STRSS 20 – How to manage and build Rental Arbitrage properties remotely w/ Farhan Abbasi

Video Transcript

 

00:00:00

I actually didn’t like the word arbitrage when it came out, because I don’t think it’s pure arbitrage. The way hedge funds do hedge funds find the same stock, the same exact commodity and sell it in another markets. Don’t change it in any way. So that’s real arbitrage. We’re not really doing rental arbitrage because we’re changing the product along the way. We’re not offering the vacant unit for one and then cutting it up and then offering it vacant. No, we’re doing a lot to it. We’re actually building a lot of value in the big service.

00:00:32

This is episode number 20 of short-term rental success stories, podcasts. Welcome back to short term rental success stories. I’m your host, Julian Sage. This is a show where I talk to hosts about their journeys and starting and growing the short-term rental business. My goal is that you’ll be able to walk away with practical information. That’ll help you become a better host and learn how to scale your business. So we just had a really, really nice review come in on iTunes from TX fan 8, 7, 5, they left five stars. This is quite a longer view. So I’m actually just going to share this on the host nation Facebook page, but I did want to share some of the key things that they did really enjoy about the show. They said that they liked the best practices from other property management companies that could be applied to their business.

00:01:13

They said they liked how mindful I was towards trying to direct the conversation towards like actionable ideas and processes. And they also liked the variety of the guests on the show, which is nice because I am trying to get people that do have different types of success stories, whether that’s co-hosts staying, whether that is property management. So I appreciate the feedback TX fan, and I invite anybody who is interested. Please leave, leave a review. If there’s something that you enjoy about the show, please let others know what you take away from the show. And if there’s some thing that you would like me to maybe improve, or if you’d like to see something kind of change, feel free to reach out to me in the Facebook group on Instagram, wherever you feel comfortable. Send me a message and let me know, like, Hey Julian, I would like to see more of this, or Hey, maybe you can cut this out.

00:02:01

And yeah, I, this, this is our show. So I want this to grow as a together. This podcast, this past month has just blown up. We have gone over a hundred percent for the amount of listenership on the show, which is just so cool and so amazing. I’m glad that you are all enjoying this. And we do have a variety of content. That’s not just in podcasts. We do have stuff that is available on YouTube. And we also have the new podcast Vacation Rental Machine, which is where John Bell and I, who was a previous guest on the show were breaking down right now. And we’re actually giving a free course, basically a free masterclass on how to get started and scale up for making a Vacation Rental machine is what we call it. So it is very more action oriented. The short episode stuff that is very applicable that you can start doing like homework on.

00:02:50

So I invite you all to join that show and congratulations to all of us for the 20 episodes. And let’s continue to just keep ongoing and, and try to just provide as much value and grow this community. And it is just going so strong guys. Thank you so much. I’m very honored. They had the honor of speaking with Farhana bossy. Farhan is based out of Boston, Massachusetts and runs a coworking space called the coalition downtown while also managing a portfolio of 15 properties, which are also located in the Boston area. Farhan has been in the rental arbitrage subleasing space since 2012 and throughout his short term, rental ventures has managed over 40 properties, but it’s had to scale back due to tightening regulations in this success story. Farhan sheriffs transitioning from climbing the corporate ladder and accounting and finance to leaving the rat race and taking up self-employment and hospitality, the steps to building systems that allow him to manage his properties part-time and the challenges of tightening city regulations and having to dissolve a large portfolio of subletting properties. If you’d like my show notes for this episode, go to Short Term Sage dot com backslash STR two zero. Or if you like my show notes sent directly to your inbox every week, then go to Short Term Sage dot com backslash show notes with all that being said onto this week’s conversation. A welcome back host nation. Today. I have the special honor of speaking with Farhan Abasi Farhan. Would you please introduce yourself and let the audience know a little bit more about who you are and what inspired you to get into short-term rentals? Sure.

00:04:18

Hello, Julian. Hello community. My name is Farhana bossy. I live in Somerville, Massachusetts. I grew up born and raised in Toronto and also Boston. So I bleed green, but go rafters. I am, I would say I’m one of the early adopters of, of Airbnb. I started hosting in 2012. Before that I was seven years at Princeton young, an accounting firm. I got my CPA because of that. I did a master’s in accounting and finance and accounting focused and coming from a bit of a real estate upbringing with dinner table talks, listening to my parents, talk about the real estate stuff. So that’s kind of the context I’m coming from and happy to have a chat with you.

00:05:14

Nice. And do you mind talking a little bit about like what you have going on and specifically, you know, what led you to starting this short-term rental business? Because you also, before we started recording, you said that you started at, you’re actually an OJI in the space. You’ve been in this since 2012, doing the, the rental arbitrage method. So if you wouldn’t mind talking about some of the stuff that you have going on and then what led you into that?

00:05:38

Sure. So I have about three arms. I’m an a, I’m a I’m self-employed I don’t like to overuse the word entrepreneur, but I, I have three arms in a way. One is a coworking space that I co-own, and I’m the operator, the Boston location, it’s called coalition downtown. It’s at 68 Harrison. So if you’re a startup or entrepreneur in the Boston area, please come check us out. We have ice cream socials. And the times the second arm would be the short-term rental business, which I’ve been operating since 2012, kind of on the side. It’s, it’s pretty automated. I, I get involved, but I manage about 15 units for that. And, and I’m actually on a growth strategy to get into new cities throughout the country. And you know, one of the interesting things that I’m getting involved in is speaking to a lot of people in the industry.

00:06:39

So I’d love to actually speak to others who are looking to grow with me as well. I’m happy to, you know, if you give out my contact info, I’d love to talk to folks. And then my third arm would be a more traditional real estate syndications that I’m getting involved in. Most, most of the deals have been for me and our family assets, but getting involved in helping out friends. And so obviously if there’s a investors in the community that are looking to get involved and maybe in any of the three arms, I, I I’d obviously be, be happy to talk. Those are the three arms. I didn’t answer the question about like how I got involved in them, but I’m happy to spend a minute or two on that if you like. Yeah.

00:07:23

If you, if you wouldn’t mind explaining, like what how’d you find out about the, the short-term renting and then specifically the rental arbitrage method and how you got into that?

00:07:33

You know, this is actually a, I like this part of my life. So this was seven years into being an accountant and auditor and young. I was so first of all, my first year I was held back. I didn’t get promoted. And I was like, do I stay or do I leave? And I decided to actually confront it. And I stayed and I spent a long seven year career at Ernst and young, but I made it to manager, got a CPA. And I felt like I, I had a certain, like, I, you know, kind of got the chip off my shoulder, proved it to myself, but along the way, like I just, wasn’t really a satisfied, I had an offer to stay. They had me flying everywhere, which is awesome. It was fun. I was living in a hotel for one year straight in my last year.

00:08:24

I was at the w in San Francisco as living in times square, living in London, David barbecue, Kansas city, like I was just everywhere. Right. So, but leading up to that last year, I would take three months off each year to try a new startup idea. And a lot of it would relating related to e-commerce or consumer products. I also helped somebody publish a book, stuff like that, just, but a lot along the way, I realized that nothing, none of that was panning out. And one of my buddies pointed out to me that I had this safety net of going back to the job every single time. And so I never really like got my neck, you know, out there. So I took his advice and I actually left the job and I traveled to Southeast Asia and I backpack for six months. So while one year I’m living out of a suitcase in the finest hotels, in the country and in London and whatever, the following six months I was backpacking by the channel, like every kind of hostile there is an L and it was actually the best time of my life, right.

00:09:39

Compared to fancy schmancy. The w now during that whole period, you know, I obviously, as a consumer, I was a consumer of hospitality and all of its forms, but I also like dabbled as a guest as in couch surfing like the, the, the couch surfing travel community. And I, I loved it so much. And I really got like a true sense. I feel like of the global travel community, I came back to Cambridge after my six months of travel and we have a home in Cambridge, it’s like a multifamily. And I started hosting CA as a, to give back to the community hosting for free as a, as a host and couch surfing. And, and, and while, while working on my ideas, none of my ideas were really gaining any traction. They weren’t making revenue. I didn’t even know how to like work these widgets on WordPress, yada yada.

01:10:38

Right. So it was a slow process. I needed to pay the bills and my father also needed help filling the rooms and the units. And so I helped him out. And what I did was I gave him an offer of, okay, I’m going to guarantee you for this whole, like, like property multiunit property. I’m going to guarantee you this much rent and I’m going to keep the upside. It was a win-win. And, and, and that’s kinda how I got started with the first I ended up like Airbnb my couch. So actually, let me step back. I Airbnb the empty room next to me. I was in a two bedroom apartment, right. Our Airbnb, one of the bedrooms and, and I was living in the other, and then I Airbnb my room and I lived on the couch and, you know, picture me like 29 years old CPA masters left big four accounting firm to sleep as a 29 year old on the couch.

01:11:45

And that was just like the, one of the most fun times of my life. I mean, I was single, right. But it was, it was a fun time because I can just do whatever I want, but I ended up Airbnb being the couch and it got a little crazy. And I stopped doing all that room by room and couch, my couch stuff, but I ended up moving to another apartment, but that landlord I got good with and that landlord came to me anytime she had an empty apartment. And I said, I said, do you know anyone? And I said, I can take it from you. And I explained to her what I was doing, and she was okay with it. And so that’s how I got my first, like, almost like, you know, non-family building and just kind of took off from there. And that was back in 2012, I had to do a lot of education. I couldn’t even talk to brokers about it. They weren’t interested, but, but you know, these single owners kind of like, you know, gave me a chance and I, you know, appreciate them for it.

01:12:43

I, I just think that that is super interesting. You, you, you, you started, you, you were on this real, very strict, more set path, linear path for yourself. And then, you know, through just traveling and experiencing hospitality, you started learning about couch surfing. And then as you know, this, the CPA with a master’s, who’s got this really nice job. You just, you just start house hacking. And then from the house hacking though, you kind of fell upon almost the rental arbitrage method. When, when did it kind of click for you? Like, okay, this makes sense. Like, this is actually could be a profitable business.

01:13:23

Right? So I was talking about buddy of mine, we were playing basketball, telling him what I’m doing. He’s very business savvy. He told me that, you know, it can scale. And I said, I spoke to a couple of brokers. I spoke to a couple other owners and they shut me down every time. And he said, you know, he’ll, he’ll help me scale. And after he ha he used a bit more of an online system where he would contact owners and all that stuff. And that’s when, so, so we added some additional units together, excuse me. So, so it was basically that year we kind of went, you know, we kind of went in like balls to the wall, right. So we just, so 2012, we started not, not the w the issue was that, like, the way the operation is, was just such a mess.

01:14:24

We did everything manually. We had backed like the partner, and I didn’t really like see eye to eye on things. And it was just like the wild, wild west in terms of like, what, what this Airbnb thing was. He ended up, he and I ended up splitting, he took his units. I took mine, and it really didn’t turn into a real business, I would say until I started a channel management system and a virtual assistant to help. Cause until up until then, it was mainly me every now and then I would hire out, try to hire some online hosts, but like it, you know, virtual assistant with a channel manager, like a channel management system, those two elements made it. So that it’s a scalable business with those in place. And some other, a number of other tools in place. I feel like I could like double in size with those capabilities.

01:15:20

Okay. So, so you’re, you’re reaching out to real estate brokers trying to find units that were available. One of the rental arbitrage methods that a lot of people use is they’ll try to work with like apartment buildings. Was this something that, that you were thinking of? Or were you looking for more like single family house styles?

01:15:38

Yeah, no, I, I, I, I don’t do single family. I don’t see it being possible. Given Boston’s makeup of inventory. My, my criteria is urban, like ultra urban dense locations that have like, specifically that have like about five reasons for, for, for anyone to want to be there. I don’t want to rely on like, just tourism or just academia, but it would be like tourism, academia, maybe two or three other sectors, finance healthcare, et cetera. Boston obviously complies with all of that, with all of that. And anyway, no single family homes in, in, in the center of Boston where, and also being connected to the T and that sort of thing. It’s apartment buildings. Now within that, you know, we look at all right, is it an old brownstone? Is it a two family? Is it a 10 unit? Is it a new construction? A lot of folks are, are very successful with new construction ones, especially the ones that are like new to the market. And they have like a hundred units to fill or 50 units to fill. You’re able to walk in there with, you know, with a bit more welcome, open arms.

01:16:58

Everything else is if you get lucky or through relationships or through brokers,

01:17:02

How did you, because you started in 2012, you know, this, this method wasn’t as popular. There probably wasn’t that much people probably didn’t really understand it so much. Or there think maybe there was some opposition to how, how did you talk to people about, you know, basically just subletting a unit.

01:17:22

Yeah. Yeah. So, you know, it depended on the audience most of the time they were non-institutional non-professional meaning they were, you know, everyday owners I would pro I would get on Craigslist. And I actually look for properties that were no fee, no broker fee. And it’s not because I was trying to avoid the fee, but it’s because of being able to talk directly to some owners, also the, the broker fees, to be honest, do cut into the return on investment big time. So to the extent that owners pay for the fee, that’s great in Boston tenants pay for the fee. So it’s, it’s, it gets tough anyway, but, but yeah, being able to speak to the owners allowed me to educate them on, on what I’m trying to do and why it’s beneficial for them. And, you know, our, at the time, they didn’t like agree part of the time they did.

01:18:28

Most of the time, I, I found that like, it, it worked when they were sitting on an existing vacant unit maybe for over a month. And, you know, man, like with the way real estate costs are in debt services, like sitting on more than a month of vacancy can like really hurt you. So it’s a win-win, but yeah, like I would reach out, I would say, you know, I’ve been in this business for X number of years. I would, you know, I’d love to see the unit. Sometimes I would wait for when we meet in person and explain and, and, and you know, the keywords where I’ll guarantee your rent. I I’ve never defaulted on, on rent within ordinary person. If they lose their job, they may, you know, they may not be able to pay their rent with us. We, we, we were diversified across a bunch of number of different units and, you know, there is no job for us to lose. We w we, it’s a strong market, a strong location, and we do a lot of work to make sure that when we sign the lease, we’re very confident in it.

01:19:43

You know, there’s a number of other things that I say, you know, like we do ordinary cleanings and inspections, and it keeps maintains and keeps the unit in a much better condition than someone who’s going to be cooking and cleaning every day. I talked a little bit about the, the, the demographics and the, and the, of the people staying, meaning, like, you know, the kinds of jobs that they’re in and the kind of income levels and, you know, their, their lifestyles. They’re not going to be sitting using the floors and the walls they’ll be out and about and coming home and sleeping. So I do a lot of those talking points and yeah, I mean, that’s, in a nutshell, I can go on and on. Right.

02:20:24

You know, the, I just think that that’s super interesting. Like how, how early you kind of started this when there wasn’t like any training back then there wasn’t any, not much people were probably even talking about this methods. So what, what, what was your experience with like your first unit? Like, you know, going up to a landlord, pitching them on this idea and then getting that unit up and running and trying to, you know, work out the kinks, if you wouldn’t mind kind of walking through that.

02:20:54

Yeah. It’s actually looking back as you pretty exciting time. I think I used the words. It was the wild, wild west. It was, I was definitely coming up with it, definitely self discovery. I don’t, I don’t even know where I got the idea other than, you know, like again, like I started with my own property and I knew I had a hurdle, a lot of it, I was big on market testing. I actually read. So, you know, there were two books that, that I continue to give as gifts. And that I read before I traveled to Southeast Asia, I took it on the plane with me and I read them throughout my travels over and over again. One was four hour workweek by Tim Ferriss and another was the Alchemist. So one’s for the mind, the other’s for the heart. And it really helped me along the way.

02:21:50

I, I w I would say the, sort of the concepts of automation, the concepts of leveraging, where you have a certain cost structure, and then you have a revenue structure. That’s a lot higher. I did, I actually remember using the word arbitrage, but internally I didn’t, I found that landlords didn’t like hearing that, but, but they loved hearing guaranteed rent, but yeah, I mean, I don’t know if I totally addressed your question, but like, how did I come up with the model before it was a thing before it was talked about, I know there’s an answer for this. I, you know, I recall there being a moment, but, you know, coming from a CPA and finance background and real estate background, I remember this now I remember, so one of my clients was a hedge fund that, that did, you know, mispricings and arbitrage in that way, they would find a stock in one market and then sell it in another market.

02:22:57

Right. And so they were able to identify these opportunities. So like I essentially noticed that Boston has mispricings and, and, and opportunities. Now, I actually didn’t like the word arbitrage when it came out, because I don’t think it’s pure arbitrage, the way hedge funds do hedge funds find the same stock, the same exact commodity and sell it in another markets. Don’t change it in any way. So that’s real arbitrage. We’re not really doing rental arbitrage because we’re changing the product along the way. We’re not offering the vacant unit for one and then cutting it up and then offering it vacant. No, we’re doing a lot to it. We’re, we’re actually building a lot of value in the big service behind it. So, you know, it’s, it’s more of, you know, creating, I call it the leasing model when people refer to like, are you, do you own them?

02:23:56

Or, you know, do you read, do rental arbitrage? I follow the leasing model, but anyway, but, but yeah, like there’s also the idea of like, you know, giving owners or kind of a revenue share. And I found that the, the process for kind of the sales cycle for that was so long and so many avenues that could take in kind of like do they, there’s a lot of trust involved and got her points and reports and all that, that I almost was like, you know, it’s just easier to grow if I just guarantee them a certain rent that I’m comfortable with, you know,

02:24:33

Now, you know, with, with this, because you’ve scaled up to 15 units now, obviously you have to have some really nice systems in place. And when you’re, you’re also have other jobs that you’re doing, you have the, the, the coalition space, you’re also doing other real estate ventures. So what type of systems did you have to put in place? Like, what were your, your, what was your first systems? And now what have you seen that

02:24:59

Up to, and is embarrassing to talk about my first systems. It was an Excel file that it was just for me. And then eventually I had to upgrade and go to Google sheets, but it was, I called it the master file. And it was like every unit. And then like, no, maybe like dates or no, every unit in, I don’t know, like guests and dates. And it was just crazy. It was manual, man, you get a date wrong. It threw everything off. And it happened time and time and time again. And it, you know, it wasn’t even, I ended up like anyway, stepping away. One thing that I didn’t do was while I was so focused on adding units, I didn’t, I didn’t like look up as much technology to, to help me along the way and save me time. My operations per unit was going was the same.

02:25:58

And it became a headache. My excuse was that there wasn’t enough tools in the market. There wasn’t enough education, the market wasn’t large enough. And suddenly, you know, now we’re at a point where we can use a lot of these amazing tools. So I use channel management system host away is what I’ve used traditionally, because I had signed onto a, a cohost. They have their own, I believe they use, Guesty very popular. Now that I’m taking it back, I’m probably gonna look at logic if I I’ve heard good things about, and, and I’ll be actually, I’m in the market for a good channel management system. I find that it’s actually a very, very important topic for me. And I’d love to get at real feedback from folks. I find that nothing really is out there. That gives me what I exactly, that I need right now, which is a lot of the, auto-reply not a messaging functionality that is for non Airbnb markets marketplaces by channels.

02:27:11

So like Airbnb, if you’re going to stick to Airbnb, first of all, your, you shouldn’t stick to Airbnb is, is my opinion. But if you sit here with me, you’ll be fine. You have an amazing tool. Like Smartbnb is amazing. And then all of the popular channel management systems, but focused on Airbnb, but what, what if you want to like, list on five other marketplaces and your own website, like all of the channel management systems talk a big game about how they’re directly integrated, and then you end up signing up and oriented, like playing with the tools or whatever you find out that there’s like limitations. And every which one of them, I heard that Guesty is the one that’s on the most leading edge of it. But I love to hear feedback from everybody specifically on the auto message and auto reply for non-Euro BB markets.

02:28:03

So auto message and auto reply that that probably wasn’t really something that was too popular back when you first started. But what, what would you say are like now in, in today’s in today’s services are, is like the, the bare minimum, like what you need for your system, like your automated system to make this business as automated as possible. And then what would you say is like on the higher end, like once you are ready to start scaling up, what, what type of systems are best to implement?

02:28:35

Very cool. I’m going to wing this answer. The, you know, it’s hard for me to answer. The second part is almost like looking ahead, but I love the question bare minimum right now. Definitely anything that sinks, all your calendars, such that if something is booked in one channel, it shows up on the others, number two, pricing, service people. Some people say that they like manually price. I mean, and that they know the market better than any of the pricing services. That’s amazing. You should maybe like, I don’t know, like have that as a service because I don’t know anyone that is really good at it, but I think a pricing algorithm, like a pricing service, like beyond pricing or price labs, you know, wheelhouse is another one. Those are the top three. I think one of them, like, I think that’s the second thing is, is, is a automated pricing service a third, I guess, you know, honestly,, maybe it depends on, you know, if you have the time or not, but having some help, right?

02:29:45

Like a virtual assistant or a partner, but having somebody other than you, you want to be able to actually like, take a break. You know, if you want this business to continue, you’re going to, if you’re the only person that’s hosting and you’ve got like more than five units or even four or whatever you’re going to get burnt out. So those are the three essentials, the third one being helped. And as far as like to get to the next level, you know, I would say build your own website and brand, but you don’t have to spend thousands on it. There’s plenty of tools. And I actually, and, and going through like a rebranding and looking to maybe see, what’s currently out there, you all, even the folks that have been doing this for years, you always want to like, you know, refresh yourself and, and, and, and try out the new tools. So I’ll be doing that. And then, you know, I’ve been playing with the idea of like a twenty four seven kind of a call intake service or, and a, for the website, kind of a virtual customer service, not, not a bot, but a live person.

03:31:06

So those are the, the, the ideas that I have. And then the other thing would be, and I’ve, I’ve shied away from this, but a, an online, like advertising campaign for your website brand to the extent that you can actually build a brand yourself and get direct bookings. You know, that’s a lot of value because if something were to happen to Airbnb or TripAdvisor, let’s say you get kicked off or paused, or you lose access. You, you, you want to, you know, you want multiple sources.

03:31:42

Very cool. Now, are there any, like other types of systems that maybe are kind of on the backend, like there’s, you know, when you’re approaching a new unit, do you have like, kind of systems that you’ve created that aren’t like, things that you could purchase things to maybe help your process when you’re moving into multiple units at the same time or, or anything like that?

03:32:05

Yeah, no, that’s a good one, man. I’ve got, I’ve got a very detailed shopping list on a per department basis, mostly on Amazon, maybe some Ikea, maybe some best buy, but I’ve, I’ve had to add some units where I’m not even going to visit it. And I generally know the floor plan, but these, these lists of items will go for generally any typical one bedroom in the Boston area. You know? So the, that that’s one way that is probably not going to be like, it’s not going to do as well as a place where you personally visit, take measurements, maybe hire interior design. I’ve done that as well. Like I’ve done all kinds of ways to add units. You know, I’ve done them all offsite. I’ve done them myself. I’ve hired interior designer. And I think obviously the ones with the interior designer, I think looked the best, the ones with where I’m all offsite was, the Lee was like the best field in the sense that I didn’t have to get involved. And I was able to do other things. There’ve been units where I haven’t visited in years, man, you know, and, but yeah, like, so I would say, you know, just, just handing off a shopping list and to, to, to the mover, maybe you ordering it yourself and having it delivered and having the mover do it up. And then you kind of do you kind of do an inspection in the end and see how it

03:33:54

I’m really curious about that, because you said that you’re, you’re, you’ve actually been able to have your systems in place to be able to fully furnish and get a unit ready and up without even having to visit it. It was what you’re saying. Absolutely. Now what, what type of w how can you walk me through that process? Cause I’ve, I’ve never heard of being able to do that. How do you, how do you manage a remote operation like that and make sure that it’s up to your standard?

03:34:18

Sure, sure. So the first of all, it’s all under the context of being too busy to make your visits. I think everyone will agree that it’s ideal to go there and vet the PR kind of be there for quality control. So assumption one is that you’re, you know, you don’t have enough time for this number two is that you have it onsite person that, you know, maybe not your employee, but a contractor that, that has done work with you before, or at least kinda like, you know, you’ve done some work with before. It’s not like someone brand new. Okay. So I ha I, I always have somebody who that I can call on for a general handyman handy, handy when we type stuff now.

03:35:10

So anyway, the idea is that I, you know, once you signed the lease, get the keys. Sometimes I don’t even get the keys in my hand. I, I have it delivered to the handy person after making copies and stuff like that. Right. And that person now knows the address, knows where to go. And when for the, for the furniture I make all my deliveries, I give them a date of when to come in and, and start building. And that’s it. And I give him, I give him a detailed steps of instructions because it’s not just take the boxes, open them, find out like, you know, it’s gotta be like these items go in the bathroom, these items go in the kitchen. So it’s a lot of like, actually you front load some of the planning and be very meticulous about it will help, like by doing that, right. You’re able to avoid having to do it visit and like, oh, we gotta build this. We gotta put this there, we gotta do that. And so another thing that I did, which actually helped reduce the risk is I had someone, one of my existing employees actually for another business, I borrowed him for an hour to go and visit and, you know, like take some measurements and all that. And then, and then make the orders on Amazon based on what he saw that turned out to be the best balance.

03:36:42

Yeah. That, that, I think that, that is just super interesting. How, how do you like get the unit up to your standard though, like going in there and placing things the right way. Do you have like someone like a designer that is going in there and decorating it? Like how do you instruct someone that maybe doesn’t have the experience or, you know, creative knowledge to be able to set things the right way, unless you’re going in there with like a FaceTime and, you know, show pointing and saying, this is where this needs to go

03:37:11

Done that, done that. Eh, I actually forgot to mention one last assumption is that you’ve gotta be okay with like, setting some, like, look lowering some of your standards. Like, it’s really not, again, like stepping out of this. Like it’s always ideal. You’re going to get the best product and probably the best ROI. If you go in there and do it yourself, or have somebody who’s like, like incentive to have, you know, the best looking thing. So for me, what I’ve done is I’ve done the, the whole combination of like, so first of all, I, I I’ve done so many moves. Like the 15 units is not just the 15 units in the past. I’ve had, I think in total, I’ve probably had like 40 units that I’ve designed and a combination of either me doing it myself, or working with interior designers and et cetera.

03:38:06

So I’ve gotten a fair share. I’ve got like a system I’ve kind of have like a, we all, we all, like, I know that I want most rooms to have some level of like those Ikea plants. You know, I just know that I want to order a tenant and place them everywhere. And I just know that these are the kinds of rugs that go with any kind of apartment, et cetera. So, but then there are the finishing touches. And so I do plan, I do like make a plan to do a final visit in the end, and I start rearranging or have a punch list of items for the mover. So make sure this is done. And if it’s not done, like whatever, move on, you know, it got to lower your standards a little bit, get the booking in and, you know, sometimes let the guests be your quality control. Again, not it’s controversial. It’s like probably not the best advice, but this is how sometimes you gotta, you gotta leverage in, in scale.

03:39:10

So you, you would have someone actually go out to Ikea or other stores to be able to purchase those things that you typically frequently buy.

03:39:17

Oh yeah, absolutely. And then either I would, so I would usually, I would have them send me an invoice and I would not pay them, but sometimes, you know, contractors need to be, they can’t front it, so they need to be financed. And so I would, I would have them call me from home Depot. The, the home Depot person will take my credit card. I rarely would do cash. I really would do like pay in advance. Like I’ve just learned lessons along the way, but you know, you really gotta trust someone if you’re going to advance. But I found that like, quality is always better when there’s always something, a final check coming in the end when it’s done,

04:40:00

Is this, is this a type of method that you’d be able to do, like completely remotely, like in another state? Like if there was maybe like a market that you’re trying to get into, do you think that that would be something that could be repeatable?

04:40:11

Oh, that is, that is a tough one. It would be a gamble, certainly achievable people do this in traditional real estate all the time. And I think the way it’s done is through introductions, through reliable people. Right. So if me, and you know, like, for example, if you have a, an asset that, that, you know, you would recommend in Maryland, you know, I would only do it if, if, if, if you are able to put together like kind of a T team for me, you know, like, you know, or at least introduce me to a general contractor and, and then you, you would be able to, you know, you’d be able to say, all right, this person has done five deals with me and they haven’t let them down. So, all right. I feel a little confident, comfortable with that.

04:40:57

W what would you say would be the, the, the, the members of this team

04:41:03

For, for an STR perspective, the members

04:41:07

Remote for doing it remotely,

04:41:09

Right? You would have the movers. So that’s usually anywhere, probably two to three people. You would have the person who’s designing and ordering. So it could be you, it could be someone on your team. It could be an interior designer that you hire, you would have in onsite quality control person. So if maybe the broker that helped me land this, or the next person would be a cleaner slash maintenance person, and that separate person would be, the person would come in and Hey, you know, how do you feel about the, the, the, the work that was done? And it would be like a FaceTime video and show me what you got. Maybe the movers are the same people as the cleaners and maintenance people. And if that’s the case, then I would still try to find a third person. And, you know, thinking creatively either I fly in, find a friend or a hire someone on crisis, but you gotta have like a little check and balance situation.

04:42:18

All of this is a little tricky, logistically, first of all, trust wise access to the place, you know, but if you, you know, if you can set up the right protections and communicate, so for example, like there’s keys involved, all right, well, here’s this key. You can pick it up at this office, but return it by this time on this day. So there’s a bit, you, you kind of, you’re, you’re still never going to be guaranteed, like no risk, you know, but you, you can kind of like reduce some of your risks by having these systems and particularly by only hiring through introductions, as opposed to resorting the crisis, which should be like a last resort.

04:43:02

W what would you say is the most challenging part of running and operating a, a, this, this type of business model?

04:43:11

The most challenging part? Yes.

04:43:15

The most challenging part for running and operating for me, I think, would be the exhaustion sometimes dealing with the guests and complaints. Cause you know, you get the same old stuff and some of it is out of your control. Some, some guests really want to actually just, you know, yell at somebody for 30 minutes. And in some folks, you know what I mean? Like if I don’t understand that there’s another person on another human on the other side of the phone. So that probably are the, those are the moments where I find that it’s like, oh man, you know, you, you almost question like, you know, how long can you go on with this? That’s why I always say like one of the three critical things that I mentioned that third one is like, help make sure you have like a support system, right? Yeah. I mean, that’s the biggest challenge. Everything else to be honest is like, you know, part of including this it’s, it’s part of doing the businessman. You know,

04:44:13

Now I wanted to hit on something that, that we, we were talking about before we started recording. And that is when our regulations change. So when you first got into this space, 2012, there probably wasn’t really too much regulation involved in this subleasing model. So now that it’s gained popularity and there’s more people getting into the space, and now there’s a lot of concern with like, you know, affordable housing. A lot of, a lot of these cities are changing their regulations, which can disrupt your business, your business models. So how, how do you, how have you been able to pivot while areas are starting to come down on this, on this type of model?

04:44:59

Right, right, right. Yeah. So I, I find that the, the regulations are ill-informed and they’re, they’re unfortunate meaning that the bands, I actually would love to see regulations that, you know, require hosts to register, pay taxes, you know, just the, the, the, the stuff that other successful models such as Austin and Nashville have done. But unfortunately the, you know, the, the hotel lobby and other, you know, neighborhood associations, there’s a lot of fear and uninformed, you know, kind of context behind all this. Now, one of the things that I would highly recommend folks do is to get involved with some of the local alliances and actually get out there and not be afraid. I think one of the things that we didn’t do well in Boston is not, not be as engaged. We didn’t really come together. We didn’t fundraise either. We did actually fundraise, but it really wasn’t like a professional effort. You know, it wasn’t wide ranging. Everyone was kind of almost worried about their own cells and, and, and it was very short-sighted.

04:46:27

So now, now that the laws are put in place, first of all, we’re, we’re hoping that it gets relooked at, and there’s some efforts being made there. I know like San Diego had a recent overturn of the band, which is amazing, and it’s, it’d be great to see some sort of good compromise that protects property owners rights, and also like allows, you know, the ability for progressive, you know, economic channels while maintaining like, you know, affordable housing and inventory and choices for people to live. I actually think what’s a cool model that people have. And I know this is not like, particularly your question, but I’ve been wanting to say like, you know, a good model would be if, if there are certain buildings that are specified as, as Short Term metal friendly versus not. So like this way, tenants have a choice of being part of that or not, because I totally understand the, the, the argument against short term rental, because in one sense is that you’d be living in a place with your family and your, and you, you know, you want to know who your neighbors are, but some people don’t care.

04:47:51

And so maybe it’s one of the, some of these short-term rental friendly buildings, th they’ll have units maybe at a below market for long-term tenancy and people might be okay with that. And in a way that kind of addresses the affordable housing issues. Anyway, I also think that like the, the impact to the rent prices is overblown. I remember in Boston, it was like 3.9% during the four-year period, but that was during a period where we have like a 20% or 30% rent increase. So what about the rest? You know, what’s going on there. And also the regulations didn’t really address affordable housing. It addressed market rate housing. And we, we, one of the things that we tried to propose was a tax that wa that would on every booking where the funds would go towards affordable housing anyway. So w what to do now for Boston, it’s it, you gotta live there, or you’ve got to apply as a hotel, you know, get a hotel license.

04:49:11

And unfortunately what that does regarding the, you know, so, so what it does, it actually like cuts out the small businesses cause to apply for a hotel license. You know, you’ve got to have you got to operate at kind of a sizable level, like a Marriott, you know, or a Sonder right. Sandra, that’s not her, but, you know, basically raise millions to, to be able to, to afford the legal fees and the operation and the branding behind it. But that’s what Boston is right now. You got to, you got to find the zones that allow kind of a hotel use, and then somehow find the apartment buildings that are dual zone. And then, you know, try to work out a deal with the landlord to where you have to apply for the hotel license. And maybe you, we develop the units and yada yada, so it effectively takes units out of the housing market anyway. But you know, now the big boys are able to do it and do it at a bigger scale. Whereas before it’s, you know, it was everyday folks subsidizing their rent and, and small businesses, you know, taking part in the new economy.

05:50:29

You know, I, I really liked what you said before about, you know, kind of not using that term rental arbitrage, because you’re not, you’re not rental arbitrage. It kind of has like a, kind of like an icky sound to it. It’s like, you’re, you’re, you’re just, you’re finding a disparity in the market and you’re taking advantage of that. But you know, what you said is you’re, you’re offering a service, you’re taking a property that may be, you know, wasn’t that nice and now you’re making it beautiful. And you’re allowing people to be able to travel in this nice location. So you really are offering a service. And when, you know, you’ve been in the space for so long now that you’ve built your business on top of this model of providing hospitality. And now as, as things have, as things have changed, and there’s a lot more talk about, you know, all these, all these policies and stuff like that, it basically just kind of really changes your, you know, it can destroy your business.

05:51:22

How, how, you know, do you, do you think that this is a sustainable business, the rent, the, the subleasing model, do you think that it’s something that can be continued because you’ve invested so much time and money and energy into this, into this market. And then when someone comes in and says, you’re not allowed to do this now because of, you know, maybe illegitimate claims, is this something that is a sustainable and how have you been able to, if you do find it’s something that you continue, how have you been trying to take a pivot your business?

05:51:54

Yeah, yeah. That’s so that’s the right word. The idea is to pivot, you can’t fight against regulations. You know, it, it, it, it’s, it’s just not a real business model. And so I look, I look at it as like, yeah, maybe those units are gonna roll off, but then you’ve got to be able to either find new markets and new cities or come up with new business models within the city. And, you know, one of the things that I’ve actually been playing with is a bit of more of a co-living business model, which is way too early for me to kind of get into in detail. But that’s just an example of what to do when regulations hit your city. You gotta also, first of all, like new markets or new units that I signed, not in Boston, being careful about how much I put into it, because it could actually be taken away from you.

05:52:57

Right. And it could, it could be not just regulations. It could be the landlord, right. Standard terms are one years. Obviously we all prefer, I think I would prefer like 2, 3, 4, 5 year leases so that I could like, you know, putting in an investment. And I know that it’s going to be there for multiple years, but landlords don’t want to do that in the residential field, in commercial offices, they do, but not in Rezi. So it’s all about relationships and hoping that, you know, the landlords, like you enough to not Jack the rents up on you. I actually have a landlord that like is all month to month. And it’s been going on for years multi-year relationship month to month. And like every now and then he’ll, he’ll re raise the rent and buy by unlike a substantial, like a kind of a, I have like five units with them.

05:53:54

So it feels substantial every time, but it’s probably like 50 bucks a unit, but that’s 200 bucks a month extra. And like, you know, it’s, it, it gets, I guess, whatever it gets, like a, like, it’s like a surprise sometimes, but in the, you know, so he always has me there. Right. He always had the ability to like, take it from me in the same could be said for one year leases. So, so it’s not just regulations. Right. So I, I like, I always, I’m a proponent of like, you know, being careful with how much you invest in the unit and maintaining really good relations with all stakeholders and the city being one of them, you know, like don’t be a bad actor in your neighbor right now. Yeah. So I guess what, what to do, you know, cut your losses. You gotta, you gotta try to stay filled as much as you’re allowed.

05:54:52

And then from there to continue the business, you have to add units elsewhere. Unfortunately, Boston will lose this, this type of business. It’s not just going to be focused. I want to stay at hotels. It’s going to be like families and international families here for, you know, hospital stays. And although there’s a, there’s a thing for hospital stays in there that allows it. I’ll, I’ll get into that a little bit. So that’s kind of what, what I’m pivoting on is hospital stays and corporate stays. Those are two of the clauses or the types that are outside of the ordinance or the inside of the orders. But, but, but they, they are the only exceptions where you don’t have to live there. And so I’ve been working on relationships with marketplaces that focus on hotels, I’m sorry, hospitals. And, and in corporate rentals also one month minimum obviously means that you’re outside of the, a short term rental ordinance.

05:55:52

So, you know, but is it, is this a business model though, that you think is sustainable for people? Is this something that you would continue to do having been in this space for a while now? Is this something that you think that is a sustainable business, even with the changes and the uncertainty and having to cut losses,

05:56:20

I’m on, I’m on a couple of short-term rental groups where we address these kinds of questions and nationally and some every now and then you’ll get folks that say, oh yeah, we’re only one month minimum. And it’s worked really well for us. Or we only do like nursing stays, or we only do, you know, corporate states. And I think there’s some fragmentation in the market on this. Meaning some folks have a relationship and they figured it out and others are totally in the dark about it and made maybe that badly needed. So Boston needs like badly needs, like all the hosts need more hospital stays in corporate rentals. But the issue is that I think there’s already existing like channels. And you know, whether they’re travel agent intermediaries or, or it’s really hard getting into the, like the accounting firms, consulting firms and all the big companies getting into the lodging manager’s attention, you know, on that.

05:57:28

So there’s some fragmentation there that needs to be addressed. It’s also commoditized, meaning like there’s so many players already everyone’s now that the regulations are everyone’s rushing to offer their stays to hospitals and to companies as all the commodities has already, because there’s a student housing market where now that night you can’t get to X on an off of that. You’re actually getting X, maybe a little lower than X actually. So the student housing market is commoditized and it’s, well-priced, you know, student college students are really good at finding deals. And when they do find these deals, you know, they they’ll, they’ll find other roommates for them. And it’s hard for you to offer anything about,

05:58:17

But do you find the, the rental arbitrage subleasing model, a sustainable business

05:58:23

In general? Absolutely. If there is no, if there, if there isn’t a ban on it, it’s, it’s a sustainable business because, because you’re, you’re, you’re, you’re, you’re guaranteeing a read for a vacant property and then you’re doing stuff to it. You’re adding value. You’re making it a home place to live. And then you’re taking on like a risk that there’s some value there. Right? Like people ask, like, it’s unfair for folks to look at it like, oh, you’re only paying, you know, 2000 a month. Why are you charging me 4,000? But Hey, you’re only staying here for one month or two, are you going to take the risk of the rest of the year? So there is actual like value being offered here. That person would never, maybe if they have an eight month stay in, maybe they might take the whole, but now they have to like, like, worry about like buying furniture and then getting rid of it. They’re done. So it’s, it’s, it’s a true, like value now, is it? It’s a sustainable absolutely. It is. If it wasn’t sustainable, I guess we wouldn’t have year-round hold units on, on the marketplace. 

05:59:35

And, and last thing that I kind of wanted to hit on is you said that you did at, at certain points have like up to 40 units. Now, now you’ve had to scale this back quite significantly. What, what do you do with all those, all that furniture, all that equipment.

05:59:53

Yeah. So I try, I tried different things. I tried putting them into storage for cheap. I tried selling them and I also, you know, just threw them away. I found the simplest one was to unfortunately throw them away and it kind of, you know, it’s unfortunate, but everyone had to do it. I mean, everyone who like moved out in Boston has to do it.

06:00:19

So, so instead of like taking that stuff and maybe moving to another location, you just decided let’s, let’s just kinda drop it here

06:00:28

For a portion. Another portion for like, I had storage for three apartments, I was paying like three 50 a month for them, had it for like eight months. Like, you know, that’s a, that’s almost $3,000. And of course the value of those, that furniture itself, meaning the cost of it. Not, not the resale value, resale value is almost nothing, but the cost of it was about two to 3000 per apartment. But so the, the, it was worth keeping it because I knew I was going to possibly add more units. But at some point it started bleeding and, and I was like, I just need to, so what I did was I furnished one apartment for it and then I threw away the rest.

06:01:14

Wow. That’s, that’s gotta be really tough. Definitely really tough. W where, where do you see being in the space for so long? Where, where do you see the, the, the rental arbitrage subleasing model from where you started to where it is now and where do you kind of see it going in the future?

06:01:31

Oh, I think that it’ll expand hugely. There’s a lot of like talk about it and there’s a lot of influencers and, and people and coaches and stuff. So there’s going to be a lot of people signing a bunch of bad leases. Actually, there’s going to be a lot of failures that come up in the next year or two there already is. But, you know, we’re not hearing about failures. We have a positive bias when it comes to this stuff as humans, you know, but there’s, there’s going to be a lot of bad leases signed. It’s gonna, it’s going to be everywhere. Right. So in, in, in a sense, there’s, they’re, they’re going to be commoditized. And so there’s going be a lower price. How do you say it? There’s going to be like kind of a downward price pressure on the revenue side of things. And at the same time, there’s going to be some lower costs side for managers and in services, people will actually perform more efficiently though. They’ll know it more, they’ll have more experience. There will be less of a cycle for educating landlords that it’ll be either, you know, hard, no, or quick yes. Or, you know, easier conversation.

06:02:47

So that, that’s where I see it. I see everyone knowing about it. I see some, you know, some failures. I also see a good amount of companies that raise funds for it. You were already seeing it in the news, a few companies, but there’s going to be a lot more.

06:03:05

And w what would you do differently if you had to start from scratch?

06:03:13

Yeah, like I, I talked about how I was late to adopting new technologies. The one thing that I would do differently, I would say is I knew the kinds of technologies that we’re going to develop. And I personally, wasn’t convinced of maybe my ability or just, you know, first of all, I came from a context of, of me trying out certain e-commerce tools and consumer products, and that the road to revenue was longer than immediacy. And in rental arbitrage, like being an operator. So I, I went with cash, right. Cash is king, but it would have been fun to actually be one of the adopters of some of these technologies, because I just know I’m so opinionated about it. And actually to this day, I still, you know, I know where some of the technologies and tools need to be and where they’ll go eventually, whether I want to put in the time investment and the capital for it is a different story. But, but yeah, like in a, and I’m, I’m in the kind of the startup kind of world. So it’s not for a lack of resources. It’s kind of unfortunate to have and capitalize and leverage that. But that’s probably what I would do differently. I would, I would come up with some cool technologies and be one of, part of the support system.

06:04:42

And if you could give one piece of advice to someone who’s trying to start a rental arbitrage, subleasing business, what, what would that be?

06:04:50

Try to get your LLC to guarantee the lease and don’t personally guarantee randomly, but

06:05:00

From a legal perspective, if for some reason, something were to happen, or you were not able to pay the lease. So I don’t advise on like, not paying your obligations, but, but it does limit your obligation to the company assets as opposed to your own. And so, like I said, people are going to be signing leases left and right. And some of them will be bad leases and meaning they’re the obligation to pay the rent is way too high. And it may not, it may not be enough. Like the, the revenue may not be enough to suffice. So just be careful with what you’re signing. And another thing is to definitely don’t like, I’ve had some, some players that had been offering units to me and they overplay the amount of revenue they get, don’t fall into the hype, do your financial modeling very conservatively. And if it works, then, then you know, it’s good to go. 

06:06:05

And what question do you have that you would like to maybe ask a, another professional host?

06:06:12

Yeah. You know, I’d like to speak to someone who, who has tried all the channel management systems and which one had allowed the most functionality when it came to auto messaging. And in, in, in a, in a slew of follow up questions when it comes to third party channel management.

06:06:35

Very cool. Well, thank you so much, Farhan. You just, wow. This, this was such a great episode. You shared so much information that I know will help. So many people out I’ll include everything in the show notes, ways that they could reach you. If anybody wants to go to the coalition space, some really cool stuff in there. I’ll include that in the show notes. Is there anything else that you’d like to say before we wrap up this episode?

06:06:57

No, man. It was a wonderful, you know, feel free to reach out. I’m particularly interested in speaking to folks that are looking to grow into new markets with me and I’ll shout out Nashville and Austin, if there’s anyone that’s local on the ground and wants to partner up, it’d be great to talk.

06:07:14

Okay. Definitely I’ll include that. And yeah. Thank you so much. And until next time, host nation, keep on hosting

06:07:21

Things. Julian, take care,

06:07:22

Hope he has benefited from the show. If you found value, please go on over to iTunes, leave us a review and let us know what you enjoy about the show. If you’d like to talk the hosts that have been featured in these episodes, as well as the community, going over to our Facebook group, the host nation, talk to your hosts and the next step. So to keep on hosting.