How to MAX Out Your Cash Flow Per Property with “The New Airbnb” (Rookie Reply)

Great cash flowYou’ve got money saved and you’re financing figured out, but you’re also having analysis paralysis on what market to jump into. This episode is for you. Today we’re answering questions about real world problems that Ricky Investors are facing right now. We’re tackling everything from how to find the right market when you already have financing and a very specific buy box to what’s the best way to make co-living work as a strategy. So what’s up guys? My name’s Tony j Robinson, and today I have Garrett Brown from Bigger Stays filling in for Ashley Kehr. Garrett, what’s up brother? How are you doing today, man?Doing good. I got some big shoes to fill with Ashley being gone, but I’m hoping to step up to the plate for everyone. SoYou got some big shoes, you got to have your repertoire of weird nineties movies, quotes in your back pocket to keep everyone on their toes, man. But excited to have you here, brother. So let’s jump into the first question. So the first question here says, would a pad split rinse by the room work on a five bed, two bath property? I’m debating either selling or doing a pad split on my five two rental for a pad split, I could realistically get five people or at least four filling the house. One bathroom is a private en suite to the master bedroom, so there would be three to four people sharing a single vanity full hallway bath. I could charge more to the person who gets the master bedroom is what I’m assuming. But has anyone done a rent it by the room strategy with a similar house layout?
So co-living pad split? I think first Garrett, let’s just kind of break down what that strategy is and how it differs from a traditional long-term rental co-living or rent by the room is kind of exactly what it sounds like, right? Instead of having this big five bedroom two bath where you rent it out to one family or to one tenant, you break it up and you rent out each individual room. So instead of having one tenant for all five bedrooms, you have five tenants each with their own room or if you’re living in one of those units as well. And I think the reason that the co-living strategy is gaining a little bit more traction, A, because there’s opportunities out there like Pat split now, which are making the facilitation of this a little bit easier. But B, it’s a way to really increase cashflow and we’ve interviewed multiple people, Miller McSwain, about the co-living and rent by the room strategies and it really is a way to kind of juice the returns from a traditional single family property. So that’s kind of what it is and why it’s gaining some, I think gaining some much traction now. So I guess Garrett, in your perspective, thoughts on, because it sounds like this person likes the idea of co-living, but their biggest concern is just like, Hey, is it unreasonable to have one person or one bathroom for three to potentially four different people? So what’s your take?I don’t have a lot of experience with this type of model, but the things I do know about it is it’s very popular in more college towns and things. You have different roommates renting out rooms and that kind of perspective. Me personally would probably, I would think that the bathroom thing is going to be a logistical issue within your guest and roommates, a lot of times when I’ve heard this be successful, they usually have a higher bathroom count that maybe can supplement this amount of guest into it. I would be curious if your market has the desire to have different roommates in each room and things like that because not every market really has the appetite for this type of thing. Are there other successful models in that area or are just a full single family home? Is that the more traditional model there that you’re probably going to have a higher and a better guest, a better tenant pool? Let me say to actually attract from, so I personally would be a little wary with that bathroom count, but maybe there’s an opportunity to add another bathroom or something because then not only are you starting to get into adding equity to your place, but you’re also making it more suitable for this type of arrangement. So I’d be a little weary of this, but if you can add that it may be something to consider. What are your thoughts on this, Tony?Yeah, I mean you kind of took the words out of my mouth, Garrett. I think if the property’s big enough, could you potentially add the additional bedroom, bathroom, whatever it else that you need? It’s really make this work. And when we interviewed the Nasos on the podcast, that was kind of their strategy. They would go out and find a five bedroom and then they would convert, say that there’s a separate living room dining room than a formal living room. They would convert one of those spaces into more bedrooms and into more bathrooms and they would really squeeze what they could out of that square footage because, and it makes sense, their thought process was in a co-living strategy or with the co-living strategy, I should say, that people aren’t really just hanging out in the living room or in all the living spaces like that.
So if you’ve got all these different communal spaces, it’s kind of not always going to be used. So can we instead turn that extra space into rentable space to really juice up the revenue? So I kind of like that approach where if you’ve already got the asset, how much more would it cost to slap up a few pieces of drywall in the closet, add another bedroom, slap together a few pieces of drywall, a sink and a shower, throw in a bathroom, and now you’ve got an additional bedroom with some additional bathrooms as well. So I think that would be my strategy.I agree long as that and you get everything permitted within wherever the area you’re at, I think from a long-term play that adds a lot of value to your net worth and at the same time makes that model just seem so much more reasonable and you’ll get a better tenant pool that comes around.And I guess the only last thing I’d say is just also look at your competition and if you’re looking at other room rentals and you see that the ratio typically in your market is five bedrooms to two bathrooms, then you’re fine. It’s like okay, cool, then we can just roll with that. But if you notice that most of the other room rentals, it’s like five bedrooms to three or four bathrooms, then yeah, it’s obviously an issue you got to go address. But leaning into the data to help you make that decision would probably be my take there.I can agree with that and see what the capacity is for check Airbnb and other places like that to see if there’s even an appetite maybe for there and know that you’re going to have more logistical issues too, dealing with five different tenants in one house as opposed to one tenant renting out the house and just be prepared for that as you’re stepping into it.Alright guys, we want to start talking about short-term rentals, which is the kind of bread and butter for me and Garrett. We’ve got some friends from north of the border in Canada who are looking to buy in the US and we wanted to give them a little bit of advice on what it looks like to buy in this market. But first we’re going to take a quick break to hear a word from today’s show sponsors. We’ll be right back after this. Alright guys, welcome back Garrett. What’s our second question for today?So the second question for today is my husband and I are looking at buying our first STR. We are Canadian wanting to invest in the US market as it is far more stable than Canada. I had an STR back in the day when Airbnb started. My husband is a contractor and I’m in real estate, so we are wanting to do a value add. I do all the design work for his company and we both love water and we definitely believe in the philosophy of investing of where you would like to vacation. I also would like to do a one bed, one bath place as it feels as a bit of an untapped market. We like to stay in properties nicer than our home when we travel and we always find it difficult discovering luxury, one bed, one bath, smaller accommodations and always seem to end up renting a two bed house that is far bigger than what we require just to get the luxury component.
We will be looking at A-D-S-C-R loan. So if we were to start all over again, what advice would you give a rookie Canadian investing in the US market? It’ll be our first time owning A STR short-term rental remotely. So all advice is welcome. We love North Carolina, South Carolina, Georgia, and Florida. We like water. We are not interested in the west coast. Our goal is to eventually do a land hack and then lead up to a boutique hotel. This is definitely an interesting, there’s a lot of things to unpack there. This is somewhat of a model I followed when I was building up some of my short-term rentals doing land hacking and really trying to dominate the smaller cabin market. So I’m kind of curious what your thoughts are as this all kind of came about as we were talking about it, Tony, and where your thoughts are for them.I think a few things to unpack in this question, but it sounds like maybe the first part is kind of where you mentioned a few different markets, but then the other piece is the remote management side. So I think there’s two different things to tackle here on where it sounds like for you, like you said, investing in a place that you also on a vacation is important to you, which I totally appreciate. Not the same for us in our portfolio, but everyone kind of approaches this differently. So I think as going through and you’re looking at potential markets, I would really encourage you to look at all of the data associated with that market using websites like aird NA, price labs and look at the year over year data and just understand how are things trending in that market. I’ve had the good fortune of looking at a lot of different markets in a lot of different cities and working with different people as they look to buy their first Airbnbs.
And because of that, I’ve seen trends just nationally across a lot of different markets. And the trend that we typically see is 2020 covid really weird year 2021 post covid boom, you saw supply increase dramatically. You saw rates, occupancy revenue increased dramatically. 2022 supply continued to grow, the growth in revenue died off a little bit. 2023 things reversed in a lot of markets where you saw revenue come down because supply growth was continuing to increase. So you saw this thing happen where supply ballooned, it pulled down rates because there was this oversupply. And then 2024 in many markets was this year of we rebalancing where we started to see gains again because there were a lot of people who left, there were a lot of people who jumped in that shouldn’t have, and the ones that stayed were the ones who were really doing this the right way.
So just looking at the overall data to see which way is this market trending because say that the market you really like to vacation in, what if supply is still growing at 20% to 30% every single year? Is that a sustainable market for you to invest in for 2025 and beyond? But if you look and you see the supply has gone to almost zero from 2023 to 2024, then that’s a good sign, right? It means that things are starting to balance out on that market. So I think before you even really go deep into a market, look at the underlying data, what does supply growth look like? What does occupancy look like? What does your RevPAR look like? And look at those numbers to gauge the health of that market.That makes total sense. And I think it’s great advice for people looking into specific markets that they might’ve seen in the top 10 Airbnb places to invest in. And a lot of those lists that come out, I’m guilty of making a ton of those types of lists for BiggerPockets quite a bit. And sometimes those markets, once they’re getting publicized so much, they might become quite not the best, for lack of better word. So that’s when you use the tools that you have out there. And I think they talk about A-D-S-C-R loan, I think, which is a debt service coverage ratio loan, which essentially this just means does the property lenders will look at the property as a business, how much income it actually produces, if you’ll be able to cover that debt that is on the property, a k your mortgage. So these are good tools to use because then you also have a secondary set of eyes that is looking at the property with you from a lending standpoint that might be able to point out to you like, Hey, this property isn’t going to work for us.
And there’s a lot more restrictions around DSCR loans sometimes of how they price them and where they get some of their data from. This might be a good use of this type of loan too though, because they might be able to be that second set that needs to tell you like, Hey, you might think this property is going to make this much money, but looking at the data we use, it’s not going to cover the debt and we’re not going to be able to lend on it. And that might be a time that they actually save you from getting into a property that you didn’t necessarily want to. And to kind of talk about where she was mentioning the one bedroom, one bath as kind of an untapped market, I would say that really depends on the market. I can agree there are some specific areas that a one bedroom, one bath might excel and it might be something kind of underutilized.
I kind of think that the gap in the market right now is you either need to go smaller, like a one bedroom, one bath or go really large five bedroom to that because I think when you get caught in that middle ground of a two bedroom, a three bedroom, you’re probably paying a premium to get that property, especially in a vacation market, and this is all market specific, but just from a holistic viewpoint, that revenue that you’re going to have coming in probably isn’t going to be able to compensate for what you’re putting down into the house. So if you’re kind of stuck in that limbo, I would lean towards, and all market specific, like I mentioned, lean towards a one bedroom, one bath, or even air DNA not long ago put out one of their major reports talking about how larger homes are still some of the bread and butter for short-term rentals in most markets around too. So I just wouldn’t get caught in the middle there particularly. But each market is different and sometimes the data might say completely different and that’s why you need to really, really focus on what information is out there for you and be kind of a research nerd when it comes to looking into these particular markets.Yeah, I think you bring up a really good point, Garrett of different bedrooms counts performed differently depending on the market. And in some markets, more so in the urban and suburban markets where there’s a lot of competition from hotels, the one bedrooms in the studios have actually fared worse because people oftentimes there’s so much hotel inventory and it’s the kind of larger properties that you mentioned that tend to do well. So I think for whatever market it is that you are considering, not only look at the market wide data, but then also filter that data down so you’re looking just at the one bedrooms and see how those have fared because maybe the overall market is seeing a recovery, maybe the overall market is seeing growth when you filter down to just one bedrooms, what if it’s the inverse or maybe it’s doing even better to the market.
So I think there’s something to be said there to filter it down. I guess the other part of this question was the remote management. And I think honestly managing remotely is a lot easier today than it would’ve been five, 10, even five years ago. But there’s in my mind a few key things that you need and I’m curious to get your take as will Garrett, but the first, you need your people. So you need a good cleaner, you need a good handyman. They’re going to be your eyes, your ears on the ground. They’re going to know the property better than you will because they’re in it, especially your cleaners after every single turn. So getting a really good cleaner, getting a really good handyman. Those are the first things. Second is your tech stack, and the ones that I would highly encourage that you get are obviously a PMS electric or keyless entry pad.
We use the Slay on code. We like using software like breezeway that’s going to allow you to really inspect the work your cleaners are doing and then a digital guidebook and there’s other tech you might need as well. But in sort of the remote management piece, those are kind of the key ones that I would see. So you’ve got your tech handing, a lot of the heavy lifting, you’ve got your people reinforcing. And then I think even when you’re remote, it’s still good to get out there a couple of times a year just to get your own eyes on it. We were at our properties in Tennessee right before Christmas this year. We hadn’t been because we had a baby and it was just always good. We have amazing cleaners, but they still miss things and they might think something is fine that you in your mind actually want to change or that you want to fix. So it’s good to still get out there in some regular cadence as well. So if you do those things, regular visits, really solid team, right tech, I think the remote management tends to work really well. Anything to add to that, Garrett?No, I think you hit it right on the head. I’m a big advocate of self-managing your portfolio, especially if it’s your first or second property. There’s numerous benefits there. There’s tax benefits there to spending the most amount of hours on your property. I think one thing to just kind of highlight as well too about when you talk about team is if you are going out of state, make sure you’re using a real estate agent that is short-term rental knowledgeable, like an investor-friendly agent that we have. A lot of those at BiggerPockets, you can find them at the agent finder, but make sure that they have experience in the short-term rental world because nothing’s worse than having somebody that sold a few residential homes in a neighborhood somewhere and then you get paired up with them to help with your short-term rental purchase and they don’t know anything about the nuances that come with actually having a short-term rental. So ask them what percentage of deals last year were short-term rentals, do they own any short-term rentals? Do they have any recommendations for cleaners and handy people in the area? This will start to give you a little insight into the actual area and really work with somebody that knows the landscapes of short-term rentals. They are a big real estate investment, but they are just slightly different than most other traditional investments with the different that could be in place restrictions and legalities that could follow.Hi guys. We’ve got one more question and this one’s about a dilemma about throwing axes at your short-term rental property. So actually a question I’ve never been asked before, so I’m excited to answer it. But first we’re going to take our last break and while we’re gone, if you haven’t yet subscribed to our YouTube channel, you can find us at realestate Rookie. We dropped not only all of our full podcast episodes, but we also do some dedicated YouTube videos there as well. So again, at realestate rookie, and we’ll see you guys right after this break.
Alright guys, we’re back here with our last question and like I said before the break, this is a question that I’ve literally, I’ve been asked a lot of questions about short-term rentals. I’ve never been asked this specific question, so let’s get into it. So this person says, we’re getting our first Airbnb ready here in Colorado. We have an ax throwing lane in the backyard that came with the property. We were wondering if anyone has successfully done something similar in their Airbnb. Our insurance is saying they can’t cover it with liability, but what about having a guest sign a waiver? If we could include it as part of the Airbnb, it would definitely make us stand out. So yeah, I definitely agree that having act throwing at your Airbnb would make you stand out because no one else has it, but I think no one else has it potentially because just so terrifying to think of having your guest walk around with axes unsupervised at your Airbnb. I, I’ll give my take Garrett. I’m curious what you think, man, but I would not at any of my properties liability waiver or otherwise, I think allow my guests to have something as potentially dangerous as an ax at the property. When you’re at the ax throwing places, there’s staff there like, Hey, don’t cross this line if you’re doing something silly, they can kick you out, whatever it may be. But just untethered access to an ax makes me kind of nervous. As a host, what’s your initial reaction, Garrett?I have a very similar reaction, especially if your insurance, which I’m hoping it’s a short-term rental, specific insurance is telling you it’s a liability. It’s probably something I would not entertain. A waiver isn’t most likely going to save you from any type of lawsuit that may come from it. And it just seems like a bad idea all around. Like you mentioned, there’s no staff on site. Even at one of my rentals before, we had a lot of land in one of my glamping sites and we toyed with the idea of letting having golf cart rentals on site, and our insurance was like, please don’t do that. We were like, oh, maybe we’ll get a waiver. We talked to a few other people in the space and it was pretty much a hard no on all ends for us. What we’d have to do logistically to make sure it’s working, because you also want to provide, if you’re providing this amenity, it has to be fully functional.
So if something goes wrong, guests are going to blame you. And if something goes wrong, you’re likely the one to be sued, especially if insurance isn’t covered. And I think the smarter route here is to see if there’s any ax throwing places within your community or any other type of fun events. I have a place with water on it. I don’t rent jet skis at all, but I have partnered with a local company to give a discount code to my guests that they can go rent the jet skis from a whole nother place that has liability insurance to cover that and is just completely off of my property. So they still get the amenities. I don’t have to deal with the headache and the extra cost that would even be associated with trying to get insurance on this. And so it still provides the guest experience that I want and guests are safe and sound on my property and I sleep better at night.And neither Garrett nor myself are attorneys. So I think for everyone that’s listening, SoCo gets some real legal advice, but a liability waiver can’t prevent someone from suing you just because they sign the waiver. That’s not them saying that I will not sue you. So they could still sue you, they just might lose. But even just the headache of something like that potentially happening and you still having to pay for a lawyer just to protect yourself. Even the idea of that I think is what kind of turns me off from it. And even if they do sue, there is still a chance that maybe the judge does rule like, Hey, you as the owner, you as the host were negligent in some way and you didn’t do a necessary job of protecting your guests at your property. So hey, yes, you are on the hook.
So yeah, hard. No, for me, when we bought our hotel gear, it’s something similar. The previous owners had bike rentals just like normal bicycles. They rented to all the guests were saying, and our insurance company said, look, you can keep the bikes, but your premium’s going to go up by X. And we’re like, yeah, it is not even worth it, right? Let’s get rid of the bikes. So yeah, I think insurance companies, they’ve probably seen enough claims to know what things to charge a premium for, and there’s probably a reason they’re saying no to the axes. So if you’re looking for ways to stand out, there are probably other safer amenities or experiences that you can add. Heck, I’ve even seen magnet Axe throwing where it’s the same idea, but it’s like a magnet board and it’s not a real axe. So even if someone got hurt, it’s definitely safer than a traditional ax. So yeah, hard, no, forMe, I’d rather you spend a few hundred dollars on different outdoor games cornhole and go the full route. I mean, even in one of my properties, we built a small putting green, a thousand bucks, super simple. Insurance has no problem with that. So there’s a few things out there that you can really, really think about and browse Wayfair and Amazon and all these sites to see, hey, what are some other outdoor games that I actually could supply that are a lot less on the liability side that my insurance is going to be a little happier? And we already know premiums are going up at record paces, so we don’t want to add to that at any of mine. So I would definitely state to the safer routes.And you give a great call out of the putting greens, we added mini golf to one of our properties too. Were very inexpensive. But for everyone that’s listening, if you just want some good motivation around what you can add, Airbnb has different sections, different categories that you can browse. And one of those categories is play just like PLAY play. And if you just click on that, open up your search nationwide and you can see just a lot of cool play type things that people have added to their properties. And if your property’s in Colorado, who cares if you copy something that someone’s doing in Brazil? It’s like no one’s ever going to be shopping Colorado and Brazil at the same time. So you can implement something similar into your own listing. So just an idea to maybe get some more motivation on what you can add that maybe it won’t be as scary.Yeah, yeah, agree.Awesome. Well, Garrett, appreciate you jumping in and covering for Ashley today. Man, as always is good. We can catch up and talk shop about short-term rentals. Where can folks get in touch with you, man?You can find me on the brand new Bigger Stays YouTube channel that was launched by BiggerPockets that is specific for short-term rental investing. And you can find me on Instagram at Garrett Brown Re.Well, Ricky’s, thank you for hanging out with us today. As always, if you’re enjoying the podcast, please do subscribe to our YouTube channel. If you’re listening on an Apple podcast, be sure to leave an honest rating and review. I think the more folks that know about the Rookie channel, the more folks we can impact and the more folks we can impact, the more folks we can help get on their way to build in financial freedom, which is what we all want. So again, if you guys are enjoying it, subscribe, share it with someone else. That’s it for today, guys. My name’s Tony j Robinson. Joining me today is Garrett Brown filling in for Ashley Care. And we’ll see you guys next time on an episode of Real Estate Rookie.