Episode Transcript
[00:00:02] Speaker A: This is short term Rental Management, the show that is all about short term rental property management with your host, yours truly, Luke Carl.
Short term rental management. Luke, Carl, great to be here. I love you. Happy Tuesday. And I've got a great guest today who I met at a conference about a year ago and we got to chit chatting and, and headed off and here we are doing a little party on the, on the powers that be known as a podcast here for short term rental management. So I've got Gideon Spencer here today. He's, he's in the tech business for day job at least for the time being. But he also owns quite a bit of real estate. He owns a 4 unit and owns a 24 unit, 2024 Key Hotel. So we will dive into the nuts and bolts of that today on short term rental Management. Gideon, how the hell are you? First of all, I love your name and tell us a little bit about yourself.
[00:00:59] Speaker B: Thank you so much, Luke. Yeah, super stoked to be here and catch up. Yeah. So I've flip flopped quite a bit between various industries over the last decade, I'd say. So. Started off with a degree in engineering, mechanical engineering. Knew pretty quickly that I didn't want to sit behind a computer working on models all day. So pivoted to tech, dove in, had a great time with that, and then pivoted to short term rental. So basically my wife and I were both from San Antonio, Texas, but neither of us lived there. So we wanted a place to, to stay when we were in town, like kind of like that, that classic narrative of getting a short term rental where you want to go hang out. And so while we were over there with my tech background just thinking economies of scale, I thought, I want to get four doors so I want to put them all under one roof rather than just going and buying four properties. So we found a four plex, we bought it, we converted each of the units. I did a lot of the work myself and I was trying to pac much learning into that renovation as possible. So one of the first unit did by myself, my wife and I, we stayed in it, literally lived in it, renovating it, fixing it up. And then the next one hired subcontractors and then the next one hired a D.C. and so on. So trying to pack as much learning, how do I get my hands on it myself, how do I contract work out, how do I work with GCS and so on. From there the numbers just made sense, the model made sense, the property was ripping and we tested it. Short term rentals midterm rentals. Again, just trying to pack as much learning in as possible to figure out what I wanted to do in the space. And through that, found that short term stays are my jam. I absolutely love it. I love how the. The tight feedback loops with guests. You can make a change and immediately guests provide feedback. You can create unique experiences and really stretch your thinking creatively with what you want to offer people, which is something that other asset classes in real estate fail to offer at times. And so from there, yeah, I wanted to scale up into boutique hotels, so set my sights on those. And we closed on a 24 unit, and I actually bought a duplex with that next to it. Cause it's kind of a weird deal that we can chat about, but the owner lived in a duplex next door. And so part of the deal is we had to buy their duplex also. So that added a whole. A whole mess to it that we worked through. And yeah, the rest is history.
[00:03:11] Speaker A: Okay. The four. The four unit. So you were specifically looking for a four unit? Because to me it seems like I'm thinking to myself, like, if you're only looking at four units, you're pretty limited on what you're looking for, so. Or did it just kind of fall in your lap and it made sense.
[00:03:25] Speaker B: It kind of fell into the lap and made sense. So at first it was, okay, we just want a place to stay when we're in town. And then I saw the numbers and I was like, I mean, anything I do, I think, like, what would it look like if we went bigger? So I was like, oh, what if we got four? And then looking at the properties, it was actually. So this was in 2021. So when the real estate market was on fire, people were outbidding each other left and right and putting in offers above asking all over the place. And I was like, dude, this market's so competitive. If I want to get four doors, I'd probably have better odds of just going into where there's less competition with residential, multifamily and then just getting more doors under one roof. So, yeah, that's where we ended up with the multifamily. But weren't specifically looking for fourplexes necessarily.
[00:04:15] Speaker A: What. What would you describe the neighborhood like? You know, in other words, are you the only people doing overnight rentals in. In this area, or is it pretty common?
[00:04:24] Speaker B: It is pretty common in this area. So in San Antonio, there's an area called the Pearl, which is the most popping area. It's also really close to one of the largest Military bases in Texas. And so we picked a spot that did short term rentals. But then our plan B was midterm rentals and then our plan C was long term rentals because this is the first deal that I'd bought. So I like, I don't want to mess this one up. I want to plan A, B and C. So we put it in the heart of the most popular area in town for short term rentals. It's near three hospitals, three universities, and one of the largest military bases in Texas. And then also it's, it's an area that was being gentrified. So when I drew. We drove down the street of this property, I want to say There were like 20 buildings on this property and I want to say like four of them were being renovated and five of them had just finished being renovated. So it was, was. Yeah. So to answer your question more succinctly, there are other people in the market. It's not oversaturated because of the regulation. So there's a limited number of short term rentals that can be on our block. But yeah, it is a pretty popping area.
[00:05:32] Speaker A: When you say your block, you mean like your actual city block?
[00:05:36] Speaker B: Yeah. So the way that the permitting works in, in Bexar county or San Antonio is you have a, the like, I don't remember what type of block, but it's effectively a block. So you have like your streets and then you have the, the square block structures are on. There's a limited number of permits that are allocated per block and we actually got the last permit on our block.
[00:05:57] Speaker A: And are there, you know, like stipulations to keep this up? Is there a, is it possible for them to take it away from you? Anything like that?
[00:06:05] Speaker B: So the permits have three year lifespan. So we're actually coming up to the renewal and we've never renewed before, so we'll see how that shakes out. From what I was told earlier on was that if you already have a permit, then renewal is pretty straightforward because they want to keep the people they've given permits to in business. But again, I've never done it before. So we'll see. Hopefully. Hopefully it sticks. But yeah, they are in three year terms.
[00:06:29] Speaker A: And did you ever look into putting tenants in it or is that just literally something that cross your mind?
[00:06:37] Speaker B: Long term tenants?
[00:06:38] Speaker A: Yeah, you know, like somebody moving into it.
[00:06:41] Speaker B: Yeah. So we, when we underwrote, we considered tenants because like I said, plan A was short term rentals, plan B was midterm, and plan C was long term rental. So we made sure that the numbers made sense for long term rentals in the worst case scenario. But we never put long term tenants in there. We have had a few midterm tenants that were with the military that ended up staying for about six months. But generally speaking it's, it's nearly all short term rentals. And then we'll typically have one unit or two that has people staying anywhere from one to three months.
[00:07:13] Speaker A: But I guess what I'm gathering here is that you don't really have any interest in a tenant you, you would rather do overnight.
[00:07:18] Speaker B: Oh, I would rather do overnight, yeah. Short term rentals, 100%.
[00:07:21] Speaker A: And why is that do you think? Is it because of your age? Is it, am I a boomer because I like old, you know, long term rentals?
[00:07:29] Speaker B: No, there's nothing wrong with the long stuff, like with anything. There's nothing wrong with any asset class. I think it's different. People have different interests in what they enjoy doing and what they're willing to suffer for, for lack of a better term.
[00:07:42] Speaker A: Yeah.
[00:07:42] Speaker B: And so I think for me, I like the fast pace of overnight stays. Like I, I like, I like the return profile and of course with that higher return profile it requires more effort to maintain. But I, I do like the faster pace. I can definitely see myself transitioning to longer term stuff once I have the, the capital and the assets that I'm interested in.
But yeah, for now it's just move fast and, and bring the money in and, and create cool is where I'm at.
[00:08:13] Speaker A: Yeah, you know, I mean, I think there's, there's something to that where younger folks, and again, I'm man, not as young as I used to be. But it is appealing to younger folks to do the overnight thing. It is a little more work and I think when you're younger and you're trying to get your feet wet and get your bearings and really try and you know, make something of this whole real estate thing.
In some cases short term does make, it just clicks a little more. It's almost like going out there and grinding it out until you get your feet wet and learn, earn your stripes and then eventually maybe we move into apartments. Although in your case you moved into hotels, which we'll get into that too.
That being said, of course, I do love the vacation home. So how are we managing this thing? What's your setup there?
[00:08:58] Speaker B: Yeah, so I have virtual assistants and then I outsource the cleaning crew. So the cleaning crew, we have a third party that basically we use and we set up Our automation through Turno. So we use Guesty as our property management system. We integrate that with Turno, and then our cleaning team manages their people independently outside of Turno. So Turno automatically schedules a cleaning crew. I have a virtual assistant that is stateside and she helps coordinate things logistically with like, if there's a handyman that we need out there, something breaks or new, new supplies need to be ordered. And then my wife does a lot of the guest communic, but we'll likely be outsourcing that here pretty soon.
[00:09:45] Speaker A: You make it sound so easy. I know. It's very difficult to build those processes and procedures. And you probably had to do a lot of screen sharing and screen recording and things like that to make all that happen, I guess. Let me ask you, why do we need an employee with only four units? It seems. You know what I mean? Like, you can afford to pay somebody to help you with four units.
[00:10:05] Speaker B: Yeah. So our virtual assistant is part time. And so with this, like, we're trying to stay very lean. But to answer your question on like, why not do it ourselves? So we could do it ourselves. But my focus now is shifted towards going bigger. And what I'm always thinking about is how can I remove the items from my life that are.
That are distracting me from the primary goal. So right now the primary goal is to scale. And so the way that I see it is like you break ground into something new and then you build a system that sustains what you've just conquered. And then now you set your focus on the next thing to conquer. So we could manage it ourselves, and we could also manage the hotel ourselves. But if we did that, then our bandwidth would likely be spread so thin that it would be difficult to continue acquiring. So my. My sights are set on acquiring and then putting systems in place that sustain. And so what we've done with our virtual assistant and with our team with the fourplex is put systems in place such that I don't have to think about the fourplex. Like, I probably think about the 4 Plex.
I don't know, maybe like an hour over the course of the month. Or if we're adding value to the Fourplex. Like we just redid our backyard area. We have a great backyard. And so we put a fire pit and string lights and all this stuff that, that really attracts the eye and gets people excited. Like a little gaming area. Like, I. I will shift my focus there just to make sure that the numbers make sense and to make sure that we're going in the right direction. But for the most part, I'm trying to be as laser focused on the goal as possible. And anything else, even if it feels small, I think that's where people make a lot of mistakes is like they, it feels small. It feels like it's not that much to maintain just a few properties here or there. And so they, they do that, but then they ended up getting distracted and they, they neglect to see the, the true cost of that distraction. I mean, even checking your phone, like if you and I were talking right now, and then I checked my phone for a text message, like it would take me a minute to fully re. Engage even if reading the text message only took five seconds. Right. So there, there's a, there's a higher cost for that context switching back and forth that I'm just trying to reduce as much as possible. So to answer your question, yeah, the, the fourplex, it does make enough money to support a virtual assistant and I could definitely run it myself, myself and probably be fine, but it would cost me in Velocity for scaling.
[00:12:37] Speaker A: Talk to me about training that, that va. Obviously you did this yourself prior to hiring them. So what was the training process like?
[00:12:46] Speaker B: The training process took patience. I think that's something that I. So this is my second va and the first va, I made the mistake of just lobbing things over the fence and disappearing. I was like, okay, you cover this, I'm going to cover that. And I'd lob stuff over the fence. Did not work at all.
And that was due to my ignorance on how to properly train people because this was basically the first person that had worked for me. And so with this new va, I committed to just continuing doing the work and bringing her along the journey. So we would do a lot of zoom calls where I'd show her how to do stuff, a lot of loom recordings. I ended up creating a database that she manages and organizes, but a database of how to videos. So for example, reporting the taxes, the hotel occupancy tax is what we have to report for our short term rental. I opened it up, did a loom recording, clicked around, explained stuff, and then I sent that over to her. And so she now has a video on how to do things. But then we're also building up a database, like a full catalog of how to videos. So if she ever forgets how to do something or if we, once we end up scaling and bringing on new support, we can give them access to that catalog and we can tell them, hey, we need you to submit the hotel occupancy taxes for this month, and they should be able to click it open and dive right in. So it was a combination of just patience, of bringing them along and not expecting them to understand everything right away, and then also creating a database of reference material so that they can reference it anytime they need to.
[00:14:23] Speaker A: Yes. Hiring is the most important part of all aspects of business ownership, and it is very difficult. You're making it sound easy. I'm just sitting over here like I'm getting tired, thinking of all the training I've had to do over the years. You know, it's so much work. And then you have to worry about them leaving and training the new person.
And then you sitting there like, man, maybe I never should have left my corporate job.
But, you know, it's just part of being an entrepreneur. I've never had a corporate job in my whole life, so, you know, I just. I don't even know the other side of things. But two books, and I'm guessing you read both of them. I'll throw a couple suggestions out there. First one you've definitely read, which is who not how. I would assume you've read that. Yep, definitely. It touches on these topics. And the problem with that book, in my opinion, is that it, in the wrong hands can kind of make it sound like you never have to do anything ever, which is not even close to the truth. If you want to have other people doing tasks for you, number one, you got to have enough money to pay them, and number two, you've got to train the hell out of them, you know, so. So I did love that book very much, but I feel like it would be dangerous in the wrong hands. And then another book on the subject is Buy back your time, which. Have you read that one?
[00:15:32] Speaker B: I have. Yeah. That's a really good one too.
[00:15:34] Speaker A: Great book. I actually expected to hate that book based on the title. I thought, oh, man, this is going to be so cheesy. And in many ways, it is basically Four hour Workweek part two, which. It sounds like you've probably read that one too.
[00:15:46] Speaker B: Yep.
[00:15:46] Speaker A: Okay, cool. And do you agree, was it very Four hour Workweek? Ish. Although, I mean, before I ask you your opinion, I like them both equally. I read Four hour Workweek way back before I ever hired any or had any money, you know, so it was a different perspective. I. I think between the two, I. I can't decide which one I liked better, but Buy back your time was a more recent read for me, so it's fresh in my brain. I guess my recommendation would Definitely be read both of them. But what is your opinion on the two?
[00:16:18] Speaker B: Yeah, I agree. I think buy back your time is. Is very actionable. It also shifted my perspective heavily on how I view my time allocation. So there's a big emphasis on doing things that give you life and energy and interest you. And before, I was much more of the school of thought of, like, okay, what is the highest return on my time? Like, where can I put my time where I'll yield the most benefit and then I'll outsource the miscellaneous, smaller stuff. That book really shifted my perspective to say, no, what type of work lights you up? Because, like, spreadsheets and planning and organizing, that does not light me up at all. But my virtual assistant loves that stuff. She absolutely loves it. And so for me, it's okay, she should do that because that's the stuff that brings her joy and I hate. And then for me, the things that bring me joy are analyzing deals and creating systems. So it's like, oh, I'll do that. Even though before it was much more like, the stuff I lobbed over the fence to my previous assistant was like, hey, we need systems in place so that the cleaners know what to do and everything's integrated and whatever. And I was working on things that I thought were more important, but they didn't light me up. And so there's this. This disconnect. And so ever since I shifted it to, okay, what lights me up and what time of day am I most lit up? Like this podcast. This is in my, like, peak stoked window, where I'm just like, okay, if I'm going to record a podcast with Luke, I want to make sure that it's scheduled during the time of day where I'm the most stoked. And I'm doing the thing that stokes me the most, which is talking to people like you or being on podcasts or whatever else. So, like, shaping my day around energy and outsourcing the things that suck the life out of me has been the biggest game changer and probably the best, like, distillation of that book that I can think of.
[00:18:08] Speaker A: So you're a morning guy in general, Is that what you're saying?
[00:18:11] Speaker B: I'm an earlier in the day guy. I don't know if I'm like, a ride out of bed, but, yeah, like out of bed for one to two hours and I really start getting ramped up.
[00:18:20] Speaker A: What time do we wake up?
[00:18:21] Speaker B: Oh, that's all over the place. My wife and I are pretty nomadic, so we actually don't have a home base so we're traveling so often that my, my hours and clocks shift a lot. But I would say in general my sweet spot is about 7:30. You wake up at 7:30, wake up at 7:30.
[00:18:38] Speaker A: And where are you in the, in the world?
[00:18:40] Speaker B: Right now we're in San Antonio, Texas visiting family and but we're going to end up moving to Austin here in the next month or so.
[00:18:49] Speaker A: Okay, wonderful.
Are you a real estate agent that wants to work in a fun family environment? Then join us at the short term shop.
If you are interested in moving to the beach to sell houses, we can help. Theshortermshop.com careers we are hiring in the best vacation markets in America.
If you are a rockstar agent or want to become one, please contact us. The Shorttermshop.com careers all right, well I do want to point out that hiring somebody to help you with just four units is not normal. I think you got a screaming deal or something there. I don't want the listeners to say all I have to do is buy four units and I can hire somebody. I think in my opinion, anyway, you're generally going to hire, if that's what you want to do, an actual professional property manager that has systems and processes of their own. Of course that's going to cost you more money. It seems like you were looking for more of a hybrid kind of a vibe there and it just worked out, which is wonderful.
So you go stay at this property and we're living the dream and moving around and having a good time basically. Basically, yeah.
[00:20:07] Speaker B: That's the goal. I've, I've always prioritized freedom and interest over nearly everything else. And there were times earlier in my career when I took pay cuts and different things like that, but I wanted to focus on things that would like light me up and, and just make me really, really stoked to be a part of. And so as a result, yeah, like this hotel, it's in Solvang, California which is near la and then my property is of course in San Antonio. And so like getting to travel back and forth and see those different areas and enjoy the weather while also being able to work remotely and road trip. Like my wife and I, we took four months off and went to Europe and just hung out and I realized that's way too long. It's not as like cool as it seems. You're like, oh, I wish I could do that.
It's hard to be away and, and wind down for that long. And I'm glad that I experienced it earlier on in life to realize like, oh, the thing that I was working towards is actually not the thing that I want. So in the process of shifting what I'm actually like working towards in life. But yeah, I've always prioritized traveling around. And there is a way to do that in real estate with like being able to work remote. Like, you don't have to be shackled to your properties. There are systems that you can put in place and of course you have to check on them regularly. Like you alluded to earlier, Luke, like, there's no such thing as a, as a free meal. There's no such thing as passive income unless you're willing to get robbed blind. You know, so you do have to visit and see stuff and train people and make sure systems are in place. But, but yeah, there is a way to, to structure your life and be disciplined with deals where they do cash flow well enough for you to get excited. And they are deals you get excited about. And with the right systems in place, it can come along.
[00:21:51] Speaker A: So let's talk about the day job real quick if you don't mind. You know, we come across so many folks that are trying to get out of that day job. Am I getting the vibe that you do somewhat enjoy it? Do you, do you think you'll keep it for a while? What is the, you know, just getting to know you personally here. What is the, with the. Is it a W2 or.
[00:22:11] Speaker B: It is a W2. Yeah, it's, it's a, it's a. Well, it's a W2, but it, it works more like a consulting gig. So I work with a software agency out of the Bay Area where we build tech products for everyone from startups to large scale enterprises. So we'll build like mobile apps and websites and custom custom crazy stuff, integrate AI, all that, all that jazz. And so it's, it's pretty flexible. My, my workload is dependent on what projects are coming up. So I will go through lulls of very little to do and then waves of just drowning in work. So that's, that's what I try to work with. I don't, I will not be in it forever. As of right now, it works really well because something that not a lot of people realize, like they think of, oh, you have a hotel, you must be loaded now. But that's not actually the case. When you buy a large scale asset like that, you may, you tend to make money off of the refi and the exit down the road. And so what I've Done is I've balanced out this like long term wealth building play with the hotel and with the quadruple and then also the cash flow play with income on the side until I can build enough momentum with the real estate or some other revenue stream to where I can, I can leave that tech job. But I mean, as of right now, I enjoy it, so I don't consider it too much of a burden at all.
[00:23:31] Speaker A: Okay, great. I like it. Keep the day job, man. I really think you should. I mean, I don't know you, but too much. But I think, I mean, where are you gonna get the cash for more real estate? You know, I think that's what people always forget. It's like, oh, I just quit my job, whoops. Now I can't buy that real estate that I was trying to buy.
[00:23:46] Speaker B: But yeah, but to, to jump in quickly on that one with this hotel deal.
With commercial real estate, it's different in short term rentals in that when you acquire a commercial asset, the typical structure, especially for syndications, involves an acquisition fee. So it's typically anywhere from 1 to 5% of the purchase price of the asset. And so with this hotel that we bought, it was a $6 million hotel. We raised $3 million of it. We raised $3 million to close and then add renovations. And so the acquisition fee was 250 grand. That was given to the general partners, which are the people that are actively looking for the deals and running it, et cetera. So that was me and three other people. So that 250 grand was split between us and then, so it was 260, 242, 60, whatever. I ended up getting about 60 grand and I rolled that into the hotel deal. So basically, like, this is where the game is different with commercial than, than residential is that with commercial real estate you can go raise capital and buy an asset and actually get paid to buy that asset. Now of course that sounds, you know, like daisies and sunshine. Why wouldn't you just do that all the time? And the answer is, because it's pretty hard. Like you're not just going to buy 12 hotels right out the gate after deciding, like, it takes a lot of work. Which is why commercial real estate has that acquisition fee baked into it. But yeah, with that hotel deal, we bought it and I actually made money on the deal, even though I invested my own capital into it.
[00:25:22] Speaker A: Yes. So I've talked about this a thousand times and it's great to have you on to explain it from firsthand perspective. I went into apartments As I grew and became, you know, a grown up, eventually, you know, you're going to outgrow single family homes, but the vacation homes are much more fun. I'm very liable to buy a vacation home today because, you know, personal use, family wants to use it, that kind of thing. As far as single family homes. But when it comes to regular real estate, I'm, you know, these days leaning more towards apartments. Which hotels are the overnight rental version of apartments. And I've said it a thousand times, when you get into real estate, you are going to run out of money. You are going to run out of money, okay? And I don't care how much money you've got, if you go buy real estate, it's extremely expensive.
Now, that being said, there's plenty of folks out there. You know, you get into real estate and you start to realize how many people have so like a ridiculous amount of money. And you didn't realize that, you know. Yeah, but if you're a guy like me or you and started out with nothing, you've got to figure out how to grow and commercial real estate is the path 100%. You can't buy single family homes with other people's money. People are doing it. I get it. There's tech, fester, et cetera. There's guys out there that are doing it. But in my opinion, it doesn't work. You got to go into commercial real estate where the property is valued based on how much it makes. And that is the biggest difference between single family and commercial real estate. You can have an overnight rental that makes $2 million a year and it's still worth exactly the same amount as the house right next door that's not even being rented because it's a single family. But once you get over five units, five and up, commercial real estate, you can start working in the rent rolls and the income to the value of the property. You know, this is into the cap rate.
So for whatever reason, when people first get into real estate, they don't realize this exists. And then when they finally do discover it, they're like almost like they're let down or something. Oh, man, somebody's already done this before. I thought I invented it, you know, but again, Grant Cardone, he's probably the biggest example. Everybody knows him. This is what he does, at least in theory. I don't know him personally. He's got a lot of irons and a lot of fires and I'm a big fan. But that's the biggest name in this space. Of course, Jake And Gino. Now these guys are all apartment guys, rich summers in the hotel side of things. But it's a wonderful thing. It's got a 506B or 506C. See Bravo or Charlie, based on who is, you know, where the money is coming from. And you can bring in outsiders money and go buy larger assets, fix them up, make them rent for more than they did when you bought it. Now it's worth more. And then, you know, in theory, the idea would be to trade the asset or sell it after five to 10 years in most cases. Some people want to hold them the whole time, et cetera. But you're going to want to read all those business plans that are coming from the syndicator. So anyway, you've been through this on this 24 units. So let's break that deal down, man. First of all, it's 24 units. Where is it?
[00:28:25] Speaker B: It's in Solvang, California. It's kind of a kitschy little Danish town. And it's about an hour and a half away from LA and 45 minutes away from Santa Barbara. So it's in the central California wine country. And for anybody who's read the, the book you and Avery put out, it's a regional travel market. So I actually, I actually studied, looked at the market data based on after I read Yalls book, looked at the market data and found that this being a regional travel market, it did support the thesis that you guys put in there, which is that whenever there's an economic downturn, people don't stop traveling, they just change their travel habits. So rather than going to Vail for a week on a ski trip, they're going to drive down to their local central California wine country and spend the weekend down there. And over this last year, we saw about a 10% dip nation nationwide for hotel stays. But in our market, it actually increased by 5%. So that's a major strategy of ours is of course, in real estate, the three most important things. Location, location, location. We picked a market that would, that would respond to economic downturns in a healthy way. And so that travel market that was within 30 to two hours of a couple major metros was a big play for us. That panned out well over this last year.
[00:29:49] Speaker A: Okay, great. 1224 units. Purchase price was 6 million. All right, hold on. We'll do a little bit of math here. What's the per unit? Well, I guess you called keys, right. So what's the per unit price?
[00:30:02] Speaker B: Well, this one, it was a little weird because like I mentioned part of that price was a duplex, which. Which made the deal pretty hairy because we had a commercial hotel, 24 units, and then next to it, we had a residential asset which was a duplex.
[00:30:17] Speaker A: And the duplex was. Was included in the 6 million.
[00:30:20] Speaker B: Yes.
[00:30:21] Speaker A: Okay. So my brain. I just want to do the 6 million divided by 26. You know what I mean? Okay, yeah, well, let's do that real quick. Divided by 26, we're at. That's $231,000 a unit. That's a lot of money, at least where I buy real estate. So. But this is California, so I don't really have any frame of reference there. Is that pretty recent? Is that a pretty decent price per door, or is it high? Is it low?
[00:30:44] Speaker B: For this market, it was solid. So for this market, we purchased it about 20% below the standard market rates.
[00:30:53] Speaker A: Wow. Okay, cool. I just sold 36 units.
Let me think here. 650, maybe it's been a while.
[00:31:01] Speaker B: Divided by 12.
[00:31:02] Speaker A: Yeah, I just sold some units at 54 units. So, you know, 231 a unit to me is like, holy crap. But again, California. I don't know anything about it. So. So it could be completely reasonable. All right, and how much rehab are we talking here? Like, can you paint a picture of what it was? What it. Was it in. Was it in service or was it run down?
[00:31:20] Speaker B: It. It was in service, which was another part of our risk mitigation approach. So we wanted to buy a property that we could immediately add operational improvements and cash flow while we went through the permitting. Because to paint a picture for you, there was. There's not a square into this property. That gut wasn't being touched, so it didn't need a full gut. But about 75% of the bathrooms are being completely redone. Everything inside is getting repainted, and everything else on the outside, we're getting repainted. Touched up. A lot of the wood was rotting, so we were replacing some of that. And then our. Our big differentiator was the outdoor spaces. So there's a really large outdoor front garden and a really large back garden. And so we are doing a complete overhaul of that. So we ripped up effectively both gardens fully and are redoing it. So about 1 million of what we raised is going into the renovation, just to put it in perspective.
[00:32:16] Speaker A: And that's 6 million. In other words, 7 million or 1 million of the 6 million on top of it.
[00:32:22] Speaker B: So, yeah, 6 million was.
[00:32:24] Speaker A: Yeah, okay, cool, cool. I'm actually going to pull this thing up on street view and poke around here. It's in California, but go ahead, tell me about this little town here in Solvang. It's so cute.
[00:32:33] Speaker B: Look at this. Yeah, it's a. It's a kitschy little town. So in the 40s, the Denmark, I guess there was some economic turmoil over there. So a bunch of Danes came over in the 40s and basically built this town and began developing it. And the funny thing is that they picked this location because it was so affordable, which is ironic because it's in California. And so, yeah, they built up this town. So a lot of the structures, you're. You're looking at some of the houses right now. The closer to the town center though, you see a lot of very kitschy, like Danish structure and architecture. They have a bunch of amazing festivals, which is great because in the winter they bring in a bunch of festivals. And so it smooths out that. That curve of when people are traveling to the area. And our hotel is actually the first hotel in Solvang. It used to be an apartment that was converted to a hotel in the mid-50s.
[00:33:32] Speaker A: This is a small town, right?
[00:33:35] Speaker B: It's very small.
[00:33:36] Speaker A: Yeah. I mean, we're not, in other words, we're not trying to get the listener excited about buying real estate in this tiny little town. We're just trying to paint a picture of what, you know, what's going on here, Right?
[00:33:45] Speaker B: Yeah, I don't.
[00:33:46] Speaker A: I don't even know that it would be possible to repeat what you're doing here, but. But let's look at that. This is the actual property here, right?
[00:33:52] Speaker B: Yeah, that's the actual property. You may even be able to.
Oh, yeah. So this is, this is a view of what it used to look like when it had a bunch of shrubbery and greenery that was blocking things. But yeah, that's it. So the roof looks great.
Yeah. And it's, it's one of those places, like, I've heard Grant Cardone mention this and a couple other people. When we showed up and, and we walked in, it was like we instantly knew that this was the property with how many properties we had looked at. And just to give people some perspective on the opportunity for operational improvement. So my strategy is always hedge for the downside, but keep that upside. And so what I mean by that or how we apply that is we looked for a property that would cash flow from day one, but still had a lot of upside with value add and different things like that. So this property, just to tell a brief story, we showed up My wife and I showed up at 10 o'clock at night. The first time we go to the front desk and there's a sign with a phone number written in Sharpie on the front of it. We call the phone number. We woke a gentleman up, asked him where our key was, and he said, oh, your keys are on the side of the building. So we walked around the side of the building. We found an envelope with our name on it. And when we opened it up, there was a hand drawn map of where our room was and a physical metal key. And so things like that, those operational improvements, I mean, that's like when commercial real estate, like you're saying, Luke, where the value is based on the revenue that it generates. Something like that is a hundred thousand dollar value add. Like you spend 15 grand on new locks in a new system and then you've added 100 grand value to the property. Another example is half of the units didn't have hot water.
And so we looked into why they didn't have hot water. And it turns out that half of the guests that stayed in those, those rooms got full refunds. So the hotel was hemorrhaging money from these, these units not having hot water. When we looked into it, it turns out it was a $50 valve that needed to be replaced. So by the time we paid the plumber to replace this valve, we probably spent $300 total to fixing it up. And by not getting, by not having to refund those new guests, we probably added about $200,000 in value to the property. So it's like little opportunities like that where we buy the asset, we make sure it's cash flowing, but then we can implement these operational improvements like automating the check in process, replacing this valve so that the units have hot water that end up compounding. And you don't get returns like that in residential, because residential it's based on comps, whereas in commercial it's based on the net operating income.
[00:36:33] Speaker A: So I like this deal. I think it's cute as hell. First of all, I don't know anything about the numbers. Maybe we can dive a little bit into the numbers, but I think that that little hotel, first of of all, it's got a great roof on it. And to tell me with this, this hot water valve, that just tells me that this is an owner that's just old probably and over it. And did you get any intel on the owner? I mean, I honestly, I don't really care. I think, yeah, people take too much stock and oh, the owner the person selling it, they want to know, like, their entire life history. Who gives a crap? People try to. People sell real estate all the time. Who cares? But did you get any? Was. Was it an older person?
[00:37:07] Speaker B: It was. Yeah, it was. It was a 90 year old woman who was running the hotel. More to like she want to do. So. They even told us up front they were like, we're not trying to optimize this thing. We just. We want to have something to do to keep us sharp and keep us in the game. And by that point, when. When we purchased it, she was ready to retire. So they were very, very great with negotiating and making sure that we got it across the finish line.
[00:37:32] Speaker A: Yeah, this is somebody who's, you know, 90. Makes sense because this is somebody who's having enough trouble, you know, doing grocery shopping that she doesn't need to. She's probably last thing on her plate is this damn water valve, you know?
[00:37:45] Speaker B: Right. Yeah.
[00:37:46] Speaker A: So. And there's people are out there, and those are who you're looking for. This is why you get into commercial real estate. It's the finding of the deal that is so exciting in commercial real estate, you know, and then once you find it, you're like, okay, I gotta go do that again, because that's what I really like about it, you know? But again, and for the listener, I want to point out, you know, this is six. He's got $7 million into this 24 unit, and you're sitting there like, well, hell, I can buy a house in Destin for 2 million and rent it out, and that's only one house. Or I can buy 24 keys at this guy's place in California here for 7 million. Maybe I need to go the 24 unit route now. You know, it's not all. This is not for everybody. Commercial real estate's not for everybody. If you're a doctor making big money, want a house, a beach house, that's a completely different candidate than what Gideon's talking about here for this 24 unit. Not only are you dealing with one set of guests versus 24 sets. Set of guests, but the financing is a completely different ball game. You know, single family homes are easy in the grand scheme of things. I think people get spoiled when they're starting out in real estate. They don't even realize how easy it is in single family. You get a 30 year freaking loan. I mean, what are you. What are you talking about? 30 years? You ain't getting that in commercial real estate. So good segue into the. Into the Debt. What did. What. How did we structure the debt on this thing?
[00:39:00] Speaker B: So this. It was. It was pretty complex just because we bought the duplex with the hotel. So for the Hotel, we did 30% seller financing at 5% interest, which last year was insane.
[00:39:13] Speaker A: Did she know what that was? Did you have to explain it to her?
[00:39:17] Speaker B: She knew what it was. Her son was in commercial real estate and set her up with. With it. So, yeah, she was operating it, but her son was like the. The commercial real estate person. 30% from the seller. We raised equity for 20% of it, and then we got bridge debt or private money lending for about 50% of it.
[00:39:41] Speaker A: Did the bridge lender find you the deal?
[00:39:44] Speaker B: No, the bridge lender didn't. One of my partners. Okay, so, yeah, I had two partners originally, and we were hunting for deals. We each got different territories that we were basically combing through, and one of my partners found this one. And then we brought in a seasoned operator who had been in the game for 30 years, had 15 hotels himself. And so that's back to the who, not how that you're talking about is like, I would much rather get a bigger pie and split it up and bring in rock stars and keep a piece myself rather than have a smaller pie where I get a hundred percent of it myself, but I also get 100% of the problems, and I'm trying to figure out things myself. And I'm paying what my friend calls the stupid tax, where you're trying to, like, learn everything and making mistakes along the way. I would much rather get a big pie, bring in rock stars who I know can perform, especially to manage that risk when you're talking about a $6 million deal. Like, I can't afford for that to go south. So I'd much rather make sure it's big enough that we can bring absolute rock stars on. And then I keep a slice myself, and that slice is going to end up being just as big or in some cases bigger than if I had a tiny pie out of myself.
[00:40:52] Speaker A: Love it. Explain to me the debt or the. The race? So 20% of the well, which ended up being your down payment, I would assume, basically was the raise.
[00:41:01] Speaker B: Yeah.
[00:41:01] Speaker A: And where does that put that? At 2 million.
[00:41:05] Speaker B: So we ended up raising 3 million because there was also the house, so the duplex that we bought, and they're adjacent to each other, so they actually have a really great synergy being next to each other and sharing a common space.
The house, it was 30% seller financing, 50% bridge debt. Like we were talking about. And then 20% subject to.
And that subject too was, I think it was like 3%, three and a quarter fixed for another like 20 years or something.
[00:41:38] Speaker A: Was it the same seller?
[00:41:40] Speaker B: It was the same seller.
[00:41:42] Speaker A: And she had a conventional loan on that duplex.
[00:41:45] Speaker B: Yeah.
[00:41:46] Speaker A: At 90 years old.
[00:41:48] Speaker B: Yeah. So that, that's part of what made this deal so hairy is the financing because they said you have to buy the house with the hotel. And I think that scared a lot of people off for multiple reasons. The, the capital stack was, was really complicated. We'd had to get multiple loans and it was just a lot more work and a lot more things to work through. But I think that ended up scaring off a lot of the other buyers who would look at it and say, oh no, I'm just in hotels, I don't want to deal with the residential asset. But when we ran and when we ran the numbers, the residential asset actually hurt our numbers. Because like, like we were talking about before, there's so many levers in commercial real estate with where you can increase the value of an asset that having a residential asset attached to it, it was kind of a leech that was really hurting our numbers. And fortunately the seller was willing to negotiate with us in a way where overall our numbers made sense. But we ended up just keeping some long term tenants in there and we've, we've blocked off the property and hyper focused on the hotel. So that's where we were able to get our return.
[00:42:46] Speaker A: I love it. Man, this is so cool. The. Okay, the raise, the, the downstroke, what was this? A 506B?
[00:42:54] Speaker B: It was a 506B.
[00:42:55] Speaker A: And explain that. In other words, you filed with, you know, explain the whole process there to get the raise going.
[00:43:02] Speaker B: Yeah. So anytime you raise capital from someone and they don't have an influence over whether that investment goes up or down, it's considered a security. And so it's regulated by the Security Exchange Commission. And so basically there are different, there are different ways you're able to raise capital to make sure that you're compliant. One way is a 506B, the other is a 506C. If you raise a 506B, then you can raise money from friends and family, but you're not allowed to market it or solicit to people who are not friends and family. If you raise a 506C, you are able to market and solicit to people outside of friends and family, but they need to be accredited investors. And it's a much more Stringent like review process to make sure that they are accredited. So what we did is we went the 506B route so that we could bring in friends and family who weren't necessarily accredited. It's much easier to get them in. The review process is much less stringent. And our plan was you, so you can go from a B to a C, but you can't go from a C to a B. So our plan was raise as much as we can from friends and family. And then if we ma, if we run out of capital, basically, and we need to market to a broader audience, then we would pivot to a 506C. But fortunately we ended up not having to do that because we were able to, within the general partners, raise capital and get everything across the finish line.
[00:44:26] Speaker A: And what was that? What was that like? We're going to family members, we're going to, I mean, basically anybody in your town is.
[00:44:31] Speaker B: That was a beating, Luke. Raising capital is like you have a rope tied to your feet and you're being dragged through the streets and you're like trying to stand up and run because not, it's like capital raising in of itself is a challenge, but having a finite window to work it. So we had 45 days to raise the capital. And the way that we approached it, I'll just give everybody the playbook of what we did. So first of all, if you know you're going to raise capital at any point within the next year, let's say, then start raising capital today, literally after this podcast. Reach out to people and let them know what you're doing because it requires a lot of engagement and warming them up. And I would, was, I was fortunate in that I had started posting content regularly about buying the hotel. And so there were people who were familiar with what I was doing. So by the time I reached out to raise capital, I at least had like a warm intro where people knew what I was doing and they were interested and I could see who was following me and who was engaging and stuff like that. And people that I had built rapport with. It was actually somebody who I talked to him. I, I, we set up a call to chat about the deal and like 30 seconds in, he, he said, oh, no, dude, I, I know you're doing. I, I've been following you for a while. I'm, I'm down to raise 40 grand or invest 40 grand. And it was like the easiest 40 grand I've ever. I like looking at the ROI on my time. I was like, yo, putting out Content is the way to go. So for anybody listening, like, building in public is one of the biggest levers that you can have. But I digress. So back to the capital raise.
Releasing it to everybody, letting everybody know what you're doing. And then even before we had a deal, I was letting people know, hey, this is what I'm doing. I'm looking for a hotel interested in raising money at some point. Is this the type of thing that you'd be interested in investing in? And I didn't come to them asking for anything, which is a big point. Right? You don't want to just call up your buddy who you haven't spoken to in five years, and say, hey, can I have some money? So instead it was, hey, this is a thing that I'm doing. Would you be interested if a deal ends up coming up? By the way, how are you doing? How's the family? Like, I would never just reach out and act friendly and then ask them for something, because that feels so slimy to me. And I don't think people sense that. But instead, I would basically open up with the ask and then ask how they were doing. And then through that, we ended up getting a bunch of people who were interested. We found the deal, we threw together a slide deck, and we actually did a webinar on the capital raise. So we got. Got 83 investors on one call to go through everything, and that freaks a lot of people out. I think that's one of the biggest levers is having a bunch of investors on the call to ask questions. We also brought our cpa, our attorney on the call, and so we. We looked like a professional team, we understood our numbers. And of course, that's a big.
I mean, that's a. That's a big inflection point, because if you. If you totally flop, then now all of your investors are gone. But it has opportunity for you. Really nail it, because investors get fomo. If they see that other investors are interested, then they'll get excited and want to invest themselves. So. So 83.
[00:47:44] Speaker A: How do. I mean, how do we pull off 83? It's not like you're Cardone and everybody wants to get in on your action. You know, I mean, I don't even know if. If that's what it's like for Cardone, but you know what I mean? Like, everybody knows who he is. So how did. How'd you pull off 83? That's a lot, right?
[00:47:57] Speaker B: Dude, we were. I was literally messaging everybody that I had ever come across, like, in my Entire life. And that is another, like, important thing, because you never know who's going to invest. Like, there are people that I thought, oh, they'll for sure invest that didn't invest, and then people that I hadn't talked to in a decade that I thought, there's no way they're going to invest. And they did invest. So you really just like, there's no crystal ball. Timing is super important. And like, everybody's life, their timing is different. People have different amounts of capital at different times. So you really just have to tell everybody. And then literally all four of us, my partners and I, telling everybody that we knew. So. Except for the operator who had been in the game for 30 years. He was very selective and nailed it. But, yeah, you just have to tell people and get as many people on a call as possible.
[00:48:42] Speaker A: Love it. Love it. What's next? Are we going to do another hotel?
[00:48:46] Speaker B: What's next is I'm gunning for a landscape hotel. So a hotel that has insane views where the nature just really swallows people whole. So whether it's a micro resort set up with independent structures or whether it's a single structure with an insane view do I'm less interested in. But right now I'm gunning for. Yeah. Something in nature that really just takes people's breath away.
[00:49:09] Speaker A: Okay. I mean, all I hear is another hotel. You know what I mean? Like, but you're looking to have like a, you know, a kitschy kind of a thing. I guess it sounds like whatever the word is that I'm looking for.
[00:49:20] Speaker B: Yeah, basically. Yeah. A hotel where the nature just takes people's breath away.
[00:49:24] Speaker A: Okay. I mean, what brought that on? Are you a nature kind of a guy, Dude?
[00:49:28] Speaker B: Yeah. I love being in the outdoors. And, well, two things. One, I love being in the outdoors. Two, the return profile on them is absolutely preposterous.
I was looking at a deal, and the returns were about 35% annualized. And the reason is because if you find a spot that's out remote in nature, A, the property tends to cost a lot less because it's more remote, and then B, you're able to charge a lot more because people are trying to escape and they're looking for that nature vibe. And if you can make it it, like, elevated enough where people are willing to pay those premium amounts, then the return profile is just. It's just insane. But, yeah, also it's just I want to. I want to build stuff that I actually enjoy, and that lights me up. And that's the type of thing that does.
[00:50:13] Speaker A: That's what I'm talking about. All right, great job. Okay, man, listen, great story. I love that hotel. You didn't even hit me up. I might have gotten in on that.
[00:50:22] Speaker B: But I'll call you for the next one.
[00:50:24] Speaker A: Yeah. All right. I thought. It's a very cute property, man. I don't like to use that word too much, but that's the. That's what I would call that thing. It was cute. Cute, you know?
[00:50:30] Speaker B: Yeah. Yeah.
[00:50:31] Speaker A: And the roof was a great shape. They were definitely taking care of it in some capacity because it wasn't. Didn't look run down or anything.
[00:50:37] Speaker B: Yeah, the bones were good. The bones are good. We're really just. We're. We're cleaning it up, making sure everybody has hot water and bringing it to the 21st century.
[00:50:44] Speaker A: Well, how do I find you on. I guess on the Insta. Etc. You know, I want to get in on your next deal.
[00:50:50] Speaker B: Yeah. So you can find me on. Mostly on Instagram, but I'm on all platforms. Gideon Spencer. Underscore. So that's my name. G I D E O N S P E N C E R Underscore.
[00:51:00] Speaker A: I'm gonna you right now. Well, listen, man, I had a great time. I'm super psyched for you, brother. You're doing cool stuff and it's hard. It's so hard. You know, everybody makes it sound like butterflies and rainbows all the time. And. And I know that you. You worked your ass off and. And again, you had other people in there working their asses off as well. So it wasn't just, you know, like the. The. The small piece of a big pie. I love that. Very good stuff. Well, I appreciate your time. You read a lot of books. I'd love to have another book suggestion, something you've read recently that really sparked your interest, if you don't mind, because I need a new book.
[00:51:35] Speaker B: Yeah. So I will say.
I'll say two books. One is essentialism, and I don't remember who the author is, but it's basically how to cut out the. And distracting things and just get laser focused on just the essentials so that you can move the needle and progress. And the other, I would say is called Going Pro. I think it's Steven.
I don't remember the last name of the author. But Going Pro, it's all about like getting dialed and fully pouring yourself into whatever your goal is and not just like tiptoeing around it. And the way that it frames it is very good. So I'd say those are the two. Those are the two that hit me the hardest recently.
[00:52:17] Speaker A: Love it. I have not heard of either one of those. I'm going to download them right now and follow you on Instagram. Dude, I'm so glad you reached out, man. Had a great time. Time. And I'm so glad that you shared your. Your favorite part of the day with me here on Short Term rental Management. So I'm going to text you and we're going to be best friends. So I appreciate that.
[00:52:35] Speaker B: Hell yeah, man. I appreciate you having me on. It's been a blast.
[00:52:37] Speaker A: My pleasure, My pleasure. So on behalf of Short Term Rental Management and Gideon Spencer. Don't overthink it.
