These Properties Make WAY More Than Rentals ($2,000+ Per Month!)

Dave:
Don’t buy long-term rentals. On almost every episode of this podcast, I tell you to buy long-term rental properties to achieve financial freedom. But I have to admit, long-term buy and hold investing is not the only way to create passive income. Today we’re going to have an open mind. We’re going to have an honest look at some of the alternatives and maybe it will change my mind and yours. I’m certainly open to it and I hope you are too. What’s up everyone? I am Dave Meyer, head of real Estate investing here at BiggerPockets, and I’ve been buying rental properties for 15 years. Today on the show I’m talking with two of my colleagues at BiggerPockets who have tried investing in long-term rentals and actually didn’t like it very much, but that doesn’t mean they gave up on their dreams of passive income and eventually reaching financial independence. They just found different ways to invest that better fit their goals and lifestyle. So let’s bring ’em on. Welcome back to the show, the co-host of the Real Estate Rookie podcast, Tony Robinson. Tony, good to see you. Yeah,

Tony:
Dave, thanks for having me, brother. Excited to chat things up today.

Dave:
Absolutely. And we also have BiggerPockets, head of Copywriting and investor himself, Nate Weintraub. Nate, welcome to the show. First time on this show, right?

Nate:
Yep. First time real estate rookie and BiggerPockets Daily, but first time on this one.

Dave:
Alright, Nate, you have earned your way onto the show. Let’s start with you. What’s your argument?

Nate:
All right, I think I can then this debate in about 45 seconds. Are you ready? No. Okay. Let me ask you guys a couple questions. Dave, how many rental properties do you own different properties? Like eight or nine. Okay. Tony, how about you?

Tony:
We’re just under 30 single family homes plus the hotel.

Nate:
Okay, so let’s take those as rough numbers. 30 single family homes for Tony. Let’s say eight rentals for Dave. So let’s say on the low end, two toilets per property. So Dave is dealing with 16 toilets. Tony’s dealing with 60 toilets, so every second of every hour of every day, they’re just waiting for that call for someone to say it’s clogged, we put something in it, we don’t know why it stopped. It’s overflowing. The sewer line’s broken. I have 180 self-storage customers across two facilities, and I only have one toilet in the office. Nobody uses. I rest my case. Gentlemen, that’s it.

Dave:
This concept of the toilet is just so ridiculous. Tony, how many toilets have you physically touched this year other than your own that you’re sake for your own? How many tenant toilets have you touched?

Tony:
Not a single one.

Dave:
Yeah, me neither. I am not worried about it

Tony:
And I typically don’t even know when they’re clogged. It just kind of routes to the right person. Now

Dave:
We just have really good quality toilets, Nate. We buy the best stuff and then we don’t have to worry about that. Very expensive toilets, but I do get your point, Nate. Maintenance on long-term rentals is a thing and you have to deal with that, right?

Nate:
Yeah, and a lot of poopy water.

Dave:
All right. Well Nate, how about this. Tell me what your strategy is. It sounds like self storage. I know that

Nate:
About you, but why did you pick that? So I had a long-term rental that I bought in 2020 and I had it for about four years. The tenants were great. It was an older building at upstate New York. Dave knows about all this because he is had properties that are built in the 18 hundreds. This one was like 1920.

Dave:
I do still do the toilets work too.

Nate:
The toilets work. Mine did work at my property, actually, one had they overflowed twice. So now I have A-P-T-S-D and you could fit toilet in there somewhere. Yeah, so I have a sewer PTSD from this, but basically what happened was I realized that even though I bought the property in cash, my cashflow was relatively low and the anxiety that it gave me to own a property that people were actively living in was what is it like a return? You have your return on investment. I kind of had my return on emotion for these things and owning one long-term rental, even though it was giving me passive cashflow, it did have appreciation when I sold it after four years, I had a 75% return over that four year time, so that’s what 17% annualized. It’s pretty great. It’s pretty

Dave:
Good. Yeah.

Nate:
Even then I was just like, I don’t like that feeling when I get a call from the plumber, from the electrician, from the tenant, from any of those things. Eventually I listened to a BiggerPockets podcast with a guy named AJ Osborne who invests in self storage. I had two friends who also invest in rentals and we both were in the same position and we went, maybe there’s another type of real estate that we could do that is not someone living in the property. And that’s how we found self storage.

Dave:
I have so many things to say about this in questions, but Tony, what’s your reaction to that?

Tony:
I mean, I think every investor has to pick the asset class that aligns best with not only their resources, but also what’s going to help me sleep at night. And if for Nate, the idea of someone living in one of his places didn’t help him sleep at night, I get that. I think for me it was a similar approach. I started off with long-term rentals, but I did that while being a W2 employee, knowing that my end goal was to hopefully replace my income and my first long-term rental, I was making, I don’t know, 150 bucks a month in cashflow. Now granted, this is like post COVID, so these numbers have come down a bit, but that first short-term rental, we netted over $80,000 in the first year on that property, and when we made that transition, I was like, okay, what am I doing? Why am I spending any time on these $150 properties? So that was the motivation for us to jump into short-term rentals.

Dave:
So it was less emotional for you, yours was just a little bit more dollars and cents,

Tony:
Very much tactical, like, hey, how do we expedite this path to financial freedom?

Dave:
Yeah, that makes a lot of sense. But Nate, I do get the emotional piece of it. When I first started buying rental properties and I was taking care of them myself, you do have this fear that the shoe is going to drop every once in a while. I guess over time it just kind of went away. You just learn how to deal with these situations and it’s no longer as stressful when someone calls you with a problem, you build up your team of contractors and that sort of thing. But I also just ask, did you ever just think about hiring a property manager? What I’ve done now, and I never think about my rental properties,

Nate:
I think what happened was because I grew up with a father who invests in rental properties. He’s retired off of that portfolio now, and I grew up with him dealing with property managers and I kind of learned quite quickly with him in multiple areas with multiple property managers that he was basically like, you’re always still managing the manager. You’re either managing the tenants or you’re managing the manager. So for me, I only had one rental. I didn’t think it was a big enough portfolio to get a manager. I was like, I can still deal with these calls. And kind of also to Tony’s point real quick, it wasn’t all an emotional choice to switch self storage makes a lot of money, it makes a lot of money. So I also was like this in a scalable extent because everyone here is listening to this. They want financial freedom, they want to retire early. They want something that’s going to help fund either early or traditional retirement. For me, it’s like I can scale up so much faster with three self-storage facilities versus 15 rental properties and acquisition wise, I’d rather go for three than 15.

Dave:
Right? I agree with that and that’s why I’ve sort of kept my own portfolio modest and I just use low leverage at this point in my career and just try and cashflow fewer properties that are super high quality. I’m totally on board with that. Tony, I’m curious with you on the time commitment element, how much more time does it take you to run one short-term rental than it does to do that long-term rental that you had started with?

Tony:
A lot more and I think that’s part of the reason why short-term rentals may not be for everyone. I did have a property manager for the long-term rentals that we owned, and to Nate’s point, yeah, we still had to manage the manager, but it was much more hands-off when we bought that first short-term rental. I’ll say it was me and my wife mostly. We had another partner as well, but my wife was one who really managed most of the day-to-day and that worked out great because I was still working my day job, she was at home, so she had the bandwidth in her life to kind of take on that responsibility. Now as we’ve scaled, we’d have a team of cleaners that we’ve brought on and we have our virtual assistants that help a ton. So we’ve got some layers now that insulate some of that. But yeah, I mean if you look just apples to apples management time on a long-term rental versus management time on a short-term rental, short-term is just going to take more time point blank

Dave:
Period. Do you think then, Tony, that it’s feasible for people to scale to the level you have with short-term rentals while still working a full-time job?

Tony:
Here’s what I’d say. If you’ve got a really dialed in management process for your short-term rental, it still really shouldn’t take you more than a couple hours a week per property if you really do it the right way. So could someone scale to 30 single family homes and a hotel while working a day job and not lose their minds? Maybe not, but could you get to six or seven potentially and maybe that’s all you need to reach your level of financial freedom or your goal of financial freedom. So yeah, I think if you set it up the right way, you can automate and create systems for a lot of what it takes to run a short-term rental effectively.

Dave:
Alright, we do have to take a quick break, but I want to hear specifically the kinds of returns you guys are generating just to make me as jealous as humanly possible. We do have to take a quick break though, so we’ll be right back. They say real estate is passive income, but if you’ve spent a Sunday night buried in spreadsheets, you know better. We hear it from investors all the time, spending hours every month sorting through receipts and bank transactions, trying to guess if you’re making any money. And when tax season hits, it’s like trying to solve a Rubik’s cube blindfolded. That’s where baseline comes in. BiggerPockets official banking platform. It tags every rent, payment and expense to the right property and schedule e category as you bank. So you get tax ready financial reports in real time, not at the end of the year. You can instantly see how each unit is performing, where you’re making money and losing money and make changes while it still counts. Head over to base lane.com/biggerpockets to start protecting your profits and you can get a special $100 bonus when you sign up.

Dave:
Welcome back to the BiggerPockets podcast. I’m here with Tony Robinson and Nate Weintraub talking about non long-term rental strategies, trying to see if Nate and Tony can convince me, and I honestly, I’m jokingly adversarial here, but every time I host the show I just get FOMO about what everyone else is doing and then I just have to remind myself that my plan has worked very well for myself and I’m going to, but see if you can sway me off of this. So Nate, tell me about self-storage. You said it wasn’t just an emotional decision, it was a dollars and cents decision as well. Tell me about the financials of your self storage. Any of them or just what’s the average return that you’re getting?

Nate:
Sure. So I’ll go through the first one because that one’s been stabilized. I bought it in 2022. I currently own it now. I don’t ever want to sell it. I love it. It’s my little cash box baby. How big is it? What does this thing look like? So there’s 63 units in them. It’s about a little bit over 10,000 square feet. This is in a small town in the south of around 10,000 people, so you might be used to seeing self-storage facilities when you drive big public storage, extra space, stuff like that. I’m in a place where none of those people would ever go and that’s on purpose. I don’t want them building next to me. We bought the property for $350,000. Okay, so this is less than many of the rentals that you would actually buy. The down payment was 20%. You were using commercial loan and the closing costs were really, really low. We used a local bank. So all in, we were in for 73,000. When I say I have two friends I bought this with. So 350,000 purchase price, $73,000 down last year. The cashflow alone on the property was $23,000. That doesn’t include any tax benefits, any equity, anything like that. So just on a pure cash on cash return last year was 31.6%, just cashflow.

Dave:
Wow, that’s awesome.

Nate:
That’s all expenses. That’s not phantom cashflow, that’s every expense

Dave:
Taken out. Yeah, I believe you. You know what you’re doing. Okay. That’s pretty compelling. Just out of curiosity, I don’t know that much about this, but what is the loan like on a storage facility?

Nate:
So this one we got a 15 year loan fixed rate. It’s amortized over 25 years, so at the end of the 15 years there’s going to be a balloon payment for the rest of that loan due. I got very, very lucky in getting this in the summer of 2022, I locked in a 4% interest rate for commercial loan

Dave:
Jesus

Nate:
On a commercial loan, but the next one I bought, which I bought this year was 7.25. So I don’t get all that lucky. It’s still cash flows.

Dave:
That’s not that bad actually.

Nate:
Yeah, so it’s pretty good returns. I think I took all the returns we’ve had because we spent a lot of money at the start of the property, like fixing things and getting it fully stabilized. Even if I annualize the return, since we’ve owned it over the past three years, it’s been a 15 and a half percent return just on cashflow every year for three years. That’s not any other benefits, that’s just cashflow. Stock market makes you seven, this makes you 15 and it’s a little box. It’s cool little money box.

Dave:
Are you convinced Tony?

Tony:
I kind of am actually. But it’s interesting Dave, because I see that’s part of the reason why we transitioned over to small boutique hotels and motels was for that same reason Nate said purchase price was three 50. You’re absolutely right. That’s a home and so many markets across the country and as we were looking at, okay, what’s next for us? It’s like, do we buy these massive Airbnbs that are 5,000 square feet, eight bedrooms with all these crazy amenities or do we go commercial? And for us it made more sense to go commercial and that was our last acquisition. We purchase price was a million bucks for this 13 room motel outside of Zion National Park. We have properties that we own and it’s like single family homes in our portfolio that are worth that much, but I got 13 rooms here, so we bought it for again, a million bucks. We got a seller finance note on it, which was great.

Dave:
Nice.

Tony:
And I think that’s also part of the reason that we’re so high on the small mom and pop hotels and motels because almost none of them have good books. Almost none of them are bankable in the traditional sense. So all the sellers know they have to offer seller financing. I was literally just talking to a broker yesterday for another property, very similar situation. But anyway, we got it seller financed. It was a 10 year note, first three years were interest only at 7%. So even with that, I think our mortgage is like 47 50 a month I think. So mortgage is super reasonable and this property last month, which was part of our peak season, but we did, I dunno, $30,000 in revenue in April, another 40,000 in May. It’s going to slow down during the summer months. We’ll probably do around, I don’t know, 25 ish, somewhere in that ballpark and it’ll really peak from fall time. So anyway, we’re probably on track to do close to 300 on that property this year on a million dollar purchase. So it’s crazy the amount of revenue that you can generate if you get the right asset. So that’s what we’re super high on, this kind of model moving forward and we’re still running it like an Airbnb.

Dave:
All right, Tony wins the debate. Yeah, I quit. I quit. I can’t argue that

Nate:
This is what I’m saying. Rental properties are very, very good. I need to take a second to say everything Dave is doing is correct and he’s going to be significantly wealthier than me in the long run, probably just because of how smart he is. The rental properties, buying in the right market with the right tenants will always make you wealthier, but when you look in it just on the basis of cost to rent, it’s absolutely wild. What Tony and I are getting, like Tony said, 300,000 on a million purchase, I have 60,000 revenue on a $350,000 purchase and my expenses are low, it’s self storage, it’s a giant concrete box with no utilities. It’s like what do I have to pay for? So macro numbers are quite wild.

Dave:
Yeah, I would never argue that these kind of strategies produce better cashflow. That is definitely true and it’s the part of it that gives me a lot of fomo. I would love to earn those types of cashflow. My net worth I divide into threes. A third of it I put into active real estate. So the rental properties, I do own a short-term rental. In addition, I participate in some flips, so that’s one third, I do a third in totally passive and I do invest in commercial that way and then I keep everything else in stock market and stuff like that. But I think the reason in my active part of my portfolio that I focus on long-term rentals is the risk of volatility. I just think in self storage and commercial, there is a lot of cyclicality to those industries, which is not bad. There’s cycles in almost every industry except long-term rentals.

Dave:
Long-term rentals outside of 2008 are just incredibly stable and I just value that and I think for everyone’s own perspective, you need to value, do you want cashflow more than stability because you can do rent by the room. That’s a great cashflow perspective. It’s probably going to take a little bit more management and just for me as my personal preference, it’s just like stable, steady, set it and forget it kind of thing. But I certainly can’t argue with those kinds of numbers. Nate, I’ll just go back to you. Do you think about or worry about the cyclicality of it because commercial real estate last three or four years has not been a bright spot of the economy, so how much does that weigh into your decision making?

Nate:
Very true, and I will say this, everyone who’s taking those commercial numbers is looking at the big guys in the big buildings, in the big cities. They’re not looking at little guys like me and all the other guys. I know guys and girls who are investing in self storage in small towns. We’re talking towns that are five to 15,000 people, public storage, extra space, they’re never going to open up there. There’s not enough money for them. There’s not enough people. I can tell you this for a fact because I’ve had my facility through 2022 through now, which are some of the worst years for self-storage and commercial real estate. In the past 15

Dave:
Years

Nate:
I had a 95% occupancy rate,

Nate:
If not higher. That was my minimum the entire time. And this is with two other self-storage facilities a mile and a half from mine. You have to, and Dave talks about this all the time, you have to know your market, you have to know demand. If you get demand wrong, you’re just going to be ruined and this is quadrupled when you’re in commercial. It’s not like a rental property where if you buy in a relatively decent sized city, you’re always going to have demand. It’s like if you buy smart in areas where there’s population, the REITs, which are the big guys, public storage, extra space can

Speaker 4:
Build.

Nate:
If you buy in a big market, they’re going to totally take you down. They’re going to lower their rates, they’re going to get the customers and you’re going to be out there. If you’re in a small town where everyone else doesn’t even have a Google My Business page, they barely have a website. They never pick up the phone. They reviews are terrible, never at the facility and everyone’s complaining, you’re doing great. And there are a million of those markets across America, I promise. Yeah,

Dave:
It’s super interesting. That sort of competitive dynamic is something I don’t really feel like exists in the kind of properties I buy, and I like that if someone builds a new duplex next to my duplex, I’m not really sweating it. If someone builds a self storage facility next to you, I’m sure that would greatly impact your business, but obviously you’re doing it well, you found a sweet spot. Same way. I kind of think two to four units, no one’s less competitive, no institutional investors are really going after that in some big sort of way. So you’ve found a niche. How hard has it been for you to find deal flow in?

Nate:
Oh, it’s incredibly hard. It’s super hard. This is the worst part about investing in self-storage. I’m sure it’s the same thing. I mean potentially with Tony, with buying larger buildings that are motels and stuff like that where this is literally a needle in a haystack type thing. If you might be a regular rental property investor like Dave, maybe you buy a rental every year, every two years. I’ve only bought two facilities in the past four years I’ve been trying. Now obviously there’s more cashflow with each of them, but it’s like

Nate:
Sellers are still stuck on these 2022 price peaks, which is completely off of what you can get for funding right now with banks. So the numbers just don’t work out. And also it’s like there’s only so many of these and these middle sized operator guys are buying up as many of them as you can while you’re in a city. If you want to go and buy in Raleigh or Austin or Tampa, any of these strong fundamental markets that have high supply right now, you’re fine. You could buy a property every week if you wanted and you’d never run out. So that is the thing. You have to be hardcore on acquisition and you really have to try and get these properties, and if you do, they do really well, but man, it’s a struggle getting them.

Dave:
It’s a good business model, kind of what it takes if you need to sort of find inefficiencies in the market. But that takes a lot of work and frankly now I’m back off self storage. I don’t want to do any of the work you dispatched. Do you have the same challenge with flow Tony?

Tony:
I think it depends on the single family side. I will say there’s probably maybe more of a challenge there. To Nate’s point, I think that there’s sellers who are a little bit unrealistic around what properties should be selling for, given where revenues are at. But honestly, on the commercial side, I almost feel like it’s easier right now because again, going to my point, there’s an entire generation of mom and pop hotel and motel owners whose kids don’t want to inherit the business. They want to go retire to spend time with their grandchildren and they want to get rid of these assets, and we probably could have purchased more. We’re just intentionally trying to scale in a little bit more of a controlled fashion. But yeah, single family side, I’d say there’s some challenges, but it’s honestly, I found it to be a little bit easier on looking for more boutique hotels and motels.

Dave:
Well, that’s sort of the positive side of the cyclicality and volatility that we’re talking about, right? Commercial real estate has taken a hit in the last couple of years and I think there’s a strong argument that assets are the cheapest they’re going to be for a while. That’s why personally I’m starting to look at larger multifamily and starting to acquire ’em. I don’t think the market’s there just yet, but Tony, you tell me. Have prices gone down, I assume in the hotel and motel industry over the last three years?

Tony:
The hotel that we bought, they initially listed for I think close to 3 million and we bought it 4 million.

Dave:
Oh

Tony:
My God. Now part of that was just them being unreasonable about what it was worth and it sat for a long time and then they were just super motivated by the time we spoke to them. The broker that I was speaking with yesterday, I think they originally listed for 3.2 and he told my partner like, yeah, we could probably get ’em down to 2.2.

Speaker 4:
So

Tony:
Yeah, I think there’s a bit. Again, part of that is them just being unrealistic about their initial price, but I do think that there’s motivation and there’s more leverage that we have as buyers right now to negotiate to try and get the price that makes the most sense for us.

Dave:
Well, you both make very, very compelling points, but I want to talk to you about how practical these two approaches are for just regular investors. And if you think that this is achievable for people listening to the podcast, we do need to take one more quick break. We’ll be right back. I wanted to let you know about something really fun Henry and I are doing that I am really excited about. We are taking BiggerPockets on the road this summer and we’ll be driving around the Midwest to multiple different markets, looking for deals, meeting with agents, talking to the BiggerPockets community, attending meetups. It’s going to be a great time. We’re calling it the Cashflow Roadshow, and it’s happening this July from July 14th to 18th across three different markets in the Midwest. We’re starting in Milwaukee, going to check out some markets around there. Then we’re going down to Chicago, ultimately winding up in Indianapolis, and we’re going to be doing all the stuff I said looking for on-market deals and looking at projects that BP community members are actually doing even in this market.

Dave:
And we might even do a deal or two of our own along the way. So make sure to follow along to all the content we’ll be putting out about the Cashflow Roadshow. But I’m making this announcement because I want you all to join us if you live in either the Chicago or Indianapolis area, we’re going to be doing free meetups in those areas. The one in Chicago’s on July 15th, the one in Indianapolis is the next night on July 16th. Henry and I are going to be there. We’re going to be doing presentations, we’re going to be talking about local market dynamics. There’s going to be great networking, and we even have a few cool surprises planned as well. So if you live in one of those cities, you want to hang out with us, get into the BiggerPockets community in real life, go to biggerpockets.com/roadshow to learn more. And these events, they are free, but I should call out that you do have to RSVP because there are limits to the venues and they will sell out. So make sure to go to biggerpockets.com/roadshow and reserve your spot today. Welcome back to the podcast. I’m here with Nate Weintraub and Tony Robinson talking about non long-term rental strategies. We’re having a little bit of a debate. It’s been very fun. These two have been very compelling as I’m not surprised, but I’m curious about how achievable these things are. Tony, do you think the average person listening to this can go out and buy a small motel or is this kind of something you have to build up to or just tell me about how people could potentially get into it and who it’s right for?

Tony:
I think echoing what Nate said earlier, we bought our first one 4 million bucks, and I guarantee there are people in this audience right now who have looked at other properties in that price point. But depending on what market you go to, you could definitely find something cheaper than that. You could find a motel or a hotel for half a million bucks for $600,000, which is the purchase price for a lot of single family homes that people are buying. So I don’t think it’s a matter of am I capable? It’s just you have to choose markets that support your budget, that support your resources, that match with what it is you can deploy to go buy an asset. So can anyone who’s listening do this? Absolutely. You just got to find the right market.

Nate:
Okay. Yeah, good advice. What about you, Nate? I’ll tell you a little story real quick. A few weeks ago I had a friend of mine who was talking about the new self storage facility we want, and he was like, man, I just wish I could get into that. I was like, what do you mean you can do it? Right now I work like 50 to 60 hours a week. I have a marketing business, calico content.com. I’m working a fair amount. I don’t have a ton of free time, but I’ve partnered up with two people who also work full time. One is a teacher, one is another marketing professional, and it’s like we are doing this in our spare time. I probably spent 30 minutes a month on the first stealth storage facility that brought in $23,000 last year. The acquisition is a pain. You’re getting wholesaler emails and you’re always analyzing deals, but it’s like self storage really is the most boring unsexy, but repeatable and financially freeing asset class, I think for regular people in real estate. And if you like running a business, you like doing treating customers as well, getting good reviews. I mean, this is very similar to Tony’s too. We’re running businesses. They’re not just properties.

Nate:
Also owning a bunch of rental properties is a business, whether you want to say it or not,

Dave:
It is absolutely.

Nate:
But it’s a super doable, super repeatable strategy that any regular person with a W2 can do. I mean, I bought the first facility for three 50. I bought the second facility for six six, and there’s 200 units combined between those two. It’s like those are house prices we’re talking about and the cashflow is great and it’s fun, man, because these owners, the mom pop owners, they treat their old customers like dirt. They don’t do anything. They never fix up the facility, they never respond to ’em as phone calls. And you have the chance to make a service better for someone. And I really, really like that.

Speaker 4:
Yeah,

Dave:
I

Nate:
Totally

Dave:
Buy that. Can you be honest, Nate? Tell me, what are the risks of self-storage?

Nate:
The risk is you get addicted and then you eventually get super rich. I’d say the risks are this, you have to do serious market research. This is again like a business and there may or may not be a bunch of other competitors in the market you’re buying. You have to know there’s more demand than supply, and that means calling at their facilities secretly and checking if they’re full, looking at their waiting list online, keeping track of this type of stuff. If you buy a facility, and I’ve seen people do this, they’re like, I bought a 200 unit facility in a thousand person town. I’m like, oh, that’s great. 20% of the people have to rent from you for you to make a profit. That doesn’t make any sense.

Nate:
Risk is buying an oversupplied under demand market where the rents are falling or population is low and people are moving out. That’s a super big risk. And I’d also say the other risk is that you, and this isn’t really a risk, but it’s like if you buy one of these, it’s running a business. Someone has to be answering the phones, someone has to be responding to the emails. Someone has to be taking care of the property. It’s not a set it and forget it. It is relatively passive, but it’s definitely not passive income. You have to take care of it like a business.

Dave:
Yeah, see, your toilet argument is falling apart here. Like,

Nate:
Yo, no, I still don’t want to deal with toilet. You can’t convince me on toilet state.

Dave:
No, this doesn’t sound any more passive to me than hiring a property manager for a long-term rental. I’ll give you the cashflow argument that one I buy, but I don’t know. I think hiring a property manager is similar to what you’re doing. You’re still going to have to manage someone. And I also want to introduce one other idea here at least, and I moved from the US to Europe for five years. I was forced to become a more passive investor, and it’s why I now have about a third of my portfolio in passive investments. That’s the other thing that you could do if you want to be buy and hold investor and you don’t want to be doing the toilets. You can either be private money, you could be a partner for someone who wants to be an operator. You can invest in syndications or funds like I do. So there are definitely ways to buy long-term rentals that aren’t as time intensive as it can be if you buy highly distressed properties and are self-managing. Tony, what about you? Can you tell us a little bit about the risks in your approach?

Tony:
I think there’s the macro risk and then there’s the micro risk that are individual to each person. At a macro level, when you’re talking about buying an Airbnb or buying a small boutique hotel or motel, we’re talking about discretionary income that people typically spend to go enjoy these assets that you own.

Tony:
And because of that, we are subject to where the economy’s going and how much people want to spend on vacations and what that looks like. Now, I will say even during the depths of the recession, people were still going on vacation, right? It’s not like vacation travel goes to zero even during a recession, but obviously people are tightening up their budgets and maybe spending a little bit less. So I think that’s one piece as you got to recognize that there is some ebb and flow with just the macro. The other thing, and this isn’t necessarily specific to the entire economy, but more so to just the short-term rental market is supply and demand also influences how much you can charge. We saw nationally supply levels increase pretty dramatically. Post COVID, an insane amount of increase year over year in the number of people who are listing their properties for rent on Airbnb.

Tony:
That growth has tapered off pretty tremendously going into the last 12 months or so. So I think we’re starting to see supply and demand stabilize, but I think that was a challenge for a lot of operators is that they underwrote on these post COVID numbers, not realizing that this kind of imbalance between supply and demand was going to pull those figures down. So I think those are the risks, right? You’ve got discretionary spending and you’ve got to keep a really, really close eye on supply versus demand in your specific market. The last thing that I’ll add to you, Dave, is just on a personal level, I think a lot of people jumped into the Airbnb space hoping to strike gold.

Tony:
It was like the gold rush of the real estate investing industry, and much like the real gold rush, most people didn’t make a lot of money. I think a lot of people jumped in underprepared, undereducated buying bad deals, and you’ve got to ask yourself, do you actually have the skillset to be a good short-term rental operator? Can you put together the right design? Can you manage guest expectations the right way? Can you manage pricing the right way, maintenance, both your long-term maintenance and those short-term issues that pop up. So just asking yourself personally, can I actually do a good job managing this type of asset?

Dave:
Yeah, that’s a good way to put it. Well, last question. Do you think at any point in your career, Tony, you’ll switch around, would you ever go back to long-term rentals or try any strategies, self storage or anything else?

Tony:
Absolutely. I know I’ve earned this label of being the short-term rental guy, and it makes sense because we’ve been so heavy into that. But the backstory here, guys, is that I lost my W2 job in 20, and one of the decisions that we made as we were figuring out what’s next for us was, okay, what are we going to focus on? Because what I didn’t want to do during that time of being freshly unemployed was dabble in a lot of different things and do each one to 50% of what it’s actually capable of achieving. So we made a very conscious choice of, Hey, for the next five years, we’re just going to focus on this one asset class, and we’re going to try and get really, really good at that before we start dabbling in other areas. And it’s actually five years now, and me and my wife are having these conversations around, well, what do we do next? And I think more hotels are on the horizon, but we definitely want to try other things as well. I love the idea of co-living because I think you get the blend of both traditional stable, but also kind of that element of like, Hey, you’ve got people that you’re catering to in a slightly higher way like you would with an Airbnb. I do love the idea of self storage. We actually have a self storage facility attached to our hotel. I didn’t even mention that. Really? We do.

Nate:
He’s doing both. You’re doing the hybrid, it’s over. Oh my.

Tony:
We’re doing both. God, you win. It doesn’t make a ton of money, but we’re kind of dipping our toes and we’re learning some of that as well. So yeah, I definitely want to expand, but I think it’ll be the same thing. Whatever I choose next, it’ll be a five-year roadmap of saying, Hey, let’s go really deep on this strategy so we can get really, really good at it. And now I’ve got two strategies that we’re super confident in.

Dave:
What about you, Nate? Self storage for life.

Nate:
As of right now, it’s like the three points. There’s also a part of the return I didn’t mention before. The first facility we bought in 2022, we bought it for three 50. It’s now up $150,000 in equity. It’s worth 500,000 just because we ran it well for me right now it’s like the cash flow is great, the equity upside is great, and they’re just fun to run. This is a podcast. We’re talking about money, but at some point you have to enjoy the things that you’re investing in, and I legitimately enjoy self, self-storage. I enjoy running a business. I feel because I’ve talked to Tony before, I feel like he legitimately loves what he’s doing and the assets he’s investing in. It’s fun at some point. Listen, the goal for all of us is parking lots, no utilities, no structures, just asphalt. That’s it.

Dave:
Thank you, Nate, for bringing up the liking the business too, because yes, that is super important, and being passionate about what you’re investing in is going to give you longevity and it’s going to actually get you what you want. Financial freedom is sort of meaningless. If you’re miserable while you’re doing it, it kind of defeats the point. I will just say last thing, Nate, to give you credit is right now, literally as we speak, my wife is meeting a mover, getting all of our stuff out of a self storage facility, and I’m so glad to stop paying the ridiculous cost, but I needed it and I paid so much money for it. So I do understand why you make a lot of money because man, when there is a need, you are willing to spend the money on it.

Nate:
Dave’s a customer. Dave can’t even talk. He’s paying my end customer. Thank you so much, Dave. Thank you for your

Dave:
Service. Yeah, you are very welcome. And I am so glad to cut it off, even though I still have to keep paying them through the end of the month. Of course. All right, well, thank you guys so much for being here. This was a lot of fun. I enjoyed it, and hopefully you all learned a little bit about the differences, different pros and cons and trade-offs between a couple of different strategies, whether that’s short-term rentals, buying boutique hotels, self-storage, or any of the other things we got into today. Tony, thanks for being here.

Tony:
Yeah, thanks for having me, Dave and Nate, great job defending self-storage, man. I’m thinking more about it myself now.

Dave:
Yes, thank you, Nate. You did very well on the other side of the camera here. Well, we might have to have you back just because you’re comfortable giving me shit and that makes the podcast more fun.

Nate:
I still love you, Dave. I still love you. Calico content.com.

Dave:
All right, and thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.