Do you wonder if you could actually succeed at Airbnb investing? Are you stuck in analysis paralysis and unable to pull the trigger?
You are not alone! Tune into Host Coach Airbnb Podcast Episode 7 where we interview a normal guy who went from one Airbnb property to a portfolio of 75! His name is Tony Cappaert, and he’s sharing his process of finding and buying properties, common mistakes he sees new investors make, downside protection steps, and the evening exercise that will get you over the hurdle of getting started as an Airbnb investor!
After listening to this episode you will know Tony’s steps to successful Airbnb investing and have the inspiration to stop dreaming and start taking action!
Topics discussed in this episode:
- Why Airbnb investing is not rocket science
- How to select the right areas and properties for an investment
- Why real estate agents have an advantage as Airbnb investors
- Common mistakes to avoid as a new investor
- Why Airbnb knowledge is worth its weight in gold as a realtor
- Tips for downside protection as an investor
Host Coach Airbnb Podcast Episode 7 Show Notes:
We're here with Tony Cappaert, founder of Blue Maple, a vacation rental investment firm and modern property management company. The firm owns and manages a portfolio of 75 unique cabins and cottages and are adding another 100 over the next 18 months.
Tony and I met back in 2019 or so. We were both volunteering at a local university entrepreneurship event, mentoring some students, and got talking about short-term rentals. And I gotta really credit Tony for being the person that ignited my passion about coaching in Airbnb.
So Tony, welcome and maybe you could pick up where I left off in that first conversation of ours.
I'm excited to dig in with you guys. And Culin, I feel bad thanking me for spreading you to be a coach. Thank you for introducing me to the whole Airbnb and short-term rental universe. I was completely a novice and in the deep end over the last couple years.
If I recall, you were thinking about buying a cabin for your young family. You could afford it, but were just, awkwardly thinking about whether you wanted to take on another mortgage and what that would all look like, and that's what kind of kicked us off.
I think I started where a lot of people start. I was a software guy and knew that world really well, but didn't know anything really about real estate or short term rentals. My wife and I were planning to buy a cabin in West Virginia to take our kids too. It's a couple hours outside the city where I live. And I thought, why not try to rent it on the side and pay the mortgage and hopefully then some?
I was picking your brain for what does it look like to run an Airbnb? How should we optimize it? I read a couple of these books, but what do you think? , And the punchline is, with some basic tactics, we were able to generate a lot of gross revenue really quickly and it really peaked my interest. Not only could we pay the mortgage and do the basics, but there could be a real revenue opportunity, a real investment opportunity to do this with not just one but several.
You mentioned you made your first investments a couple hours away in Virginia. How did you pick that market? What attracted you to that location?
It wasn't investment driven, right? I wanted to go somewhere in the mountains. I think West Virginia, for better, for worse - people think of it as a really rural and rugged destination, despite the fact it's in like I said, under two hours away from the city.
This place in particular, it was four bedrooms. It had some water access, and it was a big chalet style cabin. It was just beautiful, and scratched a lot of my own personal itches. And again, we didn't buy it with the intention of an investment initially, but coincidentally the things that I wanted and my family wanted, a lot of other people want too.
And so I think in hindsight we stumbled into a really good opportunity, a good market, a good asset type within the market, and we've since become a lot more thoughtful around proactively identifying what makes a good investment. It was dumb luck to be honest!
I preach that a lot, which is find your where, right? So if you were passionate about it, it maybe wasn't as coincidental as it seems. It was an area that you personally were passionate about, had a lot of amenities for young family, and therefore it's going to have amenities and offerings for other young families.
I think that's right. We've swung one way, like two extremes in how we buy properties today. You can get into analysis paralysis and go deep in all the data and try to underwrite what do we think this property is going to do? What are the expenses going to be? It's very much a numbers approach. Or, and we try to do both, we also swing the other way and say first, are there some comps in the market that would justify a lot of rent?
We try to look at what do the best properties do? IE to your point, Culin, what are what are the most attractive elements of a property? And if we can buy a property that has the bones/things that anyone would want in a property or at least certain personas would want, like a young family or whatever - we'll buy that and we get confident that we can design it and renovate it to get there versus it needing to be that from the start.
Culin likes some turnkey investments, so the joke is together, we make beautiful cabins. So we completely align on the the rural cabin locations as ideal investments. We just branched out and did a winery area, wine country style place.
Any other types of amenities other the mountains that you guys look for in the portfolio?
I would say where we've been successful, I think, is markets where it's close enough to the city that there is a lot of inherent demand, right? Like even to this day we don't do a lot of our own marketing because you get so much from the OTAs, from Airbnb, from vrbo, booking, whatever. Beyond that, we love these small little pockets where there isn't a really great property manager, right? It is not a traditional vacation rental market, and so most of the competition that's in that market it's not, particularly difficult for us to compete against. And that allows our properties to stand out.
All of them are rural. They're all the couple hours outside of DC but we have some in the Valley, we have some in the Eastern Panhandle, West Virginia. Some of them are on water, some of them are not. Some have great mountain views, some of them don't. It's just a mix of these small, well-designed getaways that people love.
We haven't gone as far as south as Charlottesville, but we did go up to the Poconos. We had a handful there and that, that didn't go so well for us. I think the punchline there is the things that are really great about what we buy today, like the lack of competition and the fact that we have to build everything from scratch. It's close to the city. The Poconos wasn't that, it's much more seasonal, much more competition. We didn't really price it effectively and we just got our hat headed to us.
Specifically what had for us is the per reservation fees. We have really high occupancy and really high turnover. Like 11, 12 stays in a month at our properties. And so when you're paying a per reservation fee, it kills you. So, the Poconos was not a fit for us.
For our listeners, if they are looking at their very first Airbnb investment and wanting cash flow - what would you advise them to be looking for?
So first and most basic, just establish what is the actual out-of-pocket budget that you have for this. How much money are you really willing to invest? And I would think about it obviously as the down payment of the property you're buying, whatever repairs or renovation need to be done, and then furnishing. For context, properties that we buy the actual cost of the property itself after we put debt on it that's actually the minority of the money we put into it.
We put a lot of money in furnishing. I think you don't want to cheap out on the stuff that the guests are going to love and going to actually drive the bookings. But let's say you've got a sense of what your budget is, part of that is going to be the actual property value. I would look at markets near you. I would start right where you can actually get to and you can maybe more comfortably assess what you're going to buy and how you're going to hire staff to operate it.
When I say staff a cleaner and a handyman, but you still need to get comfortable with who's going to do it. Then I would use resources like AirDNA or Rabbu to figure out what approximately the amount of top line rent do properties in different markets generate. And so between those two, you've got a sense of what costs am I going to be in at? I've constrained these handful of markets I could drive to, and I have a sense for what other people are making. And then I think you can start to build a model to drive to okay, this will do X amount of profit for me. That's how I think about it.
What about design? Do you have any tips on things that you do from a design or aesthetic or amenity perspective that you find work very well?
We almost never use the stuff that comes with the property. So we'll use maybe the bed frame, right? We'll usemaybe a table that looks nice. But anything soft gets tossed. We purposely are buying stuff that looks good and looks modern.
Thinking of not rocket science stuff. We have a designer we work with out of Dallas. He is not particularly expensive, a couple hundred bucks per property. But he comes to us with here's the design, here's the punch list of stuff to buy. And we're buying stuff on Wayfair and Amazon it's not like super expensive, not Crate Barrel.
I think what I would recommend, unless you're like this design guru, which I am not, like home decor design, I would find that person, you could find them on Upwork or some third party freelancer site. Hire that person to be your eyes to help you design the experience you want. And then find cheap places to buy it where it's still high quality. And what we found is Wayfair, if we can set a minimum amount of reviews or quality, we can get some pretty good stuff. It's really affordable.
I do a lot of purchasing from Wayfair, Bob's Discount Furniture, and a few other places. What I love about this in this industry and buying these types of investments is none of it is rocket science. It is just f operations. It's maintaining a professional level. Treating it like a business where a lot of the other hosts that we're competing with aren't going to that level.
They're still asking people to bring their own linens! That's very market specific. We provide the linens, but it's very much not the norm. And we were trying to convince our cleaners to make the beds. They were like, no way. It's just very weird. That's like a very beach market thing, supposedly.
You had mentioned turning over 10, 12 13 times a month. How have you been able to sustain that high volume? How do you attract that many guests?
So I would actually answer a slightly different question. We're already buying in markets where there's a lot of demand, period, and we've designed them really intentionally and we have great reviews. It's like it is a great looking property where there is an inherent demand, we then price it to match the demand.
So I think a big mistake that like a lot of people make is they set minimums that are too high, right? Both in price and minimum number of nights. And so we use pricing software like everybody should. We use PriceLabs.
We've experimented with many, and we price such that in peak periods you're going to pay a lot of money to stay at our properties. On July 4th, Saturday, you'll spend $600, $700 a night. Whereas in February, Tuesday, you'll spend $60 a night. So that's part of what's driving the occupancy is we are pretty convinced that we want to slightly outpace the market occupancy rates and we'll just dynamically price to meet that. And we'll take, very short, one night stays. Or an orphan situation where you've got bookings bookend and something, right?
We operate the same way. Yeah. I force (ADR) average daily rate. I would say we're on par with most of our markets, but the difference being in the occupancy where the average occupancy, say is 50%, and we're always forcing the 95% as you do as well.
Kudos to you. We don't hit 95 anymore, and part of that, is maybe we're being less like a little aggressive on dropping this price as low as we could. The demand in our markets go as like it was like this mountain, right? It shot up in Covid and then demand came back down. So it's not 2021,
If you are buying today with 2021 i revenue ideas in mind, in most markets, I think you're going to have a rude awakening. But there are still good opportunities. Coming full circle on the point, I think it's just most homeowners who are the people who are renting on their own often have a lot of emotional attachment to their property. Rightfully it's theirs and they make a lot of decisions, idiosyncratic decisions, around how they operate that isn't optimized for revenue performance. One of which being minimums around price and around number nights. I don't care if your property is a four bedroom cabin, it's not worth $250 a night on a Tuesday in the winter. It isn't. Meet the market. I think that's the biggest mistake I see in terms of pricing, at least.
So I have a question. Having spent eight years working with thousands of real estate professionals running Contactually, what do you think gives agents of any kind an advantage in Airbnb investing?
We didn't touch that in the start. I'm a vacation rental man today with Blue Maple, but for eight years previous I ran a software business selling CRM software to brokerages and realtors. I've gotten to know lots and lots of realtors for the past decade. I think agents have an advantage in two ways when it comes to short term rentals. The more, most obvious one is inventory that's coming to the market coming-soon inventory that maybe some of various regular consumers aren't going to see. And you're very comfortable assessing and putting in offers.
And so if you're looking for something to build your own investment portfolio, I think getting smart, how to go about buying properties that will do well, and then either finding a property manager to operate or doing it yourself. I think that could be a really nice cash flow asset or portfolio that you can build as a realtor. Whereas, even my friends who know that I do this, they'll hit me up all the time for questions, but most people aren't just as comfortable pulling the trigger and buying a place when it comes to the market. I am. And you guys are. And theoretically a realtor would be. So that's one thought.
Another benefit is there are a lot of people looking to buy second homes to operate them, not as a business, but to start how I started, which is, buy a place, take my family to, and pay the mortgage on the side. I think if you can be the realtor who can confidently mentor and guide your client, your buy-side client to make a really good decision. That's invaluable. Again, my friends come to me with that advice. I'm not willing to hold their hand as a realtor, so I'll give them the high level, but I had just a few realtors I'll hand them off to, I know are who are really talented with this, but I think that's worth its weight in gold.
There are still in DC and I think a lot of markets. A ton of buyers looking to get outta the city, buy a little place of their own, rent it on the side, and yeah, I think the realtor who can stand out and help do that effectively is going to do well.
As we wrap up here a little bit, what would be your advice for the people listening? What is thenext step? What should they do when they finish this podcast and get back to their office. What would be the next step you'd recommend that they take?
For someone who's going to buy their first property and rent it on the side. I think the next step is just do a really basic "what is what does that buy box look like?" Like where am I willing to buy? How wide the radius where I'm actually looking? I'm not going to buy in California if I live in DC most likely.
So where am I actually willing to buy do some rough back of the envelope? Most people aren't spreadsheet wizards. You don't need to be. But just build some basic context for how should I evaluate deals and turn on searches to match that. That is a one evening with a glass of wine exercise to get over the hurdle.
And then I think, I push my team on this all the time, and we're looking at deals like this. We're not in the spreadsheet business. We are in the business of buying properties to actually look at the property and get your boots dirty. Go walk the neighborhood.
You're going to want to get comfortable with the neighborhood, you're going to want to just visit the property, I would really go through the mental process of what would it take for me to get comfortable putting in this offer. And if there is something you need to still figure out about an area, about your own finances, whatever, I would do that diligence. For some people that might be relatively short process. For others that may be quite long.
I could see a lot of people just circling around the drain of this is a cool idea. It's still a spreadsheet exercise, but they've not really articulated what do I need to do or see to pull the trigger. Once you've done that, I think it becomes pretty clear, you know what you're going to buy. That listing come available, you're like, yeah, I'm going to assess it in this way, and then boom, I'm going to pull the trigger.
All right. Fun question. Do you see Airbnb properties as safe investments now that youre up to 75 of them?
Yes, is the short answer, but with a couple caveats. One I buy in markets and our lenders underwrite to the fact that even if we couldn't rent this thing short term, that if we had to switch it to a long-term rental, it could ultimately pay the bills, right?
Could pay the mortgage, it could pay the utilities, et cetera. So I think, that's a good, like downside protection around, okay, if you can't rent it, regulations change. What are you going to do? Assuming you can't sell it right away, a lot of markets, including the ones we're buying in you and I they've run up a lot in price. And so I would look historically to see like what have equity values done in these markets when there's been a recession, how quickly did they recover? I don't think it's going to happen, but if equity values drop 30%, if there was a massive recession, how long would it take for me to get back to my baseline in the market to which I'm buying in the great financial crisis? That was like eight years. But it came back, right? It was nothing, but it came back. So that's another thing I think about in terms of like downside protection.
The last thing in terms of ,whether it's a good investment or whether it's safe or not, is I would just really be clear with yourself around what amount of revenue do you think it's going to do. I would use the tools I mentioned to come up with legitimate comps and if it meets your underwriting criteria, what's a good investment at that?
I think the biggest risk protection is education, really. You've got experience, I've got experience. It's what we do to operate. It's an operational experience. I think that is the biggest driver in Airbnb success.
Tony, thank you very much. We really enjoyed this lively conversation. I think our listeners will too. Do you have any other tips for success?
I'd say there's a ton of great resources. Obviously you guys put out a great Airbnb book. You got this Airbnb podcast. There's others. I would just dig into those resources, get smart, and then like I said, let the rubber hit the road, like actually start looking at deals.
It's not rocket science. Don't make it rocket science! And at the end of the day, I guess to de-risk, we talked about if you buy a dud, you can always resell it. These are homes and you can resell them. It's not like a business that can go to zero.
