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Today’s episode features an illuminating conversation with 
John Bianchi, recognized as an Airbnb data savant and former head of data for the largest short-term rental investment fund in the US. Joining host Dave Wolcott , John Bianchi brings his deep expertise in Airbnb investing, data analytics, and business strategy to shed light on the world of short-term rentals.
Having managed millions as a financial advisor before pivoting to Airbnb, John Bianchi shares his unique perspective on the differences between traditional financial planning and hands-on real estate investing. He details his personal journey—from opening 15 Airbnbs in Chicago to surviving market downturns and establishing a data-driven consultancy that helps investors identify profitable properties across the US.
This episode is packed with practical advice for new and experienced investors alike, focusing on how to leverage data for smarter investments and how to navigate the challenges of the Airbnb market. John Bianchi and Dave Wolcott break down the critical aspects of successful short-term rental investing, including management strategies, tax advantages, and risk mitigation.
Whether you’re looking for tax-efficient cash flow, ways to hedge against inflation, or simply want a resilient investment strategy, this episode delivers actionable insights with clarity and honesty.
In This Episode
- The differences between financial advising and active real estate investment
- How to analyze Airbnb data to find winning properties
- Tax strategies for short-term rental investors, including the STR tax loophole
- Building a resilient Airbnb investment portfolio and managing market risks
You hit your revenue numbers, the chances of you coming back for another property with us go through the roof. But if you don’t, you’re not going to come back for another one, and our business falls apart two years from now because everybody’s losing money left, right, and center — and we should go out of business because we’d be crooks. So therefore, you make money. We do everything we can to make sure your property makes money by designing it right, setting it up right, managing it right, all that kind of stuff. And we get to that point.
If you’re hunting for tax-efficient cash flow while hedging dollar debasement, look no further. Today I’m joined by John Bianchi — Airbnb data savant, former Head of Data for the largest short-term rental investment fund in the U.S., and founder of STR Search.
We’re unpacking the short-term rental playbook that marries real estate with smart alternative investing — from bulletproof due diligence, to what cash flow really means, to using depreciation and cost segregation for serious tax implications. We’ll also dissect preferred returns versus preferred equity, building a resilient investment strategy, and get real about risk management in today’s market.
If you want durable income now and optionality later, this episode is your unfair advantage. John, welcome to the show.
Thanks for having me. I appreciate it.
Yeah, great to have you on today. It’s certainly timely. As tax season approaches, investors are really thinking about where do I place my capital, how do I place my capital in the most efficient manner — especially with this debasement trade going on, and people thinking about how to hedge against inflation if the dollar continues to go down.
We’re always looking to invest in assets where we can get what we like to call the trifecta of tax efficiency, passive income, and lucrative upside. So I’m excited today to talk about short-term rental strategy with you, John, discuss some of the tax structures, restructuring, how that works, how some of the investments really work, and really the future livelihood of Airbnb.
Because it has certainly been an evolving model and under pressure of late. So welcome to the show.
Yeah, I appreciate you having me. I’m going to leave all the structuring and tax conversation to you, and I’ll talk about Airbnb data, investing into Airbnbs, and the long-term viability of Airbnbs. That’s my wheelhouse without a doubt.
Awesome. And just as a disclaimer, we are not CPAs or financial advisors, so please seek a strategic tax planner to work with. However, as part of the tax equation, what I’ve learned throughout my journey is that more than 50% of the tax equation comes down to your intellectual capital — how much you actually understand about taxes, the tax code, how it’s working, so that not only do you have the right CPA on your team, but you can ask them the right questions.
Every time you think about deploying $1 or spending $1, are you doing it in the most tax-efficient manner?
So, John, let’s kick this off. Talk to us a little bit about your background and how you really got into this Airbnb and short-term rental space.
So, I used to be a financial advisor and I hated the day-to-day of that. I was younger. I was, you know, from the ages of 21 to 24 is what I did. Eventually got to the point of managing about $10 million and just realized that this wasn’t for me. Had about two clients, had a business partner, all those different things. And it was one of those areas where I just felt like I really couldn’t go deep enough to become the expert that I wanted to. And I was actively looking for something else to do and I was able to find Airbnbs. I loved traveling. It seemed like this model that could technically work if I did it a certain way.
I ended up opening about 15 Airbnbs out of Chicago and those were rental arbitrage slash property management. I had a cleaning company there. Then Covid came around and completely wiped out that business. And it was a lot. It was hard at the time. You know, Covid hit that industry really hard, especially if you’re in the middle of a city. But I realized at the time that I really loved Airbnbs. But the one thing that I did actually best in the Airbnb world was understanding Airbnb data. And I thought to myself, is it possible to make a business out of this? And I spent a lot of time trying to answer that question.
And I eventually ended up working with the largest rental investment fund in America as their head of data and was able to help them identify 150 plus properties. Every single last one of them is profitable. And then from that, I took that knowledge and experience of analyzing all these different properties and opened a company that worked with everybody and anybody to help them identify what would make a property that would make for a good short-term rental. And so I have this long journey of investing and Airbnb experience and management and data and all of that stuff that has led me to the point where people now hire me to help them invest into Airbnbs using data and being strategic about the entire process.
So, from a strategic perspective, what did you learn about being in financial— as a financial planner versus getting into short-term rentals and investing in real estate? What are some of the big differences that you saw and took away?
Well, the biggest difference is Airbnb is— or sorry, real estate in general is far more tangible, but that’s not the word I’m looking for. Here you are, a lot of it is on you. Right. It’s far more active. You have to learn a lot more to be able to figure out exactly which property you should get. There’s a lot more additional work that goes into the day-to-day of operating it. Whereas when you’re managing somebody’s portfolio that’s investing into mutual funds, they’re essentially handing you their money, putting it into any type of account, and then you’re investing it into the mutual fund that makes sense based off of their risk portfolio.
And so what I learned with financial advising was you wanted to be strategic in what they’re investing in and you wanted to be risk-averse and you wanted to make sure that the whole portfolio was set up in a way that would ensure that it would be beneficial during the peak times and also protect them during the down times. And that’s the pretty standard structure when you’re working with retirement funds. It’s not overly complicated if you’ve been in the world for longer than a year. And so when it comes over to the Airbnb space or the real estate space, as an investor you have to be far more active in comparison. You have to understand the nuances of Airbnbs or of real estate.
You have to understand all the different options that are out there and which one is best suited for you, and then put in a lot of work to be able to find the investment that’s actually going to turn a profit for you. And there is more potential upside from that due to the tax benefits and the appreciation and the cash flow that can come from these types of investments. But it’s significantly more work. One thing that I love from my experience that I found very beneficial is that when I was in financial advising, it was a lot about a holistic approach. So it wasn’t just about this one investment and this $10,000 that I was investing. Even though I had $100,000, it wasn’t just about this 10%. It was about the entire portfolio when somebody was investing. And what I’ve realized on the real estate side is that a lot of people think about it investment by investment. And that investment could be 5% of their entire portfolio, but they’re not thinking about how it encompasses their entire portfolio and how to build a strategy around all of that. And so I like taking that approach and knowledge and experience to the real estate side. And I find that it helps be a little bit more strategic with our clients as to what type of property might make sense for them based on their current situation.
Yeah, absolutely. One of the big distinctions that I think is important for listeners to understand is that working with Airbnbs is a very active approach. You don’t need to be an accredited investor to get in, versus a lot of times we’re talking about syndications from the passive standpoint— how to invest in real estate from that standpoint. And I think there’s basically pros and cons to each. And some of the pros around active investing are it’s a great way to grow your net worth and passive income and reduce taxes. If you’re non-accredited, number one, it’s a great opportunity. And then there’s another strategy that I really like for people as well. This is doing a strategy stack where, let’s say the bulk of your investments are in passive investments, but what you do is set up a couple of Airbnbs and put that under an entity. And maybe if you have a non-working spouse, they can create a holding company to manage those couple of properties.
And now that spouse could qualify for real estate professional because they’re doing that full time. Right. So now not only are you going to get some of the active income tax offsets for short-term rentals, depending on how you structure that, but now you can also get passive losses applied to your active gains for your overall AGI.
So, yeah, I’m going to leave all that stuff to you. That is the area I’m still learning. But that is very interesting. And with the, you know, you said the real estate professional status, one thing to call out there. When it comes to short-term rentals, the qualifications to be able to write off active income are significantly lower. Right. Because it’s treated more as hospitality rather than residential real estate.
The qualifications are, you know, a hundred hours, seven days or less of rental bookings on average throughout the entire year, and you did 100 hours or more than anybody else, and you had more than, you know, a couple of bookings throughout the year. And so to meet the qualifications for the STR tax loophole in comparison to REP status is lower.
Absolutely. Yeah.
Which helps there.
Yeah. So I think you could potentially do both depending on your situation. Right. Which is a cool strategy. So let’s talk about the overall Airbnb market a little bit. Right. I know it’s been under pressure in the past year.
There’s a lot of community governments, county governments, state and local governments trying to impose certain things on them in terms of operations, trading, and things like that. So I know that could be a risk to your asset. And then the market has been having some decline. So tell us about just market conditions overall and what your forecast looks like.
So I’ve been doing this since 2017, and in 2017, everyone was telling me about how scared I should be about the regulations that are changing and coming up. And every single year, it’s been the exact same thing. Naturally, after being in it for so long, this is something that I’ve gotten very used to and understand how to navigate. Some markets are still actively changing their regulations and continuing to ban. Palm Springs, California is a great example of that. They just keep pushing more and more regulation on people to the point where it’s making it almost impossible to do.
But there are so many other markets out there that have established, “These are our rules. Play within our rules, pay your taxes, everyone’s happy.” And those are the markets that we like. Those are the markets that make the most sense. They are traditional vacation rental markets or at least have some component of travel tied to their economy. And therefore, we’re not overly concerned about them changing their regulations anytime soon. Right. So a lot of the headlines, when you’re in the weeds on Airbnbs like I am—it’s literally all I do every day—kind of just bounce off us. Because we know they’re just news that people are trying to use to fear-monger and get clicks.
And so all of the regulation scares are in markets that make zero sense to go into. And everyone knows with a half-hour of researching that you shouldn’t go into that market in the first place. And then when it comes to the idea of this downturn, that is also another thing where I’m not seeing it. And then the idea of the Airbnb bust or people not performing well at their Airbnbs— I do see that, but that’s actually not market dependent. That’s just people doing a poor job of buying the right home in the right area and setting it up the right way. On that first piece of the downturn in the market, we’ve— I’ve personally searched over 500 different markets across America to try and find markets that could produce a lot of profitable rentals.
And we have 32 across America that work really well. And in some markets, we’re seeing properties go— we just had one go $55,000 over ask very recently—whereas in other markets, they are going below ask and you can get a deal on it. And it really just depends on the property and the market and where you are within the country and how that state’s economy is doing is what we’re seeing. And so I don’t think it’s a countrywide thing. I think that’s more certain parts of the country. And I know that based on actually helping people buy properties all across America right now.
And so that’s the first piece. I want to say the second piece, when it comes to how people’s properties not performing well and the Airbnb bust and people losing their shirts on Airbnbs— that is happening. Without a doubt, that is happening. And the reason being is because people are buying properties that are in the wrong location for the wrong price and setting them up the wrong way. What I mean by that is not every single property makes for a profitable short-term rental. You’ve got to find it in a place where there’s the right amount of demand, but also the purchase price isn’t obnoxious for that area. And therefore, you can get a property at the right price where there’s enough demand to offset your expenses.
Obviously this is kind of like one-to-one, but people aren’t analyzing the data well enough to understand what a property could truly make. And they’re also not studying their competition to know how to outperform them. And I always like to give the example: If I was going to open a sandwich shop or a pizza shop in a town, I would want to research all of those other pizza shops or sandwich shops. I would want to understand what their pricing is, what they’re offering, what their logos are like, what the design is like, what the layout of the kitchens is like. I would want to understand how they operate.
Instead, a lot of people are opening up pizza shops and sandwich shops acting as if there’s no competition and just kind of opening and being like, “Well, it’s available. It’s an option. People are going to walk through the front door.” And it’s like, no, that’s not the case. You’re in competition. There’s a thousand other Airbnbs around you that are doing things that are more attractive in comparison to what you’re doing. Therefore, they’re going to get the booking and not you. And the only way you’re going to get a booking is if you lower your price like crazy and then you get somebody who wants a discount to go to your home because you didn’t understand your competition before entering that market.
And so, in my opinion, a lot of the times when people are having these Airbnbs that are failing, they didn’t do enough research on the front end to figure out which home actually made sense to move forward with. And the proof that finding an Airbnb is hard is that my company exists. If finding an Airbnb was easy and they were just all over the place and people were profiting really well and it was a straightforward thing to get into, my company wouldn’t need to exist. So I answered three questions there very quickly. I hope that was all right.
Yeah, I think a big takeaway really is to understand you’re creating a business, right? It is a business. So if you have an Airbnb, you’re a business. So just like a franchise or any other business, you need to understand there’s competition. You need to be able to know when to buy, right? You need to be able to be in the right market. You need to be able to figure out how to market, how to manage for profitability, all of those different things. And I think what’s probably unique about this asset class is that there’s a low barrier of entry.
Basically, anyone can get in and say, hey, I want to make money on this short-term rental. And people can kind of hustle and do that, but they may not necessarily have the business sense to pull it all together, or the data, as you say, to really analyze it and do it right, which is probably a really fantastic lead-in to what you guys do. And so before we break that down, I think it is really important to just highlight that to the listeners — that what John is doing is really the ultimate form of leverage. We need to, as investors, look to see where we can get the maximum amount of leverage. Sure, with real estate we can borrow debt and we’re thinking about that leverage, but he’s bringing you leverage in terms of intellectual capital.
And all the expertise that he brings from studying all these different markets, all these different transactions, to increase your probability that you’re going to be profitable, you’re going to be successful with this venture. So that being said, if I was a net-new client for you, talk through the success criteria of buying an Airbnb — what are the things we need to be thinking about, what are the steps that you take in terms of identifying that to make sure it’s the right fit?
Great question. Honestly, great question. Nobody really asks me that question, and I feel like I have so much to talk about when it comes to that. So let’s say that you wanted to invest and you had $300,000, right? And you’re like, I’m going to put $300,000 towards a short-term rental — what should I buy, where, and how’s that going to work, and what do I need to be prepared for? So a lot of people we have coming through, it’s their first Airbnb. They want the tax advantage, but they also want to do it right. And now they’re creating a portfolio based around short-term rentals because of the tax loophole, and they know that it could produce some cash flow.
And so they’re coming into this with minimal understanding of the Airbnb industry in the first place. So just having some sort of general understanding of an Airbnb — what it takes to operate, what it takes to work — I know there’s a lot of moving parts, but just watching YouTube videos and hearing from other people about what it’s like is a super helpful thing just to get a ground-level understanding of what you’re getting yourself into, right? And so I’m going to just treat you like a client. Let’s say you have $300,000 and you say you’re going to hire us and we’re going to try and find you a property. What we’re really good at is finding properties that have potential to turn a profit. But what we’ve learned to get really, really good at over the past year and a half is understanding your preferences and what you care about, and then matching those two. Because even the people that come through and say, I have zero preferences, they still have preferences when we start to show them properties. And so on day one, what we are going to do is ask you a whole bunch of questions — your budget, what you like, what you don’t like — and we’re going to ask it in a form that gives us directionally enough information to start putting properties in front of you. But on this onboarding call is where we’re going to learn a lot of information.
So you hop on this call, and we’re going to have five properties in about four or five different markets that are all within this $300,000 investment amount. And the purpose of the call is to get you to tell me what you like and what you don’t like. And we’re going to walk you through this. We’ll show you a market, explain why this market works, show you the comps in the area, show you the property, how we’re going to set it up, what your demographic is going to be, why this matters, and how you’re going to be able to outperform the people who you’re going directly up against — and then forecasting what that revenue is going to be and obviously doing a full underwriting so you can see what the expected cash-on-cash and cash flow would be for a property like that. And also tax savings. And so typically, all of our properties, regardless of your investment amount, are going to fall where the cash-on-cash on the low is somewhere between a 7 to 10% cash-on-cash. On the high, it’s going to be somewhere between a 17 to 20% cash-on-cash. So you’re going to fall within this range with every single property that we show you.
And so if all the cash-on-cashes are relatively going to be the same, what matters is what market you prefer, what property structure you prefer — a cabin, a beach house, a desert home — things along these lines are going to mean so much more. A direct flight from where you live so you can get to it more easily without having to take a layover and then drive three hours to get to the property; it takes a full day to get there if you ever want to go. These are all the different things that we have to try and understand. And so the first thing is we’re going through these five properties to see, okay, here’s property number one.
Here’s the market, here’s the idea. What are your thoughts? What do you like, what do you not like? You give us a little bit of feedback, and we do it on the next one and the next one and the next one. By the time we get to the end of this call, you’ve told us so many little things that you may not even realize, and we now have this checklist in the back of our head that we’re making notes on, saying, okay, we’re not going in the mountains at all, and we’re not going into these blue states whatsoever. And we’re not going over here. And you have all these different little things. And then from there we go, okay, you may not like all those five properties. You may say, I just don’t want any of them.
We go, okay, that’s fine. We’re going back to the drawing board. We have more information. The next property you’re going to see is going to be far more aligned with everything that you care about. And the next one after that, and the next one after that. And what happens is our first goal is to get you to say, I like X market. And the reason being is because once you decide that this is the market that meets your budget and preferences, you will start to study that market. You will start to understand it.
You’ll start to see multiple properties in that market and start to see what we see. When you see a property, you’ll understand how it’ll be put together, why it’ll be better than the competition, and you’ll start to get these reps in that allow you to understand why it’s going to be a good deal. And those reps allow you to feel confident with investing $300,000 based off what we’re saying. And so it’s this process that we put all of our clients through that eventually gets them to the point to see what we see. And then once they see what we see, they then feel confident to move forward with the property and go through the process of actually getting it up and running. And so we’re not coming in and coaching — I don’t find that very effective, but it works for some people; it’s just not what we do.
What we’re doing is guiding you to a market, guiding you through what you need to know about that market and the property, and then getting you to feel confident enough to put an offer in on the property. Then once you put the offer in on the property, then we’re connecting you with people and resources to get the property set up in the way that we have recommended, that we have suggested, based on that demographic for that property, so that it’s one of the best properties within that market and can have a little moat around it and be able to hit the revenue numbers. Because if you hit your revenue numbers, the chances of you coming back for another property with us go through the roof.
But if you don’t, you’re not going to come back for another one, and our business falls apart in two years because everybody’s losing money left, right, and center, and we should go out of business because we’d be crooks. So therefore, you make money — we do everything we can to make sure your property makes money by designing it right, setting it up right, managing it right, all that kind of stuff — and we get to that point. So I said a lot there.
Yeah, no, that makes sense. You’re completely customizing it toward the client’s needs. It totally makes sense. Talk to us about time commitment. All right. I think this is really an interesting dimension, right? Again, this active versus passive investing. Most people out there are already super, super busy.
And time is the biggest constraint that we have with an active investment. Right. So let’s say you helped identify the property, someone bought the property, and it’s performing well, and that’s great. But what could someone expect in terms of their time commitment? Do they need to go out and check on the property? Do you help set up property management in case there’s repairs or things that need to take place over time? Or can you make this thing kind of plug-and-play and still profitable?
So each person can be a little bit different. It depends on how much they want to research, I guess you could say, or review things. The very first client we had, we started on Monday with them. We showed him a property, we showed him one property, he had it under contract on Wednesday, and that was his full time commitment to the point of getting that property going. Now obviously there’s the other stuff of setting it up, but I’ll get to that in just a second. Some people will come through and they’ll take two, three months of reviewing property after property after property, even though every single property is very similar to the previous property. They just always find something that they don’t really like.
And it’s like we just have to go, okay. I can’t force your hand; it’s not my money. So some people take longer than others simply because of their own way of being. Through that entire phase, our median time to get under contract over the past eight months is 27 days. So half are going under contract before 27 days, half after 27 days. And then we have the handful of outliers who are much quicker or much longer. So that’s about 27 days to go through this entire process to get a property under contract.
Now that’s going to take a lot of back and forth between us, but it’s mainly just emails, hopping on phone calls with the realtor, getting your lending set up, all the typical stuff that you’re going to go through when you’re in that hunting phase of trying to find a property. About 27 days, which if you were to do it yourself, I can almost guarantee is going to be longer than 27 days. But some people can move pretty quickly. And so that’s the first component. Now the second component is going through the due diligence phase. That can be 7 days, 21 days, depending on the market that you’re in. And again, it’s a lot of stuff that’s happening while you’re not there. They’re getting an inspection, you’re getting a foundation reviewed, you’re getting all these reports back and then making decisions based on these reports. Very typical stuff. Let’s jump to the design and renovation because that’s the piece that’s going to take a huge chunk.
We do recommend a company that designs the property, is a project manager for the property, and also constructs the property. So they’re going to put together all the amenities in the backyard, blow down the walls, change out the garages, convert the garages, whatever they’ve got to do. They’ll do all of the things physically there. But you as the individual still have to sign off on everything and make all the tough decisions. Time-commitment-wise, you can still be in California while this is happening in Florida, and you are overseeing everything from a distance. You don’t physically have to go to the property because you have people taking care of it. They’re going to put it together. We’re going to be on the call to make sure they’re putting it together the right way, that the design is right, the color palette is right, all these different things so that they actually set it up in the most optimal way.
We’ve done this now 275 times — probably around 290 at this point — and the process is possible to do it that way. Some people want to fly out there when it’s under contract and walk the property. Some people want to fly out there once the property is done. I personally closed on a property a week and a half ago. I have zero plans to go out there at any time ever, honestly. It’s out in New York. I’ll get there maybe one day — it’s a little romantic cabin — but I have zero plans of going out anytime soon. People just operate differently based on their own preferences. So I’m trying to give you a mix.
Let’s talk about the management piece of it. I get that on the front end in terms of the acquisition of the property. But let’s talk about the ongoing management of it. Who’s actually doing the marketing of the rooms?
Yeah.
You know you’ve got to run financials for this, right? You’ve got to do all this. What about the maintenance? Do you guys have project managers to do the maintenance, or how does that work?
Okay, so keep in mind my company focuses on the acquisition. We refer everything else out, but we have partners we’ve been working with for a while now. When you’re doing the STR tax loophole, you have to put in 100 hours and more than anyone else. So if somebody puts 110 hours in, you have to put 111 hours in on the property to qualify. So in the first year, there are two options. The first one is you have to manage the property yourself. And this is something that most people don’t believe until they go through it, but I’m gonna say it because it is true: the very first part of getting an Airbnb up and running is like jumping over a really big fence.
The finding, the setting up, getting the photos, setting up the listing, getting the automated messages, the cleaner setup, the handyman setup—everything is like jumping over a really big fence. Once you’re over the fence, you’re on flat land and you’re just walking for years. However long you have that Airbnb, it’s just walking. There’s never another time period where it’s this gigantic lift. It’s just a lot up front all at once, and then you’re walking. And I have a guy on my team who has 15 Airbnbs. He manages them for about two to three hours a week.
It’s because you have automated messages, dedicated cleaners that automatically get their schedule, and handyman who take care of things when they happen. Things just run pretty well with key people in the right places, and you don’t have to do a ton. So if you have one Airbnb, I always say it’s honestly stupid easy to manage. You’re checking the pricing and optimizing the listing about half an hour a week. You’re messaging the guests when messages come through, and you’re communicating with the cleaner if anything needs to happen.
And depending on how good of a relationship you have with your cleaner or how well you’re paying them, you’re going to be doing less and less, meaning they will do the restocking, they will go out there if an air mattress needs to be bought and brought to the house. So when you self-manage, once it’s up and running and once you’ve gone about a month or two in, you’re looking at around two hours a week. I know I said the other guy had 15 and he’s doing two hours a week, but let’s say two hours a week. So you’re two hours a week to manage the property. Honestly, it’s not that difficult. But a lot of people don’t have that time. We work with a ton of people who don’t even have that amount of time or don’t want to deal with that.
And so the alternative is to work with a co-host company. They’re not a full property management company; they’re a co-host company, which means they do a lot of the coordinating for you. They do a lot of the stuff that can be done from a computer anywhere in the world. They’re coordinating with the guests, the cleaners, what needs to be picked up, or with a handyman for what needs to be fixed. Those are the things a co-host will do, and for a fraction of what a property management company charges. Because when there are tough decisions or when something really breaks, they come to you, and you have to take care of those things.
Now, the reason why people do this co-host option is because you can still qualify for the short-term rental tax loophole depending on the time of year you qualify and when you buy and set up the property. So if you were to get a property and it’s launching today, you now have to run it for less than two months, and you would have put in your 100 hours during the setup phase alone.
Maybe you have to get a handful more hours over the next month to hit your 100 hours. But the odds of the co-host company hitting 100 hours by the end of the year and doing more than you—meaning more than 100 hours—is very low. So people will bring in a co-host while getting their hours during the end of the year, and that’s a way people set it up. And then the following year, you’ve already got your tax advantages, and the property is just being managed from that point on. Then it’s on the co-host to have the handyman and cleaners locally, depending on the co-host company.
Yep, got it. And how does your fee structure work?
We’re a flat fee up front per property. Got it, yeah.
Okay, so can you break down one more time, very simplistically, the tax advantages with this strategy?
The what you have to do to qualify or how?
Well, we’ve got the qualify—yeah, just tell us how it works.
Okay, not a CPA. Gonna do my best to be able to explain it the best way possible. Okay. So a short-term rental qualifies as an active rental, right? And so because it qualifies as active, you can write off active income, W2 income. So you buy a property, and when you buy the property you have to hit 100 hours and more than anyone else. You have to host people for less than seven days on average.
Right. If you have a booking that’s eight days, that’s okay, as long as on average it’s less than seven. And I think there’s one other thing in there as well. So again, not a CPA, but I think there’s one other thing in there that you also have to qualify for. Now you do that, right? And then you get a cost segregation done on the home. And when you get a cost segregation done on the home, that’s where they’re depreciating the property to figure out, you know, what can you depreciate from this home. And then they use that cost segregation to be able to offset your taxes.
And because once again, it’s an active listing, you’re offsetting your active income. And so if you’re able to depreciate $200,000 from the home, then if you made $200,000, now you made $0. And so therefore you pay $0 in taxes. Right. This very simple formula is what we’ve been using. I think it’s 30% of 30%. So if you buy a million-dollar home, 30% of that is what you’ll be able to depreciate, which is about 300,000. So let’s say you made $300,000 this year, you would be no longer paying 300,000.
And then 30% is the tax savings, so 30% of that. So $150,000 would roughly be the tax savings. That’s not a perfect formula by any means, but that just roughly gives you an idea of how much you’d be saving in taxes based on the purchase price of the property.
Yeah, that makes sense. And then the key though too is from an LTV perspective, let’s just talk about that last component too — the debt component, right? Because that’s the most important thing and also very significant, especially when you analyze the returns. Right. So are you typically recommending, are people putting down like 20%? What’s kind of the sweet spot in terms of A, acquiring the debt and then B, maximizing that cash-on-cash return?
So that’s the last part there, maximizing the cash-on-cash return. In some cases, to actually maximize your cash-on-cash return, you should put less down on the property.
Yeah.
So you’ll have higher debt, but you’ll be able to use that other amount that you would have put down on the property to go towards amenities that would then make your property more competitive and be able to rent out at a higher nightly rate, which then brings more revenue, which then brings more cash-on-cash, right. So we work with people who—the lowest I think is 150,000. We have gone a little bit lower, but we stick at 100. So you have $150,000 of cash, you can hire us. Right. If you have less than that, we struggle to be able to find you a property that can be competitive. And we’ve gone all the way up to $850,000 of cash that somebody put into one property.
And so we have a huge range. And the people who have smaller budgets, we almost always recommend that they do a 10-down second home loan. And the reason being is because by putting only 10 down, they have that additional capital that they can put towards design and amenities, which will make them more competitive and be able to offset that amount. Now, when people have—I always say the sweet spot’s 300,000. So if you have $300,000 of money that you’re putting towards the property, you can go either way. You can put 10 down, 20 down, and you can play around with it as long as you qualify for both options to be able to see which property you would prefer and which one you would rather go. So yeah, I don’t know if that explained it very well.
Yeah, no, that makes total sense. So just to unpack that for the listeners, right. It’s pretty interesting when you actually run this out in the math and the analysis. But typically, the more debt that you apply to the property, you’re going to increase your cash-on-cash returns with that. But to your earlier point, in terms of customizing this investment for you, it’s like you want to maximize all these different components.
Your tax offset, you’d want to maximize your cash-on-cash return. Obviously, you want to maximize how much you have to put down out of pocket as well, your opportunity cost to get into this in the first place. And then also probably, my guess is, you would also want to manage some reserves as well in case you’ve got repairs, maintenance, things of that nature that come up.
Yep. And we always—you know, a lot of deals die in the due-diligence phase. A lot of deals will come through. Somebody’s close to their budget, and then we find out in the inspection phase that there’s $50,000 worth of additional stuff that needs to be done in the home, and the seller won’t give a credit for it. And so we’re like, okay, well, let’s re-underwrite it. Does it still make sense? No. Okay, let’s walk away and go find another one. It’s as simple as that.
And John, do you have preferred lenders that you like to work with that people could work with for these?
Yeah, we used to refer four different people, but there’s this one guy that just kept outperforming everybody, and so we just use the one guy now. And he’s very good with the short-term rental options, and he also does conventional. So he’s a one-stop shop for us, and we really like working with him. He’s very good with our clients.
Yeah, because that can be very challenging for people. Again, depending on your situation, trying to secure the right debt structure and everything. Well look, I certainly appreciate your time today and sharing your wisdom with everyone on this interesting asset. And again, depending on your scenario, this could be a right fit for you to really try to get some tax advantages. But mainly, I think Tom Wheelwright says it well—you never want to have the tax tail wag the dog, right, and do something just for tax purposes.
We want to make sure that we’re investing soundly first and foremost. And then if you get the tax advantages on top of that, it’s a win-win, right. So that’s what we’re really looking for. If people would like to connect with you to learn more, what is the best place they could reach out?
Don’t let the tax tail wag the dog; invest soundly first, then let the tax benefits be the bonus.
Always recommend going to just our website, strsearch.com, and the reason being is because on there we have an STR tax loophole course, which is free. And then we also have an Airbnb Databasics course, which is free. And you can go through both of those and learn literally everything you need to know to go out and find your own Airbnb. But if you decide to hire us or you want to hire us, we want that option. And you’ll be able to figure out how to get ahold of us on the website. So strsearch.com is the best option to get ahold of me and my team.
Awesome. And if you could give just one piece of advice to the audience about how they could accelerate their wealth trajectory, what would it be?
My friend said a long time ago, and I’m still trying to take this advice. He was like 21 at the time. He had no money, and he goes, “I don’t care that I have no money because I would eventually run out of money. And so therefore I should learn to invest with other people and raise capital.” And he has done that for his entire career, and he has built up an entire portfolio of real-estate properties, and he just bought a $3 million apartment building that he’s going to flip into a $6 million apartment building in a very short period of time. And he’s been able to do a lot without personally having a lot. And that was without a doubt the best advice I’ve ever heard to—well, like what you said—scale faster.
Learn to raise capital and invest other people’s money – done well, it’s the fastest way to scale.
Yeah.
So learning to raise money, learning to invest other people’s money well without losing it.
Yeah. And it’s how you think about things too, right? What a great concept. So appreciate you sharing that. And again, thanks again for your time today. And yeah, we’ll reach out.
Thanks for having me, Dave. I appreciate it. Okay.
All right, thanks.
Thanks for listening to this episode of Wealth Strategy Secrets. If you’d like to get a free copy of the book, go to holisticwealthstrategy.com. That’s holisticwealthstrategy.com. If you’d like to learn more about upcoming opportunities at Pantheon, please visit pantheoninvest.com. That’s pantheoninvest.com.