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Real Estate Investing School Podcast
190. REAL DEAL: How to Force Equity in Your Airbnb
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Welcome to the Real Estate Investing School Podcast! In this episode Brody Fausett dives deep into one of his first investment properties in Brian Head, UT. Brody turned this one bedroom condo into a three bedroom condo that cashflowed him thousands...
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What is up, everybody? Welcome back to a Real Deal episode of the Real Estate Investing School podcast. I'm your host, Brody Fossett, and I'm excited to jam today, as always. Now, you guys know it's a Real Deal episode. We're down and dirty. One deal how somebody found it, funded it, and forced it, and basically built passive income and more freedom from one single deal so that we can learn about it ins and outs and then eventually apply it and replicate the process possibly. So today is going to be an interesting episode because it's going to be solo. Now, this is my first solo episode of these Real Deal podcasts and I'm going to do some more of them. We're going to mix them in here just because I've been investing now for about 10 years and I've got some cool stories, I got some cool projects, I've done some cool deals that I've done, and they're kind of all across the board, different spectrums. And so I decided to just pick a random one today. I'll share more on my other ones as we kind of go through this, you know, in the, in the coming year. But today I'm going to talk about my first Airbnb that I did. And this was actually my third house that I bought. And kind of a quick, quick overview. It's actually a condo that I purchased. And it was interesting at the time because it was almost a shot in the dark. I mean, I did everything that I could to make sure that, you know, I was making a smart investment. But at the end of the day, a lot of it was a shot in the dark, hoping it would work out. And I learned so much through the process. And honestly, it's led to my tiny home resort that I'm building now because of things that I've learned and how I'm multiplying and doubling, tripling, quadrupling down on this exact same idea. So to kind of back all of it up, I bought this, this condo. It's a one bedroom place. I think it's 480 square feet. And I purchased it for $49,000. Now, I know what you're thinking. It's like 49,000 bucks. You can't get anything for that price in this day and age. Well, back then you couldn't get anything for that price either. And I'll explain how I got it for such a good deal. But ultimately, this was probably, you know, seven or so years ago when I bought this. And like I said, I rented out on Airbnb it rented for, depending on the season, around three to four thousand bucks a month, I would say, is kind of what it all averaged out on the lower months, you know, you're closer to $2,000. On the higher months, you're. You're in the, in the $4,000 range. And I learned a lot with peak seasons and when to rent it out and when it was doing well and little things to help it run out. But that's the brief overview on it now backing up. I'm going to tell you guys obviously how I, how I found this deal, how I funded it, and how I forced it. And then I want to talk about why I did it, because a lot of, you know, I love this concept of lifestyle investing. And for me, this, this deal was really cool because it allowed me to step into this lifestyle investing. For me, I always wanted a cabin. I always, like, I would, I would dream, like, what I want my life to look like, you know, in the future. And I always had a cabin in the mountains that I could go with my family and create these memories. And so when I thought about having a cabin, especially, you know, this time I was in college. And so I'm like, cabins aren't cheap, and there's a lot of, you know, quote unquote risk if I were to just go buy a $500,000 cabin and hope that it would rent out. And for me, like, that was a lot at the time. Say my mortgage on that, you know, it might be $3,000 a month or $2,500 a month. And I was more worried about not being able to. To rent it out for that much. Would I actually be able to cover that money? And that scared me at the time. Now it wouldn't scare me as much because my income's a lot higher. But at the time, it was scary. And so that led to how can I get this form of lifestyle where my lifestyle is increasing and I can get this, you know, condo up in the mountains that kind of feels like a cabin and I can maybe put some sweat equity into it. But at the same time, if I'm left with paying this mortgage, it's not going to scare me because I know I can afford it if it didn't rent out at all. So that's kind of the backstory on this deal. But ultimately, the way I funded it. Well, I'll talk about how I found it first. So this is interesting. And I remember at the time, I remember searching the oldest listing in this area that I wanted to invest in. And I looked up the oldest listing, and it was over five years, and it had probably been expired. And I reached out to my agent that I was using. I said, hey, we should reach out to this person and see if they're willing to sell this place. And you know how it is. I think it's a little different now where people are maybe more aware of some of those things. But at the time, people weren't aware or weren't paying as much attention to what are all these expired listings. And so we reached out and it was listed at 120,000 bucks. And they said, yeah, we're still asking that we want to sell that. I said, well, let's just put an offer in. And don't ask me why this number came about, but it did. I was like, let's just put an offer in, you know, for 49,000 bucks. And obviously that's significantly lower than normally what it was listed at. And I don't necessarily suggest, you know, putting in offers that are less than half of of what the property is listed at, but for whatever reason, we did it in this case. And I remember because my agent I was using, he was very, very hesitant. He was like, are you sure? Like, I don't want to offend them. And I'm like, you know, the worst thing they can say is, no, it's been on the market for this long. Just tell them we'll make it, you know, quick and easy. And sure enough, they said yes. So we contract for 49,000 bucks. And I don't want you to think here, like, oh, if I can't go get a property for less than half of what it's listed at, then that's the only thing that made this a good deal. Because reality is, and it's important to point out, if I would have paid full price for this property, I still would have smashed it as an investment. It would have been a home run. But it definitely helped that I paid a lot less than that. So what I did immediately when I bought it was fix it. Up. So, and this is part of how I forced it. And it was fine the way it was. Like, it would have rented out just fine. But one of the ways that I forced it was by creating this kind of cabin vibe inside of this condo. And so my father in law, he actually owned a business for lots of years where he did log work, like custom log work railings, and he built bunk beds and stuff like that. And anyhow, one thing that, that I wanted to utilize was his expertise in that and so had him come up. We did this awesome trim work. I remember I spent the day with him on the mountain cutting down these logs and then we sanded them all and then we used them for, you know, our baseboard. We have this big awesome fireplace mantle that we built.
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And then one of the, probably the biggest things I did to force this deal and I suggest anybody that's, you know, has a place that maybe they rent to students or they rent by the bedroom or you have an Airbnb. Typically the more that it sleeps, the more rent you can get out of it. It appeals to more people. If someone's looking at a one bedroom condo that's got a queen bed and it sleeps two people versus somebody else that's looking at another place that's also one bedroom. But then in the main room it has bunk beds or it has a pull out couch, right? Or maybe it sleeps six people because you got creative now it's way more appealing because someone that still wants maybe a lower, lower budget, but they have a couple of kids they can go and buy and book your place versus somebody else's. And so that was my thought process going into it and it actually worked. In the bedroom there was a big closet. Even though this is only a one bedroom condo, there was a big closet. And on the back side of the closet that, that wall that separated it was the living room. And so I had this idea of, hey, we don't need as much closet space. What if we end up and there's actually a second closet on the other corner of the room. And so I'm like, what if we just frame this off from the bedroom and then on the back side we actually cut in and make these bunk beds. And we'll do a built in bunk bed. So doesn't take any of the room out of the living room, but. But it sleeps more people. And I'll show some pictures on this. If you guys are watching this on YouTube, we'll put up some videos of the actual deal and kind of how I rehabbed it. But it was awesome because we actually overbuilt these on accident. I made them a little bit larger. The thought process was if someone's making the bed, they'll have space to kind of tuck in the sheets. Well, it ended up being that a queen bed fit perfectly in there. And so we're like, let's just make them queen over queen.
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And they can each actually sleep two people. And so once again, like utilizing my father in law's expertise in these These custom log work. We did this awesome job of building like this, this sweet log bunk bed that was exposed, but kind of built in, awesome log ladder and railing. And anyhow, looks super cool. And all of our reviews, or a majority of them were, hey, our kids love the bunk bed. The bunk beds were awesome. All about the bunk bags, Bunk bags, bunk beds. And so not only did it allow to sleep more, but that little custom thing that I was able to use, you know, sweat equity, at least my father in law's sweat equity, his, his sweat to build it, it got me such a high return. Even if I had to go and pay for that labor, I still have gotten a really good return out of it because it sleeps more people and it attracts more people because of the pictures and how it looks. So all in all, I, I spent, I would say probably, if I had to guess right around $12,000 on rehabbing this, this condo. And so the, the things that I did at the time, I would have done different now because I have more money to work with now. But at the time I was, I was scrapping to get by. So instead of replacing all of the cabinets and replacing the countertops, what I did was get cabinet paint and I painted the cabinets. And, and we actually use this, this paint called Annie Sloan, if any of you have heard of Annie Sloan paint. You actually paint on the, you paint over the paint, but then it has this wax that comes with, and you put the wax on and wipe it off. And it's like a polyurethane coat in a sense. And so we use that on all the, all the cabinets. And then I swapped out the hardware, you know, and this was all trying to make it look good versus doing an entire new cabinet set. And then for the, for, for the countertops, I would have loved to do quartz or granite or something that looked really nice. But instead I went and got some wood countertops from Home Depot and just got some, some bamboo slabs. You guys have seen, you know, I'm talking about like some butcher block countertop. They're not that expensive because they're not extremely durable, but they actually look pretty nice. And so got that cut that got a new sink that wasn't that expensive, added the new sink in there. And all in all, like, it wasn't that much money that went into this. Even after I, you know, did the paint, painting everything and then put carpet in and, and tile in some places, I still saved a lot of money. And so I wanted to touch on that because depending on where you're at in your investing career, I guess you could say there's different things that you're willing to do. And at that time, like, because I didn't have a lot of money to work with, I was totally fine with using my, my sweat, using my hands. And not only did I actually enjoy it, it was kind of therapeutic for me, but it was also fun just to be able to do it and not spend a lot of money so that I can get a return back and make more money back. And looking, looking back, it really set me up, to be honest, of just being able to sacrifice those little things and doing some of those things myself. Set me up for the future because now I was cash flowing more, I had more margins on this. I was able to save up more of that money coming in every month. And it was able to propel me and get me ahead in so many other areas in my life. It was able to help me save up so I can invest in other deals which that compounded and built more cash flow. And so it's easy to think like, oh yeah, that's just a, it's just a couple thousand dollars a month. It's not that big of a deal, not that big of a deal to do or that important of a deal to do. But for me, it changed everything at that time. And I remember as these, these people would book my property and I get these notifications on my phone. It was the first time that I was like, holy smokes. I went to bed and I woke up in the morning and I can, I made money. Like, I can see exactly how I made money. Going to bed, doing nothing, waking up. And I just always love that concept of being willing to, like, put in the work ahead of time and putting the work up front. And I was totally fine with, you know, building this out and using, you know, my hands and my time and my labor. And then once I did that, it was done. And like, yeah, you're managing a little bit, but that's, that's pretty easy. But once I front loaded all that work, it paid me when I went to bed at night. And that concept alone, it's just so powerful. And I've loved it ever since. And I think that, you know, I've tried to apply that to bigger and better deals in different aspects of my life. I think the last thing I just haven't touched on probably is how I funded it. So a lot of different ways to fund something like this. You can buy as a second home and put, you know, 10% down. There's certain qualifications with that. You got to stay in it a few nights out of the year, and there's different things there. You can buy as an investment property and put, you know, closer to 20% down. You can do that fairly easy. In this case, what I actually did was paid cash for it. I was doing a sales job at the time, and I had some commission that I had saved up and worked hard for, and I paid cash for that property. Now, fast forward later on, especially looking back, I then probably would have refinanced it and pulled money out, especially once I put a little bit of work into it. And this we call, like, the burst strategy, where you buy it and then you, you know, you rehab it and fix it up and get it rented out, and you eventually refinance it, and it's now worth a lot more money than what you put into it and what you bought it for. And so you can get a lot of that cash back out. And so knowing what I know now, I would go back and I would have refinanced out of that. I would have cash out, refi. I would have kept a loan on it. I know it would have been something low. Maybe, you know, four or five hundred dollars a month is probably all would have been. So it still would have cash flowed extremely well, but. But I would have been able to pull out even 50, 60 thousand dollars that I could go and deploy into my next deal or that could be a down payment on something else, and I can kind of start to multiply that money. What I did, as of, I think about a year ago now, I held onto this thing for, I don't know, five or six years, and I actually sold it for, I think, 165,000 bucks, something like that, which is crazy, because about a year after that is when everything kind of spiked. And it's probably worth, I don't know, 2, $250,000 now. But it was great for me because I bought this, I made all this cash flow over those five years, and then I sold it and made an extra 100 grand on top of that. Once I had sold it, that I was able to 1031 exchange into another deal that kind of set me up from there. But ultimately, I learned so much from this. I love this concept because it allowed me to get into one of these deals and, um, that it was. It was this lifestyle deal for me. Like, I could go spend time with my family here, utilize this, bring my friends here, but then at the same time, I could also make money on it. And a lot of, you know, now that I'm, I'm building a tiny home resort, it's actually in the exact same location as this condo was that I bought. And a lot of the thought process behind that was, hey, if I can get this condo that's a one bedroom place, you know, that's stacked next to other condos, it's not brand new or anything like that. If I can get this much rent out of this consistently over the last five years, maybe there's a way to go multiply this process where, you know, instead of just getting one of these units, I could get a lot of them. And that's what kind of got my mind turning on building this tiny home resort. And then I started looking for land and then I started looking at the numbers of the tiny home resort, saying like, hey, if I was able to buy, you know, these tiny home units, and I did the same thing, I now have triple bunk beds actually in the tiny homes that are just about finished. And all of that with the purpose of, hey, how can I maximize how many people and rent it out, have this experience now it's a tiny home, it's its own house versus renting a condo. You get the experience of the resort. There's a loft up there, so you get to live in this tiny home for a little bit. And so my thought process was like, if I could be into those, the same price as I'm into this thing and even rent them out for more because they're nicer, newer, they're, they're on their own, all these things. Then I'm like, that would be an awesome business model. And so I decided to go and create that. And that's what led into what I'm doing now, which was also one of the reasons why I, I sold that. Because I'm like, hey, I'm just going to roll that money into this project over here. All in all, love this project. I learned so much from it. Hopefully you guys can pull something from this that you can take and go and apply. I'm a huge fan of understanding that there's, there's properties out there that you can go and find and snag that might be a good potential airbnb. Just be aware that hoas might be higher because they're in a mountain home community. And on top of that, just do your research. Like I messaged people before I bought it. I looked at the data on how things were renting out, how well they were doing. I talked to other hosts in the area, just saying like, hey, what's this thing going to rent for once I had kind of done all my homework that I can. Eventually, I'm just like, hey, I feel good enough about this that it's worth investing into. And I'm also able to cover myself if it doesn't work out the way that I have envisioned. So take all those things into consideration and go find something that is a good investment. It's gonna pay you when you go to bed at night, and it's also gonna increase your lifestyle and allow you to have some of that lifestyle investing that we're all after. So, that being said, this wraps up an episode of the Real Deal with the Real Estate Investing School podcast, and we will catch you guys next time.
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Sam.