The Expert Realtor for Short-Term Rental Investments

Quick Summary

Jeremy and Tyler emphasizes the value of partnering with realtors specializing in short-term rental investments. It provides insights into market dynamics, location strategies, and financial planning, highlighting the importance of expertise in navigating regulations and maximizing ROI. It underscores the pivotal role of tailored knowledge in achieving rental success.

Key Points

• Engaging a realtor experienced in short-term rental investments can significantly influence the success of your property venture.
• Understanding the unique dynamics of short-term rental markets (e.g., local regulations, demand trends) is crucial for profitability.
• Strategic selection of property locations can enhance occupancy rates and rental income.
• Emphasis on calculating potential ROI and accounting for operational costs specific to short-term rentals.

Full Transcript

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Jeremy: We are live with the Short-Term Rental Pro Podcast, where we interview folk who are killing it in the STR space and who have valuable information to share with you. We're with one of those folk here today—short-term rental investor and realtor/broker Tyler Coon. He's been one of the thought leaders in this space that I have followed for several years. I've actually bought properties with Tyler as well, so I thought he was a great person to have on.

Tyler, let you take it away. Tell us about yourself and how you got to where you are today.

Tyler: Yeah, absolutely. Well, my name is Tyler Coon. I'm the owner of Savvy STR Agents. I'm based in Asheville, North Carolina, and I cover a big, wide range area of the western North Carolina mountains as a real estate agent and as an investor myself. So, I think for me, that's an important part of being a real estate agent, also being an investor myself. We just closed down one in February.

So, when our clients are talking to us about buying at higher rates or how to make some of the cash flow nowadays, I'm going through that experience with you. As the owner of a team of real estate agents that sell exclusively short-term rentals, it’s the only clientele that we work with, I think it's really important that we are on that journey with you. For us, integrity really is number one. So, kind of our motto is that we would never sell something to an investor that we wouldn't buy ourselves as an investment. I think that's what clients have really come to respect about working with us.

Jeremy: Absolutely, and it's cool that you put your skin in the game and preach what you sell, or you sell what you preach? I forget that saying. But, yeah, tell us about your evolution. What I think is really interesting is that, you know, you were a realtor at first, and I'm assuming you had a career before that. But you went from a realtor, and you really niched in on short-term rentals. So, yeah, tell us: Why did you do that? Like, I guess, what led you to thinking, "Alright, this is an opportunity," and how has your brokerage, Savvy, started? What did it look like, and then what's it look like today?

Tyler: Yeah, so I decided a number of years ago to really niche down into short-term rentals after working with this doctor, and he ended up buying eight short-term rentals with me.

Jeremy: Wow.

Tyler: I was still working with first-time homebuyers and people moving to and from the area, and I just enjoyed working on the short-term rentals.

Jeremy: And where were you initially? Because I know now you're in many markets, but what was your initial bread and butter?

Tyler: Really just here in Asheville. Kind of our initial bread and butter was working with people like first-time homebuyers or people moving to and from the area and upsizing or downsizing. I worked with this doctor, and if you read my culture index—I don’t know if you guys know what that is, but you can Google it, it’s kind of like a personality profile. The first line of it says, "This person prefers data over people." I love people, but I also really…

Jeremy: Not trying to say that about you!

Tyler: I also really, really enjoy being here behind the computer screen, analyzing deals. For me, it's like I have more fun finding a really good short-term rental deal than I do in the casino. So, for me, it's like hitting all the right buttons inside when I can find that kind of unicorn short-term rental deal. I feel like I won the lottery, right? Or, you know, $120 on a dollar scratch-off ticket.

I love to kind of walk that path. It is more and more difficult nowadays to find that property as the market gets more and more oversaturated. Eventually, we're going to hit two million listings in the U.S. here. What does it look like to still be able to get into this game and have something that's profitable?

So, that's kind of why I decided to niche down into short-term rentals. I was so convicted in it that, at the time, my business partner and I had a real estate team. We had buyer’s agents and listing agents working for us, and we had admin support and everything. I basically hit the restart button on my whole career. I left the team, left him with everything, and went off on my own, and said, "I'm gonna niche down into this market." There's probably like one or two percent of the market, and it's been really rewarding. I was the number one real estate agent in the Carolinas region for 2022. Just mind-blowing. Incredible.

Jeremy: Congratulations!

Tyler: So today, now we've got five agents. We're in Kentucky, Tennessee, South Carolina, North Carolina, and Georgia. We're looking to continue growing more into Middle America—less in the big, huge tourist markets like Orlando, Gulf Shores, or Destin, and more into Middle America.

Jeremy: Gotcha. When you say Middle America, is that—I mean, you mentioned Kentucky, and I know me and you have talked about the Bourbon Trail. Is that kind of the idea? Or, like, Memphis? Areas that are kind of middle-market cities that have strong reasons for people to live there and go there, but aren't those historical vacation rental markets?

Tyler: Yeah. So, I think to give you an idea, it's going to be kind of like Kentucky, where it's not so much an urban market like Memphis might be. But areas outside of Branson, the Ozarks, or South Bend, Indiana. We're talking about college towns, small regional destinations. The purchase prices are going to be so much better there, and the cash flow is always going to be higher than either those urban markets or those totally oversaturated vacation markets.

It's nearly impossible. I was looking for a beach house two weeks ago. I got another pre-approval from Brian Bockholdt, and you know,

Jeremy: Shoutout Brian.

Tyler: Yeah, shoutout Brian. I think it's just really scary, like what's happening in Florida right now. I was talking, I'm gonna do another name drop, with Chris Cheatham from Steadily, and he said he wouldn’t be surprised if insurance premiums in Florida go up by over 100% this year. That’s crazy to me. Like, if you’re paying $10,000 now, you’re gonna be paying $20,000. That’s a lot of cash flow to just lose out on, right? That cuts in, that’s $10,000 of profit just gone right out of your pocket.

Investors know that when you lose net operating income, you lose purchase price. You lose resale value. So, I think that's what's happening in those markets. We're looking at things like college towns or small regional destinations where it's not getting oversaturated, and the numbers are still there.

Jeremy: Yeah, and I would say this is actually interesting. So, personally, I have, you know, I do a variety of strategies. I don't only buy; I've also done arbitrage. But for buying, I have personally preferred doing places, you know, that kind of have some degree of, like, natural scarcity.

Which, you know, the houses bought with you, or one of them in particular, really out there in bumble, bumble crap, middle of nowhere. So, like, there's not that much supply out there. But then again, there's not a lot of data. And there's not a lot of data, like, when we bought the house, there was really no comps. And, like, I don't think you tried to, like, say, "Hey, this is a comp." Like, you didn't. There weren't comps. It was just like, "Hey, this house has a good view and, you know, has the space that it needs to be a high-performing cabin."

But as you enter these spaces, kind of like places with less data, is that, like, is that kind of what you're communicating? Hitting the focus, like, "Guys, yes, there's less, you know, there's not a perfect comparable property here to say this house will make this money, but that's also a good thing at the same time.”

Tyler: Yeah, yeah. So, I think, you know, it's definitely important to dive into the comps. But what we're talking about nowadays is finding more unique properties. So, like, in Asheville, for instance, it definitely is getting oversaturated here from a short-term rental perspective. So, what we're looking for here are really unique properties.

The one I just bought in February, it’s unique because it’s 5,500 square feet. It’s just totally massive, and that’s impossible to replicate. I can sleep more people than anybody else around me can. And then, on top of that, when I put in a movie theater, I built this pergola swing set, fire pit area that’s really unique, and nobody else has anything like it. So, we’re adding more amenities than anybody else has, and sleeping more people than anybody else has.

I've got a couple of different layers of edges above everybody else. But yeah, to your point about data, I think, you know, I was talking with another investor this morning that I was showing a house to, and he said what he really likes to do is kind of look at the luxury segment of a particular market and then figure out what the entire market is doing and what are the growth trends of the entire market.

So, for instance, like, if you look in AirDNA, you can see a really big growth trend in Asheville, for instance. The revenue since 2018 is very consistently going up 50% every single year—from month to month, year to year averages, right? So, from December to December, from March to March, it’s up 50% year over year. Whereas listings are not doubling every two years.

Jeremy: Yeah, doubling every two years in demand.

Tyler: Yeah, exactly. And they’re saying, you know, AirDNA is out there saying this is going to be the most money ever spent on short-term rentals this summer. So yes, it’s getting oversaturated. There are a lot more listings to compete with, but that’s what it is, it’s competition. And you can win a competition. You just have to have the best skill, right? It’s like winning any competition, you gotta have the best skills. Sometimes you’ve got to put in the most money, and you’ve got to work on it harder than anybody else does.

And if you can do that, it can be incredibly lucrative.

Jeremy: Yeah, and that’s why I say, like, short-term rentals is cool where, like, your inputs define your outputs. Because, like, there’s a lot—you know, you invest in a stock, you know, maybe you did more research on the stock and picked a better stock. But really, like, nothing you do is going to define if that stock goes up 20% in value or goes down 20%. Like, your inputs do not define your outputs. Any good investor will tell you, “Hey, don’t, you know, you should just invest in the S&P 500. You shouldn’t even be a stock picker because you’re probably going to lose.”

That’s not the case with short-term rentals. Like, your inputs do define your outputs. Like, the amount of time you put into, like, you know, walking around your property and just thinking about all the little things that are going to make the experience awesome, and pay off.

So, and one thing I want to talk about now that I’m trying to, like, hammer on is, like, design. And just to, like—you know, personally, our first property, like, we bought it with the crappy furniture that was in there, and we threw it up on, you know, you know—we got it rented. Obviously, even a lot more than that, that we did not do at the time that we should have done. But now I’m like, “Damn, each time we do it, like, it’s got to be done really well in order for us to hit those, you know, our objectives.”

So yeah, tell me kind of about, like, in the last few years, like, has design become more important?

Tyler: I think it’s the number one thing nowadays—design and amenities in the short-term rental. Because you can capture more and more money as the years go on, right? If you’re the number one property. We’ve seen this time and time again, where our clients that hire a professional designer, they paint accent walls, they add more amenities than anybody else has around them.

My favorite thing to do now is, I’ll go into the top properties of Airbnb and AirDNA, and I’m gonna look for what amenities do all those places have. And I want to look, not just—you need to go through and actually filter that by bedroom size because what’s working in a one-bedroom might not be working in the six-bedrooms. Obviously, if you just look at the number one property, it’s gonna be really hard to replicate what they’ve got there.

But I’ll give you a perfect example. There was this small two-bedroom,it kind of looked like a treehouse. Like, the build outside was really cool. It was around $450,000 or something for, like, 800 square feet. The price per square foot was really high. We had a Canadian that came and bought that, and we found a comp that was a one-bedroom. It was a small place, but they just did it totally luxury. I mean, it felt like walking into a five-star resort spa, and everything just dripped luxury.

They probably spent, like, $80,000 on furniture in this small one-bedroom place. Like, that’s really risky. They were doing $170,000 a year in revenue, just incredible. They probably bought the house for, like, $300,000. They just did it up so nice that the money was getting returned to them so quickly. They probably made back that $80,000 that they spent upfront in year one. And now they’re just rolling in pure cash flow, right?

And so, we’ve seen it over and over again. And we’ve actually got some case studies, if anybody’s interested, in the western North Carolina market that we did from five of my clients last year who purchased. And they all used the same designer. They typically spend about double the amount of money than we would normally recommend in design and furniture.

So, if we would, you know, in 2020 times, say spend $40,000, they actually spent $80,000 or $90,000. But in every single instance, they did $40,000 or $50,000 in revenue above what we were actually initially expecting. And so, they got paid back in year one for that extra money. And now that’s $40,000 or $50,000 a year free profit, free net operating income cash flow, right?

Jeremy: And that's 5,500-square-foot house you bought, did you use that for your firm?

Tyler: I did not. I actually really ju—so Ishita designed five places for my clients last year, but I didn't actually introduce her to my clients. Somehow they've all found her on their own. Guys, I met her while I was, like, the day that I finished ordering all the furniture, and it all showed up at my house. Ishita came to look at it, and I was really kind of upset. She was walking around looking at it. She goes, "Yeah, this will be nice." So I'll probably end up having to have her come back in and refresh some things.

Jeremy: Yeah. Okay, so design is huge. And, you know, an example, you gave a one-bedroom that probably had no comp for it. You know, they balled out on design and not only spending money, but obviously putting that money to good use, and it's paying rewards. But I know we talked about this last week, and, you know, we'll again. Tyler and I are probably two of the folk who think about this more than anybody else, like, in the world, and we're connected with more people who are doing this successfully. But, like, what are you seeing in terms of—I know you said size earlier, but, like, yeah, is, and this is what we talked about, like, bigger houses doing better? Like, with things, you know, people posting online that they're not doing well right now, what is doing well?

Tyler: Yeah, so we're definitely finding that it's the large houses, at least in Western North Carolina, that are performing really well. So I've got this place under contract, and really it's just the setup of the house. It, you know, the previous people that lived there had a gym, they had an office, they had a movie room, they had all these extra rooms, and they just set the house up the right way when converting it to a short-term rental.

This place is going to have nine bedrooms. It's still going to have a movie theater. It's going to have a downstairs rec room, and even AirDNA spit out $270,000 a year on a million-dollar purchase. And so we're definitely seeing where it's the large houses where you can get a lot of people in, big, big groups. And there's just so few of them because what builder is out there building 5,500-square-foot, million-dollar houses anymore? They're just not. What I've found is you can find a lot from, like, the early 2000s.

And so we've almost developed, like, a little niche here, early 2000s, mid-2000s houses that are just these massive, massive behemoths with extra rooms, and pool table rooms, and movie theater rooms, and all this cool stuff. But their price per square foot, the value, is incredible. And you go in, and you have to do light fixtures, you have to do ceiling fans, and, you know, sometimes you’ve got to do countertops and stuff like that. But when you look at what the potential is for this house on a cash-out refi—for instance, the place that I bought for $850k, I only need a couple extra dollars a square foot to just push that value higher and higher and be able to pull out every dollar that I put into the place, right?

And so we found that you can take these early 2000s massive houses, update them for relatively cheap compared to the size, and not have to worry about things like the roof or the AC. We found most of the time those things are already done—they've already been done once and recently. And so it's kind of like a little niche that we found for these types of houses that are just working really, really well.

Jeremy: So you say, like, that's kind of a recent, you know, 2023 recent development?

Tyler: Yeah, probably in, like, the last year. Really, since last year, we've been seeing these kind of pop up. But it's been really interesting, and everybody that's buying them is doing incredibly well. The cabins are always a big one too. So if you can find, like, a three-level cabin or something, you know, that's really interesting.

Jeremy: Yeah, I think that's funny because that's honestly kind of been my thesis since I started buying in 2020. It was because, like, early on, I thought that, you know, I want to think worst-case scenario. You know, COVID obviously was some bit of, like, you know, people weren’t going to hotels. So a one-bedroom, two-bedroom was a great alternative to a hotel.

Now folk, like, want the actual, you know, resort experience. Like, meaning sitting at a pool with 100 other people is something that is appealing to people now. And that's at the direct, like, competition to those little intimate one-bedroom experiences. However, those, to me, I consider it four-bedroom-plus properties, are just totally differentiated. And that demographic you go for is, like, multi-generational travel. You know, Grandma and Grandpa booked the house, they have two of their kids who both have their own families, and they can all stay under one roof. Like you said, that three-floor—put the kids in the basement.

And it's actually the house that we most recently—because we bought a couple with you, but the most recent purchase we’ve done with you, literally everything you just said, it checks off. Three-bedroom cabin, you know, four or more bedrooms. I know you're looking for the behemoths now, they're like the six bedrooms, but really, like, pretty much the same sauce there. So, guys, like, this is an evolving game, is kind of the point that we’re getting at. And, like, things that work today, you gotta be thinking about tomorrow as well.

And those six-bedroom homes, they're differentiated. They just are. Like, there's nothing else out there, and you pimp them out with, you know, the family doesn’t even need to leave the house. So, like, what amenities, you’re doing, you’re doing, I mean, Western NC in particular, hot tubs, fire pits, game rooms. Just tell us, what do these behemoths need to really crush it?

Yeah, so the hot tub, I’ve been telling people this lately, like, the hot tub is more important than the beds at this point, right? Because the thing is, everybody has one, so you can’t not have that as an amenity, right?

Um, but then going above and beyond—really, the game rooms are getting more and more important. But going into design, I think it's really important that you pick a location to invest in where the design is going to be able to stick for at least a few years.

So, I think this is a problem, like, for instance, in Orlando, right? People are spending twenty thousand dollars a bedroom to theme the bedrooms out there. And the problem is that they're trendy, and trends change very quickly. So, if you can try to do something that's timeless or something that's not going to change, uh, in a market where the standards aren't rapidly developing, it's like Western North Carolina. As long as you spend the money up front here, you can pretty much bet that your design, your amenities, are going to be on point for the next three, four, five years.

Give you a good example: I had an investor come here, uh, from Gatlinburg, and he goes, "Well, this new construction doesn't have an indoor pool." And this is—you know, he's coming from Gatlinburg, buying here in Western North Carolina. And I'm like, "Nobody has an indoor pool here. Nobody's building indoor pools here. I don't even think there's a pool company in Banner Elk," right?

And so, you know, looking at those sorts of trends and how fast some of those markets are developing those trends, I would look for a market, and this is why we're looking at Middle America—because the standards are so easy to beat, and then you'll have them forever, right? You'll have them for a long time. And so you get better guests, you have higher average daily rates, you don't have to market your property as much. And I think, at the end of the day, just having design that sticks, and then you don't have to dump money in over and over every single year. Because that's money out of your cash flow that you're really not accounting for.

I'm gonna think BNBCalc has, you know, anything that says we're spending this much money on new design every year, right?

Jeremy: Yeah, I wouldn't even have thought of that as, like, a metric. I mean, I've never redesigned, I mean, we might, like, change a couple things and add a couple photos, but yeah, we've never fully redesigned a house or needed to.

Which is crazy you're saying that because I'm thinking about it. I'm looking at, I'm thinking in my head—yeah, that Kissimmee, Florida, those Scottsdale, Arizona, like, those markets where you look up an Airbnb, and they're all going to have—Scottsdale, for example—they're all going to have the heated pools, or Palm Springs, Coachella. They're all going to be themed, you know. They're all going to, like, you know, really, you know, be an attempt to stand out from each other.

But yeah, then two more years of inventory comes in. What do you got to do, you know? Uh, because everybody's improving off of each other.

That's actually funny because, like, what my personal strategy is—or that I'm going to start to implement—is, like, take that Scottsdale, Arizona, you know, those design features, like the people who are doing it the best there, and apply it. Get to Middle America. Or, for me, it's like medium-sized cities that are growing in population that aren't, like, again, typical "quote-unquote" vacation. Maybe they don't have beaches or anything, but, like, they have reasons to go there.

So, how do you apply Scottsdale and Kissimmee and what everyone's doing there and bring it to a place where nobody's doing it? And that's how—the data's not there yet. The data's not going to tell you that this house is going to pull in 250,000 a year. You're going to be the one who sets that precedent.

Tyler: Yeah, yeah, that's exactly right. And it's those people that always make the most money because you get in first. You have all the reviews, and then two years later, when somebody comes in and copies you, there's no way that they can develop those two years of reviews. They can't get to number one, right, because you're already locked into that spot.

So, there is a little bit more risk in investing in short-term rentals nowadays, I think.

Um, and that's what our goal is at Savvy—to kind of help curb that risk as much as possible with our local knowledge, knowing what sort of design, what location, what area, what bedroom count, what size you're looking for. Does it need views or not? So we're trying to cut out as much of that risk as possible and really just become the real estate agents of choice for short-term rental investors, right?

Anybody can go to Destin and buy a beach house. That's not hard. But if you go to Destin and buy a beach house nowadays, you're paying 1.5 million dollars, and you're probably going to make 150,000 a year in revenue, right?

And for me, that's just not good enough because I know I can beat those percentages almost anywhere in America at this point, right? You don't need to spend a million and a half dollars to make that kind of money. You need to spend, like, 800, right, and then put it in design, and you're going to make 150. It's not that hard.

Jeremy: Definitely, and I think it's interesting—yeah, you say Destin, but it's like, take that Destin, to the middle of America. You know, don't go to Destin. Don't go to Destin with middle America dollars. Take that, you know, take all that design inspiration, that feel—you know, that beach feel, that theme, bring it somewhere that it doesn't have it.

And, you know, when people are online, they're looking for houses, a lot of people just go to Airbnb, and they search. They don't necessarily even put in, like, Destin. You know, they're just searching for a house that can fit a certain amount of people, that has great reviews, and, you know, they might even be looking, you know, for something within two hours' drive, which, that's what middle America is. It's people, you know, people, it's driving country. Like, people are getting their minivan, and they're gonna pile in, and they're gonna go there.

I think that's really, so you're focusing on markets that are kind of, like, the underdeveloped, and you're going to be the one who pioneers it or develops it, so to speak. Don't develop it too much, though. I mean, it's, it's okay. I'll be there with you. But, like, for those listening, like, buy somewhere else. No, I'm just kidding—hit up Tyler; he'll help you out.

Tyler: Yeah, I think it's, you know, some of the best return on investment that we saw, just kind of looking at huge databases of data, was in areas like South Bend, Indiana, right? And looking at these college towns where, you know, you get a season of college football, and you can buy a house for 200,000, and you can make 60 grand in a college season, right—a college football season.

And so I think it's really interesting because these vacation-type destinations, or where it's tourists only, it's just, you know, they're getting 50 million people a year or whatever. The problem is that that's where the eyes are, not just from even inside the U.S., but do you know how many people from China that own in Orlando? Tons. I know real estate agents that made their entire, an entire decade of their career around selling houses in Orlando, Florida, to Chinese residents, right, as investment properties.

And so I think it's really interesting. Like, the fact that, you know, give you another good example—Canadians right now are coming down into the U.S. because there's no asset class in Canada that's worth investing in anymore. You can't make it in the stock market, long-term rentals, short-term rental returns, commercial multi-family—it's like two to four percent returns that you can get in Canada.

Jeremy: If even.

Tyler: Yeah, if even. So they're coming down here, and they're okay getting less returns here, right, than you want. They're happy at a 15 percent cash-on-cash return. But the thing is, where are they going to go? They're gonna go to Orlando. They're going to go to Daytona. They're going to go to, to Kiss—to, uh, you know, Destin and Gulf Shores, because those are the only areas they know.

So we have a little bit more local knowledge here, you know, being in the U.S., where we can go to those kind of middle America markets where we know that that's actually where the cash flow's the best. It's just the hardest to find deals there, so that's what we want to solve.

Jeremy: And I think it's interesting—something I say is, like, I like to buy places where it's hard to buy. Because, again, that just, you know, Kissimmee, you're gonna—you talked about, like, a pool service provider in Banner Elk. And actually, I was looking at a house in Western NC that had a pool, and I was like, the issue is there's going to be no pool service provider here.

I actually—well, the house that we bought with you, we had to pipe in water, and we had to call a water delivery service that generally does pools from two and a half hours away because essentially we had a water issue, and we needed to get water for a guest. Which was crazy. It was like, I thought, the fact that had—like, there's just not, there's a lack of service providers. And that's why people do what's easy. They go to, you know, the Kissimmees where, you know, there's a pool guy probably every 20 feet, you know. There's a million short-term rental property management firms if they need them.

So when you go to these places, and you invest in infrastructure, you know, you really build yourself a moat.

Tyler: Yeah, that's exactly right. Well, I think, you know, anytime you look at, is it harder to buy in an area? If you can succeed with that, you're now in a market where everybody else looks at it and goes, "It's too hard to buy there."

And so, you know, looking at a moat—I think your moat with, you know, the freaking Cinderella Castle, right? Like, your moat with the Disney castle in the background. And I think it's really interesting, and if you can put in that kind of work up front, then I think you're going to reap the rewards in the back end.

It is very easy to go buy a short-term rental in Orlando or in Destin. I'm not in Orlando or Destin either—they're just coming to…

Jeremy: Yeah they're examples—but Scottsdale, Arizona; Palm Springs, California. But I think it's interesting to say, because, like, I think me and you, we probably have a tendency to, like—we think about a deal, it's like, this deal's gotta absolutely crush it, because that's what, you know, the deals we have done have absolutely crushed it.

But it's like, you know, for folk who are investors in general, maybe they've, you know, built wealth over 20, 30 years. They're looking at this not as, like, the same way we are. To them, they're just like, you know, "My commercial properties make X. My long-term rentals, you know, are making X. Oh, this short-term rental thing—it can make, like, right now..." You know, you buy a long-term rental, even in America. You were saying Canada was like two percent. I mean, I think, I don't see anything that really cash flows as a long-term rental in the U.S.

So, really, like, short-term rentals is one of the only places. And to be frank, like, if there's something that's making a lot more yield than short-term rental, let me know. Like, I'm not married to that—not, just kidding, but I'm in deep at this point.

But, like, I guess for you, it's like, "All right, yeah, it's a little bit harder. You know, you can still crush it." But, like, before, it was just super easy. But, like, there's other benefits to buying beyond just hitting that 20, 25% cash-on-cash. Like, there's other benefits to real estate. And have you found folk are just, like, the other benefits is, like, you know, the tax benefits? Or is that things that appeal to people beyond just cash flow?

Tyler: Yeah, so when I was talking to this guy that worked at Google, he told me to—well, he told me one thing. He said, "Well, I've got to put down 25%." So I said, "No, you don't. You can do a 10% down second-home loan." So I say again, you know, if he's gonna buy a million-dollar property, I saved him 150 grand. Knowing that he worked—he's a product engineer at Google—I'm like, "Okay, well, and I'm sure, you know, I'm just gonna ask because I ask everybody, but I'm sure you know about a cost segregation study, right?"

He's like, "No, what is that?" And I'm like, "I'm gonna have to write you an invoice after this phone call, cause I saved you like 400 grand in this one phone call." And so, you know, I talked to him about what a cost segregation study is. And he's like, "Yeah, my tax bill next year is probably gonna be about 150, 200,000." And I said, "How about zero? How about zero dollars? So, put that money into a short-term rental this year. You do a cost segregation study, and you don't pay any money in tax, right?” Talk to your CPA. I'm not a CPA or whatever.

I think people are definitely looking at those benefits. You know, one thing that we talked about adding it, for instance, into BNBCalc was revenue appreciation. So I think, you know, if you look at a short-term rental and you can feel really comfortable that it's going to do a hundred thousand dollars this year, why wouldn't you feel comfortable that it could do 105, 110 next year in year two, in year three, in year four, in year five?

Because inflation is a real thing. And even though they're trying to get it to come down, that doesn't mean they're trying to get it to go negative. They don't want inflation to go negative, but they want it to hit their target two percent, right? But even, we had property appreciation built in there, but there is, I think, you know, that aspect of revenue appreciation as well.

Tyler: Your average…

Jeremy: We did add, by the way

Tyler: Yeah, and you did. I think you guys get it done in, like, 24 hours every time.

Jeremy: It's a quick turnaround.

Tyler: So, yeah, I think, I think there are a lot of other cherries on top that make it well worth it, you know, to start creating almost generational wealth, right? Especially talking about going into designing and kind of redesigning and updating a property. For me, that's the best bang for the buck in the world, right? Going into doing lighting fixtures, throw some paint, change some flooring—you totally change the look of the house and the value of the house without actually putting that much money in.

Jeremy: Exactly, exactly. So, and so, the benefits—and this is actually a big thing that's specific to short-term rentals. And this was, like—this is relatively new to me, and probably, I mean, I would assume relatively new to you. But, like, you know, in the last couple of years, there's been—we don't need to get into the exact science—not neither nor are we, you know, CPAs, but you can depreciate a house over a 26-and-a-half-year span. Depreciation is, like, a phantom loss you're showing on the property.

So, it's not like, you know, the government's not taking, you know, money away from your property. It's just you're showing that every year it's, like, theoretically losing value, and you're getting that theoretical loss as an offset. In the past few years, you've been able to apply bonus depreciation. In order to do that, you have to do something called a cost segregation study, which Tyler talked about, where essentially you're going to take the entire house and you're going to boil it down into specific components, some of which you can depreciate on a quicker schedule.

So, not that 26-and-a-half years I talked about. But that being said, uh, what's—I think it's the short-term loophole or something, or second-home loophole, short-term loophole—where you can effectively, so, you show this huge loss. You do a cost segregation study. You apply bonus depreciation, which this year it's going to be 80% of the depreciation amount, but last year it was 100% of the amount that you could theoretically show in the early years.

So, there are going to be some components of your home you can't write off day one. But that being said, I think it averages out to, like, what, 20, 25% of the home's value you could have written off in 2022?

Tyler: Yeah, it's massive.

Jeremy: It's crazy. It's crazy. Even 80% of that this year is still, like, yeah, like you said, you buy a million-dollar house. Let's say you can write off 80% of 200,000, which will be 20%—that's still 160 grand of a write-off. And it's something that's specific to short-term rentals. And that's auto—again, we don't do too much CPA talk—but this thing called, like, active participation.

Tyler: Yeah.

Jeremy: Or Tyler, if you can cut me off and know more on this than I do.

Tyler: That's it, really. I think it's just that you have to actively participate. And so, you don't—you can't have a property manager or anything like that. Again, talk to a CPA. Talk to somebody like Madison Specs or Ryan Bakke. One thing that I was mentioning to people is that…

Jeremy: And Ryan has scheduled time on this podcast, so just stay tuned for this podcast, and he'll be on here in a couple of weeks.

Tyler: That's right, there you go. So, one thing to keep in mind, though—Brian Bockholdt and I called it the "call seg rush" at the end of last year because people knew it was going from 100% to 80%. From, like, mid-October to the end of December, our phones were just totally blowing up, and people were buying, buying, buying as much as they could. Because, really, at the end of the day, if they had a $150,000 tax bill, they could wipe it out to zero, right?

And that's massive. That's $150,000—the government just paid their down payment and their design of that entire house, right? From Uncle Sam, right to their down payment. And so, it is really interesting, you know, what they're able to do. But the thing is, that’s going to sunset. So, this year it's 80%, but next year it's 60%, then it's 40%, then it's 20%, then it's nothing.

And so, if you want the biggest lion's share of that bonus depreciation, you’ve got to buy before the end of the year. And I gotta imagine that, just the same as happened last year, at the end of this year, there's going to be another cost segregation rush. And it's really, really hard, and it's really stressful to try and do that in two months. So, try to get it launched, you’ve got to have, like, three bookings on the books before the end of the year. It's really, really tough.

So, do it now, before December. It's very, very stressful, and I don't get to have a very nice Christmas when everybody calls, racing to buy a house.

Jeremy: Come on, don't make Tyler have to give up his New Year's plans, all right? Buy today!

I think that's always been—I think the point is, like, again, it's just, and I've realized this, and I've even seen it, like, evolve for myself. Like, when I first started in this game, it was like cash flow, cash flow, cash flow. Like, nothing else, you know, comes second to that. Like, that's what's going to allow me to reinvest quicker and buy more places.

But now, it's like, you know, I just paid my taxes, whatever, last week. And, you know, now I'm more thoughtful for next year. All right, I'm gonna buy a house this year, I'm gonna cost seg it, I'm gonna do bonus depreciation, and that's gonna be a huge contributor to, like, my total ROI.

So, my point being is, like—and I—your work with investors, not everybody has that same, you know, that same, "Oh, I need a certain degree of cash flow." People are buying houses for different reasons. And I'm sure you work with folk too who are like, "Oh, I actually want to, you know, go there too."

I'm sure that's the lifestyle freedom—is that a component as well?

Tyler: It's a small component, but mostly I think, you know—and this is probably more because of who I am—that I'm really—I am looking for cash-flowing and value-add properties.

To your point, it's not just cash flow. There are other things. We were looking at this property in Black Mountain, and, you know, it had, like, 1,200 square feet in the basement that you could finish. And looking at the price per square foot of upstairs was, like, 400 bucks a square foot. Typically, if you take unfinished basement space and convert it to finished basement space, you get half of the price per square foot that you have upstairs, right?

So, we're talking 200 bucks a square foot. We had a contractor come in and say it would cost $65,000 to finish this off, add a couple bedrooms, add a bathroom. So, we're looking at, "Okay, what's 200 bucks a square foot by, let's say, a thousand square feet to make the numbers easy?" That's $200 grand. Cost $65 grand to do it. This is the best return on investment you could possibly ever get.

So, even if you don't make a dollar on short-term rentals over the next year and a half, I mean, you can sell that property and walk away with $120, $130, $140 grand just in value from finishing that square footage. So, I think, you know, don't forget about the basic principles of investing in real estate, which is, you know, value-add properties, appreciation.

Cash flow is a big component of short-term rentals, and you should still be able to get a 25% cash-on-cash return out there. There are other kind of cool things that you can do as well.

Jeremy: Yeah, I think it's hilarious that when you're saying this, and it's like—yeah, I don't even know if I told you, but the house—so, again, that we bought—a three-floor cabin with Tyler, February of 2022, so about 15 months ago, as of the day filming this. And we finished the unfinished basement. We added, I think, 800 or 700 square feet. And then we also kind of, like, finished off the garage. Technically, that doesn't really count because, you know, it's still a garage. It's not classified as anything else.

But then we, uh, we refinanced it in order to—or, sorry, we reappraised it in order to get rid of PMI. So, we bought the house 10% down, it was 430k. I think it appraised, like, 440, 450 initially. So, it did over-appraise, but not by, like, that insane amount.

But we finished off—we actually, we did it very, very affordably. Shout out to Omar. We had some very nice, nice contractors who gave us, uh, you know, helped us out. So, I don't even, honestly, it was crazy how we pretty much did supplies and, like, paid our guys, like, 10, 15 an hour.

Tyler: I think that's awesome.

Jeremy: Yeah, well, we had to bring in Spanish-speaking people to communicate with them. You know, it’s more hands-on than the general contractor experience. We got it reappraised for $529k. So, we got rid of that PMI because PMI gets rid, or you get rid of it at 20%. We didn't, we didn't pull any cash from it because rates have gone so much higher that we didn't refinance it.

But it was literally Tyler's explaining something that they're going to do—that was something that we literally did do. And I don't even know if I shared with him. But yeah, we, uh, on paper, you know, our ROI, I guess in one year, is, like, pretty insane.

Tyler: Yeah, I see you guys added over $100,000 in value. What did it—what did it cost you to finish that space? Like, 30, 40,000?

Jeremy: Yeah, I'd say—I'd say, uh, because we—I mean, we also did other things, uh, you know, the light fixtures, we painted the entirety of the exterior house this year. We actually added a well—we added the well after it got reappraised, so I guess I shouldn't consider that. But yeah, I think—and then we also, you know, we furnished it.

I think, yeah, we're probably all in, like, 70, 65, 70, of which, like, 40-ish probably was—yeah, maybe 35, 40 was the—because we also did a hot tub too. Uh, so yeah, I'd say 35k to add, like, 100k of value.

Tyler: That's awesome. Yeah, and you're not getting that investment in anything else, right? You're not getting 300% in the stock market.

Jeremy: Exactly. And that's like—you’re being a value-add investor, you know? I guess that's probably the best terminology you use, where, like, you find a property, you see, "Wow, part of it's unfinished," or, "It looks crappy, you know, on the outside. Everything looks crappy." But, you know, you repaint, you put in new floors, you put in new light fixtures—bang! It feels modern. You know people are going to want it. You know the comps are now going to be at a premium to what it was before. And that's home flipping 101. Uh, that is what home flipping literally is.

Tyler: Yeah, yeah. It's almost a combination. So you're kind of taking, like, the BRRR method and short-term rentals and home flipping and kind of putting it all together in one. Because, you know in home flipping, what you're not getting, and even in the BRRR method, you're not getting those cost and tax benefits, right? So if you can do all of these things, this isn't just the cherry on top—it’s 20 cherries on top, right? And so, for me, that's what I really like about short-term rentals.

Jeremy: Exactly. And that's something that, you know, you need to think about—your own personal situation. Like, what are the things that—you know, it's the tax benefits you're looking for? Optimize for tax benefits. It's cash flow. And then, you know, talk to someone like Tyler and tell them, "Hey, this is what I'm trying, this is my situation." You know, if the Google guy hadn't opened up and given you his situation, and I also work with folk too, you know, help them get into the game. And the more they tell me, the more I can help them.

Tyler: Yeah, exactly. You know, sometimes I'll get clients who are, you know, they think I'm just a normal real estate agent. I start talking to them about, like, mortgage lending and things like that. And I'll have to tell them, "You want me involved, right? Like, I'm only going to steer you in the right direction on everything." It's so important because, as an investment realtor, the outcome of whatever you do is the most important, right? This isn't, like, going to be your dream home where your family’s gonna live. So I don’t need to know about all that. But I need to know about the finances and how much money you have in the bank, right? How much are you able to spend on this property without going broke?

You know, we've got people that are at really small budgets, and that's okay. But it's really good to know upfront, because then we're gonna look for properties that don't require $150,000 upfront, right? Like, you can still do these things at a smaller budget. You just have to be really careful with how you do them and what you're looking for, right?

So, for instance, looking for, like, the small luxury house, right? It might be something that somebody with $50,000, $60,000, $70,000 has to do. I made a post on Facebook about this yesterday. I think we're going to see a lot of listings drop off the market as design becomes more and more and more important. I think we're going to see arbitrage fall off the grid because nobody in arbitrage is going to spend $80,000 in design. They're just not going to. If they had that kind of money, you know, upfront, they'd be buying property and not doing arbitrage.

And so, I think we're going to see them continuously get pushed down the rankings and the ratings, and we're going to see owners come up in the rankings and ratings. So, I wouldn't be surprised if we did see actually some decrease in listing inventory over the next couple of years because of that.

Jeremy: Yeah, and I do think that there definitely has been an oversupply of the one- and two-bedrooms, probably from variables. Like you said, people want to get into the game, they don't have as much money, so they can arbitrage a one-bedroom or two-bedroom apartment. And I would say that is part of my portfolio, and that part of my portfolio is definitely feeling the most pain.

I mean, we’re still heading into high season here, but, you know, definitely January through April, and then not the high season or the cash flow that you might see online. And definitely the folk posting about that stuff online with the one- or two-bedroom apartments, they're probably not sharing the whole picture. I'll be honest with you guys.

And I think it's, like you just said, because, you know, it's kind of been popularized online. And, you know, people with less money, what are they going to do? They're not renting a six-bedroom house where they have to put $30,000 into furniture. They're gonna rent a one-bedroom house. But then, what's 10 other people just like them gonna do? So, I think that's really interesting you touch on that.

And, yeah, that is something I will say. Again, my smaller apartment units, I don’t have that many of them because a few years ago I was like, "How do I want to construct my portfolio?" And that wasn't what I thought would be good long-term. But, yeah, guys, they're definitely feeling pain.

So, one tangible tip, be cautious, unless you're gonna really, like you said, differentiate your one- to two-bedroom properties, which is going to cost money. So, really insightful point.

What other—you know, while we have you here, I guess, if you're gonna think, like, what is the most—well, I'm gonna ask you two questions. I'm gonna say, like, "Give me a huge tangible takeaway for anyone listening to this." You know, you have so much knowledge, you talk to so many people—just spill it. What's—spill the beans on short-term rentals. Let them hear it.

Tyler: So, I think, for me, it would be: If we're looking at unique properties and we want our properties to be above average. Then, don't go into software and simply look at a number that an algorithm spit out that's an average. If you want an above-average property, why would you look at an average of what other properties are doing?

You have to go out, and you have to find the specific comps that actually reflect your property really well. And then, you beat those comps, right? Figure out what you can do to beat those comps. And if you can't, then you walk away, right? But a lot of times, we can. And we can, we can figure out how to beat those properties.

So, for me, that would be my number one tip: Dig deeper into the data. On an investment decision I'll spend 45 minutes looking for comps before I'm even like, "Okay, this might be worth checking out and going to see," right? And that's just the very start of the process there. We do that for our clients as well.

Jeremy: Yeah, and just context, guys. So, Tyler is a BNBCalc power user. He's also been hugely influential in, like, the design of the product because he's someone who runs the numbers so often that it makes sense, obviously, he's going to have a better idea of how it should be made. But that AirDNA number on BNBCalc, the AirDNA revenue estimate, that is that 50th percentile number that's pulled from AirDNA.

So, just for those of you guys listening who are also BNB Calc users, understand that's, you know, what he's talking about, that is that average. So, you gotta go, you know, AirDNA if you have it and pay for their subscription. Or, what, you can go to Airbnb too and also start playing around and get an idea, right?

Tyler: Or call me

Jeremy: Or call Tyler—make it easy.

So, okay, so your pro tip—your pro tip is: Find comps. You know, don't just rely on averages.

Tyler: Yeah, yeah, exactly. Especially when you're gonna—if you want to be the best property and you're going to go into a market where the standards are really low, like Asheville or Western North Carolina, which is a big benefit to investors, that the standards are low, then why would you want to compare with Grandma and Grandpa?

Yeah, I was on a podcast earlier, and she said, "It looks like Grandma died in the house." And I was like, "Yeah, it was exactly right," right? Like, the beds are dusty. Yeah, it's gross, and still, people are renting it. So, how hard could it possibly be to beat those people?

Yeah, I would look for professionally managed, photographed, designed comps, and just make sure that you're gonna do better than them, right? And it's not that hard. If you go into areas like Western North Carolina and Kentucky. Myrtle Beach, for instance—Myrtle Beach was just—I read an article earlier today—the dirtiest hotel rooms in America.

Jeremy: Ayy.

Tyler: I saw that, and I was like, dollar signs in my eyes. Because what I also know is they've got some of the worst short-term rentals in America as well. They're, like, gross. You know, it's almost all property-managed out there. I think when Aaron and I ran the numbers, it was like 80% of houses in Myrtle Beach were property-managed by local property managers. And, you know, they're not doing a good job. And so, for me—dollar signs. If I can come in there and do what I do in that market, it's going to be really, really interesting for me.

Jeremy: Gotcha. And guys, when he says this, it doesn't mean you're—you know, he did mention earlier, like, paying more for design, but that also could just be putting more effort in. You know, if you're doing it yourself, go on Facebook Marketplace, go on Craigslist. Like, find less expensive furniture but just do a good job. You know, you have a friend who's got a good design eye—get their opinions on things.

For guys, I'm gonna be honest, probably means talking to a girl. Like, I don't think—I'll speak for myself, you know, that's generally the approach I take. Let's get some girls' opinions on things, not guys' opinions. So, that's really interesting.

So, all right, yeah, pro tip. So, I'm just trying to kind of take away some tangible things, which is, you know, for you, it's just, you know, look at places with less competition. It's: Beat everybody on design. Beat them on design. Beat them on competition. And big houses.

Tyler: Yeah, exactly.

Jeremy: Yeah, yeah. And also, hit you up. And how could they do that?

Tyler: Yeah, so shoot me an email. It's Tyler@savvy.realty, S-A-V-V-Y. We'll get you in for a call, whether it's in my area—North Carolina, South Carolina for Myrtle Beach, Kentucky, the entire state, Red River Gorge, Mammoth Cave, Urban Trail over there, and Gatlinburg, Tennessee, as well.

Tyler: Beautiful. Awesome. Well, Tyler, thanks so much. Thanks so much for coming on. Definitely need to have you back as things continue to evolve, and, you know, you can share your insights with our audience. So, yeah, I hope you guys enjoyed, and, uh, until next time—thanks for coming.