Short Term Rentals from Scratch with Alex Jarbo

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome to episode number 131 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I'm principal and head of Tri State Investment Sales here as Avison Young and as always, thank you so much for joining. And if you did not hear last week's episode with my friend Terry Moore, author of Building Legacy wealth, definitely worth a listen. Hey, while you're at it, why not scroll back and take a look at some of the episodes that maybe you missed. A lot of great guidance and the whole point of this show is to give you the insider's edge to real estate investing. And you can now go to jamesnelson.com and you should be able to order your pre copy of the book that is going to be coming out in January. So I'm very excited to announce that and really appreciate your support. And for today's show we're going to have Alex Yarbo on. He is a short term rental developer and manager who was born and raised in Detroit and he served in the Marine Corps for close to five years when he was stationed in D.C. and part of the Honors Corps. And then after that he decided he wanted to pursue a career in real estate and he's now the founder and CEO of Sargon Investments where he's amassed a portfolio of short term rental units. And I thought it was very interesting. And Alex approached me to be on the show and yes, after being at this for a while I do get approached quite a bit sometimes from PR reps, but also in this case Alex reached out directly and told me his story and we had not done one yet on short term rentals and I thought this could be a good one for you all to hear about, maybe not necessarily as a, as your primary investment, but maybe you have some vacation rentals and you're curious about this and Alex has turned this into a full time business. So he's gonna talk about how he goes about renting out these cabins, how he optimizes pricing, how he manages it and his plans for expansion. So I think you're gonna get a lot out of this episode. You can go to Show Notes to find out how to reach Alex and as always, if you have not already, please connect with me at James Nelsonyc on LinkedIn. That's a great place to connect and ask questions if you'd like me to address on this show. So we'll have a brief word from our sponsor and I'll get right into that discussion with Alex.

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Welcome everyone and for today's Investor Spotlight, I have with us Alex Jarbo who is founder of Sargon Investment. Alex has done some incredible work in the short term rental space. You can check him out on his YouTube channel. Alex builds. He's got some really interesting stuff. I know he's also going to be talking later about his most recent program. He's working to teach you all how to do this. I am fascinated about this space. I know that some of the largest institutional owners out there in the world, Blackstone to name just one of them, are massive into the single family rental space. That's the acronym SA FR that you're hearing about everywhere. And some of you all might be thinking, okay, well how does this apply to you? You know, does this investment strategy work for you? So Alex, thank you so much for joining us today. We're super interested to hear your story.

Appreciate you having me on.

All right, so Alex, first of all we got to start where all it began. So you were I believe born in Detroit. What was that like?

Oh, it was fun. I mean, I mean my wife and I live in Detroit. Are love Detroit to this day. Like we all of our family lives there. So yeah, I mean I left pretty early. Like I, I left to the military when I was 18. But I mean like we're, I'm working on a couple projects in that area anyways, I live here in Asheville. But yeah, no, we loved the downtown Detroit area.

So I know, you were a part of the Marines for, you know, some time as well as part of the Honor guard. So thank you, first and foremost, for your service. You know, at 18 years old, did you come from a military family? What inspired you to give back to your country?

No. First generation American? Yeah, actually, I've actually, no one's actually ever asked me that question before, and I've been on veteran podcasts. There's. There was. So I'm first generation American. My. My. My parents are from Iraq. They're from northern Iraq, and they're actually. They're, like, Catholic. And what I saw that, like, the Marines actually did a lot of really good things in, like, the northern Iraq region through the war and even. Even recently, and a lot of humanitarian stuff, and I just wanted to be a part of that. I had a lot of really good friends as well that were joining the military. We went to boot camp together. And I just. I didn't feel like I was ready for college at that time. And I mean, my wife has been my wife. My. My mom's been a teacher her whole life. So it was. It was a little weird for me not to go to college because, like, my sister's a doctor and everything. But, yeah, it's just. I didn't feel like I was ready for college, and I just wanted to try something a little different. Yeah.

Amazing. And. And what were those skills that you learned, those critical years in your life that prepared you, you know, for life, for success?

I mean. Yeah, that's another really good question. The. I was very fortunate enough to be. To be in a unit where my mentors were prior Afghanistan, Iraq vets. And there were. There were sort of the. The primo. Like, when you think of the epitome of a Marine, when you think of a epitome of a leader, that's what, that's what I was around for four or five years. So the biggest thing that I learned is just the importance of structure and just. You can. There's. It's one thing learning about leadership in a book or in a course or going through a course, but it's another thing to lead. Learn how to lead people and learn how to talk to people without pissing them off. But. But also how to motivate people. That. That is. That is a skill that goes across any type of business and life in general. Just how to talk to people and how to motivate people. It's probably the biggest thing I learned from that. From that just my whole time in the military, just understanding that people Are people love it.

Those are incredible lessons learned. And you know, I think the discipline and the rigor that, you know, most people would associate that with the military, but how to actually communicate and get along with people that, that, that's a, certainly an important piece that listeners who.

Aren'T understanding that your plan is going to go to crap the second that you start implementing it or like shortly after it. It's just understood just how to put contingencies in place is another big thing that I learned in the military.

So from there did you, I know you went on to get an MBA with a concentration in real estate development. So, so, so tell us, like right after the Marines, did you go right into college? If so, where did, where did you end up going? What, what did you gravitate towards studying?

Yeah, so the I, I got most of my bachelor's done while I was in the military. The, the Marine Corps. The military has tuition assistance outside of your GI Bill, so I would do that on the side outside of. I was again in the honor guard station in D.C. so we do like a lot of funerals at Arlington Cemetery. If any foreign dignitary was coming into the country, would be traveling with them or like greeting them as they visited the country that came through the Air Force base. And so I had a lot of downtime, like sometimes on the weekends, but just, just waiting for people, honestly. So I would be doing like my papers while I was like on my computer waiting on a bus or something.

And.

The work I, so I got my bachelor's degree, most of my bachelor's done halfway through the military, got out, got my real estate license when I moved here. And I just, I went into entrepreneurship because I honestly didn't know what I wanted to get into. And when I found the world of short term rentals when I was a real estate agent, that was around the same time Liberty University had offered. And it was at the time one of the few real estate development MBAs that you can do online. And that's what I wanted to do. I just wanted to do it online while I was building my business because I didn't want to, I didn't want to go to a university and step away from what I was building because I was building, I think four cabins at the time and I was new to all that stuff. And so I got my MBA in real estate development. Helped me, helped me a significant time. Honestly, I networked more in my MBA than actually what I learned. I've learned most of the stuff through books and just mistakes. But and then after that, there was enough time in my GI Bill where one of my mentors actually reached out to me and said, hey, I'm doing doctorate in business with Liberty. He's like, do you want to do it with me? I was like, yeah. I was like, sure, I'd love to do that. I had some time left in my GI Bill, so I'm in the dissertation portion right now, my doctorate. And yeah, I mean that's, that stuff is just honestly done for fun. It's just in the background. I've learned more again from mistakes in books than, than just my, my formal education.

That's fantastic. I love how you had a concentration in leadership too. You know, if you go back and you listen to, to all the incredible investors we've had on the show, yes, they have those communication skills, yes, they, they have that, that high real estate iq, but they also have that ability to lead and that, that's so important when you are working with a team and trying to get everybody across the, the finish line.

And there, there is some things like we've already talked about that you can pull from military leadership. But there is a difference between leading in the military and leading in the civilian world. I joke around. The biggest thing is people can't quit on you. Like in terms of like if you annoy someone or you piss off someone, if you're too aggressive towards someone in the military, you can't just quit. You have your enlistment compared to, it's a different type of leadership. So that's why I was interested in getting my concentration with my doctorate and that because there are differences.

Good point. So talk a little bit about your experience first as a broker because I know we have a lot of listeners on the show who either were brokers and now they're in investors or maybe they're brokers now and thinking about investing. So were you a residential broker who was. And this was again in the D.C. area. Were you doing some sales rentals? How did you kind of stumble across this? And I assume this is a way to kind of pay your way through school or for extra odds and ends or did you.

So yeah, my school was mainly paid. My schooling was mainly paid through my GI Bill and I got, I got my real estate license because I wanted to get into the short term rental world. And I was a residential and I still am licensed to this day. I just don't practice. I just refer everything out. But I didn't get my license until I moved to North Carolina. I wasn't an agent in D.C. i, I was a part of a flipping mentorship when I was in D.C. because I, towards the end of my enlistment, the question always comes up six months to a year out from your first enlistment ending or whatever enlistment you're in. I was like, I just didn't want to reenlist, I wanted to do other stuff. I had met, I had done enough where I felt comfortable that I wanted to transition to doing something else. And I also wanted to get married at the time. And I said at the time, I'm married to this day. But at that time I wanted to get engaged. And I just didn't, I didn't want to go through an enlistment, transition to a new unit and go through being newly married, let's be completely honest. And so, so I got my real estate license, residential broker. And what I realized was a lot of you had said, a lot of your listeners are, what I realized is you would have real estate agents that were brokers for five years and have no real estate property. That, that was something that would just blow my mind was I got my real estate license to essentially just have a working conversation with someone and just understand the intricacies of a contract so I can do my own investing. So I just, I, I help people purchase short term rentals and I just, I, every, obviously every market and every state is different when it comes to those little intricacies. And that was sort of just a fast track where I was a part of a team for about a year before I just went off and did my own thing.

That makes a ton of sense. And I fully agree. I know there is that little bit of a inherent conflict of being a broker and an investor and you have to be able to do it in the right way. But as a broker we see hundreds if not thousands of transactions. And so to just kind of stay on the sidelines your entire career and not benefit from that knowledge. So there are ways to do it and I'm sure you were able to, you know, navigate that.

And I've told, I've told like most of the people, my accountant, my real estate agent, all of the people that are in my business are short term rental investors. So it's like, it's like, it almost brings like a certain level of credibility if you're your own, like if you invest in the properties as well, because you can speak personally to those property or that process makes sense.

So why don't we define for our audience kind of the short term rental market is that, are we saying anything that's 30 days. I mean when I think short term rental, I either think of, you know, you have vacation rentals on one side, on the other it might be, you know, furnished rentals. So how do you define short term rentals? What attracted you to it and kind of define that, that market that you focus in on. Sorry, I know there's six questions.

Yeah, no, I like the creativity of it. So like where I am in my business currently, I, I honestly classify it as like hospitality in general because were working on developing and purchasing some boutique hotels as well. But what gravitated me towards it was just the uniqueness of it I liked. Our first property we built was an A frame. It was a 830 square foot a frame that we own to this day. And I've realized that like that property can sleep six people, four to six people. And those unique properties tend to do way better than if you just have a normal single family house listed on the mark on the Airbnb, like Airbnb, VRBO and the booking, the different booking platforms. So what drew me towards it was one, just the cash flows and the ROIs, cash on cash, like everything that you can just the amounts were significantly more than if you were just doing long term rentals. And at the time I had a lot of time on my hands. I was just going to school and being a broker and yeah, it was just the uniqueness of it and just, I mean it's almost like you, you could, you, you this like a normal single family house almost turns into like a commercial property because there was so much money that was being that runs through these like one single properties. I just, I, I would, that just drew me to it and especially the new development piece obviously is more stressful and blah, blah. But you had complete control over what the property looked like both exterior and interior. But when I say short term rentals, it's, I mean anyway it's not, it's 30 days minus. So it's anywhere between two to 30 days. Once you get into 30 days, that's where you sort of get into different laws depending on what market you're getting into. But when I say short term rentals, vacation rentals is sort of like 2 to 30, 2 to 29 days, 2 to 30 days.

And are most of your, I don't know if we should call them tenants or. I mean this is I guess guests. Are these mostly vacationers or what are they?

Yeah, yeah, yeah. So I'm in the western North Carolina market mainly so there's a lot of different mountain markets that fall within that. But they're. Yeah, they're mainly vacationers, depending on how big the property is. Like we have a log cabin that can sleep 14 people. That's a big boy. And those people are like, what I've realized, people come through there, are coming in through like for weddings, like they're coming into the city, like traveling for weddings and stuff. So they're mainly vacationing.

So and, and I guess, you know, you got to study the market and, and understand the dynamics and, and figure out is, is this kind of a year round? I mean, I, I personally own properties up in Cape Cod. It's, it's a summer rentals, you know, season that's kind of, I mean, I get a little bit of a shoulder. So it goes from spring, you know, kind of into the fall. But then I basically shut down the houses in the winter. So obviously I'm sure you had to kind of do the study. And I don't know how you, you landed on that, that area of North Carolina, but how did you kind of get your arms around kind of what the rental demand was?

The seasonality stuff? Yeah, yeah. So the, the biggest thing is what I've realized and I was just talking to a friend about this was the mountain markets are a little bit less seasonal and there's two pieces to it. So if you're in a mountain market or some sort of wooded market and then you have a unique property, whether it be an a frame, a cabin, something unique about the property during the slow season. So our slow season is honestly December to the middle of March. We have foliage season here. October, November is honestly our busiest season. And then summer does really well as well. But December to mid March, if you have a unique property, the property becomes an attraction in itself. So you want, you're. We're building properties that are experiences outside of the market that we're in. During the high season, the city and the market becomes the attraction and during the winter the property itself becomes the attraction because like, I can't think of a more iconic image than like a log cabin with snow on it in the winter. Right. So that's where the, the investing in mountain markets with building with developing unique properties has sort of helped us with the seasonality portion of it.

And is there a, I mean, I guess besides you just going to Airbnb and kind of looking at the competition, so to speak, how do you really kind of understand what is the market, how to price these?

You can pull. Yeah, there, there are websites called one a big One the biggest one is airdna Co that pulls straight comparables for any property you're looking for. It's very similar to if you're hopping on the MLS to see what your property comparable like a compare, you're just pulling comparables. Airdna Co pulls all. I don't know how they do it, maybe it's a licensing agreement with the short term rental sites but they pull all of the information, the rev, like what the property makes that The RevPAR, the ADR, all that fun stuff. They pull all that information from Airbnb and VRBO and then you can compare and see what your property could potentially rent for. There's another company called Rabu. I think they're a property manager but they have a really cool free tool that I like to use as well.

Got it. So I guess you answered one of my, my future questions which is it sounds like you're self managing this. So like you're, you're overseeing this. I would imagine you've got a lot technology platforms to help facilitate this. But like needless to say that this sounds like a pretty hands on type operation you have.

Yeah, it's hands on but my goal, my goal with anything that I get into is how can I automate this where I can remove myself eventually from the business. And I mean technology just plays such a huge part in that. Whether it be automating most of our messaging, whether it be using virtual assistants for like the rest of the messaging. Our cleaning crew is sort of the. I don't have it on. I don't have a boots on the ground manager here. My cleaning company acts as my boots on the ground manager. I don't clean the properties in house. I have a separate cleaning company that takes care of those. If any issues come up, they contact me about them. So it is hands on. It is more hands on than if you had like a long term tenant in the property. But at the same time there are systems in place that you can put where I'm barely spending any time personally managing the properties myself.

Got it. So when you kind of look at the economics of this. Okay, so let's start with kind of well I guess we got to figure out how you get into your bottom line. So, so you get a sense of okay, this is what the average rent. It's very much like what a hotelier would do. Right.

You're absolutely figure out almost like almost exactly the same process. Yeah.

So, so what is your adr, your average daily room rate, you know, what's your occupancy so your, your predicting what type of revenue that you're going to bring throughout the year. Now I've got to imagine when you get a booking through Airbnb or vrbo, I don't know if what they give you is the net proceeds, but I'm sure they're not doing these bookings out of the goodness of their heart. I mean, I'm sure. And I've heard if it's, you know, in line with like the travel industry and Expedia, I mean, some of these platforms charge 20, 25%. Right. For the, for the booking. So what is, you know, what's their cut in this? Yeah. If you could just kind of help us understand the topic.

Yeah. So on, on the host. So Expedia owns VRBO and so VRBO and Airbnb from the host only take 3%. From the guests, they take 14 or 15. I forgot what that number is. So they, they only take 3%. It's a, it's a very small number. What recently we started doing the last six months is sort of focus on the direct booking side, which is what hotels do. I've modeled everything that we do off of hotels because it's short term rentals are the new kid in town. But obviously you're pulling some principles from hotels because that's what's worked in the past. But what we've done recently is there's a company called StayFi and I've written biggerpockets articles on this company because they're so instrumental in my business. Stayfi is a little disk that you plug into the back of your router. And what it does is it will, it's, it creates a landing page for the guests to put their email address in to be able to have access to the Internet. So say if you're like at Starbucks or like at an airport, you have to enter in your email address to get access to the Internet. It's the same thing here. So we capture their information and then we. So that guest usually comes from Airbnb and vrbo and then we remarket to them through our own website and we've been building that website ourselves. That way you're creating a business that you can completely control outside of the online travel agencies.

Very smart.

Yeah. And there's nothing else. There's a nothing. There's nothing wrong with doing that.

No, no blog posts before.

If you try to pull the guest, if you try to pull the guest off of the platform when they're trying to book with you, that's a no no, but there's nothing wrong with taking them off the platform after they stay with you.

Got it? No, that makes, makes sense. Then you can really, it's not, not just saving that 3% but also, you know, having more bookings in the future. And as you build a portfolio, I'm sure if it's, hey, you know, this place isn't available. But let me happens so much.

Yep, absolutely.

So that's the top line. Okay, so in what I mean in these markets is your occupancy 80%, 90%. How many days out of the year are you actually renting these?

Yeah, so like, I mean I have a one on one mentor and it's like just like with anything, if you're a multifamily or 95% occupancy, you're too cheap or whatever the number is. Right. So if we, if we ever touch 90%, the, for a while during COVID I was 95% plus but obviously I just like my mentor told me that you're, you're too cheap. Like essentially. So if, if stabilized I like to aim for 85 to 90% which is a pretty good occupancy throughout the whole year. But we underwrite them at about 60% like to get them to, I consider a property stabilized if it goes over 80%. But like if you look at like hotels, they consider stabilized at 70%. So, so I like to underwrite anywhere between like 50 to 60%. Essentially the weekends. The weekends is like what it would. The weekends plus some, a couple weekdays would be, would be like a break even number for me.

Awesome. Okay, so now we go to the expense side of the equation. So I'm sure you've got real estate taxes. I assume you're giving these tenants all the, the utilities like you're not expecting them obviously to pay for, you know, heat, hot water, electricity. So that, that's all on you. You've got what, you've got cable, you got what, you know, whatever else it is, you know, the operating expenses.

Yeah.

Insurance. Right. I'm trying to think what else there would be. I mean the cleaning, is that, is that your expense? Is that the tenant's expense? Like what, what other expenses are we, we missing here?

Yeah. So we're going to do, we're going to do piti. And then when it comes on the expense side, I try to keep things very cheap when it comes to all of the appliances are electric. Just to keep one bill, just keep it simple. I mean we insulate the properties really well. So like our electricity Bill is not high. There's no gas or anything in the properties. Just from a safety perspective, we don't have fireplaces, any of our properties. And then when it comes to the guest cleaning, the cleaning, the cleaning fees paid for the by the guest. So say if my cleaning company comes in and says hey, it's going to be $90 a turn to turn this property, I add $10 to that and that usually covers my inventory for the month as well, depending on how big the property is. But yeah, inventory is anywhere between 100 to $200 a month. 80, 80 to 200amonth depending on how big the property is cleaning. Cleaning fee is paid for by the guests. We don't have cable. We have Internet in the properties. We don't have cable because everyone has their own streaming stuff now.

Right.

So we have smart TVs in all the properties.

Good. Okay, so what is your expense ratio? So what? What, what? Yeah, and maybe there's not a kind of. You said you run.

It's not a, it's not necessarily, it's not really a definitive number. I just go off of my, my break even number, my break even analysis if I can, if I can break even at 50%. So like at 50, 50, 50% occupancy, that's, that's usually gives me the go ahead to, to do the property. And the issue, the issue with like short term rentals is every single property is unique in themselves whether it be if you're purchasing or developing. A lot of times like when we built our first a frame, there were no comparables on the market to go off of. And if you're doing it yourself, you're managing it yourself. I don't know if I can give an expense ratio though if I like really think about it. But it's like at like our first property, like the, the cash on cash because we did a second home construction loan on that property, our very, very first property five years ago, like that cash on cash was like over a hundred percent, which is ridiculous. But today like I'm, I'm only focused on like the, I'm not focused. But so like our, to our investors like their cash on cash is like anywhere between 50 and 16%.

Got it.

So I'm an expense ratio maybe 40 to 50%. I mean it might be a little high, but I mean I feel like.

No, it's probably, I mean look for a multi family at least here in New York we get pretty high expenses here, but it averages about 30% whereas most hoteliers would say that their expense ratio is closer to 65, even 75% for a full.

Yeah, yeah. So from what I've seen from studying so much on like how hotels, like I have a lot of textbooks that are just resorts and hotels that I just like to read and pull some like stuff from, it's definitely lower than the expense ratio is higher than multifamily but lower than hotels.

Right. Okay. So you are solving for a cash on cash return. Okay. But you're also, you're developing. Right. So you've got to go buy the land. You've got your hard costs, obviously your soft costs. So you're looking at your total project costs. So walk us through a little bit about the land and are these modular? You know, how do you control your cost going in that, you know what, what this is going to cost to, to, to be in the position to.

Yeah. Open it up.

Renting it.

So when I first, when I first started where I couldn't get the attention of some of the bigger GCs in the area, I told my smaller GCU who still works for me to this day with my smaller projects, I told him, you're only purchasing stuff that's in stock. I'm not waiting for, especially today with the supply chain issues and everything. If you're just starting out on yourself, I mean one thing that can kill you right now is just your holding costs and just paying, paying on the debt, the interest payments on the debt. So when you're just starting out, it's the making sure it might not be the perfect colors or exactly what you want, but just only purchasing stuff to build your properties that's in stock and understand your GC needs to understand that when it comes to controlling costs and everything. Where we are now, just teaming, just getting in contact with some of the bigger GCs in your area. We're working with the biggest GC in my area that people like. There, there's a lack of, there's a lack of finding like good people out right now, good tradesmen that are reasonably priced. Usually those people are going to be, they're going to tend to gravitate towards the bigger companies because they can, they can give more consistent work. Right. So that's. That. That might not, that might not be the exact answer you're looking for. But it's just one thing that I've realized in the last six months is teaming up with. You have to bring them the deal flow, obviously you have to bring them the amount of work that to get their attention. But it's just Teaming up with the right GC that can take on the work that has the people lined up for that. Especially now, again with, with still there being in, in this market, still there being a lack of work and finding the right tradesman that are charging you $100 an hour, 150 an hour.

So how come you're not looking into modular? I mean, these are pretty.

Yeah, absolutely.

To me.

Yeah, we're building two log cabins right now that are modular and they don't look like they're modular. And what. It's just the relationship with the company that, what I realized with building those modular houses is the finish work that we were so delayed on the finish work with this company. And I thought this company was like a Fortune 5000 company where they, they do, I think, 40 million in revenue a year in building modular cabins. Modular log cabins. That was the route I wanted to go to. But we had been so delayed on that project with that company that I sort of lost confidence in that model a little bit because the finish work was, would have like at this point it would have taken the same time to stick build that home with two with one GC compared to using like their GCs and their, their company. And then having my GC finish the work. It just, to me, it was just time. It took this, it took them six weeks to build the property off site, but to do the finish work, it took them five months.

Got it. So just give us a typical example. Like you're buying an acre, you know, in North Carolina. What does that cost? What does it cost all in to buy it? So you're into it, you know, all in for what? And then walk us through kind of the capital stack and how you, you finance that.

Yeah. So we can, we can go through, we can go through one that I recently just did. So let's start with the small one first. So I like to purchase property, obviously a tax value. So if you could purchase the property tax values depending on what type of lender you're using and what, what their lending requirements are, if you can find a lender that goes off of appraised value compared to off of purchase price and you get the property at tax value, more than likely in my market, it's going to appraise more than what tax value is. Because even us going through this dip right now, my, my market is still growing. So my very first project, we purchased four acres for about $90,000. And I at the time just tied in the land with the loan. But what I've realized Recently was especially with like everything being delayed is we just purchased a 15 acre parcel we subdivided into three lots and we're building six cabins on it. Eventually we'll build 12 in the next like three years. But I like to purchase the land cash first and then we use that land as collateral to qualify for the loan. And that money is just taken from my investors are just raised through the capital that I raise and then from there it's just a normal development. We have our floor plans done with our gc. I like to go with some sort of theme with my project. So like right now we're building like an A frame community. The next community. We're developing a sort of like a cottage type of community. A lot of stone on the outside of the projects. So yeah, the, the capital stack. I, I recently started using a hospitality lender. The just like how you said Blackstone is has. I mean they made the transition in 2008 and 9 to purchasing single family houses at a bulk. A lot of lenders, a lot of brokers, a lot of banks are making the transition into these like I call them micro resorts. They're. They're going from. It's mainly the lender I use right now, the broker I use right now is making the transition from like RV parks to, to developing these like short term rental cabin resort communities. So that's the. For people who are looking to do these bigger projects, you need to be going to people who are funding hotel development or resort development because they're, they're starting to become more open to this. Six years ago that never would have happened.

Interesting. So, so what's your all in? If you look at it this way, on a per square foot basis for the, these, these cabins or if it's just, you know, total cost, I mean again one of your first deals it was 90,000 for four acres. So. Yeah, so our first build one of these things.

Yeah. So our right prior to Covid, our price per square foot, we don't go crazy on the finishes. The guest honestly doesn't care. The guest doesn't care if the, the roof is corrugated versus if it's standing seam. Doesn't care if it's hardwood floors compared to vinyl plank flooring to them. As long as it looks cool, it looks nice. That that's all they care about. Our holds are 10 year holds. But so my very first project, we were building prior to Covid at like 190, 180 to 190 price per square foot, which is incredible compared to like California and New York, right now we're sitting about like 250, 260 price per square foot, which again, has also influenced the way, like, the type of investor capital I take on, because I've realized investors are coming to me from California, New York, which that number doesn't scare them. Like 260, 270, whatever. My very first project.

Sorry not to stop you, but is that because of the supply chain issues? Oh, absolutely, yeah.

I mean, we're still, we're still dealing.

I mean, to go from like 180 to like 280. I mean, that, that's, that's like a 50 increase. I mean, that's a massive increase in the cost of hard materials.

Yeah, but like, like I said with my very first project, like, my cash on cash was like 120%, like for the year. So it's like, okay, now it's 60, 70%. It's still a good. That's if I was doing the project myself. But going back to what it cost to do my first one, my first one, Covid numbers all in land turnkey furnished, was about 225,000. And that one nets me about 45, 46,000 a year after all bills are paid. And I have a loan on that as well. I think I've maybe put maybe what, 40, 40 grand out of my own, 30 to 40 grand out of my own pocket today. It's more like that same project cabin would probably build anywhere between 300 to 3,325,000, depending on what the finishes are. So you're looking on average maybe 300,000, 320,000 per cabin. We have. We do have larger projects that we're building. Like, we have a 3200 square foot cabin that we purchased, and we're building like a 2,000 square foot cabin. So it can be all over the place. But I would say, like, price per square foot anywhere between 250 to 280 right now. 240, 280, right.

So, Alex, this is, I mean, I love the model. The numbers make a lot of sense. But where I'm starting to, you know, I guess the next challenge I had to predict is how to scale this thing. Right? And maybe the answer is automating this because, you know, these are, you know, again, you're not third party managing. These are hands on. You know, the percentage returns are high, but the actual dollars, you know, it sounds like you got to do a lot of these to really put together a substantial portfolio. So, like, is your goal to like one day have a couple hundred of these like, and, and you know, if. So how do you, how do you scale this?

Yeah, so 650 units is my goal. And that's, that's, that's, that's coming from boutique hotels, boutique resorts, and then these cabins. And I consider the boutique resorts as cabins. And that was the. I love that you asked that question because that was the question I asked myself six months ago was okay, how do I scale this? Like I can't be working on these onesie and twosie projects at the like because at the end of the day, like outside of hiring a property manager or project manager, what is the best use of my time? And what I realized with the best use of my time is, is there was no difference between me looking at a one acre parcel and me looking at a 50 acre parcel. So where I fit in my business is to be developing these larger micro resort cabin communities of anywhere between 30 to 50 cabins at the same time. On top of that, I'm also worlds, I'm also looking into purchasing some like higher end boutique hotels that we can just take over the management. Now if it's anything outside of my market. So like we're doing two projects in Michigan next year. I'm going to be, I, I've already have a manager lined UP that handles 14,000 short term rentals throughout nationwide where obviously taking a little bit less of a piece of the overall project. But I have, I have managers lined up where I can't be boots on the ground or I can't be in that market if something crazy happens.

It makes a lot of sense. So talk about a little bit investing outside your market. I mean we have a national, if not an international audience. And you know, I know for example in New York you cannot do short term rentals. It's just not allowed. And a lot of that is, you know, the Airbnb impact. What was, I mean, you get fined now in.

Oh, absolutely.

Oh yeah. If you, if you rent for less than 30 days, it's problematic, especially in apartment buildings where if you have people coming and going and you know, the other residents. So you know, I kind of understand, you know, both sides, one hand. I'm a capitalist. You know, people should be able to, you know, they own the property. But I also understand that you have to do it in the right way. And so yeah, there are zoning. You know, in New York, if you are in a commercial zone, which is kind of that hotel, you know, occupancy, then of course you can do transient. But you know, I think and I don't know how you got a comfort level that you could do what you could do. But like, when you look into a new market like Detroit, how do you know that you're not gonna, you know, step on any landmines?

Yeah, absolutely. So I've always been a fan of like, what you just said. Like, what are, what are the rules and what are the gray areas where I'm not breaking the law, but I'm also, I can operate. Right? So for me. So in my market, a good example is my market, you cannot do, legally, you cannot do short term rentals in the city of Asheville. So what I did was I pull up my MLS map and I just, I pull up the little line that shows the city and then the county, and then I just purchased land on the edge of that, which is like 10 minutes away from downtown. That's how I operated in that. When you start doing these larger projects, and it's what you just said about New York. When you. In my market, if you're over 10 units, that's a hotel permit. And that hotel permit is surprisingly easier to get than it like, if short term rentals are not allowed in Asheville, which again, they're not. If you're doing say like a, a commercial development where you're doing a condo conversion into a hotel, which is happening a lot in these like industrial markets like Detroit, the hotel permit's way easier to get than convincing the city that your short term, your one short term rental is, is legal, which it probably won't be because they have their laws in place for, to discourage short term rentals. But it's, it's very interesting. You need to be like, what I tell people who are doing these larger projects is you need to be looking at Airbnb. VRBO is just a marketing arm of your business. It is not where your business should be solely at. Because then if you're just on Airbnb, which I would say 60 to 70% of hosts are either on Airbnb, on VRBO1, Airbnb has complete control over your property, period. So that, that's what I would say to people who aren't dealing, who want to do the larger projects or who how to navigate the short term rental stuff is. Figure out how to get a hotel permit in your city because figure out what the least amount of units you have to have and just get the hotel permit if you, if you have the bandwidth to do a larger project.

Awesome. So, Alex, I want to talk to you a little bit about how you Raise money because. And you reached out to me to come on this podcast, which I think is awesome. And I've looked at your YouTube channel and you're putting out a lot of content. So, you know, how did you build your investor network? Maybe talk a little bit about that and then kind of what's, what's in it for them?

Yeah. So what I, the way I built my network with initially was just doing podcasts like this is I learned most of the stuff when it comes to how to analyze a property either through hotel books or through multifamily books. So what I started doing was I started hopping onto multifamily podcasts. I started talking to people who started going to conferences and networking in multifamily places where in a lot of areas, I mean, even to this day, like multifamily cap rates are pretty compressed right now. So people are looking for alternative forms of assets or real estate. I mean like crypto blew up during COVID Right. I'm not in crypto in any way, but so I've realized that it is pretty easy to make the conversation transit. It's pretty easy to make that transition for someone who is in multifamily or self storage or whatever into short term rails because they've heard about it. Bigger Pockets has been a pretty good, I guess, funnel to find investors as well because I publish some every couple weeks I do a blog post for them. So that's how I've built my investor pool is just through Bigger Pockets and just talking to people who are in the multifamily world who are looking to get into something a little bit different.

Got it. So and for each one of these deals, is there two investors, ten investors, a hundred investors?

Yeah. So when I first started I was only doing JV deals and I did 8, 7, 7, 7 JV deals where it was just one partner or if, if the partners all knew each other, I would do that where they own part of the LLC or whatever part of the structure and I own the other side. And then I recently started getting to. I was going to put my own syndication together, but I've just teamed up with some of these funds that already have their own networks established. Again, they're mainly multifamily funds that are looking to short term rentals where I am the deal finder, I'm the operator of the project and they raise the capital and that's. I get a piece of the general partnership, they get a piece of the general partnership and the LPs own everything else.

Perfect. And Is the idea that you all are going to just hold this forever or you know, it's.

Yeah, it's. I'm not a fan of selling off. It's like I'm more of a fan of refinancing, pulling, pulling the capital out, doing more deals or giving the money back to the investors. I plan for 10 years. It's a long term hold. 10 years depending on what the market looks like in 10 years. Because you never know.

Love it. Okay, so we only have a couple minutes left so I would love to get your advice to listeners who are thinking about getting into this space. Like what? That's awesome to hear that you're an avid reader and you know, by the way I, I'm looking forward to getting your thoughts on my book when it comes out. I know.

Absolutely sir.

Podcast. So if I hopefully I can teach you a couple of things you don't already know. But what advice would you give to our listeners out there to better understand this? I mean even maybe they own a vacation home right now and they're just trying to think about how to maximize rent there. Like where would you tell them to start?

1. One thing I do some coaching as well for short term rentals and I'll tell you the biggest thing that People Ms. Is one they just took the pictures. If they are. If they have one property update your pictures especially if you're in a seasonal market. But like the, the, the market looks different whether it be snow leaves or whatever. Pictures is the biggest. Whenever I look at a listing, pictures are the biggest thing. Make sure you're hiring a real estate photographer to do do your do your photos. That's that's number one. The, the days of you taking even your if your phone has a really good camera, have someone that's really good with lighting and blah blah. Second is some sort of dynamic pricing tool that's attached to your property. So there are some really cool tools outside of Airbnb and vrbo. I don't recommend those tools because they're a little bit clunky there. There are dynamic pricing tools and it's very similar to multifamily where it's like 20 bucks a month per property. Doesn't matter how big the property is. That will adjust your pricing based off of what the rest of the market is doing. That way you never have to touch it, set it and forget it. Set your brace, set your base price, set your minimum price. I don't recommend having a maximum price and just it you'll get more bookings that way just by doing a dynamic pricing tool. I use Price Labs if anyone wants to. I'm not affiliated with them, but Price Labs.

Awesome. And then you know the name of the show and my book is the Insider's Edge to Real Estate Investing. My belief and why real estate is so much more compelling. I mean there's a variety of reasons than you know, say the stock market is because I really do think that real estate is an inefficient market. I think there's opportunities to gain edge. So you know what would be some of the tips? What are some. What would be your inside edge to real estate investing that you do to outperform the competition?

Real estate investing and then digging down deeper in the because every single asset class in real estate has its own systems and people and networks. You need to, you need to be plugged in to where the rubber meets the road with the new technology that's coming out in your industry. And a good example of that I already talked about was that company Stay Fi. You need to like if you're in the short term rental space, I'm a firm believer that you should be able to be a control your guests after they book with you. So when I, when So Stay Fi is my edge when it comes to that piece of the business. But technology is going to make you more efficient if you know how to use it. And you need to be plugged into wherever the channels are. Podcast is a very good example of it because it's. Podcasts are faster than books because books take a long time to get published. Books can give you a general idea on the foundation to what you're trying to get to. I've realized podcasts, YouTube channels, blogs are going to give you the up to date stuff, the stuff that's happening this week. So you need to be plugged into the channels where technology is being talked about in your industry.

Love it. And what are some of the personal skills traits that, that you know, make you successful? What are some.

Oh, you need to understand that things are. Yeah, you need to understand things are going to go wrong. There's no, there's no formula or anything to avoid stress or you just, you just need to plan for your contingencies. You need to, you need to understand when you're getting into a new industry or you need to get into anything. There's there, you don't know what you don't know. Having a mentor is helpful, obviously, but there's, there's nothing better than actually just doing it yourself. You're. You're going to make mistakes. Write out your contingencies. Like just pull up a piece of paper and write out every objection that's going to happen and just figure out contingencies. But I will tell you, most of them are not going to happen. So stop worrying about them and just deal with them when they happen.

Love it. Alex, this is awesome. I got to ask you one last question before you go. So I see here that you are a Guinness World Record holder. This might be a first. I don't know if we've had a Guinness Book world record holder on the show. So what?

Right there. Wow.

Okay, so what is this all about? This is for street magic. So what? Yeah, just like a David Lane thing. Did you like have you been in a bucket of cold water for 15 hours or what? What do you got for.

That's funny. So my. I just the. That's funny. A lot of. I've done a number of podcasts and no one actually asked me about that. It's in my little thing that I send to in my bio. But. So my wife's been. My wife. My. My mom has been a teacher her whole life and I was a very introverted kid growing up. So my mom, to make me less introverted, to get me in front of people, she got me into magic, like learning street magic. So she would take me like magic classes like a local magic shop in Michigan. And that has always stuck with me. Always. And it has been, it has been one of. One of the coolest tools I have used to network with people. Even when I was in the military, we'd be bored, nothing else to do, sitting around our officers. I was just bus out like a deck of cards and do some card tricks, do some coin tricks or whatever. And I've kept up with it in the 15 years that I've been doing it. So when I was a kid I always used to go through the Guinness World Record thing and I was like sitting around after I got out of the military. You got to think I went from working 80 to 100 hours a week enjoying what I did, but working that much to. To doing maybe like a full time job of like 40 to 50 hours with the real estate and the school stuff. So I had a lot of time on my hands and my brain was so wired to be on like that. So I was like, I wonder what it takes to get a Guinness World Record. So I just went on their website and saw like something that was either coin or card related that was relatively easy to do. Took about six months to do it. But you don't have to get one of those people out. You just record it yourself, have some friends record it for you. And it was like, I think it's the, it's the furthest to roll a coin to like the furthest to roll a coin. So I just found a place that had like a massive concrete.

What kind of coin are we talking a quarter here?

It was a half dollar. It was a half dollar because it's heavier, right?

Okay. Okay. So good selection. And, and how did you roll it?

Shoot. Okay, put me on the spot.

I gotta, I gotta know because I gotta start.

I think I roll. Yeah, you're trying to beat it. I think I rolled it only like 90ft or 100ft. It wasn't that far, like, but it was like it was finding a flat piece of thing. It was a gym. It was a, it was a gym that I went to. I, I went to the owner of the gym and I was like, not even the owner. I went to the person who closed that, that day that like, who closes? And I was like, hey, I'm trying to break a Guinness world record. Like, do you mind if I just do this while you're closing? And brought my friends in and it was. They just had like a long slab of concrete that ran the entire length of the gym and just, just whipped it through it as hard as I could and that was, that was it. But I, I just enjoy having that because it's like magic related and magic's been, Magic tricks have been such a big part of my life, which is such a weird thing to talk about on a real estate podcast. I guess that's my edge, if we want to talk about edge. Yeah.

Well, Alex, thank you so much for joining us. This has been awesome. And I, I know I already said in the intro that they can check you out at. Alex Builds was your YouTube channel channel, but I know your website is sarcon sargon investments.com and anywhere else that they should be checking you out or is that.

Yeah, LinkedIn. I recently put a course together, a short term rental development and management course. I spent like six months putting together like real quick. I like to say that I created the course that I wish I had six years ago because nothing, nothing exists on the market. The way this course has been set up for people who are looking to do this, either one, two cabins by themselves or it teaches all the way through capital raising and how to do it at a pretty high level. Sort of the spark notes of it is what we just talked about in this podcast, but that that course is launching September 15th and it's going to be on my. It's going to be on my website, which is alexjarbo.com which hasn't launched yet. But September 15 is the launch date to that.

Awesome. Well, Alex, thanks again for joining us. Super exciting. Really appreciate you kind of breaking this down, helping our audience gain the inside edge to real estate investing. That's what this show is all about. This is James Nelson, your host. As always, thank you so much for joining. It means so much to me when you share this with your friends, your ratings subscribing. That's how we let others know what we're doing. As always, you can go to james nelson.com that's where all the show notes will be useful articles, links. I built this site for you to help make you the best investor possible. Until next week, thank you again.

Thank you for listening to the Insider's Edge to real estate investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with James at jamesnelsonnyc on LinkedIn, Instagram and Twitter. Please also visit jamesnelson.com where you can find the show notes and other episodes along with an exclusive video series and other helpful resources so you can gain the Insider's edge to real estate investing. Until next week.