The Uncharted Path To Hotel Investment Success with Wayne Ung

Foreign bowling here with Pivotal Real Estate Investments. And I am meeting here with Wayne Ng who has been investing in hotels and prior to that flipping houses and doing other investing type work for over 10 years. Now. I want to give you a chance to, to augment. Go ahead and tell us more about yourself, Wayne.

Yeah, it's just like, you know, I like these hotels. It's like there's no limit on the pricing and we don't have the laws of apartments in evicting. So that's why I like these here. But now it seems like since the hurricanes we're going to be going into housing people in natural disasters. That's what's really good about, we can go up on the rates really quick. That's what I really like about this now.

So when you're housing people natural disasters, that's not through FEMA or one of the organizations. It's just gravitating towards the natural disasters and trying to make sure that housing is made available. Is that, that what you're saying?

Yes, yes. Well, what we're saying is like natural disasters are taking down apartments, homes and other hotels. So if we're surviving, we can actually go up on the rates. So I'm not trying to make it really good. There's a natural disaster, but it's really good for us.

Yeah. Okay. Okay, I see. Well, so tell us about your first hotel.

My first hotel was in Columbus, Ohio. It's 135 Old Fairmont Hotel. And then first eight years of it was, then it got into some known name and then let's see, the lady got, the lady gets it in 2008. They say they want, it's 135 rooms and they want $4 million for it. And she has no way. So fast forward 2012. The bank calls her up and says, hey, do you want it for $600,000 now he goes yes, I do. So she goes, get the loan for 400,000. So she's in for a million, chops down a bunch of trees. One year later she gets, she gets cancer. And they say, Wayne, I heard you have some money. So let's go into this one here. So 135 rooms, seven different colors, 10 different leaks. And I said, oh that's beautiful. Put $250,000 down and a year and a half of headaches with the city and everything. And then we get the numbers up to a million or something like that. I hand it off to my partners and they say, give me my money. We even it out and I Get out of there. That's where I lost. I got all my experience, lost all my hair and all my headaches and everything through there. So I swear I learned my tricks and this stuff and what I learned from contractors that, you know, we got. I think it was. Eventually he got 35 rooms, but he started with 10. He was charging. We were charging him somewhere around 199 or 259 a week. And that guy, you know, his crew would be out by 9, back in by 5 o', clock, drink their beer, be asleep by 6 o', clock, and do it again. Every day is like that. So, you know, those guys would be really good. It's like in the winter, when there was no daily traffic that would come through there, it would hit us over there. I mean, it was negative 40 outside. And so it kept us really warm. And then the pipes would be like, wow, that's really nice. So instead of losing money, we have something to keep us warm in there. So that was really nice about it.

And when you said leaks, you're talking roof leaks. That there was, right?

Yeah. Well, we had to get a new roof on there, and so we had to put a whole new roof on there. And that's like, wow, that's an expensive roof.

Yeah. Yeah, I bet it can be. So what kinds of issues were you having with the city?

Basically, they are just educating them. They don't understand about how structures are, how hotels make money. But basically, isn't that what every city, every city official doesn't understand? Even apartments? How do they make money? It's like, by letting us do what we do.

Okay, well, so then after that, what was your next hotel?

I was in Tucson, Arizona, so that one was about 100 rooms. And so they had a gem show that basically it's from the end of January to February for about, I think, six weeks. There's a gem show there. And so there'll be no more rooms. Every room is booked. Every Airbnb is booked, Every tent space is booked. So you'd have to go to either El Paso or Phoenix for rooms. And so they would stay there. They would book it for the whole time. So you would see three to six thousand dollars paid up front per room. And cash flow? Yeah, the cash flow would be like. It would be like $200,000 just for that, from that period. And we got 300,000 for the rest of the year.

Oh, wow. And how long is the gem show?

The gem show is. I can't remember. Three or six weeks somewhere around there.

Wow. Wow. That was good to learn.

Oh, I mean, the way I describe is not better than the gem people. They would describe it a lot better. So.

Meaning that. Well, is it more profitable to be in hotels or gems?

I don't know. Maybe. It sounds like some of the gems were making more money than we did. I was like, wow, you bought it for how much? And you sold it for how much? Gee, are you gonna tell me? But they wouldn't tell me where they got it from, so.

Yeah, yeah, I get it. I get it. Yeah.

Yeah.

Okay. Well, so. And. And so you are also coming into Clearwater because you're going to be looking at something. Is that anything you can talk about at this point or. No?

Yeah, I. I always say, like, this one is, you know, it's because of. This one's going to be about natural disasters more and how it's taking out rooms. So whatever rooms are available, they're going to be coming to wherever area where it's better, so where it's not been damaged by the natural disaster.

So tell us what you look for, Wayne.

I look for traffic and population. So the population. There's a healthy population and then there's multiple. There's traffic. There's either two lanes or three lanes or. Or, you know, each side and then also a freeway.

Any other economic drivers?

Yes, freeways. So, but.

But as far as, like, tourist area, do you like those or don't like those?

It doesn't really matter to us. The population and the traffic is really what's our demand generation. So we just need people to see our place, right?

Yeah.

What is. Yeah, when they see our place, they'll want to stay.

Is there a minimum population that you shoot for?

150,000.

Oh, okay. And is there a certain brand you make, your hotels?

No, there's no limit with these. Could be lower, middle, higher end, whatever we can find. Where we can find meat on the bone, that's fine.

So do you tend to keep the same name or do you rebrand the.

Yeah, we probably rebrand. Rebranding is probably cheaper.

Okay. Do you ever come across franchises that you have to buy out?

Yes, yes, any. Sometimes they'll have. Sorry, say again?

Any particular ones that you look for?

No, no. We're really wanting the location and the number of rooms. So we find that one there and it hits our price. We don't really care what the brand is.

So at this point, how many hotels have you been involved with since you pivoted from flipping and from your other things to doing hotels?

I've Done. Three of them.

Okay. Okay. Well, you're right. We were talking before we started recording. There's certainly a lot of people in the multifamily space that are looking at hotels. I, I always, when I'm driving past them, I think of you, Wayne, every time I'm driving past, especially small ones, because, you know, we've been to several events and we've talked several times now and whatnot as well. And there's a few that I keep thinking I need to go in, but you can't just walk in the lobby and find the owner. Obviously on most of these. Right.

One of them is like, you might be able to. On some of the certain times, especially if they're losing money, they'll be there.

Oh, really? Yeah, I bet. Yeah. Okay.

Yeah, yeah. It's a good sign if you find the owner there. That means they couldn't make enough money to hire staff.

That's true. That's funny. Well, so, and what, what kind of a price range per room are you usually looking at? If you're in that population that you're, you're wanting, is there an average you can quote?

It's at least 25% to 50% of whatever the other price of the rooms are in the given city. So it's a discount. So looking for a discount.

So say, well, how, how do you approach pricing that? I, I'm not sure I'm following what you're saying.

Well, I'm just saying that, like, you know, if you go into a city and it's going for. We use a hundred thousand dollars a room, and that's, you know, it's expensive. So if we went in there, we'd want it for 25 or 50, $50,000 per room.

Okay, you're comparing to the big hotels or what are you comparing to?

Any hotels?

Any hotels. Okay.

Yeah, any hotels. So whatever, whatever sold at that time, we'll get into there. And it's different variables that are. That we would go into. So, you know, if we get it for 100, but we can sell for 140. Hey.

Yeah, it's similar ratio almost. Well, yeah. And what kind of expense ratios are you looking at? Because they're kind of heavy on the labor side, right?

Yeah. But usually on hotels it can go anywhere from 50% to 65% of gross.

Okay. And your vacancy, what are you usually figuring there.

That we want to get into or that we finish with that.

You'Re, you're doing on a pro forma?

We'll finish with somewhere around 75% or more.

Okay, so your performers are based on a 25% vacancy?

Yeah.

Okay, Interesting. Okay. And the COVID did that change your labor factor? I mean, are you doing more hands off where you don't have to do as much on the cleaning services?

Yeah, Covid actually helped us out. It helped out with labor because they didn't have to go in. The housekeepers didn't have to go into the rooms, so I sped up their time of cleaning. So the customers would have to clean themselves, and they would just drop off in the front. The trash would go on the front. And here are your cleaning supplies, and here's your towels. So kind of helped us out.

Did your price change? Your price probably did not change either, right?

Yeah, we went up a little bit.

You went up. Okay. Not down, though, with it. Yeah. Okay. Yeah. Interesting. Okay. And anything else that you would like to say to the audience or to ask your audience to recognize?

I just would like to say that these hotels are a housing solution. And because housing is so expensive now and people are looking to stay anywhere, especially during a natural disaster that's already furnished and you don't need a contract, and you just keep paying, and then when you're done, you just get out and you'll be done with it instead of getting a deposit, waiting for it. And then there's these evictions that we don't have in hotels, so if you don't refuse to leave, we'll call the police. So there's no court to go to that's taking a month or six weeks or whatever, taking out that room.

So. Yeah. Yeah, that makes a big difference. And now, and talking a little bit more about that, too, I think before the show, you were saying you have extended stay situations. Do you encourage that by discounting if they stay longer?

We don't like to, but we'll try to figure a way to give you some kind of a discount. The customer.

You do like the. The longer stay people?

Yes, sometimes. Most of the times I will do extended stay, and sometimes we'll do just regular stay. I mean, you know, if you want to do extended state, just pay the. The upfront fee of a week or a month or whatever. Oh, so if you want to pay for seven days, there you go. That's your extended state price.

Yeah. Okay.

Yeah, you just. Just guaranteed your room for a week. That's all it does for the time that you paid for.

And. Oh, and I didn't bring out that. You said you've done some by joint ventures, some by syndications. That kind of a thing. Is there, Is there a kind of an educational component to having investors come on board to understand the nuances of hotels? Is that tricky?

It's just, it's. We syndicate the same as an apartment building, so. But we have the returns of a hotel and then the holding time is three to four years. So I think that's probably the nuances of it. Yeah, we don't have a holding time, though. So long.

And when you say the returns of a hotel, what are you looking at? Usually?

I would say 12 to 20%.

Okay. Okay.

That's what we're safe to say.

So, and what do you. What do you consider the returns on apartments?

I've heard anywhere from 8% to 11%.

Okay. Well, that's normally the cash on cash, I think. Well, 8, 8 to 10 is cash on cash. Most of the apartments I'm dealing with anyway are upwards of 12% as well. They're 12 to 18 usually. So that part of it's similar, but the business model is very different, as you know. And your hotels are being operated as hotels. You're not converting them.

Right, right, right. They stay. They stay as hotels. Yeah, we might sell to an apartment person. So.

Yeah. Okay, well, very good. Well, thank you for coming on the show and sharing your knowledge there. How, how could people reach you if they want to get in touch with you?

You can reach me at wayneotelcapital inc.info that's my email and then also my website is Hotel Capital Inc. That's how you can reach me. Thank you.

Very good.

Okay, thank you.

Well, thank you, Wayne. Appreciate it. Take care. Bye.