what's up guys it's james here and in today's video you're going to be able to look over my shoulder as i analyze properties for their short-term rental potential this is a video that a lot of people have been asking me for say hey i just want to see what your process is for analyzing properties and as much as i can easily explain that process i think it's even more valuable for you guys if you're able to just see me actually look for some properties and analyze some properties here so that's what we're going to do in today's video now for any of you guys who are looking for an a to z process on exactly how to invest successfully in short-term rentals you know all the details around analysis all the details around absolutely everything from a to z from finding the property analyzing the property purchasing it renovating it furnishing it listing it and performing with it and automating the operations of it absolutely everything link in the description down below there's a free training there that's going to walk you through the whole process the three most crucial things you need to know in order to succeed investing in short-term rental properties that is there to support you and help you and make this journey easier so make sure you check it out it's completely free and the link to that training is in the description down below so that being said let's jump in let's go over to the computer here and take a look at some properties so this first property here is one property that i found that i wanted to kind of demonstrate as a potentially good opportunity so i just went on to realtor. ca a lot of people think that i'm looking in these you know crazy places to find properties but i just want to do it with realtor. ca or realtor.
com or zillow one of the ones that you're that's just super easy to access this is the one for canada because i want to show that there really are great deals that are relatively easy to find you can find really great deals elsewhere that are a little bit harder to find but it doesn't have to be that tricky it doesn't have to be that challenging you can find some really great deals just right on the market if you know what to look for because these properties are not very attractive to a lot of other people the same way they are to us and i'm going to walk through that in more detail here so let's go ahead and take a look at this property uh so this is a property for six hundred thousand dollars and all the numbers are going to be canadian dollar not that it really matters because if it was all us then it'd be all us it's all it's all the same so um all of our numbers are going to be are going to be canadian dollars here we've got 5. 99 for this property take a quick look uh you know need some renovation work it's definitely in pretty rough shape uh but it's the thing i like about it for the market that we're in um i have a criteria and so that's what i highly recommend that you do as an investor is you set up a list of criteria for what you're looking for in a property that's going to help you really narrow down your search and one of mine is not having neighbors nearby i like to buy bigger properties so i like to buy them where there's not going to be neighbors around because buying bigger properties allows me to get a better roi but it means there's going to be larger groups of people there which even if they are not throwing a party and they are very respectful they're just going to be loud if you get eight friends together in a house it's gonna be a lot louder and if they're there on a tuesday night they're on holiday the neighbors are not the neighbors are you know it's a work night for them so we don't want to disrupt our neighbors we don't want to have neighbors too close by the other thing that i like is being close to water i know that's really attractive to guests in this area where we happen to be buying these properties so that's one of the things i look for as well and this one's right on a little creek here so that's pretty awesome you do some canoeing some kayaking whatever so that's good it's four bedroom one bathroom so for this one i would need to make sure that it can have at least another bathroom added onto it in a renovation because i can't really accommodate eight people with one bathroom i wanna be able to accommodate at least eight people on this property so i need to have at least two bathrooms that's a good example of a property that i would probably call the listing agent on and see if there's any potential get some more detail because looking through the photos i can't really tell if there's an opportunity to add a second bed a second bathroom uh but if i could that would be great um and this is a cool property here that i found that quite frankly we're probably gonna end up putting an offer in on um because you know i just texted my business and investing partner riley here with this one said hey this property is really underpriced for what it is i think this is a really good buy um so we're going to look into this in more detail and again if you want the whole process for you know everything and you want to actually have an opportunity to speak with riley then right now for a very limited time uh at the end of that training video you're gonna have the opportunity uh to schedule a free one-on-one strategy session with riley where you can actually help you to lay out a game plan uh for exactly how to reach your goals with investing in short-term rentals so i highly recommend you take uh take him up on that while that's being offered again link is down the description down below so let's take a look at this property here now the thing that i like about this property is it's very close to a lake but not on a lake which we found in the past is really valuable because you're not paying a premium for being on the lake but you have all the uh all the advantage of being right near a lake for your airbnb guests to go and you know drop in a kayak drop in a canoe what have you now i would need to know a little bit more information about how close it is to lake um it does say it's just down the road as access to four mile lake but i don't know what just down the road means is that five kilometers down the road or is that you know walking distance so that can make a bit of a difference there but it is a four bedroom two bathroom property so right off the bat we can accommodate at least eight people if not more so that's fantastic that's really awesome and then you know i know that we're we're right here uh near snowmobiling atving and hiking because it says it right here in the description so that's great that's gonna draw ideally some additional guests in and then we take a look through the photos it's a nice house it looks to have been recently renovated we've got a brand new garage and as soon as i see this i see okay this is a great opportunity for maybe even an adu we might be able to have an auxiliary dwelling unit here and have it be its own separate unit but at the very least we're gonna have a really really wicked cool game room here we can put you know ping pong in here we can put air hockey foosball maybe some old arcade games that can be a huge huge drawing feature and then we can also store toys like you know the kayak the canoe the bikes stuff like that so this can be a really really cool feature here that can really help to drive bookings and it's brand new and in good shape so that's fantastic now looking inside here it's clear that someone has just renovated this property someone's probably doing some kind of a flip or they've just done a really good job keeping their property up to date and nicely renovated so everything looks fantastic it honestly just looks really stunning um so that's gonna be nice for us because we're basically just gonna have to furnish this property and honestly friendship pretty similar the way it's furnished here because they've done a really great job with that as well and then list it so it's going to be very minimal work and the thing that shocked me here is the price point and so what i always look for is we use sort of a a one percent rule as our very very very first level of analysis and normally i do a 1. 5 percent rule but we like to use a one percent rule just because there can be so much variation i don't want to accidentally throw out good deals that turn out to be you know able to perform a lot better than you'd expect and the one percent rule of the 1.
5 rule is just looking at it going okay do i think that i can bring in one percent of the purchase price or in this case the asking price in annual revenue so in this case with the asking price being at 509 dollars do i think that i can bring in fifty thousand dollars per year um on this property sorry the uh ten percent i'm thinking of a different a different rule getting a little mixed up but ten percent is what i'm looking for to be able to bring in so can i bring in fifty thousand dollars a year on this property now i'm going to show you how i derive that answer but the quick answer is yes i will definitely be able to bring in a bare minimum of 50 000 a year on this property so that's looking really good so normally i would be a little bit less inclined to buy a fully renovated beautiful property just because for me i like to add value through renovation um but with this property it can be a cash cow it's already set up it's gonna be nice and easy um so there's definitely some potential here that's worth exploring looking through the rest of it the bedrooms are nice and large so i can fit lots of beds in there accommodate lots of people i don't know what this is so i want to know if i can maybe turn this into some kind of usable space for something neighbors look a little bit close but it is a corner lot um so i do have a lot of a lot of space around me uh which is great um so everything's looking pretty good here honestly the old kind of cool buildings here maybe we can do something with those that's cool added potential so you know everything looks pretty good um so i'm gonna do a more in-depth analysis on this property here um so i've got a spreadsheet set up and this is the spreadsheet that we use for running our roi calculations i'm just gonna assume that we can get this thing for asking price and i can run the scenario if the cool thing is i can really easily with this spreadsheet just update it to be you know different numbers so hey if i have to pay over asking what how does that impact my returns if i pay under asking how does that impact my returns super easy to do this just auto calculates our closing costs home inspection is going to be 500 rehab work estimates for this property i'm going to say for rehab we really you know aren't going to aren't going to do much i'm going to account for you know really nothing honestly i'm going to account for no renovation expenses you know and i'll i'll put in five thousand dollars there just as sort of a uh a general in case we have to do a little bit of work but i don't expect us to have to do any much as far as rehab on the property other acquisition cost uh doesn't look like we're going to really have much we're just going to have a land transfer tax which we can look up here so any applicable taxes you'll just want to look up for your area i look them up here i just go asking price is 510 000 and then we are in our location is not toronto our location is going to be kom1co so k0m1co for any americans watching that is not some craziness that is our postal code not a zip code so it's a little bit different i'll just go kawartha lakes maybe that'll show up okay what if i just go peterborough to get something similar sure that'll work or what's it what else are we nearby so this can be a little bit finicky i'm just going to use peterborough for the example here and then so great land transfer is going to be six thousand six hundred seventy five dollars so let's go ahead and six thousand six hundred seventy five dollars put that in there so our total capital investment is going to be uh is going to be 530 000 now the one last thing i do want to put in here is going to be furniture and interiors package and then interior design and photography so the furniture and interiors i know that i'm going to spend probably i'm going to i'm gonna want to add a hot tub and a sauna so that's gonna be ten thousand dollars right there and then i'm probably gonna be another twenty five to thirty thousand dollars in furniture i think i can probably keep it closer to twenty five thousand dollars in furniture so let's say that we're at thirty five thousand dollars in furniture there and then into your design i'm gonna pay an interior designer about five six hundred dollars for that and then another five six hundred dollars for the photographer so let's say that's gonna be twelve hundred dollars now i know a lot of you are probably thinking that is absolutely insane to spend that kind of money on photography and or interior design but i can tell you from experience that that is one of the best investments you will make in your property it's worth spending the extra money to get a really really really good job done it pays off massively so let's leave this for now we can come back here and we're just going to assume 20 down payment so the down payment is going to be 102 000 loan amount 408 000 our interest rate we're looking at about 1. 45 crazy low interest rates some lenders are actually offering even lower than one percent but recently on a purchase we were able to get about 1. 45 interest so i'm going to keep it there but you can adjust that depending on the interest rate that you're getting and then we've got all of our details here um and then total cash to close cash to launch and uh total cash and basically just explains exactly what those are those aren't super important for the sake of this video here let's go ahead and look at uh annual permits and licensing these other annualized expenses and then we can jump back over to here so annual permits and licensing we're going to be looking at basically nothing for this property because there aren't any licensing requirements in this area advertising and tech costs i'm going to put in we're going to use uh 35 a month and seven dollars a month in software so 40 a month so let's say that that's going to be about 500 a year um this is all annualized uh yard and snow is gonna be 1200 for this property just because you know we're gonna be about a hundred dollars a month for the yard maintenance in the summer and then a hundred dollars a month for the snow removal in the winter pool maintenance nothing uh electricity uh i would say that's probably going to be yeah about about two thousand dollars for the year 1750 seems reasonable 1020 we keep pretty constant for the cable internet you end up being about 80 dollars a month or so um accounting is a thousand dollars again that's a constant property taxes i would get that from the property uh from the the listing agent here but let's assume that it's gonna be what i've got in here 3352.
the last property i analyzed here was 510 000 it was you know similar property we're probably gonna have pretty similar uh property taxes homeowners insurance i know for this property we're gonna be looking at by the time we get everything hooked up with a short-term rental specific uh insurance policy we're going to be about three thousand dollars for the year these other expenses are not going to apply to us but if they did apply to you you could add them in there maintenance reserves are is gonna be auto calculated at three percent of the purchase price so you can see it that's what that calculation is running there and that's going to be our annualized maintenance reserves all right and then the last thing we really have to figure out now the most important piece is we have to figure out how much income can this property actually bring in in a given year that's going to tell us whether this is a good investment or not so for that i'm going to go over to air dna here and i'm going to look for a few things so i've got a process here that i like to follow for figuring out what my revenue is and i like to kind of figure out what is the worst case scenario what's a reasonable expectation and then what's best case scenario for this property so for this property specifically we are in the quartz lakes area if we kind of look on the on the neighborhood map here we're right by four mile lake so here is that area here uh that i've got access to in air dna so for this level of analysis you'll need to pay for an air dna exposure with a which i highly recommend and then we're going to kind of zoom in here and look for that four mile lake area and just kind of figure out where this property is so we're right around here where we've got some properties they're bringing in some different revenue numbers you'll see everything from you know this one's bringing in 31 thousand dollars but it's only listed uh and available 143 days out of the year this one's available for 239 days of the year for so about two-thirds and it's bringing in 60k we've got a variant uh variation of a variety of kind of different listings here that are bringing in different numbers um all doing different stuff so you can see 64. this one's available all year it's a three bedroom two bathrooms bringing in 93k so things are looking okay but that's not what we're going to get too concerned with right now we're just going to go over to the revenue tab and i'm going to put in my criteria for this property so i can access tab out here and just be looking at this property so this is a four bedroom two bathroom property so i'm going to go for four bedroom properties and i want to look at four bedroom properties specifically that accommodate let's say six to eight people now i hope that i can accommodate eight to ten people but i wanna be a little bit more conservative right now uh with my numbers and then from here i'm really just gonna wanna add up all the numbers for a given year uh with the for the 75th percentile data this is going to be my the first one i'm going to do is my reasonable expectation now you can see that properties skyrocketed in 2021 here compared to other years you can see they did a lot better and that is a is a reality with everything going on with the pandemic so i don't want to account for that potentially over uh over projected income i really want to look at kind of more of a reasonable scenario and i expect that i'll do better than this i expect that you know some some of what happened in 2020 and 2021 is going to carry forward into 2022 and i also expect that just long term the market is going to continue to rise overall in terms of the demand because it has been for years now but i really want to stay more on the conservative side so let's quickly just add these numbers up i'm going to just add them up month by month it's a little bit tedious uh but i'm just going to add these up there's three thousand dollars in february we've got another forty one hundred dollars in uh march and then we've got i'm just adding these up on the side here on my calculator i've got another 2 800 there uh i've got another 2500 there uh i've got what do we got here another thirty six hundred dollars here and i've got another uh seventy three hundred dollars here and another ten thousand uh two hundred dollars here and this is again a little bit tedious i'm just going to go through it here we're almost done uh 6 900 there i'm just rounding i don't need to be super exact here uh 3 500 and then last couple months here we've got november at twenty four hundred dollars for the month and then we've got uh december at thirty six hundred dollars for the month okay so we're looking at about fifty two thousand dollars for the year so we want this number to basically work out to 52 000 for the year that's what we want to run the projection on that's our sort of i would say on the conservative end of what's realistic um knowing the area a bit and knowing kind of and i'll show you some other ways that i like to play around with the data to kind of generate some different scenarios then i can figure out okay you know what what makes the most sense for this property as far as projection so now the thing that i think a lot of people get hung up on is they put their rates and their occupants they just grab um your your entire home you go okay let's look at um at our four-bedroom properties that can accommodate let's say six to eight people and they just go cool apply changes they average out the average daily rate and they just grab a lot of people honestly just accidentally grab this one without realizing this is the entire market but they'll grab these and then grab the occupancy and try to make it work out what we really want to do is more so grab the revenue and we want to figure out what is the revenue number and then get to it with a higher this is what i like to do personally get to it with a higher than expected occupancy rate so that i can figure out i'll show you why let me just see so if we go in here and we go i know that the projected occupancy rate is probably going to be closer to the to the uh market average about 48 percent so i'm gonna actually set this at about 60 because i want this to be on the high end and then i'm going to just really play around with this number until it gets me that revenue number that i want which is 52 000 so let's try um 300 no it'll be probably closer to about um 250 yeah so a little bit lower than 250 um there we go we're right there the number i got for the year was 52 400 so this is working out to 52 416 we're right on now the reason i did it this way is because i want to figure out the revenue number because ultimately that's the number that i need to have be accurate i need that number to be an accurate representation now and then i start with the occupancy rate because i want that to be a little bit higher than what i actually expect it to be so that if anything we're going to over analyze our our expected cleaning expenses so we want to be just more conservative we don't want to figure that the occupancy is going to be really low and therefore cleaning expenses are going to be really low because the less occupancy we have then the less cleaning is going to be required the less expenses we're accounting for we want to do the opposite of that and then i finally toggle the average nightly rate or average daily rate to figure out what's going to get me to this revenue number so hopefully that made sense um and then basically i'm going to go my cleaning fee per rented week on this property is going to be about 450 and so that's going to work out to an annualized cleaning fee of 14 000. now there's all kinds of other expenses that you can factor in here if you want to if they apply to your area but then really what we've got here is this property breaks down to an annual cash flow of 5 500 so every month it's going to be cash flowing 459 in this scenario the cash on cash return on that is 3.
48 so that means that out of the cash that i'm taking out of my bank account and putting it into this property i'm getting a return on that in actual cash back out meaning the cash flow from the property that's real money in my account of 3. 48 so a little bit better than what the bank gives me but definitely nothing to write home about annual occupancy rate to break even it gives us all these other numbers you can get your your kind of cap rate um and those important things your equity roi that i like to figure out you know what's the the mortgage uh principal pay down going to equate to in terms of an roi so you are going to be making money uh in addition to this 3. 48 percent but uh you know that's going to be part of that's going to be equity build up in the in the uh in the uh in the property and then part of that's going to be appreciation if you factor in a standard appreciation per year so but cash on cash is really king so what i want to look at is you know basically what this is saying is i've got fourteen thousand dollars worth of expenses here thirteen thousand dollars worth of fixed expenses so our total expenses are twenty seven thousand dollars and i've got a five thousand dollar buffer on that and that'll get me a 3.
