It’s something that I wish I would have done the research of what I know now when I was thinking about getting into short-term rentals because, lucky for myself and a lot of short-term rental operators, there are people that are significantly smarter than us that have identified some of the key pain points that operators with one short-term rental or multiple short-term rentals have in order to automate a lot of the business.
In this week’s episode, I bring back Travis Zappia to chat all about investing in Airbnb properties and the short-term rental investing strategy. Travis Zappia is a FIRE advocate who has started to get into real estate investing in the last three years. He purchased his first house hack in 2016 and decided to rent out each bedroom individually while living in the master bedroom. He has since purchased three additional properties and started a short-term rental management business. In 2020, Travis’s short-term rental business grossed over $110,000, and in 2021, it grossed over $375,000. With his industrial engineering background, he has developed a set of systems and processes which help him manage five short-term rental units all while continuing to work a full-time job. There are a few people in the short-term rental space that I follow pretty closely, and Travis is definitely one of them. I know a lot of you reached out to me after the last episode with Travis and said that you liked it, so I hope you guys enjoyed this one, too. Now let’s dive right in.
You’re listening to Real Estate Investing by The Investor’s Podcast Network where your host, Robert Leonard, interviews successful investors from various real estate investing niches to help educate you on your real estate investing journey.
Hey, everyone. Welcome back to the Real Estate 101 podcast. As always, I’m your host, Robert Leonard. With me today, I welcome back Travis Zappia. Travis, welcome to the show.
Thanks having me again. How are you doing?
Good, man. How are you?
About 20 episodes ago, we had you on the show back on Episode 103, and we had a great conversation that I heard from a lot of listeners that they enjoyed. We actually didn’t get through all of the things I wanted to talk about, so we’re here today to finish that conversation. One thing that was not on my list of things to talk about last time but is today is what happened recently in Atlanta with short-term rentals. Basically Atlanta passed a law that was severely limiting Airbnbs there. Outline what that law is and your thoughts on it.
This is something that will commonly come up in some of the very large metropolitan areas that are out there where hotels will start losing market share for people that are staying at their places versus people that are staying at Airbnbs. What can potentially happen in those large metropolitan areas is the hotel lobbyists can start lobbying to politicians to ask for them to begin putting in some severely limiting and restricting laws in place to ban short-term rentals specifically. That’s what is very similar to what happened in Atlanta. Essentially at that point as a short-term rental operator depending on where you’re at and what county specifically you’re in, what you may or may not be able to do could be severely limiting. It’s a big reason why I try to stay away from large metropolitan areas specifically because I think you are introducing a significantly higher risk of something like that happening versus looking at areas that are not necessarily as big metro but are very much travel-to destinations that people go to often.
Travis Zappia (03:56):
A market like Atlanta has a lot of business travel. Not as much of a portion of those people are there to just enjoy Atlanta. Most people that are coming to the town, Atlanta Buckhead, or different parts, are usually coming to it for business. That’s a big reason why the hotel lobbyists needed to try to step in and try to do something to essentially retain their market share that they have. It’s something that can definitely happen in a lot of those big metro areas. It can also happen in small markets, too. It’s one of the risks that Airbnb short-term rentals holistically have with them.
Robert Leonard (04:33):
Are you changing anything with your investing strategy or portfolio to prepare for potential changes in the law where you invest?
Travis Zappia (04:40):
Yeah. I am very, very diligent in what I do and the research that I do specifically in a market before I invest. I’m not changing anything right now in any of the markets that I’m in mainly because I vetted the market extremely well early on before even thinking about analyzing properties within that market.
Travis Zappia (04:59):
One of the first things that I always make sure I do anytime I’m looking at a new market is understand what laws, rules, and restrictions that that county has had in place and for how long. Some immediate red flags that are going to pop up is if there are no laws or restrictions in place that the county has banning or allowing short-term rentals. That’s a big red flag because it means that at any point somebody can come in and shut things down. If there aren’t laws and restrictions in place at the county level, that’s immediately going to be a red flag. The reason why is because at any point somebody can come in or a new county official or a city local official can, all of a sudden, put laws, rules, and restrictions in place that could prevent you from being able to rent your property as you previously have.
Travis Zappia (05:49):
That’s a big reason why when I go through and vet the properties in the counties specifically that I’m looking to invest in for short-term rentals, I’m looking at how long they’ve had short-term rental laws in place for. As long as they’ve had short-term rental laws, first, they have short-term rental laws that are clearly defined. That’s the first thing you need to make sure that they have. The second thing is you need to make sure that those laws are somehow benefiting the county specifically. Most of the ways that they benefit the county is through remitting taxes, additional taxes back to the county in some way. My properties in Osceola County and Kissimmee near Disney World, those have a 5% county tax, it’s called a tourism tax, that I essentially have to remit back to the county every single month. That’s essentially a revenue driver for the county. So they want people to rent short-term rentals in their county because they’re essentially able to generate revenue from hosts like myself.
Travis Zappia (06:52):
So whenever you go through and vet these properties and vet areas, make sure that you’re really looking at county restrictions. Do they have clearly defined STR laws in place? How long have they been in place? Then how are those laws generating revenue for the county? If they are generating revenue for the county, you’re essentially setting yourself up to, more or less, not have some major issues down the line where they may ban short-term rentals entirely.
Robert Leonard (07:21):
Just two episodes ago, on Episode 121, I talked with Mark Horton about combining short-term rentals with long-term rentals for various reasons from potential legal issues to increasing competition. How do you think about diversification in your real estate portfolio? Is diversifying across multiple cities and states with STRs good enough for you?
Travis Zappia (07:41):
I have one multifamily property that’s a mixed-use property of long-term and medium-term rentals, it was my previous primary residence, but all of my other properties are short-term rentals specifically. I’ve strategically done that, especially early on in my investing lifespan, because my focus right now has been on, one, creating long-term generational wealth, so buying properties and not doing the sublease model that some people teach, but, two, really working on accelerating my cash flow, and short-term rentals allow for an acceleration of cash flow versus long term.
Travis Zappia (08:17):
Over the course of the next five, 10 years, I’ll probably look at some point into getting into some larger multifamily properties and figuring out when the time is right to do so. I do think it’s important to get some diversification in your portfolio, but at the same time, really understanding what’s your level of risk that you’re willing to take. Because I’m so young in my investing career and I have a lot of time on my side, I’m willing to take a little bit more risk right now in heavily vested interest in short-term rentals specifically. But over the course of the next five, 10 years, I’ll probably start to diversify a little bit more into long-term while still also continuing to purchase short-term rentals specifically for cash flow.
Robert Leonard (09:05):
What I personally like about long-term rentals is the general stability that there is mainly because everyone needs somewhere to live. Whereas with STRs, if something goes wrong in the economy, people are probably not going to be spending on lavish vacations, likely not luxury Airbnbs. How do you think about a potential recession and the impact that could have on your short-term rentals?
Travis Zappia (09:26):
100%. It’s definitely in the back of mind especially in the world that we live in. Today the Fed’s announcing more interest rate hikes. We’ll see what that continues to do to the economy and how that shakes out. I’d say there’s a couple different ways I’m hedging against that specifically. First, I’m not going and buying luxury Airbnbs anywhere. So all of my portfolio is I only have two properties that I purchased for over $400,000 and one was for $460,000. The other was for $480,000. The other properties I have are all what I would consider to still be a basic level, like entry-level vacation-style property. So it’s never going to be something that’s going to be extremely expensive or extremely cheap. It’s going to be somewhere in the middle, something that will cash flow. I think if you are looking to get into the luxury space, you probably are setting yourself up for a higher risk in this scenario that a recession happens or something major happens to the economy just in general because people aren’t going to be spending $1,000, $2,000 a night on a luxury Airbnb or an experience like that.
Travis Zappia (10:31):
Although I am still heavily focusing on short-term rentals specifically, there is some level of risk, regardless based off of if there is a recession, that short-term rentals does have that long-term rentals ultimately does not. Again, the thought process that I have had over my course of investing for the last five years is I want to invest now for cash flow, really accelerate the cash flow on the front end, and then get into a little bit more larger multifamily properties in the back end that is more of that staple stock, very stable investment property that all big investors normally get into.
Robert Leonard (11:11):
How does someone get started with short-term rentals? Are short-term rentals something that brand new investors can do right from the beginning, or do they need some other real estate experience first?
Travis Zappia (11:21):
I definitely think short-term rentals are something that any investor, regardless if you’re brand new and you’re looking for your first investment property or you’re a seasoned investor looking for properties that are going to generate more cash flow, I think either investor can and should invest or at least look into investing in short-term rentals.
Travis Zappia (11:39):
The first thing that I always recommend people do if you’re interested or want to really understand the differences of the short-term rental investment versus a long term rental is understand what kind of business that you want to get into. What I tell people is if you are investing in a short-terminal rental property, you are getting into the hospitality business, and there’s no ifs, ands, or busts about it. That’s the reality of this situation is if you’re buying a short-term rental property, you are getting into the hospitality industry. You are going to be communicating with guests, dealing with cleaners, dealing with maintenance issues, and things that pop up here and there. That’s the business that you’re going get into.
Travis Zappia (12:18):
If that’s not the business you want to be in, short-term rentals are not for you, and you should not be getting into short-term rentals. If you want something that is a little bit more passive and something that’s hands off, then long-term rentals is probably where you want to direct your focus and attention to. Short-term rentals are not a passive investment. You can automate a lot of things, but they are definitely not going to be a passive investment. Regardless of what people tell you, there is going to be active management and time that it’s going to take to get the property set up and then manage bookings, communication, cleanings, those types of things. You can automate a lot of it, but you won’t be able to automate all. If you think it’s a passive investment, you shouldn’t even think about getting into short-term rentals. If you think it’s something that isn’t going to take work, you also shouldn’t get into short-term rentals. But there’s a lot of upsides for cash flow, cash-on-cash returns, things of that nature that are a lot of the exciting things that come with short-term rentals specifically.
Robert Leonard (13:19):
Most people listening to the show today are W2 employees if I had to guess. Some of them might be thinking they don’t have the additional time it can take to manage short-term rentals like you just explained. How do you manage all of your short-term rentals and a management business while working a W2 job?
Travis Zappia (13:35):
It’s something that I wish I would have done the research of what I know now when I was thinking about getting into short-term rentals because, lucky for myself and a lot of short-term rental operators, there are people that are significantly smarter than us that have identified some of the key pain points that operators with one short-term rental or multiple short-term rentals have in order to automate a lot of the business.
Travis Zappia (14:00):
There are multiple platforms and softwares that utilize to automate many different parts of the business. The two main pieces that need to get automated from my standpoint to reduce the overall amount of time that investment that it takes for myself to manage the properties are messaging to guests and dynamically pricing your calendar to make sure that you’re maximizing your total revenue for what your short-term rentals can bring in from a gross income standpoint.
Travis Zappia (14:29):
There’s multiple softwares that are out there that do both of those things. Those softwares range from automated messaging for whatever message that you wanted to send to guests that is customized to their specific name, what property they’re checking into, check-in times for that property. There’s all these different rules that you can set up so that you can create a messaging sequence for every guest from when they inquire on your property to when they book your property, do check-in instructions a day or two days or whenever you want to send those, check-out instructions and a review request, automated message that goes to those guests. All of that, you have to set up the rules in these softwares, and then all of those messages get automated and sent out on whatever schedule that you want to send.
Travis Zappia (15:15):
Then as far as pricing to make sure that you maximize your growth income potential, there’s a few different softwares that are out there. But in order to not have to know what’s going on in that market at whatever time it is of the year and weekdays versus weekends, there’s softwares that pull in demand data from Airbnb, VRBO, booking.com, all of these platforms. Then you can set up parameters for your calendar, and it’ll use those parameters to then automatically make price adjustments based off of how often people are looking to book certain dates in a particular market. That software is really going to allow you to maximize revenue, but also essentially eliminate any additional research that you would need to do in order to understand what events are going on in your particular market just to make sure that you’re able to maximize cash flow.
Travis Zappia (16:09):
Those two things alone can help automate, I would say, like 90% of the business. Once you get those things set up the correct way, really my time involvement for a property looks like 15 to 30 minutes per week, really depending on what’s going on. 15 to 30 minutes per property per week is the time investment. Essentially, I am answering one-off questions that guests have or coordinating some small things with cleaners here and there that need to get addressed or my handymen for the particular market. Automating those things really has allowed me to continue building my short-term rental business as well as really focus on still being able to work a W2 so I could continue to have more income to funnel into my next investment property.
Robert Leonard (16:57):
Having a W2 job can definitely make the time a little bit more difficult, but I think there’s also some benefits of having a W2 when it comes to buying properties specifically on the financing front. Talk to us a bit about how actually having a W2 job can help you in real estate.
Travis Zappia (17:14):
I think it is probably the single thing that people ask me the most about is, “Hey, why are you still in your W2?” I think it’s really, really important to understand what happens to you when you leave your W2. All of a sudden your debt-to-income ratio gets completely out of whack in the sense of you’re not going to be able to qualify for loans anymore under your personal name, so you’re going to have to pivot heavily to private money or some form of hard money that you’re going to have to pay a premium for.
Travis Zappia (17:45):
I think in my eyes how I view it is I want to stay in my W2 as long as I possibly can until one of two things happen. One, I hate my job so much that I just want to be done with it and don’t want to have to worry about essentially reporting to somebody else and making other people happy for the 9:00 to 5:00 typically that you would normally see. So if that happens, then I’ll quit my W2 because it is what it is. Two, once the income that I’m able to generate through my investments, short-term rental properties, stock market dividends, and my Instagram content that I put out there and my teaching and coaching programs that I have out there, once that income replaces my W2, then at that point I’ll know that I’m ready to quit the W2. But until that point, I think it’s really, really important to leverage your W2 so that you’ll still be able to qualify for loans and that next investment.
Robert Leonard (18:43):
Now I want to get into some of the more tactical stuff, so the next few questions, probably the rest of the conversation is going to be really tactical about some of the nuance and really nitty-gritty details on having short-term rentals. As somebody who’s interested in getting my own short-term rentals myself, these are some of the questions that I have that we didn’t get to in the last episode. In all types of real estate, even with the RVs that I rent out, there’s a debate on whether or not pets should be allowed, and there’s a bunch of other various rules that are debated as well. What are some of the most common rules that you have for your short-term rentals? Do you allow pets, smoking, and things like that?
Travis Zappia (19:21):
I don’t allow pets. I also don’t allows events at any of my properties. I’ve had multiple people ask to have weddings or rehearsal dinners and stuff like that. Events like that I just prefer to stay away from as much as possible at all of my properties. Smoking, I do allow at my properties, but I make sure to be very specific that it’s allowed outdoors and not allowed anywhere inside the house. Sometimes do guests end up smoking inside the house? Sure. That’s going to happen. No matter how well you try to make sure that people aren’t smoking in the house, sometimes that will occasionally happen.
Travis Zappia (19:58):
I do not allow dogs at any of my properties. For allowing service animals and emotional support animals, those have different rules, so you can’t discriminate against that. So if somebody has one of those and it’s in a property where the HOA doesn’t have restrictions for service animals and/or pets on the property, then I will allow that. But I don’t have any other major rules outside of no smoking inside the house, and I do not allow any parties or events to be held at any of my properties.
Robert Leonard (20:29):
What has your experience been with various STR platforms that you can rent on, like Airbnb and VRBO? Are there platforms that are better than others?
Travis Zappia (20:37):
I think it depends on the market and what you’re trying to do with the property. Some markets favor significantly more towards a lot of your bookings coming from Airbnb versus other markets where VRBO, booking.com to other platforms can help drive more traffic overall. I’m currently working to continue to diversify my portfolio outside of Airbnb specifically. I think it’s important to do that just in case anything happens with one booking platform where they change rules, regulations, restrictions that would cause it to be unfavorable for hosts specifically.
Travis Zappia (21:19):
I wouldn’t necessarily say there’s one type of booking platform that’s better than the other. Airbnb generally generates the majority of the traffic to my listings and to anybody’s listings that are out there. I would say that you probably want to… If there’s one place to start, you’d probably want to start with Airbnb. Then once you feel comfortable with how things are going on that platform, then work to branch outside of just being on Airbnb.
Travis Zappia (21:47):
Most of the rules and how they handle different things, I would say generally is going to be the same. Airbnb, this is maybe controversial, my opinion is Airbnb is more guest-friendly than host-friendly in the majority of situations. That’s just my experience with it. But I understand that they’re also a publicly traded company, and they need to be for-profit versus the other way around and continue to lose money like they have in the past. I think there are probably upside from a host standpoint for other platforms, but also Airbnb drives the majority of booking. So you have to take that into account.
Robert Leonard (22:25):
Do you do direct listings? What are the pros and cons of that strategy?
Travis Zappia (22:30):
I don’t do direct bookings right now. I’ve always thought about doing it in the future. There’s a big direct booking I’ll say, quote, unquote, cult that’s out there on Instagram and the different platforms. But there are pros and cons of direct booking. Direct booking, the pros are you have a lot more control as a host. That’s generally what you’re going to hear as the biggest pro. The cons are there’s a lot more paperwork. There’s a lot more taxes that need to get remit back to state, local, city, all that kind of stuff that you have to figure out for your market. Once you figure those out, are those that big of a deal? Probably not, but it is an additional thing that you would have to do when you have a direct booking platform.
Travis Zappia (23:11):
The other thing that you have to figure out if you’re going to go the direct booking route, which I don’t recommend especially if you’re starting… If you want to do it at a later point after you’ve been up and running for, let’s say, six months a year, that’s fine. Do that. But don’t start with the direct booking platform because that’s going to be the most complicated thing to integrate with different softwares and whatnot. I would say the hardest thing probably for direct booking is generating traffic to your website. It’s going to take a lot of time to generate traffic and figure out how to get people seeing your property specifically.
Travis Zappia (23:45):
That’s one of the beauties of Airbnb, VRBO, these other platforms is that they’re generating all that traffic for you, so you don’t have to have any advertising or anything like that. You don’t have to pay for any advertising. All the traffic just gets generated for you just for them taking their host fee percent, whatever that might be. There are pros and cons of a direct booking platform. I don’t recommend to get into direct booking immediately. I’m four and a half years in, and I still don’t have a direct booking platform. I’ve thought about it. But the more and more I’ve thought about it, the more a direct booking platform complicates all of my other software integration. I’m always about the KISS method, “Keep it simple, stupid,” where simplify your process as much as possible so that you can automate what you need to automate and stop working as much in the business as you are on the business.
Robert Leonard (24:39):
I think that’s such a valuable opinion to hear because two episodes ago, when we talked to Mark Horton, he relies significantly on direct bookings. Not to say that he’s right or you’re right. I really don’t know. I think it’s just good for everybody that’s listening to hear the different opinions on which strategy they like. Then they can choose which is right for them. The other interesting thing is, you mentioned earlier, you’re worried about markets that don’t have any regulation. Mark said the same thing. He invests almost exclusively in the Fayetteville, North Carolina market. He has upwards of 35, 36 short-term rentals. He said there is zero laws, zero regulations in Fayetteville, and he’s concerned about that because he thinks when they do come, that could be an issue. So I love being able to bring on guests with different opinions onto the show so that both myself and everybody listening can hear all the different opinions that can go into the same type of strategy.
Travis Zappia (25:30):
Robert Leonard (25:31):
As you know, Travis, I travel a lot, so I decided to start Airbnbing out of my place when I was gone. As part of that process, I talked with my insurance agent to make sure I was good to go from a liability perspective. He told me that if I rent out my place more than a certain percentage of the time, then I would need a different insurance policy and that the new insurance policy would be close to double the cost. Have you found insurance for STRs to be relatively expensive, and is that just part of doing business? Does the increased cash flow that STRs can provide make up for it?
Travis Zappia (26:03):
100%. Insurance for short-term rentals is typically going to be double that of what you would pay if it was your primary. There’s inherent risks that anybody that insures a short-term rental could potentially have to pay out if somebody gets hurt on the premises or things like that, or loss of revenue, which is a common thing on insurance policies for short-term rentals where essentially you put together a fair market value of what your property should be able to rent for for the year. Then in the scenario that anything drastic or major happens, then you’d be able to claim against that income so that you can still get paid out for whatever month it is from your insurance company. Generally speaking, the increased insurance that you’re going to have to pay for short-term rentals is the cost of doing business. That’s how I look at it and view it. It will generally be twice that of your traditional insurance that you would pay if you were living there.
Robert Leonard (26:57):
When it comes to the RV rentals that I do, the renters are actually required to purchase insurance through the third-party platform. There’s a platform I use called Outdoorsy. It’s basically the RV version of Airbnb. The renter is required to pay whatever the rate is, I think it’s $30 a day, to have the insurance that they need for the rental. Do you think Airbnb could ever offer something like this to take this cost off of the property owner?
Travis Zappia (27:25):
That’s a good question. I think that they definitely could offer that at some point. I think they realize that what they’ve offered to this point is still not detracting people away from utilizing their services whether it’s hosting or booking as a guest. I would frankly be very surprised if Airbnb ever did it because they’re already claiming a significant part of the market share. If they were to add that, they would essentially be increasing the costs for guests specifically. Airbnb needs both hosts and guests to make money. If they were to either push some of that cost to host or push some of those costs to guests, I think it would hurt the amount of conversions that they would have for guests that are looking to book.
Travis Zappia (28:13):
Would it be something nice to have? I, for sure, think, as a host, it would be nice to have. There are certain automation platforms that are out there that you can utilize where they have different things like that, where guests are required to, whether it’s some form of deposit and/or some sort of signing a contract for additional costs that would help cover any major liabilities or major issues that come up during the stay, there are [inaudible 00:28:41] platforms that exist for that. But I would be surprised if Airbnb specifically were to add that to their platform.
Robert Leonard (28:49):
Does Airbnb offer a quantity discount? So the RV platforms also offer insurance for the RV owners. They go to the insurance companies and say, “Hey, I have thousands of RV owners. Can you give them all discounts if we send you all these customers?” Is there any type of insurance policies that are offered from Airbnb like that?
Travis Zappia (29:09):
I wish. There is not, but that would be really cool if they did figure out how to do that at some point.
Robert Leonard (29:15):
Another issue that I’ve had with both Airbnb being my place when I travel and also a little bit with the RV rentals… Which I bring up the RV rentals a bunch because it’s essentially my form of a short-term rental. People are there for a couple days to a couple weeks. Sometimes they take it for two to three weeks, but typically it’s a three or four-day weekend to a 10-day. That’s probably about the average. So that’s kind of my form of a short-term rental. But I’ve tried using online platforms whether it be for my places in Airbnb or the RV rental. I’ve tried to use things like Thumbtack and Care.com to find cleaners, but I really haven’t had much luck, and real cleaning companies were really, really expensive. How do you find your cleaners?
Travis Zappia (29:57):
There’s two main ways that I go about finding my cleaner. The first is an app called TurnoverBnB. TurnoverBnB was a app that was created for cleaners specifically to connect with hosts. How the app works is, as a host, I essentially upload, “Hey, this is what I’m looking for in this particular market. At this address, I have…” Let’s just say we have a three-bedroom, two-bathroom. You can say, “Okay, I have three-bedroom, two-bathroom. I’m look into a short-term rental. I’m looking for a cleaner that does short-term rentals.” What it’ll do is it’ll post that to cleaners. Then essentially what happens there is cleaners can then bid on the property, and you can look at previous reviews that cleaners have and whatnot. They continue to change their pricing a little bit. I haven’t used it in a while, so I’m not sure exactly how they charge hosts and how they charge guests. But I believe all the payments go through TurnoverBnB, and they take a percentage of some sort. That’s the first way to find cleaners in a market if you’re struggling to find cleaners.
Travis Zappia (31:00):
The second way is just your traditional Google search is what I like to do for short-term rental vacation cleaners specifically for that market. I have a list of screening questions that I’ll go through and ask cleaners. The most important thing that you really want to make sure if you’re looking to get a cleaner for a short-term rental property, one of your short-term rentals, is you want to make sure a couple things. One, you want to make sure that they understand what a short-term rental vacation cleaning is like because it is not your traditional cleaning that they come in and do for your normal residential house. So you want to make sure that the cleaner is very familiar with a short-term rental cleaning, what that entails, and that is what they focus on.
Travis Zappia (31:42):
The second thing is you want to make sure that the cleaner isn’t a mom-and-pop. Having a mom-and-pop cleaner is the worst thing that you could possibly have because if anything were to happen to them or one of them or they have multiple owners they’re working with and they have multiple turns on the same day that they can’t get to, you’re going to be in a really bad position. It’s going to cause you more headache than it will benefit you. So it’s really, really important to go after and find cleaners that are a cleaning company that have multiple crews. For example, my cleaners in Panama City Beach, they clean 50 different condos in that market. They have multiple crews in that market. In any scenario, they’re going to be able to get to my property and clean it regardless if all 40 or 50 units have a turn on the same day.
Travis Zappia (32:32):
I start with TurnoverBnB. If you don’t have any luck on that, I just do a basic Google search. Then I have a standard list of screening questions that I go down just to vet the cleaner to make sure that they’ll work out.
Robert Leonard (32:44):
When it comes to the cleaning, you have one day in between booking so that the cleaners have ample time to do what they need to do, or can someone check out in the morning and someone else can check in the afternoon?
Travis Zappia (32:54):
100%. That’s one of the vetting questions that I do for my cleaners is I make sure that they will clean same-day no matter what. If they tell me, “Hey, if you have a checkout, we may or may not be able to get to it,” I immediately X them off my list, and I’m on to calling the next cleaner. There’s a couple of reasons why, but the biggest one is every day that you’re not allowed to rent your property out, you’re losing money. You need to be able to turn the property on the same day no matter what. Barring any drastic, major issues with how the guests left the property or they ruin stuff or whatever, you want to make sure that the cleaners can get in and get out the same day.
Travis Zappia (33:37):
Typically all of my properties but one, the checkout time is 10:00 AM. The check in time is 4:00 PM. I would say probably 60% of the turns that I have are same-day turns. 40% of the turns, there’s at least one day gap. I let the cleaners decide whether or not they want to clean on that day or not because most of the times there isn’t a same-day turn. It’s essentially somebody’s checking in the next day. I don’t allow one-day bookings, so I’ll keep that day blocked off for the calendar regardless. But I make sure no matter what that they are okay and comfortable with same-day turns because I’m not willing to lose the revenue from being able to book that night.
Robert Leonard (34:18):
You mentioned something else that I sometimes worry about when I do these back-to-back kind of bookings. I mean, I completely agree with you. Every day that it’s not rented, whether it’s an Airbnb or an RV, you’re losing money. So I try to rent it as much as I can. But at the same time, I’ll have the rental come back and somebody is supposed to take it the next day. I’m concerned, what happens if they trashed it? What if your cleaners went to the Airbnb…? Maybe it’s not completely trashed, but maybe something broke. Maybe they broke the fridge or the microwave or something, not totally destroying the property but big enough that it’s a hassle for the next renters, and it can’t be fixed within the day. How do you handle situations like that?
Travis Zappia (35:00):
The first thing is you want to make sure that you’re overly transparent with whoever the guests are that you’re checking in next and let them know, let’s say it’s a refrigerator issue, “Hey, I just wanted to let you know the last guests unfortunately ruined the refrigerator, and I’m going to have to work on getting a replacement for it. I’m working to call places to figure out when somebody can come out to get something there.” Depending on how serious it is and how much it’s going to impact how comfortable the guest is going to feel at your property, I’ll make a couple different kind of decisions on how I handle it from a refund standpoint. If something like an AC unit where the AC’s out, and let’s just say, it’s summer, so it’s going to be really, really hot and you need the AC in a property, I will let the guests know. If they want to book somewhere else, I let them know, “Hey, the AC’s out. I’m trying to get somebody out there, but I don’t know if it’s going to be working or not when you’re there.” I want to be overly transparent with what’s going on and keep them updated on the situation.
Travis Zappia (36:05):
If they’re willing to stay there regardless of what is, and let’s go back to the refrigerator issue, if refrigerator’s out, if they’re still willing to stay there, and let’s say it’s somebody that’s maybe cooking at the property wasn’t that big of a deal of, they’ll probably let you know, “Hey, not a big deal. Keep us updated. Let us know once you have any updates on when a new refrigerator can come.” If it’s somebody that you can tell it’s going to be a big deal to them, then I’ll figure out what kind of refund is fair based off of how much they paid for the nightly rate, how long they’re staying, all those types of things. Then I’ll make sure to issue whatever I feel is an appropriate refund.
Robert Leonard (36:41):
Do you have any sort of…? I don’t know if repercussion is the right way, but I know if somebody damages your property, you have a security deposit, you have some insurance options to potentially get some of that money. Do you have any options to recapture the lost money that you would have missed out on for that next rental if you’re not able to rent it to those next people because of something that the previous renter did?
Travis Zappia (37:02):
That is part of what you work through with Airbnb and their AirCover, or whatever it’s called. You can work through depending on how drastic of a problem is and situation and how likely the next guests are actually going to be able to stay or not. There are loss of revenue that you can work on recouping. Knocked on wood, I’ve never had to go through that situation before, so I don’t know exactly how it works and how much you recoup versus not. So I can’t speak intelligently on exactly what that looks like. But between what Airbnb and maybe some of the other booking platforms offer from a rent recovery standpoint and insurance, there probably are opportunities to recoup some of that lost income.
Robert Leonard (37:50):
When I decided to start renting my place on Airbnb when I traveled, I sent the listing to you to check it out and get some feedback. The first thing you said to me was that my photos were horrible. Talk to us about how STR investors should handle photos to improve their listing and increase their likelihood of getting bookings.
Travis Zappia (38:08):
The first thing that people always cheap out on for some reason is photos. It’s probably the most important thing outside of not getting preppy furniture and those types of things. It’s one of the most important things that you have to make sure that you do for your property is getting professional pictures. In the day and age that we live in and the world that we live in with the attention spans of people decreasing way too fast, you only have a fraction of a couple seconds to catch the attention of a potential guest that’s going to rent your property. The only way that you’re going to capture that attention is by having really good pictures.
Travis Zappia (38:48):
Getting somebody to go in and take pictures of your property is generally going to take cost between $200, and that’s even kind of high, $200 on the low end up to $350, maybe $400 depending on if you want drone pictures or how many pictures and how big the property is. But it’s so important that you get professional pictures because you only have a couple seconds to really catch the attention of guests. If you don’t do that the right way and you have pictures of dark rooms that just don’t really highlight or showcase the property, then more than likely, regardless of how nice whatever you actually took a picture of is, guests are probably still going to tend to go towards properties where they have professional pictures. It looks a lot more inviting than having dark pictures throughout your listing.
Robert Leonard (39:39):
I thought my iPhone photos were pretty good.
Travis Zappia (39:43):
I can tell you they were [inaudible 00:39:44].
Robert Leonard (39:45):
One of the biggest benefits that is commonly touted as to why people should invest in real estate is the tax benefit. Despite the tax benefits that real estate can provide, you’ve paid nearly $200,000 in taxes in 2021 and so far in 2022. Talk to us about still having large tax bills while investing in real estate and help set the right expectations around taxes for new investors.
Travis Zappia (40:06):
I would say a benefit and a downside of having a high-paying W2 is the fact that those tax bills are still pretty, pretty hefty. The majority of people that are able to write off a lot of things and not end up owing a significant amount of tax are 100% business owners and don’t have a W2 working for somebody else. But because I do have a W2 and I am a high-income earner and I have the short-term rentals on the side, it does end up causing my tax bill to be higher than what you would normally expect.
Travis Zappia (40:42):
But there are a lot of tax benefits just from a depreciation standpoint that you’re able to essentially deduct and reduce your overall income so that the amount taxes that you owe are less. One of the big things that I did last year that is a really cool tax strategy that you can do for short-term rental owners specifically that are high-income owners… There’s a couple stipulations that you have to meet to qualify and talk to your CPA’s tax advice, talk to your CPA and ask them about it. Because I could show that I materially participated in my short-term rentals and I participated more than anybody else and participated, I think it was like 100 or 200 hours throughout the course of last year, I was able to do a cost segregation study and bonus depreciate both properties that I purchased in 2021. So both of my cabins that I purchased in 2021, I did a cost segregation study through… I think it’s KB, KG or something like that. It’s online. Costs like $450. Doing those cost segregation studies ended up saving me about $80,000 in taxes. You’re able to more or less bonus depreciate the asset very heavily over the first couple years so that you can offset some of the income that you generated from it specifically.
Travis Zappia (42:01):
But I would say generally speaking, if you’re getting into real estate, there’s a lot of tax benefits. It’s not going to necessarily completely wipe away taxes. You’re still going to probably owe taxes especially if you only have one or two properties and depending on how much you make in the property as well as what kind of loan vehicle you have, how much interest you’re paying, those types of things. Expect that it’s going to help with your taxes, for sure, but you’re probably going to still end up owning taxes to some degree depending on what loan vehicle you use and how you’re utilizing the property.
Robert Leonard (42:34):
Through your social media and some of the other programs that you offer, you help a lot of new investors get started with STRs. What are the most common mistakes you see them making?
Travis Zappia (42:43):
The most common mistake is iPhone pictures for their listing surprisingly. I can’t tell you how often that I’ve seen that. Somebody asked me to take a look at their listing similar to what you sent me. It’s like, “Oh, man. You cheaped out on the wrong thing.” Pay for getting professional pictures. That’s the most common thing. The second most common thing that I see that, especially newbies, do wrong is having the wrong sequence of pictures in their listing itself. First of all, you don’t have the right five pictures for the first five photos. The first five photos are so important, and you need to highlight the uniqueness of the property. Regardless if it’s the kitchen or bathroom or hot tub on the deck or view or whatever it is, you really need to highlight what’s unique about the property in the first five pictures.
Travis Zappia (43:32):
Then the other thing that I think I see, especially new people, not understand is how to leverage the softwares that are out there. That’s really what I try to focus on is teaching people that self-managing is something that’s realistic. Whether it’s one property or 20 properties, self-managing is very, very attainable, realistic, and it doesn’t take a lot of time if you use the right softwares and tools. So I think newbie investors typically, especially getting into short rentals, think, “Hey, this is going to take a ton of time.” If you don’t leverage the right tools, it will take a ton of time. But if you do leverage the right tools, softwares, and automation that’s out there, then you’re going to be able to significantly reduce the amount of time that it’s going to take you, and you’re going to really end up wherever most people’s long goal is, which is getting your time back. Everybody wants to generate cash flow through assets, income-producing assets without spending a significant amount of time doing so. If you utilize the right tools, you’re going to be able to do that with short-term rentals.
Robert Leonard (44:35):
As we wrap up the show, I like to turn the tables and let the guests ask me a question. So, Travis, what question do you have for me?
Travis Zappia (44:44):
Something interesting that I know you talk about and that you do with the RV rentals specifically, and it’s a space that I’m not familiar with, but my parents bought a RV and then sold it a year later because they didn’t realize all the stuff that came with it. Can you maybe talk through one or two of the biggest things that you didn’t expect to have to deal with and one or two of the largest pain points that you have with renting an RV versus what you would normally consider being a short-term rental with a property, a physical house or home?
Robert Leonard (45:16):
I wouldn’t say that there are massive things that I didn’t expect. I have a lot of experience with RVs given my background, so I kind of had good expectations of what to expect going in. But the two things that are a little bit different than I expected are how much handholding you have to do with people when they’re renting. A lot of the people that rent from me, and I’m guessing most people, are first-time renters or RV users or second time. They don’t know a ton, and they’ve never owned an RV. So they don’t know anything about RVs. They don’t know how to use anything in them, the generators, the TVs, fridge, toilet, shower, anything, so they have a lot of questions prior to but also a lot of phone calls and texts while they’re being rented. It’s not overbearing really. It’s really not too, too bad, but it definitely is a little bit more than I expected. Having most of my investing been pretty passive with long-term 12-month, 18-month lease properties, it was a little different to go to the RVs.
Robert Leonard (46:16):
Then the second thing is, it’s kind of a small thing, but I didn’t realize how hard it would be to get an oil change for the RVs. I know it’s a small thing, but they rack up the miles quite a bit. A lot of my trips, I live in the New Hampshire area, and a lot of people that rent it… I think, say, I’ve rented it maybe 10 times total so far in the six to 12 months that I’ve owned it. I think out of the 10, maybe three or four of them have gone to Florida. It’s a pretty long trip, and those miles start to rack up.
Travis Zappia (46:42):
Robert Leonard (46:42):
Yeah, they start to rack up pretty quick, which is not really that big of a deal, but you need to do some oil changes. I didn’t realize how difficult it would be to find a place that could do or would do oil changes. I mean, I can do them myself as well. I’m just trying to make things a little bit more passive for myself. Yeah, the oil changes have been a little bit more difficult than I expected.
Travis Zappia (47:00):
Interesting. I’m surprised that many people are taking it all the way down to Florida. That’s a long haul.
Robert Leonard (47:07):
Mine went to Florida last week literally on a 10-day trip. It went all the way to Florida. Came back. When I said that there’s one day in between, I wasn’t kidding. It literally came back Sunday at 11:00 AM. Then Monday morning at 9:00 AM it went out again. They drove it to North Carolina or South Carolina. They’re still on a 10 or 14-day trip right now. So literally to Florida and back and then North Carolina or South Carolina and back, and I had just taken it to Florida like a month before that. Yeah, it goes all over.
Travis Zappia (47:36):
Dang, that’s awesome.
Robert Leonard (47:37):
Before we sign off Travis, I want to give you a chance to tell the audience where the best place is to connect with you and to learn more from you if they’re interested.
Travis Zappia (47:46):
Yeah, absolutely. The best place to connect with me is on my Instagram. So my Instagram handle is @theyoungretireeby and then the numbers 33. That’s definitely the best place to reach out to me. I try to offer as much free content as possible to add value to people, talking about what I do, how I do it, and why I like investing in short-term rental properties. I have a couple guides out there, too, for anybody that wants to learn how to automate their business or analyze properties. Then I also do some coaching sessions. I try to add as much value as I can because I am very, very… I personally just love short-term rentals, and I want others to be able to enjoy and reap some of the benefits that I’ve seen from investing in them myself.
Robert Leonard (48:32):
I have a few people in the short-term rental space that I lean on, and Travis is certainly one of them. So I’ll be sure to put a link to all his resources in the show notes below for anybody that’s interested in checking them out. Thanks again for joining me, Travis.
Travis Zappia (48:43):
Robert Leonard (48:45):
All right guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.
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