All Forum Posts by: Clint Harris

Alright people, time for me to smack you with some more STR knowledge. So we bought a beach duplex in Carolina Beach, NC 2 blocks off the water, our downstairs 3/2 unit is on track to do 57k this year, which pays our mortgage, taxes, insurance, and cash flows about $1400 a month on a yearly average. So that's nice! The message immediately changed from "WHOO HOO! We're getting paid to live at the beach!" to "Uhhh, we have to move, our opportunity cost for our upstairs is another 50k, and with the bills paid, that's all profit".

So then when you go from 1 to 2 units, things slowly start to get more complicated. As we’ve grown to 8 units, there are quite a few things we’ve learned about streamlining that I thought I would share. When it’s done right, you can casually manage your properties from a distance if you decide to travel, and when dealing with one software platform or portal, it’s kind of like having 6 kids or 8 kids....after the first couple, you don’t really even notice when another one shows up.

First things first, you need high speed internet. We use 100 mbps, 5G. In our duplex and triplex units, one high speed internet account works fine for all the units on the property. In one triplex that is spread out, we use the Orbi WiFi extender, and it works great, highly recommend that if anyone needs to increase their WiFi range.

Once you have WiFi, get a Yale NEST Smart lock. This allows you to generate individual codes for each guest, lets you see through the app when they come and go, and you can set it so that after their check-out time, the code deactivates. You can also see when your cleaner arrives and leaves with their personal entry code, so if you pay them by the hour, it helps with your billing.

The smart thermostats are really cool, and you can also get the ones with body heat sensors or decibel meters if you’re worried about noise, but so far we’ve actually gone with the Mr Cool DIY split AC systems with the WiFi integration, and been very happy with them. They work great, are quick and inexpensive install, and are really good for our market where we often renovate little beach cottages and don’t want to run ductwork. It’s also easy to control the thermostat in between guests if you have a couple days before the next booking.

Here’s the number one most important thing. It’s your management software, 100%. There are several good ones, we started off looking hard at Guesty, but it’s expensive. We ended up going with Your Porter. It’s $7 a month per listing, but check this out. It links all calendars across all platforms in really time, so there is never any double bookings between AirBNB, Homeaway, booking, VRBO, travelocity, expedia, etc. It automates pretty much all communications. When someone books one of our listings, they get an instant greeting message, then they get another message the day before their booking with check in instructions. They get another welcome message once they have checked in, and a thank you message when they check out. We often get mentions of fantastic communication in our 5 Star reviews, but it’s not even us. It’s just a bot in the software, but people love it and have no idea. If people have a question, we write a detailed answer, and then save it in Your Porter with keywords, and then if anyone every asks a similar question, the answer auto-populates and goes out. The platform reduces our communications by about 90%. It also gives you one consolidated calendar, and allows you to print invoices for handymen, cleaners, or property management. The software is the key.

The software platform also automatically sends a notice to our cleaners when we have a booking, and then we ask them to send a confirmation reply. The only other thing we do for the cleaners is have a well working washer and dryer in place, a well stocked cleaning supplies closet, and then we have them do a deep clean once a month to clean fan blades, change vent filters, and restock the supply closet. When we have maintenance issues pop up, we have a great handyman on hand, but if its not an emergency, we forward the issue to our cleaner, and they coordinate with the handyman to go in and fix it the next time they are in to clean. That may seem like a lot, but when you control 5+ units, you would be surprised at how good of service your cleaners and handymen will give you. The cream rises to the top, and it’s true, rockstars know rockstars.

Ok, that’s probably enough for now. We’ve got a lot to share, so I’ll keep dropping little segments here and there. Thanks BP community!

Hey Erik, yeah, those big ocean front properties do well, usually because the astronomical ADR.  What we lack in the daily rate, the smaller units make up for in occupancy.  Those week long rentals will have virtually 100% occupancy all summer, then sit the rest of the year. The difference is that we also have virtually 100% occupancy all summer, but still did 81% occupancy straight through the winter.  That’s the key for us.  And also, because of the barrier to entry of really high prices for those larger properties, I can do 120k in gross rents yearly in a 400k triplex, or 250k gross rents in a 1.7 mil property.  It’s very easy to decide to stay small and gain bandwidth with horizontal growth instead of vertical scaling.

My wife and I operate a house-hack duplex at Carolina Beach in NC and started doing really well. Currently on track to do 57k in gross rents in our extra 3/2 unit. Because of this, we started to scale, partnered with another couple to create our property management group, and currently have 8 units. In the process of educating ourselves, and diving really deep into the AirDNA data on our market, we discovered a really interesting phenomenon that I thought I might share. Anyone who operates STR, or is thinking about getting in to it may benefit.

There is a reverse economies of scale phenomenon that really dictates which properties thrive in our market. Here’s what I mean. The AirDNA data for our market dictates that as a median performer in terms of average daily rate, occupancy, seasonality, and proximity to the beach, a 1/1 unit is worth 30k gross yearly in our the short term rental market. We actually blow those metrics away with our data-driven staging and marketing, but the point remains, that’s the median for this market. So a 1 bedroom is worth 30k gross, a 2 bedroom is worth 42k gross, and a 3 bedroom is worth 47k. Here’s where it gets interesting. A 4 bedroom unit drops back to 43k gross. You would think that as the size of the property increases, the average daily rate would increase, which it does, however, the occupancy begins to creep down. A 3/2 unit has average yearly occupancy of 63%, however a 4 bedroom or larger drops to 52%. We’ve discovered that this is due to smaller groups being more nimble in the market. It’s really easy for us to book a tues-thurs in a 1/1 or a 2/1. We get a lot of the guests that are like “Hey, I’m not working at the Cheesecake Factory here in Raleigh for the next couple of days, I’ll grab my girlfriend and run down to the beach.” Those days book up really quickly, where as a 4 bedroom unit usually is a larger group, which means more planning, usually longer stays, and not much spontaneity. As a result, there is a donut hole in terms of the most profitable listings here. Anything 1-3 bedrooms does really well with high occupancy, there is a dip in 4-6 bedrooms, and then the profitability returns in large ocean front properties that can host 16-25 people. Obviously these are large luxury properties, usually have a pool and are rented for weddings and as group venues. These have a huge barrier to entry due to the price, and still have low occupancy, but obviously make up the margins by having extremely high average daily rates. Anyway, the point is, use the data. Don’t always assume that short term rentals are all about beds and heads. Study the market closely. One thing we’re actually experimenting with is taking our 3/2 unit, and closing off doors to 2 bedrooms and the hall bath so it’s just a 1/1 master. We charge a slightly lower rate, and a lower cleaning fee, but it’s much easier to rent that on a random Wednesday 36-48 hours in advance than it is a 3/2, and something is better than nothing. Hope this is helpful!

Thanks Greg! Would very much like to chat. Message sent.

@Dan Moore What you got Dan? Currently we have our duplex that we’re house-hacking, our arbitrage triplex, we’re managing another triplex, and I’m shopping as we speak for another property to purchase with our cash flow.

I have been buying beach multifamily properties, doing small renovations, and operating them as Short Term Rentals. We’re crushing it, and are continuing to scale. I’m using arbitrage to continue to build a portfolio when limited by buying power, but I have an idea and I need some information. We have access to hard money at 8%, interest only for 5-7 years. The triplex we’re currently operating appraised for 450k, and we will do over 105k in gross rents this year.

Let's use that as an example. If I locate another property like that, and I am purchase it with cash, and then turn it into an operating short term rental property with strong cash flow. Is there a way that I can refinance into a commercial loan without a long seasoning period? I have access to data that gives a very accurate forecast of gross rents and cash flow. Do you think I would be able to find a local commercial lender that would be willing to refinance the property into a commercial loan? The idea is that if I can get a commercial appraisal to not only appraise the building, but the cash flow, I might be able to get a higher appraisal, and pull all or almost all of my hard money cash back out, with the debt being secured by the income generated by the property instead of my personal borrowing power. Basically a BRRRR for STR. I've got several meetings set up with local commercial lenders. Any thoughts?

What you got Dan?  Currently we have our duplex that we’re house-hacking, our arbitrage triplex, we’re managing another triplex, and I’m shopping as we speak for another property to purchase with our cash flow.

Sorry guys, another long post, but this is just too good not to share.  We've put crazy velocity to our investing money.

Short Term Rentals: The numbers, how I got started, and my first No Money Down deal

Hey y'all, I've been posting a little recently sharing some of our success in short term rentals (STR) on AirBnb, VRBO, Homeaway, Booking, Travelocity, etc. I posted on April 25th in a post titled “I’m selling my long term rentals and buying beach property” and that’s generated some questions on finding and funding listings. I thought I would share a little bit on our first deal, and then on a tri-plex that we manage that we were able to get into without spending any of our own cash. I went a lot deeper into the metrics in my last post, so may be helpful to go back and read that, but I wanted to dive a little deeper in this post to answer some of the specific questions that have been raised.

Quick recap, my wife and I moved to Wilmington, NC in 2017. We came from Columbia, SC, where we have a small portfolio of single family rental properties. We started having issues with our property management, and went through a few different companies. It was just exhausting, the ones that are really good end up getting busy, and with the more properties they manage, quality starts to deteriorate. There also seems to be a fairly high burnout rate in that industry. Anyway, we started looking at properties in our new home to move the money into, multi-family, flips, etc, and in the process, started running the numbers on short term rentals. Wilmington is a beach town, with 4 beaches in close proximity to downtown. We did some research, discovered AirDNA.co through Bigger Pockets, (a data scraping company that provides data on short term rental metrics) and started running 10-15 analysis a day on properties until we had a good idea on our market. We ended up buying a duplex at Carolina Beach, 25 minutes outside of Wilmington. This was a house-hack for us so that I could build my new territory (medical sales) and take some of the pressure off by hopefully not having a mortgage to worry about. We did some small renovations like flooring, paint, etc, moved into the upstairs 3/2, and put the downstairs 3/2 on AirBNB last November. Fast forward, we did $1250 in the second half of Nov, $2400 in Dec (which is our mortgage), and have continued to grow every month. We haven’t had a mortgage payment since December, and actually make about $1400 a month after all expenses, including taxes, insurance, cleaning fees, etc. Obviously the beach is a seasonal market, but we managed 81% occupancy straight through the winter.

That’s actually a really cool discussion in and of itself, that we can get into more later, but here’s the quick version. People still travel to the beach in the winter, they can just be really really picky about where they stay because there are so many listings available. By using the data of what are the top staging and fixtures as reviewed by short term rental guests, we didn’t gamble, we chose the top rated mattresses (zinus, $399 a king), the top rated platform beds (Wayfair, $299 a king), the top LED daylight bulbs, TV, internet speed, everything. We used past performance of top rated listings to determine our renovation and staging. By doing things the right way, great staging, great marketing, and really good photos, we have been able to maintain all 5 star reviews, which put us at the top of the list of available properties, and we stayed booked pretty much all winter.

Here’s the important part, our metrics showed that our downstairs should do 42k in gross rents per year. That prediction is as a median performer in our market according to AirDNA. Well, because of our data-driven approach, we operate as a 90%+ performer in our market, and we’re on track to do 57k in our downstairs unit. June-Sept we’re booked at $8,000-$8,500 gross rents PER MONTH. So all of a sudden, we have another problem. Yeah, we’re getting paid to live at the beach, which is amazing, but our opportunity cost that we’re losing is another $50k by not renting out our upstairs. Again, that’s a discussion for another day, we’ve got a baby on the way, and my wife is very happy with our evening walks taking the dogs on the beach. Bigger Pockets won’t let me add the link, but if anyone wants to see this particular listing, it’s the Sundown Cottage at CB on AirBNB.

Ok, so that first listing just exploded and has been doing great. We bought that duplex for 370k, put 20k into it, so we’re 390k in, but it has strong cash flow and we’re getting paid to live 2 blocks from the ocean. You can’t see the water from our house, but you can hear the waves on the front porch, which is nice.

At this point, we had proven the concept, so we wanted to scale. The problem is that beach property has a fairly large barrier to entry, which is price. These are expensive properties to purchase. We didn’t have the cash to put down 20% on another really expensive beach multi-family, so we needed a creative solution. This is the part that I think is really powerful, and could really be helpful for anyone trying to get started that doesn’t have funding in place. We discovered arbitrage. We landed a tri-plex that’s a block off of the beach, and operate the three units as short term rentals that generate unreal cash flow, and we didn’t put any money down or into the property at all. Here are the details.

We identified a property that would be great as a short term rental multi family. It was on the MLS, it was a rundown tri-plex with crappy long term tenants in 2 of the units, and the 3rd unit sitting empty with really crooked floors. The owner had been trying to sell it for $470k for over a year. The problem was that the property only showed 24k a year in gross rents due to bad management, and bad tenants. The owner was upside down in the property, we looked up the records, and he bought it for 550k in 2005. At this point, he was willing to take a loss to get out of it, the flood insurance was eating him up, and the rents weren't covering the debt service. Unfortunately for him, he couldn't sell it. It sat and sat, and my wife and I kept a close eye on it. Here's the key. Everyone else looked at that property, and looked at the rents, and saw it as grossly over-priced. Because of all of our research and knowledge of STR, we knew it wasn't over-priced just under-performing. The day the listing expired for the second time, I pulled the deed, looked up the owner's phone number in Raleigh NC, and cold called him. His name is Brian, and after reaching Brian, I introduced myself, explained what my wife and I have done at Carolina Beach with our property, and explained to him that we felt that his property could do well with the right improvements. Brian was intrigued, and I asked if we could put together a property analysis on what we think would improve the property and what kind of performance we could expect based upon the data and send it to him. He said sure, so we put together a 4 page analysis on the Carolina Beach STR market, the comps and metrics for his property in terms of occupancy, average daily rate, seasonality, etc, and we shared what kind of value we could add to his property in terms of equity with a strong rental history. We sent it off, included things like paint swatches, samples of LVP flooring, and pics of our listing as well so he had an idea of what we are capable of. I followed up with Brian a few days later, and he and his wife were impressed, but still skeptical. The following week, my wife and I drove the 2 hours to Raleigh, NC, and we took Brian and his wife Wendy to dinner. We had a great evening together, Brian was retired from the insurance industry, has done his fair share of real estate investing, and was excited to see a young(ish) couple trying to do big things. We came to an agreement. Brian would fund some renovations on the property, new subfloor and LVP, paint, adding some windows, updating the AC, and one by one we would renovate and lease each unit from him. We put together a Master lease (sometimes called a sandwich lease) where we leased all three units from Brian one at a time as the renovations were complete, and we would stage them, pay for utilities and internet, and put them up on the STR market. We settled on $1200, $1000, and $800 for the three units respectively, meaning that we would pay $36k a year for all three units, and Brian was willing to defer the rent for 3 months so we could build our cash flow. We were in business. I spent a lot of hours finding the right contractor, turning in bids at the Home Depot ProDesk, and running to lumber liquidators to get Brian the best deal on materials and renovation costs. It took time, but so far, the only money I had in the deal was the $4.99 I spent at WhitePages to pay for Brian's contact info.

Next came the staging. Our aim was to use a 0% interest for 12 months credit card to fund the staging, but we actually went a different route. A local friend that had been following our journey actually offered to pay for the staging as a hard money lender at a reasonable rate so that he could be a part of the journey and learn along the way. (Thanks TJ!) We spent $5800 on staging the first 2/2 unit, and it went live last week. We currently have 17 bookings for May and June, for a total of just over $7000 on the books, and we that’s only at 50% occupancy. The bookings are coming in daily (check out The Beach Hive in Carolina Beach on Airbnb) and we’ll be caught up with the rent in a month, and will have the hard money for staging paid off in July. The 3rd unit is under renovation now, and will be completed and staged over the next 3-4 weeks.

The reason this works is because it’s a true win-win. According to AirDNA, this tri-plex will do 105k in gross rents per year as a median performer in our market. With our staging and winning formula we should be able to do 125-130k in gross rents. We pay 36k a year for the units, plus the commissions, and some small overhead, and our net should be 55k if we do 105k in gross rents, or 80k if we do 130k., which we should. We have a 2 year lease agreement with Brian, it’s 36k for year one, and then in year two, we will cover his mortgage, taxes, insurance, and provide an 8% profit share. That turns a liability in his portfolio into an asset, and we still generate unreal cash flow. We also have first right of refusal if he decides to sell the property, but for me, it was more important to prove this concept, and develop a relationship that has the potential to fuel a lot more deals down the road than to just secure this one property. Besides the cash flow, do you see what else Brian gets? He gets tremendous equity. He struggled for over a year to sell that property at 470K. With a rental history that shows $105k in gross rents, all of a sudden, that property isn’t over-priced at 470k, it’s underpriced!

Arbitrage, the act of taking someone else’s property and leveraging it to generate awesome cash flow isn’t our end goal. One of the most powerful parts of this strategy is to own the property you’re managing, because then you get the cash flow, the equity pay down, the appreciation, and the tax benefit. However, if you don’t have the cash to buy a property, or you can’t find funding to get started, keep in mind, there are a lot of ways to provide value. If we can take a property that was a thorn in someone’s side, convert it into a top performing rental, and make it a true asset, then anyone can do it. It’s all about the messaging, finding a problem that someone may not even know they have, and providing a solution.

Sure, this may be an unlikely scenario, but honestly, it was the very first cold call that I made trying to work out an arbitrage deal. What are the chances of that? I have no idea. So far I’m 1 for 1, but what if you have to make 20 phone calls? Or 50? Or 200? Who cares, if it’s the only way you have to get started, then why not give it a shot? In this case, one deal has literally created over 50k in cash flow that is going right back into our investing portfolio. So far, I’ve spent $4.99.

Thanks for reading!  

Clint and Abby Harris