Large multi-family (5+ units) other investment.
Cash invested: $3,000
STR/BnB operation located in downtown Seattle. Through an initial investment of 3k, 3 yrs ago have grown into a 9 unit operation with yearly gross revenue of 450k. Through a policy of income focused re-investment we achieved rapid growth in the lower seattle market. Through automation and streamlined service through technology we have been able to drastically reduce the cost of participating in the hotel industry and created a model that allows us to target niche markets.
What made you interested in investing in this type of deal?
The potential from an emerging industry. According to pew research less that 30% of americans have heard of the STR market and less that 15% have used them. The smaller scale allows a larger ability to penetrate niche markets than legacys hotels are capable of. Through automation we are able to make our operations more cost effective and with the rise of folksonomy and the sharing economy, smaller scale operations are now able to compete on a marketing level with legacy name marks.
How did you find this deal and how did you negotiate it?
I was living at a historical building at the time that was being condemned. I wrote proposal letters offering to take over the building and turn around their trajectory. My offer was accepted and after three years I had both earned my real estate license and increased the multi families housing earning 3x. Upon sale of the building, it was requested that due to my knowledge of the historical aspects that I stay on for the new owner. I offered as long as I was authorized to run unlimited STR.
How did you finance this deal?
How did you add value to the deal?
Through attention to detail, a strong work ethic and always doing what is necessary for my clients and guest. If you always provide quality work and effort you will win out in the long run.
What was the outcome?
A 3,000 investment turned into a 9 room boutique hotel that grosses 450,000.00 yearly and provides our family with a large amount of disposable income and freedom.
Lessons learned? Challenges?
The largest challenge with a boutique hotel, or any industry for that manner is staying on top of your game. Find a industry that you love and perform it well. NO ONE enjoys poor service. Be the best at what you do and run your numbers correctly. Remember that your investment doesn't care about your emotional investment. Just because you love it doesn't mean its the right idea. Run your numbers and stick to your ideals.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Paul Hanken - North By Northwest Real Estate.
Congrats @Kevin Dares . Sounds amazing!
@Kevin Dares - Wow, congrats on your success! Were you subject to the city's limit on STR units? Or did you get around that somehow? I'd be curious what systems you utilized to streamline your business? Were you using certain booking systems, accounting or operations systems?
What's your exit strategy when the city comes down on STR units?
Response to Ben:
When we first began with our initial investment in Seattle there were no limitations on the number of STR units an individual owner could possess. That legislation only went into effect at the onset of 2019. Luckily for us, a sitting council member lives within our district, and exempted her corridor from the new regulations.
We do not utilize any systems outside of the marketing platforms themselves to streamline our business. I honestly believe that the systems are incredibly well suited to their purposes. Most states have agreements in which the Marketers themselves (AirBnb, HomeAway) collect and remit the sales tax and applicable fees. The listing and marketing is fairly straightforward and they include ways in which you can directly divert fees, cleaning fee, directly to the contractors responsible for those operations. Keeping them straight is easy because all of the platforms offer the ability to synchronize and automatically populate both with each other and google calendar. This eliminates double bookings and allows the cleaners to be aware of last minute bookings without a source constantly monitoring and updating. There are platforms out there that offer to constantly monitor RevPAR, ADR and current market prices and modify, hourly in some instances, but I have never felt this necessary for our pricing system.
One of the most beneficial ways any boutique owner can ease their lives is through automation. Remote locks, security, intelligent door bells, Alexa etc. This will allow you to actively monitor and run your investment without having to actually be at your investment.
Ned, when we initially began there were limited regulations regarding STR. Over time we have seen these trends dramatically shift and the business model given a large amount of scrutiny.
Moving into the future we are focused on properties that are licensed as STR's but fall outside the boundaries of STR legislation.
Example: In New Orleans La it is illegal to operate an STR unless the building is,
A. Owner occupied and listed as the owners homestead exemption.
B. Zoned commercially
Therefore our focus moving forward has been on acquiring properties that are exempt from future STR legislation and that can often simply be licensed as legal hotels. Also focusing on using the new opportunity zone tax deductions to pick areas with high demand and low service options, that can offer us opportunities on multiple fronts.
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