Episode #659 - Risk, Reward, And Real Estate with Sief Khafagi, Co-Founder and CEO of Techvestor

Welcome to this edition of the million dollar Mastermind podcast. This is where we pick the brains of high achievers from all walks of life and get their hard earned real world insights on ready. I'm your host, Larry Wydell.

What was it that caused you to realize these things and where like the light bulb, you started to see and understand these conversations and these things that were happening that you'd been around but had kind of flown over your head?

I was lucky enough that Facebook was an incredibly transparent environment where leaders talk to one another. And as a young leader in a, in a room of 50 other leaders talking about performance, you know, many times a year about their teams, you know, I was shell shocked to see and experience that firsthand about how people talked about budgeting and performance and who's doing what and talking about the artful side. Someone could have performed incredibly well, but their team doesn't like to work with them. Right. So that caused a big problem. And I just, I listened to a lot of other people who have been doing it for a much longer time than I have. And I think sometimes it's, you know, I accepted the reality. Right. I wasn't trying. I wasn't there to change the system. I was there to navigate the system and also to help my team navigate the system. So, you know, helping them understand how the game is played is sometimes the biggest challenge.

Yeah. Now, as you got and what caused you to get restless and how did you make the transition? Because you were in a pretty secure world. You were doing well. You were in a situation where they valued high performers, people who could get the job done. They rewarded them and probably gave you a lot of discretion on your time and things like that. Why did you get restless?

My son was being born, so I, you know, this is going to sound ironic to probably most people because it's probably the opposite of what a lot of people would do. But I always had that entrepreneurial itch to go build and build something that I was really proud of and that life, that work life balance that I had really wanted, especially given that I didn't have that relationship with my dad. Right. My dad was. When my dad became a parent to myself, I think he was in his mid-50s, off the top of my head, if I'm doing my math right. And then obviously he got Alzheimer's later in the car. And there's just a lot of things where I wish if things were different, I had a different relationship with my dad. And it's not at his own fault. It's just the way that the world worked.

Yeah, life.

Yeah, it's life. Right. And so for me, I wanted to be a more present father at the time. And that's even till today. Right. That's a big, big focal point for me is my family. And my wife and I were. It was, I think, April and my son was being born, like, within, like the next 10 days is what they were telling us. Right. It was right on that cusp. And I was like, you know, if I'm ever going to go take a jump in a leap of faith and go build something, it's only going to get riskier. Why not go now? And, you know, I probably jumped too late, if you ask me, but I jumped and I made this switch. I'd also been at Facebook for five years where I think I had learned a lot, but I'd also, I think, met my. Maybe this is the max that I could adapt to in this period of time where I was looking for a change. Motivated by the fact of being a father. I was like, yeah, let's leave this comfy, golden handcuffs, large, six figure, comfy job and go start from scratch, you know, in the middle of being a father at the same time. And, you know, in retrospect, obviously, it worked out decently well for at least how I would define what I care about. But it was a very terrifying decision at the time.

Yeah. I'd made those decisions and then not had the realization hit me for six months later after it was too late to back out.

Yeah.

Wake up in the middle of the night, your eyes pop out of your head, what have I done? The good thing about that is, like you say, well, it's too late now to worry about it. Go back to sleep, you know, so.

But agreed.

It helps to be young when you do these things, you know, because you. There's really more reasons not to do it than to do it, you know, if you're going to be rational about it. And the older you get, the more ration and the more, like, that's where the. That's why the riskier thing comes in. It's. It's harder to talk yourself into the. The longer you let it lay there, you know, and you don't.

Yeah, I was gonna say, I think that's a big part of it. Right. Is like it was. I think younger people oftentimes see risk very differently. Right. And, you know, when you're 5, 10, 25 years into your career, you ask yourself, I should have done it back then. You just don't know what you don't know. And again, I had incredible mentors around me who even my manager and mentor at the time at Facebook, he understood, he was like, go do your thing. You have this itch. This is, go do it. If you want to come back, let us know.

Why was real estate your thing? Other than that's the thing for everybody in California? Why was real estate were you doing, were you messing with that? Were you getting a little, little education in advance as you, before you left, you find yourself getting more and more intrigued with that industry, definitely.

Right? So it was a. I didn't jump into real estate. It was the first thing. I had been doing it while I was at Facebook. And the main thing, and the main reason is I was a younger individual with a high income living in a, in California, where I needed to think about taxes and different strategies and different diversification. And as I learned more about the industry, and specifically the short term rental industry, which is what we're in today with Airbnbs, I recognize the gaps are just so large. And as someone who was conditioned at Facebook by culture there that everything should be automated, why don't we have technology for this? You're going to do it more than once. Why is it built and just being around such advanced everything. And obviously I can't talk about everything that happened at Facebook, but everything that you saw and experienced there, whether it was behind closed doors or not, you're like, wow, this stuff didn't actually exist. It's possible. And then you enter the real world or even the real estate world, where everything is so archaic and dinosaur. And I can't tell you how many times I've gotten so frustrated with something in the real estate world where I'm like, I don't understand why this has to be the way that this works. Right? Because there is a better way, but no one's adapting it to it because you just don't want to. And that to me poses the biggest opportunity of an element of disruption. We're not here trying to change the world necessarily with what we do, but we recognize an opportunity to simply do all the things that people weren't. And that's us reinventing the wheel in the safest of forms.

Well, this is why this, it's the, it's the government running real estate is why, you know, you don't have meta like you said, you know, money motivated, conquer the world vision. They said no bureaucrats. And it's not that things have to be that way. It's just that the people who are in Charge, you know, there for a period of years or whatever. And they don't, there's not a lot benefits to them for rocking the boat. You know, they're not going to get a big slice of all the sales that are increased in California because of a change they make in their, you know, the real estate licensing process. And, you know, you're dealing with bureaucrats and so that's why.

Agreed. I mean, look, it's, it's, it's part of the game.

Yeah. And so as you went in there and you said, okay, I am going to make some changes and you came up with this, did you? Were you just making sales when you started real estate as a realtor?

No, no, no. I've never been a realtor and never will. So what we did, surprisingly, maybe not surprising to many, is we wrote software for the real estate space. Because coming from tech, the way my brain works is why can't software fix this or help this? Right. Or something along those lines. And the first product that we came to market with in the STR space was about discovery of short term rentals. Right. And it was what we thought, a great idea. The problem was it was high churn. It was, you know, not every, most people aren't looking to buy 10 Airbnbs tomorrow, you know, if they're going to buy one in their lifetime, sometimes many people are happy.

Right.

And so, you know, we built a product for an avatar or a Persona that didn't exist. But the good news with that is we learned so much that we eventually pivoted and pivoted and pivoted. That allowed us to build a company today that solved the pain point of the user.

Right.

And that's the, that's the tech mentality that you have in building a business that I think the real estate industry often lacks. Right. Real estate often is transactional. Given your example of say being a realtor, we weren't trying to be transactional. We were trying to own the entire stack of real estate. Because if we could own the entire stack of real estate and short term rental space, we can own our own futures rather than transacting within it.

So now explain how you went, what the concept was to own that with the work, you know.

Yeah. So, you know, today we don't license our software. We're actually not a software company. We have real estate fundamentals, but we build our own software internally that allows us to scale and operate to the success that we do. And what we did is we solved for the human pain point, which is in Short term rentals. If you want to own your own Airbnb, it's a lot of freaking work. You got to find it, design it, furnish it, run it, operate it. And so for us, we offer a passive opportunity where you don't have to do any of that. You simply write a check, you join a portfolio like ours and other investors across the country and we do all the work. We find it, we design it, we furnish it, we lead with data and we operate the property ourselves. We design it ourselves, we renovated ourselves, we own every single part of it. Which means we can control the experience for our investors, we can control the experience for guests, and we can drive the best profitable type returns. Right.

Is it short term, is it Airbnb exclusively or short term rentals exclusively?

Yeah, so it's short term rentals exclusively. Airbnb obviously is the behemoth in this space and it's used as the verb and the noun. But yes, all we do is short term rentals.

Yeah. And so also the financing, you know. Yeah, everything. Yeah. And so. Well, the other deal is that I, I got the idea from reading a little bit about your software and everything that in terms of finding and identifying the properties that are worth going and getting you, you've got that down to a high tech science too, haven't you?

Exactly. And that's, and that's the approach that we take with the way we operate with what we buy everything.

Yeah, you put it through the ring, you know, you put it through the rinser and all the non accepted ones just automatically get thrown out. It's not a big debate as they're just tossed and you go, you know, you're like, you built this. To me, it's kind of like they have the. On television. Back when I used to watch television, the reality gold, looking for gold in the Amazon or in Alaska and they have the big grinding machine and they go through a mountain and then they get a handful of gold.

Yep, exactly.

And even. Even then.

Right. There was probably a better way to do it. Right. But what do all the movies show you in history tells you is you had everyone coming through with a shovel. Yeah, right. And trying to do the same exact thing. Yet what did we learn? It was the person selling the shovel that actually made the most money and probably whoever had a shovel infrastructure at the time who could support that.

Yeah.

So those are the types of things that, you know, I think people, people recognize sometimes a little too late.

Yeah. And it's complicated because now you have the. Or I don't know, you know, I don't keep up with it that much, but, you know, the whole idea of the hedge funds coming in and buying up gobs of houses wherever they can find them, you know, and paying whatever price, they don't worry about equivalent for the price. They just want to gobble up all the available houses in a neighborhood for you to be able to go in and sort through that with. A lot of times you're going through leftovers, it would seem like.

Yep. Well, to the retail investor, yes. But that's why we built software to better identify markets ahead of the curve.

And the great thing that I like about what you're doing, and this is why people are either going to get in this game or you're going to be beaten by the people who use it. And that is, you don't have to buy. Like, if you want to get into Airbnb, you don't have to do it in your neighborhood.

And it's terrifying not to.

Yeah, you could be in Alaska. You know what I'm saying?

Yep, precisely. And we and people will become more comfortable with that over time.

And so with you grew this thing, talk about the growth of this idea, whenever you have a new idea, you know, it's like we talk. I talk about this every day with people. It's just like, everybody's against you. You hear a thousand, a million no's, and then when you break through, you know, it's not going to work. It's a terrible idea. It's not going to work. It can't work. And then when it works, it was like, well, you know, right from the beginning, I knew you had something. You know, I always believe. I always believed in you. I always thought you were going to make it big, you know, and everybody turns around. It's like, it's a terrible idea until it's not.

Yeah. You know, we heard a ton of no's, no doubt. And we. We've experienced great growth. But, you know, for us, our growth is in terms of how we measure it, is, you know, obviously being in our investment space is by equity. And, you know, we were over $50 million in two years. And that's really valuable or important to us because it allows us to scale our real estate portfolio for us and our partners.

Let's talk about that. You started, you started and you started. Everybody starts with zeros. And, you know, we're in business, we're rolling. We've got a new idea. Let's put it together. And the odds are against us, you know, Most new businesses fail. And so we're running into a stream of no's. And then two years later, one year later, where are you?

A year after we started, I think we were doing about. We were right about 20, 25 million. And what is that? It was.

What is that?

25 million equity raised. So for us, we measure our growth by equity under management, meaning how people.

Investing in your platform. Right.

People investing in the assets that we buy, the real estate.

Right. And so how did you get the word out about it? How did you break through?

Yeah, no, so the first thing we did, which I think a lot of people do, is, you know, friends, family, colleagues, you know, people that, you know, you hustle and bustle and, you know, do podcasts like this and try to get out, get the word out in every possible way. And when we first started, you know, we went to our iterations and it wasn't really until like October of 2021 where we really hit a, like, wow, this could really work. Because we raised I think like $6 million in that month or in that period. And we were like, oh, maybe we're onto something. And then as the next year would come up, we'd end that year at about 37 in aggregate in total. But we continue to just hustle, to be quite honest with you. And I think our time in tech helped us in thinking about how we can growth hack an idea on the cheap. And today we grow in more sustainable methods. Right, because we're a little bit more of a. I think we're still very early, but we're more of a mature company than we ever were, obviously. And we'll continue to get more mature over time. But we added strategies for sustainable growth today that we couldn't do but here or the year before because we didn't have the money or didn't have the people. But I think the biggest thing that allowed us to grow was really our beliefs in the people that we hired. I think our team is the best in class in what we do. And I think it's a bigger reason why people even invest with us is they believe that the people here can execute the vision and missions that we are after on a daily basis. And we're incredibly passionate about it.

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