Cold open

SPEAKER_04 0:00

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SPEAKER_00 0:28

Welcome to Live Let Thrive, a podcast about the Airbnb life, the share economy, and everything in between. Here are your hosts, Micah and Steve.

SPEAKER_04 0:39

Hello, hello, hello. And welcome back to another exciting episode of Live Let

Meet Jonathan Nichols - from guest room to 8-unit syndication

SPEAKER_04 0:46

Throw.

SPEAKER_02 0:48

What is up, Micah Man? I'm chilling, Stevie Stacks. How you doing? I'm doing, man. I'm excited about a few things coming up in the LLT world. Uh big meetup tomorrow. I know it's gonna this episode will drop later, but yeah, it's gonna be a great meetup. Gonna talk about LLTU. We're gonna drop that. Yeah, we'll talk about it. It's in the works, it's in the works. So we got some we got some things coming up, and this is episode 198, Micah. 198, almost a two hondo. Yeah, of your favorite Airbnb, VRBO, Uber Lyft, Sharconomy, all that stuff in the world podcast. And we are coming at you from Arlington and Fort Worth, Texas. And who we got today, Steve? I'm glad you asked, Micah. We got a special guest. Who do you who do we have? Is Jonathan Nichols? Who's Jonathan Nichols? Well, good thing he wrote me a little bio to read. Uh, Jonathan Nichols and his wife Paula started in the airs STR business a few years ago in Arlington, Texas by renting their guest room on Airbnb. After seeing the potential with STRs, they went out on to convert their first investment property to STR, which is a fourplex strategically located across the street from ATT Stadium. Today, Jonathan has added additional properties personally owned to their STR portfolio and also done some work in rental arbitrage. However, their most exciting project is an eight-unit complex that they syndicated last year with their multifamily syndication company Apoji Capital A-P-O-G-E-E capital, and then converted to an S T R property. Exciting stuff. Welcome, Jonathan, to the show.

SPEAKER_01 2:39

Hey guys, thanks for having me. I'm really excited to be here.

SPEAKER_02 2:44

Ah, so much stuff that you just on that bio we want to jump into, especially the syndication part. Well, we'll ease into it. That's what people need to know, man.

How to marry multifamily syndication with short-term rentals

SPEAKER_01 2:54

Mike has got Mike already has his questions in mind. He's ready to roll.

SPEAKER_04 2:58

Yeah, like I want I want you to really break that down. Like, how'd you got into that syndication deal and are they all short-term rentals inside of that deal?

SPEAKER_01 3:06

Yeah, that's a great question. So in this particular deal, uh, yes, all eight units are syndication. And basically, um, like Steven was reading, you know, we our first rental property, a four-unit, fourplex um that my wife and I own, we converted all the units to Airbnb. And um, we realized the potential of doing that in a multifamily property in the same way that you have economies of scale with multifamily and long-term rentals. You also have economies of scale in short-term rental. You know, you have um much easier cleanings for your cleaners. Um, you know, you can keep all your supplies right there. It's just it's really simple when you have multiple properties there together. Um, and so we begin thinking like, hey, what if we just did a small multifamily, like a legit commercial multifamily property um and and basically syndicated it together um and then did short-term rental with all of it. And just to give a little bit of color to the story, so we have two different businesses in real estate. One is, of course, short-term rentals, but then the other one is we do multifamily syndications. Um, for anyone in the audience that doesn't know what that is, basically it's um large multifamily properties, typically a lot more than eight units, um, we'll pool investors together to purchase those properties and then do some kind of value add business plan to increase the value on those with an exit strategy, usually four or five years down the road, um, you know, to return capital plus profit to investors. And so um that's our other business that we do. So I thought, like, hey, what about this idea of marrying the two together and using our skills of syndication, but then, you know, the cash flow abilities of short-term rental to do a project. And so um, I had a broker bring me this deal in Arlington and he said, Hey, I think it's probably like smaller than what you're gonna want to be interested in, but would you be interested? And when I looked at the map, I realized it's like two blocks from our other properties. So I said, Yeah, absolutely. And um, happy to go into as much detail as you want, but I mean, the rest is history.

SPEAKER_04 5:12

Break that deal down. Like what was your purchase price? What did you have to guys have to put into it? Like rehabit, and then what's your exit strategy on that?

SPEAKER_01 5:21

Yeah, that's a great question. And and while I go through it, I'll talk about some of the challenges too, because it's a very, it's a very niche acquisition and business plan. Um, that you know, we kind of had to figure out, like I said, bringing both of these worlds together. So I already mentioned it was it was brought to us from a broker. Typically, in multifamily, most properties trade through brokers. Um, they are kind of the gatekeepers, if you will, of multifamily sales. And so um your relationships with them in large part determine how good of deals you can find in that world. Um, so this broker who I've been friends with for a while brought the property to us, and um, it's in the entertainment district in Arlington, for anyone that's familiar with that area. Um, and you know, basically it was, I don't want to say run in the ground because it was 100% occupied, but definitely in

$726K purchase price, $80K rehab, and a 92-per-door bargain

SPEAKER_01 6:13

need of a lot of TLC. And so um, you know, we put together a business plan, like you mentioned, for for CapEx and such, and said, hey, we're gonna buy the property, we're going to um evacuate all the units, you know, basically it was mostly month-to-month leases. So, you know, basically just terminate the leases, completely renovate the whole building, and then, you know, turn it into short-term rentals, just like what we did with our fourplex, except twice as big. Um, and so I mean, the first challenge that we had um was getting partners on board who wanted to, you know, put money into this kind of project. And so we're pretty fortunate that, you know, in the multifamily world, it's very common to have multiple partners provide an equity on a project. And so, you know, we had partners that you know we could go to and and pretty readily um find the capital that we needed to close on the property. The the purchase price was uh seven hundred twenty-six thousand, which you kind of wonder where that number comes from. I always add another one or two thousand on my purchase price. So if I come up with 725, I'm gonna throw another thousand because I don't want to get beat out by someone that's putting the same price in. So um anyway, so purchase price was 726,000, which is like 92 a unit, which is pretty cheap for Arlington multifamily, quite honestly. Um, but it needed about four or five K per unit of rehab, varying just depending on the units. You know, we painted all of them. Some of them we did some floor work, um, had to replace some uh heater, air conditioners. Um, fortunately, the major systems of the building, like the roof and the windows and stuff, are pretty good. We resurfaced the whole parking lot. Um, so total capex was something like 80K um for the whole property, um, which is you know significant for a property of that size. And so um, you know, one challenge was getting getting the money to be able to close on the property. The second and probably biggest challenge um was finding the debt for the property. Um, so multifamily debt is a little bit different

The commercial lender crisis - loan pulled three weeks before close

SPEAKER_01 8:22

than your normal residential. Um, if we walk into a mortgage broker for a residential property, if you're going for a personal loan, they will almost give you a loan plus probably more than what they should. I mean, they will very readily say, hey, you know, you deserve a nice house. We'll give you a big loan, you know, pat you on the back, do whatever they have to do to get across the finish line. It's a pretty simple process. If you're doing an investment property, it's it's pretty similar, except you know, you have to put a little bit higher down payment. Um with commercial, it's completely different. Commercial is all about trust, it's about track record, it's about your business plan, and it's about the property's potential. And so, you know, we had to really clearly document what our business plan was with this property, our track record with our other multifamily properties, um, and then take that to a small local lender to be able to talk to them. And so um, we actually got into the project with one lender who I thought was a very strong candidate. Um, it went before their committee and they approved the loan. And then um, three weeks before we were going to close, they actually called the loan off when it went through the second round of committee meeting. Basically, their reasoning is we're not comfortable with a short-term rental model. Um, and so, you know, we had obviously explained all this extremely well in our presentation. That's what it's centered around. But, you know, we had to pivot and find another lender. And fortunately, we were able to do that. And um, we found another lender um who was willing to give us the loan on the project plus funds for some of the CapEx. Um, we got the appraisal, which was extremely difficult to do in three weeks, and we closed about 15 minutes before close of business on our last day to close. So, you know, it's kind of a kind of a slide into home base kind of moment. But, you know, that's all that to say that like there are challenges with approaching a project like this. Um, but that those are some things that you know listeners might want to think about if they're considering it.

SPEAKER_04 10:19

Man, I I got so many questions on that. You you first off, where where did your appraisal come in at when you bought it at 726?

SPEAKER_01 10:27

It came in at 726. Okay. And then so you know, multi multifamily, I mean,

25% down, appraisal came in at purchase, and full transparency with the bank

SPEAKER_01 10:33

with commercial, it's going to be income-based. Um, and if you it is not uncommon if you have a really good property to get an appraisal that's a little bit above what you're paying for. And obviously that's a good thing. Um, when you have properties that are more run down, if they're coming in like say just a hair below, I I think I don't know this, I'm not an appraiser, but I think they kind of just bump it to the purchase price and let you have it, as long as it's not crazy, um, especially if they see a lot of potential in the property. Um, but yeah, it came in right at purchase price.

SPEAKER_04 11:07

Okay. And then how much did you guys have to put down? 10%, 20%? How did that lender work with you?

SPEAKER_01 11:13

25%, which is that's that's pretty common for your standard bank loan on a on a commercial project. Um, you know, sometimes you may put as low as say 20, and you may put as much as 30 or even 35. Um, but for us it was it was 25%.

SPEAKER_04 11:31

Okay. And then now your down payment was that was syndicated, correct?

SPEAKER_01 11:36

Correct. It was it was us and a few other a few other partners. So technically it's not, uh and this this may be going in a little bit in the weeds, but technically it's not considered a syndication. It's technically considered a JV project because it was just a few partners. We're all active members of the property. Um, whereas a syndication, you'll have two different sides. You'll have a general partner side that's active, and then a limited partner where all they do is provide equity. Um, so technically all members are active members on this project. So it's it's actually a JV project if if anyone's like super in the weeds on multifamily. But but yes, it the the point being that you know there's multiple sources of of equity for the project.

SPEAKER_04 12:17

Okay. And then how did you structure that, right? So you tell this lender, hey, we're gonna short-term rent all these things. I know they're like, whoa, hold on, what's that? You know, now how did you did you like structure it a way where well we're leasing this to another company and they're gonna pay us money and then that company's gonna run the Airbnb business, or how did you structure that?

SPEAKER_01 12:35

You know, that's a good question. You know, my my thing in in real estate um is I always, especially with the the vendors I'm working with, I always want to be as transparent as possible. Um, and we told them, I said, hey, we're gonna short-term rental this. And if you're not interested, I understand. Um, but this is what it looks like. And here is an example of a four-unit property that we've done this on. It's literally identical, just half the size of what we're wanting to do here. Same location, same vintage, same level of rehab. Um, here's the track record of what we have on income for the last two years. Oh, by the way, one of those years is COVID and we still have great income through it. Um, and so when you put all those arguments together, um, you really build a case for you know why they should lend you money. Um, but so no, we were completely transparent. We said this is a short-term rental project, or you know, are you interested?

unknown 13:31

Okay.

SPEAKER_02 13:32

My turn, my turn, my turn. Let me ask a question. I got a good one. I just want to know something before I lose, I lose, I forget it.

Presenting the deal - PowerPoints, track records, and COVID-year worst-case numbers

SPEAKER_02 13:41

Um, so and this is what we want. This is this is our goal. We want to do some syndication too. That's our that's our goal for this year. And and we want to and to sit down with these bankers, and you're talking about, yeah, you're gonna you're showing them all this and that. Uh okay, how how are you showing them this? I I want to know, like, how are you what are you coming in with binders, or what are you coming in with your laptops? I mean, I just want to know what are some tricks of the trade so we don't look you know cheesy like we don't know what we're doing. So, how do you I mean you you're passing everybody out like a binder? This is you know, our profits from each str that we do currently in Arlington, or how do you how do you show them? How do you show them?

SPEAKER_01 14:15

It's a really great question. So, I mean, there's probably multiple ways you could do it. Um, the way we did it was uh my wife and I, we put together uh basically just a PowerPoint presentation, and you want to give enough information to make the lender comfortable. Um, you don't want to overshare, right? So you want to you want to build your case, but you don't need to put in more than what you need. So things that would have been contained in this folder. You know, hey, we bought this forplex four years ago because it was our it was our primary target because it was the most similar property that we had to the eight unit. We could show them a single family house or something, but they're not gonna be as interested in that. Um, so we showed them, hey, this was our purchase price, this is the rehab that we did, and we had actually just refinanced that property, which meant that we had a second appraisal, you know, two, three years down the road. So we said, hey, this was the value at the time of purchase, this is the value two and a half years later. Um, you know, a lot of this value came from CapEx, you know, and you know, so we we think that we're gonna see a very similar story here on this eight unit property. Um, we talked to him about a lot of our management philosophy, you know, how we're able to get customers, things that things that you would talk about if you were if you were coaching someone through maybe like a first short-term rental or arbitrage property, you know, like, hey, it's not just people coming into town for six flags, although that could be it. It's also business people. It's also people traveling for families, for medical reasons. Like we have a very wide umbrella of customers for this business. And um, you know, that really um, I guess bolsters the confidence that we have that the project's gonna perform. Um, so and then obviously we gave the numbers, you know, hey, this is what we've made on these properties the last couple of years. This is our projections of what we think we will make on this eight unit going forward. Um, I like to do kind of a range, both a low and a high end, you know, so they can see like kind of a worst case scenario versus a best case scenario. And so I ran one that was like uh a COVID year income for my worst case scenario, um, basically based on the income that we had had during 2020, um, the first few months of COVID, and then um, you know, kind of a best case scenario of what we had like fall of 2019. Um, so they could kind of see a range of of what we expected. Um, and then I think beyond that, just a little bit of uh tidbits to kind of show them that you understand the business, like you know, showing your guests reviews and what they've said about your property, um, you know, explaining to them your systems and your teams. It really puts you in a spot that you know you appear as a professional instead of just someone that's you know kind of taking a crack at a crazy project. I like that.

SPEAKER_04 17:02

Now, after all that, you turned it into a bunch of short-term rentals. Well, how did they evaluate that property

How appraisers value an all-STR multifamily - the 6.5 cap mystery

SPEAKER_04 17:08

after you turned it into short-term rentals and say, oh, okay, this property is now worth this much, seeing that they're all Airbnbs, because I know it's based off the income, right?

SPEAKER_01 17:16

That's correct. And so it's it's really interesting. So the way they did the appraisal when we purchased the property was they did not even make an assumption about like what the rent would be after rehab, which to me seemed really weird. And they certainly didn't jump into the short-term rental. They just said, hey, we know that this guy can rent these properties out like they're being rented now. Um, these are current rents. This is kind of what we see based on an income approach. Um, basically, the purchase price would be about a five and a half cap. Um, and so, you know, based on that, you know, we think that we can give him this value. I have not gotten an appraisal on the property since we finished. We closed on this about a little over six months ago. Um, I would I would be interested to get one. Um, I've I've spent a lot of time talking to other operators, including one or two people, other people that have done similar projects. And I've heard that basically they take your net operating income and then instead of being like a five and a half cap, they'll do it by like maybe six and a half or seven cap, which I think is still super aggressive. Um, what that basically means is that probably the the value of the property, if someone's willing to pay for it, could be bumped from you know $726 to probably like, you know, 1.1, $1.2 million or something. But you have to convince a buyer that it's worth it. Obviously, everyone wants to get the short-term rental for the cash flow. And the higher price you pay, the less cash flow you get. So there definitely would be tension in between those numbers when you're searching for a buyer. But certainly you could get a premium on what you would get for a normal rental, without a

Refi plans and waiting for fall revenue to hit the books

SPEAKER_01 18:55

doubt.

SPEAKER_02 18:55

Do you plan on taking money back out of it after you uh get it appraised?

SPEAKER_01 19:00

Um, you know, probably will at some point. I think that at a minimum we need to run it through the fall this year. Um, our last unit came online about a month and a half ago. And as y'all know, I mean, the fall, especially in Arlington, the fall's the money-making season. So when you bring financials to the bank, they will probably look at the whole year, but definitely we want the three, four best months of the year included in those financials. Um, so you know, probably holding off on that for a while. But I mean, yeah, if if numbers make sense, I think I think refines are always great. Um, you know, I've done it on a lot of my single family properties, and yeah, you have to be careful because you you you can overdo it. You want to make sure you're still cash flowing really well. But um, with this property, I don't think that would be an issue.

SPEAKER_04 19:46

Now, then the Steve brings a good point. So is your guys' extra strategy at the end to refi or to sell? Because I know you guys said usually after five years, you make that decision.

SPEAKER_01 19:56

Yeah, so so you're correct. I mean, most of our business plans we underwrite to five years. It varies a little bit depending on the on the property, but I have a feeling about five years in, maybe slightly sooner, we'll be ready to sell this project. Um we could refi, say, a year and that's one of the beautiful things about bank loans is that they're relatively, relatively being the key word, inexpensive um compared to like agency loans and other types of commercial lending. And so um doing a refi, there's no prepayment penalty, there's no um, you know, kind of real gotchas as far as a financial standpoint. You know, you pay um maybe, I don't know, half a point or a point or something on the property, and then you know, you have your refi done. So um based on that, it makes a lot of sense even one year in or a year and a half to go ahead and and do some kind of refi if you believe you can pull most of your money out. But um, it also depends on the lender's appetite, right? Like if we go back to him and ask him for a refi, we're gonna have to build the same kind of case that we did when we first went to him, except this time, instead of us having 25% of the money in, it's gonna be we're gonna have zero percent of the money in. And you know, you really have to have a strong case for a lender to buy into that plan. So um, yeah, we'll see where it goes.

SPEAKER_04 21:18

Okay. And uh sorry, I'm hammering you, man, because this stuff just fascinates me.

JV vs syndication - when does a deal require a $15K PPM?

SPEAKER_04 21:23

Anything with Burr and uh syndications, I love it. So and I know you said on that property you was just a bunch of you guys just did a JV. How many partners does it take to make a JV to where it's this many partners? So now it needs to be a syndication.

SPEAKER_01 21:37

Yeah, so the rule is if it's a JV, everyone is an active partner, meaning that they have voting rights, they can make decisions about the property. Now, um, you know, I have an LLC that's a management company for short term rentals that runs our arbitrage properties and all that. So officially in our operating agreement, that LLC is the property manager of the Company. And so the day-to-day decisions and stuff for short-term rental are made by that company, you know, no questions asked. But in terms of overall project and performance, technically every partner has a say. And so that's kind of the thing, is it's not about the number of people, it's about their level of control over the deal. With this particular project, all the people in our, you know, very close, friends and investors in the project that we know well. They're very sophisticated. They understand what we're doing. And so, you know, I'm not worried about someone, you know, giving input that is, you know, not appropriate or something like that. Whereas in a syndication, um, your investors are required to understand what they're investing in, understand the deal, but they don't have to have an understanding to the level of being able to control a deal. And that's when you branch off and and and have a syndication with general partners and limited partners. And and the advantage to that is that you know, you as an active member on the syndication team know that you have the control you need. Um, the limited partners, they have limited liability. Um, in addition to limited control, that's another thing that they you know really like about it. Um, and it's a hundred percent passive, you know. So um, you know, for people who they want to invest in real estate, but they don't want to do anything, it's an outstanding option. It's a lot more. Oh, one other important thing syndication, way more expensive, way more expensive and more difficult. Yeah.

SPEAKER_02 23:33

So how much does it cost to start a syndication?

SPEAKER_01 23:37

Um, overall, it really depends on your deal size and stuff, but let's put it this way. Um, in a syndication, all your LPs have to review what's called a PPM or private placement memorandum. It's basically a 40-page document that your attorney drafts up that describes everything that could possibly go wrong with the deal. To get a PPM written is about $15,000 just by itself. So what that means, what that what that should translate to in your head is small property doesn't make sense to spend that kind of money. If you're buying a you know, five, eight, ten plus million dollar property, it makes a lot of sense to spend that kind of money, you know, because it's a small percentage of your total costs that go into acquiring the property at that point.

SPEAKER_02 24:25

And you got to do one each time for each different property.

SPEAKER_01 24:29

Absolutely. Yeah, absolutely. Separate LC, separate operating agreement, separate PPM. Um, it's a it's it's a business, is what you're forming, right? It's it's a legal business. And so the the people in the business, you know, it it it it just takes that kind of paperwork to be able to to make it happen.

SPEAKER_02 24:48

Man, the share economy needs to figure that one out.

SPEAKER_04 24:53

I'll go ahead, Steve.

SPEAKER_02 24:55

So do you think yeah, for smaller properties, it's just better you and your um uh you know partners just form an LLC and do it that way.

SPEAKER_01 25:03

Yeah, it is. And honestly, financially it makes a lot of sense too, right? Like if I mean for this property, we had like let's say a quarter million dollars of equity going in, right? Between CapEx and down payment. Um, and so you start thinking about if you if you were to look at the cash flow and start thinking about breaking that down percentage-wise, you know, if you had 30 or 40 investors in that, they would basically be making no money. I mean, it would be very small, right? The piece of the pie would be so small. Whereas on a very large property, you know, we have 30, 40 investors typically on a syndication deal. Um, in each one of them, it's a small piece, but because the pie is so big, it still is you know meaningful.

SPEAKER_04 25:45

Okay. Now let's go into the whole Airbnb side. So, yeah, how do you guys like because I know it's a joint, everyone has the say in the deal. How do you guys operate it? Do you operate it? Is someone other partner operates it? How do you how are you guys running it?

SPEAKER_01 26:00

I I so my I have a short-term rental business, it's called Northridge Rentals. That's my LC. And um, we are the property manager. So basically, in the legal documents, it says Northridge rentals is the short-term rental property manager for this project, and they will run the operations of it. Now, um, obviously that's my company, so that's you know, me running it. But you know, what comes with that obviously is the experience that we have doing Airbnb, you know, like y'all, you know, we have a team of um, you know, VAs and managers and cleaners and handyman, stuff like that. And so all that comes as a package deal. And then, you know, the LLC receives a management fee for running the short-term rental. Um, and then that's divided up amongst everyone on the team, including myself. And um, you know, that's that's how we get paid for for running the business.

SPEAKER_04 26:54

Oh, so you're managing it, but then all the management fees get distributed among each uh person that's on the LLC.

SPEAKER_01 27:03

Uh not quite. So think about it like this. So, you know, we have we have let's say $100 come into the pot, right? So our management fee, our management fee that we charge for this property is 15% of gross income, which is, I mean, as you know, that's pretty reasonable for for management on a short-term rental. Now, so so basically that's a management fee, just like if we had a big syndication, we would have a third-party property manager, right? And we would they paying them would be an expense. It would have nothing to do with our shares or ownership. It's just that's the expense. In this case, it's just my company who happens to run the short-term rental as the property manager. And so we receive that as a fee, it's an expense from the business. Um, but then within the deal at the end of the day with the cash flow and the splits and eventually profit from sell, that's split amongst all the partners based on our ownership percentages, if that makes sense.

SPEAKER_04 28:01

Gotcha, gotcha. So basically they're paying you, but it it comes from everyone. Yeah, they're paying exactly okay.

SPEAKER_01 28:07

Exactly. That's correct. Yeah. And um, go ahead. Oh, and that's just because obviously, um, you know, it in theory, if for some reason, say we were unable to continue running the business and we had to hire another short-term rental property manager, it would be real easy to then divvy up that pie and just hand it over to them, right?

SPEAKER_03 28:27

Yeah.

SPEAKER_01 28:28

Um, and still be owners in it. So that was the purpose for structuring it that way.

SPEAKER_04 28:32

Now, in the in the JV, were you the only person on the deal with short-term rental management experience? And you brought that to the table?

SPEAKER_01 28:41

Definitely. I I believe the answer to that is yes. Um, I think there may be one or two people that own, you know, like maybe they they run one home or something, but by and large, yes. Um, however, um, multiple people on the deal familiar with multifamily, everyone's an investor, sophisticated investor, either in multifamily or other residential properties, and everyone understands the short-term rental business very well, even if they don't run it day in, day out, you know, at a at a high level.

SPEAKER_04 29:13

Gotcha, man. This is fascinating, man. This is next level. I'm happy you're doing this because this is why I think

Origin story - renting a bedroom to buy the fourplex

SPEAKER_04 29:20

this is the future of it.

SPEAKER_02 29:20

Yeah, let's walk it back a little. Okay, your origins, your origin story. You just what and what what year did you just decide to start renting a bedroom out of your house? And how did that go with your wife?

SPEAKER_01 29:31

Yeah, well, so it actually is the other way in in our relationship. It's my wife trying to convince me. So wow. Yeah, we got married about four and a half almost five years ago, um, and bought, you know, just an average, modest house in Arlington, Texas. Um, what about by the way?

SPEAKER_02 29:50

Because I have a couple over there.

SPEAKER_01 29:51

Okay, yeah, yeah. Do you know where um what's the park called? See, now I'm drawing a blank on in North North Randall Mill Park by Randall Mill Park.

SPEAKER_02 29:59

Okay, I know that's it.

SPEAKER_01 30:01

Yep, yep. And um, you know, nice neighborhood, but just very, very average, I would say. Um, and we had no interest or ambitions in real estate when we got married. And but shortly after we got married, my wife's like, hey, we need to get a hobby together. And I was like, What like what are we gonna do for a hobby? You know, I don't let's go out and eat, or I don't know. But no, so one day I'm reading, I love to read, it's one of my my hobbies. And I read the book Rich Dad, Poor Dad, and kind of the rest is history from there, right? I just started learning and learning, and we um realized that to do our buy our first property, because our original plan was just buy a single family rental and just rent it out, um, that we were gonna need a pretty big down payment. And even though we had good jobs, it was gonna take a long time to save for that. And so we said, what can we do to make extra income? And so we just basically got the idea from a family member like, hey, what if you just like rent out a guest room on Airbnb and like it made great money, you know? And so I mean, it was not something we want to do forever, but we did it for a short time, got our down payment and bought our fourplex, you know. So, you know, it's you do you know how it is when you start out in real estate, you do what you have to to be successful. And so um we house hacked the fourplex so we could get a lower down payment. We actually moved there um and we renovated all the units while we lived there. Um, and as soon as our year of living there was up, we immediately moved to another house and got out of there. Um, and we did another big project that was basically a flip, but we we live in our flip. This is it where I'm at right now. Um, we did that during COVID. And then at that point, when we by that time, we were doing a lot of short-term rental. And you know, one thing in real estate is that there's a million different ways to make money in the business, but you have to decide what your niche is and just really focus hard, right? So for me, I like short-term rentals and I like multifamily, like those are the two things I understand, I enjoy. Um, and so that's that's what I do, right? So I don't plan to do any more flips, I don't plan to do any more long-term rentals um just because I want to be good at these other things. But um, yeah, so it's that's that's kind of the the history right there.

SPEAKER_02 32:13

Now, now this is interesting because I mean, luckily you bought a fourplex, you know, because we know the history, we've talked about the history of Arlington before, you know. First of all, you were uh where your first house was where you were doing it out of your bedroom, eventually out of the I get you know, a guest bedroom. Uh eventually they they banned Airbnb outside of that that's

Buying before the Arlington ban and riding the legislative wave

SPEAKER_02 32:33

correct.

SPEAKER_01 32:33

We we could we could not do it there if we live there today. That is correct.

SPEAKER_02 32:37

So you were doing it before the ban came, yeah. Before they said only yeah, only houses in that one mile radius around the stadiums can do it. Yep, and then but you so you bought the fourplex after the ban was put into place?

SPEAKER_01 32:49

Yeah, so that's a good question. So um we bought it before, um, and we did not buy it with the intention of doing short-term rental, we were gonna long-term rent it. Um, and so we did our analysis and numbers, and you know, my background, I'm I'm an engineer, I know how to do numbers, I know how to do analysis, um, but I didn't know how to do real estate. And so we buy it, and I realized wow, basically the guy that owned it before us was a slum lord, and everything's breaking left and right. And so instead of cash flowing like three or four hundred a month, it was more like we were probably putting in 300 a month by the time it was all said and done. Wait, you bought my old house?

SPEAKER_02 33:23

I'm just kidding.

SPEAKER_01 33:25

Yeah. But you know, it's it's it's not the end of the world. You can make worse mistakes in real estate, but it's definitely dishearten disheartening when it's your first investment. Um, but I mean, because we had done Airbnb before, we said, hey, the stadium's right here. Like, what if we just rent it out on Airbnb? Um, well, about that time is when you know all the legislation was going down in Arlington, um, which I'm sure both of y'all are extremely familiar with. Oh, yeah. And and um before we started our first unit, I think it went into effect maybe two months before. I mean, it was right at the same time. And I I was even at the city council meetings, you know, when they put it into effect because I was very interested in, you know, the results. Um, and so, you know, we said, hey, obviously it's kind of by the grace of God that we happen to be in this zone, but you know, we're gonna follow the rules and just do what the city says. And so um, anyone who doesn't know, uh Airbnb short-term rental in Arlington, uh uh aside from being in that zone, which um is important, it is very strict. You have to get permits. They come and inspect your place every year. You pay a lot of money in hot tax. It is, it's a very Airbnb unfriendly city overall, um, but it is allowed. And the good thing that I have found is that as a property owner who does short-term rental, um, the numbers make a lot of sense when you start to look at the kind of income you can pull from that area. And what else is interesting is that if you think about paying a 9% hot tax and what that does to your income overall, um, and then you think about doing rental arbitrage and the premium that you have to pay for rent versus the amount you pay for a mortgage when you own, which is much lower. You can pay one premium, hot tax or rent, but you can't pay both premiums. And so you don't have a lot of rental arbitrage that goes on in Arlington, which means less competition. Um, and so it's it's a pick your pick your poison, right? Like for us, it's worked out really well because we follow the rules, we get along with the city really well. Um, and we're known for being able to pass inspections and permits, you know, pretty flawlessly. Um, but you know, it just depends on the person. The important thing is that anyone who's starting a new project is aware of what the rules are before they sign a lease or buy a property. And I'm I'm sure everyone on your podcast knows that. But you know, I see people on forums all the time who, you know, they'll go, you know, buy a property with an hoa, and then three days after they close, they're like, hey, by the way, no short-term rentals.

Ownership beats arbitrage - the double-premium problem

SPEAKER_04 36:08

Now, if you said now you you got your hands in a lot of pots. You said you do ownership, you've done a little bit of arbitrage, and you do management. Now, which one do you like the most out of all those?

SPEAKER_01 36:18

Okay, so first of all, I only do management for properties I own. So I'm not out trying to find other properties. It that's just not my thing. I I do it because I like to have control over my properties. I like to run them the way I want to run them. Um, don't, I'm not under any illusion that you know I'm necessarily like the best management company in the world or anything like that. I think we do a great job. Um, and I like doing it on our properties, but we don't do that as a as a business. Um, because I know probably some of your listeners do. Um in terms of short-term rental, the reason the reason I do two things, multifamily and short-term rental, is because of this. Short-term rental has incredible cash flow capabilities. Um, but I would say, in my opinion, limited wealth building capabilities compared to other types of real estate, particularly if you only do arbitrage, right? When you own a property, it greatly increases your ability to build wealth because you have debt pay down, you have appreciation, you have tax benefits, et cetera, et cetera. Um, when you have commercial property, it's that times like five. You know, your tax benefits are much higher. Um, you can force appreciation based on the way commercial properties are valued. Um, and so, you know, you have tremendous wealth creating capability, but in markets like we see today, not necessarily a lot of cash flow. And so I think the two complement each other incredibly well because for us, we have our short-term rental properties that provide us cash flow that I replace my income from my W-2 with. And then we have multifamily, which long-term builds wealth, even though you don't necessarily see it right off the bat, if that makes sense.

SPEAKER_04 37:54

Perfect sense, perfect sense.

SPEAKER_02 37:56

So, so how is this eight unit setup? Is it is it a long line of eight properties together, or is it like a little apartment complex?

SPEAKER_01 38:04

It's two buildings, it's uh it's a six-unit building, um, that's just like a big rectangle, two stories, three units top, three units bottom. They're all two ones, and then it has a duplex off to the side that's two one one units. Um, so it's it's a very um interesting layout to say the least. But um, I mean, I think we've really turned it around well. I'll have to show y'all pictures sometime of it, yeah, you know, both before and after. It's at the end of the day, it's you know, it was like I think a late 60s billed property. It's an older property, it's a C class property. It still is, you know, it's not a luxury short-term rental. But you know, for someone who they're coming to Arlington, they want to take their kids to an event or whatever, and they're like, man, I can pay, you know, I don't know, 120 bucks a night for a hotel. Um, providing it's not like a football night, you know, $129 a night for a hotel for a little room, no kitchen. I have three kids, we're all crammed in here, or I can have a two-bedroom apartment for basically the same price with a kitchen, multiple beds, you know, hospitable hosts that I can support their local business. You know, it's not a fit for everyone, but for some people, it's a great fit.

SPEAKER_04 39:18

No, have you gotten kind of creative with that? Since you got all these two ones, have you ever like listed multiple under one listing, like maybe rent it out as a huge, you know, family reunion? I don't know, something like that or no.

SPEAKER_01 39:31

No, so probably this is this is where the line is is drawn between your experience as a short-term rental host and mine. But um, what we we've not done that, um, at least intentionally. I have had people who they realize that we have multiple units in a building. Um, I think it's happened more at our forplex just because we have a longer history with it. And so I've had people who say, like, hey, we have family coming, we want to rent, you know, two units, three units, or even I think one time all four units got rented by you know one family for you know a three or four day stay. Um, and it it was it was four separate reservations, you know. It wasn't any sort of you know fancy reserve reservation jujitsu or anything, but you know, I I don't know how y'all do it, but you know, yeah, we and we've had a lot of repeat customers too, you know. Um, so that's always

$4,000 in annual permits plus 9% hotel tax - Arlington's STR cost

SPEAKER_01 40:20

fun. And uh so yeah, absolutely.

SPEAKER_04 40:23

So I also have another question. I just thought about this. So, like Arlington has to come and inspect these places, right? Because I'm correct. Yeah, if you throw a listing up, Arlington's all over it, though. If you're not registered, yeah. So are you paying that hot tax 500 ever for every single unit over there?

SPEAKER_01 40:41

Yep, so it's it is a per unit pay. So for anyone that that doesn't like math, if you have eight units and you have 500 a unit, it's 4,000 per year just for permitting fees for the property plus 9% of your gross income. I mean, it is a killer tax. It's to my knowledge, the highest in the state of Texas. Um, I think even Plano's like 7%. I'm sorry, like no one's tax should be higher than Plano, you know. Um, but yeah, it is extremely high um and you know, financially burdensome. But the advantage is these properties are walking distance from AT ⁇ T Stadium. And so let me tell you, two weekends of football, you make those permit fees up pretty easy, you know. So yeah, you really have to look at it, you know, through that lens. And and um the the probably the bigger challenge is just you know on older properties, just having everything up to code. They have a very long list, they are they are detailed oriented. Um, but I I know what to look for, right? So I walk through and do an inspection before they do, and you know, because of that, we have a good rapport with the city. You know, we have several properties now that we've taken from um, you know, basically a dump and turned them around to something that looks nice. Um, you know, we don't have crazy tenants that are doing crazy things um that tenants do, um, you know, they're well maintained, and so I think the city's really appreciative of that, and I'm sure they're also very appreciative of the money that they get every month.

SPEAKER_02 42:16

So how high, how high you got your prices for WrestleMania?

SPEAKER_01 42:21

WrestleMania, when is WrestleMania? See, so that's the thing. I have a I have a manager who kind of okay looks at all the events and stuff. So I mean, I I know when a lot of them are going on, but like I'm not even sure when WrestleMania is, to be honest with you.

SPEAKER_02 42:34

I will tell you right now, April 2nd and 3rd. Actually, it's like a four four days of WrestleMania.

SPEAKER_01 42:39

So yeah, oh yeah, we should have I know so I know that we're fully booked. I I don't know what the price is, but you know, um we've played around a little bit with some of the the pricing software. I don't have that all the way figured out where I want it. I'm I'm I'm a very hands-on person when it comes to the pricing, so yeah, we look up the schedule on events and and bring the prices up based on you know kind of historically what we see and then adjust them as we start to get reservations. You know, when you have a bunch of units right there together, you know, you get two real fast, and you know you need to raise the prices on the others immediately. So um, and vice versa.

SPEAKER_04 43:14

So um, but yeah, I don't you brought up a good point with the tax, right? You said Plano only pays seven percent. But the thing about Plano is Airbnb pays the tax to Plano, supposedly. But so now with Arlington, are you allowed to put in there that the guests pay the tax, like put a little thing in there? Are you doing that? Or or do you have to just kind of take it out of your funds?

SPEAKER_01 43:41

You have to take it out of your funds. So when they were doing when they were doing legislation, so you know, I was a nobody in short term rental when they were passing all this legislation, but I did spend a lot of time talking to people in the city. And, you know, one thing I encourage them to do was develop a relationship with Airbnb to be able to do that, really for two reasons. One, ease of use for the hosts. And two, ensure that they're getting all the money. Like if it's if Airbnb does it, like they're going to get 100% of the tax. Let me tell you, Arlington's strict, but there's there's still rogue hosts out there that are, you know, not paying fees and stuff. And so, you know, there's, you know, definitely, definitely reasons I would like to see that happen. And so yeah, I contacted them and they basically said we don't want to go through that hassle. We're not interested in having a relationship with Airbnb. And so instead, they developed an extremely cumbersome and you know, probably man-hour heavy system that I have no clue how many people it takes to run. But you know, you you just you just live with it.

SPEAKER_02 44:45

Man, it's a bit stubborn. Uh it is funny going to those um city hall meetings. We were there too. We probably saw you. Uh we were sitting we were sitting on the on the blue shirts side.

SPEAKER_01 44:54

I didn't have my blue shirt today, but you weren't one of the you weren't one of the people with the the love the neighborhoods or whatever. I heard I heard some things uh from I mean, like I totally respect everyone's opinion and especially in their neighborhood and stuff. So don't misunderstand what I'm about to say. But you know, I heard some stuff that night I will never forget from that side of the crowd. We're like, what you know, just caricatures of the business that you know shouldn't even be stated, but yeah, some straight up racist stuff too.

SPEAKER_02 45:25

We and Michael were like, damn, yeah, yeah, bringing in all different kinds of people to our neighborhood, all different types of stuff.

SPEAKER_01 45:33

I was like, whoa, yeah, yeah I think it was very poorly represented, but that's my humble opinion.

SPEAKER_02 45:40

But you realize how much power um elderly people have over our cities because they're the only ones that go to these meetings, they know all the people by first name, right? All the council people by first name.

SPEAKER_04 45:54

Are you wanted to hop into the short-term rental space but just don't know where to get started? Join our Live Let Thrive Facebook group to network with other like-minded investors. We have property managers, lenders, and other experienced hosts to learn from. Click the link below to join. I'll see you there.

SPEAKER_01 46:07

And stuff very, very true. And and I mean, who pays who pays the most property tax of residential properties, right? I mean, they do. And so, you know, yeah, the city has a vested interest both from a relationship standpoint and a financial standpoint to appease them. But you know, I'm grateful Arlington made a carve out for a way that short-term rental can come to our business. Um, the neighborhood where they zoned is in desperate need of rehab. You know, my understanding, my understanding is that before the stadium went up, you would not want to be in that neighborhood at night. No, um, like I said, I lived there for a year in that neighborhood. And like we never had any problems with crime or anything. Um, but a lot of the buildings are very dilapidated, you know, and um there's there's nothing wrong with, you know, having lower rent properties or anything like that. But my opinion is that at least what I expect of my tenants, both of my residential and commercial properties, is that all tenants, regardless of any income level or whatever, have to be respectful of the property. And so um, you know, there's a lot of just abusive tenants that you know tear down stuff there. And so it's a neighborhood that needs to be cleaned up. And when you look at the aggressive purchase prices that we're seeing in the market now, it takes a business model like short-term rental to justify the kind of expense, you know, to properly rehab those properties. And so from that, from that standpoint, I am grateful to the city for you know thinking that out and providing that avenue, not only for us as business owners, but also just for the the benefit of the city.

SPEAKER_02 47:42

Yeah, they they did see that part how we we go in there and and like you said, rehab the houses, make them beautiful, um, keep them top not, you know, keep the yards perfect and everything, right? Because we we have to. We're not gonna we can't have people staying in a ghetto place. So but I wish it was, you know, I wish the bubble was a little bigger. I have a house uh 1.5 miles away from the stadiums, so I'm just right outside the bubble. Ever uh you ever tried doing the the 30-day plus day thing, or does that not actually I have uh uh like a corporate agreement with with with someone that uh uh a tenant that was renting one of my houses in Hearst, which Hearst also

The trash management puzzle across eight units

SPEAKER_02 48:20

got shut down too. Go figure, you know, these little peripheral cities. Oh, hey, well, what about us? We want to shut down something too, and even though there's only like 12 Airbnbs in the whole city of Hearst, but anyways, um so they thought it was the cool thing to do back then. Everybody was trying to shut it down, and and um, so she yeah, my my tenant, she stays there and and pays like a set fee, you know, a pretty good, a pretty good price, you know. And for it, it's it's all included. It's it's like it's like a corporate setup, but she's a she's a great tenant, so so it worked out okay, and then they shut it down. Is the funniest part about that is they shut down Airbnb right before COVID, so they kind of did me a favor because I was uh you know, just for a brief period of time, because everything, you know, everybody got all you know canceled, all the cancellations that happened, and people were crapping themselves, right? So my house, I turned it into a regular rental or a corporate rental right after they they they installed the ban, you know, and so I was able to just seamlessly keep going.

SPEAKER_01 49:17

Okay, well, that's I mean, that's good, you know. I mean, I think it worked out pretty well for most of the the good hosts, at least during COVID. But um, but yeah, it was definitely uh definitely a couple sleepless nights there for a weekend.

SPEAKER_02 49:32

Yeah, man. I it uh man, I I was calling it my retirement house. I was like, this I'm making enough money at this house to freaking retire already. I was making more than what my job pays me. It was beautiful, but then you know, all good things. Um, so anyways, yeah, so that happened. I was gonna ask um earlier because you have the this you know the the eightplex is I guess is it called the eightplex since it's like six and two I I call it the eightplex, but you can call it whatever you'd like to. Okay, I know Arlington. One of the things, and they make you put it in your rules because we we do manage a house over there in the entertainment district, and so they they make you put it in the rules and stay and then you know your house rules that the trash pickup, right? That's like a big deal that you have to put it out as it's like after 7 p.m. You can put it out the night before or you know, in the in the morning, and you have to bring the the well, it's not really Ben's where we're at, we just set the bags out, whatever. But um, yeah, so so how do you how do you manage that with it being an eightplex? Do you have a dumpster there for them, or how does that work?

SPEAKER_01 50:34

Man, that's a that's such a long story. So when when I bought the property, it had a commercial dumpster like you see at a lot of apartment buildings. And my original intention was to keep that dumpster. The only thing was it was in the front of the property. You can't access the back of it with a uh garbage truck, it's too too narrow because there's kind of a back parking lot where everyone parks, um, but it's too narrow to get back there. So you have to have it on the front. It was an eyesore. So originally I thought, like, well, I build a small like fence around it or something and to contain it. Um, and but long story short, it wound up getting removed right after we closed on the property, long before we started rehab or anything. We still had long-term tenants there. And basically, even though it is a commercial property, you know, anything five units or more is a commercial property, it's commercial loan, you know, has commercial laws applied to it. The water and trash of Arlington has it as a residential property. And so, what that means is that you have to have a permit to have a commercial dumpster on the property. And so it got taken from us. And I was going to apply to get the permit, but I was like, man, I like the building so much better without this hideous thing in front of it. So, how can I do trash without that? And so, you know what we do at our fourplexes, you know, each person has the the recycle bins, and so we put our bags of trash in those, and then just basically so that animals don't get on them and just pull them out when it's time to take the trash out. And so, you know, I pay our cleaners additional uh money on those nights before trash to basically take care of that um at all the properties we have in that area. Um, it's not a perfect system, but it's you know reasonably works, I guess.

unknown 52:20

Okay.

SPEAKER_02 52:20

I ask everybody that has you know Airbnb houses or even you know small life forplexes or whatever. I ask them how they deal with their trash because it is a deal, it is a it is a big deal. Yeah, I mean, that doesn't have a perfect answer yet. So that I selfishly ask because I'm coming up with a perfect answer for that. That to be continued, you know.

SPEAKER_01 52:36

Yeah, it's harder, it's harder with one house because you don't necessarily have someone on site there every day, you know. And so for me, there's someone cleaning multiple units every day in Arlington, so you know that person can go do all the trash. So it may be a little bit easier for me. I mean, I I guess my best guess with a house would be tell the guest to throw it in a bag out in the front, I don't know, the night before, but um, or or pay a neighbor kid to take care of it for you, kind of thing, you know.

SPEAKER_02 53:06

Yeah, there's no perfect answer. There's there's so many people that have different ways to do it, but there's no, you know, not yet. Don't worry, uh, you know, to be continued.

SPEAKER_04 53:14

How much uh how much do you charge if I bring you a

Underwriting deals for the 100-unit Tulsa and 75-unit College Station projects

SPEAKER_04 53:18

deal for you to uh analyze it and things of that nature?

SPEAKER_01 53:21

Oh, to charge to charge for just like analyzing like a multifamily deal, yeah, yeah, yeah. I'll uh for for you, I'll I'll analyze it for free. How does it sound?

SPEAKER_02 53:31

That's nice.

SPEAKER_01 53:31

Thanks. I'll do it, I'll do a free one for you. No, I oh go ahead. Oh, I was gonna say, um, no, that's actually kind of what I focus on in multifamily. We we raise money and we've done pretty well at it, but I do a lot of acquisition stuff, so you know, the analyzing, talking to the brokers, going to tour properties, that's kind of my niche in the multifamily world.

SPEAKER_04 53:52

So so if we were to bring you one and we wanted to bring you in as a partner, we could do that, and you did you oh yeah, yeah.

SPEAKER_01 53:58

I'm I'm always looking for new deals, you know. So um basically, see the listeners may get a little bit uh disoriented just because obviously we're talking a lot about short-term rentals because that's what this podcast is about. But for me, like my my work week, I probably spend, you know, maybe 25% of my time doing short-term rental activities, and I probably spend 75 doing multifamily. Um, like that's where I focus a lot of my time. And so yeah, I underwrite tons of deals. Um, and I mean, I I've underwritten a lot for looking at maybe future short-term rental, but most of them are just normal long-term rental properties. And so um, we look for properties all over Texas and Oklahoma. So sometimes I have to travel and go look at them and stuff like that. But um, it's it's hyper competitive, you know, it's it's tough to find deals right now. So it takes a lot of time just to land one, but but the reward's a lot higher eventually when you do find one.

SPEAKER_02 54:54

So so you analyze for other people, or are you you're always looking for for yourself and your team and your uh partners?

SPEAKER_01 55:00

I I analyze for myself. I have friends like Micah who, you know, they'll they like I said, I have an engineering background, right? So I mean, numbers is kind of my thing. Um, but you know, I have friends who they'll toss me something and just be like, does this make sense or whatever? Um, pretty regularly. But but no, I'm looking for deals for me, you know, to put together.

SPEAKER_02 55:21

And so far you have the fourplex and the eightplex.

SPEAKER_01 55:24

So we have those as far as kind of like our smaller short-term rental properties, but we actually did two big syndication projects last year. So these are normal long-term rentals. We have a third-party property manager. So one of them is a hundred unit property in Tulsa, Oklahoma. So that's a me, that's me and a group of like a few other GPs, you know, general partners that actively manage that deal. So I'm one partner of a few. Um, so we helped raise money. I did a lot of the due diligence, you know, the walkthroughs on the property, helped build the CapEx budget. Um, and then of course pulled in investors to, and this is a true syndication. So invest passively on that deal. And then we also have a property that we closed on in November last year. It's 75 units in college station. Um, and I was the the lead general partner on that deal. So I found the deal, pulled in a couple of people to help, you know, raise money and for experience. Um, and that's also a normal, you know, long-term rental. So on both of those, we have third-party property managers that they run the property full time. So my role is more of uh what's called asset management, which means, you know, ensuring that the property manager is doing the activities both to keep the property running day to day and to execute on our long-term business plan. And so there's a lot of stuff involved with that, but like that's those activities looking for new deals and and running our current deals is is really where most of my time goes, which is why I pay you know managers and co-hosts and stuff to help me on the the short-term stuff, at least as much as I can.

SPEAKER_02 56:54

So so now the 100 unit and the 75 unit, no strs in either one.

SPEAKER_01 57:00

No strs in either one.

SPEAKER_02 57:01

And why is that?

SPEAKER_01 57:03

Um there's there's a lot of uh there's a lot of reasons. Um so oftentimes on big multifamily, your lender will not allow you to STR. Um, and you know, there's people who I know like, you know, they're like, oh, I'm gonna corporate lease it. And then, you know, I happen to be the owner of the corporate lease and stuff. I I just don't go into that. Um really, I you know, with with with big commercial lenders, you don't want to get on their bad side. There are consequences. And so um, you know, and and also it's it would probably create a lot of tension with our property managers. Um, you know, they get paid by the gross income that they pull in on the property. So obviously if you give them a hundred unit, they want to manage a hundred units. Um, so I'm not saying I'll never do that in the future, um, but there there are challenges with it. Also, one my personal short-term rental philosophy is I like everything to be within like 30 minutes driving in my house. So obviously, if you're the perfect short-term rental operator, you never go to your properties and everyone takes care of everything. And we do a pretty decent job at that. But sometimes I have to go to properties.

Why multifamily operators want in on STR - and why Jonathan stays local

SPEAKER_01 58:16

And so I'm not really interested in doing short-term rental in Austin or Oklahoma or wherever, just because um there's other people doing it there and I do it here in my neighborhood, you know. Um, obviously, that's just my personal, you know, how I do things. But um, so it kind of goes against my my personal short-term rental philosophy too. Um, but you there there are opportunities to do that. I have had multifamily operators talk to me about it, ask me questions about it because either they want to do it or you know, they ask me if I want to do it. Um, and so yeah, there's there's definitely opportunities there.

SPEAKER_04 58:51

I like that way of thinking, though. You know what you want and how and it works for you because I mean you have a hundred units up in Oklahoma. I mean, you know, but you said something I was very just right then. You said there are other people in the multifamily space trying to dive into the short-term rental space, right?

SPEAKER_01 59:08

Yeah, absolutely. It's I mean, people see the money in it and stuff, and um, I mean, I mean, part of it's good. It's I'm interested to see where the short-term rental space goes because of it. Because, you know, if you get people who they're not familiar with the business, I mean, you know this as well as anyone, they wind up kind of ruining for everyone because they don't take care of stuff well, and that really concerns me. Um, I always caution people with their lenders, with their property managers. Um, you know, agency loans, you cannot have short-term rental in your building and they will come after you if they figure out. So um you have to be you have to be very careful. Um, and like I said, getting on the bad side of a commercial lender is not something you want to do. Um they are in a way a partner on the deal, you know, and so um you have to abide by the rules that you've agreed to with them. Um, but beyond that, just you know, issues of property management and stuff, you know, I've toured properties where now brokers of multifamily even will add, they'll be like there is a value at play, and they will put numbers on their operate offering memorandum, which is basically their sales flyer, to say, hey, if you did short-term rental here, you can make X dollars more and it would increase the value of the property this much. And while there's a level of truth to it, they're they're definitely not seeing the whole story, right? Like some of them are properties where like short-term rental is just probably not viable um because of the neighborhood or something like that. Um, and uh you know, it it's just there's a lot of inexperienced people that are jumping into it, and you know, I I try to help people where I can. I don't want people to get bit or anything, especially friends that I have in multi-family, but it's interesting to say the least.

SPEAKER_04 1:00:51

So, quick question how old are you, Jonathan?

SPEAKER_01 1:00:54

I'm 29. I turned 30 in like three or four months, man. So I gotta I gotta do a lot in the next three months, you know.

SPEAKER_04 1:01:02

I gotta say this, man. You'd be 29 and doing that, you're going straight into the whole cliche. You buy real estate and wait, don't wait to buy real estate. And that's where and see, and that's why I really enjoyed what you were doing because a lot of people are on the arbitrage thing, and then you said, Hey, multifamily people are trying to get in on short-term rentals. So, what it seems like is gonna start taking away from the arbitragers, but those short uh multifamily people don't know how to run it, so I think it's gonna create an opportunity for short-term rental management companies. So this is good stuff that you're doing, man. Uh, I I'm but best of luck to you and your wife, man.

SPEAKER_01 1:01:38

Y'all are killing you know, I'm not suitable, I appreciate it. That's that's that's very kind to you. You know, there is so much opportunity. If if someone's listening and they're just getting started, like I know that you know, y'all talk a lot about people with management companies. Oh my goodness, so much opportunity for management companies, short-term rental. It's a difficult business. Like you have to hustle and you have to know what you're doing, but if you can do it well, oh my gosh, there's so much opportunity. And so, yeah, anyone getting started, really encourage you to look into it. Like I said, I just manage my own properties, but you know, there's a million great businesses out there, and that's certainly one of them. Um, but yeah, I mean, I owe a lot of the credit to my wife. Like I said, she's the one that kind of when she first mentioned moving to a fourplex, I was like, huh? Like, why would I want to do that? You know? Um, but she's you know, she's really been the glue that's kind of you know held all these projects together. And and um, even though I'm the one that works on real estate full time now, you know, we're both owners and active, you know, managers of our business. And so, you know, she's she's definitely deserves more than half the credit for the success.

SPEAKER_02 1:02:44

That's the coolest thing because it it always seems like it's the dude trying to convince the wife, hey, come on, let's do this, you know, let's it's Airbnb out of room. Let's try to let's let's try to house hack, you know, move into a fourplex or something crazy like that.

SPEAKER_01 1:02:56

So I have a rule, I don't any property because I love acquisitions, right? I like finding properties, I like buying them. If if my wife is not excited, not just degrees, but like excited about the property, I don't do it, you know. So, like our college station deal, I literally said, Hey, I I was like, I found a multifamily, like I think we need to buy it. And like we were in the car the next day driving down there with her with me because I wanted her to see the property, and she saw it, she toured it with me and was like, Yeah, we're gonna buy this one, you know. But like it's just you have to, and whether that's a spouse or you know, just a very smart business partner with different gifts and abilities, like especially when you start talking about you know using other people's money and syndicating and stuff, you have to realize that you never have all the answers and like you need input from other people. And so if your spouse happens to be the person, that's obviously fantastic. If not, you need to find someone who is that other person, you know.

SPEAKER_02 1:03:56

Love it. That is cool, man. Um yeah, I'm happy for y'all. I'm happy it's uh y'all are a team in this, you know, and um, and uh and me and Mike are are lucky enough to have wives that are so very supportive of us of our craziness, our crazy ideas. It helps, man, because it's not all good, it's not all good

Arbitrage as a path to off-market acquisitions

SPEAKER_02 1:04:15

days, right?

SPEAKER_01 1:04:15

Like some days you make money and some days you get your teeth kicked in.

SPEAKER_04 1:04:18

So that's not talked about enough, man. Some days you do, you do get teeth kicked in, man.

SPEAKER_01 1:04:23

Yeah, I mean, like the the you know, the loan getting pulled on the properties, like one example of that, but there's so many more I could give, you know. I'm I'm newer in the the arbitrage arena, but like I would say for me, like I feel like that's been harder getting started in that and just leases and contracts and stuff than like even just buying my own properties and starting, you know, and so um, you know, it's it's a challenge.

SPEAKER_04 1:04:47

Yeah, I'm getting out of that arbitrage business. I'm replacing them all with some of my own because yeah, I it's yeah, I I see the ending in sh in short sight on it. And when I was talking to you and listening to like how you were setting up your system, like, yeah, investors are starting to hop in the space and it's gonna start, you know, create some problems.

SPEAKER_02 1:05:08

Here's how I use the the arbitrage um model. You know, we have a we have a bunch of arbitrages, but this here's how I use it in in a kind of a creative way. Is so I get you know, I like to arbitrage uh someone's condo that they own, right? I don't like I don't like the I do have do have some apartments, you know, in apartment complexes, and those are like the the most headaches, but someone that actually owns the condo or owns the town home or owns the house, you know. We I love those because I say, Hey, we're gonna, you know, we're gonna go. And Micah taught me this a long time ago. I said, How do I get people to let me arbitrage their house? But tell them that you're gonna handle everything, you know, anything under 200 bucks you're gonna fix, and it's just gonna be no headaches for them. The yard's gonna be immaculate, everything's gonna be immaculate, you know. And so, you know, I pitch them this, and it's like, Wow, this is pretty cool. Or you this sounds too good to be true, and you're just gonna put you know, corporate travelers, whatever, and um, so I pay him. First of the month, 5 a.m. in the morning, I'm sending the money, right? First of the month. Landlords love that shit. And uh I don't bother them for nothing, right? I don't bother them for nothing. I try to fix anything, anything small that you know, whatever that I can fix, or I have my handyman can fix it, you know, small, you know, I don't even bug them. If something big AC goes out, of course we're gonna have to tell them, right? And and um, so anyway, so I I make it as headache free as possible, give them the rent on time. I'm their their dream um, you know, tenant, right? Because I mean they're they're getting paid, and and they'll reach out. And I've got this phone call already. I've got four properties owners that are already saying, Hey Steve, I'm thinking about selling the house. Maybe uh you can sell it to y'all. We don't even have to bring agents into the mix. So I form a good strong relationship with the person I'm arbitraging with, and I'm able to buy these houses, and it's not gonna hit the market where there's gonna be like a hundred people bidding on it, right? And so it's it's it's a great end. If my end game is to man, I really love this property, I love the location, I love you know the setup, I love how they and and um I'm gonna arbitrage this thing, even if I broke even that whole year, you know, or lost money. I forming a great strong bond with this person that could that wants to deal directly with me and sell me this thing. I think I think that's worth it.

SPEAKER_01 1:07:15

If you're gonna if your end game is that 100 100, and so I would I would throw two things out there for everyone to think that's because probably everyone, like I said, I'm probably beginner level at the arbitrage, right? I've done a handful of properties, some of them okay, some of them, you know, not okay, back and forth, you know. But um, but I would say this if you're someone who only does arbitrage one, think about using some of your cash flow to start buying properties because you're it's great to have cash flow, it's wonderful, but you don't want to run your arbitrage business forever. No one wants to. And so, you know, how are you going to build wealth to build to have true passive income one day? That's one that's one bit of advice I would give. Second bit of advice, and this is the multifamily syndicator in me speaking, consider investing some of your money from arbitrage into a multifamily syndication passively. One, you're putting the money to work without having to do anything. And two, one of the big advantages

Bonus depreciation - the 80% year-one write-off ending in 2022

SPEAKER_01 1:08:20

that some of your listeners may not be aware of in the commercial real estate world is the tax advantages. So when you buy a residential house, you know, basically over 30 years, the IRS assumes that because your house is being used for a business purpose, it goes from a value that you purchased it at to a value of zero dollars over 30 years. So each year you get to write off one thirtieth of the value of the house, um, which is a paper loss. What that means is that, like in reality, your house has probably gone up in value, but the IRS says it's gone down in value one thirtieth. That's a big advantage. In commercial, you get to actually accelerate many of the items on the property. And so instead of getting basically one thirtieth, you get to deduct the property over a period, a large majority of the property, I should say, over a period of five years. So the write-off you get is substantially larger. But it gets even better than that. So there was a tax law that went into effect in 2017 and it ends at the end of this year, the end of 2022. And it's what's we we colloquially refer to it as bonus depreciation in multifamily. What that means is all five of those years of depreciation, which are compressed from 30, you now can write off in year one. So what that means is that like if you put say $50,000 in a multifamily syndication and it varies project to project, you can write off anywhere from probably like 50 to 80 percent of your investment as a tax deduction, which is as someone who works in real estate full time and you need to talk to your CPA and all that. Don't take my word, I'm not a CPA, go talk to your CPA. But basically you can take that off of your other passive income sources. Or if you have a spouse that works as a W 2 in your full-time real estate, deduct it off their W 2. So basically, you know, you say you put you know $50,000 in a project, 80% is deducted. That means you have a $40,000 write-off. That's $40,000 you don't pay taxes on. So forget about whether you make 8% or 10% or 15% or whatever on your investment. You're not paying taxes on $40,000, you know, like that's probably your biggest return on investment in that project. And so that's one thing that multifamily people are extremely aware of, they're very cognizant of that a lot of people in short-term rental are not, but it could benefit them if they were aware of it.

SPEAKER_02 1:10:48

It is funny. I I heard a good use in the bigger pockets, I assume. Oh, yeah, yeah, absolutely. Oh, yeah. Oh, yeah. You heard the the episode a few weeks ago with uh the the countant of Rich Dad Poor Dad. Okay, he came on there. If you haven't heard it, go listen to it.

SPEAKER_01 1:11:03

I have not heard it, but I will listen to it.

SPEAKER_02 1:11:05

Mind-blowing stuff. He talks the same thing that you talk about and a bunch of other creative stuff that they do. He's in other words, he he said it's not that rich people don't pay taxes if they pay less taxes. And and he talked about that bonus depreciation and uh taking all that depreciation out the first year, right? And he goes, Well, okay, you're taking it out the first year, that's fine, but then they'll bundle that that um tax savings or the you know uh that return with with with debt to go buy another property, and so they just keep doing that over and over in that new property, they'll take all the depreciation out the first year, use all that money, bundle it with 80% debt, and buy another property. Correct. And it's just like that's why they don't pay as much tax as we do.

SPEAKER_01 1:11:47

That's right. And you see a lot of these syndication plans. The reason that a lot of them are written to five-year business models or less is is one, that's all it takes to add value to the property. Once you've added value, you know, your kind of return on investment starts to, you know, it it you're always going to be making money, but much less, a much lower rate than what you are before. That's one reason, probably the biggest. But then the other has to do with tax laws. I mean, your first five years, you get tremendous tax advantage, and after that, it's diminished substantially. So it you know, once you're five years into a project, you're you're probably better off exiting it from a tax perspective.

SPEAKER_02 1:12:22

Man, some high-level stuff on this episode.

SPEAKER_04 1:12:26

Oh yeah, don't you be for the show, Steve? Like, this is the one I've been waiting on.

SPEAKER_02 1:12:31

Well, thank you for hopping on, man. This has been uh eye-opening. I'm glad you know a lot. I hope a lot of our fans, you know, got a lot from this because they're a lot of our fans are doing the high-level stuff now. So it it is um, you know, we used to our early episodes we talked about, you know, what kind of sheets do you buy, what kind of pillows, you know. Yeah, and now it just it's just we moved past that. A lot more people are doing Airbnb short-term rentals, investing in real estate, and so uh something like this is very valuable for them for us too. We'll be talking after the show, try to get the little syndication going on, maybe, you know, you never know. Yeah, absolutely. And uh, I got a management company's uh maybe you know, we'll talk that we'll talk on that.

SPEAKER_01 1:13:11

Sounds good, and that sounds great.

SPEAKER_02 1:13:13

Your trash, you know, situation, but anyways, um thank you for hopping on where can people find you, man?

SPEAKER_01 1:13:19

Yeah, yeah, absolutely. So I'm I'm very active on LinkedIn. My name's Jonathan Nichols. Um, so you can definitely find me there. Um, and then our company, our multifamily company is called Apogee Capital. Um, and so we have a website, apogeeapo, g e M F C like multifamilycapital.com. On there, we have like a free ebook about passively investing in multifamily and a ton of other information. Um, so you know, feel free to peruse that. And so between those two things, you can definitely get a hold of me and you know, always happy to chat, no, you know, no matter what you're interested in. So reach out anytime.

SPEAKER_02 1:13:55

Where does that name apogee come from?

SPEAKER_01 1:13:57

Yeah, that's a great question. So, like I said, my background's engineering, specifically aerospace engineering. And so um in aerospace, you know, one of the classes that you take is like where you have satellites orbiting bodies like you know, the moon or the earth or whatever, and planets orbiting stuff like that. And so the apogee is when something's in orbit, it's like the furthest point that it can reach in the orbit. The reason that's important is like, you know, if you have a spaceship, you want to see how far it can go in the orbit, you want to know, or like if you have a satellite and you're trying to see what kind of reach it has over the earth, you want to know what's the furthest point that it can reach in that orbit. Um, but then the colloquial definition of apogee is like pinnacle or climax of something. And so I had this idea to name our company apogee because it kind of marries my past career with what we're trying to do now, which is help people reach their financial potential. You know, we have a lot of family and friends who they're very interested in real estate, they're very cognizant of the importance of investing, but they don't have the time or the experience to invest in real estate. And so that's really what our company is about is helping people invest who otherwise may not be able to.

SPEAKER_02 1:15:04

That's powerful stuff, man.

SPEAKER_04 1:15:05

I like that. But yeah, man, thank John, thank you for having giving us your time. We know you're a busy guy, man. And having you on this has been a pleasure. We definitely gotta uh we gotta have you back on when that valuation comes through.

SPEAKER_01 1:15:17

Oh, yeah, yeah, for sure. And you can come to the party too when I see it.

SPEAKER_04 1:15:21

So oh yeah, definitely send us an invite.

SPEAKER_01 1:15:24

Yeah, absolutely. Well, hey, thanks for having me on, guys. I really had a great time chatting with both of y'all.

SPEAKER_02 1:15:30

Uh you too, man.

SPEAKER_04 1:15:31

See ya, man.

SPEAKER_02 1:15:32

Take care.

SPEAKER_04 1:15:33

All right. Oh, that was uh I said that would be a powerful one, and it was because he touched on a lot of things that I think that where the short-term rental space is going. And uh yeah, that was really powerful. Episode, I enjoyed it, you know. Um, in how you said we no longer talk about sheets, and I broke, I thought about it the other day. We're in the business sustainability part of business now. How do you say sustainable? You know, the sheets, yeah, the sheets are important, but man, we we we're past that. Go listen to another podcast for that beginner stuff. We're we're on sustainability, growing your business, you know. No, just to the beginning, you know, if you're a beginner, you can hop into LLT.

SPEAKER_02 1:16:11

We're we're we're into that apogee now. You know, we're about to leave orbit, you know. I'm saying to the moon, yeah.

SPEAKER_04 1:16:19

Go LLT to the moon, make that a uh crypto, but you know, uh NFT. But no, man, uh honestly though, man. That that that what he talked about, I think that's where the where the space is going. You know, you got in. I think two years ago, I said, man, if investors start hopping into short-term rentals and met in multifamily, man, that could be a headache for arbitragers. Now, people like you know, managers like you, you could take off, like, hey, I'll manage it for you. You don't know what the hell you're doing anyway, you know.

SPEAKER_02 1:16:48

So, yeah, yeah, yeah.

SPEAKER_04 1:16:49

So, this is a really good episode, man.

SPEAKER_02 1:16:51

That was a great episode. And I like how he explains everything uh so accessibly, you know, people can understand it clearly, um, and and they can get a lot from it. I you know, it we I never even thought of that. I've never thought of that in my life, just putting some money into some syndication just for the tax benefits. I'm like, wow, I thought about it. Okay, we're just all sharing and you know, buying it, sharing in the profits, and that's pretty much it, you know. But then just um, yeah, you could you can get you can put in 50 grand or whatever, and or you can put in you know whatever it is, and then you you get like a forty thousand dollar write-off that you can you don't have to pay taxes on forty thousand dollars of your profits that year. That's just oh, that's lovely, anyways. So there you go. If you if you're um like man, I can't find a house, I can't find nothing to buy, everything's so competitive, you know. Throw it into a nice syndication deal and get you a nice fat, um, you can get a reef, uh nice fat return from that, you know, a nice fat um um deduction because yeah, that's that's how you do it. Owning, owning is the is the is the end goal, man, dude.

SPEAKER_04 1:17:57

Uh yeah, you're about to we're we're about to we're about to look light up our WhatsApp tonight, man. Because that that was such a good episode. I got a bunch of ideas from that. That was a really good episode. So I got a bunch of ideas from that we can ref definitely uh look into because yeah, that was good. Yes, sir.

SPEAKER_02 1:18:12

Where can folks find us, Micah?

SPEAKER_04 1:18:13

You can find us at livelethrive.com. You can also find us on IG at Live Let Thrive. And like we did say, LLT University is coming. Uh, you'll see some a few more things. We haven't we're we're it works. We got to get everything structured and set up, but yeah, LLT University is coming. That is gonna be our whole mentorship program. Me, Steve, Mike, Federico, the whole LLT family. Gonna see the whole how the whole thing works, you know, from the timeshares to the management to the to the arbitrages to the buying of houses for free, all that. So we're gonna have all that in there. So uh yeah, we look forward to helping the people that have been listening and wanted this. We hope that it's gonna be able to provide value for you. Sweet.

SPEAKER_02 1:18:53

Big things coming. Yes, sir.

SPEAKER_00 1:18:55

We are out peace later. Thank you for tuning in to this week's episode of Live Let Thrive. Be sure to tune in next week for all the latest in the world of Airbnb and all that entails. Bye bye.