Latest / The Capitalizing Your Life Podcast / The AirBNB Playbook: Achieving Success in the STR Investment Market with Taylor Jones
Transcript
- Glenn (00:14.87) Today my guest is Taylor Jones, Head of Acquisitions of STRsearch.com. Welcome, Taylor. Taylor - @MrJonesSTRs (00:22.516) Thank you Glenn, appreciate you having me on. Glenn (00:24.808) Awesome. And I've found you through LinkedIn, lots of informational posts about Airbnb rentals and really the best way to structure it and thought I knew and I think I found you through a tech investor, just being a one of the guys that helps acquire properties. And I think it's pretty interesting business and you seem very knowledgeable. So if you could just tell us a little bit about yourself. Taylor - @MrJonesSTRs (00:54.414) Yeah, man. So I'm I'm a washed up baseball guy, like everybody tried to make it in the show. Didn't, of course, have the talent level to go all the way. So looking at numbers has really been, you know, an involvement of everything I've done in my life anyway. Lifelong sales guy got into real estate during COVID. and really got addicted ever since. once I kind of came across short-term rentals and Airbnb's, I really found this great niche kind of living in the acquisitions world. living in Excel spreadsheets, pro forma's, underwriting, looking at comps, taking those numbers and making, you know, a high ROI decision. And that's kind of really what I've hung my hat on the last handful of years. Glenn (01:42.304) Awesome, man. The acquisition portion of all deals are generally the most fun in my opinion. Then you hand over the management and let them deal with it. Taylor - @MrJonesSTRs (01:52.27) Yeah, I would say it's like going out on the hunt and you're trying to take all these inputs that you have, all these data points, and they look great on an Excel spreadsheet, but how do you put them into the real world and apply? Because they all look different, especially when you're dealing with single family homes. And that's really what you're trying to do is make that best ROI decision based on that data. Glenn (02:14.029) Awesome. So a couple of questions that I've always thought about with Airbnb's. First one is say, when I, I've seen some presentations on them, super high revenues, like ridiculous. you spend, we'll just say that the one I remember is they're spending about $500,000 to buy a property and we'll say all in it's between 500 and 600,000 I think it was. But then the revenue on the place was probably like about equal. It was like three to 500,000 revenue on an Airbnb. When you have something like that, how do you really extract extract the value out of Airbnb like so it kind of turns I my first thought is it seems almost like an equity trap because you're you're getting all this revenue and it happens in mobile, the mobile home world, which is where I'm from, is the mobile home world. But you'll get these super high revenues and then you're trying to back your way into it. So now you're, I would say you're competing with like regular single family sales or and then you actually have the hospitality aspect of the short term rental like How does the bank see that? Taylor - @MrJonesSTRs (03:44.29) Definitely the lending side is continuing to mature in this asset class. It's not full commercialized debt at this point. So you are, you know, there is some DSCR products, you know, in here. Like anything, it's a, it's what do you have and how can you market it? So there has been STRs that have traded on cap rates and performance. So it's the single family home value plus the, you know, business value. on a cap rate basis. Is that widespread? You know, absolutely not. But there has been products that have traded, you know, closer to historical hospitality that, you know, seven and a half to 10 cap type of spread. So that isn't that uncommon. I think that will continue to grow. Now the plain three, two vinyl siding Airbnb and flyover country, nah, that's not going to trade on a cap rate. That's just more of an equity play, pay down the principal, hold real estate long-term, suck out cashflow in the meantime, capitalize on the depreciation and tax benefits. So you can still fully leverage this into checking a lot of the real estate boxes, but the commercial aspect of it, you need to have the right product to be able to pull that off. as we continue to progress forward and mature in the asset class. Glenn (05:05.578) Awesome, so where do you think, like, if you're a first time or just starting out into the... the role, I guess, buying into short-term rentals. What would be the first thing that, I'm sure you get this question frequently, like how do you get started? But what would be the thing to know, like my first thought, just for me, I don't have any short-term rentals, but how do I manage the customer once you start actually getting people renting out the place? It seems very like. Like it's very reliant on that one person that's the owner. Taylor - @MrJonesSTRs (05:49.174) Yeah, I mean, the operational piece, you can do it remotely with a lot of systems. I bought my first Airbnb eight hours away in a completely different state. that was five years ago when the technology wasn't even as good. But the example I'll give you is let's just say you own the house right next to audio. And that was an Airbnb. If the guest messages you right now and says, hey, there's a leak under the faucet. Are you going to go over there and fix it? No, like you're going to call a plumber. they're gonna fix it, they're gonna send you photos, and they're gonna give you an invoice. Now let's take another example. I'm here in Florida. So let's say I own an Airbnb in Alaska, about as far freaking away as I can get, okay? If the guest messages me right now and says, hey, there's a leak under the faucet, I'm not getting on a plane and going to Alaska to fix it. No, I'm gonna call a plumber, they're gonna fix it, they're gonna send me photos, and then an invoice to pay. So absolutely nothing changes. Let me give you another scenario. Let's say I own, Airbnb house right next door. So, you know, 50 feet away, 50 yards away. Doesn't matter. If the guest checks in at four o'clock and says, Hey, little disappointed in the cleaning. There's some dust here. I was really thinking it was going to be a better clean. I'm not going to go get the broom out and start cleaning. No, I'm going to call my cleaner, say, you do your damn job. I need you to go fix this. And then I'll pay your invoice. Same example, I own an Airbnb in Alaska, guest checks in at four o'clock, hey, there's dust, I'm not getting on a plane and cleaning, I'm gonna call my cleaner, say, hey, you job. So there's nothing you can't do, whether it's 50 feet away or 50 states away from an operational standpoint. You'll have technology on the pricing, the calendar, check-in instructions that get sent to guests. So there's so much you can automate within that. And you're just gonna have partnerships on the ground level. Like any asset class though, you know, whether it's a mobile home park or an apartment, you know, you're not fixing that leak. You're not cleaning. You're hiring vendors for that. Well, same thing with short-term rentals. If the pool's dirty, you're going to call the pool guy. If the yard needs cut, you're going to call the landscaping guy. If the house needs clean, you're going to call your local cleaner, HVAC, plumber, et cetera. So the kind of process of dealing with real estate and vendors is the same thing, you know, across the stack because you're not physically doing any of it. whether it's. Taylor - @MrJonesSTRs (08:08.118) you know, 50 feet or 50 states away, man, it really doesn't change from an execution standpoint. Glenn (08:15.988) Awesome, so if you were to... Glenn (08:22.848) Would you suggest, like somebody that's new, they're, we'll just say they have a high income, we'll say over 200, $300,000 a year income. They're wanting to get into the short-term rental space. How would you suggest, like, would it be like you should hire a property management company or would it's like, or these are the systems that you would manage? how do you think they should determine whether they should be managing it or have somebody else manage it? Taylor - @MrJonesSTRs (08:53.742) It's really like, what do you have going on in life and what are you trying to accomplish? So, truly if you put systems in place, is it two to three hours a week of effort? Yeah, it definitely is. Now, you don't know when those two to three hours are. It could be Tuesday at noon or Friday night at 8 p.m. and you don't know every week. So, you do have to have a timeliness to it, but... Again, so let's take that same example. If the guest calls and says, the pool's green because your pool guy didn't add enough chemicals, is it that hard to pick up the phone, call your pool guy and say, hey, dude, I need you go back over? The guest says, it's green? No. But if they message you and you wait three and a half hours to reply, well, they're going to rip you to shreds in the reviews because you took three and a half hours to address their need of, the pool's green, and it's not clear. So none of it's that hard from a system standpoint. And like I said, realistically, you're two to three hours a week of effort to maintain that business. But do you have that flexibility? Do you have three or four kids at home? Do you not have the bandwidth? So everybody's gonna look at it differently. It's also like, do you value your time? Like, you know, the cost to hire a property manager versus that two to three hours of, you know, mental headache, bandwidth, et cetera. You might be at a place in life where you're like, hey, it's just ain't worth it for me. And I'm okay, you know, adding that. Sure. Like you can cut your own grass. She can also pay somebody to do it. So this is no different. Like this is a vendor, like you can manage your own Airbnb. It is not, you know, you don't need a, a PhD to do this, but is it worth your time? I don't know. It's very, very person specific. So, you know, when it comes to deciding how to handle the operations, that's really what it is. You know, the hybrid option that not a lot of people talk about is hiring a virtual assistant overseas. Glenn (10:18.144) Yeah, yeah. Taylor - @MrJonesSTRs (10:39.47) you know, somebody who can do 80, 90 % of the legwork and you're really just filling in gaps and emergencies. So that is a hybrid option we've seen, you know, people do as well is you don't quite want or have the bandwidth to self-manage and you don't want to pay for full service property management. So you can take that hybrid option in between. Glenn (10:57.996) What do you think the expense for like that virtual assistant overseas would be? is there like, I imagine there's companies that specialize in short-term rental management overseas. So what do you think that expense would be about? Taylor - @MrJonesSTRs (11:15.662) So it depends if you want to hire an agency or hire your own that actually is on your personal payroll, your LLC's payroll. So the agency route right now, you're three to $600 per month per listing. The pro and the con there, the pro is the price. Obviously it's super affordable. You get 24 seven communication, but it's a rotational shift of people working. So you don't ever know who's actually working. It's a new person. You'll supply kind of that like property level blueprint or Bible, like here's the bedrooms, here's the configuration of the home, here's what supplies and amenities are, so that if a guest asks, they can reply. But if you want to make changes or adjustments, you have to go through the agency, then they relay that down to the workers. Because again, like you have that dynamic. The alternative is you hire somebody who works directly for you. You know, they're 40 hours a week on salary. If you get somebody today with experience, so two plus years of Airbnb guest communication experience, talking to the customer service, being able to call the pool company if there's an issue and vendors, et cetera, you're probably in that thousand to $1,200 a month range. The good news there is that person can handle about five to seven listings at a time. So sure, one to one, it's expensive to hire versus the agency. Glenn (12:42.08) Yeah. Taylor - @MrJonesSTRs (12:43.604) Once I, once you typically get two to three, that's where it starts breaking and the agency doesn't become that affordable anymore. And you might as well bring them internally. You also get the benefit. Hey, if there's, how they're communicating with the guests, you can provide that coaching and that feedback, those systems. And if they also work for you, I can tell you they're not putting in 40 hours managing your property. So if you have ancillary businesses, you would like your virtual assistant to work on, you're going to have that capability as well, because they can help you with your day to day life. personal ordering groceries, Amazon. I mean, again, they work with and for you and they're to assist you and the Airbnb portion of your business isn't gonna take them 40 hours, especially with one or even two. You go roll six or seven properties deep, it's a different discussion. Glenn (13:32.694) Yeah, so yeah, definitely. I love the VA aspect. We utilize them as well. And it's actually like a game changer too. And I had interviewed a few people about this, but the whole VA thing is just something that's like, if it can be done at a computer, it should be a VA. That's all I would say. That's been my experience for most of the admin. administrative type stuff. You know, when it comes to, Glenn (14:14.889) At what point do you think it would be better for somebody to invest with like an operator or they should be actually investing in into Airbnbs themselves? I guess it would be kind of just a time thing as well, right? Taylor - @MrJonesSTRs (14:28.456) yeah, it's also what you want to accomplish. mean, investing in an operator, you know, you get the pro and the con. So the, the pro is it's completely hands off, true mailbox money. You get to spread your investment across several assets instead of kind of all in on one. You you look at the con side is you don't have operational control. You also don't get the tax benefits of owning physical real estate. Like sure. You can take some passive depreciation. What is a super awesome hack that a lot of people love about short-term rentals is the losses when you own the property, you can qualify through material participation and those losses can be considered active. So there's not a lot of ways you can get active depreciation to offset your active W-2. Short-term rentals is one of them. It's commonly referred to as the short-term rental tax loophole. It's not a loophole. says in plain language, but it's the fun term everybody loves using. But yeah, in short, if you check the box for material participation amongst several other things, and I'm not a CPA, so I'm not going to pretend to be on TV. But if you qualify through one of the material participation check boxes, you can take that depreciation. And instead of only being able to apply it to your passive income, which is what traditional depreciation is, you can actually offset your W-2 or your active income. So this is where a lot of high income earners who make two, three, four, 500 grand a year, they're all of a sudden like, hey, I can unlock six figures of depreciation by buying and owning my own Airbnb. Yeah, you gotta still qualify, you can't just buy it, but that's a path that a lot of people are doing. So when it comes to a personal decision, if you make half a million a year and you live in California, Well, passively investing in an operator might not be what you're looking for. You might be looking to accumulate assets for the six-figure tax savings because it's more advantageous to you. The 15, 20 grand a year in passive cash flow is kind of a secondary thing. You're not at that point where you care about that. So really, it's like, what are you trying to solve for and maximize in your life? And that's really going to determine where you go and what path you pursue in this asset class. Glenn (16:45.836) Can you say that one more time what it's called the act? What is it called the active? Taylor - @MrJonesSTRs (16:51.758) S S T R tax loophole, but it's it's taking your depreciation and it's really the simplest term is active and active or passive and passive. So traditional depreciation, if you buy an apartment complex, self storage facility, a mobile home park, it's going to be used against your passive income. So if you're a passive investor, you know, any income you generate from the asset itself, great. But let's say you have excess depreciation. from that, you know, cost seg study, it's kind of tucked away for a rainy day. You can't use it to offset your dentist or doctor, you know, W2 or salary. However, with short term Reynolds, the IRS says, no, this is definitely an active business. So I know gurus will tell you, Airbnb is are passive. So despite what your favorite guru tells you, it is very much an active thing. And the IRS will agree with you. It is an active business. Glenn (17:25.078) Yeah. Glenn (17:44.044) Yes. Taylor - @MrJonesSTRs (17:46.87) So they allow you to classify the depreciation. So you order a cost seg study, just like you would on any other commercial asset. And all of that depreciation can now be used not only against your passive, but also your active income. So AKA your W2, you know, and I'll tell you the best hack I've seen is wife is a stay at home mom, husband, high income earner, works in tech, doctor, dentist, lawyer, et cetera. file joint taxes, she's the one who actively materially participates, aka does the guest communication for a couple hours a week, maybe updates the photos and the listing. She qualifies. Now on your joint taxes, she's going to take that several hundred thousand dollar loss to offset yours. Definitely. It's the best setup I've ever seen play out. It's incredible. Glenn (18:33.44) Yes. Definitely. Yeah. So just to go back and I know that we're, this is not financial advice. It's just for entertainment purposes only. so you're so with, so I understand. So is this not the same thing as real estate professional? Taylor - @MrJonesSTRs (18:48.279) I'm sorry. Taylor - @MrJonesSTRs (18:57.838) So that's the alternative. So to get active income, you can either qualify through rep status, which again, like that's its own category. So you can, that's its own definition. The alternative is material, material participation. So yeah, not rep status. Now you can get, have your wife qualify as rep status, which some people have done, which is obviously a huge hack, but you can also just do it through material participation as well. Glenn (18:59.402) Yeah. Glenn (19:07.946) Yeah, okay, okay. Taylor - @MrJonesSTRs (19:27.502) Because 750 hours for rep status and more than 51 % of your time is really hard for a doctor, dentist, lawyer, et cetera, et cetera. So that's where material participation comes in because the qualifications are not as strenuous as rep status. Glenn (19:34.55) Yeah, yeah. Glenn (19:44.234) Yeah, that's kind of why you see these. like a lot of these high end realtors, you see that they started out as like house moms and they became realtors for the real estate professionals. And then they actually became, they became successful and then they become like big realtors, but it started out with the tax advantages of being a real estate professional. But when you're, so what would be like, and I know that, like I said, we like, what is, like the You don't, I don't know if you like know it, but what is the actual requirement for that material? Taylor - @MrJonesSTRs (20:26.25) Yeah, there's a, if you go to the IRS code, there's seven different ways you can qualify. good news is you only need to check one of the seven boxes. So really it depends on which of those seven qualifications is the easiest to obtain based on you and your lifestyle and your setup. So super in depth. there's like two or three very common ones that a lot of people go after, but, you know, I'd be doing a disservice if I try to in depth cover all seven options, but. Glenn (20:32.864) Yeah. Taylor - @MrJonesSTRs (20:54.67) You have seven different paths to pull it off. And the IRS says, here you go, go execute. So yeah, there's several different ways to do it. So I think it's talking to your CPA and figuring out what is the most realistic based on you, your scenario, and your tax setup to pull off. Glenn (21:13.708) Awesome. I guess what would you say like the next step would be? So say if somebody wanted to work with you and like what kind of like what are you offering as in your services and how that works out? Taylor - @MrJonesSTRs (21:33.878) Yeah, I mean, the biggest thing people are like, cool, I want to buy an Airbnb. I want to save six figures in taxes. Like, great, you got the mindset right, but where do you go and what do you buy? And that's the first question we get. So, you know, what we do at STR Surge is we help investors figure out which markets align with their goals and interests. What's the best potential property to buy looking at that data. You know, we're pretty fortunate to have full-time data analysts on staff who do nothing but look at Airbnb data markets all day, every day. So for us, we've studied over 310 vacation markets in the U S statistically, one of them is ranked number one and one of them is ranked three 10. Most people I talk to aren't like, you know, Taylor, I want to buy in the 94th best vacation market in the country. no, like most people want to be in the top 15 or 20 typically. Those are gonna have some variety to them. Some of them are coastal, some of them are mountains, some of them are lakes, some of them are urban metro. You also run into budget stuff where some of those markets, the homes are 1.3 million and other markets it's 300 grand. So budget eliminates markets first. Like I tell people like, you might love to own an Airbnb in Miami or Sedona, but you're not gonna pick up a single family home for under a million bucks in either of those markets. So, you your preferences have to take a backseat to your budget. Once you get budget figured out first, then you could go into preferences. Do I want small? Do I want big? Do I want coastal mountain, lake, urban? Do I want more turnkey or, or, you know, more of a gut reno value add? How much do I want to maximize tax savings versus cashflow? So, you know, you know, this from the, from the oil business, you can't depreciate land. So if you invest in a high land value state dollar for dollar, you're not going to get as much tax benefit and depreciation. depending on which markets you go to. So do you wanna maximize cashflow or real estate appreciation or tax benefit? Because there is no such thing as getting all three maximized in a market. That doesn't exist. If it did, everybody would buy there and then that market would suck tomorrow. So you kind of have to figure out where do you wanna give? Do you care about the long-term appreciation? Do you care about the tax benefit? Or do you just want this to be a kick-ass ATM machine that just prints money for you? Taylor - @MrJonesSTRs (23:50.284) Like those are the things that are going to really determine which market aligns with your goals and interests the most. And that's how we'll kind of run this blueprint with investors. Once we get that game plan figured out, okay, these are the markets that match your inputs, your budget, your preferences. You know, let's go find what are the best available properties to purchase in said market. Let's look at all of the comps. What are the competitors of similar bedroom counts, similar amenities generating? What could we expect to generate? What are our projected expenses? How much money do we have left over? Go through the real estate transaction, buy it and put it under contract, inspection appraisal, et cetera. And then once you close, it's like, cool, we got to get a designer in there, make it look really good. Got to get the contractor in there, add those amenities, hot tub, fire pit, game room, pickleball court, golf simulator, however crazy you're going to get. And then once those are done, then you move into the operational side, which we talked about, hire a VA. a full service property manager, or you're just going to kind systemize and do it yourself. So we really take investors A to Z on that journey of, hey, I want to buy one to, I'm live in cash flowing on Airbnb. we kind of, you know, do white glove handholding from A to Z since we've helped investors buy 196 of these over the last three years. So like literally to us, it's just another ride on the, on the carousel, you know, it might be your first time and that's okay. The good news is we we've gone down this track several times. And so we'll be able to help guide and navigate for you. you know, based on your criteria and your inputs, because everybody likes something different. Glenn (25:24.138) Yeah, so with the. So say if somebody had a property already under contract or they actually lived in the house and they wanted to convert it to an Airbnb Would that still be a customer for you? Taylor - @MrJonesSTRs (25:39.552) Yeah, I mean, we have a lot of people, you know, that's like kind of like the full service take you A to Z, you know, for those in that scenario, we do have other ways to help. hey, if I am going to convert it or move out or I'm already under contract. from a data perspective, how can we make the best ROI decision on how to set it up, how to amenitize it, how to lay it out? Yeah, absolutely. So you're kind of already further ahead of the track and that's okay. We'll pick up where you are. Most people come to us and they haven't even gotten to the starting block. They're just like, hey, I want to get one. You know, we're like, cool, let's go through. But if you're already on that journey, we'll come meet you where you at and say, hey, here's everything from a data perspective. It's your house and your money. You're going to make the final decision. So, you know, it's like, I'm not going to stop you. If you want to not add the recommended amenities based on the data or Hey, all the top performers in the market have A, B and C. I can lay those out on a silver platter, but if you decide to not add those, that's cool, man. It's your house. You might not hit the revenue numbers you're thinking you're going to, but that's where we just want to come in and we're not emotional. We're not making opinions or decisions. We're just here to present data at every skew of the business. so that you can make the best data back decision possible for your investment. Glenn (26:57.292) Yeah, because I'm like, as you're talking, I'm like, we're, we just put a house under contract today, and we never buy houses, never buy houses. And it's a good deal. It's a right around the corner from our office or management office. So I was kind of thinking I was like, as you're talking, it's in a historic district of the area. I'm thinking the only downside to it is on a busy street. So I don't know if, you know, I was thinking I was like, it would be kind of a perfect house to start with. Taylor - @MrJonesSTRs (27:03.095) Nice. Glenn (27:27.337) Because we already have it under contract. Taylor - @MrJonesSTRs (27:30.766) Yeah, mean, lot of nuance there. It depends on the market, the target demographic. Yeah, we'll talk offline. Yeah, see if there's some links to it. Glenn (27:33.962) Yeah, I'm gonna send it to you though. I'm gonna send it. Glenn (27:39.86) Yeah, I honestly I was thinking it's actually a house with two houses on it on the property. So it's kind of like in a historic location and it needs a tool renovation. So I was thinking if we renovated accordingly to what you were thinking that might actually work the numbers. So awesome. Well, that's exciting. I'm excited to talk about that later. And where can people find you? Taylor - @MrJonesSTRs (28:02.99) Yeah, no, if you want to chat about your individual situation, you know, feel free to go over to strsearch.com. You can book a call right on the calendar there. If you want to reach out directly to me, I hang out primarily on LinkedIn and formerly Twitter, now X. So it's Taylor Jones or at Mr. Jones STR. So feel free to shoot me a buzz if you ever have any questions. I try to. share on a daily basis and give back. you I know you said you came across a lot of my stuff on LinkedIn and yeah, it's just what I try to do share what I'm seeing in real time and really help people. There wasn't a ton of resources when I started five years ago in this space. And so to me, I'm kind of trying to just pay it forward and, you know, share, give back as much knowledge and information as I can to, you know, help kill the learning curve for a lot of other people. Glenn (28:51.35) That's awesome, man. Well, thanks for being on the show. Taylor - @MrJonesSTRs (28:53.976) Certainly man, enjoyed it.