The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 124 - How to find Cash Flowing Short-term Rental Investments with John Bianchi
The short-term rental loophole offers incredible tax-saving opportunities but requires careful market research and property selection to be profitable in today's competitive landscape. While the tax incentives can be life-changing, many Airbnbs have become money pits due to changing market conditions and lack of proper analysis.
Take our free Tax Planning Checklist & learn about what tax savings may be available for you in our minicourse at https://taxplanningchecklist.com
At the very least, get on our newsletter to gain access to free live events and exclusive insight you won't find anywhere else: https://www.prosperlcpa.com/subscribe
Get in touch with John at: https://johnbianchi.mykajabi.com/
Make Sure You Checkout Our Other Resources on the STR Loophole!!!
What is the Short-Term Rental Loophole?
Dangers of the Short-Term Rental Loophole
What the One Big Beautiful Bill Means for Short Term Rental Investors
• Most investors make critical mistakes by not using data tools like AirDNA or misinterpreting the data
• Focus on full-time hosts with 270+ days of availability and multiple recent reviews for accurate revenue projections
• Use the "20% rule" to quickly assess market potential (revenue should be 20% of purchase price)
• Study successful properties in your target market to identify revenue drivers and build a "buy box"
• Cash flow should be prioritized over tax benefits to ensure long-term sustainability
• Avoid oversaturated "Class A" vacation markets where property values have increased beyond revenue potential
• Expect 8-20% cash-on-cash returns from well-selected properties
• Setting up an STR requires significant initial effort but becomes much easier with proper systems
• Choose markets with established regulations to avoid future compliance issues
To learn more about selecting profitable short-term rentals, visit strsearch.com for free educational resources or to schedule a consultation.
Welcome. I'm very excited today because the short-term rental loophole is something that we really get excited about and I've talked about this a lot. We've saved our clients tens of millions of dollars with this strategy. But it's not all fun and games here Now. It used to be a much easier strategy, but the market has changed and it is not guaranteed that your short-term rental will make you money at all. In fact, many short-term rentals have become money pits.
Speaker 1:While the tax incentives can be amazing and potentially life-changing for some of you, you can't go into this recklessly and a lot of your success in life comes down to who you know and what you know and the wisdom you can gather from these sources before you get started and I'm incredibly lucky to have a fantastic guest who has consulted with people in our network and I've heard wonderful things on how to find the proper Airbnb rental because I'll tell you right now and you can go.
Speaker 1:I'm going to put the links in the show notes and you'll see all sorts of content we have on the short-term rental loophole and how amazing it is for reducing your taxes and before you get so excited and before you purchase that rental, you want to make sure you have a game plan to profit. So, john, can you introduce yourself in 60 seconds or less and we're going to talk with John today on how you can buy this amazing tax advantage asset that will offset even your W-2 income and your business income and even capital gains income and how you can do this without losing your shirt and actually generating profit on something that reduces your taxes. John, why don't you introduce yourself in 60 seconds or less?
Speaker 2:Perfect, thank you for having me on the show. I genuinely appreciate it. My name is John Bianchi. Online I go as the Airbnb data guy. I have made it my mission to ensure that everybody knows how to analyze and understand Airbnb data so that they can buy profitable short-term rentals and, more importantly, avoid all those money bets that you're just talking about profitable short-term rentals and, more importantly, avoid all those money bets that you're just talking about right?
Speaker 2:My track record is that I worked as the head of data for the largest short-term rental investment fund in America and I helped them find over 150 properties in less than two years.
Speaker 2:Every single last one of those single family homes is a profitable property, and the proof of that is that they have now gone to raise money from institutional funds.
Speaker 2:They got vetted by an institutional fund for 19 months and when you do that, they see every single nook and cranny, and that institutional fund has now helping raise another $100 million over the next three to five years for that company, and so to me, that's the best way to prove that what I did on the data side to find those properties, it actually worked out, that what I did on the data side to find those properties, it actually worked out and about 19 to 20 months ago, we actually opened up our own.
Speaker 2:I opened up my own company called STR Search, where I help everybody and anybody who is looking to be able to find a short-term rental but needs help actually understanding the data to find the best possible property and how to get it set it up and how to actually manage it properly. And so I have a service where I do it for you and I'm not educating people. All my training, all my coaching is 100% free. I've created four free courses teaching people about how to understand Airbnb data, but if you want the option to hire me, you have that option through my company, str Search. So that's me. That's my track record. There's a lot more to that story, but you only gave me 60 seconds.
Speaker 1:So there you go. Fantastic, I appreciate that. I know you feel the pressure right now, but, trust me, if you watch some of our earlier episodes, the introduction becomes the episode, and I go into La La Land. So not like you would do that, I'm just saying that's our anyways. So you know, and to catch some of you up to speed here, there's a short-term rental loophole where, if the average length of stay is seven days or less and you do what's called material participation and that's defined in some other content you have the ability to create non-passive losses that can offset any type of income that you may have, and these losses can be in the hundreds of thousands. And we accelerate that with cost segregation studies, and if you don't know what that is, it gives you the opportunity to write off a good chunk of the property in year one from that cost set. And if you want more details, don't worry, all that will be in the show notes.
Speaker 1:We're going to dive in today, though, on the profit element of this, because we don't want to buy things just to reduce our taxes. This has to make profit for us. This has to be a wealth building vehicle so we can reinvest into more assets that further reduce our taxes here. Now, before we talk about how you do what you do and what you listeners who are thinking about getting started or want to improve at short-term rental investing can do, let's talk about where people go wrong. What are the mistakes that we see happening? Where is the misinformation? What do you see are common pitfalls to avoid when getting started with short-term rental investing?
Speaker 2:All right. So the first one is people are not using data at all, so they don't even know that AirDNA exists. But if you do know that AirDNA exists, do you know what AirDNA is? Mark, yes, okay, good. So I just want to make sure Some people don't even know that exists and they go and buy a property without ever taking a look at the data and your chances of being successful with that is very, very slim, like extraordinarily slim. So that's the first mistake.
Speaker 2:The second mistake is that they use AirDNA but they don't understand the difference between good data and bad data, right? So, on AirDNA, it's just an algorithm that is recording the calendar of every single airbnb every single day, and that algorithm is not perfect, and so to give what we call good data, you actually need a full-time host that has been managing for almost a full year, because the algorithm is going to record that calendar every single day, moving forward, and track to see exactly how much I think it's making. And you need it that that host to be full-time, because once they're part-time, the data gets really, really wonky. And you need it to be almost a full year, because anything less and the predictions of how much it's going to make over a full year also gets screwed up, and so you can do that by on AirDNA. They have something called days available, and you just want to see that that's over 270 days. You can even use a filter that removes anybody who hasn't had their list being available for over 271 days, right? So that's the first way to get almost a full year. And then you want to make sure that they have at least 20 reviews at a minimum, but you also want to make sure that they have at least one to three reviews over the past 12 months, and that's going to tell you that they're a full-time host. Okay, so now you have to get good data. We have almost a full year and a full-time host, and that combination is how we avoid looking at data that is inaccurate. That'll lead you down the wrong path. So those are two quick things, and I could keep going, but I feel like you want to ask me a question. Oh, no, Continue, okay, keep going, okay, okay, sorry. The third one that people make is a couple of routes. I can go here.
Speaker 2:The way I always like to explain this is that Airbnb is a business, and with Airbnbs, there's actually a lot of competition, right. Almost every single market has a handful of competitors now, and I grew up in a town where almost every single corner had a different pizza shop on it. It was a very Italian place. It was built by Italians. Pizza everywhere. Everyone talks about it right Now. If I were to go into this town, my hometown, and open up a pizza shop but not ever take a look at the other pizza shops, how they were marketing, how good their pizza was, what they were offering, what their pricing was, if they did slices, if they did largest, what a king looked like, anything, if I didn't learn about my competition and then I just went into that market and opened up a pizza shop, I would be a moron. You know what I mean. It would be a really, really bad move on my part.
Speaker 2:And Airbnb people are getting into Airbnbs and treating it the exact same way.
Speaker 2:They are quite literally not looking at any of their competition to figure out what their competition is doing, what kind of amenities they're offering, what is the style that they're offering, how many people they're sleeping, what their cleaning fees are, what their nightly rates are going for in the off season or the peak season on the weekday versus the weekend and they're doing none of this research to truly understand who they're going up against in this competitive Airbnb market.
Speaker 2:And they're just opening up a home, furnishing it and falling way, way behind, like just that on day one they're already light years behind because they either overpaid, wrong location, didn't design properly or didn't take the right photos or price the property or whatever it may be. And then they're wondering why the property is not making money and it's like well, you didn't do your homework. So those are the handful of things that I think people are making the biggest mistake right off the bat. I know I'm being a little bit harsh, but I'm being harsh because when you're harsh it tends to get people to actually take action rather than being a little soft with it. So any questions on that, mark? Nope, okay.
Speaker 1:I've seen this as well, what I see from my clients and you have a larger sample size that you've evaluated but a lot of our clients they get so excited they listen to a podcast or BiggerPockets, they get so excited by the possibilities and how the numbers could be and how profitable this could be that they get a little reckless. They don't even consider the possibility that this beautiful short-term rental could be cashflow negative.
Speaker 2:Yep, and a lot of the times they convince themselves that it is going to be cashflow positive. They get so excited Because there's a lot of nuances to Airbnb and it's a lot of the times they convince themselves that it is going to be cash flow positive. They get so excited because there's a lot of nuances to Airbnb and it's a lot more than a long-term rental. Long-term rental is if I have a two-bedroom and then I go and look to see what the other two bedrooms are renting for. They're all renting for $2,000 a month. They go okay. Well, I'm going to rent this for $2,000 a month and I'm gonna make twenty four thousand dollars throughout the full year. That's it right. But uh, but a short-term rental, if you just have good photos instead of great photos, you can make twenty thirty thousand dollars less on your property simply because the photos you get everything else dialed in perfectly. But you, you hired a bad photographer, or even a good photographer, but not a great photographer. So there's so many variables, you know yeah.
Speaker 1:So you know, obviously there's the operational part of this where you got to set up really good operations and marketing of your rentals. When it comes to finding where some of the things and we talked about, you know in the pitfalls here and some of the things you kind of reference here is that making sense of the data and understanding where the data could mislead you based on the seasonality and availability of the data, could mislead you based on the seasonality and availability of the properties. For someone who's listening now and let's say they've never purchased their short-term rental or have a short-term rental or a few of them, what are some really valuable things that they can start doing that they likely haven't been doing and what are some foundational things that you think that are some key points that you can consider when you're trying to find the best short-term rental? To get started, how do I know that this listing is the right listing for me and that I can generate profits?
Speaker 2:That question is a very long answer, right.
Speaker 1:So let's break it down. Yeah, we can do just the top. If you could pick the top three-ish I know that's a loaded question for sure.
Speaker 2:Yeah, yeah, so I mean to give you context on that. I created a course teaching people how to do this right for free, and it was 40 hours long. So the answer you just yeah, the question you just asked is a 40 hour long answer, but I'll give the very, very high level notes. So, step one you got to figure out what market is actually going to turn a profit for you, right? One of the other big mistakes we see people do is they pick a market that they actually like to vacation in, and I find that to be almost always a mistake because, for a variety of reasons, most markets are not cashflow positive markets for short-term rentals. I've studied over 350 different markets probably around 400 at this point and we have somewhere around 20 different markets we help our clients into. So just to put that in perspective, the odds of you being able to find a market that's actually profitable just happens to be your favorite vacation spot is extremely low. So just to put that in perspective, right, the odds of you being able to find a market that's actually profitable just happens to be your favorite vacation spot is extremely low. Okay, so just sharing that. So the first thing you want to do is you want to figure out what market could you go into where you could actually turn a profit with this property, and what I have found to be the fastest way to be able to know if a market has any cash flow potential is by using something called a 20% rule. This is not 20% cash on cash, it's 20% price to rent ratio, meaning purchase price to revenue. So if I buy a home for 500,000, can it make a hundred thousand? Okay, it's not a perfect rule and it's only supposed to be used when looking into a market from a 20 foot or from a 10,000 foot view. And the idea is that if I look into this market and I look to see and I can see that you know, four bedrooms with a pool are selling for 500,000. Can I very quickly in high level see that on air DNA those same type of properties are making roughly a hundred thousand dollars? If I can generally see that from a very like quick glance maybe it takes me a half an hour to figure that out then I know that that's a market that's worth deep diving.
Speaker 2:Most of the time you're not going to find that. About 95% of the time you're not going to find that, but when you do find it, that's where you go. You put that onto a short list of markets. You go that's the market I'm going to build a buy box for, and I'm going to build a buy box for, and I'm going to deep dive and rip it apart because I know there's opportunity there. And so that leads us to step two, which is building out a buy box.
Speaker 2:And in step two, what you do is you literally just study every single Airbnb that exists in that market. You review them all, you figure out the revenue drivers for those properties. That's the key thing. When you study a market to build a buy box, you're trying to understand what drives revenue. Okay, and the best way to do this is to find, um, the most plain home that's making the same amount as beautiful homes. Okay, the everyone in every single market. These exist. There are regular homes, regular siding, you know, not even high ceilings in there, whatever it is. But the listing is put together so well that it's performing as well as these like luxury looking properties. And it's only because this person understood how they could drive revenue from this listing through color, through amenities, through photos, through whatever you want to call it. They figured it out and that listing will tell you the most about how to drive revenue for that market.
Speaker 2:You write all this down, you make notes on everything that you're seeing, because those are the things that are going to drive revenue for you.
Speaker 2:And so now you've built out a buy box and then from there, what you want to do is you want to start looking for the properties that match your buy box, that match that property's criteria, that drives revenue, whatever that may be. And so now, when you're hunting for all these properties, you want to find them, you want to try and forecast what you believe the revenue is going to be. And then, once you've been able to forecast what the revenue is, then you can actually underwrite it and know if it's going to be profitable or not. That last step that I just explained there. You repeat that as many times until it's memorized in your head over and over again and you find an outlier. Because you'll do it 100 times on 100 properties and you're going to come across one where the cash on cash and everything is just through the roof in comparison to everything else, and that's how you know you found the absolute outlier. So that's the full breakdown there. Wonderful Finding the market, building a buy box and hunting for the deal.
Speaker 1:And I know there's layers to that and so many ways to execute on what you described as well, and also for those of you guys listening, if you want to dive deeper, we'll share in the notes and in some places where you get that free course. So John has a really cool YouTube page and awesome content on Instagram I was checking out as well and he dives deep into all sorts of investments. I want to get your thoughts on something here. So we recently had a full-time short-term rental investor come on and present to our clients. So we do client workshops and he was talking about how and he was doing some investments earlier on in the Smokies and I'm sure you see lots of people get very excited about the smokies.
Speaker 1:At one point and he was saying you know most of you guys are gonna, you know, think that you can just go, walk right into the smokies and buy this place and you're just gonna be rolling in money and you know you can really lose a lot of money in the smokies. And he was saying you know most of these markets, in a lot of these markets, you know, kind of like what you were pointing to aren't going to give you nearly as much of an ROI as you think, and they're going to give you a lot of headache dealing with the guests. You know he had one has one listing that generates you know maybe six figures in profit, but the headaches associate. He called it like a return on headache, so like the type of interactions you need for such a large, massive luxury event. Space slash rental to him isn't nearly as valuable as he is found, as finding just some place in a metropolis he compares that to like he has a four-unit property in the suburbs of Charlotte in South Carolina. That's just money and it's easy money and it flows like crazy, right.
Speaker 1:What are your thoughts on? Maybe? How is the audience and you kind of pointed out to this how do you identify that this is the right market? And are these vacation rental hubs of all these log cabins? Is that no longer the way to go, or are some of them the way to go? Where are you seeing as far as how people are picking the right markets to invest in here?
Speaker 2:Yeah, We've got a lot of experience with answering that exact question, Because when we first opened our doors at SDR Search to work with everybody and anybody, we just thought we had to bring beautiful deals, like amazing deals. We're like, hey, here's a great deal and everyone would just buy them. What we quickly learned is that everybody has preferences. Every single person has a preference. They, they, uh, they. They may want it to be in a city, they may want it to be in a Metro, uh, a mountain town, they want a beach town, they want a blue state, they want a red state, they want, you know, a bigger property, smaller property. They have all these different things that they care about and know what they care about determines what market they're going to end up in. Right, A very sort of broad way to think about this is that if the market is what I consider like a class a travel destination such as a Gatlinburg, it's almost it's extraordinarily difficult to find a cash flowing property in class A vacation markets. So any market that you could just like think of across America that would be considered like a travel destination or a short term rental market. Those are extraordinarily difficult because everybody thinks about those first right, they are the biggest ones and people have been investing in those ones forever. But COVID really lit all those up like crazy and a lot of people went into them and they've gotten to the point where the home prices have raised so high that they met the amount of cashflow that could be made in those markets. This happens in almost every market that blows up. So let's say that the homes at one point were selling for $500,000. If you bought it you could make $50,000 in cash flow. Well, once somebody figures that out, they're willing to offer $550,000 on that exact same property because they're going to make still a good amount of cash flow. And then the next person sees that and they're willing to offer $600,000, then $700,000, then $800,000. Then all of a sudden there's no cash flow left.
Speaker 2:So when we talk about these class A markets, most of those what I just explained has already happened in those markets and so for me personally, when I looked at those, I don't really care for them that much. I think we've helped invest two properties in those types of markets. Over the 260 homes that we've helped invest in so far only two. So if you're going to be going looking for a market, always keep that in mind. If you hear an influencer talking about a market online and they're saying how great it is and all that stuff, there's usually a reason behind it. I usually like to avoid those markets like the plague, because everybody under the sun is going to go to them. Everyone with dumb money is going to go to them and think it's like the next best thing, but it almost always isn't in the long run. So, anyways, I know I'm not answering your question directly, but I'm answering the Gatlinburg question. Yeah, this is actually really great insight.
Speaker 2:Okay. The next step is, if you're trying to figure out what market to go into, pick a market you love. Airbnbs are not just black and white investments. It's not like buying a stock. It's not like buying a long-term rental. You got to put a little bit of your heart into it, you got to care about it, you got to love it a little bit, and the more that you actually have a love for the area, the better that property is going to turn out almost always, because you actually want it to be done really well and almost think of yourself as the main person who would be renting it out and cater it to yourself, because you understand yourself better than anybody else and you're going to create an experience better than if you were to go to a place you didn't care about.
Speaker 2:So, as an example, if you love like a remote cabin in the middle of nowhere right, but it's somewhat close to a little bit of a travel destination, but you can get a bunch of secluded land and like that's something that you love and you rented out cabins like that before.
Speaker 2:If you then buy something like that, you know how to make it a beautiful experience. But if I'm somebody who only has ever invested or been to major cities like Austin, new York, la. And then, all of a sudden, I'm trying to like create an experience that's out in the middle of the woods, and I don't even like camping. The chances of me doing that right is really really low, right, like really low. And so then, therefore, pick something that you like If you like the mountains, go to the mountains. If you like the beaches, go to the beaches, because there's profitable properties all over the place in these different types of categories of properties and then find markets in those general areas and then take that 20% rule that I was telling you about to figure out if the market is worth deep diving and continue that process that I was referring to.
Speaker 1:Awesome. Now what would you say to someone who says Awesome. Now what would you say to someone who says, well, I'm not really that crazy about short-term rentals, but tax savings looks great. Can't you just find me something that I know will do? All right, I'm only going to materially participate in year one and probably hand off to a property manager, because I got this business over here, that's taking up all my time and I just want to be left alone after year one because it sounds so exhausting. What do you say to a guy like that?
Speaker 2:Those are my favorite clients in the world. Those are the best guys ever. So those are basically the people that we work with. Those are our clients too. Yeah, those are our clients. Those are Probably 80% of our clients, are that?
Speaker 2:A lot of what I've been talking to right now are the people who want to do it themselves, but the people who are uh, you know, not wanting to do that, they're so easy. We just go hey, look at, this has given you the return, this, this X return. Um, it's a, it's a good market, it's a growing market, it's you know'll put. We make sure they put it together in the way that makes most logical sense. They generally, I will say, though even those people will still have a bit of a preference. They will still say I prefer Florida, florida over the mountains.
Speaker 2:We go, okay, sounds good. Well, I like upstate New York over Florida. We go okay, sounds good. So we're still there's property. They follow our system, they get the property, they get the material participation, and then they start using our property manager the following year, as long as they meet the requirements and all that kind of stuff, because I know there's a little bit of trickery when it comes to making sure they're doing it the right way. So I'm not a CPA, but just letting you know that's what they do.
Speaker 1:Awesome and to give you guys a high level overview to fill you in what he's saying here. You need to materially participate in the short-term rental, for those losses to be non-passive and offset your other income sources. There are seven attributes. One of those seven has to be true. The most common of those that you will see is that you have you or you and your spouse combined for at least 100 hours and no other cleaner puts in more time than you or other person. And then the other test that is going to be most common is that you and or your spouse put in 500 hours. If you put in 500 hours into the day-to-day, you don't have to worry about anyone else's hours.
Speaker 1:Now there's a lot more to do and other things to consider here, but it just is a high level. So that's why, at at least year one when you buy it because that's usually when you want to do your cost segregation and use those losses and create those losses. That's why we care so much about this. Yeah, what about for? Do you do? What about for folks who say you know this is actually going to be a midterm rental, but I'm going to price it and market it as a short-term rental in year one, so I can use those non-passive losses and then we'll attract nurses like traveling nurses and other people for longer stays in the future. Where there's less upkeep because there's less turnover, it's still really profitable, more profitable than a long-term rental. What are your thoughts on that as a strategy?
Speaker 2:I'm not against it, I just don't do it. I don't know it and I don't pretend like I do. I know it. I personally am not a fan, because you have for most of those midterm rentals to work out, to get the clientele that you want like the construction workers or the hospitality or sorry nurses, typically you have to have some sort of relationship that you have like the go to person who's looking to place all these people in some sort of midterm rental and you have like the go-to person who's looking to place all these people in some sort of midterm rental and you have to make that relationship to get the bookings.
Speaker 2:And I've never wanted to make the relationship, if that makes sense. You know what I mean. I never wanted to have to do that. I would rather just post on Airbnb and people come through and I don't have to like cater to one person to make that one person happy to be able to get people in my place. That's my, I know my own personality. So then, therefore, short-term rentals make more sense. So I've never studied mid-term rentals. I'm not against the strategy. I know tons of people who have done it, but I don't help anybody do it because I don't do it if that makes sense.
Speaker 1:Yeah, absolutely so. We talked about what could go wrong and then how to properly find something that's going to give you cashflow and profit. When you choose the right property, the right short-term rental investment and you've done your research and you make the right decision based on the appropriate decision for that investor, what's the result that we see for the investor and for folks? When you take the time and you know what you're doing and you pick the right short-term rental, what does that look like from a cashflow, profitability and opportunity perspective?
Speaker 2:I can speak to our clients. I can't speak to everybody else. So for what we're typically able to find our clients on the low cash on cash, it tends to be around an 8% to a 10% cash on cash, and on the high, it tends to be around a 17% to a 20% cash on cash. So that's typically where we fall and that could be for investing $200,000 or $400,000. It's typically the exact same type of return. It's just different markets that you're going into and different strategies and different abilities to write off more taxes by buying more expensive properties and things along those lines. That's typically where we end up for the clients that work with us.
Speaker 1:Right, and so a cash on cash. So, for instance, a 10% would be. We put in $100,000, we're getting $10,000 a year in cash flow. Now one of the things we can think about here is a cash on cash. Return is great and at the same time, however, there's other benefits aside from the cash flow.
Speaker 1:That property is going to appreciate in value over time. You're building wealth as you're paying down the mortgage and the value of the property goes up over time. So now you're building equity and wealth, and wealth that is going to be treated in a very tax advantage manner. You probably sell the property and get the favorable long-term cap gain and or defer indefinitely with a 1031 exchange. So you're building wealth while creating cashflow as well. In fact, I would say we have some folks that didn't have good cashflow. Maybe they didn't pick the best rental, but even then, if they just hold it long enough, the equity pay down the mortgage pay down the equity. Growth is still generating wealth. Obviously, you want to have a cash flow, but you're still building wealth from all these other opportunities of just owning the real estate.
Speaker 2:Agreed If I could get my two cents on that right. I do agree with what you're saying. Obviously, with short-term rentals you can take advantage of a short-term rental tax loophole which can save you, on day one, $50,000 to $100,000, even $200,000 in taxes that you would have given to Uncle Sam anyways. So that's a huge part of the return and one of the greatest benefits about short-term rentals. But I always like to hyper-focus on cash flow, because if I buy a long-term rental, I'm still With a long-term rental, you get appreciation and you get principal pay down.
Speaker 2:So you get both those things no matter what. And with a short-term rental, you get the same thing, but the cash flow is the main difference. And so then, therefore, if I hyper-focus on the cash flow, because you are going to have to put more work into the property, and so if you hyper-focus on trying to find a property that can have strong cash flow, that makes it worth the additional effort in comparison to a long-term rental. But obviously that tax saving is a huge reason why a lot of people are still moving forward with short-term rentals regardless. But I always like to just hyper-focus on cash flow. If we do that, everything else will take care of itself. You'll get the tax savings, you get the appreciation, you'll pay down the property and the property will pay for itself and make you money year after year.
Speaker 1:Yeah, that's a really great point. Ideally, you invest, you get a year one tax refund from your investment and that gives you cash in your pocket. You get cash flow that's adding to it as well, and you may even do a cash out refi if the interest rates are right and get more of your cash back. And what you do here is you reinvest into more short-term rentals that further drive down your taxes and further build your portfolio of cash building rental properties. And here's a way where we have all these combined benefits of the tax savings, potential refis in the cashflow to really accelerate the growth of our wealth and help you guys achieve your goals faster through to either retire or quit your jobs, et cetera, et cetera.
Speaker 2:And there's two other additional benefits to cashflow that I always want to point out, because I hear this all the time with people who are like I get so much in tax savings I could care less about cashflow. Drives me nuts when I hear that, just so you know, drives me nuts. I understand it to a certain degree, but drives me nuts. And here's why If you have a property that loses you money let's say it's even $1,000, $2,000 a month, right, because a lot of people have Airbnb's where they are losing that kind of money Eventually you will have lost the amount that you have saved in taxes, right? So if you, let's say, you got $100,000 in savings, well, if your property loses $25,000 or sorry, yeah, $25,000 a year in four years, you're back to square one and you had to manage this property the entire time. Now your property may have appreciated, right, we don't know exactly what sort of the market may have done, but it most likely will have appreciated as long as we didn't hit another 2008 rate during that four-year cycle. But you've essentially wiped out all of your tax savings and taken on this additional property just in the hopes that it appreciates, whereas if it actually cash flowed for you, even if it just cash flowed $1,000 for you a month, you're up $12,000 year after year, and all of your tax savings you've been able to keep and use for something else. Obviously it's. It's not as directly correlated as I'm making it sound, but you get the general idea. That's the first thing, right, why it's so important.
Speaker 2:Oh, sorry, what I'm trying to lead to here is that I don't want any of my clients to have to be forced to sell their property at the worst possible time. And if you lose money year after year and eventually you've wiped out all your tax savings, you're eventually going to go. Why am I holding onto this property, right? Why don't I sell it and try and find another one 1031, exchange it into a different property, and you may get caught where you're actually having to sell it the worst possible time. Because what if the market does dip? What if the market that you're in it does go down a little bit? Right that's, I always play worst case scenario, because I went through COVID with 15 Airbnbs and it just in the middle of a city and it just wiped out my portfolio overnight. And so the reality is that if you plan for that worst case scenario, you're going to be in a lot better of a position.
Speaker 2:And if your property can cashflow for year after year, and then we hit some sort of time where it's not ideal. If you're cashflowing let's say, $30,000 a year your property can lose $30,000 in revenue and still break even during a recession, and then you can hold that property during the recession time period until we get to the boom which is on the back end, and then you can continue to hold that property and then you have the option to hold it for as long as you want and then sell it whenever that time comes, rather than being forced because it no longer makes financial sense to hold on to. And anybody who holds onto real estate for 20 years looks like a genius. And so that's the beauty and the strategy of cash flow and why focusing on cash flow over the other things tends to make a lot more sense, because you're still going to get them all and that allows you to have a better long-term plan.
Speaker 1:Does that make sense? Oh, absolutely. And I've seen the opposite happen, especially early on, where we would take on anyone who would be willing to pay us a buck and where folks bought these short-term rentals. We did the costs as we created the losses. They got this great refund and then the cashflow negative, and then they're forced to sell because they just can't afford these money pits anymore. And even if you sell a loss, you're still paying taxes on the recapture of the depreciation. So and like they may not even be able to afford the taxes on the appreciation because they've just been dumping all this money into the short-term rental. So you certainly don't want to have that happen and that's why what you share and your information is so incredibly important, especially people starting off, so they can avoid these incredibly expensive mistakes.
Speaker 2:Incredibly expensive Just to get a little tax savings. That was nice in the moment, but long-term pain after it and again it can. All this is the thing that I always like to share is that I'm living proof that your Airbnbs are not dead. I'm living proof because every single Airbnb that I have helped somebody acquire is a profitable Airbnb. Every single one of them 260 something at this point, over a three and a half four year period. Right and so then?
Speaker 2:Therefore, airbnbs are not dead, they're just hard. It's harder to actually find them. My business would not exist. There would be no need for me in all of this education if it was easy to find Airbnbs, but they're difficult. But if you can put in the time to understand the data, understand the information, you can get to the point of actually finding a property that has a moat around it, that has revenue drivers, and you can invest into it and will turn a profit, give you the tax savings and everything else that you want over that long run. So just do the homework. Just do the homework. Just sit down, do the homework. It's a free seven-hour course on my website that teaches you everything that I just talked about. It's a seven-day challenge. Can't recommend it enough.
Speaker 1:Okay, so now let's dive into some of the most frequently asked questions on this topic. So I'm going to give you some five rapid fire questions that you're going to be tempted to. We could probably spend hours on each question, but we'll do our best here, okay. First question and we've kind of talked about this already, that's okay. First question Can you really make money with Airbnb and short-term rentals?
Speaker 2:Without a doubt I'm living proof of that. Every single last property that I've helped acquire over the past three and a half years are all profitable. You just have to do your homework, to really study the data and get the right property.
Speaker 1:What is a good ROI or return on investment?
Speaker 2:for a short-term rental property Really going to depend on the person and what you are using as your metric. Are you using total return or using cash on cash? If you're using cash on cash, some people would be happy with a 5% cash on cash. We are typically able to find somewhere between an 8% to a 10% on the low and a 17% to 20% on the high, and most people are happy with that. But anything around 10% 15%, most people will be happy to move forward with a property like that.
Speaker 1:What is the most important? Sorry, what are the most important metrics to analyze a profitable Airbnb or short-term rental?
Speaker 2:Does the property have the ability to cash flow? If it can cash flow, you can continue to hold onto that property for as long as you need to and sell it whenever that time comes. There are a lot of benefits to ensuring that the short-term rental actually turns a profit on a monthly basis and you're not just getting a tax savings.
Speaker 1:What are the best cities and locations to invest in short-term rentals?
Speaker 2:You want to invest in ideally not the A-class markets, so markets that are less known, that maybe have less travelers in total, but there is a ton of opportunity to be the best person within that market and stand out from the crowd, and there's still enough demand to turn an actual profit.
Speaker 1:How do short-term rental laws and regulations affect profitability?
Speaker 2:The only effect? So trick question, because the reality is that you don't go into a market that has bad short-term rental regulations. If you found yourself in a market where there's no regulations and then they put regulations in place, it's going to affect your profitability depending on the regulations that they do end up putting in. But ideally you find a market that already has regulations in place and you play within their rules and everybody is happy and everybody wins.
Speaker 1:Awesome, and what question haven't I asked you that I should be asking you?
Speaker 2:Is it worth it? Like the headache, right? So a lot of these people are going to be getting a short-term rental, um, and it's not. It's not passive, right? And so the question should be like you know somebody who really wants tax savings. They're a high W2 earner, they, they, they want to figure out how to not give all their money to uncle Sam and they want to do a short-term rental, but they haven't done one before. What should they expect? Is it really going to be worth it? I haven't done one before. What should they expect? Is it really going to be worth it?
Speaker 2:And there's one way that I always like to explain this and I like to say it's like jumping over a fence. Getting an Airbnb is like jumping over a fence. Okay, it's hard to jump over a fence, but once you're over the fence, you're just walking. And that's what it's like getting an Airbnb. Up front, it's a whack load of work to up the right way and then to figure out the operations to make sure that you're managing the guests properly. It's a lift. It's like jumping over a fence.
Speaker 2:But once you have it all set up and you have the right property and you have the right automations in place. It's so simple, especially if you have one. You get a dedicated cleaner who knows what they're doing they take care of your property or a dedicated point person and, between messaging and figuring out the nightly rates and things like that, to actually take care of everything from the laptop anywhere in the world. It's pretty easy to do, especially because almost all of it is automated, and even AI is automating a lot of the messaging too, and so it's going to feel like a lot, but then it's going to be running itself for about 80% of the time and then you're just good to go and that's pretty well.
Speaker 2:And as soon as that happens, you're gonna want another one. As soon as you get to that point where you're just walking after hopping over that fence, you're gonna be like I could do another one of these. You're gonna forget what it's like to go through that first part. It's like having a baby, you know. I mean, a woman is pregnant and she can pass out a baby, and then a year goes by and she's like I'll do it again. So, anyways, that's the question that everybody always wonders.
Speaker 1:That's a really great insight. Now our audience is likely going to be interested in knowing how they can hire you and what that looks like. How does this work if we want to engage with you?
Speaker 2:So you would go to my website, strsearchcom strsearchcom and simply schedule a call with somebody on my team and they will explain to you exactly what it's like to work with us. We work on a flat fee. We are not brokers, so we don't take money on the close of a property. We do that intentionally right now and so we take an upfront fee to be able to work with us and then we do everything for you.
Speaker 2:Okay, so? So we are finding the market for you based on your preferences. We are finding the market for you based on your preferences. We're finding the property for you based on your preferences. We're underwriting every single deal, forecasting the revenue, explaining exactly how it needs to be set up to be the most, to drive the most revenue out of it, connecting you with lenders, realtors, designers, construction companies, property managers, revenue managers, cpas, cost integrations, whatever you need. We'll make those connections all the way through and we're going to work with you to make sure that that property comes out as one of the most beautiful properties in that market, with all of the revenue drivers and a moat build around it, so that it can outperform not only today but for years from now. And that's the objective and we're going to help you through the entire process. Okay, Wonderful.
Speaker 1:So strsearchcom for those who are ready to get started. Where's another place where people can go to just learn more about you and maybe take that free course and immerse themselves into the stuff that you share with in on your insight here.
Speaker 2:So I always recommend to still go to strsearchcom, and there's going to be a section on there that says courses, and you can learn about my seven day Airbnb data challenge, which will teach you everything you need to know how to find a market, how to build a buy box, how to hunt for properties, how to you know, know what amenities to get, how to forecast the revenue, how to underwrite. Teach you everything, give you all the resources you need. It's a hundred percent free. You don't even have to give your email to go through the course. Okay, okay, just lives on the website. It's free. Go through it. It's. It's the best resource out there for this If you want to learn how to do it yourself. Hands down, I'm not just saying that. I find me a better one is what is what I'd love to?
Speaker 1:see Awesome. Well, john. Well, and for those of you listening in your car, uh, you, uh, all this will be in the notes as well, and I really hope that you guys get a chance to check this stuff out here. John has a wealth of information and especially for you busy folks out there, here's a shortcut you could take in building your wealth and, obviously, all the tax savings that comes along the way with that. John, thank you so much for your time and for those of you listening, if you want to learn more about how this fits into your advanced tax reduction planning strategies, you can go to prosperalcpacom it's prosper with an L cpacom slash apply for a free consultation where we can assess how much we can save you in taxes with our strategies. And if you're just getting started and you want an introduction into what advanced tax planning means and how that could apply to you, go to taxplanningchecklistcom. John, thank you so much for your time. Thanks for having me, mark.
Speaker 2:I appreciate it.