Joe Fairless: Best Ever listeners, I hope you enjoy this debate series. Theo is going up against Sue; they're talking about long-term leases versus short-term leases, and not what strategy is superior, but which one is best for you. So enjoy this debate, and let us know your thoughts on who has the best one by going to bestevercommunity.com and sharing your thoughts.
Theo Hicks: Hello everyone, and welcome to the first ever Best Ever Debate. We're streaming live from Facebook right now. I'll be your host this time, Theo Hicks. Joe is gonna sit this one out. My opponent is going to be Sue Hoyuela of BnB Freedom Formula. Sue, thank you for being on. How are you doing today?
Sue Hoyuela: Great, Theo. Thanks for having me, it's an honor to be here, and to be the first one to do a debate with you.
Theo Hicks: Fantastic. I wasn't doing [unintelligible 00:01:52.05] because my outcome for this conversation is to not have a [unintelligible 00:01:59.13] back and forth on what's the better strategy... My outcome is to help everyone listening learn the different strengths and challenges of these two different investment strategies, that you guys can determine which one fits best for your current situation... Because at the end of the day, as real estate investors, we know that there really isn't the best strategy; the best strategy is kind of subjective and is based off of your experience, your time commitment, the amount of money you have, where you live, and things like that.
So what we're gonna do is we're gonna go through a list of five different factors, and kind of go back and forth and explain how those factors relate to each of our strategies.
Before we get into that, it's important to have some context... Sue, do you mind giving a quick background on how you got into short-term rentals, as well as what short-term rentals actually are?
Sue Hoyuela: Sure. Let's see... Back in 2011 I was deep in debt, looking for a way to make extra money, and somebody said the word "Airbnb." In 2011, mostly people would respond "Air B and what?" So it was a way to make extra money by renting a room or a house to short-term guests, kind of like a hotel in a way. This was a website that allowed you to create a listing. Airbnb markets that to the world, so now travelers have another option for where to stay, and they can come across your listing and say "Sure, I'd love to stay with you."
Back at that time, we had nothing to lose. We were just trying to find a way to make an extra $100 to put towards our debt and get out of debt faster... Within the first month we made an extra thousand dollars, and that was just by renting a shed in our backyard. We were like "Wow, what else will people rent?"
I'm an entrepreneur, I like ideas, and so I started to get very creative with space. I rented the laundry room in my house, the cupboard under the stairs we turned into the Harry Potter room, we rented by couch, we rented actual rooms, and after nine months I'd created enough income from this little side hustle to quit my full-time job.
Then at that point I started saying "What else can I do with this amazing tool called Airbnb?" So I started renting other people's property, and time shares... I used four different business models, and that eventually allowed my husband to quit his job, too. We got completely out of debt, and we were making a six-figure income... And we just started saying "This is the best thing since sliced bread; this is the actual door to financial freedom. We have to tell everybody about this." So I started teaching, and coaching, and created an online course to help people eliminate the learning curve that I had to go through to create a six-figure income with these short-term rentals... And they're a wonderful alternative to long-term rentals.
I'm excited to be able to share the ins and outs and the pros and cons with you here today, and I hope that your audience will benefit from that.
Theo Hicks: Well, I'm sold. I'm converting all my long-term rentals to short-term rentals tomorrow. [laughter] I'm really excited to learn about your four short-term rental strategies, because I think even if you aren't going to do short-term rentals, I think learning about these strategies can help you make your long-term rental business more effective, or to kind of do it in addition to your long-term rentals.
Quickly, in one sentence, define what short-term rentals are, just for the purposes of this conversation...
Sue Hoyuela: Okay, a short-term rental is anything less than 30 days. So if you're going to rent out a room, a space or a house on Airbnb, it's going to be less than a 30-day rental to someone who's traveling, for any number of reasons... It's a simple distinction, but actually a very powerful one, and we'll get into that in a moment.
Theo Hicks: Okay. Really quickly - most of you guys know my background, but I bought my first long-term rental in (I think it was) 2013. I house-hacked a duplex that I bought after just learning about real estate the night before... I had a property under contract within two days, so I got after it... That kind of speaks to I guess you don't really need a lot of experience... Or maybe you do, based off of how it turned out and some of the problems I went through. But after I bought that, I held that for a year, I sold it, and then a couple of years later, which was actually last August, I bought 12 units of three different fourplexes, at the exact same time, while having a full-time job; I managed those myself for 3-4 months, and then I moved to Tampa for my wife's job, and ended up putting those under property management.
So I have an understanding of the house-hacking strategy, I'm actually for buying rentals and then managing them yourself, as well as my favorite, which is having someone else manage them for you. So that is my background, and for the purposes of this conversation, I'm going to define long-term rentals as an active strategy - that doesn't necessarily mean you have to be the property manager, but it's not a passive investment where all you do is just give money to someone else and they do all the finding and analyzing and managing of the deals for you... So it's active in the sense that you have to buy it yourself and find the deal yourself.
I'm also defining it as me using my own money; I'm not raising capital for it, because that's not fair to talk about that, because that's completely different... And then I'm also just gonna keep it to residential properties, just because I wanna talk about more of someone who has little experience, or is just starting, or is looking to transition... So they're not gonna be buying a 20-unit as their first long-term rental deal. And then to distinguish it from short-term rentals, I'm talking about 12-month non-furnished units.
The first factor, and I guess the most important factor, and the one that I already know that short-term rentals wins on is the returns. For my long-term rentals, when I'm looking at deals, I want a five-year average of 10%-15% cash-on-cash return. It's usually buying 25% down, so I want a 10%-15% cash-on-cash return over a five-year period. What are the returns - I'm sure this is a very vague question, but what are the range of returns for short-term rentals?
Sue Hoyuela: Well, that's one of the things that I discovered early on that just blew my mind. Short answer is double to triple what you're used to making with long-term rentals. But the way I discovered that was when we started renting a room in our house, I was looking at like "What if I went to rent it on Craigslist?" and it was maybe $500/month to rent a room in someone's house... And if you break it down, that's $17/day. So when we put it up on Airbnb, it was $50/night, and that's gonna be times 30 nights in a month, that's $1,500/month; triple what you would have gotten from a regular long-term tenant.
When we applied the same strategy to a whole house rental, the same thing happened. We were renting it for $1,200/month, and when we put it up on Airbnb, we made $3,600/month. So that's super powerful, and I've seen it across the board.
The funny thing is when I talk to landlords and I say "How much rent are you getting from your long-term tenants?" and they're saying "Well, I could probably get more, but I'm afraid to raise my rents, because it's so hard to find a good tenant... And if I raise it, they might leave and then I don't know what I'm gonna get."
So they wind up kind of shooting themselves in the foot almost by not raising the rents as much as they should to keep that income coming in the way it was the original intention, right? Invest in real estate and get that passive income coming from the rentals... But you have to continue to increase it, and a lot of landlords don't. They could switch to the short-term model, and they're actually gonna get a bigger boost in their rental income right off the bat.
So I call the difference between renting by the day, by the month to the long-term tenants, compared to renting by the night, to the short-term guests, the difference is night and day.
Theo Hicks: Nice. [laughter]
Sue Hoyuela: [unintelligible 00:10:03.29]
Theo Hicks: Something that I've discovered in my research about returns is consistency. People were saying for short-term rentals, since you're doing it daily or weekly or monthly, the returns are not gonna be consistent month-over-month, whereas for long-term rentals - of course, there's exceptions to this rule, but usually you're gonna be collecting the same amount of rent each month... So could you speak on do the month-over-month rents fluctuate a ton? Is there some months where you'll make no money and other months you'll make times six times as much as you usually do, or is it consistently that three times number month-over-month?
Sue Hoyuela: Yeah, that's very true... It speaks to risk tolerance, because the income does fluctuate, and it really depends on a lot of factors: where your property is, if it's gonna have year-around traffic or if it's just gonna be seasonal... So it's gonna vary depending on where the property is and who your niche is, but there's actually a really cool website that you can check out, if I can just throw it out there for folks...
Theo Hicks: Absolutely.
Sue Hoyuela: It's AirDNA.co, and it's got something called The Rentalizer. It's really cool - you put in your address and it will show you exactly what type of occupancy rate to expect every month, based on seasonal demand and all that good stuff.
So that's a very difficult question to answer, but I've found that for me - we're in Los Angeles, and it fluctuates; summers are a busy time. We have huge events at times where our income just skyrockets, but it's always out-performing the long-term.
For me, high turnover is a good thing, because I actually have five income maximization strategies that I incorporate into my short-term rentals, so that every time we have a turnover, I'm actually adding to my bottom line, and adding additional streams of income to my income with that. So it could be very powerful, but you have to have the tolerance for that; it's not for everyone.
Theo Hicks: Absolutely. A couple things you hit on, I'll definitely ask you more questions on before we move to other factors, but the last question I have, and I think I know the answer to this... One thing that attracts a lot of people to long-term rentals is the ability to accumulate equity, whether it be just natural appreciation, or renovating it and increasing the rents and increasing the property value that way... And then after a year or two pulling out equity and using that to rinse and repeat and buy some more properties. Is that a strategy that you can use in short-term rentals?
Sue Hoyuela: Absolutely. I know quite a few people that wanna do the buy and hold for a couple of years, because their end strategy is to actually flip it and get that equity out... But why not just rent it on a short-term basis in the meantime, because it actually gives you a lot more flexibility when it comes to exiting that property. If you're on an annual lease, you've gotta wait 12 months for it to expire, but with Airbnb you can stop that calendar at any time you want, so you don't miss out on opportunities like that.
Theo Hicks: Yeah, I figured... A quick follow-up question - when a bank is looking at a property and looking on whether to refinance or a home equity line of credits, do you show them what your occupancy and what your rents have been? I guess is the process the exact same as it would be for a rental, or are they like "Oh, well this is maybe inconsistent...", they look at it differently and have a lower LTV, or (I guess) a higher LTV?
Sue Hoyuela: You know, that's really cool, because I was doing Airbnb since 2011, and I wanted to refinance and see if a bank would accept that income, and they were like, "No, that's ridiculous..." But now that Airbnb has been around 10 years, they are viable now and they've proven their business model, so now yes, banks are accepting your Airbnb income as proof that you've got steady income and that you can confidently refinance on right now.
Theo Hicks: That's a huge recent development for short-term rentals.
Sue Hoyuela: Yeah, very exciting.
Theo Hicks: So that completes the return factor. The next one I wanted to talk about - I call it barrier to entry. I have it broken into subcategories; it means a lot of different things. The first one is about location. We actually had someone who's watching ask a question... He asks:
"Can you Airbnb anywhere, or are there cities that will not allow it? If so, what do you do then for short-term rentals?"
I'm assuming he means maybe the location or the regulation against Airbnb... Do you wanna speak on that?
Sue Hoyuela: Absolutely. Yes, you have to comply with the local laws and rules, and if they require a permit, or whatever it is, you need to find out what that is and comply. It's difficult though; there's no blanket, no standard anywhere, so you do have to do your due diligence and so some research online.
I start with the city and the municipal code to start seeing if they have anything in place for short-term rentals. They use a lot of keywords. If you're gonna do the research in your city, you can look under short-term rental, vacation rental, sublet... Some really archaic terms they're using are room and board, boarding house, rooming house... Things like that. Yeah, they have all kinds of different terminologies, so it's a little tricky to find out what the rules and laws are, but Airbnb does have a Help section for that, as well. For the bigger cities, you can already find the documentation in Airbnb's Help section, and they link to all the things you need, so it's really helpful.
Let's say for example you're in a city -- oh, goodness, so many things came to mind... So I have what I call the Pyramid of Safety, of where I consider doing Airbnb. The top of the pyramid is the "Don't do it" area, and that's usually in HOAs, gated communities, condos with CC&R's, because they have their own little governing boards that any moment they can change the rules, and if you do Airbnb and they decide to say it's not permitted, you're out of business. The risk is too high, and I've seen that happen to a lot of folks... So I don't do it in anything that's got regulations like that.
Apartment buildings are the next most dangerous place to do Airbnb, in the sense of getting shut down. They're saying that it's eliminating affordable housing. So do that with caution.
But if you get out into the suburbs, away from the hub, away from the main spot, that's what's powerful about Airbnb, too... Because you make more money out in the suburbs. First of all, it costs you less to own a property or rent something out away from the city center, and you still make fantastic returns on Airbnb... So that to me is the sweet spot - staying away from the main place that's got all the attention on it.
There are some cities that have been completely -- it's just not allowed. I was speaking in Michigan, in Grand Rapids, and the people were like "No, they don't allow it here in Grand Rapids." Yeah, but the border, one block away is the next city over, they have no rules or regulations whatsoever. Do whatever you want.
So if you've got that flexibility - that's what I usually say, is just look across the border for the next city over, and everything could be just fine. But if you don't have that flexibility, you probably shouldn't do it on that particular property... But there are ways to still get in on the Airbnb game if you still wanna play. I'll tell you more about that later.
Theo Hicks: Perfect. You've basically hit on what I was gonna ask you next, so I'll explain that, and if you have anything else that you wanna further elaborate on... Obviously, there's the regulations in these locations, but there's also the demand on the location, and I know for long-term rentals you can do a rental in the city, you can do it in the suburbs, I guess you could definitely rent out a farmhouse and do it that way... I'm thinking you've kind of already hit on this, and it was actually surprising because I figured that it would be ideal in the big cities, but you're saying that the suburbs are actually better.
The one person that I knew personally that did Airbnb, they actually had theirs next to a hospital, so what they were actually going to do - or they considered doing - was obviously the hospitals have their hospital beds... They were gonna turn their house into like a makeshift hospital, so they could put excess patients in there... I can't remember exactly what they said, but the amount of money that they would have made by doing that was something insane; it was crazy, because obviously there's regulations to how many beds you can put per room, and things like that... But they were by a hospital, so... Can you walk us through what are the types of things that you wanna look for in the specific market, that will let you know that there's gonna be a strong demand for these short-term rentals?
Sue Hoyuela: Oh wow, okay.
Theo Hicks: I'm sure there's a million things, so...
Sue Hoyuela: Yeah, that's one of the things that's in my course, because that's a real exercise to try and identify who your ideal guest is... But what I've learned is no matter where your property is, there is a niche to serve. Somebody's gonna wanna stay there on a short-term basis...
Theo Hicks: Okay.
Sue Hoyuela: Yeah, and you always discover things kind of like a surprise. We started getting a lot of poker players coming to our house, professional poker players... I'm like, "Nah, you can't make money as a professional. That's an oxymoron, come on." No, really, they actually are professional, and we didn't realize that we were three miles away from the Commerce Casino, which is the poker capital of the world. Who knew...? So three miles away - poker players love us. They can get there for less than $5 in an Uber, and it's perfect for them.
So as I've traveled, this is what I found - no matter where you go, there is a niche. My brother-in-law, he actually comes to me and goes, "Guess what, Sue?" He does Airbnb on his own house, in his rooms; we've kind of shared it with our whole family and now they're all in Airbnb... And he says "I bought a property out in San Bernadino." I said "That's great! What did you buy?" "Two acres." I go "Yeah? Well, what kind of house is on it?" He's like "Just dirt. Just two acres." And I say "Great!" He's like, "Yeah, it's already up on Airbnb, I'm already making money." I'm like, "Wait... Okay, this is two acres of dirt in Lucerne Valley, where you don't have water, electricity, there's a road about a mile away... You get cell signal, and that's it."
He's got a niche out there, because people love to go ride their ATV's, he's got film crews that are renting it... All kinds of people wanna rent that property and he's making a killing on a piece of dirt. He didn't even have to develop it. I was like, "Dude..." [laughs]
Theo Hicks: So this sounds like it depends on how creative you wanna get, and if you're a super-creative person - someone like you, definitely... I mean, you started off renting out a shed in your backyard... Then this sounds like an amazing strategy.
For someone like me, who's a spreadsheet guy... I'm very good with numbers, but whenever my wife asks me to pick out a certain color of couch, I'm just like "I don't know, they look the exact same to me." So for me, I really like long-term rentals just because it is so simple and basic...
I know some people get a kick out of that creative aspect of it, but I like just the basic -- you find a property in an up-and-coming area, you stick some renters in there, you don't have to do anything fancy... I personally stick around he C or B-class properties in markets that are ride on the outskirts of A markets, that are renting for just these insane monthly rents, like $1,200 for a one-bedroom per month... Eventually, those people are going to want to start moving somewhere more affordable. That's what I'm seeing in my rentals right now. Location-wise, I like to pick places that are right next to really nice areas.
Since we're talking about barrier to entry, and kind of transitioning to expertise and experience - that does take some experience, because every neighborhood is different, every street is different in the neighborhood... So if someone tells you to invest in Cincinnati, for example, there's A markets in Cincinnati where houses are over a million dollars, or where you can get, as I said, rents for $2,000 for a 2-bedroom unit, but then literally a mile over there's fourplexes that rent for $450. It does take a lot of -- not necessarily time-consuming activity to understand your market, but you're gonna have that for everyone.
Something else about the barrier to entry, as I just said, was experience. For me - maybe I'm an anomaly, but the second I learned about long-term rentals, I just went and bought one the next day. The reason I was able to do that was because I was able to do the house-hacking situation, so I was able to put down 3.5%... In hindsight, I wish I would have done the 203K type of loan, because I did renovations to it, I just didn't know anything, so I paid out of pocket for the renovations... But I was able to get in there and get a crazy return just because your down payment is so low.
So in regards to barrier to entry, from my perspective, I think long-term rentals are great because of the opportunity to do the house-hacking strategy, which is you buy with owner-occupied loan, you live in one unit, and then you rent out the other ones.
It has to be a residential property, of course, but that way you could essentially live for free, so it's a great strategy for people that are just out of college, that have maybe 10k saved up.
I think my down payment was like $5,500, and I ended up renting the top one for $1,400 and my mortgage was -- I can't remember exactly what my mortgage was, but I was actually making money, and I was like "This is the craziest thing ever. I just can't believe this is real." And of course, it's different for me, because I didn't know anything about real estate... I thought that you would have some sort of certification to invest in real estate; I was a complete newb.
Also, there's one other point - I wanted to ask you about the team... I'm not necessarily sure if you are doing all the management yourself, but if you aren't, or for people that have a full-time job and they don't have the time to manage it themselves, how do they go about doing that? Is that a challenge that you or any of your clients have?
Sue Hoyuela: Well, that's interesting that you should say that, because in the beginning I was all about creating systems and streamlining... So I implemented all these systems in my own house, so that I didn't have to do as much. I trained cleaners, and put in systems for inventory supply... Then at one point I outsourced the communication to a co-host. That pretty much took everything off my plate. It was that simple.
Then, actually, I did have people that had properties asking me to help them, so I started a guest management services business, so that I could do all those things for busy landlords, and help them enjoy the income without the hassles. So if you're scheduling cleaners and restocking supplies and that's a hassle, then I was taking care of that for them.
Since then, I've been teaching people now how to start guest management services as well, because the need and the demand is so huge across the country and the world that there is enough to go around.
I have to say though, I love your story about the house-hacking. I wasn't sure what that term meant, but I love that you shared it, because it's crazy -- my daughter right now is buying the house she's living in, because it happens to be a duplex... It's like a pocket listing deal, right? The tenants in the back moved out, the landlord came to her and said "I'm thinking about selling it. Do you wanna buy it?" She said, "Sure", and she's already got a storage unit full of furniture, so the minute she closes escrow, she's throwing all that furniture there in the back house and turning it into an Airbnb... So it's kind of your strategy, but now it's on steroids; you've got the extra income from the short-term rentals to just amp it up.
She's been doing Airbnb too, in her own house, and now that she's got this opportunity, she already understands the power of Airbnb, so it's not even a question of long-term or short-term... She's going short-term all the way.
Theo Hicks: I think I found a title of a book for you... Instead of house-hack, it's the Airbnb-hack. I think that's gonna be the next big thing. We were house-hacking before house-hacking was a thing... I'm not sure when Brandon Turner coined that term, or even if he's the one that coined that term, but the guys that taught me about real estate - they both house-hacked five years before I was house-hacking, so back in the mid-2000's; it wasn't called house-hacking... I didn't even know how he discovered it. I actually know [unintelligible 00:25:46.07] but I'm glad that he told me about it.
Sue Hoyuela: Good strategy.
Theo Hicks: So we're kind of already touching on it, so we'll transition into the next factor, which is time commitment, because obviously, if you wanna make money, time is also a very valuable resource... And of course, for any strategy, you can automate the entire process and really have no time in there, but for -- I guess I'll say my side first, because I kind of did all three entry-level models... So for house-hacking - again, this is just me personally, based off of my personality... That one was the most stressful for me. Obviously, when I'm stressed out, that affects my time, because I'm not productive at all... But it was just stressful. That could mean doing parts and not knowing what I was doing before I entered, but whatever I just thought of the house - I thought it was gonna fall to the ground, catch on fire... [laughs] Whenever my phone rang, I thought it was a tenant telling me something was wrong... So that was a mess, which is why I took a two-year break.
Then after those two years, when I bought these 12 units, I did the management of all those myself. I probably spent on average maybe around 10 hours a week doing that full-time management. Once I first took it over and got all of those large duties out of the way, which is sending out all the new letters and letting them know who you are, fixing any ongoing deferred maintenance, which people that are listening to this know all about that - my boiler issue... I'm probably known as "the boiler guy" now... But once I was done with that, most of my time was spent doing landscaping. I'd go in and rake leaves and mow the lawn... Obviously, that's stuff that's very easily automated, and it was only 12 units, but the time commitment on that wasn't very hard.
Now that I have an actual property management company, it's even less, because whenever something happens, instead of having the tenant call me, I have to go there to look at it and see what's going on and then find the proper person to solve the problem for them, now the property management company will either do all of that upfront... If it's a small maintenance issue, they do all of it and I won't even know about it until the end of the month. Or if it's larger, they'll just say "Hey Theo, here's what's going on. Here's what I've already done, here's the quotes. We can do this, this or this. Option a, b or c. What do you wanna do?" and then I just look at my phone, I go "Option a" and then that's it.
So that's how it is from my specific situation. Again, I know that it's different -- if you find the wrong property management company, that could be a problem; if you have a bad maintenance person, that could be an issue... But those are kind of just the two different types of strategies for long-term rentals that I did, and the time commitment associated with each.
My question for you - because this is what I would imagine, is that it would take a lot of time to manage a short-term rental because of all the extra variables that are involved... But I'm sure you have a perfect solution for that, so let's hear it.
Sue Hoyuela: Of course. I have to admit, when you own property, you still have those same issues... You're a landlord, you still have to make sure the deferred maintenance is kept up, and things can go wrong and you have to fix them... The benefits though, what I've heard from my landlords is that when I've been managing the properties for them as a guest management services manager - so it's similar to a property manager, but it eliminates a lot of the headaches for landlords, I'm gonna say in three major areas.
Theo Hicks: Okay.
Sue Hoyuela: First of all, when you're a landlord and you're looking for a new tenant, the time it takes -- because you wanna make sure that you get a good tenant, so it's gonna be a long-term thing, and you wanna go through the process of screening, and running their credit, and their background check, and their bank statements... Then it's like courting them, and you have to meet them, and then you interview them and you show them the property... That time process - I don't even know how many weeks that takes. If you have a property management company, they're gonna do that for you, but that process of finding a good tenant takes a long time.
When it comes to short-term rentals, everything boils down to three questions, and in my system it's actually three questions that when they answer my question, I can give them an answer whether they're going to stay or not in less than a minute. So we've just reduced the whole screening process down to like 30 seconds.
Theo Hicks: And what are the three questions you ask?
Sue Hoyuela: I ask them "Where are you coming from? Who are you traveling with?" and "What will you be doing while you're in town?" You have no idea... They seem rather innocuous, but those are some extremely loaded questions, and it's very important that you answer correctly, or that's it! You're not staying.
It's interesting, because I worked backwards... From all of my horrible experiences with bad guests, I started saying "Well, if I had done this, I wouldn't have had that problem." And as I started to see patterns, I started to be able to eliminate the things that were going to cause problems, and it just boils down to those three questions.
So when it comes to screening, now we don't have to pay a management company to run credit, and show the property, and put signs and post signs - none of that; Airbnb handles it all. I just have to screen, three questions, boom. That's done.
Theo Hicks: I have a quick follow-up question to that before we move on to the other two... What would be an example of something that would eliminate someone from contention?
Sue Hoyuela: Okay, so when I'm asking the question "Who will you be traveling with?", it's very carefully worded, because when the answer comes back, "Oh, I'm not traveling with anybody; I'm booking on behalf of my mom and my sister, who are gonna be visiting you while they're in town, but I don't have a room for them to stay in." That falls under the category of a third-party booking, and that's a rather extensive explanation of why you don't wanna do that... But immediately, in the wording, when they answer me, if they are booking for someone else, that's a decline. I've got horror stories to explain why, but we won't go into all of that right now... It just suffices to learn from experience. That's one way to weed out a lot of problems.
Theo Hicks: Okay. What was number two? Not the question, but the second thing to reduce the time commitment.
Sue Hoyuela: Right, so the repairs and all that good stuff, and you said if you have a good management company. One of my landlords, he had a property in Whittier, a 5-bedroom 3-bath, and it was super high-end. He was getting $4,500/month for it, renting it to like the dean of Whittier College, or something like that... And the tenant moved out, and he had his management company find him a new tenant. So the management company did, and it was a disaster. It was kids, and they started bringing their friends over, they turned it into some sort of a den of iniquity, I don't know... But it went downhill fast.
They had to evict everybody, and when they got in there after the eviction process, he discovered this massive hole in the ceiling that was caused by some sort of a leak. He said, "Hey, management company, you were supposed to be checking on this at least every six months. How did that get there?", because it had been like two years... So things like that don't happen when you're doing short-term rentals, because you have such high turnover; every little thing is taken care of, done, and doesn't blow up into a huge, huge problem... So you save a lot of money on that end.
And then the other thing that is interesting - I don't know if it's true in other states, but in California, when you rent to somebody, or lease, the tenants have more rights to the property than you do, and it's kind of annoying. If you wanna go in and check your property you've gotta make an appointment, and if tenants don't wanna let you in, that's it; you can't go in. And it's weird, because it's your property. I never understood that... "Wait a minute, who's making the mortgage payments here...?", but that's the law. So when it comes to Airbnb, you can come and go in your own property whenever you want.
One of my landlords, he's calling me saying "Can you open up a block this weekend? Because my wife wants to have a book party with her girlfriends." I said, "Sure, it's your property. You can do whatever you want with it." It's a huge benefit for landlords to have that control over their own property; it seems like such a small thing, but wow... [laughs]
Theo Hicks: Yeah, control is definitely big... And as you said, in California - I'm sure it's statewide - it's a tenant-friendly state versus a landlord-friendly state. I did a quick Google search, for people listening... I've looked into it before, and I can't remember off the top of my head which states are the best for the landlord... But yeah, it's things like how much time do you need to give them before you can go onto the property? Can you show up, or do you need to give a 24 hours notice? What is the eviction process? The security deposit return process... Those all vary.
Maybe that will convince some people to invest in an out of state market, as opposed to their own market... But again, as most things we're talking about, it all depends.
So I guess the last two categories won't take too long to talk about. One of them was - I kind of already mentioned this - the extra-variables involved with short-term rentals over long-term rentals. Things like furnishing the units... It's something that I didn't think about until I was researching, but a review is very important -- I guess reviews are important for short-term rentals, as opposed to someone like me, who's got four units and doesn't have a company... Again, I guess it would be reviews on Airbnb, not like a Google review, so essentially you're kind of under a microscope; you have to be on top of your game a little bit, whereas for me - I'm not saying I'm slacking off or anything, but it's just a whole different thing.
Other examples are -- and I guess you could get creative with this, but the amenities, what all you're gonna offer. Are you just gonna do just the standard toiletries? Are you gonna put some goodies in the fridge for them, or leave them a bottle of wine to make them really enjoy their stay?
And then [unintelligible 00:35:15.09] but also, if you are going to have a property management company, I know for long-term rentals you're looking around 10% of the collected income for a single-family, and then as you get to four units you're looking at maybe 8%... I don't know what a short-term rental rate would be, but I do remember at the Best Ever Conference someone who does short-term corporate housing was there and said that it was like 25% property management fee.
Obviously, I understand that it's all relative, based on the income you're bringing in. If you're bringing in five times as much income, but you're only paying three times more in expenses, then it's fine, but do you wanna kind of speak on anything I just said there?
Sue Hoyuela: [laughs]
Theo Hicks: I know it was a lot.
Sue Hoyuela: I'm overwhelmed, yeah. I actually, wanted to go back to the previous conversation and say that evictions are another issue if your state is not landlord-friendly. If you do short-term rentals, under 30 days - usually, 30 days is the limit that if you cross over, now you're in long-term rental territory and you have to evict clients if they don't comply. But if you're under 30 days, now it's just a matter of trespassing, and it's so much easier to deal with. None of the headaches. That's huge. Thank you. Okay, got that off my chest.
Now, onward to the other good stuff that you were talking about... So when it comes to reviews - you know what, that's so incredible, because before Airbnb, we hosted international students in our house, and all of our family and friends would say "You're crazy. How do you let strangers stay in your house?" But reviews are what changed the game, because now there's a certain amount of accountability, and it keeps everybody on their best behavior.
So because that's built into the system, if you get bad reviews, you're not part of the community anymore. So it's actually what has created that trust that allows people to be crazy and stay in stranger's houses... "What are you doing?", right?
I'd say the same thing about Uber. When you were a kid, didn't your parents say "Don't get in a car with a stranger"? What are we doing now? We're hopping in cars with strangers like nothing. Why? What changed? Reviews.
So that accountability and that being able to see that other people had a good experience before you, so it's probably okay - it gives you the confidence to go ahead and enjoy the use of that.
So yeah, reviews are huge... And it's funny, because when my daughter was looking for an apartment, she had a website that she checked, and there were apartment buildings with reviews for the long-term tenants, so I do know that you are getting reviewed on Yelp, or something...
Theo Hicks: Yeah, I'm pretty sure it's really for larger ones... If you're looking at a fourplex -- I mean, maybe you could put whatever your LLC or rental company is on there; if you have like a website, a portal for all of your rentals, and tenants can come there and see your rentals on the website, then once you google that website, it'll get that little thing on the side on Google, where you can do Google reviews... But I think it's based off of having a website. If you have a website for your company, then you're most likely gonna have the reviews.
And again, when you are doing anything in your life, whether you're trying to find a restaurant, or a place to live, or a place to go on vacation, everyone googles "Best restaurants in Tampa FL", and they'll just sort based off of the number of stars and the number of reviews. It's kind of at the point right now where reviews are, as you said, a game-changer... Now it's so important to have solid reviews.
You need to have some sort of strategy... Or a couple of other things that I was talking about is there are certain amenities that you have, certain techniques, or anything that you do to make sure that you're always getting that perfect five-star review, or ten-star... I'm not sure what the ratings are.
Sue Hoyuela: Yeah, exactly. It's the way we live today, everything's being reviews. It's just a part of our culture now. So yeah, it's actually pretty cool, and Airbnb - they give you the playbook, and they say "If you wanna be a super host and maintain that star rating, this is what you've gotta do." So you're like, "Great, that's it. All I've gotta do is that."
It revolves around six different areas for a host. I don't think I can name them all off the top of my head, but the most important ones are accuracy in your listing - so whatever you're promising, you'd better deliver. That's common sense; setting expectations, basically, with the guest.
Cleanliness. Cleanliness is so important, because it's the first impression. A guest coming to the bedroom, and like, dramatically tearing down the sheets off the bed and going "Ah-hah! Oh, it's clean..." [laughter]
Theo Hicks: Did they expect like a rat under there, or something?
Sue Hoyuela: I know, right? I'm like, "Okay..." [laughs] So they really want that cleanliness, and you're like "Okay, good." There's a lot of ways to ensure cleanliness. I have something called "The quick changeover cleaning system" that I've developed, so that we get consistent results every time, because it is critical to keeping your super host status and getting five-star reviews.
Communication is the other one. That can be the biggest deal breaker and make it so hard for guests, especially when they're coming from other countries or they speak other languages... But Airbnb gives you all the tools, so that you can over-communicate. You can use pictures, so that it's very clear and it makes everything so smooth. There's a lot of different things... Location though is the one that has just driven me nuts, and I think other hosts too, because that's one of the things you get reviewed on, and we're like "What can we do about the location?" It's like, "I can't move the house. I wish I could, but..."
Theo Hicks: Yeah... I'm sure they do that just so people that are selecting where to live, they're selecting where to go, and they want some amazing view or something, and they'll look at that and they'll be like -- that's like their main deciding factor... But there's nothing you can do about that.
Sue Hoyuela: Right, and we're aware that we're not at the beach, with a view of the ocean... Okay, we're 26 miles away, so our price reflects that. We're not $300/night, we're $49/night, so we make up for it, work with me here.
Theo Hicks: The last category I was gonna talk about was competition, but you've hit on that, because again, it's obvious for long-term rentals - there's plenty of actual properties that you could buy; I'm not saying that they're being sold or the owners are willing to sell, but there's gonna be thousands and thousands of single-families, duplexes, triplexes, fourplexes that you can choose from in your market.
Then obviously for short-term rentals, going into this conversation I thought that it wasn't something that you could do everywhere, but as you explain, as long as you're super-creative, you can Airbnb out a piece of dirt, so that answers that question...
Something else I wanted to talk about too, just to wrap up here, because it's a very insightful conversation... Personally, I just moved to Tampa, and we go at the beach all the time now, and it's still just amazing; I can't believe I live here, this is insane. I'm used to living in Cincinnati, so... We got here in January, it was snowing there and we came to sunny beaches... But there's so many cute little beach towns down here, and you can see that there's obviously vacation rentals down there. If you consider buying a single-family house -- not necessarily on the beach, but in one of those beach towns, and then furnishing it, and then when we're not there, Airbnb-ing it... But then it's something where, well, what if you just Airbnb it during the week, and then on the weekends we just literally live down there? After work we just drop down there...
I know we'd make more money renting on the weekends, I'm assuming, but still -- again, it depends on how creative you get... But that's something we were considering doing, so coming into this conversation, I was thinking in the back of my head the entire time, it's like "We could totally do this." We could have a beach house, but make money if we're having a beach house.
So there's that, but then I know there's one thing that I wanted to hear from you, which is -- what did you call it...? You called it the Ultimate Leverage Strategy. Do you wanna just hit on what your Ultimate Leverage Strategy is?
Sue Hoyuela: Okay, sure. Oh, and by the way, more power to you, because if you decide to go with that beach property, you've got the best of both worlds. You can stay it in when you want, and go back to your other house when you don't want, or rent it on the weekends, or once a year, or whatever; you've got all the options open to you, so... I wanna see what happens with that. Keep me posted.
But the Ultimate Leverage Strategy came about because I teach people how to make a six-figure income with Airbnb, renting rooms and spaces in their own house; they can make $1,000 to $10,000/month... I'm showing landlords how to trade their long-term tenants for short-term guests, eliminate eviction headaches, and double or triple the rental income on their rentals. But then, people kept saying "What if I don't have a property? What if I don't have enough startup capital to furnish a place?" and I said "Well, there's an answer to that." You can actually get in on the Airbnb game and you can start an Airbnb business that you get paid for to start.
When people wanna start a business and they start asking "Well, how much is it gonna take?" and if you're looking at buying a property, well, 3%, or you'll have to go out and get a loan, 250k, or maybe it's zero to start... No, this business model, the Ultimate Leverage Strategy, you actually get paid to start your business, anywhere from $500 to $2,500/property. So it's a pretty powerful strategy, and it's providing guest management services to busy property owners and landlords.
In contrast, I guess the newest model I've been hearing about lately is "Oh, let's use other people's property", but when they say that, they're actually going out and renting a property, and then subletting it on Airbnb, which... I've actually been approached by pretty smart landlords, and they're like "Hey, why don't you just give me a flat fee per month and you keep whatever else you make on top of that?", which I do. That works, too.
But the way you can get in on this without having to have that monthly payment, or paying utilities, or have to worry about any expenses - zero cost out of pocket - is just partner with those busy landlords and property owners by providing the guest management services. So if anybody out there is an Airbnb host right now - little light bulbs are going off like crazy - and if you don't already have experience doing that, I have a course called the BnB Freedom Formula that teaches you how to become that Airbnb expert, so that you can start to offer those services and create a six-figure income from your own Airbnb business.
The beauty of it, because there's no cost to you, is it's unlimited in the scalability. You can grow this as big as you want. I teach you how to outsource all of the different pieces of it, so that it doesn't depend on you, and I give you the pieces to fill in as your inventory grows, so that you have unlimited capacity.
It's a very exciting business model, and it's been blowing it out of the water because so many people haven't been able to get in the Airbnb game until now, so... Thank you for letting me share that.
Theo Hicks: That's awesome. From my understanding, you're like an Airbnb property manager; you're acting as the property management company for example for people like you - you didn't want to do anything... Not anything, but didn't wanna do the day-to-day activities. From my perspective, as a long-term landlord, I'd be like "I need to find a regular property management company", whereas if I was an Airbnb host and I was sick and tired of dealing of dealing with cleaning toilets, as they always say, you'd get this Airbnb Guest Services, or what did you call it...?
Sue Hoyuela: Guest Management Services. That's a business model that I've developed. It's not endorsed by Airbnb or anything, but I use Airbnb as the tool to deliver my services. I've been training people how to provide those services as well, so that they can actually tap into that additional income and get paid. Actually, all you are asking about how much you make, right? So with the Airbnb management, it's more 20% to 50%, because you're right, we increase the income so much, but it's still a smaller slice that it would have been at 10% on a long-term rental.
Theo Hicks: Yeah, so if you're a property management company, or if you are either interested in starting a property management company, this is something you should definitely be interested in and pursue further... Because if you're making 20% to 50% on a revenue that's five to ten times higher than what it would be otherwise, then you're gonna be able to scale a lot faster.
Sue Hoyuela: Yeah, absolutely. And I just need to make sure that people understand - if you are a property management company already, this is a beautiful tie-in... Why not just start offering this additional service? ...save yourself a lot of time on screening and all that stuff. You can probably reduce your number of employees, and save some money on your overhead, who knows. But in order to do the guest management services, it's not technically property management, so you don't need to have all the licenses and permits and everything involved. Because of the way I set it up, you're not handling any of those things technically, so that you are free to just go out and start your business without any restrictions.
Theo Hicks: Awesome. I think we should end the debate portion with that powerful strategy. Before we wrap up, I want to just quickly look -- I'll ask you some listener questions. We had a question earlier from [unintelligible 00:47:54.29] so we really appreciate that. We've got a second question from Grant - it's something we talked about way at the beginning of the conversation, so I apologize for that, Grant... But he asks "What happens to an existing Airbnb property when a town or city outlaws Airbnb? Do you have to show down existing Airbnb's, or can you just not create a new one?"
Sue Hoyuela: Good question. Yeah, so it's happened to folks... They've been in a zone where it's not just like they changed the laws and said "Now you have to get a permit" or "Now you have to comply", but they've actually said "Nope, it's banned." So unfortunately you do have to stop doing Airbnb short-term rentals. But short-term rentals, again, mean anything under 30-day rentals, so a landlord, if you own that property, you've got so many options open to you, right? That's the nature of real estate - we're always looking for higher and better uses for it, and there's a ton of them.
So you have all the options open to you - you can go back to long-term rentals, or even there's an in-between... Something that's really fun is corporate rentals. Business travelers - sometimes they need to stay for 2-3 months; traveling nurses, people who need a short stay, but longer than 30 days - you can still do that no problem, and you will be compliant with the "No Airbnb", which is actually "Nothing less than 30 days" is what they mean. So you still have a lot of options open to you.
Theo Hicks: It makes sense. Alright, Sue, I really appreciate it. Just to kind of quickly summarize what we've talked about... We were doing Airbnb/short-term rentals vs. long-term rentals, and we were comparing them across a variety of different factors. In regards to returns, for short-term rentals you're looking at approximately three times as much rental income, compared to long-term rentals. The only potential drawback is the fluctuations, but again, with a little creativity, you can fix that. For long-term rentals, you're not getting as high of returns, but you do have that consistency.
In regards to barrier to entry, which is much of a surprise to me, you can do these anywhere. You can do it in a city, depending on the rules and regulations, you can do it in the suburbs - which, as you said, is one of the main places you can do it - and then, again, my favorite part of this conversation, is the dirt. You can literally Airbnb dirt, so people can ride around on their dirt bikes.
Then obviously for long-term rentals, you can do them anywhere, as well.
We talked about the time commitment, and you gave us three things in particular that you can do to reduce the time commitment, and I went over a couple of stories of my progression through managing the property I lived in, managing properties I didn't live in, to finally ridding myself of all responsibility and giving it to a property management company who's doing a great job.
We kind of hit on competition a little bit, and then we wrapped up with the Ultimate Leverage Strategy, which is essentially property management for Airbnb, but with insanely much higher returns.
I really appreciate you being here. Everyone listening, thanks for tuning in. Where is a good place people can learn more about you, learn more about the information you've talked about today, and learn more about your short-term rental strategies?
Sue Hoyuela: They can find me at SueHoyuela.com. We might wanna put that in the show notes, because it's kind of hard to spell... But hey, my name is right there on the screen, so if you can spell it, suehoyuela.com - that's a great place to learn more.
Theo Hicks: Awesome. Well, thank you again, thanks everyone for listening. I hope you guys enjoyed the first ever Best Ever debate, and we will talk to you guys soon.