Want to know the best way to have excellent cash flow in real estate? Try investing in short-term rentals! Alex Sabio is a real estate investor with Alpha Geek Capital and a healthcare professional by day working as a respiratory therapist at Kaiser Permanente. He purchases and manages luxury short-term rentals in high-traffic vacation destination markets on his way to working in real estate full-time. Alex achieved success by learning from his mistakes and focusing on obtaining cash flow. Tune in to find out just how he did that and get tips on how to manage and market your short-term rental properties!
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The Benefits Of Investing In Short-Term Rentals With Alex Sabio
Alex Sabio is a healthcare worker by day as a respiratory therapist in Southern California. He purchases and manages luxury short-term rentals in high-traffic vacation destination markets. He has also invested in single-family in multiple states and multifamily syndications. He is now focusing on obtaining strong cashflow through short-term rentals. Alex, welcome to the show.
Sam, thanks for having me. I’m excited to be here.
The pleasure is all mine. Short-term rental is a hot topic. That’s a market that is exploding. Before we get into the nuts and bolts of what you do and how you’ve gotten into it, can you briefly tell us, where did you start, where are you now and how did you get there?
I live in Southern California. I started investing in the early 2000s. I started with single-family. I made a ton of mistakes along the way. I was greatly affected by the 2008 recession like everyone else. I didn’t think I would get back into real estate investing. To tell you the truth, I had bankruptcy and foreclosure. I was an awful investor but I knew that there was something there.
I didn’t want to walk away with this from real estate and not apply everything that I learned. I got back into it. I invested in multiple different states in long-term rentals. I invested in Ohio, Alabama, North Carolina and Texas. Eventually, I started going again in 2013. I said, “What I want to do now is focus heavily on cashflow,” because that’s what my mistake was. That’s why I went bankrupt and had a foreclosure because I had all of these negative cashflowing properties. At a certain point, I ran out of energy.
In 2020, I wanted to scale the business. I wanted to blow it up. I said, “I’m hungry. I want to expand the portfolio,” and I looked into multifamily. In early 2020, COVID hit and it completely ruined my plans. I tried to get into multifamily. It just wasn’t happening. I wasn’t getting any good deals and lending became almost impossible. I started doing some research and my tax advisor told me, “Why don’t you get into short-term rentals? They make a little bit more money.”
I said, “Let me look into that. What is the best short-term rental market out there?” People pointed me in one direction and that’s how I got there. With short-term rentals, it’s all about cashflow. That’s what it is. I’m not worried about appreciation or anything like that, although it’s icing on the cake. That’s what I focus heavily on. I focus on luxury short-term rentals. I have this niche and what I like to target.
That’s a very tough thing to find in a competitive environment. Finding cashflow was what everybody preached forever. It can be found in multifamily and places like that. We are still closing deals in that space but it’s tough to find.
A lot of times, I was still finding long-term rental deals or even multifamily deals where each door was going to cashflow $100 to $200 and it wasn’t enough for me and my goals. I wanted my wife to retire as soon as possible. I wanted to retire as soon as possible and replace my income. These short-term rentals generate so much cashflow to where we can do that.
What’s the plan if the market takes another dump and you’re stuck with these rental properties that aren’t being rented as much as they are?
That’s the nice thing about it. Short-term rental is all about marketing. Having the best pictures out there and you have to buy it right. For my short-term rentals, each home is cashflowing on average $5,000 a month. That’s after all expenses. It’s hard for me to imagine it going down to zero. I’m heavily invested in these markets where demand is driving up profits. There are not enough places for people to stay in these markets that I’m investing in.
Would I be okay with profiting $1,000 to $2,000? I would be okay with that but what I can do as an owner-operator is I could outwork the competition. I focus heavily on marketing and making my property Instagramable. My property gets awesome reviews. We make customer service a priority. We have five-star reviews left and right. My properties stand out above the competition. If the market does dump, I’m not worried about the value of the home dumping because, in the end, I’m in this for cashflow. I’m going to rise above the competition at that point.
With short-term rentals, it’s all about cash flow.
What do you mean when you say it’s Instagramable? I’ve not even heard that term. Tell us what that means. What does it mean to you?
It’s crazy. I don’t get it either. I’m working with an artist and we’re trying to install a mural. The mural is going to have these butterfly wings. It doesn’t make any sense to me whatsoever but when people see those butterfly wings, they want to book it. People want to envision themselves sitting at these vacation properties. My properties are in Tennessee and I have the city names all over the place. People want to brag on social media, saying, “I’m at this location.” That’s what it’s about. It doesn’t make sense to me but people will pay for it and I’m willing to put it in.
Those are industry hacks. Probably to you and me, I couldn’t give a rip like, “It’s a great city. Am I having fun? Is my family having fun?” Those are little things that you go away. It’s when you figured out your market and your market isn’t you.
I don’t get it but people will pay for it. All my rentals have a picture. I have a hot tub in every single one of my short-term rentals and you have to highlight that. People love a hot tub. People out there, if they see a hot tub, they want to jump in. They want to have that picture with the sunset and have a glass of wine or something like that. That’s what you want to try to highlight. You want to highlight the experience. I think that’s where short-term rentals are going. If you look at the market, people want something unique and that experience. That’s what they’re searching for and people are willing to pay for an experience.
There’s no doubt that it is the experience that people are hunting. Maybe it’s taken off because people aren’t hunting for that experience in a hotel setting. They’re looking for something that can take the whole family and do. Those are a lot of moving pieces, “What little cutesy, wood art, or cutout piece that says the city name stuck on the wall? What fancy butterfly picture? What hot tub vendor? Where are they installing it?” This sounds like a housing flip on steroids which are selling off.
That’s what it is. You’re trying to make it amazing. I’ve gotten lucky. I bought these things. In the market that I invested in, they come fully furnished. All of my short-term rentals are brand new and they came fully furnished. That’s why I bought it with this builder. He is buying them specifically for short-term rentals. He understands design. The guests love it. They’re pretty much 98% ready. I go in there and add a little touch to it. That’s all I do.
You’re building ground-up short-term rentals.
I don’t know if I would say it’s me building because it’s almost like buying tract housing. If you go to D.R. Horton or KB Home and they’re releasing a new phase and I would say, “I want that,” there’s no real bidding war. I’ve created a good relationship with my realtor to where she feeds me those deals first, before anyone else and before it hits the market.
She knows I’m ready to buy and I’m going to close. She knows what I do with it. She knows that I put in a lot of work. A lot of other people, when they buy vacation homes, they’re going to go with what’s there. They get run down to the ground. They use property management or something like that and they don’t get that love. I tend to pour a little bit more money back into the business.
The model is more of a spec builder with a vacation rental twist to it.
I’m open to something else and doing something creative but I’m a little lazy with that. I want to start making money on day one. I could find something like in Joshua Tree, California, which is an hour and a half away from me. I would have to put in so much more work to make it Instagramable and do a complete gut job.
The thing is, the second I signed on the dotted line escrow and they gave me the keys, I’m on the market in two weeks. I’m starting to make money right then and there versus waiting 2 to 3 months and not making any revenue. We just closed on a property at the end of May 2021 and then I was on the market in the middle of June 2021. In the middle of June, I’m averaging $1,000 a night. The longer I take and do more work into it, I lose $1,000 every single night. I’m trying to get it on the market as soon as possible.
That’s a strong motivator. How are you financing these deals?
I have invested in long-term rentals. I got lucky slowly over time with those built-up equities and I’ve been pulling money from those. I’ve been financing them with regular conventional financing. We are getting to a point where debt-to-income is going to become an issue. We’re looking at different lenders and going into commercial with a DSCR loan. That’s something we’re looking into.
That was going to be my question. You’ve gone conventional up to a certain point and then you probably tap out on that front.
People worry about that initially. Those are the biggest fears initially but I tell people, “Get into the game. Figure that stuff out later on. Those are problems that are going to come later on and then you’ll figure it out once you’re generating enough money.” With me, I’m obsessed with it. I start asking questions left and right from different people like, “How did you figure it out,” because someone has figured it out before already.
There are tons of people that have figured this out. There are not people out there with 2 to 3 homes and then that’s it. There are people that have grown. It’s crazy because once you find one, all of a sudden, the floodgates come and then you’re like, “There are so many other lenders out there that are willing to work with me.”
What about management and systems? What do you do on that front?
That’s the funny thing. If the IRS is reading, I spent 500 hours a year on this.
You get a lot more than that.
We have automated systems out there. I always say I wish I would have gotten into short-term rentals years ago but I don’t know if I would have just because the technology has been developing so much more. Think about even the security camera. I have a Ring Floodlight. That’s my go-to thing. How long have Ring Floodlights been around?
Even when they first started coming out, like the Ring doorbell, how many bugs were there with that? We probably didn’t need to have those things but for me, I feel more comfortable having them. I have a Wi-Fi door lock that will automatically create the guests a code from the time they check to the time they check out. That technology is still in its infancy.
There are all of these different apps that help automate messaging to the point where you’re having to talk or message the guests when problems arise, like my guests messaged me saying, “The hot tub isn’t heating up.” The crazy thing with that is I have pre-written messages for these guests too. All I have to do is send that message.
Those are the things you’ve got to implement in order to cut down that communication time. One of the common struggles I see in scenarios like this is that the technologies don’t all talk to each other. How did you overcome that?
People are willing to pay for an experience.
It’s true. There are times when I want to go with certain a service and app. If they don’t talk to one another, the technology is going to get better over time to where they do talk to one another but there are answers to everything. The channel manager I use is Your Porter. It’s not perfect by any means. There are other channel managers that are way better but Your Porter does the trick and it automates the process. It does talk to my door lock to give the guests that code.
The thing is I can add another channel manager on top of that. That’s the beauty of these short-term rentals. They generate so much money that you can solve problems. If I added another channel manager, it would be $20 more a month to have that feature. On average, our rentals are generating anywhere from $10,000 to $15,000 gross every single month. To add $20, it’s a drop in the bucket.
That’s one of the scaling facets. Not that it gets overlooked but it’s a benefit that a lot of people don’t consider until they’re in it. All of a sudden, they go, “We’ve got the budget to solve problems.” When you’re squeaking out $200 a month on a long-term rental, you’re going, “I don’t have the budget to put the software in to call the technician to get it.” It’s like you’re there manually doing it so you can continue to squeak out $200 a month.
I had that issue. I had short-term rentals in Cleveland and I was generating $200 a month. Some of them were generating more like $500 a month, which was cool but then after 2 to 3 years, they were moving out and I was in C-class neighborhoods. It was costing me $5,000 to $6,000 to turn it around. You’re like, “There goes all of my profit.”
With long-term rentals, I found that there wasn’t enough meat on the bone and the only way to blow up the long-term rental was to get more. You’re talking like $100,000 to $200,000 long-term rentals or, “Get into multifamily. Get a 200-unit apartment complex.” That was the only way I saw that possible. That was my plan with multifamily but eventually, I got into short-term rentals. The cool thing with a short-term rental is I’m loving it. I’m investing in vacation markets. People are, for the most part, in good moods. They’re on vacation and then we get to use it. We get to go out to these vacation destination markets, do a business trip and enjoy it ourselves.
Go inspect your properties and whatever else it is that you have to do there. That’s all very valid points. Those are just some hang-ups that have to be overcome. What are some challenges you’re facing in your business that you’re trying to solve?
My biggest problem and I never thought I would say this is I have too much money and not enough properties. I can’t find the properties. I don’t know about you. I hate seeing money in my bank account because my bank account is not making money. When you see $100,000 or $200,000 sitting there for months at a time, you’re like, “If these $100,000 or $200,000 would have generated some money.” Do you know how much money I’m generating for my properties? I’m making $10,000 to $15,000 a month.
In the busy season, our two short-term rentals generated $64,000. We profited $35,000 and that’s the cool thing with short-term rentals. You don’t need that many short-term rentals to get financially secure. That’s my issue. I’m trying to reach out to as many agents, underwriting and analyzing as many deals as possible because we’re hungry. We want to have as many of these short-term rentals as possible.
Everybody has got problems. They might look different depending on where you are in the process. While you may not have the zeros attached to it that the monster family offices and hedge funds do, it’s the same issue. They’re sitting on capital going, “Where do I safely deploy this in order to get a return?” It’s better to be in that position than going, “Where’s my next paycheck coming from?” That’s a great problem to have. In the world of problems, we’ll take that one. What about a healthcare worker by day as a respiratory therapist? Are you still doing that?
Absolutely. I love doing that. I specialize in NICU and PICU. I love working with neonates. I’ve worked with neonates under 500 grams.
What are 500 grams in pounds for all of us who suck at the metric system?
I’ve taken care of a baby as small as a Coke can, weighing that much. With premature babies, their issue is respiratory and so we’re vital. Their lungs are underdeveloped. That’s why they’re not going to survive. You need to be able to breathe for them for weeks at a time. I absolutely love doing that. At a certain point, you start getting pulled from different directions.
I love helping others. That’s why I got into the healthcare field but now, I get the joy of helping other people invest because everyone sees my success. They’re like, “I want to do what you’re doing. How do we do it?” I got a big fat mouth. I tell everyone everything, probably to my disadvantage. For a period there, I was telling everyone, “I love my cleaners. This is my cleaners. You could use my cleaners.” All of a sudden, she got too big and she wasn’t doing a good job.
The thing is I love seeing other people succeed so I could see myself venturing from respiratory therapy to full-time real estate. It’s hard. I’m making just enough from real estate as I am in respiratory therapy. I’m building two more short-term rentals. Once those go live, you’re talking about doubling my income from real estate versus what I’m making in respiratory therapy. It’s hard for me to stay in that field.
That’s a bummer and a good problem to have because many people are going, “Where’s the exit? Let me run. Can I get out of here fast enough?”
“I’m here to help you. Come on in.”
Before we jump here into the final four questions, anything else as it pertains to scaling, short-term rentals and thoughts on the economy, wherever you guys are in the business that you would love to share with our readers?
I don’t know how much I want to scale the business. I know different owner-operators that want to have 100 of these and I can see myself doing that. Why am I investing in real estate, to begin with? The goal was to have more time off, replace my W-2, inspire others but spend time with my family. If I have 100 short-term rentals, do I want to answer to 100 guests? Maybe it gets to a point where I hire a virtual assistant or even hire a manager for that position. I don’t know if I want that. That’s my goal, 4, 5 or 6 short-term rentals conservatively. I’ll generate about $25,000 a month of profit. I’m cool with that. At that point, can I help others along the way invest and do the same thing I’m doing?
I respect that because everybody always says bigger is better or they’re like, “Now you made your $10 million so how are you going to make your $100 million?” It sounds like that’s your aim, “Be content with what you’ve got. Enjoy your time.” You’re 900% ahead of the bulk of the population. That’s awesome to set your sights where you want it and find that contentment there. Best of luck to you. I have four questions for you. The first question is this. If I give you this $20,000 to invest in real estate with no previous real estate investing experience, what would you do with it and why?
$20,000 for what I’m doing isn’t that much. What I would do is I would partner with someone that knows what they’re doing and maybe go into a short-term rental themselves. I have a little brother who is trying to do the same thing. He has $30,000 and he keeps sending me deals. I’m like, “This is a little too aggressive,” and he is learning a lot from it. We’re pushing the budget a little too far and I’m telling him, “Let’s back down. Let’s try to find condos instead of these big homes that I’ve tended to focus on.”
Look into a partnership because, a lot of times, people have that $20,000 and they say, “I can’t do anything with it. Let me try to save up to $30,000, $40,000 or $50,000.” The next thing you know, 1, 2, 3 or 4 years have gone by and you haven’t done anything. Partner with someone and start getting in the game.
Question number two, if you could help our readers avoid one mistake in real estate, what would it be? How would you avoid it?
My first deal was a scam. I wanted to invest in out of state. I invested in this duplex in Colorado and they said, “You need $16,000. It’s 5% down.” I looked at a coworker who was doing it and I took her word. I even went out there and visited. That wound up being a scam. The guy went to jail and everything. He was buying this huge community and taking a bunch of people’s money.
It’s all about getting out of your bubble. It’s because the one person next to you is succeeding, try to find other people that are also succeeding. They’ll jump into the first thing that you see because your coworker or auntie is doing well in that thing. There are so many ways that you can invest in real estate and make money. Get out there, start networking and talk to as many people as you can.
Hate seeing money on your bank account because your bank account is not making money.
Question number three, when it comes to investing in the world, what’s one thing you’re doing to make the world a better place?
I like to give back. I give 100 times more than I receive. It’s all about helping others learn from my mistakes. That’s all it is. They could save so much time. I have a big fat mouth. I will let you know all the mistakes I made. That’s the biggest thing I’m doing.
If our readers want to get in touch with you, what is the best way to do that?
I’m very active on social media. Look for me on Instagram @The_Real_AlexSabio. On Facebook, Alex Sabio. I did create a community for healthcare professionals who want to invest in real estate. If you look up Healthcare Professionals Investing In Real Estate, I’m there pumping out content and look for me there.
Alex, thank you so much for your time. I do appreciate it.
Thanks.
Important Links:
- Alex Sabio – Facebook
- @The_Real_AlexSabio – Instagram
- Healthcare Professionals Investing In Real Estate – Facebook Private group
About Alex Sabio
Alex Sabio, Healthcare worker by day as a Respiratory Therapist in Southern California, who purchases and self manages Luxury Short Term Rentals in high traffic vacation destination markets. He has invested in single-family in multiple states, multifamily syndications and now focuses on obtaining strong cashflow through short-term rentals.
