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SHOW NOTES FOR EPISODE 305: SHORT-TERM RENTALS IN A CHANGING ECONOMY
As real estate investors struggle to find reasonably-priced rental properties in a sellers market, other investors are leveraging today’s economy to yield BIG profits. In today’s podcast, real estate investor, engineer and educator Al Williamson shares insider tips on how you can leverage your investment strategies to take advantage of the economy — whether in an up or down market, using short-term rentals.
What You Will Learn
- How you can quit your job and live on passive income from short-term rentals
- Two little know short-term rental niches where you can make big returns
- How to generate significant profits from multiple short-term rental properties without owning even one of those properties
- What it means to be the world’s first Landlord Scientist
- The importance of targeting key niche markets to reach under-served audiences
- Effective strategies to reach niche markets
- The benefits of building up a rental arbitrage cash reserve during a seller’s market
- How to maximize your returns by utilizing short-term tax strategies
About Our Guest
Al Williamson
Al Williamson was a previous guest on the Old Dawg’s REI Network Podcast on June 12, 2017, episode #109 Creative Strategies to Increase Your Rental Property Net Income.
It took two engineering degrees, repairing of the San Francisco Bay Bridge, and 22 years of landlord experience for Al Williamson to become the world’s first Landlord Scientist. And NOW he’s uses his engineering skills to help investors make more money. Al is best known for publicly optimizing his eight-unit apartment complex to the point where it replaced his salary and gave him financial freedom. In 2015, he wrote his second book, 40 Ways to Increase the Net Income of Your Rental Property (his first book was Building Wealth with Inner City Rentals). He soon realized that short-term rentals improved a landlord’s earning potential like nothing else. Al is known as the Father of the Extended Stay AirBNB Industry because he has taught over 700 investors how to optimize their NET incomes by focusing on stays longer than 30 days. Al now spends his days growing Easy Corporate Housing in Sacramento, CA where he lives with his wife and two daughters. Please help me welcome the WORLD’S FIRST LANDLORD SCIENTIST! Al Williamson!
More About Al
- No longer working full-time as an engineer
- Because of his rentals and other real estate activity, he is free to do what he wants
- Spends lots of his time as a “classroom dad” for his 8 year old daughter’s 2nd grade class. Plays 4-square, blocks shots from the 6th grades, races kids on the playground, and helps them cross the crosswalk.
- SPECIAL TIP: The secret to successful 4-square is to have good grips on the bottom of your shoes so not to slip
- He also works out a lot at the gym
On Being the World’s First Landlord Scientist
- Part of what he is focusing on is being a good landlord scientist
- One thing he is focusing on is looking for technology solutions to 10X, 20X, 30X a person’s landlording results
AirBNB
- AirBNB’s growth
- Currently has 2.3 million rooms under management each night across the globe
- By comparison, the Marriott is only 1.3 million
- It’s growth is not stopping, just keeps increasing
- One of his students was hoping to capitalize on short-term housing demands at the Superbowl in Atlanta this year
- He checked in on him and the student said he didn’t do that great because of the fact that many more AirBNB hosts jumped on the week before and it drove prices down
- Because it’s so easy for people to become hosts on AirBNB, lots of people are doing it
- This will continue (the driving down of rates) as AirBNB becomes more normal
- Currently has 2.3 million rooms under management each night across the globe
- AirBNB is looking to go public
- They are pushing to increase their user base as they get a percentage of all guest income on AirBNB
- AirBNB hosts are being treated more and more like “vendors”
The Marketplace is Shifting
- How are short-term landlords and AirBNB hosts going to adapt to a changing marketplace?
- Looking at a matrix, where you have One Night Stays on the left side of the axis and on the right side of the axis One Year Stays
- You’ll see that Craig’s list serves the “furnished one-year stay”
- The “furnished one night stay,” on the other side of the axis is getting saturated
- But there’s also a “Y Axis” (going vertical)
- On the high end you have luxury rentals
- On the low end, you have economy or cheap stays
- You have a whole spectrum where you can position yourself
- Most people are on the “one night” to “one month,” “cheap” to “luxury” side
- And it’s super-saturated on the “one year and longer” side
- The most open area, not being served, is the 2-3-months to 9-months stay – with the full spectrum, from luxury to cheap
- Where you choose to focus is important
- Al likes the saying by the author of Art of War (Sun Tzu), “You can be sure of succeeding in your attacks if you only attack places which are undefended”.. Al’s “urbanized” version of the quote: “To guarantee that you’re successful in battle, only attack the areas that are undefended.”
- The best place to target to short-term stay marketing efforts is in the 2-3 to 9 months stay!
- On the luxury end, most people can’t stay at the Ritz-Carlton
- On the low end, you can’t stay at the Motel 6
- For example, if you’re a construction manager overseeing the construction of a Target store, where are you going to stay?
- You market yourself where you want to target that guest-tenant looking for a 2-3 plus month stay somewhere on that spectrum between the Extended Stay and the Ritz-Carlton. Most AirBNB people aren’t even thinking of that niche
Short-Term Rentals in a Seller’s Economy
- Categories within “short-term rentals”
- Vacation rentals (most vulnerable in a changing economy)
- Medical travel (traveling nurses, internships, residency, short-term medical staff)
- Students housing
- Military housing
- Corporate housing
- Insurance-displaced customers
- Temp housing for those selling or who have sold homes
- Special needs housing
- It is “multi-dimensional” if you factor in the X/Y access focus
- You can move around depending on market needs:
- Temp housing as people get displaced
- Then move to student housing
- Then to medical…
- It’s all in how you market
- How you write your sales copy
- How to market to those buckets
- How you position yourself based based on market needs
- For example, you could position yourself as the “affordable housing short-term solution for military families”
- By pinpointing and re-positioning, you can keep your units filled, paying far-more than market rents, even when the economy changes
- You can’t do that with an empty unit, as a traditional landlord, on a one-year lease – that’s the most dangerous spot to be in
- In a seller’s market, the idea is to own nothing but control everything. To make a profit off of the properties you control
- Nelson Rockefeller famously said, “The secret to success is to own nothing, but control everything.”
Key Niches
- Temp housing
- People sell their house and they rent temporary housing while they search for or wait for a new home to be built
- Their furniture is in storage
- Al used to start off with small one- bed, one-bath units
- Similar to hotel rooms
- But he found that people requiring temporary housing needed larger places for their entire family and that would accept pets, with a fenced in yard and a garage
- The time frame usually takes longer than originally thought for most people waiting for a home to be built – what they thought wound tale one month, actually turns out to be 3-4 months
- There’s a lot more baby boomers wanting to now sell their homes now, in this sellers market, at the top of the bubble (especially in places like California), to tuck retirement funds away and downsize
- i.e. People in the San Francisco Bay Area sell their home for $2 million and buy a nice place in the foothills for $600,000
- Because they want to sell now, before properties start declining in price, they will rent temp housing while they search for a new place to live
- How does he market to this target audience?
- For example, he advertises on Craig’s List
- Headline for his ad reads “Temp Housing for Traveling Group”
- Marketing to traveling groups — not a family
- All throughout his ad listing, he references:
- business travel
- The amount of work space and office space available in his rental home
- Garage for your equipment
- Got it filled by three lottery machine technicians and two dogs
- They are going to be in Sacramento for 3 months upgrading lottery machines
- Medical Field
- There is a big demand for temporary, traveling, portable healthcare workers (traveling nurses, etc.)
- Growing aging Baby Boomers are driving the demand at hospitals and all kinds of medical facilities and assisted living entities
- More requirements to have a certain number of nurses per patient
- The temporary healthcare industry has three motives:
- Savings (his short-term rentals are cheaper than hotel/motel alternatives) – they may pay-out of pocket or receive per diem funds
- Sometimes there are patients and waiting for a transplant and they have to pay out-of-pocket
- Value – they may pay-out of pocket or receive per diem funds. Want to get nicest place for the money
- Government sponsored international doctors cannot pocket the difference but are looking for value
- Profit – Per diem is tax free. If they have $500 and can get a place for $250, they can pocket the difference
- Try to find the areas where you can best performed
- You need to know your medical market needs and niches
- Teaching hospital will have specific needs for students
- Hospital with transplant expertise
- Needs very clean places within 10 minutes from hospital for patients
- Savings (his short-term rentals are cheaper than hotel/motel alternatives) – they may pay-out of pocket or receive per diem funds
- While everyone else on AirBNB is focusing on vacation rentals, he is making bank by specific niche marketing
- If you furnish right and position right, you could make 2-3 times what the landlord right next to you is making
Meeting Short-Term Rental Market Demands WITHOUT Owning Properties
- How Al meets this need WITHOUT having to buy a new property
- For example…
- He rents a 3-bed, 2 bath house with a yard and garage for $1,500
- He rents it out for a little over $3,000
- People cant rent a 3-bed hotel for that at $100 per night that will also take pets
- After expenses, he walks away with a $1,000 profit
- How do you get the landlord to say yes to your sub-letting his place?
- Position yourself properly
- You are a corporate housing provider
- You can help make that landlord’s job more passive because…
- You are a management company who will pay them while you take care of their place, keeping it in top condition – “rentable” shape 24/7
- Landlords see value in that
- You need to tell the landlord who some of your guest/tenants will be
- If you come in saying, “I want to sublet your place” people may not respond as well as they would, “I am a working with people at Tesla who need short term housing as a corporate housing provider .”
- You don’t want a more traditional landlord who is more controlling. You want a more passive landlord type person
- In a down economy, landlords will be more willing because they want to rent
- They just want a regular rent check
- You can appeal to them because it’s your business to keep their place “better than any other tenants” because it always has to be fresh and clean because that’s what the guest/tenants require
- Position yourself properly
- For example…
Short Term Rentals in a Buyer’s Market
- He’s trying to save – build-up his reserves
- Build relationships
- If company’s go out of business and people are losing jobs, there will be motivated landlords looking to sell their properties
- There will be fear in the market
- He’ll use his cash reserves to buy discounted properties
- He’s no going to miss the downturn
- The wealth is made during the down times in the market
- Your cash reserves allow you to buy when people need to sell
- Use your short-term rental incomes to build reserves
- He is an owner, too. He believes in owning property. But it won’t prevent him from making extra cash by being creative in the short-term rental space
- In a buyer’s market you want to do what Warren Buffett says – “Be greedy when everyone’s fearful.”
Short-Term Rentals and Taxes
- New tax law has short-term rentals for 30-days or more on Schedule E (which is usually for your rental property income)
- If you go less than 30-days you go on Schedule C
- This means you may less taxes for rentals that are over 30 day stays
Dealing With Bad Reviews
- You have to “put on the hat” that you are the General Manger of a one-house hotel
- One of every 10 hotel guests is going to be high maintenance
- It comes with the territory
- Just do the best you can
- Respond quickly to ALL your review (good and bad)
- If you address ALL the comments, when you respond to a negative comment, it doesn’t stand out
- It’s easier to respond to all if you have 30-day minimum stays. It’s harder to respond to all with 1-2 night stays
A Tip
- Don’t need to pay a lot to furnish.
- You don’t need top-end furnishings, wall art, etc.
- Recoup your investments quickly
- You need to run your break-even equations – you don’t make any money until you’ve paid yourself back
Easy Corporate Housing
- Al has a service he established with a partner that is a service to both people with properties they want to rent out and for people who want to rent a short-term rental property
- It’s a rental arbitrage business he has where he rents out peoples houses, cottages, apartments, etc
- His goal: To create happy people on both sides
How to Reach Al
- Email: al@leadinglandlord.com
- Website: LeadingLandlord.com
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SOUND FILE: 2019-02-19_11-06-37
