Podcast

Episode #182 – Breaking Into The Short-Term Rental Market With Sief Khafagi, Part 2


The short-term rental space has a massive amount of untapped potential.

There is no competition. Younger generations want to live a nomadic lifestyle. And today’s guest, co-founder of Techvestor, Sief Khafagi, knows how to drive 52% more occupancy than your competitors.

In this episode, Sief shares why the short-term rental market can become your most profitable asset. He reveals how you can break into the industry. And he explains how you can do it without any of the headaches you typically associate with short-term rentals.

Want to scale your business in an untapped market with no competition? Listen now.

Show highlights include: 

  • How to insstnalt move into the top 1% in the short-term rental market ([2:40])
  • Why entering the short-term rental market us like entering the real estate investing industry 10 years ago where competition doesn’t exist ([3:32])
  • 2 bulletproof (and wildly profitable) reasons to grow your business by 2-4x this year with short-term rentals ([3:55])
  • Why you can sell short-term rentals based on their projected revenue instead of their actual value ([4:32])
  • The backwards “Single Family Mindset” mistake which can make you stinkin’, filthy rich in the next 5-10 years ([7:09])
  • How to make passive income with short-term rentals (without finding, designing, or furnishing properties) ([11:02])
  • How to drive 52% more occupancy than your competitors in the short-term rental market ([13:47])

If you want to connect with Sief and see how his software can grow your short-term rental portfolio, visit his website here: https://techvestor.com/

To get the latest updates directly from Dan and discuss business with other real estate investors, join the REI marketing nerds Facebook group here: https://adwordsnerds.com/group

Need help with your online marketing? Jump on a FREE strategy session with our team. We’ll dive deep into your market and help you build a custom strategy for finding motivated seller leads online. Schedule for free here: https://adwordsnerds.com/strategy

Read Full Transcript

You're listening to the REI marketing nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords nerds, a high tech digital agency focusing exclusively on helping real estate investors. Like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now your host, Dan Barrett.

(00:42): Hey guys. Welcome back. You're listening to the second part of last week's episode. Let's jump back in, Right? It does strike me as very true. What you're saying about having someone who negatively impacts the culture, the smaller that team is the more drastic that influences, right. And it's, it's, um, you know, it's weird, right? It's sort of like almost like throwing a party where it's like, you could throw a party and invite a bunch of people and just for whatever reason that chemistry is there and everyone's hitting it off and it's awesome. And you can throw another party and invite a different group of people. And it's just weird, weird vibe the whole time. And it's like, you know, the term vibe is sort of deliberately vague, but it gets at this thing where it's like the interactions between people are incredibly complex, especially the more people that you add right. Sort of geometrically gets more complex. And so it's hard to predict, but you can feel it when it's wrong and you gotta fix it quickly before that kind of spreads and ruins the whole thing.

(01:43): Okay. So that is, see, this is conversational with a lot of really nice transitions. So that's a really nice transition. So let's fast forward a little bit. And let's talk about tech vest. Okay. So tech vest started as you and a partner. It sounded like right, you were both, you were doing the short term rentals, real estate investors are the audience for this podcast. People are listening to this, primarily people who are wholesaling their flipping. So talk to those people and tell them why should they be interested in short term rentals? Like if I'm, if I'm doing buy and hold, I'm doing wholesaling, I'm doing flipping what makes short-term rental something that I should be on my radar or something I should be thinking about in terms of my investment strategy. Yeah.

(02:24): You know, for, for us, you know, early on, even until today, it kind of comes down to a few things. Uh, the first thing is understanding the competitive landscape, right? From a, I'm gonna talk SP specifically from the investment perspective of this, right? Cause that's who the audience is. So number one, it's a competitive landscape. 99% of our competition are mom and pops with poorly designed rooms. Homes, not well operated in a space. That's not institutionalized, meaning we're not competing with the Goldman's Blackstones of the world. We're competing with, you know, grandpa Bob and mama, Joe, who are down the street, running a short term rental, not using technology, not understanding scale, not having any economies of scale, not having the capital to do it, not using technology to, to grow and deliver better experiences. And they're not designing their properties well, because they're not they're, they were never in the hospitality or, you know, travel sector, understand what that property needs from a design perspective. So all of those reasons are low hanging fruit for someone else to come in and win on very, very, very simple things in things like buy and hold, build to rent, flipping all those things. You're competing with large, large groups.

(03:33): So basically it strikes me, right? Like what's interesting about that is that sounds like the competitive landscape of real estate investing at large 10 years ago, where it was mostly mom and pop investors. Now you're starting to get the institutionalization of that industry, right. Where you have like, um, you know, whatever, knock and open door and offer pad and all these people entering that space. Right. So, okay, cool. So competition isn't isn't really necessarily there is that fair to say, That's the first thing. And then the second thing is also, you know, let's just break down the numbers, right? If, if you're, if you're in the build and rent or buy and hold type perspective, short term rentals historically are gonna deliver anywhere from two to four X, the amount of cash flow. So you talk about velocity of capital and time to get the deal done and, you know, growth. I mean, it's just unprecedented, right? The, the, if you can get two X on something, the almost logical answer is why wouldn't you right. In terms of what you're doing. Uh, the other thing that we're trying to prove in this space, which is very early is we believe single family rentals or single family homes are a missed price to asset. Meaning traditionally, they are looked at somewhere where a someone is living or is being rented out to a family or some other resident of that home.

(04:47): We believe single family rentals should be operated or can be operated short term rentals and sold based on their revenue, not based on their value, meaning we believe that we can sell single family rentals the same way that multi-family apartment buildings are sold based on the net operating income of that property. Why? Because it is inherently a business. And in fact, earlier this year, I wanna remind us all here. We're very young. We came out of steal in October of last year, right? And we started, so we're about seven months in eight months in and earlier this year, we did this seven times where we bought a single family rental. We designed it, furnished it renovated as a short term rental. And not only did we not sell it with revenue, we sold it specifically with projected revenue, somewhere between a five and a half and a six and a half cap rate, which far exceeds the projections that we set.

(05:43): And the reason we believe this will continue to happen is because institutions and investors will continue to chase yield because where can you go get cash flow right now with significantly high interest rates, low supply in this new remote flexible mobility type of an approach of a world where my generation, the 25, 30, 35 year olds want to be moving around all the time. We believe short term rentals are where storage was in the nineties. When everyone laughed at, why would you wanna store your stuff in a something offsite? Right? And then Amazon came around and said, well, Hey, there's this thing called the internet. And we want to be able to deliver things in two days to you. So people are gonna start buying more shit. And we believe that those behavioral shifts in macro, um, is what's gonna impact the microeconomics of real estate. And that's why we got into short and we believe we're early, but we believe that in the next five to 10 years, this is gonna be an institutionalized asset class. And we've seen it. We've rejected term sheets from large private equity groups who want to get into this space. And the reason they don't wanna start it and do it themselves. It's incredibly hard to scale because it's a lot more of an operational burden. You can't just throw 85 million at a single family house. Like you can at department building, right. You can't do it right. You can't place a large amount of capital, but build the portfolio, stabilize it and you will have your buyers.

(07:08): So that's fascinating. So I really like the whole idea of the asset is sort of fundamentally mispriced. Is it, is it mostly mindset feels like a weird word, but are, are you feel like people are locked into viewing single family homes as a particular type of thing. And they're not thinking about that as a business. They're thinking about it as, oh, it's, somebody's forever home. They're just gonna live in it. Right. Is that the sort of core sort of mistake that you think people are making right

(07:38): Now? Absolutely. And I think you take this back to what we talking about earlier when I was sitting there in class and I was questioning, why, why does this have to be this way? Right. Right. And I think this is the same exact, you know, thesis or question that we're, we're discussing about this single family asset class. And why does it have to be this way? In fact, we're already seeing it, right. Large institutions are coming in and making this a rentable world, not APRI like home ownership is not what it was 20, 30 years ago. It's not the American dream that it used to be right now. You're renting from whether it's individual, uh, a BIS small business or a large institution. So what makes us feel that we can't live in two homes or three homes at once? What if I wanna be in Florida six months out of the year and in California, six months out of the year, how do I do that? And there are companies that are already starting to think about this home sharing model. And for us, we think short term rentals, which is obviously accentuated by Airbnb, specifically in VRBO and all those types of things within the early days, we think that's an asset cost that will share a little bit in those types of behavioral, macro economics.

(08:43): So when, when you're, when you guys are doing short term rentals or, or maybe we can even back up and talk about the industry as a whole, are we only talking about like Airbnb and VRBO? Is, is there, there stuff beyond that that maybe like, I wouldn't know about, like, how is the, the sort of logistics of that stuff, uh, working now and how do you think it's gonna look 10 years from now? Is it just gonna be Airbnb? Is the dominant one? Is there gonna be a whole bunch of these? Like where do you think that's going?

(09:09): I definitely think there's gonna be a lot of more of them and they're already starting to pop up. Right? You have the in Inspirato of the world, right? INTA went public, I believe earlier this year or last year, which is a collection of thousands of luxury residences around the world, which you can pay to have a subscription membership to, to travel to, right for you and your family, you have wander, which I'm a huge fan of wander in their platform where every single home comes standardized with an electric charger and a Tesla and work from home station with beautiful views and beautiful locations where they're building and cultivating communities for the nomad type lifestyle. Right. Yeah. Um, and then I think you have, like, where we exist is we don't live on the side of luxury or not luxury we're buying what we believe is an existing asset class, right.

(09:54): We're not building necessarily, we're not developing a new type of structure, right. Although those companies also exist, right. There's funds out there in the short term rental space that are building 10, 14, 15 bedroom type homes for off sites. Why? Because offsite will be a lot more important in a more remote, flexible world cuz you wanna get around with your team. Right? And so there are people serving these needs. And for us, we believe that single family rentals exist today. There's less risk in them because we can always revert back to what the traditional mode of thinking is and sell them and operate them that way. Right. Versus taking on the risk of, you know, you know, the analogy of, we don't necessarily need to reinvent the wheel. We may describe the wheel slightly differently. Right. So that's kind of where we sit in our niche, but there are companies that are absolutely far more aggressive in their thesis of what this industry will look like. So walk me through, or walk, walk the listeners through tech investors specifically and how you guys work with investors. Right. So if I'm, you know, I'm an investor and maybe I'm thinking about getting into short term rentals, uh, I find it a little overwhelming or I'm not exactly sure what's involved. What does a tech investor do for me? Or like how would we work together?

(11:06): Yep. So we offer really two primary, uh, options. The first one in our most popular is our fund. So it's a passive investment with a $25,000 minimum that allows you to invest in a diversified portfolio, short term rentals, uh, all across the country. We're in eight states today. And it allows you to be, what's known as a limited partner, right? It's an traditional syndication structure. You don't have to do any of the work. Right. You receive all the same tax benefits and cash flow as you would be getting, if it was your own asset. Pro Rata right. Depending on the percentage of your own, uh, the entire portfolio. And the thing that investors really love about this is it avoids all the headaches of what's traditionally known as short term rentals. You don't have to find it. You don't have to design it. You don't have to furnish it. You don't have to run and operate it. You don't to deal with toilets. You don't have to deal with the, you don't have to deal with the pricing. You don't have to deal with anything. Right. And so that's, by the way,

(11:53): I like how you put toilets before guests, but I'm just, It happens quite a bit, right? Our guests are fantastic for, you know, for the most part across the board, But toilets are not pleasant anywhere you go. Just doesn't. So I, no, not at all, not at all. So that's like basically A passive investment, right. Where I'm Completely passive and, and it's a, it's a smaller investment amount, right? You don't need to shell out a quarter million dollars to get into a home that you're gonna then run and operate, which is actually option number two. Right? So we do have investors who come to us and say, Hey, you know what? I want my own short rental. I already know where I think I want it to be. Or maybe I don't. I want help to, to understand where I wanna buy one. Maybe it's a second home, but then I also wanna run and operate as an SDR, right. For some sort of income in the future. Um, so we've started doing that earlier this year as well. But by far and behold, our fund is our most prominent 98, 90-9% of people are gonna go and elect their, and for generally it's because of the passive nature and also the advantages we have.

(12:53): So, you know, couple of, uh, call outs to our entire team here, right? I believe we have the best possible team in this space. We're a team of 17 in this space where all Airbnb educators and operators ourselves, we built software that allows us to underwrite 60,000 properties a month in 270 markets across the country. What that means is we know what, when properties come on market, what the revenue potential may look like. The second it comes on market where, you know, speed matters, especially in the last couple of years where, you know, the housing market was completely going crazy and nuts, right? And based on those things alone, the team technology and traction that we've been able to get to you can't compete with us. If you're going into this thinking, I'm gonna buy one help. Right? We have economies of scale. We have a brand on places like TikTok and Instagram that we have hundreds of thousands, if not millions of impressions every single month.

(13:42): So we can launch a property, share it with the world, get bookings faster than you can give you some context in Q2, which just ended here, right? We're filming this in J in July, we drove 52% more occupancy than our competitors because of our competitive advantages. We drove that much more occupancy, which is huge to the bottom line because short term rentals is all about a game of vacancy. It's all, it's very simple. It's your taking on the risk of vacancy for the potential privilege or gamble that you'll rent each night or some amount of nights more minus operating expenses than you would be getting as a long term rental for that type of product. Yeah. Right. Just an algorithm. It's just math. It's just logic to what you can. And of course everything we do, we lead with data.

(14:27): So what, when you, when you guys first started the company and you were get thinking about moving from, you know, just kind of doing this as you're on your own, or, you know, doing it as a personal investment to doing it as a business, the, the sort of software side of it was that always gonna be was, is that essentially your like, okay, well, this is gonna be our secret sauce to get into that, that piece of the business. Like, can you talk a little bit about, how did you think about building a sort of competitive moat around your own portfolio so that you could compete? Because it sounds like, you know, you said this earlier, right. You feel like you're early and it does. It definitely sounds like you are, but also it sounds like you expect the big, big dogs to come into that market sooner or later. Right. Probably sooner. Right. So was the software part of that that I don't wanna call it gamble, but part of that fee, system's like, okay, we're gonna build ourselves a competitive advantage that way. Like where does that fit in terms of your overall business model? If that makes sense. Yeah.

(15:28): No great question. And you know, I can sit here and say we had a game plan for what we wanted to do and in what order we wanted to do, but I'd be lying to you like a hundred percent, right. I'd be lying to you. Um, the reason we actually built our first iteration of our software, which was Google sheets and a Python script ran running in the Linux terminal. You know, today it's a full blown web app and an actual software product. But the reason we built it is because we were honestly spoiled. Sabrina was coming from apple. I was coming from Facebook and you walk into any of those campuses and everything is automated. What do you like the entire job is how do you automate yourself? How do you do more with less with technology? How do you implement those things? And then we get into the, she short term rental space and everything is slow.

(16:11): Everything sucks. I mean, for me to underrate a single property, I'd have to find it somewhere online, right on the MLS. I would have to go find the data for that product. Right. I would then have to run that data through some sort of an Excel model or some sort of algorithm to tell me if it's a decent investment or not. I would then have to take that in qualitatively, competent against properties. This is a lot of time to do one property that guess what, here's, what the data says, 94% of the time doesn't pencil. Right. Right. And that's, before we get into things like regulation and all these other risks that come with short term rental. So we were like, that has to be a better way. Honestly, we built our software for ourselves because we were lazy. Right. We were lazy to do it ourselves. And what we didn't realize is we were building an incredible competitive advantage that when we show it to people and we talk about it, people are like, wow, holy shit. This is incredible because they feel the pain of doing what we try to avoid to

(17:05): Do. Yeah. I think most of the big efficiency gains come from laziness. Right. I feel like society, society is propelled forward by laziness, which is like the, you know, the most, the best view of human nature or whatever, but I'm, I'm the same way. Right. Okay. So you've mentioned a couple times kind of living, you know, not living remotely, but sort of doing the nomad lifestyle. It's obviously a cultural sort of movement that sort of underlying sum of the, the short term rental thing. Is that something that you do? Like, are, are you doing the nomadic thing now or did you do it in the past? Yeah, I, I definitely did do it in the past. Right. I would move probably once or twice a year. I mean, even going back to my college days, even if it was within communities, not necessarily states or cities. Right. Cause I, I would want to like, you know, I was in San Diego, I was like, let's live near LA JOA or PB or maybe near campus when I was in school. Right. Different experience, different vibes. And you know, for me, I slightly different world where I live in today. I have a 15 month old son. I have another son on the way coming in 60 days

(18:04): Congrat that's. Thank you. Yeah. And, and those things definitely make me think a little bit more differently about the super flexible lifestyle of like moving around all the time, especially how young they are. Right. But look, we, we travel all the time. In fact, the one of the first, uh, few million that we raised for tech Buster, I was sitting on the beach in Cancun, you know, in a couple of weeks, I'll be in Santa Barbara. Um, you know, and you know, working remotely from there, you know, my wife and I will be celebrating our baby moon. And when you, when I talk to my team any given week, any one of us, someone is somewhere else. Jeremy is on my team was in Costa Rica for the last four days, you know, and Sarah was in Texas and she lives in mic. I mean, everyone's just completely flexible.

(18:46): We all were a remote company. We embody this remote lifestyle, but I do believe whether or not we embody it or other people accept it. I think this is where we're at. I think the war for talent, the war for in innovation, you know, all of these things will be somewhat location independent. And I do think, I do think there will be advantages to companies that do bring their companies together and their talent together in physical spaces, in the future. Yeah. That do have a unique advantage. Cause I do think there are unique advantages to physical, you know, interaction with your team. I mean, like, you know, small little data point Miami, which, you know, in Florida has obviously taken a huge increase in real estate values and interest because of the pandemic and those types of things. Miami, I think hopefully I'm not misquoting here.

(19:28): I believe raised the most venture capital money for companies and that's not Silicon valley. Right. Who would've thought that that would've happened. Yeah. Right. Yeah. Yeah. Um, and so, so I think you'll see a lot more of distribution across the country and across the world, you know, travel, you know, travel is back faster than ever. Um, and it's bouncing back in ridiculous ways. And I don't think people hate the office. I think they hate the commute and the structure of what that lifestyle embodies. They can't go work out when they want to, they can't eat when they want to. They can't see their kids when they want to. It's not the office itself. That's not what people hate. It's everything that comes with it. That's structural. Yeah. I think you really hit on something smart, which is the war for talent. Right. And it's like, so my I'm, you know, our company is much smaller team. Right. So team of seven. Right. But we have been remote for almost a decade now, mostly because, you know, we're, most of us are not traveling around a lot. We are remote because we all had young kids and we're like, I just need to be home. Right. And so the fact that we were remote so early, you know, recently when we hired new managers, I was able to just go online and be like, where can I get the best manager? I didn't have to say move to Connecticut, which is a tough set. You know, like everyone was like, yeah, you can, you know, if I had to limit myself to who is in my local area, it'd be a very different business.

(21:00): Right. So I think that's something that's really powerful and cool. And I don't know, I'm really hoping that, you know, investors too, right. If you're listening to this, you have more capacity to hire than you think you do, right. By finding people that want to live a more flexible lifestyle. Right. So look, we're coming up on time. This has been endlessly fascinating to me. Like I didn't even get to have the stuff I wanted to ask you about. So, but I do wanna make sure for people that are listening to this, you can go and check out tech investor.com right now that's T E C HV E S T O r.com tech investor. Is there anywhere else that you want people to look you up? See if are you on social media or anything that you want people to, to just kind of see what you're up to or is tech investor.com just the best place to go.

(21:49): Tech vester.com is a great place to be. Um, I encourage anyone who's listening to, you know, chat with someone on our team. See if short term rentals is for you or just shoot the shit and see what the industry's all about. I think we're super early people on our team are certainly active on places like Twitter and TikTok and Instagram and YouTube and all those places. Um, so feel free to interact, ask questions, learn about this space if you're in real estate. Um, I think we're incredibly early, like I said earlier, and you know, I think it's gonna be a fun ride for anyone who wants to hop in. I think it'll come with major bumps, don't get me wrong. But I think, uh, every fun ride comes with those as well.

(22:22): Could you imagine what was it like? I mean, Airbnb has not been around that long. And I still remember when like Airbnb was like first coming out and everyone was like, oh, someone's gonna get murdered in an Airbnb. And that whole business is gonna you imagine. Can you remember that? I do remember that. I do remember that. I was like, but we, I just got back from a vacation last week. We were in Airbnb that like, let us take our dog on a vacation for a week and let him run around the beach and stuff. And it's just, wow, man. I can barely imagine what the next 10 years is gonna be like tech investor.com. Go check it out. Really amazing business model and see Kafa. Thank you so much for coming on the show, man. This was an absolute blast. I really appreciate It. Yeah. Thanks so much for having me, Dan. And uh, thank you for allowing me to nerd out. I had to throw that in there as well.

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