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Real Estate Investing School Podcast
218. REAL DEAL: Scaling Big with a Small Hotel Deal with Tony Robinson
00:19:29
Welcome to The Real Estate Investing School Podcast! In this episode, host Brody Fausett sits down with Tony Robinson, real estate investor and host of the BiggerPockets Rookie Real Estate Podcast, to break down a unique hotel deal in Kanab,...
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- [00:00]
A
We did all the work to find this property. We looked at hundreds before this one. We had failed two times prior to before we found the deal that actually made sense. I went out to Utah twice during the due diligence period to make sure that everything was scoping out the right way. We managed the rehab, we designed the place, and we've been managing it every single day since we launched at the end of April. And we will continue to manage it every single day until we sell this thing. So when you frame it that way, who is really doing all the work? Who's really bringing all the value to that situation?
- [00:33]
B
What is up, everybody? Welcome back to the Real Estate Investing School podcast. This is your host, Brody Fawcett. And this is a real Deal episode where we dive into one specific real estate deal that someone has done so that you can extract all the gold nuggets from it. So this is the best way to learn my absolute favorite. And we have an awesome guest today talking about an awesome deal. One of my favorite things in real estate is when you can start to level up and realize that you don't have to grow by addition. A lot of times we start out investing in real estate. We buy a single family house, and then we buy another single family house and another one, maybe we get a duplex or a four plex. But ultimately getting to that spot where we can scale past that is something that few investors ever actually do. And one of the things that we hear talked about a lot is it doesn't actually take more energy and effort a lot of the times, just a change in focus. And so this deal is cool because it's a hotel deal that Tony Robinson did. So Tony Robinson is the guest today, and he is the host of the Bigger Pockets Rookie Real Estate podcast. So this is actually an excerpt from him coming on and talking to us at Real Estate Investing School. So we're going to jump into it. If you're not currently a student inside of Real Estate Investing School and you want to be able to ask questions and learn from people like Tony, go to Real Estate Investorschool.com, click the link here and let's. Let's chat. All right, let's dive into it. We didn't get too much into your story. We have a little bit more in the past. But it's really cool just coming from the corporate world, coming from, like, that safe, secure spot to like, hey, I don't know much about real estate, but I want to get into it. And I think your story is really cool. Even of how you became the host of, you know, the Rookie real estate podcast from Bigger Pockets, because you started your own podcast, and I think, like, your first deal ever was that. Was it called your first real estate deal.
- [02:33]
A
Your first real estate investment.
- [02:34]
B
Your first real estate investment. So he just interviewed a bunch of people on their very first real estate investment. And so I love that concept because you learn so much from deals that people do. And most of the time, everyone's first deal, whether they did well, they didn't do well, they learned the most from it, and it got them going and got the most momentum. So I think that's cool. But part of that, just, like, diving into specific real estate deals is so powerful because now you get not just this, like, tactical approach of, yeah, you can try this strategy, do this, but, like, here's how I actually applied it and did this. And so your story is awesome. But you got to a point, and I don't know, you know, how many came before this one or how many came after. But from the outside looking in, I distinctly remember you kind of get into this spot where you're like, all right, like, I want to scale faster and maybe do it a little bit bigger and not be limited by, like, my own capital. Right. And so I don't know if that's what led into this deal, but maybe just give us kind of a. A brief overview of what this hotel is, and then we'll dive into just some of the specifics. Really quick on it.
- [03:40]
A
Yeah, absolutely, man. So the hotel itself, it's. It's 13 rooms in Kanab, Utah. So we're on the eastern side of Zion, So the side that's not as. Not as busy. But, yeah, man, we. We had set out a goal to purchase a hotel. We had two failed attempts prior to this one. Probably invested, I don't know, close to 100k in those first few deals, and, like, due diligence, you know, legal fees and all these other things, and they just didn't work out. But the third.
- [04:09]
B
Because the deal, they didn't work out or was because of the. The price tag on it or.
- [04:14]
A
Yeah, so both. Both times it came down to an inability to raise enough capital. So, like, the. The first one, you know, we had. We had raised, like, you know, 500k there, 600k there for different flips and, like, kind of deals we were doing. But that first deal, we needed to raise, I think, six million. Yeah, six or seven million. And we got to, I think, like, four and a half or five somewhere in that Ball. But we were like two million short and we just couldn't finish it off. And there was a clause. Anyway, we ended up losing that deal. Same thing on the second one. We got like a good chunk of the way there and then it didn't work out. So we kind of looked at our wounds and just reassessed and said, okay, well where, where do we make the mistake? What do we need to do differently on this next one to make sure that we can actually get it across the finish line and not waste, you know, $30,000 on legal fees and, and not have anything to show for it. And we said, let's just go smaller. So this deal, the purchase price was less than the raise for the other two deals, right? So we, we picked this one up for just under a million bucks. And we got on an amazing seller finance Note. They wanted 200k down. They gave us a 10 year term, 30 year amortization. And first few years were interest only. And it was a 7% interest rate which is pretty decent. You know, we got this tail into 2023 and yeah man, we needed. It was just under, just under a million. It was like 9, 970 I think or 950.
- [05:41]
B
Okay. And you said seller finance. Sorry, go over them real quick one more time.
- [05:45]
A
Yeah, so seller finance deal purchase price was I think it was 950, 200k down a 10 year term, but a 30 year am first 3 years were interest only and the interest rate was at 7%. So dude, like our, our mortgage payment on that thing right now is like just over four grand a month, something stupid like that. You know, I have like a cabin in the Smoky Mountains where mortgages is more than that, you know, like doesn't make sense. Bam. And that's, those are the terms. And then we needed about 600k in total to cover the down payment and the reno. And we just raised all of that. So we raised a full 600k and some change from some folks who'd already done business before as well or before as private money lenders. And the way that we structured it was they got 70% equity for bringing all the capital, we kept 30% for finding the deal, all the due diligence, all that stuff. And then we also get a 15% PM fee for the day to day management. And yeah man, it's been a lot of lessons learned as we've ramped this thing up. But the hope is that this is the first of many more to come.
- [06:49]
B
Dude, that was like all the gold right there. Just yeah, so good. What, so, so backing up just a little bit. Did you collect any fees? I know, I know Your split was 70, 30, but did you collect any fees for putting it?
- [07:02]
A
We did not. Because since we didn't run this as a typical syndication and it was such a, I say small deal, but it was a small deal in comparison to what we were trying to do before. We felt that it was in the best interest of the private money partners to not collect those fees and just make it a little bit more enticing for them because we, you know, we, we put a very little capital, like some due diligence of inspections, things like that, but very little. They brought the vast majority. So we said, hey, it feels fair if we're getting 30 for not putting in any capital and the management fee, we don't take any upfront fees.
- [07:33]
B
Yeah, I actually like, I like these deals a lot where they're a little bit smaller compared to like doing a full out, you know, syndication or a fund where you get it just. There's so many more, you know, eyes to dot and tease to cross, where it's like, this is fun because you can structure, you can, you can do that with one partner, you know, someone that has some extra capital. And those are more so of the deals I've been doing recently where it's, it's big as compared to what, you know, been doing in the past, but not so big where it's getting super complex. So I love that. I think that's really generous the way it's all structured. So, so out of that $600,000 raise, you know, 200 of that you obviously said was the down payment, you know, for the loan. And so you had a note on roughly, you know, 750 or whatever with great terms there. Now with that other 400k, essentially, most of that or all that went to renovation.
- [08:30]
A
Yeah, we held back, I don't know, I think 80 or 100k somewhere in that ballpark for just like working capital. And then we put the other 300 plus into the Renault and Canab. For those of you that maybe know it or don't, it's a smaller market, had a little bit of a challenge and kind of finding a crew that we liked up there. So our, our crew from California who had done all of our rehabs, they would actually drive up every Sunday night, stay at the hotel Sunday through Thursday night, come back home to California. And they did that for, I think 12 weeks. But they, they really kind of quickly pounded through that rehab. They did a Phenomenal job. And I think that reduced a lot of risk for us because it was a known commodity doing the rehab for us.
- [09:13]
B
Cool. Way cool. So with that, then, with the. Do you know, did you get it appraised? I know with it being seller finance, I have a couple of deals like that as well, where the terms are so good, where you're like, you don't want to, like, refinance out of it, you know, but you might be sitting on some equity that you forced appreciation on a little bit, or you got a good deal on it. Is that one of those? I mean, so you roughly. You put in, say, 300k into the rehab, so you're all in cost on. On it. Maybe you're closer to like 1.3 or 1.25. What would it appraise for? Did you even get it appraised? And for those. Just to clarify for people that are listening, the reason I'm asking this is because he has a really good note on his seller financing, right, where he doesn't need to go get a loan from the bank for another 10 years. And. And he's got a decent rate with it all, too. And so. And it's interest only for the first three years. So typically, a scenario like this, you're going to pay, you know, more money on the rehab, and maybe every dollar you put in, you get two or three dollars back on the appreciation that you can kind of force from it in order to praise us for it. That's where you get the whole, like, burn method. Right. So in this scenario, you're not as motivated to go and refinance it. And so that's why I'm asking.
- [10:26]
A
Yeah, you're absolutely right, Brody. And we're, you know, we've kind of gone back and forth on when the timing is right to do the. To do the refinance. We haven't gotten it appraised yet. I think our goal is to kind of get through a solid 12 months of operating first, and that'll be May of next year, will be a full year in operation. We launched it right at the end of April. So when we get to May of next year, that'll give us 12 full months. We'll have, you know, some solid P. Ls we can take back to, you know, some of those local banks and see what it'll. What it'll go for. In our underwriting, we said if we can kind of hit our projections, it should be worth about 2.5 somewhere in that ballpark. So, you know, we, You Know if we can create a million bucks in equity, that'll be awesome. But yeah, I think timing for the refinance, it'll really depend on where rates are going to and you know, if, if an opportunity presents itself for us to snag a rate that's maybe sub seven then yeah, you know, get a nice long term debt, it'll, it'll be awesome for us. Yeah. Like I said, we got, we got 10 years. We got until 2033 before this note comes due. Really 2034. I'm sorry, before the note comes due. So we got time to kind of figure it out.
- [11:30]
B
Yeah. So cool man. Something too, that, that I know you probably thought, thought this through but obviously as investors we're always figuring out ways to leverage, you know, equity without over leveraging and being smart with it. But this, I don't know how many partners you have. Well actually how many partners do you have on that?
- [11:48]
A
So there's four of us. Yeah. So myself and my buddy who helped me take the deal down to private money lenders.
- [11:53]
B
Okay, cool. So two other, two other private money lenders. So like like I had a deal similar to this. Awesome terms seller financed but like I had it doubled in value, you know, within like probably two years. And luckily like that same partner, I've done other deals with him but we were able to get the bank to like, we kept our same, you know, seller financing terms on it but the bank put basically gave us a line of credit and they came in as like a secondary on the mortgage. And so we were able to take, you know, I think it was like 5 or 600k and that was with a new loan with them on a new construction project. And we were able to leverage that. We didn't have to come up with as much down because they, they put a second on that. So kind of a cool way.
- [12:42]
A
Yeah, doing very much like on the, on the roadmap of things if you want to explore. So the previous owner, before he passed away, he had a line of credit with a bank that's like literally a two minute walk down the road. So we already know that they've, they've put place line of credit on that same property and now with it performing better, our hope is that it might be even more, you know, appealing to them. So definitely something we want to do to try and tap into that as well.
- [13:07]
B
Yeah. So cool dude. Can you go over the, the numbers, roughly how it's been? Has it been been better, worse than you thought? Like projected. And the nice thing is Real estate's so forgiving when you, when you do it the right way and you get such a good deal like this one. There's so many ways to win. But yeah, what has that kind of been like? And, and how many units are there too? I know, I know. I've seen it. Like, we stopped by on our tiny tour with awesome. Just being able to, to check it out, but, but yeah, maybe go over some of that really quick.
- [13:35]
A
Yeah, yeah. So we, you know, when we bought it, the property was doing, I don't know, just under, just over 200k a year. And these, these kids had inherited from their dad who had passed away. And our goal was just to kind of get it back to where the dad was, you know, had the property form, which was like in the mid fours. Okay. If we can do that, then it's a solid deal for us. Buy 4 million bucks, 400k in revenue like that. That's a solid deal. So when we launched like that very first month, I think we did just over 30k in revenue. The summer's a little bit slower out there, so we were averaging like 13 to 18K. And then once we hit fall, it was like gangbusters. We were like booked every day and I think we did 50k and like just under 50k in those two months. November is a bit of a shoulder season as well. Actually. A lot of the town kind of slows down between November to like February. So we're projecting somewhere between 12 to maybe 15 per month over these next couple of months and hopefully ramping back up to like that 40, 50 during peak season next year. So that's kind of the ebbs and flows we've seen so far. And you know, margins of that are pretty solid, man. You know, so we're, we're, we're, we're optimistic to see what a four year of running the same looks like.
- [14:43]
B
Yeah, cool. And how many, how many units are there?
- [14:45]
A
13 rooms plus an owner's suite.
- [14:48]
B
Okay, cool. And you have an owner that's on site that lives there?
- [14:51]
A
Yeah, so we have on site managers that live in that 14th unit and do that, you know, if you want to bring me back for another call, we talk about the challenges of that piece. But yeah, we've got, we've got an on site manager there who helps with the day to day.
- [15:03]
B
Yeah, cool. Cool. Awesome. Way cool. Such, such an awesome, awesome deal, man. And I, I, you mostly you have it listed on Airbnb, VRBO or what's kind of been like the best for you do you market it directly?
- [15:15]
A
Yeah, dude, it's been, you know, the one thing I will give the previous owners that he did a really good job kind of building a presence online. So right Now, I'd say 40% of our bookings come from booking.com. another 40% come from just the website, direct bookings, and then another, you know, whatever that remaining 20% is, is coming from, you know, various channels, Airbnb, VRBO, Expedia, all the. All the different places there.
- [15:39]
B
Cool. So will you run. Will you run ads and stuff for traffic to the website?
- [15:45]
A
You know, we were just there a few weeks ago, and I was actually talking to one of the other small business owners here, and he's like, yeah, Facebook or Lynch. Local ads are one of the things that drives a lot of business for him. So we've got a decent website. We're thinking about it, but I think we'll probably wait until we get closer to peak season next year, just so we're not, you know, sending a bunch of money out on. On ad tests during. During slow season.
- [16:04]
B
Yeah, that makes sense. And then as far as your investors go. Well, I know, I know it's. It's nice, like, where you have an online presence and you're pretty credible, always talking real estate and doing real estate. But I know that question comes up almost every single time whenever partnering comes up is. Is how. How do you. How do you find people? And I. I love the fact that you went through, like, you had two previous, you know, failed attempts, because I. I mean, it's just. It's part of the process, you know, and it's good for people to hear that, especially when it came down to, like, raising enough capital. Those are. Those are big. Those are big raises. Right? But like, with this one, specifically, those that are asking, like, okay, well, well, how do you find the money? Or how do you. How do you pitch that? Why would somebody want to give 70% of the money? Right? Like, those are all the things that people ask whenever I talk about anything. Partnership. So what do you say on that?
- [16:56]
A
I think first, a lot of people have a very big limiting belief around raising capital, because the limiting belief is that the person giving me the money is in control of the situation or the person giving the money is doing me a favor. And that could not be further from the truth, because if you. If you really frame what happened, even on our hotel deal, we did all the work to find this property. We looked at hundreds before this one. We had failed two times prior to. Before we found the deal that actually made sense. I went out to Utah twice during the due diligence period to make sure that everything was scoping out the right way. We managed the rehab, we designed the place, and we've been managing it every single day since we launched at the end of April, and we will continue to manage it every single day until we sell this thing. Our partners who brought the capital, they had to sign some documents during the closing process for the llc, and we've met with them, I think, twice on Zoom since we launched. That is the extent of the work that they've done other than wiring in their funds. So when you frame it that way, who's really doing all the work? Who's really bringing all the value to that situation? The truth is, there are enough people out there, I could have gotten the 600k from tons of other people. There are lots of other people out there who would have said, hey, I would love to put my money to work in this deal, right? So I think it's got to be a way that you shift your mindset to say you're presenting them with an opportunity to put that 600k to work in a way that probably wouldn't happen if it was just sitting in their bank account. That's the mindset ship. There's money out there, man.
- [18:38]
B
Dude, that's probably the best thing you said all day. Yeah, I could not agree more, man. Thanks for. Thanks for sharing some of those. Those gems and diving deep on that one. I know it. Absolutely, man. I know. I know not a lot of people probably, like, directly ask about specific numbers, so appreciate you being all that.
- [18:54]
A
Oh, of course, man. I'm an open book, brother. Open book, man. And, Brody, I always appreciate you bringing me on. I hope folks got value from this.
- [19:00]
B
Go follow Tony on. On ig. Show them some love. And. Yeah, dude, appreciate you. Thank you guys for showing up and putting in the time and. Yeah, this is how it's done, you know, little by little, you get the knowledge, and then you go. You go implement it, you go apply it. But you gotta. You gotta put in the time. So thanks for showing up, learning, putting in time. So appreciate you all. Thanks, Tony.
- [19:20]
A
All right, brother. Thank you, guys. Have a great day. See you guys soon, guys.
- [19:24]
B
Peace.