Ep. 599: Sandy Lee | Short-Term Rentals: How to Know If the Numbers Work

Every short-term rental investor wants the numbers to work. But just because a deal looks good in a spreadsheet doesn't mean it will work in real life. In today's market, you cannot afford to build your strategy around best-case assumptions. Today, I'm joined by Sandy Li, who spent 30 years in engineering and construction and helped lead the private equity arm of her firm. At 52, she bought her first short-term rental, a 4-bedroom ski condo in Colorado. And today, that property cash flows around $5,000 a month month, and she now owns a handful of short-term rentals across 4 states. In this episode, we talk about how to evaluate whether a deal is truly worth your time and your capital, and how you can avoid buying a property that only works on paper. Let's get into it. So, Sandy, what makes a short-term rental actually worth buying?

Well, this is a pretty nuanced question these days because it used to be really simple to buy a short-term rental and make it work. Because I started after COVID, your question hits spot on. Um, you can't just look at the numbers that are out there. Some of them can't be trusted. You really have to do a lot of research about it. But for me, what I have found is that makes a short-term rental worth buying is looking into the future. What's that special sauce? What's something that's gonna happen in the area, the market, that's gonna be better in 3 years than it is right now. Because you can look at the numbers and you can hope for the best, but something that's gonna really make that curve go upward in a way that's frankly hard to find right now is what I looked for in all of my first short-term rentals. Something special about the area and the house, but the area is the big thing.

I love that. I, I wanna piggyback on that question. So, You know, we always talk about— I remember, I remember talking to so many women in our community about this, that they get more fixated on the deal versus the market. Right. And it really always comes back to market over, over deal. Not that you can't— you have to obviously analyze a property for whatever strategy you're employing. However, the market is the market and is the king, right? It leads everything. So what specifically, or give us an example of something you looked for. Okay, in 3 years this market is heading towards this, this particular, you know, avenue, and that will make me, yes, I want to buy this short-term rental based on the numbers that I'm seeing.

What—

give us an example of what you've done in your analyzing, you know, as you've analyzed properties.

Sure, absolutely. My favorite example is actually the first property I bought. It was a big scary buy for me, way more expensive than any home I'd ever purchased, but it was a ski condo in Colorado, in Steamboat, Colorado. And what happened was that Aspen had just purchased Steamboat in the— around 2017, 2018, but they hadn't done much with the area yet. So I didn't buy until 2020— 2022, right around there. But in that time, they started to put out all these plans. They were going to add a new gondola. They bought a bunch more land that people were going to be able to ski on. And the area at the base wasn't getting any bigger. Then at the exact same time, Steamboat was getting really rigorous about their regulations about who could have a short-term rental and who couldn't. And I used all of that, I thought, to my advantage. I bought the condo at a pretty high price because this was post-COVID, right? So everything was really up already, but the numbers worked on the surface.

But what I thought—

and I was just breaking even that first year according to the numbers. With a big mortgage on it. But what I thought would happen, and it did, is that when they added that gondola, when Aspen made the base more beautiful, when their short-term regulations came into play and there were less around supply and demand, that everything would skyrocket. And sure enough, I've gone from breaking even just a few years later to that one cash flows $5,000 a month and is really my bread and butter of what I've tried to model every deal after that the same way is not what's happening right now in the market, but what's going to happen a few years down the road that's really going to make my numbers go the right direction.

Yeah, it makes such a difference. Now, what was interesting with that first purchase, I remember seeing in some of our— as we're preparing for today, that you bought that short-term rental at 52, right? And that was the— and that was the largest purchase, like you said, to date in your life. So take us back to that moment because that's— that probably wasn't an easy decision. It was probably something you had to work through and get over some, not just not just making the offer and the tactical piece of it, but the, the mindset. So walk us through a little bit what was going through your mind, what gave you that confidence, right, to move forward, uh, especially starting in your 50s, right?

I've always been the crazy one in the family, but not with money. So this was a whole different, a whole different thing. My, um, my son had gone to school in Colorado, so that helped. I live in Texas. I was also getting into that point with my career where I just wasn't sure that I wanted to stay in my career for decades more. And interestingly, the last position I had in my corporate career was running our private equity arm in an engineering and construction firm. So total aside, totally different than anything I'd ever done before, but with that came a ton of financial education that I'd also never had before. So I took classes on financial modeling and how to analyze like big deals for refineries and chemical plants and things like that. But that translated down just perfectly in terms of not thinking about an investment as it is right now, but over a 10, 15, 20-year period, what does that financial model look like? So you put in some inputs and then you get out outputs. It just had me thinking about investing totally differently. So instead of the traditional 401, stock market, all of the things that I thought I was just going to rest on and retire 10 years later, I started thinking, well, what are ways to earn some money? Passively is not the right term, but what are some ways to earn some money on the side for now while I'm still working? And then start to think about what retirement could look like. So meantime, like I said, my son was in school in Colorado and he kept saying, "Ski condo, we should get a ski condo, Mom." And I'm like, "Absolutely not, you know, no, absolutely not, kid." But in the back of my mind, it was clinking around with all of this other investment thought, working financial models at work and talking to the guys about investments. And internally I was thinking, I wonder if this works. So when I ran the initial numbers, Yes, it did work. But when I thought about what was happening with the area, and this was just a place that we loved to go. So family vacation home, wonderful holidays, but also let's make some money with it. So at first I just thought, let's have it cover its costs. But once I got in, I loved it so much. I bought 3 more within the first 2 years. And that's, that's been where I stopped is 4 vacation homes essentially that I run as a total business now. And I absolutely love it. And it pays for my retirement. I was able to retire 2 years later.

I love that. I want to, I want to break down a little bit of your, your background in private equity and what specifically, what specific skills did you actually use as you were analyzing that first short-term rental or all of them? And again, it's not just the rental, it's the market. But I'm really curious to get into what transferable skills, because I think that's one of the biggest mistakes so many existing investors, new investors make is that they're just not always considering all the skills, right, that they have and the experience they already bring to the table that is transferable. Sometimes we need to learn new skills, underwriting, etc., but often we can bring something to the table. So you're in private equity.

That's right.

How you train— you are trained— you trained yourself to look at, like you said, larger deals. But what specifically did you use? As you were analyzing that first property in that first market?

So for me, it was a financial model, which is a term that people just throw out there. But, but what it is is something that doesn't just look at the deal today. It looks at it over a long-term period. And frankly, that's not something I hear a lot that people talk about with a short-term rental. They'll look at the numbers and either buy or not buy based on a snapshot in time. But for me, what was really important was that I wanted something that I could compare to stock market returns. I wanted to understand my actual return percentage. What is this going to make me? Not just in cash flow, but looking at many of the other terms that I thought were important, like with appreciation, with mortgage paydown, when someone else is actually paying my mortgage for me. When I put all of those numbers together, what is that annualized return number that I can compare to what I was making in the stock market with the same exact money in my 401? If I pulled all my money out of my 401, put it somewhere else, how is it going to compare? And for me, that's what a financial model does for me. For me, it's in Excel. Certainly AI gives you a whole bunch of new ways that you can do this, but it's really just about the concept of I want to know what's that percentage return. Mine run from— my lowest is in the low teens, my highest is in the 30s. So having, having a 35% investment return right now on an annualized basis is so exciting. And really that's because short-term rentals make money in so many different ways. It's not just the rents that you're bringing in from the, from the people, which are obviously important. That's what pays your bills. That's what cash you take home. But the markets generally appreciate every year. So your, your value is going up in the real estate itself, but also they're paying down your mortgage. So that's this other little piece that people don't think about. When you add all that together, I wanted to know that I was making more money than I would have elsewhere. And I think that's just the mindset that shifted with that private equity. But also my whole background was engineering and construction, and I think that just helped to come into this with a math mindset from, from day one.

Yeah, I think that is so important. Something you just said, I think, is a mistake that so many investors make as we analyze properties, whether it's a short-term rental or even a long-term rental in and of itself, meaning, okay, what is the cash flow today? Right, and this year. And we look very linear. We look at linear in a linear format of, okay, this property is producing X, do I buy it or not? Right. And you analyze the income, the expenses, all fair and all very relevant. But I've been at this for 20 years and you said something really important that I— you just said I looked at the 10 and the 15-year sort of landscape to say, okay, What would this look like in 10 to 15 years? And I just don't think enough investors look at the long term, especially when they're modeling out the financials. And I think that's a mistake, right? Because it is a long-term investment. Now, you could sell it. You could next year just change your, you know, change your opinion and sell it. Not flippantly, obviously, and there needs to be a market for it. But we're not thinking long-term enough. So what What did you— when you were looking, okay, do I buy this? Do I buy this property or not? For the— when you're saying I looked at it from a 10-year, 15-year kind of like, you know, vision landscape, if you will, what did you put into your spreadsheet? What did you like? What numbers? What, what considerations did you make to say, okay, in 10, 15 years, this is going to be a strong investment for me? What did you think about, especially with your background in private equity?

So it's a lot of the same considerations that people look at on a snapshot. I mean, I still had to go do my research and figure out what I thought it would bring in from a revenue standpoint. I looked at all of the expenses and all of that is important, but then I built it out for a 12-year period. In my case, I don't know why I picked 12, but I just wanted a 12-year model because the first 2 years can be a little tough as far as you don't have reviews yet. You're still getting your feet on the ground. That's something that I don't—

Giving the vision, right? You're stabilizing, right?

I don't think a lot of people are very honest about that when they're throwing out numbers and trying to get you to buy properties. You do take a haircut on the investment those first couple of years just because you don't have the review numbers yet. But within 2 years, I thought I'll be humming, and, and I was. And in that next 10-year period was what I really wanted to understand. So how physically I did that is I modeled out every month on this spreadsheet, and I took a look at, um, a basic, what if it appreciates 3% a year over this 10-year period? So I think that's really conservative. When you look at the numbers over the last 20, 30 years, it's more like 4 to 5 in an average market. I certainly chose markets that I think will appreciate a lot more, and they have.

Sure.

And I modeled out what exactly are those mortgage payments, what goes to principal, what goes to interest, and I looked at it. Now, interestingly, I left taxes out of this, and taxes is a great benefit that is also helping me financially on the side. But when I looked at that financial model, conservatism was what I really wanted. So I modeled in what I, what I thought the appreciation would be from a very conservative standpoint, what that mortgage paydown would be, and then what my actual cash flow would be. So when the, that gets modeled out month by month over a 10, 15, whatever year period you want to use, it can show you exactly where you think the investments are going to go. Then it all goes to this summary spreadsheet that shows the curves. It shows each property. It shows all my whole portfolio together. And it really helps ground me every single month to, like you said, what if I need to sell? I do want to be thinking about that all the time and understand my exit value, which is always also a part of this. If I have a property that's less than 10% returns, I'm going to think about selling it really, really hard, right? It really depends on the market. But to me, it was all about take the time to put together that model that could Show me the real returns, not from a sales or a just a market snapshot, but I wanna know long-term, what will my returns be? And then my actuals I put in every single month and I compare it. Like, how am I doing? Does this make sense? Do I need to change my model? It's something that takes very little time. I'm making it sound like it takes a lot of time. It takes 10 minutes to put the initial numbers in to check a deal. And then every month as I'm going through, I spend 5 minutes putting in my actual revenue and then it's done.

You've heard us say it before, real estate is a relationship business, and one of the most powerful ways to build those relationships is through meaningful conversations. That's one of the reasons we love podcasting. It's allowed us to connect with incredible women, build deeper relationships, and open doors to opportunities we never expected. But to keep the show running consistently at a high level, We don't do it alone. We have an amazing team behind us at Social Chameleon who handles all the behind the scenes work, the production, the content, and distribution so we can stay focused on serving you and growing our business. So if you've ever thought about starting your own podcast or taking it to the next level, they can help you do the same. With Social Chameleon, you press record and they handle the rest. Check them out at socialchameleon.com. Us. That's socialchameleon.us. I want to piggyback on what you're saying about conservative sort of analyzing and projections. I need to make this a really main point because so often, especially right now, I'm hearing people sharing deals, projects that if everything, if everything works, then the project is going to work, then the property will work. And it's just not a smart move right now. It was never a smart move, but especially when everything is happening, you know, in our, in our world, right between interest rates and just supply demand, everything in between. You have to be conservative and you have to run worst case scenarios. I'm doing a new build here in my, in the community I live in. I've never invested in the community I live in, in Pennsylvania. And an opportunity came up for me to, to do like a new construction, like a ground-up construction project, a little different than a short-term rental because this is going to be a for-sale project. But I need to say that what we, what we did there is just said, okay, we're going to, we're going to model out what we, you know, a 12-month, 12 to 16-month plan. It may not take 16 months. What's the worst-case scenario? Worst-case scenario is it takes 2 years. Because of zoning or something that I don't even know that I'm going to uncover. Okay. What's the best case scenario? What's the worst? And that's financially, time. Those are the two things you're controlling as a real estate investor, time and the investment of dollars you're putting into a property comparatively of what type of project you're doing. Obviously, mine's a huge construction budget. I'm doing a new build. You know, you bought a short-term rental that was what, already rented out? Did it need a lot of work, or did you— was that part of, uh, your plan?

So I'm the kind of person that always thinks they need a lot of work, whether they, whether they do or not. I tried to keep my expenses fairly low on this one. It was a big property for me. Like I said, it was a $1.3 million property, but I only put in $75,000. And with that, I gave the bathrooms a refresh. I painted it.

It's like a minor refresh.

And then I replaced all the furniture, right? So, and that's kind of how I've looked at every single one. I've had 2 new builds and two that I've bought. They all need something because I want to do a little better than the market was before. But the other thing that we can control in short-term rentals that you just touched on is operations. And that is where you, you talked about me being a little older. If you are a little older, you can bring all that life experience with you. And in my case, I had had this career where I ran a lot of operations. I ran a lot of different groups within. I ran IT. I ran some real service-oriented groups. And that just made me think think of everything a little different in terms of customer always comes first and how do you set it up for success, running it as a business, not just as a fun hobby. And I have so enjoyed bringing all of those career skills over. So my intention was to keep working, do this in 5 to 10 hours a week, which it still only takes that, but being able to bring all those skills over was something I did not anticipate. It's so fun. It's really fun.

Absolutely. And I, and I, I do feel like so many people think you make your money when you buy and you make your money in this business through the managing of the asset, managing of the project. You can buy the best property in the best area and run it to you know what, or vice versa. And I've seen it and it's something that I don't think gets spoken about enough. It's not enough just to purchase an asset in a great area. It's really in the operational managing of it to whether it's going to make or break. So what were some of those operational pieces that you put in place? It sounds like you did some automations. I mean, obviously you're in short-term rentals, so the experience of the guest— I don't have any short-term rentals, more in the multifamily space. I've done doing a new, new luxury build, but it's critical. I've rented, right? I've been a customer and it all— it's all about the experience. So how did you, you know, put— what did you put in place initially, especially as you were not just buying your— you got your first short-term rental, but then you got your second, your third, your fourth. What operational musts did you put into place so that it can run more efficiently and run like a business?

Great question. So from day one, setting it up like a business, I put the right tech stack into place, and I did that because so many people out there will buy a property and just throw it on Airbnb to see how it does. And I think that's a big mistake. So if you have just a simple property management software that can sync calendars, all of a sudden you can list your property on Airbnb, VRBO, Booking.com, and have your own direct website for very little money a month, have it all pull it together, even help you with automated messaging, things that will save you a lot of time. It's being able to invest early on, on the right property management software, and then also the right pricing software.

Software.

For short-term rentals, it's something that, again, if you've done other kinds of deals, some people don't know how important it is to have that dynamic pricing so that you're not every day trying to think about what should this day out there cost. Well, my pricing software knows that Christmas is going to be really expensive at these ski properties, so it's going to mark it up for me based on the market and how it's doing right then. So just having that software stack place. I think it cost me overall that for that first 2 properties, we'll call it about $125 a month, which, wow, that's worth it. When you really do the math, it's, it's a no-brainer to have that right tech stack in place so that I was tripling my revenue compared to what others were doing just because I was listed so many different places.

Hmm. And how did you know which tech stack was appropriate? I feel like often people either underdo what they need, like actually the actions they need to take, they underdo it or they overdo it where they're, they're worrying about their LLC name and they have— they don't even know what they actually want to do. Right. It's that kind of thing. So what were you like, you know, this is the minimum I need to do. Like you said, property management, pricing software. What were the other kind of key parts of your tech stack or like musts as you, as you've been scaling your, your short terms?

Well, if you're just starting out, those are the two. First important ones is property management software and financial, some sort of good dynamic pricing software. And often the property management software has dynamic pricing in it these days. It may not be quite as good as some of the big names like PriceLabs, but having something like that in place. But you asked how I figured that out. That part was hard. There's not, um, well, I've tried to put one together now that you know about, but there was not a great step-by-step exactly what do I do out there. I listened to podcasts for a and a half, but like you guys, before I even started thinking about investing in any kind of real estate, let alone short-term rentals, I, um, used a real estate agent who had a lot of experience in short-term rentals, and I thought that was really important. So I was gathering tips and tricks. I read several different books, but now I've put together a graphic I'm happy to share with you guys and your listeners on exactly what that stack looks like, sort of that central hub, and then what are all those spokes that are either optional or I think required to, to give you the best advantage to have that highest revenue in that first year. Because you hit it on the head, that's hard to find. People don't just tell you, here, go buy this and do it. Facebook groups are fantastic for that. There's great communities out there where you can get good advice from people. Um, but setting it up for like a business for success from day one. Not that hard. Sounds really hard though. It's super intimidating if you don't have the right contacts or people that you know in the industry. And such a joy of mine, and I know yours as well, to try to help people to do their best, especially women, and kind of cut, cut the noise, right?

And really get to, to get to the core of what, you know, what they need to do next. Because it's always like, what's my next step? Versus like, oh my God, I got to do these 15 things. Well, that's overwhelming. No one wants to do 15 things. And so what is my, what is my next right step? I'm curious to get your insight into regulations because what's fascinating with short-term rentals, right? We could have had this podcast 4 years ago, 5 years ago, right? And it varies based on the things we have control over and the things we don't have control over. And I always say to people, especially as they're growing their investments, be mindful, be mindful of the things you don't have control over because they can really really hurt you and you just— what can you do? So let's talk about regulations. I'm curious to get your insight into your thinking around that. Meaning, I, you know, I love this. I love this particular area because there are regulations or there are minimal regulations or there, there's no regulations. I've heard different opinions and I see it changing so fast, especially in various communities I'm a part of with short-term rentals right now. People that were doing great are not. It's shifting. Quickly. So how do you get a pulse on that? Never could be certain, but how do you get a pulse on that so you're making at least the right call to say, yes, this is a market based on what I'm seeing that I want to move into?

Yeah, such a blessing. I believe that I started late enough that this was already enough of an issue that I knew to go do some research. So in each market, I started doing research with the city websites, the county websites, not just in what regulations they had in place right now, which are pretty easy to find as soon as you search short-term rentals on, on city and county websites, which you gotta look at both, but also to actually go to the town meetings, see what people are talking about, see what those notes are that people are thinking about for the future. Um, and then there's just a few real keys. Whatever you buy, I believe in any market, I've even, I've got a beach house that is in the most short-term rental market ever, but I still I still made sure that it would work as a long-term rental before I bought it at all. Just having at least enough that would cover the mortgage with a long-term rental, um, option, I think is really important, whatever you buy. Because especially if you're trying a short-term rental in a city market, a more urban, not particularly a vacation market, I think you've gotta be ready for anything because this can change on a dime when the neighbors get upset or something like that. But I was able to do enough research in each of my markets that I got very confident that this was a vacation market. The city and the county were counting on this revenue for their, for their budget. And that helps a lot to give you a lot of, a lot of confidence that you can actually operate this as a short-term rental, long-term, and then be a good neighbor, be the one that actually helps out in the city and the county. Make sure that you are keeping your guests aware that they have neighbors and that they need to keep the noise down after 10 p.m., things like that. As long as you're involved and aware, it doesn't take much to make sure that you're getting a good investment from that standpoint. Absolutely.

And it seems so obvious, and especially in the day and age we have AI and people don't talk to anyone anymore, right? They just like, well, ChatGPT said to do this. And I'm like, hold on, you know, that's great. I love AI and I can certainly use it even more than I am. It doesn't replace speaking to people, especially in a town or city. And, and, you know, for, for me to give an example of that is, you know, with our community that we live in, I really, you know, that something that I'm passionate about is attainable homes, people being able to afford, literally just to be able to afford where they want to live, right? Is a housing shortage of attainable homes throughout the country, right? I'm not saying anything that's not a real issue, a real housing issue. It's a housing challenge right now. So to assume that my town wants to solve that problem is an assumption. That's not fair. Doesn't mean everyone wants to solve that problem. It is a problem nationwide. Doesn't mean that my community wants to solve it. And that's what we often think is that because something's a challenge, that it's going to be every town has the same type of interest in solving it. That's not the case. And you certainly can use AI, go on the city— and I love that suggestion— city and county websites to see what their plans are, the development plans, etc., or just have a pulse. But it does not replace going to talk to somebody in housing. Literally. That's right. And that's right. I have always gotten so much value from that. And it's something that I'm going to be meeting with one of our housing, you know, folks in housing because I just want to get to know him better. And I also want to just ask some open-ended questions. It seems like, why would anyone do that? But it is the smart— one of the smartest things you can do if you're looking to, you know, get deeper in a market to really know what the appetite is, because it's not created equal. It's like a lender. Not every lender is going to lend to you on the same type of property in the same area. It's the same thing for the housing offices throughout the country. They don't all care about the same thing. So I don't know if you've also found that in your experiences.

Absolutely. And if you're not close enough to the market to actually go to a meeting, you can certainly look up and see what those notes were, what people cared about in the community, what was important to them so that you can be a part of that in a really positive way that adds to the community instead of takes away. And it feels so good to do so, right? Like be a part of— be a part of a good change, not, not the wrong change.

What is one thing that everyone listening can do as a result of, of listening to our, our, you know, our chat here today in terms of whether they're growing their short-term rental, uh, business or they're looking to purchase their first short-term rental and shift from long-term to short-term? What is like that one thing that they can do as a result of, of, uh, today and also just from all the experience that you have?

I think one thing is not to be intimidated. It seems like it's such a complex organization to run a short-term rental as opposed to some other types of investing. For me, a flip sounded really crazy, right? Like for me, some of these other things sounded crazy.

Yeah.

But because I had an operations background, I thought, okay, I can put a system together that will run this in very few hours a week. And what has really surprised me about the industry is just the joy that I get from people going to a home that I own, saying that it's marvelous and it's been the backdrop for their family's memories The meantime, I've also got these vacation homes where my extended family spends holidays, and somehow it's paying for my life. And I just feel so blessed to have— to be a part of all of this. It's totally new to me over the last 5 years, and I am so all in, and I just wanna— I just wanna tell everybody all about it.

I love that. And, and, you know, I think what you're saying is so important because we do make things bigger than they are, and that's why we lean into communities, right? That's why we lean into networks. That's why we, you know, we have Invest occur so people can tap each other rather than, hey, I need to know everything. Women have to get out of that thinking, right? We don't need to know everything. I said this at our investor com, if you don't feel confident about say short-term rental investing or a market, you can borrow someone else's confidence. And that's the beautiful thing about confidence, right? We don't have to have it all in every single area, in every single market, in every single asset class. That's intense. Instead, it's that borrowing. Who can you and how can you borrow that confidence so you don't have to go at it alone, right? And I think that's so, so important of what you're saying too. So Sandy, where can everyone listening learn more about you, get connected to you on your journey, and stay connected?

Yeah, I am @strjumpstart on Instagram and I have a website strjumpstart.com and I would just love to connect with your listeners. I think one of the things I bring is that I am not I'm not a 20-year intimidating investor. I've been doing this for 5 years. I use all the modern tools, and I would love to help if somebody has questions or wants to reach out. Let, let me know.

Awesome. Thank you so much for being here, and everyone listening, do something with what you got from today. And thanks so much for, uh, listening today. Thank you for listening. I hope you found today's conversation valuable, and don't forget to subscribe so you so you don't miss any future episodes. And share this with the women in your life that needs to hear it. I'll see you next week.