Today I had the honor of speaking with Erica Muller. Erica has been real estate agent for 18 years, 12 of those years focusing primarily on the sales of VR in the Orlando area.
Erica took her expertise of VR acquisition to create a “pro forma” specifically for analyzing the financial numbers of an investment property. Erica shares this financial tool for free on her technology startup Vrolio which is for VR investors who are looking to buy and sell their next property. Erica has set herself apart in the VR space for her ability to analyze investment properties and work with investors to make those purchases possible.
Even though Erica doesn’t manage any VR properties she shares so much golden information in this episode from an entirely new perspective.
Video Transcript
00:00:01
Don’t get too comfortable. Don’t invest unless you can afford to lose money. And I don’t care what kind of an investment it is. If you think it’s the safest thing in the world, you need to plan for the worst case scenario and, and have an exit strategy. Even if it’s I’ll have to file bankruptcy or I have to do foreclosure and I’m prepared to do that.
00:00:17
This is episode number 14 of short term rental success stories. Welcome back to short term rental success stories. I’m your host, Julian Sage. This is show where I talk to hosts about their journeys and starting and growing the short-term rental business. My goal is that you’ll be able to walk away with practical information. That’ll help you become a better host and learn how to scale your business. If you’re a host, then you know how important reviews are. So if you do find value in the show, please go on over to iTunes, Stitcher, or your favorite podcasting site and leave us a review so we can feature it on the next episode today I had the honor of speaking with Erica Mueller. Eric has been a real estate agent for 18 years, 12 of those years, focusing primarily on the sales of vacation rentals in the Orlando and kissed me area.
00:00:58
Erica took her expertise of Vacation Rental acquisitions to create a proforma specifically for analyzing the financial numbers of an investment property. For those that don’t know a performance tool that investors use to be able to calculate the finances of a property and try to give something that is as close as accurate as possible. Erica shares this financial tool for free on her technology startup Vrolio, which is for Vacation Rental investors who are looking to buy and sell their next property. Erica has set herself apart in the Vacation Rental space for her ability to analyze investment properties and worked with investors to make those purchases possible. Even though Erica doesn’t manage any vacation rental properties, personally, she shares so much golden information in this episode from an entirely new perspective, if you haven’t done so already going over to our Facebook group, short term rental success secrets, the talk with Erica and other successful hosts. We’d like my show notes for this episode, go to Short Term Sage dot com backslash P 14, or if you’d like my show notes sent directly to your inbox every week, then go to Short Term Sage dot com backslash show notes with all that being said onto this week’s conversation. Welcome back hosts that I have the special honor of speaking with Eric Mueller. Please let the audience know a little bit more about who you are and what inspired you to get into short-term rentals.
00:02:13
Hi, Julian, thanks so much for having me on your podcast. And yeah, so I’m Erica Mueller. I’ve been involved with vacation rentals for 12 years now and involved in real estate investing for 18. And I got involved in vacation rentals by accidents and just like a lot of people, maybe when the economy crashed about, I think it was what, like 11 years ago now I something 10 or 11 years ago, we had that big market collapse of the real estate market. And I was selling just traditional investment properties to investors from New York, buying in Florida, just seizes a second home. And then I had lost my house to foreclosure, just like pretty much everyone else when everything crashed. Cause I had an interest only loan and I had to move from west Palm beach to Orlando. And when I moved from west Palm beach to Orlando, I went looking for work because real estate was dead.
00:03:07
And I took a job with a local property management company here who actually manage vacation rentals and I was their sales and marketing director, long story short. It took me about two weeks to figure out what was going on here with short-term rentals and how the market was still very much alive during one of the worst collapses in history of the real estate market, because of all the international money coming in and buying everything and using it as holiday homes, they call it. So I quickly made the jump again, back into real estate and immediately started building a brand around short-term rentals here in Orlando. And that was 12 years ago. So here I am now still doing that and just kind of scaling that model into a technology platform and educational based platform for investors and agents.
00:03:49
Yeah. And do you, do you mind sharing a little bit about what, what you have going on? I know that you’re a really powerful woman, Erica, you have a lot of stuff going on. So if you wouldn’t mind sharing with the audience, what you, what you do.
00:04:00
Yeah. So my, my personal investment stuff, I am a real estate investor as well as technology, founder and real estate agent for 18 years. And in my real estate investments, I own a portfolio of commercial properties in the Georgia market. They’re basically mobile home parks with 40 plus 40 to 60 plus units in each one. And I pull a passive income from that and continue to buy more. My first two, I purchased with my own funds and it, you know, it was years of me saving money and living lean so I could save money. And then finally invested as my first huge commercial property with my husband. And then after the first two, then it became raising funds to buy the next ones, which I’m in the process of doing now building a real estate fund to purchase more and managing that. So that’s my personal investments.
00:04:57
As far as Vacation Rental is a lot of people ask me if I own vacation rentals. And even though I’ve been selling them for 12 years and I’m very heavily immersed into them and that’s my full-time career path, I don’t actually own a vacation rental. And the reason I don’t own one is because I would not be a very good host. I know this about myself. I know that I’m not a hospitable person. I’m a very strategic business minded person. And I’m very good at analyzing numbers, running financial models, which is why I’ve brought so much success to the real estate investors who have purchased vacation rentals with me. But I myself know that I would not be up for that task of being, you know, the world’s best hosts like so many of these amazing people under podcasts have been not to say, I will not own one in the future, but when I do step into that market, it will be in the luxury space with a cohost.
00:05:46
So that’s the model I’m going to be moving into. When I do invest in a Vacation Rental, as far as my technology ventures, basically I built a Zillow type portal for vacation rentals. It’s the only one of its kind that does what ours does and the technology behind it that we developed is very smart technology, which is able to look at all the homes currently listed for sale on the market that’s in and out any MLS anywhere in the U S and it’s able to identify that house with the exact same house that’s already listed for rent on one of the OTAs like Airbnb HomeAway, et cetera. And then it identifies that as an active Vacation Rental for sale because it’s on both platforms and it pulls it in and curated into our sites. So our site is curated with only active vacation rentals for sale.
00:06:33
And we’ve also built a portal model for owners to upload and sell directly by owner. All of that inventory is in one place currently right now, I think we’re up to 400 plus vacation rentals for sale on the site. A lot of it’s exclusive owner inventory. It’s all cross-reference with regulation, data and investment data and pulled into a performance on the profile. And we then are able to market those properties to investors who want to buy them. And we connect that investor either with the owner or with the real estate agent who has the listing. So we basically facilitate these deals, just like a Zillow would do, but only vacation rentals. So that’s my technology adventure. And then on the education side, Heather Bayer and I do have a program for real estate agents to teach them how to sell vacation rentals like I’ve been doing for the last 12 years. So that’s what I’ve got going on. Nothing big, but keeps me busy.
00:07:26
No, I, I, I w I want to highlight something that you said earlier was that, you know, you, you recognize that you’re not, your strengths are not in hospitality. Your strengths are in the, the numbers, the, the, the figures, the, you know, finding out specifically, you know, what would make a good investment property. And I think that that’s really important for people that are interested in getting into the, the Vacation Rental short-term rental space is that you have to know your strengths and weaknesses. If you, if your strength is not being a good communicator or is not being on time, then maybe, you know, hospitality would not be suited for you, but you know where your strengths are. And you, instead of trying to just do everything at the same time and, and, you know, maybe not doing well at everything, you’re able to focus on what you are good at, which is helping, you know, people, investors that are interested in getting into short term rentals to be able to purchase their first properties.
00:08:23
Yeah, exactly. And that’s where I shine. And that’s always where I’ve shined is the financial models and the analyzing of the numbers, the due diligence, the negotiations, all of that stuff that you know is very important because if you make the wrong decision in the acquisition phase of your investments, you have to deal with that for years to come. And it’s not always easy to exit from those properties. If you make the wrong decision upfront, a lot of the financial modeling and perform work that I do with investors is very intense and very detailed. And sometimes it’s emotional because a lot of people go into this. It’s a very emotional decision and it’s fun, and it’s exciting. And you’re looking at houses online, and it’s so pretty. There’s a mountain view. You could picture yourself in it with your family. And then I’m like the grim Reaper over here, bad news.
00:09:12
Like they come to me and I’m like, oh, that’s a beautiful house. And based on your current situation of how you want to buy it, you’re not going to make money. You’re actually going to lose money on it. So I’m so sorry to tell you this right. But the problem is, is a lot of real estate agents won’t tell them that. So they ended up purchasing it and getting stuck, finding that out later. And so the work I do with investors is so important because it’s that hard, you know, it’s that hard news. You have to give someone at like this isn’t right for you. Or this may not be the right one for you. Let’s, let’s rework this and see how we can get you into something else.
00:09:44
You know, I, I think that that is so key. What you just said about people. This is an emotional decision. People are heavily invested into this purchase because they want, you know, some, they want to make extra money. They want to be financially independent, financially free. They, they want to diversify their portfolio. So they’re, they’re invested into this. And then it’s also, you know, because everybody else is doing it. Everybody says, oh, well, you know, we’ve got to have a place by the, the Rockies has got to have a place in Miami and, you know, that’s what everybody’s doing. And, and when you’re in this, in the space, in the short term, vacation rental space, you see everybody making these big moves. So you just automatically want to make a big move. What are some of the most common pitfalls that you see with people that are looking to get into the Vacation Rental space when they’re purchasing a property for the first time?
01:10:33
Yeah, that’s a, I agree with everything you just said, and that’s a really good question. So the number one pitfall I see with people is they are not financially prepared to take this investment on after the initial acquisition happens. So what I mean by that is they have enough money to put a down payment. They have enough money to pay their closing costs, but they don’t necessarily have the budget to come into this property after they acquire it and get it to the standard. It would need to be at, to either compete with the other homes in the area, or just, just cashflow enough money for them to pay the expenses. I very rarely seen a Vacation Rental unless they’re acquiring something that’s fully turned key and operational, that’s bringing in an income that you can literally do nothing except for exchange papers at closing, and then carry on with it.
01:11:27
But the reason I, and I’ll go into that next, why that doesn’t always work. The first thing I was saying was most of the time, you know, there is a huge investment needed, not huge, but there’s some investment needed after you close. Like whether it’s updating furniture, getting better, linens, doing better marketing, something like that is involved. And a lot of people don’t have the money for that after their down payment, because they didn’t know they needed it. We have to look at that. When I work with investors, I asked them how much working capital do you have outside of the money that you’re just investing into the vacation home. And a lot of times when we discuss that, we actually have to adjust the budget to, to work with a lower down payment so that they can use an allocate. Some of those initial down payment funds to the investment itself, the other direction I was going with.
01:12:18
Why even when you acquire a turnkey property, that’s already making money and it’s cash flowing. It doesn’t always work the way you think it will is because the numbers change when the, when the paper’s exchange hands. So the current owner could be netting, could be doing a 10% cap rate on that property and netting, you know, $2,000 a month on that house, which is awesome. But this new financial situation, this new mortgage that’s being taken at a different interest rate and a new purchase price that changes all of those numbers. So what was looking like a 10 cap for the current owner that, that owner unknowingly marketed the house as cause they didn’t think that, you know, when they, someone else purchased it, those numbers change. That’s just a lot of people don’t think about that. The new buyer may not have thought about that, either that, Hey, when I acquire this at, you know, 200 grand, more than they paid for it, and I’m taking a mortgage with 10% down and they want to cash, this might not look the same for me despite the income. So we have to look at that. And that’s the number one thing I think is going into it as expectations on finances and how much the actual acquisition is going to cost and what that looks like.
01:13:22
How much, how much do you typically allocate when someone is purchasing a property for getting it up and running?
01:13:30
It’s such a multifaceted question because every single home is so different. They’re like snowflakes. Every, every one is different. If it’s a vacant home in my market and every market is different too. So in my particular market, which is Kissimmee, Orlando, Florida, if they’re looking at acquiring a five bedroom, three and a half bathroom home that is about 10 years old and the furnishings are about 10 years old and it’s got maybe a 60% occupancy rate. And we would look at that at about a $350,000 purchase. We’re going to say 300, just keep numbers simple. So we’re looking at a 20% down payment on that. That’s $60,000 for the down payment, maybe another 10 for closing costs. So now they’re at like $70,000 out of pocket just for that, I would need to make sure that they have at least $15,000 to go into that investment with, because a typical home that age in my market, you’re going to need to come in and paint.
01:14:25
You’re gonna probably need to throw out half the furnishings in there, if not all of them, because they’re so old, we’re talking like floral couches, tattered carpet, things like that. You know, so carpet comes up a lot of the times you’ll have to lay new tile. There’s a there’s rehab work involved and there’s, there’s, there’s touch up work to furniture and re placing stuff. Sometimes the pool needs to be resurfaced. Every single Vacation Rental and Cassini has to have a pool or it won’t rent, or won’t even be taken on by a manager. So there’s pool work that needs to be, look at pool heaters need to be replaced. That’s a $5,000 replacement. So I would say minimum minimum at that particular case study right there, $15,000, but that’s just, you know, an example, it, it changes depending on the size of the home you’re buying the market, you’re buying in what variables are the most important in that home, those kinds of things like structural versus aesthetic.
01:15:16
And, and so for someone that’s just getting started because there’s, there’s so many options now with people in the Vacation Rental space, you know, we have the, the cohost thing. We have rental arbitrage, you know, people are, are purchasing turnkey properties for someone that’s just getting started into the space though. W w what, what are, what would you say would probably be the best option for someone that is, you know, a brand new, they don’t, they don’t have too much experience with like the numbers. They just see that someone else is making money off of it, and they want to start, you know, get started.
01:15:52
Well, what’s that person’s financial situation. Are they in a brand new investor with like very little capital? Or are they somebody who’s, you know, they own a home, they’ve got a couple hundred grand in equity. They’ve pulled the equity out and they want to take a stab at this. Like, that’s the that’s the real question is I would need to know. And this is part of the process of what we teach agents is like, we would need to first find out what kind of investor I’m working with. Like, if I’m dealing with somebody who’s brand new, a younger person who hasn’t even bought their first home yet, or maybe they only own their first home and they just saved up for a few years to buy it. I certainly would wreck. And they don’t have a ton of like life savings in the bank. I certainly would recommend starting honestly, with taking hard money and doing flips to, to build up capital, to build up at least, you know, $50,000 in capital or more.
01:16:42
And unless you have at least $50,000 in capital to work with, I wouldn’t even go into it short term rental investment, mainly because of all the expenses involved. If we’re dealing with somebody who’s already acquired their funds, they have money. This is a, you know, an adult making a grownup like over the age of like, I’d say, I don’t know, 40 or 50, who’s been working a lot of years and saved up. You know what I’m saying? The difference between someone just coming out of college versus someone working many years, and they have money in the bank, you know, there’s nothing wrong with, with going into this and taking a stab at it. I would say, if you don’t have, at that point in your life, at least a hundred thousand in the bank to play with between a down payment investing into the property and, you know, keeping as a, like a safeguard, I wouldn’t touch it either.
01:17:31
So it really depends at what point they’re at in their life. As far as investing, if you know, people just want to get their feet wet and figure out what this is all about. And obviously arbitrage is an option for them. There’s still somewhat of an expense involved. And you still have the identical situations and challenges that you have. If you buy it, the only differences is you haven’t bought it. So if you want to change anything structurally you’re at the mercy of the owner, if there’s a, you know, the pool needs to be resurfaced or something like that, I don’t think anybody doing arbitrage is going to take that on out of their pocket because it’s not their house. So if the owner decides not to change things structurally that are going to affect the ability of that house to be rented out or get bad, caused it to get bad reviews, that’s a, that’s not a position I would want to be in, in business. I don’t care what kind of business it is, whether it’s real estate or something else, I don’t want to be dependent upon somebody else, somebody else’s urgency level or priority level to deal with things that are super important. So that’s the risk you take with arbitrage,
01:18:30
With, you know, being, being in a position where, where you are, where you’re advising people on what would be a sound investment. I mean, that’s a lot of responsibility to take on yourself, you know, handling someone’s potentially life savings. What, what do you, how do you look at a property and say, this would be a sound investment? Like what, what’s the criteria that you use when you’re analyzing a property for a good investment and not just like an okay investment.
01:19:02
Yeah, no, that’s a really great question. And it is a huge responsibility. And you know, it’s one that I don’t take lightly. And at night I won’t sleep. If I think I sold somebody something bad, which is why I don’t, I’ll tell you first off disclose, disclose, disclose. The very first thing I tell someone is I’m going to let you know right now that this is not guaranteed. Nothing is guaranteed. You are working with, you know, somebody who’s highly capable, but anything could happen. We could have a market collapsed tomorrow. We can have a natural disaster that prevents you from making income. There are so many things that could happen. A sinkhole could open up and suck your whole house. And I mean, like we don’t know, right? So that’s a very first thing I tell people is if you’re looking for guaranteed money and you’re looking for overnight wealth do not work with me because I cannot give you that.
01:19:46
I can give you advice on the path to go. Second thing I work with is a very pressure tested my pressure, tested financial model, the proforma that I have developed over 12 years of doing this and constantly adding to it and tweaking it to make it more and more and more accurate. I run everything on that. And I teach my investors how to do that for themselves. There’s a saying, and I’m sure you’ve heard it. It says, give a man a fish. You feed them for a day, teach a man to fish. You feed him for life. And I believe in teaching people to fish because I don’t want anyone to have to be dependent on my advice forever. That’s that’s not a position anyone should be in. I don’t care how smart the advisor is. So I teach my investors how to use this proforma and analyze these deals themselves.
02:20:33
And, and a lot of the holes in doing that is just acquiring the data that’s missing and even sites like rDNA, don’t have this kind of data that you need. Like these are, this is the kind of data we have to actually get on a case by case basis, the owners, utility expenses, you know, maintenance, cost, things like that. So I give them through Vrolio. I mean, anybody can access this tool. It’s it’s free, but through Vrolio my investors go on there, I sit with them. I spent about 15 minutes showing them how the performer works. And then my job is helping them and assisting them with it, acquiring the data that they need on the homes they’re interested in. And then we evaluate it together and we look at it with different scenarios. So like, if I’m looking at this investment with my investor and the numbers look really great on when he’s running it, I want to look at how many weeks is he projecting or expecting to get this going out?
02:21:25
Like, is he running these numbers based on a 42 week occupancy? Because yeah, I think that house can do 42 weeks, but will I advise him to buy it based on that? No freaking way. I’ll tell the investor, like if that house cannot perform and you cannot sustain those numbers to where, if anything happened, you can’t pay that mortgage at 28 weeks of occupancy. You should not buy that house because you can’t afford it. Because that tells me that this investor, if they can sustain that if that house can sustain itself or that investor could come out of pocket to sustain it at a really bad case scenario, then they can afford this no matter what happens. If that investor has to see 45 weeks a year to make those numbers work, that investor can not afford that house. And I’m going to tell them that if they still want to buy it based on that information, because they, this is just something they really want to do. I’m not going to stop them. They’re an adults. But I do tell people that like, look at how many weeks you’re projecting and then cut it in half. And if you can’t afford it on that, don’t buy it.
02:22:24
So that’s kind of the rule of thumb that you look at when, after you’ve looked at all the financials for a property, the utilities, you know, any of the maintenance upkeep for pool and stuff like that. If you can’t pay, just pay for these, these expenses with half of your, with half of your expected occupancy, then that’s not a good investment.
02:22:45
Yeah. I think that’s a fair assessment right there because we’re talking about scenarios that are unexpected. I would never buy for myself. I would never buy an income property or any property I’ve ever bought. If I knew that in a horrible situation, I couldn’t sustain the mortgage and expenses that come along with it for X amount of time. That’s why I tell you, like, I tell people, if you don’t have at least a hundred thousand dollars in the bank, you shouldn’t be getting into things that are going to cost you money. Like in a bad scenario, which is real estate like real estate is one of the, is probably the safest investment that exists. I will, I will stand behind that till the day I die. But B that being said, there’s no such thing as a 100% safe investment because I lived through and worked through an economic collapse in the real estate industry.
02:23:32
I got into real estate when I was 18 years old, I was a kid. Okay. And I got into it when it was booming. And I, I made the mistake of thinking, everything’s going great. The economy is great. I’m on top of the world. I’m making six figures. When I’m 20 years old, I know everything right. And nothing bad can happen. And of course, I didn’t listen to the very sound advice of my father to live through the eighties. When real estate collapsed back then, or we had like a stock market or something happened in the eighties when it was really bad, he said, don’t get too comfortable. Don’t get too comfortable because it can happen. And it happens every 10 years. So everything collapsed. And I lost my house. I wasn’t selling houses. I was totally unprepared for that. At 20, I was 21 years old at the time.
02:24:15
So what I learned from that with investing after I, I bounced back and I had to really eat dirt for a long time to, and my ego was crushed. I had to bounce back from that was, don’t get too comfortable. Don’t invest unless you can afford to lose money. And I don’t care what kind of an investment it is. If you think it’s the safest thing in the world, you need to plan for the worst case scenario and, and have an exit strategy. Even if it’s, I’ll have to file bankruptcy or I have to do foreclosure and I’m prepared to do that.
02:24:44
Yeah. It it’s. It’s no, I mean, I don’t have anything else to add to that. I, I thank you. You know, it’s, it’s, it’s risky, it’s risky, but the, the return on that is, is, you know, kind of, is it good? It’s great. It’s life-changing what, what, where, where have you seen the most success for short-term rental investors from, from your experience like w which, which type of investors are able to succeed in, in the Vacation Rental space?
02:25:11
Yeah. So I’ve seen people from all walks of life succeed, and I don’t mean to like, make anything sound like about it. Investment. Cause we know real estate is the safest, most awesome investment out there. But the people that are succeeding are the ones that they don’t think they know everything in the market they’re going into. And they listened to the advice of those who have already done it or, and are doing it and are successful with it. And they basically, there’s no ego involved. There’s no anything. It’s just, I’m going to do what works. And I’m not going to try to reinvent the wheel. And those are the ones I’ve seen that are the most successful. Now of course they have their own personal touch that they put on to things, but, but systems are there for a reason, systems are important to follow and every market has a sweet spot to go.
02:25:57
If you’re going into the Cassini market, for example, and the person who has been working in that market for 12 years knows that the sweet spot is five plus bedrooms in this zip code with an X amount of miles to Disney in three different neighborhoods. And that’s where everyone is seeing success. Anyone who’s gone into that model in my market has seen success and also taking the, the advice, which was when you go into it, make sure you’re ready to do some renovations and upgrades and updates. Don’t just buy it and acquire it and think that it’s going to do better for you than the last person. It’s like a restaurant that goes out of business. And then every, every year a new restaurant opens in that same exact spot. And then it ends up going out of business. You ever see those things like where they keep putting in another one and then like they all fail.
02:26:41
It’s like why? And then finally one sticks. I think that it’s just the same thing with vacation rentals. It’s like for some reason, whoever that person was that stuck, they, they found the, the magic, right? And the people who have been in this market longer, or that are successful, like the owners or people selling the agents that are selling these properties will some of them, they know what’s going to work and what’s not going to work. So investors should listen to that. And every market is different. So what works in one market for you is not going to work in another market for you. So if you own five properties in Gatlinburg and you’re successful, there don’t think that because you’re successful in Gatlinburg, that you’re going to come down to Kissimmee or another market and follow that same model here and it’s going to work.
02:27:26
It’s, it’s not. And I, and I know, I know for a fact, because I’m so heavily immersed in so many different markets on the investment side, that you actually have to know each market intimately to be successful in it. And this is why huge companies that are trying to, you know, not franchise, but like these corporate management companies that are trying to manage these houses in all these different markets across the world. And they have a system on how they do it are struggling because you can’t run properties the same way in every single market. And it’s very hard to scale that because each market is so unique. So the successful investors, they understand the numbers upfront, they’re willing to follow a system. They’re willing to take sound advice and they don’t want to apply the same. They know they can’t apply the same systems everywhere they invest. That’s what I would say makes us successful investors open-minded and strategic.
02:28:19
Yeah, I think, I think, I think what you just said is brilliant that you can’t, you know, it’s not just a one size fit all for these short, these vacation rentals. You can’t just take what you have, you know, kind of perfected in a particular area, particular niche, and then take that somewhere, you know, across, you know, maybe even a different county, a different county could have a totally different set of rules for how they’re able to, you know, how their guests interact with them, how you’re able to make money, how the expenses work have you work, you know, working in different areas and, and understanding that every market is a little bit different is, is short-term rentals, vacation rentals, kind of like, like the, the something that you would suggest for anybody. Cause you, you, you invest in mobile home parks, you do commercial. So obviously vacation rentals. Isn’t the end, all be all is, is, but is this the case for, let’s say if I wanted to invest in a different area, should I just look at short-term rentals? Or should I maybe look at other options as well?
02:29:21
Oh yeah. It’s not for everybody. For sure. I mean, there are people I’ve had to turn away from working with me cause I knew this was not for them. Yeah. Like if you, if you’re the kind of person who wants to see a consistent 10% cap rate every month on paper and that’s all you care about and you’re a numbers investor, you’re a hard numbers investor. There’s no emotion attached to your investments whatsoever. I don’t understand. And in 90% of the cases, cause I’ll explain the other 10% where I do understand, but in 90% of those cases, why you want to invest in a Vacation Rental when you only care about that return every month, now you can get that. If you’re doing a situation where you’re doing arbitrage and you’re getting a guaranteed lease every month from somebody else, and they’re guaranteeing you a certain amount, that’s the same as a long-term rental.
03:30:11
That’s no different. It just sounds better when you say rental arbitrage, but all it is is it’s long-term rental leases given to owners. In some cases, there’s also that little extra of like, you know, a bonus on the, on the sales that come in or the rentals that come in. But that’s, that’s where you want to be. If you’re that kind of an investor, if you are the kind of person where you want to get, you know, you’re good with a range of returns, but you want to be able to use the property. You want some kind of a lifestyle benefit from it. I think you can find that in just about any market, if you love that market. But if you don’t love that market, you don’t really care if you, if you ever go there or not. And you just want to see X return, the way I see it is that your option is either long-term rental or arbitrage or, you know, basically when I say arbitrage and you’d like a rental guarantee from somebody, I don’t really see why you would buy a short term rental to get the same percent return on paper every single year and do the whole short term rental thing.
03:31:11
Those kinds of people don’t succeed with it because they don’t have the patience or like me. I don’t have the patients to do what it would take to, to succeed like that. And I know that, right. So I would want someone to tell me that if I’m going into that market, Hey, this might be better for you, something else. Right. And I’m cool with that. So I think when the emotional piece is not there, that’s when we need to evaluate why you’re buying this and what you want to do with it. And if something might be better and that’s the conversation we would have,
03:31:42
You know, I, I L I love your, your very real, very raw approach to short-term rentals because I think it, it, it is such an emotionally attached thing. For many people that are getting into the space. You, you have a training program for real estate agents that is, is aimed towards helping educate people that are investing in vacation rentals, but for the, for the non real estate agent for the, for the person that is just, you know, looking to get into this, w where, where can you learn like about these numbers? Where, how can you properly analyze a deal if you could, if you could teach someone that, you know, doesn’t have that real estate experience, how to analyze a property. W what would you, how, how would you teach them that?
03:32:28
Yeah, so that’s super simple. I mean, there’s, there’s two things here. We have this in two pieces, one, you need the performa, which you can have for free, get it for free on my website, on Vrolio it’s there. I would definitely use that model, not because I developed it because it it’s the most, it’s the most robust one. You’re going to find that it’s not geared towards selling something to somebody. Like if you use management performance, a lot of times they leave stuff out because they need the numbers to look a certain way. My proforma does not care about anything. It cares about showing you what’s everything there, everything that’s there. So I would, I would want to get familiar with the proforma. And then the second piece to that is learning where to find the data, to plug into the proforma. When you have the data and you have the proforma, you can now analyze these from a business perspective and in a completely unbiased place.
03:33:17
And you can basically look at any deal anywhere and be able to understand what it’s going to look like, what your break even occupancy weeks are going to look like, which is very important and what your different scenarios are going to be at different occupancy and rate scenarios. Now, getting that data is not as simple as, you know, the, the world of investors would like it to be. And it’s just not as simple as going to one website. Like, rDNA, it just doesn’t, it’s not like it’s not like that. I built Vrolio to try to fix that. And although we’re not able to fix that at a hundred percent, I do believe we’ve brought more to the table than a lot of other people have so far with getting the data on actual homes. A lot of the homes on our site, like if you want to look there that are selling by owner, they’ve already given you all of those details and all that data you need.
03:34:05
They’re telling you what the nightly rate is, what all of their expenses are, what their rate fluctuations are, what their occupancy is. And all of that is plugged in for you. So all of that data is already there on those homes, on the homes that are not by owner, that we pull in from MLS. We’re able to get you the nightly rate immediately. And so you have that right off the get go. You don’t have to try to get like an estimated nightly rate from somewhere, because this is the actual one, but the rest of the data, you still probably are gonna need to reach out to the real estate agent who has this listing and say, I need a, and then the list of things that you’re missing from your proforma until we, until we get more funding and we can build out a more robust system for that on the backend, that’s the way it happens right now.
03:34:48
You can use like transparent or air DNA for ideas of nightly rates. Now, their data’s not super accurate because it’s coming from, you know, the internet and different places. And it’s based on zip code estimation, things like that. So it’s not exact numbers that gives you an idea, but keep in mind, like, for example, in a zip code, like mine, 3, 4, 7, 4, 7, you would almost need to know down to the neighborhood level, down to the floor plan level, what the rates are to get an accurate assessment. So really my, my take on this is I don’t care what tools are available to you out there, unless that data is being provided on that exact house. You should not be making an assessment. If you can buy that or what the return is going to look like until you get those exact numbers for the house, not estimations for the code, not like, oh, the a hundred top 100 best markets to buy a vacation Rental. And those have nothing to do with the actual house, because the numbers change from house to house. And they changed from neighborhood to neighborhood in most markets. So it less, there’s a report out that says the best 100 neighborhoods to buy in. I would consider that, but this is so hyper-local that you need a really, really detailed performance, which we can offer you and we are offering, and then you need the exact numbers for that house, not market ideas.
03:36:08
So what the, what the exact numbers for a house though, that that’s is that granted that the houses already being listed as a Vacation Rental, what about a property that is just, you know, never been used for Vacation Rental, but you’d like to turn it into one.
03:36:24
So then I would get the closest one. Like I’d find the house that is the closest to that home, either in the same neighborhood or same floor plan or up the street. And I would get the exact numbers on that one that’s for sale, and then start working with those based off of those numbers and then going from there backwards. So if you’re dealing with a P, we call those potentials, those have the potential of being a Vacation Rental. They’re not yet one. And when we’re dealing with a potential home, we’re going to get numbers that are so as close as possible. So if I’m selling in a specific neighborhood like Windsor Hills, for example, and it’s a five bedroom, three bathroom, and it’s a bank foreclosure and it’s empty. So we’re starting completely from scratch. I’m going to call one of my owners that already owns that same exact model up the street.
03:37:09
And I’m going to be like, Hey, I need you to send me your numbers. Do you mind? And of course, they’ll do it. They’re awesome like that. I have the best owners in the world best clients in the world, but, and then we’d work off of those numbers. And we would say, what is this person doing to be successful? Let’s model that at this house, right? If you’re like in a really like an area where it’s it’s country, and there’s not a lot out there, and there’s not a lot to pull from, it’s a little, it’s a little harder. So you have to start looking at those estimations by zip code, but keep in mind that those could be totally off. So you should fit factor in a range of plus or minus 30% of rate fluctuation. And, and it’s really like the wild west. There is no, there’s no exact science to dealing with something when you don’t have comps, it’s really gonna come down to your experience in working with, you know, in trying to do evaluations on properties that are similar, then that’s kind of like what an appraiser would do, but they don’t have appraisers for short-term rentals. So you have to become your own.
03:38:07
So, you know, because, because you’re also kind of, you know, because Vacation Rental is, it has a unique way of analyzing a property. What are the different types of things that you’d be analyzing for a vacation rental, as opposed to just a regular, a regular residential property?
03:38:24
Yeah. Like you’re talking about the data that would be different. Yeah. Yeah. So like we would be collecting data such as what the supplies are, costing them every month to, you know, continuously restock things like toilet paper and the cost of electricity, such as things like pool keep being used every single day that on a residential home would probably not be being used like that. So utility expenses are very different supply and maintenance expenses are very different. You’re going to have more wear and tear on a Vacation Rental. So you might have to budget a higher maintenance reserve budget than you would on a long-term rental. So those are the types of things we want to look at, like additional insurance policies that you wouldn’t have on a long-term rental. You know, a lot of insurance policies have different options too, for short term rentals.
03:39:14
So you want to look at like a loss, a loss coverage plan, where like, if there was a disaster and you couldn’t rent it, it would make sure that your expenses are covered. Like that adds to your insurance. You want to look at all that stuff. Like what kind of insurance policy am I taking? What are these other variable expenses going to be that are not there on a long-term rental? So it’s mostly just variable expenses and that’s not, I don’t think it’s possible to, to scale that as across like a whole zip code and say across this zip code, the variable expenses for this size house are going to be this because it’s not a north facing pool versus a south facing pool and Cassini, you’re going to have a totally different electric bill. And that could be the difference between somebody affording it or not at a certain amount of weeks. This is how detailed it becomes.
04:40:01
And if you could give a one piece of advice to someone who’s trying to start a short-term rental business, what would that be?
04:40:12
Okay. So, yeah, I just, cause I have so much advice. I’m trying to break it down into the one thing I would say. I would tell the person, make sure that you are in this with not just your mind, but your heart and truly because it’s, it is an investment of love and you’re in the hospitality industry. And unless you’re going into the whole luxury home niche, which functions as a totally different nation vacation rentals, I want to make sure you really want to do this and that you love this and that you’re committed. If you’re just doing this for the money, I would say to reconsider why you’re doing this. That’s all. That would be my number one thing out of everything else.
04:40:55
And w where do you see short-term rentals in the future? Because obviously there’s a lot of regulation and you’re heavily invested into the space. W where do you see short-term vacation rentals in the future?
04:41:06
I think they’re only going to be, get, be getting more and more exposure in the industry of real estate, because millennials are choosing to stay in them versus hotels and millennials are spending trillions on travel. So I think as millennials become more financially independent, the need and demand for vacation rentals is only going to continue to increase, which is awesome. I wouldn’t be in this space and heavily invested into it if I didn’t see a future of it. So it’s definitely gonna continue to grow. And there’s definitely going to continue to be a need for hosts and properties in that area. But I don’t care how many properties there are. I think they’re always going to follow the 80 20 rule, just like in every other industry, 80% or 20% of the owners are going to do 80% of the business. And the other 80% are just going to get the low hanging fruit, because they’re not, they’re not invested in it correctly, or they’re not doing it correctly, or they’re just throwing spaghetti at the wall.
04:42:01
I mean, unless you just go into these markets that are just so full-proof like Iceland, where it doesn’t really matter what you do, you are going to make money because there’s literally not enough houses to support the amount of tourism coming into this country. And it doesn’t really matter if you have the, the, you know, shabby his place there, that’s falling apart. And you’re the worst host in the world. And I’ve stayed with some of them you’re going to make money by default. And those markets are like so few and far between and in a market like that, there’s a lot of laws for foreign buyers to even go there. So if you’re going to stick with the markets, you know, and the traditional markets across the world, it’s definitely one of those things where you want to try to become the 20% of those owners doing 80% of the business,
04:42:50
Kind of going off of that. One of the big questions that’s on my mind and as is this is this, have you seen a lot more interest in the short-term rental space? And could it potentially be like a bubble? Like, how do you, how do you analyze a property when there’s just maybe so many more people that are just jumping into this space because of the, you know, the returns?
04:43:13
Yeah. I mean, it’s, it’s the, it’s like I just said the 80 20 rule, for sure. It’s competitive, it’s getting more and more competitive. Everyone’s jumping into it. There’s so many gurus popping up every day in this industry, like with a new system on how to get rich quick from vacation rentals. And a lot of people are attracted to that. And it’s unfortunate because, you know, there is no get rich quick system. There’s no replacement for hard work, saving your money, investing it properly and being a smart investor. But, you know, I think that I don’t, I don’t see anything bad happening. I just think it’s going to continue to be the 80% rule for as long as vacation rentals or any kind of rental exist. I just think that the more people that get into it, the more owners you’re going to have that are not the right owners for Vacation Rental. And those are going to be the hosts that don’t get the repeat guests. And those guests are going to go find the hosts that are in this with their heart and committed to it. And they’re going to go stay with them next time. So I would just circle right back to what I said before is become the 20% of hosts. That’s doing 80% of the business because it doesn’t matter how saturated the market gets. There’s always going to be the people doing it correctly. And then the masses are going to function as the masses.
04:44:22
Very nice. And, and what starting a new thing where I’m asking the guests on the show, what question should ask the next professional host? What is, what is something that you would be interested in knowing from, from a host to maybe better optimize your business, or to be able to maybe just a question from a high-performer?
04:44:46
Can I, can I give you a question? That’s totally unrelated to everything we just talked about? Or do you want a question? That’s a
04:44:54
Go, go
04:44:54
For it. Okay. So this is a question from the heart because I love vacation rentals and I only stay in them when I travel and I love traveling, and I’m also a photographer and I love photography more than anything in the world. My question would be is how can we, cause there’s such a need for this. There’s such a huge need. And I don’t think anyone realizes this. How can we start to make a niche within vacation rentals that are photographer friendly? Like for example, millennials, like we just talked about there’s trillions of trillions of dollars being spent by them to stay in Airbnbs that are quote Instagrammable, right? They want to go to these places. They want to take a picture in front of the door. That’s really cool. Or they want to take a picture on that epic couch that’s inside of there.
04:45:37
And then they post it on Instagram and they tag the Airbnb and then they get a million followers or whatever happens from there. Why are so many hosts? So against hosting photographers that want to do photo shoots at their house because I’ve run into this so many times of hosts, they’re not open to this. They don’t you say the word photo shoot, and they shut down one photo shoot that’s done right. And done by the right person, has the ability to send you so much organic traffic that you won’t even know what to do with yet. Hosts are not open to this. Why, why are we not targeting these travel bloggers and these travel photographers that have the ability to make your home look like the coolest thing that ever lived and make everybody want to stay there. These are the people, the same people that put countries on the map for travel. How can we blend this and make this, these two worlds, talk to each other and like do something like, that’s my thing. I would say to the next host, you talked to you ask him something about like, what, what would make you open to doing photo shoots at your place or host or making it a place that’s a niche for photographers. I guess
04:46:43
That’s a great question. And that’s a, we actually do have a, a conversation coming up with, with this guy who uses Instagram. He uses Instagram and social media influencers to market his properties. So I think that’d be a great interview that, that highlights this question, but thank you. Thank you so much, Erica, do you have anything else that you’d like to share with the, the host nation?
04:47:12
No. I mean, we covered so much just that, you know, be smart about your investments. Don’t get caught up in the hype of all the gurus out there, trying to sell you a system that says you’re going to get rich overnight. At the end of the day, there’s no replacement for saving your money, investing smart with it. And, and, and this real estate at the end of the day, I don’t care how much hype is other. This is real estate. This is an investment there’s risk, just like there’s reward and go into it with a, you know, a very even thought process. Not anything that’s like too out there, you know, like I’m gonna make a million dollars if I buy this house just to be smart about it, use the performance.
04:47:49
And if anybody has any questions about the performers or anybody wants to reach you, what’s a good way of contacting you.
04:47:57
So just go to Vrolio dot com, V R O L I o.com. And you can sign up there for free, and then I’m on there. It’s a social networking platform. You can message me. I’m automatically going to be on your friend list. Just message me anytime you need something. And we can set up a zoom chat to me, show you how to use the performance. If you need help with it, otherwise you can access it in there as well. It’s all free. There’s, there’s no charge for it. So that’s the best way to reach me. Cause I, my phone doesn’t stop ringing and I can’t get to any of my Facebook messages. So I won’t see anything else if they send it to me in somewhere else.
04:48:32
Vrolio dot com. We’ll we’ll include that in the show notes. Erica has been just such a pleasure. You are a powerhouse and I’m excited to see where Vrolio and your course and, and your businesses go. But until next time, host nation, keep on hosting, hope your hosts benefit from the show. If you found value, please go on over to iTunes or Stitcher lever review and let us know what you enjoy about the show. If you’d like to talk to the hosts that have been featured in these episodes, as well as the host nation, then going over to our Facebook group, short term rental success secrets, talk to the hosts and the next step sewed keep up.
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