Dan Bourdeau is an AirBnB SuperHost and Google Quant Analyst.
Working in a tech job has tons of perks – high pay, great office spaces, and smart coworkers – but it also has its drawbacks. If you’re anything like me, creating value for other people in a big company will leave you feeling hollow and unfulfilled after a while. During the pandemic, I began investing in and managing Short Term Rentals (STR), which made me quickly realize that this was the career path I wanted to pursue full time.
In this post, I will give you actionable steps and strategies for transitioning from a full-time tech job to full-time STR RE-investor and manager based on my own experiences. By the end of this post/guide, you will have learned:
- How to Utilize Remote Work to Your Advantage
- How to Create a Transition Plan
- STR Strategies to Crush the Competition
How to utilize remote work to your advantage
Being able to work remotely is a massive advantage when starting and scaling Short Term Rental investments. One of the main ways you can leverage this is to utilize a primary residence loan to acquire a property in an area suitable for STR investments. Allow me to share some useful tips and tricks through the framework of my own experiences.
Top Airbnb Hacks for Remote Tech Workers:
- The Live-In Hack: Buy a Single-Family Home as a primary residence, move out, and launch the property on AirBnB once the one-year occupancy limit is over.
- Owner-Tenant Hack: Buy a Multi-family home as a primary residence, and live in one unit – AirBnB’ing the other units.
- The Land Hack: Buy a Single-Family Home with enough additional acreage to build additional units like Geodomes or ADUs.
- The ADU hack: Build or buy a primary residence with an ADU or in-law unit to rent out.
Now that you have a foundation of tools in place, the next step is to create a plan for yourself which gets you from point A – your tech job, to point B – becoming a Short Term Rental Host.
Creating a Transition Plan
Real Estate is a long-term play, and you should view your transition plan through that lens. You aren’t likely to quit within 6 months or even a year from launching your first unit, but I suggest subscribing to a ‘start slow, scale quickly’ strategy. Acquiring and furnishing a relatively normal AirBnb property takes both time and money – with properties ranging from $50k to hundreds of thousands of dollars to launch.
With this strategy in mind, my recommendation is to build or buy larger AirBnB properties that cost around $150k to launch (including the down payment, furnishings, and soft costs), and that would profit roughly $50k+, or 30%-60% ROI. Stack five of these properties together, and you are likely to profit upwards of $250k+, right around what most lower-level tech workers make. It’s definitely possible to manage 5+ properties while working a full-time job, but to scale even faster you will need to create a transition plan that involves scaling down at your tech job while building your AirBnB portfolio. Once that portfolio is large and profitable enough, while easily manageable, the next step is to go part-time in your tech job.
Go Part Time
Besides remote work, the other perk at many tech companies which is highly useful for transitioning to a full-time real estate investor is the ability to work part-time. Not every company offers this, but it’s absolutely worth your time to look into whether your company does and what the policies concerning part-time work are. If you are able to combine remote work with a part-time schedule, you will be well on your way to becoming a Real Estate baron.
Managing and running real estate, especially short term rentals, takes time, and time is a precious resource (especially while having two jobs). By utilizing the strategies that I outline in the next section, you can reduce the amount of time each property takes to self-manage – down from about 10 hours per week to 1-2 hours per week. As you create a transition plan, you should consider your personal situation and tolerance for adding hours on top of your tech job responsibilities. You should also be aware that as you reduce your hours to part-time, your borrowing power decreases. With this in mind, let’s discuss how to navigate financing constraints.
Navigate Financing Constraints
Even with a sizable tech job salary, there will come a point at which your ‘debt-to-income’ ratio will approach the limit where conventional mortgage brokers and banks will not lend to you anymore. This is an especially important consideration for short term rental hosts, since most banks will only recognize the income from an STR with two years of history (although there are exceptions). If you had a long term rental, you would simply need a signed lease to offset the mortgage on your debt to income ratio. This introduces a constraint on the number of conventional mortgages that you can use in a certain period of time.
For example, a tech worker bringing in $250k in total compensation has room for about $9k worth of fixed debt in the eyes of a mortgage company. Take $3k off of that for car loans, apartment leases, etc. and you are left with about $6k of monthly borrowing power. This is enough space to acquire roughly $1M in mortgage debt at today’s rates – but this is not likely to generate enough profits to replace your tech job’s total compensation.
Luckily, there is a newer class of loans called ‘Debt Service Coverage Ratio’ or ‘DSCR’ loans that you can use to finance your short term rental property’s mortgage which doesn’t have income or debt-to-income ratio requirements. They simply lend based on the ratio of the property’s projected income relative to cost. Some lenders use the long term rental rate for this calculation, but some even are comfortable using AirDnA.co’s Rentalizer to project income.
So, with all this in mind, you may be wondering what I personally did during my transition.
My Part Time Transition Strategy
Once I launched my first unit and started the building planning process for my second property (a small house with Geodome ADU), I realized that reducing my hours in my day job as a Quantitative Analyst at Google was the only way I was going to scale at the pace I wanted to. I went down to an 80% part-time schedule in February 2022 and knocked Fridays off my schedule.
At Google, this means taking a 20% pay cut in my base salary and bonus, but not impacting the equity vesting schedule significantly. Getting this time back was an incredibly freeing feeling – imagine every weekend being a three-day weekend! I’m still ‘working’ on Fridays, but at my pace and on my projects. Later this summer, when my next two units come online, I plan to reduce down to 60% to focus on operating and scaling additional units. At Google, 50% is the magic number to keep key benefits like health insurance, equity, and more.
My belief is that having ten units in your portfolio is the prime target to get to before going from 50% down to 0%, since you will now likely be making more than you did with just a full-time tech job. This amount allows you to maintain both your desired lifestyle and ability to re-invest going forward. Be sure to calculate this based on your own income and the lending situations available to you. Next we’ll discuss some of the short term rental strategies which will give you an edge over those looking to do the same.
STR Strategies to Crush the competition
What Types of Units to Buy?
To pull off this career transition, you’re going to need to strategize over how to make your STRs stand above the crowd, and how to hold off future competition. AirBnB’s 2022 Summer Release has intentionally shaken up the world of short term rentals, putting more of an emphasis on unique and luxury experiences to the detriment of condos and more ‘vanilla’ properties.
Unique properties have a higher conversion rate for AirBnB and thus a higher earning potential, so it makes sense why AirBnB would try to redistribute views and bookings to lesser known destinations with higher quality accommodations.
I believe the best way to both endure and maximize profits is to not provide commodities, or ‘cookie-cutter’ properties. For that reason, I tend to acquire or build properties in vacation destination areas rather than cities. I also prefer to build new properties where I can avoid things like bidding wars and a lengthy renovation process. I also make sure the property is designed uniquely for AirBnB and that I can hold costs down to the building price/sqft in my target area, rather than pay market rate per sqft for existing properties. This will give you considerable cost savings. Now that you have a framework for what type of properties to prioritize, let’s talk about self-management of these units and the use of automation.
Self-Manage and Automate
Property managers are expensive. Most charge 20-35% of gross revenue, and this fee can reduce a good STR investment’s projected profit down to levels where it barely makes sense given the risks and potential liability. I highly recommend that if choosing to make this transition, you self-manage your units – at least at first. Not only will you make significantly more money, but you will also receive more favorable reviews and ratings by providing a better customer experience.
To reduce your workload while self-managing, you should follow some automation best practices to significantly reduce the time needed to run a unit—my current estimates are 1-2 hours per unit per week. Remote management is also a lot easier than it seems once you read up on the various aspects you need to manage. It really comes down to maintaining a roster of housekeepers and repairmen that you trust.
Your automation strategy should be as follows: start by automating 80-90% of guest messages, including Welcome, Check-in, and Check-out messages. This is easily done through AirBnB itself or using any major STR Property Management Software like Guesty—NOTE: SVIC members are eligible for a 14 day free trial when they use this link. Cleaner scheduling and payments can also be mostly automated with tools like TurnoverBnb. Lastly, consider automating your pricing with websites like Pricelabs to ensure you are maximizing revenue. I also recommend using smart home devices like cameras and wifi entry locks, especially brands where you can automatically set the guest’s house code.
So, now you’ve got some high quality, unique units in your portfolio with an effective self-management strategy in place utilizing automation – you’re in a great place and can plan for reinvesting as you grow.
In order to scale as fast as possible, your goal should be to reinvest all profits from your portfolio into acquiring more units. This compounding growth strategy will get you extremely far in just a few years, and your rate of acquisition increases dramatically as you approach years 2-5.
Transitioning to a new and vastly different career can be a scary experience, but having the advantages that come with being a tech worker, and being able to work both remotely and part time makes the process much easier. Getting into short term rentals is kind of like starting your own franchise model–or ‘business in a box’ where you can quickly learn from your first unit and scale with efficiency and experience. If you are interested in pursuing a transition into full-time real estate, create a transition plan and focus on providing unique experiences along with top-notch customer service.