Investing In Rural Arkansas And Airbnb Short-Term Rentals With Tyler Thompson

FO 13 | Investing In Rural Arkansas

FO 13 | Investing In Rural Arkansas

 

While it is convenient to think about investing in urban areas where the people are, it still does not diminish how the grass can also be greener on the other side—that is, in rural areas. This episode’s guest testifies to that. Paul Lizell interviews Tyler Thompson, a military veteran turned full-time real estate investor. He lives in Bentonville, Arkansas, where he fixes and flips in two markets and owns several Airbnb properties. Tyler talks about why he chose to invest in rural Arkansas and explains the good demand for short-term rentals due to mountain biking trails in the area. He also imparts some different software programs out there that make it really simple to adjust rates automatically. More than being an investor, Tyler also runs a residential and commercial roofing company. His sales have really grown over the past three years, increasing from $1 million in 2017 to $4.5 million in 2019. Tyler further shares how he manages running multiple businesses and making them successful.

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Investing In Rural Arkansas And Airbnb Short-Term Rentals With Tyler Thompson

Running Multiple Businesses

My guest is Tyler Thompson. He is into a bunch of different things. He does a small market in Arkansas, does Airbnb and has a roofing company. He’s in other things as well. Tyler, why don’t you give us a little bit of background about yourself here? Tell us how you got involved in real estate and we’ll lead it from there.

Thanks for having me on the show. I’m excited to be here. I’m from Bentonville, Arkansas. I’ve been a full-time real estate investor since 2005. At 25 years old, I’ve had read some real estate investing books while I was in the military. I ended up buying an owner finance house with a business partner of mine. We fixed it up, flipped it and made $30,000 on that deal and parlayed from there. I’m going to the courthouse steps and buying properties. I bought exclusively off the MLS and courthouse steps all through the crash of ‘09, ‘10 and ‘11.

In 2011, the state of Arkansas got sued by a homeowner over statutory foreclosure practices. I took a little pause from going to the courthouse steps. There were no options for a period of about two years. I started a roofing company at that point and built that up while flipping 3, 4, 5 deals a year until 2016. I started doing direct selling marketing and buying some online auction properties. I started going after a lot of different avenues of acquiring properties in 2016 and that brings us to where we are now.

You’re not doing direct mail. You’ve been buying off the MLS for years and buying off the auction platform like I buy off. I do the MLS as well, but the sheriff sale or the courthouse steps is a totally different animal. Why don’t we get into that a little bit? Explain what it was like in the beginning to what it is now after that lawsuit.

In the beginning, it’s crazy. If people aren’t ingrained in sheriff auctioning or courthouse steps sales, it’s tough to get into because the guys that are up there buying have been up there forever. There’s a good old boy network and they’ll bid you up on properties. They know people are going to come around for a month or something and they’re not going to buy anything and they’ll leave. Typically, there are 3 or 4 different people that pretty much buy everything. It’s tough to get into but if you’re persistent and you’re willing to buy some things that they won’t, eventually you’re going to get a property.

In my case, we were young. My business partner and I were 25 and it was all older guys that were up there buying. Honestly, we were shooting the crap with them every time we went up there and we were persistent about it. I would take my lunch hour from the job to go up there to the auctions. I was working at that time at a trucking company. He was working for his family’s business. He was a little more flexible. I got to know him and ended up buying two in one day after going up there for probably close to three months.

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Somehow we had gone through this whole process. I’ve read books and everything. We’d already lined up some financing with the bank and built a relationship, but I didn’t realize when they said pay cash, it was actual cash within 24 hours. For the first time, I got a twenty-hour lesson in raising private money. That day, we had made about $30,000 off that owner finance house. We may have a little bit more than that. We had to come up with $154,000 overnight. We had $30,000 of it.

We maxed out our credit cards for $25,000 and we borrowed $100,000 from a realtor off of her line of credit at 10% interest plus a point. We had to guarantee her we would list the properties back with her. We did that and turn those properties over a hot market in ‘05 or early ‘06, maybe at that point. The market was super hot so we burned all three of these properties over a period of about six months and made around $75,000 or $80,000. I was making $35,000 a year working at the trucking company.

That changed your focus.

I was like, “This is not worth it.” I gave them three weeks’ notice and everything. I was nice about it, but I haven’t looked back since then. Trading the time for dollars, I wanted to get away from that like most people.

We all end up wanting to do it at one point. The creative financing you did there was awesome. When the rubber hits the road, you’ve got to put the deal together quickly or lose it. You’re going to lose the deposit you’re going to put in if not. You figure things out and you figured out a way to do it and made money on those deals.

I never did that again until the last couple of years. I’ve now become addicted to using private money. We have the funds to close deals, but I like it if there’s a margin in the deal to bring in a private money partner. We bring them into a real estate investment and show them that there’s a better use of their money than putting it in the stock market or just sitting in their 401(k) or whatever. I like using private money but honestly, for many years now, I’ve never touched private money again.

It’s been neat getting back into that and taking it from a point of getting to help people. There’s something bigger behind that. Right now, it’s not the time for me to buy large commercial or large multifamily properties. I’m laying and waiting for the right time and the opportunity to come along. We’ll put a lot of that private money and shift that we’ve built to work in a hurry. I’m excited about that. Whether that or a downturn in the market and we’d go out and double up to 50 or 60 single-family properties in a few months.

That’s what a lot of us are waiting for. We’re getting ready for the downturn of the market, trying to get a strong cash position. I’m doing that now. I want to be in a strong cash position plus have a lot of private lenders lined up and be ready to pounce. Get stuff if the market is dropping a bit and hold a couple of them maybe for a few years like Todd Murphy from Investor Fuel. Tyler is in the Investor Fuel with us. He’s in a mastermind group. Todd Murphy who’s a friend of both of ours is there just sold most of his portfolio of 195 doors. He held a lot of these properties for seven years. With that said, you don’t have to hold them that long when you think about it. If you’re buying in a downturn, let it come up, turn around and he could do what he wants now. He’s enjoying life. Let’s talk about the roofing company that you started. What year did you start that?

It was in 2011. We’ve been around for many years in the business, which is a milestone for any small business. It’s been good. When we started, the first six years was a focus on residential roofing. I was new. Even though I’d been self-employed, there’s a difference between being self-employed and a small business owner. I’ve learned a lot of lessons the hard way. I didn’t have a mentor. I’ve been embezzled from over $100,000. We’ve learned a lot of tough lessons, but it’s very fulfilling getting to have employees. If I’m only a real estate investor, financially I’ll be satisfied and all that but I wouldn’t be working with employees and things like that for the most part.

It’s been good getting to share an office with people. You might hear them walking around. We have a bunch of people coming in. We’ve got a vendor coming in to do some training on the JF warranty product. It’s been great getting to weed people and work with people and mentor younger people and things like that. Over the last few years, we started focusing on commercial roofs. We still have a good residential roofing company that we’re getting ready to split off. There are two divisions for the company right now.

We’re getting ready from a brand standpoint to split them apart and position that residential company to give some equity to some people that I’ve been working with for a while. It will get more of that stuff off of my plate or I would like to get all of it off my plate and be a more passive revenue stream for me. The focus on commercial roofing has been great. We’re in a hot market building a lot of new commercial projects. We spent 2019 going through the process on the Service-Disabled Veteran and now we have the Service-Disabled Veteran designation from the government. There’s 7% of all government spending and acquisitions that are set aside for disadvantaged companies, which is a service-disabled minority and women-owned companies.

We are one of only a few service-disabled owned roofing companies and we have a lot of capabilities now. Our focus is instead of relying on the recession-resistant nature of residential roofing, we’re going to rely on and build up processes to be recession-resistant in the fact that we’ll be able to have access to government work. That’s the direction we were going. We did about $1 million in sales in 2017. In 2018, we did $1.8 million and in 2019, we did about $4.5 million. We’ve been on an extreme growth trajectory. Honestly, things that I’ve picked up from Investor Fuel and from the group at Sharper, things that I hear and being in a mastermind group, I credit the bulk of that trajectory to being involved in a roomful of other high-level people.

FO 13 | Investing In Rural Arkansas

Investing In Rural Arkansas: Airbnb has done a lot better job of creating ways for us to cater to our prices around days of the week.

 

You get many good ideas from these people and you take what’s working from their company and institute it into your company. It’s important to do. We do it once a quarter here. We don’t make them all but we make as many as we can. We’ll be back in the fall. You’ve got other stuff going on. It is what it is. You got traveling and do other things. I might miss the May 1 as well.

Being a business owner to investing in yourself is the most important thing that you can do. I got back from a program called Discover Leadership in Houston by a guy named Mike Jones. From a personal and professional standpoint, it was a transformational experience for me. It’s a four-day lockdown. They take your cell phone and it’s a quasi boot camp type of experience. It’s all about changing the way you perceive the world and opening yourself up to all the things that are going on positive around us every day that we take for granted because somebody steals 60 seconds of our day and we let that ruin our day.

One of the things that Mike talks about is we have 86,400 seconds in a day. If those were dollars and somebody stole 200 of them from you, would you give the rest of that money away? Absolutely not, but we let a 60-second event ruin our entire day all the time. It was neat to do that. I can’t wait to share that with the rest of the Investor Fuel group as well. We are going to the 10X Growth Con in Vegas. I’m excited to see what that’s about. If it’s not any good, at least we’ll be in Vegas. I’m looking forward to Carrot Camp as well, then we’ll be back to the Investor Fuel. I took a little bit of a hiatus from that group to check these important things that I want to do. I’ve got kids and we’ve got sports and things. You can’t make all of the events. I’d be traveling constantly.

You’d be traveling nonstop with everything going on. Let’s talk a little bit about your market because you’re in a smaller market. What is your main home market?

It’s the Northwest Arkansas Metro area. It’s the world headquarters for Walmart. It’s where Sam Walton founded the company. The home of Tyson Foods. We have a lot of those Fortune 100 businesses here. With Walmart being here, all suppliers have an office presence in Bentonville. It’s executive-level people that move here to call on Walmart for a certain amount of years. Surprisingly enough, a lot of them end up staying. We’ve had this huge population boom since the early 2000s. The region as a whole, the population was around probably 200,000 to 250,000 and now we’re bumping up to a million. What does that do to you as a real estate investor? The three-bedroom, two-bath, all-brick ranch houses that all of us love to buy and rehab and sell, it’s worth a ton of money.

The old downtown properties, the entire Walton family, every downtown area at Northwest Arkansas has been revitalized using their money because there’s a big focus right now on bicycling. We want to be the most bikeable community in the United States. We’re already a hub for mountain biking. If you Google Oz Trails, it’s incredible what they’ve done to mountain biking. We have mountain biking companies that are moving headquarters here. Specialized is opening up an actual facility where they’re going to have factory reps, on staff at this bike shop that’s only Specialized. They’re going to have a keg beer on tap like this super cool mountain biking atmosphere. Above that, they’re either going to have 4 or 6 Airbnb units that people can rent in the actual Specialized building, which is right in downtown Bentonville.

It’s a huge growth and it’s going to continue because there are going to be more and more jobs created from the sound of it with all of these different companies moving in there. People are coming to visit and mountain bike there. You’re going to have a whole other litany or group of people coming in there as well. You’re going to have a continuous demand for housing. I’m sure there’s been a lot of new construction around it too.

There’s a lot of new construction, which is the direction that I’m looking at having to move in to continue the upward trajectory in real estate. We’ve got some property around that’s ready to be developed. It’s like finding the time and doing it. I want to step up. Everything is a cycle and we can’t predict it. I feel like we’ve got to be at a minimum late in the cycle, but how late are we? Do we have 2 or 3 years to get into development, get out of it and be okay? Do we have one year and we get caught with our pants around our ankles and get spanked? It’s time to figure that out.

It’s also a matter of, how much risk do we need to take? Do we need more money? Do we need to take this huge risk in order to make more money when maybe we’re doing okay? It is tough for getting distressed properties because the properties that we do buy are not distressed properties. They’re very distressed. It’s not one of those where we could throw it on the MLS and take a little bit and we will still move. These are the ones that nobody’s going to touch. It takes a special kind of person like me to buy these things with a trail of dog poop running through them and crap everywhere. It’s tough to buy. We’re buying on average in this market about 1 to 2 properties.

I would say we average a little over one-half properties throughout the year. Usually, 1 out of 3 of them will hold. We’re selling someone on notes down in the Fort Smith market, which I’m not including in those numbers. I’m adding some rental properties. We’re closing on a neat deal. I think it was at a website. We got this condo in Bella Vista, Arkansas, which is attached to Bentonville. Bella Vista has a lot of green space and it used to be a retirement community. It’s moved away from that. This condo backs it up to a mountain bike trail. Anything that you can buy around here that’s on a mountain bike trail for Airbnb purposes is great.

I go look at this condo and the lady is like, “We also bought the one next door, which was burned down.” I get there and I’m like, “This is crap.” It’s attached to this condo with blocked walls. She went on to explain to me that they bought it so that they can have the extra parking for that other condo but the thing had burned down a few years ago. We’re buying the condo, which is in pretty bad condition. We’re going to rehab that one and put it in the Airbnb fleet and then we’re going to build back the other condo as new. It will be neat because I can design that floor planned around Airbnb specific. It’s not going to waste a lot of space with closets and stuff like that. The bedrooms will have a coat-sized closet, but they’ll be big enough to move around in and then a focus on a little bigger kitchen and actual living type of entertaining area. Something that you wouldn’t necessarily want to live in long-term because of that but very flexible and usable for an Airbnb standpoint.

There’s a lot of that going on right now on different markets. People are building them that way. It makes sense. You’re in an area where you’re always going to have tourists and people coming in. You might as well build it to the way they want to build where you can maximize it and maximize your dollars too. You brought up Airbnb. I know you’ve been building your Airbnb business over the last few years. Dive into that, talk a little bit about that and then I’ll have questions for you because I’m in my first Airbnb business, so I know some things that come up.

There are a lot of stories. Our first Airbnb hit the market in November of 2015. It was a property that we held in downtown Bentonville that was a long-term rental. Airbnb was around but I don’t know how many of those were here locally. It wasn’t nearly what it is now. I thought I’m going to try this. The other cool thing about Bentonville is we have a world-class American art museum. It only features American artists built by the Walton family called Crystal Bridges. It’s CrystalBridges.org if anyone wants to look into that. It’s a big draw for Airbnb properties. This particular one was right across the street from a trailhead that leads to the museum.

I thought I’m going to throw it on there. My wife had been wanting new furniture anyway, so we bought new furniture for the Airbnb. We put it on there and instantly it was $150 a night. We were booked 75% occupancy at $150 a night. Oddly enough, long-term rental rates are low around here. Everything is expensive to buy, but that was a property that rents for around $850 a month. We were turning out $3,000 a month on Airbnb. Maybe a little more, but we have the utility expenses at that point. We have to hook-up TV, internet and stuff like that but still, it was a solid 3x better return than what we’re doing on long-term rentals.

Unfortunately, the house across the street that I owned had a good tenant in it. She’d been there forever. I told her I wasn’t renewing her lease when it came up, “I love you but you’ve got to go.” She’s like, “I’ll pay $1,200 a month.” I was like, “I can’t do it.” That was Airbnb number two. Now, we’re up to Airbnb number six. Only two of those properties were properties that I did not own prior to starting the first Airbnb. We’ve taken long-term rentals as they would come up for lease renewals and convert it to Airbnbs. It does well.

Because of all the competition, our rates now are down from anywhere, like on a weekend or non-peak weekend, it’d be around $100 to $110 and during the week, it’s $75 to $90. We’re at around 700 reviews. We’ve been a Superhost for a long time. You can see all of these metrics when you log on to Airbnb. It was like 15x of what your normal host is as far as first page impressions on Airbnb because of the reputation we’ve built on there. We have a ton of momentum and the ability to build out other properties, which is the direction we’re going. We added our sixth one in September 2019. As I talked about, we’re closing on 7 and 8.

That’s great. You keep adding them and especially with your rate nowadays.

We’ll see how these condos go. The condo facility where these two are going to be, you can get in there pretty cheap. If they do well, I’ll look at maybe creating some more in that little condominium complex.

It makes total sense. I have one now. I started it in the past month and I have a Superhost. She’s managing it for me. Having her as a Superhost has helped us because we’re getting quick bookings. We’re having people book out for three months already. Right now, she says that’s $114 per night and that’s covering the weekends fine. What I’ll look at is like what you have here during the weekdays. Dropping the rate a little bit and get some people in there during the week so those vacancies aren’t there. You don’t want to have too many vacancies.

You want to constantly have a return because you’ve got a cable bill and Wi-Fi to pay for. It’s in an HOA community and it’s one of the draws to it because it’s got a nice lake. It’s got a pool that people can use and all these other different things. The only drawback is that HOA seems to be getting a little more and more restrictive each year. If that continues to happen, I might want to get out of this property at some point. It’s a drawback to the HOA as compared to what you have here with this single-family or in the condo situation.

Bella Vista is an HOA community. It’s the same thing and I haven’t dug in yet to see. These condos, there is an HOA pool that is a two-minute drive away. I need to look into what are the requirements for a guest to be able to use that. I know they’re going to have to pay something, but I don’t know exactly what that looks like. I hadn’t even considered the HOA thing until you mentioned that other than the fact that condo has $1,000 a year for the condominium or townhouse fees or whatever. You’re talking about the bookings per night and weekends. Airbnb has done a lot better job of creating ways for us to cater to our prices around days of the week. Your host probably has all this figured out. If not, you’re free to give her my cell phone number and I’ll help her whatever I can.

Everything's a cycle in real estate, and we can't predict it. Click To Tweet

Now, they’ve changed it. I’ve always done a two-night stay. I’ve always felt like a one-night stay is not good or you’re going to get a party on the one-night stay. It’s going to mess up somebody who might want to stay for a week or a weekend. I always give discounts for long-term stays because a long-term guest that’s great, we’ll give a 20% discount or at one time, it was even 30% if they stayed a month and 15% for a week. I’ve gone completely in the opposite direction. Now we allow one-night stays but through Airbnb, we can select which nights we allow those. We do one-night stays on Sunday, Monday, Tuesday, and Wednesday. Anything Thursday through the weekend has to be a minimum of a two-night stay.

The price is a little bit higher. We also have gone away from discounts on long-term stays because I have what I call a cohost. I’m the actual host as far as when you look at the property on Airbnb. Amy is my cohost. She has been with me from the very beginning. It’s hard on her when we have one of those properties because this is a major source of her income. When somebody books it for a month, she only gets one cleaning fee. It’s usually people that have pets and they trash the house when they stay for a month.

It’s so much easier. I would rather have a property that’s booked for two and a half weeks out of the month to maybe 5 or 6 different people than have a property that’s booked for 30 days by the same person. It’s always gross when we get in there. I ended up having to pay her more money for cleaning fees. They tear stuff up. It’s better. We did away with the discount. We also went with a program called Beyond Pricing. I had to convince them. There are only in certain markets and fortunately, from a dollar standpoint, we’re big enough to where they opened up in our market because I hounded them for three years to do that.

The pricing services that are available through Beyond Pricing has made a huge impact on what we’re doing. They have a forecasting score built on a million nerd metrics of like, “Where are you at for a per-night price and how far out are you booked?” They’ll give you a health score when you log in there on how your property is doing, but they automatically adjust the price. We’re getting a lot more last-minute bookings. I’ll look at a property and for two weeks we’re not even close to occupancy. By the time that two-week mark gets there, we’re through the roof. We did add one property but for example, December and January are usually our slowest month. January 2019 with five properties, we did $4,500 and now with six properties, we did $10,500. The difference was Beyond Pricing. It’s been huge.

The other thing we started using from making things easier standpoint is a product. This would be interesting for your host if she’s not already using it, but Smartbnb.io is the website for that. You can set up custom bot responses to pretty much any message that an Airbnb person might send. It automatically says, “Thank you for the inquiry. Here’s how much. Here are the property, bedrooms and bathrooms. We look forward to hosting you. Here’s how much your total stay would be.” It sends that message instantly after inquiry and it has an auto accept. It also accepts that booking. They inquire, we accept and then they have to accept. As soon as they do, “Thank you so much for your booking.”

It all looks like it’s written out by us. It uses its name. It’s 100% bot response and they’ll talk back and forth to this thing. If they asked a question about the Wi-Fi code, for example, it will reply and say, “We have all the Wi-Fi codes labeled inside the kitchen cabinet door.” If it picks up the code, internet or Wi-Fi, it will respond and say, “Thanks for reaching out. The Wi-Fi code can be found inside the kitchen cabinet door.” It’s done. We don’t have to answer the question. It follows up with them the night before their checkout with checkout instructions. It’s helped a lot with house rules because before, they were buried in the house manual and the app. People would have to go there and look. Now, it’s a message like no parties, no guests overnight that aren’t on the list or whatever. It seeks reviews and automatically posts reviews. The percentage of reviews we get have gone way up because we don’t have to take the time to go in there and manually review people and manually ask for reviews. It does it on its own.

It’s huge. That’s a game-changer right there.

Those two things, Beyond Pricing and Smartbnb have been a game-changer. I figured out with Investor Fuel, a group of us rented a condo in Park City. You missed that trip.

I was there in Park City, but I was only there for two days because I ended up going away. It was a good trip.

It was awesome. I’m the one who got the Airbnb condo and the host was using Smartbnb and I asked her. I was like, “How are you doing this?” Oddly enough, I went back and I was talking to Kevin Lee about it. He had given that to the group as one of his things, this Smartbnb. This host in Park City was on top of every message I went to. Her messages were wrong. I’m like, “This lady is spending a ton of time doing it. I’ve got to figure out what’s going on here.”

It’s as simple as that. The preset response is more or less what you’re setting up and you just put in there. Is that inexpensive?

It is cheap. I probably spend $30 or $40 a month. I want to say it’s $7 a month per property or something like that. I think the most common question about Airbnb is it’s in vogue right now. The first question I ask people when they pick up a house like Airbnb is not a solution to a problem property. They say like, “What’s the draw?” I’ve heard a lot of people have good luck with nature medical facilities with Airbnb. It’s more of a long-term stay. If you’re around hospitals like John Hopkins or Shriners or something like that where people are coming for a while. The most important thing to think about in your case is, why are they coming? If it’s a seasonal thing, it better be a good reason.

We have a lake here, Beaver Lake. It’s a big draw in the Midwest, but it’s not like $700, $800 a night for a lake home. It’s like $200 or $300 and zero bookings in the winter. A lot of people ask me, “I’m thinking about putting my lake house on Airbnb.” I’m like, “Do you not like your lake house?” It’s not worth it at the end of the day unless you need that income. Plus, usually, you’re driving away, but you have a local person there in the Poconos that handles a bunch of Airbnbs and if it’s a smooth deal for you, then it works that way. A lot of these people that want to do a one-off without hiring a host, it’s going to be a major pain in the butt.

FO 13 | Investing In Rural Arkansas

Investing In Rural Arkansas: Airbnb is not a solution to a problem property.

 

To me, it would because I had done it years ago with a company called FlipKey on a property. I think FlipKey was bought by the Vrbo probably back in 2011, 2012, 2013 time frame. I had to do everything. I had to hire a cleaner. It wasn’t sophisticated online stuff. The questions fire right to my email and I respond back via email or we called them. It’s nothing like this here where everything is auto-responder type, which I like where I hire a Superhost who handles everything. They probably had something like that back in the day, but not to the extent that it is now.

This is making it easier and the draw to a place like that, they’ve ski, fishing, hiking and lake swimming. Luckily for this place, it’s all year round. It’s as busy in the winter and the summer. It’s as busy in the spring and fall. I always thought spring and fall might be dead time, but people like to fish and people like to hike. You still have a lot of activities. It’s my first test year. The first thing I’m trying to figure out is the cleaning fee. The cleaning fee is expensive. We build that in there. You probably have someone at the same thing too with the pricing.

That goes straight to my cohost. She gets the cleaning fee and I pay her a percentage of the gross bookings on that.

I’m going to the same boat as that with my host there. It seems to make a lot of sense. What are some of the pitfalls you run into? Have you had any major issues? I’m sure you’ve got some good stories.

There’s a certain demographic of people that drive me bonkers. I don’t get sucked into this stuff very often, but they have access to my cell phone number. We say in one of these messages through Smartbnb, they used to be a rule in the thing saying, “Please use the Airbnb messenger app for non-essential communication.” You might call me and say, “Tyler, this is Paul. I’ve got to your house.” I have no idea which house you’re at, Paul. It’s frustrating to get phone calls at dinner time or whatever. I probably get three phone calls a year. One of them was on a Saturday. I left my daughter’s basketball game and I get this call. They couldn’t get the garage door up.

I go over there and the garage door was broken. The cleaning crew didn’t raise the garage. The previous guests didn’t say anything. The cleaning crew didn’t catch it and these people were upset about not being able to raise the garage door. I gave them a $50 credit. They were also upset about not being on a Super Bowl weekend. They couldn’t watch the Super Bowl at the house because we only have a Hulu account at the house, which I recommend. We paid the $100 a month cable bill for years. I cut it out. It hasn’t made a difference in our bookings. People shouldn’t be coming to Bentonville to watch cable TV anyway. You’re coming here to do things. It wasn’t that important, but you have Hulu to watch all the movies and stuff like that.

They were upset because we didn’t have cable TV, but it clearly says on the amenities of the house what it has and doesn’t have. We provide a Hulu account and all of that stuff. They were upset about that. I gave the $50 to buy some beer and watched the game at a sports bar or something. We had a good conversation. The husband was a prick. I got sucked into the hospitality industry. With that many Airbnbs, we cannot get bad reviews. It will hurt so I have to go above and beyond. I also upgraded the Hulu account, $50 more for them because they were complaining about it again on a message. I’m like, “I’ll tell you what I’ll do. You guys have been great.” I upgrade them where they could watch the Super Bowl.

Cashflow is the most important thing. Click To Tweet

They left us an okay review, but they were complaining, “It was disappointing. We couldn’t use the garage door.” It’s like that. The demographic is 65 and older. They can’t figure out how to use the Wi-Fi. They can’t figure out how to use Hulu. They’re grouchy. I love my grandparents but they need to stick to the hotels. It’s a totally different deal. People in their 40s, our generation, we roll in there. If the TV remote doesn’t work, we don’t give a crap about it. We go and do something else. We handed it off to a kid and say, “If you want to watch TV, figure it out yourself.” The old folks get upset when they can’t use a TV remote or it’s their device if they can’t get on the Wi-Fi. It had nothing to do with the Wi-Fi. Over the years, I’ve walked several grandmothers through how to get her iPhone or iPad or whatever. I don’t even use the Apple products but I know them inside out.

That could be a nightmare. At least you don’t have to deal with it too often now.

We have the mountain bikers on occasion and they’ll throw some parties. We’ve had hundreds and thousands of stays. We’ve got 700 reviews, we’re probably at 1,200 or 1,300 stays at this point. We’ve had houses trashed four times and two of those were significant, like $5,000, $6,000 worth of damage. The other ones are bedding and stuff like that. For the most part too, those were the long-term guest. We’ve cut out the long-term guests. It’s made a big difference. The pitfalls are going to be the people who don’t respect your house.

We have learned hard and fast. I learned this super quick. I didn’t know-how. If they ask for a discount, I’ll say, “We’re offering you the best price we can.” I will go into that person’s profile and I’ll straight up see what they look like. If they don’t look like someone I want to have at the house, I’ll block out dates. You can’t refuse a booking or Airbnb will penalize you but a little trick, you can block one of those dates. You automatically accept it but before they have a chance to confirm it, if they’re booking is Tuesday through Sunday, go in there and block out Friday.

It will send them a message saying the listing is no longer available. Airbnb doesn’t pick it up on their algorithm or whatever. It’s not going to but that’s the way to reject a booking. It’s people who ask for discounts. Usually, the people that ask for discounts are going to roll into a two-bedroom, one-bath house with twelve people. Everybody’s spending $5 a night and it will be destroyed. It’s crazy. It comes up maybe 1 in 100 bookings. It’s not very common, but it’s an immediate red flag to us.

We got this from somebody who wanted to rent it for the whole month. She was constantly asking this, that and all these different questions. She already sounded like a pain. I’m watching a response between my host and her going back and forth. It finally came up that she found another house. Thank goodness because she did sound like she was going to be difficult. The only one we have is a seven-day stay rent for the 4th of July. Somebody’s staying for a vacation. I know it shouldn’t be too bad. It looks like it’s family too.

It makes it a little bit easier. They’re not younger. I’ve had experiences in the past with the younger groups puking everywhere, bong and melding my carpet. It’s different stuff going on. I already did have that years and years ago when I did it through FlipKey. I expect to have some levels of something. The good thing is I don’t have carpet anymore. I have laminated flooring everywhere and vinyl and maybe a throw rug somewhere. That’s about it. The worst-case scenario is the throw rug going in the trash.

We have an older guy right now. This will be his third stay with us. While we didn’t take out the discounts for long bookings, we didn’t bar them. They just have to pay the regular nightly rate. He usually stays about two and a half months, which is the case again this time. He brings his two dogs with him. He’s a great guy. He’s never a pain or anything. He’s a cool dude. This guy is in his late 80s. He brings his two dogs and when he leaves the house, dog hair is everywhere. It’s a disaster. He doesn’t clean up behind himself or anything. He reached out and we put him in this house. It has some carpet and we’re going to all the LVP in this house. I told my host, “I’m going to take so-and-so to stay and I’m pumping all that money back into new flooring for that house.” She won’t have to go in there and clean the dog hair. It will go in the dumpster. Hardened properties like on rentals make a big difference in Airbnb. At this point, there are two of them now that still have some carpet but we’re weeding them out.

All my rentals right now are all hardwood, laminated, vinyl or any of the combinations out there to make it easier. Otherwise, you’re burning through and if you have a tenant and another tenant next year, you burn through carpet like crazy. I’ll save the carpet for the flips, that’s for sure. The Airbnb model, you’re going to continue to grow this from the sounds of it as long as it continues to be worthwhile.

As long as I don’t have to play the hotel manager a lot, which I don’t foresee. I’m pretty passive about it. I can get sucked in as far as I want to. I can go in there and look at messages if I want to, which is a good idea for me to do at the end of the day. It’s my neck on the line but as long as it’s fairly passive, I don’t foresee that changing. We’re in a situation here in Bentonville where there’s no room in the downtown core that they’re wanting to make bikeable for hotels. The city and those that run the city from the background like people coming to Bentonville to enjoy the amenities, but there’s no room for hotels.

There is a nice $350 a night hotel that has a little under 200 rooms right in downtown, but that’s the only one. The city likes Airbnb now. They’re taxing our property as commercial on the property tax and they’re taxing the content as commercial and all that stuff as if you were a hotel. They’re still getting their tax revenue. Airbnb has taken care of collecting all of that and they’re happy with it. I don’t see us being one of the markets that come around and says, “No more short-term rentals. It’s your primary residence. It can only be for X amount of days a year,” like some other locations have done. I think we’ll be Airbnb-friendly forever.

I think so with the demographics of people you have and the age group that comes in for mountain biking. You’re not going to have too many elderly people coming in for mountain biking. It’s not also a retirement area. You’d be safe in that community for sure. Those are good areas, no doubt about it. You talked about you’re going outside because you’re now hitting a different market that’s about 45 minutes away from you.

I have been since 2016 when I started doing the direct seller marketing thing. I focused on Fort Smith, which is a market to the South of us. We’re buying crappy properties down there and selling most of them on notes. We’ve kept a couple of rentals down there. It’s the same thing. There’s a hedge fund that buys down there and buying online auctions. I haven’t had a lot of luck with that market. Direct seller stuff, we buy down there one every two months. We’re buying about 6 to 8 a year down there in that market and pretty much keeping those. We’ve only flipped a couple of those. We’re keeping those and selling them as notes or holding them as rentals.

The note business is great. It’s so much fun to create owner financing.

If you’re buying them cheap, yes. That’s why I like that market. I can buy a crappy house and owner finance it. You don’t have to worry about it because once you sell it on a note, you can’t appreciate it. If you’re paying $10,000, $20,000 for the thing, it’s not that big of a loss anyway. Not having appreciation offsets when you can owner finance somebody for $45,000 and they put $5,000 or $10,000 down. That’s a big W in the column you’re in.

FO 13 | Investing In Rural Arkansas

Investing In Rural Arkansas: Structuring deals in real estate investing is what it’s about at the end of the day.

 

It’s a big thing when we do in PA and also in Texas. In the Carolinas, we would do some of the owner financings too. I know as Marcus, you pick things up like you said, $10,000, $15,000, $20,000 turn around owner finance and double your money quickly and get a chunk of change down from people and it’s hands-off. It’s a great business. The rentals are great for long-term appreciation and the tax write-off that you get from them because we all need some of them. You could do that with Airbnb. You could appreciate those Airbnbs and get that same effect. You’re doing that whether it’s a short-term or long-term rental, the note business is a little different animal. It’s a finite period of time where you’ll get paid on it but it’s mailbox money or Venmo. My Venmo app is coming on now.

There’s a YouTube video somewhere. I can’t remember what it’s called. Everyone should watch it. It’s about How Banks Create Money and it’s great. Watch that video and it’s like magic because we do that as well. A lot of these will have underlying financing. If it’s around the $20,000 mark, I’ll get my cashback out of that thing at the bank and then wrap it to an end buyer. It’s huge. I’m arbitraging the interest spread on that. Let’s say it’s a $20,000 purchase. I borrowed $20,000. I’m arbitraging the spread there. I usually charge 9% or 9.9% interest and you get that spread and then you’re also creating 9% interest on $20,000 that you never had. You just created $20,000. You’re making high five on yourself for sure.

I call it the Federal Reserve method where you turn on the print press and you’re printing your own money. You literally are printing your own money. That’s the only way to do it. That’s why being a bank is definitely the greatest way to make money in this business. You’re off for a little bit from the mastermind. You’re off doing other things here. We were talking at the beginning a little bit here about where you think the market is. You and I have talked about this in the past. We think we’re near the peak or at the peak or maybe past the peak but we don’t know. With cheap money being thrown around out there, the government has super-low interest rates. The Federal Reserve keeps dropping short-term rates and keeping them stable. The long-term interest rates are low. I don’t know if we will stay at this flat level for a while or continued growth to where we are. Where do you think we are?

All I can call it is a cycle. I have no idea where we’re at in that cycle. In my market here, I can’t see things taking a big hit ever. It’s not anytime soon, but the outlier markets, the bigger markets. We bought a couple of properties in Tulsa. Both of them were flips and we sold them. I would love to have 50 rentals over there. Not in the bad neighborhoods but decent neighborhoods but that’s getting harder over there too. There are a lot of institutional buyers that are coming there to buy. In markets like that, people are paying more than what it’s ever been as far as the return. That’s indicative of a change that’s going to be coming but who knows. I think on a national scale, we’re going to see a slide in the next few years.

I thought that they’ll keep printing money and they keep changing the way things are done. We’re not in a normal cycle. That’s what changes everything there.

The debt-to-income ratio requirement or something came out. I shared it with somebody. They start chipping away the requirements that are made to buy a home through the bank. They’ll get it back to where we’re back to subprime lending, but then we’ll be having to buy properties that don’t have a lot of equity because it’s inflated. That’s one of the great things about courthouse steps as well. Back in ‘08, ‘09, ‘10 and early ‘11, when I was buying a lot of properties there, the banks can take 2/3 of total indebtedness. You had people that bought properties in ‘03 or ‘04 and they’ve only paid five years on. They bought it for $125,000 and they knocked down $5,000 in principal. The bank could sell it for 2/3 of the $120,000 that was owed on the property at the courthouse steps. It was a huge buying opportunity. We bought a ton but at the same time, we bought as many as our budget can handle. At the time, we weren’t using any private money.

Keep yourself open to the opportunities that are out there and put yourself in a position where you can take advantage of it. Click To Tweet

The private money makes a big difference. It allows you to buy a lot more than you would, otherwise if you are just using your funds. I’ve opened that up over the past few years there. It kept growing the private more and more. I don’t see why they’ll continue to do that and hopefully, it works for you too and you continue to grow it as well. The whole private money thing is something powerful, but it’s also a little scary in a way. I love to use private money, other people’s money and you put your money to use and other things like I buy cryptos. I throw a lot of money that I didn’t have a market, which is still down by the way, but it’s going back up. It’s been going up well but it’s a whole other animal. Private money does allow you to grow, but you’ve got to do it.

When I’m borrowing money from people, I’m much more conservative than if I’m using my funds. You want to make sure like crap there. I’ve got to have a lot of equity here. If the market tanks or if something goes wrong, I need to be able to get out of it quickly. I either refi them out or sell and still be fine with it. I did that during the last downturn. I got hammered pretty well, but I was able to pay all my private lenders off that any issues. That was the only thing that I cared about. I took a hit on a bunch of those properties, but it was my funds, not their funds. That’s super important when people are out there thinking about borrowing private money. Remember, you’ve got to pay that back and you don’t want to lose those relationships. That’s for sure. You’re building that back up now with the private money.

Yeah, absolutely. I’ve never had them in the last couple of years.

Do you use it more or less for flips?

Yeah, flips and I use private money a while back on the sixth Airbnb that we added. We funded the whole deal, the rehab and everything with private money and then refi the private money out.

It’s easier to do that.

I still have never put $1 of my own money on that property. I purchased it for $115,000. We rehabbed it, provided furniture and everything. The $150,000 that we borrowed, it appraised for $215,000 and I refinanced out enough to pay back the private money. I love an infinite return. That property is generating $3,000 a month in income.

You have no money in it. There’s nothing you can do in the stock market like that. Real estate is still a game for us.

Structuring deals is what it’s about at the end of the day. It’s awesome once people learn how to do that.

If the market takes its downturn, we’ll be able to buy properties in different ways. People would be looking to sell them. There’s not going to be any equity. We’ll take the subject to deals. To me, it’s a great way to pick up rentals out there if you can as long as you can make them cashflow.

I bought one and it sits on the market vacant right now. I’m trying to get it rented out. I bought my first subject to. There wasn’t enough margin there for me to pay cash for it. I have never gone after those because I didn’t know the process. This was the perfect fit for it and I floated it out there and take over the payments. I paid $4,000 and caught the payments up and all that stuff. I do have about probably $15,000 of cash tied up into it, but the payment is lower than I can get in the bank. She’s 25 years left on a 30-year. It fits the model. It’s going to make $200 or $300 a month in rent where it made sense. It did not make sense to pay cash for it. We did our first one of those. I’m excited about having that one because like anything, the hardest ones are the first time. I feel more comfortable talking to sellers about how it works and things like that.

FO 13 | Investing In Rural Arkansas

Investing In Rural Arkansas: You can’t find real estate deals if no one knows you’re buying.

 

That’s the key there. Most people don’t know what subject to means. At least your sellers out there or your regular person, you educate and explain to them. You make them comfortable with you and they trust you. If you make the process seem legit, they’re going to be fine with it. I’ve done a couple of those over the years. I don’t do a whole lot because I buy mostly at auction and bank REOs and MLS, but I do get referral stuff. I occasionally get some of those referrals that there’s no margin and they got a good mortgage and the rates are pretty low. I’ll take it subject to and make it a rental all day long. It’s another tool in the tool belt to have.

One of the downside on those, unless it’s in rec-ready condition, which is not going to be, you’re going to have to put some money into those subject to properties. You almost always deal back to refinance your cash out of it, unless you’re going to go to private money, which to me, doesn’t make sense. You’re going to tie usually $10,000, $15,000 up in those things.

If this is the right property, if it’s a good property and good location, you’re looking for future equity type of deal, you don’t mind. I’ve done a couple of them where I’m like $10,000 to $25,000 into those properties. If they’re bringing $300 a month, that’s paying back what you know was owed on those funds there. It’s long-term. You’re playing a long-term game on those as long as you don’t have to do one of that two-year arm or five-year arm necessarily. If you got a 30-year fixed or 15-year fixed, especially a fifteen-year fixed because they’re going to be closer to finishing off. Do those all day long, as long as they cashflow. It’s the most important thing. It’s the absolute key. Tyler, what else have you got? Anything else going on? Anything fun or new for the future?

I’ve launched another business. It’s a consulting thing that we talked about a whole lot. A good thing for people to do is to keep yourself open to the opportunities that are out there. Keep your eyes open and put yourself in a position where you can take advantage of it. With real estate deals, you can’t find them if they don’t know you’re buying. Make sure everybody knows.

Everybody knows and you’re doing a bunch of different things out there. You’re getting your name out there and mirror it in different ways. Having a roofing company like that, there are a lot of real estate investors out there that have other businesses that go along with it, but this is a substantial business and this is something that if the market tanked or whatever, this is still going on and you’re still somewhat protected. It’s an important thing to have. For other people who are looking to go out there and start investing, if you have a business, you might want to keep that business going and operating while you’re doing real estate side by side with it as you’ve done through the years. It’s an important learning lesson for people for sure.

The more streams, the bigger the river. Click To Tweet

Streams fill the river and the more streams, the bigger the river.

Tyler, I appreciate your time. I know you’ve got some other stuff going on. You’ve got meetings coming up and everything. I appreciate having you on. We’ll catch up. We’ll talk on the phone, text, email and all that stuff to keep me up with what’s going on. We’ll stay in touch. I appreciate all your time and all your insight here.

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About Tyler Thompson

FO 13 | Investing In Rural ArkansasTyler is a military veteran that got into real estate investing in 2006. He lives in Bentonville, AR and fixes and flips in 2 markets in AR. He owns several Airbnb properties in the area. There is good demand for short term rentals due to mountain biking trails in the area. He talks about how there are different software programs out there that make it really simple to adjust rates automatically. He has added several properties to his Airbnb portfolio.

Tyler also runs a residential roofing company and a commercial roofing company. His sales have really grown over the past 3 years increasing from $1 million in 2017 to $4.5 Million in 2019