How to Start an Airbnb Business in a Brand New Market

Ashley:
This is Real Estate Rookie episode 363.

Tony:
And today we are welcoming back Melanie Wilmesher, who was one of our 90-day mentees from back in early 2023. And today she’s here to give us an update on a deal she landed, and to really show you what’s possible when you have the right plan in place. And we’re going to hear some crazy stories from her Airbnb, so make sure you stick around till the end.

Ashley:
As always, I’m Ashley, along with my co-host, Tony J. Robinson.

Tony:
And this is the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And man, I’m super excited to get into today’s episode with Melanie.

Ashley:
Melanie, as you may have recalled on previous episodes, is a tech professional, and she’s an investor out of Colorado. So she was having a hard time getting her third property, and this would be her first time doing an out of state investment. Melanie struggled a little bit to pull the trigger and realized she had to pivot markets mid search and completely changed where she was looking for a property. Melanie did a really good job demonstrating that setting a clear actionable goal, also with a little support and guidance in the right areas can really help you buy your next deal. So if this is something you’re struggling with, this is a great episode to listen to. Okay, so let’s get into it. Melanie, welcome back. So we’ve heard it’s been a wild last nine months for you. Please catch us up what’s been going on with your first out of state short-term rental and also having to build a team in a new market.

Melanie:
Thanks so much, Ashley. I am super excited to be back with you and Tony. And yes, it’s been a really, really crazy time. So many learnings, a lot of good stories to share with you today, and I can’t wait to dig in.

Tony:
I’m excited to get into the learnings, because we hear that you’ve got a nightmare experience from one of your first Airbnb bookings. And unfortunately, this is what a lot of people worry about when they buy that first Airbnb, is that something crazy is going to happen. And usually that’s not the case. We’ve seen a lot of people buy their first Airbnbs, and usually it’s pretty smooth, but you’re part of that minority that had a bit of a crazy experience. So can you share what happened, Melanie, and how you handled it?

Melanie:
I suppose there’s no better way to learn than to start off with a dumpster fire. So for my third booking, actually, I had just gotten the property live, which as many people know is a lot of work upfront. And I didn’t know my market incredibly well. I was learning about and trying to hypothesize what days were going to be the most popular or most desirable. Anyway, we had a booking come through and I got a call one morning from my property manager that they had just showed up to do the cleaning.
And there had been a party, it had gone on for four days. There were probably 50 plus people in the house over the course of the four days, and they had blocked in a number of neighbors in their driveways and there was significant damage. And my heart immediately dropped. I was just thinking, “Oh my gosh, what am I going to do? This is brand new. Did I make a mistake going into this?” And essentially my property manager said, “I’m going to handle it.” He went to the property, started supporting with cleaning, evaluating damages, taking pictures determined there was about $4,000 in damages.

Ashley:
Oh my God.

Melanie:
I was terrified. I was just really worried about what was going to happen next.

Ashley:
So let me ask, in that situation, did you have… The first thing that makes me panic inside is somebody else is coming in and the property’s not ready. Did you have another booking that was coming in that day or within the next several days?

Melanie:
Yeah, great question. That was a Tuesday that I got the phone call and I had new tenants coming in on Friday, so we had basically two and a half days to get the property back in shape ready to go. And thankfully, I had a fantastic handyman and he came in and they managed to get the property back together before that booking came in at three o’clock on Friday. Documenting everything, having to buy a brand new kitchen table and chairs, and the work they did was unbelievable.

Ashley:
And that total bill, did that end up costing you $4,000 or how did that end up working out with the guests that stayed there?

Melanie:
Thankfully, no. The property manager submitted an intake form to Airbnb’s claims, the insurance claims, and they were able to recover the entire cost of all the damages. So that included drywall repairs, carpet cleaning, many extra hours of cleaning by the cleaners and some new furniture among other things.

Ashley:
Tony, have you had that happen before where you’ve had to submit a huge claim like that before using the Airbnb air coverage?

Tony:
Yeah, we’ve never had to go as high as 4,000, that was pretty rough. But I’m glad that it was able to work out in your favor, but it does go to show that there’s layers of protection in place for you as the host when those things happen. And it sounds like your property manager did the right thing of documenting all of the damage documents and the cost to get everything guest ready, and then letting Airbnb kind of see that evidence as proof that you should be reimbursed for that. I think the question that jumps out to me, Melanie, is what were some of the lessons you learned? And I guess even before the lessons learned, let me ask this, were you at all discouraged about like, “Oh man, I’m in over my head. I don’t know if I want to do this whole short-term rental thing anymore?” What was your thought process kind of going through that?

Melanie:
I was immediately discouraged and terrified. I was only thinking about that $4,000 in damage. I had just purchased all of this furniture and everything was brand new. And so I was just imagining the bills that were going to come out of this and that, oh my gosh, this was a failed experiment. What did I get myself into? But I have to say the panic only lasted those three days, and then by Friday 3:00 PM I got the text, “Hey, the property’s ready to go. The guests are on their way. All as well.” And I kind of reset and was like, “Okay, let’s try this again. Let’s see where this goes next.”

Ashley:
So we have to go to a short break here, but when we come back, I want to go through some of the things that maybe you are utilizing or that helped you in this circumstance, including your great team behind you. So let’s get into the break real quick. Okay. And welcome back from our short break. Melanie, what are some of the things that you had on the property or maybe policies, procedures you’ve put in place that have really helped you through this experience and maybe things that you’ve even added to the property such as security cameras or things like that, that you can give guidance as to here’s how I’m protecting myself now from preventing this from happening again?

Melanie:
I was hoping to start getting bookings and then learn along the way. I didn’t expect to learn so quickly. But in retrospect, it’s fine. I did end up getting security cameras within a week or so and getting those set up, and there were learnings with those too, but that became critical for something that happened down the line as well. I will say the one thing I had in place was really strong trust with my property manager. Before we kicked off bookings, I’d spent a significant time just getting to know him, his operating procedures and what he does in an emergency or in a situation like this. He had never experienced anything to this extent with his other properties, so he was learning with me, but just our communication and problem solving together was the only thing I had in place before the party.

Tony:
Manley, I just want to add some things that we’ve done in our Airbnb business to kind of mitigate or prevent, hopefully things like this from happening. So it sounds like you hit the first one, which was including security cameras in your property. We put security cameras at pretty much every exterior entrance to the property. So front doors, back doors, things of that nature. And it still requires that someone monitors the cameras at least on somewhat of a regular basis. But say that you, your property’s what? Like a three bedroom, I think, right?

Melanie:
Yep.

Tony:
Right. So your property’s a three bed and say that you see 20 cars in the driveway on a three bedroom property, that’s a red flag there as well as you can reach out and that’s your first step. The second thing that I would recommend for everyone that’s listening to prevent the parties from happening is getting some noise detection or noise monitor device inside of your property. There’s different brands out there, but we typically put these inside of the property. They don’t record, they just monitor sound. And then if sound gets above a certain threshold for say, 10 minutes or more, it notifies you to say like, “Hey, Melanie, there’s a lot of noise at your property right now.” And then you can reach out to the guests and say, “Hey, just want to reach out, the neighbors complained, whatever it may be, and would you mind keeping the noise down?” And we’ve had to do that a few times at our properties and it’s saved us from things getting out of control.
The third thing you can do is like, say you get those notifications either from the camera or from the noise monitor, and the guest continues to let the noise be an issue, all you gotta do at that point is call the cops. And if you’ve already asked them to keep it down and they’re not, I would say like, “Hey, look, sorry you violated my house rules. I’m going to need you to leave.” And if they don’t, call the cops and say, “Hey, there’s a guest on my property, I’ve asked them to leave, they’re causing a noise nuisance for the neighborhood, please get them out of there.” We just have to call the cops on someone two weeks ago, they showed up, knocked on the door, and the guests were out like 15 minutes later. So those are the things you can do if you get to a point where the guests aren’t respecting the house rules you put in place.

Melanie:
Those are awesome recommendations. I love the noise monitor. Another learning related to that was I was thinking, I had already established a little bit of a relationship with my neighbor. Perhaps he might reach out to me but he is perhaps the most patient neighbor in the world and just let the party rage. Nobody on the whole block called the police.

Tony:
You got the nicest neighbors.

Melanie:
I know. Maybe I should be leaning on some technology instead of nice proactive neighbors.

Ashley:
This is a question for both of you. How are you managing the bad reviews after that? So obviously if you call the police on someone, or even if you send them a threat with the noise level and they don’t think it’s warranted at all, how do you prevent them giving you bad reviews because they don’t like that confrontation?

Tony:
So for me, what we’ve seen typically is that those guests don’t end up leaving reviews a lot of times. But if they do, you can just reach out to Airbnb and say like, “This is a retaliatory review. We charged this guest because of the noise issue, or hey, we had to forcibly remove them from the property, so they shouldn’t even be able to leave a review because we know that it was based on this negative interaction.” And usually the folks at Airbnb are pretty understanding and they can say, “Okay, cool, we understand that this is probably not a true reflection of their experience and maybe they’re just mad because they got charged an extra fee or something to that extent.” And I guess for you, Melanie, what was the situation for you? Did they leave a review? What did they say? How did that shake out for you?

Melanie:
In that situation, they did not leave a review and I was under the impression that once we submitted the insurance claim, they wouldn’t be able to. But maybe that’s not the case, perhaps you know. I did have another situation later on where a car was stolen out front of my property. The doors were left unlocked which was another challenge, but they did leave a three star review because of that, which is understandable. We did reach out to Airbnb to see if that was something that we might be able to have removed, because that can be a pretty damaging review. And unfortunately they didn’t want to remove it. But I have tried that technique.

Tony:
Just one pro tip, and this is for everyone that’s listening, call multiple times to challenge a review because a lot of times it depends on which rep you’re talking to. And you’ll get some reps that are a little harder to get reviews removed with and you’ll get other reps that are like, “Oh yeah, cool. That makes total sense. Let’s get rid of it.” So it might be worthwhile, Melanie, to give another call in and see if you can get that one removed.

Melanie:
Good to know. I definitely did not know that.

Tony:
So one thing this makes me think of, for us, we typically have an age limit to book of 25 or older for our short-term rentals. I guess to clarify, this obviously wasn’t your ideal guest, the people that stayed at your property and trashed it. Like who were you trying to target with this property specifically?

Melanie:
I was really going for smaller families with kids. In one of the bedrooms, I specifically put in a bunk bed with a twin bed on the top and a queen bed on the bottom, hoping to get families with two or three kids. And for the most part, that has been the audience I’ve attracted. I think the real challenge I ran into at that time was because it was one of my first few bookings the stays are discounted to attract bookings to your property in the beginning. And so I don’t think we had an age limit. And I also think that the property was perhaps the most affordable in the entire area because there was this broader college party going on on a nearby island.

Ashley:
So what are some of the things you’re doing now that is it just increasing the price that, so that you are getting the target audience, or not target audience, I can say target guests that you want to stay into your property?

Melanie:
So we are using dynamic pricing now, which has helped us just be aware of how busy other properties are and get a higher rate on bookings instead of being the cheapest one available. And we did have a process in place where we were looking at the reviews and doing monitoring profile, seeing other reviews that had been left. I haven’t done anything differently, honestly, this is a good learning around optimization for me just to prevent this in the future. But I guess really the short answer is that’s a growth opportunity because we’re continuing as we were.

Ashley:
So, Melanie, you mentioned a little bit about your market and it sounds like that there’s a college area in that thing that there was a party going on an island, things like that. So I want to know a little bit more about this market and how did you find this market and why do you think it’s a great short-term rental market?

Melanie:
The market I picked is Savannah, Georgia. And I picked it largely because of the price point, I had previously been looking in Florida and I was really just not getting any traction there. I wasn’t having great luck, and so I continued to find areas that would be a little more affordable and Georgia was on that list. Savannah specifically, because of so many tourist destinations and so many attractions like the historic landmarks and SCAD, which is the College of Art and Design. I wanted to be close to that and more centrally located towards tourist attractions.

Ashley:
Yeah, you were looking at another market prior to that and you switched gears. What are some of the things that you do during your market analysis? So what was the reason you decided to leave your other market and what did you find in that initial analysis and then this new market, what are some things if a rookie investor’s looking to do the research, invest out of state, can you name a couple things that they should be looking at when deciding on which market they should pursue?

Melanie:
Definitely. I am a big proponent of tools just to take the analytical post analytical perspective using numbers. I spent a lot of time on Airbnb just clicking into bookings and specifically looking at how many nights were booked in a property, how prices varied. And that was actually one thing that steered me away from Florida. As I was looking at some of the local Airbnbs in Tampa specifically, I was finding that there were just so much availability and there were so few nights booked at so many properties. I was nervous about the competition. I also looked into a couple of other cities like Kansas City and St. Louis, and I found similar things there. And I didn’t only use Airbnb.
I used AirDNA and PriceLabs, and I think Tony, you recommended PriceLabs and Rabbu as well to look at some reports, especially because you can do a lot of filtering around bedrooms and bathrooms and all of the features you have. So I used a lot of that information and that helped me determine that there was a little bit less competition in Savannah, few properties available. The nightly rates were a little bit more desirable, compared to what I was going to spend on the property and that all contributed to landing on that market.

Tony:
So Melanie, if you reflect on that thought process of trying to choose the right city, what did that look like? What was going through your mind at that time?

Melanie:
Good timing, Tony, because I was actually looking back through my intention journal this morning, and I found this entry that I wrote in December of last year. And I won’t read the whole thing, but briefly, it says, “In review of the last week, I looked at St. Louis, Kansas City, Savannah, and Denver for different opportunities. Savannah seems to show promise with some of the calculations I’ve been running. I read Avery’s short-term rental book and started David Green’s long distance real estate investing. I’ve got a lender arranged in Savannah and an agent working with a larger, more well-known firm, but I’m not exactly 100% confident that I have my ideal team yet. I also have my search in Florida still active and I’m just matching, excuse me, just watching what properties pop up, plus trying to keep learning. Maybe I need to look for some references. I want to keep growing.”

Tony:
I love that you’re using the intention journal and I love that it actually played a role and you making this decision. And for all of our records that are listening, if you want to pick up a copy of the intention journal, just head over to biggerpockets.com/bookstore, search for intention journal, and it’s on there. You talked a little bit about building your team Melanie, and I want to get into that in a second here. But before we do, when you think about Savannah, what were some of those economic drivers that you saw in that market that drew you to that city?

Melanie:
Definitely the colleges. There’s a number of locations for University of Georgia, and I just assumed, May is a great time graduations, students coming in and out and parents visiting is always going to bring people to the city. And then secondarily to that, I had learned that they were building a Hyundai factory in the area and they were expecting a lot of population growth. And at this point, I don’t think they’ve broken ground on that. I need to check, I haven’t heard anything. But I do know that the city has been growing and I even have seen just a slight increase in property value just, using Google search and such.

Tony:
On that note, Melanie, you talked about increase in property value. So you’re in Colorado, slightly more expensive market. What was the price point in Savannah?

Melanie:
The average price was anywhere between, I would say 230, 270, upwards of 300. But at this same time, interest rates were just slowly climbing. And so as they were climbing, my price point was shrinking partially pushing me out of the market in Florida where the average price point was 400. And so I ended up finding this property under 250, which was a huge win.

Ashley:
Melanie, I just looked it up for you. And the Hyundai factory is being built right now, and it should be having a production go through it, so employees start working there by 2025.

Melanie:
Awesome. Thanks, Ashley.

Ashley:
Okay. So with this property, you’re having it as a short-term rental, but did you actually explore having it as a long-term rental or maybe even flipping it? Did you have to do a lot of work to the property besides just furnishing it?

Melanie:
I did consider if it would be a good long-term rental or a good midterm rental as backup strategies or exit strategies, and it was possible. But if I did have to go long-term, chances were that I wasn’t going to cover my expenses fully. I probably would cover my mortgage, but it would be unlikely to also cover the property management expenses. With a midterm rental, I could also do that, but the cost that my property manager was going to charge was the same for midterm and short term. And so I thought, what do I have to lose just going a little bit bigger, and if he’s going to manage it the same way, let’s just try to increase the revenue potential.

Ashley:
Did you do a lot of rehab to it where you could have… Because in my mind I was thinking, could you end up flipping the property and selling it if it didn’t end up working out as a rental?

Melanie:
Actually, I did not consider flipping it because when I bought it, it was recently flipped and I never actually saw the property in person before I purchased it. And they took great photos. And that’s one thing you don’t know unless you go see a property in person. So here I am showing up at my property a few days after close thinking it’s been flipped, it’s in great condition. And there were a number of things that just weren’t in the photos. The dishwasher had some issues, the garage door didn’t open. There were some electric issues. There was some broken siding. There were some electrical outlets that needed some help. And it wasn’t anything major, I think I spent maybe $3,000 on unexpected repairs, but it was something. That’s an additional $3,000 that you don’t want to spend.

Tony:
Melanie, you said that you bought the property sight unseen, which obviously you already had some investing experience going into this, but a lot of rookies, I think, have fear around buying that out-of-state property without getting their own eyes on it first, what did you do? What steps did you take to make yourself feel comfortable to buy this first Airbnb site unseen?

Melanie:
I really built a lot of trust with my team. That started with working with the property manager and actually sending him addresses long before I started working with some of the other team members to just ask him what he thought about the areas, ask about the potentials, and how nice the neighborhood looked. And he was willing to drive over to some of the locations and say, “Hey, you might want to reconsider because of this, or, hey, this is a great opportunity because of this.” And that was huge because he helped pick what I think is an up and coming neighborhood with a new shopping center nearby it. And that was huge.
On top of that, I also had a realtor who I really trusted. He did video walkthroughs with me and would answer all of my questions, was really patient because I was just trying to be cautious. But I have to say ultimately, there are consequences of not seeing the property and there are things that you can’t prepare for and that’s just the cost of doing business. But that doesn’t mean it’s not worth it. It’s definitely worth it. And there is some element of thrill to that too.

Ashley:
So having your team drive around, look the properties, things like that, what were some of the things specifically that you were, or maybe they were telling you, this is what makes a good neighborhood and this was what makes a bad neighborhood? Like you said, they said you might want to reconsider this. What would be an example of some of those things that would make you change your mind as to maybe I don’t want to have a house on the street?

Melanie:
Homes on the block that are in disrepair or have a ton of cars outside or it’s backs up to a building or something that’s undesirable. It’s a little bit too far out of town. Not something that you would notice from only looking at Google Maps, but something you would know from actually making the drive. Those are some of the things that they helped to point out. On the flip side, some of the positive things were there are some other homes that are popping up for sale and they’ve been recently updated. Their values are a little bit higher than the house that you’re looking at. There seems to be growth and development happening, which will eventually impact your property value and bring some new owners into the neighborhood.

Ashley:
Okay. Well, I definitely want to learn how you found this team that has been your boots on the ground for you and also get into the numbers on this deal, but we’re going to take a short break and we’ll be right back. Okay, welcome back. Melanie, tell us how you found this great team and what can other rookie investors do, or even Tony and I do to find great people to work with in different markets, especially when you don’t have that opportunity to meet them face-to-face and you have to hire them virtual, pretty much.

Melanie:
I started on BiggerPockets. I started in the forums reading through mostly people who had invested in Florida and asking them for agents. And that’s actually how I found an agent in Florida. But then I went back to the drawing board and that was how I also found my first agent in Savannah. Unfortunately that agent didn’t work out and I ended up stepping away from that partnership and came back to BiggerPockets. Another person who had been on the podcast recommended a different agent. So through a trusted referral essentially, and that agent ended up being phenomenal. I found my property manager through the first agent. So even though we parted ways from a transaction perspective, he introduced me to the local property manager and there weren’t a lot of options for property management just because most property managers operate in Savannah proper.
So I really was hopeful that the property manager I started talking to would be fantastic, and he ended up being so. I found my insurance agent by calling a ton of companies locally and I also found my lender through the second agent I started talking to. Sorry, and to add to that, one of the best people in my team is my handyman who came through the second agent I worked with, and he has been a godsend. So a lot of asking around, a lot of BiggerPockets resources. And then I would say just spending a lot of time talking to those people and building a lot of trust in those relationships has been really positive.

Ashley:
Melanie, did your property manager have a handyman that you could use or did they have contractors? And what made you decide to go and find somebody else on your own to have available?

Melanie:
It’s funny, my property manager did not have a handyman. In fact, I introduced him to my handyman and I feel as though that only strengthened my relationship with him. Now they partner together on a lot more properties, and so using that network I think really helped our relationship. But I guess in retrospect, it’s interesting that he didn’t already have one on his staff.

Tony:
Melanie, one thing I want to know, obviously you’ve got a full-time job, you have other real estate investments outside of this one that we’re speaking on right now as well, but what was your motivation for hiring a property manager versus self-managing this property?

Melanie:
I genuinely have no idea if I could have done it without a property manager. My job is really stressful. It takes almost all of my time. Sometimes I’m also selling properties as a realtor if there is free time, which isn’t often. So, I really didn’t even consider self-managing. I wanted someone boots on the ground who could go to the house, who knew the cleaners, and I just didn’t even entertain trying to do it alone.

Tony:
So, Melanie, what was your initial goal with this property in Savannah?

Melanie:
Part of it was to have a property in a warmer part of the country, so I could leave Colorado in the winter. And so that was a huge value add for just buying in a warmer area. Beyond that, I was hopeful to make $1000 a month in profit, largely because my long-term rental was generating just a little under $1000. And my thought was, if I can stand up a short-term rental, ideally it’s more profitable than a long-term rental. And if that’s the case, like I’d like to continue using that strategy moving forward.

Tony:
So let’s get into some of the numbers on this deal. So what was the debt structure that you used to buy this? What kind of loan product was it?

Melanie:
I used a second home loan putting 10% down. Interestingly, your second home only has to be, I think, 60 miles from your primary residence. So I was surprised to be able to use that.

Tony:
There’s even some caveats to that, it depends on which lender you’re working with, but say that it’s even under that, and I’ve heard 50 miles, but somewhere in that 50, 60 mile range, but say that you can prove that it’s a totally different experience. You can still qualify for that second home loan. So say that your primary residence is in the suburbs and maybe if you drive 40 miles up a mountain and now you’re in a snow type environment, you can get a second home there. And then say you drive 40 miles in another direction and you’re at the beach, you can get a second home there, which is maybe not common everywhere, but in California, that’s like a thing. I can drive 40 miles and be at the beach or the snow. So there are some caveats to that as well. With that 10% down second home loan Melanie, what was your ballpark, what’s your mortgage on that?

Melanie:
My purchase price was $240,000, putting 10% down. I put $24,000 down. That doesn’t include closing costs. And my monthly payments are $1,800 a month.

Tony:
Geez, 1800 bucks a month?

Melanie:
6.6% interest rate, unfortunately.

Tony:
Yeah, but that’s still pretty good. Say that raised, you do dip down as we get into the back half of this year, even sometime in the future, you’ve got a good opportunity there. And then do you know ballpark, what’s your monthly expenses between utilities and repairs and maintenance consumables, all those things?

Melanie:
Yes, so I was just looking at this today, average monthly cleaning fees are about $850. My average monthly repairs are about $125. My average monthly property management costs are about $640, and utilities on average are $430. So the way that I look at that is, on average, my total monthly expenses are about $2,860. The monthly gross income has fluctuated significantly. So this was hard to look at for the first few months, but now that I’m crossing into the ninth month, I’m seeing about just over $4,000 of average income per month. So that is giving me an average profit of about just under $1,200 per month.

Tony:
That is awesome. Let’s do some quick math here. Tony’s got to break out the calculator. Just say you’re doing about 1200 bucks per month over 12 months. It’s just over $14,000. Your down payment was 24K, I don’t know, maybe closing cost and set up, what would you say your all in cost when you include closing costs and design and furnishing?

Melanie:
Kind of estimated around $52,000, all in. Furniture, everything.

Tony:
So you’re cash flowing about 28% on this deal, which is pretty darn good, especially given a plus 6% interest rate. You bought this deal in 2023, have still found a way to make it profitable for you. And man, I’m just super excited to see that this property’s done so well for you, Melanie.

Melanie:
Thanks, Tony. I was super nervous to share those with you today.

Tony:
No, that’s great.

Ashley:
And Melanie, your goal was even to break even on this property, and then you want to be able to use it too to stay there in the winter months too, so that’s awesome to be able to have some personal use with it.

Tony:
Thanks. I have been reluctant to go stay there because I have been trying to earn back some of what I put into it, but I am really, really hopeful that I’ll get to do that this year.

Ashley:
What was your favorite part about this property? Of putting it all together and making this deal happen, and now that it’s come alive?

Melanie:
Actually going out there myself and furnishing it was definitely the best part. I flew out there four days after I bought it and I’d evaluated all of the services that will go and furnish your house for you. And I realized the cost would be about the same as what I was estimating the cost to be if I did it myself. And so I just said, “I’ll go do it myself and learn.” And I was going to fly out and order some Amazon mattresses to the house, sleep on the mattresses, furnish the house, and then fly home in four days and go back to work, which definitely did not happen. I ended up being there like a week and a half. Nothing showed up on time. I had to have my mom come and fly out. My property manager had to finish it, but one of the best wins I had was there was somebody down the street doing a garage sale of everything from Crate & Barrel, you could imagine. And I basically cleaned him out and furnished half my house with that for really low cost, which was amazing.

Tony:
That’s super cool. And that’s one of the benefits of looking locally. I know some people who furnished their Airbnbs like yard sales, maybe Facebook marketplace, things like that. And you can really save a ton if you’re on a budget trying to set up your Airbnb and it’s a really, really smart way to go. I guess for you, Melanie, beyond the guests, the Orange Crush Party, what are maybe some other key issues that you’ve seen with your Airbnb in these past nine months?

Melanie:
I have gotten some feedback that I didn’t have enough furniture, which was interesting. I didn’t really think that that would be something that would come up. But, I missed the opportunity to furnish it and make it super, super cozy. I was trying to have enough in there and learn from there. So that was a learning I needed to come back and add more furnishings, which extended the time to actually kick off. And in retrospect, I would probably invest more into just making it really, really cozy and welcoming to save that time later on. I also learned that you can’t know everything about the neighborhood you’re investing in because your property manager and your realtor can only do as much as they can with their time. And I have found that there are other, like having that car stolen, which I mentioned earlier is just a complication I could have never expected. And even though it was so fun to not go see this property myself, that’s something I’d probably do in the future just to know even more.

Tony:
So, Melanie, we’ve heard all about Savannah, Georgia, the property. Now we want to get into where you’re going next with your short-term rental business. So I guess maybe what are some things that you feel you can improve on going into this next year?

Melanie:
I think there’s a lot of room to optimize. One thing that I learned this year was that extended stay bookings are fantastic because there’s only one cleaning fee even if someone stays for 28 days. So I’d love to drive a lot more of those. That has been great at the end of the year. I also just having stated a bunch of Airbnbs this year, there were a number of places that had bachelorette party kits or just fun things that you wouldn’t expect to be in a home but made your stay even better. I want to add some more things like that, maybe some just other thoughtful touches to Ashley’s earlier point, even more pillows because everyone loves pillows.
And then I would also like to be offering a second booking at like a 10% discount. So I know you can do that with a QR code or you invite customers to book through your website or reach out to the property manager. Because of the lack of time that I’ve had, I haven’t done enough research there and my property manager has been a little bit slower to start some of those things up. So I’m hopeful to try a few of those different things next year or this year.

Ashley:
One thing that I can give you a piece of advice on is like hiring somebody to do that for you, just like in a consultant or going on Upwork and just like listing what you’re looking for and pay somebody who’s probably already done that for a bunch of other people to just complete that for you as to like creating the QR code that sets up the discount and things like that where you don’t even have to wait for the property manager, you don’t have to do it yourself. I’ve been doing that more and more frequent of like things I want to implement, but just don’t have the time to actually sit down and do it. That having just like hiring somebody per a task has been super helpful and they know what they’re doing, so they’re able to get it done a lot more and it ends up being very cost effective than me spending time trying to figure it out.

Melanie:
I love that idea. I did not know you could do that.

Ashley:
I post like all these random things on Upwork now. Even for a property management company, we have a consultant we’ve been working with for a month now where I just pay her a fee based on what we’re working on and she’s been implementing all these new SOPs for me and like, here’s the way that you should do it through your software and things like that. And it’s been super helpful where I know what I want to do, but I don’t want to be the one that actually sits down and does it and takes the time to implement it. So it’s been really great.

Melanie:
I love that. That made my mind go to one thing that I want to definitely improve in the year ahead and that’s tracking expenses. I do everything in Excel spreadsheets, which is great, but so time intensive that I really want to make that a lot more streamlined next year.

Ashley:
And that would be such a great thing to post on Upwork and say, “I have this spreadsheet with all of my expenses, this is how I’m tracking it.” You don’t even have to say, “I’d love you to put it into QuickBooks for me or do my bookkeeping in QuickBooks,” you could even make it open. I’m looking for a better way to be more efficient with my process for my bookkeeping and tracking my expenses and things like that and see what ideas people bring to you too. Tony, how are you tracking your expenses for your short-term rentals?

Tony:
We used to do everything in Stessa and that was like free software that worked really well. Now we have our bookkeeper who does the bookkeeping for all of our properties. Once we got to like 20, I couldn’t do the books myself anymore. I was spending too much time every week doing that. So now everything’s set up in QuickBooks and we just get P&Ls at the end of every month now. we want to let you ask any questions you have, but before we get into that, can you just give us an idea of what your overall portfolio looks like right now? So maybe the overall value of your property, if you have any partners and what percentage you own and if you’d know across your entire portfolio, which are gross in and net numbers look like, we’d love to hear that as well.

Melanie:
I’m going to give you the numbers that I found and maybe you can help me refine them in case I have some edits to make. But generally today the value of the two homes that I own by myself are about 716,000 and I have around $500,000 in debt there. I also have a little bit of ownership in our primary residence, specifically for the basement unit that we rent out. And so if we’re throwing that in there, the total value’s around 1.3 million with about 800,000 in debt. Now, I don’t know if this is the right calculation, but I looked at that as 62% debt to equity.

Tony:
Sounds about right. Yeah. If you’re doing like 800,000 over 1.3 is your portfolio value, that sounds about right.

Melanie:
And then in total, with all of the income coming in from those properties, the gross income’s around 93,000 and net income after all expenses is around 37,000.

Tony:
That’s crazy. $37,000 a year in cashflow. That’d be like if you went out and got a part-time job-

Ashley:
That was my first job out of college. I’m pretty sure it was like 35,000, maybe not even 37,000.

Melanie:
Some of that income is coming from shared property and perhaps that’s not the right calculation because we ultimately take that income and put it towards the mortgage payment.

Ashley:
Yeah, but even still, regardless of how you put that profit to use, that’s still a profit at the end of the day which I think is super impressive. And the fact you’re doing that with a relatively small portfolio to kicking off that much profit is amazing. So kudos to you. That’s awesome to hear, Melanie. Now, we want to finish off by giving you a chance to maybe ask any questions you have. Obviously you first got introduced to us as one of our mentees and super excited that you’ve been able to take some action based on what we shared last year. But based on where you’re at right now, what do you feel you need help with? How can Ashley and I help?

Melanie:
I think my biggest challenge right now is just getting back into the flow of looking at deals and starting to gravitate to a new strategy. I’ve recently met a partner that I know I want to work with and we’re starting almost at square one with what is the main strategy we want to go after. We’ve chosen our market, which is Denver, but we’re throwing out subject to and TR is long-term rentals. And I know you guys can’t help me choose that but just maybe some guidance around how you’re encouraging others to approach this market with changes that might be coming to the real estate market in the year ahead.

Ashley:
Well, we actually just had a great episode. This is the only thing I could think of right off the bat. The first thing when you start talking about trying to figure out what your strategy is with your new partner, we just had Dave Meyer on on episode 356 and he has a new book coming out called Start With Strategy. And it is all about determining what your vision is and how to build it backwards and build what your strategy should be to fit the life and everything that you desire to fit around that. Instead of just being like, “Oh, flipping sounds fun, I’m going to do that.” And then you end up like, “This is way too much time consuming. This doesn’t work for me, this isn’t what I want and it’s not meeting my financial needs, not meeting my personal life desires.”
So reading that book I think would be a great first resource of start with why and then also for your new partnership, mine and Tony’s book Real Estate Partnerships. So anyone else interested in reading those books, you can go to the biggerpockets.com/bookstore to find both those books. But as far as the strategy, I think the biggest thing is coming into alignment with your partner as to what you want out of this. Is this a long-term relationship or short-term relationship where you just want it to be one deal and kind of done? Which I recommend at least starting with one deal instead of saying, “Oh, we’re going to buy 10 deals together.” But is this something you could see where you’re building like a portfolio together or you just want to flip a property to get some capital. So what are your guys’ goals right now and also in the future too, and what strategy do you need to do to actually achieve those and are they the same? So do you have an idea of why you want to buy another investment property right now?

Melanie:
Those are really helpful recommendations, Ashley. And generally to answer your last question, one of the reasons we went into this partnership is because we have alignment as a core value around wanting to add more properties to our portfolio that are increasingly passive. So even less management than just my small amount of involvement on the short-term rental if possible and increasing profitability as well. We both want to have more travel in the year ahead and those are some of the things that are really important to the lifestyle we want to cultivate. So that’s still incredibly open-ended. We definitely have more work to refine that, but I appreciate some of that direction.

Ashley:
And I think one kind of question you could add to that too is to like what resources do you both have available already? Do you both already know a super property manager that does long-term rentals or do you already know a manager for medium-term rentals that you know will do a great job? So thinking about who your resources and your boots on the ground are already too can help you know, okay, passive is one of our goals and I know that if we buy a long-term rental, that it is going to be passive because we already have this great property manager that we can hire instead of deciding well we’re going to go with short-term rental. Having to find that short-term rental manager and testing them out until you actually find the one that you want to.
I think having resources and having a team and building your strategy around what they can also do too can be pretty beneficial also in helping you decide. Especially if you don’t have a preference as to what it is as long as you are passive and you’re making income off of it. And then I think lastly that obviously the piece is a tie in word or do the numbers work. Tyler Madden, who’s been a guest on the show, he bought a three unit and it’s in Denver and the goal of it was to be short-term rentals.
Well, as they’re rehabbing it, they found out that they actually can’t do short-term rentals and so they had to pivot and turn it into a medium term rental and they actually ran their numbers as the long-term rentals to make sure that worst case scenario they had to do it as long-term rental, they would break even. So doing the medium term rental, they’re still like cash flowing good on this property, probably not as great as if it was a short-term rental, but they actually had bought that property with having the option of doing all three of those strategies.

Tony:
Yeah, those are all really solid points, Ashley. And I think the only thing that I’d add to that, Melanie, is that as you and this new partner think about strategy and what makes the most sense for you is just also think about, what are the superpowers that come out of your relationship, your partnership together? If you look at the strengths of both of you as individuals, which strategy is best supported by those strengths? And if you found that you really do have a love for design and picking out the finishings and stuff, then maybe it’s flipping in Denver. And if your partner’s really good at finding off market deals, whatever it may be. So I think look at the skill sets that each of you have where you can really shine as individuals and then that’ll give your partnership a really well-rounded approach because both of your are operating in your areas of strength, if that makes sense.

Melanie:
Yeah, absolutely. I love those recommendations. Would either of you be willing to share how you’ve created contracts with a partner and how you’ve approached outlining roles or responsibilities or how you split profits or who does the investing or if it’s equal, et cetera?

Ashley:
Yeah, we can send those to you. Tony and I actually included this in our book too, is an operating agreement if you’re doing an LLC with a partner and also a joint venture agreement too. So I think those are all, if you buy the ultimate Real Estate Partnership Book package or whatever on biggerpockets.com, you can get that. But we’ll send it to you, Melanie, and you can see the contract as to how you can break the different stuff out. And then obviously, it’ll be state dependent, like the operating agreement I put in is New York State and Tony’s joint venture agreement is specific to him using it in California. But you can go through that and see how we do our different partnerships.

Melanie:
Well, I would love to just take a second to thank you both so much for all of the support. I know that things would not have unraveled the way they did without so much of your influence along the way and recommendations to get this property. And so I look forward to taking this information into the next property ahead and being able to share with you in the future that hopefully it is similarly successful.

Ashley:
Yeah. And we can’t wait to hear about it. And this has been so amazing. Thank you for including us in your journey of getting this next property, and we’re excited to see where you’re going to go on your journey.

Tony:
Melanie, it was great to have you back. And I really loved how we learned your process of setting your team up out of state state, buying property sight unseen, learning to manage and make improvements at your own pace as you go on this journey. And really just the importance of knowing your numbers so you can weather those storms when they hit. So appreciate you sharing all that guidance with the Rookie audience today.

Ashley:
And if you want to reach out to Melanie, learn more about her, share some inspiration or motivation with her, you can check out the show notes and the description below to find out where to reach her at. You can also find Tony and I on social media, we’ll link our information in the show notes also. Thank you guys so much for joining us. Melanie, thank you for taking the time to come back onto the Real Estate Rookie podcast. We really appreciate it. We’ll see you guys next time.