ASTON INCORPORATED
Episode 3- Bootstrap and Build: A Real Estate Investment Guide
Ever dreamt of stepping into the dynamic realm of real estate investment? This episode promises to offer an in-depth understanding of the world of real estate, transforming your ambitions into achievable endeavors. We kick-start the conversation by sharing our personal journeys, including triumphs, pitfalls, and continuous adaptability in the ever-evolving real estate landscape.
Transitioning into the world of real estate can often feel like navigating uncharted territory. Dallin, our co-host, illuminates this process by sharing his personal transition into the industry, offering invaluable insights into how to tackle the unknowns and ask the right questions. He also demystifies the concept of the capital stack and its relevance to the fix and flip market in Utah.
So, how can one bootstrap their way into real estate investment? Dallin, having been there himself, explains the concept of 'skin in the game' and narrates his inspiring story of putting together his first deal, even when his pockets were empty. He also opens up about his single-family condo venture in Moab, giving you an inside look on managing an Airbnb business. Whether you're an aspiring investor or already dipping your toes in the real estate pool, this episode is packed with a wealth of practical, experience-based knowledge and tips to set you up for success. Tune in and embark on your journey to becoming a savvy real estate investor!
Ever dreamt of stepping into the dynamic realm of real estate investment? This episode promises to offer an in-depth understanding of the world of real estate, transforming your ambitions into achievable endeavors. We kick-start the conversation by sharing our personal journeys, including triumphs, pitfalls, and continuous adaptability in the ever-evolving real estate landscape.
Transitioning into the world of real estate can often feel like navigating uncharted territory. Dallin, our co-host, illuminates this process by sharing his personal transition into the industry, offering invaluable insights into how to tackle the unknowns and ask the right questions. He also demystifies the concept of the capital stack and its relevance to the fix and flip market in Utah.
So, how can one bootstrap their way into real estate investment? Dallin, having been there himself, explains the concept of 'skin in the game' and narrates his inspiring story of putting together his first deal, even when his pockets were empty. He also opens up about his single-family condo venture in Moab, giving you an inside look on managing an Airbnb business. Whether you're an aspiring investor or already dipping your toes in the real estate pool, this episode is packed with a wealth of practical, experience-based knowledge and tips to set you up for success. Tune in and embark on your journey to becoming a savvy real estate investor!
Wayne Aston. Here with Aston Incorporated, I'm your host, and this show is designed for our serial entrepreneurs in their ruthless pursuit of personal expansion. We're going to be talking about how to build your real estate empire, start and scale a successful business here in the USA and, most importantly, discover your unique skills and talents to make your own impact on humanity.
Speaker 2:Alright, audio is a go, video is a go.
Speaker 1:Welcome back to the podcast guys. It is Aston Incorporated. I'm your host, wayne Aston, and is my co-host, nalan Aston. Hi, everyone.
Speaker 2:Good to be back.
Speaker 1:We had a kind of the last episode was kind of a ended up being a heavy episode man. Kind of heavy. Did not expect it to go as deep as it did. I think today's episode, you know we're going to get into as promised, we're going to get into real estate 101.
Speaker 1:Target for today is to provide a broad education on real estate Any of our beginners who want to.
Speaker 1:In fact, I had someone yesterday approach me and ask me hey, you know we've got this land up in Morgan, utah, and thinking about doing an Airbnb business up there, wondering you know where you would recommend we get, like you know, some tiny homes or something. Okay, so this is on the minds of people in this nation, like, how do we get it, how do we come into Airbnb business, how do we get into real estate? So we're going to be, we're going to be having some stories, we're going to talk about some real battle tested like reality of real estate and hopefully provide some of the like the base level definitions and you know nuts and bolts of how to do a real estate deal. So, absolutely, with that in mind, you know you are a qualified real estate investor at this point at you know the right page of 24, which I think is super exciting. I mean, I think of me at 24 years old and I was running a stonentile contracting business and you know that was really all I knew how to do.
Speaker 1:I mean for me, for me it was like go work the hours and use my hands and my body and and I could measure how much I could make by the number of square feet I lay in a day, and, and real estate presented this thing for me. Later on, as I became aware that, you know, real estate investing was a thing, it became clear to me that this is the way to use my mind, Like yeah this is something I could scale. It's something that I'm not going to break my body down doing, and so I got to learn.
Speaker 1:And, and I can remember, somewhere, somewhere during the 10 years of being in the stonentile, you know, lost my first house.
Speaker 2:The first house I built when I was 21,.
Speaker 1:It got upside down, got it into short selling and we lost the house, had to move and we moved in with your grandma for a while and I remember the forced transition out of the construction do stuff with my hands. Mentality into the I must figure something else out. Mentality and I would go over to the librarian Hunter the Hunter Librarian, Kerns, Utah, and I would rent every book I could find from Donald Trump and Robert Kiyosaki and those original gangsters in the real estate space who had put books out at the time.
Speaker 1:Right, I mean, we're talking about like we're talking about like 2003 ish, that that about that range, and I started to devour these books and I couldn't get enough of it. I was just like Neo on the matrix man, just plug that thing in. All said I'm flying a helicopter tomorrow, right, so that was how that's it. So you know, you find out about me. I think you're a lot of the same way. It's all or nothing Like. I go into six gear and I'm stuck in six years.
Speaker 2:It's all, it's all in.
Speaker 1:So that was like you know it was hard to be at home. It was. It was. There was so much guilt and shame Having lost the house, and your mother at the time was just so displeased with me that I was just. I needed to be in the library, I needed to expand. I need to figure something out desperately. There was a desperation behind this, needing to learn. And so you know where, where did the actual where did the first action begin in the real estate investing career? Back then, because I was good at stone and tile, I thought you know what, maybe, maybe fixing and flipping houses would be cool. I could do that. Yeah, I built a house when I was 21. I've done more. You know drywall, paint, electrical framing. I mean, when I built that house, it was funny because your grandpa was like, hey, you should just build a house, don't hire a general contractor, just build it.
Speaker 1:I'll help you build it Of course he lives in Layton and I'm not thinking like right.
Speaker 2:Okay.
Speaker 1:So so you know, I ended up building like 80% of this house on my own and pretty funny story on its own right, but that was actually.
Speaker 1:Building the house at 21 is probably the first true real estate investment Got the first, more at the first construction loan, built the house from the ground up, nailed my hand to the wall in the process and that's a funny story so built the first house, lost it a few years later. When I really started transitioning into being effective in real estate, I was consuming all these books and you know we were doing fix and flips. And fix and flips, man, I mean, there's guys, I know guys that will do 100 houses a year fix and flip. They'll just buy an old house in Ogden or where we're at right now, or they'll. You know Salt Lake. There's markets inside of you know Utah that are more ripe for you know, infill project like a fix and flip.
Speaker 1:So you find those markets. You know you find a good deal and you know that was interesting because we did a lot. We did not make a lot of money. I'll be honest, I wasn't great because I really valued high quality finishes, like if I was going in doing the stone and tile, I'm like doing these custom cut decos and these granite floors.
Speaker 1:Like I yeah, I couldn't. I had a real problem providing value at a price, that price point that made sense, and so I was always overpaying for materials and doing more than I should to really make a good profit margin. So you know you see the guys on TV doing the fix and flips and you're like man, that's. That really really takes talent and discipline To discipline yourself, to just spend just set a budget and spend the budget.
Speaker 1:That is a very tempting thing to go to want to spend and go over budget because it's beautiful. You want to make it, you want to make it, of course. So for the beginning listeners out there, dallin, let's start with you. Like you're pretty new in actually taking action as an active real estate investor, successful. You own rental properties, you have a thriving Airbnb business. What was maybe give me? Give me like the top three things that you needed to figure out from. Like a definition, like, what was it the title work? Was it the construction process? Like, what was the hardest, what were the choke points for you? Well, like, trying to navigate as a new investor? Yeah, the first and foremost thing.
Speaker 2:Just my immediate thought is I didn't know what I didn't know, and I think that is probably the biggest thing that holds everyone back and you think about it like how can you do something you don't even, I guess? How can you get an answer to a question you didn't know? You need to ask yeah, Right, and that was the hardest thing for me, because I'm sitting here saying, okay, here's my desired outcome I want to buy these two properties.
Speaker 2:Okay, Everyone in their dog wants to buy property Of course and so for me it was the whole well, geez, I don't even know where to. You know, what questions do I need to ask? You know, because for me, if you take you know some of my earlier businesses, guitar hacks, or you know my marketing company or you know some other things, you know questions drive my research. So if I'm trying to learn a skill, say for my guitar business, I was sitting there going, okay, I want to sell people on how to play the guitar. Okay, well, what kind of things do people need to know? How did I learn? I mean, these questions are things that guided my own curriculum that I created.
Speaker 2:Okay, well, how does someone go about this to get the same results that I did? How do I do this? How do I do that? You know, what are people gonna pay for this? And these questions led to other questions. When I'm sitting here with a property, okay, how do I buy it? Which led to I don't have the money. Who has the money? How do I get them to give me the money? How do I structure the deal? How do I deal with title?
Speaker 1:What is title?
Speaker 2:And then you know, now that I have this understanding okay, title, I didn't. Back then I didn't even know. You know what I mean? I don't have these now, all these terms that I can just throw out, I had no idea that they even existed. So what questions are I need to be asking to get there? You know, just starting, I think, is the. This is the biggest choke point. It's like because there's so much newness. Yeah, it's a little daunting.
Speaker 1:How to finance and structure your financing around a real estate deal is it's as unique, almost as a snowflake. Every deal can potentially have its own unique capital structure and that's that's maybe good news for new, new potential hopefuls.
Speaker 2:Yeah.
Speaker 1:That there's more than one way to do things and it could be bad news for you know conventional lenders but when we when we talk about a capital stack, the definition of a capital stack is the total amount of a project required to complete it. So right. So if you're buying a house, you're going to fix and flip. You've got the cost of the house. Yep, You've got the commissions paid to the agents that helped you buy the house, Right. You've got the fees the title agency pays to ensure that that the title is clear and free of liens or encumbrances. And then, if it's a fix and flip, you've got a renovation budget. Yeah, After you've bought the house, you have the rest of the cap stack, is it could be?
Speaker 1:as much as buying the house, depending on the and I've done the lowest renovation. The highest renovation I ever did was a. We paid $1.8 million for the house and spent 900,000 renovating Serious fix and flip yeah, and it didn't end well. You know, typically you're going to see the fix and flip markets between 250,000 and 600,000. Right. Property values in Utah have gone up dramatically in the last few years, so the market moves and fix and flippers will focus where the market moves what can sell in a week, right.
Speaker 1:So structuring the capital stack so you can go to the bank, you walk in designs bank or some conventional bank and they will gladly say, yeah, we'll give you 50% LTV and you're like what is LTV, what is this?
Speaker 2:Do you remember that conversation? I do, so. How did that go?
Speaker 1:Like what, like don't name the bank.
Speaker 2:But like what? What was that conversation like?
Speaker 1:when they dropped the LTV on you.
Speaker 2:I'm sitting here going oh, great, great, you know like. Because with a severe lack of understanding, I'm not wanting to let them know that I don't understand, you're right, but I'm also saying I need to know what that means. So I'm over here googling you know I'm googling things, but but it's a real eye-opener when you sit in here and look at, okay, awesome. And then they'll ask you and I remember everyone asked me so how much are you gonna put down? Yeah, how much are you gonna do? You know what's your skin in the game and what's your skin in the game.
Speaker 1:Yeah, that's. That's my most hated, that's what they all say, that's maybe my most loathsome term in real estate, how much? Skin in the game. Have you got Right? That is a. That's the old boys club. Yeah, Lender. Mentality of if you're not putting half in, then you're not worthy.
Speaker 2:Right, we're not gonna do this deal for you if you can't come in with it.
Speaker 1:And the dysfunction behind the how much skin in the game question is it's limited to the dollars amount they should really say how many dollars are you? Investing Right Skin in the game could be so much bigger than dollars.
Speaker 2:So for the new investors, pay attention.
Speaker 1:Skin in the game could be sweat equity, okay. If you're gonna go fix and flip a house, okay, go do the the stone and time yourself Right, do all the demolition yourself.
Speaker 2:That's worth 10 grand.
Speaker 1:Yep, do all of the countertops yourself. That's worth 15 grand. So sweat equity is one way to augment the cap stack and it flies in the face of that institutional lender who wants skin in the game. Really, what they want is they want to see how much money you can put down.
Speaker 2:Yeah.
Speaker 1:And that's really an attempt to kind of keep you out of the market. So if you're that new investor with no money but you want to be an investor, how do you start Like you don't have a rich uncle Right, there is no trust fund, you're not. You're not just making a phone called a rich uncle Bob and saying, hey, man, I need fun.
Speaker 2:I need half a million to do this deal. That's just not a possibility, right?
Speaker 1:So we're talking really about bootstrapping Yep, yep. And so you know that's when you go, you typically will go get investors, you'll go find investor partners.
Speaker 2:I call that a syndication yeah, Okay.
Speaker 1:So so if I don't have, like you explained on your first deal, you didn't even have the $10,000 for the earnest money deposit, I had nothing To put the deal under contract. So you, you were faced with a unique conversation, a unique task at hand to go find an investor who not only believed you could pull it off but was willing to give you capital with no skin in the game, so to speak.
Speaker 2:Yeah.
Speaker 1:That's a that's a magical equation, guys, to be able to pull that off, to be confident enough and present well enough to actually persuade an investor to pull the trigger Now right. Fortunately for you, you had an excellent plan. You spent months of due diligence and you knew exactly where it would go.
Speaker 2:Yeah.
Speaker 1:And it's performing well and I bet your investors probably want to do more. Yeah, because it's doing so, so they they made it a good bet on the right jockey, right and and the horse is the deal.
Speaker 2:Yeah, the horse was an excellent horse but Dallin's an excellent jockey.
Speaker 1:So the combination of world class, you know, horse with a world class jockey but that's a winning equation Right, so that's easier to raise capital for.
Speaker 2:Well, I can't emphasize enough that the very beginning I'm sitting here, you know, that's the ones that. So, going back to the nature of every deal being like a snowflake, they're all so unique, Mine's basically, they were new builds. So I mean, if that's a double whammy, that's a double. And so there's, there's so much additional. I was having to put in the earnest money seven months before we even closed. Yeah, so I'm sitting here, going, man, I can you know, and it went non-refundable two months later, I believe.
Speaker 2:I mean, it was like it was like this is going to be non-refundable yeah, just be prepared for that, right. It's like oh my God, so if I lose it, like if something doesn't work, I'm going to lose 10 grand. Yeah, and where is even 10 grand coming? So I and so I can't emphasize enough the, the avenue of hey, you know you have to be so creative and so focused on the value I would reach out to. I had several buddies who have done. You know, summer sales go sell pest control, sell solar and I'd reach out to them.
Speaker 2:I'd be like hey guys, this is what I'm doing. I need, I need to, you know five, and I tell them five grand, because I just get two of them.
Speaker 2:I was like I need five grand for the earnest money. And I was structured a deal and I had a couple of them say okay, yeah, until my my actual investor, came in and said, well, just take care of it. And I'm like, okay, but you see where I'm coming from. I tried to exhaust everything that I could think of. That was unorthodox, it was outside the box. Because I'm sitting here having all these lenders telling me I'm too young, I don't have the credit profile, the history, yeah, while I had a great credit score, it just wasn't long enough for them. Right, and you know it was. It was interesting. And then I also have lenders say we need to, we need to season the funds in your personal checking account for two months. And I was like that's not going to work.
Speaker 2:Right Like hey, investor, give me, give me all the money in my personal checking, right, Like what?
Speaker 1:Yeah, so I mean it presents a lot of unique challenges. Integrity might be an important factor in that equation. Right yeah, If you're going to have an investor put dollars in a personal account to season it in order to get a mortgage, to make it all right.
Speaker 2:You know, for me, I was just like that's not going to, that's not going to work.
Speaker 1:I just didn't want to go that route.
Speaker 2:You know, and that being said, I don't think there's one way of just doing things.
Speaker 1:That's right.
Speaker 2:And so and this is a perfect example of that, when we're talking about new investors Well, okay, if there's not just one way of doing things, can I go to private money? Can I, can I get a mortgage? Right, and maybe you can. Yeah, maybe you can, and maybe that's how you start. Maybe you just need the down payment and you know, maybe you have a lot of it, but you don't have enough. And that's when you can kind of go syndicate, like we're talking about here but there. But if you are sitting there with no money, no capital, no credit I mean that's like bare minimum how can you make that happen? Well, you know, it's a matter of who, and then I think we get into the relationship.
Speaker 1:Yeah, yeah, yeah. Well see, that's a funny thing, because that natural barrier to entry if you're the guy out there listening who is driven to money in the bottom line.
Speaker 1:good luck, Because what you're up against is a nearly impossible circumstance. But if you're the guy over here, that's focused on relationships first and serving as a fiduciary to someone and trying to provide value to an investor, that's a different conversation. Absolutely that's a doable conversation because you're committed to providing values. Through the deal, you've created a clear path for a solid return and a reasonable exit, and that's a winning equation. So many of our listeners might just tune out of the show, like that's OK, right, yeah.
Speaker 1:Today is the day to bounce. If you're the money-driven guy and you're not on the relationship side of the equation, then real estate is going to be a hard, hard row for you. It's going to be a hard career for you, and you know what? It's never too late to evolve. Like I said, I think in episode one or two, I started out as the money guy.
Speaker 2:I started out that way. A lot of people, most people, probably do. You're perspective determines behavior.
Speaker 1:I mean, we all like to say that Perspective determines behavior. We always say that Perspective determines behavior.
Speaker 2:You know, you're sitting here with no experience, no perspective on what this is, and you're sitting there going man I can make a ton of money. Yeah, I mean, that's great. Like you can. Yeah, like, let's get this straight Like you totally can, there's nothing bad about that. In fact, you'll make a ton of money if you do it right. But that shouldn't be your priority, or why, as we talked about in the most recent episode, let's talk about the different species of real estate.
Speaker 1:I think it's cool that your first kind of first success will really go At. Real estate had two components. You had a new acquisition but it was a new construction deal.
Speaker 2:So that adds a level of exposure and complexity.
Speaker 1:You don't have that with a. Ok, let's start with the basics. If we're thinking of monopoly and you've got the greenhouses and we graduate to the bigger and to the hotel, ultimately let's rank kind of I'd like to provide my personal. This has no relevance, by the way. Disclaimer we're not attorneys, we're not accountants Very important yeah.
Speaker 1:Don't take anything I'm saying or down says as legal advice. Go talk to your accountants and attorneys before you try and pull any deal off, right? We're just talking from personal experience, and so when I talk about ranking the types of the asset classes and what I like, it's going to be different for everybody. Yeah, there are different tactics that make it easier for folks to get into single family homes. Single family properties and a condo qualifies, so that's what you're in. So at the very baseline in real estate, you buy a house. This is Robert Kiyosaki's. His story is OK, I bought a house, I rented the house to someone. They paid 1,000 a month. My mortgage was 800 a month. I made 200 a month. That's rough numbers, right. And he did that 100 times and then he started buying duplexes and then eight plexes, and then he so Robert Kiyosaki has a very excellent example of how old school real estate just grassroots start with one house and build a portfolio into hotels.
Speaker 1:Ok, I have had the experience of that. The fix and flip is also a single family asset class. You're buying a house, you're fixing it, you're flipping it. There's different risk profile with that. If the market shifts down when you're in the middle of a renovation which has happened to me you're not going to sell it for what you projected it would be worth. At the end of the day, you're going to probably lose on that. Now, depending on where you got the money to buy the house. If it's hard money, the hard money lender will probably make his money.
Speaker 1:You'll probably sell it a lower price, but you'll accept. You just won't make your margin.
Speaker 1:So there's exposure in a fix and flip that always made me pretty uncomfortable because I could never do like some of these guys. I either was timing or the market or whatever. So I was never a great fix and flip guy and I did dozens of fix and flips because I was good with my hands and I knew how to do repairs and stuff. There was this other type of single family investment that we really got heavy into and that was buying home. Subject to.
Speaker 1:Buying a home subject to means that I'm aware that someone that owns this home is in default on their mortgage payment. They're late on the mortgage payment, the bank has filed a notice of default and they're going to foreclose. I come in as an investor and with the homeowner I say, hey, I can help, I can start making these payments for you. I'll buy the home subject to your existing mortgage. Now I don't have to go to a lender like you did. I don't have to have these annoying conversations with the bank about how to qualify and being too young and all that dumb shit. So I skip all of the banking process. Now I'm buying a home with that mortgage in place and it's just a contract. It's a legally binding contract. I take title subject to the existing mortgage. They're my new renter Now. Letting them stay in the house is typically that's problematic because they already are not able to afford the payment, so how are they going to pay my rent? So most of?
Speaker 1:the time if I were to qualify this, I did 87 of these. So, about 87 single family homes subject to, and it would typically be best if I would just take over the payment and let them move out without getting their credit crushed in a foreclosure. That's the value to that seller.
Speaker 1:That's a big deal when you have a foreclosure. It's going to be there for seven to 10 years and good luck getting another mortgage or getting a car loan Some car loans they'll look past it after two or three years. But, guys, just so you know, after the apocalypse of 2008, my credit score got down to 435.
Speaker 2:So anyone paying attention to?
Speaker 1:their credit scores and those what that means. It's like you have to try to get down there 435 is like negative a million. It's like yeah, yeah, I mean a high school kid with no credit profile can have a 650 and zero credit.
Speaker 2:Yeah, and they can miss a couple of payments to get down like six.
Speaker 1:Yeah.
Speaker 2:That's still.
Speaker 1:So 435 is like you are certified, you are non-financible, and so that put me into this unique category of entrepreneur investor. We're cash only, so I'm doing stuff cash. So subject two was great because I could go and I could work the deal out and I'd figure out how to get the money to make the payments, and I did that. Problem is 2008 comes along my renters in all of these single family home stuff paying their rent and one by one and I'll remember this nightmarish, sickening feeling of in October that year I think we had 15 renters miss mortgages. So I stroke a check for like 80 grand to cover the mortgages. I'm like, oh gosh, I hope they could pay next month. It was like 30. We got into paying six figures to cover these mortgages. We could only do that for three months. 90 days later we started losing all these houses, they all started closing and 2008 was there and the company's imploded. So the takeaway after that, after the battle scars came out of that apocalypse, were I just don't personally like a single family investment.
Speaker 2:I don't like a single family home.
Speaker 1:Now there's an exception to that, the exception to if I were to do a single family home investment, it would have to be a nightly rental programming, it would have to be an Airbnb, Because if you're an Airbnb guy, your guests comes in, they leave, they come in, they leave. It's up to me. I can control the marketing flow so I can kind of control my occupancy rate. Versus if I sign a 12 month lease for someone to rent my house number one, I know what the end result is. I'm gonna make that $200 or $500 spread every month and that's all I'm gonna make. But in a nightly rental man, if I crush the marketing man, I can make four or five times more than what.
Speaker 2:So let's do the math on it. Let's do the math.
Speaker 1:Let's just for comparison, for the listeners Like what does that look like? Well, if we take Robert Kiyosaki's example and you've got a three bedroom, two bath house and you have a renter paying $1,000., Yep, let's make it more realistic today, but let's say that the mortgage payment is $1,800. And I'm charging $2,500 a month for rent. That's a realistic $2,700 profit, Okay so $700 profit each month.
Speaker 2:Yep.
Speaker 1:So for a year what is that?
Speaker 2:Your eight grand $8,400. Okay, so.
Speaker 1:I'm gonna make $8,400 in a year on a single family property, renting it traditionally like a landlord.
Speaker 2:Right.
Speaker 1:Now I'm gonna be responsible for fixing the toilet every time it breaks.
Speaker 2:Yep and I'm gonna take the issues.
Speaker 1:So that's gonna eat away from my $8,400. If I have to hire a third party management company.
Speaker 2:It's gonna eat into it. That's gonna be three to five percent, depending on where you are in the country, right?
Speaker 1:So, dude. I mean, are we excited to get out of bed for like 300 a month? Right, If I own 100 or 500 homes like that. Yeah, that doesn't make sense Absolutely, but the average guy's only gonna have a few of these and that's not that exciting to me. So for me personally, I'm out when it comes to the landlord business. I don't like the landlord model and we'll get into multifamily apartments. I'm the same way.
Speaker 2:Now.
Speaker 1:I know a lot of my listeners are gonna be multifamily apartment jet eyes. Yeah, I know some people are listening that own thousands of doors of apartments and they crush it. There's guys right in our backyard that I respect very much who have their private jets, make millions and millions of dollars. Landlord and multifamily. It's just not my game. That's all I'm saying. It's cool for them.
Speaker 1:There's a lot of competition in that You're competing with the Blackstones and KKRs of the world, Big hedge funds. Like in 2009 and 10, I actually had the opportunity of selling portfolios of REO, so that's another real estate term. Reo stands for real estate owned that's a bank owned property that went through a foreclosure. So all 87 of those houses I had owned subject to all became REO property after they foreclosed. And then the bank is trying to sell that toxic debt off onto the secondary markets, and so 2008 was extraordinarily painful because you had like 500 plus banks go out of business, including Merrill Lynch.
Speaker 1:I mean, Merrill Lynch had been in business for 140 something years and they went under. So what we went under with them. It was like, well, you know, I just wasn't smart enough, I suppose, admittedly, to be able to know how to hedge against that kind of an apocalypse event. But, like I say, the learning lesson for me was just stay away from single family.
Speaker 2:Now, well, you know again, there's not one way of doing things. Some people will do really well at it, Some just not. You know, it comes down to that, you know.
Speaker 1:So let's go to the math model on the Knightley rental, so you take that same property. You have an $1,800 mortgage.
Speaker 2:Yep.
Speaker 1:And let's use one of your condos in Moab Like. Walk us through the economics of one of your properties in Moab. What does that look like?
Speaker 2:Yeah, so this is a great example. So I'll take last month in just one of the units. If I pull up my Airbnb, what was the purchase price on that unit? $349,000. Okay, so if I go into my Airbnb account I can pull this up and tell you right now the exact numbers. Last month we are sitting at $7,345 in the revenue right 7,000. 7,000, okay, so you're almost to the number that your profit is for the year when you do a single family A long-term lease.
Speaker 1:A long-term lease okay.
Speaker 2:So, and then that's from Nightly Reynolds and we're sitting around, I think. Let's see it looks like it's like a 350. Yeah, it's like $350 a night for this month, $350 per night.
Speaker 1:So that's what I'm charging per night. That's what we refer to, guys, for the listeners out there, that is what we call an ADR, your average daily rate in a nightly rental property. That's a key metric. The ADR.
Speaker 2:How much do?
Speaker 1:I make per night. And the second most important metric, I think, in the nightly rental space is occupancy. What's my average occupancy over the year?
Speaker 2:Right.
Speaker 1:And you can break that down to the week or the month or whatever.
Speaker 2:What's your?
Speaker 1:average occupancy on that same unit.
Speaker 2:So I'll give you. Last month's was 71%.
Speaker 1:Okay. So now I'm looking at this and what you're telling me is you've got a single family condo in Moab that's got a renter in it 71% of the time At $350 a night, and so it's grossing over $7,000 a month.
Speaker 2:Yeah, and I think I misread this. What did I say? 7,100? 7,700.
Speaker 1:7,700.
Speaker 2:It's actually the.
Speaker 1:And you're managing it so you don't have the third party manager fees, right, right, so you get to manage it and keep all the.
Speaker 2:And now, an interesting thing is my financing structure is very unique and we've talked about this in the Origins and Previous episodes. But for simple terms here I have a private company called Mortgage from a partner and we kind of came in with the idea we'll refinance in six months into a long-term mortgage. But this initial financing situation I'm sitting at $1,000 a month for the mortgage, it's like 900. I mean, it's not exactly a thousand, but it's under a thousand, and so the mortgage is about a thousand.
Speaker 2:Just for simple terms, it's like 936, 963, I can't remember which of the two. But then you have your cleaning and you have supplies and I mean you're talking two grand. I probably spend two grand on average a month to maintain everything. And so I mean look at that. So if we just go simple terms, let's say I do 7,500 in revenue in the month and then I subtract the cleaning, the mortgage, the supplies, maintenance, let's say that's 2,200. I'm left with $5,300 in profit per month.
Speaker 1:So listen up, guys, per month If you're wondering if you should get into Airbnb business versus land-looting or doing the fix and flips. We're not telling you what you should do, but there's some basic math Now that's compelling math.
Speaker 2:It's very compelling. But I'll tell you something that is very, very important to understand and you can probably test on this as well. There are all these articles out there and I've seen this lately because I'm so immersed in this space. I'll see articles, news articles, social media posts. Airbnb is dead. You know. Verbo, all these platforms are dead. You know, like all this stuff, and if you pay close attention Airbnb, verbo, all these platforms are so saturated Everyone thinks they can just throw a property on there, take some okay pictures. I mean, it's a function of marketing. When you're talking about these numbers, this is not just me saying I'm going to go, take a picture of my phone and then say, hey, come, stay here because this is a cool place. You have hundreds of thousands, probably millions of properties on Airbnb. It's a very, very bloody water. It's very bloody.
Speaker 1:It's a red ocean.
Speaker 2:So when you're talking about succeeding on Airbnb, you know you have all these people saying it's dead, it's dead, but it's only because the majority of people on Airbnb in my opinion again this is kind of from my experience, my opinion it's because people are not viewing it as a functioning of marketing, they're viewing it as oh, if I put it on Airbnb it'll sell.
Speaker 1:Yeah, it's not the case. Yeah, it's not the case.
Speaker 2:That's a great distinction.
Speaker 1:Yeah, I don't want to mislead our listeners, but that's very true, and what you're touching on is finding the right market. Yeah, finding the right deal, finding the right market and then performing in said market you can find Moab. Moab is an anomaly, I'd say Anyone with a pulse, any fool can go make money and have a property in Moab and make money, they'll do fine, and that doesn't happen on the lost edge front.
Speaker 2:So it's all like say that you buy an Airbnb, you might use money. Well, and you might not.
Speaker 2:You might not make any money. I'm in several Airbnb host groups on Facebook and these other social platforms and they're all so many people daily post pictures of their everybodies and vacant. Yeah, they're like. I used to have something like what is going on, but it's because everyone is doing it and it becomes a price war. What happens is, you know and this is an important thing, I think, to understand as well you know you have a lot of control to make a ton of money through this model, but only if you can stand out and differentiate yourself and leverage that.
Speaker 2:Why to make this so unique and such an experience? That's what people are missing. They're thinking I'm just going to put this on here and have people just come stay, just because they need a place to stay. Yeah, people are looking for an experience now more than ever. So if you just throw a listing up, you're going to be competing with everyone in their dog who's just going to drive prices down, and eventually you're going to be. So if that's your race, you'll never win. It's just driving the price more down and down and it becomes a commodity. Yeah, and that's when you lose. You want to charge premium prices for a premium experience, but you have to have the value, you have to have the value Convance her to the price Right.
Speaker 1:That's the key. So you're really you're starting to get deep into programming, a programming conversation. I'm actually feeling like I might give a little more detail on the asset types. Yeah, let's do that, and we might actually just do real estate one-on-one.
Speaker 2:Second, episode like the second Part two. Part two Part two.
Speaker 1:Part two, because it will be unfair to the listeners to end this conversation. That's sort of like the programming of this. That is so critical, oh, and it's important to cross the board on every asset type. Yeah, right, yeah, it is Absolutely.
Speaker 2:So it's applicable.
Speaker 1:Yeah, absolutely.
Speaker 1:So you know, let's talk a little bit about Sage Creek and Moab. That is my baby. That's a marquee resort project that I developed over a number of years Designed it, developed it, built it, programmed it, operated it and fantastic property. Yes, it is technically single family asset class. It is a condominium, it's plated as a condo and you could buy one and live in it if you want. State statute prohibits.
Speaker 1:If you've got an HOA set up at homeowner's association or a COA condo on condominium owner's association, I can't tell you you can't live in your own condo. If you bought it from me as a developer, right. But you know you have this nightly rental opportunity. There's a rental pool and if you want to be involved and you want to have your property put into that now, there's some programming to talk about. Okay, so now we're. Now, if you do the same comparison math, let's talk math just on a bigger scale. If I'm talking to my multifamily, my apartment folks and I have a hundred apartments in one complex and a hundred apartments. My mortgage on each apartment is going to be for these, it's going to be in that 2200 a month range and I could probably charge 2700 a month for the long term lease to rent a hundred apartments on a 12 month lease for someone to live in that unit. So what does that do?
Speaker 2:Yeah, so if we're sitting here at a hundred units and we're charging 2700 a month, then we're sitting at 50 grand profit 50 grand a month. Yep.
Speaker 1:On a hundred units.
Speaker 2:So then, if we do that by 12, a year is 600K 600,000.
Speaker 1:So that's cool, but that's going to cost me. It's going to cost me 20 something million dollars to have Well, no, it would be more, it would be closer to 50 million dollars to build an apartment complex.
Speaker 2:Of a hundred, units Of a hundred and some odd units versus condos for same but different programming.
Speaker 1:So both projects cost almost the same. Now, on a resort program property like the resort in Moab, it's got a three and a half million dollar pool. It's got elite level finishes. We clearly paid more than anyone would pay in an apartment complex because the programming can support that. But, for rough numbers. Take the same 50 million dollar property mortgage is still the same. It's still. What did I say? 2400?
Speaker 2:a month. You said 22. 2200.
Speaker 1:2200 a month.
Speaker 2:But these units these units.
Speaker 1:because of the finishes and amenities, they gross around 17, 18,000 a month.
Speaker 2:Yeah, so per units, right Per unit. So let's, let's do the math here. If we have, you know, obviously you have the cleaning and I call that stuff, but right now. So this is 220k a Month for the hundred units of mortgage and you subtract what did you say? 17 grand 17,000 per unit. 17 times 100, that gives us a Million four hundred and eighty one point four, eight million per month, per month in gross profit.
Speaker 2:Now you also factor in cleaning and all that stuff. Yeah, right, yeah, but I mean so let's, let's multiply this by 12.
Speaker 1:We're sitting here at 17 almost 18 million, almost 18 million in gross profit after the mortgages paid now I also operate as, so you know, price resort management group charges 20 25% Management fee to run the nightly programming on the rental management pool. So that comes off the top. So a typical investor who buys a unit, they're going to shave 25% off the top. But that's turnkey marketing, programming, housekeeping.
Speaker 2:Yeah, all the expenses.
Speaker 1:but you see the comparison, yeah the contrast of the same Floor plan. Essentially, right with a long-term lease programming versus a nightly rental programming. Right and and that you can see the difference in the revenue potential.
Speaker 1:I mean it's, it's Millions. Staggering how much do? Yeah, now Is there more exposure in the nightly rental game if you're in the wrong market? Yes, yeah, if you don't understand program, I'm programming, absolutely. Yeah, and the funny thing is it won one lesson and I'll give the last lesson and we'll wrap up. The one lesson I learned as a developer and doing a big project like that is you know, we did sell some units, fee, simple right, and we gave those unit owners the option to Hire a third-party manager or just don't put it in the rental pool. Well, it's funny how everyone you know, you, they buy a condo and overnight there. They're a hotelier, yeah, Immediately.
Speaker 1:I own an Airbnb, so I know everything about hotel program resort programming.
Speaker 1:Yeah, it's shocking, yeah, so we had to produce CCNRs within a project that dictated the furniture, right furnishings, all the the FF&E, the furnishings, fixtures and equipment. It all had to be resort level. It had to look and feel the same. There. There are a lot of programming measures that go into Making it produce like that. Yeah, just because you're in Moab and an amazing market with an amazing pool Doesn't automatically guarantee that you make I think that's part of the point you were trying to make earlier is Programming's key. Let's cut it off there. Yeah, let's go into, you know, part two of real estate 101. You guys, thanks for listening. This is Aston Incorporated. I'm your host, wayne Aston, with my co-host, dallin Aston. Have a good night, guys. Thanks for listening. Talk soon.