[00:00:05] Speaker A: Welcome to the Short Term Show. The show about short term rentals and long term wealth with real property owners hosting real properties who are crushing it in the vacation and short term rental space.
And here's your host, Avery Carle.
[00:00:29] Speaker B: If you have not checked out your taxes for this year, you might want to do that because coming up on running out of time to buy a property for short term rental strategy, bonus depreciation, all that fun stuff. If you don't know what that is, click back a few episodes and we've got a lot of great content on with CPAs, which I'm not on the short term rental tax loophole. So just a reminder, if you are thinking you might have some high taxes this year, might be time to start. Like really, it's kind of not time to start looking at your last chance for the year to do that. So keep that in mind. We're still hiring in the Poconos and in Park City, I believe. So if you guys are interested or know any agents who may be interested, email us at careers at the Short Term Shop.
[00:01:10] Speaker A: Com.
[00:01:10] Speaker B: Now on to today's guest.
So I actually almost had this guest on one of our first or very first episodes and then it didn't work out, which is that was like four years ago and we've got several million downloads since then. So, you know, maybe he, he was waiting to see if the podcast was going to work before he was a guest. But, but anyway, I think he has bought more short term rentals or maybe second most. I think you're at number two now is number two for highest volume short term shop client of all time. Without further ado, I'll introduce Mr. Sandeep Nanda. How's it going, Sandeep?
[00:01:45] Speaker A: Oh, good. And you know, thanks for having me on, Avery.
You're right, it's been a long time coming, but I'm glad to finally have the opportunity to be on the show.
[00:01:55] Speaker B: Thank you very much for coming. So for those who are not familiar with you, who may not be in our Facebook groups and have seen you posting and hanging out, give us a brief intro of you and how you got into real estate and what your story is.
[00:02:08] Speaker A: First, a little bit about myself. I'm in my mid-50s. I know that's hard to believe, but it's true. I've been married since the end of 2003, so almost 23, 22 years. My wife says it seems like a lot longer, so not sure about that. I live in Austin, Texas. I've lived there since 2013. I have a 20 year old son. I hold an undergraduate degree in economics from Yale University and I have an MBA from the Kellogg School of Management at Northwestern.
[00:02:37] Speaker B: Very educated. Love that.
[00:02:39] Speaker A: Yes, I come from a very highly educated family. If you don't have a master's degree, then you're a failure. So I had to, you know, had to keep up. So let me tell you about how I got into real estate. The first thing is in 2000, I was living in a house with five other guys and we heard about these condos that they had for sale downtown. So we went to look at them and they were in an unbelievable location. They were a tenth of a mile from the center downtown. They were two blocks to 6th street and they were across the street from the convention center. And they were not that expensive. I mean, it was $155,000 for a two bedroom place. So I bought a place there and the other two guys bought places there. We all moved down there and, you know, had a lot of fun for two years.
But two years later, you know, like I said, the market was not doing great. People decided to go to MBA school. Some people just decided to move home.
And I told my two friends that had bought places there, whatever you do, do not sell these places. Keep them. And because I said these places are going to be worth a lot of money someday. And they both sold their places because I think they hadn't grown up in real estate families like, I knew you could manage a long term rental from afar, but they didn't, right? They didn't believe it. And this wasn't idle speculation.
I'd actually done the research and this building was only three stories tall and it was not in the Capitol View corridor, which in Austin, if you're in a Capitol View corridor, you can't build higher if you're going to block someone else's view.
But this building was not in a Capitol View corridor and you could build 51 stories there.
And I knew that given the location, someday someone would come and buy the entire building.
So they sold theirs. I kept mine. Now over the next decade, I had to subsidize the property by five grand a year. So my cash flows are negative five grand a year. And I mean, during this time I was a student for part of it, so it was very difficult. Nonetheless, you know, I had conviction in my thesis and so I, I held onto the property. Now fast forward 10 years, 2011 comes up and I see Airbnb and VRBO really taking off.
And I realized that complex is the perfect place to do it. And I poured over the CCRs and I realized that there was no prohibition against short term rentals, which in HOAS, 99% of them prohibit them. So I did some research and I hired a vacation rental property manager. Now they were actually just a regular property manager, but they jumped into doing vacation rental property managers and they started sending me checks for more than $1,500 a month, which was what I had been long term renting it for. So I didn't really pay too much attention. I hired a vacation rental property manager. And then I wasn't paying attention because the checks they were sending me were more than $1,500 a month. But after a year went by, I said, you know what, let me check out what these guys were doing. Now the important thing that I didn't mention about my career before is that at all three casino hotel companies I worked at, I was part of the revenue management team. So I sat on the yield committee and I made decisions on how to price hotel rooms.
And obviously I was responsible for marketing hotel rooms.
So I took all the data and all the reports that it sent me over here.
I put them into a P and L, I measured, I put the hotel metrics on it. So RevPAR, ADR and all that stuff. And I saw that these people were getting a 42% occupancy rate in the center of downtown Austin.
Now that's horrible, right?
Their revpar line looked like a heart rate monitor. It was going up and down and up and down.
Now you're supposed to manage the revpar line to basically flat. So when there's low occupancy, you lower the rate. When there's high occupancy, you raise the rate. You don't really let the revpar line deviate that much. But again, there's had a high deviation. I said, okay, well what if I. Oh, the other interesting thing was they'd increased the GROSS Rents from $18,000 a year to $38,000 a year. Of the 20 increase, captured 13 of it and I only got seven because they were charging me a 25% fee, part of which was on the 18 I was already getting. They were charging me the cleaning fees and they were also charging the guests the cleaning fees. So they were double dipping, you know. So I said, well, what if I did this myself? Like, what if I bought this place for cash today? And what I saw was that if I did no better than them bought the place for cash, I would get a 40% cash on cash return. And then I thought, well, okay, what if I lever it 4 to 1 and don't do any better than them? Well, then the cash on cash returns went to over 100%. And I said, well, what if I can do better?
[00:07:37] Speaker B: I have such unrealistic expectations. After this, we keep going, yes, this.
[00:07:41] Speaker A: Is not true today. Back then it was brand new. The industry has matured a lot. You know the saying, it was like shooting fish in a barrel.
This was like shooting whales in a thimble. Don't do what I did. Like, you're not going to get these cash on cash returns. I was at the very beginning to refer to myself as an OG in the SCR industry because I was one of the, you know, very first. I mean, Airbnb had only been founded four years ago. It was not widespread in the beginning. People don't know this. It was a, it was linked to Facebook as a means of building trust. You could see your friends places and your friends friends places. But yeah, you're not going to get these returns today. So don't even look for them. They don't exist. As an econ major, I was taught that there is no gold lying on the ground. In fact, there's a joke in economics about a PhD student and a professor walking down the street and the PhD student says, hey, look, there's a hundred dollar bill on the ground. And the professor doesn't even look. Keeps going.
And the PhD student runs and picks up the $100 bill and joins the professor again and says, professor, why didn't you even look like there was $100 bill on the ground? And the professor says, don't be silly. If there's a hundred dollar bill on the ground, somebody would have already picked it up. Could not believe that these cash on cash returns were possible. Economic theory says they are not possible. Now. The difference, of course, is they are possible in the very beginning, when industries are just starting.
They are possible because there's no, there's no competition or very little competition.
But, you know, I was just stunned.
And what I found out was that hotel tax receipts in Texas are publicly available information.
So I downloaded the entire hotel tax receipt files, all the records, and I hired a VA and I had them cross it with Zillow. I crossed the hotel data, the hotel revenue data with Zillow data to say, what if I bought these places for cash today and did no better than these property managers and it was true, I could get these huge cash on cash returns.
I still didn't believe it. I kept analyzing it and Analyzing it and analyzing it to death. I spent a month trying to poke holes in it, trying to figure out what was wrong. Couldn't do it. But I told my wife about this multiple times a day.
I would say, did you realize, did you know that it looks like you could buy a place for cash and get these massive cash on cash returns?
And she got so sick of it that she eventually told me, you know what?
Either shut up or do something about it. And then all of a sudden, I realized she was right.
And I went from timid analyst to gunslinger.
Now, I do not recommend this, okay? I absolutely do not recommend this to anyone. I quit my job in the low six figures.
I took all of our money out of retirement savings and all of our cash, you know, that was in savings and checking and stuff like that, except about 20k I kept in reserve.
I flew down to Austin, I deposited all the money into an escrow account with a title company. And you'll understand why. Later, I met with a friend of mine.
He went to college with me. He's a very good friend of mine. And I ran this plan by him and he couldn't poke any. He has an MBA also. He's a lawyer and an mba. He couldn't poke any holes in it at all. But he said, you know what? You need to talk to Mr. X. Mr. X was the ex city attorney for the city of Austin. Now, the thing is, this was around noon on Friday before, it must have been Columbus Day, because it was a long weekend.
And he said, you know, you're gonna. I said, how do I talk to this guy? He said, well, you have to make an appointment. It'll probably be weeks out. And I said, you know what?
I'll talk to this guy this afternoon for an hour and I won't pay for it.
He said, what?
I said, I guarantee you I will talk to this guy today for one hour and I won't be charged for it. I don't know what you're saying, but good luck. I went to the bank, I pulled $10,000 out in cash, like one of those bands, right? I went to Mr. X's law firm. I went to reception and I said, you know, I need to talk to Mr. X.
And they're like, well, first of all, you need an appointment. And second of all, he's not available. He's left for the weekend. I said, okay. And I took the $10,000 out. I wore a suit. I dressed up in a suit. No tie, but I did wear a suit.
And I took the $10,000 out of my pocket. And I slapped it on the counter and I said, Tell Mr. X that if he gives me an hour of his time this afternoon, I will pay him five times his hourly rate.
And they said, well, that's still not possible. We don't know where he is.
So I wrote on a Post it note, I wrote my number, and I said, you know what? If you can find Mr. X, have him call me. But by the way, which firm are you adverse to the most? In other words, when you face opposing counsel in court, which opposing counsel is it that you face the most? And they said, well, it's Armbruster and whoever. And I said, well, where are they? And they said, well, they're across the street. I was like, okay, I'm gonna go talk to Armbruster. You know, I took the elevator down, and right before I walked out the door, Mr. X called me and he said, you know, I'd like to talk to you. I understand you'd like to talk to me, Mr. Nanda. And I said, yeah, I sure would. And he said, and you're going to pay me five times my hourly fee? And I said, yes, I will. And he said, well, please come back up and I'll be happy to entertain whatever questions you have for an hour. Said, okay.
So I walk back up, and Mr. X shows me into a conference room with, I kid you not, four associates.
Now, I don't know why they needed five people in the room, but you know, they did.
[00:13:49] Speaker B: They probably thought you were going to, like, you were about to jump him or something.
Otherwise, why would. Why would anybody need to talk to an attorney that bad if they hadn't been sent to, like, do something weird?
That's why they had so many people.
[00:14:05] Speaker A: Yeah, if that's. If that's the case, they would have had security there.
[00:14:11] Speaker B: Maybe they're worried you're gonna threaten them or something.
[00:14:14] Speaker A: I don't know why, but they had. They had four. They had him and four associates. Okay? And, you know, I said, well, listen, I'm gonna give you five times your hourly rate, but I'm not paying for all these other people. And he's like, don't worry about it. That's fine. He said, can we get you anything, Mr. Nanda?
And I said, yeah, I'd like a cherry Coke.
Now, I knew damn well that they weren't going to have cherry Coke. This was just sort of a power move on my part.
But why?
What?
[00:14:40] Speaker B: Why.
Why are we power moving them?
[00:14:43] Speaker A: I have no idea. I don't remember. Honestly, I don't know.
That's not the only power move I'm going to make. So you'll see what else I do in a minute. But to my surprise, he says, you know, he tells one of the associates, go get Sandy but cherry coke. So this guy goes to 7 11, which is like down the street a little bit, and buys a bunch of cherry coke and brings it back to me. In the meantime, we're waiting, right?
And I was like, we'll start the hour when they get back with my cherry Coke.
So, you know, he comes back and I ask him a series of questions about my plan, about regulation, about, you know, all these things. My friend had given me a list of questions that I needed to ask him.
So I got all the answers I needed. There was no red flags. I could move forward.
And, you know, at the end he said, okay, so you're going to pay me five times my hourly rate? And I said, yes. He said, well, my hourly rate is $100 an hour, so you owe me $4,000.
So I once again pulled the 10k out of my pocket, slapped it on the table, and I said, I'll tell you what, Mr. X, I can pay you $4,000 now and you'll never see me again.
Or I can put this $10,000 on retainer for you. Further work of which I anticipate there will be a lot.
But this hour is free.
Which would you prefer? He said, I'll take the $10,000 on retainer. So what that meant was that the hour was free. So I not only talked to the guy when my friend said I wouldn't be able to talk to him, I also got him to give me the hour for free. And later on I did end up using them for about two hours, which was $1,600. But I got the rest of my money back.
[00:16:35] Speaker C: Ladies and gentlemen, Smarter Short Term Rentals is now available.
The new book from Avery Carle, Smarter Short Term Rentals. Build a dynamic real estate business and out host the competition.
If you want to take your short term rental to the next level.
[00:17:03] Speaker A: Pick.
[00:17:03] Speaker C: Up the new book, Smarter Short Term Rentals.
Wherever books are, are sold.
[00:17:11] Speaker A: So now let me tell you what I did in terms of, you know, getting really started with STRS or my, my, my plan. So there were only two units for sale in this building where I owned, owned a property.
I immediately got them under contract. Then I started knocking on doors and I would tell people, you know, hey, I'm interested in buying units here.
You know, Are you interested in selling? And some people would say.
Most people said, no. Like, I'm happy, you know, I'm not interested in selling. And I said, well, look, why don't you ask me for. Just ask me whatever you want. And I might not give it to you, but I might.
And they said, okay, you know, so some people said. One was. One guy had bought his place for 300 grand a year before, and he's like, I want 350 grand.
I whipped a contract out of my pocket and I said, okay, let's sign it right now.
And I did that a few times. I knew that the net present value of the discounted cash flows of those condos was worth way more, way more than market and way more than people were asking me for.
So some people actually signed, but most were smart and were like, okay, wait a minute, what's going on here? And they didn't sign up.
And, you know, people started speculating about what I was doing.
And it caused kind of a stir in the community. I mean, there was an email list.
Yeah, there was an email list. People were talking about me. The HOA asked me what I was doing, and I was like, I'm just interested in, you know, purchasing properties here and, you know, basically turning them into short term rentals.
Now, some people thought I was front running for Harrah's. I don't know why they would think that, but, you know, and then I'd done some consulting work for a few tech companies, one of which, you know, was a very well known person.
So they thought I was working for him.
I wasn't working for Harris or this guy. I was working for myself. I ended up getting 16 units under contract for $6 million.
One percent of that is $60,000. So I had to put that much money down for earnest money.
Now the problem is I didn't have $6 million, but I went to college with people who ran very large funds of money.
And I went to college with people who could easily write me a check out of their own personal checkbook for $6 million and not even notice.
And I didn't want to ask any of my friends or people, but I went to the funds and I told them my whole plan and, you know, showed them the returns and all this stuff, and they said, well, $6 million is too small for us to do the due diligence on. I was like, okay, give me 50. I can do this with 50.
And they're like, well, you haven't done this before, so we would not be fulfilling our fiduciary obligation to our clients. If we gave you $50 million.
[00:20:11] Speaker B: Imagine that.
[00:20:13] Speaker A: So this was very frustrating.
I had cousins who worked on Wall street in private equity or hedge funds, and I had built massive, massive, massive spreadsheets showing the discounted cash flows over 10 years and the exit value and all this stuff. And you basically, when you look at investments of this type, you boil it down to internal rate of return.
And the internal rate of returns I was getting were 30, 40, 50%, which is insane.
So I used very conservative assumptions, and I got it down to 19%.
Now, when I sent my spreadsheets to my cousins, friends, other people, they were like, you made a mistake because you can't get a 19% internal rate of return. And they wouldn't look at my spreadsheets because they said, this is wrong, like you. And they're pretty big spreadsheets. I mean, we take a lot to, like, look at them and analyze them. So, you know, I can't blame them for that. But what I said was, look, all you have to do. And I wrote them an email, step by step. What to do. Go to this Texas government website, download these tax records, cross it with this Zillow data, and you will see that I am telling the truth. Unless you believe.
The only thing you have to believe is that people will not pay more in taxes than they have to. And if you believe that, then you cannot refute my numbers. And by the way, this is based on people who have already been operating. I'm not making this data up. You can't get a 19% internal rate of return. So now, unfortunately, I had to terminate most of the contracts.
Now, what I did sounds very risky. You know, like I said, I turned into a gunslinger. But I was a very careful gunslinger. I carefully analyzed the Texas contracts, and I realized that earnest money is fully refundable as long as you are within an option period.
Now, I tried to do this for like a month and a half, two months. So I ended up having to pay more in option fees than the typically a standard $100. It's actually hilarious because in Texas contract, it literally says, for a nominal fee, the buyer has the unilateral right to terminate the contract.
And as a matter of course, agents at that time just wrote in $100.
So people were basically selling call options on their properties for $100 for, you know, five to seven days. I ended up spending. I spent $6,000 on option fees. I spent another 1600. Actually, that was later that I spent the tax money or the money on the lawyer's fees. But it wasn't really risky at all. I realized it was an asymmetric bet where the worst that could happen was I would make some good money. And the best that could happen was I would make a lot of money.
And if you ever find an asymmetric bet, you want to take it. Unless there's an asymmetric bet the wrong way where your losses are uncapped and you're going to lose money at the very least. But the good news is that I was able to get three people to rent me their units for a year at market price, with the ability to sublet and an option to buy their property at the negotiated price.
Now, I don't know why people would give me free call options like that, except to speculate that, you know, I was paying above market.
Okay?
So now I took over management of my unit and I took over and then I was arbitraging three other units and I did this from Las Vegas, okay? Now at that time there was no software. There was no really vacation rental cleaners, There was nothing really. So I had to figure it all out myself. I often say that, you know, all you need is a handyman and a good cleaning team. If you have that, you can manage from anywhere. And that turned out to be the case. Even as early as I was, there was no pricing software. So what I used to do is there was a Marriott across the street also.
So I had my VA every week go through and figure out what their prices were for a whole year. And then I would use some multiplier to price my places. Luckily there was a woman who lived in the building and I was able to hire her part time to kind of be the manager. And you know, somebody needed toilet paper, she would take it to them. She was also my cleaner, actually, and she had a bunch of people that she knew that she could call in in case she couldn't clean all the units in one day, if they were all turning in one day.
And it worked like a charm. I massively increased the ADR. My occupancy rate went to 92%. The three other places that I managed, you know, did exceedingly well.
And at the end of the year, I had made enough money and enough cash flow to put the down payments on all three places.
But now I didn't have a job and I didn't have two years of income doing this short term rental thing to qualify for loans. So then I went back to all the same people and I said this Is my actual data from me operating it right. For one year, almost a year, I guess, at this point.
And now the objections were, is this legal?
And I had to say, well, it's not illegal.
That wasn't good enough.
People still weren't familiar with Airbnb. They, they just, the numbers were so unbelievably good, they couldn't believe. They didn't believe it. Frankly, I didn't believe it myself. I still can't believe it. And I lived through it. I couldn't get any loans, I couldn't raise the money from people.
And at the end of the day, my dad co signed the loans for those three places for me.
[00:26:26] Speaker B: So how nice of him.
[00:26:28] Speaker A: Yeah, it's very nice of him. That's one key to success in the short term rental industry, having a father who has the wherewithal to sign for you.
At least it was in my case.
So, you know, I moved to Austin and over seven years I had my four.
I ended up picking up, picking up a fifth. I arbitraged a bunch, I managed a bunch. At the height I had like 30 units.
I cash flowed over seven years in the low six figures. So in October of 2019, the place was bought by a private equity real estate firm for $1,500 a square foot.
Now I paid around 250, 300 a square foot with leverage.
So I had a nice chunk of change which I had to figure out what to do with. And as it turned out, we were going to close.
The sellers, the buyers, had asked us if they could close in April because it was going to take them a long time to get the permits and figure out what they were doing and blah, blah, blah.
And they said, hey, we'll give you 5 million non refundable.
And everyone's so excited because we made a lot of money during March, south by Southwest.
But between me and another guy, we controlled 20% of the vote together.
And we said, we are not delaying this for one second longer than we have to. We're taking the money and we are running for the hills.
And it's a good thing we didn't because Covid hit in March and they would have walked, they would have left. They would have given us the $5 million non refundable and said, here you go, enjoy yourselves.
And the block where the W was in Austin was under and they had like 25 million non refundable. Those guys walked.
So one big lesson is from this, you know, it doesn't have to be Covid. You know, time kills Deals.
So if there's a deal you're working on, make sure it keeps moving forward. If your next step is somebody else has to get back to you, you get back to them, you ping them, keep your deals moving forward, because time kills deals, you know. Another lesson is things happen for a reason.
If I'd been able to raise the money, I would have had 20% of 16 units, which is about three.
As it turned out, I got 100% of five, which is obviously a much better deal.
Another lesson here is that there's a saying. Pigs get fat and hogs get slaughtered.
If I had actually gotten 20% of the vote, I would have waited and waited and waited to sell. I would have turned down this 1500 dollars square foot offer and then I would have gotten crushed by Covid.
So, you know, I like to say that I made the best decision I could with the information that I had, but everything rolled my way. Also, if they could not come before COVID hit, we could have gotten screwed.
If the city government, and they actually did say that they were going to ban short term rentals, they tried to regulate them.
Near the end, they came and said they were going to condemn our building and build more convention center there.
So you can make the best decisions you possibly can with the best data that you have available.
And then you cannot blame yourself for the results because if things don't roll your way, they just don't roll your way. And in real estate, there's a large degree of luck and timing. So now I have things to do where I have to figure out what do I do with this money so I don't have to pay any taxes. So as I mentioned, I'm very analytical and I didn't want to make a mistake. So I bought the entire raw historical data set from Air DNA and I hired a Texas MBA student to take that data and cross it with Zillow data for the cost side.
And it spit out an answer for every zip code in the United States. Where it was like if you put, for every dollar that you put in, what is the cash on cash return?
And the number one place in the United States, surprisingly to me, was Gary, Indiana.
Now, I don't know if you guys have ever been to Gary, Indiana, but through it's not, it's not the nicest place in the world. Yeah. If you've driven through, you don't want to stop there, just drive through and that's fine. Yep. But what I figured out was there's a nice place in Gary, Indiana on the beach. It's called Miller's Beach.
And, you know, rich families from Chicago go there to, you know, on vacation.
So what was happening was the revenues were getting picked up from those places, but the cost side was getting picked up from all the other crappy houses around there.
The number two market was the Poconos.
So as I started looking into the Poconos, I realized that the regulatory situation was not ideal, because what you want in a regulatory situation is you want it to be established, you want it to be not changing, and you want it to be favorable. And none of those was true with Poconos. They weren't established. They were changing them all the time, and they weren't necessarily favorable. The other problem was that I could not find new construction, and I could not find a realtor who really seemed to understand short term rentals or, you know, basically investment properties.
So the number three market was the Smokies.
And very luckily for me, I found Avery. I found you on Biggerpockets.
And you knew more about short term rentals at that point than anyone I knew. Except for me.
[00:32:25] Speaker B: Of course not.
[00:32:29] Speaker A: I, you know, engaged with you, and you told me about the Smokies. You told me about Florida. I got some places under contract in the Smokies, and I was going to go down to Florida, and the night before I was going to go, I had a nightmare that Florida became entirely flooded due to rising sea levels.
And I had a flight that morning, the next day, and I called you.
What?
[00:32:55] Speaker B: I remember this.
[00:32:56] Speaker A: Yeah, I called you and I said, avery, I'm not going to invest in Florida or any beach market. I'm going to put every single thing into the Smokies.
And so I came to the Smokies, I took a couple of trips, and I ended up buying eight places consisting of 54 bedrooms. Now, I actually made a mistake in the sense that wealth is built through concentrated bets. It is preserved through diversification. And so what I should have done and what all my MBA friends told me to do was diversify across markets. So buying a beach town, buy in an urban area, buying a ski town. After the sale, I computed my internal rate of return just to see what it was versus what I had projected, and it was 63%. But the interesting thing is that as I started operating and generating more and more numbers and telling all the people that I talked to before, including my cousins, and people started hearing about Airbnb more and more, they got very interested, and they were like, can you help us with this?
Can you find us more investments at that point, I was so disheartened and disillusioned by trying to raise that money and I couldn't, that I thought to myself, you know what? I'm happy with what I have. Like, don't want to build an empire anymore.
And you know, I started taking it pretty easy. Like I would go to the gym every day for a few hours, I would take a nap every afternoon, I would do, you know, get massages, I would do yoga, I would do meditation.
So, you know, and I was very content. I was very content. And I think that's one thing that people miss a lot, is if you base your happiness on monetary or achievement based outcomes, you will never be happy because it'll always be someone that's doing better than you. Especially my friends.
One of my friends is one of the 10 largest taxpayers in India. No way I can ever do that. A couple of my buddies just sold their AI healthcare software company to a publicly held corporation for $1.25 billion. Now if I compared myself to them, you know, I would just never be happy.
Now the interesting thing is that, and one of the reasons I got so interested in AI is I sent one of them the prompts that I've developed.
And he said, where did you get this prompt? And I said, well, I made it. And he said, how long have you been playing with ChatGPT?
And I was like, three weeks.
So he's actually bringing me in to train his employees on how to effectively use ChatGPT.
I was like, Mike, you ran an AI company, your new company is an AI company.
And he's like, well, the business side people don't understand how to use it, the tech side does, but they're not business people. And the business side people don't know how to use it.
So I've been engaged to basically train the business side employees, you know, on how to use AI effectively.
And you know, one thing that I just like to tell people is don't feel like you're behind at all. You're not. You can very easily learn AI. You can have it teach you. And the way I built such a great prompt is I told Chad, GPT build me a prompt. And after it built me the prompt, I said, how can this prompt be improved? And it improved it. And I said, how could it be improved further? How could it be improved further? And I just kept iteratively going until I built this prompt that the founder of an AI company couldn't believe that I had built.
But my main focus really now is I'm working on artificial intelligence and how to help owners embed artificial intelligence into their daily operations to become more and more profitable.
I've started a company called AI Mystr.
We're going to be giving away a lot of free content that is generated by AI tools to help with workflow management. AI agents where a guest can call and ask questions and it will answer for you. If you go to my website, AI my scr, there'll be a calculator that walks through the pricing changes and the math and we'll have a deck that recommends what you should do. And by the way, the answer is not raise your prices 15.5%.
You really have to look at the quality of your properties versus what season it is to kind of let you determine what percent of the fee that you're going to let flow through versus just eat just to close, you know, a couple lessons. One is like literally anything can happen so you got to be prepared.
I wasn't prepared for Covid. It turned out fine. Don't be a hog. Get slaughtered. Be a pig.
[00:37:52] Speaker C: Are you having trouble trying to decide which market to buy in?
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[00:39:12] Speaker B: Really fascinating story and there's a lot of moving parts there.
One question that I always like to ask people who have been in short term rentals since before COVID which frankly there's not many of us compared to, you know, percentage wise is we see a lot of people who they freak out because they didn't make as much money this year as last year and they think they're on their way to zero and they don't think about the fact that real estate, economics, everything is cyclical, and there's only going to be one peak. You're only going to have one best year ever. So what would be your advice to those people who, you know, right now we're not technically in a recession, but jobs are down. You know, signs are kind of pointing towards people don't have as as much money as they used to, whether they're calling it a recession or not. What would be your advice to those people who are freaking out because they made more money last year than this year?
[00:40:04] Speaker A: Well, one thing I would look at is, you know, are you still profitable?
And what are your next best alternatives?
So if you have equity in a property and you sold it, what could you do with that? And do you think you could do better than you're already doing?
The other thing you have to realize is that like you said, real estate and the economy are cyclical. You have to be prepared for downturns. You have to have reserves. There's a psychological bias that humans suffer from called anchoring.
And what it means is that you get a number stuck in your head and you can't let go of that number, and you base all your decisions on that number. An example is my Cash on Cash returns in Austin were so high that when I looked at other markets, including the Smokies, I knew about the Smokies as early as 2015, but the cash on Cash returns were not insane like I was getting.
And I also thought to myself, well, I'm not going to buy in a place called Pigeon Forge where Dollywood is.
Which was absolutely the wrong way to think about it.
Right way to think about it was, where can I get the highest returns now?
Not can I get the same returns I was getting before? That's a B. You're not the guest.
You are not the guest. Just because I would never vacation in Dollywood or in Pigeon Forge doesn't mean I shouldn't invest there. And actually, the funny thing is, I spent upwards of $50,000 on the analysis I told you about, and all I had to do was was do a Google search on which are the best vacation rental markets.
[00:41:53] Speaker B: Yeah, easy button. But, you know, now, back then, those lists were probably a lot more accurate and less biased than they are now.
Yeah. So.
[00:42:04] Speaker A: Well, I mean, Miller's beach wouldn't have come up, but the Poconos definitely would have come up. But I, I, it was honestly, it was worth it to me to know that I wasn't making a mistake.
[00:42:16] Speaker B: Yes, I totally agree with that. Trust but verify Always. And do your own due diligence. Don't just buy something because somebody on the Internet said to. Okay, so, Sandeep, your story is just so interesting and it's always nice to have somebody on the show who's, who's been in it for so long.
And before we move to our final three questions of the show, first I have to ask you if there's anything about your story or your experiences that we haven't covered that you feel like our audience would benefit from hearing.
[00:42:47] Speaker A: That's an excellent question.
And are you sure you aren't a consultant? Because that's the typical consultant question. Have I not asked. Have I. What questions should I have asked you that I didn't ask you?
Let's see. So I guess, you know, a lot of people want to get into short term rentals to, you know, quit their W2.
And I guess I did that.
Pure leap of faith. But it was an educated guess. I mean, I had rock solid data that showed me there was an opportunity.
So I don't want people to take my example and make rash decisions based on a cursory understanding of what I did.
I was very careful. I was very analytical about it. I had rock solid data from the state of Texas.
So that's kind of one thing that I would want people to know.
The other thing is when, you know, when I talked about arbitrage. So I arbitraged a bunch of properties.
I would be very careful about doing arbitrage because it is while it's a great way to make cash flow, especially if you don't have money for a down payment unless you have the unilateral right to extend the contract.
It's a very risky situation to put yourself in. I mean, I had a bunch of leases when Covid hit and luckily I had the cash to be able to ride it out until I had to cancel them. But I know people that had to declare bankruptcy, and so I would just be very careful about that. Any other elements of my story that people should know? Lawyers don't typically have cherry coke, but.
[00:44:38] Speaker B: It'S a power move if you ask for one. Even if we aren't sure why we're making power moves just for a cherry.
[00:44:45] Speaker A: I don't remember why I did that. I mean, I just.
I don't know.
It was so long ago. Honestly, I don't even remember what I talked to the lawyer about. I just knew it was some kind of regulatory stuff or, you know, my buddy had just said, like, look, you got to Talk to this guy about this plan and you got to ask him these questions.
But yeah, I don't really remember.
[00:45:07] Speaker B: Well, it's always good to get an attorney's opinion, a CPA's opinion, all these professionals when you're doing any kind of investing. So good move. Sandeep, it has been a pleasure having you on. And we've got three questions that we ask everyone at the end of every show. And now it's your turn. So first question, what advice would you give 20 year old Sandeep if you knew then what you know now?
[00:45:29] Speaker A: Buy every piece of real estate you possibly can.
[00:45:34] Speaker B: That's really good advice. Okay, nice and easy. All right, what advice would you give a new short term rental investor who's looking to get started today?
[00:45:43] Speaker A: So I think the primary thing is to just learn as much as you can before you buy. So I would read your book, your two books, Short Term Rental, Long Term Wealth.
[00:45:54] Speaker B: Thank you.
[00:45:55] Speaker A: Smarter Short Term Rentals. I would join your Facebook group, Smarter Short Term Rentals. Just read through all the posts. There's several other books and groups out there, all of which are excellent. You really need to decide, why are you buying a short term rental? Right. Is it for income purposes only? Do you plan to use it for personal use? Don't restrict yourself to a property that is near you. It's entirely possible to manage from long distance. I mean, in 2012 I managed four places for eight months that were in Austin from Las Vegas. And now there are so many more tools that can help you do that.
[00:46:34] Speaker B: All right, and last question, what is your favorite book that's impacted your mindset?
[00:46:39] Speaker A: Sure. It's interesting because a lot of people in real estate say rich dad, poor dad, and I've never actually read that book.
The best book I've ever read that's impacted the way I think is a book by Michael Porter. He's a professor at Harvard Business School. He wrote a book called Competitive Strategy and it has a framework called Five Forces which talks about and explains the profitability of any industry based on competition within the market.
The power suppliers, the power of buyers, the power of substitutes, and then like regulatory issues.
And you can use this framework to sort of analyze every industry, including the short term rental industry. I just wrote this really super long post about it which got zero engagement, which is kind of annoying because I post these funny memes and I get 100 responses and I post these like fire content rich, you know, posts and nobody reads them. So I guess I have to learn better how to write Facebook posts. But yeah, competitive Strategy by Michael Porter is my answer.
[00:47:48] Speaker B: Thank you guys for listening and we will catch you next week.
[00:48:02] Speaker A: It.
