Sportscaster to failing entrepreneur to successful short-term rental investor

0:00I had been doing Airbnb since 2015 so I started flipping in 19 but I had been doing Airbnb since 2015 as just a room out of my house and I never thought that that would be like I just always thought like Airbnb was couch surfing right like yeah why would anyone want to rent an entire house for Airbnb that's Goofy and when I bought my second house that I was going to flip my mentor told me hey you should hold on to this one and then I started doing the numbers and I'm like okay $600 a cash flow per month like that doesn't really get me excited and then another Mentor was like you should look at airbn BM like Airbnb in Fresno California that's where I live like no one no one's going to want to do Airbnb in Fresno California I started looking at the the calendars on all the properties and they're like book solid and and like have like

0:48$100 per night and I'm doing the math and I'm like if I get this even like 80% occupied that's like $1,500 of cash flow and in month one I just I decided to go for it so month one that property actually did $2,000 of cash flow and that's when I was just like okay I I think I found something here and I was really one of the first in my market I was going to mentors of mine who had flipped you know 50 to 100 houses a year and I was like I think I'm going to do this and they're like I think you're crazy you shouldn't do it I was like I think I'm on to something here and went out and bought two more houses turned them into airbnbs and man the rest rest is history we ended up starting a management company that grew right during covid to the tune of about 70 units at one point wow so

1:37Yeah I I wanted to ask you about the management company because that's something that I think a lot of people think about after they start doing short-term rentals it was something I I was approached by several people saying hey you know I want to invest in short-term rentals can you manage mine for me and it's something I considered ultimately I decided that that wasn't the part of the business I was super passionate about but curious why you decided to to grow a management company what and I guess what you learned from that experience very simply it was just a need in my market I was I very quickly became the Airbnb guy and so realtors that I was working with were sending me clients who were asking like hey what should I do to buy an Airbnb what do the numbers look like and i' never heard

2:26of managing or co-hosting or any of the terms out there for this I only knew about Arbitrage and I knew about ownership I had I think at the time I had one or two arbitrages and I owned three and I kind of said like okay well if there's a need can I structure something around this need a lot of PE I probably had three or four people at the time in a very short amount of time saying like can you tell me how I could do this to where I could make some money and I was like well maybe I could like turn that into a service and and then six months later I hear someone else mentioned co-hosting and I'm like yeah I've been doing co-hosting for a while I call it Airbnb management I didn't know that had a name and can you explain the difference between Arbitrage and co-hosting for people who aren't clear on that yeah Arbitrage you know

3:14you're going to go and rent the house from someone and you're going to relist it on Airbnb with their permission and you keep the profit so if it's $2,000 a rent plus you have $500 of expenses but you rent it out on Airbnb for $4,000 you just Ned $1,500 and you don't own the property you just have to furnish it the co-hosting model I don't have a single Dollar in the deal in fact I get paid to set up the property because the investor is trying to get a better return they're going to hire me they're going to buy the property they're going to hire me they're going to lean on me for all of the knowledge of how it should be furnished I might even bring in my interior designer and have them do it and I become the service to them that allows them to be compl completely passive in the whole thing I'm going to charge a premium for that 20

4:03to 25% but it's worth it for the investor because I've built that into their performa of how I think that property is going to do and what was great for us when I first started the management company in Fresno California was that long-term rentals were really slow and low in terms of the rent so there was about A1 thousand gap on every single property that I was showing people that hey you could make2 200 $ a cash flow or you could turn it into an Airbnb and hire me and you'll make $1,200 a cash flow and so that was a benefit to a lot of these people and that's why you know after we did our first co-hosting gig and the the client was happy that it was just referral after referral after referral after that wow and you ultimately grew this to about 70 properties and

4:51Then you scaled it back to around 50 and then ultimately sold the company so what what was the reasoning behind that the scaling back or the selling yeah I guess what did you learn from the process that yeah and the impetus behind deciding to scale it back and then ultimately how did you decide that it was time to sell yeah it's a great question when you are doing something on your own right five six seven properties you don't have cost you don't have overhead you don't have employees you don't have a bunch of software as you grow your hard costs become a lot more right I can't do that on my own I when I got to 15 properties there was no way that I could handle all the guest communication so

5:40I had to hire vas at really property number three I already had a vision of turning this thing into something big so I had already hired basically a an assistant well that assistant eventually turned into my CE basically my CEO the the head of the company to where I was pretty much hands off and I relied on her for most of the the decision- making then I had a cleaning manager then I had in-house basically like property Checkers that would go and check on the quality of the properties there were just a lot of cost that started to build up and when you start looking at your cost per property which is what I would essentially evaluate my properties at well if my cost per property was $400 and I had a little studio apartment that I was managing for someone else and I was making

6:2820% on a $2,000 per month property well do the math there I'm actually losing money by managing that thing because my cost per property is $400 so that was why we scaled down was because we said okay there's actually properties in our portfolio that are losing US money and don't really make sense to be in the portfolio anymore and then the sale of the business was just a life decision because at that point I said I I became a firsttime dad and it was between my wife and I having conversations of just like hey what do we want life to look like and we decided that you know selling the business was going to be the best for our family yeah yeah know that that makes sense and and I think not a lot of people talk about about

7:17Getting intentional about the assets that you have you know it's everyone's talking about like buy more and build and you know grow grow grow and I think there's a point where it it makes a lot of sense to call the heard you know take stock of where where you are in terms of all the assets which ones perform the best which ones are worth your time time in the beginning like you said like you know you you had you were willing to out hustle anyone and you know just whatever is going to make money you got to do but then as you grow you got to be more intentional about it and I I'm kind of in the process of looking at that now you know we have 33 short-term rentals we're adding more currently and it's so hard for me to sell because I sold all my long-term rentals in 18 19 20 and then I watched 21 22

8:0523 like massive appreciation they you know so it's so difficult to sell because you know they're going to go up in value over time but at the same time time is is really important so well and just to clarify I didn't sell any of my real estate I just sold the management company so got it and I I'm a big believer if if you want if you want to build true Financial Freedom you should always be looking at doing something active that either feeds your soul feeds your bank account or has a an opportunity for you to be able to put more towards the passive income right I think a lot of people they they start a flipping business was one example we Ed right and then before they know it they're five years in they're doing 50 flips a year and they've got no time

8:55they look back and they say well what if I would have kept just five of those flips per year you know and I would have 25 rentals right now and then I'd be able to live off my rentals right and and that was something that like everyone's in a different stage of their life right if you only have,000 in the bank account you're going to need to flip properties you need to get more money in the bank account but if you've got some savings set aside now it just becomes a part of like all right what do I want life to look like in 5 10 15 years from now and how do we make moves today to start getting to where we want to go and I say all this to say like you can build a business in short-term rentals an active side

9:44and a passive side separately which is what I did I built a active management business where I owned contracts from people who own the properties and I was able to sell that at a 3X denominator whatever word you want to use there of based on the net value of the business so the 3x of of the annual income or the annual annual net after expenses which was wonderful it was it was a huge blessing and I did it on in in a way that was good for our family which was just basically hey we're going to sell part of this on a note so we still have some income coming in from this for the next five to six years so that we don't have all the money in the bank account and then one day it's gone so and from a tax perspective that's even better too exactly exactly so then I

10:32Said okay well that that meets our expectations as a family right now for the lifestyle we want to live family time travel pursuing passion projects having choices right like that's what Financial Freedom to me is is just having choices but I know that there's this thing called inflation and I know that life changes and I know that some things happen and so what we're doing now is we're just saying if we can add two to three rentals per year to our portfolio which is what we did this last year we added three to our portfolio we can keep up with the inflation we can keep up with all of this and then one day we can say hey kids going to college let's sell one of the rentals or let's refinance one of the rentals and let's pay for college hey you know a life thing happens oh we got 100K of equity here let's go get a HELOC for that or let's sell the property

11:21And that and so you have all of these Assets Now that continue to allow you to live off them but also just in case of emergencies you've got these basically like little bank accounts all over the place that you can pull from yeah yeah absolutely no there's so much that overlaps in terms of our stories because very similarly we did four projects this past year you know and and we're the same way you know as long we we keep a few going at a time and it continues to just build the overall net worth and cash flow and but yet there's enough income from them that it is enough to pay us and live a very nice lifestyle so I think there's there's a lot of wisdom in that I'm curious how you finance

12:09the properties at this point because you know a lot of people who don't have a W2 job or don't have a W2 job enough to support conventional financing yeah run into this obstacle around financing so what what is the strategy that you employ yeah very simply it's creative Finance so and now I still do and I don't know how much your your viewers know about you know like the bur method and and and other things like that we still do those types of things but creative Finance is really where it's at now and the funny story of this is one of my first students that I ever taught how to do Airbnb Arbitrage turn around after six months of building up 50 units 5 Z in six months through Arbitrage he turned around six months later called me and said hey I just bought

12:5830 houses with creative finance and I say you you did what after he built up 50 in Arbitrage exactly yeah did he like age 10 years during that time period you know you'd have to ask him that but he he's just a beast I mean like the guy is an absolute Beast it's hard and so I told I asked him like dude like what did you do and he told me about creative Finance I was like oh yeah Pace I know Pace morby like he's he's doing that but I just never really truly looked into it and to your point if you don't have the credit if you don't have the income and if you just hate the rates today there's ways around it you don't have to use a bank you don't have to be told what rate you're going to have on that house you can create the terms you

13:46can create the deal and that's what my then student now now teacher you could say tells me all the time he said good deals are not found they are created and that's what's great about creative Finance is that I can go to you Kirby who's had your house on the market for 90 days who's frustrated that it's not selling and you don't want to budge on price and I can say to you hey if you're willing to sell this property to me on terms I'd be willing to give you not only the price that you're asking for I might even be able to give you over asking would you be open to that right and that's that's the beauty of creative Finance is that I can take whatever that property is worth to you and find a way to be able to match that maybe even succeed it

14:35and say screw the banks we're keeping them out of this but I'm going to still help you earn interest I'm going to make you the bank or if you already own a house with a mortgage and you're worried about paying your mortgage to that bank then I'll just take over those payments for you and I'll give you a nice down payment can can you explain how you can make that work as an investor because everyone's so fixated on price and so I think the thought of paying above what others are willing to pay you know if it's been sitting on the market 90 days obviously a lot of investors have looked at it they passed by it but you're willing to pay what they're asking or or potentially above that why does that make sense can you can you break that down I'll give you a deal that I just did recently in Indiana that's where I'm at house was on the

15:24Mark what's that that's where I'm I live by the way oh nice what city Val preo oh okay cool not far from Southbend that's where we're investing right now yeah exactly yeah I I'll send you my my Airbnb in Southbend it's we call it the leprechaun Lounge it's 4,800 square feet it's got an Irish bar downstairs it's amazing stocked with Guinness oh yeah well we don't we don't leave the the beer in there but if someone wants to bring it they can but right down the street from this property is another one that was a three-bedroom two bath in an upand cominging area we did the research we knew that there was a Trader Joe's that was opening up across the street we knew that there were a few other things that were going on it's only a mile away from campus and that this property would do nothing but appreciate over

16:12The next couple years because of the things that they're building around it it had been listed on the market for one year and no one had taken it it had been in and out of escrow a couple times listed at 369 the current owner had basically one note left on it it was a HELOC for $40,000 and that HELOC every month was costing them about $600 a month so we said hey we'll take this property off of your hands you'll still own that HELOC but we'll pay you every single month so that you can pay that helck off or we'll take over that for you we we kind of negotiated that either way the payments are being taken care of is the important

17:00Part and they agreed to give it to us at a 4% interest only for the first two years and then 4% plus principal the following two years that payment comes out to for a $355,000 purchase price we ended up agreeing at$ 355 that payment comes out to $1,100 per month for the first two years nice we get one weekend booked and we have paid for our mortgage yeah yeah now if you if I were to go buy that property for 355 through a bank at 7% my mortgage is going to be somewhere north of 2,000 maybe even pushing $2,500 and honestly that wouldn't have been worth it for me at this property the the average income that

17:49We expect to make this property around is about $50,000 for the year so if I'm paying half of that to my mortgage and then a quarter of that to my my other expenses then I'm kind of like well I have a little bit left over well by doing it this way with interest only $1,100 I am going to be netting somewhere in the neighborhood of $25,000 on this property by the end of the year and that's the beauty of being able to do this we worked straight with the realtor who worked with the the seller we were able to do all the terms right there on a zoom call together I'm in California they're in Indiana and we were able to just get them what they needed they just need did and that's the key thing here is that it's not about purchase price it's not about the rate it's about solving a problem for that seller and

18:38Their problem was they didn't have a renter they were eating $600 a month and they didn't want to do put in the money to fix up the property so we said we'll fix up the property we'll own it and we'll give you the cash flow to not only pay for your mortgage but you'll make some cash flow and then after four years we'll go ahead and refinance you out of the property and they'll get their full payment