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393: Investing in Vacation Rental Properties

March 2, 2020bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 393: INVESTING IN VACATION RENTAL PROPERTIES

Do you want to learn how to make $50-60,000 a year NET with just one rental property AND have a vacation house in your favorite part of the country? In today’s podcast, entrepreneur, real estate investor and CEO of Vrolio Erica Muller shares how she is helping people from around the globe to generate amazing cash flow with just one vacation rental property.

What You Will Learn

How tech skills, especially in web development and SEO can be a tremendous boost for your real estate business
Why international investors are buying homes like crazy in America’s leading vacation resorts
What short-term vacation rentals are and how they differ from most AirBNB short-term rentals
Why mobile home parks are a good investment
How to find the right market for a short-term rental
What’s the best kind of property to buy for a short-term rental
How you can increase the value of your rental property by converting it into a vacation rental
The key to insuring your guests have a great experience at your short-term rental
Why short-term vacation rentals make sense for retirees seeking steady cash flow

About Our Guest

Erica Muller

Erica started out in real estate in 2002 (17 years ago) at the age of 18 and owned her first property at the age of 19. She has worked only with real estate investors her entire career in long term rental investing and commercial and moved into short term rental investing 11 years ago after moving to Orlando. She started a boutique real estate group called The Flamingo Group in Kissimmee, FL where she sold over 350 vacation rentals to investors from all over the world. Since then, she has scaled that model into a multi-national vacation rental MLS platform and now offers investors the ability to find vacation rental inventory with existing income and revenue data. Erica is also a real estate investor who owns three mobile home parks in GA and is actively growing her portfolio.

More About Erica

Grew up in South Florida – Boyton Beach/Wellington/West Palm Beach area
When she got a car, when she turned 16, Erica used to spend a lot of her free time driving down Highway A1A just looking at all the huge mansions
When she was at the beach (cutting class) she realized she couldn’t work for someone else
Dropped out of college after one semester
She knew she just wanted to do real estate
Had three jobs
Got her real estate license
After only six months, she was able to do real estate full-time
She got married at age 20
Her husband was in construction
Because of her tech/social media skills, she was able to pass up most of the other agents in her Coldwell Banker Realtors office
- She could do SEO, build a website and set up a blog when most of the other agents couldn’t
- She was able to dominate internet searches and would pop-up in searches very early in her career
- She read a lot of books early on
A lot of investment dollars were coming from New York into Florida and that’s where Erica got involved on the investment side
She started out in residential real estate and long-term rental investing
Later she moved into commercial real estate selling gas stations, strip malls, etc. in her early 20s but didn’t like it because it was too cold and disconnected
Got back into residential investment side
During the boom (before the big crash) Erica started buying long-term rentals and did a bunch of flips
When the crash happened, she lost a lot of money and houses

Discovering Short-Term Rentals

When the bubble burst, they were struggling
They were living in South Florida and having trouble making ends meet
They were selling things out of their garage to live
They bought a vending company as a means to bring in more cash and it did pretty well
The route for the vending company was around Orlando and Disney World so they moved there
She noticed that, even though it was only 3 hours away from South Florida, the real estate business was doing much better
There was a lot of international money flowing into Orlando because of Disney World
Erica noticed that the international money was going into buying foreclosures and investment property
She didn’t also realize that a lot of international money was going into short-term rentals
Erica took a job with a management company as a sales and marketing director
Her company helped investors expand their portfolios and it focused primarily on short-term rental market
Investors were from all over – Canada, China, UK, Brazil – paying cash for the cheap homes in America for short-term rentals
She noticed that is was a very different kind of investment
- It had the income side
- but it also had the hospitality aspect
- She liked how people could use their home to make money
She liked the owners involved and this unique real estate investing business
She resigned from her job after six weeks because she saw the opportunity, especially in light of the economic crisis

Launching “The Flamingo Group”

Erica immediately set up a WordPress website to launch her new company – The Flamingo Group
The website took off
She was blogging about the market, doing hyper-local keyword stuff about the local neighborhoods
She was getting tons of leads
She started hiring agents
Ended up launching her own unique boutique brand of real estate office
She built pro formas that didn’t exist for this type of investment
Started educating people on how to boost revenue for short-term rentals
She was building in commercial aspects of short-term rentals
When AirBNB hit the scene, it attracted a lot of domestic investors
She was able to consult with people on how to invest
But she was not buying short-term rentals but she was selling tons of properties for short-term rentals

Owning Mobile Home Parks

Her husband and she dreamed of buying a self-storage facility and call it “Store Your Crap” and open multiple facilities
They had saved and thought they were ready to do it but they, by that time, had grown to realize that you need a big entry point to be generate enough with self-storage and they didn’t have that kind of money
They found out that, for the same money, that could make great cash flow with mobile home parks
Three years ago, they found a mobile home park on a website and they bought their first mobile home park in Georgia
And since then, they have bought one mobile home park each year because the cash flow was so good
For them, it was all about generating enough cash flow for the lifestyle they wanted and so that they didn’t have to work but could because they wanted to
Since they bought parks out-of-state, finding the right management was a challenge
- The first manager “came with the park” but she was a problem and they had to have her arrested for stealing money
  - She was telling tenants that they had to pay cash and they paid more than she stated
- The next manager was a really big management company in the area
  - They managed over 1,500 homes at that time
  - They did a terrible job
  - Occupancy was struggling
- The third was a smaller “mom and pop” type management company
  - They had a high demand for the types of homes Erica had
  - Got up to 90% occupancy
  - Today it’s at 100% and never vacant
  - They have a waiting list
  - Erica works close with them and helps with marketing

Notes on AirBNB Arbitrage

It’s been around for a long time
It used to be called a “guaranteed rental” program that property managers would offer clients
It transformed into something with a different name as gurus started talking about it
She thinks it’s a great model with a ton of risks – she has seen people who have lost their shirts because you can’t control the investment
You basically rent the business. You don’t own it.
It’s a hospitality business and the goal is not just getting it rented, it’s getting people to come back again and again

Finding the Right Market for a Short-Term Rental Property

You first want to select a strong tourism market
Next, you want to make sure it receives a lot of international tourism visitors
California has lots of tourism but bad regulation issues
How easy is it for people to get to your market (near an International Airport)
There are also “drive-to” markets
If it’s a “drive-to market” (Branson, MO, TN), half the country should be able to get there in in a 5-7 hour drive
If the economy goes bad, people will look for places that are in driving distance

What Type of Property is Best

Every market has it “sweet spot” type of rental
In Orlando, it’s a single family, 5 plus bedroom home that attracts the multi-generational traveler – stays longer, spends more money
For beach markets, luxury homes are booming and so is the condo market
In North Carolina, one or two bedroom cabins are hot
Don’t buy condos in a market with lots of other condos,hotels and timeshares. You’re competing with others that have a lot of money to market their vacation rentals
It can take up to a year and a half before a property is at its well-performing peak performance, what with reviews, listing info, etc that are needed

Vrolio

Erica launched a new vacation rental property platform early last year called Vrolio
It is a portal where people can shop for vacation rental properties throughout the U.S.
She calls it “a multi-national vacation rental MLS platform” – like an MLS for vacation rental properties
The platform shares specific, detailed information about vacation rentals that are for sale, including regulatory info
It also has a networking function to put you in contact with vacation rental experts in the market of interest to you
Owners can list their vacation rentals on the site and sell directly to buyers, without having to deal with realtors or agents
Vrolio focuses on off-market inventory that you can’t find in the traditional MLS, but also has properties listed on the MLS
Her listings also have pro-forma data on some properties (nightly rate, purchase price, income & expense data, cash-on-cash returns, CAP rate, occupancy, break-even ratios, etc.)
There is no other place where you can find vacation rental inventory, research tools, market data and a connection with others in the vacation rental space
Some inexperienced owners may be listing properties they think aren’t profitable but actually have great potential to more experienced investors
She likes to find the “under-performing” homes and optimize the properties, change the business model and get them well-performing

Case Study of the Value-Add Aspect of a Vacation Rental

A house in Kissimmee, FL (in Windsor Hills)
Owned by a British man
Had owned the the 6 bedroom, 5 bath house with a south-facing pool for 3 or 4 years
2 miles from Disney World
He initially bought it to be his second home but he wanted to also make as much money as he could from the property
He spent a lot of time getting the home fixed up nice
Sourced his home out to tour operators and booking engines to keep the home occupied
He never turned the home over to a full-service management company
The owner had a management company that would clean between guest, get guests in and out and deal with any emergencies but he handled all the bookings himself
He didn’t even use AirBNB
He had his own website
The home was grossing $80-90,000 a year, netting $50-60,000
When he wanted to sell, the market value of the home was $227 per square ft – $350-360,000 range
He was asking $385,000 for the home
He sold it for $235 a square ft – $378,000
The people paid more because they were purchasing a profitable business, not just a home
The owner stayed around a month after the sell to help transition the new owners with taking over the business (he already had $50,000 in advance bookings)

Financing a Vacation Rental

Erica has been focused on the financing side of vacation rentals for a while
She has contacts with banks that are now willing to finance based on the income and revenue of a vacation rental and recognize the properties as “income-producing assets” – more of a commercial investment over a residential investment – with 20% down loans
Prior to 2019, it was very difficult to get that type of loan
In the past, many were cash transactions, especially with international buyers
Today, 30% are cash purchases, 70% financing

Your Biggest Mistake

Her biggest mistakes was :putting all her eggs in one basket.”
When the market was booming, she had all her funds tied up in properties that, when the bubble burst, lost lots of money
She wished she would have diversified
She’s very conservative with her investments today and maintains a high cash reserve

Your Biggest Success

In short-term rentals, taking the times to learn and understand the “commercial component” has been key to her success
Having an open mind to listen to owners and not view vacation rentals in a small box
Her clients appreciate the fact that she has the ability to sit down and understand a pro forma, build advanced pro forma models for them and financially model these investments
If she would have only looked at these assets as residential rentals, she would never have come as far as she has

Advice for Old Dawgs Looking at Short Term Vacation Rental Investing

Consider where you are at this time in your life and ask, “Am I willing to do what it takes to create a vacation rental business?”
A lot of people don’t want another job
If you are looking at short-term rentals as a way to diversify and generate a lot of income, consider buying a short-term property rental in a place where you would one day enjoy retiring or may want to visit frequently
If you are they type person who really wants to keep busy, then go for a property in a high cash flow market but understand your time investment going into it
If you want a more hands off passive investment, go multifamily commercial
If you want to generate higher revenue than a more traditional long term rental and don’t mind getting involved, you might really like it. You might like being a host and being in the hospitality industry
If you want to go for short-term rentals, pick a market you would enjoy for your family so you can take advantage of the property too
You can definitely automate many aspects of your short-term rental business but the more you automate, the less you’ll make
The key is the “first contact” experience of your guests (inquiries and check-ins). If you can made sure that that experience is good. It’s always better when you do that part yourself – not job it out!
You need to be the person talking to the guest not just to save money but because it helps you to “own those bookings”
- You need to respond quickly because it makes them feel good and helps insure that they have a good experience with you
- Make them feel special and important
- Make them feel understood
- You’re dealing with hospitality
Anyone can do this. It’s just a matter of whether they want to or not.

Current Business

In 5 years, she sees her company working with investors, offering a premium VIP service to investors who want that one-on-one personal service
It hard to scale, though, so they are scaling slowly
They can only take on so many clients at a time
They are in the process of training other agents in the art of the hospitality investment business so they can teach this to their clients and offer that premium level service
They hope to be as large as Zillow and Realtor in 5 years
They want to be a household name for anyone interested in short-term rentals
Personally, Erica is continuing to grow her real estate portfolio
- Her goal is to get to $150,000 to 200,000 per month in passive income and then retire
- Doesn’t know how long it will take
- Interested in staying in mobile homes
- She started a fund. Raised $1.7 million from individual investors. Looking to raise another $1 million

Rap-It-Up

Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki
Favorite business book: The E-Myth by Michael E. Gerber and the 7 Habits of Highly Effective People By Stephen R. Covey
Most valuable web site for success (other than your own): MarieForleo.com
Favorite app: Google Maps
Favorite quote: “Your failure to plan is not my emergency.”
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? I would invest that money in creating a WordPress blog website and start doing her SEO stuff all over again like she did the first time. If it’s for real estate investing, would spend the the money cold calling owners that own properties in pre-foreclosure and finding homes that people wanted to get out of and get hard money to buy it and flip it.

How to Reach Erica

Email: erica@vrolio.com
Her website: Vrolio.com and click on Sign-Up and you will be able to message her through her platform directly

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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bmanassero

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