All Forum Posts by: Ke Nan Wang

Short term rental operation is not passive so what strategy you decide to use depend on how active you would like to get involved. 

Unlike long term rental, short term rental performance is very operator dependent. That's why most high performance short term rentals are owner operators. Your most typical short term rental managers are average or below average operators. 

If you want to maximize profit, you need to be both an excellent marketer to promote and attract guests to your property (both new and returned) and have a great hospitality service experience: know when to reward guests, when to accommodate, when to stand firm on your ground, all of them require the operator to be nothing less than outstanding.

A quick rule of thumb, assuming average operator, you should run your number using the following calculation: For starter, assuming 60-70% occupancy rate, once established, you can assume 80-90% occupancy rate. 

Your net income after all things considered is approximately 50% of your gross take home income (I don't say gross revenue because most platforms will take their 15% cut before they issue payment to owners and using gross revenue is pretty pointless.) So if your property generated 80k a year take home, after all the expenses, taxes, maintenance, you can expect a net income about 40-50k. This is assuming a new construction or a complete overhaul with little maintenance cost. 

If you hire a property manager there is another 18-20% cut from your topline. Therefore most short term rental properties are barely breaking even compared to long term rentals with the following two exceptions in upside:

1. Owner can use the property as long as they block out those dates

2. The property will always be maintained in tiptop shape and it's ready to sale without needing any more work. 

Couple more tips:

1. Your cleaner is your best asset for your business. Do your best to find the best ones who charge a reasonable rate. Don't mean to be bias here but my experience is that most Americans can't clean and charge a lot, your first generation immigrant families are the best. They do an excellent job, extremely reliable, super appreciative attitude, and charge normally below your normal American. We have used many cleaners, that's the hard truth. Before you criticize, all of our cleaners are legal immigrants and pay taxes. 

2. Once your property become stabilized, meaning you have accumulated 20 five star reviews (None of our properties have less than 4.9 average reviews after over 300 reviews so 4.85 should be the minimum you are striving towards), you will feel like your vacation rental property is pretty much on auto pilot. At this point you can relax and make improvement at your leisure. So overall it's not that much more work compared to long term rentals as long as you have a team of great cleaners. 

Hope these help. 

In the first year, it's almost the same comparison so I'd rather own my furniture and have full control over them. 

Our furnishing budget is $2000 per room for furniture and decoration. But we usually come under that budget from being resourceful. So based on that we are already less than the $10500 that you are gonna spend from renting furniture for a 3/2. Also furniture resale would be 25 to 35% of retail price for a like new/good condition since you only used it for 1 year. So renting on the first year is somewhat comparable cost wise but as soon as it's longer than a year, owning will have a much bigger upside than renting.  

It's usually not wise to do business with family and friends even everyone's goals are aligned. Majority of the people don't have that kind of relationship and trust and a small misstep can ruin both the investment deal and relationship. 

In your scenario none of the people's interest are aligned so my best advice for you is to keep everything separate. 

You find your own investment property based on your criteria. Your parents rent/buy their home based on their interest and financial capability. And lastly you go find your next primary residence based on your wife's want (or how good are you at influence her decision to swing it towards your want). 

Many reasons, a lot of them could be not knowing, unfamiliarity factor, maybe overestimating the cost in terms of effort and money, or simply just being lazy. For instance, when someone list a rental property in a slow market, do they take advantage of all the free rental property listing platform that's available to them? Or they only list on a couple popular ones and rather let the property sit on the market than exploding other less popular listing platforms? 

On the flip side, a wise investor should soon figure out the most valuable part in this business is network and your relationship with people. Doing deals with people build your network. A lot of times it's worth it to build that relationship. I would glad to pay a wholesaler $15k assignment fee if they bring me a true deal that I can close on. I rather have as many people bring me deals as possible and let these people know that when they bring deals to me, they will get paid. Doing this long enough you will realize you make most of the money from finding deals, collaborating with savvy trust worthy investors, not from pinch pennies and under cut others (obviously I don't mean being wasteful). 

Having a real estate license would mainly teach you the ins and outs of the real estate transaction. These knowledge can be very helpful in terms of negotiation. The art of negotiation is to figure out what people want that you can give, and what you want that people can give, and figure out a creative way to bridge the gap. 

If you aren't discipline enough to learn this on your own, the road to getting your real estate license will force you to learn them. Then being around real estate brokers, continuous training opportunities will help you learn more. 

Being a real estate agent is the same practice as any other professions. You will be better at the things that you are interested in and do it day to day and not be much knowledgeable or experienced in the area that you don't practice in. Even my license allows me to do commercial transactions but all commercial deals I will refer out to commercial real estate agents. 

Commission is always good. But when you are making most money from getting good real estate deals, the commission is really just cherry on top. It's not gonna make or break a deal. 

In terms of deal flow, you can do this without a license. That's why we have bunch of wholesalers around. Some wholesalers have real estate license but most of them don't. It's basically a loophole to let people do real estate without a license. Not commenting on the legality or ethics of this activity but saying people are doing lots of deals without a license. 

I encountered this question all the time. And I used to ask this type of questions when I was a newbie and the truth is, no one can tell you anything and you just have to make that decision yourself based on your current situation, your short term and long term goal. 

In general, no one knows the future, whether to keep a real estate or sell. There is one exception, I would suggest you go walk up and down the street of that neighborhood, what do you feel? Do you feel like it's getting worse than when you bought it or it's the same or getting better? If it's getting worse then you should consider selling. If it hasn't changed or it has gotten better, then your decision would be influenced by other factors. 

Selling real estate is a very costly move (labor, time, taxes, fees, commissions, opportunity cost etc.) so whatever you do with that money down the road has to be well worth it.
 

Rental has been unprecedentedly slow in our area as well. In the right area we still rent within a week or two. But the class C areas, our new constructions used to rent within a week or 2 right now are sitting on the market for over 30 days. 

The easy days are over and you got to be really creative with tenant placement and incentivize them to get in. Besides keep lowering the rent, work with every lead you get. Go to every showing and try to sell the property. Use free first month rent as incentives if they sign by certain days (you aren't getting that month rent anyway if it stays vacant). 

Start working with HUD to get your place listed for section 8 housing.

Fire this one and hire a new one. 

Property Management is a under appreciated job and it takes the right business to do it right. Most of the fly-by-night ones aren't qualified to do the job. Some big business PM companies are heavy on the advertising/sales but no real money on the delivery and fulfillment of promises.  

This is a business that requires a system and volume to be functional and profitable.

As both an investor and a licensed contractor, I'd share some insights on how to screen contractors:

1. If you are not knowledgeable nor experience in an area, set multiple appointments with as many contractors as possible to make yourself feel comfortable, especially in a more complicated project. You will find that the more people you talked to, you will become more and more knowledgeable about the project. Interviewing contractors is your job, so don't blame that there are no contractors available. The good ones will always there, it's your job to find them. Standard practice is minimum 3 quality bids, and often you are gonna reach out to maybe 12 people to get those 3 bids. So don't be like a lazy investor called two numbers and no one picks up then you said no one likes to work in this area. 

2. I think most people know this by now: Cheap is usually not the best. But I would also add expensive often does not mean better. The truth is, you can't negotiate with a contractor if you don't know their cost. Some people are happy with little profit and can still produce great quality work fast, but other people like to charge you an arm and leg and sub out the work to cheaper labor anyway. So when you analyze the price, you need to understand the cost and their profit. Almost all labor cost savings are generated from a more efficient process rather than going for the cheapest rate. If I pay someone $100 an hour that took them 2 hours to complete because they work efficiently that's far better than I'm paying some one $30 an hour that took them 8 hours to complete. 

In order to know the cost, you need to have all contractors to bid with the same scope of work. If you are new, I would walk with the contractor on site, tell them what they see is the "initial condition", then show them a photo and tell them that's the end result. This way they can't later come to you and say "well the access was tough and I need to charge more" or "I gotta do so much prep work so I have to charge more" So they need to provide a quote to take the initial condition to the end result. Include clean up and trash haul off. As far as the rough goes, usually it's hard to find those specifications so you just need to talk to each person and get a feel for their rough process.  

3. When you received multiple bids, if there are bids that are so much cheaper than the others, call that bidder and ask if the bidder included this this and that (typically you get these from a bidder who spelled out the details in their bid). If the bidder said those are extras, have them resubmit or if they said those are included, you should have them wrote it in the bid based on your comfort level with them. 

4. Job qualifications. The easiest way to go about this is to ask them to show you similar work that's being done recently, cheery on top if they can provide customer references (not a deal breaker if they don't because not everyone is comfortable with that). But you gotta be mindful about the situation. Most likely the super good ones are working for a great customers and they are probably very busy and may not give you a real bid or bid on your project at all because they think it's a high chance you are wasting their time. So the chances are, the ones who are gonna bid on your project with a decent schedule would be the ones that aren't so busy right now, unless the market is just slow for everyone. So you may or may not be able to get to see people's recent project that's similar to yours. But for those who can produce them quickly, sending you 3 sites to go visit, then I would immediately feel good about these people. 

5. Payment terms. Something else you gotta factor into the bids. Anyone who charges an initial deposit before the job starts will be low on the totem pole. Anyway you can take the job and not needing to get paid until the job is done gets to the top of the list. Especially for people whom you've never worked with before and they are asking a large sum down for "material." Most of the time, I could work with the contractor to give me a take off and I order them and delivered to the site so I know my money is going into my material not funding their Ponzi scheme (contractors are the world renowned ponzi scheme masters). 

Just keep in mind, people are in business to make money. They aren't in this because they love doing it (maybe 1%). And investor is notorious for wanting to making most money themselves and leave nothing for the people who work for them. If that's how you operate, you will quickly find no one likes to work for you. Sure you can take advantage of one contractor on one job, but if you are serious about real estate investing, you need to have a crew who wants to work for you. That means they are making good money from you. (Don't simply see how much money you are paying them, understand how much profit they are generating from you.) The cost is cost, you aren't gonna negotiate below the cost, so the key to get the price down is to understand people's profit margin, and then how well you are at negotiating how much they are gonna take home at the end of the day. 

Lastly, pay people fast. As soon as the job is finished, pay the people for what they've done. If you are working on a bank draw and can't pay like in 30 days, let them know ahead of time so they can be prepared. 

What's the condition of the unit comparing to the market houses? Are they average, below average and I doubt they are above average. 

If it's below average, I would discontinue the lease when it's up and then do a renovation then put it on the market for market rate. 

If the condition is similar to the market average but your rent is severely under market rate then I take an average between the current rent and the market rent and send them the following message 2 months before their lease is up (assuming you aren't in a rent control market),

Dear Tenant,

Some nice words and remind them that their lease is up within 2 months, please select the following options about their new lease, also mention that you are doing the best you can to maintain the rent as low as possible but with inflation, insurance and property taxes increasing, you have to raise the rent to keep up with the rising expenses. 

1. Renew for a 12 month lease at XXX/month (new rate)

2. Go on to a month to month at XXX/month (new rate x 1.2 or 1.25 depend on how you feel about it)

3. Move out on or before (lease termination date).