Latest / The Capitalizing Your Life Podcast / From E-Commerce to Expanding Empire: STR Secrets from Jacobo Hernandez
Transcript
- Glenn Yaney (00:53) Today, my guest is Jacobo Hernandez, founder of FreedomVest. Welcome, Jacobo. Jacobo Hernandez-FreedomVest Thanks for having me, Glenn. Glenn Yaney Yeah, glad to have you. I saw you on LinkedIn and thought you'd be great to have on the show. So if you could just tell us a little bit about yourself. Jacobo Hernandez-FreedomVest (01:07) Yeah, I'm currently 28 years old and started my entrepreneurship journey when I was around 22 years old and I was still in college. I was a freshman and I started an e-commerce brand, Amazon native, actually selling wedding gifts. And I'm 22 years old, never been to a wedding, but I was trying to make a couple bucks at that time. And I ended up scaling that fairly quickly. We went past seven figures and I think it was 12 months. I ended up having to get a warehouse and I was driving back and forth after school. During class, I was just answering customer service emails, fulfilling orders, and actually trying to just graduate while doing both. Right? It's funny. I went for business, but all my business acumen was actually honed doing this business. Right. All the learnings, cashflow, P &Ls, everything. I had to learn on the go, right? After that, I was looking for a business that was not product focused and I wanted it be in real estate. It was super appealing to me, but I didn't want the steady, slow cashflow. that's when I find out about Airbnb and that I could pretty much apply the same digital marketing skills that I got really good at during my Amazon days to basically apply them to Airbnb and scale a portfolio. And it started working really well. So things like listing optimization, SEO, ranking metrics, launching these new properties, the design of it went really well. And that's how we got into Airbnb. We scaled the portfolio in South Florida that eventually got acquired. And now we started a syndication for boutique hotels, which is commercial Airbnb's. I can tell you why we made that shift, or if you have any other questions you want to dig deep into from the story. Glenn Yaney (02:55) Yeah. So if we could just talk about when you got into e-commerce and you're in high school, like when you get to seven figures, I couldn't imagine doing that around the age of 18. Like what are some of the things that you learned through all that? Jacobo Hernandez-FreedomVest Yep. So was, was actually 22 and I was freshmen in college, so it wasn't in high school. Glenn Yaney Oh, okay. Jacobo Hernandez-FreedomVest (03:14) Lessons, big lesson, cashflow, like how to manage cashflow. That was like a huge thing. The more we grew, the more money the business required because the lead time on a product based business, especially if you're getting products from China are crazy. So you might place an order, the supplier takes 60 days to finish that order, but you have to give them a 20 to 30 % down payment. they're expecting money upfront. You're waiting all this time for the product to be completed. And then once it's completed, now they need to ship it out. They're shipping it out by boat. It takes another 60 days to get to the U.S. Then it has to get to the port. Right? And all that stuff, it's like a huge lead times. And then Amazon will also retain part of your sales in case there's defects with your product, they can refund the customer. So you're needing all this money to scale, to grow. The more you sell, the more money you need. And I was finding all these issues with how do I actually manage my cashflow? Like on paper, I'm making seven figures, but then at the end of the day in the bank, I might have 2000, 1000 - trying to make ends meet, trying to pay payroll, paying my employees, right? And I'm taking on all this debt because Amazon's seeing all of the volume and they're giving me loans for $200,000, $300,000, $400,000. Glenn Yaney Wow. Jacobo Hernandez-FreedomVest (04:33) And I'm just taking them, right? So probably a big lesson there is like being really careful before you're taking on, it's easy to take a loan. You just click on the portal, accept, send me the money, right? But looking back, it was honestly a couple of stressful, stressful nights for sure. Figuring out how I was going to pay all this stuff back. And, you know, that was probably one of the biggest lessons. Another lesson is competition is fierce, man. Especially when you're dealing with Chinese suppliers, like my own suppliers would see which products were rotating the best and they would just go direct and sell the exact same products, rip off my listings and undercut me. And I'm left with all this stock that I had purchased from them that no longer sells as good as it used to be to do. projecting that this is inventory for three to four months. Now this inventory becomes inventory for a year and a half, two years. So that was also why I decided to shift away from product-based business, especially away from Amazon as well. And I wouldn't do a product-based business again, unless I have something proprietary, something I can trademark, something that's really unique that nobody else can sell. And I would also try and build off of Amazon. I don't want to be dependent on a marketplace. Customers are not mine. So it's a really tough business to be honest, but it taught me a lot of the skills that later translate into all the other businesses. Cause when you're building an Amazon brand, you're learning how to develop a product, how to ship products internationally, how to run pay-per-click ads, how to do SEO, listing optimization. So I don't regret it. It was an incredible experience, but definitely a lot of lessons learned. Glenn Yaney Yeah. I would say that's better than college though. Jacobo Hernandez-FreedomVest Absolutely. Glenn Yaney (06:22) Awesome. So then how did you actually work up, you know, I'm assuming you saved up some money to be able to get seed capital to buy some Airbnb's. How does that work out? Jacobo Hernandez-FreedomVest Yeah. So basically through the sale of my e-comm business, I was able to buy the first property and later the second one. And these were six bedroom plus big homes that were locating in prime areas that could be converted into like their own mini resorts. So that was our investment thesis. We were always super data driven. Going back to the Amazon days, how we were choosing products, how I ended up actually selling wedding gifts was just data. We're looking at, is this product in demand? How saturated is it? And that's the same principles applied to Airbnb. So a lot of people usually think a market is good, but then they don't look into that specific market to see what are the listings or the property types that are actually doing well. Because if you go for one- or two-bedroom apartments, it's super saturated. I don't have the exact numbers with me here, but I think the listing distribution that we found around those days was between like one-, two-, three- or four-bedroom apartments or houses, that was more than 90 % of all the listings. When you get above that it was decreasing and decreasing. Six-bedroom properties were 2 % of all the listings in South Florida. So you're finding that market gap and that blue ocean in the market and you're basically acquiring based on that, right?That was our investment thesis. Six-bedroom plus properties that could be converted into their mini-resort, so it had to have a garage so we could convert it to a game room. And then in the outdoor space, we would add a fake beach, a volleyball court, an outdoor cinema, a spa. So we're already, like I said, we're 2 % of listings. Now we're adding all of these amenities, all of this stuff, that would put us in the 0.01 % of listings. And we also identified there was huge demand for that. So big groups, bachelor parties, business travel, families getting together. So our properties ended up being 90 % plus occupied and that led to a private equity fund showing interest in what we were doing because of that huge success that we had. Glenn Yaney (08:29) So how many of those did you end up doing? Did you do a handful of them or? Jacobo Hernandez-FreedomVest Yeah. So after that private equity fund contacted us, we ended up doing a, like a joint venture. ended up merging with them, our operations, they were bringing the capital. And we ended up doing, we're doing like one house a month. ended up scaling to over 10 million assets under management. Nice. And then eventually they just acquired my systems, acquired my properties as well, rolled them up into their portfolio. And now I'm just in their board of advisor as a silent partner pretty much in scaling this boutique hotel stuff. Glenn Yaney Yeah. So, and then is that all like South Florida is where you're located? Jacobo Hernandez-FreedomVest (09:07) Yeah, it was South Florida. We're trying to keep the properties close by so that we could get the economies of scale and be able to have a property manager and the maintenance guy and the cleaning team. So that's the tough part about Airbnb is it doesn't give you the flexibility to really explore other markets. Because if you buy just one asset, like there's not enough revenue there to really set up an onsite team. That's a big difference with hotels where we can go out in any market. And as long as a hotel is doing at least $700,000 a year, it gives you enough meat on the bone to really just hire an onsite team. So it just gives you a lot more flexibility to open up yourself to more markets. Glenn Yaney Hey guys, if you want to learn more about our deals we're investing in, go to our website and sign up for our free eBook, 10 reasons mobile home parks outperform other real estate investments. We won't spam you. We'll just keep you updated on the podcast and the deals we're working on. Now back to the show. Glenn Yaney (10:01) Yeah, I had a, I was talking to a friend and we were looking at like an RV park, thinking about South Florida, but we were looking at RV park and I just said it was really expensive. And he actually said something that kind of, I mean, it wasn't something I would do in this scenario, but it kind of sounded like something that would work in like the Miami South Florida type market, just because it always seems like to me, like when I hear South Florida, very expensive real estate, know, higher end customers, probably if you're in the right locations. But he was saying the reason why it looks expensive is you don't have the right business model for that purchase. So the way they're operating it currently, you just have to change the operations to make it different. And that's kind of like when you buy a six-bedroom house and then you go out and put all the amenities with it. It was like, maybe that six-bedroom house wouldn't have been a good annual long-term rental for the price, but you end up capitalizing on it because you're able to...you know, add all this revenue because you changed the business model. And the same thing with like when you see those boutique hotels, they're really expensive in that location. But if you change the business model, it changes the whole revenue model as well. Jacobo Hernandez-FreedomVest (11:12) So two things on that. First, to touch on the Airbnb stuff, we were also adding an extra layer to the strategy, which was after we bought our first, the second property we bought was lakefront. And that made it a whole lot better. We were packed and we could charge so much more. Our average night, the rate on that was a thousand bucks a night all throughout the year with 90 % plus on the occupancy side. But aside from that, we weren't buying right by the beach where properties are millions of dollars. We were looking at 10 to 15 minutes from the main area and we could buy these properties for like 700K versus 1.5 or $2 million. Lakefront people did not care because they're in big groups. They had their own cars. They were okay with that 15-minute drive, but our returns were huge because the beachfront properties say they're doing 500k. We're doing 400k, but our properties have their value, right? Like it was when you look at the cash on cash, it was huge, right? And now going into boutique hotels, same principle here. We're looking at underutilized properties like multifamily or motels that are currently valued based on their cap rate and their net operating income. So say you buy a motel, that's a million dollars. It's doing a hundred K at a 10 cap. Well, now you're buying that property, but you know that market occupancy and their nightly rate can be three or four X what it currently is because it's being used as a motel, but it's in a super prime location. Maybe it's near the beach in a really good market. Now you're buying this, renovating it, adding all the amenities. So same exact business model just applied to hotels. Adding the spa, maybe adding a cinema, maybe adding some mini golf. Now you got this mini resort, you can charge two, three times the current nightly rate. You got this asset that is now making probably two or three times the income. You just force appreciation a million or $2 million in less than a year or two, right? So that's kind of like the business model, which in the Airbnb space or the residential space, the limitation is you can't force appreciation like that, right? Your value is still tied to your neighbor's house and to the common area because it's not valued based on income. So that's another really good thing about boutique hotels. Glenn Yaney (13:15) That's always been my argument to Airbnb. It's like I was just talking, you kind of like get into a point where you're, you'll buy a $500,000 house and you'll get $300,000 worth of revenue. And you're like, well, you can't really put a cap rate on that because it's still a $500,000 house. You know, it might turn into $600,000 if you do it, you know, all that revenue. So it's almost like your equity is tied up or a value trap a little bit. Obviously, you can make a ton of money doing it. The thing I like about the Airbnb model or the hotel model is the boutique motel especially because very similar to our model, we buy smaller mobile home parks. So there's all these institutions that want to buy these large hotels and stuff like that. But obviously, you can fly under the radar and usually you can find them pretty under managed. They're undermanaged. You're going to gut it anyway. It's like whatever it looks like, it's going to be totally renovated already. Another thing I thought about when you were talking about the in the location is if you've ever if anybody's ever been to Trump Doral, it's like if you go to that location of the area, it's like very rough area, like it's very industrial. And then you go into the actual, I guess, resort, you feel like you're in a, you know, oasis of a golf course type place. I think it's got four golf courses or something, you know, gold everywhere, very Trump like. And so anyways, it kind of reminded me of that. It's like it's off the beaten path. It's kind of close to the South Florida location, but at the same time they bought this probably land for super cheap. It's like an ominous industrial and they made like a golf course out of it. Cool. So you are currently raising capital to do these boutique hotels. What's the future plans? Jacobo Hernandez-FreedomVest (15:05) Yeah. Future plans is get a couple of deals next year. We've sent a couple LOIs, but around these dates it's just almost impossible to probably make a deal work, but we have the LOIs out. There's a couple of really exciting deals we're after and the plan is to raise a bunch of money and crush it in the space. Glenn Yaney And also, didn't you say you had, you had a book coming up? Jacobo Hernandez-FreedomVest (15:27) Yep. So again, we were actually going to launch it this week and now we're thinking we might delay it till January just because of the same reasons. I don't think anybody's going to be reading around this holiday season, but yeah, wrote a book and all the short-term rental secrets. Everything we've learned from the e-commerce days applied to Airbnb. So all the ranking metrics, how to basically position your listing on the top of the first page, how to maximize occupancy, how to do the revenue management, how we were picking properties. We show our exact framework for picking the market, then the location, and then the type of property, just like we discussed. The bedroom size, the type of amenities, how to do all this research so you're buying right, because that's half of the battle. After that, how are you doing the proper marketing? And the operations. Glenn Yaney Yeah, these are going to be live in the next couple of weeks. Probably this podcast will be airing about I think three to four weeks from after this, after we record it. So it'll be perfect timing. Jacobo Hernandez-FreedomVest Perfect timing. Glenn Yaney And let's see, if anybody wants to reach out to you, where can they find you? Jacobo Hernandez-FreedomVest (16:26) Yeah. So they can go to our website, freedomvestcapital.com. And for the book, if you want to grab that book, it's going to be freedomvestcapital.com/STR secrets. And yeah, you can just leave my social media in the show notes as well. Glenn Yaney Awesome. You're pretty active there. I've noticed you. Are you on YouTube or? Jacobo Hernandez-FreedomVest We're starting. We posted one video or two, but we're going to get more active next year for sure. That's one of our goals is do more video. Glenn Yaney Yeah, that's kind how I found you. I think it was through some short clip on LinkedIn or something, but awesome. Well, thank you very much for being on the show. Jacobo Hernandez-FreedomVest Thanks for having me, Glenn. Glenn Yaney All right. Thanks. Outro Thank you for listening to the Millionaire Journey Podcast. Please rate, like, subscribe, leave a comment, and share with somebody you think would enjoy listening.