The short-term rental market continues to grow.
Like everyone else, investors in short term rentals are facing low supply making acquiring new properties more challenging.
Charlie Cameron decided to start new construction properties specifically for his Airbnb and VRBO business.
Watch as Charlie talks about new construction for short term rentals.
Transcript:
Chris Bounds 03:54
You’ve bought existing homes or properties to turn into short term rentals which is traditionally what people are doing but you’re actually doing something a little different now or at least you’re in the progress of building new construction for the purpose of short term rentals. What was the thought process there?
Charlie Cameron 04:40
I will say a startup cost is a little higher because you kind of have a little more vacancy than a turnkey initially and you’ve got to furnish the darn thing and instead of buying a furnished rental. Those are two things to keep in mind. But the reason I went with new build is honestly it’s because it was the easiest thing to buy right now with this crazy market.
With almost no bidding war on one of them. No bidding one on the other one and I could get in there and it gives me time to figure it out. Right. Okay. Put a little bit of downpayment in there. And then, “Hey, I’ve got five to six months till it closes and then I can put a down payment on the next one and figure that out later.” Right. That’s kind of been the the process is, “Hey, at least these are things I can get into right now.”
The nice thing is you have fewer callbacks to worry about. You’ve got a builder’s warranty. You’ve got a few things kind of going for you that you don’t have to worry as much about compared to an existing property, especially older ones.
Chris Bounds 05:38
Yeah. I know some folks that are doing this for actual long term rentals. But your yield is typically higher for short term rentals. Your real costs are too because you have management even if you’re self managing. You have time involved there. But you have other costs as well.
Do you have an idea of what type of yield you’d be expecting or folks should target for a new construction? From what I understand, at least a monthly rental. A long term and short term comparison two, three or maybe an upwards of five times what you’d expect from a long term rental. That’s that’s kind of what a lot of folks are targeting for short term rental, but from a yield. What are you expecting for the new contract?
Charlie Cameron 06:27
It depends on the market. If you count all your costs to furnish, permits and all that good stuff upfront. If you put 20% management in place, you’re looking at a 10 to 15% cash on cash, which I know is not excellent. Now, if we look at the loan pay down, it’s of course, five to 7% more than tax benefits and on top of that.
Chris Bounds 06:47
There’s still pretty good. I mean, there’s that risk but it’s still good.
Charlie Cameron 06:52
You can get 25%-30% if you self manage. Right. That’s kind of what I’m what I’m going for because if I systematize everything it takes me one or two hours a week and then that most of that I can give to a virtual assistant per property. Yeah.
Chris Bounds 07:11
You’re building the vertical. You’re building a management system in house and putting systems in place that can take care of that at a cheaper cost than using third party management. One of the things then, now I’ll get your final thought. I thought with short term rentals is essentially allows never.
We’ve never had this opportunity before to have your own McDonald’s. So McDonald’s is they have their way of affording the most expensive real estate in the world by just putting hamburger stand there. But otherwise, they own the most expensive real estate in the world.
Now, with platforms like Airbnb and Vrbo. We can do that. There’s still risk involved and COVID things happen. But you can buy new construction actually have that cash flow, you still own the asset. Final thoughts, what folks should consider before jumping into this game?
Charlie Cameron 07:59
I think people need to be aware that they can systematize things like this. I mean, it just takes a few pools, a few smart devices. There’s a setup time involved. But after that, you can do this yourself and manage it from afar.
As long as you have a couple good teammates and a system in place. You can knock this out and keep 20%-25% which I think is massive. If you’re looking for financial freedom. To me, this is the way to go about it.
Chris Bounds 08:26
You’re doing this. I mean, it’s not like you have a lackadaisical job. You work for the government, you’re in the Air Force. You’ve got a lot of responsibilities there. You’re able to do this. It provides. Yeah. You’re absolutely right. It does provide a lot of options and potentially even some financial freedom if folks want to build that out. I love it. I love it. Thank you so much, Charlie.
Charlie Cameron 08:54
Chris, I appreciate it. Thanks, man.
Chris Bounds 08:55
Absolutely. Take care.