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In this episode, we explore the convenience of a turnkey approach, where investors can bypass the hassle of property renovation and furnishing. We also discuss the financial benefits, such as immediate cash flow.
We provide tips on how to evaluate potential turnkey properties and maximize your return on investment. Whether you’re a seasoned real estate investor or just starting out, this episode will provide valuable information and perspectives on the pros of buying an operational short-term rental property.
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This editable transcript was computer generated and might contain errors.
Stancato: Welcome to the Michigan. Short-term rentals podcast, my name’s Tony Stancato here with my co-host. Jordan painter. What’s up man?
Jordan Painter: What up? It’s spring break, brother.
Tony Stancato: Well, let’s go. I’m just getting back and you’re just passing the baton off to you and you guys are taking off.
Jordan Painter: Peace, that’s right.
Tony Stancato: Well, where you going?
Jordan Painter: What Ohio?
Tony Stancato: The Oh, the destination, you know, the the spring break destination of the United States, Ohio. Nice, dude.
Jordan Painter: Ohio for everybody in Michigan, wants to go for spring break.
Tony Stancato: Hey, I, you know, I think I went to the second most desirable place, you know, Saint Louis Kansas City. Branson, you know, all the places people want to go on spring break. What part of Ohio, are you going to?
Jordan Painter: Yeah, we’re headed to Kalahari, which is in Sandusky. So all the begging and pleading from my two, oldest to myself, trying to get my wife to pack up a car and drive to Florida. She just was not having the road trip this year, so try to find something more local. So it’s three and a half hours and we’ll do something after. So I’m looking forward to it, we’re gonna make the best of it. It’s gonna be fun, make some memories with the kids and Yeah.
Tony Stancato: What about five hour drive? Not too…
Jordan Painter: I think it’s only three and…
Jordan Painter: a half. Depends, I drive faster than you, so maybe take you on.
Tony Stancato: Oh, even better.
Tony Stancato: Yeah. Yeah, not with all the tires you blow up. But hey,
Tony Stancato: Yeah so the other cool thing we got going on, I think you we were just talking about it at the 70 Mile hike.
Jordan Painter: Yeah, it’s gonna be it’s gonna be the challenge of challenges for us. I’ve never done any type of endurance travel like this, so it’s the Cow Haven Trail. One of you, tell about what we’re gonna try to do.
Tony Stancato: Yeah, well, so what we’re going to do is we are going to walk 70 miles in probably a 24-hour period. Hopefully, we can get it done in about 20 hours kind of stem from my spring break. Actually was just hiking with the kids. I think we’re two and a half miles into the hike, and they were done. They were over. I was just, like, trying to encourage them. Hey, come on, let’s go. And, you know, for me, four miles is, it’s not then, but I’m like, man, what do I have to do to kind of get myself back into that spot of where it’s hard? And I need somebody to encourage me and I was like, Oh, who’s the craziest son of a gun? I know. So you probably, you know, thought of you and you’re like, Okay, let’s go. So that’s how it started. And I think we’re up to seven people already or kind of in the the group that have committed to it. I think there’s one other guy that said he’s gonna do it as well, so would be should be fun.
Tony Stancato: Well, I mean different level upon I suppose, but if you want to go on a 70 mile endurance. Endurance walk. Does that sound? How’s that sound good. A 70 mile endurance walked. Hit us up Facebook LinkedIn. We got a group private group, just for this. The other thing we’re thinking of, like,
Tony Stancato: Trying to make it like an annual thing. Not necessarily just a walk or hike but like this year it’s a 70 mile. Walk next year. Maybe there’s some other crazy thing. I don’t know. Can you across Lake? Michigan, Whatever. So yeah if you want to join hit us up. Let us know. We’ll get you in the Facebook group. We’re talking about, maybe making some T-shirts and cool stuff like that too, but just be fun to get out there with other people, you know, struggle together and do that. That endurance walk together and just support each other and push each other to keep going.
Jordan Painter: Yeah, Friday May 19th. We’re gonna try to push off around 4:30 am just to try to get a head start, so that we don’t have to walk all the way through to two full nights. So see how that goes. But yeah. Super excited to just kind of get together with some people and push each other to our limits. And, you know, do something that’s a little bit fun. Right? Reminds me of a story actually is going to tell Tony this might as well. Do it here. We went on a hike like this with a bunch of kid. My kids and friends a few years ago and us Dad’s got together, kind of behind the scenes and said, Hey, We’re gonna have a competition that nobody knows about and whoever wins this competition is going to be the last kid that complains. So we were having a good old time, just trying to torture them up and down hills, through the woods, over the mountains, waiting to see, who’s the last kid to crack. And it was, it was a lot of fun. So I guess we’ll maybe see who, who’s the first one to crack and start crying on this trip and take away that that card
Tony Stancato: And going to be me.
Jordan Painter: I believe that.
Tony Stancato: Yeah. All right, today, we are going to talk about the advantages and disadvantages of buying and pre-existing short-term rental. There’s a lot of if you’re following a certain area, it’s just a matter of time before a short-term rental, that was already in operations pops up on the market. And I think our last podcast we actually talked about, Hey we’re selling a short-term rental already being used in. Here’s the revenue that it made last year. So we’re just gonna kind of discuss some of the pros and cons of buying one. That’s already existing. And why don’t we touch on the pros? So, what are some pros in your mind or buying a pre-existing short, term rental already set up?
00:05:00
Jordan Painter: Yeah. Well I mean I would say definitely the first pro is that if it was furnished, well then You save yourself two or three months easily of prepping it and setting it up and getting everything in there. Even if it was halfway decent, if you could, if you’ve got a place two thirds of the way there, and it just need some tweaks, it definitely cuts out on a lot of the hassle of getting getting something up to up to snuff as far as the the furnishings go. So I’d say, that’s definitely number one, just the time aspect
Tony Stancato: Yeah, absolutely. And then the second pro again, depending on what it is. So you can, or you can look at some of the reviews that have already been done for that property. So for the one that we just sold, I mean there was 60, I think it we ended up just short of 70 reviews, 69 reviews with a 4.97 or 4.98 across 18 months so you can actually go through those reviews. You can see what some of the pros are. Some of the cons are, You can get a game plan of This, is what we should do to, you know, improve the property. Or If there’s certain things that they, you know, that they’ve mentioned, you can just go in and make those changes. Now, the other side is, you know, ours,
Tony Stancato: Was all great reviews right now. There might be bad reviews. So the other good thing is you can kind of look at those and say, Is this something I can fix, you know, if there’s an issue that, Hey, maybe it’s close to a freeway and maybe every Bit Review, mentions the the freeway and it’s four point three stars or something like that. Make sure you check that before you buy it, because that’s one of those things. Obviously, you’re not going to be able to get away from so, Anything else on like reviews and what people could potentially gain from some of that in what the benefits of that would be.
Jordan Painter: Yeah, as a pro again I would just reiterate it’s nice to be able to see what what has been done well before and what maybe could be improved upon, so that’s definitely a couple that that are easy to to do that research. I think um,
Jordan Painter: Another big positive to me would be just the revenue projections that we use. When we’re advising clients to buy a place or when we’re buying places for ourselves, It is projections and it’s based on similar properties of similar, square footage and bedrooms and bathrooms in the area, but it doesn’t give you an exact number. So it is beneficial somewhat to know exactly what type of revenue of property produced and you can kind of gauge it too. To see was it manage? Well, you know what, what are the pictures I’m pulling? Is this furnished? Well, is there room to improve upon that revenue or in some cases? you know, if we’re looking at a place and it is everything that we can see, Seems to be as good as it can get. And there’s not a ton of adjustments, maybe. There’s not as much upside so you can kind of gauge it based on that a little bit to see, is this a good investment? Is it a good investment? Instead of projections, you have actual real data,
Tony Stancato: Yeah, and we could use the property. We just sold again. When we decided to sell it, we were like, Hey this is the best, we think we’ll be able to do. There is a chance, you know, there could still be some upside there. But again, we had fantastic reviews, and we got one 15. So if I was the buyer of that, then I would say, Hey, that’s kind of my upside. And again, they’re not gonna have to reviews when they buy that property. So they’re gonna have to start over and kind of build up where we had it. So it’s gonna be maybe a year two thing before they actually get that. But yeah, the the best thing you can do is find one that has pretty low reviews and hopefully it’s just based on like yeah, this person’s just a bad host, they have that, you know,
Tony Stancato: They are bad, I don’t know, management skills and they’re not responsive and maybe they’re just don’t have great communication. And then that’s something.
Jordan Painter: Property wasn’t clean.
Tony Stancato: Yeah. And those are all things you can say, Oh, we can we can take care of that. We can fix that, no problem. So you can say, Okay, has low reviews. It still did a fair amount, so that’s kind of like worst case scenario. And if we take it over improve the operation side, improve the cleaning improve the guest communication. We know that we can mitigate those types of reviews and get some solid reviews. And then maybe spruce it up just a bit, there could be a lot of upside on that. So, yeah, just being able to peek at the the year prior and just see how those, you know, revenues actually came in, can be a big benefit there. What about some of the cons?
Jordan Painter: Yeah, well, so I I would say that in some cases, it can also that same factory we just talked about can also be a bit of a con. So if there’s a property again, like we just sold, you know, we sold that based on pretty excellent revenue and we bought it based on projection. And so, you know, when we bought that property, it was still kind of a shot in the dark. We were one of the early, you know, early short-term rentals in that particular market, there wasn’t a ton
Jordan Painter: And so you know we bought that and we weren’t competing necessarily at the time with as many other investors. And so I think that we got it in a much better price than we would have had. It had, you know, record of producing income. So I think you may end up paying a bit more for the convenience of knowing what the numbers are and having it fully furnished, they’re definitely gonna be a premium price that comes along with that. If it’s an investor that you know, is selling it, that knows what they’re doing.
Tony Stancato: Yeah. And you know, the other thing is some of the cons would be, you’re buying a airbnb that was potentially somebody else’s problem, right? You know, maybe Maybe the previous owner, ticked off the neighbors and that’s already pre-built into the minds of your neighbors at this point. You know? You’re even though you’re new owner,
Tony Stancato: you are still a call, it a bad neighbor, in their minds, right? So, how are you gonna go in and, you know, kind of turn the opinions of those, you know, those neighbors to maybe be seen in a different light. Obviously, you’re not changing the use of the asset class already. So again, you just might have a dark cloud over the property already just based on, you know, previous owners and and that kind of stuff. what other kind of cons would you say, you know, obviously
Tony Stancato: I think there’s two reasons people sell right. Hey, we sold it. This is the best, it’s going to get. We don’t think it’s gonna get any better than that. Now is a perfect time to sell the other side of it is like I feel like there’s, you know, which she’s probably more likely is people are like Hey, this is a you know, it’s just not a good property and I want, you know, I need to get get out of it, you know? And then really You got to analyze whether you’re going to be able to take care of the issues. Again, that the reason that they couldn’t make it work, you got to be able to take care of it and do a better job at it.
00:15:00
Jordan Painter: Yeah. So I think there’s definitely some of that that goes along with that. I think even just from the income approach, some of the ones that we’ve looked at in the past you you we look at it. We get excited about it. They’re previous rentals and we get the numbers back and we’re like, they only did that much. Oh my gosh. Are we that far off in our projections? And so I think you can also
Jordan Painter: Sometimes be talked out of what could be a great deal because it wasn’t managed well or you know so in some cases it could be it was a second home for somebody and yeah they use it as a vacation rental but it only grows, you know, third or half of what it could if it was exclusively and investment property. So I do think it can get in your head a little bit mentally. When you see numbers in in quite frankly, a lot of the ones we have looked at in the past the numbers are pretty terrible. We’re actually hoping to to convert referral right now. Somebody who bought one in one of the markets we operate. It was already pre-existing as a short term rental, and the numbers are pretty terrible. But when we look at it, the pictures aren’t great. There’s no amenities listed.
Jordan Painter: It’s just not it does not look like it’s being presented to the market. Well, so it’s really hard to say in that situation you know, based on the revenue you are you are kind of relying on other data and and your ability to improve that asset when you’re buying it. So it’s easy to get talked out of it when you see some of the numbers that don’t look good for sure.
Tony Stancato: Yeah, in on that one. I mean to me when you look at it it was almost like They bought it, they moved to house over to prop, you know, over to vacant land, and I think they tried to sell it and then it almost you just get the vibe that Short-term rental, you know, turning it into a vacation rental. Almost appeared to be like afterthought of like, Oh, hey, it’s not selling, let’s just, you know, try to make some some money on airbnb and then again, pictures aren’t great. I mean would not take much to do better at taking pictures on that. So yeah, I mean, in terms of cons I mean Is there really? You know, there could be kinds of actually closing on it, but is there really? A ton of cons When it comes to you. I mean, being able to analyze a pre-existing one.
Jordan Painter: Yeah, I don’t think so. If you know what you’re looking for it can I think I’ll get a lot of it’s just that mental, that mental game of Talking yourself out of it because somebody else did manage it. Well or wasn’t able to optimize it for whatever reason. So you definitely great opportunities the again, back to the biggest con I think is Just you, you end up, if you don’t want to put the work in to find a deal convert a deal, you’re gonna pay a little bit more of a premium. So I think you really have to ask yourself, whatever point of investment journey you’re at. Is it, is it better for you to spend the money and have the time? Or are you really at the beginning of your journey, or at a point where
Jordan Painter: You know, you really would value putting the effort in and the sweat equity in over, you know, one that’s already up or an operational. So I think you really have to analyze. I don’t I don’t know that there’s a right or wrong answer for this. You got to analyze every deal, you have to analyze your goals and you have to analyze the time that you’re able and willing to commit to this project because it is it is a huge endeavor and that’s something that we have been working through with our business over time is How much how much time is it worth to spend optimizing these places and fixing them up? And when you talk about buying the value ads, you got to really calculate the ROI of your time that you’re spending into that deal because you may not be getting a good deal as you think you are depending on what your times worth.
Tony Stancato: yeah, and I mean, I don’t know if we touched on it, I think we touched on it a little bit with the pros, but it’s like, You can shortcut the process, but then again, like a lot of people have called a little bit of a tighter budget. Where else?
Jordan Painter: Yeah.
Tony Stancato: You know, as long as it appraises out and you know, where else are you gonna be able to get furniture? Furniture is anywhere from if 15 to 40 grand of the expenses like so for ours, I think they were doing like a 10% down loan potentially in an appraised out and if it wouldn’t, you know, where else are they gonna go? They would have to put another 40 grand into furnishing that. So a lot of times it’s like Hey they spend an extra 10% on the on the loan by just kind of wrapping it all up into that. It’s it’s kind of the easy button and yeah just Can keep that budget down.
00:20:00
Jordan Painter: Yeah, the cash outlay for sure changes, if you can get something fully furnished and you’re able to work that into the mortgage, you know, the the mortgage companies kind of frown on that, but if the if there’s enough value that they can find in the house and the actual structure and the property, then you can you can end up basically just getting all those amenities and in pictures and improvements wrapped up right into the mortgage. So
Tony Stancato: Yeah. Well, anything else on pros, and cons of just buying a pre-existing short-term rental.
Jordan Painter: Yeah, I think again, I think it just goes back to analyzing you just got to be able to analyze every deal. There’s not one one way to do things. Analyze your goals, analyze the deal and make sure that you have some confidence. Some level of confidence that If it’s not pre-existing that you really know what you’re looking at and you know what you can do with the property or if it is pretty existing one then you can kind of see if there’s if there’s any way to optimize it when you’re when you’re making your productions.
Tony Stancato: So, make sure you ask the listing agent for the revenue. Make sure you ask the listing agent to share the airbnb listing or verbal listing so that you can check it out if it’s if it’s still available but you’ll really want to see those those things and then I mean if you find one that is just like man this looks nice it looks awesome. And you know, let’s say the reviews are really good. But the rent is just not good. Hey, make that connection to be like, Hey I don’t think I can do any better than this listing and it only did this much money then you can kind of get out of it before you know you close on it but make sure you get those those couple things and then really do a deep dive and see if you can if there’s areas to improve on the property and
Tony Stancato: Yeah, that’s the biggest piece of advice. Just make sure you get that those pieces of information from them and you know, obviously you’ll always want to make sure you check with Township and see if there’s been any changes in the ordinances from you know the last six months or whatever just because it has been a short-term run until it doesn’t mean that it’s going to continue on to be a short-term rental with the new owners. So you’ll want to make sure that you you do that as well.
Jordan Painter: Yeah, that’s a great point.
Jordan Painter: Well, let’s put a bow on it. One more reminder May 19th. 4:30 am meet us in? Southaven, look us up. We’ll get you the details. It’s going to be awesome. It’s going to be a grind. It’s going to be exciting. You’re gonna get pushed, and maybe make some new friends.Tony Stancato: Sounds good. See you guys thereTony.
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