197: From Vacation Renter to Vacation Rental Owner with Casago's Steve Schwab

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Uniquely gifted to share with others, making the world a better place for all of us. My name is Gary Pinkerton and I co host this show with Jason Hartman. This is episode 197. My guest for today is Steve Schwab. Steve served as a US Army Airborne Ranger before getting his degree in Criminal Justice Police Science from New Mexico State University. He took a trip after graduation that changed his direction forever. In 2001, he took a trip down to Rocky Point, Mexico and started doing odd jobs for the woman who rented him a beach house. When the woman's husband passed, Steve paid off their debts and took care of clients. Nearly two decades later, hailing from Scottsdale, Arizona, he runs a company called Casago which represents more than 2,300 properties from 13 regional offices across Mexico and the southwestern United States. Steve was recently awarded one of Arizona's most admired leaders for 2019. Please help me in joining Steve Schwab.

Well, hello roll investors. Welcome back. Thanks so much. I think you're really going to enjoy this discussion I have today. It's with Mr. Steven Schwab and Steve. I'll let him tell the actually I just called him Stephen. I'm not sure that has any relevance. Steve was an Army Ranger and started off with different jobs in the army for nine years. He mentioned to me before we started recording and I talked more about his extensive background in the introduction. Steve, if you wouldn't mind though, please. Well first of all welcome and then please give us a little bit of your background.

Well, thanks for having me. It's great to be here and to be able to talk to you and all the first responders and military people out there. My background started off like we were talking about earlier. I was an Army Ranger. I had made into the 1st Battalion during the 90s. And then after getting out and going off to college, I decided to take a little time off and go to Mexico for the summer. Ended up in a Taking over a vacation rental property management company called Cindy's Beach Term Rentals. And from there we just grew it out, and I've been doing it ever since.

How in the world did you come across that? Were you staying in one of the properties they were managing or.

No, Just like all good military guys. I was drinking a beer and.

And there's a gentleman named Bruce. He was this big guy. He was talking about how he couldn't get up on the roof. He wasn't feeling well. And so I said, I'd do that for you. So I climbed up and started doing a little bit of odd jobs for him. Come to find out, Bruce had cancer and passed away. And his wife didn't want the business anymore. Her and I talked and she sold it to me with payments. And that was the beginning of my career.

Wow. Okay, so I've read a little bit about this, but bring us up to current day then with that. Okay.

Well, yeah, since that time. Started off with just a few properties, a handful of properties. And, you know, the hard work and discipline that I'd come to learn through the military really served me in the. In the civilian world. And it wasn't necessarily that I was smarter than anybody else. I just tended to work harder and finding the ability to lead small teams. I was able to put together a small team and grow out to what it is now. I changed the name to because nobody believed I was Cindy anymore. We changed it to Casago, and Now I'm in two countries and 15 cities, have a couple hundred employees, and manage about 2,000 properties.

2,000 properties?

Yeah. Wow. Do you own any properties of that type or rental properties in general?

Yeah, I have several. I have a portfolio of my own that ranges on both sides of the border, Mexico and the US and then several cities. So not only do I manage other people's properties, but I've been able to invest into my own and watch my portfolio grow.

And they're all vacation type properties?

Yeah, 90% of my real estate portfolio is vacation rentals.

Okay, cool. Again, going back to the beginning, there you were. You had just gotten out of the military when you took that summer off in Mexico.

No, I went off to college. The idea was to become an officer and I just never went back after I went for that summer after my fourth year of college.

Okay, cool. So your time off was a break after college? I got it right. You did college on your own, so there was no commitment or anything there, right?

No, there was no commitment. Went to New Mexico State University on my GI Bill and Army college fund.

What did you study there?

I studied criminal justice, which I have used nothing in my career. The only thing I used was my Spanish classes, and I think those are the only classes I ever got a C in in college. So my worst classes were the only things I ever used.

Well, I've never. I didn't use my nuclear power master's degree too much either. So I was in nuclear power all the time, but it wasn't a master's course that I was playing out, you know. So you aren't really even directly thinking about this as transitioning out of the military.

You kind of fell into this, but.

You'Ve obviously grown it to be an incredible portfolio and active business. You know, as you, as you're considering, you know who you're. Who's listening here, who the audience is, people who are really considering pretty strongly to make the same kind of a leap. Any advice for these guys?

Well, you know, when it comes to making that leap into your own business, you know, I know there's sometimes I remember when I was getting, when I was etsing out of the military, kind of that security bug is gone, right. And you kind of go out and you're on your own and it's a very new experience. And you find a lot of brave men and women who have never really like, said, okay, now that financial side, the security side is gone, what do I do next? And you've learned things in the military and as first responders and in that sort of culture that the rest of the civilian world just doesn't have. And if you apply that correctly with some good common sense, you've got a real advantage in the world. So don't be afraid to go out and step out on your own.

Nice. Well, what are some examples you think of that where they just clearly stand out?

Funny enough, just showing up on time to meetings is amazing.

You find so many people who don't take their schedule seriously. So showing up on time, the good hard work, ethic of going out and getting the job done and making sure it's done well, the attention to detail that's taught to you through the culture of military and first responders, also just the decisiveness. A lot of times we have to make quick decisions and once we're committed, we go with them. And that's lacking in the rest of the world. Stepping up and being able to make a decision and back it with confidence and leadership goes a long way. And then we all have watched leaders that we love and that we didn't love so much. And it's a high intensity situation to be part of this culture and experience those sort of situations. And it becomes a learning ground for leadership of how to take care of your team and how not to take care of your team. I always say that some of my best leadership skills come from the people who I would never be leaders who I'd never replicate their leadership style. It teaches you things as a young person that the rest of the world just doesn't get. And you're going to have those with you for the rest of your life. You don't even know what you're learning when you're in those situations.

Yeah, that's great advice. That is awesome. I was just interviewing another gentleman recently and he's basically a corporate coach. So he goes in and helps organizations get more efficient. And he said, I feel like I'm. I don't think he said chief because actually he was a Navy pilot. I feel like I'm the chief. Just telling the new young guys who just showed up some of the really, really basic stuff, like it's helpful when everyone shows up.

Some of the very.

Very basic stuff that you just mentioned that the members of the military really have as a leg up. So I don't really know that. I have a lot of listeners that have a lot of trepidation about being able to succeed out in the. I mean, I know that's out there. I've heard of that. I just don't have a lot of statistics on what percentage of the people listening to this are that worried about it. But any of them that are, you know, I'm completely in agreement with you, they should just table that in the back. I mean, don't go in cocky. Like, there's definitely some corporate knowledge. There's some things about how life operates in the corporate world or in the real world that is different than what we did. And you can certainly mess up by going in just assuming that it's another day in the military. But gosh, it should not be a confidence issue.

Right? I agree with you 100%.

So how big is your organization? Obviously fairly decent size with 2,000 units.

Yeah, a little over 200 direct employees. And then we have a lot of secondary, you know, Employees and vendors that we work with.

Okay. And so you list your stuff on several different websites, I'm sure. Vrbo and Airbnb and things like that, right?

Yeah. So on a side business, we couldn't find a way to list our properties on all these different channels and operate the company the way we operate, thought it should. So me and one of my competitors started a software company. And the software company distributes that onto about over 200 different channels. So it's not just my website, but it's also these other 200, you know, vrbo, homeawaybooking.com so if you book on one, it automatically blossom on the other. Real time bookings. That's the whole side business. But yeah, we do it. We advertise in all of them.

So I have a short term rental, vacation rental, I guess, in on St. Augustine beach in Florida. And I think my manager right now is doing a tremendous job, but I think she's doing them all manually. It kept showing in the calendar that it was an owner hold for owner's use. And finally I was like, why do you have that down there for like three weeks? Over the next two months, I'm not planning to use this property. And she says, oh, no, no. Well, that's because Airbnb, I want to say it is, doesn't share with the others or something like that. So she has to manually do. I don't remember what it was, but it sounds like she's not using your software.

I'll send her my way.

Okay, love to do that. Okay, so we talked about kind of the transition out of the military. You're obviously using some skills of managing a very large organization. What role do you feel? I mean, I realize you're the owner of the company. Do you feel like a CEO role? Are you daily involved in operations?

You know, I'm just transitioning now into really trying to get away from operations. I've hired a chief operations officer, trying to move more into that CEO role where I've been kind of doing both. When you grow something, it's always really hard to let go of those details because, yeah, you know, that trust factor. So selecting the right person was important. But now I'm moving on to hopefully fulfilling my role that I should be doing as a CEO.

And are you looking to expand the business or what's the CEOs got for vision here?

It's really stepping out and being able to be the face of the company instead of being internally looking at the day to day. You know, why was this broken or what happened here?

Sure.

Being able to go out and put that forward facing presentation on to grow the company.

Cool. So I did my due diligence of stalking you and on your website I noticed that you're predominantly in Mexico and the western side of the US A little bit there in Arizona. Nothing on the east coast, or at least nothing I saw. Is that intentional? Is that helpful? Is it more efficient doing it that way?

The center of gravity for me was a little town called Puerto Pinasco. That's where I got my start. So I've grown out from there and I think it really comes down to just proximity. Trying to operate something in Florida, you know, when we are only on the western side of the United States would be difficult. Right. So we're taking steps to grow outward geographically. As we find the right opportunities in the right cities, we plan on growing out throughout the entire United States. I'm looking to go to 40 cities with controlled growth and no venture capital there. Again, you know, making sure that we have operational control and proximity to the cities that we're working in is important to us.

So when you talk to people about, hey, how is, you know, I'm sure you get the question often, how is it different having a short term rental in my portfolio than an annual rental or a long term residential rental property? Well, how do you address that? Or what are kind of the bigger points?

There's some important things to know when you're getting into the vacation world or the short term property world. You know, first of all, if you're counting on the rental income to make the mortgage, you're gonna have to plan ahead because there's a reason why they call it seasonal rentals because there's a good season and there's not so good season. And so ensuring that your seasonality and your seasonality income isn't going to affect your ability to keep up with your payments is the first one of the most important things to look at. So cash flow is key. Make sure that the local ordinances, the city and county are friendly to short term rentals is important. For instance, in Santa Barbara they said, okay, from now on, no, no rentals less than 30 days. So there was a lot of people who bought very expensive homes. They're planning on doing two and three night rentals and suddenly they were, they had to change their plans. So, you know, make sure those, those ordinances are important. Make sure that you're buying in a property if it has an HOA, check those CC and ours and make sure that those CC NARs don't restrict your ability to do vacation rentals in the way that you see fit.

Very important there.

Those are some things you also think about the length of season. There's some places that have very long seasons and some places have very short seasons. Making sure that, you know, if you have a longer season and a higher average daily rate, it's going to have a lot better income, you know, so checking those sort of things is important.

Yeah, very good, very good advice. I learned that my first few months, the first one that you mentioned about having a little bit larger contingency and a little bit larger bank account in that property. I mean, we were just. Ours opened up in high season and so for like six or seven months, man, it was just rocking. I was like, gosh, why didn't I do this before? This cash flow is amazing. But now I'm like, I think I need to put some of that money back in that I took out.

Yeah, yeah, yeah. Make sure to budget accordingly. So it's important, right?

Yeah, those are great points. Okay, so let's think about what would you say are benefits for somebody who's been following the traditional path of, let's say, putting their money in the thrift savings plan or 401k or typical 403b kind of government plan for the first responders? How would you compare rental property ownership or maybe a small operating business as opposed to more of a typical approach for retirement saving?

Well, anytime you're operating a small business, your ability for return on investment is high. Going out and taking that risk, you can create a lot of income for yourself. But remember, that's an active investment as opposed to a, you know, a passive income. Right. Time commitment is important. Making sure that you have the time and that who you're married to is willing to let you have that time. So you're not creating some sort of instability within your own family as opposed to just a passive income when you're retired. So a lot of it is about what you want to get out of it when it comes to just looking at maybe, you know, purchasing a seasonal rental. The great thing about that, especially if, you know, if you're very family centric, you can have an investment, but also at times of the year you can go to enjoy your investment. We have different kinds of investors into vacation rentals. I consider one to be like a lifestyle investor. People who bought with the idea of being able to invest into real estate, but also maybe be able to enjoy a vacation destination that they love. We have a lot of people who are who bought while they were active or while they were in their career with the idea that this is somewhere that they love. You know, it's a destination they love and they're helping, they're using that rental income to help pay that off. So that will become, eventually become where they plan to retire, you know, on the beach or the mountains or you know, one of these types of destinations. It becomes an investment into their future and into the family.

Great forward looking kind of planning for what it's going to look like, you know, down the road for your, for your retirement future. How about financing? How have you purchased your portfolio, your properties? Any insights on that? Paying cash financing with conventional loans, that kind of thing?

Well, I've done them all. I've gone everywhere from just a conventional loan to paying cash. And in Mexico there tends to be a lot of developer financing, especially in the northern part of Mexico on the beach. So a lot of times in Mexico it's almost like a no qualifying down, qualifying finance from the developer, you know, with like 30% down, depending what they do. There's all those types of things. I would tell you that if you can't afford to pay it off in 10 years with the cash flow you have already, vacation rentals may be a difficult thing for you because if you don't want to do a 30 year loan on a vacation rental and then be struggling to make the payments if your cash flow isn't there for you during the off season. So make sure that when you make these decisions, you're making good decisions based on where you're at now, not the dream of what some real estate agent will tell you that this thing is going to book, you know, 365 days a year at a thousand bucks a night and it's going to make you wealthy. Check the statistics that the real estate agent tells you against the market. You can go look at, you know, go look at the airbnbs and the VRBOs. Go talk to property managers about like homes that are like that, yet statistics, compare them, you can see what they're charging and make sure that what you're getting into is realistic for you.

Yeah, great. Definitely doing due diligence on the start. You mentioned you don't want to be covering the 30 year mortgage in an off season. I mean a 10 year mortgage would be more difficult to cover. But are you saying, are you talking about like down the road when you're retired and you don't have your other income? Is that what you meant?

Exactly. If your kind of cash flow is already struggling now, do you really want to try to figure out how you're going to make that same payment when you're retired? That might not be the best play for you. You know your, your situation better than anybody else. You're going to make those decisions. But a lot of times you look at that what you can afford on a 30 year note instead of a 10 year note, like you can afford so much more. You know, be careful not to fall for that trap.

Yeah, yeah, yeah, got it. That makes total sense. Okay, so, well, gosh, we flew through 20 minutes there and I know we both were a little bit time limited. Any advice on how to study this industry, any resources that you would recommend for the listeners? And then also, please don't forget to put in maybe how they could find out more about you or contact you.

Well, you know, for your listeners, I have a book called Going from a Vacation Renter to Vacation Homeowner. It's on Amazon, but if they'll email me personally, I'll send them a copy of it. For all the first responders and military people out there listening to your podcast so they can go through and read it. It talks really about the same things we're talking about here, but much more in depth. How to select a property, what are things you should be considering, what's going to rent more often, what's going to fit your lifestyle. So I'm happy to send that out and you can just email me@steveasago.com that's C-A S A G O dot com. I'd be happy to send that to them to help them all out.

Okay, great. Well, I just sent you an email.

You got it.

Well, hey Steve, thanks so much. And I've looked@casago.com and there's a tremendous amount of information on there and you can just kind of get a real good feel about where Steve has his properties and how they set them up really nicely to show very well on the website. I learned a lot just by going through there and kind of comparing it to what I'm doing out in Florida. So really appreciate that resource and the offer for that book is really, really gracious of you, Steve. What else have we not mentioned that we ought to talk about to this audience?

Well, I would tell you that if you're going to go ahead and get into this industry, make sure to be a responsible host. Make sure to check the people that are coming through your property. Make sure to pick a good property manager that cares and treats your property like their own. That they be that there's somebody that's truly a steward of your property and advocates for you in your absence. Getting into it's easy, but as we all know, running the operation becomes a difficult part. So make sure that you're making good choices once you purchase that property on who stays in your property and who makes sure that your property's being well taken care of.

Awesome. Yeah, have a good staff and a staff that's vetting your customers nice or well, right? Awesome. Steve, thank you so much for spending a few minutes with a heroic, investing audience today.

I really appreciate it. Thanks for your time.

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