Hey everyone, and welcome to another episode of the everything real estate investing show with Sean Pan. Today, we have Al Williamson. Al is known as the father of the extended stay rentals. As a landlord scientist, Al has figured out the best ways to increase the net operating income for rentals. He will go over the basics of why extended stay rentals are far better than the typical Airbnb short term rentals and what even tell you how you can get started with the strategy today.
Al: Hey, my name is Al Williamson. I’m better known as the world’s first landlord scientist as I’d to come up with a name for myself after I left Corporate America to get myself some purpose. So my mission is to boldly go where no landlord has gone before. Some out there exploring different technologies, checking out how artificial intelligence is going to affect real estate, see how 5G is going to affect ,us see if we can monetize some of those towers and not miss the train like so many people did for cell towers. They missed a lot of land leasing.
I’m not going to miss this next train man. I’m going to be right on it. So how I got in, I went to a church picnic and I was getting ready to get married in 96 and older gentleman pulled me aside and said, you know, you should think about getting a duplex instead of buying a house. You guys should move in the duplex and then rent out the other half. This is back in 96. It felt like is pre-internet. There’s just email stuff back then.
So I went to the library and I read from one side of the library shelf to the other all real estate, just kept reading, reading, reading and then I started reading the same thing over and over again, and I’m like, I know this now, I know these numbers, they feel good to me as a civil engineer. I know Algebra and it felt good. I can see how those variables allow me to scale up. So we jumped in and we bought a three unit building and my new bride, I pushed her into the one of the smallest units. So that’s love, right?
Sean: That’s right.
Al: She’s into one of the smallest units of a three-unit Victorian Inn in downtown, Sacramento. And this Midtown Sacramento was going through revitalization and we did not know what that was. We just knew that we wanted a three Plex and kind of house hack before the word house hack was out. And that property, within five years, it quadrupled and we just got lucky. You know, the neighborhood got better and it was upswing in the market quadruple.
And we said wow, let’s do this again. So, you know, we did a 1031 exchange and some things like that, tax free exchange and then we bought into an inner-city neighborhood. We bought an eight unit building this time. And we said; let’s fix up the neighborhood because that’s what happened. If you got the neighborhood together, if you improve the neighborhood, then you can raise your rents and then you can force their appreciation of your rent and then you can force the appreciation of the value of your property and, bam, you be instant millionaire.
So that was processed. I figured out how to do that. It was basically applying leadership to the inner city. The most profitable thing you can do is change a D-neighborhood into a C or a C-neighborhood into a B. That’s where you get your most value with the exact same products, no granite countertops or anything. No renovations. No, nothing. Just no windows just clean up the neighborhood, cleanup that block.
Sean: So what were you doing to do that?
Al: Well, you pick up litter first of all, so you give the visual clues and you organize people. You get them on a mailing list so that they feel comfortable about reporting petty crime.
Sean: And then you became like the night, the crime watch guy. The neighborhood watch guy?
Al: I was the guy. And it worked for a number of different ways. And one thing, I did not live in the neighborhood and I was not afraid of any type of repercussions. And also is one of the larger property owners with his eighth unit building and everyone else was a single family homes around me.
So it just lacked leadership. You add leadership to nearly anything and you improve the value of it. So that’s what happened. And as we’re going to talk about it today, it got nicer so I was able to do short term rentals and short-term rentals led to spewing out so much money, I could walk away from my corporate job
Sean: And how long ago was that? That you actually walked away?
Al: That was about two and a half years when I turned 50. I was able to do it.
Sean: Congratulations.
Al: Thank you.
Sean: So that’s what you are known for nowadays. Do you want to talk more about that and what is your current strategy?
Al: One thing, I hope people don’t think of me as a landlord science, but I did discover extended-stay version of the air B&B because I was doing landlord science, I was testing things. I was testing different operating modes of the of a two-bed one-bath apartment unit that I happen to own. So what I did, when Airbnb came out with something called business travel ready, that category, where they say we’ll give you this badge if you are not living in the unit and we’ll mark it out to business traveler. That was back in 2015 and the bottom half of 2015. They came up with business travel ready.
And I said, well, that’s right up my alley. Because I love being a guest and having people bring me cookies and carry my luggage, but that was not in my plans for as a host. I was not interested in that. I did not want to be there to meet people and whatnot. So I started experimenting with this two-bed one bath and I discovered that I could make the same amount doing it on a net income basis. You boil down your numbers and you include you how much time you pay yourself for your time with so many people are not doing, paying yourself for your time.
I ended up with the same net income for what for a one-month day as I did for doing three stays that much. And that that turn my lights on like hey, these longer stays are more efficient on a net income basis and it has so many other collateral benefits like city ordinances, city taxes, and insurance, and just wear and tear on me and my family and I feel it’s more sustainable for sure.
So that turned from one month into three six months days optimizing for those and I found that the longer the stay, the more net income I made per month. So imagine that instead of doing four or five nights stays per month, I could just do it on a monthly basis. My net income was bigger, larger if I was doing three to six months days.
Sean: So how do you do that? Do you just set like a minimum stay length for your properties?
Al: You do and also here is the big secret, you leave Airbnb. Airbnb becomes your backup strategy, not your primary strategy. You build relationships directly with folks. That’s it. Because those are how you get into more of the medical of the insurance and the corporate housing areas where you are not having middleman, you have relationships. And that are built over time. That’s not an efficient thing, you know, it’s inefficient. You got to spend time with people. You got to talk. You can’t hide behind your computer. Anyone can hide behind their computer and get an Airbnb listing and I love that because it’s well thought out and I love that. I encourage people to do that while I’m going out and I’m talking to HR managers and locking up deals.
Sean: So for example, yeah, there’s like the big talk about, what is called, traveling nurses?
Al: Yeah.
Sean: They’re big one. So do you go to like on a hospital? Wait, how do you even start if you want traveling nurses?
Al: So if you are going to start on travel nurses, there’re really an agency, a hospital says, hey we need someone in a couple weeks as we’re seeing an influx in population and we have a nurse to patient ratio we have to stick to. So they said we need to hire some people right away. We need them right away. So they go tell agencies, nursing agencies that are all over. There may be in Chicago. There may be on the East Coast. But they tell everybody that we need a certain person maybe someone for the ER and those nursing agencies that are nowhere near you. They’re out somewhere, go and recruit nurses from say Mississippi or Alabama or Florida who those states don’t treat their nurses well.
So they go recruit on your behalf on the behalf of the hospital. And those nurses have a choice. They have a choice between having this nursing agency find housing for them, or they find housing directly. So it’s very inefficient. You have to do a lot of Facebooking to get to the nurses or you just get together with these different agencies and get on their personal website listed. That’s what you do. Ideally, you do both
Sean: Got it. So basically you say, this hospital is in Oakland and is big, and is in need of a lot of nurses in the near future. And your properties near that hospitals you look at what agencies are Hospital go to and then you just get in touch with their HR manager of the agency?
Al: Yeah, you definitely can do that. But that’s going to be your really shot gunning then. Getting involved in the Facebook groups is even better.
Sean: What Facebook group exactly?
Al: One of them is Gypsy nurse on Facebook. You can get involved in there and then you start striking up conversations and doing peer-to-peer type of discussions. It’s very inefficient and that’s how you build your reputation over time, and one nurse will start leaving on Facebook how great the experience was and then other people find that and just go straight to you.
Sean: Got it. So basically you are kind of going into this organization of the people you kind of want as your tenant base and you are providing value somehow in these Facebook groups.
Al: Yep.
Sean: Yeah. Okay.
Al: You make it easy. Now, everyone has their own Facebook groups. There’s so many Facebook group. I have been sharing about travel nurses because Sacramento is one of the big destinations for travel nurses, but that’s just at the tiny fraction of this world of people traveling professionals everyone who has a laptop and access to a cloud is a traveling professional and there’s so many extended stays. As when I was overseeing bridge construction, I was gone for six months at a time. I was a traveling professional. My budget is larger than travel nurses. I always feel bad that I share about traveling healthcare professionals and people shrink their world to that and that’s just the top of the iceberg.
Sean: Are you trying it to nurses because people have heard of it before but I’m sure you can talk about anything. Like you said, this is professional sales people.
Al: Yep. I can keep going on and on about you know, a lobbyist comes to town.
Sean: Exactly. So let’s just use the example travel nurses.
Al: Okay.
Sean: I don’t know anything about traveling nurses, but I want to have them as my ideal client and I go talk to them on Facebook. I joined their Facebook groups.
Al: Yep.
Sean: But I don’t know anything about their profession. What kind of value do you usually talk about to kind of get in the group?
Al: When you think about your ideal client and you think about what they desire from the area? Okay, and then you are thinking okay. They’re looking for to make some type of transition or transformation or they want a certain experience for a certain budget that they have restrictions for. As an individual, you can do that much better than a corporation can. You can give them a better experience. For example, tell me what city you live in?
Sean: I live in Milpitas.
Al: Milpitas. Okay, I know where it’s. Now, if I’d one day to live in Milpitas, I have to stay in Malpitas, could you design the day for me of what the best things to do there?
Sean: Sure. Yeah.
Al: And You’d direct me right there, right?
Sean: That’s right.
Al: So that type of insight is what a corporation can’t do and that’s our advantage. We can set up housing away from freeway intersections.
Sean: Okay, got it. And in the group you can be like hey, if you ever in their city, here is some cool things to check out and maybe rather you are at the top 10 list.
Al: Yep. You become the person.
Sean: And then whenever like someone who is in the group happens to be an HR representative of the agency that can be oh, yeah, this guy knows a lot about the city. Maybe he knows something about where my people can stay when they go travel to area.
Al: Well oftentimes people will jump into a Facebook group and they we’d a search for the city, to seek on what is out there. And then you have all these breadcrumbs you have left and all this great talk about you and you show up so many times in the filter searches. It could be for any industry like I’m often courting HR managers, you know I go hang out at their meet ups. I become visible. It’s inefficient. There’s a high barrier to entry to become known in the industry. Whereas is very easy to jump up on Airbnb and you can make a good living just staying on Airbnb if you choose to until times change.
Sean: That’s right.
Al: And times are changing.
Sean: Yeah, I mean you are putting it all of the hard work right now, obviously, it pays off.
Al: Obviously pays off.
Sean: Thank you very much for the strategy. I never really thought about this but it makes so much sense.
Al: Yep. It’s just organic. It takes time to get to know people and all internet business is based on trust, you know, Airbnb is a third party that allows us to trust each other so we can do a financial exchange but all financial exchanges is based on trust. And that takes time.
Sean: And they trust people they know.
Al: They know. That’s right.
Sean: So talking about your strategy. Do you need a lot of capital to do it?
Al: No, you don’t and this is the amazing eye opener thing for me because I always thought I could never work with a private lender. I could never work with a financial investor. I did not bring much to the table. Remember I started before the internet was around with investing. The usual course is you save your money, you pay off the rental then you have some capital so that you can start loaning money and get into private notes and understand that whole Market of Arbitrage.
But now with the internet, you don’t need to go the whole route anymore. You can get information specially marketing know-how if we’re talking specifically about the short term rental industry. In my case, industry has all kinds of segments between luxury, affordability and budget. There’s those segments in it.
And then there’re segments of short, short, short stays, one two night’s stays, weekend stays and extended stays just like there’s regular hotels and there’s extended stay hotels. So we got those three categories luxury mid-level and short-short stays and extended stays. So I stayed in extended stay and I like the mid-range.
Not to confuse things but each of those pockets has its own universe and how you operate and what you think if you are in the extended stay which hardly anybody is and I love that and you know how to market and keep the place filled, which is the most important thing because it’s inefficient, then you can set up a unit and get it going get someone in there. This is specifically Arbitrage unless you are doing a conversion. If your arbitraging which is you are renting someone’s place an your adding value to it by adding furnishings and then your marketing it to corporate people then you can break even in six months and then start making profit.
So what I’m saying is you can go borrow money from somebody so you don’t need your own money now. You can go borrow money from someone. Let’s say at 12% and pay them all back in six months and then you start making profit, but you have to have the know-how for. And once you have the know-how and you have confidence that you can’t keep the place filled and you understand that this is a growing market. More and more companies are building an extended stays hotels with kitchenettes in them, then there’re these regular hotels, why? Because more travel is lasting for one month and longer.
Sean: Do you know how much it takes usually to furniture unit and get it ready for this extended stay strategy.
Al: Now Milpitas, of course everything in the bay area is different number than the than the rest of the United States.
Sean: Do you have people doing Bay Area?
Al: Oh, yeah lots.
Sean: So let’s give an example of a Bay Area property.
Al: Okay, so first month’s rent and security deposit that could be five grand just there in some areas. We’re talking about a rental Arbitrage, okay.
Sean: This is the rent and the deposit for the master lease.
Al: Right, master lease. So just first month’s rent. That money needs to be paid out by somebody.
Sean: Okay.
Al: And then furnishings you can get all the furnishings for 4,000 and you can do it for less. You know everyone with the college, you know, how to hustle together if you chose to or you can buy everything. Let’s just talk about a one-bedroom place. You should be able to get it all done for 4,000 and you just be resourceful. So there we go. We got first month’s rent and security deposit. That’s say, 4,000-5,000 alone and then 4000 to furnishings us $9,000. Yeah, you should be able to get it all up and going. Now here is the thing. It doesn’t have to be your 9000. You just need to have the know-how in the hustle. The money is easy. Anyone to seize a business plan where you break even that quickly will loan you money.
Sean: And can you talk about how do you know that you’ll make the money back in six months? Like where do you do your comparative market analysis? You are not using Airbnb to determine your net and great.
Al: Let’s talk about extended stay America because the leader in this market, they all positioned themselves in the mid-range affordability. They have an analyst who says okay, we’re looking to see if this location can support an average length of stay of 18 days. So they do all the marketing research and they spend all kinds of financial models, things like that, computer models and they’re paid couple hundred thousand dollars to do the marketing research because they know what they’re doing and then they say, okay put an extended stay America here and the company says, okay, we’ll go spin 10 million dollars because we know you are correct and we’ll put 200 rooms sometimes 300 rooms right there.
So here is the eye-opener. If there’s an extended stay there, that’s all the marketing research you need to do. If there’s a car in the parking lot as all the marketing and research you need to do.
Sean: What high radius are we talking about?
Al: Of course the extended stay has to stay by an off-ramp. You can’t go in a middle of a great neighborhood because of the zoning, right? So the question of the radius is kind of misleading. If there’s an extended stay nearby you can go —
Sean: Two miles away.
Al: Yeah, that’s fine. It doesn’t matter. You want to be in the great spot where they can’t go. They can’t go in the middle of a cool spot by the cool coffee shop.
Sean: And you just charge maybe like 75% of what they charge for nightly rate.
Al: That’s right.
Sean: Okay.
Al: You can beat them all day long. Yep.
Sean: I mean is that right? Is that what you usually do? 75% or 60 or?
Al: I always compare it to the government service administration what their rates are because all these extended stays in all hotels are basing themselves off of percentage of what the government rate is in the area. So you need to say, what is the government rate for my ZIP code? You can find that at gsa.gov. You can look up the per diem for housing per night. Okay, and then you say well, what is the extended stay? What are the hotels, what percentage of the GSA are these hotels charging and that you can say it could be 90% or 75% or sometimes 55%.
And each one of those things tells you, specifically, when it comes to extend to stay if it’s 75%, that’s what they’re charging, they’re saying they bet people are going to stay three months. That they want to be affordable for people staying up to three months. I’m hitting with timid details. If it’s 55% of GSA, then they’re saying, people are staying six months. That’s what it’s telling you.
So if they’re charging 75% GSA, you don’t want to over furnish your place. So that rate doesn’t work for you. You don’t want to go and put super luxury stuff in there because you are out pricing the market. You need to stay inside that band and actually but a little bit below it to even be in the game. And if you don’t even know about GSA, then you are competing against people who are on Airbnb.
Let me say this, I love Airbnb. It changes people’s lives. That’s how I started. Some of the best artificial intelligence on the planet as far as I’m concerned, but it’s the minimum wage job in the corporate housing world. It’s the lowest level and it’s the easiest to get into and I think it’s a great great backup resource.
And I don’t want to say this in a negative way but if you start at a minimum wage job, you don’t want to stay there. You want to work your way up. If you’d start there and don’t stay. You start with Airbnb and then you start building your own relationships. You don’t want it to become Airbnb’s asset. You want them to be your marketing, one of your marketing tools.
You don’t want to say I’m an Airbnb super host. That’s my identity. That’s where I stay. I’m going to do everything they say to do so I can maintain or else they’ll take it away from me. You become their asset. And you can make good money doing that. I’m happy they do and they can be very successful doing that and they’ll stay out of my hair and they’ll stay away from my competition and I can just keep making it more net income than they do and I can run my short-term rental business why they’re being great host.
There’s complete difference. There’s a big difference between being a world-class host and a good short-term rental business.
Sean: Perfect. By the way, I want to thank you very much for actually going into more detail and talking about the whole GSA thing because like I mentioned before people listen to this podcast specifically because they want to hear something a little bit different that they don not hear on the other podcast.
So even going into this detail where you might lose people at least in come back in the future listen to it again and be like, oh I get it now. Just like me, I have never heard about this stuff. I’m actually on per diem myself. So I totally understand where the incentive is. I was wondering if we can go into more detail on these numbers if you don’t mind.
Al: Yeah.
Sean: Okay.
Al: Now let’s talk about your per diem.
Sean: Yeah.
Al: There’re two types of per diems. There’s one that you can actually pocket any savings that you generate and there’re some that you can’t.
Sean: Yeah, right.
Al: You have to show your invoice.
Sean: So I could pocket mine. So I’m obviously trying to look like cheap and cheap as possible.
Al: Now, if you just had to show your invoice and you gave that to the county department and they paid it, You’d have a completely different mindset.
Sean: And I would stay at the hotels all night.
Al: Yeah. Here you go. So there’s three different bins and motivation of people staying. There’re people who are looking for savings, people who are looking for value, and people who looking for profit. Now the people looking for savings they’re paying out of their own pocket and those guys have the white glove. They’ll nitpick you, they’re the typical tourists that are paying out of pocket and then there’re people who are looking for value because they can’t pocket the difference. They’re looking for perks and they’re looking to get the most they can for the allowance that they’re given, business travelers.
So those are the ones you want to kick off some Starbucks gift cards to and you want to add some different perks and then you can get them all day long and then there’re people ,they’re looking to profit the pocket of tax-free per diem.
They’re looking for you to come in lower and if you can make it a win-win split for them. They don’t want the perks, they want the cash. You don’t want the Starbucks gift card, you want your cash. Those travel nurses are in that category. They got student loans that they’re trying to accelerate the payoff on. Everyone knows what their per diem is, but they don’t want to spend it all. So, you are going to have to furnish a place with all this in mind, like I used to house fourth year medical students.
And as you are doing the rotations, they want a comfortable bed and fast Wi-Fi and that’s it and a shower. If you go put luxury stuff in there you out price them. You know, you are going to lose the whole thing. Same place, you are just going to stay empty.
Sean: Who do you usually go for though, the value people or the profit people?
Al: The value people are the Holy Grail because you are going to get the full amount and they have a different attitude.
Sean: They don’t care.
Al: Yeah, it’s like your parents taking you on vacation.
Sean: Yeah.
Al: You can relax and you are just like, okay, whatever because you don’t feel it. Once you start getting involved and you don’t have anything at stake when you know, there’s no self-interest besides perks.
Sean: Okay, let’s go back to the whole GSA. So you said that when the percentage of your GSA is higher, they expect a shorter term?
Al: Yeah, so it’s a new tax law in effect, but still companies still follow this model. It’s less than 90 days or sometimes even over a month day; you can expect your allowance is going to be 75% of the GSA per diem for housing. If you are staying less than 30 days, you’ll get a 100% of the GSA.
Sean: Got it. Okay,
Al: And if you are going to be on a six-month tour of duty,TDY, then they’re saying, hey you should be able to do that with 55% of the GSA allowance.
Sean: So they’ll pay you less basically?
Al: Right, because you should be able to figure that out. Just like if you are staying a year, you should be able to get a long-term lease and work out some efficiencies.
Sean: Got it. Okay. So GSA is basically like a standard for this area of how much it costs to live and companies pay based on the GSA?
Al: Right. That’s set by the government. So if you have a federal contract or a state contract, they’re going to be benchmarking the GSA. That’s what the government service administration does, is they set those standards for as many zip codes as they can.
Sean: Okay got it. So they said that at a say 75%. Then what you do to undercut them, do you do 75 percent of that 75 percent too?
Al: I’m going to say it a little cleaner for you.
Sean: Okay.
Al: You find out whether your extended stay is charging, because I’m only focusing on extended stays.
Sean: Yep.
Al: That’s my universe. My universe is not the tourist less than 30 days. That’s not my universe. Okay, they have their own thing. So I’m only talking to you about my neighborhood make-believe. In my world, just simply find out with what your local extended stay is charging and then undercut them, real real simple. The GSA just helps you know what game they’re playing based on what those MBAs have determined is viable.
Sean: Right.
Al: And you want to work your way up towards the same amount as them as you get more reviews and better relationships.
Sean: So you just start undercutting by 20%, that’s a pretty good rule of thumb to start with?
Al: Yeah, because you want your place filled. This is the real key, you want to benchmark your local extended stay hotel and not benchmark other Airbnb hosts.
Sean: Right. Yep.
Al: That’s one of the key differences. And again as I’m saying this, I got to tell you, you know, Airbnb is a phenomenon that changed everything, but they’re one of my tools. I own them. They don’t own me.
Sean: So since you don’t use like Airbnb as a platform to do it, you kinda do it directly?
Al: Oh I do.
Sean: Okay.
Al: I do, I use them as a safety net.
Sean: I guess.my point is, where does the review go when someone books with you? Because you probably met them through Facebook or something like you are saying earlier.
Al: Right. You can send them to Yelp, that works that keeps us a third-party recognizable when you can just weave that into your ads or weave that into your Facebook communications. That’s the easy one to do.
Sean: And what is your like ideal property that you are looking for?
Al: Let me back you up because that’s kind of a landlord question.
Sean: I guess arbitrage with?
Al: Well, let’s talk about both ways.
Sean: Sure.
Al: If you own the property and you are converting that into a short-term rental, then you don’t want to buy anything that doesn’t cash flow under regular classic landlord places, things. That the ideal property is one of the cash flows as a traditional landlord.
That’s the answer to that one in both cases; it has got a cash flow as a regular. Now if you are arbitraging, what you want to do is you start with what your ideal guest or client can afford or how much can they pay. Let’s say they can pay like in some places like Redwood City they can pay 5 grand per month. Okay, and then you say, well I want to make a $700-$800 profit per month. So you subtract that amount and then you say well my expenses are going to be $300-$400 dollars to say, so you subtract that amount.
Okay. So let’s say we’re at $3000, you take that number and you throw that into your maximum value of Craigslist. And then you see what is available. Now, whatever is available is your ideal property because of what, because it helps you get your margin so it could be any dwelling that fits that price category. If your arbitraging, it’s in that case an ideal property.
Sean: I see, so you just look at the number right?
Al: Anything that gives you the margin, if you own it has got a cash flow as a traditional landlord that’s your ideal property. If you are doing Arbitrage it has got to give you the margin that you are looking for.
Sean: If we’re talking about people who are on per diem, especially people who are on the value, then you probably wouldn’t do it with a four-bed two-bath, right?
Al: So the cash flow equation is your income minus your expenses is your cash flow, right?
Sean: Sure.
Al: There’s nothing in that that says it has to be a three-bed, one-bed, and two-bed. It says expenses.
Sean: All right.
Al: So it’s income minus your expenses whether you own the place or you are renting the place or a lease option or it’s a handshake deal, however you control the dwelling is your income minus your expenses is your cash flow. It has nothing to do with how big the place is, it’s how much it cost and how much can your ideal person pay. Those are the questions
Sean: And then you try to put two people into one dwelling or is it just like one person per address?
Al: Well, there’s all kinds of different strategies. First of all, you found a place that gives you margin, the margin you want. Now let’s say that it’s a two-bed two-bath, then you are going to want to try to market it to two business travelers who their alternative is to get their own individual hotel rooms or to save some per diem and live together. They have to be people that come to you as a pair.
I think, matching up strangers in a place that you are not living at, that don’t know each other is a lawsuit waiting to happen. I think it’s the most risky thing that you could possibly do. And the worst thing you can do for your family is to do that at agreed, because one person simply looking at another person sideways puts you in court, puts you in liability.
Sean: I guess my question is more like when your underwriting the deal, do you kind of assume you only have one person? Because if you rent out the four-bedroom home, the expenses can be very high and it could work if you’d four people living in it, but based on what you are saying that may not necessarily only be the case.
Al: Here we go. We’re going to go into the details, okay?
Sean: Perfect.
Al: Let’s talk about risk, it’s made up of potential financial loss and unknowns, they have two accesses, right? So the more a place cost the more potential financial loss you have. So you are just asking for it. And if you are brand new, you have all these unknowns because you don’t have any–
Sean: No systems in place and no idea, no experience.
Al: Yeah, you don’t have a track record. So, why would someone start with a 4-bed–
Sean: Start small.
Al: You have to reduce your potential loss and you got to give yourself time to figure out your unknowns and as you have less unknowns, so you have small unknowns and a big potential loss, well, you still manage your risk or if you are just starting off and you have a low potential loss because you are doing a studio or a one bedroom and a lot of unknowns then you still have managed your risk. So start small, and stick in the game. I always say, it takes time to build a reputation. It just does.
Sean: Yep. Absolutely.
Al: So if you start small and managed your potential loss and start to build some relationships so that you can take on things, hold on, let me tell you my story.
So I started with a 1-bed one-bath and then I learned that folks from the Bay Area, Baby Boomers, who are selling their places and moving to the foothills. And they needed a place in Sacramento after they sell for their millions, they need a place to for their dog, and a yard and three-bed two-bath. So I started with a one-bed one-bath and then I discovered by being in the game long enough that what was happening and what kind of request I was getting, it took time for people to start telling me, hey, you know what I really need is this, I really need a three-bed two-bath.
Then I go get that and I found it at a larger margin. So my most profitable things is not travel nurses, it’s temp housing. But how did I discover that? Because I got started with something small.
Every area has its own Golden Goose and its own sweet spot. It reveals itself over time. If we’re in Kentucky and there’re people traveling with horses, then a ranch, and consider professional business travelers, people traveling with horses, because they’re horse racers. They travel with grandma, and their children, and their wives and everything. So that a ranch in Kentucky that has a place for horses is the best thing there. But how do you know that it’s because you get involved in you start small and you see what is out there and where you are, every location has its own sweet spot.
Sean: So this is a great transition to my next question. Imagine. You’d to start all over again, no money, no network, and no resources. What do you do?
Al: Now, this is pre-internet age or post-internet?
Sean: Like, right now. Something happened, you lost everything, and you are starting all over.
Al: Right now. I have learned that employees get degrees, entrepreneurs and employers go get coaches. So I would get a coach. I would pay for a real coach and not a forum. That’s what I would do and then I’ll leverage my relationship with them to go raise private money right now in a market that doesn’t make sense to buy because the numbers don’t pencil out and we’re getting ready for a correction sometime.
That’s the next thing coming, is a correction, right? I would start arbitraging I wouldn’t want to buy a property at the top of the market. Okay, so I would control a property and make cash flow and leverage. That’s what I would do right now because I don’t need a penny of my own money to do all this.
Sean: So I’m going to break this down real quick with just what you said. Basically you start with nothing, so You’d probably go network a little bit, find out who is the top player doing whatever that you want to do.
Al: Right.
Sean: Somehow align yourself with them because you don’t have the money to pay them right now, because you have no money.
Al: I like Gary Vaynerchuk says, tell them I have an unlimited amount of sweat for you.
Sean: Oh, that’s perfect.
Al: And that’s how I found my business partner. He came to me, and he says, I we’d whatever you need done. He did it for two years. He was a lawyer; I say was because he’s now retired from it, because we started doing a rental arbitrage business together.
So I have an unlimited amount of sweat for you. How can I serve you in exchange, you earned their trust over time, because there’s no easy button here, you earned their trust over time and then you leverage that relationship to raise funds.
Sean: So for example you are saying, hey, I’m working with XYZ, we’re doing this project.
Al: This is what I would do because I think at this time in the market in California, not outside of California, in California, Northern California. It doesn’t make sense to purchase anything right now, so I don’t want to own anything right? I don’t want to go buy something right now, but when the market changes then I want to buy. But I think at the top of the market you should be doing arbitrage.
Sean: So for example, imagine you have no resources, no money, you never worked with this person, you are raising money to do your rental arbitrage for your down payment, first month’s rent and you are up?
Al: There’s only $9000. That’s almost a credit card right?
Sean: Then. Where do you go to get the property start, getting people to live in it?
Al: Your mentorship pull you there, like for example, if you went and helped out J Martin and you started serving him and helping him a check on those properties and really get involved, then You’d have enough context there right? Let’s say I’m working with Jay Martin, I want to start my own rental arbitrage business. You have a lot of credibility there. You’d have no problem accessing funds and his network after you have given enough value.
Sean: And you have worked on his project so, you know what to look for in the business. Got it. It’s funny because it’s so obvious but it’s not obvious until you hear it.
Al: Right. And it’s not quick either and all along you are developing yourself. You are developing your leadership skills; you are developing your ability to be interdependent. And that’s really where a whole new level of wealth is opening when you are working with other people and you become interdependent and start adding value to other people then this whole door swings open. Investors can do despite everything by themselves. They have a fat wallet. They don’t need to talk to anybody. If you have a skinny wallet, you are going to need to talk to people you are going to need to know how to network. You need to start adding value to people.
Sean: I mean, if you have worked with a lot of people before but have you ever heard any like what is the downside in this strategy or any horror stories?
Al: Yeah, there’s some downsides that one of them is, you stop tracking your business each time. You take your eyes off your business and guests. Let’s talk about extended stays if you take your eyes off your business because there’s not much to do every day, the end of the term sneaks up on you. So you got to do that.
And also if your stack, you know, you get one and you stack, you get another one and get another one, then another problem you are going to have, the one I have is too much net income and no depreciation to shelter.
Sean: What a problem to have.
Al: Well, that’s the truth. That’s the truth. You got to say, well, I need to–
Sean: I need to lose money.
Al: I need to figure out how to shelter some of this. I need to either buy something or I need to run it through an esquire, but that’s really it. Because this is a disaster, then you fall back into being a, just renting the place at your cost and Craigslisting off your furniture, right?
Sean: So the main horror story that you have had is just vacancy?
Al: Vacancy, oh, I guess one horror story that can happen to anybody in short-term rentals is so someone planted a camera in one of my client’s units and that jacked them up, but that’s way beyond their control and is very, very outlier rare that someone was sabotaging like that.
Awesome time right here on the East Coast. There’re some people who are selling and people who are doing rental arbitrage have to cancel reservations. But it’s bad on their Airbnb profiles because they canceled but there’s ways of softening that because you just demo your gas and a little bit of money and say hey, I’m sorry, hey, here is 50 bucks. But besides that, you know, we talked about potential loss. This is a very low potential loss maneuver because you don’t own the asset. You are not going to go down with it.
Sean: Right, worst case you just pay an extra month’s rent.
Al: Pay extra months, you use your clauses. You know, sometimes you have to pay a couple months runs to break your lease, but you can always roll back to doing a long-term furnished rentals until the end of your lease or you can take all your furniture out and find a regular tenant for the place. You follow what I’m saying there?
Sean: Yep.
Al: You can take all your furniture out and rent it out as a–
Sean: Master leasing again.
Al: That’s it and cover your loss and you are out.
Sean: Very cool.
Al: Now, this is all top of the market, you know, because we’re somewhere near the top of our market now, that’s the time to do this type of strategy. This is not the strategy to do at the bottom of the market.
Sean: That’s when you buy stuff.
Al: That’s when you buy stuff.
Sean: That’s right and save your money now do this strategy, get your cash flow.
Al: Yep.
Sean: Market hits, boom.
Al: That’s right.
Sean: And go buy some stuff.
Al: And as it’s sliding down, you start transitioning out. You don’t take this thing all the way down to the bottom. At someplace in it you transition out of doing rental arbitrage and become a buyer when there’s fear in the market. There’s not a lot of fear on the market now. There’s a lot of motivated buyers right now in a buyers’ market. I’m like, guys, you guys do that, I’m just going to do arbitrage. Sometimes I make even more cash flow than the people buying and getting ready to lose all their equity because the market is about to change.
Sean: Awesome. So we’re running out of time right now. Do you want to talk about your course? And yeah, like who is the ideal person that should take your course?
Al: The ideal person is someone who is a landlord and needs to understand that they need both. There’re toolkits. There’s an investor toolkit and there’s a banker toolkit. So an existing landlord who can open themselves up to, that there’s this whole other tool kit that can make them a lot of money so that they can walk away from their job should open themselves up to it. They would be ideal for it because they have immediate benefit from it and also someone who knows they can’t afford their market because either they have the money or they know it doesn’t pencil out or they just don’t have the resources, they’re the ideal person.
If you are a super super introvert and just can’t pick up the phone, this is not for you. If you have a lot of money and you are super comfortable, this is not for you. You don’t have enough drive to do the networking and be interdependent and things like that. I see those people who want ___[45:55] and to make their 6 million into a 7 million. They just don’t have enough drive for it.
Sean: Yeah, because this takes a lot of work.
Al: It takes work, especially at the beginning, think of a flywheel, you got put some effort into it at the beginning and then you don’t have to put effort into it. But people who wouldn’t spend the flywheel, I already spun for them, they’re not a good fit. They’re better off saving their money and buying the property so they don’t have to talk to anyone or anything like that.
Sean: Yep, make sense. So how can people get in contact with you?
Al: My email address is al@leadinglandlord.com, that’s the best way and then you can follow me on Facebook, my leading landlord page and LinkedIn, Al Williamson PE on LinkedIn, it’s easy to find me. It’s super easy to find me. I have a YouTube channel, leading landlord on YouTube. You can see my landlord scientism. I’m trying to boldly go where no landlord has gone before so I’m doing different experiments and lots of expense reduction experiments because expense reductions, it’s not sexy and people don’t like to look at it, but it’s probably the most profitable thing you can do.
It goes right to your bottom line and it opens up the margin. And again, what is the equation for cash flow is income less expenses. So if you can do something about expenses driving those down your cash flow just soars up dollar per dollar if you are doing 5 units or more, that affects your net operating income and forces your appreciation like crazy.
Sean: Can they underwrite with Airbnb numbers or I mean extended stay numbers?
Al: No. they don’t do it. I just refinanced and they saw that my unit was, no, I have leases. I have leases showing them and I have five years of leases showing them that I don’t match any apartment complex in there. They still wouldn’t give it to me. They felt they could not justify it because I was so astronomically above where anyone else was. And again, you don’t want to purchase anything there doesn’t cash flow as a landlord, being a regular landlord should always be your backup position.
Sean: But it’s a great way to boost profits in the meantime.
Al: Yes, you can you can do short term rentals or cut expenses. Same thing boost profits without risk or cutting expenses.
Sean: That’s right. So do you have anything else You’d like to say before we end the show today?
Al: This is great conversation. I’m glad that you did not mind going into the details. So that makes a lot of fun. Especially, you know, I can nerd out on you.
Sean: Exactly. Like honestly, I love the detail so much and I think everyone who listens to it love the details too.
Al: Okay right on then.
Sean: Yeah. It’s something new.
Al: Well, this is fun.
Sean: Thank you very much. Alright, see you.
Here are some of the key takeaways I got from speaking with Al:
Short term rental arbitrage is the best strategy to do at the height of the market.
You are not putting yourself in too much risk and you have a good chance of breaking even after just six months. You don’t even need to use your own money to pull it off. You can borrow from someone just follow the extended stay model by getting a property near like an extended stay in America and undercut their daily rate by 20%. They already did all the research for you. So, you know, it’s a great place. Join forums and Facebook groups. This is not an easy business and it’s not scalable. You need to build trust and that takes time to build that trust. If you’d to start over or if you are brand new, just follow Al’s advice. Go to meet up groups find someone that’s doing exactly what you want to do and provide value to them.
Tell them you may not have the money to pay them but you have an unlimited amount of sweat for them, work for them and learn the business. And then leverage your connections with that person and create deals for yourself in the future. If you want to contact Al, you can email him at al@leadinglandlord.com.
And If you are interested in taking this course, you can just find it at leadinglandlord.com. Now some people say that’s expensive but you’ll make it back in just one month from using this strategy. And would you rather make the small investment in yourself today or continue to save your desk for the next 20 years?
And by the way, I don’t get sponsors saying this but I do believe that it’s worth your time and money to take courses and educate yourself and it’s like playing a game on the phone. Yes, you can still do very well in the game by using all the free resources and spending a lot of your time or you can just pay a nominal fee and jump far ahead of the curve.
Now this paying for something guaranteed success. No, you start to put in the work, but at least you are better off than if you did not. And I hope you learned a lot from the show. I know I definitely did. Thanks, and have a great day.
Email: al@leadinglandlord.com
LinkedIn: https://www.linkedin.com/in/hire-al-williamson
Website: https://leadinglandlord.com/
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