KGCI: Real Estate on Air - How to Analyze a STR Investment

Episode Date: July 26, 2024

Everyone, my name is Ni Yi Adewale, host of the Akaba Home Financial Freedom Mastermind Group. And today, we are going to be diving into, at least for the beginning portion of this open session, what the 15% rule is as it pertains to Airbnbs and how you can use that to rule out some short-term rentals and kind of weed through properties quickly. So last week, we jumped into the 1% rule and how that pertains to long-term rentals. and whether or not that's even feasible in Atlanta, right? And we showed you some examples of how you can find that and how you run the numbers in that for long-term rentals. And this week, we're going to be diving into the short-term rental version, which was kind of foreshadowed in last week's call.

And so we're going to dive right in from the beginning and then we're going to open it up for the open session. But to kick this thing off, when you look at rules of thumb, right, I try to break down the investment buying experience. into two phases, right? There's a phase one of due diligence and there's a phase two. Phase one is that high level due diligence that you do before you actually put an offer out on a property to see if it even makes sense to pursue that property, right? And the key to that phase one is to have a way that's tried and true to rule out a lot of different properties, right? So you can find the ones that are worth pursuing. And then after you get it under contract, that's when I believe you should move to that phase two. There's a lot of.

a lot of investors, especially newer investors that I work with and the Caba Home Realty team works with that try to do phase two in the beginning. And what it can lead to is burnout. When you're looking at a thousand properties and you have all these options and you want to run the detailed numbers on every single property to see if it works, believe me, you're going to make it probably about, you know, a couple of weeks. And then it's going to be like, hey, overload, information overload. And so we try to break it down into simple rules. of thumb that work to where on the back end, we know, hey, this is going to be a 90 plus percent chance of being a good deal if it meets this rule of thumb or comes close and then

kind of move forward from there. And so digging into that, I'm actually going to show you an example of what I mean. So this is how I personally go after properties as well. And I'm going to share my screen and show you a property that we are hopefully going to have under contract tonight. We should hear back probably during this meeting on this offer we put in. which was pretty competitive. And so here goes a property that we actually have an offer on now. It's a four-bed, three-bath. It's pretty nice, right?

When you look at the pictures inside, it's recently renovated, pretty good space, all the things that you're looking for in a short-term rental, right? It even has some backyard space so you can do something unique back there. But the key for running the high-level analysis and the 15% rule is plugging this number into AirDNA, right? And for those of you who do not have access to AirDNA, Bigger Pockets actually has the light version under their tools. If you click the AirDNA piece, you can plug in the light version of AirDNA. And so this house is a four-bed three-bath. And so you want to make those adjustments to a four-bed three-bath. And then you want to add two guests per bedroom.

Now, you can definitely do more than that. And there's some individuals that will say, hey, should do two guests more than the two guests per bedroom, so maybe 10 guests. But when we're running numbers for our clients, we want to stay conservative. That way, you know, there's only upside from there. And so we stick to two guests per bed. And then we kind of plug it in here. Now, the cool thing about this is when you actually have the full version of AirDNA, it will show you all the numbers, right?

So I'm going to go to AirDNA because I do have the full version that we utilize with the team. And so when we plug that same price, property in over here and not only gives you that annual estimate, but it'll also give you kind of the other properties that are around there that are affecting that annual estimate and making up the numbers. So we're going to go four bed three bath, eight gas, update. And so we came out with 64K, right? And you can see where it's pulling from.

There's a couple properties over here that are kind of pulling in a bit more and some smaller properties pulling in less. And so this AirDNA number within the Akaba home portfolio has been accurate plus or minus 5% across 25 properties that we manage, right? And we've gotten better with the designs. We've gotten better with the way that we manage, the way that we upsell, the way that we kind of market our properties and get people reoccurring and coming back. That's a long story short, this projected revenue number is what we use as your annual revenue. It already factors in the vacancy amount and it factors in what the average daily rate can be. Now, this can be a little bit confusing,

right? Because if you're doing this right, you should be using a dynamic pricing software that's going to adjust your pricing up and down, right, depending on low season, high season, etc. But it's saying that this average daily rate at this occupancy percent, this is what you can expect, and this is what it believes you can pull in. Now, I trust AirDNA because they pull from over 10 million properties in the U.S. and they zero down in different areas. in different neighborhoods and pull from other properties that are active in that neighborhood. And so it's pretty accurate. And so taking that number, right, and using the 15% rule, what we would do is do 64 divided by 369.

And this gives me 17.3%. Again, what we're looking for is 15% or better. At this rate, this is one where it's a no-brainer. Hey, let's go put an offer in this property and see if we can get it under contract. that is phase one underwriting. Now let's say that we are successful in getting this under contract. The next step during due diligence is phase two underwriting. Phase two underwriting is when you run into the detailed numbers,

and you start plugging in all the other factors that come in. That's when you start pulling back the onion, right, doing your due diligence and making sure that this deal is going to work out in the end. And so with a phase two of due diligence, right, that's where we would plug it into similar to last week. the bigger pockets calculator, and we would use the rental property calculator where we can do a little more detailed of a analysis, right? So here goes the rental property calculator that I like to use.

Purchase price, we got it at 369, closing costs. We're going to say closing costs is about $12,000, even though with this one we're able negotiate a bit, but we'll call that $12,000 for closing cost. we're going to do this like a traditional investment so 20% down and then interest rate we just helped somebody close on an STR recently and that was like an 8% interest rate I think it was like a 7-9 but 8% interest rate we'll call it and then this would be a 30-year loan term now the gross monthly this is what you would get for a long-term rental which is significantly less right but for a fully furnished short-term rental remember we were pulling in that 64,000 number divided by 12

that gives you five, three, three, three. And then we come down to taxes. This one I leave in. It's pulling it from the actual tax records. And then you want to go to insurance for this house. I would estimate 150 monthly. I've seen better. I've also seen like spot on with this.

You do need to start calling around nowadays on the insurance piece because if you just call one person, it could be crazy. But around 150 is where it should come in. Now repairs and maintenance is, is, is interesting on this, right? Because with Airbnb and short-term rentals, if your guests messed something up, you can build that back to your guest. That being said, I still put in 5% here just for other types of repair and maintenance,

things that will pop up like changing out filters and things that nature that you're not going to build to a guest. And then for CAPX, this home was redone top to bottom, but I just have a habit of putting in 3% for CAPX just to account for it over time, right? And so these are variable costs that are not actually going to be coming out right now. But it's quote unquote being put aside, but it's really getting put aside inside inside inside inside inside inside that same account to make sure that you can cover kind of any of those type of expenses that pop up. We're going to leave the management blank for right now because I want to show you with management and without what that looks like. And so we're going to leave that blank if you're going to manage it yourself and say that you're using software and things that nature.

For this home, that size of home for electricity, probably looking at about. 150 per month for gas shouldn't be more than about 50 a month. Water, if you're more than about 100 a month, that would be an issue. And then here goes where it differs a little bit. When you start breaking down the actual major cost. And so when you look at running an Airbnb, the biggest cost, two biggest costs. One is going to be management, right? Because management companies can charge anywhere from 18 to 30%. And so really, you know, if you're trying to be fully hands off, that is where a lot of the profit's going to be is in that management company. Now, you should still be able to at least break even or make a little bit more.

But if you're paying management and paying cleaners, that's a good 40 to 50% of revenue potentially right there. And so with cleaning, when you look at the cleaning piece, right, we've gotten to scale and been able to lower our cleaning costs significantly. But for four-bed, three-bath, if you're using, you know, just one property, I believe we're paying about $2.15 per clean at that time. And I average it out to about four cleans per month. There's sometimes we're going to get people that are booking for two weeks, booking for a month, for eight months. We've had a couple of those. But on average, if you factored out throughout the

year, the longer bookings and the shorter bookings, you're going to have about four cleanings per month. And so $2.15 times four would be $860 per month. Another fee you're going to have is landscaping, right? For a house like this, it should not be more than $75.5.00. And so, you're going to have, it should not be more than 75 a month because there's going to be months where you're not even doing landscaping. So maybe we bumped that down to 60 a month, right? We just actually, we just started doing landscaping again this month, but we were off from like November because the weather changed and we didn't need to do that. For pest control, you're definitely going to want to have that in Georgia. We'll call it about $50 a month. And then for your, your, your, your, your,

software fee. So software, right? This is going to be like the hospitable world that you use to manage. This is going to be your ring protect subscription. This is going to be your dynamic pricing subscription. I usually put that at about $100 a month when you factor all those together as to what you're going to be paying for that piece. And so we got the pest control, software, landscaping, cleaning. cleaning is really the biggest piece here. And so we're going to go ahead and finish the analysis. And so when you finish this piece, right, you get your cash flow number of 1096. And it just so happens that the cash on cash actually equals 15.3.

It typically doesn't work out like that. But long story short, that 15% rule is to rule out a lot of properties that may not make sense. Typically, if you're hitting above 12% and you're 12 to 15, that could be a good property. depending on the neighborhood. Like, I bought properties that hit that were a little bit less than 15% because I like the property makeup, i.e. it was a fourplex or because I like the neighborhood and believe, hey, over time, it's going to appreciate and I really like this neighborhood

to hold this property and be able to build that equity. But for first time, short-term rental buyers, we try to stick closely to that 15% rule so that you have the best opportunity to be successful and you're not trying to, quote, unquote, set the market. Now, for me, who's been doing it for a little bit of experience under the belt, definitely have been trying to set the market in a couple places. But you can see that with all these numbers, that puts you at 1,096, and that includes putting aside $426 for your eventual maintenance and CAPX expenses.

So this number is really like a little over 1,600, which is awesome. Now, coming back to that management piece, right? I mentioned that companies can charge you anywhere from 18 to 30%. The Acaba Home STR management team charges 20% because it was never my intention to actually build a management company. I was just managing my own and then a couple others and then got super busy. I was like, hey, I need some help. And so we built this thing out and it grew from there. And so we charged 20%.

And you can see how with that 20% management fee, that's essentially the cash flow. Right. So you're still breaking even, quote unquote, and really making about, we'll call $500 a month if you factor in the CAPEX and maintenance that is just set aside but still in the account. But paying for management and then also paying for cleaners, that's a major expense within this piece. But again, once you set up your systems, this could be the cash flow that you're bringing in, which is significant compared to, you know, the good old days of long term rentals where you could expect to bring in. you know, about $75 to $100 per month and be happy with that to be able to bring in $1,000 a month, right, on one property is incredible. And that's why a lot of people are shifting to that STR method. But I hope this was helpful for you, one, to take a deep dive on these two things because we get questions on this all the time. And selfishly, you want to be able to send a video to somebody and say, like, hey,

this is exactly what we're talking about. but with that in mind, please feel free to drop any questions in the chat. I missed in my co-pilot today, Leibon, but he's going to be back next week. But any questions, feel free to throw it in the chat and or join live. And I hope this was helpful and more of a deep dive compared to what we had before. AJ, how you doing? What's going on, my man? How are you?

Super good. You down to be my co-pilot for tonight? Let's do it. Hey, the good thing is that I won't, I won't have connection issues. I have a strong Wi-Fi connection, unlike some other folks. But I got the good stuff, so we should be good. Hey, come on now. I'm cutting that clip and sending it to Libon.

We got to figure it out. I don't know what's going on. I'm like, dude, are you on Zoom calls doing this? Just cutting out midway through the Zoom? For sure, for sure. No, this was kind of expanding on what you talked about last week. But did this help at all? Was it in line in what you were thinking?

Exactly. Yeah, these are some of the things that I kind of wanted to touch base on. I inadvertently foreshadowed it. I didn't even know that you were going to bring up this topic. But obviously because the 1% rule is a thing, I know the 15% rule is also a thing. And I believe we tried to use it also with my current house hack that I'm in right now. So I'm house hacking and I have kind of like a basement slash in-law suite. It's a one bed, one bath, really small, or not like really small, but it's suitable for, you know, one or two travelers.

We've actually kind of transferred it into a midterm rental because we also live here and we prefer, like, less foot traffic. So if we just have someone, you know, we're comfortable with and can kind of get used to over, over some time, that's really been working out for us. But I say all that to say, we initially analyzed it as a short-term rental. we use the 15% rule. So I'm really excited to kind of dive into this, ask some questions, and just kind of talk about this as it relates to, you know, just rules of thumbs and trying to figure out and analyze different deals. Yeah, absolutely.

And to that point, before we dive even deeper into this, when you talk about converting it to a midterm rental, what does that mean for you? Did you, like, adjust the minimum stay on like Airbnb, VRBO, things that nature? Yeah, sure. So for the midterm rentals, we actually procure our tenants through Furnish Finder. And if you don't know Furnace Finder, anybody out there, it's really catered towards like travel professionals. And more specifically, travel professionals and the healthcare industry really tap into Furnish Finder. And the reason why I know this is because my wife, she spent the past two years being a travel nurse.

I work remote, so sometimes I would actually travel with her, which was really cool. We got to visit different places. One of my favorites was actually Charlotte, and I got to know Charlotte really well. So while she was out doing her travel nurse assignment, we stayed out there for about six months. I was working from home doing my thing. We were just kind of raking it in. And that was kind of a way for us to fund our deals that we currently have. So if you have that dynamic, definitely try to tap into that.

But I say all that to say my wife, she pretty much kind of knew that realm a bit, which helped us out. So we use Furnace Finder to procure our midterm tenants. We also look into Facebook groups. So just join kind of some, you know, travel professional groups. There's a ton of different groups that, you know, where people are searching for housing. And there's groups where, you know, landlords like myself are looking. for tenants to fill the vacancy. So those are the two main sources where we try to find our midterm tenants.

And we really like to be flexible in the event. You know, one of the other isn't working out so well or maybe one is just, you know, knocking it out the park. But for our house hat currently, we do like the midterm tenants. It's really easygoing. And I'm actually smiling from ear to ear because today we, found a potential tenant to move in at the end of this month. We've had a tenant staying here for about six months, and she's been amazing. So she did the first three months. She's a healthcare

professional. She ended up extending her contract for an additional three months. So I was like, that's great. But now her lease is coming to an end, so we were kind of like scrambling around trying to figure out, you know, who else can we get into that unit? But we actually just checked on a furnace finder this afternoon. We got an inquiry come in and it's looking, it's not official yet, but we're getting close to, you know, we sent off the lease and, you know, we're really close to signing her and she's going to do a three-month term and just kind of keep, you know, pushing it forward from there. So that's where we're at right now. Dude, AJ, I am pumped for you, man. That's incredible because the furnish finder piece is a whole

different skill set, right? Like Airbnb and and STRs, you can kind of automate to an extent, right? It's like the messages are kind of taking care of themselves. But Furnish Finder from what I found, like you've got to be a lot more hands on. And so how were you winning these deals? Because I see some of the messages come through. And if you're not there, like first, I mean, that person could be gone, right? So how were you securing these tenants? Are you hopping on the phone immediately? Are you messaging back and forth? What are you doing? Right. So as of late, we've kind of been being more aggressive, just knowing that our six-month tenant, who's been staying here for the past six months, she's leaving. So we kind of want to get on top of that.

My wife, she actually jumped right on it. So we get notifications anytime we have a traveler interested in the area. And it matches our property criteria. So she's submitted a request on Furnish Finder. It matched our property description. And soon as we got that inquiry, we jumped great on it. So there's a few different ways you can reach out to a tenant, but it all depends on the mode of communication that they prefer. So when they send out the inquiry, they'll kind of list that if they prefer being reached out via email, furnished finder or text. This tenant, prospective tenant, preferred text. So we love that because that's direct to their phone. Everybody has their phone, you know, text calls, things like that. So she actually just sent a text straight to her. And she was

really responsive. We sent a beautiful video of the property. Shout out to Justin Parham. Got my nice photos and my videos ready. So I have a really clean video that I sent to all my prospective tenants if they're interested in the property. It shows the entire unit from top to bottom. And then from there, they can kind of make their decision. So it's best to kind of jump on those immediately as soon as you find them. Because like you said, it definitely can, it can be more hands-on and sometimes tougher when there's a lot of different hosts offering midterm units in the area. Absolutely. And I love what you just mentioned. That was a major tip right there. Having photos and a video walkthrough available that you could just, boom, shoot off if somebody wants to understand

like the look and feel of the place. Because everybody can see photos and you know you can Photoshop that. You can change the lighting. But a video is like, hey, this is exactly what it looks like. This is exactly where you're getting into. We have a question in the chat, but I also have a question just before that. So when you commit to the midterm rental game, because this is something that we've had a couple issues with, right? We're doing a little bit of both. And there's times where we got a midterm renter who's like, hey, I'm ready to get signed up. And then we look at the calendar and it's booked out like, you know, a week in this month, a week in that month. It's like, hey, can you work with us? They're like, listen, I just want to stay at one place. And so did you completely take it

off of all the other sites and focus on that midterm rental piece? So the good thing was, is, is while I've been renting the unit to my tenant for the past six months, we actually blocked it off all the short-term rental platform. So we couldn't get any future bookings while she's had her lease. So once her lease has just ended, we actually just put it back on the short-term platforms like Airbnbverbo booking.com. But we just did that maybe like yesterday or two days ago. We haven't received any booking. So now that we've got serious interest from this new prospective tenant, now we're going to go back to just kind of blocking it off. So if you have a midterm tenant, either prospectively or definitely if you have one currently, I recommend just,

you know, blocking the calendar off in the future so you don't have to worry about, you know, double bookings or having to cancel bookings because especially with Airbnb can really be penalized for that. Agreed. Agreed. And we got a question in the chat for you before we kick it to Robbie. is a heads up that's coming your way. But how is your pricing different on Airbnb versus Furnish Finder? What have you noticed as a major difference there? Well, so the major difference, obviously, is there kind of two different strategies, right? So that's going to be the biggest thing with short-term rentals and Airbnbs.

You're going to be charging on a nightly price. When you're doing a mid-term rental, so you have to kind of look at it as different tiers, right? Obviously, for year leases and longer, so maybe 12-month lease. 12-month leases or 15-month leases, that's going to generate the leased revenue in terms of on a monthly basis, right? Then you take a step further up in the latter, I guess. So if you're going long-term rentals, then you go mid-term rentals, right? That's on a monthly basis. But these people are only staying, you know, maybe a month, two months, maybe three months, right? You can kind of

upcharge a bit more than a regular traditional 12-month lease. Then once you go to, you go to to the short term, right, you're charging it on a nightly basis. So that's more premium and so on and so forth. So you kind of have to find your middle ground. I don't think there's really a rule of thumb that I have per se, but you kind of just have to know your property, know your area and fall somewhere in between a short term rental nightly price, the sum of that for the entire month, and also a traditional 12-month lease, which you would be charging on a monthly basis. So that's what I would say. And piggyback and off of that, the piece that really makes a difference from a cost standpoint

is cleaning costs, right? So once you move into that midterm rental space, that cleaning cost essentially goes away. And so you can pass those savings on to that guest. You don't have to pass all the savings, but that's some of the savings that you're passing on. And so I've had individuals, you know, we've made. manage for a lot of different owners. I've had some owners question like, hey, you know, is it worth taking this month long? I'm like, listen, you're paying about $6, $700 a month

in cleaning. Yeah, we should take this month long and keep it moving from there. Right. And it's just a mind shift from that standpoint. But Robbie, how you doing, man? I'm good. What's going on? Not much, not much. What's new in your world? And do you got any questions for AJ? Yeah, well, I was just, you know, wondering about the, I think it's called Minute. It's the smoke detection. I was looking into that. And, you know, maybe AJ or anybody else really.

I just want to know if you guys have known anyone that uses that or have heard about that one way or another because I can see some benefits. But I was also thinking that, you know, if this, I don't know if that's something that, you know, the different short-term rental sites actually, you know, will just accept or if you, you know, because I don't. at the end of the day, some of these, you still have to go to the guest, you know, to get your refund if you're on Airbnb. But, you know, obviously if somebody's coming and, you know, you can show clear proof, I don't know if that would be enough for Airbnb to actually reimburse you if the guest refuses or, you know, I was just curious about that whole process, something I've been looking into. Anybody use a minute? AJ Desmond? I'm not, I don't think I'm familiar with that one. What's it called?

Smoke Minute? It's like minute. It's minute without the E. Oh, Min, yeah, I don't know how to pronounce it. I saw, there was like a little, I guess, video that one of the guys who was on, who was on with us a couple weeks ago had Rich. So he had a guy on his Facebook channel and was talking about it. But, you know, it was one of their sales guys. So I was just curious if anyone had actually had any experience with it.

Yeah, so I actually used Minut. This was last summer. We had a property and we quickly be, this was, so there's certain places, right, where the neighbors are hyper involved. And like it's like to the point where it's like, hey, we need to move this away from STR or something else. So where neighbors are calling you middle of the night to say, hey, the light in the backyard is on.

Literally. Like, this is what was going on. So long story short, we're not managing that one anymore. we moved that to a long term and said, hey, you know, but we did use it at this property that was right on the belt line, right? Like literally on the belt line. You can see the beltline from the front step of the property. And the minute system is amazing. Like, I highly recommend if you want to put this into properties where there's sheer walls, right? I haven't had to do it at the Foreplex yet, but it was also a thought in my mind. I just, you know,

it costs like a hundred or something dollars and there's like a monthly fee or whatever. But basically, it looks like a smoke detector. It plugs to like the top of the wall anywhere. the battery will last you for a year, and it can sense just by like the ambiance if there's a crowd of people in a place. It can also detect smoke and it can detect noise, which is the most important. And what I love about the minute system, I'm going to sound like the sales rep over there, but I really do love it, is it sinks with hospitable and it takes the guest information. And so we had a couple instances at that Beltline property where it was getting loud. And there was one there was one crazy like

420 party that was nuts like this was actually nuts it's like but long story short what it does is it will if it gets above a certain decibel level that you set it'll automatically use the guest information and send a text message to them like hey you need to turn it down you reach an X threshold and then it'll send another alert

and then it'll start like alarming for them to turn that sound down and so it's a way for you to not have to stay up all night and look at the ring cameras and listen in and say, hey, is there noise and send the message, it'll do it automatically for you. And typically, it never got to that third level after we installed that, right? Once people got that first or second alert, the volume came down. And then it will alert you if somebody's smoking as well. It can detect that.

And so how does that work when you go back to Airbnb and you want to, like, if you want to actually get someone to reimburse you for smoking or if you have, you know, a situation where you have two units next to each other and, you know, that could be an issue with the other guests or whatever. Do they, does Airbnb, like, take that information from that minute system and actually, like, accept that as damages or is it just the same process? The smoking would be tough. I'm not sure because we never submitted damages using the minute system. I'd be interested, you know, if you adopt it and you use that. We always used, like, for that 420 party, we didn't need the minute system, right? That was before we had it. You see the camera.

It's like, why are there 15 people showing up to the house, right? And so we use, like, the ring cameras, but I'd be interested as well. But I'm not sure we didn't use it for an Airbnb submission. Gotcha. So it sounds like you're using this device not for reimbursement, but more as a deterrent? Yes. Okay. Yeah.

The same way, and I'd say it works the same way as those speed signs. When you're driving down the road, you see it says like 35 miles per hour and it starts flashing at you, like, hey, you're doing 45, right? it's not forcing you to slow down, but it's like, ah, it's probably like not have this thing beeping while I'm driving past it, right? It's that type of deal. And it worked, you know, once we installed that piece. Interesting.

Okay. Desmond, how you doing, man? What's up, man? Hang it out. Much. Hey, come on now. Never wrong with it. Nothing wrong with it.

Anything new in your room? Yes. I have my first guest tomorrow. excuse me, in the new Airbnb. So tonight's going to be kind of a race to make everything as perfect as possible for them. And really, it's kind of the first time I had to manage, like, like common areas. It's just like a very small forer in the front and back.

But I really want to make sure, like, that's nice and tidy and that the cleaners know, like, hey, like, this is going to be your responsibility to keep this nice and tidy. So, yeah, just kind of making sure the systems are tight, right, going through the same. What I'm sure is going to be the same kind of reminding the cleaners of what the standard is going to be, right, for the unit. I think that that's important when they first start out, right? Like, I think it took probably a month to where I felt like I didn't have to go in there every time after them, right, and check to see, oh, like, one, are things clean, right? Like, that's obviously number one,

but also are things laid out in the way that they are presented in the instructions, right? Because I have the QR code and the cleaning closet. They're able to scan that and kind of see what the layout should be. And that's important to me because, you know, we've taken time to think about that stuff. So, like, I want it to look like that every time. And I also want it from the beginning, I try to make it feel like, oh, you know, for every guess, hey, this is going to be like the first time we're doing this,

right because like the very first guess it was like perfect like very neat right and i want to try to kind of keep that same standard so just going through that uh you know with this new short term and trying to start thinking about taxes after that and pivoting to like you know accounting stuff and getting the books together and pan down the credit cards and you know trying to slowly start digging out of the hole with other people's money so desmond if you're just now thinking about taxes you are lit i am late i'm going to file it extension. Yeah, I am late. Yeah. Oh, I thought he was talking about taxes for 2025.

Or are you talking about taxes for 2024? Yeah, unfortunately. Yeah, I know. You got to get on that like yesterday. I know, I know. Yeah, that's the bane of my existence around this time. Even though I got a bookkeeper and all this stuff, I still get asked questions about CPA bookkeeper to connect it out. I'm like, dude, I don't remember. That was 12 months ago. But we're working through it. And, oh, complete side note, I did another car.

COSG on that four unit, right? And because I split it half and half, half STR has long-term rental, they're giving back a significant amount of credits on this cost sec. It's going to be upwards of a little over 150 for one property. And so that's going to be well worth all, you know, the renovations and things that nature. So cost segregation, worth it if you're doing STRs. Kareem, how you doing, man? Hey, everyone.

How's it going? I'm a good to see. I'm doing good, doing good. Things are shaking and moving. Like I told last week, me, I'm analyzing an arbitrage deal right now. I have done the initial contact with a landlord and they're okay. Just filled the application on Zillow, spoke to the person. they were like surprisingly like okay like we don't mind i expected more like opposition or pushback

for like the whole concept and they were surprisingly neutral to uh to having it sublet uh all putting the paperwork together right now um i'm not sure if we have time to to go but I wanted to show you the numbers and get your fame. Not sure if we have time. Absolutely. Okay. You guys good with walking through a deal? Sure.

Let's do it. Deal or no. Do it. Yeah? Cool. All right. So, I'm going to be a little like calculating and I plug all the numbers.

Can you guys hear me? Yes. You said you plugged in the numbers? Yes. Yeah, yeah. I have like a little bootleg calculator. I'm going to share my screen now. And while he's doing that, a quick reminder, if you haven't already, book your free ticket for this Friday. Looking forward to seeing everybody in person.

It's going to be fun. We're planning to do a lot more of these throughout the year. But go ahead. Wait, what? I don't think I got it either. I'm going to text it to both of you. That's Robbie. I didn't get it either.

I didn't get it either. Yeah, the only way I found about it, I think I was just scrolling on Instagram and I think I've seen you know something about it. But I did done and done. I got you. I will text it to you guys after this. We sent out a couple of emails a couple weeks ago. But long story short, we're doing a mixer. We're going to have this mixologist come through and make us all some drinks and get to meet other investors finally in person.

And so, okay, it's in Athens. Okay. So it's in Athens, Georgia. Yeah. college town a little bit of a concern here because of the seasonality of the neighborhood can you make it a little bigger I don't know if you can on this I don't know how to use is this okay okay so this is it's unfurnished obviously so this is all like staging stuff so this is the finishing of the place that's what it looks like you know my my needs

some retouching obviously which is reflected in the in the rent the rent is 2800 it's a four bedroom two and a half this is what it looks like on Google right so I plugged in the numbers here it's a it's a four-bedroom blah blah blah blah two bath three common spaces and I assumed 2,000 per bedroom and I assumed 1500 per common space, which is like a deck and a living room. So this is mainly what I wanted to share with you guys and see if this is realistic or should I change the numbers. And then we move into like the average nightly rent.

And this is all these information, this information is from, from AirDNA anyway. So it's, I have little control over that. But what do you think about the initial, like, out of pocket? And I think Desmond is going to be uniquely qualified on this, having done one of these. But when I look at furnishing a spot, I'm looking more at 5K per bedroom. Do you already have some of the furniture? Is that kind of where you're getting some of the cost minus? No, no.

I don't. There are small bedrooms. But do you also add an additional cost for like living room and like deck and stuff? Or do you factor all that in the bedrooms? That's factored all in that bedroom cost. So for this house, I'd look at and then if you're talking about decks and outside, I personally would look at 20 to about 24K. especially considering the places a little further.

So I'm assuming you're not going to Facebook market a whole bunch of stuff and then drive it over. Yeah. What do you guys thoughts? AJ, Robbie? Furnishing cost? Yeah. Yeah. I mean, for my place, I went with someone who handled the design because my place was kind of bigger.

So I went with someone who handled the design and did all the furnishing. And so for my place for five bedrooms, she did all of that for, um, I think it was like $17,000. She picked up all the stuff, got all the design in, got it all set up in like a month, and it was 17. Yeah. On top of that, I was going to say is anywhere in here, I don't know if I see it or not,

but do you plan on hiring an interior designer or are you your own interior designer? If it's going to be hired, there will be factored into the price because I didn't add like a layer. I added like $1,000 up here as an initial investment in addition to like the first month rent and the security. So it falls within. I mean, that needs to maybe to be bumped up a little bit to include a designer and like the IT setup, you know, the cameras, like all that type of stuff.

So I mean personally, oh, go ahead, Robbie. No, go ahead. I would just say it like, personally, I would, I don't know how many units you own, but I would recommend probably looking for an interior designer. Now, yes, they can be costly. However, the tradeoff is, you know, they're offering you a service, which I think is really beneficial. I got lucky.

I was able to hire an interior designer and I think her total cost for going out. And the things that an interior designer, they're going to do, they're going to go out, basically go shopping for all of stuff for you, throw it in a car, and then you basically go and buy it. But she put together like an entire 3D model of the entire unit. See if you can try to find somebody like that. If you can't, maybe I can give you a contact because, like I said, this person really did a lot for me. But her total out of pocket cost was like $1,400.

It was just like dirt cheap. I know Robbie just mentioned like $17,000. Now, granted, there's likely a huge discrepancy in the, in the, spaces. I was furnishing only like a 900 square foot apartment, whereas I don't know how many square foot that Robbie's place was. But again, I would recommend it, but just be aware that, you know, they are relatively costly depending on who you can find. That's just kind of what I want to just put out there. Yeah. And I'll take all the help I can get, guys. If you guys could drop like Instagram and knee is our interior designer.

still doing these gigs or yeah? Okay. Absolutely. So that can be a reconnection. Okay. Good. Yeah. And I would just say too, like I think your like furnishing costs can kind of depend on like the style and like theme of the place that you're setting up, right? And that can very greatly kind of determine right, what your cost look like. So for my places, I intentionally go to help my pockets, I think, minimalistic design, right? So there's a little, and I think the guests have noted that they like that, right?

So, like, that's my, that's my thing. That's my niche. You don't need a bed. This is minimalistic. You don't need a bed. Hey, man. If I could get away with it, man, I'm fat. No, I ain't doing them like that, right?

I'm giving them nice experiences, right? But the designs for my places are minimalistic. So I do shoot for, I think, numbers that look like this, because I'm not putting in, like, some of the things that I think are seen in some of the bigger homes. Now, I think when you have a bigger home,

at least what I've seen, and like I heard in the STR Data Lab podcast, which I would recommend, I think AirDNA publishes that. It's a good podcast for like STR data and stuff. But I think, like, they kind of tell you, right? Like, it really just depends on, like,

the size of your place, right? So I think, you know, what you're targeting can really affect your cost. I think for a four-bedroom, like, a lot of these places are, like, much nicer. And, like, they have, like, a lot of these places, they'll have, like, games and stuff. You'll see on the walls or they'll do, you know, pool tables or whatever it might be, right? Just things to make it a bit nicer. When you had that bigger space, I think you're appealing to families and folks, like, really

trying to come in and, like, I don't know, I guess be on vacation or not you have fun. So that can affect your cost. Keep it in mind. And to that point, kind of piggyback and off of that, looking at the location, right? This is in Athens. It's Georgia, right? The Bulldogs, they're winning a lot of games. You definitely got to pull some type of theme into this to get people to want to stay there.

But I think, man, if you're able to take this thing over and get it up and running before the football season, like, that's going to be incredible. Because that team is still cooking. They're very close to win the championship again. Yeah, that's the peak season. But it looks like I'm going to be walking into the slow season as we see. start and then it should start picking up like starting September and like you know the the early fall four months what kind of stipulations go ahead I just want to clarify is this a property you own or is this going to be an arbitrage right that's arbitrage okay go ahead and he's

sorry to cut you off no worse no worse and this is kind of uh kind of lean into Desmond's experience doing the arbitrage before, what kind of stipulations are you going to put into the lease agreement to make sure you're protected as far as who's fixing what, right? When you talk about like if an HVAC breaks down, right, is that going to be on the owner? And what's going to be their overall oversight? Can they just walk on the property anytime or is it 48 hours notice? Desmond, am I missing anything here? I was looking at Justin's text of telling me to turn my camera on man.

focus because it keeps like messing up. So I was a little tuned out to what you were saying, but you said you got to give the guest notice to show up. It was, I was asking Corrine, but then also asking you, what kind of things is Karim going to keep in his lease to protect himself, right? Because it's arbitrage. So one, can the landlord just show up any time or does he have to give you 48 hours notice?

Are you going to have that in your lease? Two, who's going to fix major repairs if the H-FAC or the furnace goes down? Is that on you? Is that on the landlord? And Desmond, I know you have experience with this. So anything missing there? Yeah. And I would say like that's important, right?

Like definitely have those tough conversations at the beginning, right? And like really have it clearly detailed. And I would say maybe set a dollar amount or have very clearly detailed what appliances, right, and what pieces of the unit they're going to fix. Because that came up in my arbitrage deal where, you know, the fridge, the tenant had mentioned what's going out. I'm like, I'm not going to fix a broken fridge, right, just so we can be kicked down in a few months. So that's important.

The landlord showing up, I think, is important as well. I'm trying to think. Like utility payback is important. So that's something that I ran into, right? Where, like, the guests had already left, and I didn't really realize that there was still a utility bill that I was going to receive because of the way the statement works, right? So, like, there was a bill that came the month after,

but I had no money from the tenant, so I couldn't, I wasn't going to go back to them, and I tried to, and they were like, yeah, whatever, right? So I think having some sort of like security deposit or some sort of deposit baked into your lease, even though, you know, right, like, well, yeah, some of the example. Yeah, that's super helpful. They can be tough.

Yeah. I did add a lot of these things. in the addendum, I set a $1,500 range for me to act on my own. I don't need their permission to fix something up to $1,500 and that they will have to reimburse me for that out of the rent or separately, just so we can keep the operation going. and we don't have to pause the operation if something small breaks down. So I have permission to fix small things up to $1,500, and then they would have to reimburse me and then basically we'll discuss it.

Anything above that, it's going to go like a major plumbing issue, a major electrical issue, a major appliance that goes down. This is going to be treated just as long-term rental, would be. So that's a clause in the addendum. On the phone though, when we're having a conversation,

I explained to them that with short-term rentals, there's a lot less wear and tear on your appliances and on the unit, generally speaking. Because when you have someone long-term staying there, they're like

they're living there. every single day. And, you know, they put this, they, they, they put wearing tear, like on the windows, on the doors and like there's opening and closing and like people living there full life. In comparison to short-term rentals, it's kind of treated as a hotel. So most of the time, the folks are actually outside. And they need a plate, most of the time, they just need a place to sleep, essentially. So I verbalize that.

so they're they're calm. I didn't get any pushback or any red flag. Again, I mean, my application hasn't been approved yet, so everything is still up in the air. And Kareem, are you doing short-term only, or are you thinking about doing like maybe mid-term as well? For the slow season, I'm open to whatever, Furnish Finder or whatever.

Yeah. Because, like, that's where I really got bitten the ass, I think, and kind of what I was explaining before. and I was trying to think, like, why didn't that line up to what you were doing? But, like, the tenant had left, right? And I had them on a midterm lease. But I had trusted them and I had brought them from my property. So I didn't have any security deposit. So I think even though it's midterm and it might feel weird to, like, have a deposit,

that's important to do. So, like, not just, you know, oh, you know, it's slow. I'm just going to try to get this money in, like doing things right. Because I definitely got been the ass by that. Especially in a college town, too. Like, if you don't have, if it's off, you know, if you have someone in there for the summer, summer school or whatever, you know what I mean? Like, you're dealing with kids at that point. So you're definitely going to want to have a deposit.

But I was also just curious about the occupancy rate that you put. Are you just being safe with that or are you expecting it to be 40, like in the 40s? No, I just took that figure the way it is from AirDNA. Okay. Okay. Okay. Obviously, I plan to beat that figure, maybe like drop the nightly. Again, like, these are like very broad estimates. Because they take all the nights and then they divide them by like 365 to get you that, that average nightly rate when sometimes it could be like 200 bucks a night and sometimes it's a thousand. So, you know, so it's kind of like an arbitrary number. It only gives me the gross annual income that I should.

That's really the only number I try to pay attention to. And from that, I deduct the cleaning fees and all the other fees. I estimated the cleaning fees at 150 times six times a month. Is that a realistic estimate? 154-4 bedroom. if you have a relationship with some cleaners out there, sure. I usually bump it up to about 2.15, kind of like the example, 215, four times a month.

I'm going to do six because there's going to be some months, especially low season, where there's less cleanings, right, where you may get somebody in there for maybe a month, two weeks. But it all masks out. So for cleaning, maybe you bump that up to like 820. But all in all, like the numbers work out in this deal just because the revenue coming in and it's starting to make me think maybe I should get something in Athens. But no, this looks pretty good.

Yeah, I saw it like cash on catcher turn. I was like, wait, is that right? Like, I didn't give me a perfect guy. He was, yeah. Let me try. Let me try first. And I'll definitely, I'll keep you guys posted on how it turns out if I get accepted because I'm not, you know, it's not.

We believe in you, all right? We believe on you getting accepted with this, with this rental and kind of making it happened. And any last thoughts on this from anybody before we wrap for the night? It looks like a good deal, man. It looks like you did your research too. So even if this one doesn't work out, like you still have this framework to just keep pushing. Yeah, just going through the exercise really definitely helped. That's definitely a plus. I would also just play, I know you said this is, you know, broad figures, but play around with the input and output. And what I mean by that is like, you know, initially, like, you know, cost per bedroom was pretty low.

Like, I think if, like, the nightly rate is 549, which is average, give or take, that's pretty high, right? So to me, that's sounding like maybe that's more of a premium home, you know, with rooms that are a bit nicer, have more decor. And, you know, I don't know if 2,000 per bedroom will necessarily do that. Could be wrong. Yeah, yeah. You see what I'm saying? And that's a high nightly figure or rate. So you might want to play around with the input to end up commanding that high nightly rate.

So that's all I would say. Other than that, it looks like you're doing due diligence. So best of luck to you with this one. Great. Best of look, Kareem. Me, I have one last question before we hop off. Hit me up. For something that you said way back in the call that I wrote down because I was like so like,

like, holy shit, I need to be taking advantage of this. the cost seg that you did, right, where you're getting the 150K that you're taking advantage of this year, right? That's depreciation that you're basically like accelerating, taking advantage of this year, right? And I'm just trying to understand how does that, like, you know, concretely affect your taxes. Like, they're not going to write you a check back, right, for that amount, but it lowers your amount that you owe by that, you know, by that much. So kind of walk me through that just a little bit. Like, what is the, are you getting the difference of that as a refund? How does that work?

I wish. That would be incredible. Right. That'd be crazy. You cut me a $150,000 check. Or does just take you down to zero and they're like, all right, cool. Like, you know. We're going to let you keep what you got.

So I'm going to give you two examples of this, right? One, I was a high income earner as a W-2 person, right? Medical sales, things that nature. It was a blessing. But, dude, like, there was a year when I wrote a six-figure check for taxes. And that was after paying taxes the whole year. It was, I played this Drake song where he's like six figures when they tax fee. And I felt it. I felt it and I cried. But long story short, you know you're down bad,

right? Yeah, but it allows you to recapture a good portion of that. So let's say you make for even numbers, 500K with even a W2, right? If you have the cost segregation on a rental property, right, and now that you've moved out the other one, quote unquote, you could do it on the other because it's more than half a short-term rental property, right? It will count against your income. And so say the government's taken 40% of your 500K, that would put you at 300K earned, right? They're taking 200K. If you used that 150, right, now they're taking 40% of 350.

And so 40% of 350, I'm not good with that type math right now. But long story short, that difference in delta of what you were paying is now yours because the government's not taking it. And so the first time I did one of these cost tags, which was last. tax year, I actually ended up getting a refund check for the first time in like eight years. It was amazing. I got money back, right? They were like, hey, you know, you overpaid, which was pretty cool.

And now this year, coming in as a tax professional status, along with the other cost that we just did and kind of calculating all those together, it's probably going to make me a net zero or a loss that can carry forward to the next year and the next year. And so it allows you to actually earn income and write it off. Same thing when you look at buying all the furniture for pure STR. When you're buying all that furniture, you're operating a business. And so that could be 80K and losses, quote unquote. And so you can earn ADK and they offset each other, right?

And so now that ADK is just pure cash in your pocket and then it becomes earnings. Does that make sense? That does. So it takes down, that's able to take down like the income that they're basically taxing. Yes. So you're not getting the full amount, but you're getting a good portion of it. And it may even be able to take you to a lower tax bracket, right? I don't exactly remember where the threshold is.

but if you're right on the threshold of a tax bracket and you use this strategy and it takes you to the lower one, now you've saved significantly. And that's why individuals like the Rob Abbasolos of the world, the Donald Trumps of the world, all these real estate tycoons don't pay taxes because they're buying commercial assets. And this comes from the commercial field. It's just with shorts and rentals, they allow it to be commercial because it's like a hotel. That's how they're not paying taxes. Like that storage deal that we got, that's all depreciation as well. Now we could write off all this money that we spent on it. Same thing with the townhomes and all that stuff.

That's why you see the big bigs getting into all this stuff. That's a beautiful thing. And for the fourplex, you took the cost egg, but it's a four unit. Are you using the whole thing as a short term? No. And that's just a cool thing. So you can do a cost. How does that work?

You don't have to, you can do a cost egg on any like commercial property, right? And a lot of commercial properties are long term rentals, right? when you think about it. But if you're doing, if I'm using, and this is how they explained to me, because I'm using half the property as a short term and half as a long term, they could do a cost tag on it either as a short term or as a long term. They decided to do it as a short term because the benefits were better for me right now. And so they just cost-segged it.

They sent me this whole report that is, you know, IRS proof and was able to save me significantly on the taxes for this year. I didn't look at that. come on now that's my situation i'm you're looking at that that's powerful hey thank you for explaining of course and we'll dive deeper into that piece but with that in mind guys appreciate you joining and appreciate the spirited conversation and koreen thank you for bringing a deal here it was fun to kind of do the shark tank thing but before we go out we all want to send our love to somebody that's listening right now with a newborn justin parham congrats on the newborn baby uh we know you're going to be

out of commission for a little bit, but we all appreciate you. We look forward to meeting your daughter here in the coming months. All right, y'all. I will catch you later.