Podcast #111 Show Notes: Investing in Airbnb Rental Properties with David Draghinas
Dr. David Draghinas is probably best known in this community for his podcast, Doctors Unbound, where he shares inspiring stories about doctors doing extraordinary things. But in this interview, I asked Dr. Draghinas about something extraordinary that he is doing. They converted one of their rental properties to a short term rental, then bought another luxury rental property, and rent both out as short term rentals through Airbnb and VRBO. These properties, managed by his wife, have done extremely well and they now consider themselves financially independent. To learn more about how to achieve FI through short term rentals listen to this episode as Dr. Draghinas shares what he has learned through this experience.
In This Show:
- Podcast #111 Show Notes: Investing in Airbnb Rental Properties with David Draghinas
- Investing in Airbnb Rentals
- Full Transcription
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Investing in Airbnb Rentals
On his podcast, Dr Draghinas interviews a lot of people that I would refer to as real estate types, people that maybe eschew both retirement accounts and perhaps even traditional investments like mutual funds. After interviewing all these people, I asked him what is his take on that? Does he think it is smart to go all in on real estate and alternative investments? Or are they best avoided? Or is a mix appropriate?
“I still contribute to these tax advantaged accounts currently. However, I am a big believer in real estate and in the last couple years, I've discovered short term rentals and that has kind of turbocharged things for us as far as our path of financial independence. I still invest in some of these tax advantaged accounts. But I probably lean more heavily on real estate than others because I've acquired sort of that knowledge and skill set because it's been interesting to me.”
His wife will qualify for real estate professional status because she manages their Airbnb portfolio. This means she spends 750 hours or more during the year taking care of their real estate investments. Short term rentals are definitely active real estate.
I asked him how far from financial independence they are. He said,
“Depending on how you define financial independence. In 2018, we had one property that we converted to Airbnb. About the fall of that year, so right around labor day or so, we purchased a second property specifically for short term rental. After having done that for nine months or so, getting a lot more comfortable, learning quite a bit in the space, we bought what I would say is a luxury Airbnb property. Both of these properties are within about 10 minutes from my house. So that property has done extremely well, very great margins on there and I would say with these two properties, probably for most people in the FIRE community, they would probably consider us financial independent at this point.”
He considers himself more of a FatFire person so he plans to pick up a couple more properties to accomplish that. But I asked him if he was really financially independent or has he just changed jobs to being a landlord? They want to manage their properties themselves right now but they could easily hire a property management company for about 20% to take over the day to day operations and still have enough income from the properties to consider themselves financially independent. It is pretty easy to transition it to passive income.
He feels like where the strategy is really powerful is if you're a physician or other high income individual and you have a spouse that is either a stay at home spouse or a spouse that can take over the Airbnb operation. It offers you a lot of options and flexibility. So the cash flow that one of these rentals spits off is probably close to 10x the profit of what a typical long term property would spit off, at least the ones that they have selected.
I asked Dr. Draghinas, how many of these can you manage by yourself before you have to hire a management firm?
He said some people manage it all from their smartphone and are not even in the same city as their properties. To do this you need to have a couple pieces in place like a great cleaning crew and a handyman. You can contact them via your phone and manage the property from a different location.
They decided they wanted to have everything meet their standard and to start local and decrease that added stress, so both of their properties are close to their primary residence.
How to Get Started with Short Term Rentals
I asked Dr. Draghinas if listeners are interested in this what kind of properties should they be looking for if they want to start an Airbnb?
He had his first property already purchased when he became interested in Airbnb. But a great tool he uses now to assess the market is called airdna.com. It is basically a data aggregator for Airbnb and VRBO. You can go on there and find a city that you're interested in and see some hard data on what are the rents like, how busy are these homes, how much are they booked, what kind of revenue are they bringing in and what are the top properties and then you can see what it takes to be a top property.
Because they wanted to stay local it became a matter of validating, is this market one that is amenable to this strategy? And luckily it was, he invested in the tool and found out that he lives in a hidden gem of a suburb. After doing his first rental for nine months as a short term rental he realized there is also a demand for a luxury type property.
“I saw the properties that were on Airbnb and VRBO, found one that was the only kind of luxury property there, and saw that it was highly booked. I realized that I could buy a property for cheaper than what that house was worth with a few more amenities like a pool and a hot tub, and have a few extra features that make it really unique and stand out and will make it something that people want.”
If you're thinking about an area, make sure that there aren't any short term rental regulations that would prevent you from doing this. You don't want to do this kind of illegally or anything like that. Your best bet is to find a place or a city that has regulations in place because then that aspect of it is clear. So, if there is already Airbnb regulations, then you know what they are, and can find a property within that city.
Also, figure out if you want to manage apartments versus single homes. He said he always wanted to have multiple exit strategies in mind, so when he buys a property, he wants to make sure that it can survive as a long term rental. If Airbnb goes away for whatever reason, can this property at least break even if not cash flow a little bit as a long term rental?
So to get started:
- Find a market
- Do research and make sure there aren't any regulations against short term rentals.
- Use a tool like AirDNA to drill down and see how profitable it is.
- Do the calculations with your expenses and projected revenue. You have to compare it to a long term rental because if what you're going to be left with is just about as much as a long term rental, then all that extra work is not going to be worth it. You have to analyze those things and make sure that the time that you're spending is going to be worth that investment.
Financing A Short Term Rental
I asked Dr. Draghinas much did he put down and where did he go for financing?
He used a 1031 exchange from a condo he owned in residency.
“So we did a 1031 Exchange, and I will say that was a little bit scary because getting onto a bunch of real estate forums like BiggerPockets and some other places, I read a lot of horror stories about people placing their money into these 1031 Exchange companies and then the money disappearing and not being able to contact that person. So, it was a little bit scary. What I did is I asked the escrow office where I did my closing, I had them recommend, I said give me two or three of these companies that you've worked with that are the best. And so, they gave me that information. I called and I interviewed a couple of these folks. I chose the one that I felt best about and they did a fantastic job.”
He put down 30-35% of the value of this luxury property. He did a 30 years mortgage and because it's an investment property, his interest rate was slightly higher. He met with several bankers in the area and would encourage anyone to do this that is interested in real estate. He said the lenders didn't care that the property was going to be used for short term rentals.
It is a little trickier to use income from short term rentals to qualify for the loans but as a physician you can use that income to qualify. For folks who are doing this and they don't have that other income to fall back on, more and more banks now are starting to accept the income from short term rentals as something that's sort of more valid and mainstream. Airbnb has in their hosts platform, something that you can click and they'll give you some of that financial information for your rentals. So that's becoming more and more mainstream.
He is interested in purchasing more properties and plans to refinance and take equity out of the first home to buy another. Other doctors have expressed interest in investing their money with him but he is not ready to take that on yet.
Liability for Short Term Rentals
He has a rental property with a pool on it. What has he done to minimize his liability?
There are two companies in the US that do insurance specifically for short term rentals CBIZ and Proper Insurance. He uses Proper Insurance.
They actually will ask you, do you have a pool? Do you have a trampoline? Do you have a diving board? Even things like do you have bunk beds in your property. It is insurance that is specific for Airbnb. If you're going to do this, he highly recommends that you get that. The cost is nearly the same as a homeowners insurance policy.
You should also carry an umbrella policy and put the rentals into an LLC.
How to Make Your Properties Stand Out
The whole share economy thing has really taken off but with Airbnb it is still run by sort of mom and pop operations throughout the city. People are happy with making a little bit of money and then they don't take the time to learn and grow and sort of perfect their listing of their home.
Here is what you can do:
- Spend $200 or $300 and get professional photography. There's data out there that it will increase your revenue by like 20 or 30%.
- Get really good cleaners. Airbnb lists it right underneath your picture and your headline is, 98% of people have said this house is clean. That is important.
- Respond promptly. So, either yourself or somebody on your team needs to respond promptly because stuff is going to happen and you just need to be able to talk to the guest. Most people are reasonable and if they see that you're trying to solve their problem, they're going to give you a good review and they're going to be reasonable.
What About the Neighbors?
I asked Dr. Draghinas if he has any problems from neighbors who are sick of the revolving door on his rentals?
“No, and part of that is because we are very mindful of our neighbors, and we will leave cash on the table in order to protect the home and the neighborhood. To give you an example, we've got this six bedroom house that backs up to a golf course. It's got a pool in a hot tub, just great, great house. And we'll get inquiries from either kids who are finishing prom or even their parents, this has surprised me. So hey, my kid's finishing prom, we want to rent the house for them and 12 of their closest friends. And it's like, really? And so, we have denied requests like that.
We screen our tenants very well. My neighbors have our cell phone number in case of anything. And then the other thing that we invested in, which I think is great for anybody considering this, is exterior cameras. Not interior, of course, exterior cameras, and we disclose it in our listing. It works very well and we have every entrance of the home covered. And that helps us to kind of make sure that there isn't a party or anything crazy going on.”
Airbnb, VRBO, or Both?
How do you choose which company to list with?
He listed with both Airbnb and VRBO/Home Away. They're very similar and their calendars sync. It is very easy to get on both of those platforms. You can get on booking.com now and be listed next to the hotels. They haven't done that yet because from what he has read, it's a little bit clunkier and a little bit more difficult to sync. He didn't want to do it and have to deal with double bookings and people being upset. The other aspect is buying a domain. They will soon be able to take direct listings on their own site. They are creating their own website where people will be able to directly book with them, and the plan will be to go to the hospitals and local businesses, and say, hey, if somebody needs a place to stay, here's our website and you don't have to pay the booking fees.
How much are the booking fees? Are they paid by the renter or what percentage of your income are you losing to VRBO or Airbnb?
Booking fees are paid by both. Airbnb charges the guests and they charge the host, in the range of 10 to 15% for both of them.
Hiring Your Children
They are starting to incorporate their kids into the business. Having these investment properties is creating a way for them to understand business and investment. And as they get older they could do some cleaning or modeling for the website. So many benefits to owning your own business!
I hope you enjoyed this interview with Dr. David Draghinas, anesthesiologist, Airbnb guru, and host of the podcast, Doctors Unbound. You can find his podcast anywhere that you download your podcasts. It's always fun to learn about a new way to invest. It reminds me that there are so many awesome ways to invest. You don't have to actually do them all though. Just pick the one you like the most. Clearly, these short term rentals are a method that is working for at least some people. Maybe worth taking a look at and considering if you're interested in doing this.
WCI: This is White Coat Investor podcast number 111, Investing in Airbnb rentals with David Draghinas. Are you tired of the ups and downs of the stock market? Private real estate is known for its stability and high returns, and Origin Investments has a great new fund that delivers both. The Origin IncomePlus fund is a diversified private real estate fund targeting the total annual return of nine to 11%, inclusive of 6% in annual distributions. The principals are investing 10 million of their personal capital alongside investors in the fund. Learn more by visiting www.originincomeplus.com/wci, that's www.originincomeplus.com/wci.
WCI: Those principals are some people I skied with this winter, actually. I invest in a different fund they have, I haven't invested in this one, but they seem like great people who are doing a great job and really know their stuff. So if you're looking for that sort of an investment, I would include them on your shortlist to check out what they're doing.
WCI: Thanks for what you do by the way. Medicine is not an easy job, it is not an easy way to earn money, it is not even a short road to wealth. It's a very long road to wealth. And so, thank you for doing that. As we're going to learn today's podcast, there are shorter roads to becoming wealthy. And so those who have sacrificed their 20s, sometimes half their 30s, to learn how to be a doctor, to learn how to heal and to relieve discomfort and reassure people, it's noble work. So thank you for doing it.
WCI: White Coat Investor CON 20, WCI CON 20 is coming up. It is going to be March 12 through 14th 2020 in Las Vegas. It's at the Paris Hotel. But registration for this fine event is going to open on Monday, July 8 at 7PM Mountain Time. So put that on your calendar. I don't know how long it's going to take to fill this conference. The last one filled in six days. The next day, we had 180 people on the waiting list. And we're making it bigger this year, it's about twice the size. And so there'll be room for more people. But I think it's going to fill at least as fast. We've got at least twice as many people reading and listening.
WCI: Remember back then we just started the podcast, we didn't even have the Facebook group that now has 22,000 people in it. I mean, this thing's probably going to fill pretty quickly. I don't know if that's going to be weeks or days or hours or minutes. I'm kind of hoping it's at least days so that nobody that really wants to come doesn't at least get a chance for a couple of days to sign up for it. But if you really want to make sure you get in there, put an alarm in your phone for 7PM Mountain Time on July 8 so you can sign up. There'll be more information on the conference published in a blog post that morning. The full agenda at that point should be ready for publishing. It's going to offer continuing medical education credit and continuing dental education credit.
WCI: We've got some fantastic speakers lined up, some of the big names you might have heard of include Rick Ferri, Morgan Housel is going to come. We're going to have Phil DeMuth. We're going to have Paul Merriman, we're going to have Harry Sitt, we're going to have all the big names in the Physician Finance Community. If they've got a big Facebook group or a podcast, they're probably coming. So if you want to meet these people, if you want to meet people that are on this journey with you, if you're a beginner, there's going to be stuff for you. If you're a very advanced investor, there's going to be stuff for you, it's going to be a great time for everybody. So, WCI CON 20, signup's on July 8.
WCI: We've been doing more and more Facebook Live events in that Facebook group as well. You'll see these from time to time, sometimes I do it by myself, sometimes I do it with a sponsor. It's a little bit though like, kind of like the podcast with the questions, except we're doing in real time. No preparation whatsoever. You literally type in a comment and that's your question, and I do my best to answer it with no preparation. So it's kind of fun to do this live. If you like the podcast, you may want to check some of those out. We're trying to put them on YouTube as well, which should make an easy way for you to listen to it in your car if you're looking for more White Coat Investor content that you can listen to on your commute.
WCI: Today, we've got a very special guest we're going to bring on here. It's anesthesiologist David Draghinas. Let's get him on the phone and talk to you. All right, today on the White Coat Investor Podcast, we have a special guest, David Draghinas, who I met actually a couple of years ago at the Physician Blogger and Podcaster meetup at FinCon. He's an anesthesiologist in Texas but is probably best known at least in the circles that you travel in for his podcast, Doctors Unbound. Welcome to the podcast, David.
Dr. Draghinas: Hey, Jim. Thank you so much for having me. I'm excited to be on the podcast and share a little bit about myself in the podcast and anything else with your listeners.
WCI: Yeah. So we've got some interesting stuff to go over today. Not only are we going to talk a little bit about David, we're going to talk about Doctors Unbound and some of the cool stuff he's been doing over there, as well as podcasting in general as a passion project and a side hustle. But also, we're going to get into something unique that he's been doing with Airbnb, which I've actually had a number of people ask about for the podcast and ask about coming on and talking about their various experiences with it. So I thought David would be a great person to bring on and talk about that.
WCI: But first, let's get to know him a little bit better. Can you tell us a little bit about your family growing up and about your upbringing?
Dr. Draghinas: Sure. So I grew up in Southern California. I am the son of immigrants from Romania. So the backstory is that my father was a pastor in communist Romania. And he immigrated out of there, kind of a harrowing story to kind of get out of a communist country. But he did that in the 70s, was able to make his way into the United States, Chicago initially. And it took about two years for him to be able to apply and get all the paperwork done and get my mom political, asylum, religious asylum and be able to get her into this country. And myself and my younger brother, Dennis, we were born here in the States. And my dad hated the cold. He hated the Chicago winters. And as soon as he made it over to California and figured out that he could wear shorts in the summer, he's like, honey, I'm sold, we're moving to California.
Dr. Draghinas: And so, that's where I grew up most of my life, in California, that's where I did most of my schooling and training. But as I was finishing my Navy practice, or excuse me, I took a Navy scholarship in medical school, we can get into that a little bit, but we moved our way over to Texas. And that's where I currently reside.
WCI: Speaking of your education and training, and let's get a little bit more into detail there, where'd you go to school, where did you train, what was that like?
Dr. Draghinas: Yeah, so, I was mostly a USC lifer, University of Southern California. And so, had a scholarship to go there for undergrad. Did an undergrad in biomedical engineering. Was not one of those folks that knew right away that I wanted to go to medical school. Initially, I thought I was going to work in the biotech industry. So I got into college, I was a biomedical engineer, got into some research, and realized that if I really was going to do anything kind of significant in that space, I'd have to get a PhD and kind of talking to some of the PhDs in the labs and stuff like that. I realized that that was probably not what I wanted to do.
Dr. Draghinas: Interestingly enough, there was a neurologist in my lab and he was doing some research with these, they would call trinucleotide repeat expansion diseases. And so, I got to do some research with him. And what was really cool is he kind of became a mentor for me and he started talking to me about medical school and how interesting it was and how there was a specialty for every kind of personality. And so, he got me on the path of thinking about medical school. Sure enough, third, fourth year, MCATs and went to medical school. Left for one year to Michigan. I figured I needed to get out at least for one year so I had a real winter for one year as I did my internship in Ann Arbor, great college town. But that was about enough winters for me and then I came back to USC, to LA County USC where I finished my residency in anesthesiology.
WCI: Okay. And tell us about your practice so far. Military commitment, was it HPSP that paid for your schooling?
Dr. Draghinas: That's right. I did HPSP, and, you know, so, to backtrack, my medical school was also at USC. Fine education, but very expensive private education. And so, back then, I was looking at probably about $50,000 a year when you figured moderate living expenses and things like that. And at that point, I did not know what specialty that I was going to go into. And I did not want to make a specialty choice based on income.
Dr. Draghinas: And so, I thought, you know, here's this opportunity, I get to give back to my country. Being an immigrant and understanding what this country meant to my family and the opportunity that I've had because my dad was able to come to this country, I thought this would be a great way for me to kind of give back and get my education paid for because who knows, maybe I like pediatrics. Unfortunately, pediatrics is not generally a very well paid specialty. So, yeah, I did that scholarship and that paid for three years of my training. And then once I finished that, I went down to San Diego and I served back active duty time in San Diego at the big Naval Medical Center down there.
WCI: So your time in the military, good experience, bad experience, mixed experience?
Dr. Draghinas: Overall, I would say it was a good experience. and the parts that were great were the people that I got to work with, the anesthesiologist, the surgeons, the people that were doing the day to day that I got to interact with were phenomenal. The other part that was really great was the people that we were taking care of, whether that was the active duty soldiers that we were taking care of, whether it was their kids or their spouses, their family members. That part was really awesome.
Dr. Draghinas: The part that was not so awesome and I'm curious to hear your experience too was dealing with a big bureaucracy. And big Navy's a big bureaucracy. So things like figuring out if your pay is done, some of the back and forth that goes on with deployment, stuff like that is just, you know, any big organization, you're kind of going to have that. And that part was not so fun.
WCI: And did you deploy?
Dr. Draghinas: I did. I knew I would have at least one deployment I owed, you know, I owed three years active duty, ended up doing about three and a half because of the way that the Navy pays you. And I had one deployment, I got to deploy to Iraq. This was back in 2009, I deployed with Marines, and I was there for about six months.
WCI: And what was that experience like?
Dr. Draghinas: It's never fun to deploy to a war zone and be in Iraq in the sand and 118-degree weather for most of the summer. But, you know, you make the best of it. And I think if there's a silver lining, if there's something positive to look at, it's, hey, you know, I survived out here for six months in this little metal box. If you can do that, then you can get through most of anything. And you realize how good you have it when you come back home for sure.
WCI: Okay. So you got out of the military and you moved to Texas. Tell us about your practice there now.
Dr. Draghinas: Sure. So I'm pretty fortunate in that. I work with an amazing group of anesthesiologists here in Texas. And so, my group is called Metropolitan Anesthesia Consultants. We're a group of about 100 anesthesiologists now, was about 50 when I joined. And we're a private practice kind of throughout the Metroplex. I just work with a great, great group of anesthesiologists. Very helpful, help each other out. So I feel very blessed to be a part of this group.
WCI: All right, let's turn the page a little bit and let's talk about podcasting. Your podcast is called Doctors Unbound. For listeners, you can find that the same place you found this podcast I'm sure. It's anywhere you can download your podcasts, whether that's iTunes or wherever. Why did you start Doctors Unbound? Tell us a little bit about the origin of that?
Dr. Draghinas: Sure. So the idea for it probably was several years before the actual execution. And that's why I'm, you know, I'm one of these people that tries to motivate and encourage doctors to, you know, if you got something you're thinking about doing, like, go ahead and do it just because it was a long time just thinking about it and having various excuses for not getting it done. But basically, it was a podcast where I was scratching my own itch. I knew that there were doctors out there doing really interesting things that were outside of clinical medicine. I was aware of your blog. And so, you were one of the people that kind of came to mind as it would be really great if I could talk to people like Jim Dahle, people who are doing other interesting things, whether it's in leadership, whether it's investing.
Dr. Draghinas: And I said, if I've got a podcast and I can record this, I'm probably more likely to get their time. I'm sure there are other people who'd want to listen to this and learn from it. And so, I think that if we can learn from each other, tell these stories, and also kind of the other ideas, there's a lot of burnout in the physician community. Some people feel like maybe the respect of physicians has kind of gone down a little bit. And I just wanted to have this podcast out there that was something that was positive and uplifting and showed physicians in a great light. So those were kind of all the different things that went into it.
WCI: So what can listeners expect on your podcast? I mean, what's the content mostly?
Dr. Draghinas: Sure. So the content usually revolves around topics outside of medicine. But there's, I've taken some liberty there. Like I said, I'm my own avatar. So if there's a topic that I think might be interesting to a physician audience, then, you know, if I find an expert in that area, I'll have them on. So for example, first of all, thank you, I've had you on the podcast back when I was just starting and I had no track record. So I really am very appreciative that you would take out time out of your busy schedule to do that. So beyond yourself, beyond, I think I've got every member of the White Coat Network on, even when some of them were anonymous.
Dr. Draghinas: But I've had people on that are, for example, US Congressman. Andy Harris is a US Congressman out of Maryland. And so being able to have him come on and talk about, hey, what are the things that he's dealing on a national level that are affecting healthcare policy. Politics has gotten very divided in our country over the last couple election cycles and I'm not pushing a particular party or particular idea, but I do think that physicians who are very highly trained typically care about what's going on in country. Like, hey, let's get these physicians out there regardless of party and get them more involved in politics so that we can affect not only healthcare policy but obviously other aspects of running our country.
Dr. Draghinas: So people like that, people that are CEOs of health care and different types of startups that have to deal with either medicine or the healthcare space. People like that that I can pick their minds and we can go through, you know, what is a day like in the life of a CMO that is CMO of a billion dollar international company. Stuff like that I find really, really interesting, and I'm thankful to be able to bring those kinds of stories to physicians.
WCI: So, I think you've explained pretty well what you like about podcasting. What do you dislike about it? You've been going now a year and a half or so, maybe a little more. What do you not like about podcasting?
Dr. Draghinas: Sure. So the part that I like it is really cool to me is preparing for an interview where I get to research a guest and sort of figure out that roadmap of the interview and then actual talking to the person. And what I found is that I'll usually find at least two or three nuggets that kind of stay with me from each person that I interview. What I don't like is all the stuff that I've now offloaded to help. All the post production stuff that you don't see. So the editing of the podcast, preparing the show notes, all of that kind of stuff, I have found somebody that has more time that can do it better than I can, that frees me up to grow the podcast and to be better prepared for the folks that I'm going to be talking to.
WCI: So what's the worst experience you've had podcasting, other than me not sending you these questions until late last night?
Dr. Draghinas: You know, there hasn't been any really bad experiences. I will tell you that, for me, I hate not sticking to a commitment. There has been a couple instances where because urgent cases have come up at work, I'm really kind of cutting it closed or may have to reschedule an interview. And so for me, that's been kind of the toughest part is, you know, having to call somebody up kind of last minute and say, hey, I think I'm going to miss our scheduled time here just because I'm on the road, I'm not at home, I can't do it. So those are kind of the things. But as far as like actual interviewing people, I can learn from just about anybody. So those have largely gone pretty well.
WCI: How do you select your guests?
Dr. Draghinas: Sure. So like I mentioned earlier, I'm somewhat of my own avatar. Since I'm a physician, since I'm interested in these topics, you know, I'll kinds of research different topic ideas. I'm interested in things like social media and branding. I'm interested in things like leadership investing. So these are kind of some of the broader topics and I'll look for experts in that space. Now, I will say that as the podcast has gotten more popular and I'm sure you get a ton of this, I get people reaching out to me. And so, now my job kind of switches a little bit, I can be a little bit more selective, and what I'm trying to do is think about, is this topic, is this an idea something that my audience would find interesting, would find valuable? And so, that is kind of how I look at it and how I do the selection process?
WCI: How big is it? I mean, how many downloads are you seeing per episode?
Dr. Draghinas: It's not something that I share kind of regularly but I'll say that in a given month, you know, my podcast is weekly. We're seeing in the 48,000 range for downloads. The thing that's been cool is that it has started from scratch, you know, I started with no email list, no following, anything like that. And it has just slowly built up over time. That's been with no paid advertising or anything like that. So, I'm happy that people that discover it really find it useful, I get a lot of positive feedback that they're enjoying it, and then people kind of binge the episodes. But I don't know, I've been thinking about maybe doing some paid outreach and stuff like that to kind of make it grow faster but I haven't made any decisions just yet.
WCI: You know, it's kind of the dirty secret of online entrepreneurship, you only have to build the audience once.
Dr. Draghinas: Sure.
WCI: And then you can change it to different formats. Start a podcast, start a blog, start a YouTube channel. And in some respects, a certain portion of the audience is portable, and we'll check out the other format as well. And oftentimes, they prefer the other format, they just didn't realize you had it. I totally agree with you that it's way harder to build from scratch than to be a blogger that starts a podcast or a podcaster that starts a blog, etc. It's just way easier to do the second and third and fourth thing.
Dr. Draghinas: Sure.
WCI: So, I mean, podcasts and blogs, they tend to start out as a passion project and sometimes become a side hustle. Which one do you view yours as and do you think podcasting is a good side hustle, I mean, a way to create another significant income?
Dr. Draghinas: Sure. I remember meeting you actually for the very first time at that FinCon conference, and one of the first questions you asked me was like, you know, is this a hobby or is this a business? And I wasn't sure how to answer you just because in my mind, the intention was always to be able to make this sustainable business operation. However, I also knew having done some other projects online that that would be a long process and I wasn't taking anything for granted.
Dr. Draghinas: So, like I said, building it from scratch without an email list, it's a long haul. So I think if anybody gets into the space, if you're thinking that, you know, you're just going to put together some podcasts, put them out there and the downloads are going to come and you're going to be able to monetize, you've got another thing coming. It's going to be a lot more work than that.
Dr. Draghinas: However, it is possible. With podcasting, it's a little bit trickier. With blogs, you probably have certain ad rates depending on your content and it's a little bit more set in stone. I went to the last Podcast Movement Conference. And one of the things that I really wanted to figure out is how to value an audience that's niche like mine. And I will tell you that nobody there gave me a very good answer. There's some information out there on, you know, so one of the big things as I'm sure you know Jim is the CPM model. So, that is the cost per 1000 downloads. However, that is for a more generic audience. And when you're dealing with a physician audience, it's a little bit different.
Dr. Draghinas: And so, what I've had to figure out over probably the last six months or so is how to figure out what that value is. And I'm figuring it out, I've got a few sponsors that are coming on board, I've had one earlier, I've got another one that's coming on board here probably next month. But it is a thing where you have to be kind of the trailblazer and figure it out. And it's a little bit of trial and error and stuff like that. So if that's something that is interesting to you and you're willing to kind of go down that path, I would say it's definitely monetizable. But don't expect it to be easy.
WCI: Or expect it to monetize anything like your physician day job at least for a number of years.
Dr. Draghinas: Absolutely, absolutely. And it's like one of those things where, we talk about passive income and passive income is kind of the holy grail. But what people don't realize is in order to get to that point of where it becomes passive, you've put in a lot of time upfront with no guarantee that that work will ever be paid off.
WCI: Oh, this becomes passive at some point? That sounds great. I'm looking forward to that.
Dr. Draghinas: Right. I mean, like I said, more passive. I mean, you're still developing content etc, etc. But the idea that you can put up a blog post and a year or two down the road, if it's evergreen content, it can still generate clicks and generate income.
WCI: For sure. I totally agree with you. In fact, every page of the blog is actually a little self encapsulated business of its own. And obviously, some of them are better than others. Now about the same time you started podcasting, Nii Darko started his Doc's Outside the Box. What do you see as the main differences between your podcast and Nii's?
Dr. Draghinas: Sure. So Nii Darko was actually an inspiration for me and he was also a little bit of a kick in the pants. And what I mean by that is, like I mentioned earlier, I had this idea for what became Doctors Unbound years ago. And for whatever reasons, being busy with work, small kids, I just hadn't taken charge and executed. And then I came across Nii's podcast and I was like, oh my gosh, this is so cool and somebody else is doing this.
Dr. Draghinas: So, Nii's got, Nii started a little bit before me, he's got something like over 100 I think episodes right now. I'm just a little bit under, I'm somewhere I think in between 85 and 90 right now depending on when this episode will air, you know, I'll be close to 100. And I think if you look at both of our podcasts, I don't think we've shared more than 10 guests, I'm guessing somewhere in that range. So, there's obviously some similarity in the podcast. But the things that we're interested in, we're going to be selecting different guests. Even if we had the same guests, the questions that Nii is going to come up with and the questions that I'm going to come up with are going to be kind of a different angle.
Dr. Draghinas: It's something where I'm glad Nii's out there. I'm glad he's doing what he's doing. He brings his own style and personality to his show and he's got a great show. And so, I don't see it as competition, I see it as something that's validating the marketplace. And I'm not trying to be like him, I'm just trying to be like me. And hopefully, I find an audience that likes my style and the way I interview guests and what I'm all about. So I love his podcast, I think it's awesome. Yeah, it's been an inspiration for me. I just kind of don't worry about it in that sense. I just kind of do what I think that would be interesting for me and my audience.
WCI: You know, it's interesting, a lot of people assume there's a lot of competition in these sorts of enterprises. And the truth of the matter is blogging and podcasting is far more collaborative than it is competitive. I think a lot of people don't realize that people will read more than one blog, they will listen to more than one podcast. In fact, a lot of people tell me, man, why don't you do more than one a week? Well, I'm not doing more than one week, I can tell you that right now. If you need more content, here's some other great podcasts. And so I think a lot of people just don't realize how collaborative it is behind the scenes.
Dr. Draghinas: Yeah, for sure. And I found that definitely from, like I said, even from earlier from yourself, from Physician on Fire, coming on my podcast very early.
WCI: The ultimate collaborator by the way.
Dr. Draghinas: Exactly, exactly. I don't think I had even launched and I sent out an email to him. I said, hey, I'm launching this thing, would you be on? And he was gracious and said yes even before I'd launched. So how awesome is that?
Dr. Draghinas: But I found that to be true. I went to Podcast Movement last year and there was maybe six or seven us physician podcasters and we had dinner together. And Nii Darko was there and Carrie from Hippocratic Hustle was there and Taylor Brana from Happy Doc and Dr. Money Matters was there. So we just had a nice collaborative dinner. We talked about the things that we're doing, we kind of shared information. Because, you know, if we all do well, everybody's going to do better together.
WCI: So what is the deal with anesthesiologist doing blogs and podcasts anyway? I mean, I've got three anesthesiologist WCI Network blogging partners. I don't see this from the other road specialties and not even emergency medicine, which I would think would be set up perfectly for it.
Dr. Draghinas: Yeah, I was fascinated about that too because just recently bought brought on the Physician Philosopher, and I met Jimmy at FinCon as well and I interviewed him I think before he came out. Physician on Fire, Passive Income MD, they're all anesthesiologists, and I don't know, I don't know what it is about people that choose our specialty, if we're wired a certain way, if we just kind of like technology and have other passions. But I do notice it among some of my colleagues too. We just kind of like to do these other things I guess.
WCI: So have you been discovered at work yet? Very many friends or colleagues that have figured out what you're doing on the side?
Dr. Draghinas: It was interesting, I had that experience a couple months ago where I was in a hospital, and I had just finished the case. And I was just kind of running some paperwork to a different part of the hospital and I come up to this workstation and this physician who I hadn't met before, he said, “Excuse me,” he's like, “this might sound like a weird question,” he's like, “but do you have a podcast?”
Dr. Draghinas: That was the first time that somebody who didn't know me kind of discovered me at work. It was a little bit surreal, it was really kind of cool. And I didn't have a pressing case coming up so I just kind of sat down and we had about a 20 or 30 minute talk about the podcast and what he was doing and what I was doing. And I found that we're very similar. We have very similar interests, he's got smaller children, I've got smaller children, the things we want out of life, there were so much in common there. And it was really cool, was really cool to have that experience.
Dr. Draghinas: Without the podcast, this person, I probably would have walked by and they wouldn't have said hello. So now, I've got somebody who when I see him in the hospital, we'll just sit down and we'll chat about 15 minutes, what he's up to, what I'm up to. So it's been really awesome.
WCI: Now, you talk a lot of the podcast about helping docs get to the next rung of success. What do you mean by that? What's the next rung?
Dr. Draghinas: Yeah, I think it depends on the person. And that's why I like to cover different topics on the podcast. And some people might be interested in leadership, for example, and how do they work their way up into physician leadership, whether that's in a hospital or some other organization. So, having somebody on the podcast who has done that, who's talked about it, can start giving people pointers, and help them kind of get there a little bit faster. What I'm starting to grow now is I've realized that the podcast is a little bit one way and I would love to grow a community where people can have a little bit more interaction, whether it's with me or whether it's with the other folks that have been guests on the show.
Dr. Draghinas: So, it seems like everybody's on Facebook these days. So, I've recently created a group called Doctors Unbound VIP. And it's just a place for, it's not exclusive to physicians, but it's just a place where physicians mostly can get in there. If I got one of these experts as an expert on leadership or social media or whatever, if people got questions, we can pose those questions and have kind of the experts and kind of other people in the group who have experience in that area chime in. And so, I'm a big believer that whatever you're trying to accomplish, if you find the people that are doing it and doing it well, if you can get mentored by them, it's going to shortcut your path to success and help you avoid a lot of the mistakes. That's kind of what I see it as, that's one of the kind of missions or goals of the podcast.
WCI: Cool. Let's move into a little bit more financial topics here. We're supposed to be doing a financial podcast here.
Dr. Draghinas: Sure.
WCI: So, on your podcast, you've interviewed a lot of people that I would refer to as kind of real estate types, you know, people that may eschew both retirement accounts and perhaps even traditional investments like mutual funds. After interviewing all these people, what's your take on that? Do you think it's smart to go all in on a real estate and alternative investments? Are the best avoided? Or is a mix appropriate?
Dr. Draghinas: Yeah, so, part of that is me exploring these questions for myself to be quite honest with you, because I grew up with that immigrant family, like my parents were not really stock market investors, but they always felt like if they've got a real estate, have a rental or two, that can cash flow and kind of provide for them, that was safe and solid investment for them. So I wonder if my own views are colored by my upbringing, and they probably are.
Dr. Draghinas: So I've always had this interest in real estate probably because of the upgrading, probably because I feel like I can control the investment a little bit better. However, there's all these tax advantaged accounts. So I've been trying to figure all that out in my own head for myself and then figuring, if I put all this out there, then hopefully it makes sense for other people. So, for myself, I still contribute to these tax advantaged accounts currently. However, I am a big believer in real estate and we may talk about it recently, you know, in the last couple years, I've discovered short term rentals and that has kind of turbocharged things for us as far as our path of financial independence, cash flow, etc.
Dr. Draghinas: So I'm actually in a point right now where I'm kind of reconsidering everything, and some of the information is still out. My wife will qualify for 2018 as a real estate professional status because she manages our Airbnb portfolio. And I'm just curious to see exactly how big of an effect is going to have on our taxes, I think it's going to have a pretty big effect.
Dr. Draghinas: So, to kind of answer your question, I still invest in some of these tax advantaged accounts. But I probably lean more heavily on real estate than others because I've acquired sort of that knowledge and skill set. And the reason I've been able to is because it's been interesting to me. And so for me, I haven't seen it really as much as a lot of work to do because I found it interesting.
WCI: So, how far away do you think you guys are from financial independence?
Dr. Draghinas: I think it depends a little bit on how you define it. I'll say that, I'll give you a little bit of the background. In 2018, we had one property that we converted to Airbnb. About the fall of that year, so right around labor day or so, we purchased a second property specifically for short term rental. And after having done that for nine months or so, getting a lot more comfortable, learning quite a bit in the space. We bought what I would say is a luxury Airbnb property. And both of these properties are within about 10 minutes from my house. So that property has done extremely well, very great margins on there and I would say with these two properties, probably for most people in the Fire community, they would probably consider us financial independent at this point.
Dr. Draghinas: To borrow some of the Physician on Fire terminology, I would consider myself a little bit more of a fat fire kind of person. So I will probably look to pick up a couple more properties to accomplish that. But I would say we're pretty much there by most people's account.
WCI: So, are you financially independent or have you just change jobs to being a landlord?
Dr. Draghinas: That's a great question.
WCI: I'm being the internet retirement police here.
Dr. Draghinas: No, no, no. That's a great question because I don't want anybody to get any misconceptions. Short term rentals are definitely active real estate. I mean, you are fielding phone calls, or not phone calls, but inquiries on your smartphone, etc. There's a reason why you get professional real estate status for managing an Airbnb, it's certainly active.
WCI: And for those who don't know what that is, that means you put 750 hours or more in during the year on taking care of your real estate investments.
Dr. Draghinas: Right. And for most physicians, at least physicians that are working full time, you probably don't qualify because I believe one of the qualifications is that this, this is your sort of full time job or more than half. So if you have another sort of close to full time job, I think it's going to be really hard to prove that. I think where the strategy is really powerful is if you're a physician or other high income individual where you have a spouse that is either like a stay at home spouse or a spouse that can kind of take over the Airbnb operation. That's the case for us. So my wife is the one who manages it and she does a fantastic job and we've built our team here locally of people who help us with it.
Dr. Draghinas: So, at this point, yes, you're right in the sense that it's not going to be a passive type of a deal. However, the caveat that I would add to that is for about 20% or so, you can hire a management company to go ahead and then take over the day to day operations for you. So it's pretty easy to become passive. And the other thing I would say is that it offers you a lot of options and flexibility. So the cash flow that one of these rentals spits off is probably close to 10x what a typical long term property would spit off, at least the ones that we've selected. And so, with all that extra cash, if you really wanted to, I could probably-
WCI: You're talking the profit or you're just talking the revenue because you've obviously got a lot more expenses.
Dr. Draghinas: No, I'm talking the profit. I'm talking about the profit. Now, obviously, some of this is knowing how to select the property, etc, etc. There's quite a bit that I've learned in the two or three years that I've learned this. I'm talking about the profit. So I could take that, if I wanted to, I could take that extra profit and say, okay, I've got a five year Airbnb plan, I'm going to take all this profit and pay off the property in five years and now I've got a free and clear property and I can long term rent it, etc, etc.
Dr. Draghinas: So, even if you're not going to do it forever, if you will, it could be a really powerful strategy for somebody to just pay off a rental earlier and then they can decide whether they still want to Airbnb it or keep it as a long term or it's appreciated and they want to sell it or whatever.
WCI: So how many total properties you have, two right now?
Dr. Draghinas: We've got two right now.
WCI: And just managing those two, your wife qualified for real estate professional status?
Dr. Draghinas: Absolutely.
WCI: How many of these can you manage by yourself before you have to hire a management firm?
Dr. Draghinas: Well, you know what, some people, interestingly, some people manage it from their smartphone and they're not even in the same city. So there's a couple of pieces that you need to have in place. You need to have a great cleaning crew in place. You probably need to have a handyman in place, I've got an HVAC person. So there's a couple of people who you need to have to build as a team. But all these people, you can contact via your phone and you can actually manage the property from a different location. I haven't done that yet because we want to make sure that everything is kind of to our standards and we decided that we wanted to start locally and kind of decrease some of the stress of that. But it is possible to do.
WCI: So, how does this make you feel about your practice? About going to the hospital, about seeing patients, taking them to the OR, being on call all night, having a long weekend call? How do you feel about that knowing that you're doing awfully well bringing in money doing real estate on the side? How does that make you feel about your practice?
Dr. Draghinas: It actually makes me feel better. It's a little bit counterintuitive but I've talked to a lot of people who either are financially, that are financially independent through whatever means and they found that their practice of medicine is more enjoyable. When you know that you don't have to do it or you don't have to do it full time, it takes like some of that stress off. And I think you can actually enjoy your practice a little bit better. I'd be curious to hear your answer, how you feel about your practice now that your podcast has been so successful.
WCI: You know, it's interesting because it swings back and forth sometimes. I talked to Leif Dahleen, the Physician on Fire. And what he realized is, he expected that he would love medicine more when he was financially independent. And he was surprised to find out that he didn't.
Dr. Draghinas: Interesting.
WCI: Instead, what he found was rather than being able to not worry about that hassles of contracts and trying to make sure he's doing well there, the little things started bothering him more. Having to wait for a case to start or maintenance of certification hassles or the hospital administration getting on him for whatever. Those little things bothered him a lot more once he was financially independent.
WCI: And I can relate to that at times. But for the most part, it's made me enjoy my practice a lot more. I kind of view it as a well paid hobby at this point and go to the hospital for enjoyment. But I'll tell you what, if it's a particularly boring shift or particularly busy grinding shift, there's no doubt, I sit there and go, why am I doing this.
Dr. Draghinas: Sure. I can see that.
WCI: But for now, it's kind of part of who I am. I view myself as a doc. So at least for the near future, I expect to keep going in and working shifts and seeing patients. I still enjoy it I think for the most part. I don't have days like I had when I was in the military where I'd come home and go I hate my job. I can remember days when I was seeing six patients an hour in basically sick call clinic in the ER for 12 hours on end, and it wasn't fun. I don't really have those days in my current job but there are times when I go, well, I could go do something else for sure.
Dr. Draghinas: Yeah. Again, I still work full time. I give up a few shifts here and there just because quality of life, my kids are really young and so I want to spend as much time as I can with them and stuff like that. But I suspect it'll be kind of closer to your camp and have similar feelings if I ever decided to dial it back.
WCI: Yeah, so let's talk a little bit nuts and bolts, how you get started. Someone's listening to this and they're like, holy crap, I can punch out of medicine in five years if I just go do Airbnb for a while. What's step one? I mean, you mentioned that your properties are luxury properties. What kind of properties should they be looking for if they want to start an Airbnb?
Dr. Draghinas: Sure. So, I think it depends a little bit on the person. The way we got started was a little bit backward, meaning we had the first part property already purchased. I became very interested in Airbnb started reading a ton about it, and then found a tool that is really helpful in assessing a market. So the tool that I used, I'm not an affiliate of it or anything like that, it's about 40 bucks a month, you can cancel at any time. It's called airdna.co. They're basically a data aggregator for Airbnb and Vrbo. And so, you can go on there and find a city that you're interested in and find out and see some hard data on what are the rents like, how busy are these homes, how much are they booked, what kind of revenue are they bringing in and what are the top properties and then you can kind of see what it takes to be a top property.
Dr. Draghinas: So for us, we kind of started backward in the sense that I knew that I wanted to stay local. And so, then it became a matter of validating, is this market one that's amenable to this strategy. And luckily it was, I invested in the tool and found out that, oh my gosh, it's kind of a hidden gem because I'm in a suburb and most people would think that a suburb would not have enough demand. But sure enough, it did. And then after we did it for nine months, I realized that oh my gosh, there's also demand for a luxury type property.
Dr. Draghinas: So the first property is a nice property. I wouldn't quite call it a luxury, it's just kind of a really nice four bedroom home. And the second one I would classify as more of a luxury property. Again, I copied what was out there. I saw the properties that were on Airbnb, Vrbo, found one that was the only kind of luxury property there, and saw that it was highly booked. And it was actually professionally managed by a company. Called up the company and talk to them about how well it was doing and they were very forthcoming with some of the information. And then I realized that I could buy a-
WCI: Maybe a reason not to use a manager there, they're going to give out all your data.
Dr. Draghinas: Well, I tell you, they did. It's not like I was lying to them or anything. I seriously was considering using them and wanted to know how they were doing. And they just came forward a lot of this information and I realized that I could buy a property for cheaper than what that house was worth with a few more amenities like a pool, that house had a hot tub, my house has a pool and a hot tub, and have a few extra features that make it really unique and stand out and will make it something that people want.
Dr. Draghinas: If you're thinking about an area, what you want to do is, to kind of get back to kind of the the big overview is, you want to research a market and you want to make sure that there aren't any short term rental regulations that would prevent you from doing this. You don't want to do this kind of illegally or anything like that. Your best bet is to find a place or a city that has regulations in place because then that aspect of it is clear. So, if there's already Airbnb regulations, then you know what they are, you can totally just know what it is and find a property within that city.
Dr. Draghinas: And the other thing is, you kind of want to know what you want to get into, managing an apartment versus managing a small home or a large home. I always wanted to have multiple exit strategies in mind, so when I buy my properties, I want to make sure that I can survive as a long term rental. If Airbnb goes away for whatever reason, can this property at least break even if not cash flow a little bit as a long term rental. And so that's always one of my backup plans. And so when I buy the property, I wait to find a property that fits that criteria. That gives me a level of security if you will.
Dr. Draghinas: So that's kind of, the start of it is find out a market, do some research and make sure there aren't any regulations that say that you cannot do short term rental in that market. You can use a tool like AirDNA then to kind of drill down and see how profitable it is. And then from there, you can do some kind of back of the hand calculations or you can get even crazier than that and put it all in a spreadsheet. But you'll figure out your expenses and then from AirDNA, you can figure out how much you're expected to make. And then you can see the spread there and see if it's worth it.
Dr. Draghinas: And I would say, you have to compare that to a long term rental because if what you're going to be left with is just about as much as a long term rental, then all that extra work is not going to be worth it. So you really kind of have to analyze those things and make sure that that time that you're spending is going to be worth that investment.
WCI: So how much did you put down and where did you go for financing?
Dr. Draghinas: Sure. So the long term or the luxury property that we just purchased specifically for Airbnb, I actually did a 1031 Exchange, and so we can talk about that a little bit if you like. But basically, I had a condo from my residency in my time in California. And that condo with, gosh, I mean-
WCI: A condo in California is worth like three million.
Dr. Draghinas: Oh, I wish, I wish. Nothing crazy like that. But it did have some equity in it. And because, you know, this was like a two bedroom condo in LA near where I trained. And, man, my HOA every month just kept going up and up and I was paying like close to $400 a month just on the HOA. And it was basically eating up all my cash flow. And so, I had this property that had a ton of equity in it. And it was, cash flowing maybe $100 a month or less, and I was like, it's costing me some effort to manage it and it's not really spitting off very much. So why don't I take this equity now that I have this skill with Airbnb and use that equity to buy this property.
Dr. Draghinas: And that's what we did. So we did a 1031 Exchange, and I will say that was a little bit scary because getting onto a bunch of real estate forums like BiggerPockets and some other places, I read a lot of horror stories about people placing their money into these 1031 Exchange companies and then the money disappearing and not being able to contact that person. So, it was a little bit scary. What I did is I asked the escrow office where I did my closing, I had them recommend, I said give me two or three of these companies that you've worked with that are the best. And so, they gave me that information. I called and I interviewed a couple of these folks. I chose the one that I felt best about and they did a fantastic job.
Dr. Draghinas: And so, we did a 1031 Exchange. It lined up really well because there are some rules associated with that. You have to buy the property within I believe 180 days. You have to use all of your proceeds unless you get taxed. If you don't, you get taxed on the portion that you don't use. You have to buy a property that is at least as expensive, I believe has to be just at least $1 more expensive than the property that you're selling. So there's a few rules that are in place for it, but that-
WCI: Or you can even buy two, can't you if you need to?
Dr. Draghinas: You can, you can, you can, you can buy several properties. I thought about that, I just thought the complexity level would be too much, it would get too stressful. And I didn't want to be over leveraged. You asked about how I bought this. I bought this property and I probably put down like somewhere in the neighborhood of 30, 35% percent of the value. And so, that makes it a little bit easier as far as the monthly payment, all that kind of stuff. But if you look at the cash on cash return, it's still fantastic. But if I did 20% down, then I'd be a little bit more leveraged and my cash on cash return would it be better. But I was willing to sacrifice some of that to ease some of the complexity of having to buy multiple properties.
WCI: And how much did you end up putting down on the other property?
Dr. Draghinas: Well, we were in the six figure range. So just to give you some ideas, this property we bought in the 600 range, and I put down 30, 35%.
WCI: So again, about a third of it.
Dr. Draghinas: Yeah.
WCI: And then you just go, did you go to a local bank and just get a standard 30 year mortgage? What did you end up doing for your financing?
Dr. Draghinas: Sure, I did a 30 year mortgage. Because it's an investment property, my interest rate was slightly higher. I have several relationships. Having been somebody who's interested in real estate, I kind of met with several bankers in the area. And I would encourage anybody to do this that's either interested in real estate or what have you. What's really neat about it is having direct contact to a vice president of a bank. When you sit down and have coffee with them, they'll tell you the things that they look for. They'll tell you the things that banks are thinking when they lend.
Dr. Draghinas: So for me, it's been really eye opening to have these relationships and be able to sit down with these people, even when we're not talking about a deal, when we're just, hey, how are things going for you, how are things going for me? Because these people love having physician clients because they know physicians are high earners and rarely default on their mortgages.
WCI: Did the lenders care that you're going to use it for a short term rental?
Dr. Draghinas: No, no they didn't. There's several banks now that you can actually start using your short term rental income. That's a little bit trickier. So for me, this is a great combo for physicians because I relied mostly on my position income to qualify and all that kind of stuff. For folks who are doing this and they don't have that to fall back on, more and more banks now are starting to accept the income from short term rentals as something that's sort of more valid and mainstream. Airbnb has, in their hosts platform, something that you can click and they'll give you kind of like some of that financial information for your rentals. So that's becoming more and more mainstream. But for me, it didn't become an issue as far as getting the financing or anything like that.
WCI: Now, you plan to pay these off? Do you plan to refinance and take equity out? Is equity built? What's your plan as far as maintaining your leverage?
Dr. Draghinas: Yeah, I think right now I'm looking to add more properties. I feel like I have an advantage in my area, I have a knowledge advantage, I have an advantage in pulling off these higher end properties and knowing what people want and stuff like that. So, right now, I'm probably looking at growing to a few more probably in the short term in the next couple of years, I probably won't refinance or anything like that.
Dr. Draghinas: The first property that we haven't talked that much about, the one that we already had, that one is a little bit older so that one has actually built up some equity since the time we bought it. So, I am thinking about possibly doing a cash out refinance for that one to fund my next purchase, potentially. So that's kind of the short term plan. I'm looking to gro, it's funny, with the podcast, I've actually sat down and talked to some of these doctors and some of them, they're like, I want to invest with you. So I don't know, people have thrown that around that, but I'm very cautious with my money. I can't imagine-
WCI: Not really ready to manage someone else's.
Dr. Draghinas: Yeah. That would be a different level of caution. And so, to be able to go there, I would really have to do more due diligence. And before I offered something like that, again, like be extra careful because like I said, I'm super careful with my money, I'd want to be even more careful with somebody else's.
WCI: Okay, so what about liability? I mean, you've got a rental property with a pool on it. What have you done to minimize your liability?
Dr. Draghinas: Yes, great question. And there are two companies here in the US that I'm aware of right now that do specific insurance for short term rentals. One of them is called CBIZ, C-B-I-Z. And the other one is called Proper Insurance, just like the word proper. I'm with Proper, I contacted both of them. I'm with Proper, and it's insurance specifically for an Airbnb rental. And it's funny because they actually will ask you, do you have a pool? Do you have a trampoline? Do you have a diving board? Even things like do you have bunk beds in your property. So we don't have any bunk beds, we have trundle beds. But it's insurance that is specific for Airbnb. And if you're going to do this, I highly recommend that you get that.
Dr. Draghinas: I was actually surprised, Jim, I thought that it was going to be very expensive or at least there would be a large premium compared to a typical homeowners insurance policy. And I will tell you that it is nearly the same. So that was a cool little thing to find out is that it's nearly the same. And then, obviously, you can do some of the other things like carry an umbrella policy, think about protection, asset protection with LLC, etc, etc.
WCI: Does your umbrella policy cover this given that it's a go in business?
Dr. Draghinas: I believe it does. I'll have to go back and double check specifics on it. But I'm with USAA and I think it covers it, but I'll have to double check.
WCI: So, I assume you've got these an LLCs as well?
Dr. Draghinas: In the works, because, for example, the short term, excuse me, the 1031 Exchange property, I was talking to a real estate attorney, and he's like, well, you can't really put it in LLC when you're doing a 1031 Exchange. So probably at the one year mark, which is coming up soon, we'll do some restructuring to do that.
WCI: Maybe retitle it.
Dr. Draghinas: Yeah.
WCI: Is LLC law pretty favorable in Texas?
Dr. Draghinas: I think Texas is a great state for property owners and property rights. We talked about the regulations aspect of it earlier. There was a Supreme Court ruling in the Texas Supreme Court in, I think it was May of 2018. And what happened is there was an HOA that shut down a short term rental. And it went all the way up to the Texas Supreme Court. And the Texas Supreme Court sided with the property owner. And so, HOAs cannot in Texas tell you that you cannot do this. So that's a nice benefit about being in Texas. I know there's some legislation at the state level about short term rentals to even limit what cities can say about it.
Dr. Draghinas: So Texas has always been a property rights kind of a state. And I think the other aspect of it as I'm sure you understand and the listeners understand, it ultimately comes down to money. And I know Airbnb and Vrbo, take out money and they send it to the state. And I'm sure the state wants that money to continue to flow to it. So I expect that probably shortly though, there'll be some laws in place about that to further protect property owners. But you have to stay current about that depending on where you're at. If there's no regulations in place, that's one of the sort of short term risks about it that you need to be aware of.
WCI: So what about somebody that's not in a great location? I mean, it sounds like it was pretty important to you to have these properties be local. Let's say somebody lives in a state or a city where this is not a very good idea. Should they do it elsewhere or should they find a different way to invest, a different side hustle?
Dr. Draghinas: Here's the thing, I think you have to be interested in the concept and the business for it to be worth it to you. The returns right now on Airbnb are really phenomenal. And part of it is, you know, this whole share economy thing that has taken off. I think the other part of it is that for the most part, Airbnb is still run by sort of mom and pop operations throughout the city. And what I've noticed, even for really high end rentals, is that people are happy with making a little bit of money and then they don't take the time to learn and grow and sort of perfect their listing in their home.
Dr. Draghinas: Just to give you a small example. If you've got an Airbnb spend 200 or $300 and get professional photography. There's data out there that it will increase your revenue by like 20 or 30%. Yet I see so many listings and even like high end listings that have iPhone photography on there. It's ridiculous. I still think the ability to make outsized profits is there, but you do need to set up a team. And so, figuring out who your cleaners are going to be, super, super important. We pay our cleaners very well and we get compliments on how clean our homes are, and that's a huge driver. I mean, Airbnb lists it right underneath your picture and your headline is, 98% of people have said this house is clean. That is important.
Dr. Draghinas: The other thing that people want is for you to respond promptly. So, either yourself or somebody on your team, whether you pay for management, for us, it's my wife, she's a great communicator, is responding promptly because stuff is going to happen and you just need to be able to talk to the guest. I think most people are reasonable and if they see that you're trying to solve their problem, they're going to give you a good review and they're going to be reasonable. Of course, you're going to have an unreasonable person here and there. That's true of any business of any kind of investment. But it's possible to do, we started locally because we wanted to kind of manage it ourselves and kind of understand the business of it.
Dr. Draghinas: But I'm in Facebook groups that are for Airbnb and short term rentals and there are 20, 30,000 people in there, and there are certainly a number of people that manage remotely. And so, it is possible, you just need to be diligent about setting up a good team for yourself.
WCI: What about flak from the neighbors? You got any flack from the neighbors that are sick of the revolving door on your rentals?
Dr. Draghinas: No, and part of that is because we are very mindful of our neighbors, and we will leave cash on the table in order to protect the home and the neighbor, the neighborhood. So, to give you an example, it always surprises me, we've got this six bedroom house that backs up to a golf course. It's got a pool in a hot tub, just great, great house. And we'll get inquiries from either kids who are finishing prom or even their parents, this has surprised me. So hey, my kid's finishing prom, we want to rent the house for them and 12 of their closest friends. And it's like, really? And so, we have denied, we've denied requests like that. All throughout our listings like, no parties, stuff like that.
Dr. Draghinas: And so, we screen our tenants very well. My neighbors have our cell phone number. And so, we've got at least one neighbor that has their cell phone number in case of anything. And then the other thing that we invested in, which I think is great for anybody considering this is exterior cameras. Not interior, of course, exterior cameras, and we disclose it in our listing. So pretty much every door on the home has it camera on there. And we use Arlo. It's a great camera. The only downside to it is that you got to take it down and charge it every so often because it's not hardwired in, it's just one of these WiFi type cameras. But it works very well and we have every entrance of the home covered. And that helps us to kind of make sure that there isn't a party or anything crazy going on.
WCI: Okay. So Airbnb, Vrbo, both, how do you choose which company to list with?
Dr. Draghinas: Sure. So we are on both of those. So Vrbo/ Home Away is kind of the other main one. Most people probably have heard of Airbnb, Vrbo has a little bit more history. They're very similar and their calendars sync. So, it's very easy to get on both of those listings, on both of those platforms. And we have gotten on both of those platforms. And it was really interesting, the first property that we got was the, I would call slightly above average but not luxury property. And we were getting probably 70 to 80% bookings through Airbnb and 20 to 30% through Vrbo. And that was exact same listing right on both of them. This newer, more luxury property, it's kind of flipped. And so, that's interesting. I'm not sure exactly why, but we seem to be getting 70 to 80% of Vrbo and then 20 to 30% on Airbnb.
Dr. Draghinas: So, get on both of them, you can get on booking.com now and be listed next to the hotels. We haven't done that yet because just from what I've read, it's a little bit clunkier and a little bit more difficult to sync. So I don't want to do it and have to deal with double bookings and people being upset. I want to make sure that I understand the technology and everything is working seamlessly before we get on there. The other aspect which we haven't talked about is we actually bought a domain. And we will soon be able to take direct listings on our own site.
Dr. Draghinas: What I've noticed with doing this and getting a real good understanding of the economy of our area, there are people who come into town for weddings, for example. There's a wedding, really nice wedding venue place in our town. We've had people actually come in for surgery and they were very thankful that they came in for surgery for their kid, and the whole family needed to stay here for about a week and they have other siblings that are babies and small kids. And they're like, we tried this in a hotel and it was a nightmare. Thank you so much for your home. We were able to recover in peace.
Dr. Draghinas: So you get really cool feedback like that. So, we're creating our own website where people will be able to directly book with us, and the plan will be to go to these hospitals, go to these local businesses, and say, hey, if somebody needs a place to stay, here's our website and you don't have to pay the booking fees. And so, it'll help them and it'll help us.
WCI: So how much are the booking fees? Are they paid by the renter pretty much or what percentage of your income are you losing to Vrbo or Airbnb?
Dr. Draghinas: Sure. So it's paid by both. I think Airbnb is going through a little bit of a change. They charge the guests and they charge the host as well. And I think it's somewhere in the range of 10 to 15% for both of them. And the way they do it is a little bit different. And Airbnb I think is in the process of change it. I don't know if that's because they're going to IPO this year and they're trying to do certain things. I don't know if it has to do with the, they want to get more guests on the platform and they feel like they have enough hosts. With these big platforms, they're always going to do what they think is best for them. So, being on multiple platforms and having your own way to take bookings is kind of the next step.
WCI: So you've kind of done the classic geographic arbitrage here. Used to live in California and you moved to Texas. Now we often talk about this in the personal finance world, even among physicians, that this is geographic arbitrage. It's a great way to build your income, build your net worth quickly, move quickly toward financial independence. What's your experience been? What's that meant for your family financially to move from California to Texas?
Dr. Draghinas: It's meant a whole lot. And I've got to get credit to my wife because if she was not on board with it, then it never would have happened. You're right, we were, both of us have grown up in Southern California and I was very blessed and after I finished my residency, my duty assignment was San Diego. So beautiful San Diego. As I was finishing my Navy time with San Diego and I was moving into private practice, I was looking at some of the groups in the area and trying to, and figuring out by talking to some of these anesthesiologists, how much were they working, how much were they making. I just saw that most of them even on non-call days, were working really, really late. Obviously, the cost of living is one of the highest in the country.
Dr. Draghinas: So, I talked to my wife, and I said, hun, we don't have any kids now but we're looking to start a family. I want to have time for my kids, I want to be able to see them. I'm like, yeah, it's cool to be next to the beach but I have a feeling that if I'm working till eight or 9PM every night, I'm probably not going to be going to the beach very often. So luckily, she was open to the idea. The two areas that we talked about were actually Dallas and Denver. We just thought those two cities would be pretty cool. And serendipitously, I learned about the group out here in Dallas. I came in I interviewed. I loved this private practice anesthesia group.
Dr. Draghinas: We've been here for about eight years, it's been tremendous, not only obviously for our finances, but also I think for my, I don't know what you would call it, professional well being, etc. Like I like I said, I work in a great group, I'm able to, we have a very sort of capitalistic system where if you want to give away call, you typically can give away call because people want to make more. And the way you make more is by taking more call. And so, it's a very fair system. And I'm able to give up a little bit of call now that I have three and just a few days ago, we had our fourth kiddo.
WCI: Congratulations on that by the way.
Dr. Draghinas: Thank you, thank you. So that's been awesome to be able to move out here, to be able to afford a piece of property that has a little bit more land so the kids can play on in the backyard and not worry about things. It's been fantastic. The way it's able to happen as if you and your spouse are on the same page. And so I'm very thankful in that from a financial standpoint and other stuff, we're very compatible and so, we can talk about these things and talk about the vision. What is the vision for our family and what are we trying to accomplish? And you know, when we talk about it in those terms, then yeah,
okay, this is what we're trying to accomplish, that's why we're doing this. Okay, we're going to make some sacrifices maybe in the short term to get that done.
Dr. Draghinas: So I think it's very important to have those regularly. I tell my wife, she mostly runs the business but sometimes, if I've got some free time or whatever, we'll go see a property together. Whether that's changing the codes on the Smart Lock, making sure the cleaners did a good job, or whatever. And I tell my wife, I'm like, I love working with you. And it's true. It's something that I really enjoy is spending that time with her. If we get dinner, we can talk about the properties. The one part that we didn't cover here is that we are actually starting-
WCI: And then right off the dinner even better, right?
Dr. Draghinas: Yes. Absolutely, absolutely. But we're also starting to incorporate our kids into it. And so, obviously not if we're short on time and we have a same day turnover or something like that. But we're starting to bring them to the properties. And my oldest is finishing kindergarten this year, and she already, like we've already talked about money, she has like three different cash registers for her saving, giving and spending.
Dr. Draghinas: And we actually had a conversation the other day and I used Airbnb as the example to kind of have her understand how economics works. Because she's like, well, somebody should just give this to me. Somebody should just gives me that. And I was like, well, that's not how it works. I'm like, take our Airbnb house. We keep it clean, we provide a nice place, and there's some people who need a place for a few days, and they give us money, and we give them this place to rent. I could see her starting to have the wheels turn and understand.
Dr. Draghinas: So for me, part of doing this and having these investment properties is creating a way for them to understand business and investment. And as they get older, heck, maybe they're going to be doing some cleaning-
WCI: Or modeling on the website you're putting up for it.
Dr. Draghinas: Yes, yes. My daughter is on my podcasting website. I haven't paid her anything for it just yet. I grew up and my parents had cleaning jobs. They cleaned restaurants and they cleaned offices. And even as far as like med school, if I had a free weekend and they needed some help, I would go in and I'd give them a hand cleaning an office space or what have you. There's nothing wrong with hard work. There's nothing demeaning about that. And so, I hope that we can use this as a way to teach them that too, teach them some lessons. Okay, you want some money? Okay, you go do that job, that extra job and you'll get some money for that and kind of use that to build their financial experience.
WCI: What a wonderful thing to be able to do. I could talk to you all day about this, but I think we probably better end this podcast pretty soon. Thank you so much for coming on the podcast. This is David Draghinas, anesthesiologist, Airbnb guru, and host of the podcast, Doctors Unbound, that you can find doctorsunbound.com or anywhere else that you download your podcasts. David, thank you so much for coming on the White Coat Investor Podcast today.
Dr. Draghinas: Absolutely, Jim. Thank you so much for having me on the podcast. And once again, I'm really appreciative that you came on to my show early on, kind of took a chance on that. A year and a half later, here we are. Thanks again.
WCI: You're very welcome. That was a lot of fun having Dr. Draghinas on here. It's always fun to learn about a new way to invest. It reminds me that, wow, there's so many awesome ways to invest. You don't have to actually do them all though. Just pick the one you like the most. There's a lot of different ways you can become financially independent and you can develop passive income. But clearly, these short term rentals are a method that is working for at least some people. So maybe worth taking a look at and considering if you're interested in doing that sort of a thing.
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WCI: Remember that signups, the registration for the White Coat Investor CON 20 will take place on July 8, beginning at 7PM. I don't know how long it's going to take to fill it so I'd recommend getting right on there and signing up if you want to come to the Physician Wellness and Financial Literacy Conference. Head up, shoulders back, you've got this, we can help. See you next time on the White Coat Investor Podcast.
Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only, and should not be considered official personalized financial advice.