Analysing Property Deals From Start To Finish

In this module of the Short Lets and Serviced Accommodation course, I’m going to show you how to analyze a deal from start to finish using the tools that I use and also using a few websites that you will know, including Airbnb. I actually don’t use any paid websites and a lot of people use AirDNA. I don’t, I don’t think you need it and I’m going to show you what I do instead.

So, first and foremost, let’s just set the scene. So we’re going to assume that we have found a property to rent. So on this here, I’m going to skip. You see this is the BRR analysis section of the Deal Calculator that I’ve designed, that would fully give us everything that we needed. I’ll just zoom in here so we can see this, this would give us everything that we needed to work out, how much money was going to get stuck in the deal, how profitable the deal was going to be using a very simple BRR strategy.

Serviced Accommodation Analysis

What I then do is move it into an SA analysis. However, let’s look at the rent-to-rent deal. We’ve talked a lot about rent to rent in this series, but in the main, it doesn’t really matter, but rent to rent, let’s look at this. So in the first column, let’s have a look here. We want to put in what our costs are going to be. So how much is the furniture going to be? Let’s assume that’s 3,500, maybe we’re setting up a three or four-bed property, okay? Deposit, zero. If there’s any refurbishment that you might need to do, typically I would encourage you to try and find properties that don’t need a refurb. I think it’s so much easier. Lesson learned I probably spent too much money and too much time refurbing other people’s properties in the beginning, whilst it got me to where I am today, I would advocate not doing that if you can avoid it, and if there’s any other cost put in there. So, that’s what it’s going to cost us to get into the deal.

Now, what we want to do is then put in the rent here. So the rent would be, let’s say for argument’s sake, £750 a month and we then would fill in the rest of the details. But what I want to do is jump to Airbnb. Actually, I’ll quickly put in this, so if you’re in a mortgage, you put your mortgage in there. Rates, let’s just say £150, £100 like power heat, water rates, £40. What else? We got insurance, maybe £9, channel manager, software fees, £14 or something, TV and internet, £35. So basically we’re just putting in here, all the different costs, consumables, maybe £35, investor loan repayments, furniture loan repayments. So if you’re going to obviously loan your furniture, then you put that in here. I’m just going to assume for the sake of this, that we’re paying cash for it, but I’m going to show you something that might just change the deal slightly.

Other, and then we’ve got everything. So we’ve got our cost in there right now. We want to go and look at the location. So what I do is I jump on Airbnb. And in terms of the location, let’s just put NE1, which is obviously Newcastle city centre. I then go, I’m flexible, okay? I choose these three months and I choose the week. I then would find how many guests, so if I’ve got a three-bed property, it’s probably going to sleep six guests so I try and marry that in the data here. So it brings up very similar units. Now, what I’m looking for here is this number here, in the top left-hand corner, which tells me that there are 130 stays in Newcastle right now available, based on my flexible search criteria.

For me, that’s a good sign because if 130 people can make this business work, I’m pretty confident I can make this business work. So, that’s the first step. The next step is I look at the reviews. So let’s have a look. We’ve got 91 reviews, got three reviews, got 139 reviews, 16, 6, 58, 52, 22, 52, and so on and so forth. Basically, we’ve got a lot of reviews, okay? Again, another good sign, because if there are a lot of reviews, that means there’s a lot of people stayed, which means that there is revenue to be collected by having a property in this location.

Now, you used to be able to go into a property and we then would have a look at the forward calendar. So the forward calendar would be down here and we would have a look to see what that looks like. As you can see here, these cross-outs show when they’re booked for. Now, this particular host runs a one-night stay policy, which I would not advocate. However, that’s not the purpose of this video. Let’s look at what they’re doing. They’re actually not that book. Now, prior to COVID, I’d have been worried about that because people used to book 30, 45, and 60 days in advance. However, the average lead booking time of my whole UK portfolio, as it stands today is 10.46 days. So most people are booking within a 10-day window, okay? Dramatically changed. So for me, that data doesn’t really bother me anymore and I am pretty confident that if we have enough stays and enough reviews within the industry, then we can do that.

I would also maybe look on Google Maps and have a look to see what hotels are within the vicinity of the property. So we just do a quick Google Maps and I would then type in, “hotels in ne1”. And as you can see there, we’ve got an abundance of hotels so we have various different rates. We’ve got 69, we’ve got 64, but as you can see here, there’s a big splat diagram of everything. So what I want to do is find out exactly where our property is and then see what’s kicking about. Now don’t pay too much attention to hotel rates versus serviced accommodation rates. They’re two totally different things. Yes, they’re accommodation, but there’s a big difference between renting a room and renting a full house or an apartment. So, but the idea is that there’s plenty there to go off again, if there’s many of them operating then, great. And again, you can look down the left-hand side here and have a look at how many reviews there are. And again, if there are lots of reviews, then that gives us the confidence that this will work.

What then do is jump to here. Now, let’s just assume that our property is bang in the middle here of this little cluster. So we’ve got rates here of 199, 159, 220, 130, 134, 165, 201, 208, 396, 153, so I’m probably gauging from that the pricing point for the week’s probably about £175. So what I then do is I come down to my calculator here and I go weekday price and I put 175. The next thing I will do is I’ll go back to Airbnb and I change the weeknight here for the weekend and click search. And as you’ll see here, the rates have changed, 423, 380, 250, 410, 288, 387, 239, 384, and then we’ve got a couple of splinters here, 170, 135. So I’m going to go about £300 for the weekend rate. So again, the weekend price to 300.

Now, depending on where you’re at and depending on the locations, you’ll have a bit of a feel for what’s going to happen. Now, Newcastle is a very good city for contractors. There’s a lot of development going on in and around the areas and also it’s a very lively city on the weekend so naturally, it attracts a lot of tourism. So on the weekend, we are pretty much eight nights out the month booked. So I would put that in there. And the weekday nights booked, I would probably work on something like 13 for my analysis, just to see how many ideally, that 21 nights a month is my booking point so I’ve always worked on that. That’s why I choose it and my portfolio will pretty much play out that way on average.

So what I’ll then do is I’ll have a minimum night stay. So I’m actually seeing this increase, I’m going to put three nights in there. So we’ll take six bookings a month, as you can see, there’s a lot of this data automatically populates based on the formulas that I’ve written within the spreadsheet because as you remember from one of my earlier videos, I want to make decisions based on logic and not emotion and this is my logical way of doing it. I put the numbers in, it tells me whether I do it or don’t do it with my green and red light system, which I’m going to come onto shortly.

Calculations

The cleaning fee per stay, let’s just say £45 might be a bit more like £65. Linen fee per stay, let’s just say that’s £35, that’s probably in general there. Gross revenue is 4,675, so that’s based on that times eight and that times 13. OTA commissions that we’re giving away are roughly £351. Running costs, VAT, et cetera. So our total profit on that unit is 2,594.

Now, that rent probably doesn’t live up to where that city is so we’ll just change that slightly to make this a bit more realistic. So we’ve got a 1,250 rent and we’ve got a total profit of 2,000. Now what I do is I make sure that we also look at the seasonality of everything that we’re doing as well. So we again have our, this is a kind of snapshot, this top bit here, but I want to know what the seasons look like. So we’ve got occupancy and revenue down here, and basically, it will tell us what the fluctuating income will be as the seasons work based on the occupancy and the rate and then it gives us our profit here. Now, as you’ll see, it’s got the green light on from month two, because our refurbishment costs here were minimal, but let’s just say for argument’s sake, we were going to do a 4,000 refurb and the furniture was actually 550 and therefore we’re in… And we had to also give a deposit of 1,250 so our total cost is 10,750. You see here, the red starts to creep.

However, it’s still for me, it’s month six or less. If it’s anything more than month six, that it takes to go green, I don’t go into the deal unless I can tweak the deal to make it suit. So I might change the rent or I might put the furniture onto an instalment plan. There are various different ways that I’ll do it to get my payback back, but I want the money that I invest in the properties back within six months.

I then go on to see what that looks like in terms of an annualized profit. And ultimately, as you can see there, this will be a very lucrative deal and definitely one that you would want to go into. So as you can see here, the average wage is 28,000 in the UK so these deals whilst the figures might not be as accurate as they could be, even if you half this, you only need a few of these deals to get you financially independent. And that’s one of the great things about the rent-to-rent strategy and using short term rentals to ensure that you can achieve that. So if you would like a copy of this deal analyzer, the link is in the description of the video, just give a little click and you can get your own copy of it.

Summary

And if you do have any questions about how to analyze deals in any more detail, then please just leave me a comment, but that is really how I do it. And yes, I’ve got a bit more experience so I kind of know what areas work, but in the main, that’s how I do it. We can only dig into this so much. The data is only what we put in and it’s not always going to be accurate. At the end of the day, I could have done this on March the 15th, 2020 and by March 26th, we had a very different situation going on. But the data is the data we can work on averages. We work on what we’re feeling. And I also believe that your gut instinct is also a good measure. But for me, I would never ever, ever invest if this is all red past this six-month point here because that does not fit with my criteria, I will just go and find another property that does. And they are the boundaries that I set for myself and I encourage you to set your own boundaries as well.

In the next module of the course, we’re going to be looking at the correct way to list your properties as serviced accommodations and short lets, so make sure you hit the bell notification and subscribe and I’ll see you then.