179. The Exact Playbook to start a $90M+ Airbnb company

0:00What if you could eliminate the guesswork in choosing short term rental properties and rely on proven data-driven systems instead? This is the best investment because of appreciation, cash flow, and principal pay down, and tax savings. If I had to get started today, I would learn everything about raising money to be able to do joint venture deals. Today, we're diving into the world of Airbnb investing with someone who's cracked the code. If you ever wanted to learn how to find properties with the highest probability of success, this episode is for you. This is Ryan Atkinson, and you're listening to the Outfit Podcast, where we uncover the secrets of building and running successful businesses.

0:35I am so excited for today's guest because joining us is John Bianchili, famously known as the Airbnb data guy. With a background in financial advising and data analytics, John has helped investors find over 200 profitable properties valued at more than$90 million, all generating cash flow with 100 % success rate. This is going to be so, so good. As the founder of STR Search, John is here to share his data-driven approach to finding and evaluating short-term rental properties. John, welcome to the show. So, so excited to have you on here. Thanks, man. I appreciate you having me on here. What a great intro.

1:03I appreciate that. You're going to nail this whole episode. I know this is going to be an episode people are going to love because people just love real estate when it comes to entrepreneurship. First off, can you share how you guys are with your Airbnb rental business? And what were you doing before? Kind of draw us that picture. I started a financial advising business when I was 21. You got to build that up client by client, right? And by the time I was 24, I had partnered with a senior associate. He was managing 90 million. I was managing 10 million. I had 200 plus clients. I had my own assistant.

1:31I had my name on the door and I was 24, right? Absolutely hated it. Like it was the most boring thing you could ever do. I love the people I was working with, but I was just looking at it and I'm like, man, if I do this for the next 10 years, I'll be set. And if I also do it, I want to kill myself. Like not until like, you know what I mean? Be too extreme. So it was kind of one of those scenarios where I felt really lucky that I had gotten to that stage at such a young age because a lot of people actually, it takes about 10 years if you build it without partnering with somebody. And once you've been doing something for 10 years, really hard to like restart, right?

2:02So I got lucky is what I'll say by being able to get to that point at that age. And I was like, all right, I got to change. I got to do something different. I got to go figure out a way that I can actually build a business that I think is going to be sort of like infinitely scalable in some sort of way, whatever it is. And Airbnb was something that, you know, came by in some sort of way. I had an extra spare room and I was like, I'm just going to toss it onto Airbnb. And I was again, 24. I didn't care, right? I think it was even 43. And I was like, all right, I'll rent it out. And started doing that.

2:29I started to make enough money to be able to offset my rent. And I was like, cool, what else can you do with this? Right. And I started looking it up, reading blogs and realizing that there were a ton of people who were actually building businesses around this. That's how I really got into it was trying to escape what I was doing before and using that as an alternative. So you're at a young age doing Airbnb properties. I got to ask, like, how did that background as a data analyst, like shape your approach to short term rental from the start? So just to like share this right off the bad because you know some people think that data analytics is like this big daunting thing and it kind of scares them right like they're like what does that even mean i did not go to school to be a data analyst whatsoever right i also didn't go to school to be a financial advisor like i didn't do any of those things i just simply tried to like look at what was available and try to make sense of what i was looking at and i think a lot of people over complicate it and if you just sort of simplify it you can kind of see the answers right so even with like the finance side of things we barely barely like studied it was the simple kind of finance like it was the you're investing in a mutual fund really what we did was we were trying to figure out when you invest into a mutual fund there's a guy who runs the mutual fund or lady who runs mutual fund right and they keep track of like who's performing best year over year so all we did was we went and we're like well who's the top 10 people we're like okay we'll just buy their stuff and that was it it was that's literally like the how advanced our research was and it worked like a charm anyways i say that to be like, hey guys, I'm not some super analytical nerd, right?

3:52I may be a nerd, but it's super analytical. Anyways, then I realized that there was this platform, AirDNA, and AirDNA kept track of everybody's Airbnb and was able to somewhat predict how much every single Airbnb was making across the entire world. Yeah, blew my mind, right? And the reason it blew my mind was because it was just like right there. Like all you had to do is like take a look at it. And if you reviewed every single four bedroom in that area, you could have an understanding of how much a four bedroom would make. And then you could understand like, what you had to do to that property to be a top performer compared to an underperformer.

4:25So it's pretty straightforward, right? Now, one thing that you asked, like, the financial advising side of things, how did that play into the Airbnb side of things? One thing I did realize was I had no money. That was pretty easy to realize. And then I was like, I need to raise money if I want to go and actually be able to open up these Airbnbs. And so being in like the finance world definitely helped a little bit there because I maybe just had a little bit more confidence. Like I knew that that was a possibility, but I then use the data to forecast revenue on properties to be like, Hey, this is how much they would make.

4:56And then when you underwrite it, you go, Hey, it makes a hundred thousand dollars. We have$70 ,000 of expenses. We'll walk away with$30 ,000 per property. And it's like, well, how many of these could we get? And how much does it cost to open up the property? And so you do that quick analysis, right? And then you go find some people who are investors and you're like, this is what I'm proposing to do. This is what I've learned. Like, this is the game plan. And some guys invested with me and we went out and did it. So it helped a little bit. I want to ask, what was it like, like raising money for this?

5:24Because like you didn't have like a real estate background. Like, do you have any parents that were real estate investors or anything? Or you're really learning this on a five, which I love that like entrepreneurial spirit, of course. My dad worked in factory for 30 years. My mom babysat and I didn't have that background. And even like the way that I was trying to do the real estate as well, just to really clarify this, because I think it's important. I wasn't looking to buy the properties. I was looking to actually rent them and then turn them into Airbnbs, which is kind of a frowned upon way of doing Airbnb for a lot of people.

5:50I get it. I was young. I was trying to just figure it out. And like nowadays, I help with finding it and whatever, but it worked at the time, right? That's what I was looking to do, which is a lot easier because you're just simply renting it. There's not a huge overhaul of getting a mortgage and all those things. Now, looking back at it, I should have just learned about how to actually buy the real estate in the first place, but you know, hindsight's 2020, but I don't know. I just did it. Like I found one that I could rent and I did it and I got experience from that. And then that allowed me to have more confidence to know this was working and then data allowed me to have more confidence.

6:20And then the actual process of raising money was just asking people if they knew anybody. I was like, do you guys know anybody who's interested in this? And then I would explain what I was trying to do and came across somebody that I knew and him and his brothers owned a whole bunch of subways and they had some extra cash and they wanted to take that risk with me. So they're good partners yeah it's so good yeah and obviously like your approach has changed a lot but i wanted to talk about like those first few properties because i know you're analyzing like this could do well this could do well what were some common characteristics amongst properties that did do well talk to us about locations proximity to lakes so we'd love to hear like that when i was first getting started man i had no idea what i was doing yeah i look back at it and i'm like i would never in a million years make those decisions the first handful were like learning experiences wasting money to try and figure it out right which sucks looking back at it but just to be clear like i've kind of almost dedicated what i do on a day-to-day basis to stop people from making the same mistakes i made so yeah the first one was like i was opening it up into detroit and i tried my best to like make sense of the data and i did it in the exact opposite way of what i tell everyone not to do which is just like look at airbnbs rather than like really understand it tried to find something cool and guess what's overpriced?

7:36Cool. Every time. So cool is always overpriced. So the first place that we found was overpriced, but we still went for it and opened it up. And then we rented furniture, which is way overpriced and all these different things. So I made a ton of mistakes. And then on top of all of that, we kind of like got the approval to get the apartment before actually pitching them to do Airbnb. And then the guy that I was doing it with at the time, I was like, should we tell him? And we both were like, oh, let's just try and get away with it, which was like the dumbest thing in the entire world. And within one month, we got an eviction notice.

8:04And so then we turned it into a corporate rental. So it's still like made a tiny bit, but not nearly as much as what we were hoping for. What I'm trying to say is I made every single mistake under the book when it came to that very first one. I was like, okay, don't get cool. Tell the person what you're doing. Do more data research. And so I did all of that onto my next one. And the next one, even that one wasn't that great, but it would have maybe like broke even, I guess you could say, over the time period. But those two actually was what allowed me to have enough knowledge and skill and experience to raise the money that I raised to be able to go and get the other ones.

8:37So we talked about like those first two, and now you've found over like 200 profitable properties. I mean, I want to get actual for people that are listening. They're like, okay, this is like a good idea. When you're now evaluating properties, like what are you looking at? Like from all the mistakes you know, what you know now, like what are you looking at and advising people to do? The very first thing you're doing is you're trying to find a market that has cashflow potential. So that's easy, right? You need cashflow in an Airbnb because it's a business and every business you want to make money.

9:02Now, some people are okay with breaking even because there's also tax advantages. So some people can save like$100 ,000 in taxes and they don't care for breaks even for obvious reasons. It'll appreciate still. So they're still making money in one way or another. But for the most part, for my clients, I'm always looking to find that cash flow. So that's the first thing I'm looking for. But before you can even dive into the data on a market, you got to figure out the regulations because regulations are real tough with Airbnbs. And I can speak on that as well. And so you got to make sure you're in a place that has favorable regulations.

9:28then what you want to do is you want to see if you can find cash flow and so with the data what you can do is you can generally figure out how much properties will make so this is called forecasting the revenue and so you'll look into let's take scottsdale you'll go and take a look at scottsdale and you look right into the downtown of scottsdale and then you'll look at like the four bedrooms and you'll try to understand how much they're going to generate in revenue forecast the revenue you'll get an understanding of like what the other homes that currently exist are doing. Let's say that's$120 ,000, right?

9:56At that point, you then need to go look for the homes that are for sale on Zillow and figure out how much you're selling for, okay? So there's a simple rule with this, which is the 20 % rule. So if the property is making$120 ,000, then you want to buy it for$600 ,000. So the revenue is 20 % of the purchase price, okay? It's not the cash on cash rule. It is the price to rent ratio. And so if you can see then on Zillow that there's homes for sale for 600 ,000 that match the homes that are making 120, like they look very similar, right? And they have the same size backyard, same side interior, all that kind of stuff.

10:32Then at that point, you're like, okay, that home will cash flow, right? You don't have to do any other additional underwriting, it'll cash flow, if that's the case. And so that's where it starts. That's like the beginning process. And then from there, you got to like, peel back the onion and every single layer and understand everything. Yeah. How are you finding like what you think an Airbnb could make? Are you still using like that same platform? I'd love to hear that specifically. And what was it? It's called airDNA.co. Perfect. I just want to make that clear for everyone here of like where you're getting this from.

11:03This isn't private information where you have to buy something. So those three that you just laid out, find cashflow potential, regulations and forecast the revenue. I think find cashflow potential is an obvious one, but let's talk about it here. Are you looking at specific locations? Are there locations that work better? considering regulations as well. Talk to us about that. Yeah. So the 20 % rule that I just referred to is how you find the cashflow. So that's the way where you're like, okay, this market has potential to cashflow, right? So I've studied 350 markets and I advise my clients into 15, right?

11:32350 down to 15. There's only a handful of markets that actually work with the regulations being good and there's actually being cashflow. And so that 20 % rule is an indicator, hey, there's cash flow here, right? And then you really got to like dive deep into that market and build a proper buy box to understand what are the revenue drivers to be able to maximize your cash flow potential. You're essentially trying to figure out like, what is the cheapest home that I can possibly buy in this market to drive the most amount of revenue out of? And if you can find that sweet spot, like that's the property that you want to purchase.

12:03I want to ask the regulations though, which states are not friendly to this? Because I know there can be some states that aren't friendly to this. What are some states that are friendly though? I mean, like if you want to go very broad, blue states are going to be not friendly. Red states are going to be friendly almost always. Right. That's just the world. But Arizona is pretty good. California is not. Florida is pretty good. New York's not. Sort of. Actually, New York is actually not that bad, to be honest. There are some spots. You know, New York is big. So but you got to go like North New York.

12:32Right. Anyways, that's generally how it goes. If you want to talk about regulations for a second, right, to like help people understand this concept here. Generally, what you want to do is find a market where they already have regulations in place because you don't want them to show up with new regulations because that's really going to screw you over. However, before you even do that, the reason a place gets regulated in the first place is because Airbnbs are kind of hurting that location. So New York and San Francisco are two great examples of this. They're both landlocked by water. And so there's only so many spots for homes.

13:03And so it makes it really difficult to add in Airbnb because it hurts that housing market even more. And they don't need Airbnbs. It doesn't help the city all that much revenue wise. Right. And so whereas if you flip that and you think of like the Great Smoky Mountains, right, there's Gatlinburg and Pigeon Forge. And these areas are just all Airbnbs. And if they all go away, the whole economy in that area is gone. It's like, OK, let's start with that basis. Forget about regulations. Just think about that. You're like, OK, well, where do Airbnbs fit? Right. Where do they actually work? Where are people okay with them?

13:34Things like that. Start looking in those areas. Then check out the regulations for those areas. And then make sure that the people who live there are generally okay with Airbnbs. As an example, in Palm Springs, the residents of Palm Springs have just been trying to get rid of Airbnbs forever. They just keep pushing. And it's in California, right? Where they can keep pushing. So eventually, they're just going to keep getting pushed right out. Whereas you go to Gatlinburg, that's never going to happen. I'm not saying invest in Gatlinburg, but I'm just using that as an example. I think that is really, really good.

14:04Good talking about the regulations and then also forecasting the revenue. That was the third piece in there. Software you use, an equation you use, because obviously forecasting revenue is what gets people excited here. Yeah, so AirDNA is the software that I'm using for that because it has all the data and they are trying to predict what the annual revenue is going to be. Wow. Yeah. So what AirDNA does is they go into the calendar of every single Airbnb every single day and they record the calendar, right? And they can see. So let's say they look at all of next month and they see all next month is available for$100 a night.

14:35They record that. Then they come back the next day and they realize that one of those days is blocked off. They go, well, that was probably a booking, right? And they go, okay, well, that host made 100 bucks. And so then therefore I'll record that this place made 100 bucks. And they repeat that over and over and over and over again. And eventually you get the full annual revenue, right? Oh, man. Yeah, my mind blew when I saw that. Jaw dropped, eyes open. I remember like showing my dad and my brother-in-law and them not caring whatsoever. And now like, you know, eight years later, This is all I do.

15:02So yeah. We'd love to hear a little bit more like what is the potential or any potential here as we continue down this revenue talk track? Like what could someone make? Obviously, it depends on factors of like how much can you raise, all that stuff. But what is potential for year one? Yeah. So with the Airbnbs that I'm able to find, we're averaging between$20 ,000 and$50 ,000 in free cash flow, right? So the properties kind of vary. Like they'll make anywhere from like$100 ,000 to$200 ,000 in revenue. But the cash flow at the end of the day is going to be somewhere between 20 and 50 on average.

15:32We have some clients that are up into the 75. We have one client. This guy's awesome. And this guy was trying to find a property for two years, right? He's kind of like, he watches all my stuff and like consumes all of it. He's a super nice guy. Like we're on a texting basis now and everything. We get him a property in a market that I was like super nervous about. So I did it like more due diligence than normal. He's had it open since November. And by the end of February, he will have profited$35 ,000. Wow. Which is what a lot of the other places will end up making tour the whole year. He's going to like nail that in three months.

16:04It's just mind boggling. And like March is probably going to be better than February. So it's wild. The guy deserves it. He puts so much work in. He's such a nice guy. So that is so awesome. Super cool story. What is so cool about this is like, this is like a lifestyle change. I mean, profiting$35 ,000 in three months here is like something that can change your life. I know a lot of entrepreneurs listening here are going to be like very perched up to like here, especially something like that as well. Yeah, and I mean, that is just one part of it, obviously. And the other part is he's going to have tax savings on that too because there's this thing called the STR tax loophole, which allows you to be able to save on your active income, which is super rare to be able to do.

16:41And then obviously, it's going to appreciate as the years he's able to hold on to it. Now, I kind of feel like I need to mention these things just because a lot of business owners have probably listened to this. There's this one saying that stuck with me a lot, which is that you make your money in business and you invest it in real estate, right? Right. That's kind of how I think about things a lot, too. Like I have my own business as well, and I'll invest my money directly into real estate. It's just that Airbnb is a business. It's more work. Right. But it's not like the business that you run or the business that I run.

17:08Right. It's a significantly easier business. I was trying to explain this earlier today because take like a software like AirDNA as an example. Right. You can't easily just replicate what AirDNA is doing because you also don't understand their marketing side of things. Right. How they're like upselling people. what they're doing internally, how they're like using their, you know, their UI to make it beautiful and everything. Those things are secrets, right? The behind the scenes, they're doing certain things, something works, something doesn't, right? And that's what most businesses are like. However, with an Airbnb, the home is just on Airbnb, and that's the marketing channel.

17:41So there's nothing to figure out. If you also put your home on Airbnb, that's it. So then therefore, when you're trying to compete against these people, all you have to do is look at what they have inside their home and do the same thing and then a little more and now you're better. It's just stupid easy when it comes to beating your competition. If you just do a little research prior to getting it set up. Oh man, we have made it like seem stupid easy like throughout this because your client prospects boasts a hundred percent like success rate as we said in like the opener. I mean, like how are you defining success like within like this context?

18:12Profitable, your cash flow. As long as you hold property long term, you're going to appreciate, right? Right. And so I kind of think I mentioned this already, but like I hyper focus on cash flow. I call cash flow a cushion. Like cash flow is great. Don't get me wrong. It's great. But you're not going to get wealthy off of cash flow. And so you got to think about cash flow as like this defense mechanism rather than a net worth appreciator because the property appreciating over the years is really what's going to do it. Right. So then therefore, the idea is you got to hold that property for a really long time.

18:40But the only way to do that is to be able to keep covering your expenses, right? Now, today, things are easy, right? The economy is doing fairly well. What happens when it doesn't? That's the scenario that I'm always thinking about. It keeps me up at night. I think about all the time. What happens when the economy crashes? What happens to these 200 plus Airbnbs when everybody stops traveling, right? We've had a strategy since day one, which is like try to get your Airbnb to be in the top 10 percentile of that market so that when the market does crash, your home can still get booked because there will still be some people traveling, just less, you can lower your price.

19:13You're still significantly better than everybody else. You still get bookings. You're at least covering your bills and you're good to go. Right? So the cash flow, the further you are from break even, that's your cushion. It allows you to be able to go down $40 ,000 in revenue and still break even so that you can get through the recession and get to the boom that's coming. But more importantly, hold the property over a long period of time. I love it. I want to ask, how do you get into the top 10 % of Airbnb's? I think that all 100 % make sense here, but if you had advice on how do you actually get in the top 10 % of Airbnbs, would love to hear that advice.

19:45Again, stupid simple. Look at every single last Airbnb that's in the top 10 percentile, write down every single thing that they have, and then do that. That's it. Are you talking like amenities or what do you mean specifically for that? What does the home look like? Let's say we go into a market where there's no water feature, no view, and you're just competing home to home, right? Maybe you realize that all the properties in the top 10 percentile have a pool. Go, okay, need a pool. Then you also realize that most of them have a putting green. You go, okay, need a putting green. And they actually have a pretty decent sized backyard too where they've added a bunch of additional like lawn games, right?

20:19You got your like ball ladder and things like kids. Okay, we're going to add that. They also have a fire pit. You go, okay, I'm going to add that. And then what you do is you make this entire list of what they all generally have, right? And if, you know, maybe one doesn't have it or the next one doesn't have it, but if the majority have it, you should have it, right? And so that's the first step. Now, you also want to look at the home itself. of all the top performers? Are they all like five bedrooms? Do they all sleep 16 people? Are they mansions? Because if so, that's going to be pretty tough because the mansions are going to be so expensive that's going to be impossible to cash flow.

20:47Or are they just like homes that you can actually afford, right? Is that what they look like? Okay, they look like homes I can afford. They have a pool, putting green, fire pit. They go, okay, cool. So I'm going to find that home that's similar to it because there'll be a lot more, right? I'm going to make sure it has a pool. I'm going to make sure it has a yard that can fit those three things. However, I'm also going to make sure of the yard is big enough to add a pickleball court. And now I'm going to have something that nobody else has. And when a guest is going to look for an Airbnb, they'll go, well, why would we not take this one that has a pickleball court for the exact same price as the one that doesn't have a pickleball court?

21:20That's it. Like, that's it. What I'm kind of like comprehending here is like, there's a lot of competitive research that is like being done for this. You're identifying like air DNA and then like, you're also doing this, like identifying that. Would you say like competitor research is kind of like a key ingredient, like making this actually successful. It's actually probably 90 % of what I do is just competitive research, right? But the thing is, is that it's so much easier than most businesses. That's what I'm trying to get across is that there's no secrets. There's no like secret recipe that these Airbnbs are doing that you can't find in the photos.