From Surviving on $30/Day to 30+ Properties Thanks to Blue-Collar Skills

David:
This is the BiggerPockets Podcast, show 833.

Luke:
For me, it was like, “Dude, all I need to do is focus on 300 bucks at a time, 300 bucks at a time. Slow down.” And now fast forward to today, 15 years later, all those 200, $300 chunks from 15 years ago, I mean, I’ve got debt pay down on top of that. You know what I mean? And rent raises, and equity, and whatever else goes along with exactly why we’re here and what BiggerPockets teaches. So no brainer.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the world. Every week, we are bringing you stories, how-to’s and the answers that you need to make smart decisions now in today’s current real estate market. Today’s show, Rob and I are going to be interviewing Luke Carl, the husband of Avery Carl. Both of them are no strangers to the BiggerPockets ecosystem. They teach bootcamps, they write books, they own short-term rentals, and they help other people to do the same. Rob, first off, good morning.

Rob:
Good morning. Top of the morning to you.

David:
Second off, let’s get into it. What should listeners look for in today’s show?

Rob:
So I think there’s this whole thing where you do real estate, you become very good at it, and you feel like that’s the thing that you have to stick to because that’s what you’re good at. But today we’re going to talk to Luke and we’re going to find out when is the right moment to depart from the successful niches that you’re in, and when it’s okay to break into other asset classes. He really gives us a masterclass on diversification. We even are going to talk to him a little bit about the banking side and the financial organization of owning over 300 doors.

David:
That’s exactly right. A lot of stuff you don’t get into very often, we also dispel quite a few myths that many of our listeners may have in their minds, and we’re going to set some of that straight. So there’s some good stuff today you don’t want to miss it. Before we bring in, Luke, today’s quick tip, ask yourself, are you built for the type of asset class that you’re pursuing? A lot of people get into a certain asset class or type of investing because they think it’s “the best”. Oh, this is the least work for the most money.
I don’t know that that’s always wise. I think different personalities, strengths, and skillsets are better geared towards certain asset classes. Rob has an eye for design, he pays attention to detail, and he likes to make people happy. He is engineered in a lab to be a great short-term rental host. That’s what’s worked for him, and it’s not a surprise to me that he’s elevated to where he has in that space.
My friend, Andrew Cushman is the most analytical person that I know never makes a mistake on anything, incredibly cautious and smart. He’s a great multifamily investor. He’s wired for that. You got to ask yourself the same question. Rather than saying, what’s the best, ask yourself, what are you the best at? Where would you be the most successful? Where would you find the most passion and then become the best in that space? Rob, anything you want to add?

Rob:
Yeah, basically just know when to pump your jets.

David:
And if you want to know why Rob just said something that sounds silly, listen to the end of today’s show and you’ll know exactly why.
Luke Carl, welcome to the BiggerPockets Podcast. Nice to have you on today. A little about Luke’s background. He’s a short-term rental expert, but he does more than that. His portfolio includes single family homes and a mix of small and large multifamily buildings, and we’re going to talk about that later in today’s show. He’s been investing for 12 years and is married to Avery Carl, who is featured on the BiggerPockets Podcast episode 364, snowballing six figures, short-term rental profits into passive investments. Luke, welcome to the show.

Luke:
My pleasure, my pleasure. It’s a huge honor. I’ve been a big fan for a very long time of both of you gentlemen, of course, as well, and it is great to be here.

David:
All right. Let’s let the listeners get to know you a little bit. Tell us about the time that you went out to help your tenants during a storm.

Luke:
Well, actually, I mean, that’s a long story. That’s a good one, man. So that was back in the day when I was first starting cutting my teeth. I was self-managing back then on my long-term rentals, and I was doing that from three hours from where I lived, which was in middle East Tennessee area. I still do had some duplexes in Chattanooga, and one of them got hit by tornado in the middle of the night actually like 1:30 in the morning. There was seven people sleeping in it at the time. And luckily everybody was just fine, and it was a terrible tragedy, really.
It got worse. I loaded up my truck the next day with a couple of chainsaws and I called a couple of knucklehead friends of mine and we were to meet down there. I was like, “Listen, I’ll pick up a case of PBR and we’re going knock out these trees and get this thing done.” I didn’t make it. I did not make it. I put my car in a ditch on the way down there. So that story got worse and worse. But I mean, honestly, looking back on it, it was a good perspective. It was a good lesson to learn in my self-managing early days, at least with the long terms and cutting my teeth on rental real estate and… Yeah. Fond memories there of earning my stripes, if you will.

David:
So, question for you, Luke. Which disaster do you think in hindsight was worse, putting your car in a ditch or combining P R with chainsaws in a storm?

Luke:
Well, now listen for legal reasons I never said we were going to combine them, but probably some crazy decisions going on back in those days.

David:
It may have been an angel that pushed your car off the road that day into the ditch and narrowly avoided a larger catastrophe.

Luke:
Yeah. It’s a very good point.

Rob:
So what would you say that big lesson was from that experience?

Luke:
Man, honestly, I was too wrapped up in everything at the time, and I didn’t know that because I was hungry and young, and I couldn’t afford a property manager. At least I didn’t think I could. I think at this point we built it up to maybe 15, 20 doors or so. That was a good eyeopener for me. I guarantee you it was David Greene that said one of the very best things I ever did in real estate was hiring a property manager. And I did shortly thereafter. It just got to the point where I’m like, “I can’t do this anymore. It’s getting crazy.” So I put a property manager on those properties. So that was the lesson learned.

David:
Someone told me today it was National Bald is Beautiful Day. I got a text message and I replied with a bad day with a bald head is better than a good day with a man bun. And I was just thinking as Luke was talking there, that a bad property manager is much better than a good effort that you make at managing your own property.

Luke:
Yeah, it cost me a car

Rob:
On that note while a tenant is okay. Did they know that you went out there to help them? Did they ever even know the kind-hearted gesture that you were trying to do?

Luke:
Oh man, excellent question. And be honest, at the time I was self-managing. This was years ago, and maybe 18 doors, 20 doors or something like that. None of them knew I owned the place. So I would just tell them I’ve worked for the property manager is all it was, and I was placing tenants and doing leases and the whole nine yards. But they all just knew me as Luke. I called myself Mr. Furley like Three’s Company, and they just knew me as a guy that “worked” for the property manager.
So I think they appreciated how hard I was working and how often I was around and that I actually cared, but nobody had any idea that I actually owned it. They wouldn’t even believe that I owned the place. I mean, look at me. I’m covered in tattoos and the whole nine yards. So even if I told them, they’d be like, “No, you don’t.”

David:
This is more common than you think. One of my friends, she property manages for the owner of this large commercial portfolio, and he always tells her he doesn’t own it. He doesn’t want her to know that she owns it, but she’s like, “I run all your errands. I get all the mail, I pay your bills. I know you own this.” And to this day won’t ever admit that he’s the owner. So I think that’s probably more common than you think, man. With that said, I know that you have such a rich history in the rental world, but before we get into that, can you tell us a little bit about how you grew up in life before the rich history into rentals?

Luke:
Yeah. Proud of my upbringing. So I come from a little tiny town in the Midwest, in Nebraska to be exact. It’s a state that most people have never heard of. 1,100 people in the town I grew up in and real, hardworking, awesome family. My dad was a mailman. He is a Vietnam vet. Great dude. But I learned early on the value of a dollar and working hard. He had me underneath his truck when I was five or six years old, learning how to change the brakes and stuff. And that’s probably where that managing when I had no business business to be managing came from.
I almost was too stubborn to give up on it, really. But yeah, it was awesome upbringing. I knew it wasn’t for me though. I actually moved away to the big city when I was 20 years old to go take over the world. But it was Midwestern. Just blue collar, humble beginnings, something I’m very proud of carrying through to this day.
Now, my folks don’t have any idea, quite frankly, that I own a bunch of real estate. It wasn’t something that they could handle, which I think is pretty common. The family can’t really understand having mortgages and things like that.

Rob:
Sure.

Luke:
But they were wonderful people. Absolutely wonderful people, hardworking. I was one of the, I think maybe the second kid in the entire family to go to college. So that was the American dream.

Rob:
Sure. So it sounds like you were working hard. Were you able to ever put any of those character building skills, I suppose, to work once you actually got into real estate?

Luke:
Yeah. I mean, to me, I was building a career. I looked at it at one house at a time, $1 at a time, one piece of freedom at a time. Always been a rock and roller and just living my life that way, not listening to the man kind of thing. Owned my own business at the age of 25, a bar in New York City, believe it or not. I’ve always just had just a whole lot of get-go and been able to really make a lot of crazy stuff happened.
When I got into real estate, I actually had my dream job at the time. I was working in radio full-time, a series X satellite radio nationwide, huge radio company. So I was looking at it more basically like a 401k alternative. I didn’t even know what that was to be honest, but just I knew that at some point I was not in control of my own destiny, and at some point somebody could take things away from me. And that’s where real estate really clicked for me and it’s exactly why I was drawn to it.
Also, the fact that I was looking at it, this is going to be my new second career, basically. I never really thought that I was going to get out of radio, but to me it was just $1 at a time. Each house, if I can get a hundred bucks out of this damn thing, that’s enough for me to be happy with moving a little bit forward. Because where I come from 100 bucks is a lot of money. So two, 300 bucks on a house or of course then the short term thing happened years ago and we’re like, “Man, we’re looking at a thousand bucks a month on this thing. This is really cool back then.”
But that’s the way I always looked at it. There’s a lot of TikTok and all this stuff going on with these folks are preaching that you can quit your job quickly with real estate. I never looked at it like that. Because I’m like, “Okay, if I quit my job, where the hell am I going to get these down payments?”

Rob:
Yeah, man. That’s very true. I think that’s the thing. I mean, I guess if you really hustle for it and you really work hard, I guess theoretically you could replace your job, but the idea is not get rich quick, but get wealthy very slow. And if you can do that, it’ll be worth it. So you’re obviously developing a lot of skills at a young age. You own a bar or you own a business and then you go on to become a DJ, your dream job. At some point you’re doing this and you’re like, “I think I want to do the real estate game.” What actually was that first big jump for you?

Luke:
Yeah. Really what it was, was I had a huge shift in my life. I met a girl. It happens to all of us. We were living in New York City, biggest city in the world. I was a kid. I mean, I moved there when I was 20 years old. But anyway, fast forward several years, I met a girl and she was from the south. And I said, “I never even heard of the south.” You know what I mean? But she wanted to move closer to family. So we moved from New York to Middle Tennessee and all of a sudden… I mean, it was really as simple as that. All of a sudden we went from a place where it was $2 million for a tiny little box to somewhere where you could buy a house, and we both instantly got hooked. It was really just as simple as that.
It was almost like it wasn’t… It just kind of happened. Lightning came out of the sky and said, “You guys are going to do this.” Well, actually we bought a house to move into, which ended up being a live-in flip house act, if you will. That house ended up being a huge deal in our history. We did everything with that house. We rehabbed it live-in flip. I ended up moving it, tenant into it. When we moved out, HELOC. It used that HELOC for a down payment and then ended up paying that off quickly, of course, because that’s what you want to do with HELOCs.
And then I ended up selling it to the tenant and I did the two out of the last five-year, lived in it thing on that one. I mean, that was like every deal rolled into one and it was a dream come true. But in that process, we got hooked. My wife and I got hooked on buying real estate, which is easy to do. And we just said, “You know what? Let’s save up some dough and buy a rental house.” And we did that. We sat down and scratched down on a piece of paper, how long is it going to take me to come up with this down payment for $150,000 house?
Back then you could do that where we were living and we lived on $25 a day, $30 a day for 18 months, and then we had enough money to go out and put our first down payment on our first rental house, and the rest was history. It was really just a shift in our environment that opened up a whole new world to us. And then we discovered you guys, quite frankly. I discovered Rich Dad. I discovered BiggerPockets, I think somewhere around podcast number 70.

Rob:
Wow.

Luke:
It was absolutely life-changing for me. I mean, I remember vividly riding around on… I had a little broken down old lawnmower that we were… It was a wedding gift and I remember you guys… It was a huge… I mean, I remember Dave Greene’s first podcast coming on and the whole nine yards and just got obsessed. All of my education for sure to what we’re doing right now, which is BiggerPockets. And I’m very grateful.

David:
Well, I vote that we change the terminology of W2 job, which everyone thinks is negative to down payment generator, which sounds much cooler.

Rob:
Nice.

David:
I’m going to start referring to that like, what’s your down payment generator?

Rob:
Love it.

David:
So that everyone doesn’t have this obsession with quitting their job and trying to jump into real estate. Also, I want to highlight what you’re describing, Luke, is what I tend to see the pattern of all the people that we’ve interviewed that have built really big portfolios. There’s a combination of I kept working and making money and I lived beneath my means. We were saving money. That’s what you were describing. We weren’t just bawling and taking on huge debt and buying properties with it. You were saving money, you respected money, you valued money. And so you’re very careful about the way that you invested and what you invested in.
And that grew a portfolio, which eventually allowed you to have the lifestyle you want. But I don’t want that to get glossed over because a lot of people have big aspirations to build huge portfolios, but they want to skip that whole step of having to live beneath their means and be disciplined with their cash, which I think is why it doesn’t happen or when it does, it’s very short-lived. So speaking of that, what does your portfolio look like now? Can you give us an overall snapshot of what it looks like?

Luke:
Yeah. So we bought that very first rental, and then… Quite frankly, we were living in Nashville at the time, which blew up, so we couldn’t really repeat that one. It was literally overnight the house next door was twice as much as what we paid. So the next closest market was the Smokey’s. And back in the day, Avery, my wife, she grew up in the south and she said, “They got cabins out there that they rent out in the mountains. We could try that.” And I was like, “What are you talking about? We’ve been sleeping in a tent. We go to the mountains of sleep in a tent. Let’s rent a cabin and see what that looks like.”
She’s like, “We can’t afford it.” So that was our next play. We went to the Smokey’s and bought a cabin, and that cabin still to this day is the longest running Airbnb in the Smoky Mountains, which is Airbnb’s biggest market in the world. And we had no clue what was going to happen with that. I mean, at the time we were shouting from the rooftops, “This is real. We did this, you can do this,” and everybody thought we were nuts. So we ended up getting into the vacation homes.
Again, for me, it wasn’t anything to do with short-term, it was just my next vehicle, my next cash flowing property, basically. How do I get to the next property? Quite frankly, at the time, this way before your book, David, which I wish your book was out because I would’ve been so much more comfortable. We were going to go do this thing from a distance. And it wasn’t that far. A couple hours. But fantastic book by the way. Thank you for that. Thank you for making people realize-

David:
Thank you for that.

Luke:
… for making people realize. You know what I mean? It’s like, “Dude, it’s life changing.” But at the same time, it’s like, I mean, this can be done. And that’s why that book is so brilliant. But anyway, so we went into the vacation home thing and didn’t realize what it was back then. There was no such thing. Nobody else was doing this whole Airbnb thing. Of course, tons of people on VRBO. VRBO has been around for a million years, since ’99 they started. But at the time, the whole thing… The way it is today, not even close. There was literally two other people out there doing it at the time on Airbnb. And so we scooped up as many of those as we could. Got a partner involved.
It was a close friend of mine. I was having a conversation with him one time and turned out he owned some beach rentals in Florida. It just happened. We were at a bar talking about deadbolts. This is way back in the day. And I’m like, “How the heck do you know all this stuff about these digital [inaudible 00:18:51]?” He’s like, “I own a couple of vacation rentals.” So we ended up partnering on a couple houses. We grew that to five short terms in a year, which was… I don’t even know how we did it, to be honest.

Rob:
Wow. That’s a lot.

Luke:
Yeah, it was a lot. We were broke at the time and we were just regular people. And then at that point, my partner, we only did two with him. And he’s still one of my best friends today. Great dude. Really good at real estate. I said, “I had a day job and I was married. We were thinking about maybe starting a family at some point.” I couldn’t do it anymore. This was way before, Rob, as you know today with all the technology. I mean, you got-

Rob:
All the automations.

Luke:
So much easier today. Back then you got a booking on Airbnb, you had to go run to VRBO and block off the calendar and all this stuff. I had a day job, so I kind of pumped the brakes there, and we got back into long-terms. Started buying that stuff in Chattanooga, ended up… Let me just fast because I tend to talk a lot. I ended up with 20 something in Chattanooga and then it went on from there. Then we actually went back to [inaudible 00:19:52]

Rob:
Wait, 20 something units?

Luke:
Doors, yeah. Over time.

Rob:
Oh, wow. Okay.

Luke:
Several years at this point.

Rob:
Okay.

Luke:
Definitely didn’t happen overnight.

Rob:
And were they all short-term rentals at that point, or were you starting to rebuild the long-term side of it?

Luke:
Yep. After those five in the mountains, we went back to long-term because I was in charge of the management of things and I said, “I can’t deal with these reviews anymore.” This was back before there was automation.

Rob:
Sure.

Luke:
So we started getting back into long-terms and I bought about 20 doors again over many years. I don’t want it to sound like it was… We were regular people with regular jobs.

Rob:
But it goes to show that you were consistent with it and you were always putting whatever you had, whatever nest egg you had towards your portfolio. So now 2023 where are we sitting at? Door count, short-term, rental count, unit count. Give us a quick snapshot there.

Luke:
So after that we did get back into short term. I have eight of those now. I have eight, what I would call vacation homes and beach and mountain markets. I mean I’ve got multifamily. I’m somewhere around 300 units, no partners. Just my wife and I, and a lot of hard work and sweat. So I’ve got apartments in Omaha, which is where I’m from. So big roots there and several apartment buildings in Omaha.
I still buy a single family home, long-term rentals to this day. So I’m a little bit of everything really. I got single family long-term, duplex, long-term, multifamily, small multifamily, medium multifamily, and of course, and of the vacation homes, which have always been our flagship.

Rob:
Sure. Well, I think what’s really interesting about your story is you started in the long-term side of things. You then get short-term rentals. And I’m sure you quickly realize like, “Oh man, I’m making 100 or 200 bucks a month on long-terms. On these short-term rentals, I’m making 1,000 or $2,000.” And then you start rebuilding the long-term portfolio, the multifamily stuff. So you’re in this unique position where you’ve built up the short-term rental portfolio. You’ve come to the dark side, as we say. You’ve made a lot of money in the short-term rental space. So at what point does one start to decide, “Hey, I want to cool my brakes a little bit, if you will, and go back into long-”

David:
I think you mean pump your brakes or cool your jets. You said a combination of the two.

Luke:
Pump your jets.

Rob:
Pump your jets. I just wanted you to come back and look like a hero, David. That’s all. Hey, can you pump your jets please? So anyways, you’re cooling your brakes here and you’re like, “I’m going to get back into multifamily.” What was that thought process? Why have a departure from short-term rentals?

Luke:
Yeah. Well, for one thing, if you’re doing vacation rentals, the way we do vacation rentals, they’re big purchases. Even back then when we first started, they weren’t. I mean, they weren’t giant something that you’re going to put on TikTok and impress people, but it was still way more than it would be to buy a long-term. So that’s a pretty good way to run out of money quicker is to buy some vacation homes as far as down payments are concerned.
But the cool thing about the vacation homes is that, man, they’re really the… To me, they’re the gateway drug. I love them. I still do to this day. I love every minute of it, and I enjoy all aspects of it. And showing these folks a good vacation and growing up where I come from, going on vacation was a huge deal and we couldn’t afford to fly. And you get in that car and it’s like, “Man, your whole two years of your family’s money goes into that.” So I do enjoy that aspect of showing my guests a good time, which doesn’t get talked about enough, quite frankly.
And then also it’s a 30-year fix on generally what can… An average vacation home’s going to be somewhere around like $800,000 in an actual real beach town or whatever.

Rob:
Sure. Nowadays for sure.

Luke:
You know what I mean? So that’s a great way to deploy some funds on a better loan that when you can get in a lot of cases, because it’s a single family home, you can get a 30-year fixed. Talking about better loans in 2023 is not really all that good of a topic, but you know what I’m saying.

Rob:
Absolutely.

Luke:
What was the question?

Rob:
Well, at this point, I guess I’ll make it even more clear. You’re starting to move back into the multifamily. How do you choose what to buy next? Are you still looking at making your short-term rental portfolio larger, or do you want to just keep going dead on into the multifamily space?

Luke:
So yeah, I mean, multifamily at that point in my career was probably a pipe dream because again, that’s a lot of money. But I knew that I wanted to keep buying rental real estate. And again, back when I first started buying short terms, it was harder back then. Today, I don’t want to say it’s easy. Nothing in real estate’s easy, but it’s definitely a lot simpler, more simple than it used to be.
So I was like, “Man, I can’t handle the management of these guests and the reviews, and the platforms and everything, and my day job, and my family.” So I went back into long-term. Had it been today, had I done this exact same thing today, I probably would’ve stuck with short-term a little longer. But that being said, I’m happy with the eight. I really think there’s a threshold there. If you get to eight, 10 real deal vacation properties, that’s probably as high as you really want to go because you’re talking about building out your own management company. Which is awesome. That’s what I have. And I enjoy that very much, but it’s not something I want to scale.
Because the whole point in having a management company, I mean to me, would be to build it up big enough to sell it for a percentage of EBITDA. And you can’t really do that. You could do that with your own properties, but you’d have to have a lot of them. So yeah, I mean, for a couple of reasons. I do the management. So my management stress load, or I did, was getting too high for me, and also down payments on vacation homes, it’s a big burden. So we pivoted back to long-term, some duplexes, and then eventually everything just steamrolled and it was just a natural evolution into commercial real estate or the multifamily in my case. Everybody stays in real estate. It’s going to head down the commercial real estate road guaranteed. And it just wasn’t-

Rob:
Natural progression.

Luke:
Absolutely.

Rob:
So I guess if I’m understanding it correctly, it’s like you built a really great short-term rental portfolio. You’re at this sort of inflection point where the management starts to get a lot crazier past eight to 10. And then your money goes a lot further really being invested into commercial real estate multifamily buildings. Is that about right?

Luke:
Yeah. Pretty much. I mean, it was more the single family long terms at that time because I could buy one for a hundred grand, 150 grand and just keep picking them off. For me, it was like, “Dude, all I need to do is focus on 300 bucks at a time, 300 bucks at a time.” Slow down, take it easy.” And now fast forward to today, 15 years later, all those 200, $300 chunks from 15 years ago, I mean, I’ve got debt pay down on top of that. You know what I mean? And rent raises and equity, and whatever else goes along with exactly why we’re here and what BiggerPockets teaches. So no brainer.

Rob:
That’s pretty impressive. I think that’s the interesting thing about short-term rentals that one feels… Once you’re making 2,000 or $3,000 a month on one or two, you’re like, “Man, why wouldn’t I do a hundred of these?” And it really is tough to scale the short-term rental. So I see people doing what I’m trying to do oftentimes, which is you do the short-term rentals, and then you go into boutique hotels or renovating hotels basically it’s like the evil side, or the dark side of short-term rentals go in the hotel route. Or what I’m really trying to crack right now, and I’m not sure if you’ve gone down this rabbit hole, is buying multifamily, but really splitting up those units into three types of rentals, short-term rentals, midterm rentals, and long-term rentals that I can at least stay true to it because I feel like that’s a really great way to diversify and make your multifamily building a little bit more dynamic. It’s kind of doing a hybrid of everything. Have you messed around or kind of ventured into that side of things with any of your multifamily units?

Luke:
I know, but I love where your head is at. And again, for me, I never really… It wasn’t like I’m going to do short term. And I’m not saying it was for you, but to me it was just like they’re two different animals and I kind of keep them separated, but I love it for you, man, because, dude, you’re right. The next step for somebody who’s got six, eight Airbnbs, if you will, vacation rentals, short-term rentals is going to be a hotel. And it’s just a natural progression. You’re going to go that direction and you’re going to start bringing in other people’s money because you’re going to run out of money, guaranteed.
So you bring in other people’s money. Again, it goes back to the very early principles of BiggerPockets. Somebody’s got to be the sweat equity because the dude with all the money, you know what I mean? So it’s just a natural progression, and we’re seeing that a lot of… And Rob, I’m super excited for you, man. It’s an awesome situation to be in, and I can’t wait for what’s next for you. Get me in on it, man. Let’s do a hotel. You know what I mean?

Rob:
Yeah. Totally, man. I’m at those growing pains now. I’ve got 20 Airbnbs or so, and then a 20-unit motel. And really that came from David because David was like, “Well, every time you buy a short-term rental, you’re buying another job.” And I was like, “Yeah, that’s true.” So it does feel like the natural way to scale is not necessarily increasing doors, but how far can you make your time go? So for anyone that’s in the short-term rental world, the short-term rental market that wants to follow in your footsteps, what would you recommend to those investors who want to venture out into multifamily from short-term rentals?

Luke:
Keep an eye on your money, a hundred percent. You got to know where your money is at. You know what I mean? So take your time, go slow. I build a bank account system, and basically I just formed all these buckets in my… And I use a virtual bank. There’s several decent ones out there to pick from today. You don’t want a bank that you have to walk in there and fill out paperwork with somebody. There’s all these people in line. They’re overdrawn and it takes forever and all this stuff.
There’s a bunch of virtual banks out there and that’s what did it for me. It really just changing my mindset, the way I look at money and creating buckets to pay myself first. It all comes from Mike Michalowicz, quite frankly. He’s got a book called Profit First.

Rob:
Sure. Yeah.

Luke:
And so that’s where I stole most of that stuff from and that fantastic book.

Rob:
Can you just quickly, what do you mean by buckets just for anyone at home that’s not familiar with the Profit First concept?

Luke:
Yeah. So in other words, you create buckets on your bank account, on your virtual dashboard, and each dollar that comes in from your rental properties is allocated to its specific purpose. Because I see it all the time where people come to me and this and that, and then come to find out they’re commingling their money that they were making on this property with the Amazon account where they buy their kids soccer shoes. And you can’t do that. You’re going to go broke. You’re not even going to know you’re broke until you’re broke.
And the way you’re going to find out is because that mortgage is going to hit and you don’t have enough money in there to cover it because you were not paying attention. I create all these buckets and there’s percentages that go into each one based on how important they are like CapEx buckets. Now, of course, that probably should come from your day job if that’s possible for you, but it wasn’t for me and a lot of times, so I had to make sure I build that up so I have enough money for a roof sitting around.
I just created a system around that. I thought of it as a career. Man, this is going to be my new career. I’m going to really do this. I’m going to knock it out of the park. I’m going to learn my trade. I’m not going to just buy three houses and rent an Audi and put it on TikTok, which sounds awesome too. I’m not saying that’s… You know what I mean? Go ahead, do that. That sounds like a lot of fun.
So a certain percentage goes towards CapEx. A certain percentage goes towards regular old daily expenditures like your OpEx account for your mortgage and your electric bill. If it’s a short term, you got to pay your electric and your cable and all that. And then you have really, the most important bucket would be your investment account, and that’s where all your funds got to be thrown into because that’s where you go buy your next property.
If you’re separating all those funds and that account becomes the most important thing in your life other than your family. And because that gets you to the next deal. I mean, I was selling stuff in the early days. We sold a guitar too, because we got all kinds of crazy rock and roll stuff. I sold a car back in the day. I always had a really cool like, crazy hot rods. When we first started doing this, I had a ’66 El Camino, believe it or not, and threw that in the investment pile. You know what I mean? And then years later, my 40th birthday, wifey said, “You know what? Let’s get you another car.” And it was because all that hard work and busting our ass, and paying attention. So make sure the money is allocated where it needs to go.

Rob:
It kind of is dawning on me that you said you own 300 doors, and then I just heard you talk about this intricate banking system. Do you have 300 bank accounts?

Luke:
Excellent question. Now, that’s where it does get complicated, and it has… Actually be honest, it’s gotten more simple over the years because in the early days when it was like 15, 20, 30 doors each… Maybe not each property, but each type of property had its own system. And I still do that today, and I don’t have as many buckets as I used to. For instance, there’ll be one giant bucket for all of these entities that becomes the investment account as opposed to each. Back in the day, each one of these entities may have had its own investment account.
So I separate things. Well, everything’s done… I mean, you’re going to need to get a lawyer involved. That’s way over my head with all this corporate structure and disregarded entities, et cetera.

Rob:
No worries.

Luke:
But yeah, so each entity holds X amount of properties, and each entity, of course, has its own bank account because you can’t co-mingle funds from entity to entity anyway. Right? So excellent question. I do have a lot of bank accounts, but it’s more streamlined than it used to be.

Rob:
Sure, sure. So going back to the short-term rental side of things, it sounds like you’ve done everything. You’re pretty much across the spectrum just nailing every single thing that you do. The short-term rental market has changed a lot in the last two years really from the past five years before that. But really in the last year, I feel like we’re seeing a decent amount of changes. It looks very different, the entire market. Do you have any recommendations or any tips for people that want to just break into short-term rentals in general?

Luke:
Yes, Rob. And I love you for asking that question. And again, it’s an honor to be here. But so it is a completely different thing. It’s completely different. When we first started. And again, I didn’t even know I was getting into short-term rental. I didn’t even know that that was a term. I just was buying a house to rent out and we were renting it at a different… We weren’t renting it on Zillow, we were renting it on VRBO. And then of course, Avery, my wife, let’s not forget, I am married to probably one of the most successful real estate agents in history. Let’s throw that out there. She’s amazing, of course.

Rob:
Yeah, she’s awesome.

Luke:
Thank you. She did write the BiggerPockets book on short-term rental, Short-Term Rental, Long-Term Wealth. Huge fan of hers. Don’t worry, Rob. I got you. I got you. Here it is. You got it? Nice. And everybody loves Avery. She’s my secret weapon. She’s amazing. Everything she touches in real estate, she’s just got this uncanny natural ability to pick deals. So let’s not forget about that. My ace in the hole. She’s fantastic. But when we first started and she started getting bigger in her career with the sales and all that, man, it was literally like we were standing on the top of buildings like, “Hey, you can buy a house and ran it on VRBO, and you don’t need to pay a property manager because VRBO and Airbnb do all the dirty work for you and this and that, and nobody believed us.” I mean, maybe it’s also because I’m slightly more immersed in it, and Rob, I’d love to hear your take on that. But man, for one thing, it’s way more common than it used to be.

Rob:
I think back in the day, especially in the Smokies, you could look at all your competition and still find pretty janky furniture and cell phone photos. Then we saw this adjustment where everyone’s got nice design, nice furniture, professional photos, and now I think the people that are really winning right now are the people offering really unique or very experiential amenities like the indoor pools or hot tubs or outdoor environments, game rooms, arcades. Those are the people that I typically see being the top performers, really in most of the markets that I’m in.

Luke:
And you hear a lot of this Airbnb bust and saturation and things like that, and vacation rentals. I mean, all I can do, man, is say is my properties are booked. They’re doing just as well as they ever have. And it’s like with any business, you get more people involved. Really, quite frankly, what you’re doing is getting more people involved that probably aren’t going to be all that great at it. So I do see a lot of that. I mean, in my opinion, if you’re going to get into renting a vacation home, you’re really only competing with 3% of the market that’s any good at it, quite frankly, because most people… First of all, most people that can afford a million dollar house are going to put it with a third-party property manager, and there’s nothing wrong with that.
Let it break even, maybe even lose a couple of bucks and you get debt paid down and you enjoy it with your family. There’s nothing wrong with that. That is the best reason, honestly, to get into vacation rentals is because you can use it. There’s no lease on it. It’s empty whenever you block off those dates and you want to go there with your family, man, that is so cool. And honestly, when I first started, I didn’t even care about that. I never even thought about that. But now, again, 15 years in, all those memories I’ve created with taking my family to these properties is priceless.
So anyway, long story short, you’re absolutely right. The market share that is actually any good at doing what you do, Rob, it’s very slim, in my opinion.

Rob:
Yeah. I mean, I’ve seen the bar get raced so much in the Smokies, and so that’s what I’ve been combating. I don’t know if you saw it, but I built a tree house deck in my backyard in the Smoky Mountains. I’m building a little tiny house village down there too. That’s still kind of happening and everything, but I’m really just trying to figure out like, “Okay, I’m a little bit farther, so I have to make up for it.” And I’m overcompensating with amenities at this point because I do feel like that’s the only real competitive edge I can offer over someone that’s dead into the location. So I think it’s a little bit more… Hosts have to be a little bit more defensive with keeping their revenue these days.

Luke:
Oh, absolutely. Things have changed, a hundred percent. I think you’re going to see a lot more sellers too though, Rob and I think you’re going to see some folks that weren’t really cut out for rental real estate in general. I mean, there’s a lot of real estate sold in ’21 and ’22. I think the market is going to shake out, man. I think you and I are going to come out the other side of this with a little bit more market share to be honest, because we’ve got what it takes.

Rob:
Yeah, man. Let’s talk about that because I think I recently saw you post that you’re seeing a lot of price cuts, and I haven’t really looked at the Gatlinburg market on Redfin because it was just so competitive for so long. Every offer, couldn’t get it. I’ve noticed I’m getting now all my favorites from the past couple years showing up on Redfin, getting price cuts. Are you seeing that happen regularly in that market, or is this just anecdotal for me?

Luke:
It’s honestly a lot of markets and you’re a watch guy, right? So it’s exactly like what you’re talking about. I’ve set up back… You set up an in-stock notice on a watch you like, right? Like three years ago?

Rob:
Yeah,

Luke:
No way you’re getting that watch. No way. But now I’m getting those in stock notices. So the market is changing. The world is changing. The economy is changing. Is it going to happen overnight? Again, no. Real estate is a patience game, a hundred percent. And I learned that. I learned, again, everything I know from you guys, so it’s difficult for me to even give advice in front of you guys because you’re such rock stars.
So to me, as time goes by, we’re going to see some folks that just decided they weren’t cut out for… I mean, even ownership. I’m not even talking about just rental real estate. Same thing is going on in motor homes. Same thing is going on in jewelry. A lot of different types of… Where people are just… The whole world is changing. I’m not here to talk about the economy or politics or anything like that, but-

David:
I will. Things are changing really bad. Toughest market I’ve ever seen. A lot of it is because the expectations that were delivered through, not this podcast, but other podcasts are frankly not accurate. Real estate is often tied to passive income. They almost become synonymous. When you hear the word real estate, you hear passive income. It creates this idea that you’re going to buy it, own it, and someone else is going to take care of all the stuff you don’t like.
Imagine if we talked about raising children like that like, “Hey, have a kid. It’s passive fun.” The nanny is going to do this, the chef is going to do that. All these other people are going to change diapers and you’re just going to end up with a fully adjusted, well-mannered adult that loves you dearly and takes care of you in your old age. It’s not like that.
Nobody has a kid expecting passive results. Right? Well, real estate is not exactly a kid, but it sure feels like it when you own it. It’s like this is your baby. You get emotionally attached to the things in your portfolio sometimes. If you want to own, especially short-term rentals like we’re talking about, I love what you said earlier, Luke. You got to be good at it. There is a skill to managing these properties, and if you choose to delegate that to other people, you could get lucky and happen to come across an amazing property manager that does a great job with your property. However, just like when you find an amazing contractor, they don’t stay available for long.
They start raising their rates. They start becoming harder and harder to get ahold of because the cream rises to the top. And what I’ve seen is when you find that great property manager, they grow so fast, they can’t take care of your property. They got to scale. They got to go hire people that are less than amazing, that end up doing the job. Your performance goes down, you blame real estate. What each of you do is you’ve got your own in-house solution where you know the asset class, but like you said, it limits your growth.
You have to think smarter when you realize… I recently had this epiphany in a sense that I hire a bookkeeper, I love the bookkeeper. Then the bookkeeper gets busy. They hire a W2 worker, and then that person does not do a good job. My books start to suck. I hire a property manager, they do great. They delegate it to a worker. My performance goes down. Every time someone grows, it becomes incredibly hard to keep the standard that’s needed, and then that affects my wealth, and then I got to jump in and I got to take it over losing money and things are going wrong and the books are a mess.
It’s like that with CPAs. It’s like that with real estate teams. It is like this in life. It is so hard to grow. So what I realized is I can only grow to manage so much, which means when you get to a hundred doors, you’re going to have to sell a bunch of them and reinvest into a bigger asset. Exactly like you said, Luke, because one person can manage a hundred unit apartment complex. Roughly the same is trying to manage one short-term rental. Right? So what the solution is we just go bigger.
You sell 10 $100,000 properties for 1 million property, your workload goes down by 90%, but you own the same amount of real estate. You’re getting the same amount of revenue, hopefully a little bit more, and then you can scale to 10 of those. Then you do the same thing again. This is the pattern of what successful real estate investing looks like, and I’m only bringing this up because so many people have heard these stories of, “Oh yeah, I’ve got 700 doors, or I’ve got all these properties,” and it’s a mess.
We see what happens behind the scenes when we talk to these people that have got all these properties and they’re not doing well. So, Luke, I wanted to ask you, I understand you’ve recently sold a lot of short-term rentals. Is that why? Were you trying to get into less overall work when you got into multifamily, or is it the market itself got saturated and you just saw it’s harder and harder to get these things to perform?

Luke:
No, I actually never did sell any. I did sell two years ago and traded them exactly what you just mentioned. And it was those two that I had with a partner and I traded them for bigger vacation homes. I had two little ones.

Rob:
Cool.

Luke:
Actually one. I traded two little ones for one big one and got the partner out of it at the time. And of course, we had it long enough that we were able to… I mean, I definitely came out pocket. It wasn’t an even-steven because I had a partner in the whole nine yards.

Rob:
Sure.

Luke:
But no, not selling any short terms currently. I have ones that I’ve had since the beginning and never even refinanced. Now, maybe I should look into that. Maybe not today’s climate.

Rob:
No. You probably don’t want to do that. Hold on.

Luke:
Yeah. I’m happy with where my equity’s at versus leverage. But no, you’re absolutely right. David, I did do one time I traded a long-term rental. This is actually a story that’s dangerous to tell because it’s too good to be true. That very first one that I bought, the long-term rental, I ended up trading that thing with some cash out of pocket, of course, for a 26-unit apartment building. Again, I got so lucky on that. It’s not repeatable. Get it? Not repeatable. But now that 26-unit is rocking. It was a piece of junk and I fixed it up and it’s exactly what you’re talking about, David. It has a lot to do with the fact that I did not just leave my kids at the park by themselves.

David:
Yeah, you fixed it up. You didn’t buy it and hand it off to someone else and say, “Fix this up for me.”

Luke:
Yeah, no, I was in the weeds. I mean, I was doing the hiring and firing and making sure that people showed up and all that stuff, and project managing, if you will. I never really showed up on property all that much. I mean, that property was in a different state.

Rob:
I just want to say, far too humble. I think it is repeatable. I mean, if you got to 300 units, if that’s where your portfolio stands today, you’ve proven that conceptually it is repeatable. You’ve done it over and over again. Maybe you won’t find that exact deal again. But I think for people that are in the game, as long as you have, you’re always going to find opportunities. You’re always going to find things that seem like too good to be true because it’s not just luck. It’s like you are present when the luck occurs, and I think that’s half the battle is the consistency of always relating in it. So honestly, I think it’s a great deal, but I’m sure you’ll find even crazier deals than that the rest of your career.

Luke:
Send that juju my way. Thank you.

Rob:
Well, awesome. David, any final questions from you, man, before we wrap up?

David:
Yeah. Luke, I want to ask for someone who wants to do what you’ve done. They want to buy a bunch of short-term rentals. Maybe they want to get into multifamily. We didn’t talk about portfolio architecture and my theory on that, but that’s exactly what you’re describing. You’ve got different asset classes within a portfolio that do different jobs that sort of round the whole thing out just like an NBA team needs a center, they need a point guard, they need a shooting guard. You don’t want five of the same thing in your portfolio.
You want different asset classes with different strengths and weaknesses that kind of compliment each other. For someone that wants to grow a portfolio like you, and they’re starting with short-term rentals, that’s obviously what you’re known for, what advice do you have when it comes to the management of them? I would wonder if we’re going to tell someone, “Hey, invest in the Smokies or buy a short-term rental somewhere,” should they go into that knowing they need to learn how to operate that asset and maybe in three to five years when it’s performing well, they’ve earned the right to hire it out to property management? Or should people be thinking when they buy it to hand it over to a property manager right away and it’ll still make a profit?

Luke:
You could go either way. It depends on the type of person you are. Again, if you’re rolling hard and you just want a house to share with your family, go ahead and throw it with a PM, but you’re probably not going to… That’s the beauty of short-term and also the downfall. There’s no leases. There’s no evictions, but you’re probably pretty much have to do it yourself. I’d love to hear Rob’s thoughts on that, but I mean, again, Airbnb and VRBO, they’ve put millions, and millions, and millions of dollars into helping us be successful.
In my opinion, again, maybe because that guy or whatever, I do think that if you’re going to do a vacation home, do it upright. It needs to be something that you or somebody in your family takes an interest in. Now, the good thing is it’s fun. It’s sexy. You can put it on your Insta and it looks cool. And you put $100,000 long-term on your Insta, and people are like, “Okay. They don’t care.” So Rob, what do you think about that, man, about whether it has to be self-managed or not?

Rob:
I think that you should self-manage. I mean, I don’t know. I just think it’s so expensive to hire a property manager in the short-term rental space. It’s like 20 to 30%. I think it’s pretty significant, especially if you’ve got a high earning property that makes $100,000 a year, $20,000 that’s a lot. That’s to be paying to someone that I think… Until you have five, I think you can handle it. I mean, I managed 10 to 14, somewhere in there when I had a full-time job.
Granted, I was an awful employee. I was always leaving meetings to go handle my short-term rental portfolio. But I certainly think that three to five is something that most people can do before really opening up that conversation. Think you got to master it before you can hand it over to a manager so you know that if they’re good or not. A lot of people buy rentals, give it to a property manager. Property manager is not good. Property fails. And then they say, “Oh, short-term rentals don’t work and this has all been a scam. I hate it.” And it’s like, “Well, you didn’t really do the work.”

Luke:
And that’s again why I call it the gateway drug because if you get to the point where you’re at Rob’s level, where you’ve got 14 of these things, there’s a pretty good chance you can put the next one with a property manager. And if it breaks even, you’ve got the tax advantages and the debt pay down and you’re cool with that. So it just all evolves.

Rob:
That’s exactly where I’m at. Yeah, my cashflow goals are nil now. I don’t care. If it breaks even and I get an amazing tax deduction, debt pay down, I’m good with it. I’ve making the cashflow in the first 40 units. Everything else can break even.

David:
That’s portfolio architecture. Because cashflow is necessary, you need it. If you don’t have it, you’ll lose your properties. But I still in my life have not met the person that built wealth off of cashflow. I bet you both of you guys would agree. I don’t know the person who, like you said, Luke, get the next 300, get the next 300 a month on these long-term rentals. You need to have so many stinking properties at $300 a month to build up big wealth.
You could not manage them all. It’s like you can’t hold them all in your arms. They’ll be spilling out. It doesn’t work. What builds wealth over time is buying in the right locations, building up the equity, watching the rents go up, watching the value go up, but you need cashflow in order to get there. So they work together in this harmony where cashflow keeps you alive. But equity builds long-term wealth. And as you’re constructing a portfolio, what we’ve all sort of done is been like, “All right,” like Rob said, “Here’s my baseline, these properties, cashflow. The next ones I’m going to build on top of that don’t need to, but I need to have a big value add component. They need to be in the best location. They need to be something like…”
The property he and I bought in Scottsdale, that’s a 20-year property, right? That’s going to make millions and millions and millions of dollars over a long period of time. It’s not a property that’s just going to crush it, coming right out the gates, which we couldn’t have earned the right to do if we didn’t spend all the years grinding to build up a baseline. And I just love, Luke, your story here. And then the other part I want to add on is you didn’t get a little bit of cashflow and just quit. Say, “Ha, ha, [inaudible 00:50:55] here I come. I’m heading to the beach and I’m not going to work and I’m going to Insta all of my beach photos.”
You went and built a business. Avery is still selling houses. You guys are still working, creating additional streams of income that protect you on the downside that everyone worries about.

Rob:
Well, he doesn’t have to go to the beach. He lives at the beach.

Luke:
We do live at the beach. But you’re right. And hey, listen, you make an excellent point, David. If you get obsessed with real estate to the point where you want it to be your whole life, there are other ways to make money in real estate besides cashflow and holding rental real estate. Like my wife, perfect example, own a mortgage company.
And again, back to your Phoenix property, you guys can use that thing. That’s the beauty of vacation homes, man. You guys can go there, have a retreat with your family, your friends, your church, whatever the case may be, and use it whenever you want. Create memories. Man, that’s priceless. And you’re doing the right thing there with that long-term play. That’s a big house. I mean, that’s a big play. And quite frankly, who cares if it cashflows, man? Think of how much equity you’re going to have paid off by the…

Rob:
Oh dude, the tax savings on that are-

Luke:
Boom.

Rob:
I texted David the tax savings on that and I was like-

David:
Not bad, right? And that’s what you see when you get into the higher levels.

Rob:
Not bad.

David:
That cashflow is a very simplistic way of looking at real estate. Please don’t go screaming and come after me with pitchforks like Shrek in the swamp. I’m not saying it doesn’t matter. The purpose it serves, I’ve always said, is defensive. It keeps you alive. Thank you, Luke. If people want to reach out and find out more about you, where can they go?

Luke:
Yeah, the shorttermshop.com. I’m not really all that active on socials, but the shorttermshop.com and of course Avery’s book, BiggerPockets. And by the way, guys, I am one of the instructors on the BiggerPockets Short-Term Rental Bootcamp, so you can-

Rob:
Nice.

Luke:
… come party with me on the bootcamp, which is a lot of fun. We would love to have you over there. Guys, I can’t thank you enough. I’m such a huge fan and BiggerPockets 100% completely changed the landscape of my life. So thank you so much.

David:
Rob, you said so many insightful things today. I’m sure that everybody is going to want to follow up with you to learn more about what goes on in that brain. Where’s the best place for them to go?

Rob:
Find me on YouTube. That’s going to be the number one place. Robuilt, R-O-B-U-I-L-T. I talk about short-term rentals, life, liberty, the pursuit of real estate and everything in between. What about you?

David:
You can find me by looking up @davidgreene24 on all your favorite social medias or on YouTube as well, or davidgreene24.com. Luke, thanks for being here, man. Great to get to meet you, and super cool to hear that you’ve been a fan with BiggerPockets this whole time that you even remember hearing me the first time that I showed up on the show, little of us knowing that we would end up where we are today. So if you’re listening to this now and you’re wondering if it’s ever going to happen for you, trust me, I had no idea this was going to happen to me. Luke had no idea this was going to happen to him. We’re still trying to figure out how Rob ended up with the microphone on this show, but I’m sure he would say the same thing.

Rob:
I had no idea.

David:
Keep on dreaming even if it breaks your heart. This is David Greene for Rob, the no idea wonder, Abasolo signing off.