Ivy League Investment Banker to STR Business Owner

0:00yeah I'm excited to interview you here and hear more about your story of going from an investment banker which I think a lot of people think of as sort of like a pinnacle top career that you'd aspired to to converting from that to building generational wealth now through short-term rentals and I'm really in interested in what inspired you to make this transition and all the lessons that you've learned since I think you started in 2017 and also some of your you know best advice for people who are just getting started but first off I want to hear about what happened before you made this transition and what ultimately inspired you to kind of pull the trigger on your investment banking career or I guess P

0:48Pull the cord on the investment banking career and and make that transition well I think I appreciate the appreciate the compliment it being the Pinnacle of one's career hope hopefully that's not my my swan song but first off you know appreciate you you know having me on the show here for me it for me it came down to as I was going to get married and we wanted to start a family it was just really really important that I was able to spend time with my wife and when we had children my children and I just saw the folks that were ahead of me the investment bankers that have been there for 10 15 20 years you know they did very very well financially but I could see a substantial majority of them didn't have the best relationship with their

1:36Families with their wives their second wives you know their kids and I just didn't want that for for me and I knew that had I gone along this path I might have been Su I might have hit some of my financial goals but I wouldn't hit the other goals that were just that just as if not more important for me so that was a big reason why I made the shift got it yeah and so what was was it like leading up to that like how did I mean did you have like a milestone that you're like okay I want to get to this point in terms of passive income before I pull the trigger or you just were one day like I've had enough of this and I'm going to make it work somewhere else no no it was it was definitely a gradient it wasn't you know kind of one day I just kind of decided to to quit we you know we launched it my wife and I launched the business

2:25December 27 2016 so I was still working and you know we did it for probably the first year my wife quit after 6 months in so the first problem we did after a few months we realized that there was something there was definitely something here and we wanted to scale it for some some quick numbers by March it was a three-bedroom apartment that cost $2,400 a month to to f to rent and it maybe like $8,000 to furnish by the third month it was grossing over $10,000 a month and with the rent and expenses around like $4,000 all in you know we're making $6,000 on one little apartment and you didn't need to be an investment banker to realize that this is a real this is something real that if you can scale it can really make a big difference in your in your life can youor so we got married in March and then just to jump just to jump in sorry

3:14So I think people may not understand the strategy that you just referred to because you're talking about renting it for 2400 and they might have thought you know that you're renting it to someone else but you mean you're actually renting it from from a landlord so that you can control the property and then you're renting it out for $110,000 a month is what you're saying exactly so rental Arbitrage just to take a step back is a strategy where for air for Airbnb short-term rentals where you work with a landlord you pay them a long-term rent based on a lease could be a year two years depending on how you want to structure it and then with their express permission you're allowed to rerent it on Airbnb so conceptually it's like buying wholesale you buy kind of the room nights wholesale and

4:03you sell them retail right you obvious have to you know do work to furnish it decorate it to make it desirable for someone that would like to rent for Airbnb and then you obviously you can charge a higher price generally speaking at a retail level than what you bought at wholesale and that's where you make the spread or Arbitrage and that's what to name airb Arbitrage awesome and where was that first one that you did New York City got it and that was 2016 you said December 27th 2016 got it all right thanks sorry and I remember that date because we wanted to rent it out for new year so we scrambled through Christmas didn't to get done nice nice Christmas gift to your wife to be setting up a house so so so that was the first one that

4:51You did in 2016 you realized that there's a ton of potential what what were the next steps from there so you know we first year we probably got up to seven eight units I forget the exact number now but my wife she she quit we we got married and she she left her job to work on this full-time and then we just got more we just got more properties to rent and then you know put it on the Airbnb and we just continue to scale that strategy and then you know prior to that we you know we're looking at different types of rental strategies to or different different different types of airb excuse me different types of real estate investing strategies that we could use to create wealth create cash flow and you know we bought some we bought a long-term rental and made like $300 a month they're like well this doesn't really work because this will take forever to

5:40Create a real business so we were looking at you know multif family we're looking at different things and you know we kind of saw this opportunity and then we didn't know at at the time obviously I could do this well but we wanted to just try it and you know 3 months in we're like okay this really works so let's let's let's lean into this strategy got it yeah yeah I think that's where where some of the best strategies start is just like you know testing it out what's the worst thing that can happen people want to have it all figured out and have the endgame finalized before they even take the first step and I think it's so important just to test it out with that first step so 2016 things were a lot different with Airbnb and short-term rentals than they are now especially in New York City so how did that scale for you from there so you know exactly and the the the

6:28Market is changed regulations have changed so we started New York City because that's where we lived and we contined to grow our portfolio there we had you know units in New York City across the river in New Jersey and then we eventually grew to expand in Philadelphia which is about two hours away from New York and then we took the knowledge and the cash flow from the properties and started buying and we would and we bought in the smoking Mountains National Park in Tennessee So currently our portfolio is about 30 properties all all of our rental Arbitrage portfolio our entire rental AR Arbitrage portfolio is in Philadelphia and everything that we own is in the smoking Mountains National Park in Tennessee and that was a very purposeful decision I see okay so you transition out of New York City when was it when they started cracking

7:17Down on short-term rentals or it how did that transition happen it was actually Co so you know the the the the regulations have continued to evolve in New York City and and and also where but to be candid you know it's a big Market municipalities are fair generally fairly constrained but for us it was a way to just get started and Our intention really was to buy Our intention with the strategies is to eventually buy properties right we wanted to build long-term wealth their ownership we understand that rental Arbitrage renting properties canly is not a way to really compound your net worth but it's a really great way to earn count cash very very quickly and very very efficiently with capital that two-bedroom apartment two-bedroom apartments cost maybe

8:05$10,000 to furnish right there's a security deposit so all in you're controlling a property that's depending on the market56 700,000 for that property for you know a $10,000 kind of investment in and maybe $1,600 a month in rent right so there's a lot of embedded leverage within that lease similar to a mortgage right but it just takes the buying is so much smaller when you rent properties so it's a much faster way to scale quickly and cash flow quickly I see got it and so what made you feel like Philadelphia would be the new the the better move for rental Arbitrage and why do you do rent Arbitrage there but own properties in the Smoky Mountains well a couple

8:53Reasons so Philadelphia we liked because you know it's a major Northeast City and the major ones are if you start from Boston New York Philadelphia Washington DC right you know that's General on that Corridor and all the so Boston New York and DC are all heavily regulated and so is Philadelphia but Philadelphia you can employ the strategy in certain zonings right that are commercially zoned and if you get the right zoning permit and you get the right rental license you're okay so all so that was very purposeful we kind of learned our lesson and it was very purposeful to make sure that our properties were in multif family commercially Zone properties where you know we were able to kind of get scale advantages and that was that was one thing that we also learned as well was we wanted to be in large multif family buildings because

9:42It just was so much easier to scale with one landlord who had a lot of units you know we we kind of solving a vacancy problem for them there's a there's only one front desk there's only one roof so there's just fewer variables to control so it's a lot faster to grow that way in Tennessee so but that market if you buy it's a different set of math that you have to run versus run to Arbitrage and generally in these kind of urban core cities it's a lot harder to the math doesn't pencil out as well as if you were to buy somewhere else like the Smoky Mountains there's also a number of tax advantages you know namely with bonus depreciation that will allow you to really campound your capital in a very tax efficient way so there's a lot

10:31Of kind of variables at play but quite simple you know if I was to kind of simplify it Rental Arbitrage works really really well in an urban environment that allows you to kind of scale quickly there's a lot of different demand vectors within those cities right so Philadelphia for example Sports business medical education tourism there's a lot of reason there are a lot of people that go to Philadelphia for a lot of different reasons right so that's for us is a great rent AR Arbitrage Market but there's a lot of regulation in those markets as well so but if you and when you buy something you want to make sure you know it's a 30-year you're going to Our intention is to hold that for a very long time so you want to make sure it's a place that welcomes short-term rentals that there's a history there the economy is very very geared towards that so that the wind the the sand doesn't shift below

11:19You and you your left wi asset that can perform in the way that you initially under yeah that makes a lot of sense and I haven't heard people talk a lot about that how you know rental Arbitrage and owning short-term rentals work much better in different markets you know a lot of people kind of Clump them together you know I'm just going to pick a market to do both strategies and so I think that that makes a lot of sense what you're saying because there's you know probably a premium on these you know condo units in downtown Philly where you know the cash flow doesn't work as well as an owner but it works great as a in an Arbitrage situation so let me give you actually K let me give another kind of easy example for I think for most investors I think they're very kind of

12:07In tune to this you know when you buy a long-term rental what's what's one really important thing right school zones right you want to be in a good school zone because then like families are always going to rent there because they want their kids to go to good school like all of us do right for rent Arbitrage it doesn't really matter actually what school zone you're in right because they're only there for a short while so you're not paying the premium for that good school zone where you would be if you were to looking to buy something right so that's just one thing where you know it's one it's one of the things where it really matters for a long-term investor sorry a investor that's renting out longterm but for a rent over Arbitrage investor for a short-term rental investor it doesn't matter as much and that's where you kind of can can play the differences in price to to make a good return for yourself got it yeah that makes a lot of sense and so for

12:55You personally what do you target terms of numbers do you have like a rough number that you Target in terms of if you're going to take on a rental Arbitrage a new one to make it worth your while or to purchase a new short-term rental there's a different set of considerations because of the appreciation depreciation when you own properties right so when you when you buy some when you own something obviously it can go it can increase in value you get the appreciation and then you can take the depreciation benefits that you know will help you defer taxes and and but rental Arbitrage can't do that so run Arbitrage we look for a certain ratio between the revenue that we think we can make and the rent we're paying so generally that's two and a quarter two and a half is what we generally look for and we have a minimum amount of cash you want to

13:44Make per unit you know for us now it's like there is a return on hassle right something that couldn't you know couldn't make a really good percent return but makes like $500 a month $700 a month like that doesn't really move the needle for us so that's not something that we would we would do so you know there kind of a minimum threshold we want it we want a certain ratio to rent that we're paying and there's a minimum amount of dollars the dollar margin that we want to earn on buying we're looking for properties that are are in good areas that they're going to appreciate right so again areas that have a long history of rentals of Tourism short-term rentals in the South it's called overnight rentals and just depends on that property if there are certain tax advantages you know to to buying that if the you know the land's expensive Etc but kind

14:32Of to to simplify it we're looking for something that will a revenue to purchase price of 15 to 20% so if a we're buying a property for a million dollars it should do between $150 and $200,000 of gross revenue prod I see okay