The Real Estate Investing Club

Find Success in Cash Flowing AirBnB rentals with Joseph McNeal | The Real Estate Investing Club #15

Transcript for “Find Success in Cash Flowing AirBnB rentals with Joseph McNeal”

Gabriel Petersen 0:02
And we are live. Joe, thank you for jumping on the show. How are you doing today?

Joseph McNeal 0:08
I’m doing great. Thanks for the invite.

Gabriel Petersen 0:10
Absolutely. Where are you calling from?

Joseph McNeal 0:12
I’m calling from Colorado Springs,

Gabriel Petersen 0:15
Colorado Springs. We already talked about this before the show. I want to go out there. It sounds like a great area. To get us started. Why don’t you tell everybody you know who you are, where you’re from, and kind of how you got into real estate in the first place?

Joseph McNeal 0:29
Well, I’m originally from Alabama and joined the army right after high school at age 17. traveling the world was an army for over a decade. And as I was telling you, my background is in human performance. But one of my students when I was combat instructor in the army, he got me into real estate investing. He showed me how to do like a residential investment analysis. And so in 2014, when I got back to the states here in Colorado Springs about my first real estate investment property I leveraged my VA loan and bought a triplex. And then just several months later I bought another one so much later bought another one I started realizing I can make more money in real estate versus the army because I was intending to retire the army make it a career. But obviously, it can be a very stressful job. Got algo army bought a property management franchise got the experience of failing in business that first year. Nice a licensed Realtor, but I bounced back at that tenacity kept going and now here I am, got a real estate portfolio, real estate firm and some other business operations that are ongoing.

Gabriel Petersen 1:40
Wow. So you, your career spans pretty much everything that a man can do in in real estate. So that’s a that’s that’s good, good wisdom to pull from for sure.

Unknown Speaker 1:51
Awesome.

Gabriel Petersen 1:52
So you got started. You said 2000 and what was it 13 2014 2014 you bought your first triplex down. Or was it down south? He said down Georgia.

Joseph McNeal 2:04
Now this one’s The first one was actually in Colorado Springs downtown Colorado Springs, which is a great area. Yeah, I have some in Alabama where I’m originally from.

Gabriel Petersen 2:13
Nice. So you guys started you bought a few triplexes. First triplex then the second and the third, you realized it was a good, good route to go. You went in, you started doing other avenues in real estate investing, you started a property management company and you tasted, you know, your first little bit of failure, which everybody has to have. I mean, if you don’t have that, then you’re not a real estate investor. And now you’re you’re investing and you before the show, you mentioned that you were also looking at international real estate, real estate, and you’re running your own brokerage. Is that a good summary?

Joseph McNeal 2:48
Yeah, there’s more to it than that. But yeah, that’s uh, yeah.

Gabriel Petersen 2:52
I love it. I love it. Alright, so that’s kind of your your story up till now. I know you’ve already touched on it a little bit. Tell us What is it? What’s your bread and butter right now? What is it that you guys that you’re doing in investing?

Joseph McNeal 3:06
Well, we do a lot of my firm we do property management, and we also do residential sales. So I have that going on train agents on being successful and we help other people invest in real estate, but we’ve scaled from, you know, multifamily long term rentals into even leveraging Airbnb opportunities. So in just figuring out all that stuff, I don’t really have any bread and butter, I guess the bread and butter is just cash flow, you know, does this business cash flow? Doesn’t matter, Airbnb long term, you know, single family home, multifamily bread butters, cash flow.

Gabriel Petersen 3:46
I like it. So I mean, out of all those different avenues, which one would you consider to be either the most reliable or just the one that you prefer the most?

Joseph McNeal 3:57
For me, and it’s why I got started and What I feel like I’m very confident in is just multifamily real estate investing. But the Airbnb was great. I mean, that was a huge opportunity. But whenever COVID came around it really hindered that business model. But yeah, I’d say multifamily buy and hold real estate.

Gabriel Petersen 4:19
Sweet. I want to go into actually both of those because those are I’m sure there are a lot of people who will be listening who have been affected by owning an Airbnb. So kind of tell us, you know, before COVID Why did you choose to get into Airbnb and how, you know, how does that business model work? I’ve never done one myself. And then you know, how did that affect you once COVID started?

Joseph McNeal 4:44
Yeah, so Airbnb business out here in the springs is very market based but Colorado Springs a very fast growing area. And the Airbnb business was is really booming like I know investors who are just snatching up houses and investments for vacation rentals and before COVID I think in a couple months, I had like four days of a vacancy, which I have Airbnb is close to downtown Colorado Springs. And then whenever COVID came about is like, you know, three weeks of a vacancy. So that’s a lot of money lost. Obviously COVID really hindered travel opportunities, and people are not traveling as much due to the restrictions and everything else that’s going on. And something so I don’t know if I can answer your question fully because wealth is created through networks of people and so I have property managers in place I have cleaners and vendors in place to take care of those things. So I got a lot of that stuff, all this stuff delegated, but I have a system in place to be successful.

Gabriel Petersen 5:47
Gotcha. Okay. So I mean, you got systems up and running already, which, you know, every every real estate investors, that’s the ultimate goal is to have systems that take care of everything. What are the what are the Main levers in actually okay you’ve done multifamily real estate so you know what just a standard you know rental how that operates. So how does it different owning an Airbnb versus owning a you know a standard single family multifamily rental

Joseph McNeal 6:16
long term? Well, the the turnover costs are high, you know the resources it takes constantly turning over a property, you got to take that into consideration it has to be has to be a well leveraged system because if something fails through, it’s just going to domino effect the next tenant that comes in and they give you bad reviews or your business blah, blah. But the biggest thing is the turnover calls. Obviously, if you have long term tenants they 612 months. The operations are fairly slow, you know, collect your rents make sure you stay on top of maintenance, but his long term is secure. Obviously, Airbnb is not as secure, but in certain markets is very secure low vacancy rates, but the biggest thing is that turnover cost because whenever someone leaves, you gotta need someone in there to clean the place. And as as it plays now, especially with COVID, and have it ready within a couple of hours, and it has to be, you know, on the spot repeatedly on top of it. So those costs and those resources are much higher, but then again, high risk high return, because your rental rates are for me about twice as much, maybe a little bit more than a long term rental.

Gabriel Petersen 7:25
Yeah. So you you have a long term rental and say it rents for 1000 after my operational costs, I make about 2000 with vacation rentals. Wow, that’s, that’s pretty crazy. So I mean, you can’t you can’t just hire a standard property manager to take care of an Airbnb so do you do you have a team of people that is within your own business to manage Airbnb or do you outsource that one?

Joseph McNeal 7:51
I have a well, both. I have a business partner that takes care of all the property management operations and then we have a list of vendors. To take care of cleaning and maintenance and things like that, so we have really good relationships with people because again, wealth is created networks of people and we need good people in our businesses to to help flourish so that everybody wins you know,

Gabriel Petersen 8:13
I love it I love it. So in so let’s say you got you rent your out your Airbnb and you already have the systems in place. And it just the the turnover is going to be a little bit higher, but what’s the margin? So usually with a single family, I usually when I’m buying them, I expect a 40% operating expense ratio. What is the operating expense ratio when it comes to Airbnb?

Joseph McNeal 8:43
I would say

3040 man 40 is pretty high, but I’m thinking around 35% for me. Yeah,

Gabriel Petersen 8:54
that sounds about the same as single family man.

Unknown Speaker 8:58
Yeah.

Joseph McNeal 9:00
Yeah, but your your operating expenses say 30% of $1,000 is obviously 300 bucks 30% But yeah, but then if you got to Airbnb maybe it’s making two grand 30% $600 a month. So, the percent is fairly fixed but the the income the moving numbers of you know money is higher too. So, higher higher returns also higher expenses. Yeah,

Gabriel Petersen 9:25
gotcha I like it

Joseph McNeal 9:26
yeah 3030 to 40 seems to be my my goal number two when you compensate for vacancies and maintenance and you know, managing it whether you try to landlord yourself or pay a manager is going to cost you whichever way but I mean, really, the gold nuggets getting a good property manager may be a good property managers worth go because they can keep your maintenance costs reduced. It can also keep your vacancies reduced if they have marketing skill sets and things like that.

Gabriel Petersen 9:52
Absolutely. I cannot stress that enough. For anybody new listening. Having a good property manager is clutch when it comes to having an actual passive investment versus something that you have to really be hands on with. So on that note, I mean, you you run a property management company, and that was even your first failure. So you have some really good experience there. Tell us like what, what, what makes a good property manager like what is what should investors be looking for when they are trying to identify a property management company to hire? Yeah.

Joseph McNeal 10:27
That’s a real loaded question. And I don’t I don’t, there’s a bunch of correct answers, but a good property manager. You know, a good property manager keeps your operational costs low, they work for your benefit, they work for you. But if you don’t know what that number is kind of like me and you just threw out 30 40% for operational costs. If you don’t understand these numbers as something you need to understand, but a good property manager keeps those numbers low keeps your vacancy rates low, keeps your maintenance costs low. They they’re in a position to help maintain your property as well as hold tenants accountable for what you know they should be responsible for. So those are those are things you have to look for in a property manager. And it’s kind of hard to see up front and honestly it’s kind of one of those experience things sometimes if you don’t know a property managers, you just got kind of talk to people and take some risk and gain some experience. Because it’s really hard to find really good competent property managers, because it can be a very stressful hard job.

Gabriel Petersen 11:31
Yeah, yeah, I give any property manager props. That’s listening to the show, because that is very difficult. I manage my own properties for a while and it’s hard. I mean, people call you at odd hours, about weird things and and you just kind of gotta it’s almost like babysitting at some points. But it’s it’s a tough job and so having a very solid team to do that for us. I mean, you said it’s gold. So you got to have that in your corner for sure.

Unknown Speaker 12:04
Yeah. Okay, so

Gabriel Petersen 12:06
going back to your investing side, even even the Airbnb so what do you do? I mean, there’s there’s a process when it comes to taking a property on stabilizing it and experiencing the actual cash flow. So at the very beginning of that process is finding the property, financing that property. What do you do? And how do you finance the properties that you that you do take on? So what’s your what’s your marketing strategy? And how do you find them you do off market on market? And then how do you finance them once you do find them?

Joseph McNeal 12:37
It really depends. It’s too easy for me to just do traditional lending and getting properties are actually on the market, mainly because I work in the industry. And some people can easily argue, well, it’s on the market, you’re not going to get the best deal but if you know how to optimize the income cash flow, look at no look at waste. of increasing your income and decreasing your expenses you can look at a property and say it’s going to do this long term is there Airbnb opportunities there is there opportunity to furnish the, the property to where it produces more rent. And so you know, find find a property, analyze the numbers and take go go the traditional route and get lending or I have used hard money lenders before in the past.

Unknown Speaker 13:28
But

Joseph McNeal 13:30
my business My business is so spread out so I got investing on one side, but I’m also a real estate professional. So I had to market my business there and I’m also mentoring and helping other agents be successful. And you know, I got a partner that takes care of property management. So there’s a lot of moving parts, but for me, I don’t have to sit down and like market for properties because I work in the industry. I can jump right here I can I know how to find what I’m looking for. But that just comes with time and skill sets and having the advantage of actually working in the industry to help more People help myself as well.

Gabriel Petersen 14:02
I like that and you you mentioned something in your response you said furnished properties. I’m just kind of interested in that personally I I never have done that. I’ve always just rented out the the property itself, but I’ve heard of people furnishing properties. Why? How much of a jump Do you see usually in in rent? And is it Do you prefer furnishing the properties or not?

Joseph McNeal 14:28
Again, depends on the market, you know, if you’re close to the college, and my work might not prefer furnishing a property because it seems like the majority of the market has their own furnishings the majority in my area. Anyways, I do have furnished rentals but not all of them are because the majority the market has their own furniture. But you spend $1,000 or more say to that, whatever your number is, it seems like we get about an extra 150 $200 a month is fully furnished you know? Okay, that’s not bad that’s not bad. Yeah Now a long time ago I read somewhere might have been Robert Kiyosaki thing but just like one thing to stay to keep furnish typically is a washer and dryer in you know, you can get on like Craigslist get a good cheap use washer and dryer. And then typically you can get an extra 15 to $50 a month just by providing a washer and dryer. So it’s a good return on investment wherever you analyze these little investments. It’s a it’s a good return. So you should take that in consideration. But when it comes to furnishing, it really depends on the market, you know, so

that’s a loaded question.

Gabriel Petersen 15:39
Yeah, yeah. And I will definitely second the washer dryer, comment that you made there. I always I always provide washer and dryer and I feel like it’s my my units are maybe on the market for a seven days, maybe like a week before they’re rented. Never longer than that. So I really support putting Waterbury in there for sure. Alright, so I’m going to switch gears just a little bit here. We’ve heard a bit about your business about how you run it, Airbnb multifamily, and you got the property management and the brokerage. So you’re doing a lot of things. I want to get a little bit more into, you know, your stories, your experiences, we all know, you know, real estate is it’s a roller coaster, you got your ups, you got your downs, you know, it’s almost daily. So, kind of take us to the to the bottom, you said you’ve had a failure before. So take us there and tell us, you know, what’s the big lesson that you pulled from that?

Joseph McNeal 16:39
Well to sound confident, not necessarily cocky, or maybe a little bit cocky, but whenever I got, I decided to get out of the service, because I was just gung ho full focus, full effort in the military, but when I started investing in real estate, like I said, I started seeing big opportunities. So Started get out of the service, logout service in my mind, I was like, no one’s gonna outwork me. Because I started going to get my grad degree, my master’s degree in real estate construction management University of Denver. I even was applied from a PhD. I got my MBA in marketing. But when I got out of the service, you know, it was a very hard transition for me that first year because I joined the army, Roger hospital, 17 years old. So that’s really all I’ve ever known. So yes, from so from 17 to 2728, that’s all I knew. And then I get out of the army. I became a licensed real estate professional, I bought a property management franchise. I was new in this industry. And there’s bad or there’s bad people in every profession, put it that way. But I got out and to make a long story short, I got tangled up with a very, very toxic brokerage. I didn’t know any better because I was, you know, kind of new to the industry. And I had this franchise. It was costing me money every month. And then just being in real estate costs you money every month. And then I went from a job where I had all the security in the world to where now I have all the freedom in the world no security. So I was losing money every month with the franchise and I had, you know, some bad tenants that caused a lot of damage, trying to cut costs, be a landlord myself and learn property management the same time. And then I had a contractor rip me off. I mean, the floor just goes and goes, so I hit rock bottom, because in my mind when I got on the service, I was like, I’m never gonna work a regular job again, unless there’s something I’m absolutely passionate about. And I’m just going to kill it in business in real estate. But that first year, I lost every you know, the money I got from deployments. You know, I mean, I was in some dangerous situations for all my money I invested but I lost almost everything. I didn’t go bankrupt or anything but I lost all my my cash in that year. And how do we get a job I had to go back college instructor for a little while, and then you know, still keep my foot in the door with real estate, being a realtor and trying to hold on and maintain all my investments when everything I felt like everything was just crumbling down is a very, very, very stressful time. Very expensive experience, but I learned a lot from it. Stay in the business. I got with a new real estate firm. And I was finishing up my MBA in marketing and when I implemented what I learned in marketing, in my business, my realtor business, that’s when things took off. Because I was a full time grad student working part time at a college and being a part time realtor and being an investor on the side. So I got rid of the that franchise and then a year later, I made really good money working part time. That’s why I took a three month long vacation. I went and lived in Thailand for two months an MMA MMA camp. As I told you I had more Thai fighter over there. I was looking at Real Estate In Thailand, and what I’m getting at is that things can change pretty pretty quickly. Like I had a horrible downswing. And then a year later I, you know, just keep grinding, keep learning, keep growing, even past the setbacks, and then like, I had my best year ever in real estate, and then I bought another franchise with all the experience and knowledge I’ve gained. And now here I am doing pretty well.

Gabriel Petersen 20:25
That’s awesome. I love it. So, I mean, you said it yourself. Your everything was kind of imploding, you know, and you’re and I’ve had that experience myself. But if you I mean, the lesson that I pulled from it, and I think you mentioned it too, is just keep, keep going. Just don’t don’t give up Keep your eye on the goal. Even when you know shit is just crushing down on you and just keep pushing forward and and eventually, you know, the lights gonna lights gonna shine through and you’re gonna make it out. Absolutely,

Unknown Speaker 20:53
yeah. Yeah.

Gabriel Petersen 20:55
So, so you know, that’s the trough. We all have them. We also have peaks. So, you know, take us through the top. Why are you in real estate? What gets you out of the bed? You know why? Why do you love it so much?

Joseph McNeal 21:07
Well, you know, honestly, I wouldn’t say I love real estate so much. I love helping people. That’s what’s in it for me. And so I consult and advise investors, I consult and advise first time homebuyers, home sellers, although and just trying to educate and empower the consumer, on opportunities in real estate and what they can do. But it’s mainly about just helping people I’ve also skilled in the financial planning, I help people plan for retirement, because I got the, you know, I got access to all these different products. But then on top of that, I have experience in education and rental portfolios as well as business. And, you know, you can create wealth pretty fast and real estate and businesses but again, if you have the setbacks, you got to keep persevering. Have that tenacity. Because at the end of the day, you cut out the noise and the only thing that matters is math and hearts. Sit math and heart and you can make it work.

Gabriel Petersen 22:02
Love that math and her that’s good. That should be a shirt real estate investing shirt math, math and heart. Yeah. Alright, so I’m going to take it back just one second. When you were talking about the, when you’re talking about the low point, you mentioned, that thing started kind of the turnaround for you. Because, you know, once you got that MBA and marketing and you learn tactics, and marketing, and that’s actually kind of how I got my start in real estate investing. I was in digital marketing, and I got really good at that. So kind of tell us like, What is it? What are the most effective tools that you learned and implemented in your business that that kind of, you know, you know, turn, turn the corner, you know, draw your business to the next level, too easy, man.

Joseph McNeal 22:49
So I hit rock bottom, I was working my MBA marketing. And then I finally got to the point where I realized how I could make the connection of what I was learning in marketing and implement it in my life. real estate business being a real tool.

So, because when

I was studying marketing, you know, they kind of teach you how to be a white collar marketing director for a big firm. The fundamentals are there to help you with any business, but it’s really geared towards being a marketing director. So it was hard for me to make the connections and I finally made the connection on designing an IMC integrated marketing campaigns or integrated marketing, communications. And so everything started turning around when I wrote design and entire IMC for my business, because Harvard review and all the empirical evidence was showing that the businesses that grew the most had entire marketing plans, it wasn’t necessarily one thing. And so the return on investment of where I’ve seen that my business grew is just I did a whole IMC in line with the six pillars of marketing which is public relations personal selling, digital marketing, direct mail. sales promotions and advertisements. That’s the sixth pillar so you need something in all six of those I need to be interconnected. And whenever people get into my marketing campaigns it’s hard to forget about me because I’m everywhere I’m in your email. Now email marketing campaigns, social media. Marketing is going on all that digital media and if I got you address, a mail and you still trying to mail you value market analysis of your home professional equity assessment reports of your home, you go around you might see my face somewhere on advertise. I’m just constantly leaving these impressions on the consumers mind to where as soon as they have a real estate need. On top of mind.

Unknown Speaker 24:39
Alliance

Joseph McNeal 24:39
Yeah, IMC is where my business turn. Whenever I implemented that an entire marketing plan, an educated marketing plan in line with IMC, that’s when my business took off. And specifically adapts to the imposed demands you put on it just like in fitness. The said principle specific adaptations to impose demands your business will do the same thing. If you mark it appropriately. I love

Gabriel Petersen 25:02
it. I love it. And actually one of the one of the things that when I was first studying marketing, one of the things that kind of stuck with me and still sticks with me today is that somebody needs to see your see your company see your message seven times before it even you know, gets into their consciousness before they even registers. So you really do. I’ve never heard of it called integrated marketing campaigns. I always just kind of thought of using every channel available. But I like that I like that. And I mean, it’s super important because you need to get those seven touch points. You can’t, you can’t just put your ad out there once because people it’s not even going to get in their consciousness and it’s not even going to register. So that’s, that’s great. I like that a lot. All right, so we’ve kind of gone through your stories. We’ve gone through your spirit, your business. We’re kind of nearing the end here. But before we before we close the doors. I want to take it back a little bit, you know, back to the Joe who just bought his first triplex. You know Way back when, if you could go give him one piece of advice going forward in real estate, what would it be?

Joseph McNeal 26:11
do your due diligence but don’t get caught up and paralysis by over analysis. I guess that’s, that’s the, the main thing you know, like I can’t, I did the best I could I couldn’t have done anything different. And part of my stuff was lack of due diligence but at the same time, you got to pull the trigger at some point and sometimes you have to make bad decisions and get that experience to really learn to really grow. But it really comes down to that do your due diligence but don’t get paralyzed by overanalyzing everything.

Gabriel Petersen 26:45
Yeah, I that is really good advice. And you’re the first one to say that advice on the show. And I think it’s super important because, I mean, I’ve been in that situation so many times. There’s a very fine balance. Between the two between you know, convincing yourself that it’s a it is an actual investment. And then just just doing it just pulling the trigger. You got to have them both, but it’s really difficult. You got to get in the sweet spot because too much is over analysis too little. You’re just being an idiot. So yeah, I like that. All right, Joe, we all need things ourselves. So if somebody were to bring you something, what would you want to receive?

Joseph McNeal 27:27
If somebody was bringing me something?

Gabriel Petersen 27:28
Yep, deals, referrals, anything like that. What are you looking for?

Joseph McNeal 27:32
Ma’am? I’m looking to help people I’m looking to help people buy sell, invest in real estate and financial products and prove their retirement planning and retirement portfolios. But I’m I’m pretty good. I got I don’t have a serious need. I’m here on providing these others.

Gabriel Petersen 27:48
I love it. All right. So if somebody did want to get get a hold of you, what’s the best way to get a hold of you?

Joseph McNeal 27:56
Call me 719201586 to give me a call. or submit email Joseph mcnew at real tour.com perfect

Gabriel Petersen 28:04
sounds good well Joe I I know I can speak for everybody listening and watching I really appreciate talking with you and I’m sure everybody listening watching appreciated the knowledge that you gave. So thanks for coming on. And for everybody else. You got Joe’s Joe’s number there so shoot him a text shoot a little smiley face. Say thanks for being on the show. And we’ll see you guys on the next episode.

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