Luxury AirBnbs: Why They're a Good Investment
The AirBnb Market That’s Growing
Did you know more families are spending 3xs more on luxury vacation rentals, seeking unforgettable experiences? In this episode, Ross Greenberg, Realtor® and owner of Luxury Cash Flow shares his secrets to success in the high-end rental market. We talk in detail about:
What to look for when purchasing a property
How to on-board with amenities that elevate your listing
How to find the perfect manager to keep your investment running smoothly
There are so many surprising, and new stats in this episode, be sure to subscribe to hear more!
Contact Info:
Time Stamps
00:29 Guest Introduction: Ross Greenberg
01:29 Defining Luxury Airbnbs
02:18 Financial Considerations for Luxury Rentals
05:57 Concierge Services and Amenities
07:04 Purchasing and Onboarding a Luxury Property
09:13 Financing Options for Luxury Airbnbs
12:20 Design and Furnishing Tips
18:10 Managing and Monitoring Rentals
20:32 Choosing the Right Property Manager
21:06 The Importance of Personal Touch in Property Management
23:00 Involvement in All Stages of Property Management
23:53 Finding the Right Property for Short-Term Rentals
27:15 Avoiding HOAs and Other Key Criteria
34:40 Seasonality and Financial Considerations
37:40 Conclusion and Contact Information
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Introduction to the Podcast
Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about luxury Airbnbs. I am very excited to talk about this. I think I say that every week, but I really am excited about all of these topics that we talk about.
Uh, and. Mostly just so that I can learn about them too.
Guest Introduction: Ross GreenbergAnd today to talk about this, um, I have Ross Greenberg on the show and Ross is the owner of Luxury Cashflow. Founded in early 2019, Luxury Cashflow addresses what he felt was a void in the market. Investors seeking to generate meaningful income from rental properties and large scale homes that were sitting on the market being overlooked by the retail customer.
I invited Ross on because I saw that many of the Regular, quote unquote, Airbnbs had reached their saturation point, [00:01:00] um, but the luxury space was still profitable, and I feel, and when I called him, I felt like it was a place where You know, there was space to grow and people could actually, um, still purchase the property.
So thank you for being on. Thank you very much, Michelle, for having me. Yeah. Appreciate you thinking about me and, uh, I'm excited for, uh, us to kind of dive a little bit deeper. Yeah. I, as I've talked to Ross, I'm very, it's, it's fascinating all of the numbers that go into all of this, even before you purchase the property.
So I'm excited to share this with you.
Defining Luxury AirbnbsUh, and so why don't we start out with what the definition of a luxury rental is? Yeah. So generally speaking, you know, when we shop with clients and I shop on the market for a luxury Airbnb, we're looking at properties that are generally going to be about five or more bedrooms, um, right around that 2 million and up price point.
Um, you do start to get to a point of diminishing returns once you get to about 3 million. So I think if, you know, I was looking at all the houses on a bell curve, that kind of two to 3 million price point, um, is really the sweet spot [00:02:00] for maximum yield. And we're talking about Phoenix market right now, guys.
So if you're listening in like Kansas, this could be completely different and you'd want to do like an apples to apples. Um, but this is for the Phoenix market while we're talking about, but Ross, you know, we could help in any, uh, industry, but we're going to be talking about numbers in the Phoenix market.
So, okay.
Financial Considerations for Luxury RentalsSo between two and three, so why does it start to be diminishing returns at three? Just because the mortgage payments are so high? Yeah. Yeah. So, you know. The pretty much the top of the, of peak season of what you can actually charge on a per night basis without it just being, you know, too expensive for the large majority of the clientele that are looking in this market to rent a property is going to be about 3, 500 a night, um, for it to really cashflow at, you know, three, 4 million properties, particularly if you are servicing debt and kind of maximizing your leverage, you really need to be able to get, you know, 4, a night, which is just seems to be, It just seems to be a little bit of a stretch for what people are willing to pay relative to you can still get a really, really awesome house [00:03:00] with tons of backyard amenities and pretty much everything you're looking for, for kind of that 2, 500 to 3, 000 a night rate, which is kind of what we want to shoot for.
Okay, so you're kind of shooting for the lower rate versus like 5, 000 because then you're kind of pricing yourself out of the market. You kind of price yourself out of the market and you kind of need to get those rates in order for it to make sense at the end of the year when you're looking at your kind of NOI relative to your purchase price.
So, you know, everything we do is really. very cap rate driven. So, you know, we want to target 8 percent cap rates and above. And yeah, we find that two to 3 million price point to be kind of our sweet spot. Okay. And you guys, the cap rate is basically, um, what your, uh, return NOI is. What is NOI? Yeah. NOI is, is the numerator.
And then, uh, the denominator being the purchase price, purchase price of the house. Uh, and so that is something that you're always looking at when you're looking at commercial property or any type of Airbnb. Yeah, exactly. When you think about underwriting, uh, an asset for investment purposes, um, we do take a lot of kind of commercial, uh, underwriting approaches for kind of these residential [00:04:00] assets.
And yeah, we, uh, at the end of the day, we, you know, we want to find the best performing asset classes and, you know, in the last probably four to five years, um, it's been tough to beat Airbnb. Yeah, yeah, it is. Well, and as I said at the beginning of the show, um, I called it first, I think like six months ago, I was like, Hey, I don't know about Airbnbs, but, you know, the luxury market, I mean, it's definitely still hopping where I feel like the regular market, you know, some of the basic Airbnbs seem to be kind of falling off the market or the people that couldn't compete, you know, cause if people are going to be paying this much and a cleaning fee and all of these things, you know, they want to feel like they're staying somewhere right, nice and with a kitchen and.
Yeah, I mean, so the demand side of the market has changed. Um, you know, 10 years ago, people weren't willing to drop a credit card for 10, 20, 30, 000 on a website, vrbo. com, airbnb. com. Um, those websites have done a really good job building trust. People like to travel in groups. That's a great point. Um, It's also more economical if you think [00:05:00] about, you know, a, you know, just thinking about, let's say a bachelorette party, you know, if they have 14 girls and, you know, they're looking at, uh, reserving seven rooms in a hotel block that were kind of next to each other, you know, really a cost per person per night basis, they can get a 3 million house for literally less than, you know, Three or four star hotel and just getting a block of rooms, right?
And it has a grill and a pool and you get the amenities and you can do the private chef and there's just so many Kind of what I call experiential services that are now offered and in lots of vacation markets not necessarily exclusive to Scottsdale But in tons of them, but certainly here, you know You can there's tons of services to get the private chef to your house to get the personal trainer for morning workouts the yoga the mobile service Spas for, you know, pedicure, manicure.
I mean, all of that stuff exists. Um, it's being heavily promoted. Uh, people find out about it on, you know, Instagram, and they, you know, get real excited about booking these Airbnbs that offer a lot of space to kind of enjoy some of those, uh, third party amenities. That's awesome.
Concierge Services and AmenitiesAnd so do you help them do some of those?[00:06:00]
Yeah, I think, I think most. I think now, you know, most property managers, um, have included some level of concierge service, whether that's kind of an airport pickup or, you know, if they can't check in early, which is a really popular request, we can help facilitate, you know, getting their bags from whatever bar in town they're going to, and we'll drop it off and, you know, have someone drop it off at the house.
So yeah, there's definitely, I think most property managers have kind of adapted and, uh, offer to some degree, um, Either referrals or in house concierge services. Yeah, I think that sounds amazing. And you're probably suggesting some of these things, and it's things that they didn't even know that they could have.
Totally. You know what I mean? Totally. Yeah, no, we get a lot of requests for, you know, people that want to set up the house with balloons, that they would need to, you know, one of the girls needs to sneak away from their group to kind of set the house up early. And hey, you know, for 125 bucks, you know that there's services out there that'll do all that for you.
You don't have to kind of sneak away from the bride, you know, from the You know, bridesmaids and all that stuff. So yeah, tons of tons of really cool services. Yeah, absolutely. And I would [00:07:00] imagine that it's always evolving and people adding things and all that. Yeah. Oh, that's cool. Okay.
Purchasing and Onboarding a Luxury PropertySo back to buying the house.
So, um, which all of that sounds cool. We're going to come back around to all of that. That's the fun part. Uh, the, uh, when people are purchasing a house, so do you find people that they come to you to want to buy Airbnb and then you kind of talk them into a larger home because they can make more?
Sometimes, um, the first thing I like to figure out when somebody does approach me to buy a property is, you know, how much of this property is like truly a second home for you where you're going to go with your family and host friends, host family, and really maximize the usage of your home for your personal reasons, or, um, how much of this home is actually going to be used for cashflow purposes.
Um, are you going to use the property a week of the year? Are you going to use the property six months out of the year? So that's going to be, you know, Really, you know, just to kind of get an idea, like where, you know, the, where they're thinking, where their head is at for how much they're actually going to use the property and their intended purpose.
And you call that an emotional person that's going to use it more as more of an emotional [00:08:00] buyer. Right. I mean, I certainly want to kind of cater what I show and certainly like my opinions on, you know, their needs. Like if they're going to use the property a ton and it's maybe not in the best You know, best location for rental purposes or maybe just doesn't have that extra bedroom that we like to see to maximize cash flow, but they love everything else about it and they love the finishes and they get a great feel and they could see their family enjoying themselves for the holidays.
Then it's like, okay, let's, you know, take a step back from a financial perspective and yeah, it's your second home, it's your vacation property. Like pick, pick something that you're gonna enjoy. So, right. Uh, yeah, totally. Okay. So that's really the first thing I like to figure out. Okay. So there's kind of two buyers, one of the emotional buyer that wants.
to use it for themselves and then just pure cashflow. Like they're just wanting to just have a business. Well, yeah, I mean, there, there's certainly a combination of the two as well. I mean, it's a lot of my owners who kind of came in as, you know, strictly cashflow investment, uh, you know, buyers, um, still want to try to use the property, get in there maybe once a year, twice a year, still call all, I'd still call that a full time investment [00:09:00] property, but you know, certainly it will block off.
Okay. All right. And so once they identify a property, um, they've obviously already met with a mortgage broker if they aren't buying it for, for cash, um, and have gone through different things.
Financing Options for Luxury AirbnbsAnd I do want to point out, um, you guys, I actually, uh, dropped an episode and we were talking about different mortgage options.
So I'm not going to go over all of them, but when you have a rental, there are what these called debt service coverage ratio, um, loans. And do you want to kind of talk about what those are? Okay. Yeah, sure. So, you know, sometimes we'll run into situations where someone has the liquidity to put a down payment on a property.
They have the 20 to 25 to 30 percent down, but whether they're self employed or whether for a variety of different reasons, they show a little, or, you know, in some cases, no income just for, Tax liability purposes. Um, I'm sure you speak a lot about that. Yes, we do. People on your episode that have certainly talked a lot more about that, but, um, those type of people are really qualified buyers to [00:10:00] be investing in properties like this, but maybe they don't have the ability to, or the W2 income or the tax returns to really get a conventional or jumbo mortgage.
So, um, there are kinda these alternative loan programs that have become very popular called, um, you know, the DSCR, the debt service coverage ratio, um, and the way the mortgage lenders. Uh, will underwrite those, those loans, those assets is based on the, um, projected rental rates on an annualized basis for that property.
And if those rental rates, if the gross rental revenues can cover the debt, usually at a one to a dollar for dollar ratio, um, then they'll qualify that house, um, to offer a loan. And those loans are still 70, 70 to, uh. 75 percent leverage, which, you know, 20, 25 percent down. Yeah. So that's still, I mean, that's good.
And so I know all you're using is the potential rental rate of the home. And there's, you know, those, the way those are underwritten are a variety of different ways, but air DNA, I mean, the data and the analytical, um, you know, Um, way that a lot of these technology companies [00:11:00] are projecting rental revenues are getting better and better.
It's not perfect, but, um, it is a really nice alternative way for somebody to get into these properties, um, by paying just a little bit of a premium on their interest rate. And that's what I was going to ask you. So does the mortgage, brokers, do they come to you for what is the potential rent or is that all done online?
So they do that in house. Um, they use a lot of the same tools, uh, frankly that I use to project rental revenue. Um, there's not too many of them out there. So we, you know, we do, you know, use a lot of the same ones. Um, but yeah, I do find that, you know, these bigger houses, especially in the luxury space, um, they tend to qualify, um, more than, you know, maybe some of run of the mill houses, which Again, when I, when we talk about luxury, again, that kind of two to 3 million price point, um, a minimum, like just as far as search criterias go, we really like to look at a minimum of about a five bedroom, um, on three bathrooms tend to be a really huge amenity.
So, you know, we like to have about, you know, if we can get a five bed, five bath or a six bed, five bath, um, With [00:12:00] several en suites, that's usually going to be kind of a bed bath count that we want to look for and, um, you know, we want to definitely see the outdoor living space. It's, there's no question that, um, the outdoor amenities is, is probably the number one draw for people coming out here.
And so do you, um, help them put those in if they're not in there? Yeah. On the house. Yeah.
Design and Furnishing TipsSo just taking kind of a, I guess a holistic kind of step back and view of everything. So when people think about, you know, I want to get into this space, there's kind of three sort of primary factors they need to look at.
The first is, uh, finding the right asset, right? If they're going to buy a 2 million house, um, and there's 75 active listings in that price point, um, they're not all created equally. So really finding a realtor or some, or some resource, uh, that can help them identify kind of the best asset. Assets for cashflow opportunities is really going to be critically important.
Um, finding that, and then the second kind of component would be the design and onboard of the property. So, you know, largely [00:13:00] houses are sold vacant. Um, houses are rented, furnished and amenitized. So from the time someone is under contract or closed on the house to the time they get up and running, um, you know, time is money and we try to really encourage people to be.
done onboarding their house in about 60 days. It's a little ambitious on the luxury, uh, side of the market, but there's a lot of furniture vendors. There's a lot of contractors that can get the work that you need to do to get the house rent ready done inside of that window. So we'd like to shoot for about 60 days.
And that's why hiring somebody like you would be beneficial because you already have those connections. Whether it's me. So I have, we have great network of service providers. Um, our interior designers are very proficient in, furnishing properties and sourcing from vendors with very, uh, very short lead times on shipping.
Um, you know, you can order a couch from, you know, Restoration Hardware that's six months on backorder. Something like that probably doesn't make sense in this business, right? So, yeah, we want to use designers that have, um, [00:14:00] And expertise in this. We want to use subcontractors when we do some hardscape landscape modifications, uh, that are obviously cost effective and, uh, get, you know, get things done at a very reasonable price and, and quick.
It's time, time, time is money, right? And so, yeah, we, we put a lot of emphasis on the onboarding. Um, there's, you know, bedroom, bathroom count is, is critically important. The value of a bed, let's say there's a, there's an office, for example, at a property. There's value in having an office at a property and work from home, et cetera, but there's probably 5x the amount of value if that office was converted to a bedroom, having that extra king bed or converting that they could work at the kitchen table.
At the end of the day, they could, there's other spaces that they could find to work, but the occupancy is really, is really important. So, you know, if we can convert an office and get an extra two people or, you know, with two full beds. For people, um, that's going to be a huge increase in revenue, uh, relative to just keeping it as an office.
So, you know, we want to get that kind of, we want to get that [00:15:00] construction done quickly and we want to, a lot of times we'll want to zero scape the, the, the exterior landscape. So, um, we'll oftentimes pull sod in the outside and do artificial turf, um, putting, put putting greens within the. Artificial turf as well for an extra dollar a square foot.
Economically, it makes sense. Oh, really? Cool. Yeah. And so, yeah, we, we, you know, amenitize and design and furnishing is, is I think probably the number one thing that's overlooked in this space and probably shouldn't be. And so, yeah, it's, it's critically important. And then the, the final. Well, that's, what's going to make the house stand out.
Right. And make people want to rent it and pay just a little bit extra by putting that extra design time in there. Absolutely. And I'm not the first one to say it, but we hear it all the time. Uh, it is at the end of the day, kind of a beauty contest online. And, uh, I couldn't agree with that more. It's, it's very, very true.
Um, yeah, the look, the feel, the design. You hope that people are different, but it's not true. You want to be, you want to say something new and have some fresh information. And then at the end of the day, Uh, what's been said for 10 years [00:16:00] is really true. But, um, yeah, you definitely want to have a unique feel.
Um, it's really got to stand out from the crowd. You do see a lot of kind of themed houses, which has been a very popular trend in the last several years. Uh, we see these pink themed houses, especially the bachelorette parties. Yes, exactly. So Whether it's that or whether it's, there's, I've seen a million of 'em, but, uh, yeah, they're, they're fun.
So the, the owner kind of decides what kind of theme they want to go with, or, or do you help them decide that? I do help 'em decide that. Mm-Hmm. . Um, I usually like to lead that or leave that up with the designers and the owner. Mm-Hmm. . Um, I like to be on the design process. I'm kind of a second line resource.
I'm a project manager to some extent. Um, I let the designers kind of do their thing. I'm kind of involved, but you know, I like the owners to make the final selections. But aren't you telling them what would make more money? Well, as far as some different aspects of the, the rehab and construction in the house, like, Hey, do we convert this office into a bedroom or should we put a bunk, should we put two bunk beds in this room or just keep a king bedroom or it [00:17:00] should we put two full beds?
So yeah, when it comes to bed configuration, when it comes to, uh, some of the Um, in the living spaces, uh, I definitely have some say, but as far as like, Hey, we need a, you know, 160 inch couch, I'm going to let the, uh, the owners decide what they like. Or the pink neon sign or something like that. Yeah. Yeah.
Okay. Open crazy late. We just put one in. Yeah. Yeah. Owners, owners like that little catchphrase. So yeah, that's, uh, well, they'll have some fun with that. Okay. All right. So that's kind of more of the designer thing. And then they ask you kind of as backup. Cause that's what I would do. I mean, I would ask you like, Hey, is it more profitable to do a bachelorette party or, you know, kind of house or, uh, you know, just a family type house?
Yeah. You know, you know, I, I would say that I personally haven't, um, set up one that's kind of geared and themed towards that bachelor bachelorette party, uh, vibe. Um, we try to just really the best renters for me are three families. Yeah, I agree. I would think the [00:18:00] families because they're going to bed early and they're not, I mean, there's noise, but not the same kind of noise or, or eight guys going on a golf trip.
Yeah, totally. They want a hot tub and a place to sleep. Yeah. Yeah.
Managing and Monitoring RentalsAnd so do you put in like the noise? You know how they have like the noise, what are we trying to say? Yeah, so there's Alarms. There's a lot of different really cool technology out there. Um, hardware. What you're referring to, there's, there's one in the market called Minit.
Um, M I N U T. Um, yeah, it'll, we do, we put the Minit in. Um, it does alert us if, uh, decibel levels under, over kind of a certain, I think it's, it's, 10 p. m. curfew, uh, are exceedingly high. Um, there's a really cool one out there called Party Squasher, uh, which will tell us, you know, how many, uh, cellular devices are logged in within a geofence, which you put, you know, kind of around the perimeter of your property.
So if you have, you know, you know, 60 devices that are, you know, connected to the Wi Fi, um, then there's maybe something going on there that shouldn't be. Wow. I had that happen. My friends, they got, they did an [00:19:00] Airbnb and they're managing it themselves, I believe. And, uh, this guy put a party out on TikTok.
Yeah, I had to clean it up. There's like a week cleaning it up. It's happened to me. I've, I've been, uh, I've been at dinner on a Saturday night and gotten a call from Paradise Valley police department. Hey Ross, it's nine 30 and there's already about 70 people at your house. It doesn't look like it's dying down anytime soon.
You might want to get over here. Yeah. Oh, so you're like the listener. You're the person listed to call. I'm the, I'm listed as the emergency contact. Um, yeah, there's, there's, I have support out in the market that kind of helps me with that kind of thing. But, um, yeah, you, you're required now through some different, uh, ordinances that have, that have passed over the last couple of years to register a local, um, contact.
Contact, uh, at every property in Phoenix and that's right. That's a rental short term. Yeah. Yeah. Okay. All right. And, um, okay. So I want to back up to this pro forma too. So have we finished all the three parts? The third part was, yeah, we could just roll, roll lightly touch on the third. Um, it's selecting the right property manager.
Okay. There's a bunch out there. [00:20:00] Yeah. Um, My model is kind of the one to one model. So my clients have my number. I tend to talk to them regularly. Um, just to kind of give you an analogy, just cause we're on your podcast, financial podcast, right? You know, people could invest with, um, they could invest in an ETF on an E trade, not have a account manager, no one to call.
They just can log into their app, kind of see what's going on. Um, other people, Might want to have someone like you who they can reach out to, you know, Hey, I made more money this year. I made less money this year.
Choosing the Right Property ManagerYou know, what can we do to, you know, diversify the diversify the portfolio. And I think I am more geared towards people who like the one to one touch.
Um, there are other people who just want the biggest, you know, banner possible. The, the, how the management companies with the tens of thousands of units and that's totally fine too. Um, so yeah, selecting the right property manager for kind of your personality type. Um, you know what their fees are and what they're actually doing.
And, you know, some of them [00:21:00] pass through fees with markups, others don't. There's just a lot to kind of vet when it, when you think about customers.
The Importance of Personal Touch in Property ManagementYeah, but don't you, do you find that the guests have a better experience because it's somebody like you that's doing, you know, you're setting up personal chefs and doing, giving it a personal touch?
I mean, I, that's my opinion. I would say so. I would think, um, personally, I think every property manager should be, should have the ability to facilitate a five star experience. Um, You know, that's what we strive to do, but it's also helpful from like an escalation perspective. Um, you definitely have people every once in a while with that have, you know, different issues.
And they think that because maybe they're dealing with this huge conglomerate that they can have a little bit more negotiating power to get, you know, refunds and be a little bit more of a stickler. But, you know, when it's kind of more of a, a boutique feel, a mom and pop type shop. Maybe they're a little bit more understanding.
So I think there's some psychology that kind of goes into [00:22:00] that as well. That's been helpful and it's certainly helped me and kind of keeping my average star rating across all of my properties pretty high. Yeah. Well, I think when people feel listened to, then it's like their anger goes from 10 to, you know, five at least, you know, and at least they're being listened to and getting feedback.
And if they get like a. Not the runaround that I think, you know, one of those big companies would probably give them, then they just feel disrespected, right? Totally. They want to feel listened to. They want to feel, they want to feel like you care. Yeah. And if you're spending that much money to rent a property, I could see that they, you know, like.
Yes, I need you to care. Yeah. And those calls, those are inevitable. I mean, they're, you know, they're going to come up from time to time. And so, you know, you just deal with them the best you can. But um, yeah, for the most part, being kind of a boutique feel has, has served me really well. Um, I, you know, I turned down significantly more opportunities to manage properties than I take on.
Um, you know, I, Even just with the investor client as well, um, not just the house, but, um, yeah, so the boutique feel has really served me [00:23:00] well. Okay.
Involvement in All Stages of Property ManagementAnd do people come to you, uh, I mean, I guess they probably come to you even to buy a house, but even after they've purchased the house. Like the, Hey, I need you to manage this.
Yeah, I mean, for the most part I like to be involved in all three stages from the acquisition, um, as a realtor to the onboard and setup and kind of management of that whole project of getting that house up and running. And then lastly, the facilitation of creating all the list. I like to be involved in as much as possible.
Um, I've certainly been involved on the first, which is just the transactional side of things. I've been involved on the third and in some cases even I've only been hired as a consultant to project manage, um, a house that I really didn't sell or didn't have any plans to manage. Just helping them, just consulting on how many bedrooms and what to do with them and things like that.
Yeah. Okay. Okay.
Finding the Right Property for Short-Term RentalsUh, and you guys, I think it's really cool. So, uh, Ross taught a class, uh, quite a few months ago to our [00:24:00] brokerage about looking for these properties and what you would look for. And there's a lot more that goes into it. I mean, I think that it, that's what I found so fascinating was, you know, you think like, Oh, I'm just going to go buy a house and whether it's the right price and then I'm going to throw some stuff in it.
And it is so awesome. Much more. I mean, there's so many more details. So could you just go in? I don't want you to give away like all your secrets of how you look for a house, but could you like share some of them? Yeah, I mean, I think, I think the reason why I wanted to create this company luxury cash flow is because there was such a disintegrated system for getting short term rentals up and running.
Oh my god, right? Let's say a customer from Washington. They know their cousins, brothers, nieces, uncles, a realtor in Scottsdale. They call them up, Hey, I want to get an Airbnb. Um, that person, that realtor, the 95 percent of realtors, they, especially in Scottsdale, they understand Airbnb. They know what it is, but they don't know anything beyond like [00:25:00] actually how to underwrite an asset, how to actually select a property that's maybe going to perform at a 30 percent clip compared to another one down the street.
And so, you know, they say things like, Oh, it's. You know, 25 minutes from the airport or, oh, there's tons of golf courses around and, and they're just not offering a ton of really kind of valuable insight that that investor. I think things that'll make it stand out. Yeah. And that's really what that investor is looking for.
They want a, a expert, knowledgeable resource. And, you know, certainly a lot of people can write contracts out here and there's, you throw a rock, you hit a reel at her, right? In Arizona, as we always say, but. Here we are. Exactly. Um, but yeah, there's just not, there's not a ton of people who really. And then once they facilitate a transaction, you know, they're calling their broker, Hey, you know, who, who manages properties in town?
Most, you know, it's changed over the years a little bit more, but you know, three, four, five, six years ago, most realtors didn't know who in town was managing short term rentals. So they called their friends, call the grapevine and Link [00:26:00] them up with somebody that was never really pre vetted that they don't actually know who they work with that property manager would kind of use different resources.
A designer here, a designer there. And it was again, very dis disoriented, disintegrated, um, not streamlined at all. And so that's, I just wanted to bring all of that together and kind of create a one, two, three step process to, I want to buy an Airbnb to, you know, This is a profitable Airbnb. And so, um, Well, and a good business for you too.
I mean, you can help them buy the property and manage it and be making money, you know, over the longterm. So it's not like, you know, like you're not having to redo transactions. You've got like a steady income plus the other. I mean, and for anyone in property management, I mean, that's, you know, the managing the property is never really like there's, There's a lot of, uh, there's a lot of pitfalls to managing properties.
It's not always the most glorious job and you know what you have to deal with from time to time, but, um, it's a great annuities business and it is, you know, reoccurring revenue for the property manager and [00:27:00] your interests are extremely aligned with the investor on a bad month for the investor is going to be a bad month, you know, uh, financially for the, uh, property manager as well.
It's all based on a, usually based on a commission model. Um, You know, percentage of what you, you book it for.
Avoiding HOAs and Other Key CriteriaSo, um, but yeah, back to your original question, you know, some of what we look for, um, you know, number one thing that we try to do is stay out of, uh, homeowner associations. Um, they'll either kick you out or try to kick you out.
Okay. We're never going to do, they're never just going to say, Oh yeah, it's against our CCNRs. Yeah. You guys just, we like you, you're cool. Just keep doing what you're doing. So yeah, let's not avoid, let's, Avoid that as much as possible. So the first thing is stay out of the HOAs. Um, like I said, the second thing, which kind of goes back to Sorry, this is going to be very Phoenix specific, but I mean, like out in Gilbert and out South, I mean, it's all HOA, isn't it?
I mean, so there's no, but this is just your criteria. This should be everyone's, as far as the HOA, I think it should be everybody's criteria. I mean, but there are [00:28:00] Airbnbs out there, so people are obviously doing it, but you're saying that. Well, to be fair, some HOAs do allow for 30 day rental minimums, so, you know, you can.
Oh, but that really puts a kink in your, yeah. It messes up the model. Yeah. Yeah. 30 day, I mean, 30 day minimums, they can work. Um, it's, it's a lot harder. It completely changes the pricing strategy. I mean, I do three day minimums. My, my pricing is generally. In three tiers, I have kind of a lower tier, a medial, medium tier and a higher tier.
Um, you know, the 30 day minimums just isn't my model. Yeah. Um, some people do it. Okay. Sorry. Yeah. No, totally cool. And so, yeah, the first thing, you know, we want to do is. Stay away from the HOAs. Um, the second thing is, you know, we, we do want to find large enough lots that aren't totally hugging up against other properties.
Um, mostly because we want to respect the neighbors. I mean, we understand like we're not there, you know, some people misrepresent how many people are going to be staying at the house from time to time. And yeah, the more kind of insulated we are from, Okay. you know, the neighbors and the [00:29:00] street, um, which a lot of times we can accomplish with landscaping and some other things, um, is, is definitely something we look for.
Um, like I said, that five bedroom, you know, if you asked me this question two years ago, I would say you have to be at a four bedroom minimum. Um, again, saturation is kind of creeping upward and now I really want to be at a five bed, probably a three and a half bath as like a bare minimum on a really nice sized lot.
With a pool that has the capability to be heated has to be right. There's no, well, yeah, because people are going to come here in March and want to swim. So I would say I would estimate between November and the end of April, the percentage of groups that request and pay a daily rate for pool heating is probably somewhere between 95 and a hundred percent.
So it's a must in booking the house for a heated pool. That is a very high percentage. It's literally every reservation, if not [00:30:00] almost every reservation, from November, even sometimes in October. Through the end of April. Yeah, wants to make sure that pool's heated. Yeah. Okay. So, wow. Um, so yeah, I mean, you know, if we want to have the capability of heating the pool, we want to have outdoor, you could add a heater though.
You can add a heater. Um, there's, there's several ways to add a heater. A lot of properties here in Scottsdale are on gas. That's the easiest is to throw a gas heater in. Um, if they're not, there's electric heaters. Um, you could also, you know, put a, Drop a propane tank in and heat it, which is probably the most expensive way.
Right. And most labor intensive. Yeah. Um, but yeah, you could control that stuff through an app. You don't have to physically be there to, you know, heat the pool. So, um, yeah, I would say, you know, pool, great outdoor living, five bed, three and a half bath, really want at least two of those bedrooms to have an en suite, preferably more.
And if you can, you know, I would say that that's another, [00:31:00] that's a plus, uh, when I say, when I say living areas, like have a media room, for example, like a den in a way where people can kind of watch movies, you know, maybe the kids are watching movies and then the adults are kind of sitting in like a, a second kind of seating situation, living room, um, even if they have the outdoor area, even if they have the outdoor area, we'd like to have two kind of living spaces under roof and then as many amenities that we can kind of, you know, I don't want to overdo it and make it look too busy, but you know, if we have the space we've, you know, we'll drop in, you know, last year we dropped in a couple of, uh, pickleball courts, which has been a super hot amenity.
Um, this year we're looking at, uh, converting a, uh, a master bath. Extended patio into kind of a wellness space, dropping a cold plunge in there, a dry sauna, we just kind of look at some trends and see what's actually, you know, what's catching people's eyes. What's a little bit different. How do we stand out?
So I use the term every day, amenitize, amenitize, amenitize. [00:32:00] Um, and so, yeah, we want to, we definitely want to create these different experiences that stand out from the pack. Yeah, well, and I could see you, I mean, you kind of need to because it's always changing. And even what you just said that a couple years ago, four bedrooms would have been okay, but now five is what you need.
And that goes back to exactly what I said, that it's kind of getting saturated and that now you're going to have to, you gotta, gotta stay ahead of the pack in order to stand out. So Yeah, yeah, and I don't have the data in front of me, but you know, I would suspect that if you looked at every house in the greater Scottsdale area, that was a four bedroom, three bath house, and then you looked at every house, every, the number of houses that were a five bedroom, For bath.
So just going up one bed and one bath, I would say there, the supply is maybe only 10 percent of what it was for the four threes. So you have the total number of four threes, you know, only 10 percent of those, only 10 percent of that number is probably how many five fours there are. Right? Yeah. Well, yeah, [00:33:00] because people weren't building houses that big.
Yeah. And they haven't really been, you know, this whole luxury space or side of Airbnb, you know, Airbnb has been around since I think 2005, 2006, I mean, people have been renting plate spaces on Airbnb for a long time, but, um, this side of the market, which there's a massive demand for has really only taken off in the last, you know, five, To six years.
Yeah. Well, and I think that with Instagram and people posting pictures of their bachelorette parties, because that's immediately what I think of is, you know, you're going on a group trip or, you know, all your college friends or something. It's, I mean, to be honest with you, you know, again, luxury, it's, you know, I do get a lot of those parties.
Don't get me wrong, but it's, we're getting together for, you know, The bridal party. 'cause there's weddings and they don't wanna stay at hotels. They wanna stay at an Airbnb, um, group trips for someone's 50th for their 40th couples retreats. Mm-Hmm. . Um, there is, I mean, during the week we get a lot of like executive, um, kind of executive getaways, you know, [00:34:00] they want to end of quarter, they're kind of getting together to do, you know, whatever, you know, do work, whatever.
Um, so there's, I mean it just, uh, and then that makes sense. That's a great idea. Yeah. I mean, yeah. Tons of corporate retreat Yeah. Type stuff. That's a great idea. So I know people, I know that's the first thing when people think of like group travel, that's where their mind goes. Like bachelor, bachelorette.
And we do get a lot of that and Scottsdale's been a hub for that for a long time. Um, but that's, you know, one of, you know, 30, 40 different reasons that's tend to come up regularly for reasons why people are traveling in groups together. Yeah. No, I think some of those, I wouldn't have thought the, of the executive group, 'cause they do, they get together to bond and Mm-Hmm.
you know, have meetings and brain brainstorm and all that. Yeah. Yeah, absolutely. Okay.
Seasonality and Financial ConsiderationsWell, am I missing anything before we kind of sign off here? Um, I don't, not that I can think of. Um, you know, we talked about the criteria. Um, you know, we, I think we talked a little bit about the seasonality. Um, you know, we, we try to really talk about that, about the difference in, um, in the [00:35:00] different seasons.
Because I, when I was interviewing, we're not interviewing, but I was asking what to talk about. And I was saying, well, how much would you make in a month or per night? And he's like, well, it depends on the month that you're talking about. Right. And what events are going on. And I get that a lot. It's like, you know, you know, if I buy this house or, Hey, we're looking at this house, like, what is it going to rent for per night?
And it's like, well, there's 160 price variations over a 365 day calendar year. So it's, it's a really tough question to answer. So when I talk about numbers with people, I, at the very beginning, say, Hey, look, Everything we're going to discuss financially related is going to be annualized. Let's annualize our expenses.
We're going to annualize our gross rents or NOI, et cetera. And so, you know, I would say generally March, for example, which is our top booking month of the year, it's going to be five times the revenue that you might generate and say August. Okay. And so the month on earth. When it's, yeah, totally. Like, I don't even wanna be here.
I don't Yeah. Nobody else wants to be here. . Um, right. But, um, yeah, so, you know, [00:36:00] annualized, yeah, I mean, really the, the space I plan is, you know, two, about two, 250,000 to about 450,000 a year in top line rental revenue. On about a two to 3 million house. That's kind of that. And that's after paying the mortgage.
That's after paying you. That's after doing the amenities. So top line. No, no. So top line is just going to be gross. Okay. So that's inclusive of the cleaning fees that the guest pays, the rental rate. Oh, okay. That's top line. Okay. Yeah. So we can't, we'll touch on expenses real quickly. So there's the three big line item expenses.
Our management fee is number one. Cleaning fees throughout the year is number two. And utilities. Those are going to be your kind of top three expenses. And then you have supplies like your shampoos, your dish soaps, your paper towels, toilet paper, et cetera. Um, supplies, incidentals, you know, handyman, things like that.
That's, you know, 2, 000. Yeah. Yeah. But generally, I mean, I try to run, I mean, we try to run pretty lean, right? So on a, let's just say using a, uh, around number 100, 000 [00:37:00] in gross, um, the net, which is when we talk about cap rates and net operating income, um, were. Excluding debt service, mortgage from that. So your expenses, you're, you're strictly, you're operating expenses on say 100, 000 in top line rental revenue, um, is probably going to be about 000.
So you're running about, most managers will tell you they're going to run about 35 to 40 percent in expenses relative to your top line. Yeah, but you get to take home. 60%. Yeah. And if you have low debt service or, you know, then that's how you get, that's how we get to our higher cap rates that we're shooting for.
Okay. All right.
Conclusion and Contact InformationWell, I think this sounds awesome. And I'm really glad that you found this niche and you guys, Ross is Thanks, Ross. I mean, he's been an awesome podcast guest, but his presentation to us about all of that goes into the numbers of figuring all of this out as to whether your property is going to be profitable or not in his opinions and experience in the market are [00:38:00] just amazing.
So I really appreciate you coming on. Um, and I also have to tell you too, because at our brokerage, he's like one of the top 10 real estate agents. Agents. I mean, he is like really killing it. So if you are interested in getting an Airbnb out here, um, I do recommend giving him a call because he really knows his stuff.
So thank you again. Totally. And, and my website's, uh, luxury cashflow.com. Yeah. And, uh, yeah, there's a, you know, just a little inquiry page and, uh. Yeah. Happy to answer any questions. And you can, you can see the properties that he has on there. Yep. You can see the properties I have on there. You can see more about the management aspect of it.
Yeah. Tons of good, tons of good content on there. I'm still getting the YouTube and the Tik Toks and the IGs kind of going, but there's some, there is some informative stuff on there as well. It takes some serious time. Believe me, I know where, I know where you're at with that. Uh, and I'll have all Ross's information in the show notes.
And, uh, whenever I post anything, I'll tag you and all of that. And then, um, if you do have any questions, feel free to give me or Ross a call or whatever, and we can point in the right direction. Okay. Thank you. Yeah. Thank you for being on and you guys, [00:39:00] thank you so much for listening and be sure to share it with your friends or let me know if you have any other topics that are of interest.
I appreciate you. Thanks, Michelle.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.