JF1825: Building A Short Term Rental Business With Other People’s Properties #SkilSetSunday with Michael Sjogren
Michael is here today to tell us more about short term rentals. We’ll hear three different ways to make money from short term rentals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“Here is how I will mitigate all these risks” – Michael Sjogren
Michael Sjogren Real Estate Background:
- Michael and his wife Krysten are the founders of Occupied, LLC, a short-term rental investment and management company
- They have a portfolio of six properties across three markets and are actively expanding across the northeast
- Recently launched an education platform called Short Term Rental Secrets to help real estate investors launch their own STR business
- Based in Boston, MA
- Say hi to him at https://www.occupiednow.com/
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. First off, I hope you’re having a best ever weekend. Because today is Sunday, I’ve got a special segment for you called Skillset Sunday. The purpose of this conversation is to help you acquire or hone a skill in real estate investing.
The skill we’re gonna be talking about today – and I suggest, if you’ve got some rentals, this is a skill that you at least become aware of, and then you can choose what to do with it – is the skill of making money on short-term rentals. Our guest today has been on the show before; he is an expert at short-term rentals, and he’s gonna talk about three ways to make money on short-term rentals. One of them is gonna be fairly obvious – you have a property and you make that a short-term rental, but we’ve got two other ways that are gonna be interesting, and we’re gonna dive deep into.
First off, how are you doing, Michael Sjogren?
Michael Sjogren: Hey, Joe. Thanks for having me back.
Joe Fairless: Yeah, my pleasure, and looking forward to our conversation. Best Ever listeners, you can just search Michael’s name and my name, and you can listen to his previous episode that he was on. We’re gonna dive right into short-term rentals. First, let me introduce you, Michael, just to refresh memories. Michael and his wife, Christen, are founders of Occupied LLC, which is a short-term rental investment and management company. They have a portfolio of seven properties across three markets, and are actively expanding across the North-East. They recently launched an education platform called Short-term Rental Secrets, to help real estate investors launch their short-term rental business. Based in Boston, Massachusetts.
Here’s what we’re gonna talk about – three ways to make money on short-term rentals. What are those three ways? And then we’ll get into the details of those three ways.
Michael Sjogren: Sure. The first is to purchase a property. The second is to lease a property from a landlord, you furnish it and then you put it on Airbnb, or HomeAway, or Rent It Out, however you want, and you make the difference between what your rent payment is to the landlord and how much revenue you can generate on a nightly basis. And then the third is to partner with a landlord, or landlords to partner with somebody that knows how to run a short-term rental business, and you set up a management fee, a percentage of the revenue collected. What I find is typically the landlord makes more with this model, obviously, than if you’re just gonna rent it out on 12-month leases to somebody.
Joe Fairless: Alright, let’s talk about number two and number three, because the first one is the “Buy a property, make it short-term.” If you are interested in that, Best Ever listeners, then go listen to the first conversation I had with Michael, where he talks in detail about how to do that. You have a webinar for that… What’s the webinar?
Michael Sjogren: It’s STRSecrets.com.
Joe Fairless: Okay, STRSecrets.com. If you wanna do that, then go to STRSecrets.com, and/or listen to the interview. So let’s talk about number two and a number three – lease a property from a landlord. How do you approach a landlord and convince him/her that this is a good idea.
Michael Sjogren: I think the first thing to think about before you approach someone is what problem are you trying to solve for them? If you’re approaching a landlord that has a vacancy at their property, what is their biggest problem? Their biggest problem is vacancy. Every month that that property sits vacant, they’re not making money but they still have to pay their mortgage, and their expenses, and everything else. So the problem that you are solving is that you’re going to fill their vacancy, and that you’re going to take better care of their property than anybody else, and not be a pain in the butt and calling them every time a toilet gets clogged. Those are the three problems that you’re solving.
I know a lot of folks think “Oh, short-term rentals – that sounds like there’s more wear and tear on the property. How can that possibly be better for the property?” If you think of it, the last time you stayed at a hotel, or an Airbnb, or wherever you traveled to, how much time did you actually spend in the property? Probably from 8-9 o’clock at night until about 9-10 o’clock in the morning, and the majority of that time you’re sleeping. How many of you actually use the stove, or the dishwasher, or the washer and dryer, or any of the major appliances in there? You probably didn’t. And for those of us that are landlords, ask yourself this question – when was the last time one of your tenants hired a professional cleaning company to come in and sanitize and deep-clean that entire property? Probably never.
So with this model, the property stays in pristine condition, because it has to. It gets professionally deep-cleaned multiple times a week, and it has to look pristine every single day, otherwise we don’t make money. It has to look great every single day. So those are the problems that you’re solving. If you’re gonna sign a lease with a landlord, or if you’re approaching a landlord and saying “Listen, I’m happy to sign a 12, 18, 24-month lease and take care of your vacancy problem. And by the way, here’s why I’m going to take way better care of your property than anybody else… Oh, and by the way (and this is totally up to the listeners if you wanna go this route), I’ll actually take care of any maintenance requests that are $250 or less. I’m not even gonna call you, I’ll just handle it. If anything major happens, I’ll let you know, but otherwise I’ll take care of it myself. And if you ever wanna go inspect the property, just give me a heads up; I’ll make sure nobody’s in there, and you can go in there any time you want.”
Joe Fairless: That sounds like a very compelling case. [laughs]
Michael Sjogren: Right? So many folks get scared, like “Why would somebody rent me their property?” Well, what problem are you solving for them?
Joe Fairless: Yeah. So I’m gonna flip the script on this… If the listeners are listening and they’re like “Well, sold”, how does a listener or real estate investor find people who want to do this at their property?
Michael Sjogren: Email me. I’ve got a whole database of students that follow my exact system. Or just go on some of the platforms. Go on Bigger Pockets, go on the different groups, and find out who’s active in the space. Then it’s just like “Okay, well, show me your numbers. Show me your data.” If they don’t’ have experience, “Okay, well who are you learning from? Who are your mentors? What has been their success, and how involved are they gonna be?” So if you’re on the other side, like some of my students – they’re just getting started – they get so nervous, like “Yeah, but I don’t have a track record.” That’s fine, leverage my track record; say I’ll analyze the deals. You’re following a proven system from somebody who’s been in the business for two years and has trained a bunch of students doing this, and walk them through. Figure out what their fears are, and then walk them through how you’re gonna address those fears.
Joe Fairless: And one last follow-up question on that line of thinking… If a Best Ever listener has property, and they’re thinking “Well, I’d like this, too. I’d like my property in better condition than full-time residents, and I’d like to make more money than I could, and I’d like somebody to handle $250 or less in expenses, because then I would make more money (whether or not they offer that is another story).” How can a landlord quickly determine, “Hey, does my property qualify to be a short-term rental or not?”
Michael Sjogren: You can go back and listen to the interview that Joe and I did a little while ago, where I broke down the nine different traveler profiles. I’ll recap them real quick, and we’re not gonna go into detail. If you’re anywhere near a vacation town, that’s great. If you’re anywhere near an employment base… It doesn’t have to be huge; but are there decent-sized offices anywhere near you for corporate travelers that are coming in? Are you near any medical offices or specialty treatment centers, or major hospitals? Are you anywhere near a university, or a cosmetology school, or any type of trade school? Are you anywhere near an entertainment area, like a music hall or a convention center, or a professional sports stadium? Are you near a military base? There’s a few other ones, but those are applicable in any market; emergency situations, life events like birthdays, Christmas, wakes, funerals, all that stuff. And then relocation. People are always relocating, people are always moving. So if you’re anywhere near those… Basically, if you live anywhere near other people, it probably will work in your market.
Joe Fairless: Now let’s talk about someone who is facilitating this, so you in this case, or someone who’s in the industry… How much can you actually make on the spread when you are renting from a landlording and covering all this stuff, and then you’re getting short-term people coming in?
Michael Sjogren: As one example – we’ll take one property that I have, it’s a 2-bed 1-bath, about 40 minutes outside of Boston. It’s in a small city. That property previously was renting for $2,000/month. Now, during slow season in March, that property generated $4,400 in revenue. In July it’s gonna bring in close to $8,000 in revenue. In October probably closer to $9,000. So for somebody to go in and pay you $2,000 in rent, they’d be happy to do that.
Or on the flipside, like I did with this landlord, I said “I’ll give you the 2k, but quite frankly, you’re way better off staying in the deal. I’ll build it out, you invest the $10,000 to furnish it, but you’re gonna make way more money if I just manage it for you for 25% of the revenue. You’re still gonna make way more money than if I just rented it from you long-term.”
Joe Fairless: What did they decide?
Michael Sjogren: They decided to partner with me. This person’s been clearing at least 25% more than they would have made as a long-term rental.
Joe Fairless: Let’s talk about the third option. So there’s three ways to make money on short-term rentals. One, you buy the property and you do it yourself. Two, you lease the property from a landlord and you make the spread on what you lease it, and all the expenses, and what you actually rent it for. Three is you partner with a landlord and you get a management fee. Will you describe that model in detail?
Michael Sjogren: Sure. Real quick though, just to recap, when you look at the three different models, it kind of goes from based on how much capital you have. If you have capital to purchase property, great. Do the first model. If you’re got a little bit of capital, say 15k-20k – okay, great, you can do the leasing model. But if you have no capital and you’re just getting started, the co-hosting or the management model is the way to go. I’m not blowing smoke, you’re literally doing this with none of your own money. This is how I built my portfolio; other than the property I own, I have no money in these other deals.
Joe Fairless: Thank you for putting that in context.
Michael Sjogren: No problem. So the third model is similar to a property management company for a long-term rental, except now you’re doing it on a nightly basis. You’re basically running a distributed hotel. In this instance, in that example, he was getting $2,000/month for this two-bedroom property, unfurnished, as is. So I said “Okay, if you invest 10k, I’ll have my wife design it, because I don’t have an eye for that; she’s an interior designer, so she’ll design it. I’ll build it out, and then I will run the operations for you and take 25% of the revenue after cleanings.” Because I didn’t feel it was right to take my cut on top of the cleanings; that just didn’t feel right to me. So if this property brought in 4k/month in revenue, and say the cleanings were $500 for the month, then I’d take 25% of $3,500, and then he’ll clear the rest of it.
Joe Fairless: Okay.
Michael Sjogren: So for him, if he can get anywhere from $2,4000 and up per month, he’ll get his initial investment back within 15-18 months, and then he’s just increased his profitability by 25% forever.
Joe Fairless: When you’re starting out and you propose that fee structure, is there any negotiation that takes place with the landlord?
Michael Sjogren: I’ve had some landlords push back and say “I don’t know…”, and I said “Okay, fine. Here’s the deal. I have one landlord that actually will do the cleanings. He’s a retired gentleman, great guy. And I tell him he’s nuts to do this, but… He’ll actually do the cleanings, just to make an extra $70 or whatever it is per clean… And he’ll manage the supplies. So I don’t have to deal with coordinating supplies, he takes care of all that, so I charge him 15%.”
I’ve got another gentleman who handles a similar amount of the work, and I’ll do 15%. But if I’m doing everything, soup to nuts, I’m charging 25%. And quite frankly, I show them the numbers – and I’ll give the listeners another nugget, to give them some ammunition… You can go to a site called AirDNA.co, and that is a site that pulls all the data behind Airbnb and HomeAway, and you can plug in any address and it’ll spit out 5-10 comparable properties and what they did for revenue and occupancy last year, and what the site thinks this property will do for occupancy and revenue.
So I would just print that piece of paper out and I’d go to the landlord and say “Listen, you’re bringing in $2,000/month right now. This thing is telling me that you should bring in like $50,000/year as a short-term rental. I’ll manage it for you. What do you think?” And then obviously, we go through and talk about all the other controls that I have in place, around security, and locks, and all that fun stuff that we talked about on the last interview.”
Joe Fairless: That’s great. Anything else as it relates to these three ways to make money on short-term rentals that we haven’t talked about, that you think we should in this conversation?
Michael Sjogren: Now, I’ll just reiterate – just put yourself in their shoes. If they’ve never considered this, what are their biggest fears? Typically, it’s that their place is gonna get trashed, so how are you gonna mitigate that risk and how are you gonna explain that to them? Because it almost sounds too good to be true. At the beginning you’re like “Wow, okay…” But if you can explain it and just show them… I have all these credibility packs that I bring to these meetings, and I just show them “Okay, here’s what this property could do, here’s how I’m gonna mitigate all these risks”, step by step, with screenshots, and past experience, and reviews, and everything else… And I just show them. If you’re interested in this, great; if you’re not, that’s totally fine, too. Never get attached to it or try to force somebody into a deal that they don’t wanna do. There’s plenty of fish out there, and I see so many people get caught up “Oh, I talked to ten people last week…” Okay, go talk to ten more. It’s a numbers game. Keep going, man… You’re not done yet.
Joe Fairless: Yeah.
Michael Sjogren: Go back and listen to Joe’s podcast; how many guests have you had on that — I was listening to one the other day that you had… He emailed brokers for like nine months, every two weeks… I’m like, “Yes! Grind, man. Go make it happen.” It will happen.
Joe Fairless: Yup. And on the ninth month he got his largest deal he’s ever done, and then he’s continued to scale from there, to like a 50 or 60-unit property.
Michael Sjogren: Another piece of advice that you gave me a long time ago, that I took and it worked, for this model, was “How can I become an authority figure?” I started a local meetup called “Airbnb Mastery.” Every month I was getting people in a room, educating them about this, and I got three leads just from hosting that meetup. And it didn’t happen right away. That happened like five months in. And I had two months where not a single person showed up. And I said “Okay, fine. I’m gonna do it again next month, and again, and again.” So start a meetup, start putting content on social media, start becoming an authority figure in the space, and showing people “Hey, when I think of Airbnb, I think of so-and-so.” I changed my name in Instagram and Facebook to “The Airbnb Guy.” So anytime somebody thinks of Airbnb, I want them to think of The Airbnb Guy. How can you position yourself as an expert in your field?
Joe Fairless: And the last question real quick – this might be a larger question, but it can be a quicker answer… How can we determine if our property is in an area where the city or the township or whatever regulatory body there is, it is okay for us to do short-term rentals? Because I know New York City – not so much.
Michael Sjogren: Yeah, absolutely. Great question. For me, I always like to go to the source; so what I would do is I would google these exact words “short-term rental ordinance”, and then insert your city name. Try and go directly to their website. You can do a general search and just type in “Short term rental laws” and see what articles come up, but I always try and go to the source.
The reason that I am not in Boston, or in San Francisco, or New York City, or any of these major markets, is because these markets have a lack of “housing” or affordable housing. Lobbyists and everything else are going to say “Hey, you should put restrictions on short-term rentals, because they’re taking our inventory off the street.” So I would look for markets where they’re not seeing that message. And if you are, then just go 30 minutes outside of the city. If you’re in Manhattan – okay, go 30 minutes North, or go 30 minutes South, somewhere in New Jersey.
I told you, my property is three hours away in New Hampshire, and I manage that no problem. The last one we picked up was in Florida, and I can manage that remotely. So don’t be afraid to go a little bit outside your comfort zone.
Joe Fairless: Thanks for being on the show, talking about three ways to make money on short-term rentals. One, you buy the property, two, you lease the property, three, you partner with the landlord. And those are tiers based on how much cash you have access to. The value proposition to owners, landlords, of first identifying what problem we’re trying to solve for them, and then we are filling a vacancy, taking better care of the property, and we’ll be a painless person to work with, and actually might make their life even easier and even more profitable on the expense side if we’re handling things up to $250.
Thanks for being on the show. How can the Best Ever listeners learn more about what you’re doing?
Michael Sjogren: They can follow me on the social platforms @TheAirbnbGuy. You can send me a note at email@example.com, and for the free training that Joe and I were talking about, it’s a 60-minute class that I break down my entire business model, and help you kick off your own business within 6 weeks. Go to STRSecrets.com.
Joe Fairless: Thanks a lot for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.
Michael Sjogren: Thanks, Joe.