All Forum Posts by: Marc Phelps

@David Ounanian I don't know anything about the St Louis Market but would suspect that downtown would be better.  For airbnb, you want the walkable A/B neighborhoods, people want to experience the best of a town when they visit, so I always want places within a safe walk of the biggest draw to the area.

When it comes to pricing, the price you see when you search airbnb is not the price you pay when you book.  The "advertised" rate is the lowest amount one would pay.  You may see one of my listings with a $65 rate and no minimum stay but that rate is only if I have a last minute weeknight opening and you are going to pay a cleaning fee on top of that regardless of how long you stay.  The easiest way to get a feel for the actual data is to find a well reviewed listing and start a reservation. You don't have to pay for it, just pick some days and click to reserve.  It will show you a total price that includes the variable nightly rates along with fees.

I charge a cleaning fee to all guests that covers my supplies and turnover costs. One of my listings that shows a $65 nightly rate is likely to average around $100 per night (not including fees). Occupancy averages vary by market but St Louis is strong and you could expect 20-25 nights per month rented if done correctly.

Here is how the math would work on a 1 bedroom condo downtown. I found one on the MLS that might be advertised at $65/night without a minimum (a $65k condo at on 17th St):

2 night stay Saturday-Monday

Saturday night - $105

Sunday night -$89

Cleaning Fee - $70

Total paid to host: $264

The cleaning fee covers a housekeeper and supplies and you get 97 per night before utilities, taxes, insurance, setbacks, and debt service.  If you can do 20 nights per month, you are at $1,940/mo which I'm guessing is a lot more than long term rental rates.

Everyone asks about wear and tear but I find that you experience less wear on these units since they aren't being used every day and maintenance issues get fixed immediately since your contractor is in there regularly and the place is professionally cleaned every few days.

I have some familiarity with the markets above and regularly visit them. There are other markets that are promising for airbnb but with which I don't have enough familiarity to jump into without an active partner - I would need a partner with local market expertise to feel comfortable buying in these markets.  

These include: Cleveland, Saint Louis, Pittsburg, Saint Augustine, Columbus, OH, Memphis, Phoenix, and Hollywood, FL.

The numbers are conservatively round based on historical data and match up with my experience at the 5 units I have in Savannah.  The historical data is available through a third party (airdna.co) and gives comp data from nearby airbnb listings like rental rate and occupancy levels.

I remotely manage my current listings. Despite living nearby, I visit them only to drive by and check on them.  At scale, I would train a virtual assistant to handle the daily interactions online.

A support team includes a solid housekeeping contractor who handles all restocking and cleaning for turnover and a local handyman.  Those two contractors can handle everything day-to-day if the unit is set up correctly (I have one that has been operating without my physical presence for 3 years).  

Louisville has great airbnb permitting laws and is a prime market. I visit Louisville 3-4 times a year for family and like the Bardstown Road and Highlands areas best for airbnb.

I currently operate 5 short term vacation rental units in the Savannah, GA market. My current units are all leased units (I lease them specifically to rent out on Airbnb) and I would like to add some units that will build equity.  Forgive the length of my post, I hope to provide enough details to trigger conversation and help folks determine if this might be a good fit.  No one likes "I need 90k for a house in NY" posts.

The Plan:

We will buy and rehab (as necessary) homerun deals in 3-4 key markets chosen using historic data from airdna.co. Currently, the short list of markets includes Savannah, Atlanta, Charleston, Indianapolis, Louisville, and Cincinnati. That list is flexible.

We will buy units with proper zoning for Airbnb at prices that meet my proprietary Airbnb cashflow ratios and are good buys for a potential plan b or c (in case regulations threaten Airbnb operation). In order to purchase a property it must meet all of the following requirements:

• 1)Positive cash flow using Airbnb
• 2)Positive cash flow for long term rental (plan b)
• 3)80% cost to ARV

These units will be purchased, set up and licensed to rent on Airbnb, then refinanced and turned over to my operations model. It takes about 3-4 months per unit to do this so growth is based on available capital… ie how many units we can afford to work on at a time. We can call it the "Air-BRRR" strategy.

About Me:

I worked as a Realtor for a few years, specializing in multi-family, before starting a successful energy sales company in 2007. I sold that company and have been working in telecom since 2014, negotiating wiring rights and easements in new developments. Throughout my career, I have continued to invest in various real property asset types including tax liens, flips, mobile homes, and land. I have probably been involved in around 100 real estate deals as an owner or partner and dozens more as an agent or employee.

My credit is great and I have a little cash. I would like to work with a partner to enable quicker growth than I could achieve on my own and spend less time working out financing details on each unit.

The Numbers:

Of course, we can always convert these units into long term rentals that cash flow a little on a 30 year note but the great numbers are in Plan A… Airbnb. Here is a breakdown of what a standard Airbnb deal might look like (and there are plenty like this available in many markets).

Purchase Price: $120,000

Rehab Costs: $20,000

ARV: $180,000

Average Monthly Revenue: $2,800

Average Monthly Expenses (non-debt service): $500

30 Year Debt Service Payment: $530-$675

Cap Rate: 20.5%

Cash on Cash ROI w/20%dn: 78%

My Ask:

I’m looking for a partner to help fund these deals through launch until they are stable. I’m flexible on the exact set up depending on your investment goals. We can set it up to cash out your investment with the refi. You can participate in the returns long term and hold equity. We could work out something creative that fits you. If you have access to capital exceeding $200k, lets talk and see if we are a good fit for each other. I would like to meet face-to-face and ‘date’ before we marry ourselves to any deals. I am not interested in a hard-money-type relationship that involves paying huge points on each unit. My problem isn’t the lack of credit availability, the challenge is flexibility and scalability.

If you are interested or have questions, lets chat. I’m happy to answer questions privately or in this open forum. 

Any suggestions on how to track down investors for that type of program? A website? Local REIA? Realtors?

@Jeff Graves - That is exactly what I am doing but looking to scale up alongside an investor who is looking to buy the perfect properties.  It is difficult to convince an existing landlord to consider renting to me BUT maybe I could find some investors to buy the properties with the intention (and possibly the guarantee) of renting them out to me.

@Justin Tahilramani - That is an astute observation and an excellent excuse for why I need to find a fast-scaling capital structure and business model.  My thought is, I can do 10 or so in Savannah (where I already have proven the concept and have a support system in place) but would want to quickly grow to another ~10 cities so that, from my perspective, any municipal changes would not bankrupt the operation as a whole.  From an ownership standpoint, we would want to keep the acquisition price low enough to cash flow as a traditional rental property just in case of such a change.

Savannah just finished a long legal battle that ended in a widely accepted structure for regulated short term vacation rentals... they had the help of the Georgia Supreme Court who back peddled a few of the items in the original ordinance.  This market, from a regulatory standpoint, is stable for now.

The 'wear and tear' question comes up a lot when I tell people what I am doing.  The surprising fact is that the opposite is true.  The easiest way to explain it is in comparison to a long term rental... in a long term rental, your tenants have a year or two to tear things up before you turn over the property and fix all the little damages.  In a short term rental, the tenants only have a few days to 'make their mark' before you get back into the property to bring it back up to original condition.  Maintenance issues get caught quicker and the issues that arise from neglect never happen.  Even things that wear down with use, like carpet, don't wear quicker because our tenants use the home less than a typical tenant would. They are typically visiting town and not there most of the day and 5-10 days per month there isn't anyone there.  It's a tough misconception to break though.

I am considering putting together a small syndicate to buy short term vacation rentals.  I understand the endless ways to split equity, cashflow, and debt... what worries me is the structure within which these types of deals work.  

Is there a tool or service that manages pools of capital like this or do I need to seek out education materials and learn to do it on my own?

I live in Savannah, GA where we have a very strong short term rental market.  I have a sandwich lease on one property but am struggling to find additional landlords who are willing to allow sub-leasing as a short term rental (no way I would try to hide it from them).  Does anybody have experience in sale-leaseback for this sort of thing?  Another way to describe what I'm thinking is that it would be a standard turnkey deal, where an investor buys the property with a long term tenant in place, only the long term tenant is my company who is managing the property as a short term rental.  It seems like an attractive option for a buy-and-hold investor who could get maximum cash flow without a management fee and would have a long term tenant in place.

I'm also open to alternative ideas on how to grow my portfolio.  I am an experienced investor (wholesale, fix-n-flip, and rental units in the past) with excellent credit and W-2 income but I don't have cash reserves to handle a traditional down payment.  I could put together 15-30k but that money would be better spent, in my opinion, furnishing units and as cash reserves.

FYI - Details on my current STR:

I pay $1,300/mo for a studio apartment which includes utilities. I have a 3 year lease.  I spent about $5,000 sprucing it up and furnishing it.

I average 21 rental nights per month at an average rental rate of $130. 

Cleaning and supplies are covered but renters with their cleaning fee.  My only additional expense is cable/internet and insurance which run about $150/mo total.

I net around $1,200 per month on this little thing and the demand in this area would allow for dozens more without sacrificing occupancy.

Sorry for the long post... long story short, how would you find a turnkey investor who would be willing to buy properties and rent them to me long term (possibly even triple net)?

I tried to work with them twice.  They want a few thousand upfront with no guarantees of lending. Their CEO has posted on BP that they will finance without the upfront payment but they never returnedy calls when I asked for their programs that didn't require an initial fee.  They ended up putting me on a telemarketing list and robodialed me relentlessly trying to get me to pay for their 'training' program.  In short, my experience with them was a very fishy.

An easier potential method for 100% financing might be a 90% LTV hard money loan with the other 10% coming from a personal or crowdfunded loan.

In general, I don't recommend 100% financing unless it is a once-in-a-lifetime deal. I think you are better off saving for a while.  Others may disagree but my first two deals were 100% financing and, looking back, I had no business doing those deals.