Why a Small Local Market Caps a Portfolio Business — Transcript

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1. 0:00I'm Janelle. I'm from Melbourne,
2. 0:01Australia. Grew up in LA though, so I
3. 0:04don't have the accent. I'm sorry.
4. 0:06I run Airbnbs
5. 0:08for other people and I have five of our
6. 0:10own properties.
7. 0:12I have a portfolio of 55 right now. We
8. 0:16I've made or 2 million last year for the
9. 0:20owners with a profit of around
10. 0:23244
11. 0:25to me.
12. 0:26>> So you take a whatever 12% something
13. 0:28like that off the top.
14. 0:29>> Eight sorry, 20% off the top after
15. 0:33>> Okay, so you took 400 and then you
16. 0:34profited 240 on the 400. Okay, got it.
17. 0:37And that's on the 55 then you have your
18. 0:38five locations which are separate. Got
19. 0:40it. Okay.
20. 0:40>> So
21. 0:42my question to you is
22. 0:44I want to be making 2 million profit. We
23. 0:47are in a small beach town two stoplights
24. 0:49>> Mhm.
25. 0:50>> with horrible weather in winter.
26. 0:52Nobody's going to the beach in negative
27. 0:53five.
28. 0:54>> Yeah.
29. 0:54>> So
30. 0:56how do I get to 2 million with
31. 0:58that weather?
32. 1:00Um
33. 1:01when I can expand out and make more or
34. 1:04bring in more properties within my local
35. 1:06area or do I need to go into a whole new
36. 1:08area
37. 1:10which brings its own risks.
38. 1:11Um
39. 1:13and then I also have the opportunity of
40. 1:14acquiring another portfolio right now.
41. 1:17>> To manage or to
42. 1:18>> Own or well, not personally own but
43. 1:21manage on other people's behalf. So
44. 1:23>> So you're getting from another property
45. 1:24manager?
46. 1:25>> Correct. Yes, she's closing out. But
47. 1:27it's all high-end
48. 1:28properties. It'll be about a million I
49. 1:30just calculated of
50. 1:32additional profit to owners. So
51. 1:34>> owners. So you're going to get
52. 1:36we whatever 12% is what you made on the
53. 1:39other one. So let's assume another 120
54. 1:40grand a year.
55. 1:40>> Yeah.
56. 1:41>> Okay.
57. 1:42>> So
58. 1:42>> So that'll
59. 1:43>> of a 90,000.
60. 1:44>> That's great.
61. 1:45>> Yeah.
62. 1:45>> Yeah.
63. 1:46>> So but it still doesn't
64. 1:48>> [laughter]
65. 1:48>> Yeah, for sure.
66. 1:50Um but do I need to do keep doing that
67. 1:52to get to my two or what can I do?
68. 1:56>> Yeah.
69. 1:57So, I mean
70. 1:59the opportunistic deals like that, um
71. 2:02I'm guessing you have it relatively
72. 2:04well-oiled if you're at 55. So, how many
73. 2:06properties is the
74. 2:08the one that you're buying?
75. 2:09>> 18.
76. 2:10>> Okay. Is that going to be a huge issue
77. 2:12for you to take over?
78. 2:13>> Um yes, that's some of what the boys
79. 2:15have talked to me about. Um
80. 2:17ironing that out. It's not a huge huge
81. 2:19one.
82. 2:20>> Is it same market?
83. 2:21>> Yep.
84. 2:21>> Okay. I mean
85. 2:23I would say like
86. 2:26the big thing is there's many ways up
87. 2:27the mountain.
88. 2:28Right? And so
89. 2:29you could just say I'm going to look at
90. 2:31all the other property managers in the
91. 2:32area and try and buy up all of their
92. 2:34books of business for very low amounts
93. 2:36of money. That's one way.
94. 2:38Um
95. 2:39the other way is you can try and mop up
96. 2:42all the individual mom and pops and say,
97. 2:44"Hey, wouldn't you like to have all your
98. 2:44time back?" And then this just make this
99. 2:46all passive for you. And there's going
100. 2:48to be some percentage of people who do
101. 2:49that, right? Um
102. 2:51or you can obviously expand. Which one
103. 2:53is right? Um I unless you have a
104. 2:56reliable way of getting these
105. 2:57opportunistic deals, I wouldn't say like
106. 2:59that's going to be my strategy. Like
107. 3:00take them when they come, that's great
108. 3:01cuz it's not it's your core business.
109. 3:03So, that I don't see as a distraction.
110. 3:04That's like right down the middle. I do
111. 3:06this, they do this. I'm just putting
112. 3:07their book in. Good with that. Um
113. 3:10in terms of the beach town, what
114. 3:11percentage of the market would you say
115. 3:12you have in terms of properties that are
116. 3:13available that you manage?
117. 3:16>> There's only one other management
118. 3:17company as big as mine. She has um 120
119. 3:20on her books.
120. 3:20>> Okay.
121. 3:21>> And then I monopolize the rest.
122. 3:22>> Got it. Okay. So, you two together are
123. 3:24like what you you're 90% of the market
124. 3:25or something?
125. 3:26>> Um yeah, besides mom and pops.
126. 3:28>> Well, then yeah. So, it's unlikely that
127. 3:29you're going to grow a huge amount in
128. 3:31that market. So, you are in one of
129. 3:32these.
130. 3:33Right? So, we're like you are in a tiny
131. 3:35local market that there's only so many
132. 3:36players and so many houses being rented.
133. 3:38Um and so it does make sense for you to
134. 3:41expand to
135. 3:42an adjacent market.
136. 3:44And so I mean that's that's the like
137. 3:46unless you started a different business,
138. 3:47that's going to be the nature of of the
139. 3:48expansion.
140. 3:49>> Okay. Now, my only other question is
141. 3:52I've only ever done three letter box
142. 3:54drops for advertisement.
143. 3:56>> Okay.
144. 3:56>> Do you Is it worth trying some sort of
145. 3:58advertising
146. 4:00to see if I capture some more or just
147. 4:03completely
148. 4:03>> existing market?
149. 4:04>> Yeah.
150. 4:05>> Well,
151. 4:05>> Or
152. 4:06>> Well, what percentage like
153. 4:08Who's Who can you tell
154. 4:11How Okay. Well, that the question I
155. 4:12asked earlier was
156. 4:13what percentage of available, let's say
157. 4:15non-managed homes exist
158. 4:18that you can potentially get?
159. 4:21>> Um
160. 4:23>> Is it 20, 50, 100, like
161. 4:25>> It'll be a few hundred, but seasonally
162. 4:27more than likely.
163. 4:28>> But your current one seasonal, too, so
164. 4:29that's not That's not different. Okay.
165. 4:31Um
166. 4:35It's probably going to be the same work
167. 4:38for you to go to a new market to get
168. 4:40properties as it is for you to be in
169. 4:42your existing market and and continue to
170. 4:44gobble them up. And so, I would say I
171. 4:46would I would keep gobbling them up as
172. 4:47long as the gobbling is there.
173. 4:50Once it becomes
174. 4:51Once you have Once you're at 120 and and
175. 4:53the other lady's at 120 and there's not,
176. 4:56you know, there's not many more houses
177. 4:57to go after, basically you're you're
178. 4:59getting to the point of diminishing
179. 5:00returns where it makes sense to go after
180. 5:01virgin territory.
181. 5:02>> Okay.
182. 5:02>> But I'm sure there's going to be
183. 5:03property managers there, so I wouldn't
184. 5:04think like, "Oh, I just happen to know
185. 5:05who this one is." You just don't know
186. 5:06who the person is there, but there's a
187. 5:07property manager there. So, I think it
188. 5:09makes sense for you to start where you
189. 5:10have some advantage, which is like, "I'm
190. 5:12the second biggest property manager in
191. 5:13this whole area. Let me take this over
192. 5:15for you. I've all the systems dialed.
193. 5:16You're just going to get a check in the
194. 5:17mail."
195. 5:18>> Okay.
196. 5:18>> Yeah. And so, in terms of the
197. 5:19acquisition process, I'm pretty sure
198. 5:21there's a lot of like
199. 5:23You would know this better than me, but
200. 5:25I imagine you can probably like have
201. 5:26inquiries on Airbnbs and stuff and then
202. 5:28talk to owners without that much
203. 5:29difficulty.
204. 5:31>> Within reason. You have to play it
205. 5:33>> Yeah. You don't want to You don't You
206. 5:34don't want to get banned. Yeah, exactly.
207. 5:35But I'm saying like it's not hard to
208. 5:36find a property, look up who owns it,
209. 5:38contact, right. And so, that would be
210. 5:40like an AI can do all that and make a
211. 5:42list in 10 minutes.
212. 5:44Um and then hit them up. And then I'd
213. 5:46hit them up everywhere I could.
214. 5:48>> Okay.
215. 5:48>> So, I'd call them, I'd text them, I'd
216. 5:49mail them because the thing is is you're
217. 5:50looking at a a hyper-targeted list.
218. 5:52You're looking at 200 leads. Right? And
219. 5:53so, I would I would go above and beyond
220. 5:56because also from an LTV to CAC
221. 5:57perspective, um
222. 5:59the average property So, you have 55,
223. 6:01maybe 240. So, you're making what? 4,000
224. 6:03a year per property? But, it's very
225. 6:05sticky. Right? I'm guessing people don't
226. 6:07cancel often?
227. 6:08>> No.
228. 6:08>> Yeah. So, um you're probably like I'd be
229. 6:11looking at, you know, you're going to be
230. 6:13willing to spend
231. 6:14call it up to you know, 1,000 bucks to
232. 6:16get a property. And I think that's
233. 6:18reasonable, third of your first year.
234. 6:20And then you still have all the years
235. 6:21after that that it's going to kind of
236. 6:22cash flow. If you think about it from an
237. 6:23investing perspective, if you could put
238. 6:24$1,000 into something it becomes $4,000,
239. 6:26that's a great investment.
240. 6:27>> Yeah.
241. 6:27>> Right? So, I just be willing to spend
242. 6:29the money and just see it as an
243. 6:30investment because you have a reliable
244. 6:33way of turning that money into more
245. 6:33money.
246. 6:34Which is what ultimately ROIC, return on
247. 6:36invested capital, that's what every
248. 6:38person who's an investor ultimately
249. 6:39wants to look at in a business. It's
250. 6:40like if I put money into a business,
251. 6:42what am I going to get back out? And you
252. 6:43want to look at the core economics of
253. 6:44the business. And so, LTV to CAC is the
254. 6:46is the is the most basic unit of of of
255. 6:49monetary arbitrage that exists. That's
256. 6:51what all businesses are based on. And
257. 6:52so, you have a good one. And what was
258. 6:54your annual retention of your customers?
259. 6:58>> And I didn't fire?
260. 6:59>> Yeah, yeah, that you didn't fire. Sure.
261. 7:01>> uh
262. 7:02I think 97%.
263. 7:04>> Okay. And of the ones you fired in total
264. 7:05then, let's put everything in.
265. 7:06>> Um I fired around 11 last year.
266. 7:09>> Okay. So, call it 80 whatever, 8%
267. 7:12something like that is your actual, you
268. 7:13know, uh
269. 7:14logo retention or revenue retention. So,
270. 7:17you could just pet back of napkin say
271. 7:18that it's a 40K LTV. So, $40,000 a year,
272. 7:2210% churn, it's a 10-year LTV.
273. 7:25So, you you have a lot of room in order
274. 7:27to spend to get these customers. So, I
275. 7:28just wouldn't be worried about like you
276. 7:29putting extra elbow grease in. But,
277. 7:30these 200 people need to become your 200
278. 7:32best friends.
279. 7:33Um and you'll probably be able to get
280. 7:34like 20% of them if you just work your
281. 7:36ass off. It's a great you go from, you
282. 7:38know, 55 to to to 95. And then you have
283. 7:40your 18, so now you're at 120 and you're
284. 7:41the same size as that lady. Um and then
285. 7:43at that point you'll have to expand to
286. 7:44the next market.
287. 7:45>> Okay.
288. 7:46>> Cool.
289. 7:47>> Cool.
290. 7:47>> Yeah, and one more thing. Um
291. 7:49I would send a regular pulse to those
292. 7:52200 because you just want to have the
293. 7:54day that they have a bad tenant who
294. 7:55blows up a toilet and you want to catch
295. 7:57them on that day.
296. 7:57>> Yeah.
297. 7:59Definitely.
298. 8:00Thank you.
299. 8:00>> Yeah, you're welcome.
300. 8:02>> [applause]
301. 8:03>> Okay.
302. 8:04Um
303. 8:06Thank you guys. That was a wild ride. Um
304. 8:09>> [laughter]
305. 8:10>> Um
306. 8:11I uh
307. 8:15This was kind of a theme today. Who
308. 8:16here's between one and three million?
309. 8:19Okay, most of you. That's like a lot of
310. 8:21you actually. Um
311. 8:22So
312. 8:23we we refer to it as the swamp and I
313. 8:25want to put a little bit more
314. 8:27explanation to why we refer to it as a
315. 8:28swamp.
316. 8:29So
317. 8:34if you look at the math behind this,
318. 8:37let's say you have a two million dollar
319. 8:38business.
320. 8:39All right?
321. 8:40If you have, let's say uh 25% margins,
322. 8:43you're making $500,000
323. 8:45in in profit, okay, in the business. Now
324. 8:47let's say you want to leave $100,000 in
325. 8:49for future stuff and you've got, call it
326. 8:51uh you know, minus 100 and then you've
327. 8:53got $400,000 left to play around with,
328. 8:55right?
329. 8:58Typically when you're at this point,
330. 8:59you've reached kind of the edges of your
331. 9:02current business model's ability and so
332. 9:04you need more help to scale. Some of you
333. 9:06guys are probably feeling stretched
334. 9:07right now. Hopefully you're going to get
335. 9:08some head nods. This feels familiar.
336. 9:10Okay.
337. 9:11And so
338. 9:12the reason this is such a difficult spot
339. 9:14that so many businesses get stuck in is
340. 9:16that
341. 9:18it takes more risk to get out of the
342. 9:20swamp than to get into it.
343. 9:23And so if you have that $400,000, if you
344. 9:25were to hire, let's say two good people,
345. 9:27all of a sudden your profit is gone.
346. 9:31And what if one of those two people or
347. 9:33both of those people don't work out?
348. 9:34Well, you're out all the money.
349. 9:36So the alternative there is like, "Okay,
350. 9:38well, can I just work even more hours
351. 9:40than I currently am to try and get ahead
352. 9:42of this?" That's another option, but
353. 9:43you're already working most of the hours
354. 9:45that you currently are. So, you play a
355. 9:46little bit of optimization. Can I let
356. 9:47this fire burn?
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