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Action Academy | Millionaire Mentorship For Your Life & Business
LIVE KEYNOTE: Airbnb Is Dying. Here’s the AI Hotel Play That Replaces It (w/ Rich Somers)
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Rich
I could be 80 years old one day laying in my bed, staring at the ceiling, kicking myself because I never fucking tried anything in life. How about that risk? We took the revenue from 180 to 600. We bought it for 1.5 and change August of 22nd, in August of 23, a year later we refied the property and appraised that 4.5 and some change. We 3x the value. If you guys are not using AI right now, it's going to be very, very hard to compete with those of us that are. The hotel guests have no idea that it's AI. What you guys see today, I never had any of this. This is all brand new to me. The lifestyle, the real, the hotels. It was just six years ago that I was working full time as an air traffic controller, talking to pilots. I was living paycheck to paycheck. How you guys all doing today? Man, I am so excited. I actually haven't spoke all year. It's the first time I spoke all year. I told my team at the beginning of the year, I'm like, hey, I don't want to do any live events, speaking and stuff. But when Brian asked me, I was like, dude, I'll be there. And I'm excited because, especially because what you guys see today, what you guys see today, I never had any of this. This is all brand new to me. The lifestyle, the real estate, the hotels, the lifestyle. I never had any of this stuff. And so I'm very grateful because it was just six years ago that I was working full time as an air traffic controller. 11 year air traffic controller for the FAA. I was controlling airplanes in the sky, talking to pilots. I was living paycheck to paycheck and the only thing I had in my name was a 401K. And I'm curious, show hands, how many of you guys and gals in this room right now, show hands are working a full time career right now? Okay, so majority of you guys, and let me see a show of hands, how many of you guys have a goal to exit that full time career and be a full time entrepreneur, real estate investor in the next two years? Okay, almost all of you. I love it, I love it. So I always say, and I noticed when I came in this room, just the energy, you guys are all in the right room. I always say get in rooms where your dreams are others realities. It's the quickest way to improve your life. And I also say stop listening to the people closest to you. And often those are your friends, family members, Colleagues and start listening to people closest to your dreams. Because often it's the people. Friends, parents, family members. I had the same thing when I was first getting in the game. Everyone told me it was too risky to go invest in real estate. Everyone told me it's too risky to go start a business. Everyone told me it's too risky to go partner when I started raising capital. Today I have a real estate fund. And big shout out to Katie and Ally back here. They're new investors in our real estate fund with summer's capital. But when I was getting into all those things, partnerships, raising capital, buying real estate, cashing out the 401k, everyone told me it was too risky. Friends, family, coworkers. And I'm just lucky that I didn't listen to that. And instead, I got into the rooms, the right rooms. I got into the rooms of people doing the thing that I was looking to do and I didn't listen in that stuff. And so fast forward to today. My biggest takeaway looking back, my biggest takeaway looking back is all those risks are real, so put some weight on them. But on the other side of the balance scale is another risk. And it's this. I could be 80 years old one day, laying in my bed, staring at the ceiling, kicking myself because I never tried anything in life. How about that risk? That's a risk, too, that a lot of people don't allude to. So anyways, I want to see another show of hands, guys. How many of you guys show hands, own some type of investment real estate today, whether it's a long term rental, midterm rental, Airbnb. Okay, that's really good. A lot of you guys are in the real estate game. Okay, let me see another show of hands. How many of you guys own one Airbnb today? Okay, get them out of you guys. Okay. Okay. All right, guys, check it out. So we're going to talk hotel investing. We're going to talk all sorts of good stuff right now. Here's my team right now. We got a, a team office located in San Diego. Downtown. San Diego. Podcast studio is also there. If you guys are ever in town, would love to have you guys stop by, come by, say what's up below it. We got a real estate fund buying hotels. We're closing on the most recent hotel acquisition next week here in Tulum. I was just down there yesterday and this morning walking the property with some designers, but very excited for it. I'm going to put 10 hotels into this fund before we close it. And big Picture, big picture. What I'm going to look to do is when we go to exit down the road, I'm going to look to portfolio up all 10 hotels and exit as a portfolio sale. And by doing so, we would attract more institutional capital, hedge funds, private capital, and some of these groups, the larger institutions, they're not interested in these smaller hotels. One, individually, there's not enough zeros or dollar signs, but collectively, as a stabilized portfolio of cash flowing hotels, all 10 of them together will be large enough to attract the institutional capital. All right, so six years ago, as I mentioned, I was living paycheck to paycheck. And it's funny because Brandon Turner was just back here. I just told him the story. I felt stuck. After 11 years, I didn't feel like I was growing. I knew nothing about business, nothing about real estate. And I was like, damn, there's got to be more to life than this. And I overheard a coworker in the break room, his name is Mike. And Mike was talking about how he just closed on a fourplex in Cleveland for $220,000. And I thought it was the coolest thing ever. And I was like, yo, Mike, how did you do it? Teach me how you did it. And he said, go read this blue book by Brandon Turner. I just, I just told Brandon the story and, and then he said, go listen to his podcast. It was the Bigger Pockets podcast on real estate investing. And I just started binge listing the episodes. I just became obsessed. And nine months into my education, I did what most people told me not to do. I cashed out my 401k and I use that for 1k to acquire my first couple of deals. On the left side, you see, my first deal I ever bought is 11 unit multifamily deal in Cincinnati. Bought it for $350,000. And then on the right side, shortly after that, I partnered with Mike, who bought that deal in Cleveland. Taught me a little bit about how to get in the game. And another air traffic controller, the three of us all cashed out a 401ks. We went on this 32 unit multifamily deal in Indianapolis, in Greenwood, Indiana, about 15 miles south of Indianapolis. We made all the mistakes there was. I remember showing up for due diligence inspection day. There was hookers on the property, there was prostitution, there was cops showing up, drug dealers. We made all the mistakes with these couple deals, but like anything, we figured it out. And during that same time, I started getting the Airbnb game and these Airbnbs. I still Own today. Got a luxury rental out in Scottsdale, some stuff out in San Diego. I utilized a no money down Navy Federal Credit Union loan to get into my first two Airbnbs. And it's a primary residence loan. But I lived on the properties for a while and I set them up and then later I decided to move out and convert them into Airbnb, but no money down. And so all you guys and gals in this room, before you guys leave your day job, you guys should try to utilize this no money down loan product from Navy Federal Credit Union. It's a 0% down loan for a primary residence mortgage up to $1 million. And it is a primary residence loan, but that doesn't mean you can't live there for a little bit, set it up, and then later convert it over to Airbnb. So you guys should utilize that. I still own those properties today, and the truth is, those are the properties that got me out of my day job when I was working full time as an air traffic controller. Six years ago, I started my first podcast. This is Sean and Mike. Uh, we all cashed out our 401ks. We're a controllers together. And I didn't know anything about podcasting. It's 2019, and I was like, well, I don't know anything about apartment investing. Let's start a podcast interviewing apartment investors. And through this podcast, I learned a lot of information. But through this podcast, we met our first mentors and we paid them. Their name is John and Tony Azar out of the Southeast, and they've. They own about 8,000 apartment units out of the Southeast that come on the podcast. And that's the other hack about the podcast, and Brian knows this just as good as me, is it gets you into the rooms that you otherwise wouldn't have access to. It gets you into relationships that you otherwise wouldn't have access to. And you never know what kind of doors or opportunities those relationships will lead to. And that is the biggest hack of the podcast. But anyhow, so we paid John and Tony Asar to mentor us how to underwrite deals, how to raise private capital. Because I don't care where you start. I had a 401k with about $310,000 in it. And after I did my first two deals, like I was, I was out of money. And so regardless if you're starting from a place or money or not, the ability to raise private capital is always at your disposal. It's always an option for you guys. And I always say the ability to raise and multiply capital is the highest value skill in the world. Okay. To build a sizable real estate portfolio, you guys need two things. You need access to deals. That's deal development. And you guys need access to capital. That's both going to be lending and that's going to both be equity. If you can solve for those two things, there's no limit or cap to how large of a real estate portfolio you guys can build. So here's Sean, Mike and myself. In May of 21, we closed on our first larger apartment building. This is the Arbors Townhomes, which we still own today. 150 unit townhome style community. We partnered with our mentors John and Tony Azar and bought this deal is our first capital raise. $4 million capital raise, $12.7 million deal. And then August 21, four months later, we acquired another one. We were off to the races. Timber Creek Apartments, 145 unit, garden style community, also in Greensboro, North Carolina. We still own it today. Here's Sean, Mike and myself. And right after this, how many of you guys are investing apartments right now? Show me your hands. So right after this, cap rate started to compress. The rate environment after Covid was, was, I mean we got debt on this property at 2.38 interest only. 2.38 interest only on this one. The one prior to that in this one Arbors was 2.7, but 2.38 right here. Floating, floating rate debt. And right after 2022 happened, the rate environment started to go up. The Fed started pushing rates. We had a lot of inflation and this is floating rate debt. And a lot of multifamily operators were buying these, these multifamily deals on floating rate debt. And so our debt service quadrupled overnight because of this on both of those properties. And same thing happened with a lot of multifamily operators. I know, I know Brandon Turner was just in the room, same thing with him. But no one could predict this, this rate environment was going to happen, right? And so around this time, you started to kind of see like a lot of crazy stuff going on. A lot of multifamily deals were just freaking crazy. Like 45 property tours, 30 offers. Like the, the numbers that people were paying for these deals were insane. And so I started writing on the wall and then I started to see what was happening in the short term rental game. And I was like, let's make a pivot. And we made a pivot and I was like, what if we did a boutique hotel? And at the time I was doing Airbnbs. I had a team set up, we were managing some Airbnbs for some clients, their party management. And I already had the investors from the multifamily side. And I said, well, what if we did a small boutique hotel? What would that look like? And so this is the first one, Black Sands Inn up in Shelter Cove. 10 room beachfront hotel up in Northern California in an area called Shelter Cove near the Oregon coast. Gorgeous sunsets, black sand beaches, hiking trails. And called the broker. This deal was just sitting on LoopNet. And I called the broker and she's like, hey, a lot of people called on this deal, but no one's actually took the time to come up here and visit. And she was like, if you put together an loi, she's like, the seller will fly up there with you and go show you the property. And by the way, he's willing to sell or finance the deal. And so we put together an LOI and flew up there with the seller in a small airplane. And it was a rural area. I didn't know if we could make this model work. But, but this is a good tip for you guys. If you guys are ever getting in the hotel game, or any real estate for that matter is always go walk the surrounding properties because you never know what you're going to find out. So directly next door to this hotel is another 10 room boutique hotel called the Ocean Front End. And I just popped in and I talked to the front desk, her name was Jennifer. And I was like, jennifer, I'm interested in buying this hotel next door. What can you tell me about the hotel? What can you tell me about the market? And she goes, why don't you come over later tonight, bring me a six pack of crone of beer and I'll tell you everything you need to know. And she goes, as a matter of fact, I know the owners and I know the innkeepers and the innkeepers are stealing from the owner. They've been there for six years, the owner's owner for 18 years. And I said, great, I'll be back, Jennifer. So I came back later that night with a six pack of Crona beer. And Jennifer told me everything. She was like, hey, the innkeepers are, they don't like to work on the property. They're actually taking jobs in town whenever they get a reservation. They will, they will, they will block the calendar the day before check in and the day after checkout because they didn't want to do same day turns. And she also said the innkeepers were stealing tip Money from the housekeepers. And she also showed me the their books. She showed me all their books at the hotel next door because I was like, hey, what kind of ADR and occupancy you guys drive? She's like, well check it out, I'll just open up the books for you. And she showed me everything. And so what I realized was this subject property that I was looking to buy was doing $180,000 a year in gross revenue. They had owned it for 18 years. Mom and pop owner. This is the only piece of real estate they had ever owned. They were off site, they lived in San Jose. And Jennifer next door, also 10 room hotel, smaller units than the subject property. They were doing 500,000 a year. And that's what ultimately gave me the confidence to move forward on this deal. And so the takeaway for all you guys and gals is go walk all the surrounding properties when you guys are buying a deal. And I hear a lot of people say, like, oh, like, you know, be subtle with what you're doing. Don't tell them what you're looking to buy the real estate. I say no, like be, be completely genuine and honest about what you're looking to do. Because when you're genuine and honest people want to help you. When you're genuine and honest people want to show you the way. And so in this, in this example, Jennifer showed me everything. If it wasn't for Jennifer, we wouldn't have bought this deal. So anyways, move forward. Close on it August of 2022 for 1.5 and some change. The sellers finance 70% of the purchase price and we took the revenue from 180 to 600. You can see the before and after photos here. All the rooms have large living rooms, fireplaces, full kitchens. And the craziest thing was the innkeepers that were stealing from the owners. They somehow convinced the owners to allow them to use not just one of the rooms, one of the 10 rooms, but two of the 10 rooms. And so they convinced the owner to like combine two of the 10 rooms and to make it this like big penthouse suite. And so they were hanging out beachfront in this penthouse suite and doing 180k a year. We took it from 180 to 600 literally. We closed August of 22. We didn't do a renovation until October. And so when we closed in August, all we did was turn on all the OTA platforms because the seller was only using a direct booking site. No I. No tech, no OTA platforms. And by us simply Just turning On all the OTAs, Expedia hotels.com booking.com, we put the rooms on Airbnb as well. No renovation. The revenue doubled overnight like that, which is crazy, right? And then we did the reno and then relaunched it. And then we 3x the revenue. And the cool thing is we bought it for 1.5 and change August of 22 in August of 23. A year later, we refied the property and appraised that 4.5 and some change we 3x the value. And that was when I was like, hey, I'm going to go all in on this model because of a lot of factors which I'm going to cover here shortly. So a couple of ways we're using AI right now. I know a lot of you guys are investing in real estate. I know a lot of you guys are in business right now. And the truth is, if you guys are not using AI right now, it's going to be very, very hard to compete with those of us that are. So a couple of ways we're using AI on the left side. You see, we use a revenue management platform. Nate Dogg actually uses this platform for his hostels as well. And it does anywhere from 100 to 200 AI pricing adjustments every 24 hour period, similar to how the airlines do it. Okay? And a lot of these mom and pop owners in these hotels, they're just using static pricing. They just have a weekday rate and they have a weekend rate, and they might have a rate for the slow season and they might have another rate for the busy season and they just set it and forget it. Okay? But the AI right here will do, like I said, anywhere from 100 to 200 AI pricing adjustments every day based on supply and demand. And on the right side, you see, we just implemented this, I'm very, very excited about it, and you guys should all look into using this for your businesses. But we just implemented an AI employee at every single one of our hotels. We tested it at one hotel first and the first one we tested, her name was Brooklyn, she's a hotel concierge. And we tested her at Hotel Zendel, which is our 24 room hotel in Lydia, Italy, San Diego. And she does everything from helping guests with check in instructions. She does everything from helping guests with accommodations, restaurants to go out to eat, nighttime activities to go out to rooftop lounges, etc, things to go eat at these restaurants in the local area, hiking trails, daytime activities. But in addition to that, she's also helping guests if they have like a dirty room, they need to have new clot, new towels, they need their room cleaned. And also bring in additional revenue in the form of upselling more expensive room packages, early check in fees, late checkout fees, and even driving five star reviews. And so we tested at one hotel and it went really, really well. She will text via blue imessage and she'll text using emojis. She'll stagger her response times, she'll even make like spelling errors so it looks human. And the hotel guests have no idea that it's AI. I popped into one of our hotels in San Diego as we were testing it and I'll just hang out in the courtyard, talk to some of the guests and I'm like, hey, how's your stay? And you know, this hotel attracts a lot of like late 20s, 30s, early 40s kind of demographic. And you would think if anyone's going to know it's AI, they would know. But everyone was like, oh my gosh, our weekend was so great. Brooklyn helped us with like all of our restaurant accommodations, rooftop lounges. Our freaking stay was amazing because of Brooklyn. And I'm like, oh my gosh, they have no idea it's AI. So yeah, so, so anyway, so then I was like, okay, let's, let's go all in on the AI. And you can have an AI employee do anything for you, like literally anything for you. You mentioned. What's your name? Lauren. So Lauren mentions that she's not, she's in the fitness space. Right. So when you get rolling on social media, okay, you can put any employee into your DMS and they can literally set and warm up clients for you in your DMs. They can start talking to your people to follow you. They can qualify them in your DMs and then set appointments for you and warm them up, even send them like YouTube videos and all that sort of stuff all on your behalf. And so you guys should all look into implementing an AI employee into your guys business. They can do literally anything for you. And so there's a couple ways we're using AI. Okay, now let's get into the why boutique hotels? Because this is what gets me really excited, guys. So why boutique hotels? First off, Airbnb is becoming more and more oversaturated. All these markets around the country, they're becoming more and more oversaturated, becoming more and more challenging to turn a return. And then regulations are tightening around the country. We saw what happened in New York City, we saw what happened in San Francisco. We saw what happened in Los Angeles. Nate you live in Hawaii. There's a lot of regulation going on in Hawaii. And so as the regulation continues to occur, more people are going to travel with the boutique hotels. The boutique hotel model is going to benefit from this also. We got 40 million retiring baby boomers over the next seven years. They're calling this the greatest transfer of wealth in American history. It's about to go down. And it's estimated that 25% of the hotels in America that are valued under $10 million are owned by these retiring boomers. A lot of their properties are tired. They haven't been renovated in decades. They're not using any technology, and they're definitely not using any AI. And then lastly, it's the next natural progression. Okay? It's the next natural progression. So all these Airbnb investors, by the way, there's 8 million Airbnb listings in the world right now. And as Airbnb becomes more oversaturated, and as Airbnb becomes more over regulated, all these Airbnb investors are going to look to the next national progression. And when I go speak at these Airbnb conferences around the country, hands down, the most popular panel at all these Airbnb conferences is the boutique hotel panel. And every other person I meet is like, yo, Rich, I am investing in Airbnbs right now, but I cannot wait to do my first boutique hotel. And so I believe, and I'm speculating, I'm always willing to speculate and I'm always willing to be wrong, but I'm speculating right now. But I believe because of this, in the next two years, three years, four years time, the boutique hotel game is going to be the next big thing. All right? Everything comes down to your numbers in real estate investing. Guys like you got to, you got to leave the emotion out of it and you got to stick to your numbers. And so knowing your numbers is everything. Having the right assumptions is everything. Knowing your exit cap rate ADR assumptions, knowing your comps is everything. Here's a snapshot of the boutique hotel analyzer that we use. We get a full time developer that's on retainer, dedicated to this model and just continually cranking out better and better versions of it. But guys, the numbers is everything. And that's, that's, you know, not just underwriting, but KPIs. Like we track everything within, within my business, every single week, I host what's called an L10 meet. L10 team meeting every single Monday morning. How many of you guys have read the book Traction by Gina Wickman? Let me See a show of hands. So EOS is what we use to operate our business, and it is a game changer. And so we have weekly KPIs that we track into my business. Everything from the hotels, how many reviews, we're driving, the ADR occupancy, and even on the media side, how many social media shares are we getting on TikTok? How many social media shares are we getting on YouTube, Facebook, Instagram? How many views are we getting? How many posts did we get out? How many posts do we get out for each of the hotels? And it doesn't mean that you need to do it, but someone on your team needs to own each of those KPIs, okay? And knowing your numbers is everything in this game. All right, guys, check it out. So this is hotel asset number two, Hotel Zendel. This is a 24 room boutique hotel in downtown San Diego in the Little Italy neighborhood. If any of you guys have ever been there, it is the hottest, most trendiest neighborhood in all of San Diego. 30 of the dopest coffee shops, restaurants right on the water. And it connects the San Diego airport to the 5 Freeway. It's about 27,000 cars that drive by this neighborhood every 24 hours. We acquired this deal in May of 23, and as you guys can see here, this was not what it looked like when we bought it. This hotel was run down. It was a trap house. It had squatters. So in the state of California. Love living in California, but I don't love the regulation there. But in the state of California, if you have a hotel and you have any guest that's been there for more than 30 days, that guest now becomes a tenant and they have tenant rights. And so when we took over this hotel, there was six guests that had been over there more than 30 days, which the previous ownership did not disclose. And so we're starting a renovation and we noticed like one of the guests, he would not leave. And he literally put a note on his door. And it was like a note and it said like, hey, like I, I know my, my California landlord, tenant laws and my rights. And he's like, respectfully, I will not be leaving. And so we're starting this renovation. We're like, come on, dude. And so anyways, long story short, we gave him some cash for keys and he could have got a lot more from us, but I think he set up like 2k, got him out of there. He signed some paperwork from our attorney and that was it. Here are some before and after photos of our renovation. So we bought it for 5.8 and some change. We did a $1.4 million rental. You can see the renovated photos right here. And this is kind of the design that we go for, that Instagramable, appealing to the modern traveler. The Millennials, the Gen Zers. The Millennials and Gen Zers. I don't know what it is, but they just don't want to go and dine at the same restaurants our parents or grandparents once loved. The Chili's, the Applebee's, Sizzlers. If you go to, like, Little Italy, it's like 30 of the best restaurants in all of San Diego. And you won't see one chain restaurant. You will not see one chain restaurant. And as a matter of fact, I'm friends a lot of restaurant owners down there. And if they have a successful restaurant, they want to. They want to make a second restaurant. They will completely make the second restaurant a completely different brand with a different vibe, a different ambiance, a completely different menu. And no one knows that it's, like, under the same. The same ownership, but I don't know what it is. It's these. The Millennials and Gen Zers don't want to go to these chains anymore. It's the same thing with the hotel game. They don't want to go stay at the Hampton Inns that our parents once loved. They don't want to go stay at the Ramada Inns and all these branded flag properties. And so they want to go stay at these, like, small, unique, vibey, Instagram able hotels that they can, you know, share with their friends. And so that's really the ambiance that we try to create with these properties. Okay, next up, you guys are investing in real estate right now. I can't stress this enough is the importance of having a proper org chart giving you asset protection and liability protection. Okay, this is a snapshot of our org chart with our hotels, and I'll give you guys an idea. So at the very top, I don't know if you guys can see, it's a little small, but very top, you see me. And below me, you see Summers Capital, which is a Wyoming llc. You always want to set up your holding LLC or your parent LLC in Wyoming, Delaware, Nevada, and now Texas. And by the way, I am not a legal counsel. I am not an SEC attorney by any means, so definitely do your own research. But this is how I understand it. You always want to set up your holding LLC in one of these states, Wyoming, Delaware, Nevada, and now Texas, because it prevents you from both the inside attack and the outside attack. An inside attack would be a guest slipping and falling or a tenant drowning in the pool. An outside attack would be Lauren getting in a car accident with a motorcyclist in her hometown. And that motorcycle is suing to get into properties that are out of state. And so when you set up your LLCs in Wyoming, Delaware, Nevada, and now Texas, it prevents both of those piercings from happening. Below, below Summer's capital, you'll see our GP LLC. And Summer's capital is an 80% owner. To the left, you see another LLC that's a 20% owner. That's the manager's LLC. And so I give all the leadership positions on my team equity in the deals that we acquire. They have 20 of the GP. And the reason I do this, and they got to earn it, by the way. The reason I do this is because the leadership positions on my team, those are the ones that are, like, making these deals go. They're the ones that are making these deals perform. And if they have skin in the game, guess what? A couple things are going to happen. Number one, number one, they're gonna. They're probably not going to leave me. And I don't. I don't want to be turning over team members every single 12 months like a lot of people do. But number two is now they have an alignment of interest for the deals that go good, right? They have skin in the game. And so below us, you see the GP llc, which is a Delaware limited partnership. And then below that, you see the Summer's Capital Boutique Hotel fund. One that's a Delaware limited partnership. You see the limited partners right here, 60% limited partners. Katie and Ali are right up in there. And then we own 40% of the fund. And then below this fund, you see all the LLCs that directly own the hotels. And each of those LLCs are at the state level, and they directly own 100% of the hotels. And so one thing that you guys will notice in this org chart, if you set it up correctly, none of the hotels are owned by any individuals. None of the hotels are owned by anyone, okay? And if you see me at the top, I don't own any hotels. I don't own any real estate, okay? And so when you set this up correctly, it gives you asset protection, it gives you liability protection. Because at the end of the day, guys, especially investing in California, in some of these states, like, you can lose your ass if you don't have proper asset protection. All right, next up, why boutique hotels? We can force A lot of appreciation with these hotels. So a lot of you guys that are doing Airbnbs right now, it's residential real estate, right? And so the way residential real estate is valued is based on the sales comp approach. And so whatever that house is worth across the street based on a square foot, a price per square foot basis, generally speaking, is what my house is worth regardless of how much money it makes as an Airbnb. But because of boutique hotels, commercial real estate, the more we can increase the income, the more we can decrease the expenses, the more we can force our appreciation because it's more like a business. Also, there's no neighbors. We. We just got rid of. We were managing a bunch of Airbnbs for like third party, like, owners, and we started doing a long time ago and I just got rid of like a lot of them because it's just not the direction anymore. But we were managing this like six Airbnbs in Indianapolis and one of the properties directly next door, it was like this couple and they hated the Airbnb for whatever reason, they would legitimately spray every single Airbnb guest that checked in in the backyard with their garden hose. Just hose them down. Every single one. It was terrible. And. And I got a luxury Airbnb in Scottsdale that crushes. But the neighbors hate it. Like, there's signs in the neighborhood says, like, homes, not hotels. They even try to put the property on Fox 5 channel news, like, yeah, people just don't like the Airbnb game in the neighbors. And so with the hotels, you don't have to worry about neighbors, which is great. Also, we can use opm, right? You can use other people's money to scale your portfolio. And then lastly is the tax benefits. A lot of people get into real estate because of the cash flow and the passive income, but the real wealth in real estate is understanding debt and taxes. And so we can get what's called cost segregation studies done on all these assets. By the way, 100% bonus depreciation just came back earlier this year, retroactive. Big win. And, and so with the cost study, now we can put a percentage down on these real estate deals and we can depreciate a lot of depreciation year one, which is a huge, huge wealth building tool. And by the way, for a lot of you guys and gals that are, you know, high income earners, full time employees, the hotel has a loophole. It's one of the only asset classes in commercial real estate to where the IRS sees it as an active business. And so the IRS will allow you to not only use the depreciation from a cost seg study on a hotel to offset the cash flow the hotel spits off, but you can also use it to offset your active income even if you're not a full time real estate professional, which is a huge wealth building tool. Okay, the Airbnb loophole. You guys understand that one. This is the same thing, but it's for hotels.
- [32:50]
Podcast Host
Yo, what's up, guys? One sec. You're listening to a podcast right now, and I freaking love that. But this is not making you more money. What makes you more money, more wealth, more equity, is being in the room with the people that you're hearing on today's episode. If you want to be around hundreds of other people like you leaving corporate America, doing big deals in business, commercial real estate, and land, check out actionacademy.com, go in the show, link the show description, and click the link to book a call with our membership director team. We'll give you the resources, the connections in the community to actually pull off the stuff that you're learning about on this podcast. And we'll hold you accountable to the actual implementation of the information that is actionacademy.com now let's get back to today's episode.
- [33:36]
Rich
All right, commercial versus residential, how they're valued. I'm going to give you guys an example, guys. And like, once you understand this formula, it's very hard to go back to residential real estate. But no Y divided by cap rate. This is how commercial real estate is valued. This is how boutique hotels are valued. So noi, net operating income, that's basically all gross income minus all gross expenses annually, is going to give you an noi. And you take that noi, and this is not including your debt service, by the way, not including your debt service. You take the NOI and you divide it by the cap rate. The average cap rate for hotels nationwide is about 8%. It's going to be lower in coastal California on the beach than it is going to be buying a hotel in Tulsa, Oklahoma. It might be an 1112 cap rate in Tulsa, Oklahoma, and you might have a hotel that trades for 5% in Santa Barbara. But anyhow, let's just take the average cap rate of 8%. And let's just say in this example, we're going to buy a small Boutique Hotel. It's 10 rooms, and the one of the 10 rooms is an innkeeper suite. Okay? And we're going to, we're going to decide we don't need An Innkeeper to operate a 10 room boutique hotel. We can utilize what's called a self check in self checkout model with the guests. And we're going to take that payroll. Let's say the innkeeper was, was getting paid his $60,000 and we're going to eliminate that payroll expense of $60,000. And now that drops to the bottom line. Just that simple move at an 8% cap rate is going to force $750,000 of appreciation to that small 10 room boutique hotel. Okay, and let me take it a step further. Let's say we're going to take that Innkeeper suite. And by the way, the Innkeeper suites at these hotels are usually the largest room on the property. Full living rooms, often full kitchen, sometimes even two bedroom units. And we're going to renovate this unit and we're going to bring it online for additional revenue. And let's just say that Innkeeper suite is going to bring in an extra $60,000 a year net income. The payroll expense of limiting the onsite manager and now bringing on that Innkeeper suite of another $60,000 of NOI growth is going to increase the value of the property by $1.5 million. Where else are you going to find that kind of a return? Probably will cost you about $60,000 to renovate that unit, maybe less. And you're going to force $1.5 million of appreciation. And this is why I'm bullish on the hotel game right now. All right, this hotel right here we acquired in December of 23rd. And this is why this game is all about who you know also who knows you. It's a relationship based business. I always say if you're investing in real estate right now and you don't have access to deal flow, it's because not enough people know who you are. You're not shaking enough hands. And so this deal right here, we acquired from a personal relationship that we have. There's a bridge lender that funds a lot of our deals. We have a great relationship with them. These bridge lenders, these lenders, all your lenders are your biggest partner. And you guys should all be taking care of all of your lenders. The lenders are going to put up 65, 70%, sometimes 75% of the purchase price. They're your biggest partner in these deals. And so why would you not become their best friend? Why would you not become their personal friend? Why would you not take care of them? Right? And so we take care of all these people. But anyways, this hotel built in 2021, 40 rooms up in Lake Chelan, Washington. And this is a popular tourist destination for the folks that live in Spokane and Seattle. A lot of wineries in this area, they got a big lake. But anyhow, developed in 2021, 40 rooms. And the developer got into some trouble. He was, he was developing a bunch of condos in another market. He wasn't a hotel operator. He ran out of money on the condos, stopped making his debt service payments. And all the real estate, this is one of the pieces. And so the bridge lender took this asset back in November of 23. They came to me and they said, yo, Rich, we got to get this off our books by the end of the year. We can sell it to you for a massive discount. We can sell or finance it to you for 0% financing for the first six months. And so we moved relatively quickly. We ended up closing December 23rd for 4.87 after the seller credit. And to give you guys an idea, that's about 120 a door. New construction hotels in this area trade for around 250 a door. And these are like older hotels. And so we had a really good deal on the buy. It last appraised in 21 for 7.5. We looked at as a new construction as a couple of years old. Didn't need much. We did add a pickleball court, which you guys see there. Pickleball is very trendy, especially in certain markets. Revamped the pool area, rebranded it a little bit, added a couple of game rooms. But it Last appraised in 21 for 7.5. We acquired it for 4.87. We are starting the refi process for this deal right now. And this deal will appraise somewhere between 8 and 9 million. And we didn't have to put much money into this deal. We put about 150 into it. And this is why I'm very bullish on the boutique hotel game right now. Hotel Dega Sonoma coast wine country. Some of the most expensive real estate in the world. This asset right here is 44 rooms and is built in 1988 right on the water in an area called Bodega Bay. Anyhow, so this, this asset right here, 44 rooms, built in 1988. It had never traded until last year when we acquired it in April of 2023. I'm sorry, April 2024. And what happened was the. The family developed it in the family the entire time. The father passed away a couple years ago. The son took it over and had poor management in place, started severely underperforming, and the son decided he didn't want the asset anymore and decided he wanted to sell it. But he didn't want his entire family to find out that he was selling his dad's property. So he went to a broker and had the broker shop it off market. We moved quickly with this deal, got it under contract, and they were hurting. The son hadn't paid the, the, the taxes in a long time. So there was a big $800,000 tax bill with the county. And he was hurting. They were like completely bleeding money. We retraded the asset a couple times due to some stuff that popped up in due diligence, one of which was water damage. And this is a great tip for you guys is whenever you guys are buying a commercial property, you're going to perform due diligence, but you might not close on the property for six weeks, eight weeks later. So what happens to the property between due diligence and when you close? A lot of things can happen, especially if the property you're buying is, is, is partially operating or vacant. Right. The Tulum Hotel we're buying is vacant right now. And that's why I just came down here. We're closing next week. And I'm like, well, no one's seen the property in six weeks. It's vacant. I got to do a walkthrough. So we did the same thing with this hotel. It was the, the, the sun basically stopped operating it once we got under contract. He's like, dude, I'm just not going to deal with it anymore. And there was heavy rains in California last year, and so I was like, hey, we better go walk the property before we close. And so we walked every single room the day before closing. And I'm glad we did because we found $160,000 of water damage. And we ended up getting a seller credit for the $160,000 of water damage. And that saved us right there. But anyhow, we closed April 23rd and 6.9 and a quarter, about 140 a door. And to give you guys perspective, Sonoma coast is some of the most expensive real estate in the country. A lot of the. There's hundreds of wineries in this area, but a lot of the hotels in this area trade for the low three hundreds. And so we got in a really good deal on the bait on the going in basis. Here's a sneak peek of the renovation. We're doing a $2.2 million Renault. We are at the very tail End stages right now, finishing this reno. The landscaping is just getting finished right now. And then we're going to steal and start the parking lot. And then we're going to do all new marketing photos in two weeks. But very excited for it. As you can see here is kind of the vibe that we went with. It's a 1988 asset, so we wanted to kind of keep a lot of the same characteristics. And with this hotel, all 44 rooms have Bay views. We are going to market it as like a couple's retreat and a couple's weekend outing because the couple's stuff is what sells on Instagram. With these hotels, it's what gets views as well. But excited for it. 6.9 and a quarter. We bought it, we did a $2.2 million rental, and we're going to refinance this deal here soon. This asset will value in that $14 to $16 million range. And this is why I'm very, very bullish on the boutique hotel game right now. We're just getting warmed up, dude. This is, this is just the beginning. All right, so why boutique hotels, guys? Seller financing opportunities is huge. We've been in a high interest rate environment for 40 months now, okay? And so seller financing is huge. We can negotiate our own down payment, our own interest, often no prepayment penalty. It's creative financing, one on one. And in the boutique hotel game, seller financing is the most prevalent at any asset class in commercial real estate, multifamily retail, office, mobile home parks. Seller financing is the most prevalent in the boutique hotel game. And the reason is, is because all these mom and pop owners are retiring. What makes a good candidate for seller financing? It's not someone that's going to roll their proceeds into another deal, but instead it's a seller that is going to retire. They want the cash flow ongoing in retirement and also they don't want the tax burden. Right? And so when you look at those things, and also a lot of these owners bought their hotels 20 years ago, 30 years ago, on seller financing. And so they're already like expecting to use seller financing on the exit, which is big hotels burst strategy on steroids. You guys know the birth strategy. Hotels is the birth strategy on steroids because we can buy these assets, we can force a ton of appreciation in 12 months, 18 months, 24 months, and then we can refinance at the higher value, pull all of our cash out, leaving us with little to no money in the deal. And then we can what I like to call refi and roll. We Refi and we roll the proceeds into another deal, repeat the process. Economies to scale is another big one. You guys are investing in Airbnbs. It's very hard to scale an Airbnb portfolio of, you know, seven Airbnbs and seven markets. That's seven sets of housekeepers, seven sets of guests checking in and checking out, seven sets of maintenance, seven sets of utility bills. But instead, with a hotel, we can pick up 10 units, 20 units, 30 units under one roof. It's a lot easier to scale. And then lastly, we can operate these properties remotely, free of the on site management, which is a huge, huge lever that we can pull with these properties. Purchase price, this is the purchase price that we like to play in, in that 2 to $10 million range. It's, it's a little bit too large for some of the individual newer investors, but it's too small for the hedge funds, the institutional capital. And also, like I said, it's estimated that 25% of the hotels under $10 million are owned by these retirement boomers. And those are really the properties that we like to target. The underperforming assets that we can acquire from the people that are not using any tech AI. The non savvy investors. I like to say, all right, Surf Break Hotel. This is the, this one we closed on in March of this year in San Clemente, California. It's actually my hometown. And San Clemente is actually like very popular beach town in California. A lot of good fundamentals here. But we closed on it for 4.5 after the seller credit. It had what's called a Verizon cell tower on the roof. Okay. And this is something that's cool for all you guys that are doing real estate, especially commercial real estate, is there's these cell tower leasing companies and they will put a cell tower onto your roof. It might be at and T, it might be T Mobile, it might be Verizon that they lease it to. But these companies will pay anywhere from two to $3,000 a month in monthly cash flow. And so with this asset, they already had a Verizon cell tower on the roof. And, and I don't know about you guys, but I'm like, dude, that's an outdated model. Like the idea that we're going to use an iPhone forever and pull from these cell towers that are on the roof of these hotels. I don't know how long that technology is going to be around. And so when we acquired this hotel, we were getting income from this cell tower lease from Verizon that was paying about $2,200 a month. And so these companies, these cell tower companies will actually buy the rights to your cell tower and they will pay you cash. And you still own the asset, you still own everything, but they will take over the cell tower lease. And now the $2,200 a month gets rerouted to the new company. And so for me, I'm like, man, we had an offer. We ended up selling the Verizon sell to our lease for 535 right after we acquired the asset. And so for me, I'm thinking, okay, $2,200 a month. How many years of $2,200 a month is it going to take to get the 535? And in seven, 10 years, like there's no guarantee that this technology is even going to be relevant anymore, right? And so we sold it that lower cost basis, the 3.9 and some change on this asset. And the crazy thing is this market right here, San Clemente, the median home price for a three bedroom, one and a half bath, 1100 square foot home is 1.7 million. And if you guys go to the next beach town north, which is Laguna beach, it's 3.1 million right now for a median home price, which is insane. And all that money is coming south right now. And so for us to be able to get in for 4, 3.9 and some change on this boutique hotel in San Clemente is a good deal. It didn't need a full rental, but we did a little light refresh. And guys like, like our Lake Chelan, Washington deal that we acquired from that, that repossessed property, the developer, the value add doesn't always have to be a huge renovation, right? With this asset. The hotel had already been renovated in 2020. It just, it was severely underperforming and needed better marketing, better operations, better revenue management. And so we just did a light refresh. We put about a couple hundred grand into it. We did new signage, which you see there. We did a lot more landscaping. Sealants trapped to the parking lot. And then we did all new marketing photos. The marketing photos is huge. We always bring models to the property, which you see there, and we'll, we'll do a big shoot. We have a photographer that we really like in San Diego and we'll fly him to all the hot, we'll fly him down to Tulum. We're flying him up to Bodega because he's that good and he's worth it. But marketing photos and having models with like your marketing photos, even if you guys have an Airbnb is. Is really big. It doesn't cost much to do, like a nice shoot. And then now you have all the photos, you have all the videos, you have all this content that you guys can push out on your social media and your website and all that sort of stuff. Marketing is everything, guys. If you. If you have good marketing, you can have mediocre sales and still crush. All right, this most recent asset, and then we're going to get to some Q and A here in just a sec, guys. This is the most recent asset that I was just visiting last night and this morning here in tulum. This is 2018 built property. 10 rooms. It's got two retail locations, it's got a restaurant, and it's got a real estate office that rents the other retail location. And I was blown away yesterday. I met the restaurant owner for the first time and he was like this cool dude from Scotland. And I was like. Because I. I thought it was going to be like some older gentleman that barely spoke English. And this dude was like, freaking awesome. He was rad. He's from Scotland and he was like the coolest guy ever. And he. I was just talking to him and I was like, hey, man, we're closing this hotel. Like, let's freaking make some money together. And so he was like, dude, I'm excited because this. This seller that we bought, we're bought. The seller that we're buying the property from has not been operating the property. It's been shut down. She bought the property in 2020, not really knowing too much about the hotel game. And she had the real estate agent in Tulum who sold her the deal. He was the property manager, and he doesn't know anything about hotels. And so it was underperforming. She shut the hotel down because she didn't want to pay the permits. And so it's not operating. And so the restaurant owner is like, dude, like, you're gonna start bringing guests to the hotel. He's like, damn, that's crazy. So we're gonna partner up. I'm excited. There's a rooftop location, rooftop lounge, which you see here. A couple of these are renderings, but it's got a pool, it's got a gym, which you see here. Not a gym, but a spa, which you see there in the bottom left. It comes with a kind of a wellness center. So it's got cold plunge, dry sauna, massage room, and it's an. It was an operating, basically massage parlor or, like, spa. Good reviews on Google and So we're going to operate the spa and bring in, like, third party guests for additional revenue. And then the restaurant, they pay rent, but the restaurant has a rooftop above it, which you guys see here. This is a rendering. So we're going to turn it into this, like, cool vibey rooftop. And we're going to. He's basically going to operate that as a bar upstairs for the hotel guests, for the restaurant guests. And if there's overflow in the restaurant, he can seat guests up there. And then we're going to do, like, live music and all that sort of thing. And then the real estate office, they pay rent. They do, like, residential real estate. And. But I'm excited. Is some renderings of the property. It's got a pool, but guys, 1.45 million with seller financing at four and a half percent. And so I'm like, oh, my gosh. I was at the property yesterday, I was like, dude, it has so much potential. And just hanging out in Tulum, I'm like, dude, I'm going to be down here a lot, like, just for the renovation. Like, a lot of our hotels are in good locations, great locations, like on the water and stuff, but they're not in areas where I'm like, okay, I'm going to hang out here for a month and work remote. So I'm excited for it, and I'm going to be down here a lot, especially during the renovation. We're closing next week, and then between now and November 1st, we're going to, like, hit the ground running with the Renault, the redesign, and then we're going to look to relaunch November 1, which is the start of their busy season. So I'm very excited for it. Number one, we're taking advantage of tightening Airbnb regs. Guys, I saw the writing on the wall back in 2022, and so far, this is playing out. The story is playing out. We're seeing Airbnb go away in a lot of these markets. And as that happens, the boutique hotels are going to benefit from this. Okay, and then next up, we can force our appreciation because it's commercial real estate, because it's valued like a business. The more we can increase the income, the more we can decrease the expenses, the more we can force our appreciation. We're implementing AI tech, good revenue management, good marketing, Instagram influencer stays. And, you know, a lot of these mom and pop owners aren't doing any of those things. And so we're able to force a lot of appreciation here. And then, most importantly, guys, the greatest transfer of wealth in American history is about to go down. 40 million retiring baby boomers in the next seven years. 4.8 billion people use social media today. Okay. 4.8 billion people use social media today. The ability to start a business, buy a business, market yourself for free online has never been easier than it is today. The ability to get access and information to whatever it is you want to do has never been easier than it is today. Regardless of all the hoopla that's going on right now, there's a lot of bad news in the marketplace over the last couple days, and there's going to continue to always be bad news in the marketplace. We saw what happened with COVID okay? The whole world's shut down for, like, an entire year. And, you know, right now, with everything going on, it's very easy to just sit there and be like, you know what? I'm not gonna move because there's a lot of bad news going on. But I'll tell you what, guys, like, the world's gonna keep moving regardless if you do or not. And during 2020 in Covid, that was when I made my moves. I was. I was still working full time as an air traffic controller, and I was doing the real estate on the side, but when the world shut down in 2020, they were like, hey, as an air traffic controller, they're like, hey, we're going to go to a compressed work week. And while everyone else was sitting at home watching the news, pointing fingers and. And just hanging out, I was grinding, I was hustling, and I was growing and I was progressing. And at the end of 2020, when they said, all right, you guys are coming back, I said, I'm not coming back. And that's when I went all in on myself. And I'll tell all you guys right now, like, when you guys decide to leave and go all in on your own thing, a couple things are going to happen. Number one, I always say, put yourself in situations where the hard way is the only way you guys quit your job and go all in on your thing, and you tell everyone online, like, hey, like, this is my new thing. Like, there. When I quit my job in 2020, I told everyone, all my co workers, friends, family, like, I'm going all in on real estate, like, there's no way in hell I was going back, right? Rain or shine, there was no way in hell I was going back. But number two, and it's probably the most important thing is when you guys reallocate the 40 hours a week that you're spending on your day job and reallocate that into investing in yourself and your own business, things start to compound very quickly. And you guys are already in the right rooms. You guys are already in the right rooms. And so you guys already have all the resources in this room. Because I tell you what, shit is going to hit the fan. Like, shit is going to hit the fan. All the stuff that you guys hear that is true. And there's going to be a lot of sleepless nights, and there's going to be nights where you're like, I don't know where payroll is going to come from. I don't know how we're going to pay the mortgages. I don't know how we're going to pay, whatever. But I'll tell you what, if you can get through that and you believe in yourself and you have the wherewithal to get through all these challenges that are going to pop up, there's no better feeling, there's no better feeling than the feeling of building your own thing. I always say happiness stems from growth and progress. The more we grow in life and the more we progress, the happier we are. That's how we are wired as human beings. I didn't. I didn't realize this until my late 30s. I didn't wake up till 33. I was telling you guys, like, at 33, I was living paycheck to paycheck, and all I had in my name was a 401K. And I didn't realize this until 37, 38 years into my life. But happiness stems from growth and progress. The more we grow, the more we progress, the happier we are. The second I stop growing, the second I'm no longer happy. And so that's why I started doing seasons of no drinking last year, about 18 months ago. And I had never done it before in my life. I traditionally always drank socially. You know, drank three nights a week socially, a few glasses of wine. But I got to a point 18 months ago, and I realized I'm like, this is as far as I'm going to grow under these conditions. And I looked at the people that were above me at the next level, I realized a lot of those people don't drink. And the only way to get to that next level is to sacrifice certain things. And so, for the first time in my life, I committed to doing a season of no drinking. And I did 75 days, no drinking. And it freaking changed my life. Like, everything was dialed. My fitness, my business. I became a better leader. I became A better version of myself. Everything was like this, and I was like, oh, my gosh, it's crazy. And, yeah, I still believe. You gotta enjoy, right? You gotta enjoy the fruits of your labor. You gotta grind. And so I like to do these sprints where I'll go 60 days, 75 days, sometimes a hundred days. No drinking. I'll grind, I'll hustle, I'll level up in every single aspect of my life, and then I'll enjoy it for a little bit. I just enjoyed this last month, August, and I was in the game. August, my favorite month. But everything slowly like this. When I'm out drinking, everything slowly like this. And so last week I started another 75 days and we're back on the grind. It's time to reinvent myself again. So I challenge all you guys and gals in this room. If you guys have never done it, if you guys, you know, feel like you're. You're capped out, or maybe you need extra gear to. To build that side hustle so you guys can, you know, have the confidence to leave your day job. Try doing a season of no drinking. It will. It will change your life. Without further ado, let's do a little Q and A. Would love to answer any questions that you guys might have.
- [56:46]
Bethany Otute
Thank you so much for that. My name is Bethany Otute, and we've been hearing a lot this weekend about mindset, elite mindset state, being in the right state, stories, the stories that we tell ourselves that may not be true and hindering ourselves, and then how we reframe those stories. So two questions. One, what are some of the practices that you do to maintain the right state? And I love what you just said about the kind of 70 day, like, no, 75 day, no drinking practice. Just curious. Other things that you've built in. And then two, are there, were there stories that you had to overcome to be able to put yourself on this journey and. And that you continue to need to reframe?
- [57:32]
Rich
Yeah, absolutely. So, number one, whatever it is that you guys want to do in this room, whatever, whatever avenue or route that you guys want to pursue as an entrepreneur, it's as simple as finding someone who's doing it at a high level. It might be one person, two people. I'm usually studying like four or five people at any given time, and those people will continue to shift as I grow. And so to your point, what's your name?
- [57:54]
Bethany Otute
Bethany.
- [57:55]
Rich
Bethany, to your point, Bethany, when I study these people that are above me, right, it could be four or five people at Any given time, maybe it's just one person for you. When you study them, it's as simple as doing the actions that they do. So if you guys want to get fit, like there's no secret to getting fit. Move more, eat less, and you're going to get fit. Right? And so it's the same thing as a real estate investor or as an entrepreneur. You're trying to level up in the game, find someone that's above you and take the actions that they do. I started doing seasons and no drinking. Why? Because the people that are above me, a lot of them don't drink or they will do prolonged seasons and no drinking. How many of you guys know the company ClickUp? Okay, so I'm friends with Zeb Evans. He lives in San Diego and he's 36 years old. He's the founder of ClickUp, the CEO. The dude's 36 years old, he has 2500 employees, runs a $6 billion company. He just declined a $6 billion offer from Intuit. And I was hanging out on his 105 foot yacht out in Catalina not too long ago, and what this dude tells me is like, he goes literally like nine months at a time, not drinking. And I was talking to his fiance and I hadn't seen Zeb in nine months. And I was like, what have you been up to, bro? And his fiance tells me Zeb has literally not drank in nine months. He's been working 18 hours a day. And so that's why I said is this whole idea of like, you know, and this depends on the route you want to go, but if you want to build a 20 billion dollar company, like Zeb is at 36 years old, like, you got to be a crazy motherfucker. Like, that's crazy, right? And that might not be the goal for you guys, Right? And there's nothing wrong with that. Like, maybe you guys just want to build a million two million dollar business and you want to like work part time and remote and go travel the world and that's totally cool. But if you want to build a 20 billion dollar thing, you have to be fricking crazy. And so if I want to go build a $20 billion thing, like I have to become Zeb Evans, I have to start working 18 hours a day and literally not drink and like become this version of myself. That is freaking insane. And so to answer your question, Bethany, find the person that's doing the thing you want to do and start acting like them.
- [59:57]
Podcast Host
Yeah, I mean, if you want to, if you Want to be a marathon runner? What's the difference between you and a marathon runner? If you're getting up and running every day, doing the same practice that they're doing? If you want to be an artist, what's the difference between you? If you're painting every single day, it's the same thing. So the identity that Joe's going to be talking about, also your actions reinforce the identity. And what Rich is talking about is what I call, like, immersion yields conversion. So you guys being in the room is immersion. So the more that you're immersed by the people that you want to become, then you notice their habits. How do they move? How do they talk? If you want to have a portfolio, like Nate or like Ben, how does Ben think about things? What is his routine? Like, how does he move? Like, with Rich, how does he move? You know, what are his habits? What are his routines? Don't listen to what they say. You watch what they do. And that's everything that I do. That's the only reason why I pay for these rooms. I paid over half a million dollars to get into the room so I could see how those people act. Because, Rich, I don't know about you. I mean, there's. There. There's maybe 1% that you're like, oh, dude, your oven just burns hotter, bro. You're just smarter than me. But, like, 95%, you're like, Bro, you just can get kicked in the nuts for two decades longer, dude.
- [61:02]
Rich
You just encourage.
- [61:03]
Podcast Host
You just can endure pain.
- [61:05]
Rich
Yeah. I am by no means the smartest person in the room. And quite frankly, like, all the team members on my team are a lot smarter than me. And. And I really. I'm actually pretty naive to a lot of things, and I've learned, like, all my information just getting around the right people, interviewing podcast guests. Like, I've done over 400 podcasts, and every single guest, I will pick up, like, one or two really good nuggets from each and every one of them, and I'll be like, damn, that's really good. I'm going to implement that into my life. And. And that compounds over time. First of all, I want to say appreciate you, because I wouldn't be in Action Academy without your podcast. Oh, I appreciate you, man. Oh, I found the boy here. I love that. Yeah, you talked about, bro. Yeah, you talked about. Your team is really dialed, like, the operations team and everything, but how do you manage your builds and, like, furnishings and renovations on all the different markets? Yeah, Renovation management is. Is a big. Is a big Arm of it. The project management is huge. And so for us, we have a. We have a contractor that's out of Phoenix. They're large and they used to do the Zim. The Zillow home flipping projects out when Zillow was doing the home flipping business back in the early 2000s. But anyhow, they have a huge team. I have a good relationship with them and luckily they have like 100 person crew and they will fly out wherever we have a project and they will do the renovation. We're not going to use them for the Tulum project, but anywhere else in the States they will fly out and do it. But project management is huge. And so we didn't do this early on, but now we do. We'll use third party project management. It's typically a third party project manager that's local in the market, and we will underwrite that into the deal and we will hire them as a third party and that will be a cost of doing the deal. And we'll add that to our contingency expense. Expense, and they will manage the entire project. The work, the timelines, the change orders, all that stuff. I didn't do that before, but you got to pick and choose your spots as you grow as an entrepreneur, as a real estate investor. And so that's one of the things where we had an inflection point and I was like, you know what? That's not the best use of our time. And that's, quite frankly, that's not something that we're good at. I got away with it because I had a good relationship with this contractor. We're like, we're homies. But as I started to grow more hotels, I'm like, okay, it's kind of becoming an afterthought and it's. It shouldn't be. And so we started using third party project management and then we started just hiring them, which I. Which I suggest for bigger projects.
- [63:21]
Mo
What's up, Rich?
- [63:21]
Rich
Yo, what's up, dude? Right here, bro. How are we feeling today, dude?
- [63:24]
Mo
Feeling great. You're a lot cooler in person. I already follow you.
- [63:27]
Rich
Don't tell him that shit. Don't tell him that shit.
- [63:30]
Podcast Host
He doesn't need that.
- [63:31]
Rich
He doesn't need that in his question for you.
- [63:33]
Mo
So it seems like your start was with apartments in the Midwest, Indiana, Ohio. So do you still own those apartments? You end up selling them to get into Airbnb or what was that like?
- [63:43]
Rich
Some of them we still do the. I had two apartment buildings in Cincinnati. I just sold them actually, this Year. And you're right, like early on I was looking for high cap rate stuff. More cash flow stuff is when I was early on in my journey. And now my progression as a real estate investor has shifted to where I realized the way to build true long term wealth and real estate investing is to buy in high growth markets, force a lot of appreciation and, and I want to, I like to buy and hold, so I don't want to become a flipper. I believe the way to build true long term wealth and real estate investing is to buy in good locations, force appreciation and hold long term. Let time do its thing, let inflation do its thing. Let's not forget the Federal Reserve has printed 80% of the money supply since 2020. I think there's going to continue to be inflation long term. And so for me that's really how my investment thesis has shifted. The last thing I'll say about it is this is when you buy in these higher growth markets, the cap rate environment is lower. And so for every dollar of noi growth at a lower cap rate, I'm forcing more appreciation. And so for me, that's why I started selling some of the stuff in the Midwest because I'm like, that stuff's never going to make me rich. Like I did good, but like that 11 unit building up my first deal, I just sold that like three months ago. I bought it for 350, I sold it for 720. Okay, so did good. But that property is never going to be worth $3 million. Right. And so that's kind of how my mindset has shifted as a real estate investor.
- [65:03]
Mo
I like that. And I think a follow up question on that is I really like, like a lot of us here are in corporate America. I left corporate. So you were air traffic controller for a long time.
- [65:12]
Rich
Yeah.
- [65:12]
Mo
And I'm seeing this, these pivots you made in your career as an investor. So apartments, Airbnbs saw the writing on the wall. Next thing, boutique hotels. Right. So like when you were in the Airbnb section, you could have just stayed all in and kept going further and further with it. I guess. What was that like, what goes through your mind when you look at the market instead of just working harder, you're like, dude, I can. There's like what, what?
- [65:36]
Rich
It's because I, I always knew from Even from day one, back in 2019, when I was learning real estate investing, I was reading books about commercial real estate and I was following certain people like online and, and one of those people was Grant Cardone and Grant is like one of like five or six people that I've studied since day one. And people like Grant have inspired me to build a big thing. And I want to build a billion dollar thing with summer's capital. And I knew I wasn't going to do that with the Airbnb being the vehicle. And so I knew it had to be commercial real estate. And that's why I decided to go a little bit bigger. By the way, Mo, you got good energy, man. Mo came and said, what's up? To me when I first walked in, good energy, always got a smile on his face, man. And that's the first key, man. Just, just having good energy. Like, people always ask me, like, how do you find partners? I always say there's three ways I like to find partners. The first thing is, are they a good human being? See how they talk to servers? See how they talk to bartenders? See how they talk to strangers in the streets? Because how they talk to strangers and bartenders and servers is the same way they're going to talk to your customers. They're going to be a reflection of your brand. If that's not there, it's a hard no. Number two is they got to have a complimentary skill set, right? Do they complement your skill set? So if you're good at raising capital and talking to brokers, you shouldn't partner with someone that's also good at raising capital and talking to brokers. You should partner with someone that does or does the things that you don't like to do at a high level. Maybe that's asset management, maybe that's underwriting. And then the third thing is you have to partner with people that have a. I'm sorry, a similar level of risk tolerance. Okay, there's something a lot of people don't talk about it, but you have to partner with people that have a similar level of risk tolerance. Those two partners that I had before, they're great dudes, but I, I left them in 2022 and that's when I started Summers Capital. And the reason I left them is because we had a different level of risk tolerance. So every decision, and by the way, in the game, as you grow, there's, there's going to be dozens of dozens of decisions that pop up every single day. You're putting out fires left and right. And if you have partners that have not a single level of risk tolerance, every decision is going to be a grueling four hour meeting, an eight hour meeting, and you can't grow that way. You can't and so I empower my team today to make decisions. I don't care if it's the right or wrong decision, but let's make a fucking decision and let's keep moving. We're probably going to miss some of them, but we'll get majority of them right and that's how we grow. That compounded over months and years is a big difference. And so again, if you're going to partner with someone, ask number one, are they a good human being? Number two, do they have a complimentary skill set? And number three, do they have a similar level of risk tolerance?
- [68:09]
West Virginia Investor
I live in the Washington D.C. area.
- [68:10]
Rich
Don't hold it against me.
- [68:12]
West Virginia Investor
So I, I just closed on my first boutique hotel six weeks ago.
- [68:15]
Rich
Where is it? How many, how many rooms?
- [68:17]
West Virginia Investor
It is 10 rooms. It's got a restaurant or kick ass restaurant. It's in a small town, small adventure town in Davis, West Virginia.
- [68:24]
Rich
Love it. I love it.
- [68:25]
West Virginia Investor
And I'm going to close this month on $6 million construction loan to build a micro resort also in West Virginia.
- [68:31]
Rich
Let's go. So casual.
- [68:33]
West Virginia Investor
So my, my, my area, my, my comfort zone, my zone of genius so far has been finding connect, finding deals like Grassroots, connecting with the people, you know, connecting with a seller like this boutique hotel. And the area that I think I need to really improve is you mentioned social media. And so for somebody who doesn't have much of a social media presence yet, I do have a pretty decent brand to build off of the two brands for those two assets, but no social media presence today. I'm not shy, so I'm not uncomfortable on social media. But going back, what you've learned, like where would you start with. With what? I have a lot of people in the same room probably are in a similar situation. But where would you start with social media and how would you use that to find deals and also attract capital partners?
- [69:22]
Rich
Yeah, absolutely. So if you feel comfortable with it and you don't have to feel comfortable. Guys, when I, when I first started a podcast, I was not comfortable at all. I remember my, my first handful of episodes, I was so nervous and, and then you do it over and over and these are virtual podcasts. When I first started in 2019 and then I remember we had Grant Cardone on our virtual podcast back in like 2020 when Covid first dropped and I was so nervous, we didn't have video, had no idea what I was doing. But I remember doing my first in person podcast and I was so freaking nervous, guys. I was a guest on someone's podcast. And I was like, damn, this is different than virtual. There's, there's cameras, there's, there's lights. People are watching. And I had to stop the episode 30 minutes in because I was so nervous. My hands were dripping sweat all over the table. And. And then you do more episodes and it becomes easy. And then I remember interviewing my first big name guest. It was Tariko Musa. And Tariko Musa, his wife Heather, was selling Sunset. They invited me over there at their house in Newport beach, and they were going to be episode one of my current podcast. And I pull up a new part beach. And I remember being so freaking nervous for that episode. And now, like, with all the reps and at bats, like, I can jump in with, with whoever it could be whatever guest, and I don't get nervous anymore. So I guess my takeaway is like, the podcast is the biggest lever that you guys can pull. And I'm just giving you guys, like, true game. Right now. A lot of people are on social media, but the podcast is the hack. And the truth is, is like 90% of all the capital we raise is from the podcast. We have a waitlist of investors because of the podcast. And so it makes everything easier. And it's also the hack because everything is going long form. So check this out, guys. This is a crazy stat. So in 2019, we had 274 million podcast listeners worldwide. 274 million. In 2024, we ended the year with 504 million podcast listeners worldwide. Everything is going away from the TV and everything is going to podcasts, and the podcast game is just getting warmed up. There's not a lot of hosts, okay? And so it's undervalued attention. And so you guys need to be asking yourself if you're going to get into the media game. And by the way, like, just so you guys know, my business is like four arms. And the media is the first arm. It is the most important arm that we do. It drives all of our leads, it drives the deal flow, it drives the investor capital. I always tell my team, without the media, we don't have a business. And so with everything going podcast, it is the secret sauce, because couple things. Number one, it gets you in the right rooms with people that you otherwise would not have access to. I can't count how many people that I've met and become genuine friends with and built genuine relationships with because of the podcast. Brian's one of them. I wouldn't be here speaking without. Without the podcast. But the, the second thing is, it's the, it's the hack. It's a cheat code with content because you just, I just have an hour long conversation with people and I don't do any short form content. I don't have to go script videos and shoot short form content. I just have hour long conversations, sometimes two hour long conversations. And then my team chops that up, chops up all the shorts and then we put that out. And so for you, that's what I would suggest. Go start a podcast. And it's, it's not something that blows up overnight. No one's going to listen the first handful of episodes and it's going to take you 6 months, 9 months, 12 months to start to get some traction. But if you can commit to it for 12 months and commit to one episode a week for 12 months, I promise you it will pay off for you and it will make everything easier. Leads for your business, private capital, deal flow partners, the ability to attract high quality team members, that will all become a lot easier. And so you have to start thinking to yourself as like, hey, like a content creator, a podcaster. And that's where the sauce really is. The last thing I'll say is this. Who, who is the most powerful dude in the world right now is Joe Rogan. The guy's done three episodes a week for 17 years and look what it's done for his brand. His ability to pick up the phone and call anyone in the world. Presidents, ex presidents, Elon Musk, Jeff Bezos, any professional athletes, celebrity movie star, musician. And all those people will drop what they're doing to go hang out with Joe because of his podcast. And so it's a powerful thing. It's a bridge.
- [73:32]
Surf City Investor
Fellow Californian in Huntington Beach. So thanks for coming out man. You definitely inspired a lot of, a lot of my journey. Going short term rental, micro resorts, not boutique hotels. Me and a partner that's also here, we just walked away four days ago from a seven million dollar boutique hotel in North Carolina.
- [73:47]
Rich
Let's go. Let's give him a round of applause. That's huge, baby. Let's go, baby.
- [73:50]
Surf City Investor
Appreciate it.
- [73:51]
Rich
What city?
- [73:52]
Surf City Investor
Surf City, North Carolina.
- [73:53]
Rich
Where?
- [73:53]
Surf City Investor
Surf City, North Carolina, 45 minutes outside of Wilmington. So we, we went through for like three months, we lost about 30 grand of our, of our capital. And part of me is like, you know, like we failed in a sense, but we also learned so much. So I'm kind of curious with your journey. I've seen like all like so many hotels that you are operating right now that, that you tackled can you kind of allude to some of the. The lessons slash failures that you've had to overcome to get you to where you're at today?
- [74:17]
Rich
How did you lose the 30 grand?
- [74:19]
Surf City Investor
Money went hard and then inspections and lawyer fees and syndication attorneys.
- [74:23]
Rich
Got it. And. But you guys closed on a deal, right?
- [74:25]
Surf City Investor
No, no, we walked away four days ago. You walked away from four days ago?
- [74:28]
Rich
Yeah, got it.
- [74:29]
Surf City Investor
So right before here, we're like, all jam and we're like, actually, we're not. We're not moving forward, so.
- [74:33]
Rich
Yeah, but.
- [74:34]
Surf City Investor
But so, like, part of that is we. We have kind of felt like we failed, but we learned y. And so I'm kind of curious about your journey with.
- [74:39]
Rich
Totally.
- [74:39]
Surf City Investor
You know what I mean?
- [74:40]
Rich
So. So whenever you guys get in all these deals. Yeah. Like, and I. I've canceled a lot of deals. It's part of the game. It's part of the game. And every time you walk away from a deal, you feel, like, defeated because it's like, okay, you just wasted the time of the broker, you wasted the time of the. The lenders that were involved. You probably went on social media, probably told friends, family, got people hyped up for the deal on where you for it.
- [75:05]
Surf City Investor
Yeah, we raised soft commits, about 1.2 million.
- [75:07]
Rich
So. So it. It is defeating at first. How long ago was this when you walked away?
- [75:13]
Surf City Investor
Three days ago.
- [75:13]
Rich
Three days ago. Yeah, right before we got here, dude. But, like, it's part of the game. Dude. It's part of the game. And. And you guys walked away for a reason. There was probably a reason you guys walked away. And so you can't frame it that way. You gotta. You gotta frame it as like, hey, like, what was your biggest takeaway? I'm curious, what was your biggest takeaway?
- [75:32]
Surf City Investor
Just that we have. We have the capacity to do it and we have people that believe in us.
- [75:35]
Rich
Yeah. And why did you cancel?
- [75:37]
Surf City Investor
The exit strategy wasn't exactly what we expected. And the lending terms that we expected were not that loaners didn't follow through. So we didn't feel comfortable pulling in capital when we didn't have that exit strategy in five to seven years.
- [75:50]
Rich
So you guys just got to reset. Your partner's name is Josh. Yeah. So you and Josh just gotta. You guys gotta sit down, get clear on what the biggest takeaways are. Reset. You guys are better versions of yourself now because of what you learned from that process. And then get clear on what the next target is. Get clear on your search criteria, your market selection, and get clear on how you guys are going to move and attack that, knowing what you know now. But the biggest thing is, is you guys got to keep moving and look at it as a growing experience and not a loss. Every time I've walked away from a deal, I've become a better version of myself. It sucks in the short term, but in, in three months time, six months time, you guys are going to go buy another deal and you're going to be like that. That had to happen. It was part of the journey. It was necessary in order for you guys to become the version of yourself that was going to go take down the next deal. Failure is only it. Failure is only a failure if you.
- [76:42]
Podcast Host
Don'T learn from it. 100 if you learn from it, that is a lesson. Boom. Thank you guys so much for listening to another episode of the Action Academy podcast. My one ask real quick before you go is if you enjoy this episode, if it brought value to you, please share this episode with one to three friends that you think could get value from it. This is how we grow the show and at minimum, if you could leave us a five star rating and review on Apple podcasts, Spotify or whatever platform you listen to, that would mean the world to us is how we get in front of other entrepreneurs. If you're done sitting on the sidelines, you're done listening to the podcast. You want to be the freaking guest on the podcast? Go into action academy.com, go in the show description, the show link and book a call to speak with our Action Academy community. We have hundreds and hundreds of people just like you buying businesses and commercial real estate with full coaches, full mentors, full support, full capital, everything. ActionAcademy.com is where you'll find us.