Mike Swenson & Mike Gengler: Acquiring Our First Short-Term Rental

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Are you considering getting a short term rental for your real estate investing portfolio? We're in the same boat! Get a sneak peek into our lives as we discuss our short-term rental purchase set to close within the next week in the Finger Lakes region of New York! We talk about our overall investing strategy, what we're looking for in a short-term rental opportunity, what we liked about this particular deal, partnering with investors in deals, and what we're planning on doing with this property in the future to add additional streams of income per night to the property. Get an insider's view to our thought process and plan with this episode!

In this episode hosted by Mike Swenson, we discussed:

• The balance between cash flow and appreciation on their apartment complex and how it led to looking at short-term rentals
• How we explored short-term rental markets to invest in
• What we liked about this particular short-term rental deal
• The two things to figure out your monthly cash flow on an apartment
• The side benefit of the STR cashflow is building value on the property
• Thinking about how a property works long-term such as creating an experience for your guests
• How they got the deal through the Investor Agent Mastermind where they network and connect with other buyers and sellers
• The Investor Agent Mastermind being a good opportunity to connect with like-minded people that want to build and grow their portfolios

Timestamps:

0:00 - Intro To Mike Gengler's Career
1:33 - What You Should Look For In Short-Term Rentals
5:38 - What is the opportunity in Florida
7:49 - Leveraging An Agent Who Knows The Market
13:45 - Future Opportunities Versus STR
14:46 - How To Create A Vacation-Type Community
16:40 - Partnership Opportunities
19:03 - The Investor Agent Mastermind

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Minnesota Real Estate

Read the full transcript here:

Mike Swenson
Welcome to The REL Freedom Podcast where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together.

Mike Swenson
Hello, everybody, welcome to another episode of The REL Freedom Podcast talking about building wealth, gaining time and financial freedom through real estate. We like to highlight every now and again, our journey and what we're doing as investors, just so you guys can continue to follow us continue to know what we're doing what we're investing in the types of deals that we're exploring or not doing. We remember going back to the last episode, I think that we were on together, we talked about doing the syndication and setting that up. And ultimately we decided not to do that. And so I think too, it's important to share, we're going through this process together, we're kind of figuring out what's going to work best. And finding our next indication doing the last one really is going to help us figure out what's going to work well for the next one. So we've got Mike angler here. And we're just going to share our newest venture, which is a short term rental that we are under contract on right now, and set to close here within the next couple of weeks. And so we'll just share our story and our journey through that process. So welcome, Mike. Again,

Mike Gengler
glad to be back. And while technically we are closing within the next couple of weeks, because that's really only four days away right now.

Mike Swenson
It's only four days away, I guess I thought it was was next week. So yeah,

Mike Gengler
we're fast approaching Mike things move quick. I

Mike Swenson
know. Yeah. So so short term rentals. So Mike, why don't you just share a little bit about what we're looking for in properties? Well, first of all, kind of backing up to the strategy. Here we have our 20 Plus unit apartment complex. And we've talked about different things that we can do to diversify to grow. So talk about why are we looking at short term rentals when we just had an apartment complex,

Mike Gengler
like a lot of things, you want to diversify and the short term rental does a different thing than an apartment building does and apartment building where we're updating units there, we're increasing rents, we're building up the the cap rate, and then looking to refinance and pull the money out of that or possibly sell it, and the goal to be determined there. But that's a longer play of building up a large capital growth there. So you're gonna have, you know, we should have anywhere from you know, 400 to $750,000 in the building itself and the value going up. And that's the big play on that. For the short term rental, it's much more short term, the cash flow is going to start off pretty immediate once we get up and running with our property manager and getting those occupancy rates up. So we're looking at rather than dumping a whole bunch of money in and updating things, we're buying a property that was being used as a single family home. So it's just furnishing the place and then getting it onto Airbnb, VRBO personal marketing that our property manager does. And then having that more immediate cash flow, the property itself might not go up as much in value, but the monthly cash flow is what makes up the difference there. For

Mike Swenson
a lot of people, it's yeah, it's determining that balance between cash flow and appreciation. And obviously, an apartment it's not appreciation in the same way that a single family or duplex appreciates, you have control over the value out of the building. But for a large building like that, it takes time. You know, right now, for a quick update in terms of our apartment complex. We've owned that building since October of 22. So we're coming up on a year here, we're at about nine months. And we haven't taken any cashflow out out yet. Because we've poured that money back into the building. We've also renovated about half of the units placed to new tenants at market rent. We only have I think one vacancy right now that we're looking to fill here coming up in the next month. And so we haven't experienced that cashflow yet, because that's a more delayed gratification play for us, like you said, Mike to have that at the end. And so a lot of people that we've talked to have done this apartment short term rental mix, we can talk about the short term rental market itself as well. But in theory, when done well, that's a solid cash flow play mixed with the solid appreciation play of larger multifamily because you're not going to see that cash flow right away. It does take a little bit more time on some of those buildings. This seems to be a good mix, you get some cash flow, and then you'll have some back end value add with the larger apartments. And so that's kind of what we decided here is let's find a couple of short term rentals to balance out the apartments that we're also looking at.

Mike Gengler
Yeah, absolutely. I mean even the pro forma of the apartment cash flow, you know, it has a purchase price that's 10 times higher, and the pro forma cash flow on the apartment is still only A couple of $100 more a month once it's up and running. So just being able to scale with those short term rentals to have more of them, you know, just thinking, if I have two of those to short term rentals, I'm only spending 20% of the capital to get those. And my cash flow could be almost double.

Mike Swenson
Right, you know, now that we've covered the bigger picture strategy, talk about what we're looking for, maybe from different markets, you know, we've thrown out a lot of different states, we've thrown out a lot to different cities. And while we don't have to get into the nuances of each one, what are some of the things that we're talking about when we're looking at markets,

Mike Gengler
you know, one is going to be opportunity. And when I say opportunity, it's you know, homes that are available, and you know what price they're available at? Obviously, everybody knows, Florida is a great short term rental market, however the price is down there can be very prohibitive, prohibitive to get started, you know, you're looking at any, you know, 400,000 plus minimum but more likely 600,000. versus, you know, we got ours were under contract at 130,000. So, a lot easier to get started there. Now, you also want to look at what the opportunity is, is there demand. So, all great to get a property, but if there's not going to be anybody staying there, that doesn't really help anything. So what you want to make sure you're doing is getting the proper due diligence done so that you can figure out what are your occupancy rates going to be? And then what are those occupancy rates going to translate to for a nightly rate. So when you've got those two numbers, then you can kind of figure out what your monthly cash flow is going to be on an apartment, it's a lot simpler, they're gonna rent it out for 12 months, they're gonna pay $1,200 a month, that's, you know, that's what your number is, versus on a short term rental, you're probably going to do something where it's like, okay, for the first three months of the year, I might have a 65% occupancy at $149 a night. And then maybe in the summer months, it's a lot busier, now you're at 90% occupancy, and you can charge 199 A night. And making sure you know, both of those numbers is super important in determining whether your short term rental will be.

Mike Swenson
So for us, we actually ended up partnering, finding an agent that's local. So our short term rental is going to be in the Finger Lakes region in New York. And this is a one bed, one bath, and we're going to add a sleeper sofa to the living room on eight acres. And so the mike like you'd mentioned, the price point is lower. But for us, because there's uncertainty over the nightly rates, the occupancy rates, especially for something you know, north in the that experiences winters in a different way. In the south, I know there's you know, slower seasons, and busier seasons depends on where you're at. But for us, we really wanted to lean on somebody who's been there and does that and knows the market very well. And so the agent that we're working with is somebody who runs their own short term rental management company. And so she's very familiar with what the demand is she's familiar with, in this case, because this is a there's not a lot of properties that can be occupied year round, just because of the roads and the snow. And then even as the building set up to be able to handle that this property does. So she knew there was demand through the winter. And then a couple other fun things is we've got a pad for an RV. And we've got because it's on eight acres, we have more opportunity for more RV pads in the future. So there's that growth opportunity. And so we felt like while we've helped people with short term rentals for our own, it was good to lean on somebody who's been there and done that before can really advise us on how she runs her properties and in her expertise, and is a good foot in the door for us to be able to get started with our own short term rental journey.

Mike Gengler
Yeah, absolutely. Having somebody in the area that's an expert is highly recommended. You can find all this information. But when we compared the air DNA data to what she was giving us, one air DNA didn't have like a complete picture of the region. And so it was like it came with a warning of this might not be accurate. But it also was her saying like, I have people that I could midterm or until this too in the winter, because there's such a demand for housing in the winter, because not everything is year round. So knowing that was a big boost for us, because we're going to be purchasing here at the very end of summer. So like, we're going to miss a lot of the busiest season there. So just knowing okay, if we do we could get this rented, we'll still be able to be profitable, even at a midterm and then having future opportunities. Yeah, we've got the one RV pad. It's got full hookups. So if that starts getting rented and we're like, oh, okay, well, we can take those rates and that occupancy and be like, Okay, if we have four more of these, how would that look? Or you know, if it's not going to make sense, then we don't do that.

Mike Swenson
Yeah. And for this deal, just to clarify, we weren't actively looking in this area. Uh, this was a deal that kind of fell in our laps that our agent felt really strong about. He's like, I think you guys should consider this. So we talked about it on a Thursday, we presented the offer over the weekend, and we had accepted the next week. And so it happened really quick. And thanks to you know, we also partnered with a investor that we are doing our deal with on our apartment complex. And so it came together really smooth. And so I think that's the value of having relationships with people that you know, like and trust and that you've worked with. And because it allowed us to find this property, we work with somebody that we've already knew and trusted both on the agent side, as well as now the future of the management side. But then also to on the money side, having somebody that we've already worked with, and hopefully likes working with us, it came together really quick. And so we're looking at being able to do more of these in the future. But it starts the first one, especially for our short term rental. And having those relationships built up and taking those times that time to invest in those relationships is what helps a deal like this come together really quickly. And I think quick, going back to kind of the opportunity, this deal, we talked about renting out the cabin renting out the RV pads, and then we had shared before the price point is 130,000. That's kind of an A nice, a nice luxury to have in terms of rental rates, because we are going to be able to rent this out for other deals that we've explored in other states, that might be twice as much or three times as much, we're gonna be able to rent out just the cabin for about the same price or you know, within the same range. And then all that RV potential future on top of that is just going to be gravy. So it's a good low entry price point with hopefully, a high floor in terms of shouldn't take a tonne of booking nights to be able to break even every month. And then obviously everything that we decide to develop on top of that on the eight acres is just going to be gravy. So I think we felt like it was a solid first opportunity having the property manager there kind of encouraging us and guiding us along the way with the higher upside, it's a deal that you don't run across just on a normal single family property because you don't have the RV potential in the future land potential. At this price point,

Mike Gengler
I mean, price point or not, I think it it plays into what we do is as multifamily. And having multiple streams of income from each property. Well, it's a short term rental, which generally means you've only got one. But right off the bat, we're gonna have two streams of income from here with the plan after seeing how things work, you know, making sure that that RV site is profitable of expanding the number of income streams. And so it's finding these unique opportunities and being a part of a group, whether you're presented with these opportunities, so that you can move on. And when they come forward, we haven't taken into account any appreciation on this property, we're looking at this as a straight cash flow opportunity. But I mean, we would be crazy to think like if we put in an operating Airbnb or short term rental on the property, put in more RV pads, and could show what this property is making per month that the property doesn't possibly double or triple in value in the next three to five years. And so while the goal is short term cash flow, a side benefit of that is going to be building up value on the property and being able to cash out refi this one as well. And then you can deploy your capital again, in another deal that somebody else brings you. We're always looking for deals, short term rental apartment, whatever you've got, bring it to us so we can take a look.

Mike Swenson
Yeah, well in and two we had, we'd kind of floated around the idea of as we're looking to expand the RV opportunities, what if we bought an RV, put it on the property. And then now you've got another potential opportunity for people where hey, I can either bring my own RV or if I'm looking for a place to stay in this area, and I don't have an RV. Now I can stay in an RV that's already on one of our pads. And so I think you know, when we talk about exit strategies are future opportunities, there's a lot of different buttons and levers that we can push and pull, depending on how the market changes over the next couple of years to keep our expenses low and obviously, increase the upside and so we can have those future opportunities versus a short term rental on one house on a on a plot of land that you can't add anything to it's like like you said, that's just one income. Now a lot of people do really well with that. But for us it was that future development upside and being able to kind of dictate what what do we want to do with it.

Mike Gengler
It's eight acres we can put in community activities as well. As someone who travels a fair amount like when you go somewhere, you know you're looking for sometimes you just want a bed in the kitchen, you know and you're just staying there ain't in passing through. But if you're going to be staying for a few nights, having a firepit, having some lawn games to play, you know, having access to trails, these, these are all things that can just be added benefits of staying at our place specifically, that might not be offered at another one. And so being able to build or provide one set of those that works for currently to but you know, in the future, six 810 different tenants who are staying there, that's a big advantage of being able to keep those costs low of okay, we don't have to build one firepit. But we can tell all 10 of those listings that they have access to the fire pit, you know, it's thinking about how that works. Long term, rather than just okay, I've got one short term rental, it's going to make this amount of money every month, like that will work. But there are better ways to do it as well. Yep.

Mike Swenson
And I think too, because this is more of a vacation type community. It's not like, you know, it's in the middle of a city, we can try to create repeat guests in the future. Right. So it's, it's not necessarily you know, somebody coming in town on business, how do we create an experience that, you know, a family will say, Yeah, this is the place I want to come back to next year, or, Hey, our family does this together, shoot me, you've got a group of people that love to RV together, and they booked the same week together. And so we want to try to find out, figure out a way where we can create repeat guests that want to come back to us again, and again, anything more that you want to share in terms of the partnership opportunities of who we're working with.

Mike Gengler
So we started an investing mastermind. And so this is something where if you're interested in joining the mastermind, if you want to network and connect, that's how we got this deal is we had an agent who came on the mastermind, and she presented us with this deal. And I was immediately like, oh my gosh, this is the one and so I kind of took the reins and presented it to Mike and move forward with it from there. That's also the nice thing about having a partnership is, you know, you don't have to do all the analysing yourself, you can just have somebody bring one and then your partner analyses it. And he's done the same thing, you know, and brought me deals as well. But this is something where the mastermind brings together buyers and sellers, whether they're yourself or some of your clients, and make connections so that we can all make deals together.

Mike Swenson
You know, somebody once told me, they said, you know, things happen slowly, and then they happen suddenly. And for a group like this, I think that's true. You know, being a part of a mastermind group, you're building relationships, that at the drop of a hat, that deal could come along, right. So we've known her for a while, we've talked with her for a while, and all sudden this one deal came up. And boom, three days later, we're under contract on it. And I think that's for some people like it takes a little bit of nurturing of those relationships, because we had the investor that we've already worked with on past deals, we were able to just call them up and say, Hey, we got another one. And he said, Yes, right on the spot. And so I think it's that balance of, you know, we spend time, days, weeks months, building relationships with people for those one, that one opportunity where that right deal comes up that you're able to jump on it. And so I think for people Yeah, that, you know, if you're a real estate agent, or, or an investor, you're looking to connect with other like minded people that want to build and grow their rental portfolios and build wealth through real estate, this mastermind is a good opportunity, you might not get your first deal on your first call, or it might not help with your next purchase this week. But it might be a month or two or three or maybe six months or a year down the road. That's what it might take to have these deals come together. And, and it's through the relationships that we can confine these deals.

Mike Gengler
I mean, it might take a month or six, but it might take a day or two, it it all depends on what happens, like you said, go slow, but it also goes suddenly. So the only way to find out is to join and bring us your deals. So yeah,

Mike Swenson
if you're listening to this, and you know, number one, I hope that you're able to learn from us as we're sharing our journey as real estate agents and investors going through this process together, we want to be able to open up and show you what we're working on and what we're thinking about ourselves. And so my hope this is helpful for you guys to just kind of hear Mike and I's thought process as we purchase and go through and close on the short term rental. But then too, if it's something where you're a real estate agent or investor, you're looking to connect with other people across the United States. We do have that investor agent mastermind, where we get together and we talk about things once a week, we share ideas and then build those relationships that can come to fruition. And so if you're interested in something like that, go to agent, investor mastermind.com. That's agent investor. mastermind.com. And that's the group and we currently are meeting on Wednesdays, if you're listening to this and sometime in the future, that could change but we're here on Wednesdays right now. So hopefully that's still the day Hey, that works out. But we do update that on the website, the date and the time so you know what time it is. But go check it out. And I hope this story of our short term rentals inspiring to you and you find some value in it. And then as Mike said, if you guys have other short term deals, don't hesitate to reach out to us. We love being connectors and we love helping other people. And so even if it's not something that is a fit for us, it might be a fit for other people that we know. So let us know what deals you have out there and let's see if we can do some business together.