[00:00:02] This is Short Term Rental Management, the show that is all about short term rental property management with your host, yours truly, Luke Carl Edit Short Term Rental Management with Long Hair Luke Carl Cash Flow Carl, the long hair extraordinaire, the shaman of short Term rental.
[00:00:26] And today we're going to talk about what happens when a property is not making money. Oh my goodness. I bought a house and it's losing money. What do I do?
[00:00:37] Well, we're going to talk about that on Short Term Rental Management.
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[email protected] that's sdsplus.com not making money. I bought a house and it's not making money. I bought a vacation rental in a mega market and it's not making money. I bought. I bought a short an Airbnb in Toledo, Ohio and it's not making money. Look, my house isn't making money. It's not something that I am unfamiliar with. I hear this fairly often and of course there could be any number of reasons as to why this is going on. Long story short, it is income versus expenses. Okay, so did you buy this thing in 2021, 2022 for ridiculous amount of money? When I say ridiculous, I mean like the most amount of money it was ever going to be. Until it is more someday, which will happen with a high interest rate. And maybe your note is kicking your rear end. That's possible. And I will come, I will circle back to this. But it is rents minus expenses. So you either got to figure out how to get your rents up or your expenses down. Period. That's it. End of story. Okay, now I will say that most of the time I get this question, it's from a new person and they have been renting for like two months or three months. I also see this a lot on new construction. I don't think that that is actually related, but I see a lot on new construction and I think that that has something to do with the buyer type. There is a certain type of buyer that likes new construction because they don't have to do anything, quote unquote, it's ready to go, it's beautiful, it's rocking and rolling, which is true to a certain extent. But I'm here to tell you that new construction has its ups and downs. It's not always perfect. You got all brand new pipes in there and there's a great chance that somebody did not hook up one of those pipes correctly or two, that dishwasher is probably going to spring a leak because nobody tested it, you know, all that kind of stuff. And I, I think the personality type that's going to sit there and say, oh man, my property is not making any money is the same type of personality that likes new construction, if that makes any sense at all, because I like new construction. I have purchased two new constructions, single family homes in my career and they were fine, but they did have problems. Two different builders, two different towns, each had their own quirks and problems. Each builder had their own quirks and problems. As you may see my drum set back there today. Pay no attention to the pile of birthday gifts behind me for my son. Happy birthday. Anyway, way off on a tangent there. I will say there's generally three reasons that I hear about most often as to why a new, well, anybody is not making money. Reason number one is the one I hear the most often is because they used a HELOC or some sort of loan, usually a HELOC for their down payment. Okay? And I preached about this before. You've got to be number one, you've got to be real careful with that. This is really not kind of the, you know, the economy we're living in where you want to do such a thing.
[00:04:36] To take money from, say, your primary home in the form of a HELOC and use that as a down payment on an investment property is dangerous. You got a lot of interest involved there. You have zero skin in the game other than your own equity. Okay? So which could be argued that that is your skin in the game. I get that. But if you're going to do the HELOC thing, first of all, tread lightly, be very careful. Second of all, in my opinion, and I've said this before, you need to be prepared to pay that HELOC back out of your day job money, your own personal finances. If you are putting that HELOC as a line item on your spreadsheet, as an expense for your rental property, that is not going to work. That is asking too much of that home, putting too much pressure on the rents for that home to produce day after day, and it's likely not going to Work. Now, if you're putting it as a line item, as an expense, and your goal is to lose as little money as possible, maybe you can find a way to be a realistic and make that work. I am not. First of all, I'm not going to do this strategy. I don't think it's a good idea. I think it's better to save up your pennies in the front end. And second of all, if you do it, I do highly recommend that you consider this HELOC payment as part of your own personal financial burden, not the property's problem. So much to ask. And one more thing here. You need to be running these numbers before you buy the house. All right, that should be the first thing I said. You need to figure this stuff out before you buy the damn house. It is not that hard to figure out how much a house is going to make. Everybody drives themselves nuts with all these data websites and these data companies. There's a million of them now, and I get it, they're great. But you need to be able to figure out how much money the house is going to make and what it's going to cost you. That is your job, among many other things, as a real estate investor, including closing deals, which is hard. I'm closing a deal right now. I'm under contract on a little property in the Smoky Mountains. Oh, it's saturated. It's saturated. Oh, my goodness. I can't. You can't buy. Blah, blah, blah, blah, blah. Well, bull crap. Luke's doing it. I'm doing it, baby. I've been. I have the house on air that's been on Airbnb the longest in the Smokies. That's my claim to fame. And I'm buying another one there right now under contract. Seems to be going pretty well. So I think we will end up closing it, kind of rehab it, and get it rented. And it hasn't been really that big a deal. I only shop for, like, a week. But anyway, too much pressure on the house to make it pay back the heloc. Now, I did want to mention, if you're doing a small purchase, you know, $150,000 home in a metro market, and you're doing, you know, a 20, $30,000 HELOC. Okay, maybe. You know what I mean? That's a little less crazy, a little less risk. I guess I don't really like that word, but I think maybe we could, you know, I could maybe be convinced for a small HELOC situation on a small purchase, but if you're he locking for a $900,000 purchase? Uh, man, calm down. What are you doing? What are you doing? Also depends on your position in life. If you're somebody that's making $500,000 a year, that's a completely different story than somebody who is using a credit card to buy their gasoline. Not that there aren't people out there making $500,000 a year using credit cards to buy gasoline for multiple reasons, hopefully to build their credit, but maybe because they're broke. It seems for the average Joe, the more money they make, the more money they want spend. We call it leveling up. Level up, level up, level up. Until you're broke again. But you got more crap. I'm living the American dream. Look at me, I'm happy. Look at all this crap I have.
[00:08:30] But I'm broke. I'm making half a million dollars a year and I'm broke.
[00:08:35] Not good. Not good. So obviously, massive caveat on today's program here. Short term, short term, real management. Your position in life, your net worth and your, you know, your day job and your debt. Net worth is and always will be king. If you don't know what your net worth is, you're not ready to be listening to this podcast yet. Go figure out your net worth. Time to be a big boy. Go figure out. Go. Wake up earlier. Wake up earlier and figure out your net worth. You will be successful.
[00:09:04] This episode is brought to you by the premier short term rental Facebook group, Short term rental, Long term wealth. We have nearly 50,000 members. This is the biggest independently owned and operated STR Facebook group and it has been curated by yours truly, Cash flow car. Join us on Facebook. Search the groups for short term rental, Long term wealth.
[00:09:28] That's short term rental, Long term wealth on Facebook.
[00:09:33] Look, check it out. Judas Priest shirt, man, rocking the metal today.
[00:09:38] My kids have seen Judas Priest twice before the age of four. My son, I don't even know if you know what that means. They're a metal band. They're awesome. Anyway, all right, second thing that I see most often, which I already mentioned, so it's really the first thing, but you get the point. Paid too much, got a crappy rate. All right, so using a heloc, making the property pay it back, that's number one. Paid too much, got a crappy rate. That's number two. Number three is I have no idea how to manage. My calendar is empty and I don't know what I'm doing. Which if that's the case, you need to join short term Shop plus and let good old coach Carl over here teach you how to do things. We'd love to have you. STS plus.com can use code podcast to save a couple of bucks. I'm going to do that. I'm actually just making that up just now, but I will make that pod that code before the end of the day. Okay. Sdsplus.com code podcasts all right, so when it comes to management, you know, I mentioned the noob thing earlier. A lot of that is the noob thing. A lot of this that we're talking about might just be that you're sort of so new and you've only been doing it for three months, so of course you're not making money. Okay. It can take you six months or a year to get into a groove, to figure out your calendar, to figure out your pricing, which is the most important gig. Okay? So maybe you're just so new that you haven't figured it out yet and you need to chill out. Had somebody message me the other day. She says, I'm very impatient. I want this thing to be making a bunch of money right now. I'm like, how long have you owned it? She's like, three months. I'm like, dude, real estate is 1,000% get rich slow.
[00:11:06] It's also for wealthy people. How many times I got to tell you? Buying real estate is expensive. It is so expensive. Save your pennies. Go slow. Eventually your real estate can buy your real estate or you syndicate, which is another podcast for another day. There is no room for syndication in single family homes. I've said it a thousand times. You want to syndicate, Go do a hotel. Hello? Anyway, I'm off topic. That's another podcast. So you've been doing it for three months, you bought 27 pieces of furniture that cost you a ton of money, and now you're not making money and you're complaining. Nope, we're not going to do that around here. We're not going to do that. You need to do your damn job, run your numbers correctly, and be patient. Okay. Also need to consider seasonality, which is another podcast I'm getting ready to release very soon. But there are times of the year when you will not make money. I don't want to preach on this too much because again, I just. I'm doing another show on the same exact subject. But there. If you buy a home in any market, unless it's a ski market or a deep south Florida market, if you buy a home in November, you can pretty much plan on losing money. Until mid March or April. It's just the way it is. How did you not see that coming? Okay, so keep that in mind. But that goes back to management. That goes back to pricing your property. And again, I'm doing another podcast on that subject. So you got the three most common things here. Guys, I bought a property with money that I couldn't afford. The heloc, I got to pay my dad back, whatever. And you're using a line item on your spreadsheet to pay that back from rental income? That's not gonna work. I mean, did you. Did you really run numbers on this thing and find that you were gonna have a cash on cash return with paying back $150,000 HELOC? Like, well, hello, it's probably not going to happen. Okay, Again, stranger things have happened. I don't know. You can. There's a billion properties in the world. Maybe you find the right one that. That works. I'm telling you, it's not realistic. All right, that's number one. Number two is you pay too much and you got a crappy rate. And, or. And number three is you suck at managing. Number three is the one you want to have. That's the problem you want to have because it's fixable. Hopefully you bought right, you used your own money out of pocket. And we're rocking and rolling, but we just are not quite there on the management yet. Not sure how to put S's in the seats. Probably pricing your property a little too high. That's pretty common. So number three is the problem you want to have. Okay, now back to the income versus expenses thing. There are ways to fix that. And a lot of times somebody who's a noob or is not doing this full time or not paying attention can suffer in this regard because they're not good at the expenses or the. Or the income. You're not good at getting the proper rents, driving the rents up, getting the rents where they need to be. And you're also not good at shopping around and finding better deals on expenses. Perfect example is insurance.
[00:14:11] I can't tell you how many times I hear stories about insurance that make me cringe. Well, they raised my insurance by $4,000. They raised my insurance $6,000 a year. Dude, that's a lot of dough. And guess what? It's BS when they raise your insurance by $6,000. And again, Florida, you know, hurricane season, all that. I live in Florida. I get it. There are crazy things that can happen in insurance. But in general, if they've raised your insurance, $6,000, $10,000. That is their way of saying, we no longer want this job. That's the equivalent of you walking into your boss's office and saying, I want a 70% increase in salary. That's the exact same thing as saying, I don't want this job anymore. And that is what your insurance carrier is telling you when they raise your rates by $10,000, $5,000, even $1,000 now. 1,000. That's pretty common these days with inflation, et cetera. Yes, I just said these days with my gray hair. Okay, but if your expenses are going up and you're starting to lose money, you either need to raise your rents or lower your expenses, or both. It's very simple. It's the entire concept. Rents go up, expenses will also go up. But you hope they don't go up as much or they remain neutral. Your rents need to go up 3% a year. Historical average 3 to 5. But guess what? Your expenses are going to go up also. But hey, you got debt pay down. You're paying down the debt every single day with somebody else's money. It's Real Estate 101. Sometimes we got to get back to basics, though, you know what I mean? I just changed offices, so I don't know where my copy of the Purple book is or I would hold it up. I'm sure it's around here somewhere. I don't go far without it. Good old Robert Kiyosaki. There it is, right above my head, right? There's three copies of it. Of course, there's boss's book right there, about 100 copies of it. I got a book up there too, from years ago. That's a story for another day. Anyway, you know, if you're losing money, you gotta figure out why and fix the problem, okay? And with issues in life and real estate and marriage and fast cars and watches, I don't know, in anything. Computers, technology, always go to the simplest answer first. It's always the simplest little thing. When something breaks, it is natural to your gut instinct to say, oh my goodness, it's ruined. My life is ruined. I spent all this time on this thing and now it's broken and it's never going to be fixed. Well, guess what? It just ran out of gas, dude. I can't tell you how many times. I'm an old car dude, right? I got a lot. I like old cars. I have one. I don't have a lot. I have one. I've had a lot decent amount through my life and every single Time I go start that thing and it won't start because it's 50 years old, 55 years old or whatever. I panic. I'm preaching. I'm preaching to the choir here. Right now. I panic. Oh, my goodness. It's ruined. This is never going to work. What did I get myself into? I bought a lemon. This is our gut instinct. When the truth is you got a damn dead battery. Your battery's dead. Go get a new battery and keep that battery on a battery tender so you don't have to worry about it. And your battery tender is becoming a better manager. Okay? You probably didn't buy a lemon. At least I hope you didn't. If you're worried about that, come join short term shop/sdsplus.com I'm not going to say, hey, buy this house, but I'll coach you through it. You know what I mean? So, car won't start. Don't panic. It's probably a dead battery. No big deal. It's not dead. Not even human. Everything's fixable. Everything is fixable, okay? So be careful when you're shopping around. Do your due diligence. Make sure you think you can make some money with it. Pull the trigger and don't panic. Don't panic. Rent's up, expenses down. That's the key to success. All right, I'm gonna give you a quote. Let me give you a quote. See what I got here. Got a few of them. I've been reading some Brene Brown lately, who I'm a big fan of. She's wonderful. Pull up my quote board here. All right, Brene Brown says, you can have courage or you can have comfort, but you can't have both, not at the same time. Sums it up right there, doesn't it? You can have courage or you can have comfort, but you can't have both.
[00:18:42] Not at the same time. Brene Brown. Wayne Gretzky, Luke Karl. Brene Brown. Wayne Gretzky, Michael Scott. All right, I love you. Short Term Rental management. Don't overthink it.
