Start Up Advice Looking for Rental Cash Flow

[Brian Sego]

Cheers, BP’ers! I have been listening to the podcasts for some time now and finally looking to execute our first deal within the next 1-2 months. As my wife steps away from her job to raise our two kids we are looking to replace a portion of her income with cash flow from short or longer term rentals. We are looking at Chicago, Nashville, and Dallas given we have warm contacts in real estate in these areas and our initial analyses seem to suggest we can generate reasonable cash returns. Specifically city of Chicago and looking more metro in Nash/Dallas. We are open to putting in up to 70k as a down payment. Currently thinking Short-term rentals given the more favorable returns and fact my wife would like to dedicate some time to managing the bookings/platforms/furnishing in the near term. What is your advice? Are there tools like AirDNA we need to use for pre-purchase analysis? Should we be looking beyond these areas for better returns if we are not afraid of remote management? Any general advice? Look forward to hearing advice and contributing our own through the journey.

[Luke Carl]

Hey @Brian Sego  @Amit Kal nailed it. Short term renting is not a good idea in a city. Especially Nashville.  Long term renting in Nashville is very tough. I live in Nashville by way of Brooklyn. I have 2 houses in Nashville and when we quickly learned it was damn near impossible here we looked to the mountains in East Tennessee. I now own and manage 5 cabins in Pigeon Forge/Gatlinburg. My wife had an MBA and quit her big day job years ago to sell cabins full time because the phone just never stopped ringing. 

We created a self management system that’s easy. I do all of the management on all 5 properties from my cell phone. 

With 75k I would personally get in to (2) ~250k cabins. Minimum down payment will be 15% maybe even 10% if you qualify. With as much cash as these make I do not mind paying PMI with other people's money.

Could also get one 300k cabin at 15-20% and have enough left over for new furniture and appliances which nearly all of them need. And a flight or two down here. 

You could easily net more in a month than Amit is making in a year in Nashville for about the same amount of cash in. 

Rule of thumb: 250k cabin will gross 40k per year. If you manage it well. If I’m managing it; 45k easy. 

Amit is right, it is best to be somewhat present with a VR, but my wife has several clients that have never even seen their cabin or even been to the area and they do just fine. I personally wouldn’t suggest this. I would most certainly come down to get it ready to rent after closing. And/or before offering. If a guest asks you how to turn up the hot tub and you dont know you’re going to look pretty dumb. Of course you could just ignore them for asking such a simple question and you’ll likely still get 5 stars lol. 

If it sounds like a “what’s the catch” situation, it is. Most people (Amit for example) do not want to self manage, or are just plain scared of it. If you do not self manage in this market, you do not make money. (Local PMs charge 40%. Yes, Evolve will do it for 10% but it will stay a about 50% empty with them). 

It’s easy. I self manage 5 with a day job. If she’s quitting her day job it would be awesome for her. It’ll give her something to do for 5 minutes a day that remotely resembles work lol. 

Happy to answer any questions. 

Good luck!