EP 74: Building a $24 Million Short Term Rental Portfolio with Bill Faeth

Yeah.

Would you tend to agree...

So for my short-term rental, I kind of took this approach, and I think it makes sense, want to run it by you, but...

A lot of people will try to sell an existing Airbnb property.

Look at all my rental history.

I'm making all this cash flow and I want to sell it for a million dollars.

But the property itself, if it wasn't Airbnb, it is actually worth five, six hundred thousand.

But someone looking at the income and the cash flow is like, oh, yeah, a million dollars makes sense.

But if something happened and you're not able to do the short term rental, you're going to be underwater.

So.

Would you be of the mindset of I would rather buy an existing property that doesn't have any Airbnb or VRBO income and then I'll make it that and I'm not going to overpay for the house itself, the value of the house, or have you bought an existing properties with the history of Airbnb and VRBO?

Um, that's irrelevant to me, but the newbie, if they're being sold that they're getting taken advantage of, there is no commercial valuation and a cap rate on a short-term rental as a single family home.

It does not exist.

So you can go in and take that $550,000 home and pay six, go get under contract for 650.

But when it appraises at 545, the bank's not going to loan you any money.

So they're transacted like single-family homes as a single-family home residence.

There is no commercial value to the revenue generated by an Airbnb.

It's just a sales comparison approach.

It's all

costs.

Just like buying a residential home.

There's no difference.

You have to be at four units or higher to be able to get any type of commercial bank to give you a loan based on a cap rate.

If

you're new and you're trying to buy an existing short-term rental and an agent or an owner is trying to sell you that way, just let them know it doesn't work that way.

Yeah.

Would you tend to agree...

So for my short-term rental, I kind of took this approach, and I think it makes sense, want to run it by you, but...

A lot of people will try to sell an existing Airbnb property.

Look at all my rental history.

I'm making all this cash flow and I want to sell it for a million dollars.

But the property itself, if it wasn't Airbnb, it is actually worth five, six hundred thousand.

But someone looking at the income and the cash flow is like, oh, yeah, a million dollars makes sense.

But if something happened and you're not able to do the short term rental, you're going to be underwater.

So.

Would you be of the mindset of I would rather buy an existing property that doesn't have any Airbnb or VRBO income and then I'll make it that and I'm not going to overpay for the house itself, the value of the house, or have you bought an existing properties with the history of Airbnb and VRBO?

Um, that's irrelevant to me, but the newbie, if they're being sold that they're getting taken advantage of, there is no commercial valuation and a cap rate on a short-term rental as a single family home.

It does not exist.

So you can go in and take that $550,000 home and pay six, go get under contract for 650.

But when it appraises at 545, the bank's not going to loan you any money.

So they're transacted like single-family homes as a single-family home residence.

There is no commercial value to the revenue generated by an Airbnb.

It's just a sales comparison approach.

It's all

costs.

Just like buying a residential home.

There's no difference.

You have to be at four units or higher to be able to get any type of commercial bank to give you a loan based on a cap rate.

If

you're new and you're trying to buy an existing short-term rental and an agent or an owner is trying to sell you that way, just let them know it doesn't work that way.