Table of Contents - Risk Free Airbnb with James Svetec and Symon He
Dave Debeau [00:00:08] Well, hey, everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast. And today I don't have one, but I've got two special guests on the call with me today. So we've got James and Simon. They're located in different ends of the globe. I'm here in beautiful Kamloops, B.C.. James, I think you're in London, England, right now. Is that correct? I am, yeah. Yes. And Simon, I believe you're in California, is that correct? Yep, L.A.. Oh, man. I tell you, it's it's a multinational endeavor today. So, gentlemen, thank you very much for being on the call. And if you haven't heard of James and Simon, these two guys are really turn it up when it comes to er B and B, and that is definitely a flavor of the month these days when it comes to real estate investing. We're going to get a conversation about that. C if it's just kind of a passing fad or if this is a long term thing. So let's jump in, you guys. So first of all, James and Simon, thanks for being on the call. And why don't you tell us just a little bit about your background, especially when it comes to real estate and Airbnb?
Symon He [00:01:20] Sure. I'm going to get started here. I started in real estate well over a decade now, and it was right after I finished business school, after I was in the Bay Area, everybody was working in tech startups. And when I was part of a failed tech startup, I decided I wanted to work on something that was a bit more tangible. So I ended up jumping into real estate. And over the first few years, I ended up working with a group and got several hundred million in commercial deal experience. And as I was doing that, I thought, hey, this is a great space for me to get into because I was looking at the cash flows as well as the, you know, the equity values that they were able to build for the firm and for themselves personally. So I got into real estate at that time and was looking at all the different ways that I could get into it on a personal level where I didn't have tens of millions of dollars to get into the space. Right. So I looked at rentals, looked at Flip's and and by 2012, I found out about short term rentals, like, what is this? And we can get more into it. But essentially, I got really excited once I started looking at the economics of what that meant.
Dave Debeau [00:02:36] Perfect. And how about yourself, James?
James Svetec [00:02:38] Yeah, so myself, I'm a little bit more green than first time in history. Everything I haven't been but around real estate investing for for too too long. And I actually personally, I haven't ever invested in real estate myself. And my story with real estate is a little bit more more original, more kind of unique, I guess, in that there's a couple of years ago now, about two and a half years ago, that I first kind of discovered Airbnb actually through rental hacking. So I initially was a friend of mine that was working actually with another technology startup in the real estate space. And he started telling me all about Airbnb and this crazy, cool opportunity where people were making all kinds of money managing properties on Airbnb. And that's about the time when I moved back into the city in Toronto and rent prices were crazy high. I didn't have a lot of money. And so I actually started renting out a spare bedroom, my place, in order to offset the cost of rent and actually started managing other people's properties on Airbnb. So not properties that I owned or purchasing myself, but just managing for other people initially through rental arbitrage where I would rent the place and then flip it on to Airbnb and then later through a management fee set up where I would collect a percentage of the of the overall bookings for management fee. So that's sort of what I've been involved in. We can obviously dove more into that as well.
Dave Debeau [00:03:49] Oh, yeah, definitely. Definitely. Very, very curious about that. So why do you guys think that there's so many different ways to invest in real estate? Why are you so keen on the whole short term rental Airbnb type model?
Symon He [00:04:04] Hey, it's just so much more accessible. So let me give you an example. When I was looking at rentals locally in L.A. and this was back in two thousand 10, 2011, 2012, that period and prices have kind of depressed a little bit from the crash of 2008 already. But even at that time, looking at a traditional rental, putting down twenty five, 30 percent on a five hundred thousand dollar home, really going to one hundred fifty thousand in cash to be able to put down. Right. But with the short term model, a rental arbitrage model where you don't you're not acquiring the asset itself, you're just essentially acquiring the right to the cash flows. You can take that same unit with the consent of the property owner. Of course, for a fraction of that, I mean, we were able to get essentially the same unit instead of having to put one hundred fifty thousand. Now we put five thousand down. That's with the security deposits and the the initial furnishing. But now you have control of the cash flow and not just control of the same kind of cash flow, but control of a different kind of cash flow, a higher cash flow. If you're in the right Airbnb pocket, you're spending way less to get the rights to it and you have much higher rental potential there. So for the investors that understand rentals, you're looking at cash on cash yield. Anybody for a traditional rental, anything around like seven to 12 percent on a unleveled basis. It's pretty good. It's very hard to find those today. Those were a little bit easier to find back then. On a short term basis. You're looking at one hundred fifty two hundred percent yields, four or maybe three hundred percent yields. I mean, really depends, but it's just it's night and day. The whole order of magnitude better in terms of return on the capital.
Dave Debeau [00:05:51] It makes sense. So. To the uninitiated, like myself, I haven't done any Airbnb being, so it sounds to me like what you're doing is you're getting control of a unit apartment or a condo or what have you, the normal rental unit then with the owner's permission. So you're not being sneaky and try to pull one over on them. You're turning around, you're furnishing it, and you're putting it up on Airbnb as a rental and you're making the difference between what you pay the landlord and your monthly rent and what you're getting from your Airbnb tenants. However, often it's getting rented out per month. Is that.
Symon He [00:06:26] Yeah, that was what I was comparing. But that's just one of the ways to get into this space, right? For a lot of folks, they might have an extra bedroom or a couch ready for a place that they either own or they're already renting so they can make some extra cash from that through. Just adding a listing on Airbnb as well. And then we've heard from James that you can become a essentially a property manager as well and bring on other property owners and charge them just a percentage of the earnings.
Dave Debeau [00:06:55] So you guys, what would you say? Because I know you've been training people about this for a while now. What would you say is kind of like the sweet spot? For the number of properties a person needs to have under control to kind of make this worthwhile or maybe walk me through that, give me an idea of what that might look like.
Symon He [00:07:13] I think it really depends on where you are operating. Right. So you can, in the end, the type and nature of the property, because you can have a sort of a high end property in a really high traffic, high demand Airbnb market. And that single property listing could be a six figure listing. And you might be in another market where each listing I mean, generally just a few hundred bucks of profit. But the turnover, there's not as many bookings. So so then you need to have a small portfolio of people to add up to something that makes more sense, but it's still manageable.
Dave Debeau [00:07:50] Right. So let's say, for example, James says, a lot of our listeners are Canadian. You focused on the Toronto market for a long time. What kind of made sense? I understand you're you're managing other people's properties, but let's say you're doing that rental arbitrage idea with regional properties. But what are you kind of looking at there?
James Svetec [00:08:08] Yeah, so it's a great question. So with a rental arbitrage, you really want to and this is one of the reasons that we actually moved over to the management fee model. And that's what I normally train people on now is because with the rental arbitrage model, there's something that I always kind of refer to as unicorn properties, and they're the properties where there's a really big spread between what you're renting it out for and what you're actually bringing on Airbnb. Usually it's some kind of unique characteristic about the property that makes it a little less desirable for long term tenants, but still really desirable for short term stays. For example, one of the properties you're managing had loft in bedrooms. Every one of the bedrooms had a loft up above it. And so if you can imagine, if you're sleeping right above someone every single day, you're probably not going to love that. You're going to want a bit more privacy. But in terms of having a really cool space that you can get to get a large group into if you're coming into town for an event like that, it's phenomenal. And so that one single listing alone was averaging four to five thousand dollars a month in profit average over a 12 month period. Most properties, you're not going to get that kind of return on. So the risk reward profile just doesn't really make a lot of sense and actually makes more sense to make a little bit less money by going on the management fee model where you're collecting usually anywhere from 20 to 30 percent management fees, but not take on any of the risk because you're not putting any money up front for first and last months, rent, furniture, security deposits, anything like that. But none the 20 20 percent management fee model. I always recommend that my clients look for properties that are going to earn at least six hundred to twelve hundred dollars a month in management fees so that in order to earn I mean, it depends on what you're looking to earn. But typically for a person looking to make this really worthwhile, they're looking at at least five to 10 properties they want to be managing.
Dave Debeau [00:09:58] All right. That makes a lot of sense. Now, forgive my my ignorance about this, because, again, I'm not I'm actually a good guy to do this interview because I don't know what the hell I'm talking about when it comes to Airbnb. I've used the service a few does pretty cool. But I guess that would be part of my my question is. What's the demand for bad management, if I thought Airbnb itself, that whole platform took care, a lot of a lot of that for the property owners. So as a manager, what do you bring to the table?
James Svetec [00:10:30] Yeah, that's that's actually a really good question, and as you can imagine, I've gotten not a lot and it comes down to a couple of things. One is, I think a lot of a lot of real estate investors and property owners, they are very similar to you and that they kind of see that there's this opportunity,
Dave Debeau [00:10:45] little space,
James Svetec [00:10:47] which is essentially. Yeah. Where they can see you can see that there's this opportunity here with short term rentals. But in terms of actually figuring out how to maximize on it and having the wherewithal to really, quite frankly, bother going and figuring out reinventing the wheel, so to speak, it's just not something that they're too inclined to do. And so what you get a lot of the time on Airbnb in short term rental platforms in general, is people that can kind of do it themselves and figure it out and do OK. And OK is usually better than what they'd be doing on long term rental if they have the right property. And a couple of things line up, line up well enough. But as a property manager who actually specializes in Airbnb and you can actually look at data and have the right pricing strategy, knows the ins and outs of how to leverage different platforms and improve your search ranking, those sorts of things. For most of the property owners that we're working with, we can actually help them to improve their returns on short term rental, buy enough to completely offset our management fees. So they end up earning as much as they were when they were doing it themselves, sometimes even more. And they don't have to now do things like communicate with the guests, organize the cleaners to go in and out of their keep track of the calendar, things like that. And we have systems in place to streamline all of that, to make it really easy for us to manage. But for them who doesn't have those systems, it can be quite, quite time consuming.
Dave Debeau [00:12:09] That makes a lot of sense. All right. So basically, bottom line, with quite a few of these inexperienced Airbnb hosts, you can come in, bring the professional management into place, maximize the revenues offset to 20 to 30 percent fee that you're charging them and offer them a completely hands free management experience. So all they have to do is deal with you and you deal with all the clients.
James Svetec [00:12:37] Exactly. Yeah.
Dave Debeau [00:12:38] OK, well, that makes a lot of sense. That's very, very appealing. So what are some of the biggest mistakes you see people making when they're getting into this whole short term rental space?
Symon He [00:12:48] I see one of the first big mistakes, especially coming from an investor background, is they look at it like a traditional investment and they don't see the operating component of it. Right. I mean, traditional rental, if you've got a long term tenant in there, might not have to interact with them very much unless there's some issue or you have a turn or something. But whether short term rental, the average stays like two to three days in most markets. So you have somebody new coming in all the time. There's churn, there's the cleaning, there's a lot more operations to figure out. So unless that's something that you want to do on your own, for a lot of folks that are just looking to make an extra income with what they already have, that makes sense for them. But for an investor who wants to do it more passively, that's not going to make sense for them. But it's still important for them to understand the operating, the process of the operations, how to optimize, what to look for so that they can hire the right folks to outsource to it.
Dave Debeau [00:13:45] Make sense. So, James, we talked a little bit about comparing the management model versus the what you guys call the arbitrage model where you go in. And so I interviewed another young fellow. Few episodes ago about what he's doing, he's tearing it up. He's a Canadian, but he's down and I believe Scottsdale, Arizona, or something like that, and just doing the arbitrage model big time. What are the biggest risks you see in that versus the management model?
Symon He [00:14:16] And James alluded to that earlier as well. One of the biggest risks is that in the arbitrage model, you are on the hook for the cost of it, for the rent. And oftentimes the property owner is not going to agree to allow you to short term lease it without you paying a premium over the normal rate that they can get because they're sort of incurring additional liability risks with more and more folks coming onto the property. And just there's a lot of markets. Yeah, a lot of markets, the regulations around that are still kind of in the gray area. So they're not completely comfortable with that. And that conversation needs to be had. I think another big sort of risk
James Svetec [00:14:56] is, I would say really just cash flow, honestly, like from from my from my experience with it. One of the great things, one of the really challenging things I should say about the rental arbitrage model is that every dollar of profit that you make, as long as you're growing your business, you're reinvesting that again into renting the next unit, furnishing it, paying first and last, paying the security deposit. So from a cash flow perspective, you can have a business that's making really good money on paper, but you end up with no cash in your actual bank account, which isn't really where you want to be. So that and then, like Simon said, just actually having the overhead risk of, hey, if anything does happen, I saw it to pay the rent like I have the security deposit I have to pay. I have furniture that I'm that I've invested in. And you're on the hook for it.
Symon He [00:15:43] Yeah. And sometimes for those leases, the property owners will require you to sign a long term lease with them. But let's say like and this has happened to some hosts who have tried this model where they signed a 12 month lease two months in. They get a letter that, hey, you can't do this, you can't do the short term rental, but they're on the hook for the rest of the lease. Right. So you have that at risk as well.
Dave Debeau [00:16:07] You have to try to be sneaky about it, I guess. Exactly. Yeah. All right, you guys, we just got a couple of minutes left before we wrap up. Now, if people are interested in finding out more about you and what you guys are doing, where should they go? Take a look or do you have any free resources?
Symon He [00:16:22] Yeah, so we run lern Airbnb dot com. It's the number one education blog for all things Airbnb hosting. We share a lot of the best practices there. And then for folks that really want to understand what it takes to get into to get started on their best foot forward for whether they want to invest in the space or get into it as a host. We have a program here that a link that you can share with them for them to check out.
Dave Debeau [00:16:49] Right. All right. So I think we're going to be doing a promotional Web presentation about what you guys are up to. So we'll put that link in the show notes. Follow this wherever the heck you're watching or listening to this episode. Fantastic, you guys. So are there any questions that I didn't have time to ask you, but I should have asked you during your interview today, because I know we got off on a few little tangents, but was there anything that I should have asked you that I didn't?
Symon He [00:17:16] I think one thing that was on my mind is like, you know, what should people think about when they're thinking about sort of investing, whether investing in real estate or getting into short term rentals. And there's a lot of options when they're just starting out as they compare the different options out there. Really think about the sort of the risk and return equation. What do you have to put in in terms of that strategy, not just the cost of the program, but what it's teaching you in terms of how much time and money you have to actually put at risk to implement that strategy versus the return that you get. So when you think about it in that perspective, I think you're going to see some significant advantages with implementing a strategy in short term rentals, especially when that's been proven to work.
Dave Debeau [00:18:04] Fantastic. Simon James has been a lot of fun. I've learned a thing or two or three myself. I really appreciate that. And I like that whole idea of hiring out the whole Airbnb thing because I've been looking at that. But as the learning curve looks kind of steep, so the idea of hiring that out to somebody else is quite appealing. So thank you for making me aware of that. I really appreciate it.
Symon He [00:18:30] Thanks for having me.
James Svetec [00:18:31] Absolutely. I think whether people do it on their on their own or whether they hire it out, there's enough nuance to it that you definitely want to want to have things figured out and systems put in place before just diving into it.
Dave Debeau [00:18:42] Exactly. Well said, gentlemen. Thank you very much. And everybody, thank you for tuning in to this week's episode. And we'll see you next time. Take care. 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.