96 Units in 5 Years By Combining Long & Short-Term Rentals

Ashley Kehr:
This is Real Estate Rookie episode 122.

Avery Carl:
We didn’t even know anybody who owned real estate. We just thought, “This sounds like a good idea.” And did it and luckily it was, and by the way, we just 1031 exchanged and turned that $20,000 down payment into $20,000 a month on a 25 unit apartment building.

Ashley Kehr:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony Robinson:
What’s going on Ash? How’s-

Ashley Kehr:
Hi.

Tony Robinson:
How are things going in your world today?

Ashley Kehr:
I have some sad news to let out for you and tell you.

Tony Robinson:
Oh man. All right. Let’s hear it.

Ashley Kehr:
My self storage deal. It died today.

Tony Robinson:
Oh man. I’m so sorry to hear that Ash.

Ashley Kehr:
So it went through a phase one. It paid out the $3,500 for the phase one environmental study to be done. It was highly recommended in the phase one to do a phase two environmental study. That would have cost $6,500. So my broker negotiated with the sellers that they would pay for it if it failed. I would pay for it if it passed and there was nothing wrong and continue. Well we needed them to extend the due diligence period to do the phase two, while all of a sudden, there was some kind of missed communication and the attorney said, “No, they’re not going to do that.”
So then we tried to understand why and asked for an extension, and I agreed that no matter what, I would pay for the phase two and so got the final email today that they have decided to kill the contract. Cancel it because it’s after the due diligence period and they’re not going to extend it. I guess the sellers firmly believed that there was no need for a phase two environmental and they don’t want to waste time. My broker thinks that they have another buyer in the pipeline, so they’re just going to go and take that offer now. But I would think that any reasonable investor would want a phase two environmental. I mean, there’s always a chance that deal falls through, but yeah. So that’s where I’m at with the self storage.

Tony Robinson:
Well I’m sorry to hear that, but I think there’s also a lesson in that, right? Is that if you, as the investor, if you have your criteria, if you have your line drawn in the sand about what kind of deal you’re willing to accept, you have to have the courage to hold that line when there’s push back, right? Because you very easily could have said Ash like, “All right, seller doesn’t want to do the phase two, whatever. Let’s not do it. Let’s move forward, let’s get the deal done.” But you have the patience and the wisdom to say, “Hey, I know what my investing philosophy dictates that I do in this moment. And it is to get that phase two and if I can’t, then okay, it’s not the right deal for me.”

Ashley Kehr:
Yeah. And that’s all right because I’m very much fast paced moving like, “Let’s just do it.” And I spent a lot of time asking other investors that I look up to, what I should do in this scenario. And they all told me pretty much the exact same thing, so I took their advice. And I’m really glad I did and I didn’t just like, “Oh okay, I’ll take a risk. I’ll take a chance. I really want this property.” And go through with it without the phase two.

Tony Robinson:
It’s easy to do that, right? Especially if you’re excited, hungry, you want to keep growing, you want to keep… you know? It’s easy to do that, but it’s also dangerous.

Ashley Kehr:
Right and it was seller financing too. So it was even like, “Well it’s not even a balloon payment until five years.” I had five years to figure it out, what to do. So I think just all that combined, I’m really glad that I didn’t decide to proceed and I’m proud of myself and that $3,500 spent was an opportunity cost of not getting into a bad deal.

Tony Robinson:
There you go. I love the positive spin on what could have been a not so positive message for you.

Ashley Kehr:
Okay. So let’s hear it. I know behind your smirk, before we started, you have some exciting news to tell me.

Tony Robinson:
I got some good news finally. So for our 1031 exchange, we finally found the replacement property. So you guys will actually hear a little bit about the 1031 exchange at the end of today’s episode with today’s guest. But I sold on of my AirBnB’s in Joshua Tree, my partner and I. And you have a very limited amount of time to find a property that you’re going to replace it with. And we had been submitting offers nonstop and we just kept getting beat out, or we had one where the seller accepted but then decided they didn’t want to sell anymore. Just weird things happened left and right. So we actually put in two offers on two different properties over the weekend and we have accepted offers on both of them now. So we got to figure out how we’re going to make both those deals work. But either way, we found a property, put the 1031 exchange funds into, that way we don’t have to worry about paying capital gains taxes on the money that we made.

Ashley Kehr:
Yeah, because when was your day to identify? When was it up? It was very close, right?

Tony Robinson:
In like five days.

Ashley Kehr:
Yeah.

Tony Robinson:
Yeah. So we were very, very close to not meeting that deadline. So I’m glad we were able to figure it out.

Ashley Kehr:
Yeah. We’ll talk about it at the end of this episode with 1031 exchanges, so I won’t go into it too much, but there is a timeline. When you sell your property, you have to identify a new property and you then you have to close on a new property within a certain amount of time. So it is kind of rushed, if you don’t already have something lined up.

Tony Robinson:
Yeah, it can go quick. That’s for sure.

Ashley Kehr:
Yeah. Well awesome Tony, that’s great.

Tony Robinson:
Yeah. Let’s talk about today’s guest, right? I’m super pumped to have today’s guest on the show. This is someone that played a big role in me making the transition into short term rentals, but today we have Avery Carl on the podcast. So for those of you who don’t know Avery, she was a guest on the OG podcast, episode 364. So if you look up the BPE real estate 364, she’s on there. And she’s an agent, she’s a short term rental operator. She’s a long term rental manager, operator. So just lots of really good things she brings up in today’s episode.

Ashley Kehr:
Yeah. And usually on Saturdays we do the rookie reply, but we brought her on today because she has a new book coming out called Short Term Rentals Long Term Wealth. So you’re going to hear her talk about how to analyze a market to find a short term rental, and then also how to analyze a short term rental, and then managing it and why her and her husband decided to self manage, instead of paying a management company. And when she talked about that, it actually made me consider quitting as a podcast host and going onto managing as a short term rental manager. I’m just kidding. But Tony, if you’re hiring, let me know.
So just it’s really great information compacted into such a short episode. So you guys take a listen and let us know what you think. Let us know on Instagram or in the Real Estate Rookie Facebook group. And don’t forget to join us in the forums too on biggerpockets.com. Tons of experienced investors in there and rookie investors, and we have our own little rookie channel too where you can ask rookie specific questions.
Well let’s bring Avery onto the show. Avery, welcome to the show. Thank you so much for joining us today. Can you start off telling everyone a little bit about yourself and how you got started in real estate?

Avery Carl:
Yeah. Thank you guys so, so much for having. So I got started in 2016. We bought our first rental then. We bought a long term rental in Nashville, where we were living at the time. We’re in the panhandle of Florida now and we saved every single day. I put my husband and I on a $20 a day budget for year for us to save for a $100,000 in Nashville, which does not exist anymore by the way. And finally at the end of that year, those $100,000 houses were now 120, $150,000 houses. So we spent every last dollar that we had and some dollars that we didn’t have on that one rental, and we didn’t know what we were doing at all. We hadn’t found bigger pockets yet. We didn’t even know anybody who owned real estate.
We just thought, “This sounds like a good idea.” And did it. And luckily it was, and by the way, we just 1031 exchanged and turned that $20,000 down payment into $20,000 a month on a 25 unit apartment building. I’ll get to that later. So when we got the first rent check on that, we thought, “Oh wow, this is something that we do want to scale. We do want to build a business around this.” So then we started consuming all the content, reading all the books, listening to all the podcasts. I think we both binged every single Bigger Pockets episode that was out at the time in two weeks. We were obsessed with it and we had just enough for one more single family down payment left and we thought, “Well what could we buy that is going to make us the most amount of money the fastest? So that we can scale our portfolio more quickly.
So we landed on short term rentals and long story short, there’s a lot of regulation issues in Nashville, so we didn’t feel comfortable doing it there. But we thought, “Where can we go? Where can we buy a short term rental that is just the normal thing for people to go to this place and rent houses, you don’t have to worry about the regulations. So we landed on the Smoky Mountains in Tennessee, which is about three hours east of Nashville. Bought our first one there, again, had no idea what we were doing. Didn’t really have any mentorship. It was just solely like, “I think we can do this and I think we can manage it remotely.” And we did it.
And it was terrifying at first, but it crushed it and we scaled that one property, one short term rental in the Smoky’s into five over the next year and a half. About probably our second property, I got my real estate license and the Short Term Shop, our real estate company was born. I found that in that market and in some of the markets we were looking in, there weren’t really any real estate agents who could answer our questions about remote self management, or even return on investment. So I became that agent, bridged that gap and now we have six offices in six different markets, about to open up two or three more.
And since those first five short term rentals, we have scaled to 96 doors and we bought our first door in 2016, it’s 2021 now. So pretty quick and we were able to use all that short term rental income to scale more quickly, not necessarily into more short term rentals. We have eight short term rentals. Everything else is traditional long term and multi. So it’s just a really good strategy for any level experience investor. Whether you’re new and really looking to boot strap and just scale as quick as you can, and make as much money off of as few properties as possible to buy whatever else you want, whether it’s multi or long term. Or just to buy more short terms, it’s really whatever your investment goal is. But short terms really are just like a nice little cash flow turbo charger for any portfolio.

Tony Robinson:
Avery, what a fantastic and inspiring story, right? I think a lot of the listeners are hearing you say from 2016 to 2021, when we’re recording this, to go from zero to 96 doors is absolutely amazing. Now I’ve mentioned your name on this podcast before, right? You were the kind of lightning rod… or your story is what sparked my interest in short term rentals as well, right? So for the listeners, it was episode 364 on the real estate podcast, Bigger Pockets Real Estate Podcast that Avery was a guest on. So if you want to hear her story in detail, go check out that episode. But honestly Avery, it was hearing your story that made me think, “Man, short term rentals is the asset class I want to be in.” You’re my agent also, right? So all the houses that I bought, I’ve purchased from you as well.
So I just want to make sure that everyone knows that they see me as the short term rental guru and expert. But I see you and your husband Luke as the ones that kind of brought me into the game. So I just want to publicly announce my appreciation for all that you guys have done.

Avery Carl:
Oh, well thank you so much. And you’re the one who did it, you just followed in our footsteps and we’re happy to help. That’s what we do for a living now. The Short Term Shop is to help other investors go down the path that we did.

Ashley Kehr:
Avery, you had mentioned we. Is that your husband Luke that you were talking about? Or do you have other business partners?

Avery Carl:
My husband Luke, yeah. So when I say we, I mean my husband and myself. I do the sales side of the business and he does the management of all of our rentals, both short and long. Even though the long terms are with the property manager. He does what we need to do on our end, and he’s the educator at the Short Term Shop. So he’s teaching all of our clients everything they need to know about the automation tools, and how to self manage, and really busting through those limiting beliefs for them about remote self management.

Tony Robinson:
Yeah. It was about a little over a year ago today when we closed on our first cap in the Smoky Mountains. I remember right before that, my wife and I were sitting down on the coach with Zoom open and your husband Luke was going through the Short Term Shop introductory course of how to run your first Airbnb. So can’t speak highly enough of it. But anyway, enough of me professing my love for you and your husband.

Avery Carl:
We love y’all too.

Tony Robinson:
Yeah. So you’re at 96 doors right now, right? And you said the majority of those are long term rentals. Given what you know about the power, the cash flow of short term rentals, why not make your entire portfolio all STRs? Why still keep that balance between the two?

Avery Carl:
That’s a really good question and there’s several answers to it. The first one being when we started, it was not necessarily our goal to have 100 short term rentals. Our goal is to be passive income, and while short term is passive, it is definitely more work. So there’s that aspect of it is that our apartment buildings are definitely more passive, but a diverse portfolio is really the main reason. So COVID is a really good example of that and last year, when the first shut downs happened and short term rentals were shut down, we thought, “Okay, well crap. Here it is. Short term rentals are going down, good thing we have all these long term rentals.”
And then two weeks later when everything, all of it was opened back up, at least in the states that we operate in, it was actually the opposite. The short term rentals boomed. The short term rentals quadrupled in income, whereas it was our long terms that we actually had to worry about with the eviction moratoriums. And luckily, we only had one eviction, so it wasn’t a big deal. But just knowing in that situation when everything was so uncertain that we had this other asset class, no matter which one we have to worry about at the time, we have another one that can support us if one of the asset classes starts having a little bit of a problem. So diverse portfolio is really the main reason.

Ashley Kehr:
That’s something that I learned during COVID too. My husband has a dairy farm and then we have our rental properties and I always thought our rental properties were going to be the backup to the dairy farm. If we didn’t want to do it or it wasn’t going well anymore, and then during COVID, the farm stayed the same. It was not impacted at all and here we were like, “Oh my gosh. What if we have people that aren’t paying? We can’t evict them and we’re going to have to use our farm income to support the rentals.” And it really changed our mindset like, “Okay, we need a lot of different income streams coming in so that if one is not doing well, we have those other ones to support that one and to live off.” So I love that. Is there anything else that you’re doing to kind of diversify?
So you have your company now, the Short Term Shop. You have long term rentals and then short term rentals? Is there anything else?

Avery Carl:
We also have a mortgage company. So we have the Short Term Shop. We have the mortgage shop, which is a mortgage company, now that we just launched that, focuses on investor clients. And then we also diversified by being in different markets. So our short terms are in three different markets. Our long term single families and duplexes are across two markets, and then our multi’s are in another market. So we’re in like six markets total.

Ashley Kehr:
Let’s get into that there of trying to find the market, analyze the market. How can a rookie investor find their first market that they’re going to buy a short term rental in?

Avery Carl:
So there’s a few ways you can do it. I mean, the easy way is to go on Google and see top places to invest in short term rentals, but we’ll go about it the independent way first. So really the way that I came to the markets that we decided to invest in, before there were all these lists everywhere and now, a lot of our markets are on these lists that we bought in. Is I thought of places that when I was a kid that we went on vacation, where we stayed in a cabin or a condo or a beach house, rather than a hotel. Because I thought, “Well somebody owns these things. Somebody owns these places that we’re staying, so why can’t it be me?”
And then we looked further into it and yeah, it just a lot of investors like ourselves that own these things. Or some of them are what I would call vacation homeowners. That they just… most of them are vacation homeowners, but anyway, individuals such as ourselves that own these. That is a good indicator those types of markets that the regulations are going to be friendly for short term rentals. If it’s a place that since I was a kid in the 90s, that people had been short term renting. Well that was… Airbnb didn’t exist then, so these are areas that the regulations are very, very established since before the internet in some cases.
Like I own a short term rental in Destin, Florida. People started vacationing there and staying in vacation rentals in the 30s and 40s. So these areas, I call them mature vacation rental markets and anybody can think, “Okay, if you’re in California, maybe you went to Big Bear or maybe you went to Tahoe or somewhere like that when you were a kid.” So just think of places that you’ve been where you didn’t stay in a hotel and you stayed in a rental, and that’s a good place to start.

Tony Robinson:
One follow up question from me Avery. You kind of touched on this a little bit, is the regulations piece, right? So let me pose this question to you. Would you rather invest in a market that has very strict short term rental regulations? Established but strict. Or a market that has no short term rental regulations?

Avery Carl:
I would go strict but established, because the security there is that they’re established. If there are no regulations, then it’s not if the regulations are coming, it is when the regulations are coming. And you don’t know what those are going to be. So I would rather go with strict and established than no regulations at all.

Tony Robinson:
Yeah. Totally, totally agree with you. And I was talking to another short term rental investor and he made this point and it’s just really stuck with me. And what he said was that the difficulty of getting a permit for a short term rental is in no way connected to the demand in that market, right? So say that they decide in the Smoky Mountains to make it significantly more difficult to get a short term rental permit. That doesn’t mean that the 12 million people a year that visit the park are going to stop going. It just means that there’s a decrease in competition for those that are willing to jump through the hoops. So it’s just… I think for some rookie investors when they that it… “Oh man, it’s so hard to get a permit or there’s a lot of rules you have to follow.” That’s not necessarily a bad thing. If anything, it might be a benefit to you, as the person who’s willing to make it happen.

Avery Carl:
Exactly and just make sure that you do all that research and know what the regulations are upfront

Tony Robinson:
Yeah and can we… let’s pause on that for a second, right? So let’s say I’m a new investor and I want to figure out, “Hey, what are the regulations?” How do I figure out what the regulations are for any given market? What’s the recommended route to figure those things out?

Avery Carl:
Honestly, Bigger Pockets forums are a really great place to start, but assuming you’re in a vacuum and those don’t exist, you want to call the city or county codes in planning departments and they’ll be able to tell you what those regulations are.

Tony Robinson:
And they’re super friendly. I’ve called a few of these different planning departments and I don’t know, maybe they just don’t get a lot of phone calls about short term rental permits, but usually they’re pretty open and they’re pretty willing to share that information and lay the process out for you pretty clearly. So I want to touch on the regulations because I know that’s a piece that a lot of people kind of get caught up on. So going back to how you define or decide on your markets, your initial hunch was let me go to the places where I know people are naturally vacationing. Once you said, “Okay, here are a couple of markets that meet that criteria.” What should I be looking for next? Are there revenue targets you’re looking at? Are there price points, their visitation data? What are the other pieces that you look at to kind of support that decision?

Avery Carl:
Well you definitely want to have an idea of what you can afford, because if you’re going to look somewhere like Aspen, you better have a really big budget and a really big [inaudible 00:19:30] So you want to make sure that you’re looking at markets that you can afford. And then once you know, “Okay, I can afford to buy in this market.” Then you can get some subscriptions to some of the data services to see what properties should be making. AirDNA is a big one. The data’s not perfect, but it’s pretty good. You’re probably going to have to get a PriceLab subscription when you buy anyway, and I’ve heard you talk about this several times Tony, the PriceLab’s market dashboards have really good data on what properties should be doing.
So you definitely want to figure out what can I buy and how much are these things making? Does the amount of money that it will probably make make sense for the amount of money that I’m paying to get the property?

Tony Robinson:
One follow up and we talked about this a little while ago about the prices of properties, right? What in your mind Avery, what’s the difference between an expensive property and overpaying? Because I think a lot of times, new investors confuse those two terms, right? They see an expensive property or a property that gets over asking and they immediately think they’re overpaying, but I find that there’s some more layers to peel back behind that.

Avery Carl:
Yeah, yeah. So especially the way that the real estate market is now, a lot of people see what the previous buyer paid for, or the seller paid for the property and they get really hung up on, “Oh wow, this is doubled in value in the last two years or the last five years or however long.” And they get really hung up on “Well I’m overpaying because they only paid 250 and they want 600.” But you can’t really get caught up in what someone else paid for a property. You need to get caught up in does it make sense? And am I able to profit the amount that I want to? Am I getting the return that I want to at the price I’m able to get it for? Because I mean, even in any asset class or even a primary home, the person who’s selling it to you 99% of the time will have paid less than what you’re getting it for. So it’s important not to get caught up in that.

Ashley Kehr:
And the number that they’re putting the property out there for, that’s a number that they’re putting the property out there for, that’s an asking price anyways. That, in no way is the actual valuation of a property. That’s why you negotiate and you can put in either a higher offer, lower offer. That price does not mean that’s what you have to buy the property for too. And it’s just like you said, knowing your numbers. Just long term rentals is doing that analysis and if the numbers worked on paying double than what they paid two years ago, then it still works for you. Don’t get stuck in that mindset like, “I don’t want to pay double than what they just paid two years ago. There’s no way they’d put in that much.”
I hear all the time, there’s not… they didn’t do that much work to it. They didn’t do anything to it. I don’t want to pay more than what they did, but if the numbers still work and it’s a deal, grab onto it and run with it.

Tony Robinson:
Can I add one thing on that Ash? Just in terms of the asking price as well, right? Like you said, it’s really arbitrary, right? Who cares if you paid $50,000 over asking? What if they just priced the property really low, right? What if the property was worth half a million but they listed it for $400,000 just to see what would happen. So I think often times people get caught up on having to pay over asking, but to both of your points, it’s like as long as the numbers still make sense, if you’re paying over asking, it doesn’t matter. If the property’s expensive, it doesn’t matter. At the end of the day, what does the return look like and are you getting what you want for your money?

Avery Carl:
Yeah. To me, the purchase price is just the starting point to run my first analysis. And then from there, make adjustments of what I can pay for it realistically.

Ashley Kehr:
Avery, I want to go back to the software you mentioned, AirDNA and PriceLab. So Tony actually showed me AirDNA before and I’m somewhat familiar of that, but not PriceLab. Would you be able to go through those two software real quick and just what would I look for on this software when I’m analyzing a market. What do I need to pull actually from the software? What kind of data?

Avery Carl:
Sure, sure. So AirDNA is actually a data company that specializes in measuring short term rental performance. So there’s a lot of stuff on their website that’s really cool. I like to look at the market wide data for… so you can go in there and drill down to even the number of bedrooms that you want. So I typically buy four or five bedroom properties now. So I’ll go look at… if I’m looking at a new market, I’ll go four to five bedrooms, look at the gross annual income, that’s the most important number to me. I don’t really care what the occupancy rate is, as long as it’s not something really silly like 20%. And I don’t really care what the average price per night is. I want to know what the annual income is. So you want to look at that.
They do have a tool called the rentalizer, but I don’t love that because it… there’s a lot of intangibles that go into how much a property is making that it can’t read, because it’s a computer. So basically, the rentalizer, it takes the full market data and just drills down to a small sample of the properties that are in your neighborhood. But if you’ve got a really, really poorly managed property next door. It can skew your data low, it can skew that rentalizer number low or if you’ve got one that is space ship that blasts off twice a week next door, it will skew it high.
So what I recommend doing is what we at the Short Term Shot called the enemy method. Where you are going on Airbnb and just looking at the properties around you and seeing, “Okay, this property is doing this much. This property’s doing this much.” And you’re only going to be able to see their next 60 days, how much they’re getting per night, but you’re able to look, because the computer can’t see, “Oh, this is furnished much better. This is… everything’s redone here and this is falling down.” You need to go in there and look yourself to kind of figure that out. So we call it the enemy method. You’re going in and looking at your enemy’s in the neighborhood and kind of seeing how you can improve to where you might be able to get more per night than them or things like that.
So anyway, that’s the rentalizer. I look at the market wide data on AirDNA and then PriceLabs is not a data company. It is a pricing tool for when you have your property, it’s a pricing manager and it helps you price your property dynamically to make sure you’re maximizing your price per night. And it just… that’s just one function of it is the market dashboards. And honestly, Tony probably knows more about this than me, I’ve just hit the export button a few times and seen like, “Oh yeah, this is pretty cool.” And this is right around what we’re doing.
So also another thing you can do is even if you’re not planning on using a property manager, which we don’t do. A lot of the big national property managers have a lot of money, have access to a lot of data that we, as regular people just don’t have. And a lot of them, they want your business. So if you called them up and asked them for data on the different markets, they have all that and they’re really willing to give it to you.

Ashley Kehr:
So as a new investor rookie, I’m starting out, don’t have any properties, AirDNA is one to purchase. I think it’s like, what, usually you pay per market when you’re analyzing it or you can do subscription base. And then PriceLab you don’t need until you actually have the property, and then you can reach out to property managers too in those areas to find out information. Okay.

Avery Carl:
Yeah. Awesome.

Ashley Kehr:
What about analyzing the deal? So now that we know where to pull some of that information from, is there anything different or things you should be specific about that would be different than analyzing a long term buy and hold?

Avery Carl:
Yes. So you’re going to have a lot more expenses than a long term. Your cleaning fees are going to be your biggest one and a big kind of point of contention with short term rental investors is when you’re quoting a gross annual income, should it include cleaning fees or not, I think that when I quote gross annual income, it does include cleaning fees and here’s why because if you’re using Airbnb and Vrbo. At the end of the year, you’re getting a 1099 on your total gross income, which includes the cleaning fees.
So it can skew your calculations tax wise if you’re not including those and then also, there’s income in the cleaning fees. You want to be charging your guest X amount over what your cleaner is charging you, and there’s income there. So it’s kind of a little bit of a variable, so you do want to include that in your gross, but you want cleaning fees, which you can also kind of figure out what those are by using the enemy method. You can see what your neighbor’s cleaning fees are. And then obviously you have your electric, cable, internet, all that stuff. So you want to extrapolate that out to you, but that’s typically it. There’s not a lot of really crazy expenses with short term rentals, it’s really just the cleaning and maintenance fees and then your typical utilities.

Ashley Kehr:
Yeah and I think a lot of people get hung up on the revenue potential, the gross income that can come, but there’s a lot more expenses and management that need to take place on a short term rental. Tony, I use the calculator report that you gave me to look at short term rentals and it’s on your website, I think, right?

Tony Robinson:
Yeah. People can pick it up for free.

Ashley Kehr:
Alphageekcapital.com?

Tony Robinson:
Yeah, alphageekcapital.com/calculator and it’s just like a little Excel file that I actually use every day whenever I’m looking at deals. So you guys can pick that up there.

Ashley Kehr:
Yeah. You guys, it’s great if you guys want to use it. If you’re finding this information helpful and want to start plugging away and finding your market and finding your first short term rental.

Tony Robinson:
So Avery, just on the market selection piece, any final thoughts for the rookies that have never done this before on any, I guess, any pitfalls or just things you see people do wrong when it comes to selecting their market?

Avery Carl:
Select a market based on the tourism and the regulations not based on what… just a place that you like. Like my dad has a fishing camp in West Point, Mississippi that he loves, but… and that he would probably short term rental if he could convince me that it makes sense, but it doesn’t because nobody’s going to West Point, Mississippi. It’s a tiny little town. So don’t base it on your personal preferences, base it on the data.

Tony Robinson:
Got it. So I love the data focus because that’s how you make the right business decisions. Now I want to transition a bit into the management side, because outside of how do I choose my market? I feel like the next question that I get a lot is how the heck do I manage these? Right? And you guys have eight and I know you guys are self managing these on your own. So I guess the first question is why not hire a property manager for your short term rentals. Why did you guys make the decision to do it on your own?

Avery Carl:
Because it’s an entirely different ball game than with long term rentals. So the average short term rental property management cut is 25% of your gross and a lot of markets that we’re in, 35% is really more the norm. And to give you guys kind of some perspective on just how much money that would be, so in July, we just brought our eighth one on. So July, we only had seven properties online and we grossed $100,000 for July alone. So that’s $25,000 for one month. For a property manager, that’s CEO level… not CEO, that’s quite… very experienced upper management level salary if you pull that out over an entire year.
And all of it can be done straight from your iPhone. It’s really just glorified scheduling and a few phone calls here and there if something breaks in my property that’s a thousand miles away, I’m going to do the same thing as if my toilet breaks in my office behind me. I don’t know how to fix a toilet, I’m going to call somebody. So I’m going to call somebody whether it’s here or there.
So it’s just really a mindset thing that you kind of have to get over of… and plus there’s lots of automation tools so that you’re not having to… when I first started, I had to at the beginning of each month, look at my calendars and write out the dates that my cleaner needed to go and send it to her, and I had to do it two separate ways to make sure that she didn’t miss anything. And that was not efficient, but now, channel managers take care of that for you. The channel managers, for those of you who don’t know, those are the platforms that automate everything for you. They hook up to your Airbnb and Vrbo accounts. They just send it right to the cleaner’s calendar.

Ashley Kehr:
Can you tell us what some examples of what that would be and-

Avery Carl:
Yeah, yeah. So we use Your Porter. There’s some other great ones out there. IGMS is the other really big one. Smartbnb is one, there’s quite a few out there.

Tony Robinson:
Yeah. We use Smartbnb in our business and yeah, like you said, it automates so much of what people who aren’t short term rental operators would think is a manual process, right? Like when the guest books, they get an automated confirmation message. Before they check in, they get an automated welcome to our property message. The first day after they… after their first night they get a hey, how is everything going message. Before they check out, there’s a hope you had a great stay message. So much of the automation or the communication is automated so that you, as the host are really just stepping in when things or questions pop up that can’t be templated or things like that.
So I know that you and Luke are really big into streamlining your business. What are some additional things you guys have done outside of leveraging like Your Reporter to make the management process a little bit easier for you guys?

Avery Carl:
So the biggest thing honestly is just going through all of the questions that every guest asks, and making sure that in those templated emails that are sent out, that all of those are answering to me. Some our templates are like a foot long paragraph because we’re answering everything they could possibly ask in that email. So just really making sure they have all of the information, almost too much information upfront is really going to save you a lot of time than having to answer the same question over and over again because it’s not in your template. So I mean, really that’s just the main thing is just overwhelming them with all of the information they could possibly have so that there are no questions.

Tony Robinson:
Are you guys cleaning the properties yourself Avery? How do you guys handle that part?

Avery Carl:
Yeah, yeah. So we are not cleaning the properties ourselves. We have… and we help our clients do this too. Where we help you get your cleaners and handymen and everybody, boots on the ground that you need. But if you’re just starting and you have no help, all you need is a cleaner and a handyman or woman, and those are your two core team members and you can build everything else out from there. Because the two of those, somebody’s going to know a roofer if you need one. Somebody’s going to know an HVAC technician if you need one. And you can build everything out from there. But those are your two core… and your cleaner really being your most important.

Tony Robinson:
How do I find a good cleaner Avery? If I’ve never done this before, what resources, what locations, where should I… is there a cleaning website where all these Airbnb cleaners are posted? What’s the best way?

Avery Carl:
There is unfortunately not a website, but that is something that somebody should do. There’s not a website, a lot of times, they’re not going to have their own individual websites either. So there’s a few ways you can do it. Typically, most markets if there are a lot of short term rentals there, they’re going to have local short term rental owner Facebook groups, investor Facebook groups so definitely check that out. What we had to do when we first started is we went on Airbnb and messaged all of neighbors and said, “Oh my gosh, would you mind sharing your cleaner information.” A lot of them told us to buzz off like no. Rude. And you’re going to get doors in your face. You’re going to get doors in your face. You’re going to get doors in your face, but all you need is for one person to bestow the kindness upon you to give you their cleaner’s information.
And a good way to kind of frame it for them is if they don’t want to give it to you, you can say, “Well listen, I’m buying this place that’s two doors down from you and your cleaner wants more… they’re going to take more properties if they’re presented to them. So it’s beneficial to you that my property is right next door, and your cleaner isn’t trying to run across town to a potential other property. So it’s good for you. It’s good for everyone if all of this cleaner’s properties are right here next to each other. So you don’t have to worry about them getting caught in traffic and being late.” And you’re going to get told no a lot, but eventually someone will say yes.

Ashley Kehr:
Or you just book a one night stay at one of those places and wait for the cleaner to show up the next day? After check out.

Avery Carl:
I haven’t had to go that far. I did… at the very beginning, there was one gas station in the Smoky’s where it’s like the only gas station out in this one area where there’s a lot of cabins and we would… it was the place that has breakfast biscuits and stuff, and we would just hang out there and wait for cleaners to walk in and out and get their number.

Ashley Kehr:
Yeah. That’s like going to Home Depot or Lowe’s to find a handyman or a contractor. Awesome. Okay though one last question I had for you before we move onto our mindset segment is what is your take on short term rental arbitrage?

Avery Carl:
So I think that’s a really great way to build some extra cash flow if you need it. But at the end of the day, it is not investing. It is building a job for yourself, rather than building wealth for yourself. So if you need that extra cash flow, it’s a great way to start, but it should not be the end goal.

Ashley Kehr:
Can you just describe too real quick, sorry, I should have said that before what it is for everyone [crosstalk 00:35:51]

Avery Carl:
Yes, yes. So rental arbitrage is when you rent a property with a long term lease for you to turn around and Airbnb it.

Ashley Kehr:
And that’s actually what I did. That’s my only little Airbnb and Tony and I were joking before the episode started that we’re going to tell everyone how to correctly run their first short term rental, and how not to correctly run it because mine is very, very mom and pop. It’s like no [inaudible 00:36:15] anything like that, but yeah. Okay. Tony, do you want to take us to our mindset segment?

Tony Robinson:
Yeah. Absolutely. So Avery, you’ve obviously crushed it in the world of real estate investment since you started back in 2016. But if we go back to Avery, when you were hustling to save up the money for that first investment, what were some misconceptions or beliefs you had about being a real estate investor that turned out to not be true. That you can sit back today and say, “Man, I can’t believe I used to think that that was what it was like.”

Avery Carl:
When I first started, real estate investors had just seemed like something that other people are. That these nebulous rich people over there, those are real estate investors and it felt like an unattainable goal. And I also think that I really made it out in my head to be more difficult, more complicated than it actually is. Some of the things that I got so caught up about on those first few contracts. Now I’m embarrassed of myself. I’m like, “Oh my god. Why did we get caught up about the HVAC had corrosion on it, but it’s still working.” We just got so caught up on a lot of little details that nowadays, is not something that we think about with our properties.

Tony Robinson:
And I think that’s a common theme amongst so many rookies is that… and rightfully so or understandably so, because they’ve never done it before. So to them, some corrosion on the HVAC, I mean, you got to replace the whole thing, right? If there’s a broken shingle, rip the whole roof off and put a new one on, right? But it’s like as you get some more, I think, maturity in the world of real estate investing. You’re able to do a better job of determining what’s an actual obstacle, what’s an actual concern versus one that’s probably not really, right? Some of it you’re making it up to be. So love that advice for sure.

Ashley Kehr:
Today’s rookie rock star is Hayley P. and this rookie rock star’s pulled from Facebook that I want to let you guys know that not only on Facebook are we pulling the rookie rock stars, but also on the Bigger Pockets forums. So going to the forums, we have a whole rookie section and please, share with us your success story so we can share them here as the rookie rock star of the week. So Hayley has been waiting a year and a half to make this post. She got a deal driving for dollars, purchased the property for $25,000 plus a cold beer, and then sold it for $47,000. So she whole sale the property and did a double closing. The ARV on the property is $96,000 and the deal closed in Iowa while she was in Houston, Texas. Not a bad deal at all and congratulations on taking action.

Tony Robinson:
Congrats [crosstalk 00:38:54]

Ashley Kehr:
She said too that she adapted her plan many times, got stuck in analysis paralysis and was even made fun of for this dream of hers to do this, and every sacrifice was worth it. So anyone else is feeling like Hayley and been a year and a half, keep going because it’s definitely worth it.

Tony Robinson:
Avery, before we let you go, you mentioned at the top of the show about a 1031 exchange and taking that first… some of those first investments in Nashville and flipping them into something bigger. Just kind of give us the back story. What was… how many properties did you have to sell and what did you end up purchasing with those proceeds? And I guess before that, if you can just describe what a 1031 exchange is for the listeners that aren’t familiar with it.

Avery Carl:
Absolutely. So I’ll probably butcher the 1031 exchange explanation, but basically, it’s when you sell a property and you take the appreciation, so the equity that you made. So in this example, I bought the property for $122,000. I sold the property for $337,500 and so I’ve got right around… a little over $200,000 in equity and if you don’t buy another property using a 1031 exchange with that $200,000 then you have to pay what’s called capital gains taxes on it. If you do a 1031 exchange and take that $200,000 and buy another property with it, you can defer those taxes until you sell the next property, or if you never sell it, then you’re just… you’re doing good. I don’t know what the correct, actual thing you do at the end of that is basically.
But I took that $200,000, put it into another property so I didn’t have to pay taxes on it. And that was one… it was only that one property. I had enough equity there that I went and put that down on a 25 unit apartment complex in the Midwest and that will gross about $20,000 a month.

Tony Robinson:
Beautiful and that’s the power of real estate investing, right? Is that you can take a small amount of money and turn it into something big through the power of the 1031 exchange. You and I were… I think we were texting the other week, right? I was telling you that I’m in the middle of one right now and we bought a short term rental in Joshua Tree last year. Our total out of pocket expense to purchase that property was like $39,000 and we were able to parley that into $200,000 almost in equity as well in the course of a year. So we took this property in Joshua Tree that was probably going to gross somewhere around $70,000 and we use that to buy a much larger cabin in the Smoky Mountains, which will hopefully be somewhere close to double of that, right?
So it’s like taking that money and making it work for you time and time again. That’s the true power of real estate investing.

Avery Carl:
100%.

Ashley Kehr:
Avery, thank you so much for joining us today. Can you tell everyone where they can reach out to you and find out some more information about you? And about this really great resource that you have coming out too that we’re all so excited to get our hands on.

Avery Carl:
Yes. So I have a book coming out on Bigger Pockets Publishing called Short-Term Rental, Long-Term Wealth. You can find that at biggerpockets.com/store. And if you’d like to get ahold of me, you can find me on my website, theshorttermshop.com or mortgageshop.co, our mortgage arm. Or you can hit me on Instagram @theshorttermshop.

Ashley Kehr:
Avery, thank you so much and I love the book title too. I wanted to be able to tell you that.

Avery Carl:
Thank you.

Ashley Kehr:
Yeah, thank you for joining us. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson. Thank you guys for listening and we will be back next Wednesday with another guest.