How to buy a short term rental property

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What's up guys, it's James here and in today's video, I'm going to be talking about how to buy a short term rental property or how to buy an Airbnb as an investment. So I'm going to walk through the entire process from start to finish this is going to be a longer video, we're going to go through absolutely every step of the process from laying out your initial criteria, finding the property, analyzing property, buying the property, furnishing it, renovating it, listing it, setup all of it, so the whole kind of buying process start to finish. So yeah, tune in for this video, we're going to go through absolutely everything in depth. Now, before we jump over and start kind of walking through all the different steps of the process. I do want to remind you that down below this video linked in the description is a free training that we've recently put together. So my business partner and my investing partner Riley and I recently put together a in depth free training, that's going to walk you through absolutely every step of the process in even more detail that I'm going to in this video. And we're also going to walk through some common pitfalls to avoid, talk about the kind of pros and cons of short term rental investing. And you're also going to have an opportunity, if you check out that video, to do a couple things, you're gonna be able to grab our projection tool, which I'm going to show you in this video completely free so that you can use that to analyze properties, and basically calculate what their true investment is going to be. And really, you know, run proper analysis on short term rental properties. And the other thing you're going to get the opportunity to do is set up a call with Riley completely free, that's going to be a 45 minute consultation call that you can set up with him to learn more about the ins and outs of short term rental to kind of put together a plan for you specifically, so he can help you to achieve your goals with short term rental investing. So lots of value packed in here, let's go ahead and jump in. But just remember that link is down in the description down below. So to start with, the very first step of the process of buying your first short term rental property or your next short term rental property is to set up some initial criteria. So these are the initial criteria that Riley and I have set up for right now for properties that we're looking to buy. And so you can see, basically, initially, we've got, you know, we want a property that's within a three hour drive from Toronto. And the reason for that is because we know that the majority of the people visiting our listings, which are in sort of a cottage vacation type area outside of Toronto, there are people that are going up there for a week or weekend and who are coming from mostly Toronto, so we want to be accessible to them, we don't want to go more than three hours away, because more than three hours is, you know, considered quite a long drive. So we don't want to go too much further than that the closer obviously, the better, we want to be located within the greater Korath lakes area.
So that's specifically an area that's north a little bit east of Toronto, we don't want to go north west, we don't want to go south, because that will put us in the lake. So yeah, we don't want to go into other areas that are still two hours away from Toronto, but two hours or three hours in the opposite direction, because that makes it challenging for our cleaning teams to be able to get by to all of our properties really easily. So we want kind of in this bubble. And we want to be within a one to two hour drive from a small town called Buck horn, Ontario, which is where we have another property, because again, we just want to kind of minimize community distance, honestly, we want to be within like 30 minutes to an hour really a buck barn. We don't want to be in towns, we don't want to be on a main street, it's got to be there private residential. And when I say presidential, I mean very private. I mean, like a large piece of land, neighbors aren't close by or rural, where there's just neighbors nowhere near you at all. And the reason we have that set up is because we really just don't want to attract unwanted attention. We don't want to be disruptive to neighbors. And as much as we can try our best to make sure that our guests aren't disruptive neighbors. At the end of the day, we're looking for properties that have the potential to accommodate eight or more people, which is another one of our criteria. And eight people getting together on a Tuesday night are going to be allowed for your neighbors who are working the next morning getting up early to work. Even if they're not having a party they're not trying to be they are just going to make more noise because they're on holiday. They're going to be you know up late, having fun, whatever. And so we just don't want to be disruptive neighbors has acreage and or is near a lake Lake. Ideally both acreage is ideal for the reason I mentioned before as well as we can set up auxilary dwelling units, which is something that we're working on on some projects as well. And then ideally we want to be near a lake as well, just because that we found to be more desirable for in the summertime being able to go and swim or kayak or stand paddleboard and the winter time being able to go out there and skate. So being near Lake is really great. We really don't need it to be on a lake because you pay a premium for buying those properties and you pay higher property tax there. But being on a lake isn't really that valuable to an Airbnb guests because they're not going to come and dock their boat. So as long as we're near lake that's great has been shown to common eight or more people comfortably after renovations. So Ryan and I are looking for properties we can renovate and build equity into but obviously you don't have to do that you can look for properties that are either furnished and less property or that are completely turnkey. But for us in our area specifically we want to be looking at eight or more people that are can accommodate. So that means four or more bedrooms and two or more bathrooms after our renovation is complete. And the reason we do that is because we found that you're not going to pay a whole lot more, you're not going to pay proportionately more for a larger property, but you are going to make a, you know, a great deal more in revenue. So to give you an idea, like a two bedroom property versus a four bedroom property, you're not going to pay twice as much to buy the four bedroom property.
But you'll generally bring in in this area, particularly more than twice as much revenue. So the numbers just make a lot of sense, because obviously, you're not paying twice as much, because you still just have one AC unit, one roof, you know, one at everything. Whereas with a four bedroom, you can accommodate a lot more people so they can split the cost amongst themselves, I mean, that they're willing to pay a higher premium for that property in the summer months, tends to get booked up more in the lower months. Just because in the lower months, you can accommodate groups that are smaller than eight, you know, eight is just your max do we really looking for like eight to 10 is sort of our sweet spot, ballpark annual revenue of approximately 1/10 of the purchase price or more based on our DNA comps. So this is our ballpark number. This is what we're just ballparking in our initial look at the property, this isn't what we're doing, we're doing our full analysis, we just want to just kind of rule of thumb, if we see a property that is $500,000, then we want to make sure that as a minimum minimum that we can get at least 500 Or sorry, at least $50,000.04 or $500,000 property income. Now that is bare minimum that is like the absolute least that we will consider in like a worst case scenario. But we do want to make sure that's kind of our checkbox. For our initial look at the properties, we want to make sure that in a worst case scenario, we're still gonna be cashflow positive. So that's how we kind of do that really just a ballpark. That's not a detailed analysis by any means. Once you done that, really you don't need to make this rally. And I do this because we're doing this at a larger scale. But basically you want to, you know, find properties that meet that criteria. And then you just want to basically call the listing agent, call a realtor, or have your real estate agent do it. And he basically just want to get some additional details about the property that may not be available in the listing itself so that you can run a proper analysis on that property. So you're going to call them up, try to get an idea of what the purchase price is going to be. So if you are going to be competing with other buyers on the property, then just try to figure out what your actual Max purchase price is going to be. If you think you can get for less than what's asking, then you know, you want to factor that in, you just want to get an idea of what you're going to be able to actually offer on and get that accepted. And that's kind of the hypothetical you want to run. It's not so much about what the property is listed. That is much it is about what you're actually going to end up paying for it renovation budget, ask questions, you can get a better, more complete understanding of you know exactly what the renovation budget is going to be given what the property needs. Again, if you want to learn more about exactly how to budget for renovations and how to structure all that how to do renovations in a way where it's going to add as much value as possible build equity and allow you to pull out money through a cash out refinance, then that's something that we're going to talk about more inside the the training that's linked down below. And you can also talk about on the call with Riley post renovation, how many beds can you add? Is there space to add more bedrooms and more bathrooms? So again, you want to make sure that meets in lines up with your criteria. And I also want to highlight as well, these are just our criteria, obviously, you don't have to follow these specific criteria. These are just the ones that we have laid out for ourselves. And then is it furnished? Yes or no? Because you want to account for furnishing cost. If not, is it for season, that's just that's kind of particular to us where sometimes properties aren't, they're mostly used just in the summertime. So sometimes, they're actually just set up a three season, they're not insulated properly, you don't have a heated water line. But in most markets, you're not gonna have to worry about that ARV comp is you know, just different comps in the area that can demonstrate what the after repair value is. Again, if you're not doing if you're buying furnishing less properties, or you're buying turnkey properties, then you don't have to go and do this kind of in depth research. But for us, we want to know, hey, if we're going to buy the property for five for 60,000, and then we're going to put $75,000 into it is it going to actually be worth more than what we bought it for? Are we going to build more than that $75,000 in equity. So you can see here that you only really add $5,000 in equity based on the ARV calm. So that's ultimately why we decided not to go ahead with this deal is just because on this one, the renovation wasn't really going to add a lot of value and make it really worth our while we want to be able to build if we're spending $75,000 We want to see the equity in the property the value of the property go up by more like you know, 100 $150,000 in value, and then hydro expense, you know, propane expense, any other property taxes all the other expenses related the property, it's just important to know that so you can again factor that into your analysis and then that's when you want to actually run an analysis. So here's another property. It's the next one down here that we actually did run a a more in depth analysis on and so you can see the the purchase price here it was 595. I've talked about this spreadsheet in detail in other videos Again, if you want access to this, you can sign up for the free training that's linked in the description down below. And after that training, we're actually going to give you this spreadsheet for free as well. This is a tool that I've talked about in other videos as well. And so basically, we're just running all the numbers, I'm going to go through it relatively quickly here, basically, your closing costs, your home inspection, your furnitures interior package, which basically that one is just going to be based on your, your estimate. So we've got a kind of tool built here, that allows us to just kind of estimate how much it's going to cost for us to furnish a property based on the size that everything's routing on. So for this property, and all these numbers are in Canadian dollars, because we're investing in a market in Canada, obviously. So for this property, it worked out to $42,000 for adding a hot tub and a sauna and doing all our furnishing, and then rehab work about 30k land transfer tax, which is something we have here in Canada, and then interior designer photography. So that's basically the costing section of it. Now we want to work into you can factor in whatever your downpayment percent is going to be, again, if you want to learn more about how to structure deals and how to get them for, you know, with seller financing, or used other credit kind of creative financing options,
get low money down, no money down type deals. That's another thing that we talked about in more detail inside the training. But you know, put those those numbers in as it relates to you specifically. And then basically, your average nightly rate and your projected occupancy rate and your annual gross revenue. That's stuff that you're going to grab from air DNA, you're going to go to that area you're going to look at so for this property, it was what was it here? We've got a four bedroom, two bathroom, so that's going to easily accommodate Yeah, eight to 10 people, no problem. So let's go like four or five bedroom properties for comps that can accommodate eight to 10 people, we could probably probably sleep Yeah, I mean, with two bathrooms, you wouldn't want to sleep more than 10 people. So let's go ahead, you can see there's 57 listings, we're going to basically look at the 75th percentile data as a kind of moderate scenario, the 90th percentile data as a best case scenario. And the 50th percentile data as a worst case scenario is generally what I like to do. And then after I do that, I also like to go and look for specific comps on our DNA so I can see how the listings are doing how listings are set up. Are they similar? Are they you know, is the photography done? Well is the listing optimized, so I can just kind of see what our competition is going to look like. And what similar properties to the one that I'm looking at are actually going to go for one other helpful tool is to use a tool called Air export actually had our developing team build this. And this just allows you, instead of having to go through each separate one of these dots along the line and kind of add them up manually with your calculator to get your annualized number, you can basically just click a button here, you know, you put in your your four to, let's say, four to five bedroom, right, and then we go, we want to accommodate eight to 10 people. And we want to do we want to pull revenue, we can also pull occupancy numbers, we can pull pricing. But let's just go ahead and download this spreadsheet. And then what's going to do is just going to download a spreadsheet with all that data. So just makes it way, way easier to run numbers. And the other thing that's cool is this only goes back to January of 2019. But err DNA has stored data all the way back into 2018. And sometimes even further back than that. So allows you to pull all that. So I just really like it because you can pull different trends that are happening revenue wise, you can, you know, just analyze the numbers a lot easier, a lot more quickly. So like instead of adding all those numbers up, I want another 70/75 percentile data for properties that meet this criteria throughout the year of 2021. Boom, I can see the the sum there is $107,000. So that's our gross revenue. And I want to see, okay, what's the 92% look like, Oh, it's 148,000 Way easier that way. So that's just a tool that we built called Air export, you can go into the the Chrome Web Store, and then look for there, and here it is, you can you can kind of you can grab it, you can download it, we'll leave a link to that in the description down below as well. But yeah, it's a free tool. So hopefully you find that useful as well, not something we do, and we're not analyzing properties. That's what we're going to then put in here, we want to get these numbers to match up, put in your loan assumptions. And then the last kind of thing is going to be your expenses. So for expenses, you've got your cleaning expense, so you want to put in your week, your cleaning fee per rented week. So specifically, if you're going to have one turnover per week, then this is just equal to one times your cleaning fee that you're going to be paying. If you have two cleaning fees a week, it's two times if you're going to average to one and a half cleans a week, then you want to do one and a half times if you're not sure what the cleaning fee is going to be to just call a cleaning company and just ask for a quote on this property. And just given the specifics of you know, the square footage, the bedrooms, the bathrooms, location, get some numbers from some cleaning company so you can figure out how much it's actually going to cost. Make sure you're specifically telling them it is an Airbnb cleaning. So they know they have to do all the linens kind of thing. And then you're going to put in all of your other expenses that you're going to be you're going to have figured those ones out from speaking with the listing agent so you can figure out yard and snow yard maintenance, that kind of thing. Your hydro expense, your electricity, your cable, internet counting property taxes, homeowners insurance, all that kind of stuff. So next, now we've got all of our actual numbers. So you can figure out from there, what your actual projected, total cash to closes. So for this property, if we get it for 5%, down, then cash to close on the property, with the downpayment closing costs, those are the things is going to be just shy of $45,000 cash to launch, the the listing is going to be $117,000. And then total cash, which is going to be your cash loss to launch plus a capital expense Reserve of 2% of the purchase price, that's money that we just want to have sitting in a bank account ready to deploy on this property, just you know, in case any any kind of repairs, maintenance, that kind of stuff comes up, that's going to be about $130,000. And then we've got basically our cash on cash return, which for this property worked out to 24.93%. Good, not great for short term rental, for short term rental, my bare minimum is 20%. I don't like to do anything less than 20%. But really, we can see some pretty amazing cash on cash return numbers, especially with a down payment as low as this one. So these numbers aren't actually phenomenal. Our cash on cash is generally quite a bit higher than this annual occupancy breakeven, you can kind of look at the different numbers here, our annual cash flow on this property based on these numbers is going to be about $29,000, which is good, but for a property that we're buying for $595,000. It's not amazing to me, you know, we bought one that I've reviewed in a in a separate video that so far in the first six, six and a half months of it operating has generated, you know, like, I think $48,000 It was in profit. Actually, I've got the spreadsheet right here. What is it here $48,000 In actual net cash flow. So you know, you know, it depends on what you're buying, and what area you're in what your goals are. But this is certainly one that this property itself just isn't that interesting to me. But that's why we run this analysis. And obviously, these numbers are still good. They're just not great. So for this property in particular, we didn't offer on it. And then you can figure out, you know, how much you're going to earn for appreciation how much you're going to earn throughout the renovation, all that kind of stuff. So you can really work out all the different numbers and get all the details. So from there, the next step, obviously, is to actually place an offer on the property if you are interested in it. And depending on the on the market conditions where you're purchasing, you either want to go in firm if you need to. But ideally, you want to go in conditional on inspection, that gives you an opportunity to go and inspect the property, potentially negotiate a lower a lower purchase price, based on what comes up during the inspection, and then end up you're going to close on the property, you're going to then go do whatever renovations you need to do on the property, and then furnish the property. So furnishing the property, I'm going to make an entire actual separate video on because there's a lot that goes into it. But the biggest thing is just being really organized. And having budget in mind, you really want to make sure that when you renovate a property that you're doing so in a way that is that is optimal for short term rentals. So you don't want to be going you know, crazy with the plays. And you know, just going spending money all over the place, there's some key areas you really do want to spend money on. And there's some tears you don't want to spend money on. So we're going to go into more detail not inside the training down below, but also in another video here on the channel. And then you're going to want to get it professionally photographed, get it you know, deep cleaned by your cleaners, then professionally photographed after its cleaned in stage. And then you go and you create your Airbnb listing. So for the Airbnb listing, you're gonna want to make sure you go through and put absolutely every detail you possibly can. So your listing is going to be really, really amazing, right? Because the more detail you give, the more it's going to be promoted by Airbnb, the higher it's going to show up in search results send the end result is something like this, where you've got this, you know, beautiful property. You've got all the details here, you can see all the photos you can scroll through. And you really want everything in your listing to answer as many questions as possible. So you can see we've got everything lined up properly, you've got all you know, we've got all labeled as exactly what room it is. Each one of these photos, if you go in here is going to have a caption under it that tells the the person more information. So if they're just scrolling through here, they can get answers to all their questions by just reading the captions for all of these, all of these photos. So that's all going to be really really important to make your listing really stand out make sure that in the photos themselves, you also answered questions. So for example, here it answers the question, do we have Wi Fi? Do we have Netflix? Obviously we have both because pulled up right there on the screen. Again, a whole bunch of thought went into and planning went into what amenities are we going to spend money, spend money on amenities are we not going to put money into and then you want to just again, set up your listing description the same sort of way. So you're kind of highlighting absolutely everything, all the details, making sure that your listing is really optimal. Then you're going to hit launch and then from there, you're going to have to just constantly be pricing the property effectively you want to have some place for guest communication. You want to have your cleaning team organized. All that stuff again is going to be in a separate video in in separate videos and we already have several videos and some of them on the channel, we're also going to cover that all in the train, it's linked in the description down below. So I highly recommend you check that out as well. And yeah, that is basically the process from start to finish it actually, you know, setting up your criteria, finding out what property you want, looking for properties that meet that criteria, analyzing them, offering on them, and then going in and setting up and listing it. So alright, I hope you found that very helpful. That was a you know, pretty comprehensive, A to Z kind of step, step by step system for exactly how to start investing in short term rental properties, everything from actually, you know, setting up your criteria initially for what kind of property you want to buy, finding properties that that meet that criteria, calling the realtor getting more details, analyzing the property, putting an offer on the property, getting it, and then we touched on, you know, furnishing it, getting it listed, and actually in that listing setup on Airbnb, so if you want a more in depth guide, with all the tools and everything, you know, I highly recommend checking out the free trains link down the description below, it's gonna be very helpful on your journey. And I also really highly recommend that after that training, it'll give you the opportunity to set up a call a consultation call with my business and investing partner Riley, I would highly recommend that you take advantage of that offer, it's not gonna be around for very long, we're only gonna be doing that for another month or two here now. So I highly recommend that you check that out. So that you can schedule a call with him learn more, and be able to put together a powerful strategy for you to be successful investing
in short term rentals. Any case, I hope you found this video really, really helpful. I know there's a longer video, but I thought it'd be really valuable to share this information with you guys. So if you did like the video, please hit the like button, give this video a thumbs up. If you want to see more videos like this, then make sure you let me know by either giving it a LIKE, or letting me know in the comment section down below. And lastly, if you're not already I know I often just watch videos on YouTube, from people without actually subscribing to them. And it goes you know, time goes by and I don't even realize I'm not subscribed to these people. So I would really love it if you just take a quick second check if you're subscribed to me, if you're not subscribed to me, and you want to stay up to date with the channel you want to stay up to date with the two new videos we post every single week. Then please just hit the subscribe button it helps me out helps me grow the channel helps me to keep going with this. So I really love it when you guys support the channel and subscribe and if it helps you as well, then that is a win win. So all that being said, I hope you have a great rest of your day and I'll see you in the next video.