Avoid The REAL Worst Case Scenario

Worst case scenario for Airbnb "investors"

Investors have the wrong idea. No one wants negative cash flow. But so many investors actually go into deals okay with it. How?

We never invest in real estate unless you can stomach the worst case.

Warren Buffet’s famous two rules of investing: First rule: don’t lose money. Second rule: refer to rule number one.

That’s the mantra to live by. It’s certainly easier to follow with short term rentals. Short term rentals specifically are known for incredible cash flow.

So what is our real “worst case”? 

In the video, I go over some unexpected costs in Airbnb investing. These are costs you HAVE to pay and some that are made worse with guests. 

We never want to go into our own pockets to pay for a property. 

So in the video, I share why you simply should not accept it as an option. I go into some bad situations that I’ve seen many times that force investors to sell their property when they really, really don’t want to.

I share how we prevent this from happening. I share how we should actually be thinking about the worst case scenario in our investing, and what we can do to prevent it.


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Expand Transcript

Today we’re gonna be talking about the absolute worst case scenario for Airbnb investors. If you’re investing in Airbnb or you’re thinking about investing in Airbnb, you want to make sure you watch this video. So we can go over the worst case scenario, and that is breaking even. Now, don’t get confused. Your worst case scenario on a property should not be losing money. If it is you’re buying the wrong properties, or you’re not doing your due diligence properly, you want to make sure you’re disciplined. So listen to this video, I’m going to share with you how you can make sure that your worst case scenario is still acceptable, you should have an acceptable worst case scenario, you should never make an investment where the worst case scenario is not acceptable, not something you can stomach. Because if you do, then you’re risking wiping yourself out and wiping out all the growth you’ve created. Like Warren Buffett says rule number one of investing don’t lose money. Rule number two, refer to rule number one. What he’s saying here is that it’s so important as investors that we stay disciplined, and that you don’t allow yourself to expose yourself to unnecessary risk or unacceptable risk, where you’d be losing money. So that’s why if you checked out any of the other videos on this channel, where I analyse properties, I always talk about two things. One is making sure that the cash on cash on a short term rental is at least 15%. If you don’t know what that means, check out some of my other analysis videos. And check out the free training link description down below. We’ll walk through in great detail. But you want to make sure that you’re at least making 15% cash on cash return on a short term rental property typically more like 20 to 25 30%. And then you also want to look at your worst case scenario. That’s the second thing that I always point out. That worst case scenario should be breaking even. Now, a lot of you guys probably didn’t even think about why that is. Why is it that we arbitrarily set breakeven as the worst case scenario? Well, we want to make sure that in a worst case scenario, we’re never going to be cash flowing negative. So think about it. What I mean by these terms is if you think about a property, there’s all kinds of expenses to carry, and then to operate that property, that’s essentially how it can be broken down, you can get a little bit further into it like maintenance and capital expenses. But for the sake of this, let’s just talk about your carrying and operating expenses on a property, your carrying costs are just the cost that you incur every single month to hold on to that property. So that’s typically going to be your mortgage, it’s going to be your insurance, it’s going to be your your hydro, your electricity, those are the expenses that it cost just to carry the property. And then you’ve also got your operating expenses, you could put electricity into here, because obviously electricity is gonna be greater when you’re offering the property as a short term rental. Another one would be your sundries things like toilet paper, dish soap, hand soap, paper towel, that sort of thing. And other one’s gonna be your cleaning expenses that you’re gonna incur as you operate the property, you might have some software expenses, things like that. And so every single month, it costs you money to hold onto that property and to operate it. But every single month, you’re also going to bring in revenue, as long as you’re making enough that you’re at zero, you’re at breakeven, that’s acceptable, because it means that you can go and work your nine to five or run your business. And you never need to take that income and put it over there. You never need to take that income that you’re earning that you’re working for, and put it towards holding on to the property, the property is self sufficient mean that the property pays for itself, you don’t pay for the property the property pays for itself. If you drop below that, then suddenly, every month you’re having to take out of your earned income from your business, from your job, whatever it might be, and put it over into this account to carry that property. And then that might be all well and good with you. You might be saying well, and only cash flow is negative a couple $100 A year and people notoriously say this with long term rentals and they go well, I’m buying for the appreciation or I’m buying for the equity. And sure, it might only be a couple $100 A month right now. But my question to you would be one, why would you accept that? And two, what are you going to do when that couple 100 becomes a couple 1000 Because the economy takes a turn for the worse or something else happens. And now suddenly, you’re in a worst case scenario where it’s costing more, or what about when that couple $100 month gets to be burdensome because you know, maybe you have some unexpected expenses caught up in your personal life or you get laid off from your job. You never want to be w paying for your investment. You want your investment to be paying for itself you want your real estate to produce positive cash flow is the goal. But breakeven is the absolute worst case scenario the worst that we will accept anything less we just shouldn’t shouldn’t be accepting. I’d encourage you to not accept a worst case scenario that means the property will cash flow negative guys just want to take a quick break here to say that for those of you watching who want to build cash flow and long term wealth by purchasing Airbnb ease and short term rental properties, there’s a link in the description right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb ease. Now if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties. There’s actually another free training linked in the description down below as well. There’ll be are really great fit for you. So whether you want to invest in short term rental properties and actually build amazing cash flow and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income, managing other people’s properties on Airbnb, we’ve got some awesome trainings that are linked in the description down below. It’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below. And when we calculate this worst case scenario, there’s a number of different ways that we do that, we want to look back at several years of backdated data to see how poorly the property could have performed back in history. If things took a dive, we also want to look at some of the poor performers in the market. So rather than just looking at the 90th percentile and 75th percentile data, I mean, the top 10 and top 25% of the market, we also want to look at just the top 50% And maybe even the top 75% right look at some of those poor performers, backdate the numbers, see how bad it get. And so if it could get worse, it could get conceivably so bad that you would be cashflow negative on the property. That’s to walk away from that deal. The other thing you want to make, make sure you’re accounting for is your time. You don’t want to accept a worst case scenario where on your time, you’re not you’re actually losing money, right? Because it’s not like this thing is gonna run itself. It’s not like it’s gonna find the deal itself. Yeah, sure. Long term, you may be able to set it up. And you will likely if you have the right systems be able to set it up so that it’s not taking a bunch of time to operate on an ongoing basis. But it’s still required time for you to set those systems up. So it could operate nicely. It also took time to find the deal, analyse the deal purchased the deal, all these other things that are taking up your time. And so you want to be rewarded for that effort, you want to make sure you’re getting at least even in a worst case scenario, your principal paid on the mortgage and your appreciation over the long term. You don’t want to be in a position where investing your time just so you can lose money, who wants to invest time and money for the reward of losing money. Terrible, don’t do it. So just make sure that you’re discipline, there’s two things you can do to avoid getting any worse than this worst case scenario. And really, it comes down to really just want Honestly, I was gonna say the second thing was, you know, making sure you put the time into optimising performance. But honestly, you shouldn’t even need to do that. The one thing that you can do to avoid this worst case scenario is finding the right deal doing proper due diligence, analysing properties. With discipline, you want to make sure you don’t get emotionally involved in the acquisition process. So many people fall in love with properties or just make hasty decisions, because they’re excited, and they just want to get their hands on some deal. They want to get cash out of their bank account and into a property into an asset. And I get that, especially with inflation doing what’s doing right now, a lot of people don’t want to be holding on to cash. But you really don’t want to be holding on to a negative cash flow you want, it’s even worse than holding on to cash it’s holding on to a negative cash flow, you want to make sure you’re holding on to an asset that’s going to retain its value that you bought at a good price where you’ve got some built in equity. And that’s going to cashflow positive for you. So again, just make sure that you’re discipline, don’t get emotional in the buying process, make sure that you understand how to do the analysis and how to account for the worst case scenario. And just make sure that when you’re doing that analysis, you don’t accept anything worse than a worst case scenario of breakeven. Again, if you want to learn more about exactly how to run those analyses, how to make sure that you’re not going to be doing any worse than breaking even and total worst case scenario, and that you’re ultimately going to ideally and in most cases, be making 1520 30% cash on cash return and the market conditions we’re dealing with right now. Then check out the links in description down below. There’s free trainings there that will help you out there’s other videos all over this channel that will help you that as well. If you liked this video, if you agree with me, if you just want to help me out growing the channel, then hit the like button. It really does help me out a lot with YouTube’s algorithm growing this channel getting these videos in front of more and more people. And if you liked this video a lot then hit that subscribe button. I post two of these things every single week on this channel helping you to earn more and learn more with Airbnb and short term rentals. So make sure you hit the subscribe button. Make sure you hit the like button and I’ll see you in the next video.

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