379: How to Make $3 Million a Year on Apartments You Don’t Even Own! – Part 2

SHOW NOTES FOR EPISODE 379: HOW TO MAKE $3 MILLION A YEAR ON APARTMENTS YOU DON’T EVEN OWN  – PART 2

He went from homelessness and living out of his van to motivated entrepreneur to AirBNB tycoon.  In today’s podcast episode, we continue the second part of our podcast with Sean Rakidzich where he shares how he went from accidental AirBNB host to generating $3 million a year with apartments he doesn’t even own.

What You Will Learn

• The importance of negotiating for long term success
• How to use Realtors to find apartments for AirBNB arbitrage
• Building you AirBNB business team
• How to effectively market your AirBNB properties
• Knowing how and when to scale to grow your AirBNB business
• How to know and monitor your local AirBNB market
• What you need to get started with little or no money
• Valuable tax deductions for your AirBNB business
• What apartments make the most money

Sean Rakidzich

Sean is a serial entrepreneur and accidental AirBNB host.  After discovering the earning power of short term rentals Sean, within three years, built a $3 million per year cash flow real estate business with no debt or financing.  Sean is now the host of the popular YouTube channel AirBNB Automated where he’s taught thousands of people, for free, how to realize their potential and build their own successful AirBNB-based businesses.

…Continued From Part-One

How Sean Finds His Apartment Deals

• Sean, initially, just walked into an apartment complex leasing office and asked to see the apartments
• He had been a salesperson for the last 10 years, so he would sell his business model to the leasing agent so they could sell it to top management
• Today, he speaks directly to ownership because he takes many more units (10 or 20) at a time than in the beginning
• When he hires Realtors to work for him, he asks them to “just find buildings.”  Sean wants to do the selling/negotiating
• The Realtors just find the apartments and get Sean in front of the decision makers.  Sean does the pitching

Your Biggest Successes

• Knowing how to market the spaces
  • He knows how to create an impressive online profile
  • Sean knows how to write impactful descriptions in his profile
  • He recognizes the importance of quality photos
    • He knew that the design of the units and having slightly quirky things that would make for good photos is important
    • He designed his spaces fairly well on a good budget
    • He made his spaces slightly unique
• Building a good team
  • He recognizes that management of an organization is about the people that work there
  • He’s always empowered his people to do well
  • He hires good people, has a good staff
  • He’s able to grow the business because the employees are invested in the business and Sean invests in his people
• He understand the difference between AirBNB and Hotels
  • With hotels, you don’t know what door you are going in until you get there
  • When you book on AirBNB, the place you are staying in gets taken off the market for your stay
  • The hotel keeps marketing until it gets full
  • With AirBNB, when your space is booked, you can no longer market the space
  • The more bookings you get on AirBNB, the bigger the challenge to fill the spaces between bookings because the spaces must match what people want

How to Monitor the Market

• Anything you need to know, you can find by monitoring the listings in your neighborhood
  • You can see your competitor’s bookings
    • Their price
    • Quality of photos
    • By “secret shopping” other’s listings
    • You can evaluate the quality of their listings
      • Photos
      • Quality of copy
  • You can ask yourself, why is this listing getting bookings and why is the one next to it NOT getting bookings?
    • AirDNA won’t give you that
      • But AirDNA will tell you about the “seasonality” of the neighborhood
        • Unfortunately, their data isn’t clean
          • You need to clean out – “data hygiene”
          • You need to clean out irrelevant data or outliers that will affect the numbers
            • For example:
              • There are people who put up a listing but never use it
              • People will put a listing on “Instant Book” (which is for a full-time listing) but then they block the calendar
              • These things screw up the numbers
    • AirDNA does give other cool general insights like:
      • Which months are the best and which are the worse
        • But it will tell you to expect $1,500 in the slow season and Sean gets $2,500 (because they factor in the worse listings as well as the good ones)

Advice for Old Dawgs Looking at AirBNB to Help in Their Retirement Years

• For people who don’t want to do a lot of work, there’s still a way to get it done
• An apartment should profit no less than $600 per month on average
• It’s easier to achieve a profit if your housekeeping cost are low
• Find people you know who would be interested in this opportunity
  • Find 4 or 5 people
  • They commit funds through an LLC
  • Small group investment strategy
  • Pick up 10 apartments so they can achieve scale
    • Now you can hire a property manager and a couple housekeepers (can pay them hourly vs. by the door) and not have to bring an outside person in or co-host company
    • Then they can do it on their own
    • It costs about $5,000 per apartment to get set-up
      • Each person would have to contribute $10,000 and could yield $1,200 per month income, recouping their investment in less than a year
• Here are the typical costs associated with setting up one AirBNB
  • For example:
    • You negotiate one month free rent on an annual lease
      • They usually give you the first FULL month free and prorate if yo don’t start on the first
    • If you sign the lease on November 15
      • The rent is $1,200 for the month
      • You’ll pay, if you come in mid-way, $600 pro-rated rent and $300 deposit
      • Application/admin fees – $100
      • Subtotal – $1,000 (rents and deposits for the first two weeks)
      • You get the second month FREE
    • Furniture, TV, plates, towels, linens, other set-up – $4,000
    • Your set-up will include WI-FI ($40-60 per month) and a service like Netflix/Amazon that you can split with all of your units
    • Total – Approximately $5,000 to get started

Current Business

• In the next few months:
  • 18 properties in Houston
  • 4-5 in Dallas
  • 21 in Philadelphia
  • 43-44 doors in one month
  • With the possibility of 38 more doors in Philadelphia and more in Fort Worth
• If he gets all these going, he’ll have to do some creative finance
  • He’s previously always paid out-of-pocket
  • Will likely have to purchase $200,000 in furniture for 100 properties
  • But he still has cash flow needs for ongoing operations (bills, rents on the first, salaries, etc.)
  • He’s going to have to force himself to figure out how to finance everything

Scaling – Discounts/Deferments for Furniture in Bulk

• Found a wholesaler that supplies Wayfair
• He currently uses Wayfair Business
  • He had a $15K shopping cart of Wayfair for 10 new properties in Philly and plus more stuff on Amazon for a total of $28K
    • Sent the Wayfair shopping cart items to his business rep who negotiated with Wayfair and got $1,800 off the shopping cart total – you can’t do that with Amazon!
    • Wayfair wants to grow their business and is willing to work with  businesses
    • They will slash prices because you’re a bulk buyer
  • In the Northeast, he uses Bob’s Discount Furniture for sleeper sofas because they have a really good quality sleeper sofa
  • If you can get one-year, no-interest financing on furniture, you could save big on your move-in costs
    • This can SIGNIFICANTLY reduce your “move-in” costs
    • You could reduce/defer start-up costs by $3-4,000
    • It doesn’t hurt to ask!

Best Apartments to Rent

• For cheap to get in and fast activation
  • Studios are best
• For profit, per unit
  • Three bedroom units (or more, if possible)
  • In Houston he has a 3-bed, large floor plan, 2-story apartment, high ceiling in living room
    • Photographs very well
    • Rent is $2,400
    • It cashflows $9-12K PER MONTH
    • It has:
      • A big beautiful couch in the living room
      • Sleeper sofa on second floor modular living area
      • Master with a king
      • Other 2 rooms have 2 queens in each
    • Currently, he rents for $600 per night
    • He reduces daily rate for closer booking dates
    • He’s considering a separate listing for the same property that can book for less per night but additional for each guest
      • Can do a “child listing” for the $600 per night – open a year in advance
      • The “original or parent listing” would have to be the “price-per-person” listing and you would block out certain dates.  Then, 4-6 weeks out, you open those dates

Marketing Strategy – Create Properties With a Theme

• He has a house in Philly that he has created a Unicorn theme
• The place is painted all blue
• Unicorn murals painted on the walls
• Coffee cups say “I don’t believe in humans” with a picture of a unicorn

Rap-It-Up

• Favorite real estate book: Tax-Free Wealth by Tom Wheelwright
• Favorite business book: The Leadership Pipeline by Ram Charam
• Most valuable web site for success (other than your own): Google.com
• Favorite YouTube Channel: Harvard iLabs and Stanford Graduate School of Business
• Favorite app: AirBNB
• Favorite quote:   “I’ve already lost touch with a few people that I used to be…” – Joan Didion
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? If you have “intangible assets” (knowing a customer list or a process, for example).  He would sell his knowledge to people (through phone calls, consultations, etc.) to raise money.  How he would spend the $1,000:
  • Get an LLC
  • Get a business bank account
  • Go around to apartment buildings that look like they have low occupancy
  • Pitch management to take on 10 leases over the next 3 months
  • Once management committed, he would go to other people and say, “Hey, I’ve got this deal and give them a cut.”
  • Get furniture store to get one-year, no interest financing
  • Start one apartment with everything he needs
  • Try to get one month free rent
  • Get the first one up and operating ASAP
  • If the revenue generated from the first one isn’t enough to allow for the next one, just get apartment company to keep moving start-up back a month

Tax Tip

• When Sean buys lots of furniture, he depreciates 100% of the furniture all in the first year to get a big tax write-off

How to Reach Sean

• YouTube:  Airbnb Automated
• Facebook Host Group: The Hosts of Airbnb Automated

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com