Managing cash flow as a house flipper is challenging.
Beau Bailey decided to add another income stream to help mitigate the ups and downs of his flipping business.
In doing so, he found success running an Airbnb arbitrage business.
Transcript:
Chris Bounds 00:02
How’s it going Beau? It’s been a while.
Beau Bailey 00:04
I know, man. I know we’ve been busy. I’m assuming you’re only doing the same. I love the shirt you’re wearing there, by the way. Yeah, we’re trying to keep up with them.
Chris Bounds 00:19
Yeah. You kind of like our story. You’ve got a huge background in flipping. But you’ve recently and you can let us know how recently ventured into the short term rental game and then actually arbitrage as one of the methods of growing that. How did that story start for you?
Beau Bailey 00:41
Yeah. We were flipping houses within about five years in and we’re just running the grind. I mean, flipping anything and everything we could as fast as we could. You’re always up against that cash flow crunch and trying to get that puzzle figured out. We kind of had this lightbulb moment of there’s another way. And we’ve been seeing a lot of other people doing Airbnb, let’s look into this.
It was my wife who really dug in and found this method we never even heard of, but basically renting out a rental. There’s some guy off somewhere doing it. And he put together this whole course. I think it was like 500 bucks or something, she paid to do it. It just like completely opened her eyes to some possibilities that we didn’t know, it really existed. Basically, working with an existing landlord and working the agreement to rent their rental as an Airbnb.
We furnished one, the first phone call she made, the guy said, “Sure, let’s do it. I used to have an Airbnb, it’s a lot of work. But if you guys will do it, let’s just give it a go.” And we furnished that thing up. It’s been our consistently booked Airbnb. We have seven going now. We’re about to have two more with it by the end of the week is the goal and hopefully gonna keep growing that, but it’s been a amazing process learning. It can be a headache at times, but it is really fun to watch this thing grow. And to see that passive income coming in.
Chris Bounds 02:23
Nice. Okay, so that first one, it sounds like you just kind of hit the first ball. And then, you got a double a triple there. You call us landlord up? He’s like, “Yeah, why not. You get going on it.” What were some of the learning little bumps in the road that you had from that point to first couple guests?
Beau Bailey 02:46
Yeah. I think, number one, having a timeline. If you don’t put a timeline down, that can drag on. You want it to be just right. You want your pictures to sell the place. The space has to look great against the competition because with Airbnb or short term rental you’ve got the consistent thing is the photographs.
That’s what people are looking. They’re looking to see what your space looks like and the amenities you offer. Getting that set up really well and having great photographs was the first key but also saying by this date, we’re going to be up and running. We really wished we had to say no to some other things to get that done. But we pushed really hard. And then once we got there, it was just a lot of communication with that owner and explaining the process to him.
You know, we’re not gonna bother you with some little detail repairs or things that happen. And then we agreed to that cap with him. Anything under $200, we’re going to take care of. We’re not going to tell you. We’re just going to fix it because that’s what we want to make sure we handle. Anything bigger than that we’re going to make you aware. And then we can come to an agreement on what we need to do to fix it.
We had a guest within the first month who left a boiling pot on the stove and it melted the control panel on the other things. And it was like a $500 fix. We felt horrible that happened. And so we said, “Look, we’re just going to take care of this. We just want you to know.” And he said, “That’s amazing. Thank you. I appreciate.” We call him back month two and said, “The dryer is not drying and the guests are having a hard time drying their clothes. Can you take a look?” And he said, “Yeah. I’ll take a look. If it’s the dryer vent that needs to be cleaned out, I’ll get up on the roof and take care of that. If not, I’ll just buy a new dryer.” Come to find out the dryer was bad and he bought a new dryer it was there the next day.
We have a great relationship with him. Because he knows we’re going to take much better care of that property than a tenant who’s there for a year. And he never gets to get inside and see it. But also we sold them on the fact that we’re keeping this thing clean. And we’ve kept our word on that and every time he shows up to look at things or fix something or just discuss something. He’s extremely happy. And that’s really the best way to keep these things going if you’re going to try the arbitrage model.
Chris Bounds 05:07
Yeah. One of the best things and I think it’s probably a bad PR with local communities on not liking Airbnb. When you compare long term rental for short term rental, the long term rental, it’s set it and forget it for the most part. Once it’s lease, “Hey, I don’t want to re-lease know much about it. Like, Don’t ever call me until it’s time for renewal or I could re-lease it again.”
But short term rental, it needs to look at 10 out of 10 every single week. Otherwise, you just don’t get the bookings in better shape, which is always appealing to a landlord. Right. Have other relationships with because you’re doing arbitrage which for those who are good, you want to describe what arbitrage means.
Beau Bailey 05:53
It’s just subleasing your lease. We sign an annual lease with the landlord. And then in writing, we state that we will be using this property as short term rental property. We’ll pay the utilities. We’ll pay the rent each month. And then, everything we make over that we keep. That’s agreed upfront.
And then, we make an agreement on minor repairs. And then, anything over that cap we discussed with him and as a landlord, they’ll come out and fix so the air conditioner stops working. It’d be the same as if you had a long term tenant, you’re going to get out and you’re gonna fix the air conditioning. If you’ve got a slab leak, you’re obviously going to take care of that as the owner, those kinds of things.
Chris Bounds 06:34
Yeah, okay. And then of course, arbitrage you’re doing this at scale, because now it doesn’t have to be proper. You don’t have to have the money to buy the properties. You just need to be able to execute the lease and be able to operate as a short term rental operator. That’s it.
How have other conversations gone with? That was easy, man. We got like two minutes left. But have you had some other ones were they needed a little bit more coaching before you’re able to get them on board with this type of model that It was new to them?
Beau Bailey 07:09
Yes, we have one. It’s about 25 to 30 minutes from where we’re located here in Oklahoma City area. And it was a family who got transferred with his work. They had their house on the market. And they posted it on Facebook, as for sale. Actually for rent. We reached out to them and explained it to them. The wife shut us down immediately.
Now that’s not what we’re looking for. We’re not really interested in that. Thanks. But then the husband called us back two days later and said hold on a second, I need to know more about this. And we explained to him what was going on. And it felt to his words where it feels like a property manager for rental and you’re going to take care of it while we’re gone.
We’ll just see how this goes for a year. Essentially, we’re guaranteeing you that we’re going to pay the rent. We’re going to keep it clean. We’re going to take good care of it. We’re going to try to make money on it. I mean, that’s what the bottom line is we want to make money. And so he said, “Okay, let me go back and talk to my wife.
I think we can make this work.” And so they talked about it for about a week. Then, they came back and said, “Let’s try this. Let’s do this.” And so they went with it. We’ve had it for a year now. It’s been going really well.
Chris Bounds 08:28
I’m sure there was actually very comforting. Once you got going in this whole eviction moratorium. Like, little season we had to go through knowing that. I’m thinking from their perspective. We got these great partners. You know, friends coming in and on tour or anything. I’d imagine, for quite a majority of them. They were like, “Man, I’m glad we did that.”
Beau Bailey 08:52
Yeah, they were super happy with us. In fact, at one of the other properties that we have, they contacted us and said, “Hey, we’ve got a duplex coming in a month. It’s going to be finished would you want to rent these as well.”
Now, they’re contact us for future properties which and I don’t have to hunt down where the location is. I don’t have to meet other owner. I don’t have to worry about the quality of what they do because I’ve already seen what they do with the other property. It’s a win win all around.
They get somebody locked in. We’ve got another place. It’s a duplex. It’s near a major hospital here. So location couldn’t be any better. It’s starting to we’re seeing the momentum grow and we’re getting this thing figured out.
Chris Bounds 09:41
Love it. Love it.