99. What is the 15% Rule? How to analyze an Airbnb/STR investment

We serve as a hub for connecting with fellow members during our sessions so you can share successes , ask questions and keep the momentum going .

And today we are going to be diving into at least for the beginning portion of this open session what the 15% rule is as it pertains to Airbnb's and how you can use that to rule out some short term rentals and weed through properties quickly .

So last week we jumped into the 1% rule and how that pertains to long term rentals and whether or not that's even feasible . In Atlanta we showed you some examples of how you can find that and how you run the numbers in that for long term rentals .

And this week we're going to be diving into the short term rental version which was foreshadowed in last week's call , and so we're going to dive right in from the beginning and then we're going to open it up for the open session .

But to kick this thing off , when you look at rules of thumb , I try to break down the investment buying experience into two phases . There's a phase one of due diligence and there's a phase two . Phase one is that high level due diligence that you do before you actually put an offer out on a property to see if it even makes sense to pursue that property .

And the key to that phase one is to have a way that's tried and true , to rule out a lot of different properties so you can find the ones that are worth pursuing , and then , after you get it under contract , that's when I believe you should move to that phase two .

There's a lot of investors , especially newer investors , that I work with and the Kaba Home Realty Team works with , that try to do phase two in the beginning and what it can lead to is burnout .

Right when you're looking at a thousand properties and you have all these options and you want to run the detailed numbers on every single property to see if it works , believe me , you're going to make it probably about , you know , a couple of weeks , and then it's going to be like , hey , overload , information , overload , and so we try to break it down into

simple rules of thumb that work to where on the back end , we know , hey , this is going to be a 90 plus percent chance of being a good deal if it meets this rule of thumb or comes close , and then kind of move forward from there and so , digging into that , I'm actually going to show you an example of what I mean .

So this is how I personally go after properties as well , and I'm going to share my screen and show you a property that we are hopefully going to have under contract tonight . We should hear back , probably during this meeting , on this offer we put in , which was pretty competitive , and , after talking to the agent , I believe we'll get it .

But so we're going to share this screen I know you can see my screen and so here goes a property that we actually have an offer on now . It's a four bed , three bath . It's pretty nice , right , when you look at the pictures inside . It's recently renovated , pretty good space , all the things that you're looking for in a short-term rental , right .

It even has some backyard space , so you can do something unique back there . But the key for running the high level analysis and the 15% rule is plugging this number into AirDNA , right , and for those of you who do not have access to AirDNA , biggerpockets actually has the light version under their tools .

If you click the AirDNA piece , you can plug in the light version of AirDNA , and so this house is a four bed , three bath , and so you want to make those adjustments to a four bed , three bath , and then you want to add two guests per bedroom .

Now , you can definitely do more than that , and there's some individuals that will say , hey , you should do two guests more than the than the two guests per bedroom , so maybe 10 guests . But when we're running numbers for our clients , we want to stay conservative .

That way , you know , there's only upside from there , and so we stick to two guests per bed and then we kind of plug it in here . Now the cool thing about this is when you actually have the full version of AirDNA , it will show you all the numbers , right .

So I'm going to go to AirDNA , because I do have the full version that we utilize with the team , and so when we plug that same property in over here and not only gives you that annual estimate but it'll also give you kind of the other properties that are around there that are affecting that annual estimate and breaking up the numbers .

So we're going to go four bed , three bath , eight guests update , and so we came out with 64K right , and you can see where it's pulling from .

There's a couple properties over here that are kind of pulling in a bit more and some smaller properties pulling in less , and so this AirDNA number within the Acaba Home Portfolio has been accurate plus or minus 5% across 25 properties that we manage right , and we've gotten better with the designs , we've gotten better with the way that we manage , the way that we

upsell , the way that we kind of market our properties and get people reoccurring and coming back , and so , long story short , this projected revenue number is what we use as your annual revenue . It already factors in the vacancy amount and it factors in what the average daily rate can be .

Now this can be a little bit confusing , right , because if you're doing this right , you should be using a dynamic pricing software that's gonna adjust your pricing up and down right , depending on low season , high season , et cetera .

But it's saying that this average daily rate at this occupancy percent , this is what you can expect and this is what it believes you can pull in .

Now I trust AirDNA because they pull from over 10 million properties in the US and they zero down in different areas and different neighborhoods and pull from other properties that are active in that neighborhood until it's pretty accurate . And so , taking that number right and using the 15% rule , what we would do is do 64 divided by 369 .

And this gives me 17.3% . Again , what we're looking for is 15% or better . At this rate . This is one where it's a no-brainer hey , let's go put an offer in this property and see if we can get it under contract . That is phase one underwriting . Now let's say that we are successful in getting this under contract .

The next step during due diligence is phase two underwriting . Phase two underwriting is when you run into the detailed numbers and you start plugging in all the other factors that come in . That's when you start pulling back the onion right , doing your due diligence and making sure that the steel is gonna work out in the end .

And so , with a phase two of due diligence , right , that's where we would plug it into similar to last week , the bigger pockets calculator and we would use the rental property calculator where we can do a little more detailed of analysis , right . So here goes the rental property calculator that I like to use . Purchase price we got it at 369 .

Closing costs we're gonna say closing costs is about 12,000 , even though with this one we're able to negotiate a bit but we'll call that 12,000 for closing costs . We're gonna do this like a traditional investment . So 20% down and then interest rate we just help somebody close an STR recently and that was like a 8% interest rate .

I think it was like a 7 , 9 , but 8% interest rate . We'll call it and then this will be a 30 year loan term . Now , the gross monthly , this is what you would get for a long-term rental , which is significantly less right , but for a fully-furnished short-term rental remember we were pulling in that 64,000 number divided by 12 , that gives you five 333 .

And then we come down to taxes . This one I leave in it's pulling it from the actual tax records . And then you want to go to insurance For this house . I would estimate 150 monthly . I've seen better . I've also seen a spot on with this .

You do need to start calling around nowadays on the insurance piece , because if you just call one person it could be crazy , but around 150 is where it should come in . Now , repairs and maintenance is interesting on this right , because with Airbnb and short-term rentals , if your guests mess something up , you can build that back to your guests .

That being said , I still put in 5% here just for other types of repair and maintenance , things that will pop up like changing out filters and things that nature that you you're not going to build to a guest . And then for CatX .

This home was redone top to bottom , but I just have a habit of putting in 3% for CatX just to account for it over time , right .

And so these are variable costs that are not actually going to be coming out right now , but it's quote-unquote being put aside , but it's really getting put aside inside that same account to make sure that you can cover , kind of any of those type of expenses that pop up .

We're going to leave the management blank for right now , because I want to show you , with management and without , what that looks like . And so we're going to leave that blank .

If you're going to manage it yourself and say that you're using software and things that nature For this home , that size of home , for electricity , probably looking at about 150 per month , for gas , shouldn't be more than about 50 a month . Water , if you're more than about a hundred a month , that would be an issue .

And then here goes where it differs a little bit , when you start breaking down the actual major cost .

And so when you look at running an Airbnb , the biggest cost , two biggest costs one is going to be management , right , because management companies can charge anywhere from 18 to 30 percent and so really you know , if you're trying to be fully hands-off , that is where a lot of the profits going to be is in that management company .

Now you should still be able to at least break even or make a little bit more . But if you're paying management and paying cleaners , that's a good 40 to 50 percent of revenue potentially right there . And so with cleaning , when you look at the cleaning piece right , we've gotten to scale and been able to lower our cleaning costs significantly .

But for a four bed , three bath if you're using , you know , just one property , I believe we were paying about two , fifteen per clean at that time and I average it out to about four cleans per month . There's sometimes we're gonna get people that are booking for two weeks , booking for a month , but for eight months . We've had a couple of those .

But on average , if you factored out throughout the year the longer bookings and the shorter bookings , you're gonna have about four cleanings per month . And so two fifteen times four would be eight , sixty per month . Another figure you're gonna have is landscaping . Right , for a house like this it should not be more than 75 a month because you're gonna be months .

We're not even doing landscaping , so maybe we bump that down to sixty a month , right ? We just actually we just started doing landscaping again this month , but we were off from like November because the weather changed and we didn't need to do that For pest control . You're definitely gonna want to have that in Georgia .

We'll call it about fifty dollars a month , and then for your , your , your software fee . So software , right , this is gonna be like the hospitals of the world that you use to manage . This is gonna be your ring protect subscription . This is gonna be your , your dynamic pricing subscription .

I usually put that at about a hundred dollars a month when you factor all those together as to what you're gonna be paying for that piece .

And so we got the pest control software , landscaping , cleaning cleaning is really the biggest piece here , and so we're gonna go ahead and finish the analysis , and so , when you finish this piece right , you get your cash flow number of 1096 and it just so happens that the cash on cash actually equals 15.3 .

It typically doesn't work out like that , but , long story short , that 15% rule is to rule out a lot of properties that may not make sense . Typically , if you're hitting above 12% and you're 12 to 15 . That could be a good property , depending on the neighborhood .

Like I've bought properties that hit that that were a little bit less than 15% because I like the property makeup ie it was a fourplex or because I like the neighborhood and believe , hey , over time this is gonna appreciate and I really like this neighborhood to hold this property and be able to build that equity .

But for first time , short-term rental buyers , we try to stick closely to that 15% rule so that you have the best opportunity to be successful and you're not trying to quote unquote set the market .

Well , for me , who's been doing it for a little bit and has a bit of experience under the belt , definitely have been trying to set the market in a couple places , but you can see that with all these numbers , that puts you at 1096 and that includes putting aside $426 for your eventual maintenance and cap x expenses .

So this number is really like a little over 1600 , which is awesome . Now , coming back to that management piece right , I mentioned that companies can charge you anywhere from 18 to 30% . The a capo home str management team charges 20% , because it was never my intention to actually build a management company .

I was , I was just managing my own and then a couple others and then got super busy . I was okay I need some help , until we built this thing out and it grew from there and so we charge 20% and you can see how , with that 20% management fee , that's essentially the cash flow , right ? So you're still breaking even quote , unquote and really making about .

We call $500 a month if you factor in the CAPEX maintenance that is just set aside but still in the account , but paying for management and then also paying for cleaners , that's a major expense within this piece .

But again , once you set up your systems , this could be the cash flow that you're bringing in , which is significant compared to , you know , the good old days of long-term rentals where you could expect to bring in , you know , about $75 to $100 per door per month and be happy with that .

To be able to bring in $1,000 a month right on one property is incredible and that's why a lot of people are shifting to that STR method .

But I hope this was helpful , for you Wanted to take a deep dive on these two things , because we get questions on this all the time and , selfishly , you want to be able to send a video to somebody and say like , hey , this is exactly what we're talking about . But with that in mind , please feel free to drop any questions in the chat .

I'm missing my co-pilot today , leibon , but he's going to be back next week . But any questions , feel free to throw it in the chat and or join live , and I hope this was helpful and more of a deep dive compared to what we had before . Aj , how you doing ? What's going on my man ? How are you ? Super good , are you down to be my co-pilot for tonight ?

But obviously , because the 1% rule is a thing , I know the 15% rule is also a thing and I believe we tried to use it also with my current house hack that I'm in right now . So I'm house hacking and I have kind of like a basement slash inlaw suite .

It's a one bed , one bath , really small or not like really small , but it's suitable for one or two travelers . We've actually kind of transferred it into a midterm rental because we also live here and we prefer less foot traffic .

So if we just have someone we're comfortable with and can kind of get used to over some time , that's really been working out for us . But I say all that to say we initially analyze it as a short term rental . We use the 15% rule . So I'm really excited to kind of dive into this .

I ask some questions and just kind of talk about this as it relates to just rules of thumb and trying to figure out and analyze different deals .

And the reason why I know this is because my wife she spent the past two years being a travel nurse . I work remote so sometimes I would actually travel with her , which was really cool . We got to visit different places . One of my favorites was actually Charlotte and I got to know Charlotte really well .

So while she was out doing her travel nurse assignment , we stayed out there for about six months . I was working from home doing my thing . We were just kind of raking it in and that was kind of a way for us to fund our deals that we currently have . So if you have that dynamic , definitely try to tap into that .

But I say all that to say my wife she pretty much kind of knew that realm of it which helped us out . So we use Furnished Finder to procure our midterm tenants . We also look into Facebook groups . So just join kind of some travel professional groups .

There's a ton of different groups , that where people are searching for housing and there's groups where landlords like myself are looking for tenants to fill the vacancy .

So those are the two main sources where we try to find our midterm tenants and we really like to be flexible in the event One or the other isn't working out so well or maybe one is just knocking it out the park . But for our house hat currently we do like the midterm tenants .

It's really easy going and I'm actually smiling from ear to ear because today we found a potential tenant to move in at the end of this month . We've had a tenant stand here for about six months and she's been amazing . So she did the first three months . She's a health care professional .

She ended up extending her contract for an additional three months , so I was like that's great , but now her lease is coming to an end . So we were kind of like scrambling around trying to figure out who else can we get into that unit . But we actually just checked on a furnace finder this afternoon .

We got an inquiry come in and it's not official yet but we're getting close to it . We sent off the lease and we're really close to assigning her and she's going to do a three month term and just kind of keep pushing it forward from there . So that's where we're at right now .

And so how were you winning these deals ? Because I see some of the messages come through and if you're not there first , I mean that person could be gone right . So how were you securing these tenants ? Are you hopping on the phone immediately ? Are you messaging back and forth ? What are you doing ?

My wife she actually jumped right on it so we get notifications anytime we have a traveler interested in the area and it matches our property criteria . So she's submitted a request on FurnaceFinder . It matched our property description and as soon as we got that inquiry we jumped right on it .

So there's a few different ways you can reach out to a tenant but it all depends on the mode of communication that they prefer . So when they send out the inquiry they'll kind of list that if they prefer being reached out via email , furnacefinder or text . This perspective tenant prefer texts , so we love that because that's direct to their phone .

Everybody has their phone text calls , things like that . So she actually just sent the text straight to her and she was really responsive . We sent a beautiful video of the property shot to just to par . Him got my nice photos and my videos ready . So I have a really clean video that I sent to all my prospective tenants .

If they're interested in the property , it shows the entire unit from top to bottom and then from there they can kind of make their decision .

So it's best to kind of jump on those immediately as soon as you find them , because , like you said , it can be more hands-on and sometimes tougher when there's a lot of different hopes offering midterm units in the area .

You know you can Photoshop that , it can change the lighting , but a video is like , hey , this is exactly what it looks like . This is exactly what we were getting into . We have a question in the chat , but I also have a question just before that .

So when you commit to the midterm rental game because this is something that we've had a couple of issues with , right , we're doing a little bit of both , and there's times where we got a midterm renter who's like , hey , I'm ready to get signed up . And then we look at the calendar and it's booked out like a week in this month , a week in that month .

It's like , hey , can you work with us ? Listen , I just want to stay one place , and so did you completely take it off of all the other sites and focus on that midterm rental piece ?

But we just did that . Maybe like yesterday or two days ago , we haven't received any bookings . So now that we've got serious interest from this new prospective tenant , now we're going to go back to just kind of blocking it off .

So if you have a midterm tenant , either prospectively or definitely if you have one currently , I recommend just blocking the calendar off in the future so you don't have to worry about double bookings or having to cancel bookings , because , especially with Airbnb , you can really be penalized for that .

So you have to kind of look at it as different tiers , right , obviously for year leases and longer , so maybe 12 month leases or 15 month leases , that's going to generate the least revenue in terms of on a monthly basis . Then you take a step further up in the ladder , I guess .

So if you're going long term rentals , then you go midterm rentals , right , that's on a monthly basis , but these people are only staying maybe a month , two months , maybe three months , right , you can kind of upcharge a bit more than a regular traditional 12 month lease .

Then , once you go to the short term , you're charging it on a nightly basis , so that's more premium and so on and so forth . So you kind of have to find your middle ground .

I don't think there's really a rule of thumb that I have per se , but you kind of just have to know your property , know your area and fall somewhere in between a short-term rental , nightly price , the sum of that for the entire month and also a traditional 12-month lease which you would be charging on a monthly basis . So that's what I would say .

And so I've had individuals . You know we've managed for a lot of different owners . I've had some owners question like hey , you know , is it worth taking this month long ? Like , listen , you're paying about $600 , $700 a month in cleaning . Yeah , we should take this month long and keep it moving from there .

Right , and it's just a mind shift from that standpoint . But , Robbie , how you doing , man , I'm good . What's going on ? Not much , not much . What's new in your world ? And do you got any questions for AJ ?

But I was also thinking that you know , if this I don't know , if that's something that you know the different short-term rental sites actually you know will just accept , or if you you know , because I don't at the end of the day , some of these you still have to go to the guest .

You know to get your refund if you're on Airbnb , but you know , obviously , if somebody's coming and you know you can show clear proof , I don't know if that would be enough for Airbnb to actually reimburse you if the guest refuses or you know . I just curious about that whole process , something I've been looking into .

So I was just curious if anyone had actually had any experience with it .

It's like to the point where it's like , hey , we need to move this away from STR or something else , so where neighbors are calling you middle of the night to say , hey , the light in the backyard is on , literally like this is what was going on . So , some long story short , we're not managing that one anymore .

We moved that to a long term and said , hey , you know , but we did use it at this property that was right on the belt line . Right , like literally on the belt line . You can see the belt line from the front step of the property and the minute system is amazing , like I highly recommend .

If you want to put this into properties where there's shared walls , right , I haven't had to do it at the foreplex yet , but it was also a thought in my mind . I just , you know it costs like a hundred or something dollars and there's like a monthly fee or whatever , but basically it looks like a smoke detector .

It plugs to , like the top of the wall anywhere . The battery will last you for a year and it can sense , just by , like , the ambiance If there's a crowd of people in a place .

It can also detect smoke and it can detect noise , which is the most important and what I love about the minute system I'm going to sound like the sales rep over there , but I really do love it is it syncs with a hospital and it takes the guest information , and so we had a couple instances at that belt line property where it was getting loud and there was

one crazy like 420 party that was nuts Like . This was actually nuts it was like . But long story short , what it does is it will .

If it gets above a certain decimal level that you set , it'll automatically use the guest information and send a text message to them like , hey , you need to turn it down , you're reaching extra threshold , and then it'll send another alert and then it'll start like alarming for them to turn that sound down .

And so it's a way for you to not have to stay up all night and look at the ring cameras and listening in and say , hey , is there noise ? And send the message . It'll do it automatically for you and typically it never got to that third level after we installed that right .

Once people got that first or second alert , the volume came down and then it will alert you of somebody smoking as well . It can detect that .

When you go back to Airbnb and you want to , like , if you want to actually get someone to reimburse you for smoking or if you have , you know a situation where you have two units next to each other and you know that could be an issue with the other guests or whatever , do they does Airbnb like take that information from that minute system and actually like

accept that as damages ? Or is it just the same process ?

You see the cameras , like it's like why are 15 people showing up to the house , right ? And so we use , like , the rain cameras . But I'd be interested as well . But I'm not sure we didn't use it for an Airbnb submission .

Right , it's that type of deal and it worked . You know , once we installed that piece Interesting . Okay , desmond , how you doing man ? Well , something man hanging out . Hey , come on now . Never wrong with it , nothing wrong with it , anything , anything new in your room .

But I really want to make sure , like that's nice and tidy and that the cleaners know like hey , like this is going to be your responsibility to keep this nice and tidy .

So , yeah , just kind of making sure the systems are tight , right , going through the same , what I'm sure is going to be the same , kind of reminding the cleaners of what the standard is going to be right For the unit .

And I think that that's important when they first start out , right , like I think it took probably a month to where I felt like I didn't have to go in there every time after them , right , and check to see , oh , like one , are things clean , right , like that's obviously number one .

But also , are things laid out in the way that they are presented in the instructions right ? Because I have the QR code and the cleaning closet . They're able to scan that and kind of see what the layout should be . And that's important to me because that you know we've taken time to think about that stuff .

So , like I want it to look like that every time and I also want it from the beginning .

I try to make it feel like , oh , you know , for every guest , hey , this is going to be like the first time we're doing this , right , because , like the very first guest , it was like perfect , like very neat , right , and I want to try to kind of keep that same standard .

So just going through that , you know , with this new short term and Trying to start thinking about taxes after that and pivoting to , like you know , accounting stuff and getting the books together and pan down the credit cards and , you know , trying to Slowly start digging out of the hole with other people's money .

And oh , complete side note , I did another cost seg on that for unit right and because I split it half and half half , str has long-term rental they're giving back a significant amount of credits on this cost seg . It's gonna be upwards of a little over 150 for one property and so that's gonna be well worth all you know .

You know the renovations and things that nature . So cost aggregation worth it . If you're doing strs , karim , how you doing on .

I expected more like opposition or pushback for like the whole concept and they were surprisingly neutral To to have an it sublet . I'll putting the paperwork together right now . Not sure if we have time to go . I wanted to show you the numbers and get your fame . Not sure if we have time . If Absolutely .

I ?

This is what it looks like on Google , right ? So I plugged in the numbers here . It's a . It's a poor bedroom , blah , blah , blah . Two bath , three common spaces , and I assumed 2000 per bedroom and I assumed 1500 per common space , which is like a deck and a living room .

So this is mainly what I wanted to share with you guys and see , like , if this is realistic or Should should I ? I change the numbers and then we move into , like the , the average nightly rent . This is the all these information . This information is from from our DNA anyway , so it's I have little control over that .

But what do you think about the , the initial like out of pocket ?

Aj Robbie Furnishing cost .

She picked up all the stuff , got all the design in , got it all set up in like a month and it was 17 yeah .

I mean that that needs to maybe to be bumped up a little bit to include a designer and like the IT setup , you know , the cameras like all that , all that type stuff . So I mean personally no good .

I was able to hire an interior designer and I think her total cost for Going out and the things that an interior designer they're gonna do , they're gonna go out , basically go shopping for all the stuff for you , throw it in the car and then you basically go and buy it , but she put together like an entire 3d model of the entire unit .

See if you can try to find somebody like that . If you can't , maybe I can give you a contact because , like I said , this person really did a lot for me , but her total out of pocket cost was like $1400 . It was just like dirt cheap . I know Robbie just mentioned like 17 grand .

Now , granted is Likely a huge discrepancy in the in the spaces I was furnishing , only like a 900 square foot Apartment , where's I don't know how many square foot that Robbie's place was , but again , I would recommend it . But just be aware that you know they are relatively costly , depending on who you can find .

That's just kind of what I want Just put out there .

I think minimalistic design right , so Little , and I think the guests have noted that they like that right , so like that's my , that's my thing .

Now , I think when you have a bigger home at least what I've seen and like I heard in the strdl app podcast , which I would recommend I think Air DNA publishes that it's a good podcast for like strdl and stuff but I think like they kind of tell you right , like it really just depends on like the size of your place , right , so I think you know what you're

targeting can really affect your cost . So I think , before a four bedroom , like a lot of these places are like much nicer and like they have like a lot of these places , they'll have like games and stuff you'll see on the walls or they'll do you know , pool tables or whatever it might be right , just things to make it a bit nicer .

When you had that bigger space , I think you're appealing to families and folks like really trying to come in and like , I guess , beyond vacation , I have fun , so that can affect your cost .

But I think , man , if you're able to take this thing over and get it up and running before the football season , like that's going to be incredible because that team is still cooking . They're very close to the championship again .

When you talk about , like , if an HVAC breaks down , right , is that going to be on the owner and what's going to be their overall oversight ? Can they just walk on the property at any time , or is it 48 hours notice , desmond ? Am I missing anything here ?

Two , who's going to fix major repairs If the HVAC or the furnace goes down ? Is that on you , is that on the landlord ? And Desmond , I know you have experience with this . Anything missing there ?

Because that came up in my arbitrage deal , where you know the fridge , the tenant had mentioned what's going on . I'm like I'm not going to fix a broken fridge , right , just so we can be kicked out in a few months . So that's important . The landlord showing up , I think is important as well . I'm trying to think like utility payback is important .

So that's something that I ran into right when , like , the guests had already left and I didn't really realize that there was still a utility bill that I was going to receive because of the way the statement works , right .

So like there was a bill that came the month after but I had no money from the tenant , so I couldn't , I wasn't going to go back to them and I tried to and they were like , yeah , whatever , right . So I think having some sort of like security deposit or some sort of deposit baked into your lease , even though you know , right , like well , yeah .

I set a $1,500 range for me to act on my own , like I don't need their permission to fix something up to $1,500 , and that they will have to reimburse me for that out of the rent or separately , just so we can like keep the operation going and we don't have to pause the operation if , if something small breaks down .

So I have permission to fix small things up to $1,500 . And then they will have to reimburse me and then basically , we discuss it . Anything above that it's going to go like a major plumbing issue , a major electrical issue , a major appliance that goes down . This is going to be treated just as a long term rental would be .

So that's , that's a clause in the addendum .

On the phone , though , when we're having a conversation , I explained to them that with short term rental , there's a lot less wear and tear on on on your appliances and on the on the unit , generally speaking , because when , when you have someone long term staying there , they're like they're living there every , every single day and you know they , they put this ,

they they put wear and tear like on the windows , on the doors and like there's opening and closing and like people living their full life . In comparison to short term rentals , it's kind of treated as a hotel . So most of the time folks are actually outside and they need to play . Most of the time they just need a place to sleep , essentially .

So I verbalized that . So they're they're calm . I didn't get any pushback or any red black Again . I mean , my application hasn't been approved yet , so it's , everything is still up in the air .

But like , like the the tenant had left right and I had them on a midterm lease , but I had trusted them and I had brought them from my property , so I didn't have any , I didn't have any security deposit .

So I think , even though it's midterm and it might feel weird to like have a deposit , that's important to do so , like not just , you know , oh , you know it's slow , I'm just going to try to get this money in , like doing things right , because I definitely got bitten the ass .

Are you just just being safe with that or are you expecting it to be 40 , like in the 40s ?

It only gives me the gross annual income that I should . That's really the only number I try to pay attention to and from that I deduct the cleaning fees and all the other fees . I estimated the cleaning fees at 150 times six times a month . Is that a realistic estimate ?

I'm going to do six because there's going to be some months , especially low season , where there's less cleanings , right , where you may get somebody in there for maybe a month , two weeks , but it all math out so for cleaning maybe you bumped that up to like 820 .

But all in all , like the numbers work out in the steel , just because the revenue coming in and it's starting to make me think maybe I should get something in that . But no , this , this looks pretty good .

So to me that's sounding like maybe that's more of a premium home , you know , with rooms that are a bit nicer , have more decor , and you know , I don't know if 2000 per bedroom will necessarily do . That could be wrong . Yeah , yeah you see what I'm saying , just kind of you know , if that's a , that's a high nightly figure or rate .

So you might want to play around with the input to end up commanding that , that high nightly rate . So that's all I would say , other than that Looks like you're doing due diligence , so best of luck to you with this one .

The call seg that you did , right , where you're getting the 150k that you're taking advantage of this year , right , that's depreciation , that you're basically like celebrating taking advantage of this year , right , and I'm just trying to understand how does that , like you know , concretely affect your taxes ?

Like they're not going to write you a check back , right for that amount , but it lowers your amount that you owe by that , you know by that much . So kind of Walk me through that just a little bit . What is the ? Are you getting the difference of that as a refund or how does that work ? I wish that would be incredible .

I played this Drake song where he's like six figures when they tax me and I felt it . I felt it and I cried . But , long story short , I know you're down bad , right , yeah , but it allows you to reach for a good portion of that .

So let's say you make , for even numbers , 500k with even a W2 , right , if you have the cost segregation on a rental property , right , and now that you've moved out of the other one quote , unquote you could do it on the other because it's more than half a short term rental property . Right , it will count against your income .

And so say , the government's taken 40% of your 500K . That will put you at 300K earned . Right , they're taking 200K If you used that , 150 , right . Now they're taking 40% of 350 . And so 40% of 350 , I'm not good with that type math right now .

But long story short , that difference in delta of what you were paying is now yours because the government's not taking it . And so the first time I did one of these cost segs , which was last tax year , I actually ended up getting a refund check for the first time in like eight years . It was amazing . I got money back right .

They were like , hey , you overpaid , which was pretty cool .

And now this year , coming in as a tax professional status , along with the other cost seg that we just did , in kind of calculating all those together , it's probably going to make me a net zero or a loss that can carry forward to the next year and the next year , and so it allows you to actually earn income and write it off .

Same thing when you look at buying all the furniture for a pure STR right . When you're buying all that furniture , you're operating a business , and so that could be 80K and losses , quote , unquote , and so you can earn 80K and they offset each other , right .

And so now that 80K is just pure cash in your pocket and then it becomes earned , does that make sense ?

And that's why individuals like the Rob Abbasolos of the world , the Donald Trumps of the world , all these real estate tycoons , don't pay taxes because they're buying commercial assets and this comes from the commercial field . It's just with shorts and rentals , they allow it to be commercial because it's like a hotel . That's how they're not paying taxes .

Like that storage deal that we got . That's all depreciation as well . Now we could write off all this money that we spent on it . Same thing with the townhomes and all that stuff . That's why you see the big bigs getting into all this stuff , so they can save the taxes .

But if you're doing , if I'm using and this is how they explain it to me , because I'm using half the property as a short term and half as a long term they could do a cost seg on it either as a short term or as a long term . They decided to do it as a short term because the benefits were better for me right now , and so they just cost segged it .

They sent me this whole report that is IRS proof and was able to save me significantly on the taxes for this year .

Justin Parham , Congrats on the newborn baby . We know you're going to be out of commission for a little bit , but we all appreciate you and we look forward to meeting your daughter here in the coming months . All right , y'all , I will catch you later .