Reacting to Dave Ramsey – 3 Problems with Airbnb

James Svetec 0:00
Hey, what’s up guys, in today’s video, we’re gonna be reacting to a video from Dave Ramsey. He’s talking about three problems with owning and Airbnb that no one talks about. So I’m excited to jump into this and hear what Dave Ramsey has to say, I will come right out and say from the start of this video that I don’t tend to agree with most of the ideas that Dave has around debt and building wealth, I do understand that it serves a particular niche of people that just should completely avoid debt, because they’re irresponsible with it and don’t understand the difference between good debt and bad debt. But I think for those of us who are looking to build wealth, who are responsible, who are financially literate, who understand investing, and who work with the right mentors and coaches in order to be able to do it properly. I do think that, you know, leveraging debt, investing in real estate, and using vehicles like Airbnb, are really, really great tools for building long term wealth. So I both agree with and disagree with Dave on a few different points here. I’m excited to see what his thoughts are on Airbnb. I don’t know that he actually hosts on Airbnb, but I’m sure he has talked to other people that have and has some different points, he’s going to bring up in terms of these three problems. So without further ado, let’s just go ahead and jump right into it. And I’ll see what Dave has to say here.

Unknown Speaker 1:23
David is with us in Dallas to start off this hour. Hi, David. Welcome to the Ramsey show.

Unknown Speaker 1:28
Yes, thank you, sir, for having me.

Unknown Speaker 1:30
Sure. What’s up?

Unknown Speaker 1:31
Yes. So just quick context, my wife and I, when we were engaged in fpu, that was six years ago. We are now $5,000 away from being debt free. Aside from them, our mortgage way to go, I’m just 5000. Yes, thank you. It’s just 5000 left of our of my student loans. Here’s here’s the thing. We’re pastors here in Texas, we are moving to Oklahoma to be pastors of a church there. And what’s awesome is part of the deal is we have a parsonage so we will not have a mortgage payment there. And so my, my ultimate dream is that we are financially independent from the church, I love the church, I would love to one day not even have to take a paycheck from the church. And so what I’m seeing is our expenses are staying the same, our incomes actually going up a little bit with this move. And I would like to turn my house in Texas, into an Airbnb property, and hopefully even make income to take one step closer to being financially independent from the church. And so my question really is, is that a smart move? Or should I just sell my home here in Texas? Profits? I don’t know the way the market is right now I can maybe profit 60 70k Something along those lines from what I’ve seen. And so I’m just asking you what maybe the better or best option is.

Unknown Speaker 2:55
Love your goal. And I don’t dislike your plan. Overall, I would I would sell the house and move the money to Oklahoma, pile up some more cash and pay cash for your first rental in your own backyard. Airbnbs. Have

James Svetec 3:12
see, yeah, that’s personally where I would I would beg to differ. Like if you I wouldn’t necessarily relocate the money over to Oklahoma like move and housing in your own backyard. I definitely would not pay cash for the property. That’s crazy. In my in my opinion for like for someone in this scenario? Yeah, like I would say, it does make sense to look at what am I going to do with that he’s at 60 $70,000. Well, if we keep the money in in the property, then we’re going to get appreciation on that property. We’re going to be paying down paying down equity, like building up equity as we pay down principal on the mortgage. But we’re out of pocket or the property we’ll have to bring that money in through Airbnb. And so I see a lot of people make the mistake of going well, I already have this property because they’re like they have a cottage or they’re moving and they’re just saying, oh, I’ll just keep the place that I that I was going that I’m currently living in and I’ll move and then I’ll Airbnb, the old place. And just because you own a property doesn’t mean it’s necessarily actually a good property to Airbnb. So I would treat it as if you were buying that property again and ask yourself like run the numbers on it, run an analysis and go, would I actually buy that property again, purely as an investment as a short term rentals and Airbnb, if you wouldn’t, then it makes sense to buy a different property where it’s going to give you a better overall return, it’s going to be a better capitalization on that on that money that you’re putting into the property than if you leave it in that property that you already have. That being said, I wouldn’t necessarily say like buy something in Oklahoma. I would say buy something where you want to buy something you can definitely own and manage your property remotely quite easily. So I disagree with Dave on that point. And I also wouldn’t jump to to like wait, let mine Don’t just pile up in cash and then buy a property in cash. Because in reality, as long as you buy a really solid investment that you can afford the worst case scenario on, then having that having that property is not really like there’s no point in not having debt on it, right? Because realistically, if you’re buying a property, and let’s say you’re paying 567 percent interest on the mortgage right now, then as long as you can exceed that in total in total ROI, where you know, the short term rental, your total ROI is likely going to be 30%. or more. If you’re buying a good property, if you’re looking at appreciation, principle pay down like equity building, and looking at the cash flow. So you’re you’re spending 567, in order to make 30. So that, to me, is like a no brainer to do that. And then the other thing you have to consider is cashflow, even though you’re making maybe 30% In total ROI, a portion of that is your appreciation, and another portion is principal pay down the mortgage. And so you’re not necessarily like that, just because you’re making that money doesn’t mean you can afford to keep the property it needs to cashflow positive. So you want to make sure you get a good property that can cashflow at least 15% meaning that you can cover all of your expense in the property and still get a 15% return on your initial investment, then your just doesn’t make sense to have that property for cash. If you can afford to do it with a mortgage calculator that end you have a lot of buffer there. And especially for this guy where like, even in a worst case scenario, we always look for breakeven. But like for this guy, frankly, in this specific scenario, where he’s going to be in a rare scenario where he gets to live in a place where he doesn’t have a mortgage doesn’t have a rent payment, anything like that. That’s like, even if he had to pay out of pocket to carry that one property for a little bit, it still wouldn’t be the end of the world. Now, again, I still think you should look for a for breakeven on cash flow to be your absolute worst case scenario. But for this guy, like buying a property and cash, I think is being so risk adverse that you’re just leaving a tonne of opportunity on the table, because you’re trying to avoid the like, almost like it’s like a 0.1% level of risk. And that risk that worst case scenario still isn’t even that bad. It’s not like if that 0.1% came true, he would lose the property and like, you know, go bankrupt, it’s still wouldn’t even be that bad of a situation for him. So I personally just think that like avoiding debt on this type of purchase is like way, way overly risk adverse. So that’s my thoughts have

Unknown Speaker 7:37
two problems that all the people that talk about how much money they make with them, don’t bring up or they have three problems that people don’t bring up. Problem number one, there’s a tonne of hassle, a lot of details, a lot of work involved in getting the people in getting them out, getting them cleaned, all that kind of stuff. Like probably 25x A normal on a normal rental, because you’ll have multiple renters in a single month. Right. And so you’ve got you’ve got Maid Service, you’ve got a higher level of maintenance, you’ve got a lot of work involved in managing and messing with them. Okay, so a lot of hassle. Go ahead.

Unknown Speaker 8:23
Sorry, interrupt. Yeah,

James Svetec 8:24
so right off the bat, I would say that, like he’s I agree and disagree with Dave, on that point. I think that you definitely have a lot more headache and hassle involved with a short term rental than a lot of people in this space gurus like people that talk about it lead on, a lot of people make it seem like there’s just no work and it’s completely passive. And like, you know, it’s so, so easy. And I don’t agree with that. It’s not completely passive. It’s not completely hands off. But on the other hand, I think what Dave saying here is there’s like a tonne of work, it’s 25 accents, like really, what I don’t agree with is that it’s like completely passive right off the get go, can you make it passive? Can you put in work initially to build the teams and the system so that it can be hands off for you? Absolutely. Can you instead of that pay to have a property manager if your property like if the margin support having a property manager and have it be just as hands off as a long term rental? Absolutely. So you definitely can there’s two different avenues either putting in the sweat equity to build your own teams and systems so that you can have it be hands off and have a be quite passive, or you can pay to have a property manager so that becomes really passive for you. There’s pros and cons to each of those but it definitely can become very passive. So don’t agree with Dave that it’s like inevitably going to be this like hassle and headache and lots of work forever. But it definitely is work early on. And I think that a lot of people in the space Miss portray that and they go oh, it’s completely hands off right from the get go and you can just like set it and forget it and I don’t think that’s true. So I’m kind of in the middle there.

Unknown Speaker 9:58
So sorry, interrupt. Can I just speak to that? I do have family here in Texas that would be managing the property. And so I kind of have a little bit of a built in system where

Unknown Speaker 10:06
which is, which is a bad idea. You’re gonna take you’re taking advantage of your family. Okay? I’m telling you, Arabic. Yeah, I

James Svetec 10:14
agree with that. Like, if you’re not paying them like you either you should be saying like, I’m gonna hire a property manager. I’ve looked at the numbers, the numbers are so good that I can hire a property manager, pay them 20% And still cashflow and have a 15% cash on cash return, that I’d be like, Yeah, let’s do it. You’re, you’re on the right track of being like, Oh, I’m gonna get free labour for my family. I don’t agree with I agree with Dave, they just taking advantage of them. You’re constantly

Unknown Speaker 10:38
buying carpet, you’re constantly buying paint and drywall repair. Because they do not take it. I don’t care how big a deposit you get, or how much screen totally

James Svetec 10:49
disagree with that. I 100% disagree with that. Because like, realistically, whether you own an Airbnb in your backyard, or in a different state or in a different country, as an investor, if you’re putting on your investor hat, you shouldn’t be the one actually going by physically to the property, whether it’s due cleaning, or to do maintenance, whether you’re buying a long term rental, a short term rental, whatever it is, you shouldn’t be that person. So it really doesn’t make it any easier or harder to have the property close by to you. If anything, investing further away. Just kind of takes away that crutch you can use of like, I see a lot of people that buy really close to them. And then they they use that as an excuse, it’s so easy to go by and do it themselves that they never actually have the discipline to like hire the people to do it for them. And as long as you if you’re buying the right property to use a short term rental or for any investment for that matter, you should be able to make a solid return while still outsourcing the the headaches and the hassles.

Unknown Speaker 11:47
Number one with Airbnb is problem number two with Airbnb is is you have a lot of extra maintenance people tear the crap out of your property. No,

James Svetec 11:58
that is a total misconception. Like I complete full on misconception I hear this all the time. And it is just simply not true. If anything, there’s actually way less maintenance on an average short term rental property, like you never really hear about, like aside from these like 1% scenarios where where like someone will come in and have a party and trash the place which I’ll share from my own experience that is fully avoidable if you just do it properly, know what you’re doing have the right prices, the right house rules, et cetera, et cetera, screen your guests properly, or have your team screen your guests properly. Then, aside from those, you’re really never hearing about the same kind of issues you have with like tenants that end up getting evicted, and they like totally ransack the place, don’t take care of it. You also have cleaners going in and inspecting the property like every couple of days, whereas with a long term rental, you don’t have that. So oftentimes people just won’t clean the place. And you’ll have like months and months or years and years of just grime and dirt that’s built up and need to like repaint the property and get a cleaning team in there with like hazmat suits to get it clean, because people just live really grossly and don’t clean the property. Well, you don’t get that with a short term rental goods clean so frequently and maintain so frequently. So I actually fully disagree with this. There is actually less maintenance, if anything, in my experience with a short term rental versus a long term rental. Unless you’re just being totally irresponsible as a host and like letting anyone in your property not doing any kind of guest screening. You’re like the cheapest place in town and attracting the real like Riff Raff. This is just flat out not true. It’s a common misconception. I understand why Dave thinks that because a lot of people talk about this. But it’s usually people that don’t actually have experience with it who haven’t done it themselves who feel this way.

Unknown Speaker 13:48
Nobody talks about that. That’s the dirty little secret of Airbnb. You’re constantly buying carpet. You’re constantly buying paint and drywall repair.

James Svetec 13:59
Carpet. Why would you ever have carpet in any property ever carpets disgusting? Especially a short term rental? Why would you have carpet in there in the first place? have like a nice easy to clean, durable floor and then no, you’re definitely not repainting often. You’re definitely not replacing drywall often. Like the only time I’ve ever had to replace drywall in a short term rental is we have one property where in the basement, there’s like a swing. It’s literally like like this cool, like kind of mesh swing. It’s like aesthetic. It’s meant for like you’ll take Instagram pictures on and it’s literally a swing in the basement. And so one person like swung too far back and broke the drywall and they literally messaged us said hey, I’m sorry, I broke the drywall. Let me know how much it costs. I’ll I’ll pay to fix it. We we requested the reimbursement so like, it really doesn’t happen often. And the other thing that Dave’s not addressing here is that with a long term rental, you often don’t have any real means of getting reimbursement because if you try to claim it on insurance, you’re probably going to have a tough of time, and your premiums are going to go up if you’re claiming, whereas within Airbnb or short term rental, you have the guests that oftentimes in my experience, nine out of 10 times the guest is just going to pay if they damage something. And then any other time that they don’t you can go through Airbnb is liability insurance, which is not your insurance that you’re paying for, it’s their insurance that you get $3 million of coverage with is really robust, you can claim it, claim it. And I’ve never had an unsuccessful attempt at claiming for that. And then as a last line of defence, if you ever need to knock on wood, hopefully you don’t, but if you ever did, then you then have your own insurance, prop your own property insurance to rely back on, so you have way more protection and like the damages that do happen, are not going to be like expenses coming out of your pocket. And they’re way way less frequent than Dave is making them out to be.

Unknown Speaker 15:51
Because they do not take it. I don’t care how big a deposit you get or how much screening you do. It’s not their house. And so you’re going to have a

James Svetec 15:59
Yeah, a long term tenants do not take care of their houses as nearly as well as short term tenants take care of someone else’s house. So I just fill out disagree with this. Based on all of my experience, this isn’t like hearsay isn’t conjecture, this is me having manage dozens and dozens of properties owned a whole bunch of properties that are short term rent, coached and consulted with like, you know, 1000s of different properties. At this point, it is right across the board. Just categorically untrue what David saying here now, it’s just a it’s just a common misconception that people have

Unknown Speaker 16:33
I level of repairs and maintenance, which is part of that hassle factor. The third thing that nobody’s talking about is several areas are now passing zoning, prohibiting it. Right. Right. And so if you set your whole model up only on Airbnb, that you could have the rug jerked out from under you if the only way the deal works is Airbnb don’t do the deal, because it might not be available to you. Now, if you

James Svetec 16:56
Yeah, I actually do really agree with that. I think that if you’re going to do a play where it has to be a short term rental in order for it to work, you have to be in an area where you’re sure you’re certain that short term rentals are favourable to the local government meaning like, if you go into a market that is like has a really, really well established short term rental industry there, they’ve got established regulations, you’ve got a licence for your property, that sort of stuff, like a market like Florida, or some like cottage country markets where that like the local economy depends on short term rental, that I think that if you buy short term rental there, you’re pretty darn safe. And you shouldn’t have to worry about it. But if you’re buying in like a metro area where they don’t have regulations yet, or the regulations are changing, or the regulations are pretty new, then you better be sure that you can flip it over to a long term rental if you need to, and still have the investment makes sense. Because if they regulate against you, and you can’t use it as a short term rental, and let’s say they do that at a time when the market value of your property is down, well, then what are you going to do? Right, you can either sell it and lose a bunch because the market value is dropped. Or you can hold it as a long term rental, but that if you didn’t analyse it properly, and it doesn’t make sense a long term rental, then you’re gonna be cashflow negative. Or you can like what break the law and have it be a short term rental. So that is a big risk. I think Dave is spot on there, you need to do your math, you need to do your numbers, and make sure that either it works as a long term rental as well, which it sounds like from this legging, there’s a good chance that it would, or you you just buy in a market where you have a huge degree of certainty that you’re not going to have regulatory issues down the road.

Unknown Speaker 18:37
You want to run the hassle for the extra money and run the maintenance for the extra money, you’ll make more money. But it’s a lot of work. So I would move the money to Oklahoma, whether you’re gonna do a straight rental, or whether you’re gonna do an Airbnb because it’s in your backyard, and you’re gonna lay your hands on it. And you are a man who controls your destiny. You don’t ask your first cousin to do it. Yes, sir. Yeah, that’s that’s what I would do if I were in your shoes, but I like your overall idea. But let’s just pay cash for a rental and go that way, Christina?

James Svetec 19:08
Yeah, I’ve talked to a lot. Yeah, so that was interesting. Like, I won’t dive into Christina’s take here, but I thought Dave’s take was interesting. I obviously disagree with a whole bunch of it. There were also parts that I did agree with, and I think he was spot on about, let me know your thoughts. Let me know in the comment section down below. If you liked this video, if you enjoyed it, if you got value from it, if you found it insightful, then make sure you hit the like button. And last but not least, if you’re new to the channel here, or you watch the channel all the time and are just not yet subscribed. I know that’s a bunch of you guys. Make sure you hit the subscribe button. Just take a quick second right now if you don’t mind, I’d be a huge favour to me. It really helps me out with the algorithm helps me out to grow this channel and get these videos in front of more people. So just hit that subscribe button and you’ll stay up to date with the two new videos you post every single week on this channel helping you to learn more about Airbnb and short term rentals. All that said, thanks so much for watching. Thanks so much for checking out this video. And I’ll see you in the next one.