#130: Real Estate Investing & Short Term Rentals
LISTEN AND SUBSCRIBE
Apple Podcasts | Google Play | Stitcher | Spotify
Want to grab the transcript of this interview? Click here!
Welcome back to another episode of The Richer Geek Podcast. Today we have another techie or ex techie, that has decided that he may make him a little bit more money a little more freedom in real estate.
Sief Khafagi is a real estate investor who has helped thousands diversify into RE after spending nearly 5 years at Facebook where he built the 2nd largest engineering organization across the world. 1000+ hires later, it hit him: a company’s most important asset is its people.
In this episode, we’re discussing…
[2:02] His background and what was the lightbulb moment
[5:00] How many people do this, is that what you guys do at the start?
[6:54] Do he include the entire United States or he’s concentrating specific areas in metros, urban doesn’t matter?
[7:39] How does he know the different regulations, states minister, municipalities, how does he handle?
[9:27] How did he handle during COVID, talking about the government and state government
[12:06] What made him to choose Short Term Rentals, STR’s?
[14:03] How does this asset class differ from traditional real estate investing?
[15:27] What are the reasons for someone to invest in short term rentals?
[16:50] What he’s looking for when he looks for passive investors?
[19:50] About the difference of doing syndications knowing the asset and just find someone that gives you a fund but may not know the asset, so people can understand both
[21:33] How can people get more information about this fund?
Resources from Sief
+ Read the transcript
Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the Richard geek podcast. Where you here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler, and in this podcast, you'll hear from others who are already doing these things, and learn how you can too.
Hey, everybody, welcome back to another episode of the richer geek Podcast. Today we have another techie or ex techie or prior techie, however you want to say that has decided that he may make him a little bit more money a little more freedom in real estate. Imagine that. So Steve Kerr foggy, he was, as we said, next techie turn real estate investor. He's helped 1000s diversifying the real estate. That's what we talked about. He spent nearly five years at Facebook rebuilt the second largest engineering organization across the world. 1000 hires later, it hit him. What is the most important asset it's his people. So today, he's the founder of tech vestre, which helps real estate investors and busy professionals like you passively invest in emergency emerging asset class of what what's the most popular thing right now? Short term rentals AKA a Airbnbs. Sief how're you doing?
Sief Khafagi
I'm good, Michael, thank you for having me.
Mike Stohler
Absolutely. So a little bit about your your background, you know, you're plugging away at Facebook. And what was the lightbulb moment?
Sief Khafagi
Well, light bulb is I joined an early Facebook company in early Facebook team that allowed me to build and create we were a team of I don't know, 80 90 people at the time took it to about 1100. By the time we left, and I missed the building phase. And granted, we were in the space of short term rentals myself and my family and some of our business partners. COVID just made what we were doing a lot more common, right and technically work remote, or we were working remotely a lot more normally, but and the common man, I guess these days. And so when COVID happened, I was like, great, you know, we should find more short term rentals. And like any techie, we found that the process of finding and setting up and designing and furnishing and operating short term rentals, I'm sure you understand that being in the hotel space in the past is it's not easy, and it's a full time job to your average person. So I was blessed with being at Facebook for five years, Sabrina is my co founder was you know, build, she built air pods over at Apple. So we just come from these places of significant technological advancements. And we entered real estate and specifically STRS. And it was old and slow and archaic. And we were frustrated like hell. So we built software that allowed us to basically do our entire jobs easier an operating system for short term rentals, if you may, that allows us to find these on these properties, underwrite them more accurately, have the best data and make every decision that was how we price it, to design it, to acquire it to finance it using industry leading data. And before we knew it, we currently run a $16 million fund with hundreds of investors all across the country, plenty of them in tech, who wanted to get exposure to this asset class in a passive, you know, keep my hands clean, not dirty kind of way.
Mike Stohler
Yeah, you know, it's fascinating. So, you know, how many people do this, you know, well, I don't think enough. You see a need. And you're like going, why are they doing it this way? Why hasn't anyone you know, have they ever heard of tech and you take it and use your experience and create something? So let's get into that just a little bit. So our our listeners can understand so what is your tech do that software you're saying you know, find financing you know, I mean? All these different things. But is it somehow finding you the leads to buy the houses are you doing some type of the list that's calling, trying to you know, obtain houses and you know, let's take it that part and then you know, because I know real estate I'm just kind of curious. Is that what you guys do at the at the start?
Sief Khafagi
Yeah, that's a very good question. So our software really allows us to do three things right as it's kind of like the key big takeaways. The first part is top of funnel, right? How do you identify and underwrite not one property at a time, but every single property across the country that hits the market in real time? Right? We have to also remember like two years ago, real estate market, right? What was going on? I mean, things were just flying off the shelves. 20 offers all cash overnight, like speed mattered, right? So when we entered the market, we needed to understand is where are the best properties coming on market? What's the underwriting, right? So we could make decisions quicker, and basically pull the trigger. And so fun fact, 94% of properties we underwrite are shit, they don't work. So as you might imagine, if you're doing all this manually, you're spending all your time on unnecessary activities, you're not productive. So we automated the ability to underwrite over 60,000 properties a month, across 270 different markets across the country. Right? In any market we want to enter, we can easily just add it to our software and boom, we can underwrite it automatically as soon as properties hit the MLS. So that was like about discovery, right, discovering what to buy and going from there. The second part is about what's the most optimal financing strategy based on whatever our goal is, right? Are you going p&i? Oh, how much down? What's your cash flow? What's the target? How much risk do you want to take? Because we're building a portfolio? Right? So we look at portfolio risk a little bit more than we look at on a single asset level of risk. Right? So that's step two. And then the third part really is about great. Now once we have acquired, what's the data points, that's telling us what we need to do to this property in terms of renovations design furnishings, does it need a hot tub? How do we price it? You know, all these things are, there's a lot of unstructured data out in the world around these topics. So we basically did is between the humans and technology, were able to combine this to streamline making decisions across this runs.
Mike Stohler
Yeah, that's amazing. And, you know, just to be able to do that, because people are just chasing their tails trend and they make a lot of mistakes. Looks like you guys just if you can automate it, you know, do it right. Just makes it so much easier. Now, do you? You're talking about the entire United States? Or are you concentrating specific areas in metros, urban doesn't matter.
Sief Khafagi
Doesn't matter at all, you know, like, like zero, anywhere we want to enter tomorrow, I'm going to share my screen here because you you might be able to see it. But you know, the listeners won't. But we can literally enter a location on a map and like within 15 minutes, we'll have everything completely underwritten in a heartbeat.
Mike Stohler Wow. I mean, absolutely amazing. Now, and how do you all the regulations, the different states Minister, you municipalities, how do you handle? Hey, can I do this in this area, or this town? And, you know, like, you see all the signs popping up? You know, hotels, not homes, and you know, and all these different things? How do you? How do you know the different regulations? Is that just something it's built in? Or is that a human question?
Sief Khafagi
It's a great question. While look, you know, we're a real estate company first powered by technology, right? We're actually not a technology company that does real estate. And I think that's a really important distinction. Because of the way we approach problems, we don't believe technology solves all in fact, real estate is and will always be, in our opinion, a human driven business. Because there are qualitative instincts that we you just can't vet through technology and regulations and permitting at the township and ordinance and HOA levels down to that tee is one of them. Right? So the reason our software also helps us in doing that is, as I mentioned, 94% of properties we underwrite don't work. So because of that, we're able to avoid looking into markets or municipalities that wouldn't pencil anyway, therefore no reason for us to explore the regulation. So when we identify markets that do work, one of the first things we do is that out the municipalities and the regulation and permitting and, you know, the thing is, you don't need to find 200 markets, right, like, for example, today, we're on property number 43. We're in we're in our ninth market this year, right nine markets 40 Plus properties 16 million, I mean, you can deploy a good amount of capital, when you find those sweet spots in those markets, you don't need 100 places to invest.
Mike Stohler
Yeah, and that makes sense. It's, there's certain areas that I will never buy a hotel, right, just the government, the state government, the levels, the you know, the whether or not just the taxes and doesn't make sense, you know, and you know, COVID taught me a lot on well, you know, I'm going to perhaps second kind of second guess if I do something in the municipality that just immediately shut down. And now I have no choice but to go under with that. Hotel because the bank may only give me three months deferment. But the government was shut me down to state government, you know, six, seven months, eight months? Did you see any of that? Or were you? Just boom, people wanted Airbnbs? Did you see any of that during COVID?
Sief Khafagi
You know, what we saw in some of our personal short term rentals at the time, is when the pandemic, the Federal order basically said, Hey, like, everyone stay home. Right? Obviously, you have like federal versus state at the time in terms of what people were allowed and not allowed to do. And we owned properties in both states that were, you know, more pro federal or pro state at the time, right. And what we what we saw is, people inherently could not be caged in, right, like, you know, it may have felt or was illegal to book things at the time, but people still did it. Right, because they were like, you know, what, I'm not going to be told to stay inside, I'm gonna go out now. I think they did it responsibly. I think there was rules and regulations and cleanliness, things that came out of COVID that really impacted the way you look at the world of short term rentals. And I think a lot of those are for the positive, right? Like cleanliness is really important. I think Airbnb is we're actually a safe haven in many cases where people were social distancing, or wanting to get away or go be one with nature, or go explore or just travel or be a nomad or this work from life started work from home type of nomad lifestyle, I think it opened up a lot of things in a lot of positive way, because it forced society to really accept this as an asset class, and look at where we're at today, right? We're recording this in August. How many companies you know, today that are almost either exclusively remote or so much more flexible than they were before the pandemic? It's because they're forced to be. Right. And because they're forced to be, we think this asset class was accelerated by the pandemic, in terms of it being an incredibly viable, emerging, and what will soon to be an institutionalized asset class of the future?
Mike Stohler
And what made you choose STRS? At the beginning,
Sief Khafagi
you know, the first thing you know, as a capitalist was the returns, right? You know, honestly, like the returns were unmatched everything about them. The second thing was the lack of competition, right? So when you were you have outsized returns, typically, you would see incredible amounts of competition, right? Because everyone knows about it, everyone's trying to do it with STRS. You know, even a year or two ago, you had all this cash flow, all this growth, but you didn't have competition, your competition was coming from 99% of the time mom and pops, right, your neighbor or the person across the street, who was taking photos on their iPhone six camera, right, designing it, like it's, you know, the 1970s, and not understanding how to price or how to have no data, they have no advantage, right? We came into this with capital, with technology with our team of super hosts who understand this space, with all these advantages where the low hanging fruit to improve and beat out the competition was, to be quite honest, just rather simple, right, you know, in multifamily as an example, right, and even potentially, in hotels, which I know you know, much better, you're dealing in fighting against these institutions who are incredibly well capitalized. All right, and it could even be a Race to Zero in STRS, it was quite the opposite. You could do very simple things and just dominates the market. Right. And so with that, with our advantages that we had, we saw it as a prime opportunity also kind of reaffirmed with what the pandemic forced us to do, right? So we always talk about like, trends that are in with tailwinds. Right trends with tailwind. So what are trends will tailwinds flexible living, flexible lifestyles, AI, we think people will share homes in the future, right and not actually have a single place to live. So all of these kinds of tail winds that were reaffirmed by the pandemic and currently today, as we're hopefully on the back end of this pandemic, are all saying STRS STRS STRS.
Mike Stohler
Yeah, you know, it's interesting, you brought that up a couple months, go ahead and gentlemen on the podcast, and what he did is he took all of his rentals. He said, Look, you know, the, the Gen z's. They don't want to rent they don't want to own they don't want it, you know, but what they do, what we'll do is CO habitat. So they they're taking these four or five bedroom houses, and there could be someone living in it that is not their own family. They have a communal living room, TV room. And that's kind of what they're going towards, you know, if it's not the kind of living in STRS, but they're kind of cohabitating in kind of roommates. And very happy with that.
Sief Khafagi
Yeah, you're gonna actually see this all I mean, I'll share it with you here as a sneak peek. You'll see this from us, potentially as early as this year or potentially sometime next year. We're We're working on the CO living model where we will take a three four bedroom home, turn it into a six or seven bedroom and rent it out by the room. Right? And the cash flows are absolutely insane, right versus what you would get that on a traditional single family home. Right? So well, we're working on that, like everything that we do here at Tech Vesser is all about alternative real estate investments. Our first asset class of choice is short term rentals. Because the cashflow is high, the yield is high, and it's a mispriced asset. That's our belief.
Mike Stohler
And what are some of the other reasons why someone listening today would want to invest in the short term rentals instead of any of the other type of real estate.
Sief Khafagi
I think if you're looking for things like yield, or you're looking for diversification, or you're looking for an alternative play, or something that might be a Grand Slam, and not just a single or a double, you know, if you're looking for your basic, you know, hit a six to 10% year your rear return for a long period of time, that's unlikely to be us, right? We believe will will be pretty decent cash flows, right nine to 12% a year in terms of yield. And we think if we're right if our thesis and strategy is correct, and this is where socio economic type behaviors are changing, we think over the next 234 or 510 years that will hit multiple grand slams in terms of the equity velocity that we have here, right, we're part business part real estate, you get the same tax benefits you would in terms of owning your own real estate. My favorite part though, is in this asset class is very similar to multifamily. Or hotels, if you want to get into those asset classes. Theory, it's damn near impossible to be the operator and have a day to day job. Right? It's just It's damn near impossible, right. And so the only way to do it successfully, and to really protect your capital to the utmost of protection and from a fiduciary and responsible way, partner with good operators and we believe we are the best operator in the short term rental space.
Mike Stohler
Yeah, that's great, great, great advice for everyone. It's, and that is so important. You need to vet your general partners, you have to vet the companies. Just don't go hey, you know, Hey, buddy, you know, call for your buddies up, hey, let's go buy five or six short term rentals. It number one, get a mentor. And that could be someone like CIF or just you know, watch how they do it once you once you get into it. It's just so important. I see so many people just ruining their bank accounts, you know, because they watch HGTV and said, Oh, man, it looks easy. It's just crazy. Talking about your fund or your is it. Five years, seven years is a long term. You know, when someone gets into it, let's kind of walk through, you know, credit investors. Walk us through what you're looking for when you are looking for passive investors.
Sief Khafagi
Yeah, so we are a five year fund our projected five year hold. In terms of projected outcomes, we're targeting that eight to 12% kind of cash on cash range or targeting a, you know, two to two and a half, maybe 3x. Equity multiple. Again, this is an early asset class without too much, you know, backwards history of this space. We're buying single family homes based on value and selling them based on the revenue. Right, very similar how you would sell multifamily or hotels based on that noi. In terms of what it's spitting off. We work directly with accredited investors exclusively. If you are a non accredited investor, there are partners of ours, that partner with us that you can work with them. But working directly with us exists is exclusively accredited. And you should be comfortable with a you know, a three, five or seven year old in that timeline. Right. It's a cashflow type focus fund quarterly distributions in that capacity. We've done very well you know, in our in our first year thus far, which we're coming up on one year here in November, in multifamily, right, you can expect to kind of get threes fours cash on cash, maybe your first year right at best kind of a thing, like we're on track to be about double that in our first year. Right. And so like we are an income play, you know, same costs a tax benefits, you're gonna get across the board and with all these HEPA syndicates, and I think at the end of the day, we intersect that this beautiful world of technology kind of venture and startup mix with traditional private equity and syndicate. So that's really an advantage of ours. And so that's what people can expect and of course all the goodies of investor portals and transparency and all that kind of good stuff in terms of the experience.
Mike Stohler
No, you know, you do syndications and funds tell us a little bit about you know, the difference between them you know, you know the syndication you you have the house you know, it's like a here these are the what I'm doing to fund is like, well, give me a lot of money and I'll go find something you may not know where it is or what you know, tell. Tell us a little bit about the difference between the two so they can understand
Sief Khafagi
Yeah, so our structure specifically is a fund. In fact it is A multi asset the line to fund and so what that means is exactly as you described, and Michael, We don't know necessarily what we're going to buy next, when we don't know how big our fund necessarily will be. But we do generally have guidelines of what we're buying in terms of asset class, we know how long the fund should generally survive. And so if you're investing in a fund in this capacity, you're investing really in the business plan, the ability to execute with the operator in terms of a thesis or strategy that you believe in, in a fund that is a single asset or known assets, where they're not adding any new assets to the portfolio, that would be known as a potentially multi asset known fund, right, there's no blind part there. And then in traditional syndicates, oftentimes, a single asset or a single property, for the most part of which, you know, the property that you're investing in, it's already typically under contract or under loi, if some extorts and you are investing really in the underlying principles of that asset, in addition to the operator's ability to perform whatever their business plan or strategy is to improve set property to achieve set return, right, and we operate in the fund model because it gives us the utmost flexibility to really go out and do what we do best which is Get creative design these properties will operate them better. And so far, our year to date performance is 52% Higher occupancy than our competitors 42% higher revenue. These are the types of metrics that we track because we're part business and part real estate and that's really what you should track when you're looking at a fund versus syndicate.
Mike Stohler
Wow, I mean fantastic you know everybody again, it's a it's a different way to do the short term rentals and I've always said this when you get into asset classes that you're not familiar with you don't have experience with you need to partner just like Steve said don't just do it I did it alone back in the day and fried my you know, it just crash and burn and you know, but I'm old and I did a pre Google days okay I didn't have I didn't have mentors or anything so I learned the hard way laser Joe don't learn the hard way there it's just too easy now to park your passive income, diversify, and it funds into record will companies you know, just like tech Vester and with a safe not safe for we end, how can people find you? How can people get more information about this fund?
Sief Khafagi
Yeah, if you're ever interested in learning more about, you know, short term rentals or our fund in general, you can head over to tech investor.com. There's a beautiful big purple button at the top that says Request invite you can talk to someone on our Investor Relations Team, see if it's a good fit for you. We also have a ton of data on our website, if you're just looking to get educated on the space, we lead with education first, both to ourselves and to investors. So there's a ton of data on the history of short term rentals and all the things that we're building. In fact, something that we'll release probably later this year, early next year is a live real time dashboard on our website of exactly how our portfolio is doing in real time. Right? So you can see exactly how things are going. So you know, ask the questions. Get your answers understand the asset class. And you know, we're here to be a resource for you in any type of way.
Mike Stohler
Perfect, ladies and gentlemen, Steve Kerr foggy. And we appreciate you coming on again. It's tech investor, tech investor or tech investor. I'm sorry, I'm got the investors on my mind. Tech investor tech investor.com. Thank you, Steve. Appreciate you coming on.
Thanks for tuning in to the Richard geek podcast, where we're helping others find creative ways to build wealth and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www.therichergeek.com/podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. Share with others who can benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you and thanks for listening
The information, statements, comments, views, and opinions (collectively, “Information”) provided in this podcast are not intended to be and should not be construed as financial, economic, legal, accounting, tax or other advice. For our full disclosure, click here.
ABOUT SIEF KHAFAGI
Sief Khafagi is an ex techie turned real estate investor who has helped thousands diversify into real estate after spending nearly 5 years at Facebook. He’s syndicated acquisitions totaling more than $100M while designing & developing more than 25 properties. Today, he's the founder of Techvestor, which helps real estate investors and busy professionals passively invest in the emerging asset class of short term rentals (aka Airbnbs).