How To Analyze A Short-Term Rental Property

Start Growing your
BNB Business Today!

Get inside access to our professional courses, hosting community, and much more!

What's up guys, it's James here. And in today's video, we're gonna be walking through how to analyze a property for a short term rental. And I'm really excited to do this video, because I just came across a property in my market yesterday that we're going to be actually going by and doing a viewing of that we're going to be likely putting in an offer on its property that really excites me, I think it's got a lot of very real potential here. So I want to put together a video here, I've not actually analyzed the property yet, I've just seen it and I know the market. So I know that it's worth looking into further, but I haven't actually run a full on analysis on the property. So that's what I'm gonna be doing here. Today, I'm going to show you the exact steps that I'm taking. This is literally the exact process that I take to analyze a property for short term rental investing. And I'll be sure to keep the channel updated and let you guys know what ends up happening with this property. So with that being said, we're gonna dive over to the computer. Before we do that, I want to remind you guys that down in the description below, there's a link to a free training that walks through every single step of how to succeed investing with short term rental properties. If you are new to this space, if you're interested in investing in short term rentals, or if you are already investing in short term rentals and just want to sharpen your skills, I highly recommend you check out that training, it is completely free. And the spreadsheet I'm going to be using to analyze properties here in this video, we're actually going to give you a copy of that just for registering for that free training there. So just yeah, check that out in the description down below. And all that said, let's go ahead and jump in here. So this is the property that we're looking at here. It is located in a cottage country type area a couple hours outside of Toronto, what really caught my eye here is that it's got five bedrooms, three bathrooms. So already right off the bat, we with the bathrooms there, we could accommodate a maximum of 15 people, the bedrooms, we're not gonna be able to accommodate that. But I'm gonna show you there's a bunkhouse here that I'm really excited because in the summertime, that means that we could potentially accommodate more people. And then also potentially, there's going to be some living space where we could accommodate more people as well. So this is the property here, by the way, this give me a longer video, we're gonna really go in depth here. So just a heads up about that in advance, and the price is 649. So $649,000, Canadian, you can do the conversion for that with us. But we are going to be looking at all Canadian dollar numbers. So on the revenue side of the analysis, it's all going to be in CAD, Joe, it's all going to be apples to apples now for this market, getting a property for under $700,000 With with this kind of size to it, you know, five bedroom, three bathroom, that's a really good deal. So the first thing that I that I really kind of caught my attention when I looked here is that the property is on acreage. So if we scroll down here, what I really like is that it's on 2.347 acres, so about two and a half acres of land, which means that, you know, there is potential for auxilary dwelling units, which is nice, but the bigger thing to me is it just means that there aren't going to be neighbors right close by. And if we look at the pictures further, we can see, yeah, there aren't neighbors anywhere nearby. So you know, with a property that's going to have a max occupancy that's relatively high 10 1215 people, we really need to make sure that we're not gonna have neighbors nearby, because 10 people even if they're not throwing a party, even if they're not being rowdy, they're not drinking nothing. 10 people are going to be loud if they're just friends getting together having a good time. And that's fine if it's a Friday night and everyone in the neighborhood is like just relaxing and having a good time. But if they're there on a Tuesday, they're gonna be there on like a Tuesday off right, they're likely not gonna be working from there. So a Tuesday they're going to treat it like it's a Friday and they're creating noise they're staying up late you know, even just playing games talking whatever that's going to create a noise issue with the neighbors they're too close by so I've learned that the hard way managing properties like that so not having neighbors close by is awesome. Too big plus for me. Yeah, the main floor. So I mean, the other thing that's really nice is it's a log home so that's just really attractive. It's got that really nice kind of cabin feel to it. It's got a walkout basement which is awesome could have been in last week down there. It says the backyard makes this home feel tranquil outdoor lovers paradise established gardens and a partially finished bunkie. So that's cool. I mentioned the monkey before. And then yeah, just being out in nature that's really attractive in this area, because that's really why people get away to this area is to get out of the city. It's a couple hours outside of Toronto, like I mentioned. So it's that's kind of our demographic is people that want to do a little staycation get away for a week go and kind of cottage whatever. And you're right on Jack Lake Road, which if you can believe it is right close to Jack Lake, which is another big, big plus for us. If you see here, if we zoom out, then Jack Lake is right down the road. And that's just going to be a lake where people can go and hopefully if we if we figured out that we have direct access to there somehow down one of these roads, that would mean that people would be able to go and just drop in a kayak drop in a canoe, go and maybe swim and jackleg so that's really nice as well, that we have that because that's again something that people are looking for 1000 square feet of floor space, which is not a lot, especially for this Have the property. So we'll look into that further. But that's also not gonna include the basement. But let's kind of jump in here. So if we look into the pictures of the next thing I do is I just look at the pictures, and I've already done this, for this property, you can see there's a bunkie, that's partially finished, that's going to be not four seasons, you can't have people in there in the winter, like in these pictures in the middle of the winter, that will be freezing in there. But in the summertime, it's not uncommon for there to be bunkie houses in this area where they're not going to have, they maybe will have electricity, but they wouldn't have running water, plumbing, that kind of thing, it would just be a place to sleep, and then you'd share the main house. So given that there's three bathrooms in here, but only five bedrooms, it means that bedrooms wise, you can probably only accommodate 10, maybe if you have, if you have a larger bedroom, then you could accommodate maybe for maybe 12 Or so it depends, but you just you might not be able to get 15 people in there. Whereas with the the bathrooms, I generally as a rule of thumb, put a max of five people on a bathroom. So it's not necessarily that we want to be kept, we want to be always hitting that. But the bunkie just means that there's more comfortable living space, or sleeping space, I should say, for the capacity the bathrooms offer on the property. Now on the exterior of the property, it's clear that there's some some work that needs to be done. So we kind of zoom in here you can see this, what used to be a deck is gonna need to be redone, there's probably going to be a decent amount of maintenance, I'm just assuming, based on the on the age of the home, it's long, there's gonna be staining, there's gonna be maybe some wood that's rotting, we don't know, those are some, some things kind of looking out for. But having looked at the inside of the home, the inside is in quite good condition, there's not a lot that I would change here. So you can see like a nice, relatively large living room here where I would put a couple of couches, you can put you can put a put pullout couch in there for sure, that would give some additional sleeping room. So that's really great, beautiful hardwood floors, the wood inside is really nice. Like all this is really nice. And this is like plenty of living space, you can have like a kind of like little lounge area over here, there'll be an extension of that living space. So that's really nice. It makes it like a large room where you can you know, host number of people dining space I'm a little concerned about doesn't look like there is an actual formal dining room. So we may have to put a dining space in here somewhere depends, we're going to figure that out once we actually do the walk around the property. But inside the kitchen, it's looking pretty nice, pretty standard. Not a whole lot going on here, some relatively old appliances, but nothing too crazy. I mean, I probably wouldn't do a whole lot in here in terms of renovation, I'd maybe get rid of these uppers and put some shelves I've done that we've done on another property. And it just looks really nice if you do it the right way with some live edge shelving, and kind of opens the space up. And whether short term rental, you don't really need all that storage space up there. So that's something that we've done in the past that I'd probably do again here. And then otherwise, I mean, it's all pretty straightforward. So here we're going into one of the bedrooms looking really nice, it's decent size they're using as an office, they're here we've got a bathroom, we would probably update this bathroom just because that's something that like it would actually add value to the property. If we redid the bathroom, we may redo the kitchen. I'm not sure this bathroom, no like it could use some, some updating some work here. Yeah, really good size bedroom upstairs. So this is awesome. Because we could potentially if we decide to keep this as a master, then we would just put a king bed in here. But we may just want to put a few different bunk beds in here as well and make it kind of like just just so it can, it can accommodate more people. So that could be great. It's a relatively large bedroom, lots of closet space there. So that's awesome. It's got its own patio that's really cool. Its own kind of porch up there. This is another good sized bedroom. So that's great. The the ceiling height is a bit of a concern in these bedrooms for bunk beds if we want to do that. But I mean either way, it's a sizable enough bedroom, we can do a king bed, we can do a queen and a twin, whatever we want to do there. Here, this bathroom only has a bathtub. So you'd want to do some updating here, we want to put a shower in here somehow so that people can actually use the shower because realistically, people aren't going to really want to take a bath at a at an air b&b. Or at least not only have the ability to take a bath they may want the option but not the not be limited to that here. It looks like we're in the basement. Now. Another decent sized bedroom looks like we just got some laminate flooring there. Which we may change.
I mean, it's not the end of the world though. It looks all right. It looks a bit prison in here to be honest. So like we'd probably want to put some stuff on the walls for sure. Maybe get rid of this drop ceiling and expose the the wood beams. Just some different options there. This room is a lot nicer with that wood paneling on the side. Or it might it's likely actually just next year walls. It's actual real wood, not just wood paneling. So that's really nice. And then this we would definitely you know this might even be the living room might even have this be the living room and turn that upstairs room into a dining room. That might be the way to go. So that we can actually have proper dining space for everyone in the in the home. So that's really great. And then you can easily put a couple pullout couches down here. So yeah, I mean plenty of opportunity here. And then this bathroom we want to redo as well. So there's a little bit of an opportunity to add some value to the property through some renovations. So that's nice. It's nothing massive but we could do a little bit. So that's always nice to have that option. We've got a proper laundry room here. So yeah, I mean, all in all, it looks like we've got all we got. So we've got space for two people to sleep here, let's say, another two people in here. So that's for another two people here that brings to six. And then we've got eight, and 10. So we've got sleeping for at least 10. People. I mean, 12 in if we add in here as well. So yeah, there's ample room for sleeping. And I think there's definitely enough floor space to have you know, that maybe will sleeping also have comfortable, comfortable seating forever. What if we turn this space? Where is it here, this main space into into just a dining area, and then we could go downstairs for the actual living room? Yeah, so I think there's definitely lots of space, and then we've got that bunkie as an additional space. So this is really awesome. I also personally, just like the idea of owning land in this area, because it is relatively close to Toronto, I think that the land value is going to is going to be worth something long term. But that's not really anything I'm taking into consideration. It's just something that's kind of stream of consciousness for me right now. So all in all, I really liked the property. So let's go in here, and let's assume that we were going to buy it for the purchase price. Now we having not not gotten a chance to really go in depth with the realtor, I don't know what it's expected to go for, I would say it's probably going to go for closer to 700,000. So we can play around with some different numbers here. But let's go ahead and just put in $650,000 on the property, and then closing costs are going to be about 1% of the of the purchase price is what we found. So $6,500, that's just auto calculated home inspection, we run one's going to be about $500. And then this property doesn't come furnished. So what I'm going to do is I'm going to estimate what the furnishing cost is going to be, I actually have a separate spreadsheet for that, if we just go based off of like an average for this size of property, I'm going to go probably about 25 to $30,000. So let's say kind of $27,000. And then that's going to also include $10,000 of that is going to be we can probably add another $5,000 onto that, make it 32,000. Because we're going to want to put a hot tub and a sauna at this property as well, in this area, that's something I know we're gonna want to do. Now, again, this number, I would actually, I would pull up the other spreadsheet that we have. And I would just kind of run the numbers on that as well, because we have kind of baseline averages, because we've furnished properties in this area before. So we have kind of baselines that we go off of for the different bedrooms and such, but I know it's gonna work out to right around 30 32,000. So let's say about $32,000, rehab work estimates, I'm going to estimate, we're probably going to spend around 10 to $15,000 on the property, I'm going to put it at about $10,000 I don't think it's going to be that much. And again, this is something that that Riley who I do all my investing with, he's got a ton of expertise when it comes to to renovating property. So he has a proper budgeting spreadsheet that he would go in here and figure out exactly what this number would would be as a more detailed number. And the thing is, we're gonna run this property again, once we actually get an offer accepted. So when we put an offer on this property, we're likely going to go in conditional, if we go in firm, we're going to be going and doing a more detailed analysis before we actually put in that offer. But in most cases, we're going to go in conditional, and during that conditional period, we're gonna go and do a much more detailed analysis again, and really run over these numbers for our rehab for our furniture really priced out in a more detailed fashion. Just right now we don't need to be that that specific with it. So $10,000 for rehab work. And then again, if you want to know how we actually go about analyzing, like, you know, figuring out how much furnishing cost is figuring out how much how much renovation costs is going to be all this sort of stuff, then again, the train down below is going to give more insight on that which is linked in the description, other acquisition costs, we're not going to have other acquisition costs here, I'm going to take that out, we are going to have actually one other thing is going to be we're probably going to pay about $500 for photographer. Sorry, we've got that down here. So that's fine. Yeah, interior design and photography, we're going to be about $1,200 for the two of those. That's something that I know a lot of people are going to kind of balk at that and think that's crazy. But we found that spending that money on photography gives a massive ROI. I've always, you know, really, really advocated for that. I think photography is really important to just nail it. And then for us, we have what's called a land transfer tax. So the tax that we pay when we when a property transfers, when land transfers ownership, so if we're going to pay $650,000 and the location is in absolutely, Ontario, there we go, then our land transfer tax is going to be $9,475. So we're going to put that tax in here $9,475. And again, depending on where you're investing where you're located, there's going to be different potential taxes you might pay for purchasing a property. We're not going to worry about this right now. We are going to put in I'm going to put in 10% down because that's What we're going to be doing on this property. And again, that's one of the great things about short term rental investing is there's a lot of different options out there for financing that either that you can get 10% down. So that's a big advantage. Also, there's a lot of options where they don't even require the borrower's income for qualification for the loan. So that can be really great, you can actually qualifying the property on the analysis for the property. So lots of different options out there, I know we're going to be able to do 10% down on this interest rate, we're probably going to be a bit higher than than this 1.45, we're probably going to be around 2.4, or five, where we're, where we're located. And then 25 year AM, again, depending on where you're investing, where you're located, these things might, might obviously change. And so that's going to figure out our mortgage payment per month, our annual annual mortgage payments, and then for this property, I know that we're going to be probably, we're probably going to have an average length of stay of about five nights. So we're going to be about two and a half cleans per rented week. And so if the property is rented for an entire week, we're probably going to be or sorry, one and a half cleans, I should say, not two and a half cleans. And our cost for cleaning for the property is probably gonna be right around $400. So I'm going to put this in a $600 per rented week. Again, I know a lot of people are going to kind of balk at this, they're going to say, oh my gosh, how can clean cost that much. But for us, we really value our cleaning team, I think it's worth considering when you're investing in short term rentals that you your clean team is sort of the backbone of your operation. And if they are unhappy, they can make your life a lot less a lot more stressful, a lot more challenging. So you really want to treat them well. You want to be a win for them, you want to work with them long term, treat them really fairly pay them a really good wage. And it's you know, you'll, if you buy the right deal, you have the margin to do that. So I wouldn't, I wouldn't try to buy a deal where you have to scrimp skimp on on your your cleaning costs, because that's gonna bite you in the butt long term, our cleaners, I can say they're super reliable, they do a fantastic job, we always get really great reviews. And so you know, there's just so many potentials for it to be more stressful and for to cost you financially if you choose the wrong clean team, or if you're not paying them enough, because if they don't do a good job, your guests are going to complain, you're going to get worse reviews, you're going to get less bookings, that's going to make you less money, you're going to pay for one way or another. So something to consider. Now, advertising and tech costs. Yeah, that's just basically like that. This is based on one year of our different tech costs, you can see the formula we've got $35 a month for a channel manager at $7 a month for our guestbook software. So that comes out to $504 per year $1,200 A year is for yarn, snow. So we find that we're paying about $100 a month in the summertime for yard maintenance, and then about $100 a month as well in the wintertime for snow removal.
So that ends up being about $1,200 a year. Electricity, I'm not sure this is something that we're going to get this detail off of the property owner, I think 1750 is a pretty fair approximation. But sorry, not the property owner, the realtor, we're going to want to get the the last 12 months of hydro. So again, that's going to go into our more detailed analysis later on down the road, cable and internet is going to be about $1,000 a year, we tend to pay about 80 $90 per month, accounting is going to be $1,000 a year, that's going to be pretty pretty well fixed in place there. With our accounting setup property taxes. Again, I don't know the property taxes in this area. This is a good approximation for now. But again, that's something that we're going to get the actual exact number from the listing agent, homeowners insurance, we will get an exact quote again, but also for our area, we know that this is going to work out to write a round $3,000 It might be give or take a little bit, we have a home insurance provider that specifically insures us for short term rental as a use case so that we're not going to be left high and dry when it comes to filing claims. If that ever ends up happening knock on wood, let's hope it doesn't. And then we've got none of these things are really going to apply our maintenance reserve. This is just money that we set aside for maintenance and supplies throughout the throughout the year is going to be 3% of the purchase price. And so that's going to basically be or sorry, 3%, not 3% of the purchase price 3% of the of the annual gross income, I should say. And so that's about $4,000 a year. So now we've got all of our expenses figured out now is the exciting part now is where we get to kind of figure out, Hey, what are we going to be doing from a revenue perspective with this property and kind of putting in place some projections there. So going into it here, I'm going to go over to air DNA. And I'm going to leave a link in the description as well to this tool that we built. It is currently in beta. So just be be aware of that there might be a couple little bugs. This is mostly just something that we built for internal use, but I wanted to I want to offer it out to you guys as well. So you can download this chrome extension. It's really awesome. It helps to to make researching properties on air DNA a lot easier. So what we do is like if you log into air DNA here and you want to analyze a property, then we're gonna want to go and say okay, let's say this is a five bedroom property. So let's look at four to five bedroom properties because I want to give a bit larger dataset than just narrowed down to five and then I want to say that they accommodate this one's going to be 10 to 14, I'm going to say so let's say 10 to 14, then let's hit apply, right. So you've got 59 active listings in this general area here where our property is located. So that's great. And then we can go ahead and look. And then traditionally, what you would need to do is look at, at all these revenue numbers and figure out, Okay, how much of the property does the average property bring in, add up all these numbers, that's a really big pain. And so what this extension does is basically just allows us to export that data and data beyond like further back than February of 2019, right into an Excel spreadsheet. So it's pretty awesome. Let's see, let's make sure it works. Again, it's still in beta here. But I did want to just release it out to you guys that you guys can be kind of the first to, to try it out if you want to. So the link to that will be in the description down below. So let's go ahead and grab four to five bedroom properties that accommodate what do we say 10 to 14 people. And then I'll go right into a an Excel spreadsheet. There we go. So now we can pull this up. And then here it is. So here's our export here. So it basically just gives us all our numbers. So if we want to see, okay, what are the 75th percentile of this subset of properties do in all of 2021. Let's just go and grab these numbers here, sum them up, and we'll see it's $134,000 throughout 2021. And we can go back and we can see okay, and 2020, how well did they do? Let's see here, that's the chunk for 2020, they had 98,000. So a big increase, we saw about a 30% increase in 2021. So we may want to pull back, our numbers be a bit more conservative, because I'm not sure what that big increase was for. But hey, let's go check out 2019 as well. So if we go to grab all of 2019, then we can see, okay, there was still an increase in 20, from 2019 to 2020. And then again from 2020 21. So the market is just increasing in demand. That's a really good sign. I'm really happy with that. And so the reason is, well, I will mention, let me just close this out, so you don't get them confused. Now the reason I like to do my analysis this way, as opposed to I've seen other people that will go and try to find specific comps, that's part of my analysis process. But to start with, I like to look at the market averages. Because there's statistical significance here, right, I'm looking at 59 listings, I'm looking at the average of those 59 listings. So I'd much rather do that, then look at an individual listing where it could just be a one off. It also is telling me the actual revenue numbers for these properties based on air DNase analysis. So I don't have to go into and incorporate any guesswork and do it from going to Airbnb looking at their calendar, seeing how booked up, they are seeing what their nightly rate is, I've actually got separate videos on this channel that kind of debunk why those strategies really suck. And there's a whole bunch of potential pitfalls to doing it that way. There's Yeah, like a myriad of different issues with that. So that's why I like to do my analysis this way. So what I'm looking at here is I'm seeing Okay, now I'm going to do another export as well. And let's just say I want to kind of hone it in a little bit more. And I want to double check to make sure I'm still gonna have a decent number of listings here when I do this, but if I just go 12 to 14 people, okay, so we've still got 33 listings, I want to see how much that that changes things. So if I go four to five bedroom, let's go here four to five bedroom and can accommodate 12 to 14 people, I want to know how much better those numbers are because this property will be able to pretty comfortably accommodate 12 or 14 people. So I want to pull that as an export and see how it does. Let's see here. So let's pull up these numbers. And then let's go I know the number was 134,000 for 2021. So if we grab 2021 for this set of numbers, now it's 150,000. So we've got an extra $15,000 additional there, and then I think we were 98,000 for the year prior. So let's see if the year prior we had the same kind of increase. Yeah, so we see a $20,000 increase here. And then it was 74,000, if I'm remembering correctly for the year before that, and here we're sitting at 78,000. So although better yet, so I'm honestly probably going to base it more so off of these numbers, as opposed to the the kind of smaller properties that are incorporated here. Just because I know this property with a three bedroom with a three bathrooms, ample sleeping space and a bunkie. I know it can, it can comfortably accommodate more people. So I'm going to go with this as my export data. And then what I'm going to do is I'm going to run for our conservative projections, I want to see how much the property will do by looking at the 50th percentile data. So for those of you don't know, that just means that we're looking at the top 50% of performers, so the top half of the market in this area, whereas here we're looking at 75th percentile data, which is the top 25% of the market. So the better performers and then here we're looking at the the 90th percentile, which is the top 10% of the market. So the best performers, I don't want to be just looking at the best performers because I want to go okay, what's my On a more conservative projection going to be, let's look back to for conservative projection, I'm probably going to run 50th percentile for 2020. Right, that's going to be a lot more conservative, that's going to be at $72,000 200. So let's just go ahead, come in here. And I'm just going to go, I also want to look at what our average occupancy rate is. So let's go in here. And let's do the same export. And the cool thing is here, we can do an occupancy export for again, we want to go four to five bedroom properties here. And we're going to go that accommodate 12 to 14 people. And we're going to do a download. And we want to see what their let's see what their occupancy is. So if we want to go back to 50th percentile in the year 2020. So 50th percentile is this column, the year 2020 starts right here. So what is that as an occupancy rate, the average is 48.9%, actually probably want to go on the higher end than that. And the reason I'm going to do that is because yeah, the average here is 85%. So I'm probably going to go in the middle, closer to around 80%, I think is a safe bet. Now, I want to be higher on occupancy rate in my projections, because that keeps it more conservative. I'll explain why. So with this spreadsheet, we're we're basically calculating a cleaning fee. And with any analysis you do, you will likely be calculating your cleaning fee based on the cleaning fee per stay or per rented week or whatever it might be. Now, if we if we assume a really low occupancy, but a high nightly rate to get to our revenue number, then that means we're gonna have fewer cleanings. So we're going to be assuming a lower cost of cleaning on an annualized basis, we don't want to do that, I'd rather err on the side of more conservative projections. And so I'd rather assume that we're going to have a higher occupancy rate with a lower nightly rate in order to get to our revenue number. So that we're if anything, overestimating how much our cleaning expense is going to be throughout the year. So I'm going to leave this at 80%. And then I'm just going to tweak this average nightly rate so that we can get our revenue number to come out to 72,000. So that way, we can have a $72,000 revenue number with with an 80% occupancy so we can have our cleaning factor in there. So if I, if I just change this to about $240 per night, that should see oh, this is just, this is just been changed. This should just be equals this times this times 365. Right. So that's $70,000 there, boom. So I'm going to tweak this up a little bit so that we get to like $72,000, I think it was Yeah, $72,000. So that's where I'm where I'm looking is I want to see, okay, am I still going to and this is really what I'm trying to figure out is will I still breakeven, this is a worst case scenario projection for this because this is based on the 50th percentile data from a year ago, if we were to revert back, if the interest industry were to take a turn back towards towards the like, you know, trend back downwards, where for last number of years has been trending upwards, so it's unlikely that's going to happen. And if we were only to perform at 70 or 50th percentile numbers, then really what I want to know is will this property break even, I'm not looking for a massive ROI in this specific scenario that I'm running here. So if we look at all this, I look okay, our average monthly cash flow is going to be $131 on the property. So our annual cash flow would be $1,500, or cash on cash return of 1.26. Now, obviously, that's terrible, I would be really, really disappointed if we hit those numbers. But this is a worst case scenario. And this is this is crucial. This is so critical. And I want to really emphasize this is that the worst place you can be at when you're investing in real estate is to have a property that cash flows negative because that property cash flows negative meaning it costs you money every month to carry that property. And then we see something happened, like what happened in 2008. You know, for whatever reason, if you if you have financial hardship for any reason, and you can no longer afford to carry that property, you're then forced to sell right, this is exactly what happened 2008 And then if you're forced to sell, well, you better hope the markets up, if the markets down, you're gonna take a big hit, the property is gonna get foreclosed, whatever it might be. And so you just don't want to end up in that scenario, you really want to be in a place where even in a worst case scenario, the property is still at the bare minimum supporting itself financially so that you're never going to be forced to sell that property. You may choose to sell that property if it's a low performer, but you're not going to be forced to so you can always wait till the market comes back up if the market does take a dip in the in the short term for whatever reason. So I'm actually really happy to see this that and even a worst case scenario with this property. It's still looking really good. It's still looking like we'll be cashflow positive. We'll be like right at breakeven pretty well. I mean, there's really not a lot of skin on the bone but I think Yeah, that's we're not looking for a lot of skin on the bone. In this worst case scenario, we're looking to just make sure we can break even which we can. Now it's a really fun part. So let's, let's go ahead and we want to run a more realistic projection. And so I'm going to look at the 2021 numbers here, I'm going to keep the same occupancy rate, just because I don't want to get too ahead of myself, this is really what I'm expecting the property to do. So this is no longer, you know, a, this isn't a worst case scenario, this isn't a best case scenario. This is just what I'm expecting, like, you know, if we do everything, right, I know we can hit this number. And now it's going to be $149,000. For this property, so about double more than double what it what it can do in a worst case scenario. So we're, there's a lot of cushion there for that worst case scenario, we've got like a 70 $80,000 cushion there. So I like to be really conservative, I want to know that even in the worst case scenario, even if things don't go poorly, I'm not going to be forced to sell this property. Here we go $149,000. So if we tweak this number, I don't want to tweak our occupancy rate, I want to assume that the occupants rate is same, maybe even higher. So let's just check and see if in the 75th percentile here, and we go okay, over the course of the year, the average is 73%. Let's even go to 90 and see if that gets any higher. Yeah, 87.9. So, you know, let's even just bump it up to 85. Just to be a little bit more on the safe side, if you watch here, as soon as I press Enter, this number is going to go up a bit, right, so you can see 26,000, we're just adding a little bit of buffer because again, I want to be a little more conservative. So average nightly rate, again, we want to get our number up to $149,000. So we're probably going to want to go to about 450. Let's try 475
and 480 to get there. Okay, cool. Let's go to like 485. Where's that put us? So we're gonna go like 43. Yeah, so I just got to tweak this around a bit, there we go 149 850 149 to 37. So hey, let's just knock $1 off that 90 rate, just so that we can kind of get to two more reasonable. So yeah, I mean, not not a big deal for that for that number to be to be a couple dollars off, obviously. But here we go. So now we look at these numbers here. This is like a realistic scenario of how well the property I think will perform. And then now we're sitting at, at our average monthly cash flow of $6,000 $6,300. That's pretty good for one single property. And by the way, so are on this property at 10% down, including our furnishing and our renovation, our total cash to close this property is $81,000. And our total cash to launch this property is $124,000. total cash once we also account for our maintenance reserves, the money we're setting aside in our bank account that 2% that we're going to set aside, because we always like to set aside 2% as well, just for our capital expenses, that's gonna be 140,000. Now that means our cash on cash return for this property is going to be 60%. That's like insane. Those that number is like absolutely unfathomable to a non short term rental investor to look at to try to get something like that really, anywhere else is insane. And frankly, even here, this number is insane. It's because I know this market really well. It's because I know this space really well that you can do this. So again, if you want to learn the specifics of like how to figure out what markets are the best how to figure out what properties are the best within there, then just make sure that you check out that train, it's linked in the description down below, that'll walk you through it, but like, just wrap your head around that like in in one year, this robbery is going to cashflow $75,000, so you're going to get your entire cash to close almost back within one single year, your cash on cash is 60%, your annual occupancy to break even is 33%. At this at this number. So basically, you can have your property rented for four months out of the year, which our high season is four months out of the year in with this property. So if you only rented the property for the high season, and you still just left it completely vacant in the low season, you'd still breakeven. So that's really reassuring. So yeah, I mean, our numbers are really, really good. And then these numbers I don't tend to look at as much. This is just your net operating income divided by your purchase price, which is not super relevant, but you can look at that if you want. And this is like an noi excluding debt service. This is what people talk about cap rate. This is typically the the calculation they're running when they talk about like a 4% cap rate, a 5% cap rate and 8% cap rate and we're hitting 16 and a half percent almost so you know, the numbers are insane. But again, this isn't a very practical one. The number that I really care about is the cash flow because that's really the benefit of short term rental investing is that cash flow and this is the number that's like that is money in my bank account I can live on that I can pay for expensive I want to I can take that money reinvested into the next one. I At this rate, I'm going to be able to invest in another property within a year, a year and a half, just with the cash flow from this one. So that's awesome. That's really, really reassuring. So that's great. Now let's run a best case scenario. I don't worry too much about this, honestly. But our best case scenario is whoops, I grabbed an extra month, there are best case scenarios, if we offer the 90th percentile, which I I've been doing in the past. But I don't want to assume that by any means. It's, you know, you can, you can choose to not even do this, this, this analysis, honestly, but just for fun, let's go ahead and do it. But this one, I wouldn't pay too much mine too, because the other thing is within this 90% out, it's more likely than not that because we have a small data set of properties, they're probably not going to be as close of comps. And so we're gonna want to validate that look. And like, I would imagine that a lot of these properties that fall within these revenue numbers are really going to be like just nicer properties more high end, especially because we're looking at larger properties that tend to be more high end. Honestly, I'm not going to worry about doing this kind of an analysis for this property, just because I suspect honestly, now they think about it more that like this level of analysis with this small of a data set is really not going to be very close comp. So I'm not too worried about running the you know, best case scenario analysis. But obviously, the numbers as you would imagine, would be insane, because there's an extra like, $60,000 on top of that. But that really is, you know, we're not going to bank on that I do I think we can do 150k 100% All day long, I've got actually another property that is not as nice as this, you know, not it's in a really similar area, it's not as nice as this, it's not a log home, it
doesn't have the acreage, it can sleep, fewer people, and it's doing $150,000 This year, so for sure this property can do $150,000 The, the thing I'm more interested in looking at is okay, what if we pay $700,000 for this property, I make sure not that 70,000 If we made 70,000, we'd be doing really great, that would be awesome, but $700,000. And so at $700,000, we're still going to cash flow $73,000 over the course of a year, still gonna get a 56% cash on cash return. So really, like, I'm happy with anything over 20% As far as a cash on cash return. And I know that number sounds aggressive, because if you're if you have a background invest in long term rentals, that's insane. But for short term rentals, that's the real benefit of them. So I'm looking at at minimum 20%. But I really want to keep it above 30%. So in reality, I'm not going to, but I could I could pay $800,000 for this property easily. You know, I pay that all day because, and I just wouldn't, because in the market, there are great deals out there everywhere. And so I can get I can get this property for far less more than likely. But the numbers still make sense even purchasing this property at 800k. So, yeah, you know, I'm happy with that analysis, we're definitely gonna be checking this property out, we've actually got a walk around scheduled. So I will update you guys on the channel here if we end up moving forward with the property. And we're almost certainly going to be putting in an offer unless something unexpected comes up. And we're going to be you know, running another analysis to kind of rework if we under if we discover that there's gonna be additional renovation work that needs to be done, whatever may come up, we're going to add that in here run another another evaluation when we have more information about the property. Again, one last time, if you guys are interested in actually investing in short term rental properties, you want to learn more about that process, then make sure you click the link in the description down below to check out that training, it's completely free. I'm also going to give you this analysis spreadsheet that I've been talking about that I've been using that kind of walk you through, we're actually just going to give you a completely FREE when you sign up for that training. So again, highly recommend that it's an amazing tool that we've got here we use it for every single deal we do, so I'd highly recommend that you use that as well. Other than that, if you liked this video, please do give it a thumbs up it really does help with growing the channel I really appreciate so it means a lot just give the video a thumbs up hit that like button. Make sure you subscribe to the channel. If you want to see more videos like this. We post two new videos every single week. I'm trying to make them as value packed as possible. So make sure you subscribe, hit the like button, check out the Training link below. And all that being said I hope you have a great rest of your day and I'll see you in the next video.