Latest / Short Term Rental Problems and Solutions / How I'd Buy My First Airbnb If I Were Starting Over Today
Transcript
- Jeremiah: Do you think you can expect cleaners to act reasonable? How about guests? Good luck. I thought so too, but I was wrong. Now you realize it's not all sunshine and five star reviews. That means you're in the right place. I got an email this week from Kyle, who's considering getting into Airbnb investing and has a bunch of first timer questions. We talk about how much time to expect this to take, how much money it takes, and where to get that time and money from. Welcome to Short Terminal Problems and Solutions. That's because this is the community where we talk about the gross, awkward, and the operational messes, as well as the real strategies that help you keep going instead of quitting, because this industry is somewhere where you can win big. Or you can ignore education and you can quit. Welcome to Short Term Rental Problems and Solutions. get into today's question. Hey Jeremiah, we're thinking about buying our first Airbnb in the Poconos. Where should we start? ⁓ And ⁓ what should realistically during the first year? More specifically, if you were like me, young, recently married, Would you be looking for your first investment property and how would you pay for it? How soon should I start? Is it better to be inside or outside of an HOA based on access to amenities? Are there places I should avoid? How much time would this take? How long till the property is making money? Thanks, Kyle. ⁓ to be young again. Kyle, when I was ⁓ young, I read Rich Dad Poor Dad. It's a book by a gentleman called Robert Kiyosaki. Highly recommend it. Or maybe you recently read this and you are thinking through some of the concepts in there you can ⁓ flow quadrant. You can make money as an employee, you can make it as a self-employed person, ⁓ a medium-sized business, or you can make it as an investor. ⁓ And in real estate, you're actually matching a bunch those little things in order to make. your money. So my plan, because you asked me like what would I do if I was newly married? And and I'll tell you what I did, because I knew about that book when I was 22 and I got married. my plan was to buy a $60,000 house with an FHA loan. It was going to be $1,800 down. That's ⁓ amazing. Now ⁓ also was told ⁓ up until that point, ⁓ happy wife, happy life. ⁓ That's not true. ⁓ because every happiness or happy life that you're gonna experience or pursue is about balance. And you get an unhappy wife, and therefore an unhappy life, you do not prioritize that balance. So when you get completely unbalanced, you're working too much or you're not working enough, or you're spending too much, or you're not spending enough. that's because of an imbalance. ⁓ speak for you, but I know that I'm the happiest when I'm in pursuit of a worthwhile dream. So when I've got a big expansive goal that I'm going after and I'm moving forward and I'm seeing progress, that's when I'm actually happy. ⁓ my wife ⁓ ⁓ to that. I don't know about yours, but most people I think ⁓ when they're happiest. And it's not just when they're spending money, it's not just when they're, you know. ⁓ On a beach somewhere. it's if you look at it philosophically, it's when we're making progress towards something that we really care about. ⁓ So I love the idea of you and your new wife taking on the challenge of an investment property. I also want to make sure that you go in with your eyes wide open, ⁓ just like they would have told you before your marriage. Go in with eyes wide open because love is blind, but marriage is an eye opener, right? So when we're talking about investing and investing specifically in real estate, it's a great investment strategy. You have to make sure that you're ready for it. And so you're asking a lot of the right questions. after I answer your questions today, ⁓ would love to see you. Come on the show. We can have a conversation. We can go back and forth. I can get a lot of those ⁓ questions answered for you. But let's just start off with some of the questions you've got. if I was starting off right now and looking to buy my first house, I'm gonna make the assumption that you're renting an apartment and that you're probably eligible for a first home loan, like an FHA. now I would probably go this route, but there are some pros and cons, right? So the biggest drawback is you have to move in and you have to live there. ⁓ talk to your lender about how long you actually have to live there for. Some people are going to say it's one year, some it's gonna say it's three years. I'm not gonna recommend on this show that you break any of those rules or that you give somebody the false impressions. What I will say is that enables you to put three and a half percent down. ⁓ Anything where you're doing less than 10% of purchase price as your down payment is going to require primary occupancy ⁓ because your risk goes up if you're not in there. Well, their risk goes up anyway. yes, there's a downside of ⁓ PMI or MIP, depending on which one you get. But I think it's kind of worth it. ⁓ it also you'll hear more than once when you talk to investors about real estate. It's not about timing the market, it's more about time in the market. the sooner you get started, the better, in my opinion. So now if you do move in there, then welcome to the Poconos. I we could be neighbors, Kyle. what inform strategy about what house to buy? ⁓ well, most of the homes that are sold up here come fully furnished. And you're coming from an apartment, you probably already have a bunch of furniture. ⁓ most of the homes already come with furniture. So ⁓ if you know you're gonna want to choose which one's gonna look better in a short term rental later on, and then you sell off or donate the rest. You can something a little more expensive when it's only three and a half percent down. ⁓ like I said, I bought a 60,000, well, actually, I bought a hundred thousand dollar house when I was twenty-two. ⁓ And ⁓ I put down ⁓ like three thousand dollars, three thousand five hundred on that house. I a assist ⁓ and high mortgage, I guess. ⁓ I mean, relatively high. And ⁓ it worked out. It worked out really well for me. it was ⁓ great because I had time in the market. Now I bought in 2009 ⁓ the values didn't really go up much ⁓ 2020. So that's when the values really went up. ⁓ I have waited a few years and bought and still done well? Yeah, but you can only know that in ⁓ right? Hindsight is 2020. You can only look back and know when the best time to invest was. You can't look forward. Don't try to time the market. Just try to get into the market then go from there. So ⁓ another thing to consider is maybe new construction. ⁓ since you are living in a residence now, you don't necessarily need a place, ⁓ you could a ⁓ building loan. ⁓ so consider in the cost of furniture and decor with that building loan. A lot of builders will do that. That's another thing, you know, to consider. So basically, what I would be doing I would purchase that property, move in. Let's just say the required amount of time was one year. During that one year, I'd probably work in short-term rentals somehow. You know, after year is over, I'd move out, possibly back into an apartment, possibly into another house. But I would move out, ⁓ rent house out for a year, and then you can use the rental income from that year to qualify for a DSCR loan. That's a debt service coverage ratio loan. So they're gonna underwrite and see what kind of income you're getting for the property and they're gonna compare that to the mortgage payment. So you just have to be at the right ratio and have a good enough credit report and you should qualify. But this means that you can refinance the property and you can get a lot of that equity back out of it. you're going to be at 80% ⁓ the value, the future value. So during that one year, you're going to look for projects that you can do in order to increase the value of your home. If you buy right in the beginning, you already know what those projects are going to be. You've got a year to complete them. And then ⁓ know you get everything going. Now that it's a short-term rental, you're operating that for the first year, and all of that rental revenue is being ⁓ reported and then you can show that to your lender after a year and you can refinance the loan. Now you no longer have an FHA. You might even be able to get another FHA loan to buy your next house. But you would have to repeat the strategy and move back in. So I mentioned that during that year where you're waiting and you have to live in this house as your primary home, you're going to be in the Poconos. So a really good thing that you can do to get some like insider knowledge and experience is to actually work in the industry. a ⁓ of people out here that are looking for reliable part-time workers. So you could be cleaning homes, you could be ⁓ materials. property always need part-time help, runners and like that. The whole point of this is really just so that you can get into as many of these short-term rentals as you can and get an idea of how the design is done, what kind of condition they're kept in, you know, the homeowners and their impressions of guests and some of the stuff that they are going through, because that's going to give you some very valuable experience that you can use later on when you are a host. Now, if you were not going to move into it, then a 10% down second home mortgage would be really your only option. ⁓ well, not your only option, but it would be your best option. ⁓ not going to recommend waiting until you have 20% debt down order to get a second home loan without mortgage insurance because ⁓ I ⁓ that would be improving that property and raising the value. I also expect interest rates to be where they are now and to go down over time. So I expect interest rates to go back down. And that is a whole nother reason why I'm making the expectation I'm going to refinance this property. Second thing is only pay for as many points as you have to. some pay for points so they can get a better interest rate, ⁓ but if you're to refinance before your 30th year on your mortgage, then ⁓ you're paying for that are unnecessary. I wouldn't pay for points to get a better interest rate just because of that. So if you are just getting a conventional loan, that means you don't have to move into it. In that situation, you're gonna want to find a property that already has good furniture, already has good design. Look for a short-term rental that just hasn't done very well. It doesn't have good rental history, it doesn't have good rental performance. if that is due to like a bad hosting strategy, that's perfect because now the value of the property is not inflated because of its rental history. You can get it at like a normal, like maybe appraisal value, maybe even lower. ⁓ you generally have a motivated seller. So this is a good opportunity for you to get like, you know, something with vaulted ceilings. I'm gonna recommend ⁓ maybe an A-frame. That's like your primary. A chalet, that's a second choice. Notice there is a difference between an A-frame and a chalet. Not everybody knows it. And then possibly, you know, an interesting style contemporary. There's a certain contemporary that I get tired of because there's so many of them. And I think I'll throw a couple pictures up here on YouTube for you to see what I'm talking about between the A-frame, the chalet, and a contemporary style. Both like the one that I get tired of and the one that I see not really enough. That ⁓ would be a good investment. So now When you're looking for investment properties like this, make sure you're finding an open layout. Now you're looking for an open layout inside the house. You're also looking for an open layout outside the house. So where people's dining, ⁓ their living room, and their their kitchen are all like connected line of sight from one to the other two. You want to have that open layout as much as possible. The second thing is your open layout outside. So ⁓ If you're gonna have an awesome front yard, you do not want an awesome backyard. You want to bring everything up to your front yard. Same thing in the vice versa, right? If you're gonna have an awesome backyard, there's no point to like really dressing up your front yard other than for curb appeal. Because your outdoor space should be a very open layout, and you're gonna want your guests to be all together in one place. A lot of people come to the Poconos in order to be together. but also outside. So other than going skiing, fishing, or boating, they're going to be together in your backyard. So you have to think about how you're going to keep them together versus them being all spread apart. Now there is some value in having all those extra amenities. I think it's best if all those amenities are line of sight. Like they can speak to each other, they can tell each other that dinner's ready, that the pizza just arrived, you know, that sort of thing. And besides the open layout, I recommend that you focus down on your ideal guest. So if you're buying a one-bathroom house, focus in on couples. If you're buying a two or three or four bathroom house, focus in on groups and larger teams. ⁓ there's a lot of people right now in that three-bedroom, two-bath range that are just competing with one another. And it's it's it's a challenge to compete with that many other rentals. But when you focus down on just couples or when you focus in on large groups, like six bedrooms or more, can do really well. The next thing you asked is about is it better to be inside an HOA or outside of an HOA? And that just depends on the house. You know, it's it's really much more about the property itself than it is where it's located, whether it's in inside an HOA or outside of an HOA. If ⁓ had two properties that are similar styles, similar stats, and one's in an HOA and one's outside it. I would say that you're better going outside of the HOA. However, that's almost never the case. You're almost never going to find the same house, similar stats inside and outside of an HOA because the property that's outside of the homeowners association is valued higher. In the Poconos, once you get into an HOA, your values typically go down. There's like two or three HOAs where the values are elevated, but it's very rare. And one of the reasons for that is because ⁓ the people who live here locally, they'd rather not be in an HOA additional fees you've got to pay and for amenities that pretty much only vacation renters actually use. So, ⁓ mean, ⁓ are competing for these homes. They'd much rather live outside of an HOA. The reason why they're buying properties inside of HOAs is because of the house. It's because of what they can purchase there. So think about it from the guest's perspective. There are guests who want to swim in the lake, but there's more than enough inventory to fill that demand. There are guests who don't care about the lake, and there's more than enough inventory for them because they could stay at a house and just not swim in the lake. There are also guests who want to book right now and they want to check in today. There is not enough inventory for that. A big part of that. Is because of the registration process. HOAs require registration. They want to have enough time to process the guest and the registration before the guest arrives. And they want to charge extra for any last-minute reservations. most homeowners associations want the registration three days prior to check-in. And if it's less than three days prior, they're going to charge an extra $75 or $100 for that reservation. Which is something that you as the host just have to, you know, eat that expense. So most hosts require that guests make their reservation more than three days prior to check-in because of the HOA. If you're outside of an HOA and your house is clean, you can accept a reservation. There's no advance notice necessary. So there's not enough inventory of properties that guests can check into today. And there's a huge demand for that. And that Is a whole another reason why, as a short-term rental, you'd rather be outside of an HOA. Now, with that said, there are some HOAs that don't require this, such as Camelot Forest. ⁓ there's also a couple other HOAs that'll allow it to be like a same-day reservation, and they just charge a little extra, like maybe an extra $40 or $20 for the rush. Also, not a big deal. So I really recommend that you just focus down on like what the house is, not necessarily where it's located. I know we can filter for like HOA fees and how much they are, that's ⁓ really the most important category to filter on. I would say ⁓ there's some other benefits of being outside of an HOA. Like you can do some other stuff, like you can have a fence. I feel like that's so rare up here. Homes with actual fenced-in yards are rare. Now you're coming from the like the suburbs. You want to feel like you're in the mountains. So I haven't really seen it done well or done right yet, but there's almost no fences out here. imagine a nice grassy yard. With a big fence where like parents can let their kids go play and they don't have to worry about like bears and foxes or stray dogs because it's a fenced in yard. It's kind of contained. I would really like to see a vacation rental up here with a really awesome yard that's fenced in because it's going to make those helicopter parents feel like their kids are safe, just playing out in the entire yard. And if you've got a good grassy yard, that's an awesome amenity to offer. The thing is. Almost none of the HOAs out here will allow you to have a fenced in yard like that. And the ones that do sometimes require that your fence is like 10 feet in from your property line. So it makes it feel like your yard is really small. I had a situation ⁓ that really called for a privacy fence. And tall, big privacy fences make for good neighbors, right? Well, this house has a neighbor ⁓ whose septic system is on the same side of the house as. Our hot tub. So we've got this big cedar hot tub that our guests just love to hang out in for long periods of time in their bathing suits, right next to their neighbor. So the neighbor might or might not just really want to be able to see these people in the hot tub. And so he put this like tea set, you know, the little outdoor table and chair combo. He put that on top of his septic drain field, which is elevated, and you can it's on the same side of the property as the hot tub. It's really just very creepy because he could have put that T-set anywhere. He's got a half-acre lot. He could have put that on his deck, which seems like a really much better place to put a table than on this drain field that's not really supposed to have anything on it because you could damage the pipes. But this guy. Put a table and chairs on the section of his property that's the closest to our hot tub bathers. That's really creepy. So if we could have just put up a fence, problem solved. I think it would have diminished his interest in being that close to the property line. But we can't put up a fence because Pocono Farms Country Club doesn't allow fences. So what could we do? It's because it's an HOA. So, you know, that that just it sucks, but it is actually, you know, a problem. And so if you buy outside of an HOA or you buy in one that allows fences, then you can employ that strategy, which I again I think is a great strategy, especially if you're gonna be pet friendly. If you're outside of an HOA, you can add a pool. There, you know, believe it or not, there's some homeowners associations that will not allow you to have pools. You can cut down trees when you feel like it. You can have a big fire pit. These are things that are restricted by HOAs commonly is fences, pools, hot tubs, trees, and even fire pits. ⁓ like the type of fire pit that you can have or whether you can have one or not. Thank you very much, Towamensing Trails. So another that you run is compliance issues. So if you do not register your guests. Some HOAs are so I want to say strict, ⁓ like they have nothing better to do. They'll actually look through your Airbnb profile. They'll look at the names of all the guests that left reviews. if you have a guest name on there that is not a registered guest, then you're gonna get a fine for not registering your guest. ⁓ you're gonna also have a fee associated with your account for registering the guest. So Pocono Farms Country Club, I know I just complained about them. I'm gonna do it again. They charged homeowner that I was selling a house for $20,000 because they looked through all of his past reviews and they found that there were some guests that he wasn't registering. They didn't provide him with a report of who those guests were. They didn't say it was this guest on this date or anything. He just paid it at settlement. They got all their money, they got $200 per registration. Because at that point it was late and they got $200 per fine for an unregistered guest. Now these are not guests that are using the amenities. They're traveling across the road, one block, not even many of the roads. They're not using the amenities, they're not going to the pools, they're not doing any of those things. And the homeowner's paying $20,000 when he sells his property for not registering them and for their registration fees. Complete money grab. Just completely like unfair and not right. But it's allowed in HOAs and you sign on that line when you agree to live in an HOA or when you agree to buy in an HOA So buyer beware. that's some of the worst things that have happened. And I can tell that there's pros and cons this, right? The positive side to living in the HOA is if that house was purchased. Outside of an HOA, it would have cost an extra $50,000 when he bought it. Now, mind you, it would have been a higher price when he sold it and he would have got the money back. But you're still going to be paying interest on that extra principal. You know, so if your expenses are all just going to be slightly higher because of it. But the HOA fees of that neighborhood are close to $2,000 a year. So he would have saved probably as much as it would have cost him extra. Nevertheless, might be saying, ⁓ know, I just need to find a property not in an HOA because I want to do what I want and I want to be able to be successful because of ⁓ of my ideas. And I don't want some ⁓ telling me I can't. I agree. The thing is, ⁓ of your best opportunities are going to be found inside the HOAs. So it's kind of like a necessary evil, right? one actual downside of not being inside of an HOA ⁓ the roads. So inside HOAs you have much quieter roads. There's a lot less traffic on them. But pretty much everything in the Poconos ⁓ if it's not in an HOA, it's on a state route. It's on Route 611, it's on Route 940, it's on Route 115. these are roads with like 35 to 55 mile per hour speed limits. ⁓ And you got wheelers going down these roads pretty frequently, even more when there's a traffic jam or road construction. So you get a lot more like quiet roads where ⁓ these like delivery are a lot more rare if you do buy inside of an HOA. It's just smaller, quieter roads, they don't really lead anywhere except for to the house. So there's again, like there's pros and cons. Are there places you should avoid? Yeah, absolutely. ⁓ but they're they're relatively easy to find. ⁓ just make sure that you're working with a competent real estate agent who knows which properties areas and HOAs are risky, which ones are less risky. they can help you determine if a property is worth it or not. how much time Will this take? This is a great question. And nobody knows the answer. your experience will vary. There's a wide range of possibilities. ⁓ ⁓ you should plan on being booked about four or more times a month. So weekends are a must. Weekday reservations will come if you do this right. ⁓ if you are not getting booked up most of your weekends for the year, ⁓ that's a red flag. It means that you're pricing it incorrectly. a lot of future hosts think that most of their time is going to be spent with messaging. So ⁓ here's some averages. average listing gets four messages per day, either from us or to us. And a lot of those messages are about their communications for ⁓ registration. It's asking their their license plate number or their car make model and color. It's things like that. ⁓ this ⁓ seems high. Like four per day. but in reality, it's normally like five to ten messages before they arrive, then a few automated messages until they leave. It's really not that bad. And these messages generally don't take a whole lot. There are also other guests who are very chatty and they send a lot of messages. So that's what brings this number up. would say, ⁓ know, the more upsells you offer or the more questions that people have about the listing or the reservation, the more messages you're going to encounter. ⁓ we do send out a lot of automations to prevent, you know, a lot of those questions coming in like one by one. But a lot of those automations, like if they're too long, the guest isn't reading them anyway. So there's a certain level of communication that you're going to have with every reservation. But there's definitely some that are, you know, outside of the ordinary. I would expect ⁓ where you or your team have to drive to the house maybe two to three times a year. It's really not that bad. the way things take when it comes to short-term rentals is in clusters. So ⁓ It always seems to happen when it's going to be inconvenient for you. So think of check-in, check out, and holidays. So it always seems like every holiday we get a ton of emergency calls. And it's not just because every house is occupied. I I don't actually know why it is, but it can't just be because every house is occupied, because the ratio of emergencies is much higher per reservation on holidays. And then the other clusters tend to usually happen when you've got your first heat wave in the spring, or when you have your first cold snap in the fall, or when there's some unexpected weather events like snow or ice. That's when a lot of messages are going back and forth. That's when those emergencies are happening. That's when things are breaking. That's when you find out that your AC isn't working or that your guest can't figure out how to turn the AC on. One of the most common things I run into is people trying to turn a thermostat for the AC and not realizing that that's only for the heat. that they're trying to turn on the air. So they're turning the temperature down on the heat thermostat, which is something they should have done. But they're thinking that that's going to cool off the house and really just turns off the heat because they aren't reading the instructions. Also, the larger homes tend to have a little bit more damage. therefore, there's more messages, there's more resolutions. ⁓ to call Airbnb maybe three to four times a year. It's not ⁓ too frequently. Expect call your HOA around two times per year. You know, that's also gonna happen just because of ⁓ last registrations or something going on, like somebody rolls through a stop sign, now there's a fine. You are gonna have to get on the phone with a couple people. so like not too bad, you know? how long until I'm money? Well, Kyle, this is a really good question. And it tells me that you're not expecting to make money in your first month, which is true. a good expectation is maybe after the fourth month you'll get into a good rhythm, good momentum, good pricing. and that's if you're following a strategy for revenue management. One of our listings last summer was just launched, June 15. And for the whole rest of the summer, it made a combined $5,385. This summer, however, only June, just the month of June, has $7,364 on the books. So you can see how it started off really, really low at less than $2,000 a month. And now it's over seven thousand dollars in just the first month of the summer. So, Kyle, this is a whole new endeavor for you. if I didn't talk you out of it already, I am sure you're gonna have some more questions. If so, I'd love to invite you to join me for a conversation on ⁓ future episode. Because these are the challenges that no one talks about when they sell the dream of easy passive income. But they're exactly the problems that make or break your operation. If you've got a situation or a question, then please email me. Let me know if you're open to calling in. Info @ galvanized management.com. Your problem might be the next one that we break down, and chances are you'll help a lot of other hosts in the process too. this episode helped you, share with another host who's in the trenches. Rate and subscribe too so we can organically reach more people. That's how we make this industry better. I'd also love to see you follow us on TikTok at Galvanized Investments. and Facebook and YouTube at Galvanized Management. Until next time, stay steady, keep learning, and keep building something real. This is Short-Term Rental Problems and Solutions.