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in Real Estate Investing · November 3, 2022

Here is the Deal – Buying Short-Term Rentals to Build Wealth

What and Why Short-Term Rentals

Short-Term Rentals (STRs) are vacation home rentals (the beach condo, lake house, cabin in the woods, downtown flat, etc.). These homes are usually rented for an average of 7 days or less but could be more. They are furnished and most likely fully equipped with everything a guest would need to live at the unit for a short period.

I learned the term Short-Term Rental at the end of 2021. Before that, I would call any short-term rental Airbnbs, but Airbnb.com is just one of the many websites where you can list your vacation home for rent. You can list via Expedia, VRBO, or you directly through your website. 

I had stayed in several Airbnbs, but I never thought I’d invest in one. I thought that it would be too much work and probably best to stick with the classic and boring long-term rentals (LTR). However, Instagram happened and I started learning more about STRs, the benefits and the returns they could provide. Some people were making $3,000 a month in net cash flow from a cabin in the Smoky Mountains. Say what! We average $100-200 in cash flow per month with our long-term rentals. Of course, money talks, and I was intrigued! I joined an online mastermind group to learn more. What sold me on STRs was that you could buy an STR with 10% down using a vacation home loan. That’s not so bad! Let’s say you buy a $500,000 cabin, you only need a $50,000 down payment and if you can make $36,000 a year. That’s roughly a 70% return accounting for closing costs, etc. You don’t get that anywhere else, do you?!

Assuming those returns, one STR could perform better than 15 LTRs! It would require fewer units to retire. I had to try it! I said to my husband, Ryan, let’s buy a Cabin!

Of course, I wouldn’t just jump into something new without having a clear path and neither should you. Here’s what I did prior, during and after purchasing my first short-term rental. 

Educated Myself

I started learning everything I could on how to analyze, buy, and manage short-term rentals.

  • Joined a Short-Term Rental Mastermind. The group met every week and had speakers to discuss various topics. I attended every single meeting.
  • Read several books, one of the best ones was part of BiggerPockets collection: “Short-Term Rental, Long-Term Wealth” by Avery Carl
  • Searched and listened to podcasts of people investing in STRs

Selected a Market

A simple google search asking “Best vacation rental locations in 2022” will yield thousands of articles on the subject. Airdna.co or Mashvisor.com are good resources for this. At the time, Gatlinburg, TN (Smoky Mountains) was one of the best markets and Blue Ridge, GA was up and coming, but not as great.

I also asked the people in our mastermind group why they had chosen to invest in their specific market to understand what I needed to be looking for. Some said that they just wanted a place where they would vacation and that’s how they picked their market.

Gatlinburg, TN would have been the ideal starting point, but this was the beginning of 2022 and the market was at its peak. The prices were crazy high, so the numbers didn’t make sense. Therefore, we decided that Blue Ridge, GA would be the next best place for us. It is close to our home and it was a place that we would enjoy for vacation.

We used Mashvisor.com to research everything there was to know about Blue Ridge, GA. This was helpful because there are several sub-cities in the GA Blue Ridge Mountain area and not all are the same. I highly recommend giving Mashvisor.com a try if you are looking into buying an STR. They have a 7-day trial. We ended up paying for the quarterly membership until we purchased the Cabin and that was about $70.

Hired a Badass Realtor

I like to work with realtors when I don’t know the market well and don’t have the availability to go see properties in person. I met our realtor via a STR mastermind call (the power of masterminding). Being that STRs were new to us and we didn’t have much knowledge of the market, it was key that we worked with a realtor that understood, both the market and the short-term rental strategy. 

Our realtor is an investor himself and had a cabin in Blue Ridge as well. Due to this, he was able to give us insights into the market that another realtor wouldn’t. For example, he told us that a firepit, a fireplace, and a hot tub were KEY to have in that market. He also told us that mountain views booked more and that 3-bedrooms were preferable. This information was crucial during our search. Hence, why I recommend getting a badass realtor!

Best way to find one? Referrals. Ask in STR/Airbnb Owner/Investor Facebook groups or people in your network investing in the market you are interested in.  

Some of the names to Facebook Groups: 

  • Female Short-Term Rental Investor
  • Short-Term Rentals from Owners
  • Managing Airbnb and Short Term Rental
  • Airbnb Professional Hosts 

Analyzed Properties

Analyzing short-term rentals is slightly different than long-term rentals given that income is not consistent from month to month. Therefore, you need to use an average nightly rate and occupancy rate to calculate revenue. You also have to account for the cost of maintaining the property operational for guests (utilities, cleaning, toiletries, linens, furniture, etc.). Here is what you will need to analyze an STR:

  • Average nightly rate – you can use Mashvisor.com, Airdna.co, or Pricelabs.com. You can also use Airbnb.com by looking at the prices of nearby listings (be sure to check different months)
  • Occupancy percentage- you can use Mashvisor.com, Airdna.co, or Pricelabs.com. You can also check other listings in Airbnb to see if they are booked. 
  • Cost of furnishing – even if already furnished, you will likely need to buy some items to update it. Estimate around $3,000-$5,000 per room if not already furnished. At least $5,000 total if already furnished.
  • Cleaning costs – find out what cleaners in the area charge for the type of property you want.
  • Utilities – find out what utilities are needed plus you will need to add internet as well.
  • Fixed maintenance costs – you might need landscaping, pest control, hot tub or pool cleaning, etc.
  • Cost Toiletries, Linens, and Kitchen Essentials– depending on the type of service you wish to provide, you will need to budget for this. Some cleaners will provide linens and toiletries included in the cleaning fee. 
  • Software – If you plan on optimizing your systems with smart pricing software like Pricelabs.com or streamlining with management with software such as Hospitable.com, you will need to include this.
  • Management fee – if you don’t have the time to self-manage, find out pricing for STR management companies in your market and what they include. These are normally higher and range from 15-30%.
  • Taxes and permitting – find out the short-term lodging business requirements in your market. Some markets will require you to pay an annual permit fee, as well as additional county taxes like sales tax.
  • Repairs and capex – similar to long-term rentals, you will need to estimate these costs. Let’s be real something will break at some point, especially with constant use.
  • Real estate taxes and insurance – for insurance, you will need contents insured and good liability coverage. It will likely be a bit more expensive than standard long-term rental. I found them to be very strict too. They had us add railings to the firepit area for compliance.
  • Premium mortgage insurance (PMI) – if you are buying using financing and utilizing a second home loan with less than a 20% down payment, you will have to pay PMI. Make sure that you account for this as additional monthly costs to the mortgage expense.
  • Airbnb fees – this is generally 3% 

Below is a quick demo of the analysis for my Cabin.

Want to get access to this spreadsheet? Sign-up here to receive a copy.

Made Offers – lots of them!

Don’t get stuck in analysis paralysis! Start making offers ASAP! If the numbers don’t work at the listing price, send offers at the number that works. When we bought our cabin, the market was at its peak, so we kept getting outbid. It was a nightmare and we were getting discouraged, but we kept trying until one stuck! 

FYI, I wrote a blog post on making offers. In that post, I give specific examples of what we had to do for our Cabin purchase. -> Time to Buy- How to Make a Winning Real Estate Offer

Built My Team and Vendor List

While under contract, we began working on building our team. Our realtor provided some recommendations, but I also looked on my own. These are some of the key players you may need in your team:

  • Manager (if you will be hiring one)
  • Cleaner and Handyman (if using a management company, they will likely handle this)
  • General Contractor (if rehab needed)
  • Plumber (assuming self-managing)
  • Hot Tub/Pool (if applicable)
  • Photographer
  • Exterminator
  • Landscaper
  • Furnishing company (if you plan to hire out)

At a minimum, you MUST have a cleaner readily available. In my opinion, the quality of your cleaner will break or make your short-term rental business. Imagine a cleaner doesn’t show up for your next guest. There goes your 5-star review out the window.

Prepared for Launching

While waiting for closing, we began purchasing any furniture or supplies needed for the cabin. We also drafted the Airbnb listing. Once we closed on it, we had our cleaner go for a deep clean and our maintenance guy do some general maintenance (pressure wash, and clean exterior). We also went to furnish it with the items we purchased and scheduled the photographer. Our initial pictures didn’t have all of our upgrades, but because the property was already furnished and looked cozy, we were okay listing it as-it was. We didn’t want to delay listing the property just because we were missing a decorative rug (I always say: progress over perfection). Once pictures came in, we went live for a future date. We closed on March 7th, we listed it on Airbnb on March 15th for a live date of April 1st. This gave us 15 days to continue working on it while getting bookings.

We ended up paying to fine-tune our listing, create a Welcome Guide, and set up automation with the management software. I wanted to make sure it was done correctly and didn’t want to delay the process with my learning curve.

I used Daniel Rusteen, the author of Optimize Your BNB for this. I paid about $425 for everything. This is the link to his offerings: Optimize My Airbnb – Packages (P.S. I am not an affiliate). You can check-out my listing here Alone At Last 

Hosted our First Guest

Our first stay was nerve-wracking because I was like “What if we don’t get a 5-star review, it’s over!” I’m a bit dramatic like that, but thankfully, we got a 5-star despite a few little hiccups! Phew! I realized that having good customer service and being quick to respond is KEY for the Short-Term Rental business. Every guest receives a message after they book asking them for ways that we can improve. This has helped us improve one guest at a time and it lets guests vent before leaving a review. I’m learning to take the feedback as an opportunity to improve instead of taking it personal. 

Below is what our first review said and the private feedback received:

Public Review
Private Feedback

Wrapping It Up

Was Self-Managing a Good Idea?

At the time of this post, it’s been 7 months since we launched our Cabin, Alone At Last. We are still learning as we go, but it’s gotten much better. The system automations we implemented have allowed us to self-manage without having to spend a lot of time. Some guests go and we don’t hear from them at all. Communications are mostly automated (check-in, check-out, next morning, review request, etc.), Our cleaners are automatically notified of new bookings via hospitable. They get email and text alerts with reminders. This way, we don’t have to worry about it. 

I purchased a guide that taught me how to set up Hospitable.com for better hosting. It’s a bit pricey, but it was worth it! This is the guide link: The Young Retiree’s Guide to Airbnb Hosting. (P.S. I’m not an affiliate)

Was it Worth it?!

Yes, we love our cabin! However, this property won’t retire us any time soon. Given seasonality changes, we need a full year of financial data to get a better idea of where we stand financially. Some months have been great (highest was $1,000), others have not been so great ($100). November and December are the peak months and we still don’t know what January and February look like. I think it’s a combination of things: the market selected, the timing of purchase, and the type of property purchased in addition to the learning curve. I believe that 2022 will be much better given that we would have graduated from the rookie phase.

Let’s not forget the intangible benefits that come with owning a short-term rental. For example, you get to own a vacation home that is fully paid for by others and can potentially save thousands of dollars in taxes with the STR tax loophole. For us, those two things make it worth it.  

I won’t go into detail on the tax matter because that’s an entire blog post, but I recommend reading the following blog post by The Real Estate Tax CPA: STR 01: How The Short-Term Rental Loophole Can Save You Thousands in Taxes

Would we buy another one? 

Definitely! In fact, we are looking into buying a Beach House next. We are waiting on our 2022 taxes so that the income of the cabin can offset the mortgage expense and be eligible to buy another. We will use another 2nd home mortgage because… in case you didn’t know… you can have multiple 2nd home mortgages as long as they are more than 50 miles away from each other. Did I mention that the refund we get from using the STR loophole may be enough for the down payment of the next one?! I leave with that final nugget!

Hope this was helpful! If you did, please give me a like below and let me know what you thought about the post in the comments!

If you don’t already follow me on Instagram, go say hi @beyondjustnumbers

Other Resources

Want to become an Airbnb Host? Use my referral link and we both get $40 when you sign up.

Airbnb.com – Become Host

Related Blog Posts

  • How to Fund Real Estate Investments – Part 2: Hard Money – In the event you can’t use a 2nd home loan. A DSCR Loan Product can work.
  • How to Fund Real Estate Investments – Part 3: Private Money – You can also work with private lenders to buy Short-Term Rentals.
  • Our Real Estate Buying Criteria and Why it is Important to Set Your Own – Similar to Long-Term Rentals, you need to set your criteria for Short-Term Rentals.

Community

If you are looking to join a community and meet like-minded investors and/or aspiring investors, I wanted to invite you to our FREE REI Coffee Chat Community.

You can learn more in the link below:

Join The REI Coffee Chat Community!

Or if you are looking for a mentorship program that takes you from A-to-Z, you can join The Sarah Weaver’s Mentorship Program. It’s a 12-month program that takes through the investing journey.

Join the Mentorship Program!

Program Details:

Mentorship-—-Sarah-D-WeaverDownload

This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

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New Blog Post 🚨 In this week’s blog post I am New Blog Post 🚨 In this week’s blog post I am going over why we bought a short-term rental, our experience so far. Plus what we did prior, during and after purchasing our first short-term rental in March 2022, a Cabin in Blue Ridge, GA.

Check it out at www.beyondjustnumbers.com or link in bio @beyondjustnumbers
I can’t stress this enough. Some investors are l I can’t stress this enough. Some investors are looking to make money from day one, but that’s not always the case. It wasn’t for us and I’ve talked to a lot of rookie investors who have told me “Thank God I have my personal finance situation together.” 

This is just my opinion. Do you agree? Let me know in the comments!

Want to join a free community of like-minded individuals? Join our REI Coffee Chat Community where we talk real estate investing, personal finance and financial freedom, and much more! Link in bio @beyondjustnumbers

Want to learn more about investing in real estate? Read my blog www.beyondjustnumbers.com

#realestateinvesting #realestateinvestor #creativefinancing #investmentproperty #buyrealestate #firemovement #debtfreejourney #financialindependenceretireearly #rentalproperty #investinginproperty #personalfinanceblog #wealthbuilding #planforretirement #investorlife #livefree #airbnb #moneyisfreedom #enjoythejourney #reicommunity #realestateinvestments #shortermrentals #cashflow #realestate
I used to think that investing in real estate was I used to think that investing in real estate was for the rich. I became in love with real estate while working for a real estate investment company that owned hundreds of units. This was back in 2011 and I was 20 years old at the time. I had less than 5 years permanently living the US, so I had no idea about anything. I grew up in Colombia and the only talk of money we ever had was the lack of it. 

The investors I worked for were a wealthy family, so naturally, I thought… Real Estate requires wealth. I don’t have wealth. Therefore, I cannot invest. 

I figured… well shit, I need become wealthy so I can invest in real estate. Eventually, after educating myself I realized how wrong I had it. You can build wealth BY INVESTING in real estate.

Took me a couple of years to figure it all out. Hence, why I didn’t start investing until 2019. I wish I had figured out earlier, but it is what it is. In just 3 years of investing in real estate, I was able to accumulate more wealth than I ever thought possible. 

Just to give you an idea…Did you know you could invest in real estate with as little at 3.5% of the purchase price? For a $150,000, that’s only $5,750. Buy a duplex that needs a little bit of work, fix it up, rent one side and live in the other. This will reduce your monthly expenses significantly, save the money and do it all over again.*

Of course it’s not that simple, but it’s also not that difficult. There are some particular steps and considerations which is  why I recommend doing further reading on the subject. 

Book Recommendation:
✅“The House Hacking Strategy” by Craig Curelop and ✅“Investing in Real Estate with No (and Low) Money Down” by Brandon Turner. 

#realestate #realestateinvesting
🚨 New Blog Post! Continuing the “Getting Star 🚨 New Blog Post! Continuing the “Getting Started in Real Estate Series” 

You’ve found a property either on your own or through a realtor, you’ve run your numbers, you’ve got a lender and now you are ready to make an offer. What’s next?

In this post I want to discuss a few items:

✅Key components of a real estate contract
✅How do you make a compelling offer to ensure you get the property you want
✅The main contract contingencies and how they work
✅Communicating with your realtor

I also provide real examples of what we have done personally. 

Check it out at www.beyondjustnumbers.com

Let me know what you think!
If I listed all of the hats, I’d never end 😂. If I listed all of the hats, I’d never end 😂. Anyone else? Show me the multiple hats you wear and tag me. Let’s have fun with some reels.

Trying to get good at the real game like @investinginyourwealth. How did I do?
The fact that you are not where you want to be doe The fact that you are not where you want to be doesn’t mean you won’t get there. Greatness takes time. Focus on what you control.

And remember, it’s okay to pivot.

#mindset #realestate #firemovement #realestateinvesting #realestateinvestor #rentalpropertyinvestor #rentalproperty #cashflow #motivation #financialfreedom #financialindependence #financialindependenceretireearly
We see a lot of advice around hiring a real estate We see a lot of advice around hiring a real estate friendly CPA. However, when you look up  CPAs that specialize in real estate, they can be pricey.  However, that doesn’t mean that other CPAs or tax professionals aren’t good. They might not be particularly aware of certain items, but they can research and collaborate with theirs peers. Perhaps it may require you to do a little of work to compensate. Things you can do:
✅ listen to The Real Estate CPA podcast or join the Facebook group
✅follow social media accounts of the pricey Real Estate CPA and take notes of what they are saying
✅attend free educational events 
✅read BiggerPocket book on Real Estate taxes 
✅if you know anyone working with a really good Real Estate CPA firm, ask them what they are doing

Then use that to go your CPA or tax professional and be like “Hey, is this something we can do for me?” They’ll probably say, “Let me look into it”. 

If they are good, they are going to research it and/or ask their CPA peer group. (CPAs and tax preparers also have Facebook groups where they collaborate with each other).

Here is a piece of advice, if they tell you “No, we can’t use this loophole or no, you don’t qualify to use this strategy” —> Ask WHY and “How can I qualify in the future?.” This way you confirm they did their homework and aren’t just being lazy. Don’t just take no for an answer. You can then get a second opinion by asking a question in a forum or to your peers.

So don’t panic if you don’t have a real estate CPA or tax professional. 

Next video I’ll be answering the question… “Can I skip the tax professional altogether and do my own taxes?”

#realestate
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