When to leave your day job for real estate

0:00In terms of the rental Arbitrage deals then is there a like what metric do you look at to say this one is worth it because I imagine there's probably deals that are a pass that aren't worth your time yeah is there a net cash flow per month on average that you're looking for or some some other measure yeah getting into the buy and holds we were looking for $3,000 a month in net cash flow okay that's kind of the number that we were looking for and we definitely hit it in 2022 and we didn't we didn't necessarily hit it last year so hoping to come back you know get back to that range so it fluctuates depending on the economy itself and how we manage it the with the arbitrages we were looking about the same we were looking for about the same we wanted about $3,000 a month per property and in 2021 and 2022 we definitely hit

0:49Those numbers consistently for two years this past year it was probably closer to like, 1500 a month per property across the portfolio of five that we managed some of them were still at 2 to 3,00,000 and some of them were closer to 500 to 1,000 right so we actually dropped those low performers and really what we realized is that the you know one of those we' had for three years and it was a two-bedroom one bath it's just there's not enough margin on a two-bedroom that you're making a lot of extra over the the rent prices so we realized we needed to be in three plus bedrooms ideally four plus bedrooms so we were looking for newer ones that were a bit outside the city a little bit farther out that we could that hopefully had an amenity something so one of them had a

1:37Hot tub that was that was great another one had a really nice backyard that we could deck out and we put an outdoor movie theater out there which is actually really simple to create and it was just a great familyfriendly thing to to put in so we were looking for four plus bedrooms we knew that we needed to be within a certain rent amount based on our underwriting to say we can't pay more than this much for a four bedroom or a five-bedroom in this neighborhood that's how we were doing NE negotiations and then we would reach out to multiple homeowners looking to see who is open to it I see okay yeah that's what I was curious about as well so were you doing all this in Nashville as well or was that local and then how how were you finding the homeowners to reach out to yeah local in San Diego we

2:25We were so my business partner and I we've always bought properties spy holds separate and the point of the business was to create passive income that would replace the W2 income and then allow us to continue investing personally so it's a really it is a management company we like to keep that separate from an asset holding company we like you know we just like to keep those two things separate so we just focus on management with this one and we really wanted to find something in San Diego but we couldn't afford to buy properties out here it's it's crazy you can't buy five properties out here but we can leverage five of somebody else's properties when we got started we said hey we want to jump into this maybe people will be interested maybe not and we said okay this is the buy box we're looking for let's start making some calls and within within a week way faster than we thought we

3:14We got the first three within a week wow so it really we were just looking on Zillow you're just looking for people that are looking for long-term renters and ideally you you can even see if they've listed it themselves you can see their direct phone number you can reach out to them and we were basically just saying hey this is this is Matt with State classy homes and we we our business that that we rent places long term and then we rerent them to vacationers and and Travelers that are coming into town for work and vacation things like that and you know we wanted to see if you open to a potential partnership where we sign a long-term lease and then we pay on time every single month we keep it clean we take care of everything let me know what you think and you get a lot of you get a lot of NOS but you also get a lot of okay that's kind of interesting you get some people that

4:02Say oh is that Airbnb yeah I'm not really interested in that thanks though but very quickly we got three people that were open to it we met with them we created a relationship with them and we signed leases in our own names so we we use leveraged Our Own Credit and our own names to get started now we don't need to do that but to get started you you do whatever you can and then from there you earn the right to not have to use your personal name or personal credit yeah and and you said you were signing longer leases were they multiple years or one year leases when we got started we just did one year leases maybe with the option to renew for another year but all of those properties we we you know we still had or we could continue to have them if we wanted to we just signed another threeyear three-year lease

4:50On top of the three one-year leases that we already had with one of those properties so we really try to be the best tenants that that the owners have ever had and then it's a no-brainer for them to renew with us and then we have negotiating power to say hey they say okay we want to raise the rent and we say okay let's sign a threee at that rent so that you can't keep raising it year-over-year and then we have predictability on cash flow yeah and how much money did it require you to bring to the table to furnish the properties when we got started it was we were doing everything ourselves right we my wife was doing the design we were it's probably 10,000 is what we were up and running with on on the two bedom and maybe 15,000 on the three bedroom and we were doing all that work ourselves and it you know wasn't the nicest Furniture but it was

5:39All new so we wanted all new stuff and it looked great when we first got them set up it was really fun time bloody knuckles from all the little Allen wrenches just doing everything yourself right that was the first thing we were able to hire out but you know once we started going and now that we've now that we've been doing this long enough the newer properties the four and five bedrooms we probably put 25,000 each into those to furnish them properly with a lot of you know fun things and amenities and colorful designs that even buying things like Nintendo switches like what are you doing to stand out from the crowd so you can start easier you can start with with less amount but you do have to pay first month's rent you do have to pay security deposit in most cases so that's an upfront cost Furniture and Design you

6:27Know I would say it's probably like between 25 to 35,000 to get started with those bigger properties and you could probably do it for less if you are able to find some secondhand furniture that looks really good from Marketplace got it okay and were you guys just capitalizing this yourselves or were you getting a loan for yep okay got it yep we when we first when we first started I think we each put 30,000 in to get started start that business and that was the initial Capital that it took to get the three first properties up and running and then from there everything Grew From that the cash flow from those three created you know allowed us to then get the next ones and then you know so everything from there we've we' I don't we haven't put anything more in since that time to keep things going or hardly any at all so

7:15It just kind of grew organically from there yeah and that's a great Testament to keep in your job as you're getting started as well you know a lot of people I think will want to just pull the trigger and jump into a new business but man if you can cash flow the startup and get that flywheel going then you've got cash flow coming in that can that you know that that will build on itself and and you can continue to reinvest in the business so that's such a great point there we we talked a little bit previously when we we had our conversation before about how you manage the day-to-day with is it 13 or 12 properties that you have right now total yeah we manage about 30 but between my partner and I we we own 13 of those so about half of them got it and I think you know when when you

8:04When you start to scale it out right when we were buying our own and we were starting to Arbitrage you know we we learned the there's so much you learn along the way of operating these and and making sure that the guest has a great experience and what are different things we can do to be proactive as opposed to reactive so I think that there's so many lessons to be learned in that where we said okay we need to we need to make sure we're operating our properties at the best level possible for our own person personal Investments and then that bled over into our arbitrages and then bled over into managing for other people because they saw what we were doing as well and they saw the success that we were having our pricing strategies are different than I think what a lot of people would do we're going in we're we're re-editing photos doing modifications re-shooting photos you know doing consulting work so

8:52There a lot of things that we learned by doing buy and hold ourselves as investors first that we're able to take in and help our clients be successful as well but there's no doubt that we were we were working W2s my my my partner had more free time than I did I was super busy with the W2 he was running most of the data operations he was handling all the late night calls and guest messages and you know it's just it can burn you out pretty quickly if you don't have systems because we were just really reactive we were really reactive so I think once you start figuring out how can I get more proactive and we went to the St wealth conference actually I don't know were you there this week Kirby no no I haven't made it to that one yeah I was just there for like one day and then I had to fly back for a presentation in

9:40LA but it it was a great conference Mike shogren and Bill Faith they put it on and and just really genuine guys and it was really small and intimate when the first time and now it's getting bigger which is great but that was really we were walking around and meeting people and we were still working W2s and like hey we got this little side gig and we realized that our side gig was bigger than most people's main gig who had already left the job and they were you know they had already left the W2 and they were managing properties for others and we were like wow we we need to take this thing seriously and actually start to treat it like a real business so actually we talked after that we talked after that and said hey we need to systematize this let's treat it like a business let's put a date in place to quit the W2s so we really started taking things seriously after that conference

10:30and started hiring vas which was a huge just a huge relief for us and it's it has totally changed our business and our outlook on the business there was a learning curve to that how do you train people how do you coach people how do you create a culture but it's that's amazing skills to learn in general and we were able to do it with a team of vas that was really just happy to be working with us and and we're so grateful for that for that group that we have so when we're talking about operations and scaling there's really two things you have automations which is software automations what can you do to automate is the the regulars kind of repeatable stuff so that you can just focus on the differences right

11:18and make sure that you're proactive on the things that you need to be so kind of automate the the regular stuff and then focus on the the higher level stuff and then hiring and that was where the Vaas came came in so happy to talk through either one of those if you want to go software automations or if you want to go vas what's are probably interested in both but let's talk vas first and then we'll go into software automation because yeah I'm curious how you assembled the team people always ask like what do you use forign vas or or us-based how much do you pay them all that stuff so if you can kind of just talk through how your team is assembled that'd be great yeah so all of our vas are the Philippines and the reason why that's the case is that Airbnb has a massive or had a massive call center in the Philippines I

12:07Think they still do so they have a lot of talent that they've created in the Philippines you know just a very hospitable people very very extremely nice speak English really well have a high comprehension of English and written and spoken and just you know genuinely excited to work for us based companies right so there's just an excitement there both ways but a lot of companies like ours are pulling employees directly from Airbnb these case managers and things like that but when we first started I just posted on onlinejobs.ph I got dozens and dozens of resumés and you know we were we were just looking to hire based on a dollar figure you know whatever $500 or,000 a month that

12:55Was the dollar figure we were looking for and we got there was no shortage of people that were interested in in that that were looking for work for that we were looking for part-time help just trying to figure these things out and we got some people in we didn't have any systems in place we didn't we could we didn't have anything to train them with so we learned really quickly hey we we need to have our systems together in order to actually train somebody so they can be successful in this environment so we went through a couple that you know were just they were like hey you guys don't have your together so we had to come back around and and we we got a loom subscription we started doing the screen the screen records I think Loom is an amazing training tool you can just do whatever you're doing in your day-to-day you record the screen it records you you just speak over it and you say here's how I run the business and

13:44You can just do little you know five minute clips of that and there's your training platform so it's not that difficult to get that up and running I think the big breakthrough for us though happened when we realized that we needed to start hiring people that knew more about the business than we did that I I can't emphasize enough how valuable that is obviously you're probably going to be paying more for for that type of skill but that's when our life changed when we found we were looking for a team lead and we found somebody who taught me in the interview she taught me how to run my business better I was interviewing her and I was firing questions at her I'm like I love this how long can this interview go because I'm learning so much from you she managed she you know she was the team lead for Brisbane in Australia and

14:33They had 65 or you know 120 Properties or something like that and we were at like 20 or 15 so I was like well how do you manage you know maintenance at scale how do you manage cleaners at scale and she had all the answers so I said okay that is the hire that we need to make she's going to be the one that then sets the strategy she's going to be the one that then hires the team she's going to be the one that executes on whatever we need to execute on and she's going to bring that forward so that was a huge turning point for us when we hired people that knew more than we did now she's bringing in her family members her friends and vetting them out and hiring them in and training them up all on her own sets the schedule she said we need slack we said okay great never use slack teach me how to use it they now we're using slack every day

15:22Monday.com we're getting that one up and running more and more which is basically a project management process type tool they're they're doing that work right we say here's the next step you guys learn it and and you set it up and get it running and use it to the best of your ability so we no longer have to handhold them because we hired people that knew what they were doing