Kyle is the owner of Fearless Flipping and has a focus on AirBnBs. He is joining us today to talk about how the coronavirus has impacted his business. One thing he mentions that is helping him during this time is that he doesn’t view his business as an AirBnB business, but more of a short term rental business which is helping him develop plans to weather this storm. Kyle shares some advice that has worked throughout time and is showing how important it is during this pandemic.
Kyle Stanley Real Estate Background:
- Owner of Fearless Flipping
- 5 years of real estate investing experience
- Currently has 11 AirBnBs
- Located in Fresno California
- Say hi to him at : https://www.fearlessflipping.com/
Best Ever Tweet:
“Utilizing the 33% rule when analyzing deals has helped me stay comfortable during this pandemic” – Kyle Stanley
Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, the host today, and today we’ll be speaking with Kyle Stanley. Kyle, how are you doing today?
Kyle Stanley: I’m good, Theo. Thanks for having me on the show, very excited.
Theo Hicks: Oh, yep. Absolutely, and thanks for joining us, and thank you for agreeing to talk about how the coronavirus is impacting your real estate investing business. But before we get into that, a little bit about Kyle’s background – he’s the owner of Fearless Flipping; he has five years of Airbnb experience, currently has 11 Airbnb short-term rentals, is located in Fresno, California, and his website is fearlessflipping.com. Kyle, do you mind telling us a little more information about your background and what you’re focused on today?
Kyle Stanley: Yeah, well that’s the keyword – today. So as we’re here on April 1st, it’s not an April Fool’s joke, unfortunately, what we’re going through. So we got to take everything serious right now. Leading up to, I would say the beginning of March, the main focus of my business was Airbnb, and then on the side, I was flipping, doing short-term real estate investments, from wholesaling to BRRRRs to flipping, and we had a really solid flow going. We were on pace this year for three different streams of income reaching six figures. The third stream was education in the short-term rentals and Airbnb business. And then all the madness happened and now, really the big thing has been weathering the storm and figuring out what’s next, but I’m excited about what we’ve been able to do to weather the storm, to be able to make this still a very profitable, short-term rental business and sharing that with your audience today.
Theo Hicks: Yeah, so we’re going to talk about how to weather the storm that is the coronavirus. So that’ll be the title of the episode. So what are some of the things that you’re doing? So you got short-term rentals. A lot of times that I’ve talked to said that the short-term rental business is greatly reduced, or in some locations outright banned. So I’m just wondering, are all your properties in Fresno, California? Are they scattered across the country?
Kyle Stanley: They’re all in Fresno and I think – first of all, I want to just lay a precedence here that there’s a lot of people out there that are talking about Airbnb being dead, short-term rentals being dead, and these people are jumping the gun. They are completely in the mindset of whatever’s happening now is going to happen for the rest of eternity, and that’s just not true when it comes to this. There’s also airlines that are being shut down. Does that mean that airlines will be shut down for the rest of eternity? No. As soon as this whole thing recovers, then everything’s recovered.
But I also know there’s a lot of people that are very mad at Airbnb right now, and the message I really want to bring today, Theo, is that I don’t have an Airbnb business, I have a short-term rentals management business. If you have that mindset, you have the mindset of problem-solving. My mindset right away in the beginning was before I even got any of my properties – yes, I knew the potential of making $1,000 plus of cash flow was there. We have one property that makes us usually right around $2,500 per month in Fresno, California, of all places. But I also said, “Well, are these recession-proof?” and I think we all were talking about it leading up to this whole coronavirus stuff of, hey, there’s gonna be a market crash, there’s gonna be a market correction, there’s going to be some minor recession. We just didn’t see it coming in the form of a zombie apocalypse, for lack of a better term.
We didn’t really see it coming and hitting us literally overnight. And because of that though, I’ve been very, very happy about everything that we’ve been able to do to weather the storm, and to see results still coming in… And just focusing on the Airbnb side and on the short-term rental side, we added two properties this last month, so we went from eight to ten, and we just added an 11th just a couple days ago. But we went from eight to ten, and we still ended up, after expenses, in the month of March, netting more than any other month that we ever had, and grossing more than any other month that we ever had.
I truly believe that’s for a couple reasons. Number one, I did the deals right. I made sure that I was getting into a deal that would be successful, even during a rough time. Again, not knowing when a coronavirus thing would hit, but just a rough time in general… And then the bigger thing and beyond that is that I knew that if something were to be impacted by Airbnb, let’s say, Airbnb shuts down; it’s a third-party site. I’m an entrepreneur, I’m not a Airbnb employee. I need to find other methods to be able to list my properties on, and by doing that, we were able to still find ways to get people in our properties not through the means of Airbnb, and fill those vacancies and still be close to 90% to 93% booked all in the month of March. And moving forward, we can talk about a little bit more, but now just to weather the storm, nine of our 11 listings are month-to-month rentals, and we’re seeing what happens with the other two rentals just to see if Airbnb will continue to pick back up. So without going too much deeper into that — I don’t want to keep on talking, but that’s the overview of what we’ve been doing right now.
Theo Hicks: Okay. So some of the two things you said were to, one, buy right, and then two was to not rely entirely on Airbnb, have a backup plan. So let’s talk about the first one, which is buy the deals right. So what does that mean? What aspects of the deals were you looking at to make sure that you’re buying them right?
Kyle Stanley: Just like anything in real estate, you’ve got to analyze the deal. So with an Airbnb, I use the 33% rule, which is whatever you’re netting needs to be at least 33% of what you’re grossing. And if you can do that, that means that if something like this happened and you have to take a big hit and adjust your method of how you’re filling your properties, there was enough meat on that bone to not hurt you. So because we had expected– again, let’s just take that rule for example. If I’m expecting to gross $3,000 in a property for the month, then the 33% rule means that I need to net at least $1000 of those dollars. So essentially, what that means is my expenses are $2,000. As long as I can cover $2,000 in a property during a coronavirus, then I know I’m at least breaking even. We don’t want to lose money during this time. We just want to weather the storm, get to even, and then pick back up where we were before.
But the great news is that those properties that, let’s say, I was grossing $3,000 and needed $2,000 in order to cover my expenses, I’m actually at some of those getting as much as $2,700 for month-to-month rentals. So that’s been really, really positive to see that I’m not taking this $1,000 hit, I’m only taking a maybe, a $300, $400, $500 hit per property. So instead of netting at $8,500, maybe next month I’m going to net $4,000 which, during weathering a storm, that’s pretty good.
So your audience knows too, buying the deal — I own five of mine and then I manage three and then I do what’s called arbitraging for three of the other ones, where basically I take over the rent, take over the lease, and sublease it out to other people, and I’m still profiting on those despite what a lot of people are saying. A lot of people are saying right now that lease arbitraging is not a thing, it’s not profitable. I am still profitable on all my lease arbitrage properties, because – again, just doing the deal right.
Theo Hicks: So you said that you have 11 properties in your portfolio… You said that eight were month-to-month rentals?
Kyle Stanley: Yeah. Currently, actually, nine are month-to-month rentals, and then we’re keeping two on Airbnb.
Theo Hicks: Perfect. So, for those nine – and I guess this goes into the second thing that you talked about, which is having other ways to list your properties… So obviously, you’re not listing those on Airbnb. So for my first question is, where are you listing those properties, and secondly, how has your wording changed now that they’re month-to-month, as opposed to Airbnb’s for the weekend or something?
Kyle Stanley: Yes. Our main means which we’re doing it is Craigslist – that’s where we’re getting most of our places; Facebook marketplace would be next, and then just networking with realtors, property managers, loan officers who have people that need that transition. Maybe they’re selling their house or maybe they’re getting kicked out of one of their homes and they’ve got to transition to find the right place.
So we’re very upfront with everyone, we’re not telling them, “Hey, sign a 12-month lease” with the idea that we’re going to kick them out. We’re letting them know this is furnished, it is a month-to-month rental. We are used to a very profitable Airbnb business, but right now, we’re just looking to use this as a way to weather the storm and to help more local people who are going through some transitional issues that need some help. So we’ve got people in our homes right now that are going through divorce, some are buying a house and waiting to be able to get into that next house. We’ve got some nursing students that are coming in that have been from out of town and need to stay for a couple months…
We haven’t had any first responders yet, but we are opening ourselves up to that as well, and we’re really just making sure everyone knows, you might only be here for 30 days, you might be here if you want for three months, maybe even, God forbid, this thing goes on for a long time, you can be here for three years, but they understand that every month, we have a new evaluation that we’re doing to make sure that they are still a good fit for our property.
Theo Hicks: So of those nine, are they all occupied right now, with that month-to-month lease?
Kyle Stanley: Yes, they are occupied. Seven of the nine are either a family or a person taking up the whole house, and then we had to get creative with some of our bigger properties by renting out room by room, which I thought was going to be really difficult; it turns out that that is not as difficult as I thought it would be. In fact, it’s more profitable and more people are open to doing a room by room, not even knowing who else is going to be in the house, because desperate times call for desperate measures, and those people are definitely in those kinds of situations.
Theo Hicks: That’s interesting. Craigslist is a powerful tool right now.
Kyle Stanley: Yeah, and I guess that’s the big thing. “Oh, Craigslist… That sounds super sketchy.” Well, you know, right now we’ve got to do as much as we can to just help as many people as possible. I think I’m a pretty good judge of character, and at the end of the day if I’m doing room by room, then every roommate has to approve of the next incoming guest as well, to make sure personalities will match.
Theo Hicks: Is there anything else that we haven’t talked about that you’re focusing on right now during this coronavirus time?
Kyle Stanley: Yeah, the first thing is, as you can tell, this really is short-term rentals. It’s property management versus just “Hey, let’s throw an Airbnb listing on there.” So I think for those of you that are thinking about getting into Airbnb or maybe thinking about getting out of Airbnb, the biggest thing right now is, to me, this is getting rid of all of the fakers in this game. It’s getting rid of all the people who just wanted the easy route. “Hey, throw your room or home on Airbnb and get paid a ton of money.” Now that there’s actual work and a lot of these people probably even have a full-time job, they’re probably not doing the things that I’m doing. So that creates a unique opportunity for people that are serious about building their short-term rental portfolio or getting into a short-term rental portfolio, because you’re gonna have a lot less competition on the other side.
And when all this starts to dwindle down, I truly believe that travel, especially to places like my market, Fresno, California – people come here because they have to, not because they want to… And that’s really a good place to be, is when you’re hosting mostly families that are coming into town to see family, or business people, and then the occasional traveler. If there’s a major recession that continues to linger beyond all of this, I’m in a really good position to have a lot more people coming in that need to reschedule things that got canceled, and a lot less competition, so that I can actually raise my rates. It’s simple, just supply and demand. If the supply is a lot lower and the demand is just as high or higher, then my rates are going to go up.
So I think if you’re in that position — I’m not necessarily talking about the destination getaways per se; I think there’s still a lot to be seen there – the Newport beaches, the Hawaii’s, the Florida’s, all those things where people go there because they want to get away… I’m not sure if that’s still gonna be as strong on the other end of this because of the recession. But for places like mine, where it’s Fresno, California, and other places too, like in Midland, Texas, a lot of business people coming in there, you might be in a really good position to lock something down right now, weather the storm, just cover your expenses, and then on the other side of this you’ve got a very profitable business that you can throw right back on the Airbnb, and have a lot less competition in your area.
Theo Hicks: So you think people should be buying right now?
Kyle Stanley: Again, buying is different in the short-term rentals scenario. So if you’re talking about buying a property, then you got to make sure your numbers are right, for sure. But if you’re talking about arbitraging or managing for someone else, then yes, I definitely think it would be just as good of a time to get in, especially with landlords being really, really open to the idea of getting a solid tenant in there like yourself, that’s going to manage the property and take really good care of it.
Theo Hicks: You mentioned that you bought a property a few weeks ago, right?
Kyle Stanley: Yeah, it’s actually the one that I’m doing the podcast in right now. It’s three units on one lot. It’s not multifamily, it’s just a single-family house with a [unintelligible [00:13:55].14], and then we converted the workshop into another unit, and it’s house-hacking at its finest. It’s fun.
Theo Hicks: So obviously, you bought it amid the coronavirus. How was the underwriting different? Did you underwrite different expenses or a different income? And if so, where did you come up with numbers from?
Kyle Stanley: What terms did I do the deal with, or…?
Theo Hicks: No. So usually you underwrite– and I’m making up numbers here. Usually this house, in a regular time, would make $5,000 a month. How do you determine how much income would be coming in?
Kyle Stanley: That’s a great question. So I knew my expenses at this place were going to be right around $3,500 per month, from mortgages and then paying back my lender on the furniture. So what I did there is I evaluated it as an Airbnb first, and saw that after year one — because the way that we do our terms, we pay back our furnishing in year one, and then that person is now off the loan; it’s a short-term loan. So in year one, I’d be cash-flowing $600 a month with Airbnb, while living on the property. And then, after year one, we would be cash-flowing right around $1,500 to $1,600 per month, because we would have paid off the furnishing. That was as an Airbnb.
Now that we’re doing this as a short-term rental and month-to-month, I’m at least getting all of my mortgage covered, and then I’ve still got my loan back to my lender, and that means that right now if I wanted to– I don’t want to, I’m in a financial position where I could move out of the unit that I’m in and put someone else in and not owe anything, but I’m okay with spending $1,000 to $1,500 dollars a month to still live in a place, and that’s what I’m doing right now, just to stay where I’m at. But to answer your question, if I’m underwriting it though, I know I could rent out this space that I’m in short-term and cover all my expenses and probably cashflow a few hundred dollars. But if it can get back to Airbnb, and I rent out my unit, the third of the three, then I could be more along the lines of $2,500 to $3,000 a month for this entire property.
Theo Hicks: Thanks for sharing that. And then, one last question before we conclude. So you mentioned that you think that this situation is going to get rid of all the fakers who wanted an easy route. So what do you think exactly is gonna happen to them? Do you think they’re gonna get foreclosed on? Do you think they’re just gonna just sell and then that’ll open up an opportunity for people to buy a short-term rental single-family home that’s maybe furnished for cheap? For those people, what do you think’s gonna happen to them in the next six months?
Kyle Stanley: The ones that have bought the vacation rentals with just the idea of it working as an Airbnb, I think they’re in trouble, at least for a few years. I think that’s really tough. If you have a, let’s just call it $5,000 per month expenses, and you need this thing to make at least $5,000 a month, I think that’s going to be really tough during any recession, because people just aren’t going to be traveling as much.
Then the other side of it is the people who are just using it as “Hey, this is my primary residence, but I leave on the weekends and I Airbnb it” or “Hey, this is my secondary residence. I only use it about three months out of the year.” I think those people will probably not get hit as hard. But I think the ones that are going to be just okay are going to be the ones that are in markets like mine or in deals like mine that you can put a long-term renter in, and you’ll be just fine. I hope that the majority of people did deals like that, where they can put long-term renters in and be okay. Then for the other people that are doing lease arbitrage like myself, it’s just about getting out of a lease and selling the furniture. So it was a risk of what they knew they were getting into, that if something were to ever happen, if Airbnb shut down, hey, they have a lease. But in a lot of people’s ideas and a lot of people’s minds, it’s a lot better to just have a lease than it is to own a piece of real estate that may not work as a long term rental, so they can get out pretty easily.
Theo Hicks: Yeah, definitely. Well, Kyle, I appreciate you coming out today and being willing to talk about the things you’re doing during this coronavirus pandemic. I think a lot of this advice will be very helpful to people who are doing short-term rentals, doing long term rentals… I think this will also be some very timeless advice as well.
So you talked about how you’re weathering the storm with your short-term rental business; you mentioned that you think people who are screaming at the top of their lungs that the short-term rental business is dead are jumping the gun, and then you got more specific and mentioned that the two things that you did is make sure you did the deals right on the front end. So you mentioned the 33% rule, which means that the money you net needs to be 33% of what you are grossing. So if you gross three grand, you need to net $1000, which means your expenses are two grand. That way, you’ll have meat on the bone to take a hit and not lose money. The other one was making sure you’re not relying on Airbnb and having backup options.
So you mentioned that you’re pivoting to month-to-month rentals for nine of the 11 properties and that you’re using Craigslist, Facebook Marketplace, and then networking with property managers and brokers to secure leases, month-to-month leases on those. Focusing on helping local people, people who are going through divorces, buying a house and waiting to get in, nursing students, and you’re opening them up to first-responders now.
You mentioned how you think that this is going to get rid of a lot of these fakers who wanted the easy route and didn’t want to work hard, because now it takes more work. You can’t just throw something up on Airbnb and get a tenant coming in there.
We talked about how to underwrite a deal during the coronavirus which, I think, is very powerful. So how to underwrite a deal during a “recession”. And that expenses are really set, and you evaluated it as a Airbnb first, and then you’re willing to spend money since you’re living there yourself – $1,500 bucks a month – but you know that if you move out, you would be able to at least break even, and weather the storm, and then once things get back to normal, make your profits again.
So Kyle, I really appreciate you coming on the show today again and sharing what you’re going through with us. Stay safe. Best Ever listeners, thanks for listening and stay safe. Have a best every day and we will talk to you tomorrow.