scale up.

Rob:
I don’t know. I would imagine my goal, I don’t know about yours, you can tell everyone here for the world to see, but I would like to be acquiring a luxury property every two months.

David:
I believe that that goal came from our conversation. So I subconsciously planted that into your mind. But, yes-

Rob:
You Inceptioned me. I hate when you do that.

David:
That’s exactly right. That’s a great movie. If anyone has not seen Inception, it’s the like Matrix, but less confusing. So I would highly recommend people check that out. So yes, that’s exactly right.

David:
Now, when it comes to our goals for the properties, one of the things that we talked about as far as our timeline was long-term wealth. You and I looked and said, all right, we could either get a whole bunch of cashflowing, high ROI properties like those cabins that we mentioned, that would become our full-time job if we scale this thing up. Or we could be a little bit more careful about what we buy, a little more focused to play the long-term game. They’re going to cashflow most likely a little bit less. We’re going to have to keep more in reserves, but over a significant period of time, they’re going to perform way better.

David:
So you and I chose a path that I would describe as long-term wealth. Other people who might not be in our position, they might not have the resources we do, the experience we do. They might still be working jobs, and not even have the time we do. They might need to go for short-term cashflow.

David:
So that’s an important thing that you’re deciding either with your partner or with yourself, which of these properties are you going to be pursuing? Because if you’re trying to get maximum cashflow and maximum long-term wealth out of one property, it’s probably not going to work.

Rob:
It doesn’t happen from one property. It happens from a very strategic journey over years. You build many, many properties. Ultimately, to me, I’m working towards having a solid portfolio. I have 14 now. I would to actually take on less, but take on more strategic. And in the next year, I’d like to be at 20. When I was on the BiggerPockets podcast six months ago, I wanted 40, but no, I’m trying to really diversify correctly.

Rob:
And the way I’m doing that is now I’m moving into luxury real estate. I just want to have a really well balanced portfolio to just cover me. I think diversification, for me, I finally have figured out. It’s not necessarily about chasing cash. It is sometimes about chasing stability and that’s me. I’m an adult now. I’ve figured it out. Thank you, David.

David:
I’m an adult now. That’s funny. I need a little stability in my life. I got rid of the pocket protector and the 401(k) and I need to replace it somehow. You made a really good point I want to highlight, that had to do with, you’re not going to find it all in one property. That’s exactly right.

David:
So the emotions that somebody has as they’re trying to figure out real estate investing, typically is I want appreciation and I want cashflow, I want freedom. I want my time back. I love real estate. They have all of these feelings that they are then trying to figure out, how do I express them? And the mistake comes when they try to express it through the same house.

David:
I don’t look at a house and say, “I need this to provide it for me.” Just like one relationship can’t provide everything you need in your life. You need a life full of different relationships that meet different needs.

David:
Your portfolio should be that way. Your portfolio should provide cashflow, not a house. Your portfolio should provide appreciate, not a house. And you take a lot of risk off of yourself when you understand, all right, I’ve built up to 10 to 15 of these type of properties that I use the BRRRR method to get, now cashflow. I have most of my capital back. With that, I’m going to buy five properties in markets that I think are going to appreciate very solidly with the capital that I pulled out of these deals.

David:
Once I’ve got those two things working really well, solid cashflow, and I’ve got quite a bit of equity, now I can buy one or two of these maybe luxury short-term rentals like David and Rob are talking about. And if they don’t go well, that’s okay, because the rest of my portfolio can support it. This is in that same video I talked about on YouTube. I call it pyramid theory.

David:
And so that will take a lot of pressure off of you. If you say, you know what, I really just need a buddy in my life. Well, that might not be your spouse’s job to be your buddy for everything. You need to go make some friends. And then if you got some friends and you’re like, man, I’m just feeling romantic right now. That’s probably not your friend’s job to meet that need either. Maybe you’re going to need a spouse in your life.

David:
And then you have different people that you work out with, people that I do jujitsu with, people that I talk business with, people that I talk spiritual things with. When you have a more balanced life, you don’t put pressure on any one thing.

David:
And for so many people listening, I really feel like what is holding them back from taking or making progress in real estate is they’re trying to find it all in one deal. And you and I after doing this for a couple years have realized it’s not healthy. It doesn’t work that way, but you can get it all out of one portfolio of deals.

Rob:
Everyone’s chasing the home run that they forget about the singles or the doubles. Get the bases loaded, then go for the home run, because then it’s a grand slam.

David:
And you know the other thing I learned, because I used to play baseball and I was not nearly as good as basketball, but in baseball, if I tried to hit the home run, I rarely ever did. Home runs came when the pitcher made a mistake. They just left the ball out there that they shouldn’t have. Basketball would be the same thing. If I tried to get a steal and I reached, I would either foul them or I’d be off balance and they’d go past me.

David:
If I waited for them to make a mistake with the ball, the steal would come to me. It was just like this thing I learned, steals happen for you. You don’t really make them very often. You can create pressure that’s more likely to have them make a mistake, but still it’s a mistake that allowed the steal.

David:
Good deals come like that. You create pressure by putting yourself in the right environment. You make the right relationships. You have the conversations. You can’t make that seller that’s not motivated, be motivated. You’ll just foul them and you’ll ruin the whole thing.

David:
But being in that position, you will come across the person who’s like, they made a mistake in life. They’re financially strapped. They don’t want the property. They didn’t take care of it. They need to get rid of it, and boom, that’s your home run or that’s your steal. That’s your win.

David:
And so just adjust your mindset when it comes to that. Home runs happen. You can’t really make a home run happen. You can’t make a pitcher throw a bad pitch. You just take advantage of it when it comes your way. But you should focus, like you said, Rob, on these singles, on these doubles, because if you hit a home run with no one on base, it’s still only worth one run. If you’ve got three people on base when that home run comes, because you have a portfolio of other properties, and then rates drop and you can refinance four properties and get better rates or pull your money out, that functions as a home run if that makes sense. Do you have anything you want to add on that?

Rob:
I think it’s a consistency game, man. That’s the greatest home run, that’s the only way that you can control home runs is just being consistent. I get a lot of people that are like, “Man, how do I go viral?” And I’m like, listen, I’m pretty good at YouTube. But the only way that I ever go viral is I post a video every single week. I’m on my game every single week. And that’s the only way that you can control anything is with consistency, I think.

David:
I love that. Now we’ve got a sixth step, a bonus step that we did not tell you about, but we love you.

Rob:
Bonus. Let’s do it.

David:
At BiggerPockets, we just want to overflow you with value and do everything we can to help you make some money. So here is the bonus step. In stage one of choosing your location, your market and your strategy, which we’ve actually taken that and split this up into two podcasts. So you’ll hear us talk about stage one as these three things, but it’s being split over two different shows.

David:
The other thing that we recommend you do is you decide how you will divvy up the work. That’s something that either you and your partner need to decide on, or you yourself need to decide, how are you going to handle these components? Rob, if you want, we could just alternate back and forth between the steps that we’ve come up with that needs to be divvied up when someone’s going to buy a short-term rental.

Rob:
Definitely. So if you’re going into a partnership here, this is really important, because property management is going to be something that’s going to come up. Someone needs to manage the property. Obviously, you can go-

David:
Can you give us some examples of what that means in practical terms?

Rob:
So if you’re managing an Airbnb, that would consist of things like messaging guests back and forth, scheduling any maintenance. If something is broken, you need to get it replaced. You need to communicate and schedule all of your cleanings. You need to make sure that your cleaners are communicating with you, that things are broken. And then they need to communicate with the maintenance person, contractors that need to come in and fix any big repairs.

Rob:
I had a roof leak one time. Maintenance person, finding them, I’m sorry, not maintenance, lawn maintenance, finding them, finding someone reliable that will come every single week. Last one, pool service, if you want that. Oh, pest control. So these are all moving parts that you have to figure that out. You have to coordinate with it.

Rob:
My pest control person still contacts me every two weeks. She calls me, “Hey, I’m going to come by on Monday. Is that okay?” And then I have to look at my schedule and say, “I’m booked that day. Come the next day.” So, that’s a lot of work and it’s also a little bit of work, once you actually get your systems down, your automation, but still, you still have to do it. Someone still has to figure out how to automate all of that. Someone has to do it.

Rob:
Now. I’m a big fan myself personally of self-managing. I teach people how to self-manage. That’s my jam. I prefer to self-manage, because I don’t think in the Airbnb space, it is… Again, this will get into time and value of time, but I don’t think it’s worth it to hire a property manager necessarily, because property managers in the short-term rental game can charge between 15% and 30% of your gross revenue. That’s a lot.

Rob:
What’s standard for long-term rentals, is it eight to 15?

David:
6% to 10%. So if it’s a higher, what I pay in California, because the rents are higher, I pay 6%. When I get in some of the cheaper markets, it’s more in the 8% to 10%.

Rob:
10 is what I’ve heard back and forth. So it could be up to three times more than a long-term rental property management company.

David:
Or five times more if you look at 6% to the 30%.

Rob:
That’s exactly right. So that’s a really big difference. I think especially if you’re entering a partnership, if there’s someone that’s willing to put in the work and do a little bit of the sweat equity side of things, that is going to make everybody a lot more money.

Rob:
Because I’ve gone into partnerships where, when I work with investors, for example, we will charge them anywhere from 7% to 10% to manage the property. That’s a really good deal because we’re like, “Hey, we’re still going to charge a little bit, because our time goes into this, but we’re saving you…”

David:
But it’s a third of what they would pay from someone else.

Rob:
That’s exactly right. So that’s the benefits of it.

David:
I would also add, in addition to it being cheaper, if you manage it yourself and if you do a good job, it’s also better. So the problem isn’t that proper managers want money, it’s that they might not be good at what they do because they don’t care. A lot of property managers are trying to do the minimum they can, especially if you negotiate a better rate for yourself. You’re just disincentivizing them to care.

David:
And with short-term rentals, the quality of management is exponentially more important than it is in a long-term rental. Your long-term tenant says, “Hey, the toilet handle is jingling. Can you get someone to fix it?” If it takes a couple weeks to get someone out, they’ll deal with it. That’s their house. That’s where they live.

David:
Your short-term rental, if they don’t have enough sheets in the house or if they smell because the cleaner didn’t do their job right or something, that’s a bad review on Airbnb that decreases future bookings for a very long period of time. It’s a huge, huge, huge deal. The quality of work for short-term rentals has to be significantly better than with long-term rentals. And if you’re doing it yourself, you have more control over how things go down.

David:
Now, Rob and I agreed that we would take a chunk of the revenue and pay it to him and his team, since they will be handling the management of the property. But even if you’re not doing a partner, you need to decide, am I doing this myself or am I going to hire somebody to do it?

Rob:
And again, there are pros to hiring someone to do it. I understand that. And as I grow and develop and all that kind of stuff, develop my philosophies, I think my brain is done developing now. But my philosophies, then I would say, I’m starting to now come around to the idea of it.

Rob:
But what I’ve done is, I have an assist that helps me across all of my businesses and property management is just one way that she helps me. I could still be involved with it, because I don’t ever want to feel like I’ve grown too big to just send a guest a message. I’m not in the weeds of my business, but I’m in there. I’m bird’s eye viewing it. I step in when I’m needed.

David:
Well, I’ll give everybody a little behind the scenes look. I’m actually looking at making a property management company that will manage short-term rentals. It won’t be full service, so it’ll be cheaper, but it’s a company that’s going to handle the bookings, the revenue, getting you going. And so they’ll be responsible for making sure that there’s people staying there. And then the person who owns it can be responsible for making sure that everything gets done.

David:
I see that there’s a really big need here. Rob doesn’t have time to manage them all. He’s incredible at the stuff he does, but for a lot of you listening, send me a message and I’ll get you connected if that’s something that you think you might want some help with.

David:
The next thing we have here is bookkeeping. So bookkeeping also becomes a little bit more detailed when it comes to a short-term rental because there’s just more income and expenses that are coming out. With my long-term rentals, I get a rent check every month. Sometimes it’s two, because they don’t pay the full amount right away. And then every once in a while, there might be an expense on there that’s not much. I get a statement from a property manager. My bookkeeper takes it, puts it into my information for taxes and that’s all there is to it.

David:
But with a short-term rental, I’ve got several different sources of income at different nightly rates for different periods of time. I’ve got several different types of income. I’ve got cleaning expenses. I’ve got registration expenses. I’ve got the actual booking of it.

David:
I’m sure Rob could probably come up with some more, and then sorry, that was [crosstalk 00:34:36].

Rob:
Batteries. Lots of batteries.

David:
That’s in the expenses side. And then on the expenses, I said expenses, I meant income. You’ve got all the materials that you’re getting, all of the products that you’re buying, all of the different people, the handymen, the cleaners, the things the cleaners had to buy, the things the guests needed that we had to go drop off last minute, the property management themselves. There’s a lot more expenses associated. So bookkeeping becomes a much bigger issue and you’re going to have to decide how that’s going to be addressed.

David:
Rob, what’s your preferred way of tackling that in your properties?

Rob:
I have a bookkeeper, and my bookkeeper basically creates a profile for every single one of my properties. I thought about doing it myself, but then it was one of those things that I had to really be honest with myself and say, am I going to be punctual about this? And the answer was no. So I hired a bookkeeper. They can be affordable. They can be expensive. It’s up to you.

Rob:
But for me, because of how fast my portfolio grew, I started getting very serious about tracking and everything like that. I sync up all my different bank accounts and all of my different credit card accounts and everything like that. Now I’m starting to have to really get into the nitty-gritty of getting a separate credit card for every single property, so that we can match it up to the different profiles.

Rob:
But luckily my bookkeeper is much smarter than me at the mathematical stuff. So far, it’s been the best decision I’ve ever made.

David:
I think you saying mathematical might have been the most funny part of this entire show.

Rob:
Mathematical.

David:
I haven’t heard that since third grade. Good job. All right. Why don’t you move us on to the third segment in the bonus step?

Rob:
This next one’s going to be setting up the furnishings, the decor, any kind of rehab work. If you’re going to partner up with somebody in this world, then you should really lay out responsibilities here, because a lot of people really underestimate the furnishing part of it. We’ll get into this in another episode. We got a whole episode where we’re going to actually dive deep into the nuts and bolts of analyzing and furnishing and everything like that.

Rob:
But what I do want to say about this is, a lot of people, they underestimate furnishing. They’re like, “Oh yeah, whatever, you’re going to move a couch? Well, how hard can that be?” And then you get there and you’re like, all right, we have three days. And then you’re late to the airport because someone was cutting up a box and you couldn’t find a place to dispose it. And oh man, I’m getting all the flashbacks and everything like that. I’ve had some crazy times.

Rob:
But most of my Airbnbs, I’ve actually set up with my partners. I think there’s a little bit of comradery there. So I would recommend that if you have a partner in the deal, even if one is like, “No, you can do it,” if y’all agree on that, I would definitely recommend just everybody. It’s a full effort. It’s not a one person job. Setting up an Airbnb can be a two, three, four, five person job.

Rob:
There are some diminishing returns there for sure. I’ve had eight people in my Airbnb before where it’s like, what are we doing? Everyone’s doing a little bit, but not a lot. And it ends up being worse than if there were just three people there.

Rob:
But same thing with rehabs. Some partners are very handy and they want to hop in there and they’ll say, “I’ll just paint the wall. It’s so much better than hiring a handyman for $1,000,” or whatever. So regardless of what that is, just make sure that there’s some level of compensation or some level of agreement for how everybody’s going to maintain the status quo.

Rob:
My partner just went out and completely set up a new unit for us in West Virginia. He was happy to do it. He has to do it out of the two of us, because of my schedule for this month. And I was like, “Well, let’s just pay you, man.” And we’re going to pay him $2,000, $3,000 to go and do that for a week. And he was like, “Dude, that’s awesome. Thank you.” And I was like, you deserve it, because without you, I couldn’t do this.

Rob:
I think throwing a bone to your partner in this category specifically will go a long way, because resentment can start as early as furnishing in Airbnb.

David:
I said on Facebook a while ago, I think I said bitterness, but it’s very similar to resentment is the lactic acid of relationships. When you’re working out, lactic acid builds and at the point it gets to be too much, at least this is my understanding. I know there’s fitness people that are about to DM me and say, “That was totally only 99% true. You missed this part.”

Rob:
The YouTube comments are going insane.

David:
Yes. There you go. The basic understanding is that lactic acid builds and then the muscle can’t perform. And then it has to be flushed out before it can perform again. And during that period of time, it regrows. But if you let bitterness and resentment leak into your relationships, the relationship stops performing. And here’s the thing is lactic acid doesn’t really do anything to actually help you perform better. It just slows you down. So resentment doesn’t have any positive impact on a relationship. It doesn’t protect you from anything. It’s totally bad. So you’re very wise to mention, you don’t want that to build.

David:
The part I want to highlight here is that this is not passive income. Short-term rentals are not passive income. They are high income. They are real estate investing, but real estate investing and passive income are not synonymous. There are ways of doing it that are passive. There are ways of doing it that are not passive and there’s a whole lot in between.

David:
So this setup portion is, what I tell people is imagine you just bought a business. You bought a Taco Bell or a 7-Eleven or some franchise. You have looked at it from the outside, but you don’t really know much about what you got. You’re going to have to show up and look at all your employees, who’s got a good attitude, who’s got a bad attitude, who needs to be fired, who needs to be promoted? What’s your inventory look like, how the book’s been kept. It’s a lot of work when you first buy it to try to get it running the way you want.

David:
That’s what you’re doing on these short-term rentals is you’re showing up and you’re trying to get the business set up the way you want it to be, the furniture, the decor, everything you want that’s different than what the previous owners had, and that’s work. So be prepared. That’s why we’re going over this in the bonus step. If you’re going to be doing that work, be prepared knowing you’re going to go into it and what is going to be done. And in a future episode, we’re going to dive deeper into all of the steps that are involved.

David:
All right. And that brings us to our last point, are you going to work with investors? Now, Rob and I are bringing this up because we are raising money to help buy these properties. Like you said, we’re going to buy one together, maybe a couple together. Then we’re going to start raising money from other people, so people can invest with us in these properties. They’ll be paid out, just like if it was money in the bank.

David:
Now, some people are going to just use their own capital and you can get that from refinancing houses, from putting HELOCs on existing properties. Typically, if you’re going to try an expensive Airbnb, you probably already have quite a bit of capital saved up. So odds are, you’ve done a little bit of real estate investing yourself if you’re jumping into that.

David:
But if you’re not and you’re looking to raise money, it’s very important that you understand that cashflow will cover the debt service of both the loan that you’re taking out and the investors that you’re going to be paying out. That’s one of the reasons that bookkeeping and analysis is very important, because you’re not just investing your own money. You actually have to take care of someone else’s money, even more importantly than if you did it yourself.

David:
So if you want to invest with Rob or I, please reach out to us. You can go to investwithdavidgreene.com and you can learn a little bit more about it. But if you’re also looking to do this yourself and you want to invest with other people, that’s one more reason why you better have a lot of money in reserves. I personally don’t like the model that says, “Hey, invest in real estate, you get some of the equity, but if it doesn’t work out, you invest it at your own risk.”

David:
Some people do that. In fact, a lot of people do that. The majority of people I think do it. I just don’t like it. I don’t like it because I can’t sleep at night. I don’t like it because so many people trust, “Hey, if I’m saying you should do this,” that that’s why they’re investing in the deal with me, and they’re not doing it because they’re looking at the deal. They’re doing it because they’re looking at David.

David:
When we first talked about this, Rob, I’m curious, did you have concerns, fears, were you excited? I don’t think we ever talked about what emotions you went through when we talked about doing this with investors.

Rob:
Wow, man, we’re going to air it for everyone to see here. No, no. I’m excited, man. I’ve worked with investors quite a bit. I work one-on-one with investors and I think what investors really appreciate when they work with me is that they see the pain. They see the future pain. They see, I really take an investor’s dollar very seriously. I always say in my mind, an investor’s dollar is worth four of my own. And so if I lose an investor’s dollar, which has never happened, but if I do, it hurts me like I lost four of my own. That’s how I really need to approach it.

Rob:
Because I always make it very clear how serious I am with all of my analysis. I shoot down stuff. I’ll have investors that pitch ideas to me that are just not good or they’re okay, and I’m like, “Listen, I understand why you think that, but let me be real with you.” I try to just be very real with investors of what has worked for me, what doesn’t. If there’s something that I haven’t really tried before and they’re pitching that to me, I’m like, “No, I’m sorry. It probably will work, but I’ve never done it.”

Rob:
I think a little bit of honesty with your investors and your commitment to making sure that their dollar goes a long way is super important. I think I’ve had a couple investors that have been not annoyed, but a little like, “Hey, I thought you were going to move faster on this.” And it’s like because I haven’t found you the deal yet, man. I found a bunch of deals that comped out here, but for it to be Rob stamped or whatever, it’s got to be here.

Rob:
It’s like a fault and a good thing that it’s like I’m over critical of every deal that I go into, something that you and me talk about quite a bit. And it’s like I’m happy… I used to be a lot more of a risky person. And now when other people’s money is on the line, I’ve actually become really conservative with how I approach deals.

David:
It’s the way you drive when you’re in the car yourself versus when your kids are in the back seat.

Rob:
Exactly. That’s so perfect. Yep.

David:
So one of the ways that we are structured, and I am saying this because I highly recommend anyone else who’s looking to raise investor money, please consider what I’m about to say. I am keeping enough money in reserves that even if some horrible thing happened, a tornado ripped the house off the ground, aliens abducted it, and they just sucked our property off of the Earth.

Rob:
Hate when that happens.

David:
Just in case, we have enough money set aside that investors will still be paid on the investment that they made. I just wouldn’t be able to move forward if that wasn’t the case. This is not one of those, “Hey, it’s on you if it works out or if it’s not.” And so if you’re investing with someone who’s never done it before, or they don’t have any money themselves, I would just be way more cautious. If they haven’t learned how to manage their own finances, I wouldn’t trust them with managing your finances, even if they’re very charismatic or hardworking or you’re impressed by their knowledge base. There’s a little more that goes into, there’s some discipline that goes to managing money, in addition to just the skill or the knowledge of investing in real estate.

Rob:
I think there’s always a little bit of due diligence that’s needed. I think it’s important to reveal that due diligence, so that they’re like, “Oh, okay, they’re pretty serious with my dollar.” I try to make that as clear as possible, as soon as possible.

David:
All right. Well, I hope you have all enjoyed the first and second part of our series for choosing your location, market and strategy when it comes to short-term rentals. Now there will be future episodes in this series that we will be diving into, so keep an eye out for those.

David:
Please leave some comments below and let us know both on the YouTube page and on biggerpodcasts.com/podcast what you think. Did you like the deep dive into a specific strategy? Would you like it if we would actually maybe analyze a deal live on the podcast for you to see how Rob and I break down both the pros and the cons of a property and weigh out if this would work?

David:
We actually have a matrix that we use that incorporates five different elements that we think are important in real estate investing. And when we’re looking at a deal, we evaluate it through that matrix. So we’ll go and say, “Well, how does it affect this one? How is it affected by this one? How does it weigh out?”

David:
I just want to know, what would you guys like to see more of and what did you like about this show? So please leave it in the comments. If these are popular, if you like having us go deep on one specific strategy like this, tell us. We will do everything that we can to do more. Anything you want to add, Rob?

Rob:
If anyone wants to hear it from you directly, if they want to just find you online for those short-term rental knowledge bombs, my friend, where can they find you?

David:
They can find me on all social media @DavidGreene24. And then I have a YouTube channel as well. But what I basically do is when we’re doing in the podcast, I’ll take a concept that I was like, that was really, really good, and I’ll dive deeper into a video on that. I was describing how you diversify risk in a portfolio. I’m going to make a video on that, cashflow versus appreciation, I’m going to make a video on that. So oftentimes what I hear people say is, “This was a great point. Can you talk about it more?” Well, I get buried in DMs. I can’t answer every single person individually. I try to make a video there.

David:
And I know you’re no slouch on YouTube yourself. Rob is a bit of my… I’m the Padawan learner and he’s the experienced Jedi when it comes to YouTube. He does a lot.

Rob:
We got to do a collab, man.

David:
Yes. that’s a good point. If you notice my camera, it looks like this because your camera looked… I’m not as handsome as you, I’m still working on that.

Rob:
I disagree.

David:
You’ve done a lot to help me in that area. So where can people find you if they want to learn more about what’s going on in the brilliant Jedi mind?

Rob:
Well, as always, you can find me on YouTube at Robuilt. A lot of people say Robuilt, that’s fine if you want to. But Robuilt, like Rob built it. R-O-B-U-I-L-T. You find me on the Gram as the young kids call it, @Robuilt as well. TikTok at Robuilto, because someone snagged that Robuilt from me.

David:
I love that you say that every time. I still think Robuilto is hilarious.

Rob:
It’s important because I think this is a sign that’s like, oh, okay, I’ve made it because I’ve got a lot of scammers that will make fake accounts of me. By the way, just anyone watching this right now, I will never ask you for crypto or Forex or any of that other stuff. I will never ask you to DM me on WhatsApp either. But I always have to clarify because there are a lot of Robuilts.

David:
That goes for both of us. I have a scammer, I get them all the time. It’s usually some derivative of DavidGreene24. So the current one is-

Rob:
It’s DavidGreene25.

David:
Yes. DavidGreene024, DavidGreene_24, David Green with no E at the end, 24.

Rob:
Or David dah, dah, dah, Greene 24.

David:
It’s always like that. So look very closely at the screen name. Scott Trench ha the same thing going on. There’s a Scott with three Ts. And so what happens is people will make these fake profiles. They’ll message you, because you trust us, then they will ask you for money or they’ll ask you to buy crypto with them, or invest in some course they have. They’re ripping you off. So there’s nothing we can really do about it. I would love it if I could get that check mark from Instagram finally, so you would know if it was me or if it was Rob, but that’s very difficult. Instagram is-

Rob:
2022, man, we’re going to get those blue check marks.

David:
It would save a lot of people money. But in the meantime, please pay attention to that. We don’t want you to get ripped off and then follow Robuilto. [foreign language 00:49:00].

Rob:
[foreign language 00:49:02].

David:
[foreign language 00:49:10]. I don’t know how to say I would appreciate it, but I would like that. [foreign language 00:49:24].

Rob:
[foreign language 00:49:24].

David:
[foreign language 00:49:24].

Rob:
Robuilto.

David:
Robuilto. On YouTube. All right. Enough of these shenanigans. Thank you everybody for your time. We really appreciate you listening. Let us know in the comments what you think, reach out to each of us and tell us what you would like more of. We will let you get out of here, but keep an eye out for future shows in this series of how to get your first short-term rental with Robert mathematic Abasolo. No. With Robert mathematical Abasolo. This is David Greene for BiggerPockets, signing off.