In this episode of Tactical Empire, Jeff Smith and Shawn Rider discuss real estate investing through the lens of selling Sean's top-producing short-term rental property. They explore the reasons behind this decision, including market changes and capturing equity. The conversation covers return on equity, the psychological barriers investors face when selling, and transitioning from short-term to long-term rentals. Learn how aligning your investment strategies with personal goals and leveraging community support can elevate your real estate decisions.
In this episode of Tactical Empire, Jeff Smith and Shawn Rider discuss real estate investing through the lens of selling Sean's top-producing short-term rental property. They explore the reasons behind this decision, including market changes and capturing equity. The conversation covers return on equity, the psychological barriers investors face when selling, and transitioning from short-term to long-term rentals. Learn how aligning your investment strategies with personal goals and leveraging community support can elevate your real estate decisions.
Chapters
00:00 Introduction and Setting the Scene
01:00 Selling a Top-Producing Short-Term Rental
04:46 Understanding Return on Equity
09:53 The Psychology of Selling Properties
12:52 Transitioning to Long-Term Rentals
15:50 Final Thoughts and Community Engagement
@realjeffsmith (00:01)
Welcome to another episode of the Tactical Empire. I'm here with Sean Rider. How are you, sir?
@shawn_rider_ (00:07)
I'm good, I'm good, what's happening? We've had the up and down of the rain here, so hopefully the thunderstorm holds off, but where are you guys at? Where are you calling from?
@realjeffsmith (00:18)
⁓ Michigan, Michigan. We are in Traverse City doing the Cherry Festival and getting ready for a 4th of July extravaganza.
@shawn_rider_ (00:29)
I'm saying this was the Grand Marquis event of your summer. How many people put Michigan on their list of the Grand Marquis, but it sounds like a Fourth of July cherry festival sounds fun.
@realjeffsmith (00:39)
Yep, know, upper peninsula baby is where we're headed next week. So it's going to be good.
@shawn_rider_ (00:44)
I don't know what's in the upper peninsula, what's there?
@realjeffsmith (00:47)
⁓ Painted rocks and a bunch of other beautiful stuff. Clear water. It's really pretty up here and the weather is cool too, so it's good. good.
@shawn_rider_ (01:00)
All right, all right, all right. Well, we have some exciting news in the Ryder family. No, we do not have another child on the way. So don't even ask. That's not happening. But we got some money back in our system. And what does that mean? It means that we have taken locked up capital in one of our two short-term rentals. This short-term rental was actually
our top producing property over the last three years. It was the first short-term rental that we bought pretty much to the day three years ago. So we just closed on the sale of that property on Monday of this week. All right. And we're just going to answer some of the easy questions that people have when you sell a short-term rental that you say produces over a hundred thousand dollars of revenue. Now, again, revenue is not profit.
but this property has produced six figures of revenue three years in a row. So people say, why would you sell it? All right. So the short of the answer is ⁓ number one, as the local market appreciates and we start paying down the mortgage and debt on the property, we now have a lot of trapped equity. Okay. That's not the sole reason why you sell a property, but it's definitely something that you want to keep an eye on.
@realjeffsmith (01:56)
you
@shawn_rider_ (02:26)
It's a part of the math equation when you're looking at what we call return on capital invested or return on equity or cash on cash returns. Secondly, this was in a very small town, which is why we were able to create the number one property for Airbnb. But over the last three years, because it was a small town, it was a very popular town two hours outside of DC, there have been more investors coming into the area. And I have seen
@realjeffsmith (02:34)
Yep.
@shawn_rider_ (02:55)
a few really, really nice Airbnbs popping up in the local market. And that's fine. I think there's plenty of demand to go around. But we did notice that the lead time, the booking time, started to get really, really tight to where the first two years, we only had two open weekends. Across two years, there were only two open weekends. But in the last year, we had two in the span of like six months.
And then we had a lot more open weekdays. So our occupancy rate dropped. So we did get used to not dropping our price super early so we could hold on for a little bit higher price. But with the increased cost, toilet paper costs more, cleaning products cost more, paying your cleaners more, things like that, paying your property management to do a little extra things here or there.
@realjeffsmith (03:27)
Bye.
Okay.
@shawn_rider_ (03:48)
The property became four years old, so we knew we'd have to invest more in it. The
margin started to get a little tight. The booking lead time required a lot more attention on my end to see whether or not we were going to get booked out. So with all those things wrapped into one, along with change of life plans, change of annual planning, change of the focus that me and my wife now have a long-term renting operator in Texas, we have, you know, mainly two businesses that we're focusing on, the tactical empire and the brick and mortar gym business, metabolic.
@realjeffsmith (04:07)
Okay.
@shawn_rider_ (04:17)
You know, that's equity that even if the profits remain the same, every time that property appreciates in value, the return on trapped equity decreases. So Jeff, I want to get your thoughts on people who have properties. Maybe they're not short-term rentals, but they've held properties for a while. What
@realjeffsmith (04:20)
Okay.
@shawn_rider_ (04:37)
are some general thoughts you have on whether people should entertain capturing that equity, taking their profit, and moving on to the next?
potential deal, whether it's still real estate or something else. How do you work people through that? What are your thoughts?
@realjeffsmith (04:53)
man, there's a couple things. I love the topic because return on equity is something that we really started introducing to the Inner Circle guys about two years ago. And ⁓ I think it was very overlooked before that because it's oftentimes ROI, right? Return on investment, it's actual capital you're putting in.
But as you grow a portfolio, what you really want to understand is your return on equity as well. I mean, it's a metric you should be tracking because overall we're about speed and we're about leverage. ⁓ And your equity is one of the most powerful, expansive tools in your financial toolbox, if you will, ⁓ especially when it comes to real estate, because you watch that compound over time, especially the way it has in the last five years.
And you want to analyze that to determine if you should be taking that equity and rolling it into the next asset classes ⁓ or is there more efficient ways to deploy that capital for you and your family? And ultimately, you found that there were, and I think that's a smart direction for you guys because of where your focus was split in too many directions. ⁓ And so
There's there's a lot of prudent
there's a lot of prudence in getting narrow with what you're doing. So you guys actually have two cash-flowing businesses that take your focus as well. And so from my perspective, if I was guiding you in this, if you called me and asked me, your investment portfolio needs to be a little more heavily passive as far as you can move it when you're so involved in businesses. Because businesses have the highest upside, for sure.
but you're also spending your time, your sweat, your equity in them and your focus. ⁓ So the last thing you need, and this is what we tell the people in the group too, if they've got highly profitable businesses, those are the golden goose's of what they're doing. And so you don't wanna, the last thing you wanna do is go get distracted and take on a whole nother profession. Like I'm a professional Airbnb operator along with these three businesses I'm trying to run too. And ⁓ so, ⁓
We have a couple rules of thumb that we do on certain things. I've said in the group before that if you can get 10x one year's return on ⁓ investment, meaning like if a property kicks off 10k a year to you and you can sell it and get $100,000 exit, ⁓ you should sell it. And so just because it's going to take you 10 years to get that same amount of money.
to the speed at which you can capture that equity today and then turn it into ⁓ another 10x leveraged asset potentially, or even moving towards more passive things. It depends. It depends. Every situation is obviously different, but the equity capture thing is evaluating your return on equity, looking at other opportunities. ⁓
Because a lot of times, especially in real estate, in single family homes, especially, you'll see diminishing return on equity over time. And so, like, it will go down as you hold the property, which is what you were seeing as well, because the expenses were going up and the equity was sitting there, but it probably went, let's just say, from 15 % to 11 % to 9%. And at that time, you need to turn it into something else that can make
20 % again and go from there. So yeah, those are just a couple things.
@shawn_rider_ (08:49)
Yeah, I mean What do you think hangs people up? I mean we can we could show the math to people all day long, but I feel like ⁓ Some people there's some sort of like I wouldn't say embarrassment or like failure meant like
I feel like, and we've worked with guys in the accelerator program, they're like, yeah, I have one short term rental. You it does okay. And then they're like, I want to build a real estate portfolio. That's not short term rentals. And then they have six figures trapped in it, but like to get them to pull the trigger on selling a property, it's like, it's like yanking teeth.
@realjeffsmith (09:25)
I'm like that. I feel the same way. And I don't know what it is. I've done a lot of deep work on it. Especially recently. ⁓ it's psychological. ⁓ Some of it is, I think you come in with a big door count and it's just like an ego number. You want to hit 100 doors, you want 500 doors, stuff like that. And then you learn over time with wisdom and experience that like
Really, all that matters is efficiency. Most young investors in their investment lifecycle come in and say the same type of thing. Like, want to own 100 houses or whatever. Like, fuck that. I'd rather own one house that pays me 100 grand a month and never calls me or bothers me than 100 houses that pay me a thousand bucks a month each. And the phone rings off the hook and the capital expenditures are sky high.
and things like that. I think single family homes at an entry level property, like under $250,000 is the absolute best way to make your first million dollars. And I've said that on shows before, I still believe it. It's the fastest, most efficient way for you to make a million bucks and then take that million bucks and the lessons you've learned and roll it up into other asset classes.
because you see all these gurus out there teaching section eight and stuff like that. And we teach that shit ⁓ because it gives you speed and it does give you cash flow and it gives you decent returns and it's properties that you can realistically get into with 25 % down or burr into them either way. ⁓ It's just a really good starting point for people that don't have experience yet and it lowers their risk as well rather than being like, Sean,
We've got this place in Sanibel Island. It's a four million dollar Airbnb. It's gonna be my first real estate investment. You're gonna go throw down 600 grand for a down payment on this thing and hope it pops and like there's just big numbers to deal with there. ⁓ That's kind of another reason why I like the the other way of affordable housing as the entry point for a lot of people because you can take your licks in there.
You can lose 15, 20 grand and it's not catastrophic. like, not that that's the goal ever, but like that, that $4 million Airbnb might call you and say, Hey, we need a $650,000 expense right now. You've got a foundation issue. like most people don't have the chops for that. And, and so you, you kind of learn your lessons, pay your tuition on a certain.
a certain property value and you come in where you're capable of doing it. And then you can roll up into more sophisticated stuff. Because if somebody can come in and buy 20 houses and get a million dollars worth of equity that way, and then they cash out and exit and take their million dollars, then they have $5 million of lendability, essentially. And so now they can go get a $5 million asset and we can start scaling up the game, climbing the ladder, right? So that's why I like that direction.
I like what you've done as well because you've now dabbled in a couple different asset classes and ⁓ it allows you to know what's right fit for you.
@shawn_rider_ (12:52)
Yeah, mean, full transparency. mean, we got into commercial property first, big property, three short-term rentals. And then it wasn't until after that, that we went the long-term rental game and just, you know, we got into short-term rentals because I wanted higher cashflow, more bang for my buck. And that worked really, really well. I'm still, still a proponent of short-term rentals, but as, as life evolves and, and, and you look at numbers and you look at what you want to deal with on a regular basis. Um, I now have a partner.
in every single real estate play that I have minus the commercial building. ⁓ And so for me, that makes a lot more sense for me in this season of life. And I don't foresee that changing anytime soon as my kids are seven and five. And again, we're building these businesses. it looks like we're doing what you suggested in reverse, but we're not the ones dealing with the LTRs.
we're just sending the finances and moving on with our day. ⁓ I think we're supposed to be closing, what's today, July 1st? We're supposed to be closing on another LTR ⁓ in two days. So that starts picking up the numbers and if we can multiply what we did in the first year over next year, we'll have minimum 10 properties. And if we come into more capital through some of the other investments we have, we can accelerate that investment timeline if the deals come on the board. ⁓
Definitely a short-term hit in terms of cash flow from the real estate, but the long-term return on time. And if you think about the next 10 years, if we can cycle that same money over and over and over again over the next 10 years, we'll be farther out ahead. know, again, full transparency, like when we closed on the sale of that Airbnb this week, not only did we get paid over the last three years, but we were able to walk away with
100 % ROI of the money invested. So that's an annualized return of 33%. And like I said, going into year five on that property, we'd have to start putting some money into it. And that actually showed, that showed on the inspection, there was some water underneath the house. So we ended up putting in a septic and drainage system for the next buyer, which cost us money, but they also gave us the highest offer price. So that was awesome.
@realjeffsmith (14:57)
Thank
@shawn_rider_ (15:20)
We definitely walked away with what we wanted almost to the dollar. It was like $556 more than the number that I really, really wanted to walk away with. So we're very, very happy with that. But I know that there's listeners out there that are holding properties and they're not accelerating their real estate investments. They're building businesses or they get into something else and they're like, yeah, I got six figures of trapped equity and it's a nice property. It's okay. Well, let's go ahead and get that money back in your control because you're kind of just letting it sit there dead.
and hopefully they had some takeaways from this episode. there anything else that you want to send them out on on this topic?
@realjeffsmith (15:55)
No, mean, money loves motion. so like you've got to be watching it like that. It doesn't like to even be trapped in in a portfolio of single family homes. Like the thing about single family homes, I don't think you're doing it backwards or wrong. Your strategy changed because you took on an operator and a partner, which changes the outlay of time that you're doing. But you also sought out an MSA or a metro that has the upside.
Where people get twisted on some of this stuff with affordable housing is they'll go into like the Midwest or something where like appreciation rates over time historically are like 1%. Like you're buying in Texas in a thriving area, but you guys, if you just continue to stack properties for seven to 10 years, your portfolio will be worth X millions of dollars and it will double in value in that time.
You can sell it and you can both go your way with your proceeds if you choose to or 1031 it into something together that's twice the size of the cost. So there's a lot of ways to go about doing it. The thing about single family homes that people have to understand is if you're going to go that direction, it's not a get rich quick scheme. You got to set it and forget it. And you've got a lot of cost segregation there too though. So from tax deductibility and tax credits.
⁓ If you're buying on a regular basis, you can really lower your tax basis. So for you, it's super beneficial from that standpoint as well. so, I mean, seven years from now, you're not going to regret having done that. And you're not going to be the guy that stressed about it either for seven years. So you're in a pretty good spot, honestly. ⁓ So congratulations, dude. Good move. ⁓ Exactly what we preach and teach. And so congratulations to you and the family.
@shawn_rider_ (17:46)
Thank
@realjeffsmith (17:52)
⁓ Looking forward to seeing you turn that couple hundred grand into a million soon.
@shawn_rider_ (17:58)
We'll see, we'll see. I just know that I have not received any phone calls from my LTRs, but I deal with text messages from the STR, even having a property management. So again, have to play the numbers. Here's the takeaway. You got to play the numbers, but you got to play what you want your life to look like. What types of phone calls and how often do you want to deal with things? ⁓ Nothing comes fully headache free. There's concerns.
with everything, even when you hand your money to someone that has a fund, right? You're still putting faith in that they're going to take care of it and they're going to handle it. But again, when you put money in a fund, you're not, you're not dealing in wheeling and dealing. You're not dealing with anything besides getting that mailbox money. So that's why we, that's why we're building the group. We're vetting these guys out and the guys that we have in the group that do things like that, we trust them. And so if you're looking for a group of guys that ⁓ either are looking for operators for partnerships,
financial partners for partnerships or you're looking to get your money into funds, ⁓ we have guys in the group that we can send you to that we trust ⁓ with our money and with the guys' money. hit us up. Other than that, Jeff, go ahead and send the people out.
@realjeffsmith (19:09)
Oh yeah, guys. Hell yeah. Have a great week. This is inspiring. Good job, Sean. Congratulations, the Ryder family. Guys, join us in the Tactical Empire community on Facebook. It's a free group out there. You can ask any questions you want. We're monitoring it all the time. We'll answer you directly. You can DM Sean and I on Instagram. Give us a subscribe or a like and subscribe on YouTube. We put a ton of content out there, If you guys have any questions, hit us up.
Have a great week.