When you understand the “why?” behind your business, it can often help you with the “how?” of your business. In this episode of the podcast J reveals the story of how he came to realize that short term rentals are perhaps the greatest opportunity for people getting into real estate investing in a very long time, but also why the window to take advantage of that opportunity is closing a little bit every single day.
Prior to getting into real estate, J and his wife went through some incredibly difficult times personally. His wife was unable to eat or drink due to a condition she developed while pregnant, and J suffered an injury where he punctured his lung which prevented him from walking and talking at the same time. His back was against the wall with no money and a terrible credit score, and that was when a friend recommended he look into real estate investing.
At that point J’s best ideas are what got him into that position, which is something you should consider as well. Wherever you are now, your best ideas got you to where you are. It wasn’t until J left his comfort zone and stopped pretending that everything was alright that things started to change.
J started doing what he was being asked to do and after closing his first transaction in June of 2008, he realized that his beliefs around money were holding him back and preventing him from seeing the opportunity that was around him.
You can play any game if you are taught the rules, and real estate is no different. Once J got started, everything snowballed and accumulated and in the course of the next 12 months his life was completely changed. His business eventually developed into buying apartments and multifamily units, billboards, cell towers, and other types of property all over the United States, all along the way he fine tuned the systems that allowed him to scale.
As great as that success is, J wasn’t satisfied. J started thinking about how he could make more of a difference in the world which lead him to create the Cashflow Diary and started helping other people with their own entrepreneurial journey. It was actually one of those people that introduced him to short term rentals.
One of the interesting things about real estate is that it’s a great way to build wealth, but a horrible way to build income. A lot of landlords lose money on long term rentals for quite a while. Short term rentals are a response to the change in consumer habits and change the way we look at real estate.
Short term rentals have been around for a long time, but what is new about the industry is the impact that technology is having on it. Technology is transforming everything about real estate and the short term rental industry is leading the way.
The rules of money have changed and most of us were never taught them in the first place. People are finding out the hard way that social security is more like social insecurity and their 401(k) isn’t going to last as long as they thought it was going to. We all must have a way to produce income not only when we are awake, but passively as well. Inflation and tax increases are coming in the future, and we need a way to protect ourselves from that.
For most people, their first transaction is real estate is about taking on a massive obligation with almost no experience, but one of the game changing realizations with short term rentals is you don’t need to own a property to start the business. You only need to control the property, and that means a lease.
J crunched the numbers and found that a lease came with less risk, less money up front, and can be turned around quicker. He also found that he had a good chance of getting all his cash back in 10 to 18 months, as well as having a source of cash flow. When compared to a traditional approach where he wouldn’t be able to expect that money back for at least 15 years, short term rentals win hands down.
If J were to start all over today, short term rentals are the strategy he would start with. You will gain the experience of owning a property without the risks associated with actually owning it, but you also get experience in working with customers and creating the systems that allow to scale rapidly. You can get the on the job training with the 30 year commitment.
It doesn’t take any special skills to be successful with short term rentals other than the willingness to learn and be persistent. The industry is wide open but it’s not going to stay that way forever. The trouble is we have a tendency to wait until an opportunity is blatantly obvious before acting on it, but now is the time to act.
It’s been a long time since real estate has seen anything new, but the window is closing slowly on the short term rental industry. As major players like Marriott start to enter the market, it’s only going to get harder each year, just like every other technique in real estate.
Short term rentals produce twice the gross revenue of traditional long term rentals while often only increasing the expenses by 10%. When you do the math, you end up with higher net operating income and that’s why finance is going to change.
CFD 592 – Cashflow Diary Roadmap Q&A
CFD 591 – Getting Landlords To Say Yes
CFD 590 – The Secret To Raising Capital From Investors
CFD 588 – The 10 Things I Wish I Knew Before I Got Started In Real Estate
CFD 587 – The Cashflow Diary Story with Brett Swarts
CFD 586 – Thomas W. Jones: From Campus Revolutionary to Powerful Financial Services Leader
CFD 585 – TaxDome and How Technology Allows Small Businesses To Compete For a Fraction of the Price
CFD 584 – Making Sure Your Insurance Company Pays Up Q&A