Avery is the founder of The Short Term Shop, which acts as an agency to connect investors with short-term investment opportunities. Avery started as an investor and has bought long-term and short-term properties. She was able to scale quickly with short-term rentals and now she helps investors find the highest cash flowing short-term properties in friendly markets. Short-term rentals are potentially lucrative, and we find out today how Avery could make $120,000 a year with them.
Avery used to work in the music business as a marketing manager making $37,000 a year in Nashville, Tennessee. She then bought real estate without doing any research.
Later on, she and her husband educated themselves and saved up for 1 down payment worth of savings and bought another property in Gatlinburg, which was 3 hours away.
They were able to buy 5 properties within a year and scaled their portfolio to a total of 28 doors. It had snowballed, and they were able to use the cash from their short-term rentals to buy long-term properties.
Avery financed her short-term property purchases using a 10% down payment, vacation home loan, which allowed her to rent out the property as an Airbnb or Vrbo.
The loan has requirements such as it needed to be 65 miles away from their primary residence. She can only get 1 vacation home per market, and she can’t partner with someone she isn’t related to. She also cannot put in a property manager or a lease.
The property needs to be put in her name, but she suggests transferring it after closing. It would also count towards the 10 property limit for conventional loans for Fannie Mae and Freddie Mac.
When Avery wanted to find answers to her questions about short-term rentals, nobody could help her. So she decided to open up The Short Term Shop to help people like her. They are already present in Tennessee, Destin, Florida, and Gulf Shores, Alabama.
They don’t just act as agents, but they help their clients get their Airbnb and Vrbo listings up, and help them set up and introduce them to HVAC, maintenance, and other repair guys. This way, their clients will be able to remotely manage their properties on their own.
Some people overthink and worry that they need to put a lot of extra stuff to be noticed. The sheer volume of the demand for vacation rentals is so big that Avery shares that you will get booked.
When it comes to financing, Avery uses a local bank. Local banks project the income coming from long-term but count it as very high because their appraisers know how good the market is.
Rental history is not a good way to determine whether a property is a worthwhile investment because it is variable and cannot be controlled. Avery shares that a property with a rental history of $25,000 a year can do $55,000 a year if properly managed.
To determine if it’s a good deal, Avery looks at several data points. She checks out the data on AirDNA and looks at what the neighbors are doing to find out how much she could rent for since the price per night for short-term rentals changes.
A good deal could be something that gets a cash-on-cash return of 20-40% and a gross rent multiplier of 15%.
Vacation rentals have prices that could go up to $700-800 a night. So short-term rental homes are very lucrative with 4-bedroom units getting higher returns than 1 to 2-bedroom units. A regular looking $450,000 property could make $80,000 a year and a nice $750,000 property could make $120,000 a year.
The demand for vacation homes is based on the tourism level. Because of COVID-19, there was a drop in prices, and Avery only got 1-2 5 to 8-day bookings. But regional rentals bounced back faster than those located in the metro areas. It seems drivable vacation homes are more recession-resistant.
Some people overleveraged themselves, so It’s important to have cash reserves for emergencies. A safety buffer of 3 months’ worth of reserves is enough, but it’s better to have 6 months to 1 year worth of reserves.
Nowadays, you can do everything on your phone. There are lots of automation tools like Your Porter that can be used. Google Calendar is also useful. You can also set up that your guest receives canned responses from you.
If you want to scale quickly, Avery suggests self-management as most vacation homes come furnished already and turnkey. You might only need to spend $1,500 for repairs or replacing furniture and get a good photographer to take nice pictures.
Everything in the market was already developed to cater to the vacation rental demand, so there’s no need to worry about competition. Just make sure to have nice, bright pictures and suggestions for where to go to make your listing attractive.
Due to COVID-19, Avery’s expansion plans have been pushed back, but she still plans to expand to one market before the end of the year.
Before entering a market and looking at properties, always check city and county regulations for zoning rules. You might find that some city councils disallow Airbnbs or might have regulations that keep changing which could be bad for you in the future.
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