In this episode

Jacob Mueller: From $0 to $4M in Short-Term Rental Revenue

In this episode, Jacob Mueller, founder of Renjoy, a short-term rental management company, shares how he grew his business from $0 to $4 million in top-line revenue in under three years and now manages over 180 short-term rental properties. Jacob also discusses his journey of acquiring enough real estate to retire at 31, building a portfolio of 18 doors, and pivoting into short-term rentals during a disruptive moment in the industry.

We dive into:

• 🏡 The pros and cons of short-term vs. long-term rentals
• ⚙️ Operational challenges of managing 180+ short-term rental properties
• 🎯 Tactical advice for spotting undervalued opportunities and adding value
• ⚖️ Navigating risks like legal changes, operational hiccups, and market saturation
• 📈 Strategies for building a scalable, investor-focused business in the short-term rental space

Whether you’re considering jumping into short-term rentals or refining your current approach, this conversation is packed with actionable insights and lessons I know you’ll find valuable.

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Chapters:

• 00:00 – Intro
• 01:02 – Journey in Real Estate
• 01:52 – Transition to Short-Term Rentals
• 02:13 – Building a Personal Portfolio
• 03:34 – Challenges in Commercial Real Estate
• 04:46 – Strategies for Real Estate Success
• 08:28 – Team Building
• 10:56 – Shifting to Short-Term Rentals
• 13:42 – Understanding the Short-Term Rental Market
• 19:43 – Understanding the Risks and Rewards of Short-Term Rentals
• 20:19 – Adding Value to Your Property
• 22:12 – The Realities of Self-Managing Short-Term Rentals
• 25:11 – Evaluating Property Management Fees and Take Rates
• 33:28 – Scaling a Short-Term Rental Business
• 39:05 – Conclusion

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🔗 Resources & Links:

• Learn more about Jacob’s company: Renjoy
• Connect with Jacob: @Jacobtmueller

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• 🎧 Spotify: Listen on Spotify

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0:00
shortterm rental where you’ve got tenants coming in five six different tenants every month your opportunity for
0:05
messing up or having issues is quite bit higher the best way to make money in real estate is to add value add value
0:11
add value today I’m joined by special guest Jacob Mueller after acquiring enough real estate to retire at 31 years
0:17
old Jacob founded Ren jooy a short-term rental management company and he grew it
0:23
from0 to$ million in Topline Revenue in less than 3 years effectively operating short-term rentals is no walk in the
0:29
park Jacob pulls back the curtain and shares some of the keys to success that serve him and his clients well we also
0:35
talk about the pros and cons of diving into shortterm rentals and he dishes out some great tactical advice on how to
0:41
align your strategy with your long-term goals all right let’s get into
0:50
it Jacob Mueller calling in from Colorado Springs here Jacob I have
0:55
gotten the pleasure of kind of getting to know your story a bit but why don’t you go ahead and introduce yourself uh to my audience in your own words
1:01
pleasure to be here thanks Aaron so I have grown up in Caro Springs in particular I’ve been here most of my
Journey in Real Estate
1:06
professional life and I’ve been in real estate in a couple of different ways I was a commercial real estate broker
1:12
lease properties for tenants like Tomy Jerry’s or just other like large scale
1:17
vendors and I became a broker on the residential side for investors mostly representing buy side and I would help
1:24
them kind of identify property find ways to add value show them different ways to acquire debt and basically structure
1:32
deals in really unique ways so they could unlock a lot of value and I did that for several years was a very successful broker but I saw that the
1:39
interest rate environment was changing I realized hey I should probably make a shift here into property management but
1:45
when I thought about property management for my own rentals and other things I realized the long-term Property Management not for me and so I had an
Transition to Short-Term Rentals
1:53
Airbnb at the time mostly long-term rentals were in my portfolio but I had one Airbnb and I decided to explore that
1:59
a little bit further on the short of rental side and so over the last five years I’ve acquired about 18 doors
2:05
myself personally and I’ve helped represent people on about 200 transactions and now we manage about 180
2:11
shortterm rentals today amazing yeah so a lot of different threads I want to pull on there let’s I guess chronologically goes you entered as a
Building a Personal Portfolio
2:18
broker into the commercial space you decided that wasn’t for you how did you identify right out of the gate that you
2:23
wanted to work with investors instead of your typical home buyer that actually this back so my background growing up I
2:30
my dad is a financial adviser he’s in private practice so he’s not with a big firm he’s a cfp CFA CPA he’s he runs his
2:38
office a family office for a couple of high net worth individuals and so I grew up around this idea of capital
2:44
preservation Capital Growth just this whole mentality of respect around Capital so that’s like my background
2:50
growing up as a kid he even had like a small 12 12 unit apartment building Class C I mean it was terrible and I was
2:56
the one running around ining the turns on the roof in the middle of summer like patching this asphalt SE I was terrible
3:03
and I told myself I was never going to own real estate and then as I grew up I began to see as many of us do our
3:08
father’s wisdom and I realized you know what real estate’s actually really powerful for Building Wealth for myself
3:14
and for my family and for future generations and completely changed course over time as and so when I went
3:20
into commercial brokerage it was the mindset of I want to learn how to invest in commercial real estate and I’m going
3:26
to do that best by being an agent and I realized and I was not actually the real estate industry I wanted to go down got
3:33
it what would you say it was about the commercial industry that turned you off to that and towards residential though I
Challenges in Commercial Real Estate
3:39
found the commercial real estate I mean in that world a lot of them view litigation as a primary means of
3:46
generating wealth and so they look for ways to screw tenants or Partners like
3:51
they’re intentionally looking for ways to generate a lawsuit as one of the main
3:56
vehicles for creating income and wealth for themselves I just didn’t want to be in that world and that may not be true
4:01
of everybody’s experience just to be clear that was just my experience of it yeah one of the things and I’m sure
4:07
we’ll get into this but with residential real estate if it’s under four units like it goes along with the overall
4:12
Market forces it’s not based on it’s not valued based on the revenue it generates necessarily the barriers to entry are
4:19
much lower when you get into these larger commercial deals you’re playing a totally different game and if you don’t have as much experience or if you’re not
4:25
as networked I’m sure it can be I don’t know at times yeah you have to be careful when you start swimming in
4:32
commercial real estate Waters you need to be very careful yeah definitely but the residential side I mean that’s where
4:38
I spend my time it sounds like you’ve found a niche there not only you learned the longterm rental route you built some
4:43
yourself but now you focus primarily on short-term rentals so before we get into your company what’s the composure and
Strategies for Real Estate Success
4:50
and how did you build your 18 unit uh Port personal portfolio yeah great question I mean it sounds amazing and
4:56
you hear all these stories from everybody on their podcast like how Earth do they do de and the reality is I got lucky in a lot of ways I was
5:03
starting to really dive into real estate the beginning of Zer zero interest rate policy and so I was just at the
5:09
beginning of that super hot market and so there were just transactions all over the place there’s a lot of opportunity to make money if you were smart and
5:15
paying attention and so honestly I got really lucky eron but what I did is as I
5:20
switched from that commercial real estate position to this investment real residential investment brokerage I
5:26
learned a lot from the company I was at it was a firm out of Denver called Atlas real estate they’re really big now I think they manage like 12 or 13,000
5:34
long-term rentals and at the time they only had like 3,000 and but at that firm it was really cool because all of the
5:40
individuals who worked at that firm were investors themselves and so my boss my employee broker Michael Hills was
5:46
amazing and he probably at the time I came on board owned about 50 rentals himself and so he taught me a lot of
5:52
things some of the things that he taught me was how to find a deal how to value a
5:57
deal how to capture the value in a deal so I started doing some flips on the side I started doing some hold tailing
6:04
where I’d basically buy a property from somebody who needed to be out in a week and then I would just relist it without doing anything and that’s just the value
6:10
of having cash right and so that was how I really got started and as I was flipping I was realizing hey the
6:16
government is taking like 40% of my gains this is not very fun and so he explained okay now next step now that
6:22
you know how to flip and that value and price out a cosmetic repair now you need to learn how to hold on to these assets
6:28
over a long period of time so then it started shifting from just flipping to I’d flip one I’d hold one I’d flip two
6:36
and I’d hold one and then I’d flip three then never P two or that was how I got started and those became my long-term
6:41
rentals and so right now I think I have four or five single family homes that are long-term rentals now in my personal
6:48
portfolio but through that process I began to look at the market in a different way and I began to look and
6:54
see hey where is somebody inexperienced or doing something that doesn’t make sense in the marketplace and where can I
7:00
capture that value you just gain a sense when you look at deals a lot you gain a sense of what is a deal and what’s not a
7:06
deal and you pull a little bit I like what you said earlier about pulling on the thread I learned to do that so
7:11
perfect example there was a commercial building in this cute little old downtown area of Colorado Springs called
7:16
Old Colorado City actually used to be the capital of the Colorado territory before it became a state so it’s really
7:23
super cool history this commercial building was mixed juice it had Apartments it had a commercial space
7:28
wasn’t huge the whole buildings probably 5,000 ft and I saw that it was listed by a residential agent and when they listed
7:35
it I thought that price seems really low that’s weird and then I found out oh this is a residential broker who listed this probably has no idea what he’s
7:41
doing and so that’s when I went in I’m like I’m going to try to buy this property as quickly as possible I literally when I saw that property got
7:47
listed at about 9:00 a.m on a Saturday I was watching a football game with my wife and and one of my friends and we
7:53
told our friend like hey dude hang out we got to go look at this building like we’ll be back we literally got up D this
7:59
game left my friend at our house to go look at this building within an hour of it being listed and we had a cash offer
8:05
before the end of the day in their hands and that deal proved to be obviously very lucrative so if it’s items like
8:11
that where you learn as you’re looking at the market you understand hey this seems underpriced or something’s funny
8:17
going on here I wonder if I could add value or capture some value in some way one of the things though and this is I
8:23
guess a different part of the conversation is sacrifice in general right so a lot of people listening to
Team Building
8:29
this show they work full-time they probably have families or plan to have families and
8:34
they’re trying to figure out how to build a real estate business in the margins of their time without it fully taking over so in my mind the first
8:42
place my head gravitates toward is finding teammates or agents deal finders property managers that can help produce
8:49
the types of deals that they’re looking for but your experience it sounds like it was very active right like you you were really involved so what would your
8:56
kind of advice be to somebody who’s looking to build this type of business business in the margins of their time versus like treating it like a full-time
9:03
when you have just those smaller margins of time don’t expect necessarily the same result or the same time frame
9:10
rather of those results and that’s totally fine that’s totally okay and I obviously I’m not trying to sell Aon not
9:15
trying to sell myself but if you your time will Best be spent talking to people like Aaron and talking to people
9:22
like me that’s where you are going to unlock the most amount of value with the little amount of time you have is
9:27
finding those people who have actually done the real work and who have integrity those are two really hard
9:33
things honestly to find because there are a lot of people who say they’ve done the work but they haven’t actually and
9:38
then they try to sell you something that’s not actually valuable for you towards achieving your goals or they
9:43
have the experience but they don’t have integrity and so they Shyer you out of your money and so you have to be very
9:49
careful and I think the best way listeners if you are really busy is to
9:54
spend the time identifying who are these potential people and then just scheduling call after call I mean you
10:00
can get to know somebody really quickly like if you pick up the phone and you called me and you said this guy is within 2 minutes of our conversation
10:05
this guy is a total tool I don’t want to work with him that was only three minutes of your time that we actually spoke with that person and so then you
10:12
can make the next call and so I find that doing the research on who in your Marketplace in particular or where you
10:18
want to invest in particular finding the people who are good boots on the ground doing the real work and know what
10:24
they’re doing is going to be by far the most efficient use of your time 100% yeah so building a team of people that
10:30
you can trust they jive with your values and they have access to the tools or network or deal flow or whatever it is
10:36
that you need to accomplish your goals and I think the other important thing I heard you hint at is that it’s like playing your own game right if you want
10:42
to do this in 20 or 30 minutes a day you probably shouldn’t expect to you know buy a 100 rentals in year one and year
10:50
two but instead like build goals that fit and and work backwards into the lifestyle you want to have but I think
Shifting to Short-Term Rentals
10:56
one of the things and this kind of parlays into what you do now is there are different strategies if you do want
11:01
to quote unquote speed it up and build uh cash flow right so I would love to
11:07
hear from your perspective both as an investor and now as someone who runs a property management company for short-term rentals why did you shift
11:15
from a standard traditional long-term rental towards these vacation rental short-term rental model it’s it is an
11:22
industry that’s being disrupted and whenever there’s disruption in an industry there’s opportunity I saw a
11:29
couple of clients of mine former clients of mine doing really well in the shortterm rental space and I thought
11:34
this is fascinating now of course it was during Zur and so the profits were ridiculous and that shouldn’t be
11:40
expected over the long term but still they it was a really interesting real estate investing model I had run into
11:45
when I was at Atlas real estate and so those two clients actually became my partners of the company today I made the
11:52
switch for a lot of reasons but the main one again is that disruptions there and I noticed too there’s this big Trend in
11:58
the short-term rental investment space where the entire industry is starting to professionalize in ways that it hasn’t
12:05
historically or hasn’t been possible historically because of the Advent of Technology it allows for a lot of
12:11
different ways to approach scale that didn’t exist before mainly through acquiring guests it became way cheaper
12:19
through Airbnb and vbo the ability to acquire these guests from wherever all over the world to come stay in your
12:25
property became astronomically cheaper that was a big innov of Airbnb that
12:30
tenant acquisition or the guest acquisition costs came down massively and so the cash flow has always been
12:36
there around shortterm rentals they’ve always been a higher yield investment
12:41
vehicle but what’s made it really hard is that it’s usually very isolated to a very specific location you can’t invest
12:48
in that real estate in a lot of other ways and then there are downsides off of the cash flow side of those locations so
12:53
if you buy a place in I’m trying to think of a luxury destination or vacation destination let’s say you buy a
12:59
in a small Beach Town there’s not a lot of economic drivers driving up the value of the homes in general because people
13:05
need to live there to work people only go there to vacation and so you have some downside risk on your appreciation
13:12
because there’s no like fundamental economic driver of the region to improve the overall asset prices and so that’s
13:18
traditionally been the downside of vacation rentals but because of this change and acquisition of Gest through
13:24
Airbnb now you can own places in thriving economic driving uh City centers like at Denver or a Houston or
13:31
wherever you may be if you’re in a large fast growing city you can actually have access to this higher yield while also
13:38
not having this downside appreciation risk so those are the two main things yeah so what do we say if if you’re just
Understanding the Short Term Rental Market
13:44
a passive Observer you know and you see article if you’re tapped into Bigger Pockets and you’re maybe just getting
13:50
into investing all these articles over the last 12 to 18 months Str Str is dead
13:56
it’s drying up there’s less demand people are going back to hotel I mean I’m teeing up some things that
14:01
I’ve seen on headlines like what is your kind of reaction to that as far as the long-term durability of the industry is
14:07
it that the only the cream of the crop is going to survive or what is behind all those takes I actually am excited
14:13
that uh people read that and believe it so because then it just means there’s less Supply to compete with I love it it
14:18
is true that we provided more Supply than demand however it’s false that
14:24
demand is shrieking shrinking demand is still growing pretty dramatically in the rental industry space the alternative
14:31
accommodation space I think is what it’s called and it’s still growing almost double digits and it’s projected to grow
14:37
double digits over the coming several years the demand for these alternative accommodations outside of hotels so the
14:42
demand is still growing so it’s false to say that like it’s empirically false to say that the industry is shrinking or
14:49
something like that but what has happened is Supply outpaced that demand growth for a long period of time and so
14:54
people who got into the game early are definitely not earning the same profits that had been and so there’s a
15:00
perception that hey I’m not earning nearly as much as I was maybe I allowed my costs to climb a little bit I wasn’t
15:06
super disciplined on ensuring my Pro property’s p&l stayed tight my costs were controlled all those things because
15:12
I was making so much money um and now you’re feeling the revenue coming down but your costs aren’t coming down
15:17
because it’s hard to to reduce costs and so now you’re starting to feel a squeeze and I think a lot of people are in that
15:22
position and that’s actually another example of why I love being in this particular niche of real estate yeah I
15:28
know that’s fascinating and I just full disclaimer I don’t own a short-term rental I know several people that do and I’ve had a lot of conversations about it
15:35
but my understanding is one of the harder things when you’re buying over the last couple years is that when people provide you their trailing if you
15:42
buy one that’s already in operations they provide hey here’s what I made in the trailing 12 or 24 months a lot of
15:48
that data still has some skew from it 2021 2022 yes and and the sellers are
15:53
always trying to position it like hey look this is exactly how it’s going to be and like you said there’s some
15:59
headwinds whether it’s the compression of the good Supply or people some of the trends normalizing after covid and I
16:05
know it’s a few years after at this point but it’s just interesting like if I was an everyday investor use me as an
16:11
example definitely interested in short-term Ral but have not bought one part of it’s because I don’t trust my
16:16
ability to understand what is a good deal and what is not so like how if you were working with someone who had
16:23
long-term rentals but was interested in getting into short-term rentals like how would you go about educating them to
16:28
spot a good deal yeah absolutely I mean the first place to start is obviously with your end in mind so let’s say we’re
16:34
having a brand new conversation here and this is how it should go by the way for your listeners not with me in particular but if you were interviewing somebody
16:40
this is how they should really be responding or some flavor of this Aon I’m glad you’re interested in Search and rentals it sounds like you’ve been a
16:46
pretty pretty sophisticated investor you have a handful of rentals already there are some really important differences
16:52
between short-term rentals and long-term rentals but before we really start diving in and start looking at properties or deals or anything I need
16:58
to better understanding of your why and your goals like what are you trying to achieve and in what time frame and why
17:04
are we even having this conversation about short-term rentals if these long-term rentals have been successful for you so they should ask hey what’s
17:11
your goal where are you trying to go because I may not be able to help you go to where you’re trying to go and they
17:16
need to know that right up front so you don’t waste anybody’s time most people think I’m full of crap when I say that I can operate and grow my portfolio in an
17:24
average of 20 minutes per day so instead of asking you to take my word for it I sat down with my business business partner Nathan and we ran through our
17:30
entire 20-minute investor strategy in free Workshop we go through all the different workflows software and tools
17:36
we use to stay in control of our portfolios so we can focus on what matters most to us you can watch the
17:41
entire workshop and download our workflows for free at 20-minute investor.com again that’s 20min
17:47
investor.com now back to the show so here let’s game it out a little bit so I have my long-term rentals I’ve generated
17:54
about $5,000 a month in net cash flow it’s really great it’s had a huge impact on my family we’ve operated them well
18:00
and we’re really comfortable but we can’t save up Capital the way we used to be able to because we have our three young kids our household expenses are
18:07
much greater so you can only really make one or two plays every 12 to 24 months
18:13
and so we want to make each play that we make each additional investment that we buy we want it to have a bit of a higher
18:18
impact totally ultimately our our primary goal is to add another let’s say at least $1,000 a month per net cash
18:26
flow per property and we can’t do that with long-term standard rentals so we’re
18:31
looking to diversify in short-term rentals understanding that there’s a lot of things that it takes to generate $1,000 a month how do I get there yeah
18:38
absolutely well there’s no magic ball it’s not like in the world of investing risk and return always go together and
18:44
so we can probably find deals that earn you that kind of additional net cash flow in your pocket but obviously
18:51
there’s additional risk with these things and that risk can come in a lot of ways it can come in poor operations once the thing is running because
18:57
operations are far more complex the short-term rentals than long-term like it’s pretty hard to mess up a duplex
19:03
like with a long-term 10 I mean it can happen and some people definitely have horror stories but it’s actually pretty
19:08
hard with short-term rentals where you’ve got tenants coming in five six different tenants every month your
19:14
opportunity for messing up is quite a bit or having issues is quite a bit higher so operational risk is higher the
19:20
second thing that’s higher is you have legislative risk or legal risk of no longer being able to operate as
19:25
short-term rental you pencil the deal as this short-term rental and then a year later the citizens of that town or
19:31
whatever say hey no more we’re going to change the laws or the rules around short-term rentals all a sudden your entire model is blown up so that’s
19:38
another risk let’s see a third risk is it does typically require more Capital than a standard long-term rental deal
Understanding the Risks and Rewards of Short-Term Rentals
19:44
because you have to furnish and set up a property in order to compete for those guests and you have to do it in a way
19:49
that’s smart and intelligent and it’s not by doing it at the lowest cost possible so if you want to get into
19:54
short of rentals keep in mind there are additional risks that come along with it you you get the benefit of additional
20:00
cash flow but you also have more risk and from my perspective a with what you shared with me I actually think that’s a
20:05
pretty good move for your portfolio because you have a lot of hedging you already have these long-term rentals you
20:10
already have a pretty good stable cash flow it’s probably okay to try to go for a higher yield higher risk investment at
20:16
this point because you already have a really strong base now to find those deals I always tell people the best way
Adding Value to Your Property
20:23
to make money in real estate is to add value always look for opportunities to add value you you don’t have to have a
20:30
ton of time to be able to do that because there are really good partners you can work with who will help you add
20:35
the value to the property I often hear adding value is complicated and takes a
20:41
lot of time it’s like it’s true unless you find somebody you really trust who can help you through that process well
20:47
as well perfect example of adding value is let’s say you’re talking to somebody and we say hey three bedrooms in our
20:53
Market in the short-term rental space earn pretty good Revenue maybe they earn 600 a month in net cash flow on average
20:59
but if you can move up to that fourth bedroom category you can see a ,000 or $1,200 cash flow increase but
21:07
four-bedroom houses are more expensive so let’s go find a three-bedroom house that has a lot of more square footage
21:13
than it really should and find a way to add a fourth bedroom build that fourth bedroom modify it to become a short-term
21:19
rental and we’re going to pay a lower price because it’s a smaller house we’re going to add value to get to this higher tier of Revenue and we’re going to
21:25
generate Equity basically for you the homeowner or the investor so that’s how we would help you make additional income
21:32
there Ain got it so spotting some additional opportunities to add value similar to if you were doing something
21:37
like a bur strategy on a long-term rental or even a flip right you’re saying in addition to adding the bedroom
21:44
you would optimize it in such a way that it would work for a short-term rental strategy and instead of taking the room
21:51
rates nightly rates that you would get for a three-bedroom all of a sudden you’ve created four-bedroom so you have extra equity in the home and you’re
21:57
driving a higher Revenue than you would if you bought it as a four bedom at a lower cost yep you’re driving that
22:03
additional Revenue premium at a lower cost because it is really hard right now to find deals that make sense with interest rates the way they are it’s
22:09
very difficult yeah makes sense so then from the business model perspective one
The Realities of Self-Managing Short-Term Rentals
22:14
kind of blanket statement that I’ve heard and somewhat believe based on the
22:19
other short-term investors that I know that self-manage is that it’s about four times the revenue of a long-term runn
22:25
and 10 times the work so I know you run a short-term term management company and
22:31
first of all do you think that statement is accurate for someone who’s an inexperienced operator trying to start their own short ter Ral and bring it up
22:38
to speed and second what are the kind of pros and cons of self-managing versus bringing on like a full stop manager
22:43
knowing that you’re gonna have to sacrifice a pretty big percentage of your Revenue to do so yeah that’s a
22:49
great question the the four times the revenue 10 times the work I I’m just I think that’s probably about right my gut
22:54
says yeah that’s probably about right I haven’t heard that before but I think that’s probably right and it will vary right like as you scale or add more
23:01
units that can your like work per unit goes down right you start achieving some
23:06
economies of scale but then you hit a w so like what happened for me personally is I got to about six or seven airbnbs
23:14
plus my long-term rental and I’m like this is like a lot of work I can’t go on vacation I can’t like I have people yeah
23:20
I have people helping me but at the end of the day like there’s so much happening that I have to basically be on
23:25
on call all the time I can’t not be and so that was the point where I realized I need to either hand it over
23:31
to a manager or I need to divest or turn them into long terms or whatever because this is not it’s not working with my
23:38
lifestyle and my family because I actually have a little kiddo too what I would tell people is like it depends on
23:43
how much room you have if you only have 20 minutes a day you are probably not going to be able to self-manage an
23:49
Airbnb even if it’s in your basement right like even if it’s like in your backyard even if it’s really close and
23:54
Easy in a lot of ways and let’s say even if your wife does the cleaning or you do the cleaning or your partner does the
24:00
cleaning like or your kids do the cleaning I mean there’s like a lot of ways you can try to do this but the reality is it’s going to be a lot more
24:06
work than 20 minutes a day no matter what and so if that’s all you have you probably can’t go the self-management
24:13
route I just would not recommend it managers are expensive like we’re expensive 100% in general what I tell
24:19
people is like it is passive our managers but you typically you earn about 140% of what you would earn as a
24:27
long-term rental in terms of your n income distribution so even though your operating expenses including a management fee are way higher with a
24:34
short-term rental you still at the end of the month are going to get an increased net distribution than you
24:39
would for a long term and again the main fundamental reason for that errand is because you have more risk even if you
24:45
do have a manager there you do have more risk as a homeowner like a lawsuit a guess slips and falls and sues you and
24:51
files a home insurance claim that’s likely or is far more likely than on a long-term rental so there’s all these
24:57
different little aspect of increased risk that result in higher yield but
25:02
even with a manager and let’s say it is only 20 minutes a day you can do it but it just comes with that higher risk and
25:08
you have to be aware of that understood and yeah so my understanding of the business model for property management
Evaluating Property Management Fees and Take Rates
25:15
on short-term rentals is it’s usually somewhere between 25 and 40% of Topline revenue is that about standard for the
25:21
industry if the are you talking about operating expenses or a PM commission no sorry the PM
25:27
fee if they’re about 30% you should probably run yeah that’s really high that’s really high yeah because it’s
25:33
Topline Revenue right so essentially like I’m trying to understand the incentive structure here because if they’re generating Revenue but then
25:39
they’re bleeding on the operating expenses there’s no penalty necessarily for how they operate so are there different ways when you are working with
25:45
a client and you’re reporting back to them hey here’s how you did last month or last quarter do you look at things
25:50
like expense ratios like we were able to hold operating costs under X and and we were able to drive room rates up by this
25:58
percentage year-over-year like do do you have those type of conversations with your clients yeah generally what we look
26:04
at is your alternative options with the asset so we say Hey you were distributed X number of dollars this month if you
26:10
had gone an alternative method with this real estate here’s what you probably would have earned here’s what the market rate is for rent take off your 30% offex
26:17
there because you still have a manager yeah we may have operated a 45% offex or something like that but you compare them
26:24
month you know next to each other month over month but the other big thing with short-term rentals is that income is variable so you don’t and seasonal what
26:31
I mean by that is seasonal and so you can end up in a couple of months out of the Year where you actually earn less
26:37
than you would have if it was a long-term rental or some other rental but when you annualize it you earn quite
26:43
a bit more than if it was a long-term rental and that variability in cash flow is also a reason why you need to have
26:49
more cash flow on an annualized basis because that there’s risk associated with that lack of consistent cash flow
26:56
but yeah we absolutely talk to our owners about operating expenses the big thing that your listeners should always
27:01
ask a property manager if they’re thinking about a short-term rental property manager don’t ask them what their fee is don’t ask them what their
27:08
operating structure is don’t really ask them any of them ask them what is your take rate because in the short-term rental
27:15
industry they can you will not find I haven’t two short-term rentals who
27:20
charge owners the exact same way it is literally different from every single manager on how you get charged and it is
27:27
really hard to understand where is the money actually going it is very difficult very opaque very hard to
27:33
understand in our industry from an internal metric when one manager is talking to another manager one of the
27:39
big questions they ask each other is hey what’s your take rate that means how much of the money that you’re collecting
27:46
on behalf of an owner are you keeping are you taking so for every dollar you bring in regardless of its source
27:52
doesn’t matter if it’s tax revenue doesn’t matter if it’s in doesn’t matter if it’s a cleaning fee doesn’t matter
27:57
every dollar that lands into your trust bank account how much of that are you moving into your operating bank
28:04
account and that is the question to ask you will make a lot of managers very uncomfortable when you ask that question
28:09
but that is the one to ask because the way that they charge doesn’t matter whether they charge you all these maintenance fees or they charge you a
28:15
hot tub fee or they collect 100% of the cleaning fees and only charge you a commission on your accommodation fear or whatever none of that really matters at
28:22
the end of the day is how much money did you collect on my behalf and how much are you keeping and that’s the real
28:28
price you’re paying got it so what’s a good Benchmark if you ask that question and you’re interviewing managers like
28:34
what should an investor look out for or what would they perceive as a good take rate yeah so there’s another Nuance here
28:40
that depends on does that manager do maintenance in house and housekeeping in house like how many of the expenses do
28:46
do they push off to you as a homeowner because some managers like ourselves are white glove we say we do literally
28:53
everything so you won’t have any costs outside of US unless you choose to pay
28:58
your utilities on your own and then obviously your debt service on your own and your insurance on your own other than that literally every expense will
29:05
flow through US however some managers won’t be that way right some managers will say hey look Landscaping is all on
29:11
you like vassa huge in the short-term Rental Management space biggest one and they won’t touch pools they won’t touch
29:17
Lawns they won’t do anything around the you as a homeowner still have to organize and pay your vendors and so I
29:24
make that distinction Aon because your take rate is going to is going to reflect that so if it’s a white glove
29:30
service you should expect a take rate of around 40% got it yeah see if I was hiring a
29:36
short-term management company and they refuse to touch the pools or do standard maintenance I would not be very happy of
29:42
course not what’s the point yeah so it’s an interesting this
29:47
the reason our my wife and my personal real estate plan that we haven’t ventured that direction is largely the
29:53
unknown and it’s can we really find a trusted partner or management company that can that we believe in and can
30:02
understand what they’re doing like you said the transparency and understand the inflow and outflow and get understand
30:08
the benchmarks to even aim for it just is a totally different type of business than a long-term rental I mean and the
30:13
Dynamics to succeed the hospitality element Dynamic pricing and and like you
30:19
said there’s all that seasonal like being able to ride those waves figuratively and figure out like what to
30:25
charge on any given rate how to stay in line with competitor I mean it is a very active business and just it’s
30:31
interesting to even think that it’s the same asset class real estate because it’s really Hospitality business
30:37
transposed on top of a real estate asset that’s right that’s right so yep that’s right it’s a completely different
30:43
business model to long-term renting it really is yes yeah so I’m trying to
30:49
think of other angles that might be useful to someone who’s coming from long distance and and considering this do you
30:56
do most of your clients start with short-term rentals or do you find a lot of people that are making that switch or graduation from another strategy into
31:04
this yeah that’s a great question honestly it’s a pretty big mix we do have quite a few large investors who own
31:12
long-term rentals short-term rental some owned commercial building we do have pretty mixed portfolio of investors but
31:18
I would say they’re probably 30% of our owner mix we have a lot of homeowners who want a second home but it’s not
31:26
primarily a second home it’s primarily an investment that they happen to want to use their occasionally as a second
31:32
home more of some people call them lifestyle assets but I’m not entirely I guess maybe that’s what it is a lifestyle asset because the homeowner
31:38
only uses it a couple of weeks out of the year and their primary goal is revenue in the traditional Vacation Rental Management space it’s going to be
31:44
the flip of that we’re like hey this is our second home we want to rent it out occasionally to like cover some of our costs but this is for us and we
31:52
generally don’t work with very many of those homeowners because we’re not built for that we’re built for investors so we
31:57
I would say that’s probably another 30% lifestyle assets and then the last kind of 40% of really just eclectic mix it’s
32:04
mostly people who end up owning this piece of real estate and they don’t want to get rid of it it’s not a good time to
32:10
sell they don’t really want to do the long-term rental set up because they may be coming back to the city for work or
32:16
they may like they don’t want to commit basically to locking up their property with a tenant and so a lot of these
32:21
people will move away and just run out their existing property short term and become almost accidental landlords as
32:28
been called we end up with quite a few of those as well yeah that’s fascinating because pretty much everyone I’ve ever
32:34
coached or anyone who I’ve talked to that wants to make real estate a part of their long-term plan short-term rentals
32:39
crosses their mind at some point but then when they learn about all the complexities of the business and what it would take to self-manage they usually
32:46
shift back towards well maybe I’ll start with long-term rentals which my personal thesis is that’s a good place to start
32:52
because the barriers to entry are much lower and like you said earlier it’s pretty hard to screw it up right even if you’re in exper
32:58
if you’re going mes it would be to make them in an Environ that where you have you know a t of people to draw
33:05
experience from and there’s very few things that can happen that can’t be corrected but if you botch a a
33:11
short-term rental and you get a bad review or or you like you said something bad happens you don’t have a
33:16
well-maintained property somebody slips and falls and sues you I mean it can take you not only out of business but
33:21
like it can really wreck things for you personally financially so know it’s
33:27
interesting and then the last theme I kind of want to touch on here is so you’ve you are an investor but you’ve
Scaling a Short-Term Rental Business
33:32
also started a business you have now two partners you guys have scaled I think I can’t remember how many markets you’re
33:38
in but you’re in multiple markets now and I I read through on your site you guys have a v a Clear Vision of how you
33:43
want to not only scale your company but you also want to continue to keep customer service and service of your
33:50
clients at at the forfront of that so my question for you as a business owner is
33:55
how do you continue to scale in such a White Glove not only white glove for your clients but white glove for the end
34:01
customers the people that are staying in these homes how do you continue to scale without sacrificing the quality of that
34:09
yeah that’s a great question it’s really hard and I we have a lot to improve on and to be better at I mean we’re not by
34:15
no means perfect we have two main goals here though like when we started our company me and my two partners sat down
34:20
and we spent a lot of time just really thinking about why we’re doing this and what we want it to be and we decided
34:26
that what we really see we love investing we love investors we want to serve that group of people we want to
34:33
help people become investors as well and so we set two goals for our company over the next 10 years one was to have at
34:39
least a thousand owners because we wanted to have some impact we didn’t want to just have a hundred owners in like one market we wanted to have bigger
34:46
impacts than that and then the second thing we set out to do is to distribute $200 million in profits to those owners
34:53
over the course of the business and we did that because it is
34:58
the case there’s no denying this that there is always a conflict of interest between an investor and a property owner
35:04
and their manager there’s a conflict of interest in a lot of ways and they can
35:09
also be aligned in a lot of ways but they’re also going to be in conflict in a lot of ways and so we’ set our guiding
35:15
star or or what our major objective to be profit for our homeowners because
35:22
that is why we exist so when we look at an operational system or process and like man this is really expensive for
35:29
our homeowners like why are we doing this like what can we do to reduce the cost to increase the efficiency and pass
35:35
those savings back to our homeowners we ask those questions all the time like even in our leadership meeting yesterday
35:40
we were talking about the way that we do Maintenance building right billing right now it’s a very traditional setup where
35:46
you get you build labor and materials right for every job on your property we
35:51
explored and had a long conversation about well do we move to just a fixed monthly maintenance plan and you have
35:57
unlimited labor right on your property so they just go 150 a month and you have no problem like anytime you have an
36:03
issue you just won’t see a line item on your owner statement you just have this fixed plan and we went back and forth and back and forth and decided at the
36:09
end of the day what’s best for our homeowners is to just drive down our costs with our our existing model and in
36:16
having those debates internally we have all the time now to your question about growing the company and scaling and
36:22
maintaining service it’s really difficult and we have had our ups and downs you go through all these different
36:27
seasons of the business where like we had to bring cleaning in house we used to use contractors but now we have them
36:33
as employees and that transition was really painful for both us as a management business but also for our
36:38
owners on their properties not from a revenue perspective but from a guest experienced perspective and so we going
36:45
through that transitions very hard and they going to be endless transitions like that if you continue to scale and
36:51
grow but there are real benefits to our investors as well from something you mentioned which is diversification not
36:57
just in asset type but also in location one of the big things I see for investors like myself included is I have
37:04
a concentration risk I have a lot of my real estate in One Marketplace and there’s even though that market is
37:11
strong looks good all on the up and up there’s still risk in the fact that a lot of my net worth is tied into one
37:17
specific market and one of the beautiful things about us being able to scale is we can go to our investors who already
37:23
own assets in this market we say hey investor we actually are now in this market we can operate down there similar
37:30
to how we operate here close enough so that you can be you can expect the same kinds of things from us we’ve already
37:35
developed a relationship so the risk of us not having Integrity or not delivering on what we say is low and we
37:41
will do everything for you down there we will help you identify the property we will help build you the scope of work for adding value we will help set it up
37:48
as Airbnb and we’ll launch it and so you as investor like sweet I just got to give you money and look at some deals
37:54
like and I know because you’re handling my property here that you can go do it in that other market and I’m getting
37:59
diversification in my portfolio awesome let’s do it so there is real value by growing as a business there are
38:06
downsides to it for our owners as well because we have to go through these stages of transition and they can be painful but there’s also value as well
38:14
yeah and I know we we don’t really have time to get into it but I’ve seen some of your philosophy on how you run your business you guys run it very tight
38:20
you’re constantly reevaluating and looking at you know how like you said you can keep your costs down keep the
38:26
value High to your clients and every time you add a market I’m sure that comes with additional cost for you guys and additional complexities and there’s
38:32
a period of time where maybe it’s costing you money to to make that decision but then it opens up an additional market and opportunity for
38:40
you and your investors so I think that’s really cool one thing I really appreciate I just want to call out is that you’ve been very cleare eyed and
38:46
about articulating some of the downsides and the risks during this conversation and I think there’s plenty of upside
38:52
right nobody would argue that there’s not a ton of financial upside both cash flow appreciation all the good stuff we
38:58
like about real estate and short-term rentals but it is really important to be cleared about the risk so I appreciate you being forthcoming about that well as
Conclusion
39:05
we wrap up here I this has been really informative I’ve learned a lot where can people go if they want to find out about
39:11
you or your company or any of the services you offer yeah absolutely there’s two main ways if you just want
39:16
to know more about our business and our setup you can just find us on Ren dry.com pretty easy and if you want to
39:22
get a hold of me you can just email me Jacob reno.com
39:28
awesome man’ and you yeah you have lots of different videos and blogs and stuff on your site that dig into some of this the types of stuff we talked about today
39:35
I’ll make sure everything is included in the show notes and hopefully we’ll have you back on again sometime great thanks
39:40
Aaron it was a pleasure to be here thanks for coming thank you for making it to the end of today’s episode as you
39:45
may know podcasts are very difficult to grow organically if you’re getting value from today’s episode I’d deeply
39:51
appreciate if you can take 30 seconds to leave my show a five-star rating and review this will go a long way to
39:56
helping me reach more listeners just like you thank you so much in advance