Dave Debeau [00:00:09] Everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in all the way from beautiful Los Angeles, California. We've got an air B and B, specialist, investor, trainer, coach, you name it. Mr. R.J. Contreras, how are you doing today or.
Jorge Contreras [00:00:28] I'm doing great. Dave, it's an honor to be here. Your podcast. Thank you for having me. I appreciate it.
Dave Debeau [00:00:33] My pleasure. So, George, as we are recording this record in the midst of this whole covid thing, things are opening up a bit. We don't know if there's going to be a second wave. Nobody knows what the hell's going on. But one thing we do know is that it sure to tourism. Sure to kick in for quite a while. How has this affected Airbnb from your standpoint?
Jorge Contreras [00:01:00] Yeah, that's a great question, Dave. So definitely the first couple of weeks in March was a little bit of a challenge because I believe everyone experienced like a shock of what was going on and how fast it happened. And I think that in out of twenty nineteen, whenever we would talk about the economy in the next correction and the real estate market, we all I was mentioned have at the time it happens is too late. Right. And like this, this gets flipped right underneath your feet
Dave Debeau [00:01:30] and this is even faster than pretty much anything else we've ever
Jorge Contreras [00:01:34] experienced. It was like quicksand. It's like, oh yeah, you guys stay home and you're going to be home for like this long. And then they extended. And it was by the time it happened, it was too late to make any adjustments. What I will say is a lot of it, I would say, even though a lot of people have been negatively impacted in certain ways, I will say that most of what dictates, at least in my experience, is always where my mindset is. And so for me, most of the pandemic there certain things that are just inevitable and that you can change and then there's a lot that we can change. So most of the pandemic for me is right here. And so as the the rug got slipped from our underneath our feet, first thing we said is great power or not great, but how do we pivot? How do we make adjustments to bring more eyes to our short term rental portfolio? And so we started marketing our properties on websites that market to corporate housing and nurses who are traveling for work for it to work at hospitals. We also started bringing down the price where we started to attract locals who were living, for example, say, New York, downtown L.A. in tiny little apartment spaces where they had no social distancing and they were going down the elevator or something and they wanted to rent a single family home with some space. So between the staycation and the corporate housing and the nurses, we actually made we made less money, a lot less money, but we were still making some small profit cash flow margins every single month, even during the worst month of March and April. And now moving forward, we're going to be in a much better position to really take this business to the next level, thanks to the pivoting.
Dave Debeau [00:03:21] That is so smart, my friend, so that that's awesome, so because I think a lot of people in that space just kind of went and kind of froze and panicked and didn't do a hell of a lot of anything, you guys. But very, very proactive drop the prices focused on a completely different niche, you know, took things in a completely different direction, perhaps even instead of just short term stays, looking at medium term stays, looking at different local clientele. Really, really interesting. It was interesting. I was just talking with another Airbnb specialist, believe it or not, interviewed her earlier today. And really cool because you're you're based in L.A. She's based in Tennessee and in smaller areas. And she was talking about her focus is on regional local tourism areas where people can drive there. So she heard her client base before and wasn't so much people flying in that sort of thing. It was more locals. And then same idea. She found that it didn't get affected nearly as much because she focused on the local market. So very cool that you pivoted and you're focusing on the local market and health care providers and super local people that don't want to be in an apartment building. They want to be able to social distance. So that's OK to you. That's cool. That's cool to hear you pivoted. So before we started recording, you've been doing Airbnb for for a while now, quite some time now. And you told me that there are basically three different strategies when it comes to Airbnb and you've got experience with all three of them. Can you just briefly tell us what each one of those three is and and a little bit deeper?
Jorge Contreras [00:05:08] So the first strategy is when you're buying property, pretty self-explanatory, right? You buy property, you put short term rental strategy, and then the second one is subleasing the arbitrage. So that's where you can rent a property for a fixed monthly rent. You put it on Airbnb and then the spread between what you pay and what you make is your profit. And the third and final is cohosting. It'd be like sort of like management, we call it cohosting to imagine that you have a short term rental, but you're busy running all of your other businesses. You bring me in to take care of the operations, coordinate the cleaning, maintenance, communication, and you pay me like, say, twenty or twenty five percent of the gross revenue. And that's what cohosting is,
Dave Debeau [00:05:48] very, very cool. So the first one that you talked about, I know a lot of people that have taken properties that they own as regular rentals, they decided to supercharge the cash flow by turning that into a furnished short term rental property. Instead, they've done amazing things with that. The other option is, hey, why buy the property, rent it and sublease it, as it were, as a short term rental type properties. Or you really need to bring to the table is the furniture and the marketing. And the third one is find somebody who's not very who's already got one, but it's not very good at it or doesn't have much time to manage it and partner with them. And you have to come out of pocket nothing but your share in the profits because you're you're the manager. Right. All right. What are the pros and cons in your mind? Because you've got experience with all three of them. What what do you know? Because you teach and you coach around this. What do you recommend for most people?
Jorge Contreras [00:06:45] I recommend the first and third strategy today and going forward. So far, I believe that cohosted is a great way to get your feet wet. You also learn the management of marketing, the customer service. It's a great way for people that want to get into real estate investing but don't have a ton of money like twenty or one hundred grand for down payments. You can get in with no money as long as you learn how to do it and then buying because that's where you create that generational wealth, the legacy. That's where you're going to create just a whole other level of wealth. So cohosting for those getting started once you're ready to invest higher amounts of capital, of course, buying and holding real estate.
Dave Debeau [00:07:28] Makes sense, why do you not prefer the middle strategy of cutting and subtracting subleasing?
Jorge Contreras [00:07:36] It's funny because all of last year I kept saying that if at any point there was any drastic changes, anybody with a lot of subleases would now have a bunch of money out there tied up in furniture and deposits and you're staring at that guy. So I got to experience first hand and we were thinking about this even before covid, but we weren't going to be making any changes because we have these 12 month leases. So as an investor, right, we always look at how can I make the most amount of money with the least amount of risk and least amount of money invested cohosting you just can go wrong. And with subleasing your money, just like when you buy a property, right. When you're buying investment properties, the banks want you to put more money, more skin in the game because you're more likely to walk away from that property than when you live in the same thing with somebody. And it's just more capital intensive. You may have to furnish the whole thing. So now that I've done all of them and I currently have properties on all three strategies, cohosting for someone that's getting started with little capital and buying for someone who's ready to create wealth. And I would not recommend subleasing today.
Dave Debeau [00:08:50] OK, so I kind of get it, but maybe I maybe I'm missing something so that to me the subleasing seems advantageous as well, because basically you say you have to put and correct me if I'm wrong, but if you're subleasing, typically you're putting up, you know, maybe damage deposit, first month's rent or last month's rent, fairly inexpensive, especially compared to buying a place out of pocket, buying the furnishings. But what's what's the worst case scenario if if a deal goes sideways in a subleasing situation,
Jorge Contreras [00:09:30] it's really not that bad. So give me an example. Imagine you have a property and say you spend two thousand for the deposit. So that's until the end of the lease term. And so you spend ten thousand in furniture, appliances, just 12 grand in total and save four months. Either they change the ordinance and now you can't Airbnb, you could put a long term tenant for the remainder of your deposit. Now it's just your ten thousand dollars of furniture that's tied up and you either have to move it to a next one or sell it. And so I believe that by the time you make your investment back from the furniture, if you just cohosted, you could make virtually the same amount because there's no skin in the game you risk. So does it matter what happened in the Korona? It's like and you walk away and that's it. But with cohosting, it's now you've got to figure out how to sell this at a discount and coordinate. And then people, when doing weird, sleazy stuff online, they want to buy. And it's just I feel that as an entrepreneur, when your time is very valuable, you don't want to spend time going on these websites trying to sell a bed and the mattress like you lose so much time in that process. And it's so tedious. It's just not worth it in my experience.
Dave Debeau [00:10:53] It makes us so hot in your experience because you've not only done it yourself, but you're around a lot of other people that are doing this. How often does that happen where they let's say you're your condo association of a building or whatever, changes the rules and said, hey, Airbnb is not allowed here anymore.
Jorge Contreras [00:11:10] And quite often the first thing is that we actually personally I meet my clients and myself, we don't have any properties that have a homeowner's association just because in my experience. Ninety five percent of communities don't allow it right off the bat because everyone has a say on it. And when you hug your kids and you guys are all sharing the park and you don't know what men or women are going to be there and stuff, so we stick to single family residences, we just have more privacy. I think there's also a bigger spread of opportunity as well. So we stick to single family residences for the short term rental. And the good thing is in most cities, I've seen that whenever they change an ordinance, they'll give you like a six to 12 month notice. However, I have seen a few that said, oh, effective as this imminent. And so I think that's why also with the cohosting, your risk is just very diversified where you're not going to lose really anything because you don't have any skin in the game. And so you diversify, which is what I always tell my clients. Take it when Airbnb in three different cities that we have like 15 spread across nine different cities. And that is really good.
Dave Debeau [00:12:25] So basically, you're talking about a. A city comes down and says, hey, overnight or municipality or whatever, overnight, Airbnb is not allowed anymore. Wow. Yeah, OK. I wasn't aware that that could happen like that.
Jorge Contreras [00:12:38] I've seen it like twice in my three years of doing Airbnb.
Dave Debeau [00:12:43] Wow. That's that is scary. When they can do that overnight.
Jorge Contreras [00:12:46] That is. And that's why when you look at how much skin you have in the game, if something was to happen and the only thing that's constant is change, you just never know. Man buying cohosting is just really the way to go.
Dave Debeau [00:12:58] But wouldn't buying wouldn't that put you at risk as well? Because if you're buying in an area that overnight changes the rules, you're screwed, Georgia.
Jorge Contreras [00:13:07] Yeah. So I always tell my clients that we never buy a property in. Only pencil's in with Airbnb. So you're going to have multiple cash flow strategies that work. And Airbnb is like a cherry on top because you never
Dave Debeau [00:13:21] so in those cases, when they were the couple of times that you have seen where they change the rules like that, is it still permissible to have, let's say, a longer term furnished rental?
Jorge Contreras [00:13:32] Oh, yeah, yeah, yeah. You could put a longer term, whereas usually it's as long as it's 30 days or more for the rental term, then it's no longer considered short term. Short term is usually less than 30 days. So there's even companies out there that do like short term, long term. It's they only put people in 30 days or more increments.
Dave Debeau [00:13:53] Now, I've got a client who does that. He's got my God, he's got like two hundred rooms he's doing that with right now. Yeah. So, yeah, that's a that's a good plan B, that's for sure. Well that's awesome. Well thank you very much for kind of shining a light on things and sharing your experience, and especially in these weird times, because, you know, this is really the litmus test for a lot of people, for a lot of strategies. And I'm very impressed how you pivoted. Obviously not as profitable as pre covid, but as long as, you know, at least for the short term, be able to keep the lights on and cover the bills. That's a win in my mind. So hats off to you. Yeah, yeah. I mean, the whole idea. Yeah, the whole idea of cohosting. You've got virtually zero risk in that it's bringing your skill set and your work to the table, but you don't have to put any cash up. So that's a smart idea as well.
Jorge Contreras [00:14:47] Worked out fairly well.
Dave Debeau [00:14:49] Yeah. So if people want to find out more about you and what you're up to, what should they do? All right.
Jorge Contreras [00:14:54] They can follow me on Instagram, the whole country. That's probably the easiest way to get a hold of me.
Dave Debeau [00:14:59] Awesome. Very good. Thank you very much, my friend.
Jorge Contreras [00:15:02] Nice to meet you, too, David. Thank you so much.
Dave Debeau [00:15:04] All right. Take care. Thanks for joining. And everybody, see you on the next episode. Bye bye. Well, thanks very much for checking out the property profits podcast and you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.