Today, our guest Eric Moeller, experienced real estate investor, shares his Airbnb business strategy for 2019! Eric takes us through what type of properties to look for, how to find them, how to leverage OPPs, and how to make technology work for you when it comes to short-term rentals. Tune in!
What You Will Learn About Airbnb Business Strategy for 2019 with Eric D. Moeller:
- How did Eric Moeller after years spent as a real estate investor and developer get into short-term rental strategy with Airbnb
- How did Airbnb business strategy affect the short term rentals in the urban areas
- What was Eric’s big ‘aha’ moment when getting into Airbnb
- How can you leverage other people’s properties
- Co-hosting as a new model and a great way to double down on
- What types of locations are your best bet
- Are there new ways of finding landlords to partner up with
- Technology at your service: how to make sure you haven’t rented out a place for a party of the century?
- How new regulations can affect your Airbnb business strategy for 2019
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Speaker 1: From coast to coast, Epic investors are doing the most. It’s time for another Epic Field Report.
Matt Theriault: All right. I’m on the phone with Epic Pro Academy member, Miss Anita Herth. Welcome to the show, Anita.
Anita Herth: Thank you for having me, Matt.
Matt: You bet. I just want to talk to you really quickly about the deal you had posted on follow through Friday inside of our Facebook group, and I’ll go ahead and read it. And then I got some questions about it. So it says less than two years ago, you purchased a fourplex for 350,000 with investors. You put $90,000 down. “It has been an amazing performer and we have been able to raise rents by well over 50%. I approached our bank about the possibility of doing cash out refinance and they agreed to give us a second mortgage of 95,000. We closed on a second mortgage. Even with a second mortgage, we are still cash flowing very well with this property. I never put a dime into this property. I had a deal with my investors where they loan me half of the down payment and we own it 50/50. Now we have infinite returns for both me and my investors.”
Sounds fantastic, so congrats.
Anita: Thank you.
Matt: You bet. So you’ve had this for less than two years. How did you originally find the deal?
Anita: It was on the MLS, believe it or not.
Matt: Okay. That seems to be a trend right now, so that you can find deals on the MLS.
Anita: Well you could. I’m sure you can in lots of places now.
Matt: Right, and where are you located?
Anita: I work in Colorado in the High Rockies in a few markets, but this one is in Fairplay, which is about a half hour from Breckenridge, which is a big ski resort town. So this is a bedroom community for a big ski resort town.
Matt: Perfect. Okay, so you found this on the Multiple Listing Service, and then you brought in a partner. How did you meet your partner?
Anita: Well this was the very first deal that we did with none of our own money. So at this point, we completely ran out of money. We’d gotten a HELOC, we did everything we could to get as many investment properties as we could, and we were out. And then this deal came along and it was so good. We said, “We have to find a way to get it. There’s no way we cannot get this property.” I knew that the rents were so far below market. We just started calling everyone we knew who we’d ever spoken to about real estate, and we got nowhere until we got somewhere. We found someone. We showed them all a number, I said, “Look, I have other rental properties in this town. I know how well this’ll perform.” And they agreed to do it with us, and we’ve done a whole bunch of other deals with those same investors ever since.
Matt: That’s fantastic. So, how did that initial conversation go? Maybe you just did it, but can you go into a little bit more detail on you pick up the phone, you call, then how does that go?
Anita: You know, my husband did it.
Anita: So I can’t give you all of those specifics. But it was someone he had worked with for a while when he did a rotation out of town. He was a resident of that time, he’s a doctor. And he was working with her in the hospital and he’s a surgeon. When they do surgeries, they talk a lot during the surgeries. And when he would do them with her, they would talk about investing.
Matt: Mm-hmm (affirmative).
Anita: And so, he called her, I think he said, “Look, we’ve got a fantastic property. This is going to perform so well. Here’s our thoughts for a partnership arrangement. What do you think?”
Matt: Yeah, pretty simple, right?
Anita: Mm-hmm (affirmative).
Matt: Very much a testament to if you have the deal, the money’s a little bit easier to find, right?
Anita: When we found this, we were listening to your podcast then, and we said, “Matt says, find the deal and the money will come.” So we’ve got the deal, we’ve gotta find the money now. There’s no way around it that the deal was too good. And we did and it’s worked out great for everybody.
Matt: Fantastic. So this other person, or this couple have turned in to be partners with you on other deals since then, is that correct?
Matt: Very good. So another thing that I always talk about, you don’t need a bunch of money partners. You just need one or two, and to do right by them and all of a sudden a lot of other opportunities will open up. Has that been your experience?
Anita: That’s totally been my experience, and I always try to talk about what we bring to the table and how we can help them meet their investing goals. And again, I’m not growing so fast that I need tons and tons of investors. If you’ve got a solid investor who has cash coming in that they want to keep investing in real estate, you can do a lot of deals together.
Matt: Very good. So you’ve been able to refinance basically everybody out?
Anita: The way that we did our deal is that they loaned us half of that down payment.
Anita: So we still have some of that loan, and we’re paying them interest on it and we’re paying it down, so that’ll be paid off in a few years, but they’ve gotten almost all of their money back. We get cash flow, we got a lump back from this refinance. We’ve had infinite returns from the start.
Matt: Very good. All right, so you are getting an infinite return on your investment, and it sounds like your partners are happy. What’s the biggest lesson that you learned in this transaction?
Anita: You know, it’s hard to say because I feel like you learn lessons when things go wrong, and this is one that’s been really great. And I’ve had a lot of other ones where I have learned a lot of lessons. Maybe the lessons I’ve learned is that every now and then, everything goes really well.
Matt: Better than every now and then.
Anita: Every now and then. I’ve had plenty of challenges on other deals, but this one’s been smooth. I guess one thing maybe I’ve learned is that if it seems too good to be true, it might not be too good to be true.
Matt: Right, right.
Anita: It could just be this ripe apple sitting on the MLS waiting for you to pick it.
Speaker 1: This is Theriault Media.
Matt: Yeah. What’s up? Hello. And welcome to The Epic Real Estate Investing Show. This is where we meet each and every week, five days a week, to help everyday people escape the rat race using real estate. So thank you for listening to the show. Thank you for staying connected with us. If you’re brand new to the show, glad you found us. You can stay connected just by hitting that little subscribe button inside of your podcast app. Wherever you’re listening to the podcast, you can stay connected with us on Instagram @EpicRealEstate and on YouTube by going to EpicREI.tv. That domain or that URL, that takes you right to our YouTube channel, EpicREI.tv. And this is where the video versions of the podcast are uploaded each and every week, and so much more good stuff happening over there. And that’s ramping up to be five days a week as well, so if you don’t know, now you know.
All righty, so today’s show is a topic that is becoming more and more common in the conversations of real estate investors. As you heard on today’s Epic Field Report from Epic Pro Academy member Anita Herth. Her exit strategy for the deal was using the property as a short term vacation rental, and she’s got a few of those, and it seems to be growing to be her exit strategy or her investing strategy of choice that it’s working. It’s working really well for her. And I’ve looked into it, I looked into it this last year or so, for the last 12 months. I don’t know much about it, and I still don’t. I don’t have a vacation rental, and I didn’t even know anything from even the consumer side. Like, what is the person that stays in the vocation rental? What is that experience like?
So this last year, I’ve just been doing my research as I’ve been traveling. I’ve been staying in more and more AirBNBs. I’ve been staying in those, and I’ve got my thoughts on it. And I’m still contemplating, I’m still trying to figure it out, I’m still thinking about it. I just don’t want to get my focus too dispersed over what we’re doing over here right now. But I still interested, it’s got my interest as I’m curious about it, and I wanted to have a much more experienced perspective to talk to now. Now that I know what it’s like from the consumer side, I wanted to see what’s like from what they call the host side. So I found our guest today through a mutual friend, and he’s absolutely been crushing it in this niche. This is almost his entire focus, and so I recorded the conversation just in case you had any of these same questions about the short-term rental strategy. So please help me welcome to the show, Mr. Eric Moehler.
Eric, welcome to Epic Real Estate Investing.
Eric Moehler: Yes, sir, thank you for having me.
Matt: You bet, I’ve been looking forward to this. This is a hot topic, and you’re in the world of AirBNB and running that business and using that as a real estate investing tool, or one of an additional exit strategy. We’ll talk a lot more about that. But tell me, what were you doing just before you stumbled into this niche.
Eric: Yeah, yeah, yeah, of course.
Matt: I’m just assuming you stumbled, I’m not sure how you got here.
Eric: I did stumble.
Matt: You did, okay.
Eric: Yeah, I did stumble. I was a real estate investor, developer, for nearly 10 years. I got started right after high school investing in real estate, and did a little bit of everything. Did vacation rentals, bought my first vacation rental at 21, and then from there, I turned that into a short sale business and then turned that into a flip business. And then all the way up to doing small apartment buildings. So we were doing that all throughout New Jersey, I’m originally from New Jersey, and I’m sure that everyone who’s listening could relate to this. I just got completely burned out with the development model. And long story short, I sold my equity to my partners at that time, and started traveling for about six months, and this is going on three and a half, four years ago.
And at that time, AirBNB wasn’t as big as it is today, or as popular, and no one really understood the investment model that AirBNB was essentially creating. So I started bouncing around to all these different AirBNBs and chatting with different hosts and I really kind of stumbled into the model that I focus on now, which is leveraging other people’s properties of either leasing from them or partnering with them on their homes, and then running my AirBNBs through them. So, it was like a big ‘aha’ moment. I was looking to stay in real estate but also focus on a technology driven business, and I realized that I could do that through AirBNB. So, I stayed in San Diego in this AirBNB and I haven’t left. I’ve been here for going on three years now, which is crazy.
Matt: Just got back from Hawaii and it seemed like every attendant there was, “I came to vacation and I never went home.”
Eric: Yup, yeah, San Diego has an element of that, for sure.
Matt: Yeah, totally. All right, cool. So, I’m saying AirBNB, I hear vacation rental. One is probably the proper term and the other is kind of the logo or the brand, is that right?
Matt: I’m gonna play really naive and I’m saying I’m gonna play really naive because I don’t want people to know that I actually really am naive about it, so I’m just gonna pretend I’m pretending.
Eric: Yeah, for sure. Yeah, so I use AirBNB because it’s such a hot topic right now. Everybody understands what AirBNB is.
Matt: Mm-hmm (affirmative).
Eric: And it’s essentially short term rentals, right? So it’s you’re renting your space for 29 days or less, okay. Once you get to 30 days, obviously you start, in most states, you start dealing with landlord/tenant laws, things like that.
Matt: So 30 days or less is the number you said?
Eric: I focus on 29 days or less.
Matt: Okay, got it.
Eric: But what AirBNB has done for … So, short term rentals have been around for literally forever, ever since real estate was a thing, short term rentals have been a thing. But what AirBNB has done to the short term rental/vacation rental market is they brought short term rentals into the urban areas. So into downtown, center cities where prior to that, it was mostly in vacation rental markets. So beach towns, ski resorts, things like that. It was based on seasons and really pinpointed to certain markets around the world. Now, AirBNB, you can literally go in any corner of the world, in any state, any city and find an AirBNB, and someone’s making money off of that. So, they essentially brought short term rentals and home share into average Joe’s home in any part of the country, and now obviously, any part of the world, which is exciting.
Matt: Got it. And the VRBO, that’s just another, that’s their competitor?
Eric: Exactly, yeah. So VRBO, essentially, so HomeAway is the big short term rental listing site called the OTA, and they’re the biggest competitor in the space. They purchased VRBO back in 2008, I believe. But they’re essentially a listing site, so we have booking.com, we have Expedia. Google is now tapping into short term rentals with their own listing site. You have HomeAway, VRBO, and then AirBNB. AirBNB is the new kid on the block, if you will. But again, what they’ve done is the brought short term rentals into urban areas, and unique spaces. And they’ve created a culture of home share. They’ve created a culture of this community on their platform that every other OTA, every other listing site, has not created, they failed to create that.
So, yeah, it’s exciting. It’s exciting to move right now and we’re watching this. They’re the ones that are responsible for this whole short term rental movement that is happening around the world right now.
Matt: Mm-hmm (affirmative), mm-hmm (affirmative). Good, all right. So, you’ve done the vacation rentals a long time ago, you’ve been doing that for a while. You did the short sale thing.
Matt: We certainly have that in common, those were the good old days. It was a good strong nine months where we really cleaned up.
Eric: Oh yeah, oh yeah.
Matt: Then you did flips and you went into development and you’ve kinda pushed all that aside to focus solely on this.
Matt: As you’re looking at it, what was the big appeal? What was like, “Okay, this is what I’m gonna focus on?”
Eric: Yeah, yeah. The big ‘aha’ for me was, like I said, I got to a point where at the time that I wanted to get out of real estate, I was watching the prices go up and up and up and up, and I started noticing more and more competition in the space. And my spreads on my developments and on my flips were getting smaller and smaller. We started tapping into the apartment building investment model and that was just getting more and more difficult on the East Coast. And this was, again, four years ago so I’m sure it’s more competitive now. But we were just watching our effects are getting … Our time and effort into the business was getting harder and harder every single day, and our spreads and all of that profits were getting smaller and smaller.
Matt: Mm-hmm (affirmative).
Eric: Then on top of that, too, I really loved the idea of starting a business, or having a business, building my business with technology to where I could essentially run it from anywhere in the world. I’m big into travel. I love traveling. We met down in Florida at an event. I go to events all the time. So, I wanted that but my real estate investment business wouldn’t allow me to do that, and I got into real estate with that mindset that I’m gonna create a passive income that allows me to support a lifestyle design. So when I got out of that and I started traveling and staying at these AirBNBs, I was just renting extra bedrooms off of hosts.
And then I got to San Diego and I was staying in an apartment above a garage, half a block from the beach, and after talking to the host, and again this was nearly three years ago or almost three years ago. After talking to the host, I realized that this guy was renting the property, running all these AirBNBs through all the extra rooms and everything that he has in the house, and he was making $1,000 above his rent every single month. And to me, I was like, “All right, first of all, that’s amazing. I don’t have to worry about raising millions of dollars to buy all this real estate anymore.” What blew my mind is that this guy was living for free, making money above his rent and then he showed me that he was able to run his entire AirBNB business off of his cell phone. He had a bunch of different apps that essentially ran the whole business.
And that was the big ‘aha.’ I was like, “All right, I’m gonna stay here in San Diego. I’m gonna rent up every property I can get my hands on, stage it and then re-rent it back out on AirBNB.” And as soon as I did that, I realized, I’m like, “Man, I could leverage other people’s properties.” We know what OPM is, Other People’s Money. For me, OPP, Other People’s Properties, I’m like, “Man, that’s a whole other avenue to go down.”
Matt: You could write a song about OPP.
Eric: Hey man, it’s getting there. OPP for AirBNB.
Matt: So you’ve thought of it.
Eric: I’m getting there. I
I want to … I definitely love the idea of OPP. So, we started realizing like, man on most of my properties now, we’re generating anywhere between a thousand, and five thousand dollars a month per property into the business. Which, is crazy, we don’t own any of these properties. The best part about this entire thing is, I was able to buy systems to completely run my business anywhere in the world. We have team members, customer service team that deals with the communications, and all that. They’re based in the Philippians, we have a couple of people here in San Diego that manage the actual properties. Then, 90% of my systems, and everything, I run off my computer, and my cell phone.
So, for me, I was like, man this is incredible, that I can build a business model like this off of other people’s properties with technology.
Eric: It was a long winded answer is that question.
Matt: No, it was good.
Eric: I love the idea of leveraging as much as possible, and injecting as much technology as possible into businesses to free up time.
Matt: Very good. So, the thousand, to five thousand per month, per property. Is that cash flow, or is that gross?
Eric: That’s top line revenue into company.
Eric: So, to expand off of that a little bit, like I said, we have two business models. My company is called Hometel, and we have two business models that we focus on. One is the mass releasing. That’s where we partner with mostly real estate investors, and developers. We’ll rent up either a house, or an entire apartment building. We’ll rent up an entire floor of condos in a condo development, or an apartment building. Turn those into AirBNBs. We set a certain rate for it, and then anything above that is profit back to us. With the model, we’re switching because we’re running into a lot of challenges with that model when it comes to city regulations, competition, cost to expand, all of that.
Now what we’re doing which, we’re finding is as profitable, if not more profitable is, what I call co-hosting. Where I actually … say you own a single family home, that’s perfect for Airbnb. I partner with you directly. You own the home, you’re responsible for the home. I bring my business, my systems, people, and processes, and we’ll run the Airbnb through your property. Then at the end of the month, we’ll divvy up all the revenue. 100% of the revenue. So, even with that model, which we’re starting to double down on. The co-hosting model, we’re generating on our luxury properties, we’re generating five thousand a month in the good months. Top line revenue to the company. Then, our expenses for the company is very minimal compared to our past development, and landlord business.
Matt: Okay, so in that example, we just talked about that one five thousand dollar luxury property. That’s after the owner of the property has been paid out?
Eric: Correct. Yeah.
Matt: Okay. Alright, so that’s where I was kind of going with that.
Eric: So, we have some properties, like, obviously I’m in San Diego, so, the numbers here are much higher, and we have nearly year-round travel to this area so, our luxury properties are multi-million dollar properties. We’ll do anywhere between 20, and 40 thousand dollars a month on Airbnb in the good months. Right? On the slow months now, we’re doing anywhere between five, and ten thousand total for each property. Then, on average our splits with our owner, are anywhere between 30, and 50% of total bookings on co-host deals.
Matt: Mm-hmm (affirmative). Okay. A lot of questions. I don’t have anything written down so, I don’t know if I’m going to get this perfectly in sequence but, one thing that came to mind is, you’re from New Jersey, you moved to San Diego, so is this location specific? Or are some types of locations better than others?
Eric: Yes. I mean, it’s like anything else in real estate, right? Location, location, location. But, also I say this all the time. Unique, unique, unique. I got to figure out a better way of phrasing that but, what’s awesome about Airbnb is that you can run properties essentially anywhere in the world that supports Airbnb. Airbnb is 191 different countries, in 81 thousand different cities, and they have nearly 2 million guests per night staying at an Airbnb. So, those are huge numbers. The best thing about it is, the technology doesn’t change. I had … when I first got started in the business, we had properties down in Mexico, we had properties in Canada, New York City, all of that, and we were running that all from San Diego. So-
Matt: Eric, let me just interrupt real quick.
Matt: I understand you can run it from any location but, is there certain types of locations that’s higher demand from a consumer perspective?
Eric: Sure, sure. So, the biggest … what we’re watching, and seeing right now is, the biggest markets are inner cities. So, any major city, if you’re inside the urban areas of those major cities, and within a half hour of attractions, those are going to be your best bet for Airbnbs. Okay?
Matt: Is it mostly a vacationing type customer?
Eric: So, I noticed that we have three different types of guests. We have families, leisure guests of course, people are just on vacation, and then our third biggest focus is business stays. So, people coming to town for business, and they typically rent apartments, or condos, or small little one bedroom, two bedroom houses. That’s who we focus on but, also, going back to that unique part, doesn’t necessarily have to tie to a specific location for the property.
I have some friends on the East Coast, that are building tree houses in the middle of North, and South Carolina, away from anything that is attractive. Right? But, they are making hundreds, and thousands of dollars a year per tree house because it’s a unique experience for the guest. So, these guests will travel outside of a destination spot to stay at a really unique piece of property. That could be a tree house, that could be a farmhouse, whatever it is. But, the more unique you can create the experience, the better success you’ll have on Airbnb.
Matt: Okay. Good. So, there’s that. The other thing that was coming to mind while you were talking, and I didn’t want to interrupt was, you’re not owning any of these properties so, some form of what I would probably know as a master lease, is it that type of an agreement that you have this the owner of the property?
Eric: Yeah, exactly, so if we’re looking at the leasing side, we’ll put together an actual mass release, and that’s typically three to four years. We’ll sign a lease on a property for three to four years, and it’s specifically designed for this model. To explain what we do, how we structure it, and then, of course, we have some exits in there in case city laws change, or something happens to that business model. But, when it comes to the co-hosting model which, we’re doubling down on, that’s more of a partnership agreement where I, and the landlord will sign an agreement saying that all expenses, everything will go through the owner for the actual property. Running the Airbnb business, all the expenses will come through me, and then we’ll divvy up the revenue at the end of the month.
Matt: Got it. So, I know you just said this but, let me confirm, or clarify. What’s the difference between the relationship you have with the person that you’d use a master lease, and the relationship you’d have a with a co-hosting?
Eric: So, the master lease, it’s cut, and dry. You’re the landlord, I’m the renter. The professional renter that’s coming in, and signing a two, three, four, five-year lease on your property. At the end of the month, or the beginning of the month, I pay you a flat fee, and that’s that. You’re giving me permission to run my Airbnb business through your property but, you don’t want to know anything else other than collecting your check at the end of the month.
Eric: The co-host model is, where you and I partner on your investment property. You’re a little bit more involved in the process. You’re involved in keeping the actual asset up to snuff. Just paying all the expenses that come along with that. So, you have more risk when it comes along with the co-host model. However, you’re sharing the upside on what we’re bringing in. So, what we’ve found is that we typically generate … we’ll generate a higher amount for our co-host partners than what they would on their actual lease. If we leased it from them. Our goal from that, generate some extra cash flow for them.
Matt: You’re acting sort of as a … basically a property manager in this Airbnb model.
Eric: Yeah. I call it like a new age, re-born property manager. It’s a little bit more involved with the property, and with the owner. But, that’s the best way to correlate it with the co-hosting is that we’re stepping in, almost like an Airbnb manager, property manager with the owner.
Matt: Right, okay. No, now I totally get it. I’d heard about this strategy probably, right about 18 months ago, almost 2 years ago. I thought it was very appealing because, wow you can get so much more by renting the property per day than you can per month. So, there was a lot of appeal to me there. But, I didn’t know anything about it, I never even stayed in one. So, I started staying in AirBNBs just to kind of get the consumer perspective, and I’ve probably stayed in a dozen since then.
Matt: Now that I’m on the other side, I’m kind of watching what the host does. There’s more to it than just having a rental property. There is a business side of it. I think some people think it’s like, oh I can just rent it out per day, and make a lot more money. But, you’re kind of now in the hospitality business, right?
Eric: 100%. 100%, yeah. You’re creating a … and I teach everybody this that comes through my events, and everything else. It’s like, you’re starting a hospitality business first. That’s what you focus on is, the hospitality side. That took me a long time to really figure that out. I approached it as a real estate investor. Just thinking that top line revenue that we can bring in, and then you realize, you’re creating an entire experience for this guest who’s coming through your property. So, you are hospitality business first, and your customer-centric. It’s a challenge to understand that but, with the right tools, and training, all that of stuff, it’s really easy to create the systems to start a small hospitality business, and then inject it into your business, into your actual real estate portfolio, and get that model going.
Matt: Right. The properties I’ve stayed in, I can tell some hosts have their act together, where everything is automated, and I never even have to talk to them. Then others where they want to meet you at the property, they want to let you in, they want to show you around. I’m like, that’s not what I want to do. So, I have seen both sides I think. So, it can be 100% systemized. The technology that’s out there to give people access to properties, and the whole manual that shows them around, and everything like that. Okay, cool.
So, I got the business systems. So, let’s talk about the property itself. Like, a big part of traditional real estate investing is, prospecting, right? You’re doing marketing whether you’re initiating that contact by knocking on doors, and cold calling or you’re sending out direct mail, running advertisements. Trying to find the person that’s motivated.
Matt: So, to find these, is it as simple as going through the for rent sections?
Eric: Yeah. I pretty much took the same approach that I took for my real estate flip business, and wholesale business, and all of that. It’s like, there’s really no new way of finding properties. I get asked that all the time. What’s the golden ticket of finding landlords for this? It’s just the consistency on the channels that we know. So, our biggest channels, very simply are Craigslist, Realtor.com, Hot Pads, Zillow, pretty much anywhere where a landlord put a property for rent. What we do is, we focused, again, I hand picked communities for this model but, what we do is we look for luxury, full furnished properties for rent.
So, anytime one of those posts up, we have a team member send letters out, emails out, video emails out, all of that to get in touch with these owners to present them the business option. Like, hey we could rent this from you for this amount, however, this is our co-host model, and we feel that we could make X amount more per month for you, than what you’re asking for rent.
So, it’s all consistency. We send out … we have some pretty intense email campaigns for all those channels. Then we do a lot of focus … we put a lot of focus on building relationships with realtors, brokers, and developers. We get a ton of properties per month that come through those relationships.
Matt: Got it. Okay. So, you’re going through Craigslist, you’re going through realtors, say if you’re just getting started on your first property. What does that pitch sound like? Kind of take me through that, ring, ring, ring. The person says hello, and where does it go from there?
Eric: So, I mean, it’s all about rapport building because, when it comes to-
Matt: [crosstalk] here too. You mean, I’ve got to talk to people?
Eric: It’s about rapport building because, there’s such a … for more landlords, there’s a huge learning curve to really understand what my business model is all about. What the Airbnb model is all about. They feel that if you read anything in the news as a landlord, Airbnb is destroying communities, it’s destroying properties, they’re worried that people are going to throw parties, and damage the house, and all that stuff. Right? What they don’t know is, that every single challenge that they’re concerned about, there’s a piece of technology that we have in place to resolve that problem. To make sure those problems don’t come up. So, it takes a long time to build rapport with them. We introduce ourselves as a professional short term rental company, and we let them know that we came across your property. We’re extremely interested in working with you to open up your property as a short term rental, and we could either rent this for you, and we would be interested in renting it for three to four years, and here’s our security deposit, here’s all the other properties we lease in the marketplace but, we’re also interested in working with you directly if you want to generate some additional cash flow on this property through short term rentals. We ease in the word Airbnb because, landlords, they hear Airbnb, and they freak out.
Matt: Yeah. 100%, right.
Eric: What they don’t realize is like all the challenges, like the party, right? Everyone’s biggest concern is oh, how do I know that who you rent to won’t throw a huge party in the house? Well, we have a piece of technology that we plug into the every single one of our houses that is a smoke detector for noise. Okay. It detects the loud noises in the house, if it goes above a certain point that we set, it will shoot me a text message immediately. So, we know immediately if someone’s the TV too loud, and music, all of that stuff, and we can send our field rep out to deal with the problem immediately. Then, we have cell phone detectors in the house. That detect how many cell phones are in the property.
Matt: Get out of here, really?
Eric: Oh yeah.
Matt: Oh wow.
Eric: We have it all. We have cameras on the outside to detect how many people are coming and going, so we were able to fully automate the process. Of course, things slip through the cracks but, we’ve got that down to maybe one or
… issues a month we have right now with our properties. Also, the other biggest concern is people are going to destroy my home, all these people coming and going. But what they have to understand and what we make them understand is we’re running a hospitality business, and we have to have this property at a minimum of five-star standard for every single guest that comes in. If there’s a problem, we’re inspecting it after every guest and fixing that problem. Typically, our properties are in better condition when we hand them back to the owners than if a long-term tenant was in there. It takes a lot of education, a lot of rapport building and …
Matt: Yeah, I started imagining what that conversation will sound like. It feels like you’ve got a really long conversation and they just say, “No, thank you.”
Eric: Oh, yeah, that happens as well, for sure.
Matt: Okay, say you make the call, you got an owner that’s open to the idea and says, “Okay, let’s do it.” When you typically buy a property to rent it out to a traditional tenant, you’ve got to bring it up to a certain level of standards. You’ve touched on already that you got to after this five-star level of standards. What kind of capital investment is required to go ahead and improve a property in that way?
Eric: Yeah, great question. This is why we started really focusing on the co-host model because we realized that we were generating the same amount of cash flow on our co-host properties than what we were doing on our master lease properties. But on the co-host model, we weren’t investing any money into these properties because we’re focused on fully-furnished properties. Any upgrades, anything like that, we get the owner to invest and make those capital upgrades. So the co-host model … and anybody can really get that type of business going, especially if you’re a real estate investor, you know other investors that have turnkey properties, and it doesn’t cost you any major investment into those properties to get that business rolling. When it comes to the master lease model, we found that we were investing anywhere between $15,000 to $25,000 per lease that we took on, and that includes the first-month rent, that includes secure deposit, and then obviously most cost goes towards furniture and technology that you have to install in there. The more units or the more bedrooms you take on, that investment goes up, of course.
When I look at a property, I allocate $15,000 to $25,000 per property to invest into that home, that’s why it’s so important to sign a …
Matt: How much you said, $15,000 to $25,000?
Eric: $15,000 to $25,000.
Matt: Got it.
Eric: That’s why it’s so important to sign a two, three, or four-year lease to get your investment back. As a real estate investor, you see that number, you’re like, “Man, $15,000 to $25,000 to get a rental property going is pretty incredible, especially if they’re spewing back $1,000, $2,000 a month.
Matt: Yeah, totally. If you got a three to four-year commitment, that’ll come back to you pretty darn quickly, those rates.
Matt: Let’s see. The next question would be from me is, “This isn’t really an investment strategy, unless you own the property though, right? It’s a business.”
Eric: Yeah, so the models that I just shared with you now is … that’s a business focus, right? What I’d like to tell people, especially real estate investors, “Look at those two models that I just shared as a way to bring cash flow into your business right away, very quickly.” You can go out and especially if an established investor has a team and you have connections in your marketplace, all of that, you can go out easily and put together 5, 10 of these properties over the course of a few months and start generating $5,000, $10,000 a month into your business, which will completely change …
Eric: … everything. I mean that’s incredible. You don’t have to invest a crazy amount of money into it, right? You are starting a new business. Obviously, you’re … it’s a different model, but I looked at it as a way for me to expand my business or real estate portfolio in different markets or in different countries, all of that, generate incredible cash flow. Now, where all of this is leading for my business is getting back into developing and buying properties specifically for the Airbnb model. I know plenty and I worked with plenty of investors now who are buying single-family homes and converting them into AirBNBs. Now, they have the equity side and they have the higher cash flow coming into the business. Developers as well that are developing luxury condo buildings or apartment buildings specifically for Airbnb.
Of course, if you can get … if you can own the property, that’s obviously a hell of a lot better than just leveraging it. But the leveraging side, the OPP side, is a great way to generate cash flow, understand the industry, and expand that pretty quickly. Then you get to cherry pick investment properties as they start coming through for that model.
Matt: You’ve got a big stack of cash. You’ve got a little bit of an advantage of acquiring those properties when they show up, right?
Matt: Speaking of the industry, let’s talk about the industry. It seems like it’s grown in awareness, in size, at least from the outside looking in, significantly over the last couple of years. What’s the competition like? What would you have to do to compete with the competition to make sure that your properties get rented over at somebody else’s?
Eric: Yeah, that’s a great question, man. It’s increasingly getting more and more difficult to maintain a steady flow of guests coming through your property. The number one thing that I always drive home, especially to my students, is if you’re getting started or if you’re already established, it’s focusing on what the experience is for the guest, right? From everything from when they find it on Airbnb, what that experience is looking at your listing, reading the descriptions, photos, all of that. When they send you a message, how that customer service flow goes? When they stay at the home, how do you integrate this really unique experience for the guest? That can go in so many different directions. But it’s like you think of your favorite boutique hotel or favorite boutique restaurant, they all have a specialty, uniqueness experienced to them, right? It’s not just because they have good food, it’s because they have this amazing experience as you’re going through the property. You want to do the same thing with your AirBNBs. That doesn’t take a lot of money, but it just takes a lot of thought and time to develop all of that out.
On the business side, on the marketing side, once you figure out your experience, it all comes down to the marketing. We don’t just market on Airbnb any longer. We used to just focus on that platform, but now, Airbnb is making a huge push to get more and more hosts on the platform. So it becomes more and more difficult just to rely on that. We syndicate our listing across 25 different websites. There are probably more than 25 sights now, which know that’s the next level into your AirBNB business, right. Because now you’re managing communications, and bookings, and moneying, cancellations, and all this other stuff from all of these different websites.
You have to constantly stay on top of “How can I get in front of my guests that are coming?” And then the long term is “How do I capture their information, keep them in a database, somewhere I can re-target to them for their next time they travel or next time they want to come to San Diego or whatever. It’s a lot of marketing. It’s a lot of staying on top of it. But, it’s very easily … you can very easily outsource a lot of this and streamline it through systems and technology.
Matt: Got it. Another part of the industry. My reference point is having been in the music business for 15 years when the digital ballot came along, there’s a lot of pushback from the music industry on that. I’ve seen something very similar happened with Uber, a lot of push back from the taxi unions there, and I’m starting to hear that’s starting to show up in the news now with Airbnb. What’s the current status of the regulations?
Eric: Yeah, it’s exciting, man. We’re watching … the reason why I’m so excited about the regulations is we’re seeing, in my opinion, a new asset class comes into the real estate industry, especially here in the states if you just focus on the states. This is a global challenge right now. You’re watching every major country and city trying to figure out their own ways of regulating short-term rentals. But if you’re just focusing on the United States, in my opinion, this is a brand new asset class being added to the inventory of real estate. You’re seeing more and more, not only mom and pops trying to generate extra cash flow through renting out an extra bedroom in their house, but investors like us noticing the models that I just talked about or buying properties, running them through Airbnb, and then, like I mentioned earlier, is we’re seeing more and more investors and developers specifically designed properties to attract short-term rental guests, which is crazy.
We’ve never seen that before. So, we’re seeing every single city struggle up to try to figure out how to regulate this. Every government seems to just want to ban it, we don’t want it, blah, blah. But then the people come back and say, “No, we do want this. We want short-term rentals.” Generate beautiful money for our city, plus it helps us pay for the high rents and mortgages in our city areas. It’s crazy. We’re watching every state, every city, every community come up with their own rules and regs, and then we’re watching a lot of the members of those cities fight them. Here in San Diego, the laws have changed twice in the last 90 days. It went from no laws to a complete out ban on it, back to no laws again.
We’re seeing this over and over. We just see it in …
Matt: That was, like, Vegas with Uber. One trip, I couldn’t get an Uber at the airport. Next trip, they were there. Next trip, they weren’t there.
Eric: That’s exactly what’s happening in Vegas right now. They had an amazing short-term rental law in place where you had to get a license and all of these other stuff, right, but you’re allowed to run as many as you want. They just proposed a new short-term rental law, which will restrict anybody from renting out short-term rentals for 30 days or less, so you have to rent it out for 30 days or more and you can only do one of those in your community. We’re seeing all of this. People are just trying to figure it out. I don’t think it’s going to go anywhere in the cities that are banning it, like, San Francisco, New York City, Austin. They’re doing that for good reasons because they have high, high rents and low inventory. People like us that are renting, to rent it out 100% for short-term rentals. It is causing a higher rental amount in those cities, and higher demand.
I don’t know, man. It’s exciting because it’s, like, obviously, I don’t want it to be ban, I do believe in regulation. But to restrict it 100% from residence, now, we’re getting into constitutional rights and all of these other challenges. It’s going to be interesting to watch.
Matt: Yeah, I mean, if you just look though on history and other industries, some of that we just already named, seems the consumer, demand kind of always wins out, right? That mass demand is … we’ll always push it in the direction that’s for the people, right?
Eric: Yeah, yeah, man.
Matt: Great, so, no business is perfect, No investment strategy is perfect. Give me some things that you know now, you wish you would have known when you got started. It would have a made things a lot easier.
Eric: Yeah, it’s the customer service side. The Customer Service side is something that I always knew was there, but I’m like, “Oh, someone just wants to stay and it’s going to be simple, just send a couple of messages back and forth, but really understanding again that this is the hospitality business, and you know, I learned a lot. I thought I was going to customer services. I learned a lot on how to deal with the influx of questions and concerns and especially, it’s not only the customer service satisfaction side or making sure that this person is having an incredible time when they stay with you, but it’s also the educational part of teaching people. You know, there’s a lot of people every single day on this platform, and they’re used to hotels where it’s kind of very easy, go to the front desk, they check you it, they give you a key, you lead to your room, boom, that’s it.
On these new AirBNBs, we have to educate, “Oh, no, I’m not going to be there. Here’s the code. Let yourself in. Here’s all the information.” So the customer service side took a long time for us to really figure out, and we’re still figuring it out and building on our systems. But that was the biggest concern and I think will always be the biggest concern is how to maintain customer service. There’s so many rabbit holes from there. It’s like that all leads down to how do you maintain a five-star cleaning standard in your house, which becomes another challenge, right? But that’s simple to develop systems around. But yeah, customer service and really learning how to lead with the heart versus reacting to when guest find a spider in the house and they’re freaking out, they want their money back, and you’re trying to ease that stuff over. It’s one of the biggest challenges, in my opinion.
Matt: Yeah, I mean you find all kinds on the internet, right?
Matt: We’ve come to learn that as well. I didn’t even know these people existed before on the Internet. The … what else I was going to say? The time about the customer service and the satisfaction, and then it’s a hospitality business, all blank. All right, sounds goods. If someone wanted to learn more about this and they’re inspired by what they’ve heard today and they wonder which [inaudible] directly, what would be the best way for them to do that?
Eric: Yeah, I appreciate that. I have a few resources. I run a private Facebook group that every day we’re posting up information, resources. We have an incredible group of about 5,000 people globally in that community. So anybody who’s interested in just learning more about it, just join that Facebook group. It’s called the Airbnb Profit Club. You can go to airbnbprofitclub.com or just go to search it on Facebook. And then also, I do training on this. If anybody wants to learn more about the co-hosting model, on how to scale that, and just learn more about the technology and systems, they can go to cohostmastery.com. I do one live training per week on this. Those would be the easiest ways. I’m in the Facebook group all the time or we could … you know, people can jump on live with me for the co-host mastery training.
Matt: Awesome, fantastic. Well, Eric, it’s been a pleasure. Thanks for being so gracious and giving with all of your experience and your information, your expertise, and let’s stay in touch. Let’s do it again.
Eric: Of course, yeah, appreciate the time. Thanks for having me.
Matt: All right, take care.