Most Important Things to Consider When Partnering

0:05JD Andrew welcome to living out rals thanks forby yeah absolutely yeah great to have you guys so for the listeners we have two exceptional guests on today they are friends of mine business partners very experienced investors their fellow military grads JD took a wrong turn when he was on his way to West Point went to the wrong Military Academy but we forgive him for that Andrew was actually a previous guest on the podcast just over a year ago now so it's crazy how things change and time flies over the course of a year so that was right around episode 50 so if you want to go back it was released I think it was January 13th

0:54I know it was in January of 2021 so you can relisten to that learn more about Andrew there and I'm sure we'll be saying that things are a lot different this time next year as well so and and JD I met through sort of a a small impromptu Meetup that he and Andrew and their their other business partner Joey put together for for veterans in Chicago and we used to meet on a monthly basis and just bounce ideas off each other and it was awesome I I think that was so smart of you guys to to put that together I I you know got a lot out of that and I I encourage other people to do you know something similar in in their own Market and now JD well he was previously with saer and now for the last couple years

1:42He's been with casa.com that's Kaa com which is a large short-term rental property management company in 45 different cities across the US and over a thousand properties so he's in charge of it's a property operations right yeah I just changed to be like multif family operations now so okay basically we moved to like a regional structure so yeah same essentially the same very similar role but now involving a little bit more with the profit and loss side of the business and the The crucial kind of neighbor partner side of the business which previously my team didn't have a stake in okay cool yeah so I mean definitely a wealth of knowledge when it comes to Vacation Rentals or short-term rentals and we'll dive into that today but

2:31Let let's just start with I mean if I know Andrew you shared this a little bit on the last episode but if you guys both can kind of share how you each got started with real estate JD you wantan to go first you want me to go first you're the OG you go first okay all right all right so Kirby I know you interviewed the goat already but H you know I guess it all started back at at West Point with Robert kiyosaki's Rich Dad Poor Dad right and I I think I mentioned that the last time but that that really started the wheels turning my brain I don't know 15 years ago or so and I knew I wanted to start you know building and earning wealth while I slept and and and passive income through real estate was my was my poison for that so I

3:19When I graduated from the Academy I I was stationed down in Al Paso Texas and it was a pretty good rental market as you know because you were there as well and started by buying a 4 unit didn't use my VA loan which I didn't even know existed at the time and there wasn't a lot of Education back then on some of this stuff and but I had saved some money up and I bought a a fourplex a little quad down there and I still own that building to this day in fact I just got a text message from a wholesaler asking if they could buy it from me but that's kind of what spurred it all off back in 0708 and ironically enough was right in right in the heart of a down a global economic downturn downturn and you know it took me a while to do anything else after that but

4:08But yeah that was what got me started and I realized the potential in real estate and having multiple people paying you rent Under One Roof and and that was kind of the the Genesis of me liking multif family as my as my Avenue of choice and of course throughout the my last 15 years or so I've taken a lot of turns left and right and up and down and yeah we can get all into that soon but that's that's kind of what started was just reading Rich Dad Poor Dad and realizing that I wanted to build wealth on the side while earning my regular income and and and getting that that that mailbox money as we as we so finally refer to it as that's great yeah yeah so your very first one 08 for unit you didn't know anything really at the time I mean yet didn't have any experience what

4:57Did you buy that for and then what what are wholesalers or what are what do you think you could sell it for right now yeah I just refinanced it so I kind of know what it's worth but I paid 190 for it back in back in 08 and it just got appraised at 310 so oddly enough I've refinanced the same property probably four different times over the last couple years as rates have dropped and and subsequently pulled cash out to buy other properties so I've probably because of this one purchase I've probably bought two or three others because of it so just with the cash out so yeah it's gone up decent amount in value over time and and it's enabled me to do other things with that with that Equity that was in that was locked up in the property as I was able to cash out and take it out so yeah and that's

5:45An a non-ape gating Market really yeah to so that's that's amazing cool cool JD so how'd you get started yeah hopefully a little more inspiring for people that you don't need to be 22 years old when you start I I invested most my money in my 20s in local establishments in San Diego well in the Navy very low Equity Stakes uhal Navy social benefits out of it though oddly a lot of my friends did really well investing in the bars we drank at in San Diego I never jumped on that that's funny but yeah so went to business school classic no idea what I wanted to do when I grew up have largely fallen into and taken a much more emerging path with real estate so second year in business school actually first year in business school was just

6:33Wife met a guy at a bar that's a weird way to start a story and she introduces me to him we're chatting and he's like yeah I got a rental down the street like he was a real estate private Equity guy for a larger firm in Chicago and he wanted to move he had a beautiful two flat and he's like you know I I'd give you guys a great price I'd love for somebody from University of Chicago to live there I was like hey I'd actually love to take care of the property for you I've done it for friends before and he goes oh while you're at it would you mind managing an Airbnb I was just going to shut it down and I was like sure the Airbnb was doing 14,000 a year or something in Revenue maybe 15 grand but that was way better than it could have done in LTR because LTR is illegal in a basement using in Chicago so it's actually a legal use of short-term rentals whereas like the garden legally could not be rented long term so it was just free profit we took it

7:22Over form eventually we took over the pricing and the messaging originally were just kind of like managing emergencies and I think by the time we finished we were doing 30 33k a year in Revenue certainly taking a hit since then with the competition ramping up but this was like 2015 went to our third partner Joey and I was like look at the numbers on this place it's like nasty it's an 800 square foot like $5,000 buildout of a basement unit in Chicago with like bugs and water and you like leaks and it was just terrible but it was like kitchy it was cool it was well cleaned and the thesis was there and I was like why don't we go take down like a million dollar property we can combine our VA loans at the time and you know basically Z doar down to buy a million dollar place and Joey told me it was too good to be true and for two months we just looked at a bunch of short-term rentals and what the revenue implications

8:11Were there was I think this is pre-air DNA or maybe airdna was just pretty nent at the time so we literally were watching the same multiple properties and tracking their rental rates and then seeing what they were booking up for and then extrapolating revenue from there and he's like oh this is real like we can take a $25,000 rental and do 40K a year 34 35 after after costs and so if we apply that to two or three units in a multif family building like we can take the capitalization rate which is like the net income over the cost you pay and bring it from you know six or seven perent which is typical in Chicago at the time to eight or nine or 10% and we got lucky enough to buy a deal that's what we did we bought a million dollar for flat the original plan luckily had a huge house in the back so Joey and I house hacked it lived there my wife Joey and I for shortterm

8:59Ral management company and that's where we met Andrew all of our marketing to date I think has been the same thing it's just Word of Mouth we do those little meetups and we found a bunch of clients by accident we realized managing one or two we did two of our own short terminals in that building it's pretty inefficient you develop all these processes and automations that like scale really well at least until about 20 units and it's useless to develop all those things at two units and how hire all the cleaners and all that so we realized we could go to 10 then 15 then 20 at one point so you know we found ourselves with an accidental short-term Rental Management Company by this time I was working for United Airlines not really loving my job was pretty boring you know pretty hour a week job and you know within 18 months we actually the

9:47VA loan fell through we had to take a sell note on the property we owed him 130 Grand at a pretty high interest rate So within 18 months we paid off that 130 Grand and we cash out refi the property with the vi IRL program and we ended up taking I mean six figures out of the property at that same time just low six figures and paying off the sellers and that's when we started talking to Andrew like hey we should be buying more of these and doing more of this because you know within under two years we had probably Sixx our cash still had 50 to 100K in equity in the property and it just became kind of a no-brainer that was definitely a sweet spot time to hit it I think we got very lucky be honest but the property still to this day is I think on our purchase price operated around an eight eight and a half%

10:37From what we paid so it's it's been very good to us it cash flows us like each you know another real estate investment every single year and we've used it for a couple more since with deals with Andrew and met Andrew through happen stance and we just started syndicating properties from there I haven't done too many just a few together but Andrew just went full-time so I think we are now in a position to up yeah and then the moral of the story was like I was loving short-term rentals doing that in my side in weekend time so I was I went worked at a company called saer Left United learned how to kind of operate St at a little bit more scale predominantly in like multif family buildings and then left saer to kind of do it more nationally and remotely for this company Kasa and Kasa is just an awesome fast growing startup with some really really strong real estate private equity and just

11:25General private Equity Apollo type folks that really know how to stret ize and acquire real estate create a really good strategy around it so some really strong National relationships that are just bringing in a lot of new units and we've got a little bit of a formula one of the differences the big the big difference we can do on the operation side is like at saer and most other companies mint house Etc don't they won't operate a single building in a single Market they they want to launch you know multiple salaried employees in a city and we've kind of maybe not fully Crack the Code but we're getting pretty close where we can operate a very small building in a one-off city that we have no other presence in inside of the four to six week time frame get it ramped up and operate so that's why we're able to have 40 plus cities despite only having you know 1,200 units nice I have a couple questions about that but going back

12:14To when you were growing your your own personal property management of of short-term rentals were you doing the rent Arbitrage model where you would sign a long-term lease and then rent it out at a short-term basis or you were just at flat rate yeah flat rate plus so I'm a big believer in management agreements I think it aligns incentives to a degree so we would do flat rate plus bonuses for things like super host which we still believe I think to this day adds material Revenue potential and then so we had quarterly Revenue bonuses we had quarterly super host bonuses and then yearly if we hit certain plateaus where the owner won we got an extra higher percentage so it was kind of like a l complicated waterfall right we basically built a waterfall without doing a

13:02Waterfall we just said to the owner if we hit we would forecast if we hit 32 35 38,000 in Revenue we get X Y and Z bonuses on top of that so our management fees range anywhere from 15 to 20% and then we would bonus up into the maybe 23 to 28% range depending on how that went which I would say is like average to low for what we were bringing to the table okay nice yeah so and those who aren't familiar with waterfall just it's a it's a finance agreement where typically the incentives increase as you perform better so yeah yeah awesome very cool so I'm curious and I think I've had a lot of questions around this and when it comes to Partnerships it's great to have two partners on and and I'm curious how you guys initially

13:51You know you you met through real estate obviously there's the shared background connection so there was there was already a trust built there but how did you decide to structure your partnership initially and and what do you recommend what have you learned from that and is there anything any takeaways that you recommend for people I I want to want to take tackle this one a little bit JD and you can hop back yeah yeah yeah so you know we we haven't perfected anything let's just let's just start there right we we still we're still learning as we go and we've built a lot of planes as we were taking off but I will say you know early on we we distinguished who was doing what right and I think that's the that's the the first recipe of of a of a good partnership is establishing those boundaries and you know

14:39I was keeping the books JD was handling all most of the maintenance items that were coming up and and and Joey was the the communications guy whether it was talking to tenants or or or investors and and those were kind of like our three sort of pillars you know the COO the the CFO and the CMO sort of sort of roles and we you know we we established a Cadence of when we were going to meet and talk and and and and have an agenda now we still to this day talk every week every Thursday morning and and we kind of go through you know our our list of risks and issues and things that we got to address just like a normal kind of battle update brief right and and and certainly we get we're we're we still have some things to work on too as a group but for the most part I think that that has helped us

15:27Kind of stay in our lanes and and focus on what we're what our strengths were right and now you know as we transition to me being more full-time with this I'm handling a lot of the day-to-day stuff when it comes to you know the management side of things with tenants and you know because I'm dedicating a lot more time to it but I think you know just just the fir the first part of delineating who was doing what was probably the biggest thing that you know kept every kept us stronger we like I said we focused on our strengths and but you know I I've had a bunch of Partnerships over the years some that have worked out well and some that haven't you know and I think when where you fall in trouble is when somebody starts absorbing too much work right and then they get you build a little resentment from from the others and then you know all of a sudden people are coming up with with ideas

16:15whether they're good or bad and and you know people might say to themselves well you know you haven't done anything all year or all month and now all of a sudden you're coming and trying to manage my work and I think that just breeds a little bit of of hostility sometimes but the three of us have found a pretty good balance of of of of the workload and you know when any one of us is overwhelmed or overloaded the others are there to pick up the slack so I think that's you know and there's also a mutual trust right I think you know aside from we were able to become friends really quickly you know just from the academy connections the three of us are from three separate militarys and ironically are our name of our company is beat Coast Guard and but but I think we had an inherent Trust of each other and knew that things were we were going to do what we you know we were going to do what we said we were going to do and and

17:04And that's what keeps us going driving forward so JD anything to add to that yeah I think when it comes to the ownership side the one point I would touch on is like the probably the biggest benefit we've had is a like we have skin in the game effort wise but not really materially financially so like our ownership of the properties is in our own names not in the business's name and so like the ownership of the business is oneir one third one third but like none of us depend on the income from the property management business as it is so like pretty much I I think we maybe did a small Dro this year Andrew but it was inconsequential and the the goal of the business really has probably been more so to like sustain sustain itself and to help bring down the costs of the properties that we're syndicating and managing to almost artificially boost our returns a little bit for our investors as we're early on in our careers and

17:53The focus now at least from my perspective is like sustaining Andrew and you know if Andrew can get to the point and we haven't figured this out yet by the way I think we'll get there in the next month or two Andrew but get Andrew to the point where the business is processes are set up Andrew says this is how it's going to work but the business sustains an employee or an outsourced member to to run a lot of the really annoying really repetitive really low value tasks and then the business is in a position where I can maybe come in in a year is probably the plan and take over kind of what Andrew's been doing take you know take cross from them the mantle from them and worry about a lot of the Ops processes and finance processes and Andrew really works on the syndication pipeline and I think part of it is like Andrew is a realtor as well and all of us have other ways

18:42To bring to kill what we eat and bring in money and I think we're all pretty cognizant that this business the syndication is a really long-term game and none of us are going to make money off it today and that the property management business is not a good business like none of us would be running the property management business if we weren't running our own units like we have about 50 units right now right Andrew I think and that was not intentional you know friends just come ask us to manage their buildings and we name a fairly affordable price and it makes things a little more efficient we bring our workers a little more work but none of us would be running a property management business full-time by choice singularly so that business whatever Revenue it does generate is kind of funny money for us to reinvest and uses down payments for loans and new houses and earnest money and eventually pay some vas or

19:30Maybe a full-time employee got it yeah you guys touched on a couple things there that I think are super important I I share similar experiences and and Lessons Learned along the way getting that getting super clear on what the outcome is that you're after in terms of of the partnership you know like what you guys are wanting to accomplish as a result to the partnership upfront and then who's responsible for what aspect is so key so you don't have this redundancy of people doing the same work and then these gaps where people aren't doing any of the work that needs to be done and then that compensation piece where you know if if one person is like living on the income from from the business but others are are you know financially free or don't need it or

20:18Want to reinvest it that's going to cause some problems and and lead to different decision making I think that it'll that'll be a problem so yeah I think those are that's great advice for people so you brought up Andrew leaving his his full-time job recently I I I get asked about this a lot on this podcast because it's called living off rental so there's certainly a theme there so people want to know like when should I pull the trigger you know I've been doing this for a while I've got some deals going the first time I met you Andrew we met at a starbu Starbucks in I think it was 201 14 maybe 15 14 or 15 yeah a long time ago now yeah yeah like seven years ago

21:07And we had a conversation around you know what it looks like because i' had been in real estate full-time myself for about four or five years you've been working but doing real estate looking to transition I was actually looking to transition back to having a job because I was kind of in between different types of investing in between different business investing businesses so you know it's it's obviously different for everyone but can you talk me through what that that process was like for you and how you finally decide you were at ernston Young so it's not like you were in a kind of a Slough off position and making decent money so what how did you make that decision yeah it was a it was a long seven years from

21:56From when we had that conversation to to get to that point and I think there's a couple of tipping points and you know a lot of people wait as oh when you start making as much money on the side as and your side gig as you were on your full-time job that wasn't really the factor for me although last year was was happened to be a pretty significant Year from a the realtor side of compensation standpoint but you know a lot of it resided in okay let me let me get to a point where my my rentals were were shedding enough enough cash for me to have a sound base right and I said okay I backed up a little bit and said what what do my wife and kids and I need to live off of in order to be successful or in order to live a nice comfortable life right and I think when I finally got the

22:45A sustainable sustainable amount of Revenue coming in from whether it was the short-term rentals in Nashville or the properties in El Paso all of that added together that gave me a nice level of comfortability and I want to call that financially free right but it was it was enough to say okay I can I can I can live off of this and and then everything else I I I I kill on top of this is going to be excess and go towards you know living either a more comfortable life or putting buying more assets that were going to create more value and money for me on a regular basis but the the biggest thing was was was mentally getting there I think it was was more so than the money right I i' had been at interst Young when I left it was eight eight and a half years or so and you know I established myself there for a long time i'

23:34I' made a lot of friends a lot of great colleagues and co-workers and and worked on a lot of great clients and projects and and you know I think I I I I had to hit a hurdle mentally where both my wife and I were were ready for this change and I had traveled for seven years straight 48 out of 52 weeks a year for ey and you know Co hit had two two kids and all of a sudden I'm like okay I don't really want to be on the road anymore and you know there were some advantages to to to that travel though when it came to doing real estate on the side every night I was in a hotel room I was able to work until 2 in the morning if I had to and if I I where I could focus on H on some of the real I wouldn't suggest this to anybody a huge benefit there wow yeah yeah huge benefit yeah everyone was going going to bed and I

24:22Was I was working all night but it it you know I didn't have to be home at a certain time for DIN and you know and and U you know and so my obligations to you know were to to my side hustle at that point and then you know I was still traveling during the initial parts of coid but but you know what I realized was that you I think all in all in this mentally I had to get there first before I you know before anything else and it it took just it took the fact of me okay getting that Baseline of financials coming in to to support our family convincing my wife that this was the right move been showing her a path to okay here's how we're going to make money that was the big that was the biggest hurdle for for her was okay she wanted to see how we were going to make money on a monthly basis and and yeah and just getting a lot of the pieces in place to to

25:10Sit up there and and and part of it was getting this property management business going although it's not a it was an unintentional profit Center for us but it was something that keeps me keeps me task focused on a regular basis and then you know also provides another Avenue for us to make revenue and and support our clients with so it was a roundabout way of saying there was there's a lot of years that went into this decision and was not an easy one so and when so okay so that that's kind of how you got to where you're comfortable with it it's been a couple months now how do you feel at this point like you know I think a lot of people are like worried they're going to quit and then the next week freak out and think oh geez what did I just do is that has that been the case for you or how how do you feel yeah you know and

25:58We we were talking about this before we went live a little bit but I think there is an element of of of Freedom that comes with being your own boss right but with that freedom comes a lot of risk that you you got to stay on track with and to manage your time effectively and and it's it's easy to say yes to everything when it's your own time and and what I've realized is I you know I equally have to say no to stuff and I don't have to chase every shiny object and and I got to be disciplined with my time and and really create a good schedule for myself because I think the days where I do best and are most productive is when there is there is some discipline and vigor and and my calendar is under control and then the days where I it runs rampant or when you know and goes wrong is when there's when

26:47That when that that the chaos jumps in and there's not that structure and so but when there's nobody else that you're accountable to it's it's you got to have that self-discipline to create that those boundaries for yourself so I think that's the biggest hurdle that I'm I'm learning to overcome since going live with all this is just managing my time effectively and then focusing on things that make money right like I think that's the the thing we forget sometimes is that like okay as an entrepreneur as a as a a business owner you know you have to in order to survive you have to make money right so prioritizing tasks based off of you know partially their importance partially how much you know Revenue this this decision or this is going to make me so yeah no that that makes a ton of sense I I've kind of had similar experience I've been

27:36You know doing real estate full-time again for about a year now and you know a couple things I recommend to people is making sure you do have a little bit of a Runway built up in advance because what you think is you're going to start producing immediately is going to take a little bit of time and you don't want to be like at the end of the first month saying I'm already out of money and you know I have to you know go buy a deal or wholesale a deal or do something to make some money immediately you want to have a little bit of Runway because it takes some time and then that calendar management I what I do I put in the blocks you know on my calendar block it off for the things that are the most important first and and those are recurring like recording this these podcast it's Monday and Wednesday there's only two days there's blocks

28:25Around it that people can schedule and so I know that that's going to happen on a monthly Bas or on a weekly basis and and other things like that family time all that stuff and that was a game changer for me as opposed to every day kind of just figuring out what I was going to schedule in so it's great points you brought up there I appreciate that JD I I I'm curious so you know you talked a bit about you know managing or setting up multif Family Properties through casa you know I know multif family has been a way for people to create an insane amount of wealth over the last decade you know especially short-term rentals I think are are similar you know it's probably more recent for short-term

29:13Rentals but it's crazy the type of returns that you can get so when you combine those two together it seems like that's a recipe for some some pretty great returns so can you share a little bit more about that like what type of deal are you guys targeting and and how how does that work how does short-term rentals in multif family work yeah for now like our historic and like a large chunk of our go forward will be Partnerships with existing multif family owners okay so we have a few different agreement types but we management agreements to master leases and those terms will vary heavily based on you know the risk profile and who pays for what probably the biggest consideration in the short-term rental industry for any any company not specific to mine it's who pays for the furniture right like especially when

30:01You're getting to the level of like a little bit more of a corporately run short-time rental company takes a lot of money to design the units takes a lot of money to install everything and quite a bit of money just to buy the furniture typically new you can cut the corners there when you're doing this on your own so that you know the payback Runway anywhere Market depending could be six to 18 months so that that's that's usually a big determinator in how the deal ends up working and then from there like you know for a master lease agreement a lot of owners aren't necessarily getting making a ton more money off us but what they're eliminating is a lot of turnover costs which are very expensive leasing costs which are not as expensive for major corporates not nearly what you and I and Andrew would pay and then the vacancy goes away right so on

30:50A Master Lease you know you sign a three to five year lease you just eliminated like three four five months of vacancy over the next five years in that property so that's huge huge for those owners and then for newer buildings they also eliminate Leisa so if you got a large multif family building called 200 units and you can rent me a couple floors of that you just got rid of like maybe three four months a Runway which means you just reduced possibly a lot of costs not just your interest costs on your loan but also like some of your leasing costs that are pretty high up front in order to get that building stabilized so developers can get out in a perfect scenario get out from underneath their construction loans a little faster when they use a short-term rental contract like we do it's definitely a different game when you're talking like

31:38Multif family like Andrew and I have done you know what we're doing there is we're trying to find like what's the equivalent rent like if this unit would rent for $2,000 as a long-term rental like what is the revenue that this building could make a year and short-term rentals minus all the costs divided by 12 and what's that equivalent rent so you know on the first building we syndicated together just looking at the model the other day and we were forecasting $2,500 a month that unit still today is only doing like 2150 I want to say in monthly rent so you know we would have made we turned it off for coid so over the last two years we would have made an additional 7 to 10,000 on that unit which would have Juiced our noi on that building pretty materially each year so you know if you have noi of let's call it $60,000 on a building like that you would have had maybe 65 70 and I think the name of the game for multi

32:27Amilies is usually like really well-run units can average you an extra 20 or 30% in revenue for that unit for that year which helps a little bit if it's one of 10 doesn't help a lot but if it's two or three or four of 10 can help a pretty good amount depending on the Str rules for the area a lot of areas are eliminating multiple strs within a multi family building unless it's zoned a certain way though okay yeah I was curious about that so so is that what you guys are targeting as a partnership then I mean what's your your ideal deal right now yeah I I I can let Andrew talk to this a little I right now we're not actually because just because the amount of work that it takes to set up and manage the short-term rentals and we no longer have an Str Str arm there in Chicago I

33:15Think I I mean I'll actually be a hard sell on this I personally would prefer to find a building that works and gut it and launch a hotel if I we're going to do this again just I know how to do it and the returns for your time are much better there and if you stabilize a nice hotel cap rate you can sell it on a pretty good multiple compared to you know building your own replacement costs for hotels are even higher than just like rehab costs and it's not that different than like an LTR rehab that's like probably my long-term shiny object career-wise is do a few of those but I think when I get back you know if we find a killer building that has the right zoning that we can Poss flip into like a full five or six unit short-term rental operation that's when it becomes interesting for the

34:04You know like a five to 10 unit building and you're just trying to operate one or two units which was our historical strategy I don't think the time commitment makes sense anymore and I also don't think the risk makes sense I don't I don't know what you've seen yet in shortterm rentals kiry and I don't talk publicly about some of the things I've seen in short-term rentals but I can tell you that when you get to scale and you start to see the tales of the risk structure on short-term rentals from just an ethical perspective you start to not want to expose your tenants to some of those things and from a GP to LP risk mitigation perspective I would actually say that if you're going to buy a five to 10 unit building and you operate just one Str Str most of the money you're making is just compensating for the risk you're taking and most of it's tail risk but you know what

34:52Do you mean by that long longtail risk yeah so the one in 100,000 booking that Airbnb quotes that are absolutely nightmares that I've seen close to a dozen of by now they don't happen to you until they happen to you and if you know if you're operating five or 10 units you might not see those for five years but when you see your first one if you still have a property left after it happens it changes your perspective going forward on like the risks you're willing to take and I don't think a lot of people add that perspective I'm on Twitter a lot for short-term rentals and I almost never hear people talk about risk they always just talk about party risk and party risk is is pretty limited yeah there's some nasty cleanup maybe there's a little bit of rehab involved to fix them up but there are some much larger risks whether it's fire related worse

35:41We'll say involving three-letter agencies that go on that are kind of scary and if they happen to you and you're a small operator they could put you straight out of business and expose you do a ton of personal liability risk as well okay and do you feel like insurance ins covers a lot of that risk and people operating through Airbnb obviously there's the the Airbnb host guarantee I know it's you gotta work to get that you know from Airbnb but do you feel like that you can cover a lot of that risk or it's it you can't yeah I meter what I say about Airbnb publicly as well they're their their their host guarantee has been very successful me for me a few times in the past probably the first and one of the worst I'd ever seen

36:29Managing our own units actually our first few months we had about a $20,000 loss in one of our units in the first few months we were managing and we recovered all of it plus the opportunity cost of the block Knights which was pretty crazy having chased them a 100 times plus c for pretty meaningful I'm not talking about $100 $200 $300 I don't chase IR be for 300 bucks or less anymore the time costs exceed the value but 5050 maybe at best I think it's getting better now I'm a little further from it not exposed to it anymore I think it's getting better the the bigger question is that million dollar guarantee when your house burns down I I actually think that they that does work you know if you have to replace an entire asset like and it's pretty clear the the guest was at fault the question becomes if they burn down your building and there's tenants inside it

37:18That million bucks doesn't go very far and you better have a pretty large umbrella policy on top of that maybe with st riders that allow you to be yeah yeah yeah I had Justin Ford on who's a like the short-term rental safety Guru and it almost made me want to just like fold shop and get out because it's like you know from a safety guy perspective it's like all he thinks about is is all the things that can go wrong and they and they do you know but he also said like 85% of the thing of accidents are trips and falls you know and you can prevent a lot of that stuff so yeah I think it's in my experience I've been able to mitigate like like my really bad guest smoked weed in the in the

38:06Property and made it smell like weed and I had to turn over the next day so that was like my really bad experience you know so you know I screen I mean I I work with a lot of people to get help them get their first vacation rentals and and I'm huge on screening guests heavily I pass on on a lot of guests that you know you don't have a festar review and you're not willing to put down a healthy deposit damage deposit then the only reason you wouldn't want to put down a damage deposit to me is because you are planning to damage my unit you know so so we just won't rent to them and it's in my experience it's tough to fake fstar reviews you know like the vast majority of people with five-star reviews you know they earn they they're decent guess

38:55You know I don't see like people with a bunch of festar reviews come in and and Rockstar my place typically but but you know it it can happen you know it's and it's interesting at scale you know obviously you've been overseeing thousands of units so you you've seen some of the the things that that can come up even if they're not like daily occurrences so it's interesting to hear that so yeah you've got to factor that in when you're looking at the returns you know that that extra risk that's interesting or at least just price the insurance yeah yeah yeah that's a good point so I what are I guess what are the deals that that you guys are targeting right now then Andrew I'll let you talk to this one you're

39:43You're on mute there sorry about that repeat the question Kirby yeah no I I mean so what what I was thinking you guys were targeting some of these multif family short-term rentals but what what's like your ideal property right now that you're you're going after so so in Chicago specifically we are we are looking at anything from five to 20 units at this point light to moderate value ad opportunities so we're not doing full gut rehabs we we're we're we're we like the financing and the five plus unit kind of commercial real estate space right when I say commercial not commercial as in retail but you know they classify it

40:32Anything above five five units would be classified as commercial from a loan standpoint right so so we like the financing there there's some opportunities to get non-recourse lending although that does come with with other boxes that we don't like to get put in necessarily but you know that's kind of our sweet spot right now we're finding that there's a lot of mom and pop ownership of these and management of these and and which comes with mismanagement right so and add on top of that with our with our own management company we can kind of control some of the costs associated with with running these type of buildings and so we're kind of right in that middle we're a little bit too big for the small people we're too small for the big folks so we we kind of like these properties you know from that standpoint and and we

41:20We're having luck so far with with being able to operate these effectively which I think is what you know separates us from the rest of the of the pack but we're doing things to the units to get rents up to market value right so we like places that are that not only are mismanaged but are you know have under market value rents whether that be because you know the units aren't maintained properly or they just had bad Management in place or they're just not taking advantage of all the the the revenue opportunities that the building has parking coin operated laundry storage whatever the case is whatever we could bring to that building building to add value to it so those are the opportunities we're looking for right now okay got it that makes sense and from a a management perspective I know Andrew

42:09You you have properties in Nashville and and other areas and obviously JD you're you're overseeing you know 1,00 plus units in 45 different markets so how do you guys manage remotely what are the I mean is it a similar process to managing it nearby and and what what systems do you have in place to to allow you to do that I'll take a first crack at this and then pass over to JD but I I've been doing this for a while now managing the manager so to speak from my properties that are out of state so I'll start with the long-term rentals it took me a while to get comfortable with this and I think I made a I want say made a lot of mistakes but at first I was very very engaged with with my property

42:57Managers that I hired I was kind of questioning every expense and a little a little bit too aggressive probably with it over time and I I've since backed off quite a bit once I realized it wasn't having the intended effect that I was I was hoping it would but but I think finding the right property manager is your first your first critical aspect of this right and understanding their cost understanding their communication Styles figuring out H how they do business right and I think that that was that was super important so a lot of people H A lot of people hire the the property manager that gives them the best percentage of of gross revenue number right and I think that's a big mistake in some cases going cheaper works out well in some cases it ends up having the the opposite effect

43:46You know down in El Paso for example I've I have two good property managers that I use for my my different buildings down there and they're both very very different one charges more than the other but you know both have worked out I've been very lucky but I have had I had to fire a couple before them they weren't following instructions well you know or taking my guidance into consideration they weren't getting units filled they weren't communicating well there was a lot of things that went went wrong early on so I think establishing a good relationship with with whoever is in charge of your properties is important and you know I wouldn't say I regret kind of being a little bit too aggressive early on because I think it made me realize like okay I got to figure out what's important and what metrics that I'm

44:34Trying to drive at and but but yeah that that is absolutely critical when it came to our properties in Ohio we had we went through five or six different property managers changing property managers is awful by the way it's a very exhausting process and and so we had to let a couple of them go early on and you know and and that's a market where there's some tenant challenges and and you know and we were getting eaten by some of the maintenance issues that were caused by you know maybe not the best tenants getting put put in place so that was another thing is making sure that they have good screening processes in place to make you know to to get the best possible candidates into your property sometimes it's unavoidable when you get bad seeds in there but but yeah having a good established

45:23Property manager is the probably the first key aspect on the on the short-term rental side in Nashville we've found something that's actually remote that handles all the guest interaction however still need still need some boots on the ground so we have a couple of folks we got cleaner our cleaners are are fantastic and they kind of our eyes and ears anytime they need stuff they send us a text message we're low on this this and this get it ordered we got a hole in the wall send our guy over to fix it you know so they're they're our first layer of Defense when it comes to you know fixing stuff replenishing any Expendables so you know what what this all boils down to is just having your team in place right having the right people down so that they you they could be your arms and legs to get stuff done when you're not there and I'll I'll pause at

46:11That one and let JD run with it if he's got any other things toh to add yeah I think for me the next logical extension of all this and something Andrew's done better than and I who own the unit next door to Andrews that has vastly outperformed pricing is probably the biggest part of that but quality is also a major concern is just feedback loops on your properties and like I think one of my long-term dreams it's probably totally unrealistic because the market just doesn't bear it is if I ever hire a property manager it actually have a feedback loop between the tenants and myself around the property manager to understand how they're being dealt with how they're being treated and you get this naturally through Airbnb and then if you get really professionalized and you start

46:59Managing hundreds of units you develop your own system to ATT track even in a leading way and then in a Lag Way like Airbnb reviews or post day surveys you give your guest the quality of the unit and that gives you a lot of the feedback you need to understand if your team's doing a good job I think there's even really simple ways to do this like you know if I were to start my own management company I frankly think I would just incentivize my managers purely based on performance and financial performance and outcome performance because they're so in inextricably linked but you know basically bonus them extremely bonus them based on you know 4.8 4.9 on Airbnb depending on the property type super host kind of something similar to that cleaners the same thing we used to bonus our cleaners based on the number of complaints they got and we

47:48Would tear them and at the end of the year we would add give them one three five or $7 bonus for every clean they did for the whole year based on the number of complaints they had that put them in a certain tier which could be a couple thousand dollars for some of our cleaners and I think like creating even simplified incentive systems based on the overall performance if you can really tie it to the property manager or tie it to the cleaner or tie it to the communications and you can with Airbnb right all your sub scores on Airbnb at least you have check-in score you have maintenance you have check Communications and then you have cleanliness so like you even have subcategories in your scores there that will tell you different areas of your kind of boots on the ground team and how they're doing we have not cracked the code at this we're getting a lot better I think every day for like perfect remote

48:37Data collection probably better than most companies of our size for my full-time job but we're changing our metrics all the time to look at more Forward Thinking metrics more fast metrics we have integrated a lot of stuff that gets a hold of the guest outside of any of our otaa platforms and let them directly communicate with us when there's an issue so even when there are inevitably issues we can solve them more quickly because I think actually I mean I remember writing this in my case study for Saunder trying to get a job there but I actually believed when I had a 20-unit management business that the best thing that could happen is a guest had an issue because if you respond quickly effectively and you overreact to their issue and solve it for them really well you actually often leave a better taste in their and if

49:26They never communicated with you at all at least if you do it really well and this is not something I'm like a a guru at but I can do it through others who are really friendly to communicate with and I think if you're just getting started like having a visceral pain anytime you don't get a festar review in short-term rentals and frankly like even when your tenants leave like it's not something I think Andrew we've really wrapped our arms around but when we're thinking about rent raises Etc like we definitely try and consider like what's fair and what's reasonable for the tenants and you know I don't know Andrew and I were just arguing about how to handle a tenant a couple weeks ago and we're like Lee says that we can charge her five months of rent but would we want to live in this place you know we have a cockroach issue somewhere and it's like no we wouldn't want to live there so we'll let her out of the rent and you know that's the way it is like and I would hope that if I were managing this building on behalf of somebody and

50:14There's a feedback loop there where if a tenant's not behaving it can end up being Yelp or whatever else like there's a way for you as an owner to figure that out I don't know if many management companies really do that yet but it's a really effective way to know it's a leading indicator to know that you're going to hit vacancy or you're not going to be able to raise your rents the way you want because your property manager is not performing got it man so much gold in there that's really good advice you can tell you've got the experience there and you're speaking from experience and I I can certainly understand a lot of what you're saying there what and does does casa use OTAs like Airbnb to book or is it all purely through casa h that would be the dream yeah we're we're pretty well funneled so probably even more than the average you know just guesty using

51:03Basic you know 40 platform at the end of the day I mean 90 90% of a new Str owners revenue is going to come from Airbnb Expedia and hotels.com booking.com but yeah we we are we have a strong marketing department actually very impressive marketing department that has been really working hard to get a lot of return bookings which is all predicated on quality right and to also get some some direct bookings as a larger and larger and larger portion of our Revenue which I mean you can almost double your profit if you take bookings off of the OTAs right if you're especially if you're running a larger leaner operation than a huge vacation rental that might be operating at huge margins we're not we're a good margin business you know at the end of the day after you pay for everything you're still double digits but

51:51You're not 30 40% like you might be able to hit on a big vacation r sure yeah and I know we could go down a rabbit hole on this but what how do you screen then if if you're doing direct bookings without it being a returned guest there're in some of the secret sauce actually we probably do a better job of screening direct booking guests than we can do through the OTAs because some of the OTA restrictions but yeah we have some national Partnerships with some professionalized screening companies so I mean this is in secret sauce if you book with us you will take a selfie ID you will then have a phone up to your face and you will give us your anonymized we don't get it data to match to your ID to make sure that you are who you say you are and you're booking that

52:40Gets rid of a lot of credit credit theft and things like that and we also have an algorithm that creates a trust score and then we're also reactive so most importantly we use I will plug this product because noise aware is problematic and ruined my life many times on a Friday night with a false alarm but there's a there's a device called minute which is out standing that we've recently transitioned to and we also use some other proprietary and unit notification softwares to let us know if something is happening that's outside the norm and our you know we have to it's table Stakes for us because we have National Partnerships with major multif family developers and we have to do absolutely everything we can to keep the bad actors out and then if they get in we catch them really quickly okay yeah yeah I had the founder of noise aware

53:28On the podcast so I'll I'll invite you guys both back to debate and noise aware it would be great yeah it's just about automation noise aware's apis didn't come along fast enough and I think you can now but like there's there shouldn't be any human interaction especially if you're a one-off owner warning a guest about noise and you used to have to like send your own notifications through no aware and the the some of the newer softwares which also monitor for more than noise now autom made a lot of that for you got it yeah yeah I asked him about that because I was like you know I really don't want to go into a a rager where everyone's hammered at 12 o'clock at night to break up a party like there's there's nothing good that's going to come out of that so that's great that there's some automated processes around that you know what ruins a party

54:16Really fast though is a very loud siren iot hooked up in your house that you can just and there's a party going on we don't use that just throwing it out there that's that's a good point yeah if it's killing your ears you probably don't want to hang out there too long interesting so so last question for you guys because I mean we could we could talk for a long time here but I don't want to take up too much more of your time but what what's one thing that you guys wish you had learned earlier on or wish you had known before you started investing or could go back and maybe tell your your previous self about or something that you you would do different I'll take a crack at that one first you know I I

55:04Recognize that information isn't wasn't as abundant 10 12 15 years ago as it is now I think I try to encourage every young veteran or active duty military person that I interact with to to leverage your VA loan to to buy multif Family Properties as soon as humanly possible that is my one big you know I don't want to say regret because I don't regret any decision that I made but you know I did buy a quadplex out of the gate but I didn't use my VA loan and I spent every dime that I had in the bank as a down payment you know and and I could have I could have used that money elsewhere to buy a second or third one or whatever the case is and you know so so I I do try to to encourage folks to do that live in one unit rent out the others you

55:53Know get your get your buddies to your other Lieutenant buddies or your army buddies to live in the units with you whatever the case is but do that as soon as humanly possible and it's going to set you up for success for for a long period of time and and and you you won't regret it that's that would be the one thing I would do differently I agree yeah veteran specific Andrew definitely stole mine I I'll shamly plug us too one of the I think things that gives me confidence that we can go fulltime and quote unquote make it and and put keep food on the table is the fact that I think that Andre and I have a formula for buying VA home multif family VA homes for a million bucks operating them due diling them and positioning them to succeed and that's how we frankly I mean bring that Playbook

56:41To a bunch of veterans in Chicago and you know sell a few of those each year and I think that that will sustain us pretty meaningfully on the kind of realtor side which gives us the runway to not buy bad deal on behalf of our LPS for the syndication for me yeah the VA loan I got started much later than Andrew and the VA loan has been huge for me I've bought three multif Family Properties with it refi all three of those multiple times with the VA loan couple with the cash out and you know my I have one in my wife's name she's she's a vet I have one in my name Joey has another one in our name and we all jointly own them and they' they're ridiculous they just cash flow like mad and they took no cash to invest in I think the other thing I I really question about our strategy sometimes and I wonder if we could have just

57:29Spent half the time finding the right property manager and focusing purely on the acquisition side life wouldn't be as fun life wouldn't be as chaotic but it would probably be more fun I think that dealing with tenant issues all day has has put a a little bit of a a damper on all of our Lives I mean I laugh at people when they tell me they don't want to own a single family home it's like in our side time for the last few years we've been managing 50 tenants and you know one one house seems like nothing to me at this point but like I just regret not starting sooner like I think overall like you anyone can house hack and and I literally mean anyone just get yourself in the house you you have a income that you can cover a large

58:18Majority of the place with and then you know learn everything from there you will learn the hard way and if you're Pro active and you're constantly trying to improve improve just adding sort of a Six Sigma attitude to everything I think you will find success whether it's house hacking with long-term runers short-term Runners something in between it's pretty hard to screw it up and you know I'd say this with a grain of salt but a lot of people I've seen figure it out pretty well and you you you self-manage a lot of it you'll you'll get there and then then we'll give you the cash and the confidence to move on to a couple Real Deals in your future nice I I agree with all that great great advice so if somebody wants to reach out to either of you what's the what's the best way probably our so we're in the process of

59:06Amping up our social media and website presence but more to come on there I I made our website by the way which is a testament of how bad it is so so really I'm I'm I'm working with like five different people right now to to to talk about fixing it for us so but our we have a joint email account BCG realestate group@gmail.com or you can text or call us at 77327 4787 that's our joint company phone line it would be nice to get a text or call from somebody that's not a tenant U and getting mad about us about something that we've did so yeah anybody could reach out you know and then of course you can find us on J's very

59:55Heavily involved in the Twitter sphere I'm working on my presence there but but I'm on Facebook and Linkedin and all that stuff too so nice awesome yeah I'm right there with you I've never been on Twitter before so I hear things about it from time to time I yeah JD loves it I'm still I'm still a noob so I gotta figure that out I I lack the resilience to log on a big Bigger Pockets every day and like force myself to read but there's like the the crack aspect of Twitter yeah and when when your crack is feeding you Knowledge from really educated people all day about real estate only real estate because I don't follow anything else and I block terms like Bitcoin and Trump and coid and dude Twitter's incredible like I learned multiple things every single day on Twitter I think there's certain areas of the business that I have a lot more thoughts

1:00:43On today than I ever would have had going into like when I go full-time that are purely from Twitter it's incredible and also you know you can't officially commit to this anywhere but it's a pretty pretty good place to yield Partnerships and Investments and opportunities as well yeah cool cool awesome well thanks guys I really appreciate it and I know the audience is going to get a lot out of this one so I appreciate you guys time today and we will talk soon good thanks Andrew take it easy guys see you ah