Paying Off $130K Debt in ONE Year With THIS RE Business

Tony:
This is Real Estate Rookie Show 373. Today we’re going to cover how one entrepreneur dug herself out of debt from being over leveraged into a different strategy, and how she paid down over $130,000 in debt and is now making super steady income with her real estate business. Now, if you don’t know me, my name’s Tony J. Robinson. I am one half of the Real Estate Rookie podcast, and welcome to the Real Estate Rookie show where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now on episode 370, we had Keron talking about the pros and cons of Airbnb arbitrage, and today we’re going to take that conversation one step further and talk about co-hosting, what that Airbnb strategy is, and what are the pros and cons and how it works and whether or not it makes sense for you. So Nicole, welcome to the show.

Nicole:
Thank you so much, Tony. I’m super excited to be here today.

Tony:
I want to read a question that you posted inside of the Rookie community, and then we can dive into what’s happened since then. But here’s the question. It says, “Hey Rookies, I’m in desperate need of some help here. I’ve been doing rental arbitrage for one year, making 1500 to 2000 bucks per house over those first six to eight months. But with the increase of supply in our market, we’re now losing money, and the landlords are trying to increase rents even more, and they aren’t even asking for market rates. We still have significant debt from each home because we use profits to open more properties. So what should we do?
Option one is my partner wants to sell everything off and move on. We’ll still owe about $80,000 between everything we put into these houses. Option two, find a three to four unit home and use an FHA loan to rent out our other units. And if it’s in a decent area, move the furniture there to convert it to an Airbnb or just use it as a long-term rental. And finally, option three, which is use furniture from our properties for a staging company and then pay down as much debt as possible.” So Nicole, appreciate the transparency there in that post, but I’d love to know what happened, how’d you get to that point, and I guess what’s happened since then?

Nicole:
Absolutely. That was in October 2021 when we started off with rental arbitrage, and as the post said, things were great for the first six to eight months about. In San Antonio, we had the market go from about a 68% occupancy to now it’s around 54%. We ended up going with option one after a few months of debating and getting help from the Rookies group, and turned our business into a co-hosting business where we now help 14 different owners with their properties all around the US and get to do it remotely while making a much more steady income.

Tony:
Gotcha, so what made you guys choose to sell everything off? I mean, I’m sure that’s got to be a tough decision to make to say, “Hey, we’re just going to wave the white flag and give everything up.” So what made you feel that option one was the right choice?

Nicole:
Absolutely. I was in a really low point. My partner was much more levelheaded with some of the decisions we were making, but at that time, we were in $80,000 of debt just from the arbitrage units of putting too much into the furniture. We’ll talk about this later, but all the mistakes we made of investing money into other people’s houses where we weren’t getting the returns, and we got to the point of noticing things weren’t looking better in our particular market. In our businesses in the past, we’ve been able to totally switch gears and put ourselves into a better position in just a year or two down the road and that’s what we ended up deciding to pursue more.

Tony:
Yeah. Again, I love that you guys have the courage to pull that trigger because there are some people who see themselves staring down this road of we don’t know what’s going to happen next, or things don’t look too great here, but they don’t have the courage to switch and pivot so I’m happy to hear you guys felt that way. Now, I just want to quickly recap the differences because you started off with rental arbitrage, which again we talked about, Rookies, back on episode 370. You said you’ve pivoted to co-hosting. For folks that maybe aren’t familiar with those phrases, what exactly is Airbnb arbitrage and how does that differ from co-hosting?

Nicole:
Absolutely. So with arbitrage, we’re working usually one-on-one with homeowners directly, and we are signing a regular lease. So year lease is what we were typically doing, and we were in charge of the utilities. We had to have the rent in our business name, we did have it in our business name rather than our personal names. We were responsible for any normal utilities or issues that would come up if you were a normal renter at a house, versus with co-hosting, we help property owners now from a different aspect of they have the utilities kept in their name. They’re responsible for paying their mortgage, and all expenses that are related to managing a short-term rental while we just get to benefit from the potential profits from it. So still working with homeowners one-on-one, but a lot less liability for ourselves as a co-host.

Tony:
I got to imagine one of the other benefits, and I’m sure we’ll get into this, but now you’re going into someone else’s unit, so a lot of those startup costs probably trickle down a little bit as well. I definitely want to get into the lessons learned, Nicole, and what your process has been from making that pivot from arbitrage to co-hosting. But first, we’re going to take a quick break so we can hear a word from our show sponsors.
All right, we are back and Nicole just shared her journey of quickly scaling up as an Airbnb arbitrage business owner, that not going according to plan and ended up significantly in debt and then having the courage to pivot to a different strategy. One of the first questions I want to ask here, Nicole, before we dive in, because I’m sure you’ve learned a lot of lessons as you’ve gone through this and how do you vet some of those co-host opportunities you’re taking on. But before we get into that, just one question that I want to really drill down on is you said that you were in a dark place when all this was going on mentally. What even gives you the courage to say that I want to continue to invest in real estate because there are some people, and understandably so, who might experience that loss, that initial failure and say, “Hey, real estate is just not for me at all.” So what was going through your mind to give you that courage to keep moving forward?

Nicole:
I was absolutely at that point, that was something for me, it was a hard point to not want to give up. We actually, prior to that, we just lost our businesses in San Diego, California. So this was actually our second time starting over in about a year and a half or two years, we closed our gyms down when COVID happened. This was our new life, starting over again and things didn’t go according to plan. The perseverance is just something that we know that there’s no other options for us to give up. We are very normal people. I don’t have a lot of backup plans of my family can take care of me, I have this W-2 job. We’ve never had W-2 jobs, since I was 18 really I’ve never had a W-2 job. It was just giving it one more shot in real estate and seeing if I could find a different path and ended up going into co-hosting and being an agent to see if this was hopefully the next win. And it’s been so much better in just a year time than our first experience with arbitrage.

Tony:
I think there’s an incredible lesson to learn in what you just shared, Nicole, because I think so many Rookies who are listening have this misconception that the path to success is this linear journey when it’s not, there’s peaks and there’s valleys and there’s ups and there’s downs and there are days when you question, man, is it even really worth it, right? But you only fail when you stop going, and I think you’re the perfect example of that. We’ve had failures in our business as well, and I have these moments of, man, should I even be hosting a podcast about real estate investment when I messed up this bad? I have to talk myself off the ledge from time to time as well, but it’s that perseverance to say, “Hey, failure is not something that defines you, but it’s something that allows you to build that confidence to keep moving forward.” So when you think about that journey, that initial part scaled pretty quickly over those first 12 months with arbitrage. If you think about maybe that lowest point, what was that for you?

Nicole:
The one worst point is I remember just being in one of the houses that we just signed up with and we didn’t see the house, so it was sight unseen. We showed up the day to start unpacking all the furniture that we had in the front yard. We didn’t have access into the house yet because the old tenants were still moving out. When they finally left about eight hours after we were supposed to get entry into the house, we walked inside, and it smelled like cat urine. The countertops were literally being pulled off the wall if you touched them, and cockroaches were walking around the house. I sat on the floor and just started crying because I was at the point I’m like… I had no idea what to do. It was just disgusting-

Tony:
The cockroaches weren’t even, they weren’t even skittering around the house, you said they were just walking leisurely. They’re comfortable here, right? Yeah, okay so you’re-

Nicole:
That was one of the lowest points.

Tony:
Yeah. So did you know? Had you walked these properties beforehand or did you sign these leases sight unseen?

Nicole:
The first three properties were all sight unseen, which is something I’m sure we can jump into, was something we don’t recommend. I know a lot of people and the podcast has been so great and inspiring for me. I’ve been listening to it for years now, and you hear all the success stories of people investing across the country and not seeing the properties, and that’s just something for myself that unless you have someone really trusted in that area, it is much better of an idea to actually go and visit the properties because all three of them were a stomach drop reaction when we got to the area, seeing the neighborhood, and the condition of this rounding area. All of them were signed, the first three were signed before we saw them.

Tony:
Gotcha. After you saw them, did you move forward with the leases and try and set these up or?

Nicole:
We did with two of them, and that’s where part of our first red flag that we should have really realigned. We already had all the furniture in the house, we had someone moving it in for us while we were getting ready and prepared to start it as an arbitrage, and relied on agents in the area helping us choose these homes, relying on the landlords. It should have been an immediate red flag. One of them, the house that we did decide to back out of, we weren’t able to get our security deposit back though. That’s where a lot of lessons learned in just a month time when we first, this was our first month of really trying to invest in real estate.

Tony:
How did you make that jump, right? Because you said that you were owning gyms, and you had this idea of investing into real estate. You’ve been listening to the podcast for a while, but I guess what was the turning point to make you say, I think I can actually do this?

Nicole:
We were in Boston and saved up about $30,000. I ended up buying a course from someone that I now wish I would’ve done more research on. A lot of our lessons learned are doing more research for yourself, and not relying on other people, but we ended up purchasing a course about strictly rental arbitrage and how you could make $2,000 a month net profit per property. And with that amount that we had in savings, we signed those three leases while we were in Boston our last week at helping a gym open up there.
We packed up everything. We were living in an RV at that time, and in one day made it to San Antonio, Texas and started our adventure there. But it was something that I was listening to the podcast for maybe, gosh, three months or something. One of my friends was a real estate agent, and she was a really successful short-term rental investor, and so we talked to her a bit. She said to listen to your guys’ podcast. I’m a very big risk-taker. I opened our gyms at the age of 22 and had no clients in San Diego, opened a gym immediately so risk has not been something that I’ve been scared of, but have now been burned a few times of learning that I need to move forward cautiously and not jumping in quite as quick as I have.

Tony:
I think part of the other, I’m a big proponent of seeking guidance, seeking mentorship, getting coaching because I do believe that with the right person showing you the way, you can really reduce the amount of time, effort, and energy that goes into achieving something. I share the story that I like to compete in amateur fitness competitions. You can see my trophy up here for my last show where I took first overall for the novice division. And it’s like I consider myself an athlete my whole life I played basketball growing up I was always in and out the gym, but in four months of working with this coach, I got in the best shape of my life ever. I had whatever, 30 years prior to that of me in the gym doing it by myself and I never got into that shape. So it’s like when you can have someone that points you in the right direction, there is a lot of value there.
However, there’s also a fine line to walk because there are some bad actors out there who I think try and make success seem simpler and easier I think, than it actually is, and promise a moon and deliver dirt pretty much. So you definitely got to do some homework to try and find the right folks there. So you jump in, guns a blazing, get these first units out in San Antonio. What does that next 12 months look like? Because I think it was at that point where you posted that inside the Rookie community, walk us through what those next 12 months look like.

Nicole:
Absolutely. So Texas is obviously very hot. We had a lot of experiences going into winter and both summer of we started out and things were going well, even though we weren’t… One problem was that we weren’t in a great location for any of these properties, though they’re really close to downtown San Antonio, we were in the east side, which the neighborhoods are just very old neighborhoods, and if you’re coming to an Airbnb not used to those types of communities, we had really bad reviews for location. Even though the house was beautiful, we had a designer working with us, the location was a huge part that drug us down. And over those few months, we ended up putting insulation in the attics ourselves at 3:00 in the morning when it was summertime and we weren’t getting help from the landlords of them wanting to put any more money into their property.
So there were times where at 3:00 AM, we were in the attics putting insulation in the houses. One of the landlords helped us out with funding that, the other ones were all not willing to do any upgrades to their house at all so we were spending money on items such as that, buying mini-splits, and being told that we were going to at least get reimbursed for half of it by the landlord and them decide when it was time to give our security deposit back to keep half of our security deposit because we didn’t have things in writing. A lot of it was not working with, we had one incredible landlord, I don’t want to say that all of them were trying to not help us with our business at all. But a lot of them, which most people do, were looking out for themselves and we didn’t have things as clear as we should have in our contracts of what was our responsibility, what was the landlord’s responsibility, making sure if they agreed to anything, having that in writing.
After about six months, the market just got super saturated as well and it was at the point where we were on two of the properties, we were making a few hundred dollars, and the rest of them we weren’t even breaking even at that point so we were having to pay out of our pockets, which we did have our coaching business, which is always funny because I’m a coach myself and I should have been better with looking at coaches, but we were at the point we started to be losing money every month and not be able to even afford to pay the cleaning fees because we were at the point we could barely pay anything for the extra supplies and all that.

Tony:
When you think about lessons learned from this journey, and I guess I didn’t ask this question, Nicole, how many arbitrage units did you stand up during those 12 months?

Nicole:
We had five, so we did five within pretty much six months time.

Tony:
Gotcha, okay. So in six months you guys got to five. So when you think about those five properties you set up, what are some of the big lessons learned? Say you were to restart arbitrage all over again today, what would you do differently?

Nicole:
Number one of just doing your own due diligence, we again relied on the mentor that we were working with, and even reaching out to him one-on-one and saying, “Do you think this is a good idea?” Them giving us the okay and jumping forward with it when we did some research ourselves but didn’t do nearly enough. And then another aspect of doing the due diligence and talking to each of these landlords, and making sure that expectations are set perfectly clear where there’s no questions to be asked between either party of this is what’s covered from pest control to if there is issues with the HVAC, how much time will it take to fix issues with the HVAC? And being optimistic about stuff because if you’re not optimistic at all, then you’re never going to take that first step. But at the same time, go cautiously into things rather than just doing what I did and jumping as deep as you could into the water, and not having anything around you to save yourself.

Tony:
A lot of really good lessons learned, and unfortunately, some of those things you can’t really learn until you go through that experience. And it’s like every time you do it, you start to identify, well man, I didn’t think of this last time, or man, this didn’t even happen last time, so I never would’ve thought of this. But as you go through that, those lessons start to become more and more apparent. So you go through this journey, you make the decision to transition to co-hosting, so you sell off all of the furniture and everything from these arbitrage units. You walk away from these leases, you’re starting to pretty much not even ground zero, maybe ground negative five, right? Because you have the debt you got to pay off. So how do you go about making that transition? What’s the very first step you take to make that pivot into co-hosting?

Nicole:
So we had an interesting transition of, one, getting out of our units. We were able to get out of a lot of the debt actually just from closing our units down. So that was a huge part of helping us start into co-hosting. We ended up finding two people to take over the properties that we were managing and they ended up, one of them is still running it as an Airbnb, the other one sold it to the cleaner, all the furniture that we had, and she’s now running it as an Airbnb herself. Those connections were actually all off of Facebook and networking with people to find.

Tony:
Did you post inside of a Facebook group and say, “Hey, I’m looking to give up my leases, my units,” or?

Nicole:
Yep. That was exactly what we did. So we were in, I think it was called short-term rental arbitrage. It has a few other words after it, but it was a specific Facebook group for people that were looking to do arbitrage. And I said, “Hey, things actually aren’t going well for us. We’re going to pivot into a different business. Is anyone interested in either buying off the furniture from us or would they like to take over these leases?” And a third person ended up wanting all the furniture out of one of the houses, so we drove from San Antonio. We moved all the furniture out of the house ourself and in one day took it to Birmingham, Alabama and hand delivered it all into the house for her. She was again, someone off of Facebook and I still actually keep in touch with her and her property’s doing great.
And so from there, we started off having two co-hosting properties before we actually got rid of all of our units. One of them was a girl who ended up buying some furniture from us off of Facebook Marketplace when we were shutting down. She was having trouble with her management, and our businesses looked really good from the outside. And that’s something that I like to always make sure, when you’re looking at coaches and mentors, do some research on the people that you are pursuing to work with. Because if you would’ve looked at our page, it looked like we were doing great. We were super hosts, we had over 205 star reviews, we had a 4.9 rating overall. And so she had someone that their rating was closer to 4.0, which if you’ve been in Airbnb for a while, you know that that’s not good at all, even though to the outside world that seems okay.
And so we were talking to her, said, “I’ll manage your house for the first month for free just to see if we can help you out of your situation.” And she’s now been a long-term friend, cleans our properties in San Antonio we still have, and another person in San Antonio, we ended up helping with their property from a site called CohostMarket. It’s not anything huge or well known, but we ended up getting to work with her from a co-hosting site, and then went from those two clients in August 2022, and now we have 14 homes in just a year time without doing any marketing or advertising for trying to gain new business with co-hosting.

Tony:
So 14 co-hosting units in a year, Nicole, is incredibly impressive and no marketing spend whatsoever, it makes it even more impressive. So I’m curious, it seems like those first couple of units just came from happenstance. Connections you had made, and maybe connecting the dots backwards, but I don’t know if that’s necessarily a repeatable process. I guess once you made the decision to really focus in on co-hosting, what were the steps you took to go from two to 12?

Nicole:
It was even more making connections, and that’s how we’ve really been able to grow our business organically. We have a few friends all over that are real estate agents, and from our other businesses we’ve been able to meet people all over the US. Our next two people we picked up, one was actually from Upwork. We started to do some work ourselves. We didn’t have any money at this point to spend on marketing so that’s where we were really starting at, like you said, not even ground zero, but underwater.

Tony:
The basement level, yeah, right.

Nicole:
It was a lot of truly going on Facebook and looking for people that needed help with their properties, and going on to sites like Upwork and CohostMarket and just trying to find leads organically and getting on the phone and talking to people and meeting with real estate agents, which I know a lot of the real estate Rookies, it is a great way if you’re making friends with real estate agents, they’re going to be able to help you immensely. Four of our listings have come from just a friend who’s a real estate agent, so making connections with people has been the number one thing. It’s just myself and my partner that run the business, so there’s no team behind us to be making cold calls every day, but it’s truthfully just trying to find people that are in need of help.
Most of our clients already had a short-term rental when we started off, and it just wasn’t doing well with their prior co-host or their prior management. Some of them were working with Vacasa and Evolve, and we were able to even find those leads of going onto Airbnb and seeing what markets are great markets to be co-host in, but are underperforming houses that are beautiful properties but have not the greatest reviews. So we’ve looked for properties four stars, which is sad, but four stars and find the owner’s contact information with some deep digging, just trying to not pay for anything because again, we didn’t have the money and we were able to convert a few leads that way as well from finding properties that were underperforming though they were beautiful homes, and reach out to the owners, just explain who we are, what we do. We’d love to help them, and see if we can get their property performing as we believe that it could.

Tony:
Nicole, what an incredible strategy, and I want to dig into exactly how you were refining these owners’ names. I also want to hear how you’re seeing accountable to these owners, right? Because you’re setting up properties in different markets and being a co-host, you’re not in between a rock and a hard place, but you’ve got to keep your guests happy on one end, but then you also have to keep the owners happy on the other end so you are serving two different people at the same time. I want to get into how that works right after a quick break to hear a word from our show sponsor.
All right, Nicole, so we just talked through, you planted a little seed here that I want to dig into a little bit, but you said that part of your strategy for finding new leads for your co-hosting business was referrals from realtors, working in different Facebook groups, the guerilla marketing type things. But then you said something interesting where you were targeting properties on Airbnb that had four stars or less. I get how you would do that, where I just open up Airbnb, but what was your process for actually identifying the contact information for these owners?

Nicole:
It’s a bit tough. It’s not the easiest way to do it. So if you have time on your hands, it is a great marketing strategy though.

Tony:
I can think of a way, and I’m curious if this is how you’re actually doing it, right? But let me hear what your strategy is.

Nicole:
When you go to Airbnb, you can see approximate location of where the house is, and most people do have photos of the exterior of the home. And as a real estate agent, we get really good at finding property owners contact information, but this is something anyone can do. And so we would find where the approximate location is, go to Google Maps Street View and try to see if we could find that property. Sometimes, it’s impossible because it’s again an approximate location for some people’s houses. Others will, and we never messaged the host to say, “Hey, can you provide me your address?” And do anything like that. But going to the maps, going to Google, trying to find the address and then putting it into PropStream and True People Search to find the homeowner’s names, contact information, and reach out to them that way.

Tony:
I love that. What would you say when you reached out to them? Were you sending a mailer? Were you just calling them? What was your pitch?

Nicole:
We would cold call them and say, “Hi, my name’s Nicole. I am the owner of Valens Rentals. We saw that you have a listing on Airbnb and your home is beautiful, but we see that it’s not performing or doesn’t have the best rating. What do you think is causing that?” And letting them, and most people know that their properties not performing and some of them have actually been like, “Oh, what’s my rating?” They don’t even know what their current standing is. Since some of the property management companies don’t share a lot of information with their owners, and just having a genuine conversation with them, not even trying to sell them at first of our services, but just seeing if there’s a way that it would make sense for us to help them. Because we’re not looking for a quick dollar for any client we work with, we want it to be long-term relationships where we’re working with them for years to come.

Tony:
Almost like a free audit. Like, “Hey, I’m not even selling you anything, but let me do an audit of what’s currently going on in your business.”

Nicole:
Absolutely.

Tony:
The gears are turning for me right now. We have some virtual assistants on our team, and we’re looking at really growing our coaching business this year as well. And I’m thinking, man, our VAs have downtime during the day and we could probably fill some of that time. I just say, “Hey, here’s a list of all of the four bedroom, five bedroom properties in this market, do exactly what Nicole just said and go search for those addresses on PropStream,” so I love that. I want to get back to the other part of the question I had earlier before the ad break, which was how are you actually staying accountable to the owners? Because again, you’ve got to keep the guests happy and give them a five star experience, but then you’ve also got to keep the owners happy. So what is your process for navigating that relationship with the owners of the property?

Nicole:
Communication is key, and focusing on people first and the business secondary, even though that’s not how a lot of people like to look at business nowadays, everyone’s looking at every person as a dollar sign, but every single client we work with knows that they can, other than right this second during the podcast, they can’t get ahold of me, but they can get ahold of my partner giving us a call or text and if we’re not available that minute, they know that we’re going to be able to be there for them usually within an hour. Every single one of them has full access to their listing so we don’t really have leverage over any of our owners. We don’t hold them to 90 day contracts. We don’t make it where they don’t own their property. So if they would want to switch from working with us, they can easily remove us as a co-host and start managing themselves or have another co-host take over pretty much that day.
If we just make it extremely transparent for every owner we work with, and they know that they can see everything that we’re doing in that first month we work with everyone, they will check every message that we send to a guest. They will be checking and asking, “Oh, what did that person say? How are you guys going to handle this?” And after about a month, they get to the point of I’ll text them if an issue arises, we had a plumbing emergency the other day, texted the owner immediately saying, “Hey, we have this issue going on at your house right now, plumber’s on the way.” He said, “No worries at all. I know that you guys are taking care of it.” And so giving people access to what you’re doing, and allowing them to see what’s going on with their business, because for most people, this is their biggest investment that they’ll ever have in their lives.
Giving them full transparency into what we’re doing, how we’re interacting with the guests that are coming to their house has given them so much trust that there’s usually no questions asked of how we’re performing because they can see it in the reviews. Most people will call us out in the reviews of saying they were getting back to me within minutes or seconds and they were exceptional hosts. And so having our names in the reviews too helps with the owner’s trust of, okay, these people are doing a really good job, and without ever asking, “Can you put our name in the review?” It’s just something that guests are doing because as much as the owners have to be your focus, as you said, the guests are also a number one priority too, which is competing with one another.

Tony:
You touched on a lot of good things, but something that stood out to me is that you said you’re not owning the listing and you’re letting the host see the messages and being involved in that way. I applaud you for that because I think that takes a certain level of patience with the owners that I probably don’t have myself. As we look to scale our co-hosting business, our property management business, we’ve taken the other approach where it’s like, “Hey, we own the listing. It’s going to be under our name. You’re not going to get log in details because I don’t want you messaging guests. I don’t want you asking me how I’m going to respond to things.” So it’s a slightly different approach, but I think what you’ve shared is that it really, really puts pressure on you as the cohost to perform because they’re able to see everything.
I guess that leads into my next question, Nicole, of what exact services are you providing? Because when it comes to Airbnb management, I’ve seen it done a few ways where some managers, they only do the guest communication. But they’re not scheduling maintenance, they’re not doing pricing, they’re not ordering supplies. And then there’s other folks who do full stop everything, and that’s how we run our codes and business, we do everything. So where do you fall? What services do you provide to owners?

Nicole:
At first, we were offering those two options for people depending what their needs were. At this point, we only have one client that does want guest communications, and the rest of them are full service, where the owners usually only hear from us if there’s a handyman issue that needs to be addressed at the house. So we do take care of everything from guest communications. If AirCover requests need to be put in, we’re ordering supplies, we’re doing schedulings for the cleaners, the handyman, making it a full service operation without being a technical property manager since we aren’t licensed property managers and we make that very clear to every client that we work with.
And for some that don’t know the difference of that, it’s as a property manager and it is legal in a few states where you don’t need to be licensed, but for most states, you’re not able to accept guest payments if you’re not a legal property manager. So all of the payments that guests put in through Airbnb or Vrbo all get sent directly to every single owner that we’re working with where we just get a reimbursement at the end of the month.

Tony:
I was actually going to ask that question. When it comes to making payments for cleaners, for supplies, for the vendors that come out, how are you managing that if all of the deposits are going to the owners? Are you sending the invoices to the owners then letting them pay that? Are you fronting those costs and then just attaching that on the back end to your invoice? How are you managing these? Because there’s a lot of expenses on a monthly basis to keep an Airbnb running.

Nicole:
Yes, and it can be, just to give people an example of the 12 houses that we’re working with, it can be about $12,000 in random expenses from cleanings and handyman and supplies throughout the month. So for most of the homes that we are working with, we actually went and set up the properties ourselves. There’s a few that we didn’t do that with, so we got an initial payment from the owners for completely setting up their properties. So we had that money saved and in reserves for those first initial cleanings and handyman expenses and supplies.
Airbnb does now offer the ability to pay your co-host directly or pay your cleaners out of each booking. They took that service away for a few years I believe it was, but we’re about to transition to that now to where we at least get our co-host payments directly from each booking. We’re going to get the cleaning payments as well so that we’re not 12,000 under every month waiting for the owners to reimburse us. But most of them, we did have a reserve just from setting up their property for them and that was our initial deposit.

Tony:
It’s tricky. I’ve met property managers, co-hosts, et cetera, that go one of either way where they’ll collect all the income, and then they’ll issue a debit or a payment to the owner at the end of the month. And obviously there’s a little bit more bookkeeping involved with that and there’s a little bit more onus on you as the property manager to make sure everything’s buttoned up. And then other people are like, “Hey, I don’t want to deal with that headache of accepting payments on behalf of the owner, so I’m just going to invoice.” And then the downside of that is you got to float some cash every month or maybe you’re chasing an owner down for an invoice, things like that, so pros and cons to both. One of the other things I want to ask here is you mentioned the setup fee. What are some other things you’ve noticed or maybe you’ve recognized as important things to include in that co-hosting agreement?

Nicole:
There’s definitely a lot you want to make sure that you’re covering for yourself. And again, going back to just setting expectations for if you were going to pursue rental arbitrage, having those expectations set in your contract. Same thing for co-hosting. So we had an attorney write up our co-hosting agreement. It’s not anything crazy, no 30 page documents, it’s just a four-page document laying it out exactly if you want to stop working with us, we just need a 30-day notice. All supplies are going to be provided at your expense. All handyman and instances are going to be provided by the owner’s expense. Cleanings are covered by owners, and just laying out every single thing from your lawn care, your pool cleanings, all utilities, HOA fees, taxes for certain cities, every single item that which at first you might not know, but you can definitely create a list of that and find even in Airbnb’s community, you can see all the different things.
If you’re not familiar with running a short-term rental yet, there’s a lot of things that go into it if you’re helping try to full time co-host for people and every owner we work with, really that’s been a selling point for, at least from what we’ve seen, is they want nothing to do with their property other than to make money off of it. So that’s been our approach of we will take care of everything from even if a guest would damage something at the property, we include that in the contract as well of we’re not responsible for any damage to the property, but we will help submit an AirCover request in making sure they talk to an attorney themselves and talk to their accountants and make sure that they’ve talked to their insurance broker and that they’re covered.
I know you guys did an awesome episode on short-term rental coverage, and I listened to that one. It’s a scary one, but one that everyone should listen to in the short-term rental world, and you want to make sure that owners are aware of every single thing that you’re going to be offering for your service. For some people, as you said, that don’t want to do full service, making that even more clear, that your only responsibility is guest communication. What’s the expectation for overnight emergencies? Do you have someone on call that’s going to be able to answer at 2:00 in the morning? Though it’s rare, I’ve had to do it six or so times of 2:00 AM emergency phone calls.

Tony:
So many good points there. Yeah, I mean there’s a lot that goes into doing this the right way, so for folks who are looking to get into co-hosting, replay this last 60 seconds here so you can really get some of those nuggets that Nicole just laid out. I want to get into maybe some misconceptions about real estate investing. That’s one of the things we like to do here on the Rookie podcast is play the role of MythBusters to really paint a realistic picture of what it’s like to invest in real estate. Before I touch on that, just one last question about the co-hosting side of things. You started off, you had some of these units in San Antonio and Texas, but you said that your co-hosting properties are in several different states. So were you choosing the state first, and then targeting properties within that state, or did the client pull you into that state and then you decided to just expand there? How were you choosing these cities for your co-hosting business?

Nicole:
We did start off in a market we were familiar with, so our first two units were both in San Antonio that we started to co-host for. The first one was actually again site unseen. We were in Washington state at that time when we decided to start working with this owner. We were familiar with those markets, we had our cleaning team already there. We had handyman at our disposal to use. So if you have a market close to you, I think it’s a lot easier to get started locally if this is something that you’re interested in pursuing and building your team where you’re familiar, at least have contacts that you know. From there, we were looking at where’s some hot markets and Florida being one of them at that time of we would love to manage some units in Florida. So we did start off of picking a home base and saying, we know this market, we have our team, and then looking to where could we potentially profit more?

Tony:
Yeah. Just real quick, when you chose Florida, right, because you didn’t have a team there yet, so you found your property first and then worked backwards to build out the infrastructure to support that first coasting job?

Nicole:
Yes, that’s correct. So we were in Texas at the time and we ended up, we were on our way to Florida, but had our first client reach out, and in that first unit, we were actually able to go and set up. So if you have the ability, again, we travel full time in our RV, so we have the ability of freedom of travel and we can offer that as a service to each owner we work, with extra travel fees if it’s out of our local area, but we’ve been able to go start in South Carolina because we had the ability to do so and start at a unit up there. The only one we haven’t been able to go visit is in New Mexico, but we started a team remotely for there.

Tony:
I love that. Last question I have for you, Nicole, I really enjoyed this conversation. I’m sure Rookies got a lot of value from this as well, but what was something that you learned about real estate investing that ended up being different from what’s actually working in your business today? What are some misconceptions?

Nicole:
The first one being that you think you’re going to hit a home run on your first deal sometimes, and it doesn’t always work out as anticipated, and that’s okay. I’ve learned, even though it was a painful lesson, all the rental arbitrage is something that I am not angry about because it led us into a better business that actually fits my lifestyle better as well. It’s a lot less risk, it’s more stable income, and just being able to be okay if your first deal. You guys hit this so much on the podcast, it doesn’t have to be a huge win for you, but just getting started, and going slowly into it is something that isn’t promoted now. It’s a go big or go home if you want to get invested in real estate, and it’s okay if you’re profiting one or $200 on your first property, that’s still a win if you’re just getting started.

Tony:
I love that, right? That first deal is about base hit, right? Learning those ropes and it’s that learning experience, it’s most important. So Nicole, again, really enjoyed this conversation. You shared so much, so much value. And if folks want to get in touch with Nicole, you guys go to the notes for this episode. If you’re on YouTube, check the description of the video. If you’re listening on your favorite podcast app, check the show notes section here. But Nicole, really enjoyed today’s conversation. Look, we talked about pivoting into a new strategy when the first one isn’t working, and the importance of networking and how your first co-hosting clients came from that network that you built out. We talked about the value or the importance of clear communication both with your guests and with your owners, and what are some of those important things you should include when you’re building out that coast agreement. So Nicole, thank you again so much for coming on today’s Real Estate Rookie episode.

Nicole:
Thank you so much, Tony, appreciate it.

Tony:
All right guys, that’s it for today. Again, my name is Tony J. Robinson. You can find my social information in the description for the show note here as well, and we’ll see you guys on the next episode of the Real Estate Rookie podcast.

Speaker 3:
(Singing).