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Mark Kappelman and Steve Eshkenazi; Profiting In Real Estate With Short-Term Rentals

In this episode, we're talking about short-term rentals with Mark Kappelman and Steven Eshkenazi. Short-term rentals, when I say that, what do you think of? Airbnb, VRBO and HomeAway. We're going to talk about this hot, exciting marketplace in the real estate sector.

For those of you thinking, “Dustin, this is great if you have real estate.” You can actually profit from short-term rentals without actually owning any real estate.

What I find fascinating about this that you're about to hear is that Mark and Steve are in the thick of this, building up their portfolio. They're a member of the community and they've taken this real estate concept. They've focused in on how do you profit from short-term rentals? There are a couple of things that you need to know, which we talk about especially the legal aspect, how to find these properties and what to charge. I don't know if you're sure as fired up as I am, I hope you are. Let’s get to it...

Dustin
“I'm so tired of counting other people's money.” That was the quote that was given to you. Someone actually said that in your office and that prompted you down this whole path of entrepreneurship real estate investing. When that quote hit you, did you recognize it at the moment? You were all of a sudden awake and now life was going to be different or was it like, “I'll get around to that one day?”
Mark & Steven
It's funny. It was 2009. I was an auditor. I had gone to school. I got an undergrad degree and a Master's degree. I was a CPA. I thought I had it all. I had a great education, but the comet just struck me because as an auditor all you're doing is looking at financials looking at what other people make or sitting there, and you know what you make. It was just like, “That's a true statement.” I stayed in public accounting. I stayed in the professional world over the next few years. In 2013, I have had that entrepreneurship bug. I couldn't kick it. It had been around for four years. That's a long time but it took me a while to get there.
Finally, my wife talked to me, we've been talking about real estate forever. She kept putting a bug in my head and we pulled the trigger and bought a property. Fast forward, I'm now working at a new firm in Chicago. I chase my wife up to Chicago and I start talking to the guys in the office about, “I want to do something a little more entrepreneurial.” It was taboo in that office because everybody's heads down focused on the big prize, Corporate America which is great by the way. It just wasn't what I was feeling. One of these guys goes, “You should talk to Steve.” I was talking about needing to raise some money. I was like, “Who is Steve?”
I have heard about him but I didn't really know who he was. He had transferred into our office from Miami. It just so happens that Steve played paddle tennis. We were driving up to the North shore of Chicago. We were driving in a blizzard. It was December or January and I picked up Steve because I'd heard he liked to play. We were going to play and I started telling him about how I need to try and raise money for this deal. Sure enough, Steve was my first investor and we'd been business partners ever since. I always like to say Steve was dumb enough to give me his money, but the reality is when we look back on it, he negotiated better terms than we've ever given to anybody since then. He's a very savvy investor. That's why it's a funny statement.
Dustin
What attracted you about getting into business together? What attracted you about Mark?
Mark & Steven
Mark’s driven and that was something that really got me excited about working with him is that when you're deciding who to partner with, you want someone that shares a lot of the similar mindset and work styles that you do. Mark is someone who wakes up at 4:00AM and will work until 4:00 AM if he needs to. Having someone that you know is going to be there in the trenches with you working through deals is something that excited me. It's been a great partnership ever since.
Dustin
Were you doing deals yet at the time?
Mark & Steven
I was not. I was like Mark. I was working 8:00 to midnight saying, “When is this going to end?” You're constantly in the rat race and you don't have the pensions and the ways to say I can retire at 50. Real estate was the entrepreneurial way of thinking, “This is a way that I can generate passive income to be able to spend more time to do the things that we love to do; golfing, skiing and spending time with friends.” That's what we were excited about trying to find real estate.
I appreciate you saying that about me. The thing that was amazing about Steve is he invested but then he constantly kept following up and most investors want to be passive. He's constantly sending me leads, “What do you think about this one?” I'm like, “I hadn't seen that one.” Before long he's like, “If you need any help me, send me your financials.” I'd send him stuff and 30 minutes later, he sends back a block email with five comps filled out a financial spreadsheet. He is brutally efficient and it was a great match. We've been working together ever since and it's been a blast.
Dustin
We're excited here at WealthFit for the course that you're creating, the short-term rental Airbnb course showing people how to do it. How did you guys arrive there?
Mark & Steven
We initially started off in the single-family home route. The actually interesting way we got even into multifamily and then segued into short-term rentals as we were at a coffee shop waiting to meet a realtor. We saw a six-flat that had a 40% price.
Dustin
For all my non-technical people, what is a six-flat?
Mark & Steven
A six-flat is a six-unit property, a multifamily. We were primarily looking at one-unit single-family home properties. This was the first time we saw a six-unit building for $300,000 in Chicago. We drove by and talked to the realtor. We found out it had a fourteen-inch lean and there were drug dealers who were living in the building. It is still comical to this day when you talk to people and tell them, “A building with a fourteen-inch lean that we still haven't fixed, but it has settled.”That got us into the multifamily aspect and from there it’s been multifamily after multifamily and then we try and find other unique ways to capitalize. The market right now is very hot as most people can know and we're trying to find unique ways to make money. Short-term rentals were something we thought was a niche that a lot of people were not thinking about. We can't do these low-return deals and with short-term rentals, we were finding ways to get 5X the profits that we could on a long-term rent basis. That's what we started doing with our properties.
Dustin
On that six-flat, were you thinking right away short-term rental or were you saying, “We're going to make this into a long-term?”
Mark & Steven
It was to make it into a long-term rental and then those opportunities started going away where you could make money doing a long-term rental. You had to do short-term rentals or you had to do something that people weren't thinking about and that's what short-term rentals provides people the ability to.
That’s a good point. What we always say is we're not gurus by any chance but what I'm trying to say is we always look at deals and try to look at it differently than everybody is looking at. Even right now, the big guys that we talk to, when we start talking to buy short-term rentals, they look at us like we have six fingers and we're like, “No.” We think it's normal and they don't look at deals that way. That's how we try to look at deals and create value.
Dustin
When we talk about short-term rentals, Airbnb is a big one. What are the other players so people who are familiar with that?
Mark & Steven
VRBO, HomeAway and  TripAdvisor. Google's starting to get into this space. Booking.com now has the shared peer-to-peer properties on it as well. There are 50 to 100 different places that you could do peer-to-peer lodging. This is a global thing right now. It's not just the US market that this is happening.
Dustin
I want to talk about the opportunity. A lot of times when I travel, I'm in Airbnb sometimes in a hotel but it seems to be a hot thing. It's in the media for good and bad reasons or the good press and bad press. Explain the opportunity that's in front of us right now.
Mark & Steven
The US economy brilliantly is all about providing consumers choices. That's what we love about these short-term rentals. If the consumers want to travel, they're not just put into the hotels. They now have the option of getting a single-family home property, a townhouse or a property on the water. What we love about it, it affords the ability for travelers to stay under one roof. Large groups or families can provide the convenience that a hotel doesn't provide. They're getting the kitchens, the multiple bathrooms, a pool that is private to them. When you're traveling with larger groups for a ski trip or a beach trip, this is great to have the entertaining space that you are able to get away and spend time together.
The analogy we always give when we were talking about it is when you walk down a grocery store aisle, you go to buy cereal and there are 100 different cereals. We think of Airbnb and VRBO and short-term rentals like that. If you're the consumer, do you want to go to the hotel that's got the restaurant in the basement? You get your beds made every single day and it's very professional. You feel pampered and you have these maids come to your door or to Steve's point, do you want to rent a house with your family or extended family all stay under one roof? It's a totally different experience but people love it and it's another choice.
Dustin
You have the data and the research. You were sharing that with me and the opportunity because this thing's popping up all around the world. It's dominating the growth of hospitality or traditional hotel. What’s your commentary on that?
Mark & Steven
When we did the research, we looked at it. The short-term rental market was estimated to be $38 billion in 2018 and by comparison, the hotel industry is $208 billion. The hotel industry is still six times larger. It's way bigger but if you look at growth rates, the short-term rental markets have been growing 9% per year over the last five years, whereas the hotel business has been growing 5% per year. Granted you're growing off a smaller base but it is just growing faster. It's stealing market share from hotels. The hotels don't like that but as investors, we love it.
Dustin
What kind of money are we talking here? Let's say we're in the game and we're talking long-term rental versus short-term rental. What is the differentiation factor and why are you guys so excited about this?
Mark & Steven
We try to tell people it all depends on the effort you're willing to put into it. Individuals can make anywhere from a few extra thousand dollars per year if they're willing to rent out their house while they travel or you could turn this into a full-time career. That's what we're trying to do. We have one property in Southwest Florida. We make 5X the profits than we would under the long-term model and that's what's exciting for us. 5X the money per year that we're generating that we could buy more rental properties and spend more time with our friends and family. It's a significant advantage if you can run a well-run operation and that's what we try to teach.
A funny story is when we first launched it, it was like all of a sudden all of these inquiries coming in and all these bookings. I think Steve texted me and he was like, “This is like a cash machine.” It was crazy. We're just getting these bookings. The money was fascinating. We didn't realize how big it was. Just like anything, you’ve got to get going and once you get in it, you learn what it's all about. It was exceeded expectations.
Dustin
Usually, you fall into certain things. When you bought this particular property, were you thinking short-term rental right away or you were trying to get this thing rented out long-term and it just wasn't happening and so you were like, “Let's just give this a whirl.” What's the story behind this?
Mark & Steven
This was being Florida. The numbers were just not going to work on a long-term basis completely. It’s going to be fine but we have a little higher minimum threshold that we like to provide. For us it was like, “Let's just try this out.” We started small and that's what we encourage everyone to start with. It was a two-unit property, let's start with this. We furnished it. We spent $27,000 to furnish the property and we did our research. We did our diligence on the market. We talked to property managers and had a pretty good feel of where we'd be at. If you do small things like we provide banana bread to our guests. Little touches like this can go a long way. We were able to demand a much higher price by just providing these hotel-like amenities but in the comforts of where they feel at home. That's what we try to teach is that you can do little things to make them feel like they're getting all the luxuries of a hotel and still have a much bigger place to sprawl out and enjoy their time away.
You don't have to spend $27,000. This was 2,700 square feet. If you look at our listing, it is a knockout. It looks amazing. Everything is brand-new. It's modern. There are TVs on the wall and we did it right. That's what we think people want and we think we're getting paid a premium for it. To us, it made a lot of sense but a lot of people try to do this on a shoestring budget. I'm not saying that that's a bad choice. I just think you look at those pictures and you could tell if it was a shoestring budget or not generally.
Dustin
You invested in it. You put the money into furnishing it and you're doing the nice little amenities. When you press the green button or whatever color it is and it's live on the website, how long before you got your first booking?
Mark & Steven
We put it on in peak season. We were getting bookings before you wanted to get bookings if that makes sense. You’re nervous and the first time you're hosting someone you're like, “What are they going to think?” I was the first person we hosted because I wanted to see what it was like living in the property and going to be experiencing. I'd encourage anyone that's going through this process themselves to do that. It's not something you think about, but stay at your own property and you start realizing, “The water doesn't get hot or how do I operate the dishwasher?” Being able to think about all the questions you would if you were staying there. You're going to have those jitters because you never know until you put your property on these websites and start getting the feedback and questions, but it is exciting when you start seeing it happen.
One supplement to that is just like any investment that we always do, whenever we're nervous, you go back to look at the numbers and recheck all your data. We were looking at this property and there's Airbnb, VRBO properties all around it. Their calendars were full. On the one hand, you're nervous before you get that first booking but on the other hand, we had the confidence to say, “There are a lot of market data points that say this should work. We should get some bookings,” and that's how we invest and it's worked out.
Dustin
For you to remove that stress, you were very strategic. You picked the marketplace because you both don't live in Tampa. You were very strategic about that and picking the place. You're saying to reduce that stress, you have to do your research. What are some of the things that people should look for when choosing a market before we get to the actual property?
Mark & Steven
I would say a couple of things. We love year-round markets in Florida. In particular, one in the winter but even in the summer, you still got Disney World. You’ve got beaches. You've got the water to keep people cool. We love year-round markets. We love high business traveler area like Chicago. We've got units in Chicago, New York and Boston. The thing that people or maybe you do realize if you've ever traveled for business, what's the one thing you don't care about as much when you're on an expense account? You're not worried about every dollar because it's not your money. When you have these listings in high business areas and you're getting those business travelers, you get a premium on your rent because people aren't spending their own money. That's what we look for. It’s either a year-round market or it's a market with high business travel.
I also have some colleagues that work at the hotel companies and most of their information's public. You can find where new hotels are popping up and they have incredible data research companies that work for them. You can follow the hotel model. It's like you'll see a McDonalds pop-up, you can just go and put Burger King across the street. You don't have to necessarily be the one creating the research, you can follow if there's a hotel popping up. They've done their work and they think that there is a demand for transient travel and you're probably smart to put a have a short-term rental be pretty close to that.
Dustin
I'm very curious because I know what people are thinking. They’re like, “This sounds like a great opportunity.” For folks that are not as familiar, what happens? You do your research, you have the McDonald's right there. You've done everything that you can do but what happens if it's a bad season or occupancy goes down? What is your backup or contingency plan to keep that thing occupied?
Mark & Steven
I can answer that one pretty simply because this is my baby. It's counterintuitive and people are always surprised when we say this but we look at it from a long-term basis. What we do know is while we are here on your show, the economy is doing well. The tourism industry is doing well, but 2009 happened years ago and that might have been a bit of an extreme. At the same time, there are business cycles. We always look at deals and say, “Does it work on a long-term basis?” By work, we're looking for at least low to higher single-digit cash on cash returns. If it's cashflow positive and we can look at it from a long-term basis and say, “If the short-term rental business dies off, we'd still like to have that asset in our portfolio because we'd be happy with that return,” because short-term rent is upside. That's how we look at it.
We underwrite the deal. Does it work on a long-term basis? The other thing to remember is that's how the banks look at it. If you want to finance these properties, when you go into a bank and say, “I've got this great property. I'm going to generate this much in short-term rental income.” They're going to say, “How much would you make on a long-term basis? Do you have any leases in place?” That's how the banks look at it. That's how we look at it. That's how we looked at this deal in Florida that Steve is talking about. That's the safest way in our opinion to predict the downside.
Dustin
I want to jump in now to finding the property. You locate a market, it's year-round, it's got business travelers. What do you look for in a property, one that you know that you're going to position as a short-term rental?
Mark & Steven
For us, there are a couple of different things. One, unique sell. If you ever go on these websites you'll see, this is an extreme but in California there's this treehouse property that's booked out for a couple of years or something and it generates a crazy amount of income. Unique properties with unique angles like our property in Chicago, for example. We've got a local artist that's outfitted all the walls with all this custom cool artwork. We'll give the property a name that's a unique name. For brick exposed walls, we try and cookie-cutter isn't necessarily the way you want to go. Certainly it works, don't get me wrong, but we like unique properties. The other thing we've seen is the bigger the property, the better. There are a lot of things in life. Go big or go home. In this case, the reason that it's better is that if you can accommodate a big party or a big group of people which may do a party, they will pay a premium because these people all want to be together. If there are ten people coming in for a sporting event or whatever the event is, we've seen that you make more money per person the larger the unit is. I'd say unique and as big as possible.
Dustin
You mentioned research and having some tools available. What resources or how did you know what to charge on? What’s the going rate for your property?
Mark & Steven
With the short-term or with the long-term rentals, we’re going to talk to property managers. We're going to try to find out what they're going to be charging for similar properties that they manage right nearby. Then we're going to do our own diligence. There are websites like AirDNA, there's Beyond Pricing, PriceLabs that you can go on their website. You can get all the listings in your zip code for the same bedroom count, the same number of people who will be sleeping and find out what they're charging. It also shows you their occupancy. This is a great tool for you to not just take what the property managers are telling you at face value, but you can actually see what people are charging. We'd also encourage you to go on the HomeAway, Airbnb and just start browsing listings.
You could talk to the host yourselves. Reach out to them and most of them are going to be willing. They're entrepreneurial just like you. They will be willing to talk to you even if you don't want to stay at the property to say I'm looking at renting out my property. You’re happy to jump on a call and talk about how your experience has been. We'd encourage you to try to spend as much time on the frontend doing that. To Mark's point, once you are ready to hit that green button to put the listings up, you're confident that it's the right decision.
Dustin
Did you guys start low and then increase the price or by doing all this research, you felt pretty confident you've maintained it?
Mark & Steven
I will say that we put a price out there our first opening weekend and once we got locked in, we looked around and we were like, “I think we're at about 50% of what we could have charged,” but we felt pretty good about what we were getting. It happened to be this huge weekend in Tampa and you live and you learn. That was a good learning.
You're going to have to start with the lower rate because people want to see the reviews just like with anything. You need to be able to build and establish that reputation with the guests. You can have beautiful pictures, which go a long way. Once you start getting the credibility and guests to corroborate and give you the five-star reviews, you can start coming up higher on the search listings. That's what it's all about that. Some Airbnb and HomeAway, they all have the search engine optimization just like Google does. The better your listing is performing, the more positive reviews you get, the higher on the search listings you'll get and the more bookings. It's the positive reinforcement loop. You can start small but we don't encourage you to also do it so low that you're getting bad quality guests staying there. You want to make sure that it's a balance between the right price, but also where you're not having $50 in a ski house in the winter where you're just going to get some people who are maybe not going to take care of your place like you'd want them to.
Dustin
I want to talk about that. You answered it, but I want to go a little deeper there. People have a little fear. They do this short-term rental. What people could say are these are transient folks. What happens when someone throws like a crazy party? What things are in place when people trash your short-term rental?
Mark & Steven
This one is near and dear to my heart. It's funny because my wife is in the business with us, but whenever we leave town and I wanted to Airbnb the place, she's like, “What if they trash our place?” There are a couple of different ways. We probably had 500 guests at this property and when you think about it, we haven't had that much damage. We've had a couple of people and clearly some people partied. There were some cigarette ashes on the ground, a couple of people broke some lamps but by and large, it gets dirty. Think about how you leave a hotel room. When you go into a hotel room, you're not trashing the place. If you do, the one time we had some damage, a broken lamp, a couple of other small things, we just reached out to the guy through the app and said, “This was pretty disrespectful. You broke these things. We'd like you to compensate us $200 for it.” He immediately said, “I’ll send you some money.”
The beauty of the sharing economy, the peer-to-peer review economy or whatever you want to call it, it's 360-degree review. The host reviews the guest and the guest reviews the host. That impacts the guest’s future bookings at other properties. If you come to rent my place and you've got a bad rep and you have trashed five other places before that and the host of written about you, we're going to see that and say, “No, we're good, Dustin. We will find somebody else.” I'm sure you wouldn't do that but it is a real thing and people are very cognizant of it.
We also have insurance that we take out just to make sure that if there was the catastrophic damage, you read those stories that these investment bankers throw huge ranger on the New York beaches and just create $20,000 of damage. We take out policies that if there was material damage, we'd get compensated. By and large, it's the $50 to $100 type damage. Maybe a stained rug here and there, but you do have to expect that to happen, which is why we do build a little higher maintenance type budget than we would otherwise. These guests do take care of the place. We've had people that will do their own laundry, clean the house more than we've clean it. It's better than you'd think because these people are trying to take care of it as their house and they want to be able to come back again and again.
I've been pleasantly surprised. Somebody asked me just said point-blank, what's been your experience? I'd say, “I’m pleasantly surprised.”
Dustin
I'm curious because you are not local to Tampa. You've got the short-term rental there. You’ve got some properties there. How are you cleaning up and replacing lamps? How does this go down?
Mark & Steven
We have property managers that are on site and they handle everything. That's what we encourage a lot of people to do. For the first-timers, property managers are going to be an excellent resource. They handle the cleaning, the unit turnover and all the maintenance and they're on call 24/7, which is what we don't want to do. If someone at 11:00 PM is texting us that their thermostat is not working and they can't get heat, I don't have any ability even if I wanted to, to get over there. Having the property manager is an absolute key resource to have so that you can always be available to answer all the guests’ needs.
It's not just, “Go over physically and be there.” One of the biggest parts of this business is just the communication with the guest of pre-bookings. For example, I don't know what the average number of questions we get pre-booking but it's probably at least five. You're probably messaging them at least five times per group and it could be, “Where is the parking?”The first sentence of your listening could say, “Parking is in the back.” All Caps. It could be the only sentence you have and they'll still reach out and go, “Where's the parking?” You need to be able to respond and respond quickly, and luckily we do that. Our property manager is great but that's a big part of the job. If you want to do this passively, that's not necessarily passively. That's why we recommend a property manager around.
Dustin
Are they specialized property managers like Airbnb style or I should say short-term rental property managers or this is standard?
Mark & Steven
What you're going to notice is that most people that will handle the annual lease type property management will not be involved with this. It's becoming more familiar with most property managers. If they're not doing it themselves, they know someone who can. We basically took the simplified approach of saying, “Let's Google the city,” so Tampa short-term rental management. There is a list of ten to fifteen names that are going to pop up. It's not going to be as easy to do it if you're doing it in middle of nowhere Florida. A lot of the major markets will have several companies that you could reach out to that can handle that management for you.
Dustin
What are we paying these management folks? Is it a percentage of booking? Is it a flat fee?
Mark & Steven
Most will ask for a percentage and 10% to 30% is about right. We think most will be in the middle around that 20% range. It's a big number, but we think it's worth it. The revenues are going to be significantly higher but by paying someone like this, you're getting passive income and that's what Mark and I want to have here. We do not want to be fixing lamps and taking stains out of carpets. We think the money's worth it. We'd rather be focusing our time on our family or friends and finding the next rental property than having to deal with all the communications with the guest. That's what we have preached to anyone that's trying to get involved. You absolutely can do it, but it's going to be a lot of work. You can make a lot of money doing it but hiring a property manager certainly makes it a lot easier for the first timers.
We get that question all the time. Given the industry is so new, there are always so many misconceptions and you go to these cocktail parties or whatever and people make all these statements. You sit around and one of us is always, “Isn't that a ton of work?” Steve and I always laugh because it's like, “It depends.” It's just like anything. You can either do all the work yourself and it’s going to be a ton of work, but you can make a ton of money. If you want to work a full-time job, if you want to be a dad, a mom, a brother or a sister and do all these different things, then get a property manager. You pay them a big fee but as long as you're making the money, who cares?
Dustin
I'm thinking of what people are thinking that are having fun with this conversation. They're excited about it, but they hit the occasional media hit. Some of these companies have taken a hit in certain cities because of laws coming in. We are turning houses now into short-term rentals and neighbors are mad. What's your thoughts on this legal stuff that's happening out there and where do you think the future is headed with it?
Mark & Steven
I will say that me personally, I live in Chicago. I haven't had any issues with people partying and disturbing me. When I think about where the industry's going, here in San Diego for example, where we are doing some research. In August they came out with this ruling that said, “It has to be your primary residence and if you live in the coastal beach towns, it’s got to be a three-night minimum.”People went crazy because before that there were no rules and then two months later they said, “We'll scrap that. It's no rules again.” It's all over the place. At least for us, we’re obviously proponents of it because we're investing in it. Me personally, I just have never had an issue with people being loud or partying but certainly I can appreciate it. In some of these beach towns, there are tons of Airbnb. I don't know what percentage of short-term rental units there is, but if you look around there are a lot of people. Some regulation probably isn't the worst thing in the world, but we're just proponents of pro-choice economics. When the government tries to get too much in the way of just business and we're not doing anything crazy here, I prefer a little less regulation over more but I'm okay with a little bit.
I share Mark’s sentiments just like the peer-to-peer, the Ubers and Lyfts, there is a regulation that's going to happen. The government is trying to protect consumers. They're trying to ensure that the neighbors and everyone else still has that piece of quiet ownership. You don’t want to make sure that you're living in that town and now everyone's just having parties on your beaches. I think it's going towards regulation. Some markets have more of these policies in place already and others still haven't quite reached that point. It's going to get there, which is why we try to preach to people that the deal should still work under the long-term approach. Any of the regulation is just going to be to protect the consumers and the homeowners so that you should feel comfortable knowing that this is going to be limited to the point or you need to have insurance if you want to do this. Not to the point of completely banning this in certain markets.
Imagine if before that August ruling and you closed on a property in June or July in San Diego as your second home and you're like, “I'm going to Airbnb it. I'm going to put it on VRBO. I’m going to come on here a few times a year. I live in Chicago. I’ll come here in the winter,” then all of sudden the city says, “It needs to be your primary residence.” What do you do? You have to be forced to sell and you've got all these closing costs. That's why the deals work on a long-term basis. All come full circle.
Dustin
You have said that you can do this business without owning the property, without buying the house. I'm sure people are fired up to hear how can we get into the short-term rental game without owning the property?
Mark & Steven
I wish we would have known that before we went and bought properties and did this. We didn't even know. As we've learned and as we've evolved, we realized that there are a ton of people out there that are going and signing leases and instead of living there, being upfront with the landlord and saying, “By the way, you need to rent your place out, right?” “Yes.” “I'll agree to rent it but by the way, I'm going to put it on Airbnb, VRBO, HomeAway or Booking.com and I’m going to short-term rent it.” They actually write that into your lease. Instead of buying a $200,000 property and putting 25% down, $50,000 and then outfitting it with $10,000.
Instead of being all in for $60,000, I can go rent that property for $2,000 and $1,800 a month and furnish it for $10,000.I'm into it for $10,000 and as long as I can short-term run it and make more money than the monthly lease, I can make money in this business with very little capital. The thing about real estate that people have limiting beliefs around is that you need to have a ton of money to get into real estate. Once you get into real estate, you realize that money chases good deals. It's not, “How can I find the money?” People want to invest in good deals. You can get into this game for a lot less cash than we realized it then than we did.
We call it rental arbitrage. We know a lot of people making a ton of money doing this. I have no qualms about it. It's a win-win for both groups especially if you can go to that landlord and say, “I'll sign a two-year lease.” With regular long-term tenants, people have issues like, “I can't make my rent payment this month. Can I have a few days late?” With an investor, it should just be very solid and that's the pitch that we go and give landlords like, “You don't need to worry about us. We're well-capitalized and we're going to be renting this thing out and making more money than the lease cost.”
Dustin
What's next for your biz?
Mark & Steven
We're doubling, tripling, quadrupling down on short-term rentals. We love it. The money's fantastic. We think we've found a system that works. That’s step one. Step two, we're trying to do bigger and bigger things. I said go big or go home, but it really is what you learn in real estate. You don't have to do big deals to make a lot of money because some of our best properties are like these smaller two-unit properties. As you go larger, you get more scale. We're starting to do a lot and all of our projects now, we have investors. We've got a lot of people that are interested in investing. We're delivering great returns to people and that's almost like the win-win with other folks.
We know a lot of people now who want to get into real estate but they have no idea how to get into real estate. They look to us and since we were in Corporate America there are a lot of people who are like, “What are you guys doing?” We can talk their language. They feel confident that we can deliver so they're investing with us. That's another way where you don't need a ton of your own money to do deals.
I'm with Mark. As much as we're excited about the one or two-unit deals, it's definitely more exciting when we start thinking about the 16, 32, 64-unit deals. A lot of the time that we'll spend on a two unit, is very similar to that 32-unit property. You can have more mouths to feed, so you can bring more investors in and it's a better use of time for both of us.
Dustin
Steve, what's been your most worthwhile investment?
Mark & Steven
The six-flat investment property that we talked about in the beginning. The fourteen-inches of lean and drug dealers was definitely the best investment. You get the drug dealers out of there, you spend some money on the rehab and it turns into a great investment. That was definitely life-changing to get into the multifamily space that ultimately got us into the short-term rentals. That was definitely eye-opening for me.
Dustin
Mark, what's an investment you'd rather not talk about?
Mark & Steven
Steve and I both know one particular deal that we went in with the wrong strategy. We tried to rehab a house that should have been torn down and everything that went wrong could have gone wrong. We fired three different contractors, the buyer was difficult and the city was difficult. It's to this day the only deal we lost money on. What everybody always says is you learn the most on deals you shouldn't have done and it's just so true. We have all these new rules now. It’s like, “We will not do this kind of project or that project.” It becomes very obvious now when we're looking at projects of the ones we shouldn't do. Even though we lost a few bucks, we feel like it's probably going to pay dividends later on.
Dustin
When you're winning and when you want to splurge on yourself, what's that guilty spending splurge for you?
Mark & Steven
I’m fairly simple. I like to travel. That's probably the one thing I do is I like to go to the beaches. I like to drink my lattes every day. I used to be super frugal about everything and what I've realized is sometimes just worrying about the dollar or two here and there, I know a lot of people believe in all that and I do to some extent, but I like to travel.
It will be new golf clubs. It doesn't help me play, but a new driver every year definitely sounds like it's in my bag. I wish it helped me a little more than it does. That's definitely where my wife sees me spending a few hundred dollars on a new golf club every so often. She's wondering where it came from. Unfortunately, I can't tell her that I'm sponsored. I wish I could but that would definitely make it easier to pitch.
Dustin
Steve you've got a lot on your plate. You're still battling out Corporate America. You're doing real estate on the side here. I got to imagine you have to become good at managing your time and saying no to certain things. With that said, what have you become better at saying no to?
Mark & Steven
It's got to be things that I don't think are worth my time. It's time-management. It's the things that I don't think are worthwhile and trying to hire a secretary or an assistant to do things where I can be spending my time doing other things. That's really what the key is. Time is the most valuable resource that both of us have and trying to weigh all that is saying no to things that we could be better spent using the time elsewhere. It's unfortunate because obviously, you wish you had all the time in the world to be doing everything. Prioritizing family and friends and then if I could do a lot of things, that's great but it's having to say no to things.
My one difference from Steve is that I've got two little kids at home. I still got the Corporate America job. We've got all these real estate things going on and I've got two kids at home. The way I think about this answer is I used to do a lot of things not because I wanted to do them necessarily, but because I didn't want to let somebody down. I didn't want them to think that I didn't want to do it. Now, I'm to the point where if I don't want to do it and I know I don't have the time I just say, “No disrespect but I don't have time to do that. I want to spend time at my house. I don't want to go out tonight.” I don't go out because somebody wants me to go out. It's more just, “I want to chill. This is how I want to spend my time.” The day just goes so fast nowadays with all these different things going. Steve hit it on the nail. Time is the most valuable resource.
I get too many emails. I wake up at 6:30 AM and I’m thinking I am a waste of life because Mark’s already done two hours of emails and deal searching. He tries to maximize every hour he can.
Dustin
I want to ask you about that because I get up early too. Why 4:30?
Mark & Steven
We had a good riff about this. I've always said that the time in the morning is just the time when nobody else is up and nobody else is trying to rob me of my time. I love it when Steve gets up, but the thing about it is that time or even when my family gets up before then literally nobody's up. No emails are coming in. Nobody can bother me. The other thing I don't know how to explain it but it's just I feel alive and most energized those first two hours of the day. A lot of people are telling me like, “I'm just so groggy.” I've never had that issue. When I was growing up, I was playing sports. We always got up early so I think that was part of it. I love the mornings. I've got my routine. I drink my hot lemon water. I drink apple cider vinegar. I meditate. I do gratitude journaling. I do all these different things. It makes me feel good and then I walk in the day thinking like you're not worried about bad things. You come in with gratitude and you're excited about life.
Dustin
Steve, do you have any routines?
Mark & Steven
I try to go to the gym every morning. I sit in front of a computer screen for twelve hours a day. That's usually the only way I could feel like I'm not a complete waste of life by trying to get out and at least try to do 30 to 45 minutes of some exercise. That's the closest thing to a routine I probably have even though it goes from five days a week to sometimes two days a week with the traveling and work schedules. I love to be able to go every day to the gym at least to try to get the heart rate up and try to feel a little bit more active.
Dustin
What's your big advice for folks who are very similar or are on the path that you are on right now or about to be on that path? Meaning that they are looking at real estate or they're looking at investing or they're looking at starting a business. They're in Corporate America, they have a job and yet they need that extra motivation. What do you say to that person that has this flicker of a dream to do something different?
Mark & Steven
My answer to that is don't assume that you don't have time. That’s the number one thing. I talk to people all the time they say, “I just don't have time.” “Tell me what do you do from 4:30 AM to 6:30 AM?” “I sleep.” “There's time.” “What do you do from 9:00 until midnight or what do you do from 7:00 to 9:00 if you don't want to stay up late?”
People can recite every character of Game of Thrones but they don't have time to do other things. It's time management. One of my guilty pleasures if you will is I watch Netflix while searching Redfin. My mind relaxing doing this as it crazy it sounds. I enjoy that scene, other opportunities that are out there. It doesn't matter which market. I encourage people that you can try to multitask like that and Mark could probably attest to that. Sometimes my mind's too far all over the place that he doesn't even know what I'm talking about. He's like, “What city are we talking about this deal?” It's again trying to focus on time management. There are things that you can do. Some people are better at this than others. It's trying to manage time when you're at work. If you're taking a half-hour or an hour lunch, you could probably find ways to have a working lunch and do your side hobbies. There's always a way you can find an extra hour or two hours a day to try to do other things if that's something you're trying to accomplish.
Steve's a little bit of a freak of nature though and when it comes that. He looks at deals from the morning he wakes up until 11:00 at night. We'll be talking about deals and then he picks up his phone and he's talking about a completely random topic with some other person on the phone and then he can just close it. He's very calm and we can go right back into this conversation about a deal. I don't know how he does that. That's probably why we're good partners. You just got to find the time. Just commit to the time. People don't do it. It's not hard.
Dustin
What is your path? Is your desire to be full-time into real estate looking at deals, do you always think that you'll have like a side hustle?
Mark & Steven
My goal is 100% to be full-time in real estate. My goals have changed over the years. The number one thing right now for me personally is everybody talks about financial freedom and hitting that number. It could be real estate income or whatever kind of passive income that you have exceeds your monthly expenses. Your mortgage, the payments for your kid's school or whatever your expenses are. Your gym and all these different things. That is one of my guilty pleasures. I love going to a good gym. My goal is getting to that point where the rental income exceeds the expenses because then I can choose to do what I want. Every month I'm not worried about needing to go make a paycheck. At the same time, I go from that, to me that’s a small goal. The bigger picture is I want to be a huge big-time real estate developer or oversee a bunch of capital and manage money for people and put it in real estate assets and do a full-time.
I'm still challenged with the day job. I still love going to work. It provides me the opportunity to be able to invest as much as I am in terms of finding more deals. It would be difficult to do real estate without having the day job. As long as that's the case, if I'm enjoying going and being challenged, I have no issues. I'm able to manage the time. It's going to probably change at the point when I have a growing family where you got to make those difficult choices. I just got married this year. As long as that's the same process where I'm enjoying the challenge, I have no intentions of giving up one as long as I can manage both properly.
Dustin
Thank you big time for being here. I've already learned a great deal. I myself have a short-term rental and long-term rental and we've been trading ideas back and forth. I'm excited for people to see the course especially when you snuck in that idea that you can do this without owning a property. I think that is awesome because now anyone can get into this with money no longer being the excuse. For folks that want to stay up with you and figure out what you guys are up to, what's the best way for them to do that?
Mark & Steven
The best way is we're on Instagram, @STR_guys. That's probably the best way to get a hold of us. We've also got a blog,TriHomesToday.com/blog. We write about the different things we're doing. That's what I would say.
Dustin
Thanks for being on.
Mark & Steven
---
It’s pretty fascinating, short-term rentals, Airbnb, VRBO, HomeAway and all the other ones. If you didn't pick up, I've got a long-term rental and I also have a short-term rental in the portfolio. Ironically, they’re in Tampa where these guys don't even live, but where I used to live. We were talking a lot about the marketplace. A couple big takeaways here is that number one, I didn't even realize this but you can actually approach the landlord that if you're renting as long as you're upfront and you get them to agree to it, you can get into this game and play the arbitrage game.
That was fascinating to me is that you can actually give in, leverage a piece of real estate and manage the short-term rental a game. Obviously, you want to educate yourself before doing something like that because you're still responsible for the rent. That was a big takeaway that I found fascinating. The other thing here is sometimes in life, a deal doesn't look like a deal until you have a different perspective or until you have a different monetization strategy. In this particular case, I believe Steve was mentioning, they were looking at deals and it wasn't a deal, but when they applied the short-term rental strategy to it, it now became a deal and I thought that was a huge takeaway from it.
The other thing I want to interject in here. We didn't cover it, but I know it exists out there. For those of you saying, “Dustin, this is great. I don't know that I want to put out all the money for real estate.” You can still profit from this industry by this niche cottage industry that is growing up around it. That's this idea of doing property management. I believe this is still the Wild Wild West doing property management for Airbnb property. If this is something that you want to get your foot in the door with, the best place, then the best times to do this is by volunteering or going and working sideline.
If you market yourself as someone willing to go stack the towels and communicate with these folks, what better way to get your foot in the door? See if this is something that you want to do in profit from it. There's a niche industry that is building up of people that do it. When I discovered this person, I'm like, “Thank goodness this person is a lifesaver for us,” for my wife and I and managing our short-term rental property back in Tampa. If that's your way in then by all means do it, research it, get into it but just do something.
The other thing that I particularly want to do a shout out on this one is the unique properties, the unique touches that these guys bring to the table. It actually was the manager of their property baking the banana bread, pumpkin bread that was discussed. That makes this property stick out that keeps it rented, that gets reviews, that gets word of mouth and gets viral going. It’s these small touches that make the big impact. I'm very curious, who wants to get into the short-term rental game? Let me know. On social media, is this something that you're already in? Is this something that sounds appealing? Maybe I'm just super fired up and pumped up about this and you're not. That's okay. That's why we do what we do here at WealthFit, to introduce you to different opportunities for creating wealth in your life.
Let me know on social media. Let us know what your big takeaways. If you're in the game, do you plan on getting in the game and what you found most fascinating about this? If you haven't subscribed, please do so and the reason why is we've got so many great guests coming up and I'd hate for you to miss out on them. Make sure to subscribe. If you love what you’re hearing on the show, please rate the show. Five stars if you are on the app and then leave words of encouragement and words of feedback. Let us know how we are doing. I can’t wait to have you on the next show.

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