Most people flip houses, become a landlord, or purchase properties to get the most returns in real estate. But for George Salas, he found an incredible opportunity in short-term rentals, where a lot of people don't even consider. He joins Keith Baker to delve into how rent arbitrage increased his ROI significantly. He shares how he acquires his financing and puts together ample funding to keep the ball rolling. George also explains how he deepens relationships with the people that he trains, eventually building joint ventures.
If you're a regular reader to this show, then you know that I do my best to keep the topics of the interviews either strictly private lending-related or at least interesting from a different investment or personal perspective. The topic of the episode is no different as guest George Salas is flip and crushing it in the short-term rental space.
I met him at a Mastermind in Key West and I'm happy that we connected. I got on the plane to fly to Key West. I did not want to go. It had extremely limiting beliefs and yet is one of the best things I've done. I love to know stories of innovators and how people pivot when times change or when they get bad, and given the recent COVID scamdemic and the current bubble and the retail housing market.
It's a real disease. All that stuff is over 99% survival rate. It's a flipping scamdemic. We are in a bubble. I'm calling it. Greenspan said, "You can't see a bubble until you're beyond it or it's burst." I'm calling it a bubble. More than $50,000 above ask in the market is a bubble. You can bookmark this show and can come back to it and give me grief or cheer me on when I'm proven right.
I couldn't think of a better time to introduce you to my guest and his business model. The best thing of all is that George Salas is crushing the short-term rental game right here in Houston, in H-Town, which makes my smile a little bit bigger. Let's go ahead and get down to the brass tacks of the show and straight to the interview with George Salas.
George, welcome to the show.
Thank you very much, Keith. It is an absolute honor to be here.
I'm looking forward to you to explain your business model. That is, you don't flip, landlord, own or finance but you do short-term rentals. I'm going to give you the floor. Tell us how you got into real estate, short-term rentals and the basic mechanics of your business.
My journey started when I was six years old. I'm sitting in the living room of my parents' house. My mom and dad pulled my brother and me aside and said, "Guys, we need to talk to you. You're going to go to your grandma's. You're going to stay there for a little bit." This is from a city by the name of Lima in Peru, the capital. We moved to a small town.
It was just my mom. It was an environment where I get to stand by my dad. We left that city into a small little town and then the town was 20,000 people. I didn't get to see my father for nine years but he came back again into my life. We were moving here to the US. I came when I was fifteen. I wouldn't get to say bye to him twice and it affected me my entire life until I realized that I didn't need to be better for my dad.
I didn't need to be in a place I’m good enough because I felt I wasn't good enough. I felt that because my father was never a great provider. We moved here. All through my young 15, 18 to 20, I was a grocery stacker. I worked at Kmart. Then I got into the nightlife and I invested in a nightclub. I was in the nightlife for ten years. I was the number one top promoter in Houston for 7 or 8 years.
[bctt tweet="Bad decisions aren't as bad if you learn from them. Turn everything around and make something completely drastic." username=""]
All of a sudden, I had the opportunity to invest in a club. I had a bunch of money saved up. I did invest in the venue and then I ended up losing everything. Here I am in the city. I had invested $400,000 into a club that I didn't have control over. I didn't have knowledge about real estate. I lost every penny of it. I'm sitting in the living room of my apartment at the time and I don't know what to do with my life. I'm literally lost. My buddy Ben Franklin called me. We go to his property in Flint. We spent 3 to 4 hours there and something clicks in my head with all of this inspiration.
That was a life life-changing phone call. I started training, taking courses, going to seminars. I went to a seminar in January of 2019. Four months later, I got my first flip. I did start flipping. I want it to be this real estate guy. I wanted to do a lot of deals and build an impact on real estate without knowing that you needed to have a lot of money to invest in real estate if you want to buy, fix and flip.
You need $50,000, $60,000. For DLS, you do what we do. At the time, we didn't have the resources or knowledge to do it. I made $46,000 on my first flip in 2018. Then six months later, I figured out what wholesaling was. By the end of that year, I had brought $98,000 of wholesale fees and used that cash. This is from the $5,000 in my pocket keys.
I use that cash to put into my first twenty rental arbitrage, Airbnb that had cashflowed me $2,500. It's little apartments, studios and I started with those. Since then, until now I've been able to build a six-figure business a month. Our short-term rental business does $150,000 a month. I've done 50 real estate deals in two and a half years.
I've got an amazing network of friends like yourself and in the know of all of the real estate community here in Houston. I'm in the best time of my life. I'm happy, fulfilled, fulfilling my destiny. It all started with that phone call and making those bad decisions. Sometimes bad decisions aren't as bad if you can learn from them. If you can turn everything around and just make something completely drastic. Look for that thing that you're wanting to find, which was a success in real estate and then I reached out to short-term rentals. That's pretty much a breakdown.
It's compelling because I find it funny that I had to go to Key West and meet you, even though we're right here in Houston. I've seen you come up on Facebook back in the good old days when we went to REIA meetings in person. I'll even throw John Jackson in there in Dallas. I'll include him. It is a very good supportive network.
The event, it's the same as I. It makes all the difference when you have people that you feel have your back or going to shoot you straight on something. To your point, if you mess up and you have a loss, it's either have a win or a lesson. That's the way it is. As long as you own the loss, then it's a lesson and you keep moving forward. You get into the typical way. You've wholesaled. By wholesaling, you know how to analyze a deal and see where the spread is and the margin, “What's the rehab going to cost this stuff?”
As we were talking in the pre-show, you're buying single-family residences, condos or studios. The SFR, the single-family concept but you run them not like your normal rental. If you get $300 cashflow positive a month, you're doing well. You're bringing the apartment cashflow syndication model and that's what the short-term rentals do. When you acquire, how are you financing? Are you using a bank or private money? What mechanisms and cash are you using to acquire your property?
When acquiring, we have a few strategies. I'm going to talk about purchase strategy and non-purchase. We use a method called rental arbitrage keys. This method breaks down like this. You go to a landlord, rent the property and ask them to allow you to sublease it on short-term rental platforms for 3, 4, 5, 6 to 30 days.
That's one method and it doesn't require you buying the property. Utilizing this big real estate. I'm talking about 3,000, 4,000, 5,000 square foot homes without having a buyer. If they bring in anywhere between 5, 7, 8, 10, we've got several houses doing $15,000 up a month. I'm talking about that method. What we've purchased, which we also do, I would say 60% of our portfolio is rental arbitrage, 20% is purchased direct and about 20% is purchased joint ventures.
[caption id="attachment_3170" align="aligncenter" width="600"] Short-Term Rentals: Short-term rentals allow you to do a lot of deals and impact real estate without having to invest a huge amount of money.[/caption]
We've got a few. We purchased via subject-to, partnerships, joint ventures and our corporate program. What we do for subject-to is we're taking over the payments, taxes, HOA fees and commitment with these wholesalers or landlords or sellers. We're taking the deed over to our property, and we're staging. For example, we have a property in Hawthorne, Texas, which launched in December of 2019 and it consistently brings in an average of $7,500. We just have a $50,000 reservation for 62 nights. Before what we did a little bit under $7,500 but it averages $7,500.
Our mortgage is 60, 48 and that's PITI all in. We do our cleaning and everything. We're all in for about $2,500 max utilities, $400 or $500 cleaning supplies, $2,500, so that's an $800 or $900 on top of our mortgage. Anything above $2,500 is profit. That's what I meant. Do you have any questions about that one?
It was different of words. I was going to ask when you say rental arbitrage is that you get a master lease on the property. You lease it from the landlord, sublet it nightly on the short-term VRBO or Airbnb model. The master lease might not be the right word but you lease the house, pay the monthly, you divvy it out and book it. That's a very clean model. I create financing but I like to keep the numbers simple. To me, that keeps it simple.
This is how I started. I needed cashflow to build a business. I didn't have the money to buy it. Even though I got into purchases several and we own about ten, we did not have the capital to buy a bunch. That was just the method. We don't use master leases but a master lease would speak, in a sense, more of a triple net lease, a commercial lease. It's closer to that when you control everything you take of the maintenance.
Master lease, you take care of everything. You're taking care of your maintenance and all of that thing. With houses which is our method now, we don't go off with apartments anymore because the houses are ten times more profit. I'm just being very conservative. We utilize these residential leases. We do 2, 3 to 7-year leases with initial terms of a minimum 2 to 3 and second terms where we create that option for us.
"We have to take care of your property. Let's do a six-year term but I'm going to come in and rent your property for three years.” In our next two years, let's figure out, what is it that you need for rent increase? Most people right now are getting the max ever the rent. Rents are up by 20% here. We negotiate that second term and the rent increases as low as possible. It's got to be favorable for both parties and we would just focus on these longer leases. Everybody makes fun.
That's your rental arbitrage. When you purchase, you get them sub-to. That's smart. I assume you leave it as long as you can in that original name. Do you put it into a trust?
When we purchase sub-to, we put them into a trust immediately and one of my LLC is the trustee LLC. Then I've got a separate LLC that is the beneficiary. Then we just leave it there. Not saying that you don't run into issues. This is a creative finance strategy. Sometimes if the wholesaler doesn't do a good job explaining all of the little points that you've got to touch, all the disclosures, sometimes we run into an issue that is very unlucky that the seller falls for bankruptcy.
Then it complicates the whole entire transaction. We're figuring this out with one of our sub-tos, but if you do it the right way, the only problem is that you can call the note due if they wish to. Most of the time, 95%, 97%, maybe 90%, it doesn't happen.
I've never had a seller file bankruptcy but I did have a tenant one time in my failed Baytown rental property. The judge gave him four months of rent-free living. The bankruptcy is going to probably get messy before it gets clean. I would like to know about how that turns out for you? I know that you like to partner with your students.
[bctt tweet="Buying profits is one thing, but buying properties with someone you're teaching is another." username=""]
You offer coaching strictly in the short-term rental arena. I liked the model because you bring them up and then you become business partners with them. You got to be careful. A lot of the wholesalers, the first three deals you got to split with me. Once you train these folks up and you go into a JV, what does that look like?
What we're doing is we're internally launching and we've launched it already. Nothing is out in the known yet in the community. What we do is we train these folks which our students are real estate investors because our focus is helping real estate investors get to that six-figure short-term rental cashflow.
Sometimes some of these real estate investors are busy with their wholesaling business, realtor business. They're busy with their subject to creative finance business fix and flip or landlord. They have a lot of properties. What we do is we give them the option. There's no, "You have to partner. We come and train you." If you have too much on your plate, we give that only the students that have been qualified.
Meaning, you've got to have an X credit score, pre-qualify, X amount of funds to be able to do that, because if we launch and buy properties. Buying properties is one thing but buying properties with someone you're teaching and making sure you do this on a consistent basis than others because you ran out of money and that messes the whole entire thing up.
We do the option and our methods are very precautionary. I've called it location process frequents. We party with them 50/50. We go out there, find the deal and rehab it. The studio will purchase it in their LLC or their name or whatever. We use the student's cash or credit. The students bring into cash or credit and they bring into private money.
In a sense, we teach them every step of the deal as if they were doing it because we're doing it together as partners. We teach them as far as so, the students come to the property with us to do the analysis of making sure that the property's numbers are going to work. We meet there to assess the rehab with the contractor. Then we also take them there. We deal with the rehab and we're showing them exactly the back end, the front end how the entire properties have staged the sign.
They're not doing it themselves. We're doing it together. My team is providing the labor, the steps. They're seeing all the steps. Everything is getting executed and they're learning. Most people learn what they do. They're doing with us. Then we turn around and refine the property and deed it over onto our partnership LLC or limited partnership. We all make money. Go home. We have the process in the back. They can do whatever they want and pick the same process and then just rinse and repeat.
In an average ballpark deal, how much does a student need to bring in private money? With sub-to, it’s going to be less but if you're getting in, what was the average buy-in? If I was going to fund one of your students, how much and how long would it need to be out?
The average buy-in depends on the property but we estimate with the down payment costs, as we buy correctly, which is always 75% to 80%, 82% because you can't find anything above that. We're closing with a property this first week of June and this one is pretty much at 78%. They're putting up $40,000, $50,000 on the down payment side of the short-term loan.
On the refinance, if all things work out, our appraisals are coming back, so I'll find out. After figuring out and seeing all the comps we're estimating, you never know what the place was, though but the market is fairly high right now. We're estimating anywhere between 4 or 25 for this deal, maybe 4 or 50. We're going to be in cash out of pocket 30 to 40 max, maybe even less.
[caption id="attachment_3171" align="aligncenter" width="600"] Short-Term Rentals: Through rent arbitrage, one can lease the house, pay the monthly, divvy the finances, and then book it.[/caption]
That includes the short-term loan, the rehab loan and all that. They're going to be cash out of pocket. Then after that, they are all refinanced but they are all carry across, which some tax could roll a little bit above or beyond if things get complicated. All the refinance there are costs for staging. For example, this property is 5,000 square feet but it's going to bring in about $15,000 to $20,000 a month.
We are estimating about $25,000 to $30,000 on the furnace sheets and about $5,000 to $7,500 on the labor, maybe a little lower. You're putting 3540 plus 3540. Maybe a miscellaneous, we estimate 80 to 100 per deal but then you turn around and bring back in an average after the 50/50 split on this deal, our projections for the partner on that 80 to 100 is $3,000 to $4,000. If you do the Math times twelve, that's about 48% annually over a period of five years, which is our term. That's about 200% to 250% of IRR.
When you bring it into the refi, are you going with community banks that are providing your refinancing?
It's going to be either your credit union, an investor loan or just a regular type of financing. One of those three, depending because 80% cash-out refi and we're at 80% on the refi LTV, then we're good.
You're not going to Freddie or Fannie to refinance these. What it means is that if you go to a traditional bank, you're going to get a lot of flak trying to refinance. When I've been refinanced out of bridge loans or acquisition loans, it's never been with the bank I'm familiar with but in some credit union or a community bank and they'll take it all day long because it's backed by real estate and the big banks won't touch it. I was curious. You are getting biz mortgages to refi. Let me just run through the timeline. You buy it, rehab it, appraise it. You're refinancing the short-term money for 3 to 6 months before you refi it?
Up to six.
Do you have a five-year term on that?
Five-year term after we refi. That's when we decide, "We're going to sell or not." The market should be up. There is going to be a certain small cost you're going to have to do in five years.
I understand that you are considering trying to put some money together for a fund so that you can have an ample supply. This is not an offer to solicit, purchase, sell or anything like that. This is not against any SEC regulation but tell us a little bit about that.
I have a big blast to connect with some amazing people. What we're doing is I’m partnering up with two key elements of the entire short-term of operation at scale. One element is going to be your finance side. We've been figuring out, "How can we scale this thing instead of doing two properties we launch?” We're launching up 1, 2, 3 properties a month.
[bctt tweet="Most short-term rental success is created before you even launch them properly." username=""]
How do we do this at 5 to 10, maybe 15 properties a month? One, you got to have lots of money. We figured out, "We either go and partner with a lot of people or create a pool? We'll be filing for PPM, Private Placement Memorandum within the next couple of weeks. It's a work in progress.” That's one aspect of what we figured out that we needed.
Then the next aspect is, “How you can find all these properties?” We need deal flow. We partnered up with a national wholesaler and this is in 28 states. He was in Key West with us, Corey. Us three together are going to bring this massive 5 to 10 deal over a loss. We've got the funds cover. We've got to go race them and put them together with someone that has raised $2 billion.
We've got the front end cover where this person knows exactly how to acquire that the AOVs are at underwriting deals, how to buy them and to make sure that we get them ready for our team to take. He does virtual rehab. I never knew of that before. Virtual rehabbing is crazy. The last few elements are going to be number one is your underwriting for short-term rentals, which is what my team and I are going to be doing.
Once you wonder written it and it buy, it is the sign of the property wants its rent ready. What are you doing with these sign-on amenities? We're going to design it. We've got a team for that. We're 25 deep here in the office with all of our virtual assistants. How to launch it? You need a large team up-front because most of the short-term rental success is created before you even launched that property. When it comes to launching, it's very crucial that you have a great strategy for your listee and how you're going to book your properties.
It's the availability. Booking strategy and a great strategy for how you're going to utilize your booking and availability and price your properties accordingly so you maximize the revenue. You get that four X, which is four times the mortgage and rent but there's not going to be a mortgage here because it's all going to be private money on the fund.
Then once you launch it, we've got a full-service management company locally. We're going to reach out and outsourced on the other states with other management companies to work, to have people on the ground in other states. That's the plan.
I enjoy talking with you in Key West and just reading to the plan and the vision is you're focused on that vision. You can see it right now. I can see it on your face. You're zoned into that. I like the enthusiasm. I want to give you a little bit of a hard time. When you said you went into the nightclub business is when you became a vampire because you're going to bed when the sun's coming up.
I worked at a bar for about a year when I got out of college and it was funny. I made a total of $24,000. I was a doorman in a bar back, but it was one of the best educations I ever got. I’m getting home at 4:30 in the morning and I got a doctor's appointment at 9:00, “Who scheduled this early?” The vampire. Welcome to the daylight hours in real estate. A joke, because you're an entrepreneur, is, “There's no such thing as day or night. It's just now. Everything is now.”
I've made fun of you about being a vampire. I was a vampire for a while but you made a hell of a lot more money than I did being a vampire. If somebody wants to get ahold of you and just ask a question or maybe wants to get some coaching from you to learn that this amazing model, how do they get ahold of you?
First of all, thank you for having me. The best way to get ahold of me is going to my personal website, and that is GeorgeSalas360.com. You go up there, log in to the website and then my contact info is there. You're welcome to book a call so we could chat and see how we can help you. Truly build a 5, 6 or even a 7-figure on a short-term rental basis. That's what we're doing.
[caption id="attachment_3172" align="aligncenter" width="600"] Short-Term Rentals: The average buy-in depends on the property, but with the down payment costs, an estimated 75%-80% is needed.[/caption]
I admire people who are in the short-term game. I understand it a lot better now. When it first came out to me, I had the same confusion as I did with Starbucks, like, “Why would somebody pay $4 for a cup of coffee?” There's proof that it happens millions of times a day. It's just being creative. It disrupted the hotel industry. It's a very exciting time to be alive. George, thanks for coming on and sharing your story and strategy with us. I look forward to connecting with your re-events in Houston at the conference, wherever it's going to be.
My pleasure. Thank you very much for having me, and I hope that this brought a little bit of service and clarity to your readers.
Thank you for coming on. Take care.
You too. Thank you.
There you have it, folks. I'd like to thank George Salas for stopping by and discussing his business model and how he's doing more than well in the short-term rental game and showing others how to do it as well. If you could, please go take a look at what George can offer you and reach out to him to learn more.
Speaking of which, that's going to do it for Episode 136. I don't charge money for you to read, but there is a cost to produce this show and I would be extremely grateful. If you would help get the word out, increase awareness for the show by leaving me an honest rating and review over at Google Podcasts, Spotify, iHeartRadio or whatever platform you are using to know my voice but it would mean the world and I do mean the world to me if you could take the time to do the following.
Leave me an honest rating and review over at iTunes because that would generate the most buzz for the show. They're the 800-pound gorilla in the room. They still have a lot of swings and sways but more importantly, it will help you erase a lot of negative karma and you can trust me on this. I'm a white man from the South. Also, tell a friend. If you know someone who's looking for private lenders or someone who's trying to cultivate private lenders, give this to them as a free resource. Pass it onto their private lenders. Please help me get the word out. I would appreciate it.
Don't forget to join the Private Lender Podcast Facebook Group. Go to PrivateLenderAcademy.com to put the power of the banking industry into your investment accounts. I want to thank you for reading and for your time. In addition to mindfulness and self-awareness, I truly wish you safe and successful private lending and I'll catch you on the next episode.
As a young entrepreneur, I've built my own company in Branding & Marketing, established in 2007. I have been fortunate enough to not only have my business grow, but to have the opportunity to help others gain knowledge and take action on their small business dreams. With time I have expanded my business to become a Real Estate Professional. I truly enjoy traveling but I don't get to do it often since I'm a workaholic. When I do travel, I visit my original home Peru. I also love coastal and tourist cities in the U.S like Miami and L.A. My All-Time favorite movie is STAR WARS so if you're a nerd like me, High Five to you! E-books are my learning tool. I treasure time with my little family. We can't live without food, so we like to try different cuisines and go out to eat almost every weekend .
We specialize in bringing you the best value and best locations for your stay in Houston. Our Airbnb properties are located in the most popular destinations in the city of Houston. We currently have rentals in the vibrant Montrose neighborhood, Downtown, Midtown and pretty soon we will have rentals in the Uptown area (Galleria), Medical Center, The Heights and many more great Houston destinations.
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