11: How to win the negotiation with strategy in a low inventory market (Featuring Erica Knipp)

What up? How we doing? Where's the sound? Can you hear me, Don? No.

Hi, guys. Hey.

How are you doing?

Great. How about you?

Good. Where are you at these days?

Tampa, Florida.

Tampa, Florida. All the way from Tampa, Florida. Well, thanks for taking the time. Yeah, I'm trying to figure out how.

I can set this up to give.

Me some pointers here.

How should we. How should I set this thing up?

Are you on your phone?

Yeah, I'm on my. I've got an iPad.

Perfect. That works.

Perfect.

How's the humidity in Tampa?

Today? We go from sunshine to pouring down rain.

We had pouring down rain here last night.

No kidding.

It was a mess last night.

Really?

Lots of broken trees and crap all over the place.

Is that right?

Yep, yep.

Wanted to tell you guys, we're just. Just got some pictures. We finished up a little project today at the house. Yeah, we had. Is it Joe the pool guy?

Yeah, he.

He got us hooked up with someone. We. We resurfaced that whole area around the pool and took out that. That tile under the. Under the patio there. So it's all the same surface now.

Oh, nice. So you did the cool.

What's that?

So you redid the cool decking on it?

Yeah.

Awesome.

That tile underneath that deck was like skating on ice when it got a little bit wet.

Yeah.

So. But it's all the same thing now, and it kind of flows nicely and it. At least with a couple of pictures it looks good.

Nice. Very cool.

Yeah, it's fun. Very cool. We're live on Evolve now as of a couple of days ago.

Good.

Awesome. Do you mind sending me the link to that?

For sure, yeah, I'll have Mary do that. Yeah, sure.

Cool.

That'd be awesome. Yeah, we'd like to check it out.

So let's. You know, again, thanks for taking the time and doing this. And it's. It's always interesting to get different people that are involved in real estate's perspective as to why they're doing the investment that they're doing and kind of how you came across, looking into the vacation rental and kind of our history and kind of going through that. And Paige is going to kind of moderate a little bit of the conversation.

Yeah.

What kind of timeframe are we looking at here? What do you think?

We'll probably be about 30 minutes or less.

Okay.

So depending on where we go with it and just kind of flow through some of the questions. But. So first of all, welcome to the podcast. We're glad to have you on as a guest. So first of all we kind of wanted to just have you tell a little bit of your story, your background, how did you get where you are today and what are you doing?

Sure. Great. Well, it's great to be with you guys too. My wife Mary and I, we first started buying investment real estate about 1997. We bought our first investment property. And like a lot of people, we ended up coming to the conclusion that we were never going to be able to save our way to a retirement. That we were going to have to make some investments in real estate. Seemed like the right thing to do. So about that time we started buying investment property and accumulated a number of long term rental properties on our local area, Northern Colorado. And it's been a fantastic investment. It's really helped us to build wealth and to be able to especially build net worth. And of course, as you guys know, the secret to wealth is not high income, it's high net worth. And that investment property have really helped us do that.

And what are you doing on a daily basis or a weekly basis and because you're in Florida right now. So if you could kind of explain what you do.

Yeah. Since, since 1999. We got into, got into real estate in 1999 and we've worked in northern Colorado helping, helping buyers and sellers purchase property, helping investors purchase property, and primarily residential stuff. And it's been absolutely fantastic to see all the benefits of real estate ownership for people that we know and our clients and friends. It's been just fantastic. It's a real blessing. It's a real blessing. And then about 2010, 2011, we had the opportunity to start teaching some real estate principles to realtors and real estate companies all over the United States and Canada. And we've been doing that teaching. It's a program called Ninja Selling. And in the last seven or eight years, we've had about 30,000 realtors go through our program and it's been a lot of fun. It's really great. So we travel most of the time now teaching those classes and we have a lot of fun in the process and we get to know a lot of great people and it's gratifying. It's really great.

And yeah, the Ninja Selling actually thank you for the book, by the way. It's phenomenal and our team's actually going through it. It's interesting as you worked with us and we had a lot of conversations in the car, we were looking at things to just as I started reading the book on, well, wow, this is kind of how we do our business already. But there's things that I get to add to it. So it's been phenomenal and, you know, still looking forward to connecting, to getting you guys here. Not when it's 120 degrees, but really promoting a ninja selling course here in Arizon, you know, sometime during the winter. And the good news, you got a place to stay, right?

That'd be fun. That'd be fantastic.

Yeah, they don't have a place to stay.

We'll have to get them to buy another one.

Yeah, that's right.

But yeah, so Steve actually at our meeting, our Monday meeting, he laid out all of the books for our team. So that's going to be part of our.

Oh, terrific.

Right now until, until we get through the entire book. So we're pretty excited to dive into that.

Well, I've been as, as we travel out, I've been telling the folks that these workshops that we do, that we found a couple of ninjas in Arizona and they hadn't even read the book yet. You guys are now our examples of how to do it. The ninja. So it's great.

That's awesome. Yeah, it's actually been interesting. I was talking to my brother who's a health coach, and you know, the NINJA selling thing is actually something applied really to any sort of business when it comes down to sales at the end of the day.

Yeah, it's great. It's great. You know, these principles we teach. There's an investment portion of NINJA selling and we call it wake up money. And the reason we call it that is because if you purchase investment property, you can just, you can make money just by waking up. And it's a great concept. And I know you guys, you buy into that and gosh, it's. Isn't it great to help people understand those kinds of investments that really help them move the ball forward in terms of their wealth building activities.

It's great without a doubt because we want to. I think Donald Miller says it best in the book story Branding, you know, where he talks about, you know, as real estate agents, we tend to want to be the hero in everything we do rather than being the guide to help get through that process and then come out the hero on the other side.

Yeah.

Our industry is full of heroes of their own.

That's great.

So Don, how did you know you wanted to get into the vacation, the vacation rentals rather than just kind of the investment that you were originally.

Yeah, yeah. Great question. Well, first of all, I think like a lot of people, we started experimenting with the use of the Vacation rental just for ourselves when we, when we took time off and traveled and had some good experiences with that. And we especially love the Scottsdale area and we come down there every year for spring training and we have some family that live in that area now. And it just seemed like kind of a natural transition. And we were also looking maybe for the opportunity, if the opportunity presented itself, for a little bit higher return on investment with the vacation rental compared to the long term rental. And it seems like if you pick the right properties in the right locations, there's a pretty good possibility of just increasing overall return on investment.

Definitely. So where and how did you find out how to buy your vacation rentals?

Well, you know, a little bit of trial and error on that. Certainly. We, we recognize that there are certain markets that make more sense than others for vacation rentals. We did a little bit of research on our own and we took a look at, you know, where do we like to vacation, where do we know that people that we know like to go? And so we look at, you know, beach areas and warm weather areas, sunshine areas, and obviously the Phoenix area is a pretty good place to start on that. And you know, we checked out some, some other markets like Las Vegas and Lake Havasu, Arizona as a possibility. The San Diego area is a possibility. And we just settled on Scottsdale is a pretty good place to start. And we were blessed because we got a great referral from a realtor friend of ours in the Phoenix area who passed on your names to us. And isn't amazing how that, how that works. A recommendation from a friend makes all the difference. And so that's how we started the process.

And what's interesting about that too is wasn't just a referral from another, I mean, another realtor here, but it's someone that owns a brokerage. And you know, for me it's obviously it's a, it's a great honor to get a referral from Brian north to recommend, I mean, basically calls Mary his second mom, you know, when it came down to it and just to be able to go through that process and know how important you guys are to him and then be able to guide you guys through that process. And I think when Brian called, he said, when Donna Mary called me, he says, there's only one person I know crazy enough that's building all this random stuff. And he said that was you. And so, you know, Brian's such a great guy and such a great referral source when it came down to that. And speaking of, you know, you mentioned San Diego and looking at some different markets. And I don't even know if you've seen the article yet. I was having a conversation. We were up in Muns park, which you looked at as well. You know, our little cabin community here in Arizona that we love. And that was a fun, fun day, fun trip that day.

That was great.

But there's an article that came through from a friend of mine that we caught up in Muntz Parks weekend that Mission Beach City Council just banned vacation rentals in a vote 6 to 3 starting June of 2019. That's. I just, I still don't know how incredible they can enforce that type of. Yeah, I don't even know how to process that when it comes down to it, because you start looking at what is that going to do to their economy when it comes down to the tourism. I mean, I hope all those people that own homes there understand, like what that's going to look like property value wise and those types.

Ultimately on that. Steve, we're early in this process and homeowners associations are pushing back. Owner occupied property owners are pushing back a little bit. In some cases, municipalities are pushing back. You know, one thing that I think we pretty much always know is ultimately the consumer always wins, right? And the consumer will always dictate what happens in the marketplace. And so I think it's a matter of time before these and sometimes government entities recognize that this is a viable type of hospitality opportunity that consumers love to participate in and eventually they'll figure it out. It's challenging though, for property owners who made those investments to kind of wonder, wow, what's going to happen in markets like that?

Well, you know, you kind of wonder in this and because, you know, we've both been in real estate for so long, you know, I thought about all day Sunday, like, what, what's the. Not the workaround, but what's maybe the solution to help the residents accept it. And so I kind of went through some different things. I know, you know, what if, you know, especially for the cities, what if they, what if they had to license the VRBOs and you kind of had to go through some process of, you know, being the vacation rental owner. So, you know, you have that process. And what about the tenants? Well, what if the renters, you know, were fined for partying, were fined for. And it was kind of passed on to the owners type thing so that the owners were a little bit more responsible for the people that they're renting to when it comes down to that. Because I think Right now, I think San Diego's problem is the, between the summer and spring break, you get people that have rented at these ungodly prices to 10 college age kids, you know, and they've got deposits. So it really doesn't matter because the amount of money they're making off of, and I think those are really the problems that are coming down to it has not been me, Paige. So what are your thoughts on that? I mean, do you think that there's a, there's a workaround like that that should be looked at?

Well, ultimately there'll be a vetting process that happens there. You know, we, we're working with a property management organization right now that you referred us to. It's all new to us too. But this property management organization does a pretty significant vetting process on every guest that signs up at their properties and they're invested in this thing. It seems to me that if everyone has something to gain and everyone has something to lose in this deal, then there'll be equilibrium there. And certainly the cities have something to gain with potential lodging and tax revenue there. And the licensing process makes sense. And you know, you know, one thing that seems to happen that we've noticed is this vacation rental. It's new enough that there, there are a lot of amateurs out there who are trying to do it themselves. And our recommendation is work with a pro. And if you have amateurs who own the properties, then you'll have problems with having inappropriate guests and activities going on in those neighborhoods. And ultimately the solution will be the professionalization of this business. And when there's some standards in place, then everybody will be better off.

Yeah, totally agree.

Yeah.

So what was the process like for you going through?

Yeah, we, first of all, we decided what kind of a property did we want and the location and, and we really, we really wanted a single family property. We recognized by checking out some of these websites that there were all kinds of different options there, from golf course properties to condos and townhomes and single family homes. And we just ourselves like the idea of going to a single family property. And so we got in touch with Brian and we thought maybe Brian could help. He says, no, you need to talk to, you need to talk to Paige and Steve. And so we got a hold of you guys and our criteria was we wanted a place where potentially families would have enough space, maybe two families could go together, because we know families travel in groups in some cases. And so we were looking for something like that. And you guys, I think, had kind of a similar thought on that. And so it was just great. We looked at six or seven properties, and there was one that just seemed to be great. And, you know, the old. It's a cliche and it's kind of trite, but somehow it's still true. And that is three most important rules in real estate, you know, and location, location, location. And we knew that we either wanted North Scottsdale or South Scottsdale just because it seemed like as we looked at VRBO and Airbnb and some of those other sites, that that was the place to be. And so the North Scottsdale location just seemed to make all kinds of sense for us.

Did you find. I remember the conversation that we first had, and you said something that was. That, I guess, was important to me, which was, you know, your comment was you had all this knowledge in one spot for Evolve. For all the other pieces, it seemed like, I mean, it was kind of a process for you guys trying to find information on how to. And what to. And what to expect. Right.

You know, what was really amazing about that, Steve, is that, that we went through about six months of research just trying to get familiar with the industry, with the business of vacation rentals. And we found it very difficult to find any kind of objective data like potential rent revenue based on the size of the property or based on the location or based on the investment of the property, return on investment, even things like potential vacancy rates and number of days that you could count on for properties to be rented, and those sorts of things. Just looking for any kind of ballpark to put some kind of spreadsheet together that would give us an idea if the investment would be sound. And it really wasn't until we found this property management company that was able to give us some really good data that helped us make a decision. And once you have the numbers, then the decisions get a whole lot easier. Right?

Well, I think you look at that. I mean, same thing with the property management, you know, I mean, that's. I think that's one of the things that we always try to do, you know, being in real estate is always try to have all the answers. But I think it's even more important to have, you know, expert partners in those areas. And that's one of the great things that I like being able to get you guys in touch, you and Mary, with Evolve, was that that's an expert partner. I didn't want to try to. I mean, even though, you know, we, you know, my mom owns a property management company, property management of vacation rentals, completely different than normal Property management. So to have somebody like evolve, be that expert partner and be able to walk you guys through that process is really great. I mean, on both our aspects for my clients and for us as well as we do some of the vacation rentals too.

Well, you know what we noticed, Steve, is the way, the way you guys have structured your company and your business, it's like you've got experts placed throughout your company in different areas. And there's a, the thing I really like about that is not traditional real estate is the traditional real estate model has one person, the realtor, as the so called expert in every area. And that's just not possible. We love what you guys have done, which is to create experts in different areas. And then if you don't have that expertise right there in your company, you've got partners who can do it. And so I'll tell you what's been really fun is, you know, you guys, you had a pool guy for us and you had a landscaping guy for us and you had a pest control guy for us and a handyman. And I'll tell you, when you're looking at buying particularly vacation rentals, most people aren't on site for those property. You got to depend on those people. You got to have some partners. And that's made a huge difference for us just to have a comfort level that we know things are getting taken care of.

Yeah, yeah. I think, you know, as realtors too, I mean it's, we're always afraid to say either I don't know or I don't have when it comes down and you know, we end up getting ourselves in trouble by, by trying to do too much or trying to be again the hero rather than just, you know, being honest and kind of going through that, that space.

What about some of the challenges or like fears going into, not like a, necessarily an unknown investment, but you hadn't done any vacation rentals. So what were like some of the fears that you had going into it?

Biggest concern, Paige, that we had is it's easy to figure out the expense side, the investment side. What was really challenging is what kind of revenue potential is there? You know, a long term rental. You make a few phone calls to property management companies in a local area, you can find out what a long term, you know, rent is and do those numbers fairly quickly. But we really struggle to find, well, you know, if you have a three bedroom, two bath, 1500 square foot house with a pool, what's the revenue potential over a 12 month period? And what would you know what average rents be for spring training versus the summer months. So getting a handle on revenue was our biggest challenge.

But they were also, I mean some of the stuff too that was kind of interesting was you guys again were able to get the answers to the questions whether or not a three bedroom versus a four bedroom, a pool versus no pool, a heated pool versus like all those questions which they had all the data and the cool thing about them as well is that you look at that partner in this and they're able with their algorithms determine when the price should be higher versus lower depending on the season and the events that are taking place in that zip code, around that zip code as well. That's what, that's what I appreciated about them. And like I told you guys when you came in which was, you know, I wouldn't put you in something we weren't already doing. So I had the experience of both pain and pleasure of those, you know, the one that we own in Scottsdale right now and then the one that you know, we took you guys through up in Muns Park. So we have different sections and really trying to figure out and it's actually been on the one up in Munds park is locally managed there. But you know, the income after six months is actually, you know, it's a $330,000 investment and it's actually cash flowing probably about 25 to 3,000, 2,500, $3,000 a month right now over our expenses and it stays rented fairly consistency. So our income on that property will probably reach close to $60,000 this year on that one property.

Yeah, yeah. You know you start looking at those kind of numbers and you just aren't going to be able to create that kind of revenue with long term rentals. And that's what we like about the prospect of the vacation rental. And the other thing is with we have some friends who are also, they have some vacation rentals that they're getting started on and they pretty much done it themselves. And once we started talking with Evolve we said geez, you know, this is a professional's way to do it as opposed to trial and error by just looking at those websites yourself and trying to figure out what the rent ought to be. It's. It just makes a world of difference to work with someone that has the data.

Yeah, no doubt, no doubt.

So even though you're in early stages and he hasn't been rented yet, going through the process, what kind of feedback do you have for going through the process or what would you do better to Serve our clients.

Yeah. Well, I don't think you guys could do anything any better. You guys were fantastic. But one thing my wife and I figured out was my wife Mary, she furnished the place and spent a couple weeks out there and put everything in place and had a lot of fun. And she said, you know, we left that house, she said, I'm having withdrawals. You know, are we sure we want to rent this thing? We got it exactly the way we want it now. So you know what, maybe that's a good sign is if you got it exactly the way you want it, that probably means there'll be some other people out there who will like that too. That was kind of our standard. We went out there and spent a weekend with some friends. If we would enjoy staying here, we think maybe most people would enjoy it too. And maybe that's a little bit, you know, sort of a personal approach, but we just kind of took that standard. If it works for us, it'll probably work for other people too.

Yeah, you know that. And you bring up a good point there, which, which we had a lot of conversations about. And you talked about people that are amateurs in this type of business. And one of the things that people will not spend money on is two things. One is, you know, which Evolve provides, which is those professional photos. Like that is the absolute must. It has to be professional photos, because people look at that. You know, the photos that we got done of our place up in Muns park keeps it rented constantly. And then the second thing, which we agreed because we talked about some people don't see it this way, is the furniture aspect. So you go through and it's like you want to make sure that they're high quality beds and your furniture is comfortable, because what do you think that's going to do for people? It's going to bring them back or it's going to make them give you that five star review. And that's one thing that we've learned is how critically important the reviews are for people repeat. And people looking for somewhere to stay.

Yeah, definitely.

Steve, if there's anything that, that we learned from our own experiences with this is how many people are trying to do this vacation rental thing with really the essentially garage sale furniture leftovers. I mean, I stayed in a beautiful condo in downtown Chicago, 24th floor, view of the city, all glass, you know, on one side, out to the, to the, to the view to the city, just absolutely gorgeous. And you know, I stayed there and it was fine, but the guy probably had invested, you know, $500 in all the furniture in the whole place. And I just. I walked out of thinking, what a lost opportunity. Just a little bit of attention to detail there could make a huge difference. And, you know, we think it's really important to do your homework and do it right.

Yeah, he probably just doesn't have a Mary.

Good point.

So, speaking of that, so let's kind of walk through a little bit of the numbers on the investment. So, you know, your. Your price is in the upper end and in the upper three hundreds. And down payment wise, you guys did about 25% down on that, correct?

Yes.

And then the other thing, the other piece of that was the furniture expense. So, you know, do you roughly have the numbers on what you guys do?

Yeah, the number is beyond the. Beyond the property. We invested about $35,000. Now, that was not just furniture, but that was. We had a putting green installed in the backyard of that property. We had some work done on the resurfacing of the decking of the pool. So there were some investments there that went way beyond the furniture. But it was kind of ironic because, Steve, I asked you before we made an offer on the property, I said, give me a ballpark of what we're going to spend with furniture and dishes and linens and beds and TVs. And Steve says it'll be about 35,000. And at one point I thought. At one point I thought, we're gonna get this done for 25,000. And I'll tell Steve, thanks, but you gave us a $10,000 profit there. By the time it was all said and done. We just did the numbers this morning on the flight out to Tampa, and it was. It was 35,000 right on the money.

Well, that's. That's good to know. I mean, you think about, you know, what does it take to take something from vacancy to furnished in order to live there? You know, your decor, your couches, your stuff. And Mary's tastes were awesome. I mean, the place is beautiful, and you just kind of go through that process. And so, you know, 1500 square feet. You have three bedroom, two bath pool. You know, you're looking at about that 30 to $40,000, depending on what you do to it. And you guys, the places, it looks great.

One of the things that we learned early on is you don't skip on the quality of the beds and the mattresses, and you just go first class with that. And our goal is, man, if people can say, geez, we want to come back here next year, we got to Have a place where people want to come back. That's so critical.

Yeah, definitely.

Yep.

So as we kind of wrap our little interview up, what do you feel your purpose for your vacation rental and your future vacation rentals is?

You know, that's a great question. We actually had two goals in mind there, Paige. Number one, would it be a reasonable investment? So we're looking for a return on investment. Number two, we're not going to buy regardless of the investment, we're not going to buy a vacation rental someplace where we don't want to go spend time ourselves. So would it be a place that our friends and family would like to go to? And then, you know, kind of the third thing is, would it be possible to create some memories for other families that we don't even know? Could we. Because we've gone to places year after year after year, we kind of feel like it's our place, you know, for that week and it has special memories and it's cool. And if we could have a part in maybe creating some memories like that for families, that'd be kind of. That. That'd be a neat thing to be able to do.

Yeah. Yeah. You think about that with. I know it's one of those things that we haven't done yet at, you know, our property in Muns park is trying to get somebody or the families to like put a note, not a note, but maybe some pictures to post or to send to us just their memory about the weekend or those types of things so that you can turn it into that sentimental thing. Because I know, like, what you just said is a really great point is that, you know, we bought the place up in Munds park because that's where we like to be and we love the memories we've created with our kids and now we get to be a part of that. And our friends and family know that we have that stuff up there and it also. Not that we want to sell it, but it definitely makes it easier to help people understand what they're going to get out of renting up there. And like you said, being a part of it and it's really awesome to be able to do that and also be a blessing to people. You know, one of the things that we did with, with our vacation rental is that it's also a bonus to the people that work for us, you know, so that's. That's always great. We get to send them out to. To rejuvenate and enjoy, you know, the investment that we've had as, as a company. So it's, it's kind of a cool process as well.

Yep. Well, our family members are lining up. They've got their calendars out right now and their checkbooks.

Right, Don?

We'll see about that.

Hey, one other thing too.

Family discount. Family friend discount.

That's right.

You know, the other thing too that's important to touch on is just, you know, we looked at a bunch of properties in Scottsdale. Right. And we went through the value of what you were getting. And it was interesting because we just happen to have a house that. And you know, our perspective on, we don't call it flips, we call it repurposing. And so the story is actually pretty cool with that house, you know, from it going. My neighbor talked to me at a block party about his 70 year old dad owning that house and he just didn't want to mess with it. We came to a price, you know, we provided the simple stress free solution. We bought it with a tenant in it and then we renovated it. You know, that's what Wendy does, she repurposed it. So can you just tell me, you know, you and Mary's thoughts on the construction process and what we did to the house and what you thought the quality was, because obviously you guys have lived there now and so just your opinion on what that looks like.

Well, what was important to us is we had to have a property that was turnkey because we don't live there. We know, we don't know any contractors or any of those kind of people. And so we had told you up front, we want something that we can essentially buy the furniture, put stuff in place and go with it just as it is. And that's, that's exactly what it was. And your people took care of the details and brought the house back to life and put it in a place where literally we could move the furniture in and fill up the kitchen cupboards and we were ready to go. So that made a huge difference for us. And we just think it's the way to go. We're not construction people, we're not remodelers. We'll leave that to the people who know what they're doing. And you and Wendy just did a wonderful job with that. You know, one thing we've noticed about, about repurposing properties is you have to know what to do, but you also have to know when to stop and what not to do. And you guys, you guys, you found that, that nice sweet spot in there and it worked out great.

Yeah. Well, thank you. Appreciate that. And of course, you know, we appreciate your business and the referrals and the book and looking forward to doing more of it and getting you out here to Phoenix to do a ninja selling event and getting some people into that. Because that would be fun.

That'd be great. That'd be fantastic.

Paige, maybe we should do it in muns. And of course, don't forget the Rooster House. The Rooster House. Some barbecue and road trip. Yes. Well, hey, Don, it was great talking to you. Thank you for the time. Anything else, Paige, wrap up with?

Answered my last question.

All of it.

I'm good to go.

Good, good.

Well, hey, thank you, guys. Enjoy Tampa. Thanks again. And make sure you holler when you're back in town.

You guys take care now.

All right, Done. Thank you.

Bye.