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Lessons - How You Win In Real Estate | Stephen Petasky - Founder of The Luxus Group · Success Story with Scott Clary

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  In this lessons episode, learn the fundamentals of scaling a real estate business from scratch,
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  including practical strategies for raising capital, managing risk with conservative financing,
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  and maximizing returns through short-term rental investments. Gain insights on how passion,
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  persistence, and a strategic approach can drive success in real estate even for newcomers.
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  First of all, raising a hundred million dollars is already an incredible feat.
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  We'll talk about bigger stuff as well, but stay somebody wants to go into real estate,
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  right? And they do want to do something similar to you. It seems like a replicable business model.
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  I don't know if there's a lot of stress and nuance and things you have to figure out. I mean,
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  you figured them out with so-be's background. It's not like you had 20 years real estate,
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  but if somebody would ever want to do this, the friends and family makes that. You raise 3.5
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  from friends and family, but say you do want to scale up a business of this sort. How do you
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  raise a hundred million in six years? What credentials? Is it just a sales pitch? Is it a sales
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  pitch plus a deck? Is it having a real estate agent on your staff? Is it what is it that
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  convinces people that you're the right person to give a hundred million to? Yeah, you know,
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  I have no, I have any of my original founders listen to this. I want to say thank you because I have
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  no idea why they gave me the money. Like literally, I did not deserve the ability to have those
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  proceeds in my head. I had no experience related to buying real estate, managing real estate,
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  but I think what they found, and aside from being extremely passionate about it, and this wasn't
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  a business to be profitable, like it took us six, seven years to figure out how the business should
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  make money and what the right margins are, because it was really about just an idea of doing something
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  really cool and fun and something we can all be excited about. And so that was like, I think
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  that people bought into that is like the passion. I think that whatever your business is,
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  whether you're cutting hair or taking all garbage or raising a hundred million dollars,
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  and I'll get to how I think someone could do it now in my space, is that you have to love it.
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  And people can see passion, be they feel passionate, they can see, yeah, they can see if you're happy
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  and excited, but they can feel passion. And for me, you know, if it doesn't come through today,
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  like I was, I was very, very excited about that because this would change how my family would travel
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  and how my kids would be raised and we'd grow up. And I only had to put a 200 grand. I put in my 200
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  grand, same with other 15 or 17 people, and my parents put a 200 grand. So there's 16 additional
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  shares. And that's how we got to that point. So I think to scale it, though, it is very,
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  and now I'm going to give you two, two angles here. This is a very tactical in terms of like
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  if someone was going down this road, to scale this particular business model is very, very hard.
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  And I don't mean to discourage, but there's only like five of us in the world that ever got to
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  this size. There was both 50 of us pre-grade recession. The problem with scale is most people
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  use lever like, you know, obviously, debt financing to scale something. And then when there is a crisis
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  in the world, which we obviously experienced in 2008 to 10, you don't have wiggle room. We did
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  the entire 100 million on cash. So if we actually levered it, but we never levered any of it,
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  we cut out 200 million dollars in real estate. We took a extremely conservative approach,
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  which gave people a lot of comfort that you can't lose all their money and get blood away
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  through mortgage costs and interest costs. So I think it's like creating a safe environment for
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  people at the park capital if you're, if you're new to the space. I think there'll be number one
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  lesson. So okay, I want to go buy a home and send a gift with five friends. Okay, how am I going to
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  make sure I'm going to get some money out of it? Are you buying right? Is it appropriate? I'm going
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  to enjoy is it can you bleed? Can you bleed the money away? Like is it sustainable? So we,
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  we built them all. It was very sustainable. So that was kind of number one. Number two, you need
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  to have the energy to hustle. And I think that a lot of people are good hustlers, but a lot of people
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  think they are, but they don't really realize it literally is a live read eat sleep thing.
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  To get hundreds and hundreds and hundreds of clients through the old way. Now it's,
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  I would say it's easier. It's just different where we talked about using social and different
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  channels. For me, none of that existed in 2007. It was like literally coffee shops. Coffee shop,
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  coffee shop, coffee shop, and I would make a phone call to not cold call. It would just be like
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  a network of a network and you just, you know, you'd share your passion dream and 50% of the time
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  they would do it and 50% they wouldn't. So that amount of energy, I think a lot of people are,
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  um, some of them don't have like the, the staying power. Like I really interfered long game.
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  They look for the quick win. And people see through quick wins, especially when you're
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  immature in early in your career. That was immature in early my career at that time. And I didn't
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  want to make it look like I'm trying to make a quick buck. I was in it for the long game. And so
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  if you people see that I do think it builds a lot of credibility for someone that's actually,
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  okay, this person's here to stay their shoulder shoulder with me. I know they're not making a ton
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  of money, but they're making some money so they're sustainable. I'll, I'll stake this person.
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  I got to jump in with them. And so that's how I think if someone started any business,
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  obviously helps of using social and better channels these days can help accelerate that growth.
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  The best way I think of a real estate perspective isn't necessarily the model we started
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  originally. I think the best angle to make money and real estate right now in vacation are single
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  property or multi property, um, STR or short term rental funds or rental properties.
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  Short term rentals and not good unless, you know, I'll take as far as you want to go down this one,
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  but from a real estate perspective, short term rentals have been so disrupted the last decade
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  all due to Airbnb. So you go pre Airbnb. So pre-2008 and really 2010-11 before it became a thing,
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  they were unregulated. Everyone had vacation rentals or they could rent them out and there was no
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  issues. Airbnb came in the space. They completely disrupted the space. They went from zero rooms to
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  six million rooms in a decade. That's five four times the size of the largest hotel
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  stage in the world, Marriott. And now governments were forced to react to them and they started
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  regulating. So what happened is is that people would regulate, um, so whether it's Florida or Toronto,
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  you probably saw when you were there, they'd regulate Airbnb and Airbnb, a host were kicked out
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  across the board, Vancouver. Every major market effectively in the world has gone through it or is
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  going through it. But we're at this unique tipping point where people want to stay in these homes,
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  these vacation rentals, um, but they, uh, um, they want to stay in them, but they were unfamiliar
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  with the quality of the brand because VRBO kind of beat that up for so many years having
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  these inconsistency. Airbnb has made it not like totally consistent, but a lot better.
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  So I think a great way with regulation in place now, there's clarity and where you can buy,
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  you don't have to worry about being kicked out of your property, like, or not be able to short
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  term rent it. And finding an asset that's in your like for a water day or in, I mean, a lifestyle
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  destination, something California, the desert, you know, out of Mexico, whatever it is,
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  you can like totally DIY it and do it yourself. And that's super fun. You can make
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  multiple five figures, if not six figures of a property by owning a singular asset and you can
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  syndicate it with your friends. So you get your buddies that throw capital in, your debt free,
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  you have a very little lever and you can go immediately start making tens of thousands of dollars.
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  Like, what business can you do that? And all the platforms are there. Airbnb platform,
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  management platforms, they're all exist. And I, people are getting into the space heavy.
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  We're going to hear a lot about it. Those that are early stage will do better simply because
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  putting a foothold in certain markets will help people grow and you can start to accelerate
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  and scale. So it's very long with the answer to that. Sorry about that. No, it's awesome.
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  Don't, don't apologize. Go D. It's smart. A smart group of people listen to this. So go as deep
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  as you love it. Like, okay. So if I'm thinking about this, I just, I just ask questions. Like,
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  if I want to get into this, I always like, yeah, okay, if I start this business, what would I do
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  or how do I think through this? So, and I want to clarify something. When you think about short-term
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  rentals, you can do on Airbnb, but I'm sure you can also do private as well. You don't have to use
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  Airbnb if you can mark on yourself. So if we look at the opportunity, so say we look at,
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  but we buy one piece of property. We raise money. We buy one piece of property. I want property.
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  Yep. Yep. You can kind of have three options. You can either do, you can rent it out. Like,
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  regular rent it out on an annual lease. You can do Airbnb or you can do like a private short-term
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  rental. Yeah. Give me value on that property and then include the breakdown of the management
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  fees and all the other, uh, and salary things and then walk me through what somebody, you can have,
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  like walk me through the math to what somebody could make on this kind of investment. If they,
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  and then they can sort of multiply that at scale, understand the potential if they did this as a,
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  as a living. Yeah. And thanks for clarifying. I use Airbnb to lose slay. It really is STR
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  renting. So short-term rentals, because you might, when you have a property, you can list it on
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  any platform you want plus privately rent it. So you can Airbnb, home away via Airbnb, and
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  Steve Pataski rentals. There's no, they don't have, unless you get to the ultra luxury and use it,
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  they don't even have exclusivity, most have no exclusivity. So you can list it on every platform
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  around Airbnb or most familiar with it, but it really should be short-term rentals.
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  So from a math perspective, I'll just use like a round number to say a million dollar property.
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  Let's say you put in 500 grand and you, and you get a mortgage for 500 grand, you know, like,
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  I'm not going to get into like the debt financing side. That's a different story. We can talk about
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  later if you want, but let's say million bucks is your investment. Your operating cost are usually
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  around, depending upon your market, five to nine percent, kind of somewhere in that range.
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  So let's just say for rough number, $60,000, and that would be property taxes, insurance,
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  you know, replacement power utilities, everything else. Add another couple percent for management
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  fees, assuming you don't self manage, you'll pay someone on the ground to manage for you.
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  You need a house checker and someone to check the guests in and you'll fix the TV and tenant
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  that's not working or whatever it might be. So you're under 10 percent overall operating costs and
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  probably closer if you're, if you buy in a low-cost market, it doesn't have like, like, California's
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  very expensive. High cost of power, high-property taxes, but you can generally get a higher rate,
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  higher cap rate out of it, but it doesn't sometimes necessarily, there's an imbalance between like what
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  you can get from a cap rate or a rental rate versus cost, but let's just say 68 percent.
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  You can create, let's say, $200,000 in revenue on that property. So that would be hustling,
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  so let's just say you're going to rent that million-dollar property out, you're going to rent to
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  $259 at $800 a night, somewhere in that range, you get you $200,000 in revenue,
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  and then out your $70,000 in cost, you got $130,000 in net revenue, it's a 13 percent cap rate.
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  Like, that's not including appreciation on the asset, which is obviously part of your long-term play,
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  is you're really your goal is to build it to not actually sell the properties, and ideally,
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  you build that we have a portfolio of several of these, and they appreciate over time as well.
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  So that would be like, I would say, a low teens would be like a good solid cap rate within the
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  short-term rental space. Certain safer markets like Hawaii and stuff, your cap rate is going to be
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  probably more like five to seven percent, but the real estate market is so safe and so stable,
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  people will take a lower cap rate in those markets, your operating costs are going to be higher,
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  and just the kind of the delta between revenue and that, or your NOI or net operating income will
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  be smaller, but it's safe. You know, Hawaii has a year-round market, and you're generally not
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  going to have a big reset like four to saw 12 years ago or something else. So, pretty good money,
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  and if you're really good at it, and if you want to take a little bit more risk, and then if you
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  lever it, that'll obviously juice your returns further, and you're going to take a bit more risk,
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  you can get mid-high teens. I mean, what business can you immediately... I mean, no, still,
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  you need capital. Like, you need some money out of the gate to get a going. It's not like it's,
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  but you're not... Would you put 500 down on a million-dollar property? Would that be something
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  that you'd feel safe? Because you were talking about before. I've forgotten twice as much. I could have
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  gotten twice as much value at property, but I don't want to expose myself that much risk. So,
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  that's why you do... Okay. Yeah, and our first model wasn't built, it was all built on a cash
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  basis, but at a rental model, I definitely recommend some lever. I think that 50 percent is really
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  conservative. Sixty-seven, you know, sixty-seven you could do, and that just juices it, and a lot of
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  people do that. Like, some people push 80, 90, but I feel like, as soon as there's a 10, 15 percent
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  marker reset, you're really close to the line. I personally think that being relatively conservative
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  isn't a bad thing, so 50, 60 percent lever, that means it gives you double your buying power when
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  you're buying an asset, and you can buy two assets for a million bucks, I said it just one. And
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  that will... Because your income spreads so high, now your N.O.I. is a little less, because you're
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  going to have, let's say, whatever interest rate, 25,000 dollars in interest that year, whatever it
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  could be, then you, you know, you still have a still good N.O.I. maybe it's eight, nine percent now
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  after that, but you're getting a higher return because you have less capital in. So that's a good
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  number. And banks generally will lever you up, pretty comfortably, 50, 60, 70 percent, if you've
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  got some income from another job, that they can, you know, they just shows, or that your,
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  your property's already renting, that's got like an improvement income flow. So talk to your own
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  banker to see what they would lever it out, but definitely I think it's worth it in the rental
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  space because it just juices your returns and it's still pretty conservative. Thanks for tuning in.
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  to watch the full episode. See you in the next one.