All Forum Posts by: Matthew John

@Ernesto Hernandez Great tips! I might need to get one of those weed/cigarette smoke detectors. Thanks for sharing. This Airbnb game is definitely a game changer when it comes to cash flow and keeping your property in excellent condition!

@Allan Smith It reduces risk. I would also like to see how it performs in the winter months to see how that impacts occupancy. My LTR cover the mortgage payments so it’s nice knowing that’s covered without relying on 3rd party platform.

@Jay Hinrichs I get it. I just know people prefer to stay in the suburbs vs the city given the reputation. It gets nicer the further north you get off 8 mile.

@Jay Hinrichs Airbnb is popular with millennials. I've stayed in a few dozen Airbnbs all around the world for business trips. Since I've discovered Airbnb, I've stayed in maybe 3 hotels in the past 4 yrs. So far I've had guests that were Real Estate Investors coming to check out Detroit and the surrounding markets, concert goers, people between apartments, and travelers attending events in the city. 

You can book my place for $50-60/night or you can book a hotel for $125/night or more and have similar amenities. 

@Ken Latchers With a 5% conventional loan, you're only required to live in the property for 1 year. After that, you can move out and rent out the entire property. This was originally a house hack, but I'm going on 2yrs now that I've owned this property and it's perfectly legal to rent out both units. 

This post was to simply document my experience and highlight the benefits of this hybrid model which I haven't seen talked about yet on BP. 

@Jon Crosby Thank you! I manage all my rentals myself and advertise myself as the manager, not the owner. When I signed the lease with the downstairs tenants, I straight up told them that the upstairs will eventually be used as a short term rental. Now that we have bookings from Airbnb coming in, I've continued to reach out to them and ask that they tell me immediately if anyone is disturbing them in anyway. I told them they are my #1 priority since that is their home. I have cameras to monitor the units and only allow 2 guests max upstairs. I make sure the upstairs guests know that quiet hours are between 10pm - 7am and to please respect the tenants that occupy the downstairs. So far everyone seems to be doing fine!

Hey thanks for your reply!
I first want to clarify hat I lived in this unit for over 1yr BEFORE renting out both units and turning this into an Airbnb. When I purchased the property, the previous owner lived in 1 unit and estimated market rent to be $795/m. The upstairs unit was at $575/m, but the tenant paid an additional $50/m for water/internet. 

As for the expenses, they are accounted for. When I had a long term tenant, the only expenses they paid for were the gas/electric. On a 475sqft unit, they are minimal. Both combined are under $50/m. When rehabbing, I did my best to make it energy efficient by installing smart outlets so I'm able to control the AC/heat units remotely from my phone. When I know a guest leaves, I simply switch everything off. Since someone is not occupying the property 24/7 the bills are generally lower. 

With the unit being a duplex, I also put the internet in my name. At $50/m, I charge the downstairs tenants $30/m and they get full access to the modem. I got a WIFI signal booster upstairs for the BNB and I cover the additional $20/m for the internet. 

Water in Michigan is almost always covered by the landlord. It's always been under $100/m. With someone not occupying the property long term on the upstairs unit, it's pretty easy to keep this cost low. I also have it in my lease for the downstairs unit that if they use over $100/m in water, they will be billed the extra amount. 

So all in all my expenses for utilities are around $170/m. 

Airbnb fees are minimal and they are covered directly by the guest, not me. 

Sure, there will be taxes on profit, but with all the write offs I get for furnishing and expenses, I'm going to recoup my initial investment before giving up a large chunk to the gov. 

So far it's been great, although I'm sure there will be bumps along the road. It's pretty automated and fun, I have met people coming to town interest in real estate and looking to network. I'm on my phone working/networking a lot during the day, so the 5 seconds it takes to respond to a message isn't a big deal to me.

This is my first STR and so far it's bringing in a LOT more (including expenses) than it would with a long term tenant in there. I like that I'm able to go and inspect my unit (and keep it clean) all the time. When I'm renting to someone on year leases, I don't get to go inside every few days and clean it, so the wear and tear is much less with Airbnb!

@Jon Crosby I’ve just been open and honest with my both my tenants and guests up front.

I check in with my tenants and told me I’m here to resolve any issues that arise as soon as possible.

My guests on Airbnb know there’s tenants living downstairs and have strict instructions on parking and quiet hours.

I limit the guest count to try and minimize disturbances.

Whether there's a full time tenant or STR guests, there will always be some level of noise and someone they can run into.

I guess we’ll see next year come time for renewal of my LTR.

After such a positive response from my first thread on the BRRRR model in Metro Detroit, I wanted to share a new strategy that I've successfully implemented into my business which will MAXIMIZE CASH FLOW from small Multi Family Properties bought AT MARKET VALUE...

This hybrid model ONLY works on Multi-Family. I've implemented it on a Duplex that I've owned for awhile, but I'm sure it'd also work great with a 3-4 unit. It could work on a larger commercial multi-family property, but it really depends on the area.

I'm going to break down this deal, the numbers, & how I'm maximizing cash flow from a property I purchased AT MARKET VALUE with 95% LTV.

Throughout this thread, I will share pics of the newly rehabbed unit to give some visual context. 

Deal Facts

• - Built 1928
• - Duplex
• - 1429sqft, 954sqft downstairs, 475sqft upstairs
• - Split garages
• - Working class neighborhood, C+ or B-
• - Suburb bordering Detroit, near the GM Tech Center and Chrysler Motor Plants

Purchase Price: $105,000

Down Payment: $5,250

Financing: 5% Conventional Bank Loan

Rehab Costs: $7000 (after I owned it for 1+yrs)

Closing Costs: ~$3000

All In: $115,000

Market Rent when Purchased: $1,370

Cash out of my Pocket: ~$15,250

PITI: $914/m

The strategy is simple...

Buy multi family > Rent unit 1 LONG TERM > Rent unit 2 SHORT TERM > PROFIT

It's not a big secret or difficult process, but it does take some level of risk. 

Let's break down the numbers so you can see the difference...

Backstory

This upstairs unit is only 475sqft. The rent I was receiving from a long term tenant (1yr lease) was $625/m. That included me paying for water/gas/internet. After factoring in those expenses, it was maybe bringing in $550/m. 

About 9 months into his new lease, the tenant I inherited had to be evicted. I missed out on 2 months rent + had to pay court fees to evict him. He smoked inside the unit and had an unpermitted cat. Judge gave him 3 weeks to move out.

When I gained access back into the unit, I knew, at the very least, I would have to put in new floors and paint. It would maybe bring rent up to $700/m, but I figured since this was the smallest unit I owned, it might be worth the risk to test out Airbnb. 

I spent about a week doing research on Airbnb to see if it would even make sense for the area I was in. 

My property isn't in a travel destination... 

It's not close to an ocean...

There's not any attractions nearby that would bring tourists...

I stumbled across a site called AirDNA which gives you data on all the Airbnb listings in your city. 

I found that listings in my city had an 80% occupancy rate, the highest of ANY surrounding city...INCLUDING Detroit!

On Airbnb, I also saw there were only 5 other listings in my city. 4 of them were owned by the same guy! 

So if this guy has 4 properties all around this area and he's boasting an 80% occupancy, I could really crush it on Airbnb...

This was it...

I was committing to Airbnb and renovating my unit to be among the BEST in my area. 

The guy who has 4 units also was renting out an upper unit of a duplex for a whopping $125/night! Granted, it had 2 bedrooms and I had only 1, but still! 

I started crunching the numbers...

If I could rent out this property at $60/night and book just 10 nights, I'd be roughly breaking even to what I had before. I also wouldn't have to deal with the constant wear and tear that a long term tenant creates AND I could add more rules. 

This was my first goal...breaking even. 

I figured it'd probably start off slow, but as I got reviews it could snowball and then I'd be able to raise prices. 

I knew this was worth a shot because even if it failed, I could always turn it back into a long term rental. That was the worst that could happen! 

The Rehab

Since the unit was only 475sqft, I wasn't expecting the rehab to take long. 

The hardest part was finding furniture and modernizing the unit, while also giving it nice touches. Facebook marketplace, hole in the wall furniture stores, and Hobby Lobby were mostly responsible for the furnishings. 

When you have such a small space and mostly 7ft ceilings, you really need to be efficient while also making it feel open. I think we did a good job maximizing the space. 

The upstairs has some cool built in closets that I put locks on and stuffed with supplies. All the amenities we provide & extra linens are locked away, but available for the cleaner when turning over the unit between guests. 

We installed a camera at the front door and automated the unit with smart locks to make the property simple and secure for guests. It really makes it easy to manage when I don't even have to meet the guests!

Overall, I spent around $7000 on this rehab. If I wasn't doing Airbnb, I would have only spent around $2000 to turn this over to long term tenants. This was one of my biggest concerns going into it, because if it fails, I'd be holding onto $5000 in furniture and eating it as a loss.

RESULTS

The rehab took 1 month and I finally got the unit launched on Airbnb. 

I put the base price at $50/night and added a $50 cleaning fee. 

After 48hrs, I had 11 bookings! They just kept coming! 

I was booked almost the entire month of September and most of October! It's crazy how big of a hit it's been so far! I can only hope this continues as we head into the winter months!

So now this little Duplex, my first investment property, that I started with a house hack, is now clearing $2200/m in income! My 475sqft unit is bringing in more than my long term rental downstairs (which is nearly double in size). 

Bottom unit rent: $925/m

So far this has been a massive success. I'm close to Superhost status and so far have all had amazing guests who take great care of the property (way better than my long term tenants). 

CONCLUSION

I made this thread to share and document my experience. 

I like this hybrid model of doing both long term and short term rentals under the same roof to mitigate risk. I would ONLY consider buying based on rents that it could produce as a long term rental and would not always count on short term rental profits. Right now it's the icing on the cake and I'm going to milk it for as long as I can!

I know the Detroit markets get a LOT of hate on the podcasts and forums, so I'm highlighting my investments to shed some positive light on the area.

So far, I've had great success with BRRRR deals, wholesaling, flips, turnkey properties, and now Airbnb.

I do not own anything in the city of Detroit, I've only been focusing on the surrounding suburbs.  If you're creative, it is definitely possible to break 2% of the purchase price in rent while also sticking to B class and C class areas. 

Thanks for reading and I hope more people are able to successfully implement this strategy! 

I've had a VA for 1.5yrs now. He manages my social media (Facebook, Youtube, Instagram, Twitter), graphic design, and website. He's typed up some leases for me and paperwork for my rentals as well. He's from the Philippines and I found him on Upwork. He's available and working for me 7 days per week, 11am - 8pm EST. I pay $100/week (like to surprise him with random bonuses when we are super busy).

He's been super loyal and helpful with my business, although I've had to teach him a decent amount to get where we are today. I do encourage him to have other streams of income and make money online, but do ask that he prioritizes tasks I give. I do know that he earns above average salary for what he could be making in the Philippines.

Not directly Airbnb related, but I am about to launch my first BNB in the coming week or 2 and plan on incorporating him into that depending on well it goes! 

Couple takeaways from my first deal...

If there is a clean out drain that's easily accessible, pay $100 for a plumber to stick a camera down there and see if there's any tree roots. I overlooked this on my first deal and had to deal with some hidden costs and problems for the first year!

When you're in the due diligence phase, make sure to visit the property after a hard rain. My first purchase ended up needing a new driveway and garage because it was sitting so low. Whenever it rained, there was 6-8in of standing water making it completely inaccessible. 

These were 2 unexpected issues I experienced and costly fixes. Luckily I still got the highest Appraisal without having to fork out cash on these repairs, but it'll still end up costing me around $15-20k to redo the concrete and build a new garage which should last as long as I'm holding the property.