Estimated reading time: 6 minutes, 19 seconds
I'm a dreamer, but YES!!! I choose to live in possibilities! Avoiding people who drain my positive energy is something I have come to master. I have found through the years, even after "highly educated" nay sayers and generally negative people that truly ANYTHING is possible! "Mediocrity is crowded, but if you rise up to excellence, there is a lot of space" - Lisa Nichols. "Always strive to be on the top in life, because the bottom is crowded" - Les Brown
Whether you think you can, or think you can't, you're right" - Henry Ford. What about you? How fitting that today makes 150 years since his birth. I've never listened much to people who say I can't do somethng.... if I can't, it won't be because I haven't at least tried. I'm not stopping, I'll never stop. I live to live in possibility.
So, after being a landlord for over 10 years now and managing properties myself for 8 years, I know first hand what a rough business real estate can be. I was introduced to short term housing in 2010, specifically for the medical community. We did a podcast which you can view on Youtube - Investing in Short Term Rentals - Locum Tenens and the Medical Community. It was during this time that I became interested in short term rentals, specifically hotels and vacation homes. I love the whole idea of someone giving me money in return for a short stay at my property, not having to deal with them on an ongoing basis. It nauseates me to think of the social worker roles I played with my past tenants. So enough of that...
Airbnb has really become popular over the years. So much so that there are floods of people investing in cities where people regularly rent hotel rooms. In my small city there is not really much of a demand, but there is a huge demand in larger, neighboring cities. I haven't done this yet, but it really intrigues me. I've been researching AirBnB quite a bit lately and discovered something really interesting. You can predict the revenue from any given property by looking at their calendar of vacancies. This is especially useful for those units that are not owner occupied. The only problem is you can't go backwards... It would behoove me to build a bot to keep track of the rental history of units on AirBnB.com. This would prove very valuable to myself and investors. It would not be difficult to code. You just have to filter out the units that are owner occupied, this could skew the data. Many of the available units are actually rooms in someone's house, so this is also very interesting. I plan on creating a bot that will scour US cities and extract this information. This will help me to pinpoint the revenue and determine the most I'd pay for a property before it capitalizes. The good thing about doing short term rentals is that the property often capitalizes very quickly.
No credit? All you need is control of the property and some cash. I'm not going to clout the "No Money Needed" bs to control a house, you need some money. I say control, because you don't necessarily have to have the title, but I'd highly recommend it. But, that is for another post.
Here is what I intend on doing:
1. Scour Craigslist ads for FSBO listings.
2. Check popular city centers in AirBnB and calculate revenue using a Bot.
3. Check any city statutes restricting this kind of business.
4. Engage property owners on their experiences.
5. Calculate Capitalization rates based on the data collected above.
6. Find someone to manage this for me and be as hands off as possible, in true Tim Ferris fashion.
I'm going to keep my research local (within 150 miles of my hometown) for now.
Why is this profitable?
1. Quick capitalization - the property quickly pays for itself with the higher rents and lower overhead.
2. After a cap period of 2 to 5 years you have an asset worth 50K or more AND producing a monthly cashflow.
3. Easy to duplicate - imagine just 5 properties capping in 5 years instead of the typical 15 to 20 years.
4. Lower overhead - not having to clean up after someone after they lived there is a plus and I'm sure would prove to be cheaper.
5. Never again having to deal with late payments and evictions since everything is paid in advance. This will save a lot of cash. Since you are renting out by the day, you aren't subject to eviction rules, you are acting as a hotel so to speak.
I did a little research on others doing this and found this...
Of course I do not know if this includes taxes and what his exact expenses are. But as you can see, he expects his unit to capitalize in 4 years... The cap rate is a little more complex than that, but you get the idea. One also has to consider the opportunity cost of investing his/her money in something else.
Some things I'd look out for
1. Future regulation of this industry.... As governments become aware of this, I'm sure they will want to tax the hell out of it and even regulate it somehow.
2. Theft - something I need to research. What keeps someone from running off with your TV or couch?
3. Heat and AC controls. there is something called Nest that has an autoaway feature for the thermostat, I'm sure it would pay for itself.
4. Locks and Keys. I know first hand the hassle keys cause. I have done some research on keyless options and found things like RemoteLock, Unikey or my favorite Kwikset. Kwikset may be the cheapest to implement and just uses a simple code to access the unit. You can give your guests or customers a code that only is used for the time they paid for. After the time has expired, the door locks.
So how did I turn 5K into over 1 Million dollars in 5 Years?
Simple, I used the Future Value of Money Formula.... but how and why???
Future Value Formula Derivation
The future value (FV) of a present value (PV) sum that accumulates interest at rate i over a single period of time is the present value plus the interest earned on that sum. The equation I use in the future value calculation is
For each period into the future the accumulated value increases by an additional factor (1 + i). Therefore, the future value accumulated over, say 3 periods (I don't necessarily use years), is given by
(1a) and likewise we can solve for PV to get (1b)
The equations above are (1a) the future value of a present sum and (1b) the present value of a future sum at a periodic interest rate i where n is the number of periods in the future. Commonly this equation is applied with periods as years but it is less restrictive to think in the broader terms of periods..... and it looks better, LOL.
but by dropping the subscripts from (1b) we have:
the Future Value of a Present Sum
So what are you going to do? Are you satisfied with mediocrity? I'm not, I never will be.
The following are some credits and people I look up to:
There are three things I strive for both in life and in business: Integrity, respect and love. If they aren't involved, I don't participate.