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Tax Smart Real Estate Investors Podcast
316. Tiny Homes, Huge Returns: How Rob Abasolo Built a Winning STR Portfolio
00:43:53
In this episode of the Tax Smart REI Podcast, Tho…
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- [00:00]
Thomas Castelli
You're now listening to the Tax Smart REI Podcast, the number one tax podcast.
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Host CPA Representative
For real estate investors.
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Podcast Announcer
Your source for all things real estate, accounting and tax. Here we reveal our secrets that can save you thousands in taxes, streamline your accounting process, and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors, and current clients on what strategies they use to grow their business and how they steer clear of Uncle Sam.
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Thomas Castelli
Hey everyone, thanks for tuning into this week's episode of the Tax Smart REI podcast. Are you ready for the 2025 tax changes under the new administration? With new leadership in Washington, the tax landscape is shifting fast. These are some of the biggest updates we've seen in years. And if you're not proactive, you could be leaving thousands on the table. But don't stress, we've got exactly what you need. Access our exclusive 2025 tax changes resource, an in depth tracker that breaks down what's new, what's changing, and the strategies that you need to stay ahead. This isn't just some generic checklist. It's a powerful and live resource tailored for real estate investors like you. Head on over to ww.therealestatecpa.com 2025tax changes to access this essential resource. You'll get immediate insights into how to navigate the new administration's tax policies and how to keep more of your money in your pocket. That's ww.therealestatecpa.com 2025 tax changes because smart investors don't just make money, they know how to keep it. We'll see you over there, but right now we'll jump right into today's episode. Today we're joined with Rob Episolo who.
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Host CPA Representative
Shares his short term rental experience and DIY adventures with more than 225,000 subscribers on his Robuilt YouTube channel. He's an Airbnb super host with millions of dollars booked in reservations and 14 short term rentals and counting. He's helped tens of thousands of people from around the world in tiny places and unique spaces. So, Rob, thank you so much for joining us today. Would you be able to give just our listeners who maybe new to the world of real estate investing, just a little bit about your background and how you kind of got involved in the short term rental space?
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Rob Episolo
Totally, man. Yeah. Well, first of all, thanks for having me on the show. Second of all, I have been doing real estate now for about 7, 8 years. Previous to this, I was a copywriter at an ad agency and that basically means that I wrote all of the words that you saw for the brands that I worked for. So I used to work for Gatorade, Old Smokey, Moonshine, Sonic, Hyundai, bunch of different brands over the course of my 10 year career. And around 2020, January 7th specifically, I uploaded my first YouTube video that was a DIY video and got literally dozens of views. And then six months later, the second or third video I ever posted that wasn't a DIY video. It's like a tiny house video went viral. And basically from then on out I, I changed my YouTube channel to be a short term rental tiny home unique stay real estate education channel. And I've been doing that now for the past, yeah, four or five years. It's been kind of crazy to think that it, it's been four whole years. I feel like it just started yesterday.
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Host CPA Representative
Yeah, no, that, that's amazing. I know you offer a lot of value on that YouTube channel. So we're going to drop that in the shows for everybody who is listening who does want to check that out. You know, one question that we have is there's so many different ways you can play the short term rental game at this point. So many different, like sub strategies, I guess you could say. Why tiny homes and unique spaces for you?
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Rob Episolo
You know, I think about life and Venn diagrams and what I mean by that is I always try to find what that collision of worlds can be in the audiences within the collision of worlds because those audiences tend to be super, super fanatical. And so when, when I was thinking about my content and the type of real estate that I'm drawn to, I really liked tiny homes and unique stays and container homes. And so the Venn diagram of that audience, they're very, very, very fanatical, passionate group that love these types of stays. And so again, going back to the Venn diagram of that group of people with Airbnb and the types of travelers that are attracted to my types of listings, I just kind of felt like I could build these really cool places and people would pay me a lot of money to experience tiny homes and unique homes and everything like that. And I would say for the most part I've been right. People love tiny homes and you'd be surprised at what they pay to stay in a place that's 2, 300 square feet. But yeah, that's kind of been my thing now is like, how can I build tinier and build more of them? So that's kind of on the docket for me for 2025.
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Host CPA Representative 2
Do you find that like most People are actually paying for more. So the experience then compared to just like the amenities and the real estate and things like that?
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Rob Episolo
Well, it's funny that you say that because for a long time it really was just the tiny house. Like people just wanted a little tiny home. And I do think that that is a totally fair thing to love. I think it'll wane on you pretty fast when you realize, oh, well, hey, we're in this 300 square foot home with four people and we're all like sharing one bathroom and the bathroom is next to the kitchen and everything smells, you know, and so it's like, it's cool, but it's also like it's small. And so I think as we kind of see how Airbnb is playing out in 2025, and really it started, I mean, you can't say amenities haven't been important for a long time, but I think the Trend has been 2023, 2024, definitely going into 2025. Outdoor space is perhaps the number one thing that you can focus on in an Airbnb. And so if you can pair like a big experience in the outdoor side of things with a tiny or a unique home, that's where I think the real money lies moving forward. And not just tiny homes and unique stays. I think the backyard experience is important for any operator. However, if you really want to maximize your returns on the tiny home side of things, the bigger the experience on the outside, the better. That way people can just go outside and breathe a little bit, you know?
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Host CPA Representative
Absolutely. Definitely a unique experience. And I know that a lot of people are looking for that uniqueness. It's not just like, I'm going to stay at a regular property. This is like an experience that I'm going to remember something along those lines. You mentioned about returns and a lot of investors. That's something front of mind. So how would you say that these tiny homes or these unique spaces maybe compare financially at least to a traditional short term rentals?
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Rob Episolo
Yeah, I mean, I actually have some AB testing on this. So for 2023 and 2024, I definitely bought real estate, but I really focused on making as much money as I could from the real estate portfolio that I had. And so for me, getting started in the Airbnb side, when I made my first thousand dollars on my first unit that first month, I was like, oh my God, like I could just do this 10 times. And so I was on a mission to build my portfolio as large as possible. And it was really cool for a long time to Be like, I've got 40 properties or 40 units and they're in seven cities and seven states. Look how cool I am. And I kind of quickly realized that is the least cool thing because it is so much work that I didn't need to sign myself up for. And so what I've done is I put a stop order on buying real estate, kind of. I'm actually just one under contract on the biggest deal of my life. But we'll talk about that at the end of the podcast. Stick around until the end. Don't forget to hit like and subscribe if you're watching on YouTube. Yes, I got you. I got your back. Don't worry, guys. So I stopped buying properties. I started reinvesting back into my properties. And so I think a lot of people find themselves in this position. They'll buy a property and if you put 20% down on, you know, even a $400,000 house, you're talking about 80k minimum, plus another 30 or 40k to get it furnished and launched. So you're at 121, 31, 40 to launch a new short term rental, right? So a lot of people launch that first property, they save up for a year or two or three and they're like, Rob, I only have like 20,000. I only have 30,000. What do I do? I can't buy any more real estate. And so they go and they raise money and they just start scaling, probably getting ahead of their skis, if you will. And for me, I've changed my message a little bit to say, hey, $30,000 is actually a lot of money when you already own a short term rental because you can put that money back into the short term rental. And I'll land the plane here because this is what I've been doing. So I've gone in and I've renovated the backyards of several of my properties. And I have seen a direct change in kind of that unique experiential backyard to not having it at all. And so I'll give you an example. I bought a property in Bryan, which is College Station, home of the Aggies, which always ranks behind the number one public school in the country, which is the University of Texas at Austin, which is where I went. I'm an alum there. Anyways, there are arrivals. So I bought a property in College Station because I thought it was kind of an underserved market. And we bought it for 250,000 and we got it furnished and we did the whole like, you know, target and world market and like, it was nice. It was definitely a budget Airbnb, but it was fine for what we were trying to do. And last year, that Airbnb, we'll call it in 2023, made $46,000 pseudo profitable. I think we made 500 to $1,000 every month. Not nothing, but like, you know, not, not the glorious short term rental returns that people want. And so the backyard was not built out at all. And so we went and we invested $36,000 into the backyard. And that $36,000 included a pickleball court. We had a cowboy pool already, but we built like a really nice deck around it. We painted two murals, and there is this old ratty shack in the back that we opened up and made into this game day shed where we put a mural in there, a pool table, and we really just changed the backyard. The inside we didn't touch at all. We launched that in 2024, in June or July. So we only got to capitalize on that renovation for 2024 for, you know, another four or five months. Right. But in those four or five months, we went from $46,000 to $60,000. So we made an additional $14,000 just in the five extra months that we had at the end of 2024. Now, some people hear that and they say, oh, okay, well, 14,000, that's not that big of a deal. And I'm like, okay, well, let's map that out a little bit. We invested $36,000. We made $14,000 extra. And what's really significant about this is that that $14,000 effectively goes straight to the bottom line. And this is where a lot of people don't really think about the power of just reinvesting into your backyard to make it more unique. Because we were already profitable. I said we were making 500 to $1,000 a month. Well, because we're already profitable, our electricity, our water, our Internet not really going to go up all that much. And our cleaning fees aren't really going to go up that much either, because we're still hosting the same amount of people every month. We're just charging a lot more. And so to add $14,000 to the top line is like 98% profit. And so to make an extra $14,000 when we were making $5,000 before, we'll call it for the year before that, we effectively had a 200% increase in profitability and a 50% return, like 45% return on that investment in the first year. And that's in 2024, 20, 25, we are slated to be at the 80, $90,000 range, which is going to add about $40,000 of profit from the year before. Pretty significant. That, to me is the power of a unique stay. Questions, your honor?
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Host CPA Representative 2
My first question is if it was that successful, is there anything as you're thinking about the new acquisition, you mentioned a big deal and we'd love to hear about that. Is there anything that prevents you from just kind of doing what success you've seen there on repeat, like that specific example that we walked through. Have prices skyrocketed since that or something like that? That hold you back from just kind of on that?
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Rob Episolo
No, that's, that's just, that's what I'm doing. That's literally, that is my only mission because I have successfully pulled that off at different properties and I'm using that same exact blueprint at all of my new acquisitions too. So I'll give you another example of a property that I just recently launched. So I bought a property about a couple of minutes from here. It's in Houston, Texas, and it's a over 100 years old. It's not a looker, it's kind of ugly. It was a landlord owned it before, like long term rental landlord. And let me tell you, he did the landlord special all over this house. So it's not the most aesthetic on the inside. So for me, I bought this property and I asked myself, okay, I could renovate this. You know, I could easily put 50k into this if I wanted to. But my question to myself is, could I just put that same 50k into the furnishings, into the decor and can I actually save myself from the headache of going through like a 6 to 12 month renovation? So I have an interior design company, it's called Funkit Interiors. We started that about what's the February in August. So we've been around, I guess now for, I don't know, seven, eight months. And we only do this blueprint. We only do the experiential, bold, funky kind of pickleball court, hot tub type of experience blueprint. So I pay my own company to do this and they come out, they completely design the house to be beautiful aesthetic. We add a ping pong table to the backyard, we add a hot tub, we have cornhole, we have a fire pit. It is a whole experience, but it's, it's a small home. But the backyard, you know, I would say it's probably 15ft across and 20ft to 30ft deep. So it's not a huge Backyard. It's more of a little tiny side yard. It was actually a, like a carport. So we decided to nix the carport, make people park on the street and transform that space into this outdoor exterior. And the comps in my neighborhood say like the highest comp. The person that's making the most amount of money is making $3,000 a month gross. So for me, that's the data that I had in my back pocket when I was launching this property. Not good data. It was, I was like, oh man, okay, if I only make $3,000 a month, I'm basically in a break even on this property. But I had the data for my other properties that, hey, if I really go all out here, I'm going to make some money. And so I launched this thing like mid November, basically. And in December I did 60 $300. In January, I did $6,000. In February, I'm at 60$300. And for March I have $7,300 booked. So I am literally making two times more than the second highest producing property. So not just in my neighborhood, but really in the city. I have the highest producing three bedroom, two bath home in Houston, Texas. And it's nuts because my mortgage on this thing is like 1900 bucks. So 1900 dollars. On $70,000 a year, I'll probably make 35k, which is more than my starting salary when I first got into corporate America. And that is using the blueprint, that is using this blueprint of just really going all out in the backyard and giving people something to photograph and something to experience with their friends.
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Host CPA Representative 2
That's great.
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Thomas Castelli
With 2024 officially in the rearview mirror, now's the perfect time to start planning for how you're going to maximize your tax savings in 2025. With major tax changes looming under the new administration and IRS audits on the rise, navigating the tax code alone is now riskier than ever. Whether you're leveraging the short term rental loophole, claiming the real estate professional status, utilizing passive losses, 1031 exchanges, or anything in between, our expert team of tax advisors at Hall CPA has your back. We'll help you uncover hidden opportunities and avoid costly mistakes that could put you at risk during an audit. With potentially tens of thousands of dollars of tax savings online, why wait? Visit ww.therealestatecpa.com podcast to request your free 30 minute discovery call today. Again, that's ww.therealestatecpa.com podcast for a free consultation. Let's help you ensure you keep more of what you earn in 2025. That's all for now and we'll dive right back into today's episode.
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Host CPA Representative 2
Do you think that you'll just continue to kind of take those profits and reinvest into that same property? Or how do you kind of see continuing to after now you've done this kind of major interior exterior, Right. Renovation. Do you just like continue to kind of iterate like every year? Or how do you think about just like continuing to improve? Or do you just say, hey, I'm at the top? Let's put a pause on that. And now I'm going to try to focus my efforts on the next property that needs more handholding. How do you kind of think about that?
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Rob Episolo
It's a really good question. I can tell you as a guy that is. I'm not going to say at the top. There are a lot of people that make way more money than me in short term rentals. But like, I know, I know my stuff, right? Like, I've done this for seven years. I teach thousands of people, hundreds of thousands of people how to do this on the Internet. And every listing that I've gone in and done this blueprint with, I'm severely unhappy with. You know, like, I'm always like, there's more I can do. There is a moment in which you've totally maximized the property. So like that property that I just told you about, it's a $400,000 property. I got it on seller finance at a 3% interest rate in 2024, not whenever interest rates were 8%. And I've kind of like maxed out. I would say that first 90%. Like I've done 90% of what I can do. At this point. There's another 10% of micro adjustments I could make. And at this point, really the only things that I want to do are things that would just make the guest experience a little better. It wouldn't even result in an roi, but it would just make it a little bit more passive for me. Yeah, I'll give you an example. This house is a hundred year old house. All of the doors are original and I guess they didn't have locks 100 years ago because the lock to the bathroom is like a hook that you latch into, like a circle type of thing. You know, one of those like. Yeah. So there's not an actual lock on the door. Now that lock is fine and it works just as well as a lock. But I want to go in and replace the doors in this property just to make It a little bit more of a. Okay, not so creaky and old. You know, the blinds are, you know, the cheapest blinds you could get from Home Depot. And I want to switch them out and that would be like, you know, 500 bucks. So at this point I feel like I've maxed it out, but I always have ideas and, you know, my platform and what I do is I kind of just do crazy things and report my results back. And so there's actually this little shed in the backyard. It's a little tin shed, probably 10 by 8, that right now we're just using it for storage. But my plan is I'm going to cut into it and make it into a speakeasy. So I'm currently looking for like a vintage refrigerator door that I'm going to put at the front of the shed. And then when you open it, it'll be like this cigar poker room type of scenario. And the idea is, you know, I'll spend five, ten grand on that. Can that five to ten thousand investment yield me another $2,000 a year? If so, I'm able to achieve a pretty good return for a really, really small budget. And so it's important because I think the golden metric for investing in real estate and short term rentals is can I get a 20% cash on cash return, can I get a 15%? And that's really, really, really hard to do with interest rates right now. But you can very easily get a 20% ROI on your own property by just making some of these micro investments.
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Host CPA Representative
That makes a ton of sense. I just want to stop here for a second and make that a key insight here. So I think everybody in the real estate space is always kind of looking for the next thing. Oh, I'm going to acquire my next property, so on and so forth. But you sometimes you just have to look at what you already have and how can you optimize that? Right. Like Rob said, he added substantial revenues to his existing property.
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Rob Episolo
Right.
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Host CPA Representative
So it's not even like you had to go out and acquire the next one to add that revenue. So just something to think about there, Rob. You know, I definitely want to get into the current landscape and definitely talk about your new property. But what have you seen, like the biggest mistakes some of the short term rental investors make, maybe in your space or some of the mistakes that you made that you learned from?
- [19:56]
Rob Episolo
Yeah, I'll give you some of the top ones. So I have people that will come up to me and they will say, rob, I've watched All your videos. I've done everything you've said. I've invested my life savings into this property. You know, I followed the exact blueprint word by word. And I'm like, oh my God, thank you so much, that's great. And then they're like, will you look at my listing? And I'll be like, oh my God, are you kidding me? Absolutely. And then I look at their listing and they hit me with a listing with cell phone photos. And I'm like, you did not listen to me. You have lied to my face. Because if you listen to me, then you know that the number one investment you can make in your short term rental is professional photography. This is where I see a lot of hosts drop the ball. I would say this is the biggest mistake that hosts make in general is thinking that their iPhone 16 can replace a professional skilled photographer. And it is just not something that can be done. And the plus up to this, and this is the real painful thing. And you know what, I'm actually guilty of this one myself. But I'm working on it. I'm self aware of my faults and so I go in and I work on them. But a lot of people will hire a professional photographer. They might pay the cheapest amount, 150 bucks, whatever, get terrible photos back and say, well, these are professional photos. I mean, these are definitely nicer than my cell phone. And they'll kind of launch with these really bad photos. And then I'll say, well, dude, these photos are bad. You need to go and retake the photos. But for whatever reason, most hosts just, they cannot compute re spending that 2 or $300, even if it can literally make them tens of thousands of dollars in return. I'll give you a really good example. I have a property in Scottsdale, Arizona. It's a $3.25 million house. It's a premium house. It's a mansion. And we took professional photos. We spent about 800 bucks on these photos. And they were good, but there wasn't like a really spicy photo. And the most important photo you can have is your cover photo. And so I hired my buddy Eric Barkhurst. He's Barkhurst Studios on Instagram. Go check him out. My favorite Airbnb photographer, he came out from SoCal all the way to Scottsdale, so it's not a small trip for him. And he took a brand new photo of the pool at sunset. It's a really, really, really beautiful photo and I'm going to pull it up for you guys. As you can see, it is a pool shot, looks like an oasis. We've got orange and blue sky, and it just looks like something straight out of a magazine, right? Well, this photo, I uploaded it. Once he got it back to me, I uploaded it, and within 24 hours, I got $18,000 worth of bookings. So this $500 photo got me a 36x return, I guess, on my property. And that is the power of good photography. Like, literally, it is my $18,000 photo, and it blows my mind, honestly. That's not typical performance, you know, but I was just like, you know, for me, I was just kind of blown away at the results. And so photography, I'm spending a lot of time on this point because it is easily the number one differentiator. You could have a objectively worse house than someone else, but have a significantly better photography and make more money, right? So for me, the highest investment or the highest importance you can make on an investment is that $500 photography session. Anything else in that the Airbnb listing world is going to be really important, too. Common mistakes that I see hosts make is they don't write out their entire listing description. They have really bad titles for their Airbnb listing. So instead of saying like, hot tub, central location, king beds, they'll say, beautiful apartment, remodeled. I don't know, they'll just say something really bad or they'll give it some name, like Rob's Paradise, Amazing home. And I'm like, that doesn't tell me anything about the amenities. So every Airbnb listing title should have your top four amenities in it. Hot tub plus pickleball plus heated pool plus sleeps 20, whatever that is. Marketing is really the number one issue that I see with hosts. And it's as simple as professional photography and just making sure that you go out and fill every single box on your Airbnb listing. The second big one is people will just skimp on furniture and try to do their interior design themselves. And as someone that owns an interior design company, I'm obviously gonna be a little biased. But also my interior design company, I showed you the results of that one property, but that is pretty much all of our clients make 30 to 100% more than competitors because the investment is so large into the design and experience side of it. And so I always tell hosts who are aspiring, you know, maybe they can't afford that interior designer, but they can afford to just spend a little more on their furniture. And my phrase here is buy nice, not thrice. Because if you buy the cheap furniture, the cheap chair from Ikea, it's going to break. Then you got to buy a second chair and then that's going to break. And then you got to have your cleaner come and swap them out. And then you're going to end up buying the nice chair the third time because you're tired of replacing the bad chair every single time. And so you will have spent so much more than if you had just kind of splurged at the get go. So buy nice, not thrice. Don't skimp on your furniture. And I would say those are kind of like the big mistakes that I see right now.
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Host CPA Representative
No, that's phenomenal advice. You know, I think there's a lot of people out there that are like very financially minded, right? And you have to remember, and I kind of realized this, moving out to Miami, it's like you're selling the dream, right? You're selling the dream to somebody. So photography can make so much of a difference in that person saying, oh my God, this is a property that I have to stay at or that I really want to stay at versus just your average property.
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Rob Episolo
Right.
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Host CPA Representative
And the same thing with like furniture. Like, again, you know, you probably look at it like, oh, if I spend this money on furniture, I'm eating into my returns. But in reality, by spending the money on the furniture, you're making your property more appealing, but you're also saving your costs on the line. So it seems like in the Airbnb business, it's esthetics play a major role in bookings and really getting people into your property.
- [25:58]
Rob Episolo
I've got another big mistake that I see, actually. I mean, I think y' all will both appreciate this. You know, I feel like I really, I really, really talk quite a bit about the short term rental loophole, bonus depreciation, and I have educated lots of people on this. And when I have my conference every year and I say, hey, who here's gotten a cost seg report? Like less than 10% of their of the people in the audience raise their hand. And I would say a huge mistake is if your self managing and materially participating in the management of your short term rental. I see a lot of hosts not getting cost seg reports and capitalizing on the greatest loophole of all time. Yeah, and I would say that's a mistake, but yeah. What are your thoughts on that? Oh, yeah, yeah.
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Host CPA Representative
I mean, we see that all the time. As much as the people in our world are educated on this, like, I keep coming across people who are in short term rentals or in like a related business that have no idea that this exists. And I think it's a big gap in education. I also think it's a big gap in just tax advisors or CPAs in general tax preparers not understanding what their clients could do, like giving them that advice. Like I just spoke to somebody the other day, they came to us and they said that, you know, I have two properties where I have multi units and some of them are long term rentals, some of them are short term rentals. And we know that if you have a mix in the same building of short term and long term rentals, in most cases it's going to be classified as a long term rental property. Now had that person known, hey look, if you operate this as a short term rental, average period of customer use is seven days or less and you materially participate, guess what, you get a cost segregation study done and you're going to unlock massive tax savings for you. And I think it's just a big gap in education. So I think people just really need to educate themselves on this. Need to work with tax advisors, you know, self serving as that sounds, who understands this because there's substantial money at risk or you know, that people are leaving on the table just by not understanding this. And with 100% bonus depreciation that's supposedly going to come back this year, we all have our fingers crossed. It's only to become more powerful. So definitely get yourself educated out there. You know, I know on this show we have a number of episodes covering the short term loophole. So if you're new, you're just listening, this is the first time go and check those out because this is not something you want to miss out on. And like Rob said, we see people miss out on it all the time, which is not something you want to do.
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Rob Episolo
Yeah, definitely. And it's kind of one of those things. You guys have a pretty successful firm. Do you ever do any consulting for smaller firms or anyone kind of in the tax world like looking to start a tax company just out of curiosity?
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Host CPA Representative
Yeah. So long story short, we do. So Brandon hall, the former co host of the podcast and also founder of Hall CPA, he has a community called 415 that helps accounting firm owners doing more than a million dollars in revenue, if I'm not mistaken, grow their firms so that's more growth oriented like scaling and leadership and building out like the internals of the firm. But we're going to be rolling out something in the not too distant future that's going to help Educate tax advisors on the actual strategies and things that they can do to help their clients. So the details of that are still in the works, like, literally as we speak. So if there's accounting firm owners out there who are looking to scale their firm 4:15, you can just reach out to contact herealestatecpa.com if you are interested in something like that. We can help you out. But we do have that.
- [29:08]
Rob Episolo
Nice. Yeah. I ask because I'm sure there are a lot of moments in which you sit down with someone and you can see the clear issues in their business, and you're like, hey, oh yeah, just do this and this and right here. And you just lay it out. And then they're all like, oh, yeah, I should do that. And then they never do it. And that's kind of what me, right? Teaching people Airbnb. And then they're like, yeah, I should do professional photography. Right? And they don't do it. And that's kind of how I feel about cost segs. I'll like, do a whole thing on cost. I'm like, how much do you make? They're like, oh, I make 200 grand. I'm like, all right, and this property right here, this could save you 100k. Do this. Boom, boom. Now a tax person. Talk to your tax guy. All right? But you, theoretically, you could save this much or defer this much, whatever. And they're always like, yeah, I believe you. I'm just. No, I'm. I'm good. I'm good. I. And they're just like, they're so standoffish about it because they just don't want to sit down for like 20 minutes to just like, kind of digest the concept. And so, so many people just leave money on the table every single month. And that's like the greatest way you can make cash flow, arguably on a short term rental.
- [30:04]
Host CPA Representative
Yeah, yeah. Look, at the end of the day, if you're making more than $200,000 per year and you have a short term rental property, you should be looking to cost segregation and taking that very seriously. And you can educate yourself online. Like I said, there's a lot of resources out there. Or you can work with a tax advisor who can help you kind of understand it inside and out. But like Rob's saying right now, if you're in that position, if you own short term rentals, you should be looking at cost segregation studies, period. End of story.
- [30:28]
Rob Episolo
Yeah, I got a free course on YouTube. Check it out. Just type in Rob built taxes. And I've Got a bunch. There's a. It's usually like Uncle Sam is on fire and he's kind of flicking off the camera and I think the thumbnail is like f taxes. Like yeah, I've got, I've got a bunch of different. It's like a Uncle, Uncle Sam's a zombie in the apocalypse type of thumbnail, which is what your bank account will look like if you don't do cost segregation reports.
- [30:51]
Host CPA Representative
So it's a great way to put it. That's a great way to put it. All right, so switching gears a little bit with the current landscape right now it's 2025. A lot of people are scared about regulations and market saturation. How big of a concern do you think that is in 2025 for investors?
- [31:05]
Rob Episolo
Well, I would say in 2025 regulations are going to be more of something to be worried about than saturation. I'll get to the saturation piece in a bit here, but from a regulation standpoint, I feel like there's just so many ways to circumvent that. I think a lot of people will see a city that has no short term rental regulations and be like, woohoo, there's nothing here. I'm good to go. The problem is when a city doesn't have regulations, that means that they haven't really had the conversation yet. When they do have the conversation, that conversation can very quickly be anti short term rental. So it's actually best to find cities that have already gone through the court cases and the regulation and investors in those cities knowing that you kind of already have the blueprint or the process for getting your permit and it's kind of the devil, you know, type of situation. On top of that, I like to invest in markets that rely on tourism and where short term rentals are kind of a big part of the economy. So think about Gatlinburg, Tennessee, largest national park in the country. And it's got about 14 million people that visit every single year. Over a million people a month. That whole economy literally survives on short term rentals. And when I say economy, I mean the labor economy. The cleaners, the contractors, the roofers, the AC techs, they all thrive on basically servicing short term rental hosts. So I think if that's something you're truly worried about, you should be investing in cities that are very pro short term rentals. On the saturation piece, I think it's kind of one of those like, what's it called, like confirmation bias. Like you're trying to find a reason out of investing I think a lot of people, like, oh, it's over. I mean, like, I have heard over saturation literally since I started eight years ago. And it's not like today is the day that it finally became true. It has always been the thing that people are scared of. But for me, I like saturation in that when you're looking at the data, when you're actually looking at the comps and you're looking at your comp set, your competitors in the market, you can literally see, using different tools, how much they make. And so when you know how much the top performing Airbnbs make in a market, in a neighborhood, in a zip code, you can literally look at their blueprint, you can look at their amenities set, you can look at their photographs, you can look at their furnishings, and you can determine patterns as to why they make more money than everyone else. And then guess what you can do with that information. You can use it against them. You can one up them, you can add to it, you can take better photography, you can have better design, you can add more amenities, and you can be the most successful Airbnb in your market if you really want to. I'm not saying that that's cheap, but that's the idea that you're going around and you're looking at different markets and you're trying to find a really underserved kind of niche within your market. With that blue house that I told you about, the little 100 year old home, the comp set said that I was not going to be profitable. But when I went and looked at all of Houston, I saw that there wasn't a single Airbnb that was designed forward. Not in my opinion anyways. So I was like, I'm just going to be the one person that does that. And as a result, I make two times more. So for me, I think saturation is really something that you should worry about if you have no intention of being a top performer. If you're like, hey, I'm going to kind of mail it in, hey, I'm going to try this thing, I hear it's passive. Hey, I'm going to buy it only because of the tax benefits, because I see this mistake a lot, all the time, where people will buy it for the massive tax break, but then they're like, I'm cool with breaking even. But then they realize there's a lot of work that goes into managing the short term rental. If you're just looking to dabble in the world of short term rentals, you will absolutely fail in 2025. And you should, because this is not a game for dabblers. It is a game for sophisticated and prudent investors.
- [34:46]
Host CPA Representative
It's a great way to put it. Like it's not the wild, wild west anymore like it was in 2020. I think, you know, we keep seeing that over and over again.
- [34:52]
Rob Episolo
So yeah, no, no, we're moving past the wild west of like you could just throw a mattress in an apartment and print money. Like that was when I first started. Dude, my first Airbnb was making so much money, you know, and it was ugly, it was horrible, but it was amazing because it was like anyone could make money. But as the education became more available and as YouTubers opened up their big fat mouths and told everyone their secrets me, it just became more and more competitive. And now it is a living, breathing, thriving real estate class where real investors are coming in with real capital and they're raising money to do it correctly. And so that's who we're competing against. So it's no longer this like, yeah, let me just give it a shot type of thing. That's not really going to work anymore.
- [35:36]
Thomas Castelli
Hey, tax more investors real quick. Just wanted to remind you that I do have a YouTube channel that I'll be posting on relatively consistently this year covering tax strategies, tax tax tips and tax news for real estate investors and business owners within that 7 to 12 minute range. So if you do like that shorter form, hard hitting content, you can go ahead and find me at ww YouTube.com thomascastelli or simply by searching Thomas Castelli, CPA on YouTube. Subscribe to the channel and drop me a comment. What video you want to see next. And that just might be my next video. I'll see you there. But for now we'll dive right back into today's episode.
- [36:07]
Host CPA Representative
Where do you see this going in the next three to five years in terms of the market? What are your thoughts? There's.
- [36:11]
Rob Episolo
Mm. I still think we're going to see pretty strong growth. I think for the most part. My guess is that this asset class is going to stabilize a little bit. Personally, I mean, it already kind of has. But what I mean is when we got started in this thing, making a 30 to 50% cash on cash return was possible because interest rates were 2.75%. And now interest rates are 7 a 9 depending on certain DSER loans, maybe 6 if you've got really good credit. You know, there's 6 to 9. That's a pretty big range right now. But I think Those days of making 20 plus cash on cash return easily are over. I think right now we're stabilizing to more of a 10 to 15% cash on cash return with good effort and you still have to chase and find it. But I say that because my prediction is that if it's hard to make a 10 to 15% cash on cash return on short term rentals, then it is going to be significantly harder to do that on a long term rental. So I think that there will be a pretty large kind of not exodus from long term rentals. That is always going to be the bread and butter of real estate. But I do think that a lot of people who are chasing cash flow will enter the short term rental game and that's where we'll start to see these cash flows stabilize and lower a little bit. But I think it'll be the strongest place to get pretty good cash flow in the real estate market. In my opinion.
- [37:29]
Host CPA Representative
That makes a ton of sense. Like at the end of the day. Yeah, short term rentals still have the edge in terms of cash flow.
- [37:35]
Rob Episolo
Yeah, it's just not as good as the edge was, you know, three years ago.
- [37:38]
Host CPA Representative
Yeah, no, it's very fair. And like we talked about here today on this show, everybody who's listening, short term rentals, the real business. Right. It's not like the long term rental where you just put someone in and let it ride. Right. You have to optimize the property and it's some work. So I know you're talking about your new property that you're diving into. Let's hear about it.
- [37:54]
Rob Episolo
Yeah, well, selling it all. I'm selling all my properties. Everything I just told you is a lie because I'm selling them to buy this property, but not all of them. But I'm going to sell probably like 8 to 10 properties and 1031 them into this development. I technically just got under contract on it like yesterday. So I'm not going to say too much because when I do it typically means that the deal falls through. So I'll say this, it's in Texas. It's a $5 million development. There are 13 units on it that are unique stays, a frames, tree houses, domes, like a really, really cool assortment of unique stays. And it's a $5 million deal. The cool thing about it is that it is going to cash flow I think in this first year, 150 to 200k. So pretty decent for just where it's at right now. However, there is room to add 10 more short term rentals on top of it. And so when we do that, holy moly, this thing will completely explode. And we think that basically we're getting it at a point now where it hasn't really stabilized quite yet. So we're paying a premium, but not the premium that we would pay in about a year. And so if we can hold on to this just for like a year and stabilize at the cash flows that are currently coming in right now, It'll be worth $7 million in a year. So it'll be a $2 million upside just on where it's at now. But if we can add those other 10 units, that gets us up to the 10 plus range. And typically, most people would go out and raise for this. We need about a million and a half to get this funded. I don't want to raise for it. I haven't raised a lot. I haven't done the typical real estate investor, like, mad dash raise type of thing because I don't know why. I think maybe I'm just too scared of the risk. And I'm not really afraid to admit that. You know, like, I. I like kind of having a really controlled environment as a content creator and as someone with, you know, a decent platform and going on bigger pockets and all that stuff. There's a lot of kind of risk that I'm not willing to take because of the reputation. So with that said, I'm looking to fund this myself simply because a, I can. I've got the properties to do it. I've built up to this moment, right, with my whole portfolio. I've got lots of equity in my properties, and I just want to prune, consolidate, and make a ton of money from one property versus a ton of money from 40. And so, yeah, my parents are going to come in on this, on an investment that we did together, and I think they'll be millionaires by the end of it, five, seven years from now. And that's really important to me because they immigrated here from Mexico. They gave up everything for me. So I just, I want to make them millionaires before, you know, before they die. Sorry. I know that that's kind of a weird way to say that, but it's true. It is important to me and I want to do that for them. They don't even care. They're like, yeah, just give us like five bucks. I'm like, no, you're going to be millionaires. I swear.
- [40:40]
Host CPA Representative
It's definitely a worthy goal, for sure. You know, that'd be awesome if I could ever do that for my parents. And also I think there's a lot of wisdom in what you said. Right. Like I've been on the side of capital raising, I've been a limited part deals. I've seen so much in that landscape and often times what happens is when you do bring on investors now you have a whole another layer of accountability and yep, you know, the investor relations side can be grueling. Like you could have an investment that's going great, but you have that one pesky investor who's always asking a million to one questions and they, they have the right to ask questions, don't get me wrong, 100%. But what ends up happening is something doesn't go according to plan, next thing you know they're blasting you online and meanwhile it's, maybe it's just a hiccup. Right?
- [41:15]
Rob Episolo
Yeah.
- [41:15]
Host CPA Representative
And on top of that, you know, usually then you have to sell the property within the timeline for them. So yeah, raising investor capital is not always the right answer. I know it seems to be always like what people jump to, but it's painstaking.
- [41:26]
Rob Episolo
I mean dude, this would be the easiest raise in the world. Like we could have this funded in like a week. I've got investors that they're like dude, just tell us why is it so hard to pay you? Like we could do it but exactly what you said. I love not handshake agreements, but I love that if I can own it and I'm going to build a management company out of it, you know, if we're down here, we can, hey, well why don't we just take 5k from here and it's my deal and I can just like move money around the way I want to. Whereas when you have investors you can't do that. So I think it's more just a, I like to be loosey goosey sometimes with the way I run certain properties and I don't want to have to be a grown up and answer to someone. I guess maybe I'm immature. Maybe that's the core here.
- [42:08]
Host CPA Representative
I mean, I don't know, I'd say that I think it's pretty wise. I think it's pretty wise. So you shared a lot of value here on today's episode for everybody. I know you have ways. You work with real estate investors, you help them with short term rentals, where can they connect with you, learn more about what you have going on.
- [42:21]
Rob Episolo
Yeah, hit me up on, on Instagram, Rob Built R O B U I L T and on YouTube. And if you want to just learn about short term rentals. I've got a whole website that will teach you for free. It's called hostcamp.com we got courses on there, PDFs, guides, calculators. You can learn everything you want for free on hostcamp.com and then I'll have a special deal. We'll leave it in the description down below. We typically when I'm on a podcast we'll do like a month for free of our community for anyone that wants to join. So we'll do something like that.
- [42:52]
Host CPA Representative
We're going to drop that into the show Notes for everybody who is tuning in right now who is interested in that. I know there's still a lot of interest in short term rentals, so I'm sure there'll be a lot of value. Rob Want to thank you for coming on the show today. Always a pleasure. Always a lot of value you share with the audience. So really appreciate it.
- [43:05]
Rob Episolo
Rock and roll. Have me on again sometime. Don't be a stranger.
- [43:09]
Host CPA Representative
I know we definitely will.
- [43:11]
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