Watch me analyze an Airbnb investment property

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What's up guys, it's James here and in today's video, you're going to be able to look over my shoulder as I analyze properties for their short term rental potential. This is a video that a lot of people have been asking me for, say, Hey, I just want to see what your process is for analyzing properties. And as much as I can easily explain that process, I think it's even more valuable for you guys, if you're able to just see me actually look for some properties and analyze some properties here. So that's what we're going to do in today's video. Now, for any of you guys who are looking for an A to Zed process on exactly how to invest successfully in short term rentals, you know, all the details around analysis, all the details around absolutely everything from A to Z from finding the property, analyze the property, purchasing it, renovating it, furnishing it, listing it and performing within automating the operations of it, absolutely everything, link in the description down below, there's a free training there, that's going to walk you through the whole process, the three most crucial things that you need to know in order to succeed, investing in short term rental properties, that is there to support you and help you and make this journey easier. So make sure you check it out, it's completely free, the link to that training is in the description down below. So that being said, let's jump in. Let's go over to the computer here and take a look at some properties. So this first property here is one property that found that I wanted to kind of demonstrate as a potentially good opportunity. So I just went on to realtor.ca. A lot of people think that I'm looking in these, you know, crazy places to find properties, but I just want to do it with realtor.ca or realtor.com or Zillow, one of the ones that you're that's just super easy to access is the one for Canada, because I want to show that there really are great deals that are relatively easy to find, you can find really great deals elsewhere that are a little bit harder to find. But it doesn't have to be that tricky. It doesn't have to be that challenging, you can find some really great deals just right on the market, if you know what to look for. Because these properties are not very attractive to a lot of other people the same way they are to us. And I'm going to walk through that in more detail here. So let's go ahead and take a look at this property. So this is a property for $600,000. And all the numbers are going to be Canadian dollar, not that it really matters because it was all us and it'd be all US dollar, it's all the same. So all of our numbers are going to be are going to be Canadian dollars. Here, we've got 599 for this property, take a quick look, you know, need some renovation work. It's definitely in pretty rough shape. But it's the thing I like about it for the market that we're in, I have a criteria. And so that's what I highly recommend that you do as an investor's, you set up a list of criteria for what you're looking for in a property that's going to help you to really narrow down your search and one of mine is not having neighbors nearby, I like to buy bigger properties. So I like to buy them where there's not going to be neighbors around because buying bigger properties allows me to get a better ROI. But it means there's going to be larger groups of people there which even if they are not throwing a party and they are very respectful, they're just going to be loud. If you get eight friends together in a house, it's going to be a lot louder. And if they're there on a Tuesday night, they're on holiday the neighbors are not the neighbors are, you know, to work night for them. So we don't want to disrupt our neighbors, we don't want to have neighbors to close by the other thing that I like is being close to water. I know that's really attractive to guests in this area where we happen to be buying these properties. So that's one of the things I look for as well. And this one's right on a little creek here. So that's pretty awesome. You do some canoeing and kayaking, whatever. So that's good. It's four bedroom, one bathroom. So for this one, I would need to make sure that it can have at least another bathroom added onto it in a renovation. Because I can't really accommodate eight people with one bathroom, I want to be able to accommodate at least eight people in this property. So I need to have at least two bathrooms. That's a good example of property that I would probably call the listing agent on and see if there's any potential get some more detail because looking through the photos, I can't really tell if there's an opportunity to add a second bed a second bathroom, but if I could, that would be great. And this is a cool property here that I found that quite frankly we're probably going to end up putting an offer in on because you know I just texted my business and investing partner Riley here with this one said hey, this property is really under priced for what it is I think this is a really good bought. So we're going to look into this in more detail. And again, if you want the whole process for you know everything and you want to actually have an opportunity to speak with Riley, then right now for a very limited time at the end of that training video, you're going to have the opportunity to schedule a free one on one strategy session with Riley where you can actually help you to lay out a game plan for exactly how to reach your goals with investing in short term rental so I highly recommend you take take him up on that while that's being offered again link is down the description down below. So let's take a look at this property here. Now the thing that I like about this property is it's very close to a lake but not on a lake which we found in the past is really valuable because you're not paying a premium for being on the lake but you have all the all the advantage of being right near a lake for your Airbnb guests to go and you know dropping a kayak dropping a canoe what have you. Now I would need to know a little bit more information about how close it is to Lake it does say it's just down the road is access to four mile lake but I don't know what Just down the road means is that five kilometers down the road or is that you know, walking distance. So that can make a bit of a difference there. But it is a four bedroom two bathroom property. So right off the bat, we can accommodate at least eight people, if not more. So that's fantastic. That's really awesome. And then, you know, I know that we're right here, near snowmobiling at Bing and hiking because it says it right here in the description. So that's great. That's going to draw, ideally some additional guests in and then we take a look through the photos, it's a nice house, it looks to have been recently renovated, we've got a brand new garage. And as soon as I see this, I see okay, this is a great opportunity for maybe even an adu, we might be able to have an auxilary dwelling unit here and have it be its own separate unit. But at the very least, we're going to have a really really wicked cool game room here. We can put, you know, ping pong in here, we can put air hockey, foosball, maybe some old arcade games, that can be a huge huge drawing feature. And then we can also store toys like you know, the kayak, the canoe, the bikes, stuff like that. So this can be a really, really cool feature here that can really help to drive bookings. And it's brand new and in good shape. So that's fantastic. Now looking inside here, it's clear that someone has just renovated this property, Someone's probably doing some kind of a flip, or they've just done a really good job of keeping their property up to date, nicely renovated. So everything looks fantastic, it honestly just looks really stunning. So that's going to be nice for us, because we're basically just going to have to furnish this property and honestly furnish it pretty similar the way it's furnished here, because they've done a really great job with that as well, and then list it. So it's gonna be very minimal work. And the thing that shocked me here is the price point. And so what I always look for is we use sort of a a 1% rule as our very, very, very first level of analysis. And normally I do a 1.5% rule, but we like to use a 1% rule, just because there can be so much variation, I don't want to accidentally throw out good deals that turn out to be, you know, able to perform a lot better than you'd expect. And that 1% rule is 1.5% rule is just looking at and going okay, do I think that I can bring in 1% of the purchase price, or in this case, the asking price in annual revenue. So in this case, with the asking price being at $509,000, do I think that I can bring in $50,000 per year on this property sorry, that 10% I'm thinking of a different a different rule, getting a little mixed up at 10%? Is what I'm looking for it to be able to bring in. So can I bring in $50,000 a year on this property? Now I'm going to show you how I derive that answer. But the quick answer is yes, I will definitely be able to bring in a bare minimum of $50,000 a year on this property. So that's looking really good. So normally, I would be a little bit less inclined to buy a fully renovated beautiful property just because for me, I like to add value through renovation. But with this property can be a cash cow, it's already set up, it's gonna be nice and easy. So there's definitely some potential here that's worth exploring. Looking through the rest of it, the bedrooms are nice and large. So I can fit lots of beds in there accommodate lots of people. I don't know what this is. So I want to know if I can maybe turn this into some kind of usable space for something, neighbors look a little bit close, but it is a corner lot.
So I do have a lot of a lot of space around me, which is great. So everything's looking pretty good here. Honestly, they old kind of cool buildings here. Maybe we can do something with those that's cool at a potential. So now everything looks pretty good. So I'm going to do a more in depth analysis on this property here. So I've got a spreadsheet set up. And this is a spreadsheet that we use for running ROI calculations. I'm just going to assume that we can get this thing for asking price and I can run the scenario if the cool thing is I can really easily with this spreadsheet, just update it to be you know different numbers. So hey, if I have to pay over asking what how does that impact my returns? If I pay under asking how does that impact my returns super easy to do? This just auto calculates our closing costs, Home Inspection is going to be $500 rehab work estimates for this property, I'm going to say for rehab we really you know aren't going to aren't going to do much I'm going to count for you know really nothing honestly I'm going to account for no renovation expenses, you know, and I'll put in $5,000 there just as sort of a general in case you have to do a little bit of work but I don't expect to staff to do any much as far as rehab on the property other acquisition costs doesn't look like we're going to really have much we're just going to have a land transfer tax which you're going to look up here. So any applicable taxes you'll just want to look up for your area I looked them up here I just go asking price is $510,000 and then we are in our location is not Toronto, our location is going to be KLM one co so k 01 C O for any Americans watching. That is not some craziness that is our postal code, not a zip code. So it's a little bit different. I'll just go kart the lakes. Maybe I'll show up. Okay, what if I just go Peterborough to get something similar? Sure, that'll work or what else will be nearby so this can be a little bit finicky. I'm just gonna use Peterborough for the example here. And then so great land transfer is going to be $6,675. So let's go ahead and 6000 Six aren't $75 Put that in there. So our total capital investment is going to be is going to be $530,000. Now the one last thing I do want to put in here is going to be furniture and interiors package, and then interior design photography. So the furniture and interiors, I know that I'm going to spend probably, I'm going to want to add a hot tub and a sauna. So that's going to be $10,000 right there, and then probably going to be another 25 to $30,000. In furniture, I think I can probably keep it closer $25,000 in furniture. So let's say that we're at $35,000 in furniture there. And then interior design, I'm going to pay an interior designer about five $600 for that, and then another five $600 for the photographer. So let's say that's going to be $1,200. Now I know a lot of you're probably thinking that is absolutely insane to spend that kind of money on photography and or interior design. But I can tell you from experience that that is one of the best investments you will make in your property, it's worth spending the extra money to get a really, really, really good job done, it pays off massively. So let's leave this for now we can come back here. And we're just going to assume 20% downpayment. So the downpayment is going to be $102,000 loan amount 408,000, our interest rate, we're looking at about 1.45, crazy low interest rates, some lenders are actually offering even lower than 1%. But recently on a purchase, we were able to get about 1.45% interest, so I'm going to keep it there. But you can adjust that depending on the interest rate that you're getting. And then we've got all of our details here. And then total cash to close cash to launch and total cash. And basically just explains exactly what those are. Those aren't super important for the sake of this video here. Let's go ahead and look at annual permits and licensing these other annualized expenses, and then we can jump back over to here. So annual permits and licensing, we're going to be looking at basically nothing for this property. Because there aren't any licensing requirements in this area. Advertising and tech costs I'm going to put in we're going to use $35 a month and $7 a month software, so $40 a month. So let's say that that's going to be about $500 a year, this is all annualized yard snow is going to be 1200 for this property, just because you know we're going to be about $100 a month for the yard maintenance in the summer, and then $100 a month for the snow removal and the winter pool maintenance nothing lectricity, I would say that's probably going to be about $2,000 for the year 1750 Seems reasonable 1020,
we keep pretty constant for the cable internet, you end up being about $80 a month or so accounting is $1,000. Again, that's a constant property taxes, I would get that from the property from the the listing agent here, but let's assume that it's going to be what I've got in here 3352, because the last property I analyzed here was $510,000. It was you know, similar property, we're probably gonna have a pretty similar property taxes, homeowners insurance, I know for this property we're going to be looking at by the time we get everything hooked up with a short term rental specific insurance policy, we're going to be about $3,000 for the year, these other expenses are not going to apply to us. But if they did apply to you, you could add them in their maintenance reserves or is going to be auto calculate at 3% of the purchase price. So you can see it that's what that calculation is running there. And that's going to be our annualized maintenance reserves. Alright, and then the last thing we really have to figure out now the most important piece is we have to figure out how much income can this property actually bring in in a given year, that's going to tell us whether this is a good investment or not. So for that, I'm going to go over to air DNA here. And I'm going to look for a few things. So I've got a process here that I like to follow for figuring out what my revenue is. And I like to kind of figure out what is the worst case scenario, what's a reasonable expectation, and then what's best case scenario for this property. So for this property, specifically, we're in the course lakes area, if we kind of look on the on the neighborhood map here, we're right by for my lake. So here is that area here that I've got access to in air DNA. So for this level of analysis, you'll need to pay for an air DNA six pressure with that, which I highly recommend. And then we're going to kind of zoom in here and look for that four mile lake area and just kind of figure out where this property is. So we're right around here, where we've got some properties, they're bringing in some different revenue numbers, you'll see everything from you know, this one's bringing in $31,000, but it's only listed and available 143 days out of the year. This one's available for 239 days of the year. So two thirds and it's bring in 60k, we've got a variant variation of a variety of kind of different listings here that are bringing in different numbers, all doing different stuff. So you can see 64 This one's available all year, it's a three bedroom two bathrooms bring in 93k. So things are looking okay, but that's not what we're going to get too concerned with right now, we're just going to go over to the Revenue tab. And I'm going to put in my criteria for this property. So I can access tab out here and just be looking at this property says a four bedroom two bathroom property. So I'm going to go for four bedroom properties. And I want to look at four bedroom property specifically that accommodate let's say six to eight people. Now I hope that I can accommodate eight to 10 people but I want to be a little bit more conservative right now with my numbers and then from here, I'm really just going to want to add up all the numbers for a given year with the the 75th percentile data this is going to be my The first thing I'm going to do is my reasonable expectation. Now, you can see that properties skyrocketed in 2021. Here compared to other years, you can see they did a lot better. And that is it is a reality with everything going on with a pandemic. So I don't want to account for that potentially over, over projected income, I really want to look at kind of more of a reasonable scenario. And I expect that I'll do better than this, I expect that you know, some. So what happened in 2020, and 2021, is going to carry forward into 2022. And I also expect that just long term, the market is going to continue to rise overall, in terms of the demand, because it has been for years now. But I really want to stay more on the conservative side. So let's quickly just add these numbers up, I'm going to just add them up month by month, it's a little bit tedious. But I'm just going to add these up, there's $3,000 in February, I've got another $4,100 in March. And then we've got I'm just adding these up on the side here on my calculator, I've got another $2,800 There, I've got another $2,500 there. Got what have we got here, another $3,600 here, and I've got another $7,300 here. And another $10,200 here, and this is again, a little bit tedious, I'm just going to go through it here, we're almost done. $6,900 there, I'm just rounding don't need to be super exact here. $3,500. And then last couple months here, we've got November at $2,400 for the month, and then we've got December at $3,600 for the month. Okay, so we're looking at about $52,000 for the year. So we want this number to basically work out to $52,000 for the year. That's what we want to run the projection on. That's our sort of, I would say on the conservative end of what's realistic, knowing the area bit and knowing kind of, and I'll show you some other ways that I like to play around with the data to kind of generate some different scenarios. And then I can figure out, okay, you know, what, what makes the most sense for us property as far as projection. So now the thing that I think a lot of people get hung up on is they put their rates and their occupancy is grab your your entire home, you go, Okay, let's look at at our four bedroom properties that can accommodate, let's say six to eight people. And they just go cool apply changes, they average out the average daily rate, and they just grab a lot of people honestly just accidentally grabbed this one without realizing this the entire market, they'll grab these and then grab the occupancy and try to make it work out. What we really want to do is more so grab the revenue. And we want to figure out what is the revenue number and then get to it with a higher this is what I like to personally get to with a higher than expected occupancy rate. So that I can figure out, I'll show you why. Let me just see. So if we go in here and we go, I know that the projected occupancy rate is probably going to be closer to the to the market average about 48%. So I'm going to actually set this at about 60%. Because I want this to be on the high end. And then I'm going to just really play around with this number until it gets me that revenue number that I want, which is $52,000. So let's try $300 No one we probably closer to about 250. Yeah, so a little bit lower than 250. There we go. We're right there. The number I got for the year was 52,400. So this is working out to 52,416. We're right on. Now the reason I did it this way is because I want to figure out the revenue number because ultimately, that's the number that I need to have the accurate, I need that number to be an accurate representation now. And then I start with the occupancy rate, because I want that to be a little bit higher than what I actually expected to be. So if anything, we're going to over analyze our expected cleaning expenses. So we want to be just more conservative, we don't want to figure that the occupancy is going to be really low, and therefore cleaning expenses are going to be really low. Because the less occupancy we have, then the less cleaning is going to be required, the less expenses we're accounting for, we want to do the opposite of that. And then I finally toggle the average nightly rate or average daily rate to figure out what's going to get me to this revenue number. So hopefully that made sense. And then basically, I'm going to go my cleaning fee per rented week on this property is going to be at $450. And so that's going to work out to an annualized cleaning fee of $14,000. Now there's all kinds of other expenses that you can factor in here if you want to if they apply to your area. But then really what we've got here is this property breaks down to an annual cash flow of $5,500. So out every month, it's going to be cash flowing $459. In this scenario, the cash on cash return on that is 3.48%. So that means that out of the cash that I'm taking out of my bank account and putting it into this property, I'm getting a return on that in actual cash back out meaning the cash flow from the property that's real money in my account of 3.48%. So a little bit better than what the bank gives me, but definitely nothing to write home. About annual occupancy rate to break even, it gives us all these other numbers, you can get your your kind of cap rate, and those important things, your equity ROI that I like to figure out, you know, what's the the mortgage principal pay down, gonna equate to in terms of an ROI. So you are gonna be making money in addition to this 3.48%. But you know, that's going to be part of that it's going to be equity buildup in the in the, in the, in the property. And then part of that is going to be appreciation if you factor in a standard appreciation per year, so but cash on cash is really King. So what I will look at is, you know, basically what this is saying is I've got $14,000 worth of expenses here $13,000. For the fixed expenses, our total expenses are $27,000. And I've got a $5,000 buffer on that. And that'll get me a 3.48% return, those numbers are not great, right. So if I look at this, I go, Okay, I know the numbers don't make a lot of sense here. Because in this scenario where the property is going to bring in $52,000, I'm basically breaking even like I'm making $5,000 on my investment, but that can easily get swallowed up by let's say, some kind of capital expenditure, or, you know, different maintenance that might be needed above and beyond what I'm projecting here. So there's just not a lot of margin for error, the cash on cash return is not that great. So based on these numbers, I would not move forward with the property. But what I would do is I would look here, because I know this property has a lot more potential in it than the $52,000. I'm projecting in this scenario. So what I would probably do is I'm going to look at revenue, and I would look at, let's say four bedrooms that accommodate eight people. So we can get some of those smaller ones out here and look at the revenue numbers for them, I would also probably look at what the property did in 2020, as opposed to 2019. And I would also look at the 90th percentile data. Because I know that that's where I'm generally going to be performing more so. And if I can get this property be able to accommodate up to 10 people, that's where I'm really going to be able to make a good bang for my buck. So I'm going to look into this property more detailedly. And more in more detail, I should say and see, you know, is there space for for a good pull out couch is it going to be comfortable for 10 people to stay here, because I know that if I can increase the occupancy up to 10, I can substantially increase my numbers. And you can see just in these few months, the numbers really jumped up quite a bit. So I would run those numbers again. And I'm likely going to come out to probably you know, it's very similar to another property that I have in mind. And I know that that property, we're looking at at least $80,000 a year, I think that for this property, realistically, we're probably going to do closer to $120,000. But in, you know, if we want to stay more kind of conservative, then we're going to look at probably getting to about 80,000 $90,000. So let's kind of play around with these numbers a bit and see what we get. So we go into the $400 Night range, and we get to Yeah, 80 $90,000 here, now suddenly, our cash on cash return is looking a lot better. And so the cash on cash return in that case is 25%. The annual cash flow is $40,000 in this property, so I'm bringing in $40,000 in cash every year from this property that's just over $3,200 per month on the property as a huge margin for error, the total ROI is going to be insane on this. And so really, I just want to know now go I've kind of skipped over a lot of that because I know this video is getting quite long at this point. But I just want to kind of go over that and say, Hey, this property I'm not counting out. But I would do a lot more digging to figure out if this number is actually reasonable. Now me with the experience I have in the knowledge of the area, I know this number is very, very reasonable. And that we'll probably be able to do quite a bit higher than that, I
guess I think we'll be able to do about 120 130 140 with this property. So I think that this is a pretty reasonable scenario. I also like to take into account the, you know, much more conservative side of things, just because for me, I prefer that to know that going in, hey, if things go back to where they were in 2019. And we're not able to, to accommodate 10 people, you know, what's that going to look like? What is our real kind of worst case scenario, if we're being reasonable here? And then for me, what I'm going to need to know when I go and do this is, you know, can I call my 10? People? That's the biggest question that I have my head right now, if we cannot accommodate 10 people comfortably in this property, I'm more than likely just going to pass up on it and say no, because I don't think the numbers are going to make sense. But I know from my experience with this area of my knowledge of the area, similar properties that I have in that in this area that this robbery will be able to hit those revenue numbers if we can accommodate 10 people comfortably. So right now it's at eight people as long as all four bedrooms are large enough for two people to sleep in them. So if we can add an extra bedroom or we can add some pillow couches, then we've got a really great investment opportunity here. So that's basically the way that I run my analysis at a really quick level. Again, this is super, super quick. I didn't want to take too long and here we are. We're already going quite long in this video longer than normal. But I hope this is really valuable for you to be able to look over my shoulder and again if you want access to all these things pools that I'm using. If you want more in depth training exactly how we do this, how like every single component you want a meticulous detailed overview of everything, all the tools, we use everything that I highly recommend you check out the link in the description down below for that free training. That's we're going to walk through absolutely everything in detail, I'm going to share with you the three core things you absolutely need in order to be successful investing in short term rentals. And like I said, for a very limited time here you're going to have the opportunity after watching our training video to schedule a absolutely free 45 minute to an hour long strategy session with my business and investing partner Riley. So I highly recommend you check that out and jump on that before it's too late. All that being said I hope you had a great time watching this video I hope you got a lot of value from it. If you did, give me a like on the video hit that like button, give me a thumbs up it really really does help me out tremendously. I don't think there are a lot of other people taking the time to go through this kind of stuff going into this much detail sharing this kind of behind the scenes access. So if you liked this kind of thing, then show me some support. Show me some love. Give me a like on the video and also if you have not done so yet, make sure you subscribe to the video. Subscribe to the channel I should say. So you stay up to date with the two new videos we post every single week on Tuesdays and Thursdays. All that being said that's all I have for you today. I hope you enjoyed the video and I'll see you in the next one.