CFD 583 – Scaling A Short Term Rental Business Q&A

December 30th, 2019

One of the most important things to understand about the short term rental business is that it gets easier with the more units you have. If you’re ready to scale up your business and start acquiring new units, you need to take the steps necessary to set yourself up for success.

Questions and Answers

  • What do we with units that have carpets in them?

Carpets can be challenging because they are gigantic sponges for bacteria. If your unit does have carpets you need to have a process for keeping it clean in place. Establishing a relationship with a carpet vendor that your cleaning crew can contact to get the work done without getting the approval from you will save you a lot of time.

  • How many customer service managers do you have and how many hours do they work?

J has a pair of customer service managers working for him that cover a total of 16 hours a day. He chose each of them to hire as managers and he trained them directly through a screen sharing app like Zoom or Loom.

  • I have some people interested in working with me and my short term rental business but they are wary of marketplaces like Airbnb. Is there anything I can do to help them be more comfortable with them?

You would think these people would be more comfortable with markets like Airbnb and HomeAway than they would with Facebook. If the caller wants to reassure these people, showing them the listing so they understand what details are being revealed is a good option.

Starting with Airbnb as your first platform also gives you the advantage of benefiting from their existing background check process. What the landlord really wants to know is the contact information of the person in the case of an emergency, and that can be solved by simply automating parts of the reservation process.

If you explain to the landlord that you are on the same side of the table and will be making major investments in the unit and don’t want unsavory guests as well, things will go much smoother. In many cases, you have the ability to correct the issue if it does come up than the landlord could with a traditional tenant.

  • Should I use Guesty if I am bringing on three additional units?

J recommends using Smartbnb and Lodgify instead of Guesty to his students. Everybody who brings on multiple units at the same time gets overwhelmed but it gets easier the more you do it.

It’s also important to understand the difference between using a tool and using it expertly. If you don’t know how to use the tool well, it’s not going to be able to help you scale your business.

  • We’ve got our first short term rental unit up and running and want to scale. Should we wait until we’re making more profit to scale or push ahead now?

The short term rental business is easier with more units than it is with less. Starting a new unit in a slow season can be very challenging but since the caller has managed to cover the rent of the first unit during one of the slowest periods of the year, they should get started as quickly as possible.

  • I have an investor that has reached their maximum write off capacity, if they invest with me outside of California can he get write off more?

We’re not tax experts and this isn’t tax advice, but there are a number of strategies you can employ to put you in a better tax position. Check out episode 556 of the Cashflow Diary to learn about the Deferred Sales Trust and how it may be a solution to your investor’s problem.

  • I’m trying to get up and running with Lodgify but I’m having trouble setting up the website, what do I do?

J ran into the same trouble initially. The best solution to getting it done is to just find someone that knows how to do it and asking for their help.

  • Are you able to do short term rentals in a gated community of is it just a waste of time?

Short term rentals can definitely be done in gated communities, there is just a few extra steps you need to take to make sure everything is communicated properly.

  • I’m negotiating my first unit and the owner wants me to put the first six months of the lease under my name instead of my LLC, what should I do?

Don’t do the deal that way. Put the entity on the lease and be the personal guarantor. You don’t want to be open to the potential liability and being a personal guarantor will probably satisfy what the owner is really looking for.

  • If you’re new to short term rentals, when should you fund and grow?

Many of J’s students have been able to access over a million dollars in capital to grow their business and they’ve found that once they get started, it’s fairly easy to pay back their obligations. The thing you have to consider is the opportunity cost of inaction and not taking advantage of the money that is available.

  • What are the benefits of running Airbnb under a business name?

We don’t do Airbnb, we run a short term rental business. To answer the question, it only takes one time with something defective in your unit to cause you major liability problems. The longer you’re in the business the more likely something like that will come up so you’re going to want to have protection in place. Run your business through an entity of some kind.

  • Do you need to get financing when you get started or do you wait until your first unit?

One of the best things about the short term rental business is that you don’t need an exorbitant amount of financing to make it work. Once you get one unit, it’s a game of patience until you get your next unit and so on. Self funding is a real thing, and another major advantage of the short term rental business model is that it prepares you for owning real estate long term. You can get financing or not, it’s up to you.

One thing to keep in mind is that the less other people’s money you use, the faster you will put yourself into a strong position in a very short period of time.

  • One of our rules of thumb is that we have to double market rent to reach our goals. Does this sound right to you?

You’re on the right track but one of the things to keep in mind is to measure on a month to month basis, but not necessarily the 12 month basis. There is seasonality to how travel happens and you’ll start to see the deviations in each month and begin to better prepare for them. That will also help you smooth out the low periods by organizing your business properly.

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