Episode 200: Setting yourself apart in short-term rentals with Alex Jarbo
A native of Detroit Michigan, Alex Jarbo didn’t grow up wanting to be a short-term rental developer. In his teenage years, Alex developed a deep respect for engineering, especially aerospace engineering. But like most teenage dreams, that took a back seat to the needs of life, wherein he served 4 ½ years in the United States Marine Corps Honor Guard. In his last few months of serving, he realized he didn’t want to re-enlist, so he thrust himself into any real estate investment classes he could before beginning his real estate professional career at the age of 22.
Alex founded Sargon Investments in 2021, a short-term rental development firm. When Alex first entered the short-term rental market, he discovered that pre-existing structures didn’t fully suit his needs or goals. As a result, Sargon Investments took the initiative to construct custom properties to provide guests of short-term rentals with an exceptionally unique experience. Through Sargon Investments, Alex has a goal to develop 650 cabins in the next 3 years.
Like many entrepreneurs, Alex believes in sharing his knowledge and educating others. He does this by hosting a YouTube Channel by the name of “Alex Builds” (https://www.youtube.com/c/AlexBuilds1), and by providing a free masterclass on short-term rental development via his website, www.alexjarbo.com.
FLIPPING, LONG-TERM RENTALS, & SHORT-TERM RENTALS
Originally, Alex was interested in flipping houses. Flipping is where a buyer searches the market for less-than-desirable, even broken down, houses to invest in, fix while maintaining as much of the existing charm as possible, then put the renovated house on the market for a profit. In fact, while he was still in the Marine Corps, he began a mentorship for flipping houses.
That was until he realized that the bulk of his mentor’s long-term wealth was tied to short-term rentals. He discovered he could make approximately the same amount of profit from 10 long-term rentals as he would from one short-term rental.
Flipping, long-term rental, and short-term rentals are all profitable. Each has its positives and negatives:
- Flipping: While profitable, it requires a lot of up-front capital to get started. It is also incredibly hands-on and usually requires you to outsource contractors, inspectors, and other professionals to make sure the structure is safe and up to date.
- Long-term rentals: Like flipping, you’re going to need a chunk of change and investigate more spacious properties to fit families, established or growing. Unlike short-term rentals, you usually needn’t furnish the home, but you need to make sure everything is safe and livable to avoid future malfunctions from daily use.
- Short-term rentals: Again, you’re going to need a fair amount of money to invest in pre-existing properties on the market. A lot of pre-existing homes on the market aren’t optimized for short-term rentals. You will also have to invest in furnishing the home in a way that draws renters in, versus them just choosing a hotel for their stay. Not only that, but the short-term rental market is starting to become heavily saturated.
Each paradigm for how you get into the real estate investment market is going to take planning and money up-front. You must do your due diligence and determine what your budget can realistically afford, what your end goal is, and how much involvement you want in the property.
For what he had saved while serving in the Marine Corps, he found that pre-existing properties on the market were out of his price range for his short-term rental goals. As a result, he decided to build from the ground up. In the end, it proved to be beneficial. As of this episode, Alex has:
- Turned one development into multiple
- Brought in investors
- Brought in some joint venture capitalists
- Developing $10 million in just short-term rentals, with hopes to triple that by next year
DEVELOPMENT AND PRE-EXISTING PROPERTIES
In Alex’s case, it wasn’t just a lack of savings that kept him from investing in pre-existing properties to create short-term rentals. He had a strong desire to construct distinctive properties that were appealing and offered an experience in and of itself – outside of the larger market that the guest would be traveling to stay in – something he couldn’t really find on the pre-existing market. He focuses on building unique properties such as:
- Barn style
He specifically chooses to build single-family properties rather than multi-family complexes. This isn’t simply because of his creative style, but also because he can easily sell off these properties in the future, if necessary.
Alex will occasionally buy pre-existing properties on the market, but he generally only buys ones with decent acreage so that he may develop them later. Somuch of his business is solely focused on creating new, exclusive “Instagrammable” short-term rental residences- omething the guest will be more than happy to show off to friends and family, and on social media.
AIRBNB/VRBO ISN’T YOUR BUSINESS, IT’S AN ARM
Alex emphasizes that your booking facilitator – no matter if it is AirBNB, VRBO, etc. – should never be your entire business. Short-term rental owners shouldn’t rely wholly on third-party facilitators to book and market their properties. Some of the most important recommendations Alex offers for lightening your marketing load while maintaining buzz and profit:
- Building your own direct booking website is essential. This is logical, as it will remove the bulk of the fees you have to pay for third-party facilitators such as AirBNB or VRBO.
- Influencer marketing is an incredible way to avoid having to constantly build ads on social media. Bring in travel bloggers or YouTuber vloggers and trade your vacancy days for content for the bloggers, or some other amicable deal.
If you allow your business to live entirely on AirBNB or VRBO, not only will they take a portion of your proifts but, essentially, they will control your whole business as you are subject to and can become a victim of their changing policies and algorithms. . Your goal in marketing should always be to maximize your exposure while minimizing your expenses and uncontrolled risk.
YOUR PROPERTY IS YOUR INVENTORY
Most businesses that offer a product for sale have a very clear inventory: you’re selling X number of Y goods for Z price. On the surface, this is equally true for rental properties, whether they are long-term or short-term properties. However, many property owners are unaware that their inventory is more than just the number of properties they have available. Your available booking days are your biggest inventory as a rental owner. Every day that your property is not booked is inventory that is not sold.
In the short-term rental space, there are always going to be times of the week, month, and year that are just not going to book as much as others. Travelers generally come to rent during festivals, conferences, and holidays, however outside of those events, your property is susceptible to sitting dormant. This is where Alex suggests you bring in social media influencers to help market your property. It’s a win-win barter situation: you’re getting marketing, and thus your inventory is not going unsold, and the influencer gets a place to make content.
By viewing your booking days as your inventory for your product, you’re shifting your mindset into a dealmaker’s mindset. You’re going to be more motivated to find leverage in those days and to book those days, sell your product, and in return, be more successful and profitable.
THE NEW EVOLUTION OF BUSINESS
It is no secret that the COVID-19 pandemic has had a wide-ranging impact on business, regardless of industry. Because of the pandemic, some industries saw a boost in profitability, while many others saw a decrease. To acclimatize to this new way of life, every industry had to effectively restructure how they performed business, and this process is still ongoing.
Alex recalls the height of the pandemic and how bookings were practically non-existent in the short-term rental industry. People were staying homed; however, many people in business sectors and other professions still had to travel for work. Many of these professionals would choose a short-term rental over a hotel solely to avoid having to share space with other individuals. Alex elected to raise his prices – primarily to cover more extensive cleaning costs and to compensate for a lack of bookings – and he was able to remain profitable.
While I try not to use the word “recession” since it may become a self-fulfilling prophecy, Alex and I discussed market downturns, the post-pandemic market, and what to do when things aren’t as successful as every business owner hopes. Alex’s top recommendations for us are:
- Even if you’re starting in a stable market, build your business like you’re beginning in a recession.
- Do your due diligence; research previous recessions, and how you can build and maintain your business should a recession happen.
- Look at your numbers, and make sure they work when business is good, and when business isn’t so great. Alex looked at his numbers to make sure they worked not only at 90-95% occupancy but also at 60-65% occupancy.
- Always be conservative in your expectations and in your spending.
INVESTING IN THE ENTIRE GUEST EXPERIENCE
When building a business in the short-term rental market, your goal is to set yourself above the rest. During times of financial distress, many people will choose to not take a long vacation to some far-off destination, rather they will choose to take a shorter vacation merely a couple of hours away from where they live. If you’re looking to get into the short-term rental market, it cannot be stressed enough how much due diligence will play a big role in your success.
- Choose and research your market – while the obvious choice is to choose a market that is a tourist attraction, sometimes that’s not the best choice. Look for markets that have a sustained influx of travelers.
- Market your properties throughout the off-season. Travelers are constantly looking for a good deal, and off-season or a-bit-out-of-the-way lodging is where they’ll start hunting.
- Invest in the property itself to make it appealing to guests both inside and out. It’s not just about making sure they’re not driving a half hour up a gravel road, but also the slightest of details, such as a mural or a cozy fireplace, will attract new guests, and even bring you returning business; Alex prefers to keep his properties travelable by state-maintained roads.
Alex intends to expand his unique short-term rental development firm, with a goal of constructing 650 cabins over the next three years. While he is committed to his objectives, he understands – as any good business person should – that life occurs, the market happens, and things may change. Alex is preparing himself and his business for stable growth potential and freedom as a business owner based on authenticity by conducting due diligence, remaining amenable to the ebbs and flows of the market, planning for both, best- and worst-case, scenario situations, and taking lessons from bad decisions or unsuccessful deals.
Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.