How to invest in this real-estate trend.
By Jenny Hoff, Photo by Tierra Mallorca
What would you do with an extra $600 a month? Most people would spend it, save it or add a little extra to their 401(k). When Austin-based freelance writer John Egan refinanced his mortgage and started saving $600/month, he decided to commit the extra cash to a much bigger investment to change his financial future.
In February 2021, while the world was still on lockdown and travel sparse, Egan decided to get into the short-term rental business. Finding Austin too expensive, he looked at cities where he had family or friends, while still being popular travel destinations. Nashville seemed a good place to start. Using a realtor friend of the family, he found a charming home with Insta-worthy decor in the world’s country music capital.
Find out how much you can borrow
Seven months later, he is closing on his fourth short-term rental property—this one in Gatlinburg, Tennessee, near Dollywood. “It’s been a whirlwind of a year,” says Egan. “But when you’re applying for loans, you see how much you can borrow. I was surprised by how much I qualified for.” His other properties are in Palm Springs and Galveston, Texas.
Loans for investment properties are a little stricter, with most needing about a 25% down payment. But Egan says having patience and keeping emotion out of the transactions will help you find the right properties and avoid overspending.
“A lot of this has been a leap of faith,” he says. “What has really helped me along the way is fantastic realtors, a good working relationship with lenders and I’ve done my research on towns that do well with short-term rentals. You need to have a bit of an entrepreneurial mindset when you are taking this on. This isn’t a hobby; this is a business.”
Keep your day job
Once Egan got the short-term rental bug, he started cashing out other forms of investments he had to make down payments for the properties. He ensures each place is furnished with character, so it’s not just a place to stay but also a place to photograph and share on social media.
All of this takes work. Egan wanted to keep his day job, so he opted to hire management companies to run each property. Even though they take 20-30% of the profits, they also take care of all the little details and marketing that he wouldn’t have time to do.
Treat your rentals like a business
One of the hardest lessons when buying a property for an investment versus a personal home is to look at it with an objective eye and be willing to let something go if it strays from your budget. “You’re never going to find something that you are 100% in love with,” says Egan. “You might ask yourself, ‘Would I live there?’ Maybe not. But, ‘Is this a great place for a short-term renter?’ Yes.”
Although Egan has moved fast in the past year, sweeping up multiple properties, he says he does his due diligence on each area, how much rentals bring in, whether he can turn one property into two revenue streams (i.e, a duplex), property tax implications and upkeep. The other secret is to find a local realtor who really knows the market, has experience in finding short-term rentals and can guide you to the right property. Real estate investing can feel a lot scarier than the stock market, but even if times get tough, John Egan knows he has property he can sell and prices he can adjust, giving him more power than the stock market allows and a huge potential for a solid passive income stream in his future.