588: Rental Arbitrage: $700K Renting Out Other People's Properties

23:54It's the company because you make the contract with it. And it's the best of both worlds. You get the best of midterm without all the risks of residency. And you have set it and forget it. And it's an opportunity for you to scale then because then your resources aren't focused on turnover. Now you can look at growing your company. That's exactly how we did it. Is there a target occupancy that you're looking for? Well, if it's printed out 20 days a month, we're going to make some money? Or what do you think about it in terms of breakeven and profitability? We use a dynamic pricing software called Price Labs.

24:31And so they match the best occupancy with the average daily rate with a lot of other factors. And it's a great tool. It's expensive, but it winds up making money. And so in the beginning, I was all about occupancy, but I realized our price was too low. In the end, I was losing money. I was leaving money on the table and probably not getting the best guests. But I still am a proponent of higher occupancy for a lot of reasons. One, the more clicks you get, the more bookings you get, the higher in the page you'll be. And so I actually believe occupancy trumps your average daily rate. And for that, we're shooting for the high 70s.

25:04This year is a little bit different. Softer travel this year. And overall, we're in the mid 70s, which is good, which is very good still. But that's a combination of our outbound, our midterm rental stuff, multi-platform and we have our own direct booking website. For that reason, we most likely would have been a lot lower. The markets we operate in general are in the high 60s now. Yeah, it's interesting since so much of the cost is fixed in terms of the lease and then just variable costs. If somebody books, they're going to pay the cleaning fee in a lot of ways. It's kind of like how Priceline was back in the day, where it's like, this hotel room was going to go vacant this night anyway.

25:37So did you pay 50 bucks for it? It's enough for us to pay our team, make a little bit of money. Like, yeah, it's kind of like this dynamic pricing and you got to have software, especially if you're managing dozens and dozens of different places over time. Like, there's no way I could keep track of all this. Or there's a concert, like there's some big event or some conference or something is happening and now demand is higher. So we're going to manually adjust that. No, you're not going to do that. So you have the different tools to do that. Now, one thing that I've heard, because we did a YouTube video on rental arbitrage probably three years ago, maybe three and a half years ago.

26:10And he described his outreach as, you know, hey, I represent such and such properties, LLC, we're a leasing company, or we're a corporate housing company. Like they kind of like try, even though, obviously, until you get that first, yes, you don't really have a ton of credibility, but you kind of almost have to fake it until you make it, you kind of have to say, like, we know what we're doing, or I don't know, like, how do you approach that? What I did was, and I just said, hey, look, we're XYZ corporate leasing company, or you can say a furnished housing provider, which is a bit more accurate, right?

26:42And you're going to them. But just like any business, it's just a lead generation thing. It's quantity of output. I say to everybody, look, we're not in the convincing business. I'm out there to cajole a business, a building to allow us to do our business model there if they're otherwise opposed to it. First, you lose all your negotiating leverage once you get to that stage. What we're just trying to do is find a building that is open to the idea, may have done it before, whether they had a good or bad experience. Usually it's the latter. Usually we're contacting, oh yeah, we know all about that.

27:11Nope, nope, nope. We're not going to do that. Hard pass. By the way, that's what happened with the very first building. They had a bad experience, or I think they were currently had a bad experience, and they were willing to allow us to do it. I would even say, and it sounds terrible, but the fact that our business got wiped out, a business that I traded my time for money for 10 years that if I didn't work that day, nothing happened. It was 9 % margins. And now we're getting 34 % margins that I've scaled and I'm not in the operations anymore. I mean, and I love that business. I still do. It was strange the circumstances that happened that brought me here.

27:44To your point about Warren Buffett, it sounds like I was being bold and going to, I was scared too, but I just had no choice. My family, we were like, okay, should I do this or do that? And we looked at our resources were, and we looked at how dire things were happening really quickly, if you remember that back then in March, even a little bit before. So we just said, look at what happened with the cashflow. We didn't go out and get 20 units at the same time. We got one at a time, sometimes two. In fact, that was our average, 1.5 units per month the first year, 18. In fact, to this day, it's about that.

28:15So I'm not advocating that someone dives in this and spends a ton of money. Yeah. And that way you can kind of self-fund the furnishing and like the upfront lease expense that you're not taking a ton of money off the table early on, but you are growing it to a point. And what's your risk? At the time, I was negotiating early termination clauses, which if you really look at a lot of leases, they have those by default in states like California where tenant laws are the way they are, 90 days and things. So what are you out? The furniture, which you get to write off 100 % depreciated, which is incredible to find that out.

28:47So you have your furniture, worst case scenario, obviously the lease, the duration of lease. Well, There's ways you can negotiate that too. It's just one unit, two units at a time type of business. Did you typically go 12 months or were you looking at longer leases? I tried to get longer. I always, in the beginning, the way that the leasing offices smartly structure those, they'll look at the time of year you're leasing and they want to end the lease during high season or when it's easier for them to move that apartment, typically summer or spring in Southern California. Before then, they'll make it either like 10 months or 15.

29:18So I would always take the latest. and now we're on autopilot. We get auto renewals all the time unless they don't want you there anymore. And there are ways that a lot of operators like what we do, they don't want them in there. They're not monitoring their guests and not screening their guests. There's too many issues or they don't pay on time or they're just trouble. And so we make sure that's not the case and we get auto renewals every time. The only time that we have never renewed was when we were switching out. We're currently switching out of studios and we are looking toward buildings with amenities.

29:49They don't have to be super slick, but we want a gym for our midterm rental guests. So we want security gates and stuff like subterranean parking. So we are switching our properties, but the buildings always are renewing. So sometimes what we'll do is we'll leverage the relationship with them laterally. We'll find out where else they own and say, hey, will you make an introduction? And you check out that property. You run it through your analysis. I have a profit calculator that I created. It's a spreadsheet, but I create it over time. If anybody wants it, you can have it up. just reach out to me.

30:19I'll give you mine. So I run comps through it, occupancy, furnishing costs. And then I give a pessimistic, realistic, and optimistic expectation. I'm always realistic. And I'll run it through my numbers. And if it looks good, then I'll contact the current building and ask them to make an introduction to the new building. And it's either a yes or no. Do you have a sense of how many no's you got initially from landlords or property management companies before you got a yes? We got too many no's to count. I mean, And most of the inboxes are just flat no. Once you get to that point now. Yeah, or no reply, yeah.

30:50Well, now the no's that I remember are the no's where they said yes to our business model, filled out the application, and then they declined us. And in the beginning, it was just because they were like, wait, the financials you gave us are for this event company. And what you have over here is, and I said, yeah, well, that's our track record. And so then the buildings ahead said no, by the way. The first two that said yes, that said no. The three of them said no. two of them, we wound up getting deals because they say, hey, come back when you do have experience. And we came back in June when things were really tough.

31:22We went back to them and we wound up getting bigger deals after August. Yeah. And the reason I bring that up is just if you swing and miss on your first ask, don't consider this, oh, well, it's just not going to work in my market. It's just not going to work in this area. It's going to take a lot of initial outreach to kind of get your initial foot in the door. And then interestingly, it becomes easier because like, well, we have this other building or the reputation starts to grow if you do it Right. And I think that's true in a lot of businesses, but it sounds like especially true in this one.

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33:00Indeed.com slash Side Hustle Show. Terms and conditions apply. Hiring. Indeed is all you need. And I want to switch gears and talk about the logistics side of things, because like you said, I'm doing the first turnover cleanings myself. I'm doing all the manual bookings myself. Eventually, turnover of different units may demand you being in the same place at the same time. Talk about building the team of cleaners and I don't know who else is involved with this, but yeah, we'll start there. Our margins are inherently thinner than our counterparts who own their properties. Mortgages are typically less than rent.

33:36So for that reason, it's important to get to economies of scale quickly within the same market, even in the same building. I never outsourced any of it. We never hired a service. Sorry, property managers, but charging 30%, which is basically all of my profit last year, was undoable. So we built our team. We hired our operations manager, became our property management team. We hired our housekeepers and trained them. Oftentimes, we went and hired people that were previous housekeepers because short-term rental housekeeping is an entirely different job than a traditional housekeeper. We hired and trained our own.

34:07A lot of them came from retail, from Home Depot. We would hire and train them. We did it by the hour instead of by the job. We hire all of our VAs and such overseas. Our virtual assistants are our front desk. They run the company. 80 % of this business is done virtually. Most of it's done in Manila. They're running the day-to-day operations and only until there's an issue that needs to be escalated does it become local. We all do that through an online group chat or they do that. Yes, it's a collaborative thing. So we have an operations manager. He has two assistants and we have VAs who communicate with the housekeepers' turnovers.

34:42We have about 200 pounds of laundry a day. Our average stays 3.4 days times 62 properties. You can imagine it's a beast of a job. There's always issues. Every day there's issues. so that we have protocols and systems that we didn't find anywhere. We created them all ourselves. Well, I didn't. Eric, to his credit, and our operations team created our systems and protocols for getting money back from a guest to a whole bunch of stuff. So we created all of that, which took time. It took a couple of years, but that's why our margins have been increasing proportionally because in the beginning we were making so many mistakes.

35:17So if I call this 760 number on the website, does it ring an assistant in the Philippines? No, that's here. So when I say front desk, I mean, someone makes an inquiry on any of the platforms, including our website. It goes through our messaging system to hospitable is the software we now use. Great software. It's a channel manager. It goes to them and they'll reply to the inquiry. If it's a guest that says, hey, I need new towels. Can I get an extra day? Can I have my friends come over? Then they'll message them. And the VAs also do calendar management and turnovers. The turnover is just such a big job.

35:53I mean, it's such a massive thing. It's so neat that the housekeepers in our markets and the VAs in the Philippines created their own shorthand. They did it themselves just to kind of get to the point quicker. COs check out and ECIs early check in. I have their whole language in the thing, which is fantastic. We now have 900 canned messages. So Hospitable allows us to put in a search and somebody says, hey, I have a question about a pet. You don't even have to think about it. we have a canned message that will go to them with their first name on it through hospitable. So the system can be run by a couple people.

36:26You don't really need that many, but we do it just because we wanted to enhance the guest experience. And so we get back to guests within four minutes and just allows our team to work a lot better. Yeah. And that's so much more efficient than you not seeing that message for several hours. If you're out doing something and everybody gets a better experience that way. Another thing is in business in general, Response time is so important. It doesn't just apply to us. Think about response time. If your competitor is getting back to their inquiries faster than you are, they'll win business. Well, and if you have an issue with your stay, like it was a stay in San Diego, actually.

36:59I was like, dude, is there a heater in this place? I am freezing. And thankfully, they responded right away and sent over a little space heater. But I was resorting to opening the oven. And then I was like freaking myself out about carbon monoxide or something. So then I opened the window, which counteracted the oven. It was like, we'll get you a heater. Thank you, sir. Yeah, right. So you would be surprised how many people, not guests, but inquiries will come in at 340 in the morning. And if you're asleep and you're like, I'll get to them at eight, which is how I did it the first year. Then when you got back to them at eight, someone else may have already won the business.

37:30But if it is your guest, you have a responsibility because if it's a heater, that's a major amenity. They can actually get a refund. If it's internet, same thing. So you have a responsibility of having a protocol at night and you have to depend on your team to do that. That's just systems and operations like all businesses or most businesses that you can build a model on top of. It's just that. And until I discovered that a business, you actually can other people, you can hire people that are better than you at it and move away from being in the center. It was me, housekeeper and guests. And then I just removed myself and my operations team moved in the middle.

38:05I was like, this is illuminating. I never knew that there was such a thing. Systems and operations for me was one of the best things that I ever discovered. It seems like a challenging business to try and find housekeepers and cleaners for because it's like, well, it's all going to happen between 11 and three. And if they need to be in two places at once, or if they come in and discover that, oh, this is a bigger mess than we normally get. It's like, this is going to take some extra time. You ever run into that where it's like, we're not going to be able to check you in because we weren't able to get a crew out there.

38:37And I don't know, it's like there's a lot of people related moving chess pieces on this board. Yeah. During Sundays, Sundays and Mondays, right? When that's our D-Day. Occasionally, if I want to punish myself, I'll look in our WhatsApp group chat on Sunday mornings to see it looks like mayhem. And there's issues, but these guys have gotten it down. But I've seen some doozies. I've seen some mistakes, big ones. I made a bunch. Guests was checking in and the unit wasn't ready for them. So it has happened. But you learn from that, right? Hopefully you create a system that won't happen again. We don't overschedule housekeepers.

39:12We make sure that they are able to finish their job. When they come in, they make an assessment. And if it looks like it's going to need more help, then we send another housekeeper over there. And we have all of that. We keep enough supplies on usually on each building, we negotiate to get a storage unit. So we have a central storage in the area, but then each building usually has it. And plus each unit It has a little lock away thing. So we have that. And each housekeeper, by the way, isn't really a housekeeper. I mean, per se, they're clean, but they're going in there doing inventory. They're taking photos.

39:41They're writing a report at the end of their shift and they stay put when they're done. And the photos go off to the team and they comb through the photos and they're like, okay, everything looks good. Move to the next. So we created our own little system, but it's life. Stuff happens. There's always a unique situation. Yeah. Any horror stories or squatter? Like I saw a headline the other day about somebody like, you know, rented the luxury Airbnb for three nights and then a year and a half later, they have not left and they're like claiming squatters rights. Like imagine just anything and everything can happen with the number of units that you have.

40:17Yeah. Yeah. We've had. So the squatting thing, I think it's like the plane crash thing. You hear about them and it makes you think about that and it doesn't happen very often. I think I know the situation you're talking about in Beverly Hills or LA or something like that. I'm not going to, that wouldn't have happened to me. I'll put it to you that way. They were, I believe they were hosting in a property that wasn't properly licensed or they had the city thing. So the city said, you're on your own. Yes, we've had other people. There were people intending on coming to do bad things, whether it's overstay or stay.

40:43We actually had one recently. We handled it in the day. She actually came back. She had the nerve to come back and attempt to break in. Actually, she did break in and go in there. But again, a building that we're most likely going to phase out of because of security. But there are safeguards that you can create. Once you hit, in our markets, two weeks where resident takes place, most markets 30 days, you can restrict the days in which somebody can stay with you, and we do, to a couple weeks. And at that point, then you have to scrutinize them and create a contract and all kinds of rules and stuff around that.

41:12Up until then, we're innkeepers. So you can physically, you do not call the sheriff, do not call the police, someone overstays. You can go in and change the locks and physically remove them. You can't do that. It's against the laws of criminal if you do that to a resident. You can't turn off someone's power on that. When it comes to short-term rental, the way we've operated, we just have a protocol. After a certain time, they're trespassers, and we have a whole system of things. It's just innkeeper's laws. Our operations manager has the short-term rental license in our market, so if the police ever involved, they show them, look, this is their booking.

41:42They've been staying three days. They have no rights in that regard, and we have someone else checking in that has more rights than them. So we've come close a couple times. I mean, if you think about the 10 ,000 guests that we've hosted over the last three and a half years, you would think that would be a much higher number. It was one that I was worried about in the beginning too. It just hasn't come in, but we've taken certain safeguards. There were some people that we were, if we weren't proactive, would have taken advantage. I'm thinking of this recent one about two months ago with the person actually, she overstayed and then came back and all that stuff.

42:14But that's just one in such a high number of all that. And we don't like to take that out on guests. We don't take one situation out on guests. We do have, though, certain criteria that we screen guests. We have a three-step screening process, which I think all hosts should have. We screen them on the platform in which they book, just certain basic questions. You can even put whether or not they have a review and other things. And then we call them. In the beginning, we called all guests. Now we only call certain guests. There are certain red flags, last-minute, one-night bookings, and they live locally, for instance, and others.

42:44Oh, okay, okay. And then we have one where we're screening them on the site. So we have security and 24-7 coverage. We have a decibel detector in all of our units. It's not audio. Actually, Airbnb recommends them. They just detects audio, just decibels. Make sure that there's not loud music and things like that. So if something happens, we have a protocol. There are VAs, call them and say, hey, I noticed it's 11 at night and you have music really loud. Please turn it down. And we have house rules that will penalize them. Have you ever got the one? Like, dude, how do you know that? Like, why are you spying on me?

43:14Yeah. And that's why it's a double-edged sword. Security devices are creepy. I wouldn't want like a camera in one, but a decibel detector, once people know what it is, they realize it detects glass breaking. It's there for their safety and things like that. But yeah, it happens. We had people pull it down. They pulled it off. It's a magnetized thing. We use a device called Minut, M-I-N-U-T. It's European. It's about a hundred dollars and you have a little app and it says how loud things can be. We've had people pull it down and get crazy. And it's like, well, you signed on it. There's three places that we included in all of our things.

43:44It's right in our listing. It's in the house rules. It's so many places that if you read any part of it, you'll know that that's what is there. And I highly recommend it. There's no downside to minutes. Some people might not like it, but that's because they really don't look into what it is. It's not going to record you or see you or anything like that. Just want to make sure you're not too loud. Okay. So that's helpful to know. Yes, issues can and will happen, but they're infrequent and can become more infrequent with certain screening processes in place, certain tools in place. So any business that is dealing with the general population, general people, public, you're going to run into this type of thing.

44:22But there are things you can put in place to protect yourself and protect your assets that you have, like your furniture and stuff that you have in there. And your neighbors. Is there an innkeeper's insurance or anything like that? The proper insurance is a very pricey insurance, but it's one of the few that not just allows sort of Airbnb insurance, but allows the subleasing insurance, who we are. So a renter's insurance is typically what most leases require as part of to fulfill their contract. But if you go out and get renter's insurance, you're not the renter, you're the company. And they'll drop you and you're not going to be covered.

44:55So it might satisfy the lease contract, but it's not really covering you. Most of the people get those, Lemonade and some of these other, Toggle, those are really inexpensive programs. But Proper actually has sublease insurance. So it says, okay, you don't own the property, you're leasing it to rent it out on platforms like Airbnb. And so for that reason, it's a little bit pricier, but they have all kinds of really neat benefits in those insurance. So it's a little bit pricey. You have to factor about $90 a month into your budget. Is it per unit? Yeah. I mean, for us, so we're apartments. So if it's a house, it's going to be way more.

45:26Yeah. It seems less intimidating to do these apartments because you don't have to deal with roofs and yard maintenance and other, it's just a lot more upkeep. Hopefully. Apartments are turnkey. Most rental homes aren't turnkey. I always said, I stayed at Airbnb in Palm Springs with winter break last year with my kids. And I looked at the house. I said, look at this backyard. Look at the garage. It had a game room and a bar. I said, if you were to arbitrage this, you just have to spend all this money in someone else's asset, which was, by the way, one of the initial objections I had about this model.

45:57I said, why would I buy all this furniture for someone else's property? With an apartment, it makes sense. It's turnkey. It's literally just a furniture, which again, you can depreciate in a year and so forth. With a house, there is a big spend. So I never understood the rental arbitrage house model. Now, I don't understand it. There's people out there probably crush it because the margins are much higher. But for a lot of reasons, I stated earlier about seasonality and relying on one sector and all that. I'm just not focused on that market. Who knows, maybe in the future when the economy comes spinning back, I will.

46:27But right now it is the turnkey apartments. They're nice. But again, And it's not like a brand new building where I'm paying all their expenses for them. I'm looking for something that's been maybe 10 or 15 years old or a little bit older, but right in the middle of the action. They are right near the biggest attraction in that area, university or the restaurant row or the beach or whatever. I'm looking for that apartment right there that may have a pool or gym now. That's what I'm looking for or a hot tub, but it's just not a brand new building. So that's the thing. And they're turnkey so I can come in hopefully without a carpet and we'll just come in and furnish it for now.

46:59Our costs are$8 to$9 a square foot. a little bit more because of inflation and also because we're making them a little bit nicer. Okay. That's helpful to get up-to-date numbers because everything's more expensive these days. That makes sense. I had come across, this was a Side Hustle Show listener, and he sent me his model where it was single family homes, but it was like targeting huge houses, like seven, eight bedroom houses, almost like dormitory style or almost like frat houses. But his arbitrage play was parsing out bedrooms for travel nurses, for construction workers, for these kind of long-term stays, but somebody who still wanted a house type of environment.

47:36And it was like, well, there's a million ways to get it done. And we just re-released our house hacking episode a month or two ago. And so that was another way. Like, even if you don't want to do this, like you could kind of use some ideas from this conversation with Richie to how do I offset some of my living expenses, lots of different ways to get that done. Now, before we wrap up, I do want to address because it's somewhat controversial and maybe more so in really, really tight housing markets where like you're taking long-term housing off the market and turning it into short-term, which in theory was when the supply goes down, the price goes up, you're raising rents for the people who need those units in the name of making a buck.

48:17Like, you know, you aren't capitalists. Like, it sounds like, well, look, it was sitting vacant anyways, at least in your case early on, but would love to hear you speak to that. I would be ignorant just to say I have all the answers. And I believe that that topic itself is very complex. There's many more parties than just the demand side and supply side. There's other factors about building, government involvement and all that. But to your point, you're right. Firstly, we're looking at apartment buildings that are more vacant than the market average for a whole bunch of reasons. Could be seasonality, could be the economy.

48:48That's our leverage. That's what we're looking at. I don't take a new unit unless I get rent concessions up front. In fact, a lot of the buildings that we started getting this year, in December of last year, I basically said, oh, that's it. That's the business model. It only works during calamity. That's why we're not able to scale last year because rents were so high. We were not getting rent concessions. Market was tight. Well, in December, one of the largest apartment companies in the country, if not the largest, a real estate investment trust came to me. We work with them and said to me, hey, take these two units and we're going to give you four weeks rent concessions, which I negotiated to eight.

49:21and all of a sudden I started seeing that the rents were dropping in certain markets and I was getting more inbounds. So for that reason, I looked, I'm like, wow, these guys have 22 bedroom apartments available. So whose fault is it? Was it theirs because their rents was too high or because the market had changed? So all I did is I took those. I didn't take them all. In fact, we rarely take all of their inventory. We're only taking about five or six per building. Just for a lot of reasons. I just think that's our number. To your point, sure, there is some of the inventory we're removing. We've never taken over the entire floor.

49:51Plus, a lot of these properties we're converting to furnished rentals. There's a huge market, an underserved market for getting people to stay in furnished housing. We have a lot of our current guests that are in flux in life and they stay at some of our properties, but it is a bit more complex. Yeah, I believe there has been an effect by having the increased people purchasing property turning into short-term rental people leasing properties and subleasing it. Sure, I believe that. But then there are other factors too. In my markets, there wasn't a ton of building that should have been going on.

50:20And housing is definitely needed here in Southern California, right? But there are a lot of fingers being pointed at us and even others. And some of them have a valid point. I just don't think we're the only reason why that issue occurs. Fair. Have you ever had or ever been operating in a market where the city or the municipality comes in and just squashes short term? Like, nope. Yeah. It's got to be minimum 30 days. So they said they were going to do that in the city of San Diego for a very long period of time was flirting with the ideas of regulating it. It had always been allowed to do. You just had to pay your taxes, be a good host.

50:53But then after COVID, they said, okay, we're going to have this ordinance. The city council passed it. They were about to enact it, but then they've tried to figure out what the lottery is going to look like and the logistics and who was going to get it because they knew everyone was going to run out. There were only going to be a fraction of licenses available. So everyone was going to get their license pulled. Well, Expedia spent a million dollars helping the city figure this out. They postponed the enforcement of this another year. So December of last year, almost a year ago, December 1st, the window opened up to pull your license, a tier three license, which is the license that allows us to do this if you don't live on the property full time.

51:26And then lo and behold, that day they said, guess what? We're going to remove the lottery. This was the lottery that held up everything forever. Why? Because only a fraction of people applied for the license. and then a month later, still lottery. Month later, still lottery is open. Guess what? Today, you can go get a license. To this day, it's just one of those things that the city said they were going to do, they didn't do. Now, here's the other thing. Probably eventually, there will be a cap, but that day's not here, right? It's been 10 months. Now, the license is very expensive too. Here's the other really interesting thing.

51:56How expensive is very expensive? It is. It is. It's$1 ,000 for a two-year license, which as an arbitrage, you have to factor that$400 a month into your break-even. $1 ,000 for two years? $1 ,000 for two years. Yeah, it's expensive. Well, that's$40 a month. Well, yeah,$40. Compared to buying a liquor license or something, it's not prohibitive. Yeah, no, no, I agree. It's just where we were and where we are. One of the incredible positive unintended consequences of regulation is that some cities will compete against another city. Some cities say, well, we don't have a large tax base from hotels.

52:32The TOT tax, the transit occupancy tax, may be low in one city because they don't have a ton of hotels. So now they're going to invite short-term rental operators in. And a few of them I know of raise their TOT tax rate really high. And in return, a lot of people flooded in those markets. So it's just one of those things. Government does one thing. Business works around it. This is always going to be a viable business model. There should be regulation. I agree to it. And if they cap it in some markets, like they just did in New York City and Dallas, and probably eventually here, you just have to work around it, move elsewhere, or just become a good operator so the city will always want to work with you.

53:08Yeah, I can imagine the Expedia's of the world, like the big hotel lobby. Like, we'd rather have some of that money flow into us instead of guys like you. It's just setting yourself up in such a way that you're able to weather those eventual storms, where it's like, okay, worst case scenario, I have an early out on this lease. if the math is no longer going to pencil, if I can't work within these constraints, at least I don't own the place. There's lots of different... You've mitigated your risk in some ways, but be aware of some of those issues and stuff surrounding it. There's a rule in real estate too.

53:39Once you're looking at an investment to put as a short-term rental, that you have to pencil it as a long-term rental, as a backup. So you have to make sure that a cashflow is that way. I don't think it should be any different with short-term rentals in that you should have a backup plan on how you'll market your short-term rental in the event that you have to make it a midterm rental, a furnished rental, that you have to be able to sublet it that way. And so if you can figure out that business, which I think is the new frontier, if you can figure out the midterm rental business, and that requires marketing and outreach and such, you can have the best of both worlds.

54:09Yeah, a friend of mine was transitioning all of her properties. I think she had six or seven single family homes. And she was transitioning from traditional 12 month lease setup, long term tenants to corporate housing, like, okay, yeah, I got to furnish it up front. But these guys, they stay sometimes six, nine, 12 months anyways, and they pay double the market rent because it's furnished and because the company is footing the bill and like, huh, for not a lot of extra effort on your front. So it was, you know, great guests too, right? So they're really good guests too. Yeah. So I think that's a great business.

54:42I'm just scratching the surface on the midterm rental and the corporate rental business. But I do believe you should be prepared for a city saying no to you. And then to be able, you're a business person to adjust just like in any environment, any regulatory environment, you need to adjust, especially if you're new to a business. This business is so young relative to most others. It's going to become more competitive. Some of the lowest hanging fruit, like I mentioned earlier about photos and all that stuff, that's going to be the minimum standard in a year from now. I think most hosts should be prepared for that, whether or not they farm it out to a property manager or just raise their own standard in how they host to stay more competitive.

55:18Yeah, for a while, wasn't Airbnb like, hey, look, your photos suck. We'll send a professional photographer out your way. Like, did they still do that? Yeah, so they did that once with us. Well, I don't know if they said they sucked. I think maybe that's why they did it. So they sent us an Airbnb deluxe photographer. His photos were fantastic. The bookings immediately, that's one of the quickest ROIs. You spend$300,$400 for a photographer. You'll get your money back in a second because it's the best way to showcase your property. well we wind up hiring him and redoing photos and a lot of our listings even though his price is double our photographer that we have who she's great she's still great we work with her but this guy was really good so i think if you can find an airbnb deluxe photographer that's the best he's four hundred dollars for a two-bedroom do it because he really really showed us a lot it would take him like a week to get our photos back to us i'm like come on send him back but he he was very methodical and careful, but yeah, it was a Airbnb.

56:11Thank you. Yeah, that's kind of cool. I remember reading about that. Like, dude, of course, nobody's going to book this place. You look like you took these pictures in a dungeon. There's no light. It's all rainy. Like, no, you got to sell it. This is the best way to do it. Well, Richie, where do you want to take this thing? You trying to get to a certain revenue milestone, a certain footprint in terms of the number of units. What's next? Not revenue. I focus everything on the quantity of our inventory. 80 is the next milestone, looking to get there in the next six months. I ultimately would like to move into markets beyond California.

56:42We're looking at Texas and in Utah, some other places. That's for iState. And I'm really out of the day-to-day. I don't do any of the hiring or pricing or anything. I'm involved in acquisitions because I love it. The deal flow for my acquisitions is very similar to my other businesses. But what I'm trying to figure out is how to get our margins to be better. So there's a few tools that we're working on. We're working on a software right now, sort of a chatbot that our team will use to be able to answer questions quickly. We're currently using the hospitable chat, which is good, but we have to load it all up there.

57:14There's a couple cool tools on Bubble and a few no-code software platforms. And we're working on one right now to kind of help our team be able to communicate and answer questions quicker amongst ourselves. And if that works, I'd like to get that out to other hosts somehow. We're at the end stages of where We're actually testing it right now, adding things to it. But no, I love this business. It's a great business. It's early. We're in the early innings of this entire type of business. I think there's so many different directions, whether it's services to this business or helping other hosts who have one property or two property and a W-2 and a life that they're not able to focus.

57:49If, for instance, COVID never happened, that would have been me. I would have had two properties, maybe three. I would have been too busy to scale or to focus on fine tuning it. So for all those people, 80 % of the businesses who are only on one or two platforms, if you can believe it, 70 % of hosts are only on Vrbo and Airbnb. If there's some services out there to let them operate like a hedge fund or an operator at scale to help them raise their game, then I think there's a huge business in that. So I'm looking at little things that we're testing internally, even though we're a tiny little company, there's a lot of things that we can test here that hopefully get out.

58:22So I'm doing a lot of that. I have a Facebook group. It's other people in the Airbnb space, not just arbitrage. We built it as a place to find housekeepers and to collaborate with other hosts. And it's not local. It's national. I'm spending a lot of time in the Facebook group now. And this is the Creative Airbnb Facebook group. Of course, we'll link that up in the show notes. So you can look for Creative Airbnb Hack is the name of the group here currently. Of course, Subject to Change has a kind of black and red and white logo on the front. So that's how you know you'll find the right group over there.

58:52you're using a relatively new model to still get that Airbnb short-term rental cashflow without all the other parts of it, right? Without purchasing a property and all the stuff that goes with it. So the barrier to entry is much lower, but I still believe once you're in, you really need to operate at the highest level. And right now you can still do it right now. You still can do all the things to be a really, really good host and compete with anybody. If you take certain steps there. Yeah. And the way that I'm kind of thinking about this is like, say my target, maybe you enter in with a target monthly profit of$1 ,000 a unit.

59:26I don't know, is that realistic? $1 ,500 for a two-bedroom net-net per door per month,$1 ,250 for a one-bedroom. The studios just don't hit a lot of target groups. Nurses don't like staying in them, and a lot of different groups just don't. So for that reason, it's usually younger people, and they might be the kinds of people that are more susceptible to this recession. So we're just getting away from studios. But yeah, two bedrooms,$1 ,500 per month. A one bedroom is approximately$1 ,250 for us. That's the tried number that we've had month in a month out over the last three and a half years. Yeah, no, that's really helpful to hear because with that type of income, it doesn't take a lot of units before you're looking at, okay, this could replace the day job.

1:00:06So that's kind of inspiring to hear where test it out, simplify first, and then diversify second. Make sure you like doing it. Make sure it works. iron out the kinks. And then if you do find something that works, you got your foot in the door with certain property managers, like, okay, let's make this happen. So I stay USA.com. You can check Richie out over there. And then that creative Airbnb Facebook group, which we'll link up for you. Lots of cool stuff in there for hosts and future hosts all around the country over there. Thanks for joining me. I want to wrap this thing up with your number one tip for side hustle nation does not have to be real estate or rental related, just whatever entrepreneurial wisdom that you'd like to impart?

1:00:43Just go for it. Obviously do your research and go for it, but most entrepreneurs already have that sort of mindset anyway, that there are some things you just have to, at some point, make a decision. So you just try to figure out how you can mitigate your risk when you do make that decision so it's not a calamity. So there's certain things that you could do. In my case, it was one unit. I was willing to risk it to take one. If it didn't pay me back in a certain period of time, that would have been it. And then I moved on. I just say, if I can make it super simple, kind of a no-brainer, is just don't be perfectionist.

1:01:11Just get it done. That's right. Perfection is the enemy of good enough in a lot of cases. A couple of takeaways before we wrap. Number one is this idea of minimizing your risk. And that comes in the form of doing your upfront research in terms of, well, what kind of price spread am I realistically looking at? It's that looking for diversified travel sources. like why are people coming to this town in the first place, short term, long term, medium term, you know, looking at the language of that lease. I liked your call about like, look, if I can't get any rent concessions or lease concessions up front, I'm not touching it.

1:01:46So I think you're trying to minimize that upfront risk in a lot of ways. And then, okay, what's coming down the road in terms of different regulations and stuff like, okay, what's my worst case scenario, like before I get in, and then building the team and processes around this, because there's a lot of moving parts to it. And ultimately, you don't want to be out there running across town and then somebody else is checking in over here and meeting them in person and handing off keys. There's a better, smarter way to be doing all this. So building up that team and process, and that's true for any business, but especially in this case.

1:02:16So again, thank you so much for tuning in. If you are a new listener to the Side Hustle Show, make sure to grab your personalized playlist at hustle.show. There are over 580 something episodes in the archives. If you're not sure where to start, this is a simple way to answer a few short multiple choice questions and get that personalized playlist on the episodes that are going to be most impactful for you based on your answers to that quiz. So you can add that to your playlist on your device. Thousands of listeners have already claimed theirs and would invite you to become the next person to do so.

1:02:47Big thanks to Richie for sharing his insight. As always, you can hit up sidehustlenation.com slash deals for all the latest offers from our sponsors in one place. Thank you for supporting the advertisers that support the show. That is it for me. Thank you so much for tuning in. Until next time, let's go out there and make something happen. And I'll catch you in the next edition of the Side Hustle Show. Hustle on.