"The Data Guy" and how to pick the best STR

0:03A lot of people just think about the real estate side of things and think about the value of the real estate and they don't realize that they have a whole separate other business if they're doing Property Management managing their own properties and then maybe taking on management of others and if you set up really good systems that has a whole bunch of value to it as well separate from the real estate so that's that's really interesting to think about do do you have like a General valuation to just for people who might be thinking about going down this road in terms of like is there a a multiplier on revenue or on profit or how how do you value something like that so I've actually heard quite a few different things I'll tell you how I did it it was one years of cash flow per contract so whatever that

0:51Would whatever would cash flow me right like I knew all my expenses I knew how everything worked out I knew what I was grabbing which was roughly about $20,000 per contract and so sold it for roughly that amount plus a little tack on for the furniture right now other people have sold to Vasa for like a, to $1,500 a contract which is nothing right imagine if you had you had 10 10 Airbnb management contracts and then Vasa cames around you sell her whole business for $10,000 like that's just it makes no sense one month yeah yeah exactly makes no no sense at all so I've heard that and then I've also heard this one guy who has like 100 Airbnb rental Arbitrage properties that are like in apartment units and his business was valued at like four million at the time right if you were to be selling it to

1:40A certain like ventured back group they would take it on right so it kind of it one it depends on how big you are right it depends on who you're selling it to right and it depends on how well you've built up the systems the operations and your contracts right all these things kind of going to come together to say like how solid is this business and how easily can I take it and multiply it like and sell to somebody else who can make it bigger than what you currently have going as right so yeah that was my experience with that got it yeah and that goes back to your first point about thinking through who you're going to sell it to how you're going to structure it all that stuff before you even start which is which is a great point so yeah awesome well I didn't want to dwell on that but I I thought it was really interesting and I think people are are probably you know maybe they haven't even thought of that but they realize now they've got even more value to their business yeah one

2:29One thing I want to I do work for superhost labs right the head of data for superhost labs we buy we raise money and buy properties and they're all short-term rentals right all single family homes all short-term rentals and the plan with that is actually to buy so many that we can sell to an investment fund which we've been getting a lot of interest in now typically if you were to have one Airbnb and you and it's a home and you try and sell it you're going to be selling it based off the appraisal right and what all your neighbors sold it for it doesn't matter if it's cash flowing $50,000 a year right whereas what we're doing is we're bundling like somewhere it's probably going to end up around like 500 by the time we're done and we're going to take all 500 of those and sell them as a group and then it's likely that we'll be able to sell it at way more than appraisal because they're also buying a business and with cash

3:17Flowing with cash flow right so the in that that's our game plan and like I said we we've already done we've already sold like seven homes that sort of way in a different sort of model but the plan is that we will be able to sell the entire package that way as well we have a couple different exit strategies but just wanted to like throw that one out there if anyone's it's just another it's just another way that your B they can be sold right and like another example that I have of something that we're currently doing right that's yeah that is super interesting especially since since these can work in pretty affordable places where the price points might be low if you're getting appraisal they're they're basically on your neighbors which are homeowners you know and so for the average homeowner that that's a a fair price but then you know when you look at the nightly rates

4:05And occupancy rate the the income that it brings and if you evaluate it based on the business and the cash flow I I've run into this exact same issue actually or or this question came up because somebody approached me about selling and so you know I I have a duplex that's in a very affordable area but the what it would appraise for based on the comps is not even it's like three times as much if you look at the cash flow that it produces and so I I said yeah if you want to pay three times what the comps are selling for here I'd sell it to you because that's that's the price point that does make sense financially for me otherwise why would I like why not just sit on the cash flow so yeah that's that's super interesting so go ahead that that that whole concept there is super super

4:54Interesting because of a couple reasons like one is that homes are no like because of Airbnb homes are no longer just homes they can be businesses right we need to like the Mind shift needs to change a house is no longer just a house it can also be a business right and but the issue is that that person who wants to buy your duplex could technically go down the road and buy a duplex that's not an Airbnb and potentially have the same sort of cash flow situation that you're in so why would he ever buy yours when he can just go down the street right so there's always like that there's another one right there you could just buy the regular value right so in my mind the only way that this works is at scale and and you're not selling you can almost think of it as like two two parts right you're selling the home at the appraised value and you're selling the business at the cash flow value right and that's and

5:42And you're selling both of those you're set selling an operating business along with the real estate that's attached to it right yeah and so then you can get the valuation that you're looking for but you can't be selling it to Joe Blow who just would go down the street and buy it himself right you gota be selling it to somebody who wants infrastructure already ready to go and they're just trying to scale right yeah and I see that is like where the difference is so anyways two points on that that I find like that I consider myself very interesting and I just don't know really where it's going to end up but I think over the next like couple of decades that we'll see that continue to shift especially as the hedge funds get involved right that is that is super interesting to think about because I I had thought about it like that like I was just looking at one one property but if I like we're getting up to 21 ings now and so if

6:31I bundled them all together and sold myself with it and said you know I'm going to come with this package or at least my processes will if I have really good processes in place to where it's plug andplay there's a ton of value to that especially like you said to hedge funds or or Equity private Equity companies that don't want you know to take on management or building something they just want scale so I got two points on that as well so one I would sell it with you I would sell it with the option of you training somebody right yeah and then and they can pay that person's salary and then two you also are in a really unique position where you train a lot of people and help them get these rentals right so you're you you are the centero of all these people and you have 21 yourself and I'm sure if you added up how many everyone else

7:19In your group has right you would probably get to a decent number right and then you eventually could get to a point where you all come together and say we're going to collectively you know we're all going to sign under one and then we're going to sell that to a hedge fund right and maybe not every single L person is going to want to do it everyone has different timelines and all that different stuff but there may be like 50 to 20 50 to 100 people within your group that would want to do it that all have maybe one two three four 10 properties right and all of a sudden you can leverage your position to help out all these other people to also sell all their properties at a higher valuation which would just be like the coolest thing but yeah wow I'd recommend talking to like a hedge fund manager or something about that about how to properly structure that they'll help you do it and yeah maybe take a cut right I just yeah so anyways no that's super interesting yeah there's so many

8:07Different ways to to go about it I mean the main thing is yeah exactly but the main thing is like you have an underlying asset that's that's quality and you've set up processes around it and then there's a lot of value no matter how you go about it or you just sit on it and cash flow like crazy which is the other option so very cool so I do want to kind of transition then you mentioned your day job at superhost Labs and you're head of of data there so I guess what is that entail in terms of the Tactical day-to-day and then how does that translate to what you do in your own business as well okay so my whole job is to make sure that we are only buying properties that are going to cash flow at a certain percentage right we have essentially promised

8:56A return to our investors and so I have to find these properties I have to find the areas where properties exist where the real estate is low enough and the cash flow is high enough that we can hit that certain percentage right but the the why I have this position is because I get into like the Nitty Gritty detail right so we like I first off at a high level I identify markets that are good then I identify properties within that market then I identify how to maximize the revenue out of that building right and so when I identify a market I'm looking for like low real estate but good demand of Tourism if I can get that combination of the two then it's likely that it's going to be able to cash flow right then when I get into the city then I'm looking into all the different neighborhoods within the city and trying to figure out where the where is the best place to buy a short-term Ral like where's the highest demand where are people willing to

9:44Pay the most however also where the real estate is not outrageously expensive right and so you got to find that nice combination then once you get into that so say I'm looking at like a specific zip code then I'm trying to figure out what unit size makes most sense right such as like a one-bedroom two-bedroom three-bedroom so on and so forth and as an example there's this one place in Phoenix where a two-bedroom does $34,000 a year on average but a three-bedroom does $90,000 a year right wow and so like very clearly you're like well three-bedroom probably makes more sense right the other interesting thing is that in that same spot a four-bedroom is doing 96,000 and a five bedroom is doing like right on 100,000 which means that the most efficient thing to purchase is probably going to be a three-bedroom you would think right you would think that now it actually turns out that most of the time like three-bedrooms are almost the exact same price as like a three or four there's like very little difference just because of the way they build

10:32Them right and so anyways it just so you might as well take the four bedroom or the five actually the five actually ends up being best case scenario because it's anyway so it's roughly the same price yes it's you know you just have more people in there and you're you're sort of betting on the odds of like more people being there but that's like that's the idea so now I'm figuring out what unit size makes most sense and then it's every single Last Detail like what is what is driving the revenue what is causing this home to make $200,000 a year in this home to make $100,000 a year right and what I always look for is patterns and Trends right so the the whole thing about data that people sort of don't understand is that data is just about finding a pattern right if you see something that's going 2 four six and then it's nothing you're like oh maybe it's going to be8 810 right and and really that's kind of how it works out and a lot of times I'm not I have no

11:21Background in data like I did not go to school for data and I I don't really have any background I'm not great with math either right data is L like what I do on a day-to-day basis is is I narrow down where we want to go right and then I'm trying to look at what's driving the revenue so really what I'm doing is just opening up Airbnb listings and looking at what the homes have right and I'm and I'm tracking that do they have a pool table room do they have a a garage that's outfitted as a game room do they have a pool do they have a pool heater do they have like a a mini all these different things I just kind of keep creating these lists and essentially what I'm doing is I'm creating like this a buy box right so I'm figuring out that within this specific spot of Phoenix if we were to buy a four-bedroom that was you know $700,000 we could probably make about $150,000 a year off of it however we need to have a pool with a pool heater

12:10A hot tub a mini the backyard's got to be a pretty decent size and the inside has to have two living rooms that we can add a pool table in there and we also have to give it a really cool design like a mural and take great photos of it and then on and then we have what we call like the good bones right and then we have the product that could potentially hit $50,000 now we just have to operate it well and and price it well