Short Term Rental journey update

[Clint Harris]

One of the best parts about this community is being able to learn from so many of you, avoid pitfalls, and celebrate successes together. It amazes me how many meaningful relationships my wife and I have built through this investing community, and it’s led to tremendous growth for my wife’s real estate business, and also growth in our portfolio and property management company with all the wise advice and lessons learned that have been shared with us. I’m not great about pausing and coming up for air to post an update, but I’ve been encouraged to do that more by another investor recently, so wanted to take a minute and update where we are 3 years into our journey into buying short term rental properties at the beach. My hope is that it can either help squash some fears or help one person avoid some of the mistakes that we made.

Quick recap, my wife and I moved to Wilmington, NC a couple years ago, discovered Bigger Pockets at the same time, and after renting for a year to figure out the town, we bought a duplex at Carolina Beach, moved into the upstairs 3/2 unit, and starting trying short term vacation rentals in the downstairs 3/2 unit. We did 57k gross the first year and were hooked. We were getting paid to live at the beach but needed to scale. So, we needed more units… but beach property is expensive! Eventually we figured out Arbitrage (didn’t know there was an actual name for it at the time) and signed a Master lease on a triplex, with a Net of a little over 53k after paying rent, utilities, expenses, etc. That property led us to another duplex Arbitrage 2 doors down just from word of mouth between neighbors, and that unit brings in another 26k Net. Alright, so then we had some cash and could get out of arbitrage and keep buying. We bought an under-performing quadplex with bad long-term tenants in place, did a renovation, converted to short term, and it took off. We bought it for $485k, but 70k into it, and after our first year of operating, have a couple off market offers for $800k, so that’s fun. That property does $165k in gross rents, with a Net to owner of $68k after all debt service, and paying for property management. From there we went back and secured the arbitrage tri-plex with owner-financing and actually split the downstairs 2/2 into separate 1/1 units to add another 30k in revenue, and then in November we bought another quadplex that I’m turbo-excited about. It was an absolute dump, horrible tenants and in terrible shape, but literally built right on the beach access, 27 steps to the beach, and on the best surfing spot on the island. Very interesting and creative offer that I wont spill the beans on, but long story short, we picked it up in the neighborhood of $550k, and relocated the tenants. Luckily they were month to month, because the moratorium on evictions for non-payment was in place for Covid, and 2 of the tenants immediately stopped paying when they found out the property was being sold, and said they were dug in, not going anywhere, would see us in court… etc. After a carefully worded letter explaining that even though there was a moratorium on evictions for non-payment, there was NO moratorium on evictions for Hold Over, which is when a tenant stays past the termination date on their lease. Since they were all month to month, I provided the proper written notice, and followed all the rules, and eventually cooler heads prevailed, the tenants all moved, and I provided a free moving truck on moving day. Sometimes you catch more flies with honey than with vinegar, plus, we live on an island. It’s a small community, and I don’t need enemies. Anyway, full gut, just finally launched 3 units in early June and scratched out $18K for the month, July is booked for $28k with probably another $3-4k available to book, and then we’re putting another $10k into the property the first week of August to build a new walkway to the access, porches, outdoor shower, etc. The reason I’m excited is because we have parking to build 2 more units, and in 2 years, we’re ripping the roof off and building a couple 2/2 condos on top of the quadplex with all glass walls on the ocean side and killer views, can’t wait for that.

So that's kind of the personal portfolio growth, we also have a toddler now, which has made things WAY more complicated, but also fun. My wife Abby is crushing it at Nest Realty, the market is scalding hot and I know everyone is having success, but she's closing around $2mm a month, and I'm beyond proud. The biggest change is that with some nudging from a couple other agents that we partnered with, we were finally convinced to start a property management group. Going Coastal Property Management is a boutique-style STR management company, and the goal is to always stay small and nimble, and always look, feel, and BE local. We have 43 listings now, have a full-time managing partner, a couple assistant managers, 5 cleaning teams with 16 cleaners, an office, and for the sake of vertical integration, we've been shopping for laundromats for our linen solution. We control 12-14k lbs of linens a month right now, so I'm thinking that we can more than pay for a laundromat just paying $1 a lb for wash and fold, and then any business walking in the front door of the brick and mortar location is just additional revenue. Vertical integration has proven to be the only way that we can maintain a high standard. We have strict standards on the linens, mattresses, etc. that are used in our listings, avoid the max beds and heads strategy, and always make the beds unlike our competition that just drops a bag of linens, because the data shows that people will pay for that convenience. Our cleaners are only allowed to clean on our listings, because we need to control their entire book of business so they cant just not show up one day because they don't want to meet our high standards and have somewhere else to go where they don't have to work as hard. We pay a great wage, and have strict standards, and for the right teams and workers, it's been a great fit. I used to be quick to hire and slow to fire, and I had to learn to change that around. By using a data-driven approach to all our property selection, staging, and pricing and occupancy metrics, along with an interview process with the owners, we have developed a great system for aligning with the right owners. We have a good mix of larger and smaller properties that have different benefits and allow us to keep occupancy basically year-round so that we can keep our cleaners, handyman, and managers employed and happy. We have a certain number that we need to hit per listing in terms of profitability, and now with strong referrals and word of mouth, we are easily picking those metrics, and are turning down more listings than we can handle.

Whew, so that’s it, I guess. Like I said, I’m bad about stopping and taking time to document, so wanted to do that to have something to look back on. Abby has actually sold properties to quite a handful of ya’ll on here, so thanks for that, and also for all of the knowledge and experience that has been shared that has helped us in our journey! Let me be VERY clear… if this makes you want to try and jump into the game, our market in CB is extremely hot and competitive, but the underlying concepts of using data from a good source like AirDNA, and a data-driven approach to management, staging, operating, streamlining, and automation work pretty much anywhere. I’ve written more about that in the past, but please don’t think our market is something unique, the principles work all over, and in markets that are much less competitive than ours where you can probably get more for your money.

The goal for 2021 is a laundromat for Going Coastal, and personally, it's looking like a 1031 into either a small hotel (couple offers shot down so far), or if the right situation came along, a value-add self-storage facility just for the purposes of diversifying away from the beach. Hurricanes are a tricky business, we've had 3 in the last 3 years, and I'm actually flying back to Wilmington right now just ahead of Elsa, which I'm hoping is down to a tropical storm by now! Anyway, onward and upward. Our strategy of taking underperforming multifamily properties and converting to top performing STR units with automation and streamlining would work well in the right hotel setting in my mind, especially with it being an invisible-service structure, and not needing office space or on-sight staff, and everything through an A la carte platform. Anyway, we shall see, something could go south, and it could all fall apart tomorrow, but for now, I am lucky and blessed to be able to say that things are running very smoothly with the right personnel in place, and the machine we have built over the past couple years is steadily spitting our several revenue streams, and I'm very excited to not be forced to trade time for money. Hope you all are well and wildly successful, thank you for contributing, we all do real estate, but more than anything, we are all in the People business, so thank you for reading, contributing, and being a part of our journey.