All Forum Posts by: Timothy Gleason

On my last BRRR, I did everything but the windows...and it was painfully obvious that they were the weak spot in the house. The age old, "Update a little bit, and the rest looks old".

We replaced them, and I'm glad we did.  It cured some humidity issues we were having and made the A/C much more effective, quieted down the home tremendously, and we were able to "showcase" them (instead of covering them up), thus adding a ton of light to the home.

My only regret is that we didn't do it at the proper stage.  We'd already painted & trimmed when we forced the decision.  Had some minor re-work.

ETA: Probably not useful in CA, but in FL, code-compliant windows (130MPH or Installed with Hurricane Shutter/Fabric provisions) can pay for themselves in insurance costs within a few years.  Useful for B&H investors.

@Steve Dove  interesting POV: using the peak months to cover costs and shoulder months for profit. That could work in my area. 

@Jeremy Baker  absolutely concur. Personal use has both a quantitative and qualitative value that can't be ignored. I hope I didn't come off as not enjoying owning a VR. Like you, I find it extremely rewarding to be able to apply a personal touch and see direct rewards of my efforts. The other perk is problem tenant issues are mostly self-solving. (Short terms).   

I own a waterfront VR in Pensacola Beach, FL. The minor cash flow it produces is almost meaningless. Even those who say that VRs CF would likely concede that their money and time could be spent more productively elsewhere. I liken it to a timeshare with equity buildup. Appreciation is the big unknown on these properties...but that's not CF.

VRs have expenses you wouldn't ordinarily pay on a std rental. Below are a sampling that I've seen to date. These are real numbers on a $750k house. I wrote this for a friend, but I'll post here for general use.

Mgmt: 10-20% of gross rent. 10% if I coordinate the bookings, and 20 if I do a complete handoff. I strongly believe in the former. I control my brand, I have extreme agility with my rates, I control my marketing, etc. if it doesn't rent, I have only myself to blame...which is my preference as a control freak. I convert about 1/10 inquiries to bookings. Each inquiry takes about 5-15 min of work. This is a game of minutes...you have to act fast or your prospective guest will move on to their next choice.

Utilities: You pay all utilities. My power bill was $450 last month. Tenants are not shy about temp set points in the 60's. I know because I have wi-fi thermostats and I monitor them. This also allows me to put them in 'vacation mode' from afar if I have some vacancy. You're also paying for a full cable/internet/phone bundle. WIFI is expected, and a landline phone is handy for reaching your guests mid-stay. Cost: $100 Water/sewer is standard for a home of this size: $120

Marketing: VRBO and Homestay is $400/year for the lowest plan option. Up to $1200/year for highest search ranking. They also allow you to run "specials" which I've used to pump out discounts. $20/week, 2-week min. FAcebook ads are giving me limited success. I've dropped about $200 there, but now sure how much conversion I've had off these.

Turnover: Cleaning and linen for my house is $250. This provides hotel quality cleanings with the same crew each week. They also provide towels, sheets, soap, shampoo, sponges and dish soap. (Think Country Inn & Suites).

Damage waiver is $50. This is like a pooled insurance policy through the Mgmt company. Better than a large security deposit in my eyes.

Credit card fees. Somewhere around 2-3% of gross costs. I'm paying $50-80/booking.

Hotel Tax 11.5% on rent, cleaning and damage waiver. All these fees/taxes are charged to the tenant (except CC fees), but they serve to limit profits. If a family's budget is 4k, you'll only be able to get rent in the 3200 range...then pay Mgmt compactly 10% plus CC fees.

Furnishings: Dishes, furnishings, AV, games, etc. you need to provide a full home, replete with everything they need that isn't consumable. Beach chairs, sand toys, board games, grill are all expected. A full kitchen is also expected. (Including baking ware, crock pot, griddle, etc). When gramma wants to make her traditional pie for summer vacation, she needs everything to do it. Keep in mind everything in this list needs to be refreshed periodically.

Concierge service. When people drop $4k/week, they feel entitled to ask for anything and I don't blame them. Even tho 25% of that cost is straight to fees. I have sent flowers, picked up specific kitchen items, coordinated fishing charters, and helped draw out weekly itineraries. I make it clear that once they check in, all requests go through The mgmt company (to eliminate urgent requests of me), but up front, I probably spend 2hrs per booking to give them a custom vacation. And I don't bill for the small stuff.

Maintenance Coastal homes have a high maint burden, and VRs have a very high std for functionality. There can't be any 'idiosyncrasies' about the home. Everything just has to work. This was my biggest initial expense, along with furnishings (even tho house was bought furnished).

Time: I spend about 30min/day on marketing, inquiries, pre-arrival comms, and post-guest follow up. It's gotten easier, but still needs to be done if you want to run it like a business.

Liability insurance: Std fare for you but don't forget it. I'm at $525/yr just for liability. Flood is $6k. Taxes are somewhere around $12k. Fire/wind is $2600. Lease fee is $800.

Owner use: You're obviously losing revenue, but also have to budget for cleaning, either in terms of your own time or $$. I pay the $$ because all my discretionary time is spent on maintenance. I don't have 2-3 hrs to clean at the end of a sun drenched weekend.

Future costs: VRs are getting mainstream. I forecast having to provide paddle boards/kayaks/fishing gear to differentiate myself in the next season or two. I'm also considering a strategic partnership with a fishing charter service, but will wait until offseason to begin those discussions.

Bottom Line:  There are market specific items that will improve your bottom line.  In my area, proximity to the beach, a pool, and heads-in-beds directly translate to higher rents.  "Check as many boxes" in your market, and get a deal on the home and you have a chance to make $$$.  (Ex: Having a dock in my area is a large expense that doesn't translate to much more revenue).

Hope some of this helps.

-Tim

@William Allen 

Great question. So here's another tidbit I've learned:  always have a "get out of town with your hair on fire" exit strategy to go with the standard multiple exits. 

I got a call the week of Thanksgiving to take a Navy job on short notice in Fort Worth starting Dec 1st. I'm typing this from TX in fact.  I'll be here for 6 months or so (TAD)

I've got electrical, Sheetrock, and trim lined up. But distance managing a flip involves a bit more patience...and I'm much more at the mercy of the contractors I was already working with. (Hard to bring in a new guy when you can't even be on site to define SOW). 

I'm guessing this move is going to cost me at least 6 weeks in lost time (efficiency loss), but won't be a net loss in $$$ as I was doing the whole flip in cash. (Lost rent is offset by extra Navy pay while in TX)

@Kyle Samuel   I totally get the "negotiating with yourself" comment. Very tempting to do so. I've caught myself doing it a bit on this project...fortunately I bought it right, so I have some wriggle room...but I've definitely cut scope for cost along the way. 

@Dawn Anastasi I'm sure I'll get some calls when the handymen get hungry. For now, I'll just keep on trucking solo. 

@Caleb Mclamb   Target completion date is mid December. It'll be a rental, so my deadline is post-holiday season. I'm in for all cash, so nobody's gonna break my knees over a loan payment if my schedule slips. Planning on attending PIG on Tues. 

In the midst of my first flip- a modest block home in a great rental area. 1200SF, sunroom, 3/1. The home was built in the 50's, never updated, same owners for the last 50 years. 

SOW: new roof, retrofit central air, add a full bath (slab foundation), new kitchen, floors, remove & reinstall ceiling, upgrade electrical. I'm acting as GC, managing the major subs (roofer, plumber, sheetrocker, painter)

Some of my observations that I didn't foresee in all my reading and research leading up to this:

- Handymen NEVER call back. 

- Small jobs are more frustrating than the bigger jobs.  Ex: getting an attic access reframed, adding a GFCI circuit, Demo existing cabinets, etc. All these are so small, it really doesn't make sense to get a specialist - actually easier to just do it myself...unless I could ever get a handyman to call back...   Even then, the multi step process of site visits, bid acceptance, and actual work is so lengthy...I just do it myself. 

- Deciding on the limits of demo is an iterative process, but it shouldn't be. Clearly experience will tell a seasoned investor how much to demo...but its hard to trust yourself as a newbie, so it therefore becomes iterative. 

- Doing anything part of the project is tool-intensive. I am fortunate enough to have acquired a ton of tools over the years, but I remark at how much I've used for the general small tasks I've taken on (framing, demo, electrical, tile removal)

- Cutting corners ALWAYS burns you. I tried to short-change the HVAC closet dimensions...had to reframe and wasted my HVAC installers time. Lesson learned.  

- Know the code. Toilets have a minimum offset from side walls...who knew?!  I did after I had to pay the plumber to rework the toilet rough in (after I already concreted his work)

So...what are some of the lessons you've learned the hard way?

I don't understand the comment about a 3/2 not cash flowing...there are a myriad of reasons for a property not to cash flow, but being a 3/2 is not one of those.  

@Jay Helms - I saw that PNJ article this week as well. Made me sick. My family was sued growing up (B2B issue). The lesson I learned was to create levels of asset protection. This includes proper entity establishment, diferent levels of insurance, and other items as recommended by your lawyer based on your circumstances. 

I hear a lot of folks poo-poo the entity issue when it comes up on here. My only thought when I hear that is - "Have you run your assumptions by your lawyer before you advocate the merits of your own self-created asset protection plan to the rest of the world?"  In the end, each state is different, and everyone's requirements are different.

 It's sad, you and I pay for these money-sucking lawsuits - when we renew our policy and when we are forced to overbuild and overcompensate for the idiots out there who will eat the paint chips, or in this case, kill their neighbor on your property. 

I don't want to be the "Wet blanket" on this party, but I disagree with going solar.

My background: I work in facilities on large U.S. military bases. We must meet US directives to reduce energy consumption & secure minimum percentage of our power use through renewables. Solar is an oft-cited method we explore to meet these requirements. The installs are usually met with great press & fan-fare, but the lifecycle costs of these systems usually FAR exceeds the initial estimates.

Solar is a huge headache.
1. The systems rarely perform as advertised. (Lab conditions are used to quantify the output, real-world conditions rarely equate to lab conditions).
2. Maintenance is critical. I'm glad you've got a maintenance contract during the lease period...but will that solar company be around to honor it for the next 30 years?
3. Does your roof have 30 years of life left? If not, you'll pay significantly more for removal & re-install of your roof.
4. Are you in favor of penetrating your existing roof to accomodate the necessary mounting brackets?
5. Do you live in a hazardous weather area that may prematurely end the expected lifespan of your system?

These are just some thoughts. I think that Solar is inevitable, but any industry that is ABSOLUTELY reliant on government incentives is not a viable commercial endeavor in the long time. With technology improvements, I can see a day...we're just not there yet (in my eyes).

Whatever you choose, good luck

Caleb-

The question you posed will have as many answers as there are opinions in this forum. If you're unhappy with Pensacola and jonesing for a change of scenery, "Just do it" (Art Williams quote - YouTube it if you're unfamiliar). I wouldn't necessarily choose a place to live based on where your preferred REI strategy fits the cleanest. Instead, I would do as @William Allen said and find local deals, even if you have to tweak your strategy a bit to stay local.  Your time growing up here has value...you already understand some of the nuances of the local market. When you move, take into account the time it will take you to get up to speed in your new market and factor those in as a cost.

I too have done the absentee landlord thing and hated it. Some personalities can make it work, but I'm not one of those. Therefore, I invest where I live. If you're at all interested in investing in your hometown, you should check out the Pensacola Investors Guild, as it is an active REIA club here in town. You'd meet some likeminded individuals at the least.

Good luck. Let us know what you decide.