😱Why I’m Quitting Long-Term Rentals
Okay, Am I quitting rentals? I’ll give my specific answer at the end but let me give you a quick backstory on how this even came up.
So, I actually started with traditional rentals. Some of you may know how I started but for those that don’t, I started with a strategy called house hacking.
What that strategy consists of is buying a property with very little money down. Ideally 3-5% down, then rent out the other rooms or units, and by doing this you live for free. And You can do one of these per year. And I actually still really like this strategy.
And this set me down the “traditional” investor path of buying traditional properties for rentals. What this looks like is Buying a property, listing the property for rent on Zillow or one of the other sites, screening tenants that apply, they bring their furniture, they sign a 12-month lease and then hopefully they pay every month.
It all sounds great and I was ready to be financially free after a few years which everyone talked about.
But, I started doing the math.
And as cool as it sounded to do real estate and own properties which it definitely still is, and definitely way better than doing nothing.
I realized that it was going to take a really long time to achieve my goals on the path I was on - which was financial freedom before I was 30.
If you follow the “typical calculation” for rentals that each unit will cashflow somewhere between 200-400 dollars a month, depending on your lifestyle, that could take a long time.
And for me, I didn’t want to wait so long. I didn’t like my job and felt like there had to be a better return out there for the amount of work I was putting in.
And after talking to other real estate investors, a lot of them felt the same way. It was hard work and a lot of risk to make 200-400 per month and then if there was an issue requiring a big fix, the profit of a year or 2 could be wiped out.
So, that led me down the quest. Of asking - What were the options that could get me to my goals faster?
I started with multifamily. In theory, bigger properties meant bigger pay I thought.
And specifically, I was looking at syndication. So I started down the path of Joe Fairless and Grant Cardone. Learning about the process of buying apartments with other people's money and sharing in the profit.
All seemed pretty straightforward. Not necessarily easy but straightforward.
But as I kept peeling the layers back, I realized something that very few syndicators were talking about publicly.
You make very little money in your first few years of syndicating if any especially if you don’t have that much of your own money to put in the deal. To oversimplify the model basically, for the first few years, the limited partners or outside investors make the majority of the returns. And only after they hit a guaranteed amount typically 6-10%. Then the syndicator can share in additional profits.
But a lot of times, new syndicators don’t outperform those returns, which means they aren’t really making anything after the investors get paid.
So yes, it sounds very cool being able to tell people 'You control 4000 units'. But in a lot of cases When I asked that same person how much they netted each month, it was way less than I expected. Like way less. And it actually looked like it was way better to be a limited investor in apartment investing than be the general partner. At least in a lot of cases.
Because the way multifamily syndicating works, is that the operator makes a little money upfront on the purchase through something called an acquisition fee, then during the ownership, very little money is actually made through management fees, but then if they do a good job with the deal, there is a very big payout potentially. In a lot of cases, this can be multiple 7 figures. But there's a huge 'but' this payout can sometimes be 5-8 years later. and until then, it can be a real financial struggle.
To be honest, when I learned this, I was really discouraged -because I thought it was the path and had spent a lot of time on it.
But I knew there still had to be a way or ways to make more money.
And not long after that, did I stumble into the world of real estate wholesaling and furnished rentals or Airbnb.
Both of these seemed really daunting at the beginning. Mainly because there was a lot less information out there than there was for regular rentals or even flipping.
They are slightly newer but it seemed like people were actually making the money I first envisioned making in real estate. Enough money could get me to my goals.
There were also some pros that I found furnished rentals solved for that were really underrated.
For starters, you don’t have to deal with marketing to your tenants or guests. They come to you. No more applications, showings, walk-throughs, security deposits, etc.
You also never had to worry about collecting rent. This used to always annoy me. I just don’t like the feeling of having to ask people for money all the time. And with tools like Airbnb, Vrbo, HomeAway, and others they are collecting the money ahead of time and making sure you get paid.
And the last benefit was that if you handle the property properly and have a good cleaning done, you shouldn’t have to deal with expensive unit turns between tenants like traditional rentals need.
So it just became more and more interesting and that was the beginning of the end for traditional rentals for me at least for now.
After that - I started focusing on what was the best way for me to get started with Airbnb.
The 3 main options Are:
Airbnb for purchase
Airbnb arbitrage
And Airbnb management for others
For me, the option was pretty simple. I had a fairly high-paying job at the time and I had been saving money for a while.
I was going to buy because I wasn’t going to be in my job much longer and if I left that job before maxing out the residential loans I could get I'd be kicking myself.
See, when you have a stable W2. Banks really like you. They are happy to give you money, especially right now. But as soon as you don’t have that stable job, banks treat you like a completely different person. Ultimately not really want to make loans to you for a while.
So I personally thought it would be a little reckless to focus on Airbnb arbitrage or Airbnb management before maxing out the loan cards and especially because those 2 strategies require little to no startup capital. I knew I could always do them no matter if I had a job or not.
So during covid, I really focused on analyzing neighborhoods, analyzing deals, and making as many offers as possible for Airbnb purchases.
The first property I purchased was actually an off-market deal.
It was listed for rent in Nc and it was a property I had my eye on for a while Bc it was so unique. The owner was a little surprised but was open to selling. It was a little sticky with the financing but we ended up getting it done and we were in the game. That property came furnished and immediately started renting and cash flowing 1100-1300 dollars per month.
Whoa, that was different than the typical 200-400 stuff I was used to with regular rentals.
And since the purchase price was only 140k and I didn't put that much money the return on my money was over 30%.
Immediately I was hooked.
The next 3 properties purchased are all projected to make at least 2k profit per month.
So, it actually did turn out to be true about the 2k per month profit on these properties after we purchased them.
And after getting more into this world and building systems and processes to offload the day-to-day - it just became the full focus.
Since that first property, I purchased 4 more properties with the strategy of furnished rentals. Some are nightly, and some are extended-stay furnished rentals. And when those were going so well, I decided to start converting my traditional rental properties into furnished rentals. It was an experiment but to my surprise, these started to make 3-4 times more profit than they were making when they were traditional rentals.
What does all this mean and are “traditional” rental investments dead?
No, they are not dead. There is still money to be made with them and I have friends that are making great money with them. But those friends are also incredible at finding off-market, undervalued deals and are also usually good at construction.
They are usually good at these types of deals and like them. They have also typically been working in this business for years and have started recouping the benefits of going “full cycle on a deal” which is just a fancy way of saying they bought it, fixed it up, rented it, and then sold it and probably had a big payday.
For me, and maybe some of you, you don’t have as much time to wait a few years to go “full cycle” on a deal to get a payday. You might be looking for more cash flow as soon as possible.
Right now I think Airbnb or furnished rentals can be that path. And, I don’t know if things will always be this good or easy with Airbnb they probably won’t but I don’t think that’s a reason not to learn about the ways you can make money with it now.
If you are looking to learn more about Airbnb investing or get help with any of this we have lots of free content and Facebook groups around it AND just launched a few new coaching programs and courses that can provide more direct help to people looking to get started.
If you have any questions about any of the programs or are looking for coaching, just shoot me a DM on IG.
I look forward to seeing you guys at the next one and be great.
Check out the video on my YouTube channel! 👇
