The journey to cash flow and growth can be difficult. It is time-consuming and requires a lot of effort and dedication. How can you break the cycle of working from 9 to 5? In this episode, Sief Khafagi, founder of Techvestor, builds a mouse trap that allows you to create a cash flow through passively investing in short-term rentals, aka Airbnb. Having short-term rentals on your portfolio for the cash flow can be a powerful wealth-building strategy. Are you interested in getting extra insights from Sief? Then don’t miss this episode!
I am excited to welcome to the show, Sief Khafagi. Isn’t that the most amazing name? Sief is an ex-techy turned real estate investor who has helped thousands diversify into real estate after spending nearly five years at Facebook. He syndicated acquisitions totaling more than $100 million while designing and developing more than 25 properties. Now, he’s the Founder of Techvestor, which helps real estate investors and busy professionals passively invest in the emergent asset class of short-term rentals, AKA Airbnbs. Sief, welcome to the show.
Thank you so much for having me. It’s amazing. Your energy is infectious.
I love that, and I loved our conversation in the green room. I feel the same way about you.
I’m very excited to be here, so thank you for having us.
Talk to me a little bit about how did you come up with this idea of Techvestor? You go from tech. I’m from the Silicon Valley. I now live in Sacramento but I was originally in Silicon Valley. We lived very close to Facebook, Google, and LinkedIn. How did you go from tech to real estate and then come up with this idea? Could you share?
A fun fact, I was living literally across the street from Facebook’s campus when I was at Facebook. During the times I wasn’t there, I was doing a lot of traveling, opening up offices, recruiting teams, and generally, we stayed in Airbnbs. A bunch of those Airbnbs was pretty shitty, to be quite honest with you. The design sucked. The host experience was weird.
The whole journey was always top of mind. I was like, “I’m going to stay in another Airbnb.” It’s because we are staying in these cities sometimes for a little bit longer than a day or two and you want that local experience. Sabrina and I, when we started Techvestor, we were starting it for ourselves. We were like, “How can we buy our own 6, 10 or 12 short-term rentals?”
We were all traveling as much as before the pandemic. We were used to working remotely. To do that, we started building technology. No surprise. We are building technology to help automate the process of understanding where we want to buy. We wanted something that was great cashflow, great equity growth, good occupancy, good rates, and places we wanted to visit. We built our software. We started as a software company.
We shared it with everyone around us, and everyone loved our software to basically help find short-term rental opportunities. No one wanted to do the work themselves. They were like, “This sounds great but I don’t want to do it but can I give you money, and you can go do it yourself?” We were like, “Okay.” We did about 6 or 7 that way for clients.
When we got them all in a room or a virtual room because of the pandemic, Zoom, etc. they were all like, “I like yours. I would wish I had a piece of yours and that one.” They were describing a syndication, a fund, a portfolio or something along those lines. We pivoted to this portfolio short-term rentals or a fund, for lack of a better word here.
Our investors were super excited about that. We announced it around Halloween of 2021. In our first month, we raised $7 million. We went viral and went with it. To date, we’ve raised $20 million. The idea came from this pain point of understanding being the user. Also, coming from tech, we saw so much opportunity. Those iPhone 4 camera photos you see on Airbnb or the host that’s not getting back to you. You walk into a bedroom, and it’s a mattress, and that’s it.
We were like, “We could do this better.” A lot of low-hanging fruit, so we looked into it. Coming from a technical background, we understand the product of Airbnb and the user journey. We built a private equity real estate concept backed by the premise of understanding the user journey of a technical product. While it seems complex, that’s where we come from. That was our perspective.
It was interesting. When I lived in Mountain View, we ran an Airbnb out of our house. I became a superhost very quickly. As a matter of fact, I got a full-paid trip to Paris for Airbnb, the big shindig that they have every year.
The Superhost Party.
People said this over and over again, “This place is so nice.” We literally had a bedroom and a bathroom attached. It was my little library, so we decorated it the way that I would like my library like a guest room. I was surprised over and over again. We created experience. We provided coffee. We did some things that I would want in the morning but nothing special. It was interesting to me how people were like, “We will pay you more. Hold the room. We want to come every month or whatever.”
It blew up. I was completely surprised by this whole thing. We didn’t do a lot that was special. You were telling me this experience gives me a little more perspective. What was funny was that the guests would not tell me why. They were like, “Your place is nicer than everybody else.” They didn’t want me to raise my rates, I’m sure.
They were like, “We like these rates.”
I paid more than our mortgage. We cashflowed one bedroom in the house. This is in Silicon Valley with this room that was kept like a sweet guest room. It is interesting what we can do with Airbnb if we pay a little bit of attention.
However, if you go back to that experience, I would be willing to bet. The downsides of what you described as a host are the cleans and the guest communication. Everything that you have to do to earn that cashflow. It’s a job. We can both agree that it’s a job. Someone has got to do it and make sure that the guest is having a good time.
Part of that was the experience, the room, the pricing, everything but it was a job. Techvestor, what we are doing is solving that part. We’re saying, “If you want to invest in short-term rentals, you want to earn that cashflow but don’t want to have the headaches or the time, energy, know-how to do this or the want but want the benefit of it. You can do so passively. We are one of the first options to invest in short-term rentals passively for the busy professional. We will clean the toilet, and you collect the cashflow.
I love that because you are right. I turned it to where you had to stay at least three nights. I got tired of changing sheets.
They got to be worth your time.
Fortunately, most of my guests stayed for about a week, so I was only doing it once a week, and it was fantastic. There was a lot that we did. I would say I probably spent about ten hours a week doing that, which is not a lot of time considering that it paid for my entire mortgage and cashflow but still, it was time out of my schedule. Maybe not ten hours. Maybe closer to five, and we did other things. I enjoyed meeting the guests.
I would take them for a walk around the neighborhood and show them where to go get good morning coffee rather than the drip that I was providing at home. We did a little bit of that stuff, so that took a little time too. You are right. I wouldn’t say it was a job because it didn’t take that much time but required time.
During the holidays, I did not want to have people in my house and did not want to be dealing with this. I’m so with you, Sief. Why I have you on this show is because I know that side. It’s what made me stop. I’m interested in what you are offering. It’s amazing. I’m curious. You gave me a little bit of an idea of why you focused on short-term rentals. I know you’ve got some stats on why that makes more sense. Could you talk to me a little bit more about why you chose short-term rentals and how that works?
The first thing for us was our personal motivations for why we got into short-term rentals. Sabrina and I were working in tech in the Valley, making these big cushy compensation salaries that everyone jokes about. We were both single, and each of us was sharing a home with people we were working with. Making more money, handing over piss that we knew what to do with.
It was a privileged position to be in, for sure. It gave us this opportunity and perspective to think about, “What else can we invest in that’s not your typical 401(k), equities or whatever”? Crypto wasn’t even like that hot back then, as much as it’s now. We started thinking about short-term rentals, and we wanted cashflow.
For us, it was also about breaking away from the 9:00 to 5:00 or at least the feel of being in a 9:00 to 5:00 as quickly as possible or having the choice to and the time freedom. The fastest way to cashflow for us is short-term rentals. It was also the easiest to get into because of the lack of competition. When you combine those things together, you are like, “Great margins. Little to no competition.” That’s like the heaven of any business you are going to enter into. Supply and demand are completely in your favor. We looked at our own experiences of what we could bring to the table, and we were like, “This is something that we could add a lot of value to.”
Short-term rentals, from an industry perspective, you are going to generate, if you are doing it right, 2 and a half to 5 times the long-term rents of a property. Typically, if you are understanding where to buy, what to buy, and how to best operate. It’s a three prolonged approach. Some of that stuff we’ve built proprietary software around to understand what to buy and market-mapping certain things.
The operating side is the experience of our fantastic team, which I know we are going to talk a little bit about later. Having an operating team that understands how to price, how to communicate with guests, where to build automation, where not to build automation, how to make it feel human, how to design, and how to rank right. Airbnb is very much like Google. If you rank on the first page of Google, guess what? You are going to get clicks. If you rank on the 100th page of Google, you are not going to get clicks as much.
How do you rank in it? Therefore, by understanding these things, that’s why we decided to focus on STR. It was also such an emerging market. Here’s a fun fact, over 50% of all short-term rentals came online after 2020. People are starting to recognize that short-term rentals are something that everyone and their moms have started to want to do.
It predominantly kicked off probably around the pandemic when you look at the data. Everyone was like, “I want an STR. Low-interest rates, I can do this.” What you are realizing is that you start to see this churn of hosts. It’s easy to be an Airbnb owner and an Airbnb host. It’s hard to stay one. That’s where people like us who come from a professional perspective understand what it takes. We have the operating capabilities to do so, the design capabilities, and it’s also diversified for us.
We also wanted something where we could be easily diversified instead of owning three single families in a single area. It’s like, how can we own 100 of them in 10 markets? You and I both know Airbnb is seasonal. You have your ups and your downs. We wanted winter, summer, and fall months and all these types of things to allow great cashflow throughout the year.
What I’m noticing is that one of the big reasons that I did not continue with Airbnb when I moved back to the San Jose area is the tax rates in San Jose, for instance, with Airbnb. They suddenly started charging you with all the same tax rates that they do with the hotels. Are you noticing that’s happening across the country? How is that affecting profits for Airbnb owners?
One of the things that we see in most markets is 90% plus of the markets. Airbnb is going to collect those the hotel and occupancy tax that you are talking about for you as a host. At least now, that cost is typically charged to the guest. In fact, even in the hotel industry, it’s typically charged to the guests. It’s not an uncommon thing for Airbnb to do.
We don’t see it affecting us at all because it’s a common thing. You expect to pay some tax or fee. Whether you are booking a hotel or an Airbnb, you are booking the same thing. For us, we feel it significantly less because most of our homes are larger homes, 4 or 5-bedroom homes. We don’t focus on things like condos or 1 or 2-bedroom homes.
When you think about the economies of scale that we get or the economics for a family who’s traveling, and I’m a dad of two, I can’t imagine my wife and I, going and staying in a hotel with two kids. She can’t do it. There’s no way. That would be such a chaotic experience. How are they going to get entertained? Where are they going to go play? Where are they going to go run around? We don’t have a kitchen.
There are certain things that we need, and the economics of an Airbnb make way more sense when you are in a group of 4, 6, 8 or 10, versus if you are traveling alone. You are like, “I’m going to a conference. Is it for business? Is it for pleasure? I want to stay downtown.” What matters? Amenities matter to bigger groups and that’s what we focus on.
Most of the Airbnbs that I was seeing, especially, for instance, in Mountain View, my competition I checked out might be a four-bedroom but they were little. They had single beds set up and a shared bathroom type of thing. I like your idea of more of a luxurious experience. Maybe not fully luxury but a luxurious experience where people are not like, “I’m on this bunk bed. This is horrible.”
It’s amazing what we do with our design. I will have to send you some of our listings after. You will get a sense. We have the front of a Volvo car. We cut the front of a little Volvo car and stuck it in one of our living rooms to create a tiki Volvo bar. We have basketball courts, hot tubs, pools, and iconic Instagramable moments where you can take photos with your family or for yourself.
These are things you are not going to get in a traditional Airbnb or you are going to get into a hotel. We believe we are building the next generation of experiences through these amenities and designs. You and I can both agree, your space matters, your office, where you sleep, and where you eat. Especially if you are relaxing on vacation and traveling, your space matters even more. We hone into that ethos. We see it. We drive higher occupancies. Fifty percent more occupancy than our competitors. We are driving typically almost 40% more revenue than our competitors because we are giving people what they are craving but they can’t find.Your space matters even more if you're relaxing on vacation and traveling. Click To Tweet
How would you say your pricing compares to hotels? When I was in the Airbnb games, it was early on. For us, my pricing was less than the local hotels. I’m hearing more in the industry. That’s not the case anymore. How do you price in comparison to local hotels? Do you even consider that? What are your considerations around pricing?
We look at hotel pricing and other accommodations but 9 times out of 10, we are always more economical than hotels. We are cheaper than hotels, and it’s because of the type of asset we focus on. For each market that we enter, we have what’s called a Buy Box. There are specific types of properties we buy, for example, in a market like Scottsdale. I will never buy something as of now, based on the price-to-rent ratio. That’s not a four-bedroom or higher with a pool. The reason for that is because, at a four-bedroom or higher, it makes incredible economic sense. The margins are fantastic. If it doesn’t have a pool, it’s a non-starter for me in that market. We know what to buy.
I spoke to a hotel speaking at a conference in the Midwest in January 2022. It was $684 per room. We booked 2 rooms, so it was $1,300 for 3 days for 2 people. It gives you some context there. There were those fees that you talked about. Now, if we were traveling with a group of 8, would we have booked 8 different rooms? That becomes expensive at that price point versus getting a fantastic Airbnb in that market and being able to all stay together. Walls defeat experiences. That’s our belief. That’s a thing. If you’ve ever traveled with your family and have stayed in a hotel, what happens when everyone goes to the room? It’s almost like a pause in your trip.
It’s almost like it interrupts your trip. For us, we focus on bigger groups. I’m going to say bigger groups. I’m talking about typically six plus. When you are six plus, it’s way more economical to do an Airbnb 9 times out of 10 with us. You get more for your money, a better location, better amenities, easier check-in, privacy, and a lot of different things that are going to matter more to you at that point.
It’s interesting to me that you choose pools. I do the opposite for liability reasons. Do you want to speak to that a little?
The ability to have a pool drives your ADR significantly. ADR, for those who aren’t aware, is your average daily rate, which is whatever you are able to charge on a nightly basis. We have insurance in place for those types of things. We have proper gates for kids, for example. To us, the risk is well worth the reward. It’s more about being protected. There are pools everywhere. I don’t think we can control what happens at an Airbnb. We are not there. We obviously try to prevent anything that we can but some things aren’t preventable, unfortunately, but the liability is a liability. That’s a liability for us that’s worth taking on.
Do they usually have hot tubs?
A lot of our properties. In fact, back in Scottsdale, it’s a priority for us to have hot tubs as an example. In every market, we know what needs to be had in terms of the amenities and how they should be designed. For example, our clear water market, compared to Scottsdale, is very different in terms of the amenities that you would expect to have.
However, both pools are 100%. Other amenities are very different. In Scottsdale, we have a baby pink house. That’s like bachelorette heaven. We have a play on Tiffany’s home. In Scottsdale, you got clear water, and we have a sunset home. It’s more appealing to families. We have a room where there are all these animals that are handcrafted on the wall. Why? It’s because kids are going to more likely stay there than they are in the Scottsdale-type market. It’s understanding your client and catering to the experience that they are craving.
A couple of more questions. How many markets are you in?
We are in nine.
We are going to talk, ladies, in EXTRA about how he chooses those markets specifically. He uses his software. This is interesting stuff that he can help provide for you but we are going to talk deeper in EXTRA about that. Why don’t you give us a high level of how they can utilize your software, then we will do a deep dive in EXTRA?
Our software allows us to do a couple of things. We market map over 257 different markets. Market mapping is understanding the supply of that market, what comes into the market, and what’s needed in that market. It’s giving us all this raw data. We then take that raw data and map it to the highest performing Airbnb’s in that market.
We simply do what we call copy and paste. What we want to do is we don’t believe we are going to reinvent the market. We believe we can operate better but we don’t expect to. We simply take what’s the best possible property we can buy in this market at the specific price-to-rent ratio. We add the amenities that are required for that property and copy and paste them over to ours.
We believe we can operate it better because 95% of the time, we are competing against mom-and-pops who are not using technology or automation, have our design experience, and have our capital backing. Therefore, we are able to go in and increase the ceiling of that type of property. Therefore, driving the best risk-adjusted returns. We are taking what’s working, and our data tells us what’s working. We are taking our operational excellence to improve it, and that’s what allows us to create our general alpha about that.
One of the things that come to mind for me is, as an Airbnb host, the reason that I was cashflowing on the mortgages in the Bay Area was that I did not hire a company to handle it all. I hired cleaning and all of that stuff but when I looked at Santa Cruz. There are all these companies that popped up to run Airbnb for you remotely but they took such a high percentage. It’s like having a management company in California. You don’t even breakeven in a lot of cases. Talk to me a little bit about what fees you charge and how that translates as far as profitability for owners.
One of the things that we do that’s interesting and predominantly because of that is with high-interest rates, high inflation, all these things are going to eat into your operating profits. It’s because we run a portfolio on behalf of our community. We don’t charge an ongoing property management fee. In fact, what we do is we do what we call property management buy down.
We buy down your typical property management rate from the industry average down to zero. Let me explain what that means. The industry average is 20% to 40%. It’s high. If you are driving $100,000 in revenue, let’s use 30% here as an even number, you are going to pay $30,000 of your gross revenue. Not profit but gross to said property management company.
To be quite honest, it’s probably worthwhile for many people because it’s a lot of time, energy, and resources to get it done correctly. What we do is instead of charging an ongoing fee, we project to hold our properties for about five years. We collect the property management fee on day one. That’s equivalent to a percentage of the property purchase price, and that’s it.
That’s the only fee that we collect. That goes towards managing the properties for the next five years. Many people would be like, “Why would you do that?” The first reason is what you described. If you are optimizing for cashflow, the two biggest things that will impact your cashflow will be your cost of debt, your mortgage, and the cost of management.
We can’t control debt. It is what it is. It will go up. It will go down. Your leverage, 9 times out of 10 is usually a good thing when it’s responsible debt. One thing we can control is buying down the property management rate as far low as possible, as close to zero as possible. By doing that, you increase your upfront cost with that property.One thing we can control is buying down the property management rate as close to zero as possible. Click To Tweet
We can do that because we are running an institutional-size fund. It allows for increased cashflows over the short-term. It allows us when we sell to sell based on revenues of higher NOI. When you sell something based on a cap rate. Those are some of the reasons why for us, we’ve chosen this model, and everything is a trade-off in business.
Everything is a trade-off in investment, so we are choosing cashflow. We are picking the model that allows us to operate with the highest yield possible because that’s what this investment is for. If you want tax benefits or high equity growth, or those types of things, you are going to go invest in some other asset class but for us, that’s what this asset class is good for.
You must come in with more cash if you buy down that management. It’s buying down your rate. I pay 1 or 2 points. You have to come in with more cash to create the cashflow. Is that true?
We are doing that but we also have the ability to do that because we are vertically integrated, and our fund is eight figures. For us, we have the capital to do it. Now, as an investor, if you were to work with us and invest with us, you would get the benefits of that. That’s things that we are able to negotiate and execute at scale. You can’t do this very easily, if at all, as an individual owner with a property or two.
This is where that scalable component is in working with an institutional fact operator like us. It gives you this flexibility of doing. It works for both sides because that capital goes to funding the property management for those five years, the technology that drives better occupancy and revenue team, all those types of things. It aligns interests on both.
Sief, you do not manage properties for other people.
Now we don’t.
Talk to me about your business model. What is it that you do? It sounds like you’ve got your technology. Do you sell the technology to people so that they can utilize it in their own businesses? Talk to me a little bit about how your personal business model works.
We run a fund, again, for lack of a better word. In a fund, there are typically a couple of parties. There is a general partner, and there are a lot of limited partners. Oftentimes, there are things like property management or affiliated companies. We are the general partner. We find, design, furnish, and operate the properties. We work with limited partners who give us money, give us capital, and we pull that money together. Our minimum check size is about $25,000.
We can work with 200 people who give us $25,000 as an example. They put all this money into a pool. We use that pool to buy these properties. We run and operate them. Our investors are going to get what’s called a preferred return. They get the first X percent, 6%, 10%, whatever that rate is going to be that we agree on in our PPM and things that we talk about.
We, as a general partner, are going to share above that preferred. We are incentivized to deliver the best possible returns. I can give you an example. Let’s say the preferred return is 8%. After you get 8%, the general partner starts sharing in the profits above that. That could be 50%, 70% or 80% of the profits. What that split looks like is how we generate money as a general partner.
If we are managing the property, we have affiliated business lines, for example, property management revenue, software revenue or those other types of things. That’s, in a nutshell, generally how our business works and we are highly incentivized to drive the most profitable returns to incentivize reinvestments, to incentivize capital, and solve the pain point of the DIY-er who’s thinking, “I want to do this but I don’t want to do all this myself.”
Is this more of a fond or more of syndication?
They are highly very similar in many ways. Depending on the words you want to use here. We syndicate capital in a fund-to-model, for lack of a better word.
The investors get the benefit of an interest rate. They are basically lending you money. You are calling it a preferred rate. Do they benefit on the back end of the sale because you put in a lot of improvements? You buy this place, and then you add value. The value of that when you sell it is hopefully going to go up, especially when you prove the numbers of what it’s paying you. Do the investors get any benefit from that?
Investors share in everything, cashflow, and depreciation, which is huge for taxes. We pass 100% of depreciation along to our LPs. They share in the upside in sales. When we exit, we have to return all their money back first before we make any money. All of these things are what we call pro-rata. Investors sharing every possible revenue stream from that property on the cashflow, depreciation, appreciation, cap rate sale or whatever ends up happening with that property get their share.
You say that most of your terms are about five years. You started this model probably in 2021. Have you closed any of these out yet and paid out your investors? Tell me a little bit about that.
We distribute capital quarterly or distributions quarterly. We haven’t missed a distribution. We had one of our best distributions, one of our best quarters in Q3, so that distribution is coming up. We’ve exited eight total assets. Of our eight exits, we’ve delivered about a 42% IRR on the ones that we have exited. Our track record, while it may be young to an extent because we are only about a year-old company.
We’ve been able to prove the model out with those first-aid exits. The reason we sold those eight early is for that reason. It’s to prove we could buy this asset, which is a single-family home, turn it into this other asset of a short-term rental, and sell that short-term rental as a business, for lack of a better word. Revenue-generating business like your one-bedroom was.
If your entire home is making $30,000 a month and your alternative is to sell it for $600,000. You are thinking very differently about what the value is of that home as you can a revenue-generating asset. Not only do we do that one time. We did it eight different times to prove that we could execute and scale that way. That’s why our traction has picked up a lot of steam over these last few months.
Could you explain IRR again, just so my ladies know?
IRR is your Internal Rate of Return. It’s arguably one of the best metrics to understand your time value of money. It factors in your returns from cashflow and your returns from the sale. It does not factor in anything like depreciation. IRR weights capital differently. The earlier you get a return back, AKA earlier cashflow, the it weighs that higher, and it formulates the algorithm way rather than if you were to get all your money back in year five.
I would give you an example. If you doubled your money in five years and you put in $100,000 on day 1 and in month 60, you got $200,000, that’s about a 14.8% IRR. Alternatively, if you were getting 10% a year and then a lump sum in year five. Your IRR may be higher because you earned more money earlier, so it weighs time as well. We believe it’s one of the best understandings holistically of a return.
Talk to us about your team.
There’s one thing I’m proudest of. It’s that we have been able to build an incredible operating team. This is a huge reason why a lot of people have considered investing with us or have invested with us. We have an incredible STR-specific team. What I mean by that is everyone from our Head of Acquisition, Taylor, to John, our Head of data, to people on our investor relations team, to myself and Sabrina, to Austin Decorbin, our Head of Revenue, Head of Property, everything. We come from this world.
We’ve dealt with this world. We’ve scaled portfolios before. We’ve scaled infrastructure. Sabrina built AirPods at Apple and got to a billion dollars in revenue. I’ve built teams from 90 people to over 1,100. John is literally known as the Airbnb data guy. I’ve never met a hunter or a sniper from an acquisition perspective in the STR space more capable than Taylor.
These are people who are on our team exclusively. They are the ones who are managing this portfolio to drive this performance. If there’s any one piece of advice that I would share with anyone is if you are investing in syndication or a fund or you are giving your money to someone else, 9 times out of 10, the team matters more than the investment team.
I agree with you on that.
A good team will be able to navigate choppy waters. A good team will be able to drive better-than-average performance. A good team will earn whatever their share in their weight of gold easily. A bad team can easily drive your investment to the ground very fast. It’s not hard to lose money. It’s very hard to make it.
Team and expertise within the domain that you are investing in are important. You are betting on that team. That team or that horse is the one that’s going to get you through the finish line. That’s why we are awesome to have the talent. Out of any companies in this space or any other syndications in this space, we believe we, by far, have the best operating team in the space.
How did you find them? How did you build that team?
They will joke with you. My role at Facebook was that I built teams and recruited hundreds of people over the years. I slid into all their DMs. Taylor introduced John to us. I was like, “Taylor, here’s what we are doing. I love what you are doing. You clearly have a passion for this. I would love to talk to you about what we are doing.” We headhunted our team.
They were purposely built the way that it was built. Coming from my background at Facebook and what I saw in the years that I was there, a lot of people can agree that Facebook is a massively successful company, whatever your perspective is on it. The one thing that was obvious, especially being on the inside. The level of talent that they have was the number one reason that they got to where they could be.
You look at acquisitions like that they had of Instagram. They bought Instagram for a billion dollars back in the day, and people were like, “That’s a lot of money.” It was one of the first billion-dollar acquisitions of an app, and they took that in 30 exits. Why? It’s because of the talent and the infrastructure that they have. The ethos here is bringing talent together, great talent in the space. We believe we can 50X this space because we are all working towards the same goal.
This is a technical question but when you build a business like this, your individual homes, you buy as single-family homes. Is that true?
When you sell them, you sell them as a business. Do you sell them with a commercial lender or do people buy them with a residential lender? How does that work? I know that’s super nitty-gritty but I’m curious.
The short answer is that you can technically do either. It depends on how much cash you probably want to bring to the table and who’s buying it. I would say, more often than not, you are going to use a commercial product, often known as a DSCR loan or debt service coverage ratio loan. The reason that one is going to be more ideal is that if that property is a truly successful Airbnb, it will likely be worth more than a traditional single-family home that’s based on appraisals and comps.
Traditional single-family is sold based on what the house next door sold, for lack of a better word. If your property is generating all this revenue, it’s going to be worth a multiple of that revenue. Not necessarily what the guy next door sold for. To get proper lending on that, you are going to need to show financials. We would provide those financials to our buyers in the future. They would be able to get lending based on the historical performance of this asset. Therefore, secure lending in a commercial way.
You must have records for at least two years to get any commercial loan on this. Is that true?
You don’t need to. For all of the properties we buy, we use commercial debt. We use DSCR, and it’s not an existing short-term rental 9 times out of 10. There are two ways to do it. You can either underwrite it as a single-family home because our ethos is buying it based on value and selling it based on revenue. It’s very easy to do.
There are several companies out there now that will lend on projected Airbnb revenue. There are tools that they use out there like AirDNA, Rabbu, all the rooms or other analytics and APIs. Alternatively, you can also buy it the traditional residential way and then turn it into an Airbnb. Depending on what income you have. If you have a W-2, you might be able to qualify for a residential loan with better terms. Commercial lending will have higher debt costs. It is what it is in the business world.
It’s easier to qualify in the commercial world because they are not looking at your income. They are looking at, “Is this asset a good investment?” It’s a lot easier to scale. If you are thinking about scale, that’s a great option. If you are looking at buying a single property, you are going to house hack or do half of it in Airbnb, you should consider your options on the W-2 side and what those rates and programs look like.If you're looking at buying a single property that you're going to house hack or do half of it in Airbnb, you should consider your options on the W2 side and what those rates and programs look like. Click To Tweet
I feel like we could talk forever because I’m interested in this topic but we are running out of time. Sief, why don’t you tell everybody how they can reach you?
If anyone is interested in learning a little bit more about Techvestor or short-term rentals, we often will hold videos, webinars or other content. Follow Taylor on Twitter or on some other social platforms but you can also talk to us. We are at Techvestor.com. You can request to learn a little bit more about what we do, how we do it, and if it’s a good fit for what you are looking for or if you are curious about short-term rentals.
That question on debt is a question that we get quite a bit because people come to us, and they are like, “I want to buy a turnkey short-term rental,” which is another line of our business that we do. They are like, “Can you help me find one for myself? The reason I want it is that I want to use it with my family for two months out of the year. Can you help me with that?” If any questions you have, please reach out to us. We are happy to help you out. We are all about education and educating this space.
I love that. Thank you so much. Ladies, we are going to talk a little bit more about EXTRA on how to pick your markets for short-term rentals, how he does do it, how he specifically uses his software to do that, and all of that stuff. Stay tuned for that. That’s going to be a great conversation. Before we do that, Sief, are you ready for three rapid-fire questions?
I’m ready. Hit me.
Tell us how to get started in real estate investing. Give us a super tip.
Go for it. You are going to make mistakes. The very first property I ever did when I was a young kid, I lost $30,000 in the height of 2008. I stayed away from real estate arguably for the next 7 or 8 years because I was terrified. Don’t be me.
Do as I say, not as I do. I love that. What is one’s strategy to be successful as a real estate investor?
Tell your story. I think stories sell. Oftentimes, the person you are selling is yourself. You have to sometimes understand your why to why what you do and why you do it and why you get up every morning to grind the way that you do. Real estate isn’t easy. It’s a grind, especially in the early years, so you must have a why.
What is one daily practice you do, Sief, that you think contributes to your personal success?
I sit down and talk with my wife. The reason that’s important to me is that I’m a workaholic by trade. Taking 10 or 20 minutes of dissecting and getting away from everything that is the chaos of Airbnb at times, allows me to feel a little bit more grounded in what I’m doing on a daily basis. As a father of 2, especially 2 young boys, it’s important to me to understand my why on a daily basis. Finding time for them is my biggest motivator.It's essential to understand your WHY daily. Click To Tweet
This has been a great conversation. Thank you for all you’ve shared, Sief.
Thank you for having me, and I appreciate the opportunity.
Ladies, thank you for joining Sief and me for this portion of the show. It was amazing, wasn’t it? I loved it. If you are interested in more, we’ve got more. In EXTRA, We are going to be talking about how he picked his markets, why he picked the mind that he picked and what he look at. If you are subscribed to EXTRA, stay tuned, there’s more.
If you are not but would like to be, go to RealEstateInvestingForWomenEXTRA.com, and you can sign up there. For those of you that are leaving us now, thank you so much for joining us for this portion of the show. I super appreciate you. I look forward to seeing you soon. Until then, remember that goals without action are just dreams. Get out there, take action and create the life your heart deeply desires. I will see you soon. Bye.
Sief is the CEO and Cofounder of Techvestor, which acquires and operates STRs (short term rentals) AKA those wonderful things we know as Airbnbs. HNWI, private equity partners, family offices and institutions work with Techvestor to start, scale and grow portfolios in 15+ markets.
Previously, he founded Scoutpads, helping thousands of tech employees diversify into real estate after spending nearly 5 years at Facebook. Collectively, Investors have contributed to acquisitions totaling more than $100M.
In addition, he’s a Young Entrepreneur Council Member sharing strategy and thought leadership on scaling/growing a business.
To listen to the EXTRA portion of this show go to RealEstateInvestingForWomenExtra.com
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Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
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