\n<\/p>\n
Short-term rental arbitrage<\/strong><\/a> seems like an elusive concept. As a real estate investor, it can be a little hard to wrap your head around it. You lease a property, rent it out, and then\u2026profit?<\/strong> That\u2019s right! Without buying a rental property<\/strong>, dealing with maintenance or large-scale repairs, you too can make just as much money <\/strong>(if not more) than the landlord down the street without ever owning the property <\/strong>in the first place. It sounds like a dream, but in reality, you\u2019ll need an airtight system and team to make it work.<\/p>\n Thankfully, Jeff Iloulian<\/strong> has all that and more. Before 2014, Jeff was living as a lucrative lawyer<\/strong>, billing high by-the-minute rates and making money every second he worked. This was during the \u201cwild west\u201d of <\/strong>short-term rental investing<\/strong><\/a>, where mom-and-pop owned vacation rentals were starting to become a serious way to make passive income. Jeff initiated his portfolio with just one \u201clease arbitrage\u201d unit and eventually ballooned his empire up to 150 rentals<\/strong>!<\/p>\n Now, Jeff does more than just run his short-term rental portfolio. He runs the buying group HostGPO<\/em><\/strong><\/a>, helping link up short-term rental operators with vendors who can provide better, time-tested, industry-specific products. Not only that, Jeff manages numerous other vacation rentals<\/strong>, so he knows everything from furnishing to cleaning, check-out procedures, and more. He gives a furniture and furnishing masterclass<\/strong> in the second half of this interview where many of his tips could save you thousands over the lifetime of just one rental unit.<\/p>\n David: Jeff: David: Rob: David: Rob: David: Rob: David: Rob: David: Jeff: David: Rob: David: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: David: Rob: David: Jeff: David: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: David: Jeff: David: Rob: David: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: David: Jeff: David: Jeff: Rob: Jeff: David: Rob: David: Rob: Jeff: David: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: David: Jeff: David: Rob: Jeff: David: Jeff: David: Jeff: David: Jeff: Rob: Jeff: David: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: David: Jeff: Rob: Jeff: Rob: Jeff: David: Announcer: David: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: Jeff: Rob: David: Rob: David: Rob: David: Jeff: David: \u00a0<\/p>\n \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast show 665.<\/p>\n
I think a successful investor is someone who is willingly ready to pivot whenever that needs to happen. So I think anybody who has a strict mindset and is rigid on \u201cThis is what I\u2019m going to do\u201d and is unwilling to actually look at the data in front of them or look at what the deal is in front of them and pivot what they were hoping for is destined for failure. And I think that somebody who is flexible and treats each deal and each property like a snowflake is more likely to succeed.<\/p>\n
What\u2019s going on, everyone? This is David Greene. You host of the BiggerPockets Real Estate Podcast here coming at you today from Scottsdale, Arizona, where I am checking out rental property and making fire content along with my partner, Rob Abasolo. Rob, how are you today?<\/p>\n
Ola, ola. It\u2019s Friday. I\u2019m feeling great. I\u2019m excited to hit the weekend. Maybe catch a flick at the cinema by myself and have a little bit of me time. How about you, sir?<\/p>\n
Maybe check out Bed Bath & Beyond if you have enough time possibly.<\/p>\n
That\u2019s my therapy these days, is going to the container store and I\u2019m like, \u201cAh, I wish I could organize like this.\u201d<\/p>\n
Speaking of Bed Bath & Beyond, we get into it with today\u2019s guest, Jeff Iloulian, talking about how to furnish your short-term rentals. Obviously, short-term rentals are all the rage. I\u2019ve jumped into that and bought several of them for myself. Robbie here is a specialist in the short term rental game. And this is one of the hotter asset classes in our space. So you often hear about analyzing the deal, finding the deal, managing the deal, but you don\u2019t always hear about furnishing the deal. So in today\u2019s episode, we give you some really good advice about where to go to find the best furnishings that you can and tip. And hint, it\u2019s not at Bed Bath & Beyond. Rob, what were some of your favorite parts of the show?<\/p>\n
This one is multifaceted. First, it starts off as a rental arbitrage, lease arbitrage master class and I was like, \u201cWow, we are hitting the groove here.\u201d And then all of a sudden we transition into furnishing and all the things you need to know, the ins and outs, horror stories, methods to the madness and everything in between. Jeff really does break this one down. It\u2019s a really, really cool story. He was a full-time lawyer that basically six month into his short-term rental journey decided, \u2018Hey, I don\u2019t want to do that anymore. I want to be a successful short-term rental entrepreneur.\u201d And then even from there, crushing it time and time again. So I\u2019m really excited to get into this one.<\/p>\n
Yeah. We also talk about how Jeff had to transition from being a lawyer, which is not a skillset that is conducive to being an entrepreneur, into being an entrepreneur that moves at scale. We talk about hiring, about leveraging, about growing and about overcoming the obstacles between your ears sometimes to stop us from making content. So overall, I would say this is a very solid show. Make sure you listen all the way to the end because we play a game called Method or Madness where Jeff gets into the method that he has used to furnish rental properties before and if it drove him mad or if it worked.
All right. Today\u2019s quick tip is three words, contractor, grade, furniture. In the show, we talk a lot about buying the right property, as Rob here would say, buy nice, not thrice. You want to get something that will stand the beating that your guests are going to put on it and save yourself a lot of time and money in the future. If you watch this episode alone, that should give you quite a bit of value. I know I had my eyes open to this fact. It\u2019s probably going to save me a lot of money on the properties I\u2019ve bought. Rob, anything you want to save before we bring in Jeff?<\/p>\n
I totally agree. Buy nice, not thrice. Let me just give you a little reason why. Because you\u2019re going to buy cheap furniture and then guess what? It\u2019s going to break and then you\u2019re going to buy it again. It\u2019s going to break again. Not only do you have to get rid of the furniture, you have to hire someone to take it out and reassemble the new one. And then by the end of it, you buy the nice one and you just ended up spending three times as much than if you want to just splurge the first time. So listen to the episode, take notes, grab your pen and paper and get ready because this is a good one. It\u2019s going to be very, very eyeopening for everyone that\u2019s looking to really get into this industry full force.<\/p>\n
All right, let\u2019s bring in Jeff.
Jeff Iloulian, welcome to the BiggerPockets Real Estate Podcast. How are you today?<\/p>\n
Doing great. How about you?<\/p>\n
I\u2019m doing good too. I\u2019m in Scottsdale actually. I\u2019m here looking at potential rental properties, going to be checking out houses when we get done with this and then tomorrow as well. I really like the area. There was a crazy storm here last night. We were doing a YouTube live and it was like everything was fine. Within five minutes, there was a monsoon, just tons of rain, tons of lightning. We\u2019re kind of staying up in the mountains right now so we are right in the middle of it. It was an awesome experience. I\u2019m not quite sure how I\u2019m going to connect that to what we\u2019re going to talk about today. I was hoping that as I kept talking, there would be a segue that would appear that is-<\/p>\n
Ooh, I got it.<\/p>\n
Okay, Rob.<\/p>\n
I got the segue. Don\u2019t worry. Okay. So I think that monsoon was the guest that we just actually had at our Scottsdale property. And let me tell you, man, this is by far, I mean, this is the most, oh man, high maintenance guest I\u2019ve ever had in my entire Airbnb career. And here\u2019s the segue. Get ready for it. Jeff, tell us about your short term experience because I know you\u2019ve managed quite a few short-term rentals and you\u2019ve probably dealt with a few high maintenance guests in your time.<\/p>\n
Yeah, I think that\u2019s a very, very fair thing to say. So I\u2019ve managed over 250 vacation rental units in a variety of different ways, from super, super luxury homes, all the way to apartment buildings and everything in between, cabins, beach properties. The level of maintenance is always high. It doesn\u2019t matter the type of property, it can always get pretty high. So I\u2019ve probably had tens and tens of thousands, if not hundreds of thousands of guests with a lot of crazy vacation rental stories.<\/p>\n
Wow. Okay. That\u2019s some bragging rights, man, to even be in the tens of thousands. I mean, I\u2019m thousands. I was just on the phone with Airbnb talking about this guest. It was a whole thing. Many layers deep into the customer service room and I said, \u201cListen, I\u2019ve hosted thousands of people, okay? So I don\u2019t say this lightly, but I think this is the one.\u201d And they laughed and they\u2019re like, \u201cWe understand. We can\u2019t help you though.\u201d And I was like, \u201cNo.\u201d So tell us about when you got into Airbnb, man.<\/p>\n
Yeah. So I got into Airbnb back around\u2026 Or vacation rentals, the STR industry, 2014 I kind of started. I was and am a lawyer, but I was practicing law at the time and really read an article for the first time about somebody doing arbitrage. I thought it was really interesting. Had never thought about before and always loved the idea of being in the hospitality industry, of being in travel, and kind of started back then with my first property.<\/p>\n
I mean, I consider that sort of the wild west of Airbnb, the 1.0. And then I think the next probably four or five years were sort of the 2.0 where things are getting more established. And now we\u2019re, sort of, I don\u2019t want to say the final stage, but it\u2019s a very different animal, I mean. Would you say that there has been pretty big paradigm shifts within the short term rental industry since that time?<\/p>\n
Yeah, absolutely. I mean, I think even thinking about 2014 as 1.0 is too much. I mean 2014 was already 3.0, 4.0. I mean, the last 20 years of the vacation rental industry has changed a lot. I go to conferences and things and meet people who were in vacation rental markets where it\u2019s customary to not make the beds, right? You just leave the sheets and hang them on the door. Guests, 20 years ago, they used to have to pay if they wanted sheets. So that even in the early 2000s to 2014 was a huge shift. I think we\u2019re definitely in a third phase from that point, but right now is still very much the wild west.<\/p>\n
That\u2019s totally fair. That\u2019s very, very, very fair. I kind of more liken it to the, I guess like the dotcom era for Airbnb and short term rental Vrbo, VRBO, all that stuff. Okay, so you got into real estate, you saw this article, this interesting concept of letting strangers sleep in your home for a rate basically, right? So what from there sort of kicked you off to actually get into it and what was that first unit like?<\/p>\n
So the first first unit that I had, I actually got that unit, I was speaking with a friend who had some experience in the short term rental industry. He\u2019d been doing it for a little bit longer than me based out of New York. We had this property that came up and we actually started that property under a management deal where a third party company was managing it from New York for about three, four months. It was a really interesting deal for a bunch of different reasons, but I learned a lot from those first three months about how management worked, seeing somebody else manage my own property. But that deal was really, really unique because actually it was a lease arbitrage deal that I had a property management company running.<\/p>\n
Okay. So can you explain that for people at home just so that we understand what is lease arbitrage?<\/p>\n
Yeah. So lease arbitrage is essentially you go in, you lease a property for X amount, banking on the fact that if you put furniture in it and rent it on a shorter basis, then a year or multi years that you\u2019re going to get overall higher return. Nightly rates adding up monthly, you\u2019re going to get a higher month return than you would get after expenses with just your lease. So it\u2019s the arbitrage, the difference between your fixed lease amount that you\u2019re paying and what you\u2019re getting through the short term rental industry. At least that\u2019s what lease arbitrage is in this industry.<\/p>\n
Yeah, sure. So basically, let\u2019s say that it costs you $100 a day in rent to rent a property and then let\u2019s say you got another $20 in utilities a day. You have to rent your property for more than $120 a day to make a profit basically, right?<\/p>\n
That\u2019s right, yeah. Plus, factoring in the fact that you\u2019re going to have to furnish the place, maybe pay a management fee to somebody else. All those costs add up. And the idea is at the end of the month, you\u2019re going to net out more money than you\u2019re paying in rent and expenses.<\/p>\n
So as someone that actually started in rental arbitrage myself, this was me back in 2018, 2017, somewhere in there. That\u2019s when I was just a wee raw built at that point. But I was getting my\u2026 I don\u2019t know. I was understanding what this could be and I thought it was just a crazy opportunity to make a lot of cash flow. What was this like in 2014? Because in 2018, it wasn\u2019t even a new concept at that point. 2014, this must have been like, \u201cMan, I feel like I\u2019ve won the lottery.\u201d So tell us about the sentiment there when you were first getting started.<\/p>\n
You know what\u2019s really funny, Rob, is that the sentiment in 2014 from everybody else who\u2019d been doing it for four years is four years ago, five years ago, this was a completely novel concept that nobody would\u2019ve ever thought. It\u2019s the same as what you\u2019re saying now. I felt the same. I was like, \u201cThis is already played out. This is already done.\u201d But now looking back at it, it was very different than it is now. It was, for lack of a better way to say it, it was very hard to miss. There was a lot of money out there. You could put any kind of units up with any type of quality level, et cetera. They were going to rent and you were going to meet your least arbitrage number. It was very, very difficult to miss. The demand significantly outpace the supply in the market.<\/p>\n
Okay. So can you tell us what were you actually doing then? What was your full-time career at this time? Were you already in real estate?<\/p>\n
I\u2019ve always kind of dabbled in real estate on the side, a little bit of commercial real estate, a little bit of residential real estate, but I was a lawyer full-time. So that\u2019s what I was doing. I did some real estate law. I was doing transaction work. I was doing business litigation. So I was working at a big law firm. My day to day at the point when I started getting into the vacation rental industry was woke up super early, went into the office, worked a full day as a lawyer, and then I was trying to figure out how to do vacation rentals at night. And at the beginning, I had a property management company handling my messages, but during that transition where I decided to make the jump full-time and quit, I was doing a lot of the messaging from my phone in the office responding to guests, doing pricing, all that stuff on coffee breaks, on things like that. So I was working full-time as a lawyer when I started doing this.<\/p>\n
I always wonder how people do this. I was in advertising so I always felt like my life was really flexible, my career was very flexible. It\u2019s always crazy that a lawyer could be managing an Airbnb on the side. And David, I don\u2019t know. What was it like for you, man? Because I know you were out in the field, you were working in the [inaudible 00:13:09] at that time managing your portfolio. Were you ever just shooting text messages out to your property managers? Or was it pretty passive for you early on?<\/p>\n
No, it was not passive at all. So I, very similar to Jeff, had to develop a system where I could communicate with people on the brakes that I had. So part of it was training the property managers, the agents I was working with, to communicate with me in the way I need it. So text messaging was much easier than phone calls and I would prep them ahead of time. So let\u2019s say that they had a house they wanted me to look at, they don\u2019t just send me a link and say, \u201cDo you want to buy it?\u201d It would be, \u201cHere\u2019s the house. Here\u2019s the rent. Here\u2019s the ARV. Here\u2019s where I think we can get it for.\u201d And I\u2019ve looped the property manager in on that text and the property manager would literally send a thumbs up icon or a thumbs down icon regarding do I like the area or do they like the area.
So I could really quickly look at it and then I could take those numbers. And either at a point, I got to be able to do it in my head, but at first I would just run in a calculator and I could make a decision on yes or no and then I could just text back with a purchase price like 110K or 200K or whatever that they would write the offer. And then they would tell me, \u201cI\u2019ve sent the email\u201d and I could DocuSign it. So as a cop, it could literally be, I go on a call, I get done. I get back in the car. I look at my phone. Everything is there I need. I send the text, I put it back in my pocket. I move on to the next thing. All of us have time throughout our day. It does not matter how busy you are, where we check our phone to text our friends or we check an email or we look at something on TikTok. I don\u2019t use TikTok, but I know a lot of people do. Most visited website.<\/p>\n
Not yet.<\/p>\n
So if you tell yourself, \u201cI can\u2019t do this, I\u2019m too busy,\u201d that will become true. If you ask yourself, \u201cHow can I do this when I\u2019m busy?\u201d, you will absolutely find a way. I personally believe that led to me being better at analyzing deals, that led me to be a better communicator. It led to all the concepts that are in long distance real estate investing. So I love hearing that Jeff had that same attitude. This sounds cheesy to say it, but so much of the time we talk ourselves out of what we\u2019re possible of because of the stories we tell ourselves. You see this with real estate agents. They go to the office, they sit there all day. They don\u2019t contact any buyers or sellers. They don\u2019t put anything out to draw leads. They don\u2019t do any work to make them money. They sit there, they develop business cards, they make marketing fliers and they look at emails and then they go home and say, \u201cI worked for eight hours today.\u201d No, you sat in an office for eight hours. You didn\u2019t actually do work.
But when you have that W2 mindset where you get paid just because you\u2019re at a place, you start to think that\u2019s work. And that W2 mindset does not work in this 1099 world where we are entrepreneurs, where we get paid for results. I truly believe, Jeff, and I want to hear your opinion on this, so many people don\u2019t work in any form of entrepreneurial environment because they can\u2019t break out of that thinking of like an assembly line worker like, \u201cI\u2019m here. It\u2019s supposed to just happen. I\u2019m looking at houses on Zillow. Why have I not got a deal on her contract yet?\u201d But if one of us sat there and watched them do it, what we\u2019d say, \u201cYeah, you showed up at the gym and you didn\u2019t touch a machine the whole time.\u201d<\/p>\n
Yeah. I mean, I can\u2019t tell you how much that resonates with me. I mean, the concept of being productive with your time and what you can do when you\u2019re really thinking about your time. As a lawyer specifically, I was tracking every minute. I was billing by the minute. So I was very conscious of what I was doing with my time. So if I was sitting there for eight hours and I wasn\u2019t tracking what I was doing and billing it to somebody, then I wasn\u2019t going to get paid. I wasn\u2019t going to get my credit for it. So I was very aware, hyper aware of time. But you figure out where you can fit it in, where you can find time. And honestly, you make the time. A lot of the work I did in the first six months before I decided to jump was done from 6:00 PM to 10:00 PM. That\u2019s a lot of hours. You can do a lot of work late at night.
I think just like you\u2019re saying, David, the toughest part is that first you\u2019re sitting there, you\u2019re paralyzed, you\u2019re a deer in the headlights, taking that first leap of faith is really, really challenging. As good as I was at managing my time and being productive, that was a really big learning curve for me. It wasn\u2019t a natural fit right out of the gate. I was really risk averse. Lawyers are trained to be really risk averse and think the worst is going to happen and everything. Lawyers in general make terrible business people for that reason alone. You\u2019re terrible at sales, you\u2019re really bad at deal analysis because you think everything is going to fail. So I totally get that. That first little nudge over the edge to jump off the cliff as it were, like, that\u2019s a big thing.<\/p>\n
I see this with different vocations like engineers. So sometimes my real estate team will be working with an engineer and we\u2019ll find eight houses we\u2019re going to show them as a potential house hack. We\u2019ll go look at the houses and they don\u2019t like any of them. Bad area, bad house, something. It\u2019s an obvious no. And they\u2019re going to want to follow up when we get done and analyze every house and plug all the numbers in the spreadsheet and see what the ROI would be and talk about how they would do every house and I\u2019m like, \u201cBro, you don\u2019t want any of them. Why are we still talking about this? Let\u2019s put the energy into finding the next house.\u201d And it\u2019s sort of a self-awareness thing that you have to recognize \u201cI am programmed to think this way.\u201d
As an engineer, you just have to solve problems. You have to dive in and get the information. And it\u2019s easy to forget, \u201cWhy am I even getting this? What purpose does it serve?\u201d And when you get into the world of real estate investing or entrepreneurial and endeavors in general, you\u2019re always asking yourself, \u201cDoes this matter? Is this important? How important is this? Is this going to actually move the ball forward?\u201d
I just wanted to take little segue to cover this because so many of our listeners I\u2019m sure are trapped in the matrix. They don\u2019t realize they\u2019re just going through these motions without knowing they\u2019re going through motions. And two years come passed and you haven\u2019t made any progress, it could become very discouraging. So if you don\u2019t mind sharing, what was your red pill moment in the matrix where your eyes were open and you realize, \u201cYeah, as a lawyer, I am totally prone to seeing what could go wrong and I can\u2019t see anything other that.\u201d? And now obviously you\u2019re in a place where you\u2019ve sort of embraced risk and you\u2019re creative and you\u2019re scrappy. That could not have been a natural process for you to go from where you were to where you are now.<\/p>\n
It wasn\u2019t. And you know what? To be fair, I had a really great business partner when I jumped out of being a lawyer. I didn\u2019t start it on my own. I had somebody who was an entrepreneur, who had some experience, really kind of coaching me through those first couple months. It was really, really hard. I was used to being right about\u2026 You\u2019re trained as a lawyer to value your opinion. Your opinion is right. You got to go with your gut. And then you enter into a totally different universe where you don\u2019t even know which way is up and you\u2019re on a sales call and then you have somebody tell you afterwards that that was the worst sales call I\u2019ve ever heard in their life. That\u2019s a tough thing.
So I had somebody kind of coaching me through those first couple months. I think my first sales call was probably that red pill moment where I was like, \u201cOh, I don\u2019t know. I don\u2019t know anything.\u201d Everything that I just heard as a critique of my first sales call was one of the worst. I look at it now and I laugh in a great way, but it was a good learning experience.<\/p>\n
So that was your first deal when you were first starting out. But how many deals did you eventually get to just so that I have an understanding of how far you went with this?<\/p>\n
So yeah, I started with that first deal and then I did about the next 40 deals as lease arbitrage. And then after that, it kind of became a mix. About 50\/50 I was doing property management for other people. And then I was doing lease arbitrage. When we were at our biggest, we were 150 properties. But over the seven, eight years, a lot of those came and went. So I set up and ran over 250. But sometimes especially with lease arbitrage deals, they\u2019ll last for two, three years, especially the way that I was doing it. Some of them didn\u2019t last forever, but that was kind of the point.<\/p>\n
Wow. Okay. So we got to backtrack here. There\u2019s a lot to this story that I want to know. So you went from one and you said, \u201cWe did about 40.\u201d So what was that? What was that scaling? Because in my understanding of lease arbitrages, it\u2019s pretty tough to go out and find landlords that are like, \u201cSure, you could lease my place. Why not? Sure I could get the same rent from a long term renter, but your pitch sounds great.\u201d So how are you able to actually get into units? Because that seems like the hard part for this niche within short term rentals.<\/p>\n
Yeah. I think that that\u2019s right. I have that conversation with a lot of people about what\u2019s the best way to have the conversation, how to approach a landlord. For me, I found a niche within a niche for those first 40 properties and kind of ongoing, which was, I had this wild idea. I knew a bunch of real estate developers and they were really focused on flipping homes, but they were flipping homes in nicer areas. So they would buy a home that was decent, but the market in that area had shifted and the market was really hot. And so for them to knock down a decent home and build a much, much larger home was going to be worth it in two, three year flips.
The problem was that when they would buy these homes, they would have to wait for entitlements and wait for permits to come through. And that process, especially out here in Los Angeles, could be anywhere from a year to 18 months to two years, depending on what you\u2019re trying to do and how crazy it is. And so the concept that I came up with was to, just talking to some of my real estate friends, was hearing that they had bought a home from a homeowner. That homeowner had moved out because they were moving on and they were trying to figure out what to do with these homes. They wanted to lease them out, but they didn\u2019t want to put long term tenants that they were going to have to maybe kick out in 10 months and they didn\u2019t want to go through the hassle of figuring out what to do with it.
And so I reached out to landlords who needed this service specifically. They needed somebody to come in and take an underutilized asset and figure out how to maximize it or how to make it work for them. So I was leasing properties that were waiting for entitlements, homes that were waiting for entitlements for flexible periods of time, anywhere from 10 months to two years, saying, \u201cYou let me know month to month when you\u2019re ready to get the property back.\u201d And I was able to lease those properties at significantly less than market rent.<\/p>\n
Wow. So basically someone was going to go. And just so I understand it, and let me just say, as someone who has built a tiny house ADU, an accessory dwelling unit in my backyard, I can 100% vouch for how difficult it is just to get a simple permit or what I thought would be simple. I was very green. I didn\u2019t know what I was doing. But it took a long time just to get a 300 square foot structure. Yeah, so permit. I have a lot of sympathy for the people that actually want to do a tear down and a remodel. So effectively, someone sells their house and they\u2019re either just going to lose money on the mortgage payment. They don\u2019t want to have to evict anybody. So you come in and you\u2019re like, \u201cHey, I\u2019ll tell you what. I\u2019ll lease it here. And when you\u2019re ready to kick me out, I\u2019ll go.\u201d You were able to just pick up clients that way? Or did you have a lot of nos along the way too?<\/p>\n
Mostly it was yeses. Honestly, the value prop we were bringing to the table was really strong. A lot of the people\u2019s alternatives were zero. They were just not going to rent the homes out. Or by understanding their pain points, we were coming in with conversations like, \u201cWell, you\u2019re a flipper, but you don\u2019t do management.\u201d Right? They don\u2019t have management. A lot of these companies weren\u2019t property managers. So we would tell them, \u201cHey, look, we\u2019re going to lease the home. We\u2019re going to lease it for less than market rent. We\u2019re going to give it back to you whenever. And if anything happens to the house, we\u2019ll fix it. We\u2019ll never call you for any basic stuff. If it\u2019s a minor AC repair or a broken faucet or a plumbing issue, as long as it\u2019s not a major thing, we\u2019ll just take care of it ourselves and we won\u2019t even call you.\u201d And so that was like music to a real estate developer\u2019s ears that was doing a flip. That\u2019s the last thing they want to deal with. This is all upside for them so a lot of these deals were really easy to close.<\/p>\n
Okay. So was this all specifically in any kind of, I don\u2019t know, segment within Airbnb like luxury? Because I know obviously if you\u2019re building a house it takes a little bit of money to do that. So I imagine, were all these houses in more higher end areas or was it kind of across the board, just every single type of, I don\u2019t know, price point?<\/p>\n
It was across the board. I mean, I eventually got to homes where I was renting them out for 3,000, $4,000 a night. And I had homes that I was renting for 70, $80 a night. This lease arbitrage model worked for both because what would happen is it would be an okay home in a decent neighborhood that was going to be turned into a super nice home. So it might have been a little bit old. It might have needed a little bit of touch up work. And I would do light work myself. Painting, maybe putting down some laminate in an area that needed a little bit of love, but nothing heavy.
And then on the other hand, we would get folks that would call us, \u201cHey, we just bought these four homes and we\u2019re waiting to get entitlements to build an apartment building in this part of town. Do you want these four homes? Because they\u2019re just going to sit. We\u2019re not going to lease them to anybody until we get a\u2026 The entitlement process to get an apartment complex green light is years. So those were always great deals for us too. But a lot of those, or even some of the apartment buildings, were much, much smaller, much, much more value units.<\/p>\n
Wow. Okay. So tell me a little bit about your team here because I know there\u2019s only one Jeff, right? So there\u2019s no way that you can go and furnish and paint and lay laminate on all 40 units, I\u2019d imagine. I mean, at this point, once you get to that number, you\u2019ve probably left your job I think you mentioned six months or so, is that right?<\/p>\n
Yeah, probably like five, six months after I started renting out the first property with that management company. Yeah, I remember having 10 properties when I left my job.<\/p>\n
Okay. And so at what point did you start building out your team or what did that team look like? Tell us the phases of it. Because I know from one to 10 is going to be probably a different animal from 10 to 40.<\/p>\n
Yeah, absolutely. So I think you have to also remember in the context of this story PMS software, property management software in the vacation rental industry was not where it is today. A lot of the solutions that exist like HostGPO, my company now, didn\u2019t exist back then. So things that make it easier to run vacation rentals. So the types of help that you need were very different. So the first person that I\u2026 It was me and my partner. The first hire that we did, remember 2014 was a check-in person. We did all of our check-ins in-person for the first two years of this business.<\/p>\n
Wow.<\/p>\n
And it was because we were hyper vigilant about what was going on. Back then there was a lot more fraud. We were in a really kind of metropolitan area. And so there were a lot of party issues, neighbor issues, things like that and we wanted to make sure that we could get it off the ground. And we wanted to make sure that we were creating great experiences for guests. The remote check-in thing was just getting started so the expectation was a little bit different when people showed up. Being able to have somebody walk you through the house and answer questions for you, that was really what generated a lot of positive reviews. Now we stopped doing that for a lot of reasons. Also, I think it became unnecessary and we learned how to do that in other ways.
So the first person was a check-in person. The second person was a maintenance person. After that, we had an operations person that did started doing a lot of the messaging. We hired a pricing person that was doing the full-time pricing. Oh, I should say before we hired the pricing person, we hired something that we thought was really important was a head of quality and assurance. So this person ran our cleaning teams. So the cleaning teams were all outside cleaners, but we had somebody present at the beginnings and ends of the cleanings to run inspections to make sure that the properties were in tip-top shape. So a head of cleaning. And then after that, your basic accounting, another operations person, two full-time handymen that were kind of doing everything. We did a lot of maintenance work and we kept the units in great shape. We would repaint units, I don\u2019t know, twice a year, pretty much any issues, any maintenance issues, just to make sure that they were always had this fresh unwrapped brand new kind of feel when you walked in.<\/p>\n
Okay. So you kind of figured out the team, right? You\u2019re kind of slowly assembling here. I\u2019m sure you have a lot of problems from that zero to 40, right? I have to imagine going from 40 to 150, that\u2019s got to be a whole different animal with its own set of problems, right?<\/p>\n
Absolutely. I mean, I think that you start to get to the point\u2026 One of the big problems that came from 40 to 150 was we started diversifying our business model. So now all of a sudden we were doing property management on some properties, lease arbitrage on other properties and keeping track of expensing, accounting, doing statements for owners, figuring out who\u2019s paying for what, figuring out how to track and what types of maintenance we wanted to do on different properties, when we needed to get approval, the diversification of the business into the luxury space. How we handled luxury units was so, so different than how we handled basic units. So really creating operating procedures that went across a broad cross of different types of business models and different types of properties was probably the biggest logistical hurdle from 40 to 150. Just figuring out how to treat each of these properties and creating processes for each one, it was really complicated.<\/p>\n
Do you feel like at any point you went from being a real estate company or like a rental arbitrage, lease arbitrage company to an operations company. Or are they kind of one in the same in this business?<\/p>\n
I think that they\u2019re different. There\u2019s a lot of people doing lease arbitrage out there or just investing in the short term rental industry passively where you\u2019re not really involved at all. There\u2019s a lot of people that take managing and working with their property managers really, really seriously and are really hands on. And then there\u2019s people that are owner operators that do 50, 100 units on their own. I really think that the degree that you can work with other property managers or do it on your own, it\u2019s just a total sliding scale and it just depends on what you\u2019re looking for. I think you can shape it however you want.<\/p>\n
Yeah, it makes sense. It seems like part of the growing pains of growing a company. I mean, I know you have a great team. I remember we were having dinner not too long ago and you\u2019re like, \u201cOh, I\u2019ve got a person for this. I got a person for this.\u201d I was like, \u201cWow, this guy knows how to build a team. I have something to learn here.\u201d And that\u2019s obviously one of the big proponents of operations. That\u2019s one thing that I\u2019m figuring out right now. Can you talk about a little bit for the listeners at home that are maybe struggling with scaling or the operation side, how can people getting started or really looking to scale their company, how can they take on the biggest challenge in their operations?<\/p>\n
The first thing you got to do is see what\u2019s out there. You have to talk to people. Honestly, the Facebook groups, the coaching that\u2019s out there, there are a lot of solutions out there and I think the first place that you have to look. Don\u2019t try to reinvent the wheel first. You can reinvent the wheel. I\u2019ve had to do it and I\u2019ve built solutions in areas that I didn\u2019t think made sense. That\u2019s a lot of what I do now. But I think the first thing that you want to do is start talking to people, start talking to people in the community. That\u2019s something that\u2019s available now in the short term rental industry that wasn\u2019t. I mean, in 2014, there weren\u2019t a lot of people to talk to. Period. There weren\u2019t a lot of other people in this industry to talk to as easily. There were a lot of people in the industry. It was very disparate. There wasn\u2019t a big sense of community.
Now there\u2019s a huge community out there. So whatever your biggest operation issue is, first try to find a problem from somebody else that you, a mentor, somebody you respect, somebody that you can\u2026 A group or a forum that you can put that out there. Look for a solution that exists first.<\/p>\n
Yeah. Great advice. David, you\u2019re also kind of the king here. I feel like you have so many teams and so many points of contact for so many aspects of your businesses. I\u2019m curious on your side, when do you look to make that higher? Because I know that you\u2019re very good at staying lean too. So does every single hire hurt or is it come from a point of excitement to actually create a role that can sort of alleviate the load for the team?<\/p>\n
I think personally that hires are scarier than they are exciting because we have done well in the role that we are hiring for. Because if we didn\u2019t, we would need to hire someone to do it. Just by very nature of being in a position that you can\u2019t keep up, you did a good job. I think a lot of the reason that people do a good job is they\u2019re motivated for themselves. So all of us, when it\u2019s our own property, we take care of it really well, we\u2019re building our wealth. It\u2019s our reputation.
Now think about you drive your own car different than you drive a rental car. Every employee is in some sense driving a rental car. Now, that doesn\u2019t mean they\u2019re all going to trash the car. When I drive rental cars, I\u2019m very respectful of them. I treat it like it was my own. But I\u2019m not naive enough to think everyone does that. So it\u2019s very difficult when you get to that point trying to scale, because most human beings aren\u2019t going to put the effort into it that you did.
I was just saying something about this the other day with someone that we hired. They had a decision to make and instead of putting a little bit of effort into thinking what\u2019s the best choice, they just did the quickest thing they could. They were kind of being defended by someone on the team and I said, \u201cNo, look, let me ask you something. If this person was trying to figure out what restaurant they wanted to go to eat at tonight, at minimum they would\u2019ve yelped and seen what the reviews are. It\u2019s okay to expect them to do that in our company too.\u201d They could have put that same effort into this decision. They just didn\u2019t want to. This isn\u2019t the right person to be in that position, because we\u2019re not going to watch them every day and we\u2019re not going to know what decisions they\u2019re making.
So there is an element of hiring that just makes your job more complicated. There\u2019s no way around that, it\u2019s a different skill set. But you got to deal with it. There is no way around the hiring debacle. If you want to scale, if you want to grow, you have to be able to do this. And it doesn\u2019t benefit you to sit around and talk about like, \u201cOh, I don\u2019t want to grow because of all these reasons.\u201d If you want to grow, this is what you\u2019re dealing with.
Jeff, I want to transition us into a little game here, but I want to give you a chance to respond to that whole thought about scaling in employees before we do.<\/p>\n
Yeah. I mean, I think you\u2019re spot on. You\u2019re hiring for something that you just did. It\u2019s hard to let go. It\u2019s hard especially when you care as much as you do to expect other people to have that same level of care. I think the more you can align, it\u2019s something that I\u2019ve done in all of my businesses, is try to align your interest with your employee\u2019s interests. Now, a lot of the times it\u2019s easy to do in a sales position, right? Your alignment is the commission. Everybody\u2019s aligned by a commission. What I used to do and what I\u2019ve seen a lot of people do is align your cleaning company by determining extra bonuses based on how many five star cleaning reviews you get or align your total compensation with your whole company. There\u2019s a lot of people out there that do equity for startups and things like that. But one thing that you can do is actually give out quarterly bonuses, which I\u2019ve done in my company, I do it in my company now, based on total growth.
So one, align your employees as much as you can with yourself and your business. And then the second point that was a more nuance thing in what you said, David, that really resonated with me was that you treat your own properties the best, right? And that\u2019s for me, starting a property management company after 40 properties was not something I wanted to do, but I had already built out a property management company with a team for myself that was operating my units the way I wanted my units to be operated. And so I wasn\u2019t building out a property management team to handle other people\u2019s properties. They were just coming in and I was like, \u201cWell, I have this team already. This is a good deal. I should try to do this.\u201d Those properties fit into my system in the same way. And so all of those procedures and processes were in place as though I was taking care of my own property. I think that that was a really nice transition to get into property management. It wasn\u2019t something I was looking to do, it just happened because of what I had built already.<\/p>\n
Now, Jeff, I have recently purchased a literal butt load of short term rentals. I don\u2019t know what a literal butt load is, but I thought that that would make Rob laugh. I think I\u2019ve got like-<\/p>\n
It did.<\/p>\n
\u2026 probably 15 short term rentals, maybe 17 by now, either just closed or coming down the pipe. For the first time ever, I\u2019m having to work through the fact that it\u2019s not purchasing a normal house where I go have a handyman go, work out a punch list of an inspection report and I turn it over to the property manager and they get it listed. There\u2019s a lot of stuff you got to buy to get these things ready. I am going to selfishly ask you to teach me and the rest of us what are some methods that you have used to get a short term rental ready to be put on the market. We\u2019re going to call this game Method to the Madness and we\u2019re going to focus on purchasing for short term rental. So you can share a method that you used, who this method could work for, and if it has resulted in madness to you. Rob, why don\u2019t you take question number one?<\/p>\n
Number one, what was an easy access marketplace, but not scalable avenue you used at first?<\/p>\n
An easy access marketplace, probably literally Facebook Marketplace. I don\u2019t know if that just because it\u2019s a marketplace, but it\u2019s easy to access. There\u2019s a lot of good stuff on there. I definitely use that at the beginning, that and Craigslist, to kind of furnish my first couple properties with most of the basic items.<\/p>\n
Okay. So who should use this and how\/<\/p>\n
Oh, who should use this. So if you are setting up your first vacation rental property and you are dipping your toe, you\u2019re not fully committed to this, you just want to try it out, I don\u2019t know if I recommend that for everybody, but sometimes that makes sense. You got an extra bedroom in your house, you are trying to rent out a small guest house. It\u2019s your first couple properties. You can use marketplace. You\u2019re not on a timeline. You can wait. You can wait. You can you find the exact items that you want and you have the time to drive around, pick up those items. You own a truck, that helps.<\/p>\n
Yeah.<\/p>\n
So those are the types of people that I would recommend Facebook marketplace work. You have a truck maybe or access to a truck or somebody with a truck and you\u2019re kind of setting up one, two rooms for the first time and you just want to see what it\u2019s like.<\/p>\n
Okay. So if you\u2019ve done this several times, can you talk about a moment in which this became madness for you?<\/p>\n
Yes. So I remember trying to do this on the third property maybe. I couldn\u2019t find any text message to anybody that I knew. It was just random numbers as far as I could scroll because I had so many feelers out for a bed and a bench and a mat and whatever I could think. And I had no idea who was texting me for what or what address any of these things were at. And I was like, \u201cI\u2019m spending hours trying to find three couches right now. This doesn\u2019t make any sense.\u201d<\/p>\n
If I had a dollar, Jeff, for every time in my beginning of my Airbnb career where my heart jumped when I was driving and saw an old raggedy piece of furniture, I was like, \u201cOh, that could go in my Airbnb,\u201d I\u2019d have enough money to buy a house because literally every time I saw a dresser, I was like, \u201cI can paint that\u201d or if it was a free couch. I mean, the very first couch I had in my Airbnb was literally a pullout couch that was on Craigslist free. Wow, that one, it was not\u2026 Yeah, I wouldn\u2019t show photos of that couch. It was a little dingy, but we made it through.<\/p>\n
I\u2019ll tell you. I had some dingy in my first couple units. In addition to the Craigslist and other things, I literally would be driving on the road and see somebody moving out of an apartment or home. I am guilty of picking up a couple items off the street and being like, \u201cHmm, I could probably clean that and paint it and throw it in a unit.\u201d So that is obviously not scalable because you can\u2019t spend all day driving around. But yes, I\u2019ve also taken things off the side of the road and tried to fix them up.<\/p>\n
All right. For everyone at home watching on YouTube, we\u2019re going to throw over some B-roll right here so you can see what my very first Airbnb looked like. They don\u2019t look like this anymore, but just so you know. It\u2019s a glow up story for everyone that ever gets into this business. David, how about you take number two?<\/p>\n
Question number two, what are some big box items that ended up being big flops?<\/p>\n
Big box items that ended up being big flops. I would say I used to buy Ikea sheets and pillows and stuff. They were not great. I don\u2019t know how to say that any better. That was my main thing I used to pick up from there. They were really thin. They were kind of scratchy. The guests didn\u2019t really like them. I would get complaints about how the sheets weren\u2019t good. I remember trying to upgrade and buying the more expensive sheets that they had at the time. And then learning that those were actually way more expensive than what was out there in other places. So big box, big flop.<\/p>\n
Okay. Who should use this method?<\/p>\n
Who should use the kind of Ikea method? I would say nobody. I think-<\/p>\n
Oh, I love it. I love it.<\/p>\n
Look, I don\u2019t hate on Ikea. They really help in a lot of ways. I think there are certain things that are there that are great, but a lot of their furniture items too, it\u2019s like you just learn that having an Ikea couch or coffee table, it\u2019s just not going to last most of the time, especially because you\u2019re in there and you\u2019re like, \u201cWell, I\u2019m here to save money\u201d and then you realize that you\u2019re actually losing money in the long run because you\u2019re wasting a lot of time and you have to replace the items and all that kind of stuff down the road. But I think that Ikea furniture, unfortunately the majority of it doesn\u2019t have a place in vacation rental units and I don\u2019t think anybody should put it in their units.<\/p>\n
I believe Rob\u2019s famous line is by nice, not thrice because you don\u2019t want to buy it three times.<\/p>\n
That\u2019s right. David, you watch my YouTube videos? Wow, that is so sweet.<\/p>\n
There-<\/p>\n
Jeff, I do want to say you have impacted my sleep, all right? Since we\u2019ve talked, you have really changed the\u2026 I woke up like this and it\u2019s all because of you because you\u2019re the one that told me about Brooklinen sheets. I never really heard of them. And so let me tell you, we buy them now. And this is not advertising. I don\u2019t get anything, nothing. But they are the greatest sheets to ever touch my skin ever. I have come from the dark side of Ikea. I was an Ikea fan and now I cannot do it. It\u2019s ruined sleeping everywhere for me. I can only sleep in my bed now. So thank you for that. I guess it\u2019s a double thank you.<\/p>\n
You\u2019re welcome. They\u2019re fantastic. I feel the same way about them.<\/p>\n
Did we touch on the Ikea cart story? You hit that, Jeff?<\/p>\n
Oh yeah, yeah, tell us about that.<\/p>\n
Oh yeah. That\u2019s kind of a scaling pain story also. I remembered getting to the point, I took that Ikea sheets and et cetera story to kind of the next level. I was setting up 16 units at a time. It was one big setup and I\u2019ll never forget because each of those units was two, three bedrooms. So you\u2019re talking a lot of furniture and a lot of mattresses and a lot of everything else linens, et cetera, that I needed all at once. Up to that point, I was probably around 40, 50 properties. I had been running to Ikea with my team to pick up items.
Past the marketplace world into the Ikea world, I\u2019ll never forget this one day where I was with my team, there were 16 of us. We were in Ikea, we had 48 shopping carts worth of items to check out. It was crazy. The line went all the way around through the store, towards the entrance [inaudible 00:46:05] where you pick everything up. Just the checkout alone took three hours of just scanning. And then the payment came up and I remember asking, \u201cHey, this is a decent amount of stuff. Can I get a discount?\u201d And I\u2019ll never forget, the woman just laughed and she was like, \u201cNo way. No shot. This isn\u2019t even close to what you would need to get a discount on this stuff.\u201d And I was like, \u201cThat\u2019s crazy.\u201d
But that whole day was the worst. I mean, from my employees wanting to literally never talk to me again because we picked up all this stuff, we put it in this U-Haul, one U-Haul one and our van that we had. And the U-Haul, my employee that was driving, it ended up getting into a fender bender. And then there was all these insurance issues that happened afterwards. And then we got to the place. And it was like 8:00 something at night, all of a sudden I\u2019m like, the sigh of relief, \u201cUgh, this whole crazy day is gone. I\u2019ve picked up all this Ikea stuff. Here I am.\u201d And then realizing that it was all in the U-Haul. We had to get it all out and return the U-Haul. And then we had to build it. And so it was like, just the amount of packaging and opening and the time building it and the time unloading it, it was one of the craziest 48 hours of this one trip to Ikea. And I swore to myself after that and true to myself, never, never did it again.<\/p>\n
Oh man, I have done that so many times. You know that scene in Wolf of Wall Street where Jordan Belfort\u2019s selling the stocks, he\u2019s like, \u201cCome on. You could do it.\u201d And he sells them and everyone\u2019s crowded around him and everyone claps after he is done? I remember I went to Ikea one time with one of my first business partners. I was like, \u201cAll right, you take this cart, you go here.\u201d And I was like a robot just grabbing fake plants and sheets and doing this. Literally the speed at which I was doing this, because I\u2019ve mastered this process so many times, he\u2019s like, \u201cMan, I just felt like I watched Jordan Belfort sell stocks.\u201d And I was like, \u201cI know, man. I\u2019m sorry.\u201d So we also had five. And I think that was the moment for him when he realized that short term rentals were not going to be easy. He was like, \u201cOh man, I thought we just furnished this.\u201d I was like, \u201cNo, no, no. The furnishing is actually the fun part. It\u2019s the buying that\u2019s not fun. And then the dealing with the boxes.\u201d<\/p>\n
You\u2019re 100% right. I remember being with my team and we were in there and we\u2019re talking to each other like, \u201cHey, did you grab the EKTORP? Oh, where\u2019s the MALM?\u201d I literally felt like we were speaking Swedish to each other because everybody knew every piece of furniture that we would use by name. And it was like this aha moment of, \u201cThis probably is not right.\u201d<\/p>\n
The MALM, the very difficult to assemble dresser.<\/p>\n
Why is it so hard?<\/p>\n
That\u2019s the one piece of furniture I\u2019m like, \u201cIf you\u2019re going to buy something used on Craigslist, it\u2019s a MALM dresser because you\u2019ll never get those five hours back.\u201d Moving on here to question number three, does online shopping have its drawbacks? What\u2019s the method here?<\/p>\n
Online shopping, it can be good if done the right way. The problems with online shopping are, one, a lot of people don\u2019t know what they\u2019re doing. So I think that there\u2019s a lot of little tips and tricks that an effective online shopper will know how to do. Whereas somebody who\u2019s kind of just entering the space and is in this kind of analysis paralysis of, \u201cHey, there\u2019s 900 different mattresses out there. Hey, there\u2019s so many different kinds of sheets\u201d might not be able to understand. And then you end up not really buying from brands. You end up buying off brand stuff that you don\u2019t really know what you\u2019re getting. A lot of folks that I talked to and myself will go through things like\u2026 I went through a big Wayfair phase where I was buying a lot of stuff from Wayfair and it was literally playing roulette. It was Wayfair roulette where I would order something, I wouldn\u2019t be sure what was actually going to show up. It could be really good quality. It could be really bad quality.
I remember ordering a couple nightstands one time that showed up and they were literally maybe eight inches doll. They were for a doll house. They looked big on the picture because they were zoomed in and I was like, \u201cWhat a great price for nightstands.\u201d And then they ended up showing up. I think we actually put them next to the bed that we were buying them for for the couple guests because it were damaged. We were replacing them. We put them there for a couple guests because we thought that they might find it funny too.
But yeah, I mean there are some perils. Not knowing the quality of what you\u2019re getting, playing roulette, not understanding shipping timelines and how those work and how to buy things that are in stock, not understanding what contract-grade furniture is and commercial-grade quality furniture, there\u2019s a lot of things that fall under online shopping. Whereas if you were buying through something like even HostGPO, my company, it\u2019s online shopping, but it\u2019s very, very different and it\u2019s geared towards making that experience easier for people rather than like\u2026 The other thing is when you\u2019re checking out of an Amazon or an Ikea or whatever, thousands of clicks, thousands of clicks. \u201cOh, I need a cheese grater.\u201d You\u2019re buying one cheese grater at a time. That is also a pair of online shopping that we try to solve. But you know, you can do it wrong. You can spend a lot of time online shopping.<\/p>\n
Okay. I think you actually you covered everything there, the method and the madness. I love that phrase Wayfair roulette. That was hilarious. I also had my Ikea moment in addition to you guys. I was living with another cop and I was working in law enforcement and I bought the Ikea thing and they had these tiny little tools that you\u2019re supposed to use. It took me about three and a half hours to put it together. And in the middle of it, I realized I could have worked four hours of overtime and made 75 bucks an hour at double time or whatever it was. I could have bought the nicest dresser ever and saved money. I\u2019m never doing this again. So you guys are bringing up all [inaudible 00:52:04].<\/p>\n
Value of time.<\/p>\n
Ikea is like PTSD in Swedish or something. That\u2019s probably four letters.<\/p>\n
Dikea.<\/p>\n
That\u2019s really good.<\/p>\n
All right. Next question here. Let\u2019s talk throw out rugs. When has this gone well and when has this made you mad?<\/p>\n
Yeah. So I talk about this. I\u2019ve had this conversation a lot of times. When is it time to throw a rug out? How do you deal with rugs in your vacation rental units? On the one hand, rugs are great and they\u2026 Actually, my background and my family\u2019s background is actually in rugs so I\u2019m always thinking about rugs for rooms. But what a lot of people don\u2019t understand is, if a guest makes a rug dirty and it\u2019s an high traffic area, they spill something on it, whatever it is, you can probably pay $200, or at least that\u2019s how much it is out here, to have somebody come with a special vacuum and shampoo the rug and clean it. But that rug is never going to look as good as a brand new $200 rug. And so the thought here is, when do you really need to replace items in a vacation rental unit? How often? How often do you need to be throwing out your rugs? How often do you need to be replacing linens?
And so what ends up happening is even if you buy a washable rug, you will go through enough washes where it\u2019ll start to fray and you really have to be okay with understanding that like at a hotel or at any other nicer accommodation where people are paying and expecting that level of service and quality when they show up, you need to make sure that you\u2019re replacing the items that are starting to get worn out in a regular and frequent enough basis, rugs especially because it\u2019s usually the first thing people see when they walk into a room or when they walk into an entryway. And if that doesn\u2019t give off this clean pull together new vibe, that\u2019s going to reflect negatively and set the tone for the rest of the stay.<\/p>\n
I haven\u2019t thought about this enough. As you\u2019re talking, I\u2019m starting to get chills in my stomach. I\u2019ve looked at the house, I\u2019ve looked at the deal. I\u2019ve looked at the numbers. I haven\u2019t thought about furniture and how much I\u2019m going to go through. Rob\u2019s laughing. It\u2019s like he\u2019s like, \u201cOh, I remember back when I was innocent and naive and I didn\u2019t think about what guests were doing.\u2019 Because I\u2019m like, I got a lot of rugs in these houses. Some of them are these faux bare skin really thin rugs. I\u2019m like, \u201cThat\u2019s going to be completely ripped into pieces and trash and they were all expensive when we picked them out. So I wish we had interviewed you before I had picked out the furniture.\u201d Because this is some good stuff. I mean, obviously guests aren\u2019t going to treat it super well.
Before we move on to the next question, what\u2019s just a quick universal piece of advice that when you\u2019re picking out furniture or picking decor, picking out whatever you want to call this for a rental property, that a rule people can just live by that if you get this right, overall you\u2019ll be okay?<\/p>\n
I mean, I really like Rob\u2019s buy it once.<\/p>\n
Thrice. Yeah.<\/p>\n
Buy nice.<\/p>\n
Buy nice, not thrice.<\/p>\n
Not thrice. That\u2019s a really strong one. I think the other kind of game changer rule is buy contract-grade furniture. Really, really focus on contract-grade furniture or just the idea of commercial-grade everything. You want commercial-grade in your house. Your home, it\u2019s not\u2026 This is the concept that I think people just failed to grasp a lot of the time. And I did for my first 100 units, right? You really need to think nice doesn\u2019t just mean expensive. Nice means right for what you\u2019re doing. You\u2019re creating a commercial space. People are coming and going. The way that somebody\u2019s going to use that couch, they\u2019re going to drive it like a rental couch and they\u2019re going to sit in it, they\u2019re going to open it. They\u2019re going to close it.
If you buy a pullout couch from your normal place, how many times you expect somebody like a friend or somebody who\u2019s coming to stay in your own home to stay in that couch? Maybe you open that thing two, three times a year. That\u2019s what it\u2019s built for. That applies across the board. Those vacation rental pullout couches get opened and closed every day, at least couple times a week, right? The cleaners open and close it a couple times. The guests will open and close it, they might open and close it multiple times during a day, right? So buy nice really means buy linens that are going to go through enough washes. Buy contract-grade furniture that\u2019s going to be able to not break and withstand people standing up and sitting down. There\u2019re specific types of furniture\u2026 This is a big thing that we talk about with HostGPO too, is just educating people on what those kinds of furniture are that you should be putting in your homes. So the one takeaway is treat your space like it\u2019s a commercial space and buy that property.<\/p>\n
Is there a quick answer to where you can shop to find commercial-grade stuff? Or is it not that easy?<\/p>\n
Yeah, I mean, so HostGPO, our buying group is really based on focusing on only identifying companies that have, at least for high use items, contract-grade furniture. If you\u2019re buying on a site like West Elm through a HostGPO or not, you can sort by contract-grade. It\u2019s a filter. Most people just don\u2019t know what it is. So again, online shopping can be good if you know how to do it. And filtering by contract-grade especially when you have that luxury and that ability is a great way to do that. So again, you can do that. Sometimes it\u2019s not generally available. So linens is a good example of that. Especially if you\u2019re running dozens or 50 or 100 listings, linens can get a little bit challenging because commercial-grade linens aren\u2019t available to the general public a lot of the time. So something like that you would have to join a buying group to be able to access.<\/p>\n
Yeah, I think I also got some contractor-grade things from Wayfair in the past that\u2019s typically when I go to Wayfair, it has to be contractor-grade just because like you said, Wayfair roulette, right? You\u2019re not really sure what you\u2019re going to get. I\u2019ve had some pretty good luck on there. I\u2019ve purchased several vanities and things that are actual, I don\u2019t know, critical components to houses and stuff. So they\u2019ve held up pretty well for me.<\/p>\n
To be fair, contract-grade, it\u2019s a great term, but it doesn\u2019t mean the same thing everywhere.<\/p>\n
Right.<\/p>\n
It\u2019s kind of like saying artisanal, that artisanal pizza or ice cream or whatever might not be the same in two different areas or two different places depending on where you are. So yes, certain people with actual contract-grade designations that do the testing on those products, those products are game changers.<\/p>\n
Well, I, for one, am a big fan of artisanal couches. My favorite in the game. We can end here. We got one more question here.<\/p>\n
Sure.<\/p>\n
Should you bulk at buying in bulk?<\/p>\n
Absolutely not. Buying in bulk doesn\u2019t necessarily mean buying hundreds of everything. It means buying enough that you can qualify for some sort of discount pricing. And there\u2019s tons of benefits. One, you can access additional discounts that you\u2019re not going to be able to get otherwise. And two, you\u2019ll be able to keep an inventory in your home that will prevent you from doing the worst thing you can do in vacation rentals, or really in your life, which is panic buying.
So that really goes to you\u2019re out at a store because you had a guest checking in and you\u2019re missing a pillow case. So you go to the closest store to buy two pillow cases. All of a sudden you\u2019re paying double for those pillow cases or those sheets or those towels. They\u2019re not going to match what you had the first time. You\u2019re going to have to exchange them out if you want to create a unified experience. And you\u2019re going to pay through the nose for them and that\u2019s the worst thing you can do. Whereas if you had them in inventory, you had them in storage, you just pull a new one out. Keeping a closet full of replacement items and buying in bulk them that way is a real, real trick to operating a successful profitable business.<\/p>\n
Well, that is the Cube Master as I like to call him, Mark Cuban, and he talks about that and he\u2019s likes, he always buys the big version of stuff, right? Because he\u2019s like, \u201cI\u2019m going to need to buy toothpaste eventually so I just buy 1,000 of them.\u201d No, I\u2019m just kidding. He didn\u2019t say that exactly. But maybe, I don\u2019t know.<\/p>\n
He said a lot of stuff like that. His whole thing is like, \u201cWhy would you buy one toothpaste when you can buy a pack of five for the cost of one and a half?\u201d You\u2019re going to use the toothpaste. You\u2019re going to use the sheets in your listing so you might as well\u2026 You\u2019re pretty much overpaying four times on your toothpaste if you really think about it that way. You don\u2019t have to buy a hundred toothpaste because you might not\u2026 Hopefully you get through all of them, but you might not. It\u2019s just you don\u2019t want to buy one.<\/p>\n
Do you just keep those in the owner\u2019s closet and then you just keep restocking from that same place?<\/p>\n
Yeah. Usually, we\u2019ll have at least a handful of items in the owner closet. And then once we got to 50 plus units, we started having warehouses where we would actually hold. And a lot of our kind of members at HostGPO, everybody has their own different way of doing it. And warehousing is a really nice option when you can get there.<\/p>\n
Yeah, we\u2019ll say man, I got bulk sheets from a, I don\u2019t remember where, but Host Standard Textile. It was kind of expensive because I didn\u2019t need 20 pairs of sheets or whatever, but it is super relaxing. Ordering sheets and reordering sheets, David, you\u2019re going to learn this 15 times over here in your portfolio. It\u2019s very inconvenient when you\u2019re cleaner\u2019s like, \u201cWill you order sheets?\u2019 And you\u2019re like, \u201cOh man, okay. Are they staying now? Do I need to order them now?\u201d So just having a lot ready to go actually is really quite a relief to not have to worry about sheets for the next year or two.<\/p>\n
Yeah. I mean Standard textile is a great example of that. There\u2019s so many benefits that you just don\u2019t know if you don\u2019t know. Like you\u2019re cleaner telling you, \u201cHey, we need to replace the sheet\u201d and you\u2019re like, \u201cWhat size is it?\u201d Nobody can figure it out. But if you look on the inside, there\u2019s like a color coordinated thread. There\u2019s a color coded thread that says green and that means twin. So they go and they grab a green inside. Those are commercial sheets. Those are hospitality sheets. Rob, you\u2019ve had a positive experience buying through HostGPO, that kind of stuff. I mean, that\u2019s what we made it for. We made it to streamline your ordering process.<\/p>\n
Yeah. At scale, we kind have to do it.<\/p>\n
Yeah.<\/p>\n
This has been fantastic. Thank you very much, Jeff, for sharing such helpful details here, I\u2019m going to move us on to the last segment of our show. It is the world famous.<\/p>\n
Famous Four.<\/p>\n
In this segment of the show, we ask every guest the same four questions every time. And I will start with the first one. Question number one, what is your favorite real estate book? Which is hilarious because I think you said earlier you\u2019ve never read one. So I\u2019m curious how you\u2019re going to answer this.<\/p>\n
I don\u2019t know if I\u2019ve\u2026 I\u2019ve read real estate textbooks in classes, commercial real estate, et cetera, that kind of stuff, but I\u2019ve heard great things about the BRRR Bible. I\u2019ll throw that out. There are a lot of folks who have been writing really, really great short term rental guides. And like I mentioned at the beginning of this podcast, I had a great mentor who I was lucky enough to walk me through a lot of this stuff. But back then most of these books weren\u2019t around. So I think that I\u2019ve heard great things about the BRRR book. I\u2019ve heard great things about\u2026 And I have Avery Carl\u2019s book on my shelf that I\u2019ve been meaning to get to. So there are a lot of really great resources out there specifically for short term rental companies. So I would throw that out there.<\/p>\n
Okay. Awesome. Well question number two, curve ball number two, if you will. What is your favorite business book?<\/p>\n
My favorite business book, there\u2019s two. The one that comes to mind right now is probably Getting to Yes, which I really think is a great book on how to think about negotiations. It totally reshaped how I approach conversations with people. And I think that for anybody that has to\u2026 Everything is kind of a negotiation when you think about it at the end of the day, every deal you\u2019re going to sign, every vendor you work with so I think that\u2019s a really good one. If you haven\u2019t read it, you should.<\/p>\n
When you are not out there creating rental arbitrage empires, what are some of your favorite hobbies?<\/p>\n
Hobbies, so I play music actually. I\u2019m a saxophone player. So I like to play shows whenever I can and just kind of jam out with friends. That and travel, probably my two favorites.<\/p>\n
All right. In your opinion, what sets apart successful investors from those who give up, fail, or never get started?<\/p>\n
I think a successful investor is someone who is willingly ready to pivot whenever that needs to happen. So I think anybody who has a strict mindset and is rigid on \u201cThis is what I\u2019m going to do\u201d and is unwilling to actually look at the data in front of them or look at what the deal is in front of them and pivot what they were hoping for is destined for failure. And I think that somebody who is flexible and treats each deal and each property like a snowflake is more likely to succeed.<\/p>\n
Awesome. Lastly, Jeff, tell us where people can find out more about you.<\/p>\n
So you can check out hostgpo.com, that\u2019s our buying group for vacation rental companies. There\u2019s a bio about me on there. If you sign up, you\u2019ll be able to chat with us, chat with me and learn more about kind of my experience and how we got to starting HostGPO.<\/p>\n
Awesome. David, what about you, man?<\/p>\n
Man? I\u2019m @davidgreene24 all over so social media. Please, if you have me reach out to you and ask you for your money or crypto or some amazing deal, that\u2019s not me. I will never reach out to you as a stranger with an opportunity like that. So be careful because I get new accounts every freaking week trying to work on getting the check mark. So that doesn\u2019t happen. But that\u2019s hard in case no one\u2019s ever heard. There\u2019s so many scammers out there that we got to do something about it. And then my YouTube channel is David Greene Real Estate. Robbie, how about you?<\/p>\n
Hey, by the way, I see your YouTube channel subscriber. You\u2019re creeping up there, man. You\u2019re doing a lot of lives. Maybe you can have me on one day. I\u2019m still waiting for you to follow me back on Instagram, but it\u2019s all good, man. You can find me on Instagram @robuilt, on YouTube at Robuilt, and on TikTok, @robuilto.<\/p>\n
I think I did follow you back. Didn\u2019t you actually ask me for 10 grand or something? I wired it to you. Not that long ago.<\/p>\n
Oh no. You fell for the one thing that we tell people not to fall for all the time.<\/p>\n
Yeah. Jeff, thank you very much for coming on here. Really appreciate. This was some great information. Selfishly, I think it\u2019ll help for me because I\u2019m already thinking about, \u201cOh boy, I need to figure out how to get commercial-grade furniture, linen sheets, towels, all that jazz.\u201d So this came at a very opportune time. I\u2019m hoping to put a couple properties under contract while I\u2019m out here in Scottsdale so that might be the first place that I can put this to use. Really appreciate you. And thank you for being here. Hopefully we can have you back again.<\/p>\n
Of course. My pleasure.<\/p>\n
This is David Greene for Rob, buy nice, not thrice, Abasolo, signing out.<\/p>\n