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Investing in Forest Land: Is It a Good Opportunity?

Investing in Forest Land: Is It a Good Opportunity?

Investing in forest land can be a great way to diversify your portfolio. Because tree growth doesn’t rely on economic factors, consistent biological growth can create more stable returns than other financial investments.

When you invest in forestry, you invest in a lower-risk asset that provides environmental benefits.  This is often opposite what’s true for residential and commercial land, which is more prone to market disruptions and other market risks.

Benefits of Forest Land

Forests offer many resources besides wood products. Forests provide the community with incredible beauty, opportunities for recreation, and plenty of wildlife. 

These aren’t necessarily monetary benefits for investing in forest land, but are benefits everyone can enjoy in addition to the monetary returns investors receive.

Comparing Forest Land to Other Land

When investing in forest land versus traditional land for residential or commercial property, there are some differences to consider.

  • There’s no time frame: You don’t have to improve it or do something with the land immediately. With residential or commercial land, you typically don’t make money unless you improve the land and build on it, but forest land doesn’t require any improvements or building, only time.
  • It has other values besides monetary: Forests are beautiful, provide a home for wildlife, and help the environment.
  • Increased value over time: Forest land becomes more valuable over time because as trees grow and become denser, they can produce more things, providing a greater return on your investment.
  • Appreciation: The land can appreciate, just like residential or commercial land. When you’ve used forest land for its primary purpose of harvesting timber, you can sell it for a higher price, especially in populated areas where land is scarce.

Key Considerations

Before investing in forest land, consider these factors:

  • Long-term goals: Consider what you plan to do with the land. Will you leave it and rely on its long-term value, harvest timber, or are you trying to do your part to protect the environment? Knowing your long-term goals helps you understand the factors you should take into consideration, such as the land’s age and type of forestry, the land’s improvability, or how in demand the land may be in the future.
  • Property taxes: Like any other land, you’ll owe property taxes, but the type and amount vary by location. Determine the federal and state taxes you’ll owe on the land’s value and if you’ll owe taxes on the value of the trees. You may also owe taxes on any profits earned.
  • Insurance needs: The type of insurance you’ll need depends on the property use. Liability, hunt lease liability, comprehensive business, timberland, and prescribed burn liability are just a few of the types of insurance you may need. 
  • Maintenance costs: Like any real estate investment, consider the maintenance costs to keep up with the land, as well as your intended use and the work/costs it will require.
  • Demand for timber: If you’re investing in timberland, it’s important to understand the risks, like any product of supply and demand. During a recession, demand for timber can fall, reducing your profits. 

How to Start Investing in Forest Land

As with purchasing traditional land, there are a few crucial steps to investing in forest land, including:

  • Finding opportunities: You can find opportunities to purchase forest land on sites like LandandFarm.com. You can also solicit the advice and assistance of land professionals, including surveyors, attorneys, and real estate professionals specializing in land.
  • Financing: Most forest land investors need financing, and you won’t find it at your local bank. You must work with lenders specializing in forest lands (such as Southern AgCredit or AgAmerica), or use other another creative financing option.
  • Insuring the land: Insurance needs for forest land greatly exceed any insurance you’d need for traditional land. The risks and insurance costs are higher, so be sure to factor them into your decision.

Final Thoughts

Large institutional investors typically invest in forest land, but there are other ways to invest, such as ETFs and stocks of companies that own forests or timber-related products. Overall, there are many nuances to consider when investing in forest land compared to traditional land.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Investing in Forest Land: Is It a Good Opportunity?

15 Reasons Why Real Estate is the Best Investment

Investing in real estate can feel like a big decision and one you shouldn’t take lightly, but it’s also one of the best decisions you can make. 

You have many options for using your capital to grow your net worth and save for the future. Here are 15 reasons why real estate is the best investment.

1. It’s a Tangible Asset

Investing money can be scary for investors, especially when you can’t see or touch it, such as investing in stocks or cryptocurrency. On the other hand, you can see, feel, and even control real estate. 

This gives investors greater peace of mind, knowing they can renovate, repair, or even sell the asset but still be in control.

When you sell stocks, for example, you have no control over their value. You are at the mercy of the market price and current demand. While a real estate market determines the property’s value, you can do more to increase the property’s value to earn greater capital gains.

2. Real Estate Provides Cash Flow

Trading your money for an investment is a big deal. When you don’t see anything from it until you sell the asset, it can be frustrating or even cause you to want to sell it just to see your cash again.

When purchased and used as rental properties, real estate provides cash flow. You earn cash from the monthly rent, plus, of course, any profits earned from selling the property. 

While you must factor in vacancies and bad renters, you’ll likely have more consistent cash flow than with other investments, like stocks or ETFs.

3. Real Estate Is a Hedge Against Inflation

When inflation rises, the power of the dollar falls. As prices increase for various goods and services, so does the value of properties and rental prices. 

If you own a rental property, you may be able to charge higher rents when the lease renews or you get new tenants. You’re also better positioned to earn higher profits when you sell the property during inflationary periods because of higher costs.

On the other hand, stocks typically decrease in value because companies often struggle during periods of inflation. Companies must charge higher prices to cover their higher costs, but with consumer spending down during inflation, stock values typically decrease.

4. Real Estate Investors Get Tax Deductions

Real estate investors are often eligible for tax deductions that other investors, like stock or bond investors, don’t get. 

The most common deductions are for depreciation (27.5 years for residential buildings and 39 years for commercial buildings), mortgage interest, maintenance and repairs, property taxes, and travel expenses.

Of course, tax deductions vary depending on the location, how you own the property, and other tax-related scenarios. Always consult your tax advisor to determine how to best file your taxes to take advantage of real estate tax deductions.

5. You Can Leverage Your Investment

Typically, you can only invest as much cash as you have, but real estate allows you to leverage your investment with mortgage financing. 

For example, if you want to purchase a $200,000 home but only have $50,000, you may be able to put the $50,000 down and borrow the rest. This enables you to purchase a home for $200,000 without investing dollar for dollar.

While you can invest on margin with stock investing, it’s a more complicated scenario, and not everyone qualifies. Mortgage financing has more flexibility and is available to many investors.

6. Property Appreciation Is Likely

There are few guarantees in life when it comes to investing. You cannot guarantee or assume that a company’s stock value will increase or that the company will stay in business. 

But you can count on property appreciation if you do your due diligence and invest in an area where property values typically appreciate.

As mentioned, you also have a certain level of control regarding property appreciation, as you can force it by upgrading or renovating the property. Working with a reputable real estate agent can ensure you invest in an area with appreciating values.

7. Real Estate Doesn’t Correlate With the Stock Market

The No. 1 rule in investing is to diversify your portfolio, which means don’t put all your money in one type of investment, such as stocks. Diversifying your portfolio with real estate increases your chances of seeing capital gains, no matter what happens in the market.

This means if the stock market crashes, real estate won’t necessarily follow, ensuring your portfolio isn’t a total loss, even in a challenging market.

Related: Real Estate vs. Stocks: What 145 Years Of Returns Tells Us

8. Real Estate Investing Can Be Hands-Off

If you’re hoping for a hands-off investment, you can invest in real estate passively. Here are a few ways:

  • Purchase a rental property and pay a property management company to handle the day-to-day operations.
  • Invest in real estate investment trusts (REITs), earning a portion of the company’s profits while they purchase and manage properties.
  • Invest in real estate crowdfunding, which is a group investment in real estate, paying you some of the profits according to the amount of your investment.

9. Cash Flow Can Be Predictable

If you invest in the stock market, you cannot predict how much you’ll make. There’s usually no cash flow unless you invest in dividend stocks, and even those aren’t predictable because you don’t know how much profit a company will earn or what dividends they’ll pay.

Real estate allows predictable cash flow because you control how much rent you charge and any other monies you collect. While you can’t predict your capital gains to the dollar, you know how much money you’ll bring in monthly.

10. You Build Equity Over Time

Whether you leverage your investment with a mortgage or pay for the property outright, you build equity by paying down the mortgage and/or the property’s natural appreciation.

Equity is the money you’d earn if you sold the property today. The equity increases your net worth and typically increases each year you own it.

11. You Have Many Options

Real estate investors have numerous options to invest in. We discussed the passive opportunities, including REITs and crowdfunding. If you’re looking for an active real estate investment, your options include:

  • Buy and rent properties to tenants.
  • Purchase commercial properties, renting to businesses.
  • Fix and flip properties, earning a fast profit.

12. Real Estate Investments Provide Security

There’s not much to feel secure about when you invest in stocks. You’re taking a chance on a company, hoping it succeeds and its stock value increases, but it’s a gamble.

When you invest in real estate, you have a tangible, appreciating asset. This provides peace of mind knowing you have this property that, if necessary, you could sell and liquidate your investment, or hold on to it and keep it growing.

13. You Can Borrow Against Real Estate

When you build equity in your real estate investments, you may be eligible to borrow against them. This decreases your property equity but allows you to liquidate a portion of your investment without selling it. 

To liquidate your investment in stocks, you must sell your shares; you can’t borrow against them while still owning them and allowing them to continue appreciating like real estate.

14. Real Estate Investments Can Benefit the Community

Even though you’re likely focusing on yourself and the reasons real estate is the best investment, it’s good for the community, too. 

When you purchase, renovate, and maintain a property, you help the area’s property values. It also provides another viable property for families to use, helping to improve the community.

15. Real Estate Investing Can Be a Business

Stock market investing is simply investing. You don’t get special tax deductions or treatment for it. Real estate investing, though, can be a business that you actively participate in, growing your portfolio and making a living for yourself and your family.

Final Thoughts

These 15 reasons why real estate is the best investment are reason enough to diversify your capital and invest in real estate. 

Whether you’re looking at your first real estate investment or you want to expand your portfolio, there are numerous benefits for doing so, giving you access to equity, cash flow, and a tangible asset that gives you control.

Join the community

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Investing in Forest Land: Is It a Good Opportunity?

What Is the ‘’Cardboard-Box Indicator’’—Should Investors Pay Attention to It?

2024 will be a crucial year for the U.S. economy, particularly around what the Fed will do with interest rates. But for the Fed to lower rates, they have to see signs of slowing growth.

What reliable signs are there that the economy is moving in either the recessionary or the growth direction? There has to be a better way to tell than using the Super Bowl Indicator (it doesn’t work, folks). 

According to some seasoned investors, you may want to ditch the many tools for predicting economic outcomes in favor of just one: the so-called cardboard-box indicator, also known as the cardboard-box index. What is it, and is it really the most reliable way to tell which way the economy is headed?

What Is the Cardboard-Box Indicator? 

Investors have used the cardboard-box indicator for years. The logic behind this metric is that the total number of corrugated fiber boxes ordered by manufacturers, the greater their planned output. Because up to 80% of perishable goods are still shipped in cardboard boxes, for many economic experts, it’s still a dependable way to predict where consumer spending—and, therefore, the economy as a whole—is headed. 

Lately, the cardboard-box index has been making the headlines because Jeffrey Kleintop, managing director and chief global investment strategist at Charles Schwab, uses it to issue his predictions about the economy. 

“Things that we make or ship tend to go in cardboard boxes,” Kleintop told MarketWatch. “I look at demand for corrugated fiberboard, which is what most cardboard boxes are made of. During the last three or four recessions over the last 30 years, demand for cardboard boxes fell by 10% to 15%.”

There’s definitely something to it because the last time cardboard-box revenues and shipments plummeted drastically, by 50%, we were in the throes of the 2008 recession. Last year, cardboard-box manufacturing declined by 10%, which, according to Kleintop, was a significant number that signaled that the U.S. economy was, in fact, in a recession despite nonmanufacturing stocks doing well. 

This year, demand for corrugated fiber has already bounced back. Don’t be surprised if you notice nonmanufacturing stocks declining this year while manufacturing stocks increase. This is actually a sign of a healthy economy, according to Kleintop. 

How Reliable Is the Cardboard-Box Index? 

On its face, the cardboard-box index is not a bad way to gauge which way the economy is headed, especially given that respected finance experts endorse it. In fact, it is widely believed that the cardboard-box index was first endorsed by former Federal Reserve chair Alan Greenspan. It would seem that it doesn’t get any more reliable with a backing at that level.  

And yet, there is one potential issue with the cardboard-box index, and it’s actually a pretty big one: The indicator doesn’t necessarily reflect the wider context of the U.S. economy. True Tamplin, a certified educator in personal finance and founder of Finance Strategists, told BiggerPockets that it’s important to consider one crucial fact of today’s economy: the ‘’shift in consumer spending from goods to services, which reflects 70% of GDP.’’

While the decline in cardboard box manufacturing at the end of 2022 ‘’was interpreted as a signal of eroding consumer demand following the pandemic, influenced by factors like dwindling savings, inflation, and fears of a recession??,’’ Tamplin says, he urges caution before aligning with these interpretations. He thinks that while the sale of cardboard boxes definitely tells us something about the economy, the decline in cardboard sales ‘‘doesn’t necessarily indicate an overall economic decline, but rather a shift in the nature of consumer spending??.’’

Back in 2018, The Atlantic called this a ‘‘paradigm shift’’ in the U.S. economy, no less. The argument was persuasive: A huge number of consumer goods now come with at least one functionality aspect that is service-based and typically digital. 

Think of a smart TV, for example. Part of your consumer relationship with this product is using all the streaming services that come with it. These are provided and managed by digital service companies and staff. And these aren’t really optional add-ons anymore, either. These features are ‘‘critical to functionality,’’ as The Atlantic explains. 

A Service Economy Indicator?

Maybe in a few years’ time, we’ll have a Netflix indicator based on how many people are canceling/renewing their subscriptions or a banking app indicator. Digital services are integral to today’s consumer spending. So, it may be well worth paying attention to how the service economy is doing as much as to trends in manufacturing. 

The problem is that the service economy is difficult to track reliably. It’s just that much easier to track the number of cardboard boxes produced and shipped. A U.S. Department of Commerce Report admits that currently, ‘‘BLS productivity data are available only for a limited set of U.S. service industries, accounting for about 40% of all service sector employment.’’

This means we don’t really know how a huge chunk of the U.S. economic output is performing, hammering home the realization that tracking the economy on the basis of consumer behavior is currently a bit of a fool’s errand—or at least it won’t get you very far on its own.

This doesn’t mean that the cardboard-box index has no value. But if you’re basing your real estate investment decisions on it, you may need to do a bit more homework. 

BiggerPockets spoke to Adam Koprucki, founder and CEO of Real World Investor. As a bare minimum, he recommends using the cardboard-box index ‘‘in conjunction with other leading indicators, like new housing starts, money supply, and the shape of the yield curve.’’ 

We’d add the BEA Digital Economy Tracker to that. It doesn’t encompass all of the service economy, but it’s a pretty interesting tool for measuring what is, by now, an integral part of the country’s economic output. 

Spoiler alert: The numbers are looking pretty good. In the 2018-2022 period, the growth of the digital economy outpaced the real GDP growth of the overall U.S. economy, 6.3% versus 1.9%. Now, that is impressive—and the data may well hold some key insights into why the U.S. never entered a post-pandemic recession. 

Cardboard-box production can be tracked at the Fibre Box Association website.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Investing in Forest Land: Is It a Good Opportunity?

Investors Are Buying a Record Share of Low-Priced Homes—What Does It Mean for the Market?

Real estate investors accounted for 26.1% of low-priced home purchases in the U.S. during the fourth quarter of 2023, a record-high share, according to a new report from Redfin. Investors bought only 13.6% of mid-priced homes and 15.9% of high-priced homes sold during the same period. 

Redfin defined low-priced homes as falling into the bottom third of local sales prices. The median price investors paid for homes in the fourth quarter was $453,271, above the national median, according to Redfin data. That may be due to an increase in investor home purchases in several California cities, where many expensive homes fall into the low-priced tier relative to local prices. 

Redfin defines an investor as an institution or business purchasing a home, so the data may not reflect rental property purchases by some individual investors and may also include homes bought for personal use through family trusts. Nevertheless, the data show investors are increasingly seeking cheaper properties, and Redfin real estate agents report high demand for properties below market value as well. 

There may be a few reasons for this. First, borrowing rates peaked in the fourth quarter of 2023, and investors may have found it easier to finance low-priced home purchases and remodels with cash.

Second, as homebuyers seek more affordable homes to counteract the impact of mortgage rates on housing payments, and renters seek ways to trim their budgets amid inflated prices, flippers and rental property owners alike may be scooping up lower-priced properties to meet demand and capture higher returns. 

Let’s take a deeper dive into the data. 

Investor Purchases Are Declining Slower While Their Market Share Is Increasing

Investor home purchases surged in 2021, when low mortgage rates encouraged real estate investment activity, but have declined year over year each quarter since the third quarter of 2022. The steepest decline occurred in the first quarter of last year when investors purchased 49% fewer homes than they had the year prior. Factors such as rising interest rates and slowing rent increases, which decreased profit margins for investors, are likely to blame for the pullback. 

Since then, the year-over-year decline has been shrinking. In the fourth quarter of 2023, investor home purchases declined 10.5% year over year, the smallest decrease since investors started to retreat. That means only 46,419 U.S. homes were sold to investors, the lowest fourth-quarter sales value since 2016. 

However, the overall housing market experienced an even steeper slowdown in sales. Home purchases fell 12.2% year over year to 251,462. For context, home sales haven’t been this slow in the fourth quarter since 2012. 

Likely, as a result, the share of homes purchased by investors rose year over year in the fourth quarter, with investor purchases making up 18.5% of all home sales. That’s up from 18.1% in the fourth quarter of 2022. 

Single-family homes continue to make up the largest share of investor home purchases, at 68.6%. But condos and co-ops are making up a slightly larger share, accounting for 19.2% of investor sales, compared to 17.9% in the fourth quarter of 2022. 

Investors Are Buying More Homes in California and Chicago

While investor home purchases declined year over year nationally, they’re becoming rapidly more prevalent in certain areas of the country, particularly pricey markets in California. Year over year, investor home purchases rose 25% in Riverside, 18% in San Jose, and 12.6% in Anaheim, for example. 

In Anaheim, investors purchase more than a quarter of homes sold, spending a median of $1.26 million per property. The market offers high average daily rates and occupancy rates for short-term rental properties, according to AirDNA, thanks to being the home of Disneyland. 

Chicago is also drawing more interest from investors, with investor home purchases up 20.9% year over year. In Chicago, investors are paying well below both the national median and the Chicago median, spending $234,750 for the typical property. 

The table shows the top 10 markets, ranked by the year-over-year increase in investor purchases, along with their median sales price and investor market share. 

Metro YoY Change in Investor Purchases Median Investor Purchase Price Investor Share of Total Home Purchases
Riverside, CA 25% $541,000 21.5%
Chicago 20.9% $234,750 15.5%
San Jose, CA 18% $1,589,000 17%
Anaheim, CA 12.6% $1,255,000 25.5%
Sacramento, CA 11.8% $554,000 21.5%
San Diego 11.5% $915,000 25.1%
Los Angeles 4.5% $1,000,000 21.5%
Warren, MI 4.2% $165,000 10.1%
San Francisco 0.2% $1,805,000 21.8%
Las Vegas -0.2% $390,000 23%

The Impact of Investor Purchases on the Housing Market

In recent years, there has been criticism that investor purchases of affordable homes are worsening, or even entirely causing, the affordable housing crisis. The theory is that investors are able to make more attractive, all-cash offers on starter homes, outbidding would-be homebuyers, raising local home prices, and then charging exorbitant rents to people who can’t afford to become homeowners. 

One review found that investors targeted African-American neighborhoods in Atlanta, widening racial disparities in homeownership and that home prices increased more rapidly in areas with more investor activity. What’s not clear from the review is whether investors caused the accelerated appreciation or if they bought in opportune neighborhoods that were poised to appreciate faster, with or without their influence. 

As interest rates climbed and investors began scooping up more affordable homes, some have advocated for policies that would push investors out of neighborhoods. For example, the End Hedge Fund Control of American Homes Act would eventually prohibit hedge funds from owning single-family homes and impose heavy penalties on taxpayers who did not abide, putting the money toward down payment grants for homebuyers. The Stop Predatory Investing Act would end interest and depreciation deductions for investors who acquire at least 50 new single-family homes after the proposed law went into effect. 

These potential policies focus on medium-to-large and mega-investors, but small investors who own fewer than 10 properties account for the largest share of single-family home purchases, at about 45%, according to CoreLogic. In fact, mega-investors are already pulling back from buying homes. There’s also evidence that concerns about investors’ impact on housing affordability may be unfounded. 

For example, a recent study on single-family REITs, which own a small portion of the housing supply, found no evidence to suggest that SFR property holdings impacted residential homebuyers or caused home prices to increase. 

Even a screeching halt in real estate investment activity wouldn’t be likely to have the intended effect of making homeownership more affordable, suggests a Dutch study that examined the impact of a local ban on rental property investment. 

While the new law increased the homeownership rate in the area, it didn’t reduce home prices or make homebuying more accessible. Instead, it reduced the supply of rental homes, causing rents to increase and pushing younger, lower-income families out of the neighborhood. The effect was a less diverse composition of residents. In other words, the law caused gentrification rather than creating more opportunities for low-income people to own homes. 

About 34% of U.S. households are renters, and expanding access to affordable rental homes is key to achieving housing affordability in the United States. It’s important to consider the effect of any attempt to improve access to homeownership on rental housing. As investors purchase more homes priced in the bottom third of local home prices, that may stir more criticism that rental property owners are stripping opportunities from would-be homeowners and taking advantage of everyday people who seek affordable rents. 

But from another perspective, real estate investors are buying more affordable homes at a time when people need more affordable rentals because they are priced out of homeownership and squeezed by inflation. It’s true that investors are motivated by profit, but profit comes from meeting demand—providing families with the housing they need. 

That’s not to say that investor purchases of single-family homes are necessarily improving housing affordability, but there is evidence that removing investors from the market reduces the availability of rental housing. Other strategies, such as reforming zoning laws, providing incentives for and allocating public land for affordable housing development, and improving low-income housing voucher programs, are likely to have a greater impact on housing affordability than focusing on investor market share. 

The Bottom Line

Redfin data shows that investors purchased a record share of affordable homes in the fourth quarter of 2023. While investor purchases continue to decline relative to peak investment activity during the pandemic, they’re dropping at a slower rate and declined less in the fourth quarter than overall home purchases. 

It’s unlikely we’ll see a quick rebound in investor purchases, according to Redfin senior economist Sheharyar Bokhari, due to low housing supply and lackluster rents. Even if investor purchases increase this year, policy efforts aimed at restricting real estate investment activity are unlikely to help prospective residential homebuyers find affordable homes.

Learn Which Financing Option is Best for Your Investment

Deciding how you will finance a property is one of the biggest pain points for real estate investors. You might have more options available than you think, and every type of financing has pros and cons.

Download our worksheet today to learn which loan products make the most sense for your unique position. 

what mortgage is best for me

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Investing in Forest Land: Is It a Good Opportunity?

120 Rentals in 3 Years by Buying Multifamily During a BAD Market

Would you buy multifamily real estate now? Asset prices are falling, mortgage rates are still high, banks aren’t taking on new loans, and every real estate “expert” thinks that the multifamily space is full of dead deals. If this was so true, then how did Brian Adamson build a multimillion-dollar, 120-unit portfolio with plenty of cash flow and seven figures in equity all in the past four years, a time of tremendous booms and busts in the multifamily market? Well, he’s about to show you!

Brian started investing before The Great Recession but didn’t walk away from the housing crash unscathed. Thankfully, a few upside-down properties didn’t stop him from investing as he continued to do wholesaling and fix and flip deals from 2008 onwards. But, in 2020, he had a calling to start investing in multifamily during a hot market and in areas most real estate investors would run from.

Fast forward close to four years later, and Brian has a rental property portfolio of over one hundred units, with tens of thousands in cash flow coming in every month and millions in equity. He bought when he shouldn’t have, in places investors run from, with loans even top investors refuse to use, but he came out on top. In this episode, he’ll break down his exact strategy, what and where he’s buying, and how much money he’s making, plus some real estate markets he’s bullish on in 2024.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Coming soon…

Watch the Episode Here

https://youtube.com/watch?v=o3IkFZXke5U123

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Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

In This Episode We Cover:

  • Massive multifamily deals that are making Brian a millionaire even during a down market
  • A failed first multifamily attempt that cost Brian tens of thousands of dollars
  • Investing in markets that most investors would NEVER even consider 
  • The exact rent, cash flow, and equity numbers Brian looks at before buying
  • How to use bridge loans to cover your rehab costs on a home-run deal
  • Real estate investing markets that Brian is bullish on in 2024 
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Investing in Forest Land: Is It a Good Opportunity?

Wiping Out $130K of Debt in ONE Year With THIS “Steady” Real Estate Business

Building a real estate business is one of the best ways to unlock financial freedom, but that’s not to say that every strategy is the right fit for you. Today’s guest had to strike out multiple times before arriving at the perfect real estate investing strategy!

Like many new investors, Nicole Rutherford got her start in the rental arbitrage space, where she would bring in at least $1,500 per unit each month. But once landlords decided to raise rents and more competition arrived, her profits evaporated, and her Airbnb bookings took a nosedive. Suddenly, she was hemorrhaging money. With $130,000 in debt, Nicole was forced to cut her losses and start over. Rather than giving up on real estate investing, however, she simply pivoted to another strategy. Just one year later, Nicole is debt-free and runs a thriving Airbnb co-hosting business with fourteen units!

Whether you’re new to the world of real estate or looking to pin down your strategy, there’s plenty of helpful information to glean from this episode. Tune in as Tony and Nicole discuss the differences between arbitrage and co-hosting, the different services that co-hosts provide, and what to include in your co-hosting agreements. You’ll also learn how to leverage your network to find your first clients and how to build trust with property owners!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Tony:
This is Real Estate Rookie Show 373. Today we’re going to cover how one entrepreneur dug herself out of debt from being over leveraged into a different strategy, and how she paid down over $130,000 in debt and is now making super steady income with her real estate business. Now, if you don’t know me, my name’s Tony J. Robinson. I am one half of the Real Estate Rookie podcast, and welcome to the Real Estate Rookie show where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now on episode 370, we had Keron talking about the pros and cons of Airbnb arbitrage, and today we’re going to take that conversation one step further and talk about co-hosting, what that Airbnb strategy is, and what are the pros and cons and how it works and whether or not it makes sense for you. So Nicole, welcome to the show.

Nicole:
Thank you so much, Tony. I’m super excited to be here today.

Tony:
I want to read a question that you posted inside of the Rookie community, and then we can dive into what’s happened since then. But here’s the question. It says, “Hey Rookies, I’m in desperate need of some help here. I’ve been doing rental arbitrage for one year, making 1500 to 2000 bucks per house over those first six to eight months. But with the increase of supply in our market, we’re now losing money, and the landlords are trying to increase rents even more, and they aren’t even asking for market rates. We still have significant debt from each home because we use profits to open more properties. So what should we do?
Option one is my partner wants to sell everything off and move on. We’ll still owe about $80,000 between everything we put into these houses. Option two, find a three to four unit home and use an FHA loan to rent out our other units. And if it’s in a decent area, move the furniture there to convert it to an Airbnb or just use it as a long-term rental. And finally, option three, which is use furniture from our properties for a staging company and then pay down as much debt as possible.” So Nicole, appreciate the transparency there in that post, but I’d love to know what happened, how’d you get to that point, and I guess what’s happened since then?

Nicole:
Absolutely. That was in October 2021 when we started off with rental arbitrage, and as the post said, things were great for the first six to eight months about. In San Antonio, we had the market go from about a 68% occupancy to now it’s around 54%. We ended up going with option one after a few months of debating and getting help from the Rookies group, and turned our business into a co-hosting business where we now help 14 different owners with their properties all around the US and get to do it remotely while making a much more steady income.

Tony:
Gotcha, so what made you guys choose to sell everything off? I mean, I’m sure that’s got to be a tough decision to make to say, “Hey, we’re just going to wave the white flag and give everything up.” So what made you feel that option one was the right choice?

Nicole:
Absolutely. I was in a really low point. My partner was much more levelheaded with some of the decisions we were making, but at that time, we were in $80,000 of debt just from the arbitrage units of putting too much into the furniture. We’ll talk about this later, but all the mistakes we made of investing money into other people’s houses where we weren’t getting the returns, and we got to the point of noticing things weren’t looking better in our particular market. In our businesses in the past, we’ve been able to totally switch gears and put ourselves into a better position in just a year or two down the road and that’s what we ended up deciding to pursue more.

Tony:
Yeah. Again, I love that you guys have the courage to pull that trigger because there are some people who see themselves staring down this road of we don’t know what’s going to happen next, or things don’t look too great here, but they don’t have the courage to switch and pivot so I’m happy to hear you guys felt that way. Now, I just want to quickly recap the differences because you started off with rental arbitrage, which again we talked about, Rookies, back on episode 370. You said you’ve pivoted to co-hosting. For folks that maybe aren’t familiar with those phrases, what exactly is Airbnb arbitrage and how does that differ from co-hosting?

Nicole:
Absolutely. So with arbitrage, we’re working usually one-on-one with homeowners directly, and we are signing a regular lease. So year lease is what we were typically doing, and we were in charge of the utilities. We had to have the rent in our business name, we did have it in our business name rather than our personal names. We were responsible for any normal utilities or issues that would come up if you were a normal renter at a house, versus with co-hosting, we help property owners now from a different aspect of they have the utilities kept in their name. They’re responsible for paying their mortgage, and all expenses that are related to managing a short-term rental while we just get to benefit from the potential profits from it. So still working with homeowners one-on-one, but a lot less liability for ourselves as a co-host.

Tony:
I got to imagine one of the other benefits, and I’m sure we’ll get into this, but now you’re going into someone else’s unit, so a lot of those startup costs probably trickle down a little bit as well. I definitely want to get into the lessons learned, Nicole, and what your process has been from making that pivot from arbitrage to co-hosting. But first, we’re going to take a quick break so we can hear a word from our show sponsors.
All right, we are back and Nicole just shared her journey of quickly scaling up as an Airbnb arbitrage business owner, that not going according to plan and ended up significantly in debt and then having the courage to pivot to a different strategy. One of the first questions I want to ask here, Nicole, before we dive in, because I’m sure you’ve learned a lot of lessons as you’ve gone through this and how do you vet some of those co-host opportunities you’re taking on. But before we get into that, just one question that I want to really drill down on is you said that you were in a dark place when all this was going on mentally. What even gives you the courage to say that I want to continue to invest in real estate because there are some people, and understandably so, who might experience that loss, that initial failure and say, “Hey, real estate is just not for me at all.” So what was going through your mind to give you that courage to keep moving forward?

Nicole:
I was absolutely at that point, that was something for me, it was a hard point to not want to give up. We actually, prior to that, we just lost our businesses in San Diego, California. So this was actually our second time starting over in about a year and a half or two years, we closed our gyms down when COVID happened. This was our new life, starting over again and things didn’t go according to plan. The perseverance is just something that we know that there’s no other options for us to give up. We are very normal people. I don’t have a lot of backup plans of my family can take care of me, I have this W-2 job. We’ve never had W-2 jobs, since I was 18 really I’ve never had a W-2 job. It was just giving it one more shot in real estate and seeing if I could find a different path and ended up going into co-hosting and being an agent to see if this was hopefully the next win. And it’s been so much better in just a year time than our first experience with arbitrage.

Tony:
I think there’s an incredible lesson to learn in what you just shared, Nicole, because I think so many Rookies who are listening have this misconception that the path to success is this linear journey when it’s not, there’s peaks and there’s valleys and there’s ups and there’s downs and there are days when you question, man, is it even really worth it, right? But you only fail when you stop going, and I think you’re the perfect example of that. We’ve had failures in our business as well, and I have these moments of, man, should I even be hosting a podcast about real estate investment when I messed up this bad? I have to talk myself off the ledge from time to time as well, but it’s that perseverance to say, “Hey, failure is not something that defines you, but it’s something that allows you to build that confidence to keep moving forward.” So when you think about that journey, that initial part scaled pretty quickly over those first 12 months with arbitrage. If you think about maybe that lowest point, what was that for you?

Nicole:
The one worst point is I remember just being in one of the houses that we just signed up with and we didn’t see the house, so it was sight unseen. We showed up the day to start unpacking all the furniture that we had in the front yard. We didn’t have access into the house yet because the old tenants were still moving out. When they finally left about eight hours after we were supposed to get entry into the house, we walked inside, and it smelled like cat urine. The countertops were literally being pulled off the wall if you touched them, and cockroaches were walking around the house. I sat on the floor and just started crying because I was at the point I’m like… I had no idea what to do. It was just disgusting-

Tony:
The cockroaches weren’t even, they weren’t even skittering around the house, you said they were just walking leisurely. They’re comfortable here, right? Yeah, okay so you’re-

Nicole:
That was one of the lowest points.

Tony:
Yeah. So did you know? Had you walked these properties beforehand or did you sign these leases sight unseen?

Nicole:
The first three properties were all sight unseen, which is something I’m sure we can jump into, was something we don’t recommend. I know a lot of people and the podcast has been so great and inspiring for me. I’ve been listening to it for years now, and you hear all the success stories of people investing across the country and not seeing the properties, and that’s just something for myself that unless you have someone really trusted in that area, it is much better of an idea to actually go and visit the properties because all three of them were a stomach drop reaction when we got to the area, seeing the neighborhood, and the condition of this rounding area. All of them were signed, the first three were signed before we saw them.

Tony:
Gotcha. After you saw them, did you move forward with the leases and try and set these up or?

Nicole:
We did with two of them, and that’s where part of our first red flag that we should have really realigned. We already had all the furniture in the house, we had someone moving it in for us while we were getting ready and prepared to start it as an arbitrage, and relied on agents in the area helping us choose these homes, relying on the landlords. It should have been an immediate red flag. One of them, the house that we did decide to back out of, we weren’t able to get our security deposit back though. That’s where a lot of lessons learned in just a month time when we first, this was our first month of really trying to invest in real estate.

Tony:
How did you make that jump, right? Because you said that you were owning gyms, and you had this idea of investing into real estate. You’ve been listening to the podcast for a while, but I guess what was the turning point to make you say, I think I can actually do this?

Nicole:
We were in Boston and saved up about $30,000. I ended up buying a course from someone that I now wish I would’ve done more research on. A lot of our lessons learned are doing more research for yourself, and not relying on other people, but we ended up purchasing a course about strictly rental arbitrage and how you could make $2,000 a month net profit per property. And with that amount that we had in savings, we signed those three leases while we were in Boston our last week at helping a gym open up there.
We packed up everything. We were living in an RV at that time, and in one day made it to San Antonio, Texas and started our adventure there. But it was something that I was listening to the podcast for maybe, gosh, three months or something. One of my friends was a real estate agent, and she was a really successful short-term rental investor, and so we talked to her a bit. She said to listen to your guys’ podcast. I’m a very big risk-taker. I opened our gyms at the age of 22 and had no clients in San Diego, opened a gym immediately so risk has not been something that I’ve been scared of, but have now been burned a few times of learning that I need to move forward cautiously and not jumping in quite as quick as I have.

Tony:
I think part of the other, I’m a big proponent of seeking guidance, seeking mentorship, getting coaching because I do believe that with the right person showing you the way, you can really reduce the amount of time, effort, and energy that goes into achieving something. I share the story that I like to compete in amateur fitness competitions. You can see my trophy up here for my last show where I took first overall for the novice division. And it’s like I consider myself an athlete my whole life I played basketball growing up I was always in and out the gym, but in four months of working with this coach, I got in the best shape of my life ever. I had whatever, 30 years prior to that of me in the gym doing it by myself and I never got into that shape. So it’s like when you can have someone that points you in the right direction, there is a lot of value there.
However, there’s also a fine line to walk because there are some bad actors out there who I think try and make success seem simpler and easier I think, than it actually is, and promise a moon and deliver dirt pretty much. So you definitely got to do some homework to try and find the right folks there. So you jump in, guns a blazing, get these first units out in San Antonio. What does that next 12 months look like? Because I think it was at that point where you posted that inside the Rookie community, walk us through what those next 12 months look like.

Nicole:
Absolutely. So Texas is obviously very hot. We had a lot of experiences going into winter and both summer of we started out and things were going well, even though we weren’t… One problem was that we weren’t in a great location for any of these properties, though they’re really close to downtown San Antonio, we were in the east side, which the neighborhoods are just very old neighborhoods, and if you’re coming to an Airbnb not used to those types of communities, we had really bad reviews for location. Even though the house was beautiful, we had a designer working with us, the location was a huge part that drug us down. And over those few months, we ended up putting insulation in the attics ourselves at 3:00 in the morning when it was summertime and we weren’t getting help from the landlords of them wanting to put any more money into their property.
So there were times where at 3:00 AM, we were in the attics putting insulation in the houses. One of the landlords helped us out with funding that, the other ones were all not willing to do any upgrades to their house at all so we were spending money on items such as that, buying mini-splits, and being told that we were going to at least get reimbursed for half of it by the landlord and them decide when it was time to give our security deposit back to keep half of our security deposit because we didn’t have things in writing. A lot of it was not working with, we had one incredible landlord, I don’t want to say that all of them were trying to not help us with our business at all. But a lot of them, which most people do, were looking out for themselves and we didn’t have things as clear as we should have in our contracts of what was our responsibility, what was the landlord’s responsibility, making sure if they agreed to anything, having that in writing.
After about six months, the market just got super saturated as well and it was at the point where we were on two of the properties, we were making a few hundred dollars, and the rest of them we weren’t even breaking even at that point so we were having to pay out of our pockets, which we did have our coaching business, which is always funny because I’m a coach myself and I should have been better with looking at coaches, but we were at the point we started to be losing money every month and not be able to even afford to pay the cleaning fees because we were at the point we could barely pay anything for the extra supplies and all that.

Tony:
When you think about lessons learned from this journey, and I guess I didn’t ask this question, Nicole, how many arbitrage units did you stand up during those 12 months?

Nicole:
We had five, so we did five within pretty much six months time.

Tony:
Gotcha, okay. So in six months you guys got to five. So when you think about those five properties you set up, what are some of the big lessons learned? Say you were to restart arbitrage all over again today, what would you do differently?

Nicole:
Number one of just doing your own due diligence, we again relied on the mentor that we were working with, and even reaching out to him one-on-one and saying, “Do you think this is a good idea?” Them giving us the okay and jumping forward with it when we did some research ourselves but didn’t do nearly enough. And then another aspect of doing the due diligence and talking to each of these landlords, and making sure that expectations are set perfectly clear where there’s no questions to be asked between either party of this is what’s covered from pest control to if there is issues with the HVAC, how much time will it take to fix issues with the HVAC? And being optimistic about stuff because if you’re not optimistic at all, then you’re never going to take that first step. But at the same time, go cautiously into things rather than just doing what I did and jumping as deep as you could into the water, and not having anything around you to save yourself.

Tony:
A lot of really good lessons learned, and unfortunately, some of those things you can’t really learn until you go through that experience. And it’s like every time you do it, you start to identify, well man, I didn’t think of this last time, or man, this didn’t even happen last time, so I never would’ve thought of this. But as you go through that, those lessons start to become more and more apparent. So you go through this journey, you make the decision to transition to co-hosting, so you sell off all of the furniture and everything from these arbitrage units. You walk away from these leases, you’re starting to pretty much not even ground zero, maybe ground negative five, right? Because you have the debt you got to pay off. So how do you go about making that transition? What’s the very first step you take to make that pivot into co-hosting?

Nicole:
So we had an interesting transition of, one, getting out of our units. We were able to get out of a lot of the debt actually just from closing our units down. So that was a huge part of helping us start into co-hosting. We ended up finding two people to take over the properties that we were managing and they ended up, one of them is still running it as an Airbnb, the other one sold it to the cleaner, all the furniture that we had, and she’s now running it as an Airbnb herself. Those connections were actually all off of Facebook and networking with people to find.

Tony:
Did you post inside of a Facebook group and say, “Hey, I’m looking to give up my leases, my units,” or?

Nicole:
Yep. That was exactly what we did. So we were in, I think it was called short-term rental arbitrage. It has a few other words after it, but it was a specific Facebook group for people that were looking to do arbitrage. And I said, “Hey, things actually aren’t going well for us. We’re going to pivot into a different business. Is anyone interested in either buying off the furniture from us or would they like to take over these leases?” And a third person ended up wanting all the furniture out of one of the houses, so we drove from San Antonio. We moved all the furniture out of the house ourself and in one day took it to Birmingham, Alabama and hand delivered it all into the house for her. She was again, someone off of Facebook and I still actually keep in touch with her and her property’s doing great.
And so from there, we started off having two co-hosting properties before we actually got rid of all of our units. One of them was a girl who ended up buying some furniture from us off of Facebook Marketplace when we were shutting down. She was having trouble with her management, and our businesses looked really good from the outside. And that’s something that I like to always make sure, when you’re looking at coaches and mentors, do some research on the people that you are pursuing to work with. Because if you would’ve looked at our page, it looked like we were doing great. We were super hosts, we had over 205 star reviews, we had a 4.9 rating overall. And so she had someone that their rating was closer to 4.0, which if you’ve been in Airbnb for a while, you know that that’s not good at all, even though to the outside world that seems okay.
And so we were talking to her, said, “I’ll manage your house for the first month for free just to see if we can help you out of your situation.” And she’s now been a long-term friend, cleans our properties in San Antonio we still have, and another person in San Antonio, we ended up helping with their property from a site called CohostMarket. It’s not anything huge or well known, but we ended up getting to work with her from a co-hosting site, and then went from those two clients in August 2022, and now we have 14 homes in just a year time without doing any marketing or advertising for trying to gain new business with co-hosting.

Tony:
So 14 co-hosting units in a year, Nicole, is incredibly impressive and no marketing spend whatsoever, it makes it even more impressive. So I’m curious, it seems like those first couple of units just came from happenstance. Connections you had made, and maybe connecting the dots backwards, but I don’t know if that’s necessarily a repeatable process. I guess once you made the decision to really focus in on co-hosting, what were the steps you took to go from two to 12?

Nicole:
It was even more making connections, and that’s how we’ve really been able to grow our business organically. We have a few friends all over that are real estate agents, and from our other businesses we’ve been able to meet people all over the US. Our next two people we picked up, one was actually from Upwork. We started to do some work ourselves. We didn’t have any money at this point to spend on marketing so that’s where we were really starting at, like you said, not even ground zero, but underwater.

Tony:
The basement level, yeah, right.

Nicole:
It was a lot of truly going on Facebook and looking for people that needed help with their properties, and going on to sites like Upwork and CohostMarket and just trying to find leads organically and getting on the phone and talking to people and meeting with real estate agents, which I know a lot of the real estate Rookies, it is a great way if you’re making friends with real estate agents, they’re going to be able to help you immensely. Four of our listings have come from just a friend who’s a real estate agent, so making connections with people has been the number one thing. It’s just myself and my partner that run the business, so there’s no team behind us to be making cold calls every day, but it’s truthfully just trying to find people that are in need of help.
Most of our clients already had a short-term rental when we started off, and it just wasn’t doing well with their prior co-host or their prior management. Some of them were working with Vacasa and Evolve, and we were able to even find those leads of going onto Airbnb and seeing what markets are great markets to be co-host in, but are underperforming houses that are beautiful properties but have not the greatest reviews. So we’ve looked for properties four stars, which is sad, but four stars and find the owner’s contact information with some deep digging, just trying to not pay for anything because again, we didn’t have the money and we were able to convert a few leads that way as well from finding properties that were underperforming though they were beautiful homes, and reach out to the owners, just explain who we are, what we do. We’d love to help them, and see if we can get their property performing as we believe that it could.

Tony:
Nicole, what an incredible strategy, and I want to dig into exactly how you were refining these owners’ names. I also want to hear how you’re seeing accountable to these owners, right? Because you’re setting up properties in different markets and being a co-host, you’re not in between a rock and a hard place, but you’ve got to keep your guests happy on one end, but then you also have to keep the owners happy on the other end so you are serving two different people at the same time. I want to get into how that works right after a quick break to hear a word from our show sponsor.
All right, Nicole, so we just talked through, you planted a little seed here that I want to dig into a little bit, but you said that part of your strategy for finding new leads for your co-hosting business was referrals from realtors, working in different Facebook groups, the guerilla marketing type things. But then you said something interesting where you were targeting properties on Airbnb that had four stars or less. I get how you would do that, where I just open up Airbnb, but what was your process for actually identifying the contact information for these owners?

Nicole:
It’s a bit tough. It’s not the easiest way to do it. So if you have time on your hands, it is a great marketing strategy though.

Tony:
I can think of a way, and I’m curious if this is how you’re actually doing it, right? But let me hear what your strategy is.

Nicole:
When you go to Airbnb, you can see approximate location of where the house is, and most people do have photos of the exterior of the home. And as a real estate agent, we get really good at finding property owners contact information, but this is something anyone can do. And so we would find where the approximate location is, go to Google Maps Street View and try to see if we could find that property. Sometimes, it’s impossible because it’s again an approximate location for some people’s houses. Others will, and we never messaged the host to say, “Hey, can you provide me your address?” And do anything like that. But going to the maps, going to Google, trying to find the address and then putting it into PropStream and True People Search to find the homeowner’s names, contact information, and reach out to them that way.

Tony:
I love that. What would you say when you reached out to them? Were you sending a mailer? Were you just calling them? What was your pitch?

Nicole:
We would cold call them and say, “Hi, my name’s Nicole. I am the owner of Valens Rentals. We saw that you have a listing on Airbnb and your home is beautiful, but we see that it’s not performing or doesn’t have the best rating. What do you think is causing that?” And letting them, and most people know that their properties not performing and some of them have actually been like, “Oh, what’s my rating?” They don’t even know what their current standing is. Since some of the property management companies don’t share a lot of information with their owners, and just having a genuine conversation with them, not even trying to sell them at first of our services, but just seeing if there’s a way that it would make sense for us to help them. Because we’re not looking for a quick dollar for any client we work with, we want it to be long-term relationships where we’re working with them for years to come.

Tony:
Almost like a free audit. Like, “Hey, I’m not even selling you anything, but let me do an audit of what’s currently going on in your business.”

Nicole:
Absolutely.

Tony:
The gears are turning for me right now. We have some virtual assistants on our team, and we’re looking at really growing our coaching business this year as well. And I’m thinking, man, our VAs have downtime during the day and we could probably fill some of that time. I just say, “Hey, here’s a list of all of the four bedroom, five bedroom properties in this market, do exactly what Nicole just said and go search for those addresses on PropStream,” so I love that. I want to get back to the other part of the question I had earlier before the ad break, which was how are you actually staying accountable to the owners? Because again, you’ve got to keep the guests happy and give them a five star experience, but then you’ve also got to keep the owners happy. So what is your process for navigating that relationship with the owners of the property?

Nicole:
Communication is key, and focusing on people first and the business secondary, even though that’s not how a lot of people like to look at business nowadays, everyone’s looking at every person as a dollar sign, but every single client we work with knows that they can, other than right this second during the podcast, they can’t get ahold of me, but they can get ahold of my partner giving us a call or text and if we’re not available that minute, they know that we’re going to be able to be there for them usually within an hour. Every single one of them has full access to their listing so we don’t really have leverage over any of our owners. We don’t hold them to 90 day contracts. We don’t make it where they don’t own their property. So if they would want to switch from working with us, they can easily remove us as a co-host and start managing themselves or have another co-host take over pretty much that day.
If we just make it extremely transparent for every owner we work with, and they know that they can see everything that we’re doing in that first month we work with everyone, they will check every message that we send to a guest. They will be checking and asking, “Oh, what did that person say? How are you guys going to handle this?” And after about a month, they get to the point of I’ll text them if an issue arises, we had a plumbing emergency the other day, texted the owner immediately saying, “Hey, we have this issue going on at your house right now, plumber’s on the way.” He said, “No worries at all. I know that you guys are taking care of it.” And so giving people access to what you’re doing, and allowing them to see what’s going on with their business, because for most people, this is their biggest investment that they’ll ever have in their lives.
Giving them full transparency into what we’re doing, how we’re interacting with the guests that are coming to their house has given them so much trust that there’s usually no questions asked of how we’re performing because they can see it in the reviews. Most people will call us out in the reviews of saying they were getting back to me within minutes or seconds and they were exceptional hosts. And so having our names in the reviews too helps with the owner’s trust of, okay, these people are doing a really good job, and without ever asking, “Can you put our name in the review?” It’s just something that guests are doing because as much as the owners have to be your focus, as you said, the guests are also a number one priority too, which is competing with one another.

Tony:
You touched on a lot of good things, but something that stood out to me is that you said you’re not owning the listing and you’re letting the host see the messages and being involved in that way. I applaud you for that because I think that takes a certain level of patience with the owners that I probably don’t have myself. As we look to scale our co-hosting business, our property management business, we’ve taken the other approach where it’s like, “Hey, we own the listing. It’s going to be under our name. You’re not going to get log in details because I don’t want you messaging guests. I don’t want you asking me how I’m going to respond to things.” So it’s a slightly different approach, but I think what you’ve shared is that it really, really puts pressure on you as the cohost to perform because they’re able to see everything.
I guess that leads into my next question, Nicole, of what exact services are you providing? Because when it comes to Airbnb management, I’ve seen it done a few ways where some managers, they only do the guest communication. But they’re not scheduling maintenance, they’re not doing pricing, they’re not ordering supplies. And then there’s other folks who do full stop everything, and that’s how we run our codes and business, we do everything. So where do you fall? What services do you provide to owners?

Nicole:
At first, we were offering those two options for people depending what their needs were. At this point, we only have one client that does want guest communications, and the rest of them are full service, where the owners usually only hear from us if there’s a handyman issue that needs to be addressed at the house. So we do take care of everything from guest communications. If AirCover requests need to be put in, we’re ordering supplies, we’re doing schedulings for the cleaners, the handyman, making it a full service operation without being a technical property manager since we aren’t licensed property managers and we make that very clear to every client that we work with.
And for some that don’t know the difference of that, it’s as a property manager and it is legal in a few states where you don’t need to be licensed, but for most states, you’re not able to accept guest payments if you’re not a legal property manager. So all of the payments that guests put in through Airbnb or Vrbo all get sent directly to every single owner that we’re working with where we just get a reimbursement at the end of the month.

Tony:
I was actually going to ask that question. When it comes to making payments for cleaners, for supplies, for the vendors that come out, how are you managing that if all of the deposits are going to the owners? Are you sending the invoices to the owners then letting them pay that? Are you fronting those costs and then just attaching that on the back end to your invoice? How are you managing these? Because there’s a lot of expenses on a monthly basis to keep an Airbnb running.

Nicole:
Yes, and it can be, just to give people an example of the 12 houses that we’re working with, it can be about $12,000 in random expenses from cleanings and handyman and supplies throughout the month. So for most of the homes that we are working with, we actually went and set up the properties ourselves. There’s a few that we didn’t do that with, so we got an initial payment from the owners for completely setting up their properties. So we had that money saved and in reserves for those first initial cleanings and handyman expenses and supplies.
Airbnb does now offer the ability to pay your co-host directly or pay your cleaners out of each booking. They took that service away for a few years I believe it was, but we’re about to transition to that now to where we at least get our co-host payments directly from each booking. We’re going to get the cleaning payments as well so that we’re not 12,000 under every month waiting for the owners to reimburse us. But most of them, we did have a reserve just from setting up their property for them and that was our initial deposit.

Tony:
It’s tricky. I’ve met property managers, co-hosts, et cetera, that go one of either way where they’ll collect all the income, and then they’ll issue a debit or a payment to the owner at the end of the month. And obviously there’s a little bit more bookkeeping involved with that and there’s a little bit more onus on you as the property manager to make sure everything’s buttoned up. And then other people are like, “Hey, I don’t want to deal with that headache of accepting payments on behalf of the owner, so I’m just going to invoice.” And then the downside of that is you got to float some cash every month or maybe you’re chasing an owner down for an invoice, things like that, so pros and cons to both. One of the other things I want to ask here is you mentioned the setup fee. What are some other things you’ve noticed or maybe you’ve recognized as important things to include in that co-hosting agreement?

Nicole:
There’s definitely a lot you want to make sure that you’re covering for yourself. And again, going back to just setting expectations for if you were going to pursue rental arbitrage, having those expectations set in your contract. Same thing for co-hosting. So we had an attorney write up our co-hosting agreement. It’s not anything crazy, no 30 page documents, it’s just a four-page document laying it out exactly if you want to stop working with us, we just need a 30-day notice. All supplies are going to be provided at your expense. All handyman and instances are going to be provided by the owner’s expense. Cleanings are covered by owners, and just laying out every single thing from your lawn care, your pool cleanings, all utilities, HOA fees, taxes for certain cities, every single item that which at first you might not know, but you can definitely create a list of that and find even in Airbnb’s community, you can see all the different things.
If you’re not familiar with running a short-term rental yet, there’s a lot of things that go into it if you’re helping try to full time co-host for people and every owner we work with, really that’s been a selling point for, at least from what we’ve seen, is they want nothing to do with their property other than to make money off of it. So that’s been our approach of we will take care of everything from even if a guest would damage something at the property, we include that in the contract as well of we’re not responsible for any damage to the property, but we will help submit an AirCover request in making sure they talk to an attorney themselves and talk to their accountants and make sure that they’ve talked to their insurance broker and that they’re covered.
I know you guys did an awesome episode on short-term rental coverage, and I listened to that one. It’s a scary one, but one that everyone should listen to in the short-term rental world, and you want to make sure that owners are aware of every single thing that you’re going to be offering for your service. For some people, as you said, that don’t want to do full service, making that even more clear, that your only responsibility is guest communication. What’s the expectation for overnight emergencies? Do you have someone on call that’s going to be able to answer at 2:00 in the morning? Though it’s rare, I’ve had to do it six or so times of 2:00 AM emergency phone calls.

Tony:
So many good points there. Yeah, I mean there’s a lot that goes into doing this the right way, so for folks who are looking to get into co-hosting, replay this last 60 seconds here so you can really get some of those nuggets that Nicole just laid out. I want to get into maybe some misconceptions about real estate investing. That’s one of the things we like to do here on the Rookie podcast is play the role of MythBusters to really paint a realistic picture of what it’s like to invest in real estate. Before I touch on that, just one last question about the co-hosting side of things. You started off, you had some of these units in San Antonio and Texas, but you said that your co-hosting properties are in several different states. So were you choosing the state first, and then targeting properties within that state, or did the client pull you into that state and then you decided to just expand there? How were you choosing these cities for your co-hosting business?

Nicole:
We did start off in a market we were familiar with, so our first two units were both in San Antonio that we started to co-host for. The first one was actually again site unseen. We were in Washington state at that time when we decided to start working with this owner. We were familiar with those markets, we had our cleaning team already there. We had handyman at our disposal to use. So if you have a market close to you, I think it’s a lot easier to get started locally if this is something that you’re interested in pursuing and building your team where you’re familiar, at least have contacts that you know. From there, we were looking at where’s some hot markets and Florida being one of them at that time of we would love to manage some units in Florida. So we did start off of picking a home base and saying, we know this market, we have our team, and then looking to where could we potentially profit more?

Tony:
Yeah. Just real quick, when you chose Florida, right, because you didn’t have a team there yet, so you found your property first and then worked backwards to build out the infrastructure to support that first coasting job?

Nicole:
Yes, that’s correct. So we were in Texas at the time and we ended up, we were on our way to Florida, but had our first client reach out, and in that first unit, we were actually able to go and set up. So if you have the ability, again, we travel full time in our RV, so we have the ability of freedom of travel and we can offer that as a service to each owner we work, with extra travel fees if it’s out of our local area, but we’ve been able to go start in South Carolina because we had the ability to do so and start at a unit up there. The only one we haven’t been able to go visit is in New Mexico, but we started a team remotely for there.

Tony:
I love that. Last question I have for you, Nicole, I really enjoyed this conversation. I’m sure Rookies got a lot of value from this as well, but what was something that you learned about real estate investing that ended up being different from what’s actually working in your business today? What are some misconceptions?

Nicole:
The first one being that you think you’re going to hit a home run on your first deal sometimes, and it doesn’t always work out as anticipated, and that’s okay. I’ve learned, even though it was a painful lesson, all the rental arbitrage is something that I am not angry about because it led us into a better business that actually fits my lifestyle better as well. It’s a lot less risk, it’s more stable income, and just being able to be okay if your first deal. You guys hit this so much on the podcast, it doesn’t have to be a huge win for you, but just getting started, and going slowly into it is something that isn’t promoted now. It’s a go big or go home if you want to get invested in real estate, and it’s okay if you’re profiting one or $200 on your first property, that’s still a win if you’re just getting started.

Tony:
I love that, right? That first deal is about base hit, right? Learning those ropes and it’s that learning experience, it’s most important. So Nicole, again, really enjoyed this conversation. You shared so much, so much value. And if folks want to get in touch with Nicole, you guys go to the notes for this episode. If you’re on YouTube, check the description of the video. If you’re listening on your favorite podcast app, check the show notes section here. But Nicole, really enjoyed today’s conversation. Look, we talked about pivoting into a new strategy when the first one isn’t working, and the importance of networking and how your first co-hosting clients came from that network that you built out. We talked about the value or the importance of clear communication both with your guests and with your owners, and what are some of those important things you should include when you’re building out that coast agreement. So Nicole, thank you again so much for coming on today’s Real Estate Rookie episode.

Nicole:
Thank you so much, Tony, appreciate it.

Tony:
All right guys, that’s it for today. Again, my name is Tony J. Robinson. You can find my social information in the description for the show note here as well, and we’ll see you guys on the next episode of the Real Estate Rookie podcast.

Speaker 3:
(Singing).

Watch the Episode Here

https://youtube.com/watch?v=Fp0XrqYP9F0

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In This Episode We Cover:

  • Building a profitable real estate business (and common mistakes to avoid!)
  • How Nicole climbed out of $130,000 in debt with Airbnb co-hosting
  • Finding your first clients through your own real estate network
  • The importance of maintaining transparency with guests and property owners
  • Key terms and conditions you MUST include in your co-hosting agreement
  • How to pivot to a new investing strategy when one isn’t working
  • Why you DON’T need to hit a home run on your first real estate deal
  • And So Much More!

Links from the Show

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.