TGCI 229: Techvestor – Making investing in Airbnbs passive & easy

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Episode 229: Techvestor - Making investing in Airbnbs passive & easy

Copy of EP #18 - 2 Guests

Summary

In today’s show, Pancham interviews Sief Khafagi. He is the founder of Techvestor. Techvestor helps accredited real estate investors and professionals passively invest in an emerging asset class of short-term rentals known as Airbnbs focusing on higher-than-average cash flows and lifestyle.

Sief is an ex-techie turned real estate investor who has helped thousands of people diversify into real estate after spending five years working at Facebook, where he built the second-largest engineering organization in the world.

Know more about Sief and how he helped investors acquire the best properties available with his company’s proprietary sourcing technology.

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2023-04-11 at 3.39.11 PM
Sief Khafagi

Tune in to this show and enjoy!

Copy of Quote #00 - 1 Guest

Timestamped Shownotes:

  • 0:36 – Pancham introduces Sief
  • 2:45 – Sief working at Facebook and how he landed on real estate investing
  • 4:48 – How he started into short-term rental space
  • 7:42 – Leaving Facebook and focusing on real estate
  • 12:28 – They developed software focused on Airbnbs
  • 17:58 – Fund structure of Airbnb syndications
  • 22:37 – Sief on managing his properties
  • 28:23 – In terms of operational management
  • 38:38 – His first time investing outside of Wall Street
  • 40:08 – Sief’s advice for people starting to invest outside Wall Street
  • 41:20 – How can you connect with Sief

3 Key Points:

  1. There is a power in software that can turn real estate adapt to fast-paced technology.
  2. Multi-family and short-term rentals are similar in challenges of operation and scalability, it’s just that multi-family is institutionalized
  3. Airbnb syndications don’t compete with prizes of hotels, they focus on design, scale, and economics.  

Get in Touch:

[spp-transcript]

(intro)

Welcome to The Gold Collar Investor Podcast, with your host Pancham Gupta. This podcast is dedicated to helping the high-paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host Pancham Gupta.

Russell Gray

Hi. This is Russell Gray, co-host of the Real Estate Guys Radio Show. And you are listening to The Gold Collar Investor Podcast.

Pancham Gupta

Welcome to The Gold Collar Investor Podcast. This is your host Pancham. I really appreciate you for tuning in today. My guest is Sief on the podcast. He is an ex-techie turned real estate investor who has helped thousands diversify into real estate after spending nearly five years at Facebook, where he built the second largest engineering organization across the world. Today he is the founder of Techvestor, which helps accredited real estate investors and busy professionals passively invest in the emerging asset class of short-term rentals aka Airbnbs.

With a focus on higher-than-average cash flows and lifestyle by design, investors can invest as little as 25,000, get all the benefits like cash flow, tax benefits and more without doing any of the work. But this isn’t your average real estate investment company. Techvestor built its own proprietary sourcing technology where they can underwrite over 100,000 properties a month and acquire the best ones for their investors. They are also advised and led by folks from places like AirDNA, realtor.com, Apple, Facebook and D.R. Horton.

(interview)

Pancham Gupta

Hey, Sief. Welcome to the show.

Sief Khafagi

Hey, Pancham. How are you?

Pancham Gupta

Doing good, man. I’m doing good. Thank you for your time here. I love the name Techvestor. My audience, a big part of my audience, my previous life was at tech. I work in the tech space. A lot of my friends and family, they are in that sector. So, I’m really excited for the show. Welcome.

Sief Khafagi

Yeah, thanks for having me.

Pancham Gupta

Before we get started, are you ready to fire up my listeners break out of Wall Street investments?

Sief Khafagi

Absolutely. Man, I’m so stoked about this because it resonates a lot with me.

Pancham Gupta

It sounds good. Sief, let’s talk about your background. To anyone listening, you were an engineer, right? How did you get into this space? Tell us about your background.

Sief Khafagi

I was actually in the talent space, not on the engineering side. So, I was responsible for building teams in infrastructure for about five years at Facebook, also known as Meta. A big part of that oftentimes included opening up offices and recruiting people and talking to a lot of incredible talent in the marketplace, like many of the companies you and I were kind of talking a little bit about before and lot of people who naturally were looking for investments that weren’t the traditional option. The thing is that we’re not stock market, not RSUs, not options, and those types of things. They were looking to diversify in other things. I was also one of those people. I started investing in real estate, and it became a big passion of mine over time. We simply got into the world of short-term rental metamodel, and a lot of pain that we had in the space. I think a lot of people understood what we do. They can invest in short-term rentals passively. I think that’s how we got to where we are today.

Pancham Gupta

So, when you were investing passively, did you invest in primarily short-term rentals as a passive investor?

Sief Khafagi

Actually, no. It was a lot of stuff that you typically do, which is multifamily. I still, till this day, I’m a big believer and investor in every other asset class — multifamily, industrial storage. I’m just not good at them. That is not my thing. My thing is understanding the arbitrage on short-term rentals that can be created. It’s an asset class that excites me and my team. We built the software and technology around the space that gives us a very big competitive advantage, which I know you and several of your listeners can probably appreciate the power of software that it can really have in the real estate space, which is historically a dinosaur.

Pancham Gupta

Right. I definitely want to get into the nuts and bolts of it. I’m just curious. What was the trigger for you to start this company? What happened and how did you get into short-term rental space?

Sief Khafagi

When you open up an office for, say, Facebook, let’s say it as an example. Let’s say we’re opening up an office in Boston. You have to think about where not only are you recruiting people to Facebook, you’re recruiting people to Boston. Where are they going to live, work, play, where their kid is going to go to school, where they’re going to go eat? What’s there to do? Where’s the airport, where are all these attractions and why somebody would come there? So, we opened up a new office. It wasn’t just, we’ll hire people. It was, you had to build a robust infrastructure. While we were there, you typically stayed in Airbnbs. These Airbnbs were either really good or really bad. We were paying an arm and a leg and experience.

I was an investor as an LP in other syndications. I was like, “Well, why hasn’t someone made this into an asset class and made it significantly better?” In fact, multifamily and short-term rentals are eerily similar in the challenges of operations, scalability, and those types of things — except multifamily was institutionalized and one wasn’t. That really was the aha moment for us, where if we could build advantages in team — talent, essentially. Because that’s naturally what I knew very well, technology. We could go get traction. Meaning, enough scale. We could potentially build a company or a portfolio that would actually benefit from things like economies of scale. The top talent in the space aggregates, all this stuff.

When we went to market, within about the first three months, people loved our software. We actually started as a software company, but they still didn’t want to operate the property. The pain that they had was in operating. When we pivoted, we raised our first $7 million in 30 days. We went on to raise 37 million in our first year from investors who said, “Hey, I get it. I understand the pain. I want to get into this asset class, but I don’t want to do any of the work.” That’s the story of going from my own pain to understanding other people’s pain and how we can naturally solve that and bridge that gap.

Pancham Gupta

Got it. So, I do want to get into my engineering side. Let’s talk about software, what you actually built. But before that, my emotional side and my practical side is asking this question. How hard was it for you to leave this? I’m sure you were getting paid handsomely working for Facebook. All these free lunches, coffees and all that, and this travel that you were doing for them? How hard was it to leave that job with all these benefits and then go into this space without — I don’t know how many liabilities you had at the time. But what was the mindset behind that?

Sief Khafagi

I probably left Facebook at the worst time that anyone would probably argue to leave. I left, and we had our first son nine days later. We were nine months pregnant. I was uber excited with what we were doing and what the building of the idea. My wife was going to get — I didn’t know at the time that we would end up giving birth nine days later after I left. I brought a baby boy into this world. Now I have two boys under two. I don’t think it’s a rosy story. The first three to six months was like you have no idea what you were doing. There was no product market fit. What are we going to scale? How are we going to scale? Where are we going to go raise capital? How are we going to do this? Yeah, it was really hard. Facebook has incredible benefits, incredible compensation, incredible lots of things. You have the golden handcuffs, as you and I both know in this space. It was very hard to believe.

But I was there I think at a time where five years in, I was ready for a different challenge. If I was going to go build this thing that I wanted to build, I was going to go build it now and take that leap. I also think it was the right time in the industry. It was roughly around COVID. COVID generally was coming out 20 — I don’t remember exactly. 2020, 2021. There was this new, a breath of fresh air. People were working a lot more remotely. It was more flexible. I could see trends that I could not see 18 months prior. People were adopting this flexible lifestyle, this mobility. My thesis or my gut between myself, Sabrina, and our team was people are going to permanently change their behavior after COVID. It was not a one-time thing. If we were to bet on that, what would we bet on? This was exactly what our decision was.

Pancham Gupta

Got it. Let me ask you this. Is your wife part of this business? Is she helping you and part of your team?

Sief Khafagi

My wife is incredible at a lot of things, but we do not work together. She is an incredible primary parent, an amazing stay-at-home mom in every way. I could not do this without her, without her support.

Pancham Gupta

I 100% agree. The reason I asked that question is that — given that you had nine months, almost about to give birth and you’re deciding to quit your job, how hard was that? How did you tell yourself? To anyone listening and has some similar idea, or not a similar idea but has similar direction that they want to go into but they’re not able to pull the plug, what was it behind that actually gave you that motivation to uncuff these golden handcuffs?

Sief Khafagi

Yeah, for me, it was a personal decision. It takes me back to when I was a child. Both my parents worked incredibly hard. My dad worked three jobs. He had me when he was a lot later in life. I think my dad was, off the top of my head, like 55 when he had me. I didn’t have an incredible relationship with him in terms of time. He was an incredible human being. He did what he needed to do for the family. We grew up low income. We grew up trying to make it by. We worked every job in the book, basically tried to push us through. But I never had enough time with him.

What I wanted to do was invest in financial freedom, invest in autonomy, invest in my own business, so I can buy back my time over time as my kids would eventually grow up. For me, the biggest motivator was, if I did it any later, it would only be harder. One would argue I did it late enough. I still did it late. But hindsight is 2021. Always wonders. Could you have started six months before, six years before? For me, it was a personal decision. I wanted to build that type of lifestyle that I wanted. While Facebook’s great and I think a lot of Fortune 10, Fortune 100 companies are fantastic and the amount of talent that you really surround yourself with, there’s a huge amount of invigorating adrenaline and excitement that it gives with building something that people tell you, you can’t do. I think that’s really when you start to prove yourself and prove others that yes, you can. Because you believe in something so much that someone else doesn’t.

Pancham Gupta

Awesome. Cool. Now you quit this job, right? You start this company. Tell us about the software. What does it do? I know it’s something to do with short-term rentals. How is this software doing what it’s supposed to do?

Sief Khafagi

Yeah, when we first started, Sabrina and I, when we left, my path to financial freedom was like I’ll just go on some Airbnbs and some investments as an LP in syndication and some other stuff. As anyone in tech will tell you, when you do something twice, the first thing we all get told is you never do something twice. Underwriting and finding and doing all that, it was just taking so much time. So, we wrote a software that allows us to automatically find and underwrite every property that hits the market in the country as a short-term rental.

94% of the time, the software told us the deal sucks, don’t do it. That’s how much wasted time we were having. That software, we then turn it around into a product. We to try to essentially sell the software. No one really understood why they would need this software. Because usually, people look to buy one Airbnb maybe. We were trying to buy 10 or 20. That’s why we built it for ourselves. Then we pivoted and offered to help people to using our own software as a managed service, where we would find their Airbnb to help them design it and even manage it for them if they wanted to. That one got more traction. We did about seven deals. That way was about 1.4, 1.5 million of capital that we raised. Each person had their own Airbnb. They picked it. We designed it, all of that. Then when we were getting early customer feedback on Zoom, everyone was like, “Wow. Pancham. your Airbnb looks fantastic. I wish I own that.” The grass is greener on the other side. Everyone was super content with their own, but they wish they had owned a little piece of all the other ones. They were describing a vacation. They were describing a portfolio or a fund. They just didn’t know it.

And so, when we saw this happening, we said, “Well, hey, what if we roll all of these properties into a singular portfolio. You’d get geographical diversification, evenality, which is a big thing in short-term rental diversification. All of you get to use these properties at market rate but minus the platform fees whenever you wanted to. Would you guys be open to that?” It was an overwhelming yes. That felt like our first maybe beginning of product market fit at the time. 30 days later, within the next 30 days, we raised $7 million from other people who saw this and said, “Wow. Yes, this now speaks to me.” That was our true first moment of yes, product market fit. So, we went from software product to basically help with the acquisition process to a manage service. It was kind of like our V2 and our V3. It was no, do it for me. Use your own tools. Go build your own tools for your competitive advantage. And today, we have a ton more tools that we build. But that’s where it started. I still want to invest in this asset class. But the pain point wasn’t just the acquisition. It was the continuous operation. So, we were solving for the wrong problem, which is startup 101 where find the biggest pain point to solve. The money will typically follow in a product marketing state will typically follow from there.

Pancham Gupta

Got it. To summarize your V1, V2, V3, when you started out, you thought that you would do just your own Airbnbs. Then you created the software to find out whether they would make sense from the underwriting point of view, whether they will cash flow or not for the listeners or whether you were putting money out of your pocket. That software, you tried to do it for yourself. It didn’t go anywhere. Then you actually tried to sell that as a service, a managed service to other people. Then you added another layer to it, where you said, okay, we’ll do it for you. We’ll design it and we’ll manage it for you. That got some traction. But then eventually, you thought — aha moment was that when you’re like, let me just put that, roll that up into portfolio and do it for other people. Now correct me if I’m wrong. You, at this point, are running it as a syndication where you are raising capital for other people to invest in this asset class, which is a portfolio of these properties which is Techvestor. It’s a platform where they come and they would invest in a fund. Is it a portfolio of property? You have a fund one, fund two, fund three, like that? Or is it individual properties?

Sief Khafagi

Yeah, so we believe in one Northstar. Everything with us is one portfolio, one fund. So, if you were to invest with us, we are the general partner. You’re the limited partner. It is a syndication exactly as you described. We do not do any single deals. If you’re investing each year, we launched a new fund. Today, we’re sitting in 2023. We’re on our second fund. Our first fund, we raised over 37 million. This year, we’ll raise more money. We’ll buy a new portfolio of properties. Everyone who’s in fund two is a shareholder in fund two. The only crossover is that investors in fund one and fund two can use any of all the properties across the portfolios. That’s really where there’s only shared access.

Pancham Gupta

That’s interesting. So, let me talk about the fund. How is your fund structured? When do you decide — is it the calendar — to roll over to the fund two? Is it the calendar year, or is it the amount of equity that you have allocated to it, or is it number of properties? What’s the goal for that fund? What are the target returns for that fund?

Sief Khafagi

Usually, it’s a calendar year. At least, that’s how it’s been. Each calendar year, we’ll start a new portfolio. Though that’s, of course, subject to change. It just depends on a lot of things. It depends on the equity and growth and availability of capital in real estate. I think we’re nimble enough to adapt. We have the discretion to offer as we see fit. The return profile is, we target roughly that 7 or 8 to 10 to 12% cash on cash range. This is an income-driven investment, where you’re talking about great distributions, great dividend, great yield, utility, and about roughly a 2x equity multiple over a five-year period.

It’s very similar to what you see in syndication. It’s just where the money comes from that’s different. In a traditional value-add class B apartment building, you’re getting three, four-ish, sometimes 5% cash on cash and getting 70% to 80% of your money on exit usually, if not more. In our case, we are getting a lot closer to 50/50 on those built-in equity and on growth, on the value of the NOI growth that we’re driving. Then half our gains are driven through income, which I think was a lot of people, even myself, is what we’re looking for. I have a ton of investments for growth and equity, whether it’s in stocks that don’t pay me every day or in my career that I’m doing every single thing. But I don’t have a lot of investments that pay me every single month or every single quarter, so I can live the life that I want to live on a day-to-day basis. So, that’s what we strive for. That’s the type of strategy that we implement.

Pancham Gupta

Got it. In terms of picking up the properties, do you have in your fund like a rough profile of the properties that you’re targeting? Is it minimum price, minimum bedroom size? I know, obviously, it varies whether it’s a downtown, which market and all that. Do you have markets defined? Number one, do you have property types defined and all that stuff?

Sief Khafagi

Yes, we do. About 80% of our markets are between Arizona, Pennsylvania, and Florida. That’s what our data tells us. It can always change. If tomorrow something happens in New York where the data tells us we should be buying in New York, then we’ll go buy in New York. Because we’re a multi-asset blind fund. We don’t actually know exactly what we’re going to buy next, but we have strategy about what we’re going to go buy. In each of those markets, exactly as you described, the type of product you buy is very different. The type, the way you design it and amenitize it is very different. But usually, the type of product we buy is a four-bedroom or a larger home with a pool, well-amenitized. We don’t compete with hotels.

Our properties have hot tubs and golf simulators, outdoor bowling, and game lounges, and incredibly good design for groups of 8, 10, 12, 15 people. Because we don’t compete with hotels. We also don’t invest in major cities. For example, you will never find us buying a condo in Manhattan. As sexy as that might sound, it doesn’t make sense from a real estate perspective — and you know this, what the markets that you invest in for multifamily — it’s not actually legal to do that in a place like Manhattan. So, where we invest is it’s legal. It’s welcome. It’s a combination of seasonalities and destination markets versus metros. That’s it. It’s a well-diversified portfolio of types of assets, well-amenitized. We don’t compete with hotels. Because hotels will always win on price, because they can drive price down to zero. We will always compete on design and scale economics, on the things that we can control. Our competition is mom and pops who own a house. If they’re secondary vacation rental, they’re not operationalizing it. They’re not maximizing it. That’s why we derive 71% more revenue than our competition in the markets that we exist in.

Pancham Gupta

Cool. So, let’s talk about the operation side of things. That’s where the meat and potato and all the things happen. Once we identify the house and you buy it, I’m sure there’s a process of designing, getting it ready, getting the pictures ready, posting it on Airbnb or different platforms — I don’t know if you use anything else — and then go into operations, right? Do you manage, does Techvestor manages whole soup to nuts on this? And if so, do you have, in every market, a team of people who come and clean and you have contract services? Is it your team which manages all of that?

Sief Khafagi

Yeah, that’s a great question. I think before I even answer that question, I got to take you back to the story because I think you’ll enjoy it, and I think the listeners will as well. When we first started, we actually did not think or want to be vertically integrated. We actually signed a $25-million contract with one of the top three companies in the short-term rental space to be our operations to design, to renovate, to manage, to do all the things that you just talked about. Then everything went to shit. They did not deliver the product that we were looking for. They didn’t care about the quality. All they cared about was top line revenue and not about bottom-line profitability, which every good investor knows. It’s not how much you make; it’s how much you keep. Everything almost broke. We were actually forced. We had two decisions. We could either stop and buckle, and we would just end it right there and maybe lose capital. I’m not sure. Or, we could go build our own vertically integrated infrastructure, or many people in the real estate space call it an Opco or an operating company, in order to service the services that we needed this fund. So, we built our Opco. Hindsight is 2020, but was the most incredible decision we could have ever done.

Today we have boots on the ground. We own everything end to end, including acquisition, design, renovation, revenue management, property management. Things like cleaners and maintenance, we subcontract out and build those teams locally in the markets we have. Because we can now command those economies of scale and the pricing and the best talent and the best vendors, all of these advantages that DIY operators can’t get. It’s easy to talk about it today. But when we first started in generally around 2021, we didn’t think we needed that. We’re like, “Yeah, we’ll just hire these people who are really good about it.” It would have been a horrible mistake if we would have continued doing so. I don’t think we would have delivered the types of returns we delivered for investors. We’re recording this in April of 2023. This month, we’ll cross a million dollars in distributions to our investors already. That’s a big milestone for any operator who’s been in the space, because they understand how hard it is not only to drive and why but to drive profitable, timely, on par or better distributions to your investors. Building our vertical integration and has been the biggest competitive advantage we could have ever had in the space. We could never do it in any other way today.

Pancham Gupta

That’s quite refreshing to hear. I know this space because 2015, ’14, ’15, ’16, I ran a couple of — not a couple actually. I would say just one really more hands-on Airbnb in a college town. All the things that you mentioned, these guys get paid, the ones that you’re referring to on the top line, obviously, that’s where the focus is. If you’re talking about specially Airbnb, I know if you have a mom and pop, they will charge you anywhere from 25% to 40% of that. Was it similar for you guys, very high percentage?

Sief Khafagi

Oh yeah. And it varied by market. It can be 20% here but 45% here. It just depends on the strategy.

Pancham Gupta

How bad was that break? Have you said $25-million contract?

Sief Khafagi

Oh, it was a very quick break. Because the very first property, they came back to us and they said, “Well, I don’t think we can do permitting. We don’t want to oversee this renovation.” We’re like, “Well, that’s what we agreed to. How are we going to navigate this if you’re not going to do what we agreed to? Because it wasn’t just property management. They were scaling down because of the pandemic and COVID and recession, fears and whatever. All of a sudden, their scope of services shrunk overnight. This is a great lesson for any operator or general partner out there that, overnight, if you don’t own your infrastructure, you can be incredibly decapitated in business. That was a quick lesson for us. It was a very quick one. At the beginning, we weren’t $10 million in and then realize the problem. At the time, we were like, “Okay, we’re going to go do it ourselves and figure it out.”

We didn’t lose any money. It was more of the, how are we going to go build this infrastructure at scale. We need to remember we didn’t expect to raise that much money that quickly. Let alone another $30 million in the next 8 to 12 months. We were like, we have to solve this problem. We have to solve it economically. It was very hard. We made a ton of mistakes. I won’t sit here and lie to you. We made a ton of mistakes. But today we have one of the only nationally vertically integrated infrastructures in this space. In fact, other companies who are in the short-term rental space call us, not because of our technology, which is how we started. They call us because we have the operational infrastructure to actually execute what they are trying to execute. There were a lot of mistakes we made and a lot of lessons. But it was, again, the biggest blessing we could have had today, and I think the biggest value we delivered to investors.

Pancham Gupta

Got it. Can you talk a little bit about that operational infrastructure? Did you build something grounds up via software to manage all of this? Or is it more like you set up individual teams for this market and then you just manage them traditionally the old way of managing, just human resource kind of management? Or is it more very tech-focused, operational management that you have?

Sief Khafagi

Yeah, a little bit of both. I want to be very clear. I think a lot of people, even myself coming from tech, we want to be a tech company because it’s sexy. But we are not a tech company. Even though tech is in our name, we are not a tech company. We’re not Opendoor. We’re not Zillow. We are a real estate company that happens to build technology. Those are two very different perspectives. We don’t invest in burn. We don’t have negative growth. It’s not like a venture. For us, we built a lot. It’s very different. It’s not as sexy, but it’s profitable and it’s sustainable.

For us, we started with the first thing that we knew very well. We call it the three T’s — team, technology, and traction. The first thing we did is we invested in the best possible talent. Both myself and Sabrina, both coming from Apple and Facebook and being in those infrastructures — I know you know this as well, Pancham — the level of talent to calibrate your company will make or break you. One of the people that we very much look up to in many ways is Ken Griffin, who’s the CEO and founder of Citadel. Oftentimes, if you listen to his interviews, he says, “We don’t do anything differently except hire the best possible talent to solve the same problems that other people can’t solve.” That’s what I saw firsthand at Facebook. So, that’s what we did here. We hired the best possible talent to go build the infrastructure that we wanted to build from our competitors, top and compensation, incredible responsibilities, and all those types of things and shared missions and vision. So, yes, we did build on the ground teams. We built all the people so we could go do projects in Florida, in Georgia, in Virginia, in New York, in Pennsylvania, and Arizona. How do we navigate through there?

We also built software. But we did it in economical ways. For example, I’ll get a little technical with you. One of our very first software applications that we built, we built on top of JIRA, which I know you and a lot of other people might actually understand what that is. Instead of building our own infrastructure, we built it on top of something else that was out of box, rather than going and making our own custom solutions. Because we didn’t know how we were going to use it perfectly just yet. We built it on top of a slew of Atlassian tools. We went from Python scripts and Google Sheets to our own web apps once we really understood exactly how products will be built. Today, we have over 100-point checklist in steps of how we bring a property live. But that didn’t happen overnight — that built over infrastructure and the checks and balances.

No one thinks about a mailing infrastructure for 85 properties. Where do you get mail for 85 properties? You don’t think about that until you’re actually there. That’s a very small part of it, right? All of those things happen through team. We absolutely build technology, but we invested in growth. I think the biggest advantage we had is we recruited people who are passionate about the space, who are willing to take a chance without knowing what was going to happen next. We recruited a short-term rental expert all-star team who really love this space, were packed and was the biggest thing that was driving all of us. We figured out compensation a little later. We figured out growth a little later. Sometimes you need that. You need people who are incredibly bullish and loyal and talented to the mission, rather than the person who’s necessarily the smartest. Those are two very, very different people.

Pancham Gupta

Absolutely. You hit on so many points that we discussed internally all the time. You mentioned about those tech companies which are just burning cash. That kind of made me laugh. Because we discussed that all these tech companies, their multiples are huge. Their NOIs are negative. They’re not making any money. But they’re sexy, right? I love that you said that it’s a real estate company but focused on tech to use as a tool. Cool. Well, this is awesome.

I have one last question for you before we move on to the second part of the show. The question is this: with the pandemic, like you said, when it started where people went to remote work, and they were looking for this Airbnbs — I know. Actually, I have a very, very good friend at Facebook even now. He went to Naples, Florida for six months. He was in Manhattan, too. He rented an Airbnb in Naples. He and his wife, they worked from there for six months during the peak of COVID. But now they’re back in Manhattan. The question is, given with the rates going up and all these things happening in the marketplace, do you see, number one, demand going down as to what it was in 2021? Or do you see it still holding up given the demand that’s still taking it through? Second question, do you buy all of your properties cash in a way, or do you have financing which would make you a little bit immune to the interest rate?

Sief Khafagi

Great questions. I’m going to share with you our data, but you can also look at public data. I’ll start with public data. Public data will tell you if you look at like AirDNA — which is the largest short-term rental data analytics firm in the space — demand is up 15% to 20% year over year. Demand pacing is up 10% to 20% year over year, which is basically how far out are people booking. Booking Nights is up 15% to 20% year over year. We’re having one of the best years on record. It’s exactly what we thought what would happen because of the permanent behaviors of COVID. Personally, I work remotely. Our entire company is on five continents. We have people who are traveling all the time. Personally, I work a week or a weekend often from a lot of places all around the country, because I’m traveling with my kids and my wife and my family. Why not? It’s easy. It’s easy to do that now. It wasn’t very easy to do back then.

We buy all our properties with mortgages, with debt. The reason we do this is leverage is a powerful thing, especially when you have a high yielding asset class like short-term rentals. Typically, you face a lot of negative yield and negative leverage. You can’t buy a multifamily three cap with 8% debt. That is a very bad start to a business. You’re going to be in negative yield for a long time, unless you truly believe you can push rents two and a half times. That’s not going to be a realistic business plan. But we’re seeing demand incredibly high for our properties. People have myths about Airbnb. Then we average roughly on a monthly basis 72% to 85% occupancy across our portfolio. Our average daily rate is $430 in low season and $800 in high season. For us, we’ll drive $600, $1 million dollars, $2 million a month in revenue sometimes. Our DSCR, which I know you understand very well, which is our debt service coverage ratio — it’s your NOI divided by your cost of debt, it’s 3x. So, we feel very good about where we are compared to other asset classes and in this space and why we continue to buy. Lastly, all of our debt, which is a huge advantage for us, is fixed for 10 to 30 years.

Pancham Gupta

What kind of debt are you getting?

Sief Khafagi

DSCR commercial product.

Pancham Gupta

Are you using local banks in those markets, or do you have a set lender?

Sief Khafagi

No, we have a couple. But we have an exclusive relationship with lenders on a national basis who lend to us on a DSCR basis, underwriting these as short-term rentals. Because they have the institutional track record to actually go and operate these properties and the infrastructure. The average DIY-er can’t get the terms nor the lines that we have, because they don’t have the historical knowledge to go execute the way we do. That, again, becomes another advantage that we pass along through a syndication to our LPs.

Pancham Gupta

That’s awesome. Cool. Thanks, Sief, for all the knowledge. We’ll be back after this short message.

(break)

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(interview)

Pancham Gupta

Sief, let’s move on to the second part of the show which I call Taking the Leap Round. I asked these four questions to every guest on the show. My first question for you is, when was the first time you invested outside of Wall Street?

Sief Khafagi

I was 17. I bought a house, a single family with a family member. I lost all my money. I learned a very expensive lesson that will become inexpensive later. But it was a rough time for sure. But I was very young at the time.

Pancham Gupta

Okay. Did you have any fears that you had to overcome when you bought that one at 17, or you were so young that you had no fear?

Sief Khafagi

Yeah, I was so naive. I don’t think I had any fear. I think I had a lot more fears after, not before. I think, at the time, I lost like 30 grand or something like that. At the time, it was everything that I had. Looking back, it was the least expensive lesson I’ve ever had. But now it’s a lot easier to stomach.

Pancham Gupta

Got it. All right. My third question, can you share with us one investment that did not go as expected? Would you call it the same one or any other?

Sief Khafagi

I would call it the same one. That is one that I’ll always remember because it’s my first out-of-state investment. Everything that I thought would work with technology back — this was like during the housing crisis. I just didn’t know anything. I’d never experience the downturn like that. I never understood economics of the out of state investing. I just didn’t know a lot of things. So, that was by far the one that did not go as expected the most.

Pancham Gupta

Got it. All right. Cool. My last question for you is, what is one piece of advice would you give to people who are thinking of investing in Main Street that is outside of Wall Street?

Sief Khafagi

I think you should always consider investing in tailwinds if you can. I think tailwinds are usually very obvious. If you look hard enough, and if you notice them when other people start noticing them, you’re probably too late. For us, it’s the acceleration of remote work and mobility. Our thesis is around mobility not around remote work, where we believe people will be more mobile and that they won’t own their own homes in the future. That’s what our thesis is. If you look at storage in the ’90s, they didn’t look like a big thing until the internet came along and the dot-com boom. Because now you can buy things online and Amazon was invented. I think if you can find tailwinds in whatever you’re looking, at whatever thing you’re thinking about investing in, and you can understand it and grasp it very well, I think over a 10-, 20-, 30-year period, it will usually do much better than average.

Pancham Gupta

Cool. Thanks, Sief, for all your wisdom and knowledge here. How can listeners connect with you if they’re interested in finding out more about your company, your fund, and maybe talk to you?

Sief Khafagi

They can visit techvestor.com and request an invite. We’ll go ahead and walk you through what we do, show you some incredible, beautiful photos of the Airbnbs we have put together and all of the data and design behind it. If it’s a good fit, you’re more than welcome to invest, assuming you’re an accredited investor. Our minimum is 25 grand. You can find us online, on socials, et cetera. We’re not that hard to reach.

Pancham Gupta

Awesome. Well, thank you, Sief, for your time here today.

Sief Khafagi

Yeah, thanks so much, Pancham. It’s great seeing you again.

Pancham Gupta

Thanks for listening to today’s story with Sief. If you have any interest in investing in Airbnbs and not do any work, definitely check out Techvestor. If you have any questions, email them to me at p@thegoldcollarinvestor.com. That’s p@thegoldcollarinvestor.com. This is Pancham, signing off. Until next time. Take care.

(outro)

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook @thegoldcollarinvestor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

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Copy of EP #18 - 2 Guests

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