MI294: Making Airbnbs Simple, Passive, and Profitable w/ Sief Khafagi

0:00You're listening to TIP. I realized I was living in California and taxes were a thing. And I had to ask myself, how can I lower these taxes? I started getting involved in real estate, whether it was single family or multifamily and just learning more about how I can defer taxes. And at the same time, I was staying in dozens and dozens of Airbnbs over the course of those five years for my job and hiring and recruiting and learned how poorly ran they were at the time by mom and pops. So that's the short story of kind of connecting the dots with both sides of the coin there.

0:37Hey, everybody. In this week's episode, I got to sit down with Seif Kafagi to learn all about how his company, TechVestor, makes investing in Airbnbs simple, passive, and profitable. You'll learn about his early career at Facebook, how he's gone about building a vertically integrated short-term rental company, what gives TechVestor their competitive advantage, and what trends Seif is anticipating in the short-term rental market. Seif is an ex-techie turned real estate investor who's helped thousands diversify into real estate after spending nearly five years at Facebook. He's syndicated acquisitions totaling more than $100 million while designing and developing more than 125 properties.

1:13Today, he's the founder of TechVestor, which helps real estate investors and busy professionals passively invest in the emerging asset class of short-term rentals, aka Airbnbs. I loved hearing about how Seif has built TechVestor, and if you enjoy founder stories or are into learning more about the short-term rental market, be sure to check this episode out. And so, without further delay, let's get into this week's episode with Seif Kafagi. You're listening to Millennial Investing by the Investors Podcast Network, where your hosts, Robert Leonard, Patrick Donnelly, and Kyle Greve, interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

2:03Hey, everybody. Welcome to the Millennial Investing Podcast. I'm your host today, Patrick Donnelly. And joining me today is Mr. Seif Kafagi from TechVestor. Seif, welcome to the show. Thanks for having me, Patrick. I'm happy to interview you today. I had the pleasure of interviewing one of your guys that's in charge of acquisitions, Taylor Jones. Had a great time learning about TechVestor. But I want to hear more about your story. You've got a really fascinating story. We've kind of touched on it a little bit before the interview started. I wanted to hear a little bit about your kind of experience early days while you were working at Facebook.

2:36You worked there for five years, just getting involved in real estate. So you've got this tech background, but you're also in the Bay Area working, living, doing a lot of traveling. Talk to me a little bit more about just how the interest in real estate got sparked. Yeah, I was in a very privileged position being in the Bay. I was working for one of the biggest tech companies in the world during a time of growth. And I was being paid very well, living as a single male in the Bay, workaholic. And all of a sudden, I realized I was living in California and taxes were a thing. And I had to ask myself, how can I lower these taxes?

3:12I started getting involved in real estate, whether it was single family or multifamily and just learning more about how I can defer taxes. And at the same time, I was staying in dozens and dozens of Airbnbs over the course of those five years for my job and hiring and recruiting and learned how poorly ran they were at the time by mom and pops. So that's the short story of kind of connecting the dots with both sides of the coin there. So you mentioned single family stuff, multifamily stuff. Were you doing that on your own or as an LP? A multifamily I was doing as an LP. Single family, I was trying to buy a couple here and I was getting into the idea of like out of state investing and remote investing and buying things that worked.

3:51Interest rates were normal at the time. I had the W-2 income that banks loved and things along those lines. So I was trying to do things actively, but I also realized very quickly that I did not want to be active in the long-term rental space. The reason for that is, and I wouldn't know why until much later, but there's no true operating advantages, in my opinion, as a long-term rental owner. You kind of set the rents and you kind of hope for the best. You can operate somewhat better than other people, but you can't really drive significantly better revenue than others. The market sets the comps or else you just don't rent.

4:26And I didn't like that, right? As a creator, as a builder, you know, and someone who typically wants to excel in a space and get more outsized returns, I asked myself, well, how could I make this better? How can I be the best performer in this asset class? And obviously I was staying at a bunch of short-term rentals and I saw how poorly they were operated. Same single family asset, but different operations. And I was like, I can be better than that. I can do better than that. And that's kind of where the journey would start. I'm curious about you as a kid, did you have any side hustles, entrepreneurial ventures that you did?

4:58Was that part of your DNA growing up? I did. I did. It's funny you ask. So I mean, I started probably dozens and dozens of things that ultimately failed, whether it was in hours or months, right? Whether the failure rate, everything from selling on Amazon used to flip cars. You know, that's actually how I put myself through schools, flipping cars. And I started a business for youth kids for like summer camp. Ended up selling that like three months after. It was my first big check that I ever got. It was a five-figure check. And I was like, oh my God, this is amazing. I can just start businesses, build them, scale them, and eventually exit them.

5:32So I did that. And then I would eventually in college, I was really good at interviewing with companies and it was mostly soft skills. And a bunch of my colleagues had the technical skills, but they didn't know how to interview. And so I built a small startup that would help folks get and break into big tech, Google's Facebook of the world. And, you know, that worked out pretty well until Facebook called and said, why don't you bring those skill sets inside instead of telling all our secrets to everyone outside. So that's kind of how the journey would eventually progress. That's awesome. I've found that's kind of a common theme among a lot of the people that I interview is like they've often had at a young age, they've gotten involved in some kind of side hustle or entrepreneurial gig, small business, whatever.

6:12Sounds like you had a ton of different things that you were doing. I wanted to hear more about that interviewing aspect. So you got brought onto Facebook. You took a team, I think, tell me the numbers, 80 when you started to over a thousand? So when we first started the, you know, our team, which was on the infrastructure side, had about 80 folks in the org. I was brought on just to recruit simply. And then I'd eventually grown to management, I think within the first year or so, year and a half and start building my own team to help recruit. But it was hyper growth years for Facebook, right? It was, we want to hire 10, 20, 30, 40, 50 ,000 people.

6:47And our bootcamp sizes were in the thousands, opening up new offices left and right. So it was just a lot going on at the same time. Facebook obviously had the recognition and the brand name, but our job was find the best senior talent, convince them they can not only come and work for Facebook, but this is pretty remote work. So this has convinced them to come work for Facebook and move from, the example you and I were talking a little bit about earlier was move from Dayton, Ohio to Facebook, New York. And what does that mean for their family? It wasn't about the money. It wasn't about where they were working.

7:16It was convincing this family of four why that was a good idea and what their life would look like. And so you've been able to bring all those skills that you learned at Facebook to TechVestor. We're going to get into TechVestor a little bit here shortly, but I first wanted to hear your five years in at Facebook. At what stage do you meet Sabrina, your partner, and get this idea for TechVestor started? Yeah, so Sabrina and I ran in similar circles in general. She was in multifamily real estate. She's actually had her real estate license even back from when she used to live in New York. And she ended up working at Apple, specifically on AirPods.

7:54She was one of the lead project managers for AirPods as it would launch. And we'd often find ourselves in the same room in the same conversation around real estate and technology. She used to own Airbnbs. I was staying in them. And we would connect on the idea of why they would suck. And, you know, she would tell me how she would run things. And I was like, that's a lot better than how these are being ran, at least from my perspective of a guest. And why couldn't someone scale it as an asset class? And obviously speaking to folks on the multifamily side where we were potentially LPs as well, everyone was like, you can't scale it.

8:23It's not possible. And here are the reasons why. But for us, we said, but we could solve some of that with technology. Like your problems that you have because you have this real estate perspective sounds very hard. but that same problem through our lens is actually fairly easy because we could build X or do Y. And when we took that approach, and I think actually us being naive is really what allowed us to start this business. Because if I knew what I knew now, knowing the journey of how hard it would be, I don't know if I would have done it. And I think that's just an honest representation of an entrepreneur saying, Hey, this is hard.

8:58It's hard to scale. It's hard to do. There's a million and one moving pieces. But I think being naive at the beginning really allowed us to go in blindly and build, right? Without knowing what to expect next. I wanted to hear more about the startup phase, actually leaving the security and safety of Facebook. You had, I think just had a baby, a kid. So that is a huge jump to do. I think there's a lot of people in similar situations. They're in a salary position. They've got the entrepreneurial itch, whether it's real estate or small business or whatever, but that jump from a W2 job to something new and entrepreneurial is tough.

9:35Can you talk about your experience of that? Yeah. I mean, we were pregnant in our last trimester and, you know, my wife and I sit down and I was like, Hey, I want to do this thing. And it was terrifying to be quite honest with you. It was also during a time where COVID was more rampant than ever before at the time. And, And it's like starting this type of business during COVID and leaving a job where you're about to have a baby and obviously all the perks that come with it. It was a tough conversation. But my wife and I, which I mean, God bless her soul. She's the most supportive woman I think I've ever met in my life.

10:14She's like, let's do it. Let's figure it out, whatever it means. Having that level of support was insanely probably the most important thing. She took care of everything else while I was able to build. And I think that partnership really allowed us to succeed and excel. And, you know, I was raised in a kind of very traditional family where, you know, go be a doctor, go be a lawyer, go work for the big brand name. And it's something you kind of gloat about at Thanksgiving dinner, if you catch my drift, or mom gloats about it at Thanksgiving dinner. And so for me to tell even my family that I was leaving this prestigious job to go be a nobody to build for myself, there was a lot of thrash for sure.

10:49You know, people thinking that they know what's best for you. But at the same time, I've always wanted to do this. And I knew the earlier I do it, the easier it would be just with kids. And I arguably, I still did it too late, but I ended up doing it. And I'm very proud that we did. Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make peer feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas.

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13:42To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. So you launched it during COVID. I mean, looking back on things you wish you would have started prior to that? I mean, more so on the family dynamics, right? You know, today I have two kids, two boys, you know, both under the age of three. And you ask yourself, you know, obviously family impacts decision-making and time and financials, right?

14:25And so if I would have started five years ago, I would arguably would have been in a much better place. But hindsight's 20-20. Did I know what I knew five years ago? No. And sometimes it's just about timing, right? When things eventually click in your mind. And that's when things clicked for me, right? Sometimes it takes time for things to click. Yeah. I interviewed a guy a couple of weeks ago, Ben Wolf, who I don't know if you're familiar with him. He's got a company called Steyonera and he had some interesting thoughts on it. Similar situation, I think to you, he started his company with a just newly married, maybe a kid on the way.

14:58Tough to do, but he kind of did worst case scenario thinking, what's the worst case scenario? I end up working another W2 job. It's where I'm at right now. It's like, why not at least try it? I can at least go back. You've got a marketable skill set. That's exactly how we felt. And I think that's the first person actually told me that was my best friend. He goes, open up your LinkedIn. So I opened up my LinkedIn and he goes, go to your messages. And I went to my messages and he goes, how many unreads do you have? And I was like, a decent amount. And he said, great. So if this fails, you know, right back here.

15:30So take a shot. And it's, you worked hard to get in that position to build and build that scale and have that marketable resume as people will call it. It is what it is. And you know, people in this world do pay attention at times to where you've worked and what you've done. It is part of the life that we live and judge. Sure. Absolutely. So I want to hear about those early hires. You've got vast experience hiring people at Facebook, you know, over a thousand people, it sounds like. Talk to me about like the first couple of hires that you did, how you went about finding and acquiring talent to help grow TechVestor.

16:05I'll tell you a story, although my wife won't agree with it. So my team calls me the DM king, but my wife says I have no game in the DMs. So, but in the recruiting world, for me, it was about building the best foundational team possible. And the reason for that is I saw it firsthand at Facebook. If you could build the best possible team, everything else becomes solvable. And you also needed to find people who were so passionate about the problem that you were solving that it wasn't about the money. It wasn't about anything else because the problems were so hard that they would need to find ways to overcome it.

16:39And so folks like Taylor, who you've interviewed, I reached out to him, I think it was through Twitter at the time. And he was just his passion for short-term rentals and numbers and acquisitions. You could just tell it was very clear. And I pitched him a lot of Kool-Aid, like come drink this Kool-Aid, right? Here's what we want to build. Here's where we're going. Here's a journey. Here's a roadmap. Here's how you can help shape it. It took me probably two months, two and a half months to land Taylor, give or take. And it was just a lot of long nights and a lot of recruiting. And, you know, I was very fixated on landing someone like himself.

17:10We'd eventually land folks like John, who's our head of data, also known as the Airbnb data guy in the space through networks. The great thing with talent is once you hire really great talent, they typically also know really great talent. It becomes this beautiful flywheel effect, right? He came through, he knew Taylor. That was a great win. We added Josh, who's ex-DR Orton, right? Has ran single family track maps all across the country in the past and also runs vertically integrated construction companies today. So he understood renovations and renovations at scale and remote renovations. And we added Nick, who's our head of asset management over from Vacasa.

17:41He used to run portfolios there. And all these folks were meticulously picked and recruited either by me or someone in our network. And I think one of the biggest tips I would give to anyone listening to this podcast on hiring is put yourself in a position to hire people far before you're ready. Hire great people and figure out what to do next. And I think oftentimes big companies and even small companies, they either don't have the privilege to do so, or they don't see far enough into the future to where they could. You know, when we hired probably half our leadership team, we didn't need them when we hired them.

18:11It was, we ran across them, talked to them, met them. And we were like, wow, we need this skillset. We need this person, this really smart, passionate individual on our team. And let's figure out what we're going to do next. I have no idea what they're going to do, but I'd love to have you on my team. Yeah. It's a great way to think about it. Let's take a step back a little bit and talk specifically about TechVestor. What's your vision? What problem are you guys trying to solve for? Just kind of bare bones, basic stuff, like what TechVestor does and what you're up to. TechFestor makes investing in Airbnbs simple, passive, and profitable.

18:45So it's really hard to find an Airbnb. It's even harder to run one, a profitable one as an investment. And so we take all that off your plate. You invest with us with as little as 25 grand. You're an owner of a diversified portfolio of short-term rentals. You get your share of cash flow, appreciation, tax benefits, and everything else in between. We handle all the work, including guest communication, renovation, acquisition, management, taxes, and send you a check every quarter. So in a nutshell, that's what we do. We give you exposure to the asset class without you having to do any of the work.

19:16You mentioned the data guy. I wanted to go a little bit into maybe your secret sauce a little bit about how you're finding properties, acquiring properties. Talk to me a little bit about the data that you guys pour through to find the right properties to put in the portfolio? Yeah, we have real estate fundamentals first. And so while there is tech in our name, we build technology to guide us. And the reason I want to make that distinction is sometimes we hear people say, oh, you're a tech company. And the short answer is we're not. We're a real estate company that happens to build technology. We're not like Zillow where we're making offers using AI and automations and just blindly.

19:51We are human led and we believe real estate should be human led first and foremost, because it is hyperlocal. So we do have a lot of data and technology and we built our own internal software. We actually started as a software product back in the day where we underwrite hundreds of thousands of homes. We market map 250 plus markets across the country where we understand real estate supply, Airbnb supply, Airbnb demand, who's going where, what's the flow of travel, where, when and why. And that data really allows us to pinpoint where we buy, what we buy. So think of a funnel, right? It's really broad to begin with.

20:21And then our data tells us maybe we should focus on this market. And in this market, these are the ideal properties to buy. What I mean by ideal is bed count, unit size, head count size. Then the next thing is, okay, well, what else is about that property? Sometimes it's as specific as it needs to have two living rooms, a pool, be on a third of an acre and be within these two sub neighborhoods of this larger market. For whatever reason, that's where the density of revenue tends to gravitate towards. And then And from there, it's, okay, how do we design it and amenitize it for who's going there?

20:54Oftentimes, owners amenitize for themselves, their second home, etc. We don't do that, right? It's an investment first, so we amenitize for who's going. So then we start to build and build and build down to a very specific buy box where in X market, we're buying five bedroom homes with a pool, two living rooms, adding these specific amenities, designing and amenitizing in this specific way for this specific avatar, because we know that's what works. That's what the data tells us. More importantly, we know that the data tells us the current operators are doing reasonably well, but we know we can do significantly better because we can get economies of scale.

21:25We have way better revenue management. We have way better design and amenities. We're purpose building and designing because we have the capital, technology, and talent to do so. So therefore, we believe we can do better than what the market is. That's, in short, how we think about using data and technology to bridge all that gap together. I wanted to hear why you chose to vertically integrate. Why not sub out things? Why not keep it? I wanted to hear about that decision, why you chose to, in some ways, it's a lot more complicated, a lot more employees, obviously, a lot more management. Talk to me about that.

21:57Yeah, I'll tell you a story. And in short, we were forced to vertically integrate. We actually didn't want to when we first started the company. For the very same reasons that you're actually bringing up, we said, we're really good at these two things today. Let's focus on these two things and sub out everything else. We signed a$25 million contract with one of the largest property managers in the country, Focasa, because we needed a national property manager that would understand what we do because we were buying everywhere. That made sense to us at the time. And two things happened very quickly.

22:25Their standards weren't our standards. We had a miss on those things. We had a much higher demand for the type of experience and product we wanted to build and deliver to both investors and guests. They didn't have those same standards. And two, Focasa started going down the hole. Go look at their stock today. They're just a completely different company. They started cutting services, cutting headcount, things that were part of our agreement weren't. And we actually, to be quite frank with you, that was the first time in our company's health that I thought, okay, is this the beginning of the end?