Are you dying to own a beach house? Have you been considering short-term rentals as a new source of cash flow, but aren’t sure how to pick a good investment? Do you wish you could combine the two and have a beach house that pays for itself and generates additional income?
If so, Episode 21 of the Host Coach Airbnb Investing Podcast is for you! We’re talking to Dan Spahr, a realtor and broker who is living the dream. He has 5 places at the beach, half a million dollars in passive income rolling in, and is creating lasting memories with his family.
Topics discussed in this episode:
- How to pinpoint the best investment areas at the beach
- Dan’s method to double returns expected by property management groups
- How to make your listing stand out from your competition
- How Airbnb/VRBO cashflow can change your life as a realtor
- The importance of happiness returns
- What Dan wishes he’d known when he first started investing in short-term rentals
Host Coach Airbnb Podcast Episode 20 Show Notes:
So Dan, when we met you, you had long term rentals and it seems like you're investing more and more in short term rentals. Why is that?
You know, the journey wasn't originally to have this short term rental empire. , we bought our first place at the beach because we got married at the beach. We were going to the beach every year for anniversaries and birthdays there.
We loved the beach and we wanted our kids to have a place there. Found a perfect little spot. We said if we'd make enough money to cover our expenses, it would be great. Um, but what we found out along the way is not only were we able to cover our expenses, we were able to do a lot more than that.
As you guys know, the difference between long-term and short-term rentals, is we get to constantly improve the place to elevate the experience for our guests, to make money, and we also get to use them.
What year was that that , you got that first one at the beach?
We bought our first one in 2015. And you're up to five now, right?
We are up to five. I would say the biggest regret is that we don't have more.
Okay. Particularly pre COVID, right?
So, COVID was an interesting thing, and real estate evolves. There are some challenges now with interest rates being where they are. There's been huge price appreciation at the beach. So it is a lot more difficult to find places. In COVID, we saw a huge spike in rents., they have come back down a little bit, but they're still elevated., I would say the beach is interesting. As you guys know, and preach, it's not your favorite place. But , if you're able to find a niche, you can make it work for you.
We're in Delaware, at the Delaware Shores. That's where our places are focused, mainly an area called Dewey Beach, in between a larger town, Rehoboth, and a larger town, Bethany. A lot of people vacation in Bethany. The problem with Bethany is there's a huge amount of inventory, making it really difficult to make money. You're buying at Bethany because you like to be down at the beach.
Dewey Beach is 9 miles from north to south. You can walk every single place in Dewey, from the beach to the restaurants. On top of that, it's split down the middle by Route 1, the bay side and the ocean side. We have focused in that small little town on the ocean side. People don't have to cross Route 1 to get to the beach, and we have found we can get premium rents. We are booked from Memorial to Labor Day, but then where we've really elevated is being able to get the off season stuff.
Making Money In the Off Season
And what did you do to go about pursuing that shoulder seasons?
So a lot of that's what you guys also preach about dynamic pricing. A lot of investors at the beach, they rent Memorial to Labor Day and they rent weekly. And then they leave their prices and they leave weekly rentals and they don't get a lot in the shoulders. And we don't do as much dynamic pricing during the peak seasons. We know what we want for our weekly rentals.
But, once we get to the off seasons, we throw those out the window. We do dynamic pricing. I will drop my rates in the week below the hotels' prices. As somebody's paying my cleaning fee - I'd rather have it booked than not, and so we can get weekend rentals.
I can get weekly rentals, people come down for dog events, or golf. Also being there for the amount of time we have, we've built up a huge database of people that we market to on a regular basis that come back. And they'll book in the office and we'll give them deals and things like that.
VRBO vs Airbnb at the Beach
That's awesome. I was looking at all of your listings and of course they're wonderful. You're on VRBO, not Airbnb and that's the flip of us. Is it just because you're at the beach or how did you end up coming to pick that particular platform?
For whatever reason, where we are, it is predominantly VRBO. There are some Airbnb rentals, but not many. It's predominantly VRBO. And that's how we got into that. We know the platform really well. And it's worked really well for us. We actually do a combination of VRBO and direct bookings for our beach houses. There's some benefits to sticking to one platform. But that's the main reason. It's VRBO is predominant down there. And that's where the bookings come from.
And that's smart listeners. If you're looking to invest at the beach or somewhere else, look around, see what the other places that are for rent, what platform they're on, and doing well on. Actually, our last episode was all about the importance of sole sourcing and picking the platform that works best for your area. So Danny's right on the mark telling you that as well.
Cash Flow From Short-Term Rental Beach Houses
So you're up to five beach places. Are they all the same kind of gross revenues annually, or are they in a range?
They're in the same general area, but not necessarily. we've got three in Dewey Beach, and we have gone outside a little bit of Dewey Beach. North Bethany is one, another one's outside of Rehoboth. And a lot of it's cost of capital or situations. Some we've sold long term rentals, and we've 1031ed those into beach properties, and you have a short time frame to use that 1031 exchange.
Using 1031 Exchanges for Beach Invesments
Can you explain to our listeners what a 1031 is? Sure. I can give you a real-life example. My first rental property when I was 22 years old. Some friend and I were looking to rent, and my dad said, "Well, why don't you buy and have your buddies rent from you?" So they rented from me. We kept the house over 22 years, we had tenants in there, and paid off the property. So, when we sold we had a large capital gain. A 1031 allows you to move that money into a like-kind investment (another rental property) and defer the taxes. Otherwise, we would have a six figure tax bill! So we try to take that money and roll that into another investment. In this case, we took it from the house I lived in with friends and we put it into a beach property. Maybe it wasn't the highest return on investment, but it was better than I was getting at the long term rental property.
And a higher return on happiness.
A much higher return on happiness! And, by focusing our properties in one area we've got systems and contacts in place if we need them. It's a lot easier for us to add a property now, it's almost a plug and play. Versus if I invested in another area, there may be some challenges there. We can easily manage these beach short term rentals, and having five is not a whole lot different than having four or six with an established vendor team. And that, as you guys know, is probably the most important.
You were talking a little bit about the differences in your properties.
There are different sizes and different cash flows. We have one that's right on the ocean and it is tiny. It's a thousand square feet. It's three bedrooms, one bath. But that one is probably our highest demand property because it looks over the ocean. We have some townhomes that can fit larger groups of people. They're off of the beach a bit, so we were able to get those for a cheaper price per square foot. And then, we've got a single family home. That doesn't rent nearly as well, but again, that was another situation where we needed to put capital to work. Our cost of capital is low, so it works for us. The other one's a four-level townhome that's 3, 000 square feet that overlooks the bay. So slightly different. That one typically only rents Memorial to Labor Day, but we get enough cash flow during that time that it makes sense.
Buying Short Term Rental Properties at the Beach
Our listeners are all about creating cash flow and financial freedom. Do you mind sharing what did these five beach properties end up grossing for you?
Realtors down at the beach tend to be a little more relaxed. They're either on a boat if they're not selling real estate, or half the time they're doing it at the same time. They said for our first property, "You can get $30,000 rent easily for that. That's what these things go for. I'm like, okay, great. That investment actually grossed $88,000 last year.
The second one we bought was the same conversation. The realtor said, "$30,000 to 40,000 you're not going to get much more rent than that." And they even showed us the rent logs for the last two years. That placed just grossed $110,000 for us.
So by renting all year round, and we cut up some weeks as well in the summer. We'll do Sunday to Thursday and Thursday to Sunday versus just a whole week. We found we can get about a thousand bucks more for the week if we do it that way, because there's a premium on those short weeks that not everybody offers. We're very active about managing the numbers, finding our guests and having a good experience for them so they come back,
When those agents were giving you those proposals of it's going to gross $30, 000 in rent, were they making the assumption based on other comparables that were being managed through traditional old school management companies?
Yes, and they still do. Those management companies, they have too many properties sometimes, and it's not incentivized for them to individually look at each property. They rent Memorial to Labor Day, and they get their numbers, after that they just don't pay attention as much on the off seasons, or they're not adjusting pricing. That's what makes those expected revenue numbers so low. But, in our case, there's always areas to improve on it. For us, it's about elevating that experience for our guests. Half our guests have been coming back two, three, four years with us. And so if you can do that, and you focus on guest experience - people want to stay with you because they want to stay where they're comfortable. It's just like somebody who stays at a Marriott every year because they know what they're going to get.
I looked through all of your listings. And I checked out StayPlayDewy.com, which is where Dan's properties are listed and you're doing so many things right! You have HDR photos, you have king beds, you have detailed descriptions, you have clean and modern decor. Your places are pet friendly.
Standing Out From Beach Competitors
So you talked about doing special things for your guests so they come back. What else are you doing to set your listings apart from your competition?
You nailed it right there. You can get a new mattress for $800. We're renting these places for $4,500 a week. It's not a big expense in the scheme of things, and people care. They want to have a comfortable night's sleep. We put in as many amenities as we can. Two coffee makers. We'll have a drip and a Keurig. As many appliances. Fully stocked kitchens. Games for the kids. We'll put Xboxes in, and foosball tables where we can fit them. Whatever we can do to guests a whole-family experience. This applies to TVs as well. We do streaming services so they have access to local channels. It's not cheap necessarily, but for us, it's a cost that pays for itself.
Right. It's an investment.
It's an investment. And so, we do those things, we encourage reviews, and we take those reviews and we build off them. By doing that, we get good reviews and good reviews build on good reviews... and more reviews you have the higher you can get in the rankings and the more people want to come back. Also, when guests care and they know you care, they're more likely to leave a more personal review and those matter.
Dan, I know you're an agent, you're a broker, how do you go about finding your properties at the beach? Is it just all basic MLS or do you have some relationships? What are some of the tips and strategies that you use for finding short term rental beach properties to invest in?
So in the beginning, certainly it was MLS, and it was through other agents because I was only licensed in Maryland. We would look online. Everybody has access to Zillow now, Redfin, those types of websites to find properties. But, over time, I decided to get my license in Delaware because we'd be buying more property there.
I network with agents in Delaware now. I also network with neighbors. We bought property that we knew a neighbor was selling. So, it's keeping your eyes and ears open. You can't limit yourself.
How to Evaluate a Beach Investment
For our listeners who are thinking about investing in a beach property, how do you evaluate a property before buying? What are you looking for? And conversely, what's a deal breaker for you?
We look at number of bedrooms. We're looking at the proximity to restaurants, not just the beach. Also proximity to other area amenities. I'm not necessarily worried if the place needs work. We can do those things. Location is probably the biggest thing we look for in an investment property. And number of bedrooms. We want to be able to get people in there comfortably.
How many bedrooms are ideal for you?
Four bedrooms ideally, but we can work with three. If it's two, it's tough. You're limiting yourself to just one family, which is okay if you get it for the right price. But, beach prices are, as you know, expensive because there's a lot of people that just buy down there without even needing the rent.
You're doing a lot of things right, Dan. What would you have loved to known, before you got started? And conversely, along that vein, what's a big mistake that you might've made along the way that you could help people avoid?
Well, first I guess going back to the very first one is how to leverage technology and tools to streamline your operation. Had we known how to do some of that stuff earlier, we probably would have scaled faster. Streamlining guest communication, pricing tools that take some of the day to day stuff off your plate and then you can focus more on serving the guests.
Beyond that, it's knowing your numbers and trusting your numbers. There's tools out there, AirDNA or Rabu, you can look at other Airbnb properties and see what people are charging and what they're getting for daily and weekly rates. If the numbers work and you're comfortable immediately pull the trigger, We've lost some properties because we were like, "Oh, you know, we're not going to pay that extra $10,000 or $20,000. And now they're worth $200,000 to $300, 000 more and they would have worked.
When you're not doing a 1031 exchange, how do you finance your, properties?,
We've been fortunate. We've had other sources of income that we've been able to use to buy the properties. We've also partnered with my in laws. They've had money they've needed to put to work and we've borrowed from them. So, we have been in a fortunate position where we haven't necessarily had to get traditional bank loans to do these deals.
Not everybody's in that position, but there are short-term rental loans. There are banks or lenders that will lend to people, if the numbers work You can also tap equity out of a house. We have a lot of equity in our home that we could use if we found the right opportunity. There's a lot of avenues.
The Impact of Financial Freedom From Short-Term Rental Investing
Fun question. How has investing at the beach impacted your family?
In hosts of positive ways. We started in 2015, our oldest was seven and our youngest was four. They have grown up at the beach. We've got to vacation there every year. And now that we have multiple places, there's always something we can keep open. We've spent our Fourth of July's there. We've had lacrosse tournaments down at the beach and we've had the whole lacrosse teams back to our place to hang out.
That's not even talking about the financial freedom aspect of it, the extra income that it gives you to be able to do things, send your kid to, a school that he wants to go to. That income just opens up other aspectsof life. It's a short term rental, so it's making money even if you're not specifically sitting at a desk doing it. I can be on a cruise, spending an hour on my computer in the morning, just making sure everything's good with our guests. So it gives you freedoms other than money, but also for the family, it's just been the memories
So as an agent, you've established the short-term rental revenue stream as a a way make money while you sleep instead of worrying about where that exact next listings coming from?
Absolutely. Make money while you sleep, right? Money never sleeps. If you don't find a way to make money while you sleep, you're going to work until you die. If I stop selling real estate tomorrow, I don't make any more money on real estate, right? Once I stop, unless I want to build some huge team that I've got to manage and I'm consistently feeding leads to. But the short term rentals, they're going to continue to generate passive income. They're going to continue to appreciate. There's never been a 10 year period where real estate has not appreciated, and sure there will be dips but it's not always about timing in the market. It's time in the market. And so, if you do have finance your investments, you're going to pay those off over time and you're going to build passive income. So when you're ready to retire, you have a source of income coming in.
If you're curious about what Dan's places look like, again, you can go to StayPlayDewey. com. If you want to stay, obviously book a stay, or if you're just curious about what is he doing? Look at how he set up his listings. Look at his website. It's awesome. And a great way to not have to start from scratch as an investor on your own.
I appreciate the plug. And, people can reach out to me directly. I have a passion for helping people both in real estate and in short term rentals. It's been good for us. I'm always happy to help if somebody has questions or they can reach out at fosterspahr.com.
I really appreciate you guys having me. As you mentioned, I'm also a broker, so I have the privilege of helping people get into the short term rentals. The first thing I do when people come to me with an interest in Airbnb investing, I give them a copy of your book.
So there you have it. You now know that investing in niche beach locations can lead to financial freedom that eliminates the worry of where your next real estate listing is going to come from.
You also know why it’s smart to go big at the beach, a variety of funding options for short-term rental investments, and the need to be confident in your numbers so you don’t miss out on opportunities!
Remember, our joy is in your success. Should you need personal online Airbnb coaching - that is what we do! Sign up for a free 30 minute Airbnb coaching call to explore your needs and how we can help you succeed as an Airbnb investor.
