Episode 173 | Joe Riley | Military Millionaire

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Joe Riley on The Military Millionaire Podcast

00:00 - 05:00

David:

What's up Military Millionaires! I'm your host, David Pere. And today we are on the horn with Joe Riley, the founder of Patriot Family Homes, which is, well, we're going to talk about all of those things. But we're going to talk about short term rentals and service members. And we're going to talk through Joe's story. And, you know, they had reached out to me about having Joe on the podcast, and I was like, Yeah, okay, cool. Tell me a little bit more about their information. And then I realized that one of my very, very, very good friends, Mr. Craig, his wife works with the company, and he's going to skill bridge with him. And I was like, oh, okay, cool. You're good. consider it vetted. And so here we are. So, Mike, I know you're gonna listen, this podcast. And if this podcast is terrible, it's all your fault. No, just kidding.

Joe, welcome to the show, brother!

Intro:

Welcome to the Military Millionaire podcast where we teach service members, veterans and their families how to build wealth through personal finance, entrepreneurship and real estate investing. I'm your host, David Pere, and together with my co host, Alex Felice. We're here to be your no BS Guides along the most important mission, you'll ever embark on your finances.

Sponsor:

Hey, guys, if you're looking to take your investing, business, life or just yourself to the next level, then I have something for you. The War Room Real Estate Military Mastermind group is a mastermind group that meets weekly in small groups of five to six people to help you hold yourself accountable and really experience that growth. But we also have a monthly guest speaker that we bring in. And we've had guest speakers that talk about mindfulness, taxes, or bringing in somebody to talk about marketing, we bring in very specific topics that will adhere to a very broad any kind of real estate investing, or investing or entrepreneurship that you want to do, and will really help you out and let you ask the speakers questions and get very personal with them. And then back to the small groups, weekly accountability for what you're trying to achieve. And just being surrounded by like minded people, and they say your network is your net worth. I know that's an overused phrase. But I recommend that you check it out. So just shoot an email to [email protected] Once again, that's [email protected] And we'll send you some more information.

Joe:

Really appreciate y'all having me on.

David:

Yeah, absolutely.

Why don't you give a little bit of background, I guess, more your history in the army and what you did, and then how you got into Patriot Family Homes and how you started this business that's now big enough that you're having to sit on the hold with credit card companies and say, Yes, I really am spending that much money. Please, please open my accounts.

Joe:

I never thought I'd measure success and how big my monthly credit card bill is. But, you know. From a little town in the middle of nowhere in East Tennessee, kind of classic when a red light town, went to college at the University of Virginia and did ROTC there. And when I got out of school, got a scholarship called the Rhodes Scholarship to go over to Oxford, and did my masters and doctorate over at Oxford in the UK, on US international relations. And my focus was US China relations, and then I did some kind of training in the summers while I was in the program. The Army actually tried to kick me out. The chief of staff, Army General Milley, had to personally get involved to keep me in the Army because the army was so confused as to why I was going up for the captain's promotion board and hadn't done all the things that a normal Lieutenant would do because of my time over there in Oxford. And but infantry officers and was an infantry platoon leader and came back from a kind of training rotation with that went to Ranger School. Then after Ranger School deployed with the second Ranger Battalion over to Afghanistan and there I met the commander of the task force at the time was a guy named Colonel Pete Schull, who was my mentor of mine and ultimately now comes and works for us at patriot. And as did the plans officer. So it's been a pretty cool, kind of, you know, kind of thing for, you know, opportunity for things to come full circle. And so got back from Afghanistan, went to the hunter and first, then went to Ukraine was in Ukraine, training their forces over there, and then got called back from Ukraine to go to the White House and serve as the director for Indo Pacific security. So kind of countering, you know, building our counter China policy for the last 18 months of the Trump administration. And then when Biden's team came in, I was out on day one, and so then I went back to you know, it's fine with me, decided to come back home to East Tennessee and got out of moved off active duty and into the reserves, and have been kind of running the company since then. But we actually started the company while I was deployed in Afghanistan, so my wife traveled kind of Monday through Friday. And, you know, so we didn't need the house, and didn't know how long it's going to be deployed. So we just left all the furniture in there, threw it up on Airbnb and HomeAway quickly realized, no surprise, there's a big need for furnished short term accommodations around military bases, with families constantly coming and going. So then I got another one and another one, took out my first big loan. That's when the army sent me to Ukraine. I said, Well, this is how I go bankrupt, because how am I going to manage this operationally intensive, you know, business from a shipping container and roll Ukraine. And then, you know, kind of answer to prayer. One of the guys that I was deployed with his wife had been a West Point grad, been in the Army, gotten out, now did real estate, both property management, Reno and was an agent and was like, Look, Kate will take care of things while you're deployed. And that has become kind of our secret sauce of you know, also military spouses like Rebecca, and Kate and a whole host of others that work for us. And, yeah, so then we just, you know, I kind of built the company while I was still in the military. So when I left, we already had like, 150 or so properties when I left active duty, and then just kind of kept growing from there.

6:00 - 10:00

Alex:

I just want to make sure that I heard you clearly. You went to get a masters and a doctorate in Army China relations. And then you joined as an infantry officer?

Joe:

Yeah. Yeah.

And went to Ukraine. Don't forget that. First of all, I went to Afghanistan, Ukraine everywhere. But anything that I had, I'd studied.

Alex:

I mean, it's not a surprise to anybody who listens to the show that the military is not always the most efficient use of resources, but I just wanted to kind of see that one was kind of glaring to me. So I just wanted to, I mean, the Airbnb stuff is cool, too. I suppose.

Joe:

I tried to hide my background from my soldiers for quite a while. Because once they found out about it, it was, you know, never ending.

Alex:

Well, especially, you know, in 2000, in the early 2000s, it would have seemed quite useless. Whereas now, it probably seems very useful.

Joe:

Yeah.

Alex:

When you bought your first Airbnb or short term rentals, what year was that?

Joe:

2018.

Alex:

Oh, okay. So right before it, it was still popular by then.

Joe:

Yeah, yeah. No, I bought it just because my mother in law was like, what are you going to do with this house? And I was like, I don't know, not on the top of my list. And she's like, well, you should throw it up on Airbnb. So I was like, okay, whatever, we'll try it out. And then when I came back, my wife loved to tell this story. When we came back, I didn't want to give up the cash flow off the house. So my wife and I moved all of our stuff into one room. And we rented out the other two rooms to randos. And then we brought this dog and we were in the UK and brought it back. And I was like, This dog's balance sheets in the red, we gotta fix this. So when my wife was gone for work, I bred the dog. And so we then had 10 puppies in our one bedroom of our three bedroom house with two other randos with us, and then after, and then I was like, I was on this kick. And so then my wife didn't use her car, you know, most of the time because she was traveling, and we use my truck on the weekend. So she came home on Friday, and she goes, where's my car? And I said, Oh, I leased it. And so she said, you're going to learn that not every capital asset in this household has to yield a monthly return. So from every subsequent house that we've bought, I've been under explicit instructions that I cannot rent out any rooms of the house anymore, and I can't lease her car. And I can't bring the dog anymore, either.

Alex:

Well, yeah, but you scaled up the business 100 plus units, you said, and in quite a short amount of time. It sounds like a few years?

Joe:

Yeah. So we bought our first one in 2018. And that was just a couple. And it wasn't really until 2019, beginning of 2019, we only have four or five properties. We're about 350 or so now.

Alex:

Well, the question that I think I want to know, and I think everybody else wants to know is how do you pay for him?

Joe:

So you know, we did a lot of, you know, we'd kind of buy him on a line of credit. You know, we started out like, literally in, I mean, one of the houses we took I had a guy charge me and I threw him through the window, you know, I mean, we were lacking hypodermic needles, like, you know, complete gut, you know, terrible houses that we basically got for super cheap, and then we did a lot of the work ourselves to fix them up. And then based on that experience, we're able to get lines of credit from the bank. And then we would buy stuff on lines of credit, fix them up, roll them off, you know, the classic brrrr model, and then they have really good cash flow and then And, you know, when I ran out of that, and we started doing a rental arbitrage business where we would go in and sign a five year lease with the property, and then turn around and sublease it, and then I could build up a track record and buy it that way. And then, in addition to that, we then had folks start coming to us and say, so, you know, look, I, I'd like for you to go buy us 2025 homes, go buy me 2025 homes, and then we would take an equity stake in the homes as well. And then, you know, manage them.

10:00 - 15:00

So you know, a mix of kind of classic brrrr, a rental arbitrage followed on by purchasing, and then like many fund model stuff, where folks would want us to go buy houses for them, and we'd take a stake in the homes.

Alex:

Fascinating.

I'm still fairly new to Airbnb, learning a lot. Have one. So not nearly the scale, some interesting scalability problems with Airbnb, it seems, I don't know if this is just my experience, or if it's as accurate. But I see that definitely the people who are trying to get in and make easy money and just like treat it like a rental that makes more money aren't doing as well, where, you know, it's hospitality are definitely seems like it's a hospitality business far more, which doesn't, you know, to me scaled hospitality is hotels. And so like, how do you find the balance between you know, not, you don't want to provide a hotel? I don't think so. You wanna provide an experience a little better than that? I would, I would assume. Can you speak to that at all?

Joe:

So first of all, short term rentals are definitely not mailbox money, they're not passive income, it's a very operationally intensive version of real estate, that you're hit the nail on the head, it is more hospitality than it is traditional real estate and rental, you know, instead of turning a property once every year or two, we turn the property six times a month. So it's just a very, you know, all the different linen service and cleaning and everything else that goes along with it. So how do you, how do you scale, I think you have to be very clear about what you are and who you are. So most management companies in this space only want to do luxury properties, right? They want to have a million dollar beach home, and they need to achieve a five star review over and over and over and, you know, like, that's what they do. That's not what we do. We call ourselves the Walmart of short term rentals, right? Which is, you know, nothing special, standard homes, you know, but a consistent experience, you know, over and over and over again, right? So, you're not going to show up and it's like, Vegas, you know, pad with you know, great this pool and all these lights and like all the you know, these homes are designed for, you know, families and, and we do a lot of traveling work crews, like traveling electricians, plumbers, people are on a lot of traveling healthcare, do a lot of insurance work for insurance company, you know, folks who've had their house burned down or water damage or whatever else the insurance company has to put them up. So it's when we are not what you think of when you think of your traditional Airbnb of a beach home or a mountain vacation home, right we are in you're just kind of, because we started out all around military bases. After we left Columbus, Georgia, we went to Clarksville, which is, you know, 101st. So we were all around the military base. So that's kind of our DNA is the no frills, nothing spent fancy kind of special stuff. So there, you know, you still have to deliver a lot of things. But we're not putting a fresh chocolates and wine bottles and champagne. And like, you know, flower petals and all the other stuff out in the homes.

David:

I just did that for the first time ever in one of my homes this last weekend. Because I found out as the guests were coming in that it was actually somebody who worked with someone that was in my last command and was like personal friends with like all my old OIC. So I was like, we're gonna make sure that if you mentioned she stayed in my house, it's awesome. So it was like Easter cookies and a wine bottle. And like I had my assistant, one of the other girls in the office, I was like, go make the house look pretty. Like whatever. But yeah, I agree. I'm kind of the same. Don't want to do that on all of it.

Joe:

Yeah, it's like the Ray Kroc, you know, like when Ray Kroc went in to meet with these MBA students, and you know, they were asking him a bunch of different questions. And who knows whether this is true or not, or if it's just legend, but you know, he's just like, any one of you can go home and make a better hamburger than I can, right? So what makes me special, and that's because we just do it over, you know, a good enough hamburger over and over and over and over and over and over and over and over and over and over again. And that may not be in some ways the most inspirational, you know, on the surface of it, people are like, are you going around bragging that you're the Walmart of short term rentals and slack? You know, you hate Walmart, but a lot of people need Walmart, right?

Alex:

Walmart is the biggest employer on planet earth.

Joe:

Right.

Alex:

They read a lot of paychecks.

15:00 - 20:00

David:

I would imagine 350 Walmart Airbnb is probably beats five luxury Airbnb when you talk about profit.

Joe:

Yeah.

Alex:

How do you deal with the algorithm? Because it certainly favors five stars. It favors the fancier. Well, okay, my assumption, the little that I know is that it favors the fancier properties.

Joe:

So this is where we say, you know, it's important to be true to who you are. So your assumption would be correct if you're managing the beach home or the mountain home, right. So let's turn it around there. Let's say you're coming to Huntsville, Alabama, to go to this take your family to Space Center, you probably book your trip, what for six weeks, eight weeks in advance, you know, sometime in advance, you're going to Airbnb, you look for the five star reviewed properties, you book a two or three day weekend stay. Now, what is that done? That's prevented by a month long insurance group of electricians, plumbers, whatever else you have. So most people, if they look at their calendar, and they have no bookings, for the next six weeks, they panic, right, and they throttle their prices down. I look at no bookings for six weeks. And I say great, because there is a group, there is somebody showing up in town that needs three or four bedrooms for the next six or eight weeks. And, you know, we're the only game in town. So that sounds paradoxical. But between you know, in some it is not uncommon in our strata of the business for lower reviewed properties to outperform higher reviewed properties. Because of that factor.

Alex:

You'll give me a lot of hope right now for my fairly not that great reviewed property. My four and a half star reviewed property that I'm always stressing about.

Joe:

Across 350 properties, our average review scores about 4.5 and a half 4.6.

Alex:

That seems so much more well correlated, I always have this complaint about the five star or the Star method in general, an aspect of human psychology that some people are just not going to give you the five star rating, no matter what, they just don't care.

Joe:

And here's an interesting thing you'll see at scale, within a given property, it's an oscillating factor, right? Because when you come straight out of the gate, you get great pictures, everybody books it. And then you get a mix of people who are happy with what you deliver. And then the people who were expecting something different and they reviewed you low, so then the review score, like drops down super low, right. And then the only people willing to book the like 3.8 started reviewed property have pretty low expectations. So they show up, and they're fine. And so then they start giving it five stars. And then over time it creeps back up and up and up and up. And then oh shit, we're back up in the 4.7 range. And Karen books it wanting a five gets there got a 4.5 you know, somehow, you know, other people pushed it to 4.7 when it should have been 4.5. And she's like one. And so now we're back down to the low. You know, like, can you see this constant up and down factor? And my guess is while we don't run many luxury, I've talked with some people in luxury. I think you'd find a similar thing, even in the luxury right? You know, the people who really wanted the five star and they pushed it down to a 4.85. And then you know, only those people are happy with that book it and then so then they give it higher views and pushes.

So I think that like you just bait you just benchmark yourself to people's expectations, right? Like we're going to, I feel like we meet the expectations of people who expect 4.5 star reviews properties as frequently as people who have 4.9 star properties meet their guests expectations at 4.9. And that's the beauty of the two sided review system as much as it drives me nuts sometimes and I want to yell and scream it's just, that's the reality of what it is.
Alex:

This is really a really helpful insight to me because you know 'm under this assumption that everyone you know, everyone's striving for the chase and reviews. But now that I think about it, most of the people I know like the guy that I know are really successful and Airbnb owns like a dozen of these like really high class do quadplexes on Carolina Beach, and they're all other beachfront resort places and they're expensive and they're very nice. And he's chasing high star high reviews, he's chasing his vacation customer. And here I am. I'm doing kind of the same thing you're doing right? I got seven properties. We're going to convert all of them to Airbnb and they're outside of Fort Bragg. And so I'm not going to get luxury beach resort customers, I'm going to get you know, regular folk. I don't want to do what you do, I don't want to be the Walmart. I told my girlfriend, Kate, that she would freak out. She's like, No, we are not going to do that, we are going to give people magical experiences. And and that's fine because that's kind of built into us and we're a little bit more artsy of a folk as well. So we're going to design our with some eccentricities, but it does help me to kind of the psychology of it to be like, okay, you know, you're right. If you get a four and a half star property, it's probably because the fours were impressed and the you know, the people that were over expecting, were a little under impressed, and you went to your average, which is and then and like you said, that doesn't mean you underperform it just so I guess the next question is like, how far down the algorithm? Do you worry about, like, you know, more and more people are doing this? What are the odds that the the five stars, the people who are really trying to take in smaller margins to do it? Can they beat out the people who are systemising it too much?

20:00 - 25:00

Joe:

So, I mean, all the data shows that the demand for short term rentals is going to grow about five or six times while supply maybe will double. Because they're such a pain. I mean, they're so difficult to manage, right that like, we see this all the time people come in, I tell people, short term rentals, easy on the wallet hard on your emotions. And so if you cannot, even if you hire a management company, right, you've got to separate yourself from the emotional rollercoaster of these things. Because people will say terrible things about you. And the more properties you get, just the law of large numbers says the more nasty things that are going to get sad, and you just can't let it bother you. So but it does, right. And then there's also the regulatory piece. So read the regulatory environment. I live in Chattanooga, Tennessee, Chattanooga just imposed a moratorium, right? No more. Now they can't do anything with the ones we already have or for the time being, you can't add any more short term rentals.

Alex:

Oh I love that.

Joe:

I mean, you've seen Savannah do that you've seen a lot, a lot of these places put on these restrictions. And then what happens is, if you own a short term rental that has a permanent license, the value of your property goes up 30-40%, right, because then if you want a vacation home in that area, the only way you can justify it from an economic standpoint, is to then be able to short term rent it when you're not using it. And so, you know, it's a, I don't worry about particularly, particularly in the kind of Walmart market.

So Walmart, for us means one, the style of properties we're doing, but it also means the markets where we operate, and you said you're in Fayetteville is where you're going to be doing some, so we've got properties in Fayetteville as well. Happy to compare notes on those. But, you know, I don't, you know, the big boys are never going to show up in Fayetteville right like the real big mocassins of the world, because it's just not a big enough market, they're only going to be in the vacation areas and the big cities. And so I think that you'll always in your, you know, a military town, you're just going to always have need for, you know, families are coming and going people are coming in for graduations and everything else so and the value prop is just there, you know, so if you look at it, like, ultimately, short term rentals are a value prop on volume via hotel, right. So it's like, if you're traveling by yourself, it's probably just as good a deal to go get a hotel frankly, I mean, I'm an Airbnb owner, if I was going by myself to random city, I'd just book 30 days in you know, but when it makes a difference is when you've got a family large family that your couple hotel rooms are a bunch of colleagues traveling together, and you start looking at the difference of one Airbnb versus three or four hotel rooms or if you break up that one day, you take that one or two days stay out to like a two, three, four weeks stay then that starts to make a huge difference.

Alex:

Yeah, I love all of this.

I was kind of bearish on Airbnb short term rentals in around 2019. I was like this, this is overrated, these people are making too much money. And I thought the market would kind of. I thought the regulatory environment would crack down much sooner. And I don't know what I thought, I guess in retrospect, but I was like, I looked at and I said, you know, market equilibrium is going to say that I own a property and I can go long term on it. And you know, I can make 10% and then you can go short term rent and you can make 30 or 40%. I'm like somebody's just gonna come in and undercut you, and you know, the market equilibrium would come down to that, that 10% or whatever. And that's not really what happened at all. And I started to notice I'm like, Oh, I'm wrong. Let me just go buy some of these. Let me convert some of these. And yeah, I've really flipped my, flip all the way all the way 180. And I'm, like, really, really bullish on Airbnb. And the supply problem that you mentioned, it's interesting. When I look at Airbnb, they're never advertising towards guests. They're always advertising to people who are homeowners, like put your house on Airbnb, they're trying to get more homes, they're trying to get more. They're not trying to get more guests. It's fascinating!

25:00 - 30:00

Joe:

They've won the guests game, right? I mean, if you just use, if you look at a user, I mean, like they are the elephant in the room. They're the word for short term rental, right? People don't say short term rentals. They say Airbnb is when people are going to Fayetteville. They don't go Google short term rental in Fayetteville, they go on Airbnb, and they look for property. There are still some, absolutely, there's still some loyal users to VRBO. And so you know, we list on Airbnb, VRBO, Booking Expedia, TripAdvisor, you know all the different platforms. But the use of I mean, Airbnb is largely one user volume. Now, one reason, you know, there is a lot of pushback from hosts on Airbnb, more so than the other sides, because Airbnb is the payment record. And so they have more control over the exchange between the guests and hosts than other platforms where the host, you know, has more control over the process. And so that's one reason, in my view, why and particularly a lot of the vacation markets, people really focus on their direct bookings, and their reviews and everything else to try to get repeat guests, pull them off platform and whatever else. You know, our view is Airbnb is a great partner, right? And that, you know, they give a million dollar liability and, you know, property coverage policy that we can then take that certificate of insurance to our insurance provider and get our insurance company cut down, they, you know, facilitate, but you know, there are definitely some headaches with them. But overall, we're perfectly happy to continue to work with Airbnb.

David:

Yeah, and while I've certainly had some really weird experiences, for the most part, their customer service is actually pretty helpful with the situation. I mean, obviously there's all the horror stories about something that went wrong with the property and Airbnb was like, deal with it. But I've never really run into one of those like I've had, I even had an issue once where you'll appreciate this. I was in California, I was just using a keypad that didn't it was nothing automatic. It was a keypad to a garage, it was for a bedroom out of a house that I was renting, I was subletting a room out. And like my systems were great in a lot of ways. One flaw was that my messages sent the password for the gate code. I came home on a Tuesday. And the guest who was supposed to check in Wednesday was cooking pancakes in the kitchen. And I was like, your listing starts tomorrow. And he freaked out and left and then like, you know, he was like, Oh, he went on Airbnb and tried to leave a bad review and be like, they weren't ready for me. I'm like, No, you're right. Like, an Airbnb was just like, delete, you're good. Thanks, we won't, we won't host them again. Whereas I've heard of, you know, all these horror stories, but I'm like, what, the one time that it mattered for them to pull a review down. They were fine with it, because I was like, they showed up before the, alright, whatever. And so I've never really had like, my customer service experience with them has actually been really good.

Joe:

Yeah I mean, we couldn't run our business without Airbnb, right? So are there things that I would love to change? Of course, there's things I'd love to change with our property management software. You know, there's always things you'd love to change. But, you know, overall, you know, we're very lucky to have them.

Alex:

Are you still in the military or are you all the way out?

Joe:

I'm in the reserves, still.

Alex:

Yeah.

How much did this thriving enterprise? I mean, how much was that a factor of getting out? You're like, okay, I can stay in as a captain and make Captain money in Afghanistan and Ukraine or I can get out and make 350 Airbnb property management money.

David:

I hear Ukraine is great this time of year, right now, wonderful place to hang out.

Joe:

You know, I always kind of had an idea that I would get out, you know, I wanted to do the army for you know, for a while and loved it. I mean, I'm still in the reserves. And, you know, if something kicked off with China or whatever else, that's why I'm kind of hanging around to see but, you know, yeah, I'm pretty focused on building the business and you know, I think that was obviously a huge factor in me deciding to get out. I was also unsettled by the time between Oxford and then the White House, I was on such a non-traditional path that I was, you know, I was not going to last.

30:00 - 35:00

Alex:

Yeah, so you went to Oxford, White House, and then you went to inventory? Yeah, I was in the third SF group. For my first like 18 months, 2 years. And then they tried to put me in a regular unit. They did put me in a regular unit. And by that time, I was like this. I already have. It's less exciting. I'm getting out. Thanks. Thanks, boys.

David:

Tell me what so I'm looking on the website right now. And so I've been cruising over here for a minute. And so I see you guys do management, you'll help people with management, people can lease their home to use. So you do the rental arbitrage, management support, temporary relocation housing listed as your services, walk me through what like services Patriot Family Homes provides. And then as Alex asked, where's it going?

Joe:

Yeah.

So, you know, if you want to lease your homes to us, you know, we'll sign three or five year leases, and then turn around, and we'll put the furniture in them. And then we'll run into short term rentals. So if you just want predictable, reliable, no risk, no upfront capital to buy all the furniture, you deal with it, send me my check each month, and then I don't even have to worry about finding a new tenant for the next five years. Great. If what you say is, look, I'd actually like to participate in the upside and willing to take a little bit of risk. And so I'll pay for the furniture to put in the home, and then pay you all to manage it for me. Great, we'll do that.

And so those are our kind of two and then and then we have a digital packet we have on the management side, we have a full service package, where we do everything and then we have a digital package. So you know, we aren't we're not operating up in Anchorage, Alaska. So if you called and asked said hey, can you lease my home in Anchorage? Or can you do a full service management package and Anchorage, we would say, No, we can't do that. But we will do the digital only package basically anywhere. So if you say hey, I've got this home, I'm willing to get it set up, you know, get it set up, we'll send you a list of everything that needs to go in the home. And then I'll find the cleaner and the maintenance guy, and then you know, lawn care, and whatever else, and I just want you all to do pricing, guest messaging, guest engagement, all of that different stuff on the kind of digital side, then we'll do that anywhere, because we don't need to have a physical presence.

So those are your kind of three things that we offer to your kind of more retail style, you got a couple of homes, and then increasingly, what we're doing is working with larger buyers, you know, potentially to include some institutional players, they're looking to put not just a couple, you know, but looking to put 20-50 million plus in equity to work. And so then for them, we put together a fully vertically integrated, you know, process so we go out and find the properties, underwrite them, acquire, oversee the Reno, manage them and furnish them the whole nine yards.

Alex:

That's a lot of transactions, bro.

20 million single family homes it's a whole other. There's another scalability problem but not the hospitality of a transaction.

David:

I mean, it could be one home in LA.

Joe:

Yeah, they're really expensive. There's really a lot of transaction volume when you're doing it in Fayetteville and Montgomery, Alabama, and you know, all the places where we run so. Yeah, and that and that's to be clear, that's, you know, $75 million for the homes, right? Because it's 25 million in equity levered up to 75 million. And that would be like, you know, one account.

David:

That's wild. I mean, you're right, Alex, that's like buying, like four neighborhoods in a town and going. Alright, guys, furnish them have fun.

Joe:

I wish it was all that geographically consolidated, because that would be way easier. I bet no, we'll do some build to rent. We've already done some build to rent, build the short term rent. In this instance, we bought some bankrupt timeshares. So these timeshares as they come up on their 40 year sunset, nobody wants to do timeshares anymore. So they'll sell them at auction. And we'll go in and buy the thing for pretty cheap and then convert them all to short term rentals, because they're already effectively short term rentals just in a different ownership structure.

And then, yeah, but I mean, this institutional buying space is a friend and mentor of mine, you know, they bought 3 billion worth of homes in the past, you know, 6-8 years. They're buying hundreds of millions of dollars worth of homes a quarter.

35:00 - 40:00

David:

Here I thought I was doing all right. This is why those motivational speakers tell you to compare yourself to you last year and not to the guy who just bought $3 billion worth.

Joe:

If I compared myself to last year, I'd be like, what happened to this extra 15 pounds that I put out? So I tell people, I'm an event based athlete with no upcoming events.

David:

Okay, so here's the question for you. And almost hypothetically asking, there's definitely some non hypothetical in here. But if you're a guy like me, I'm not on your market right now. You don't have anything in Springfield, Missouri. But if I was like, wow, I got this awesome house that I've been torn between Airbnb or selling. I'm flipping it right now. And I'm renovating it. And I think I'd make a killing. Either way, I go. Do you guys, if I reached out and was like, wow, hey, if you guys want to lease this house for five years, like, are you branching into other markets? Or would it just be like, well, and what does that process look like? And I'm curious, because I'm sure that there were a lot of years that perked up from landlords that were like, five year tenants. Okay, that's pretty sweet, given nobody knows what the next five years is gonna look like in the real estate world? Like, what does that process look like?

Joe:

So for us to go to a new market, it either needs to be on our patch shard that we're trying to get there, or we need somebody to be able to bring us 10 homes. So the pathway to 20 is what we say.

So, leader of 5 homes within 10 homes, and 3 to 6 months and within 20 homes within 12 months, right? So that would be kind of, you know, so if you called up and said, I got one house in Springfield, we'd say happy to do digital management for you, right? If you said, I've got five now and get you 10 In the next three to four months, and then I can get you 20 in the next, you know, year, then all right, let's go make the investment in the corporate staff, you know, corporate team out there, build a ground game, all that good stuff.

David:

What kind of, when you talk lease, like and obviously, I'm not asking you to give away the secret sauce. But I would imagine if you're doing a five year lease, you're probably not paying the long term market. Are you paying like whatever the market is for like a long term rental? Do you guys pay a little bit of a premium for that? How does that kind of play out? I'm trying to fish out and get you some leads here?

Joe:

Yeah, no, we will. We will often pay a little bit of a premium on what market rent is, I mean, not crazy. And again, a lot of it depends on is this a market we're really wanting to go into? So we're willing to pay a little bit more, because we've got our own reasons for wanting to go there versus, you know, is this a market that, you know, is on the 2,3,5 year timeline, then less, less motivated to pay above market rent.

And it also depends on the type of property, right, so like, we'll underwrite the property. And we have. The analogy I give people we've got like, we've got houses in Birmingham, where I'll pay 1000 bucks a month the rent and make 3500 on the short term side, so my deltas 2500, then I'm gonna get a $2,000 rent house, and do like $7,000 a month. So then I've got like 5k Delta, or I can go get, we've got this awesome house, that's like $3,600 a month in rent. And it does, like 12k plus a month as a short term rental, right? So then you've got it. So like, you know, if you've got a $1,000 house and you want to push me from 1000 to 1200, it starts to walk, you know, the premiums are not worth it. Because we say we want at least $2,500 delta between the long term rate and the short term rate for it to make sense for us by the time we pay utilities, pay all the cleaning fees, pay the platform fees, pay the credit card processing, we account for our overhead and then we amortize out the furniture, you know, we need about you know that on a on a rental arbitrage property because we're getting no appreciation in the property itself, right? It's purely cash flow. So we want to be able to fully repay our upfront investment in the first 12 months. And if we can't do that, then it's really not worth the effort.

Alex:

Yeah, again, back to my original comment about like Airbnb and long term rentals are vastly different business models. I mean, it is much more capital. It's a much more operations intensive business. And so somebody might say $2,500 spread like that's so much. It's like, yeah, wait till you have cleaners and lawn care and pest control and, you know, somebody's answering the phones and I mean, it's just the internet, it's operational, you know that the Air Conditioning bill goes up. It's an operationally capital intensive business. So when I first started, you know, on my little one, I was like, Dude, the gross income skyrocketed against against long term rental, but the net income did not skyrocket, because it's just, it's, it's a lot more, it's a lot more work, it's a lot more overhead.

40:00 - 45:00

Joe:

The highest and best use of every property is not as an Airbnb, right, like, that's what you have to understand is that, you know, the highest and best use for a lot of properties is a long term rental.

David:

This one I mentioned, I'm leaning towards, if I don't just sell it, which I might do, but it's a great location. So I love the location, I love the property itself. It's just, you know, when you're gonna make close to six figures, potentially on the sale, it gets really tempting to just say, okay, buy a couple 100 bucks a month in cash flow or whatever. But I've been looking at the, you know, mid mid term rentals or student rentals, because it's close enough to the downtown to the college and downtown that. I think that would work. So I'm actually meeting with someone this week. But you're right, like, we ran the numbers as an Airbnb. And I mean, I thought it was gonna be amazing. And they were not much better than the house that I'm in right now. Which, I mean, don't get me wrong, it's still better than I'd get in long term rent, but that's like, yeah, it's not as much of a killing as I thought it would be.

Joe:

Yeah, your houses that really kill it on Airbnb or anything that's got like a mother in law suite or a casita in the back or something like that, duplex, because then you don't just have two listings, you've got three, you've got the big house, the small house, the two combined, if you've got a house that has a pool than the Delta, between what it'll do is a long term and a short term bumps up substantially. If you've got a house that's in a bad school district, that's another, you know, thing that will push a short term in or higher, right, because it's harder to get the premium long term rents because people care about the school district.

Alex:

I got a house that I'm staying at right now. It was like my worst, it’s my worst property at one point in the area that I live in, really, really revitalized. And some of my complaints about this property is it's like, it's kind of on a road that you really don't want to live on. Traffic wise, like the neighborhood's, okay. It's just like sort of a main road, it became a main road and became more popular, and it's like, it's fine for three days. It's like, say it again?

Joe:

So your big institutional buyers have very tight buy boxes, right? And so one of their Buy Box criteria for a lot of them is no double yellow lines, which is an indicator of how busy the street is, right? We love double yellow lines, right? No one cares exactly what you said, No one cares about the street. We love things that are across from schools, churches, commercial, industrial, anything that borders, something like that.

Alex:

Yeah it's really, it's a really interesting changing. I mean, the culture is changing before our eyes in a very interesting way. Because, you know, Kate always says to me, she's like, nobody's ever gonna live in this house again. And it kind of takes me a second, takes me back every once in a while. This one particular we're about to convert. And it takes me a second to like, think about that, because that's not what houses were built for, you know, they were built for either living in it, or, or a long term tenant. And now you have this kind of a new thing where, which seems to be quite permanent. And it really changes the makeup of what makes for a desirable house. And so, you know, I'm just saying the same thing you just said, again, actually, but it is interesting. It's right down the street from a school. It's right down the street from all the stuff like it's big, they're building a lot down there. It's not super walkable. And so I don't really like living here, but it's perfect for three days. It's perfect for a week or two. I could not get, none of this stuff bothers me until you get here for a while.

Joe:

Octagon houses we've got a weird number of octagon houses and like crazy ranches that are just rooms for days that don't make any sense, right? Like no one cares, right? Like, in fact, the Octagon houses people like that's pretty cool. I've never seen an octagon house. I'd like to do it for a couple days. No one wants to live in that all the time. You know?

Alex:

Yeah, we've been painting this house kind of. I told you we were a little bit eccentric and artistic and so we're painting the house kind of like ridiculous colors and stuff. Purple door behind me and she's like, so what? Like somebody to come in and be like, I'm gonna go stay in the purple door house for a few days because I never want to live there. But it'd be fun to go take a picture of it and visit it doesn't make any difference to me to go visit. And so there's definitely a really interesting dynamic in what makes for an attractive short term. Well, short term stays are different, especially in the nuances much different than what makes a valuable long term stay.

45:00 - 50:00

David:

Yeah, the house I'm in, I'm in the in-law suite, it's a basement that they finished out. And it's a two one with a living room and a kitchen, bathroom, whatever the upstairs is for two and a half. But it's mostly a wonky layout, but the house looks like it was built for entertaining. So it has like a massive den with a fireplace, it's like, you know, 40 feet, one end to the other, and whatever big vaulted windows and all this and like tri level, and it's got a big awning and deck out back that's covered that overlooks you know, it's great from an Airbnb standpoint, or if you want to have events, or if you want to have guests or you want to entertain or whatever. But it was a really wonky layout for homeowners. And so even in the height of all the seller's market, this thing was sitting on the market for, you know, 45 days, while in a neighborhood that's very desirable. And everything else was on the market for like, less than a week. And so we were able to come in and get a little bit of a discount, whatever. But it works great for Airbnb, I do 10 to 12 guests, and people love it. Now granted, the whole entertaining thing I've had a rager or two, but you know, it happens, you know, you only have to pick up black feathers every once in a while off everything, bonk stains, and it's kind of a weird one. But for the most part it is great. But the cool thing like what you just said, I never thought of when I take my office out of here and move to an actual office, I can rent the downstairs as a separate unit, which I had thought of or as a long term unit, which I had thought of, but I hadn't thought of doing it to where you could also rent both. That's cool.

Joe:

To put points on the demand curve. And by doing that you're allowed, you can push your ADR without taking a huge hit on your occupancy. And that's what we say, just the space in general is like short term rental space is where the long term real industry was 12,14,15 years ago, right? Just in terms of how fragmented and undisciplined it is. And so we take over properties all the time and push their revenue, not because we do anything special, but just because we've gotten pretty good at revenue management, and we'll push the revenue up 30-35% just by using a lot of the different best practices and stuff that we have, and thinking through things like how you do duplicate, you know, how do you do A, B, A, B and C together and make sure you sync up the calendar, so you don't have double bookings and, and how you run different promos and stuff like that.

So, yeah, there's a ton of opportunities. I mean, I think, you know, for the folks out there who are, you know, I would break, you know, most of assuming that, you know, most of your audience has some sort of military background, I kind of say, you know, bucket folks in a couple different categories, you know, you're young Joe who's like, you know, who's got a got a place and you're deploying or going to training or you're moving across the country, and you're like, I don't want to take all this junk with me. You can leave it behind, and so that the biggest capital expense of starting a short term rental visa via a house is the furniture, right? If you've already got all the furniture in there, you're like, alright, I'm going to PCS, and I don't want to move all my stuff again, then you can leave and leave it in your house, your apartment, whatever else and turn it into short term rental, if you're going out on a six month, you know, two month training or whatever, you know, like you can break these up and get cash flow from the unit when you're not using it.

And then the second group is your kind of, you know, retirees who now have vacation homes and whatever else. And so it's like, you know, a way to leverage that, or, and then the third kind of group are these people who have just, you know, PCS all around, you know, and they bought a house each time they went and then they've converted it to a long term rental, and they now have this large portfolio that kind of spread across the country of properties. And that's the kind of third group so, you know, I think there's a lot of different use cases. But back to the main point, you have to be completely honest with yourself, like, do I want passive income? Or do I want active income and if you want passive income, you either cannot do long term or you can't can't do short term rentals or you have to hire somebody to do it for you because it will not be passive.

David:

Like who's your target demographic, like when you come on this podcast? Obviously, we're, we're in no pitch podcast, but like, Who's your ideal customer? If you're not so obviously you're looking for homes to lease and you've got some investments and stuff but as Patriot Family Homes, just curious what's your like? I guess what you're looking for right now and how our audience might be able to help you guys out.

50:00 - 55:00

Joe:

Yeah, I mean, if we land a couple of these big deals that we're fairly close on, the number one thing we're going to be looking for is people. You know, and so we do this skill bridge program with folks we love taking interns in. And then, you know, several of them have gone on to the kind of VP level folks in the company now. So, you know, if you're getting out of the military, and you're trying to figure out something to do, you know, we need people. So paradoxically, that's what I would say, you know, that that's actually what I would say is, in many ways, what we're in we love, we are very proud that we're veteran owned and operated, and, you know, with the huge caveat that actually most of our employees are military spouses. So, which we think are just an awesome group of folks. And I find that the military spouses are actually more innovative than the veterans themselves sometimes, you know, like, the problem with military guys, when we hire them is, particularly if they've been in the military for a long time, they see a problem, and they need more people. And I'm like, we see a problem, we need a better process, because in the military, you don't have to absorb the cost, labor cost, you know, we have a heavy labor cost for, you know, finding more people.

So yeah, if your military spouse, if you're in the service, you're not getting out, your wife would like to, you know, or husband, sorry, not to be, you know, you got a spouse that would like to, you know, something to do, we're always looking for more people, if you're getting out, want to try a skill bridge internship, see if it's a good fit for the job, love to work with you.

But then, on the property side. You know, we'd love to, you know, if people have stuff, we'd love for him to reach out. And we'll be pretty candid, you know, if it's in a market where we already have up and running, Sure, let's go, if it's in a market where we don't have anything going, then we can do the digital only. And we can give a pretty quick read on that. And then, you know, certainly, if you've got, you know, if you're kind of looking to get into what we call the separately managed accounts, which is a couple million dollars in equity to kind of, you know, do that and we can kind of help build out a full structure for you. So those are the kind of groups of folks I’m saying.

David:

If we got anyone listening to this, who has $25 million, they need to stuff into $75 million of Airbnb’s, I hope you email me to just saying, Alex as well, we can, we can all help you out.

All right.

Joe:

We absolutely love to work with you know, folks who've got a couple houses on either the arbitrage or the management model, we've just got to make sure they're either in a market where we're operating or it's on the patch chart, or we do the digital only package so we don't oversell and under deliver on what we can actually provide for them on the ground.
David:

Easy.

Joe, where's the best way for people to get a hold of you?

Joe:

Just go to Patriotfamilyhomes.com. There's a submission form to send in stuff, it goes to our kind of central team and they'll then push it out based on what you're interested in or you can always send an email to [email protected] And they'll take it if you want to send something directly to me just Joepatriotfamilyhomes.com.

Alex:

This is great!

I love when we have podcast guests that I can selfishly learn something that I need at your expense. I love it. This is great!

Oh, please go ahead.

Joe:

Oh, no, no, I was just gonna say I have a lot of fun. Very rarely do I get on with podcast hosts, particularly in the real estate space. And they have any idea what's going on with the short term rental world, right? Like we have to start back from square one. And so to jump in with two guys who already operate and know the ropes. I think the question was way more focused on what I think folks need.

David:

I was gonna say operating might be a stretch and I'm a dabbler. But Alex is right. We're incredible.

Alex:

Dude, I am on so many podcasts as a guest. And almost something like 90% of podcast hosts that I'm that I go on. They are dead inside because they hate it. The only reason why they're doing their podcast is for SEO as a funnel to make money. And I'm proud not that proud, a little tiny little bit proud to say that David and I don't make any money for this. We just do it because we enjoy it. And we like to talk to people with incredible stories and we get a little bit of like I said selfish benefit from it. And so because we enjoy it because we kind of, you know, set our standards really tight like, hey, look, we're just not doing interviews that we hate. We only talk to people that we think we're going to enjoy and talk to you so we can provide good commentary and good conversation. And I don't know how serious your comment was or how frivolous was but I'm taking it very seriously. So we are the best. So that's what I heard you say, and I appreciate it.

55:00 - 56:59

David:

For all those listening to Alex talk about how we don't make any money with this podcast, if you want a podcast as a sponsor, we are open to changing that for the right sponsorships.

Alex:

Yeah, we are looking to sell out. So please let us know.

Joe:

You got some great beards going on. So there could definitely be some hair product. You know, I tried to grow an ideal beard, but it came in like four different colors. And my wife was like, cut that.

Alex:

David had this mustache for a long time. In fact, his picture has all his profile picture stole the mustache, and he gets out of the military. And I'm like, dude, and I'm like, Dude, you got to this is this is barely acceptable. The only reason why it's okay. It's because you're in the military and you can't grow a beard, but now's the time. And he shows that he whips out we're in Orlando hanging out with a bunch of military to millionaire guys. And he whips out this picture of him like, oh, I had a beard, look at it this and I'm like, That guy looks like you're a better looking brother. You need to grow that thing out. And so now look, you gave him a compliment. Now, another thing that I'm right about. It is a great day.

David:

I like how Alex takes the credit for the beard. Like I wasn't mid growth when he told me that working on it. It was like three weeks after I got out of the military. No, it was the week I EAS I flew from picking up my DD 214 to Orlando. And I hadn't shaved since and Alex is like, you should grow a beard. Like that's what I'm working on. And now he's like, Ah, see, I was right.

Alex:

I can't hear you. You're breaking up.

David:

Oh my gosh, Joe, this was a blast. Is there anything we can ever do to help you out? Let us know.

Joe:

All right, appreciate it.

Alex:

Yeah much appreciated.

End:

Thank you for listening to another episode about my journey From Military to Millionaire. If you liked it, be sure to visit frommilitarytomillionaire.com/podcast to subscribe to future podcasts. While you're there. We'd love for you to rate the show. Give us a review on iTunes. Now get out there and take action.

Episode 172

Joe Riley

Join your host David Pere and Alex Felice in this episode with guest Will Duffy as he explains why he personally wouldn’t do any of the life insurance policies that are so commonly pitched to people today.

One thing should be known to anyone being sold a life insurance policy: most insurance agents we have today only sell for one company. And if your insurance agent works under one insurance company, for Will, that’s a conflict of interest to be aware of right there.

In this episode, Will talks about the two questions you need to ask when being pitched to a life insurance policy, why the infinite banking concept simply doesn’t work, and why the bank replacement strategy is better than any bank account.

About Joseph Riley

Joe founded Patriot Family Homes to meet the need for affordable, reliable housing in the South, particularly near military bases. A captain in the Army, Joe has deployed with the Ranger Regiment to Afghanistan and Ukraine. He previously served on the National Security Council at the White House

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Outline of the episode:

  • [03:52] You can’t get too far researching tax planning without running across life insurance
  • [05:52] Will Duffy – on most life insurance policies today
  • [10:16] Dissecting the Infinite Banking Concept (IBC)
  • [14:18] What is a captive agent?
  • [17:03] The red flags with direct recognition policies
  • [21:15] What is lost opportunity cost?
  • [25:28] The Bank Replacement Strategy
  • [30:01] About a family who wants to close an off-market multifamily property and do the bank replacement strategy
  • [35:01] David Pere – on making $600 from a whole life insurance policy after five years
  • [38:46] When someone’s pitching you life insurance…

 

 

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David Pere

David Pere

David is an active duty Marine, who devotes his free time to helping service members, veterans, and their families learn how to build wealth through real estate investing, entrepreneurship, and personal finance!

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