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CDL 49: How To Play Monopoly With Hotels In Real Life With Josh McCallen…

Cash Flow Dad Life

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So the big question is this, what would you do if money didn’t matter? So you had millions in your bank account, what would you focus on? Would you spend more time with your family, with your wife, with your kids? Take family vacations.

Would you pursue your gifts and talents and dreams? Serve your local community, teach others, serve your church. You see if what you would do if money didn’t matter, it was pursuing your gifts and talents and dreams to serve others, and that is probably what you should be doing.

The problem is most people are in the rat race, living five inches in front of their face with no time to pursue what they were born to do. That is the problem, and the solution is to develop enough passive income to replace your working income so you can quit your job and be free to live your life the way you were created to.

That is a solution and this podcast will show you how…

Ryan Enk:What’s going on? Everybody? Welcome… What’s going on everybody? Sorry. Welcome to the latest episode of Cash Flow Dad Life. I apologize guys for missing last Thursday. I had full intentions to release a podcast, but I was actually in Tampa looking at a billion dollar multifamily investment operation…

So it was really cool stuff which I’ll share with you guys later. But today I’m stoked to have on our show and experts in the hotel industry.

I ended up suckering him to come on here and share his expertise with us and his wisdom. His name is Josh McCallen. Josh, you there? Can you hear me alright?

Josh McCallen HotelJosh McCallen: Absolutely. Great to be here Ryan.

Ryan Enk: And for those of you that are watching, Josh has got a sweet green screen in the background with his perfect, perfect setup. So Josh is actually an expert in the hotel industry and our episode today is going to be about how you can get started in playing monopoly in real life.

How you can get started in investing in hotels like in monopoly.

You know, the goal of the game is you first go around the board and you buy a bunch of houses, right? And then once you get past a certain level, you get started with investing in hotels and if somebody lands on your spot then you’re bringing in a lot more cash flow.

And so we’re seeing a lot of different trends in the industry… What we’re going to talk about today is the different ways that you can get started investing, the different strategies, the different plays that are out there. And Josh is going to give us the wisdom… Josh, can you give us a little bit of your background? Like what’s your story? How did you even get started investing in hotels in the first place?

Josh McCallen: Well, it’s absolutely great to be with you Ryan. So the answer to that is there’s a short form and long form, but the short form is this. I first was a house developer, very, very high end beach front. It’s a matter of fact. We, uh, I was the project manager guy on the field building five, $6,000,000 houses during the boom days. Oh, six. Oh seven. And then right as the 2008 crash came at, business models stopped.

So then years later we had a condo building, a hotel that we thought would be a condo building and by 2012 we were comfortable enough to try to get into the hotel industry by fixing that up. So basically the story is, I’m like, you just said, I’m just like most of your listeners.

I started in the house world. Of course it was the highest end of fancy houses, but fancy house speculation.

Josh McCallen: So we would flip a $5,000,000 beach house. Of course I wasn’t the capital at that time. I was just the doers and then we would, uh, we would make incredible returns. But boy, we were living at the tip of that spear, right? So right as the recession changed it, uh, and came and the economy change. We stopped that business model.

And then the hotel world was a natural happy accident. We had one of those buildings we like to tear down, um, and the answer was in 2012 we sat down and said, what should we do with it? It’s a dump. And from that Genesis of the conversation in 2012 grew out a phenomenal hotel company that was, became nationally ranked.

Ryan Enk: That’s awesome. That’s awesome. And you said you’re like most of my listeners, but I think my average listener maybe has one or two kids and uh, I think the most kids have a dad that we’ve ever had on this show was six. So you’ve banged out nine kids, right?

Josh McCallen: Yes, Ryan. Absolutely. You know what the kids love listening to you buddy, just so you know, FYI. So they always

Ryan Enk: I need to watch my language sometimes.

Josh McCallen: Don’t worry because we always say we raise them like baby boomers, so they’re a little tougher. But now we have nine kids. Ryan, we’re trying to stay ahead of you in one area of life. Okay…

Ryan Enk: Well, you are way, way ahead of me on that man. And I don’t know if anyone’s ever told you this, but I get the joke all the time that you guys should probably get a TV for your bedroom. So how many times have you heard that one?

Josh McCallen: A lot. That’s perfect.

Ryan Enk: Awesome man. All right, well let’s, let’s continue with the story…

hotels flipping home purchased with passive incomeSo you started, you know, with, with high end flips, kind of speculation and then you’ve got more into, you know, the hotels. Can you tell us a little bit about your last project that you did?

Josh McCallen:Yeah, great question. So I just recently was able to exit a wonderful company on great terms, was able to start this new company because we had so many new opportunities, but, but during my six year tenure ship, uh, we had the privilege of serving not only as a partner but as the president of a very sizable company and during that property, during that time, we ended up growing from one hotel and two, three and five years.

We have really established a culture and a management company that allowed us to look for, you know, we were looking to the future. It’s a matter of fact, that’s where my new company came from, was from the old, the wonderful effort that we put into the first company.

We now have the opportunity to grow it. I would say probably a property a year, if not more. Um, and I always say it’s like we built a franchise prototype the whole time, the whole time we did our first hotel, I kept saying Ray Crocket, Ray Kroc the heck out of this hotel.

Meaning if we do a great job marketing something, let’s repeat that. If it’s seasonal, let’s repeat it quarterly. Let’s repeat it. So we built a standard operating procedure for aggressive marketing, strategic partnerships, amenities, all kinds of things that hotels. We did it so we could repeat it.

So it’s been a hell of a ride…

Ryan Enk: Yeah. That’s awesome. And it’s funny you mentioned Ray. Is it Ray Crocker or…

Josh McCallen: It’s Ray Kroc. I was thinking, “He is big in our field, and Ryan’s going to fall in love with this guy someday and it’ll never get that.”

Ryan Enk: Oh Man, I mess up names so much…

Whenever I’m talking to my own children or if I’m coaching football and I get a kid’s name wrong, I’m like, “You know who you are, don’t. Oh, I like that. You don’t need me to tell you who you are and Ray Kroc or does it need me to tell them that it’s whatever.”

Josh McCallen: You just nailed it though, buddy. And I hope it comes up and feel free to get to it whenever you want. But you told him that you’ve told in the past that Ray Kroc was really in the real estate business.

This is the guy that created the fastest cheeseburger for under a dollar, right? Even now it’s just a dollar still, I guess. Um, so that guy really wasn’t in the cheeseburger business. He was really in the real estate business. And what’s really interesting though is his real estate business wouldn’t have worked if his cheeseburgers didn’t work.

That’s kind of like symbiotic and that’s how I look at hotels, you know, what we, what we said was buying hotels is great, but really making money is in the operations. So we focus on the operations so that we can really return a ton of money to the asset owners investment.

Ryan Enk: So tell us a little bit. So for the lay person who’s never invested in hotels, there’s essentially three ways of doing it. Um, can you kind of cover those three different ways that you can get started investing in hotels and maybe maybe the pros and cons of each of them?

Josh McCallen: Yeah, I mean the simplest way I came to understand this was again, we grew grass roots, so we ended up studying it by going to conferences and meeting everybody. But here’s what I’ve distilled it down to.

Anybody with a significant amount of capital can go and petition Marriott or Wyndham to acquire a license to have a Marriott or Wyndham in their market and they can buy that piece of real estate like Ray Kroc is talking about. And then have a hotel built by the development company, the design company of Marissa, so that’s way number one.

You just write a gigantic check that goes to cash flow, passive passive dad life for cash flow dad life, my favorite. That would work. So just write a $10,000,000 check and go ahead and buy one license and then have them manage it. And that’s a good program. If it works economically, I might even do that someday. But that’s one way to do it.

That’s what I would call a stable cash flow model. The other way to do it is we could go buy any independent hotel costs, less money usually. Um, and then it’s on us to find a manager. And what that means is usually hire one of these third party management companies. And they do, okay, I’m there.

The reputation of most third party management companies is they’ll keep the lights on and they’ll do their job. You’re not looking at it.

Ryan Enk: Didn’t you have one situation where you actually started off with the model of let’s make this a passive income play and let’s do like a third party management company. How did that work out?

Josh McCallen: We did the same properties that I was talking to you about a moment ago. Started with the strategy, which is the normal strategy five hotel because you love the location and call in a specialist, a third party manager, let them have a fee and they will run the property.

Actually what happens the day after you signed the management contract is you’re technically not allowed to ever speak to the staff and an authority. You’re not allowed to direct them because that’s what you signed.

You signed an agreement that you won’t do that and that they will do that and they’ll take responsibility of what we ended up finding is that the, that group, probably that kind of group, which there’s at least hundreds of them, um, will work in a stable, like side of the road side of the highway hotel.

build wealth demonizing the owners doctor lawyers engineers good content negotiation here to helpThat would be a great model. But when you’re trying to build wealth, I’m not sure that’s the best model. And then the third model is what a lot of people trap themselves into is they buy a hotel.

Maybe it’s a small motel even, and they become their own manager. They might even get a little place nearby and live there and run it. And that’s the opposite of passive cash passive income.

Ryan Enk: Yeah. So actually I said there’s three ways where there’s actually four ways. The other way is through a syndicated model, like basically people who are private, um, you know, they’re, they’re buying these private places and fixing them up and, and, and, and operating it themselves.

Josh McCallen: Right? Brian, I announce it here first. Okay. Cashflow, dead life. This is a big announcement. We believe that that is what the market needs.

What you just described is pretty rare in this means good people can get into the hotel world and all the benefits of the good strong cash flow and even growth through syndication or through partnering with an operator…

You and I talk about it all the time. That’s what multifamily has become, right? Most, most people you interview can buy an apartment building by just recruiting 10 investors. Correct.

And that’s a strong opportunity because basically you’re, you’re, you’re giving the money to a lead sponsor and, and they’re gonna run the project, but you get a really nice piece of cash flow.

So we think we’re one of the first doing this for the hotel world…

Ryan Enk: That’s, that’s, that’s great. And, and, and that’s what you do with apartments when you get started because you know, you want to try to use like a lot of people when they’re getting started with real estate, they, they want to do it because of the passive income it generates.

But what they ended up finding out is that they’ve got another job…

So you sacrifice some of the returns, like there’s real estate out there that you can get 120 percent returns on your money and you could flip houses and do all this stuff, but you have another job, you know, and you and you’re not creating long term passive income.

And there’s people out there, they’re like, I don’t want to, you know, send out mailers…

I don’t want to do marketing for motivated sellers. And for those people, the syndicated model is a great model because you can basically invest in somebody else’s operation. That’s all right. I do it all the time.

So the syndicated model is a great model because you can basically invest in somebody else’s operation. And uh, with that operation, um, you’re getting that passive income and it’s 100 percent passive. In fact, I think with SCC laws, it has to be passive. You cannot be involved in, is that correct?

Josh McCallen: It is. And you know, Ryan, you explained it perfectly.

It is a way for people to own, whether it be a hotel or an apartment, if you can partner with somebody that knows what they’re doing and runs a property real well or buys some real well, you get all those benefits of being the actual primary owner.

Remember, you probably have mentioned it in the past, but there’s that other big advantage of tax advantages of real estate even when you’re in a syndication.

And I think that was a revolution for me, revolutionary moment for my wife and I. So as I launched our own company with this great team of pros, what we did is melanie and I, my lovely wife, 21 years, uh, we actually flew to Dallas to learn how to do legal, uh, partnerships in syndication.

So, and we studied the benefits and why normal investors do this is a matter of fact. What surprised us was the hardworking professionals like the lawyers, the dentists’, um, you and I, we may want to jump into a different type of investment and we can do that through these little syndications. Yep. Yep.

Ryan Enk: And real quick for my listeners that aren’t exactly sure what a syndication is, a syndication is basically where you pull investors together to invest in a project.

So that’s, that’s what a syndication is. This just any investment opportunity where there’s a number of investors that is, that is a pooling their money together to purchase the property.

And that way you can start with, say you’ve got 25,000 or 100,000, but you can participate with the big dogs in these $5 million, 10 million, 20 million, $50 million dollar deals. So it is a really cool concept that you can get involved in real estate.

We’ll talk more at the end on some creative ways that you might not have thought about that you could participate in a, in a, in a syndication as far you might say, I don’t have 100 grand in my bank account’s sitting around.

Ryan Enk: So we’ll talk about at the end how you can still participate in things like that. Um, that’ll be the little cherry on the top of the end for you guys. But let’s talk more about the different kinds of plays with hotels. Like if you were to buy real estate and flip real estate, you want to go after something that needs a little work that you can add value to.

You want to say it’s $150,000 house. You want a $150,000 House that needs maybe 20 a work that you can get for 90 grand, um, so by adding value to that house so you can appreciate it. You could flip it or you could rent it out for higher dollar is same as true with apartments.

It seems like the real sweet spot with apartments is not the Class A, b, c’s and d’s, you know, in the apartment world, like, you know, different classes of apartments that you can purchase when you don’t want to get the class a’s because you can’t add any value to it.

So you’re getting them at the top of the market value and you can’t raise rents any because the rents are already as high as they can be.

You want to get the Class C apartment where you can raise rents by making improvements to the amenities and paint or adding AC units or washer dryers, you know, whatever it is that you can add value.

And I’m a believer that the hotel industry is very similar, but there’s different ranking systems. Can you tell us a little bit about that?

Josh McCallen: Yeah, no, you’re right. The way I, the way I explained it is most of us are familiar probably with a three star and this is where a three star hotel just means that it has a restaurant.

So anytime you’ve ever been to any Marriott that would have been at least a three star hotel and that that’s a challenge in hotel to run just so you know, uh, because the restaurant in particular ads numerous challenges then.

Then there’s, I’m below that there’s a two star and this is where you have a great room or not so great room depending, but no food and beverage, limited services.

And then of course then of course there’s even higher. There’s a four star that goes above what you would think of it as Marriott. This is where usually it’s like a resort and it has extra amenities.

Maybe a spa, maybe I’m killer pools, maybe it’s on a beach and all of those amenities are managed by the hotel…

Josh McCallen: And then there’s a five star which is rarefied air. It’s the four seasons and the Ritz Carlton. And uh, those are the funny ones. Those don’t actually make much money, but boy, they have a halo effect of value for, for developers. So they’re done for other reasons.

And really the sweet spot for me and us, our team has found is that the three and a half star to four star, this is where it has the amenities that you can sell and make money…

So for us, the easiest one to think of his weddings, if you’re going to have a restaurant, because that’s a challenging thing, you might as well make sure you have a gorgeous venue for weddings where there’s a good bit of profit.

Ryan Enk: Awesome. Awesome. So the sweet spot, take notes, uh, of that guys. The sweet spot is the three and a half stars because you can come in and add the value and the value that you can add is things like weddings and other amenities like that.

Awesome. Alright, so let’s cover the last cherry on top, which is. So say you don’t have 100 grand in your bank account to get started. What is the best way that people, um, that they might not know about or might be aware of this opportunity? What’s the best way for them to, um, find funds to invest in projects like this?

Josh McCallen: Well, you know, the, the, the way most of our investors are finding funds is through their self directed Ira and uh, as, as I’ve come into a, uh, become aware of this is so much of the America’s wealth is tied up in the stock market through their IRA’s.

Only four percent of these Iras gets used other ways, but you can actually invest in cool private projects like this with your Ira. So it allows us, normal people to get involved.

Ryan Enk: So without getting taxed, um, you can get a company like Equity Trust Fund, um, and you could basically pull the money out of the IRA and into another investment without having, you know, the, the tax implications is if you were just take money out of your IRA and they consider that income.

So it’s actually a tremendous way to, uh, to invest in these things…

So using a 401k is a great way to get started. And when you do it that way and you invest either in like your Marriott model a or with a syndication, that’s where it becomes passive. Now, just to rewind a little bit, because I think we skipped this when we’re talking about the different ways that you can get involved in hotels.

You’ve gotten involved in almost all of those ways. Can you kind of touch on, you know, what was the, the major learning experience, the Aha movement moment where, uh, where you discovered that that one way wasn’t passive.

Josh McCallen: We this is a store that really it’s hard to believe. So I’m going to give you a visual. So we are just finishing rehabbing our first property. And boy, it’s beautiful. It’s actually in a marketplace that everybody’s falling in love with it.

We really hit the mark on the style and everything’s cool, but all the breast sheets bought everything great new. Then we installed one of those third party managers who came so highly recommended.

Matter of fact, they were certified by all the brands that they could even manage branded hotels, which I thought was a good litmus test…

And one day I’m walking down the hall doing my punch list as the developer checking some rooms and we had given it the hotel over to the operators about a month earlier. And this one nice lady named Mary is scurrying down the hall clutching for sets of sheets.

Josh McCallen: And I said, married, married, what’s wrong? And she says, well, yeah, I’m sorry, I just have to go get the sheets early because if I don’t I won’t have sheets. And I got to get home today on time. I said, Mary, I don’t even know what you’re talking about. We have so many extra sheets per room.

It’s unbelievable what you’re talking about.

So she said, go check it out. So I walk into the laundry room, which was all fitted out with brand new equipment shelves and shelves, uh, originally full of, of sheets. And they were all empty. And I said to the team that was cleaning. I said, well, this is again, I’m not the manager yet.

We’re just the developers. Passively. We thought we were just building out a hotel and giving it to operations…

And there’s one gentleman, kind gentlemen, Carlos, he brings me over to the closet, down the hall, opens the door, and I’m talking to like a closet that was 12 feet deep, eight feet wide, eight feet tall, the door could only open 45 degrees.

button shirt as soon as the deal is made guide through real estate 18 offersJosh McCallen: And inside there was stacks of black trash bags with masking tape on every bag saying what dirty sheets were in their pillowcases, kings twin, you know, a queens. And I asked what the heck he was talking about.

What had happened was our management company couldn’t keep up with the growth we had opened right in the time for a busy, busy month.

We were sold out every day and their whole process broke. So their process broke so badly that they weren’t even getting all the sheets done. And it was really a mission critical moment.

So I kinda stepped in and uh, I was transparent, went down and talked to the managers and I said, listen, we’ve got to get these sheets clean. You guys can’t keep up. We’re going to help.

So we took off our nice button shirt, went down to our tank top t a and we backed up our little Honda pilot, very humble little suv and drove to the laundromat.

Josh McCallen: We washed our clothes, actually sheets for three, three days myself. And then I managed another guy for four more days until we got everything caught up to par. And there was a picture May, Okay Ryan, you’ll see this someday I’ll have to show to have me taking a selfie where every single machine in this gigantic laundromat is us.

I had been like hundreds and hundreds of dollars of quarters down and that helped us get over the hump. We got all the sheets back in the building and the rooms.

Now we’re clean because I thought there’s no way we want anybody in our building without super cleanliness. And that was the day I realized we were going to become hotel managers.

Ryan Enk: And that’s where you kind of fell into your niche. I mean, you know, we, we, we talk a lot about um, creating passive income investments. But the whole reason to create passive income investments is so that you can do what you would do if money didn’t matter. Do what you love. You actually love managing hotels.

Josh McCallen: I do. You know what, Ryan, this is why I feel like my wife tells me it’s our calling in life and we’re, you know, Melanie, I’ve never worked together.

And when I had this opportunity to start doing this for Viva May, our company she said this is now our calling, but I’ll tell you why real quick, uh, recently we had 500 employees and managing staff and training and all of that became a passion for me because I started, you know, look, you and I are philosophical guys too, right?

We’re kind of heartfelt. And when I, when we started running hotels you know, I know you were joking earlier, we actually got this hotel to number seven in the country picked up in Wall Street Journal USA Today. And we did that based on the fact that we put a culture in place.

Josh McCallen: And that culture is just what’s, what’s, what’s important to me.

We just treat people with respect and we was matter of fact, we always say to to to new applicants where we say we want you to join our team, but you must possess these three characteristics or else you’re not going to like it here because all we do is, is take a simple tasks and do them with love.

You know, so hospitality is like the ultimate form of service. So I say to people, you might be the best front desk manager that I’ve ever seen on a resume, but can I share with you the three things it’s going to take to succeed with us and now you understand why I care about it.

I say, number one, do you have a passion for people? Does it pop out of your pores? Do you do you want to run to people?…

Josh McCallen: And you see them too? Does your. Do you have a heart for humility? And what became so clear to me when we worked in hotels and built these hotels out, every single thing we do in hotel is super humble.

The clean toilets make beds, feed cheeseburgers to people, and you must want to seek humility. It takes a special kind of person to to succeed with us…

And then the third thing we always say, do you believe that you can be a force for good and and by treating guests with dignity and respect and you can do you recognize how much good you’re bringing into the world. And we say some people call it a ministry.

So those are the three things. One, do you have a passion for people to do? You have a heart for humanity and three d, do you want to live for others?

Josh McCallen: And if you have those three characteristics, you, you will love working with our team. And the good news is if you don’t have those, you hate us. So we always try to encourage you not to join the team because we are. Yeah, we’ve died on that hill, man.

We’ve spent the last six years. You should see the quantity of books we’ve read and the quantity of thinking we’ve put into this.

We said this is the way we would want to be treated, and so we built a whole standard operating procedure from the way we hire to the way we release a to the way we treat a guest. And so that process has become my life’s work. I’m so for me that it is a job, but boy, it feels like a lot more than that.

Ryan Enk: That’s so awesome. And it’s so interesting that you mentioned culture and it’s, uh, it’s interesting to me right now because as I said in the beginning of the podcast, I just got finished visiting this billion dollar asset owning apartment company. And if you look at apartments, it’s like, it’s not sexy. It’s not attractive. It’s just apartments, you know?

But what they did, the owners from the ground up created this culture and that’s why they were able to grow so rapidly because they had the right culture in place. It wasn’t just about the irr and putting the numbers together and the ROI and all this other business talk.

In fact, they could talk circles around you. They’re all like, you know, Harvard grads…

But it was this culture that they were able to create with a very mission centered purpose that permeated throughout everything they did. So it’s, it’s, uh, it’s, it’s timely for me to hear you say that, that, you know, one of the passions that you have is creating this culture. And ultimately I think that’s why you’ve been able to thrive in that industry.

Josh McCallen: Yeah. It’s a people industry and you’re right about the culture by the white culture doesn’t happen by a speech like you. You were saying that other group similar to us, I believe they meet every week we do it. I always say, here’s our meeting.

We call it the why we do what we do. Everybody can be really good at checking somebody in or cleaning dishes or cleaning toilets. But if they, uh, if we’re not speaking in lockstep and if we’re not there to serve the guests, the guests will never feel that extra level of support and love that we created.

It’s a matter of fact. We used to call it a place of peace and the only way we were able to able to get there was meeting every week and going over first principles we called it the why we do what we do.

Josh McCallen: And that exercise is really rewarding, really rewarding. And it does really begin. Hey, I have one fun little thing that crossed my desk about three years ago and this is why the culture is so important. The word hospitality, you’ll never hear me say, I’m in the hotel business.

None of our team. Uh, I encourage them not to say we’re in the hotel business because hotel, um, it means a building, but hospitality means what we’re delivering. And so for hospitality, once you guys, once you get that, that part of the business, right?

The revenues for us almost doubled within two years. And our, our profit, we actually, this is true, we actually experienced a 10 x growth from six years ago till today. That’s why we were earning 500. The growth of our company was astronomical, um, by any standards.

And it was really built on the culture. But the culture, every week, every week asked why we do what we do and we would go over the, the, the core mission and the focus on people.

Ryan Enk: That’s awesome. That’s incredible. And it’s a, it. Anything that is mission driven and purpose driven is, is going to succeed one way or another, you know? Yeah. Even, even if it’s not monetary at first, you know, the culture and the purpose is, is really what drives things forward.

Let’s take it back down from 500 feet because we’re, we’re speaking from 500 feet up. Let’s take it back down and talk more specifically about strategy. We kind of touched on it earlier in the podcast, you know, different ways that you do things like with, you know, single families fix and flip.

You buy it undervalued with apartments, you buy it under value. It’s actually called the burn method. If you can go into a little bit what the method is and how that relates and translates into hotel industry.

rehab refinance imagine your worst case scenerio limiting beliefs of what you can accomplishJosh McCallen: Yes. So I learned that terminology from that other good website and podcast, bigger pockets. But Brandon Turner explains it well, and so what he means by it and I, it’s funny because this is obviously what you, you do, I do, we buy, this is the B, we rehab, we repositioned, we refinance and then we get ready to repeat that process.

And in the hotel business, um, this has been our focus over the last seven, six, seven years is when we bought it, we bought it, right? We’re trying to buy below market of course, as a matter of fact, the current project that was working on and I’m still about to acquire, we’re buying a 27 percent of replacement value. Really great purchase price. But why?

Because we need to rehab it when we get it and we need to reposition it for its greater value. And the good news is we already have it modeled out. We’ll refinance it within five years.

So we’ll be ready to repeat the cash will be back in the capital accounts…

So yeah, that is a, people always talk about in multifamily and what we’re focused on at viva may is, is bringing that same tenacity of repeating the burn method in the hotel world and for us, the hospitality world.

Ryan Enk: Yeah. And one of the actual cool things about a project like this, similar to the short term rentals, is, you know, with my fish camp, I could stay at my fish camp one is being used and go fishing with my kids. Uh, it’s, it’s got to be something similar. The hotel industry, right? You can stay at your, uh,

Josh McCallen: It is funny, you know, for us we use it as a, it’s our everyday job. But even in your everyday job you would be shocked how happy and how happy it makes people to bring them into a beautiful resort or hotel. So the same is true for investors.

And uh, one of the promises I’ve, I’ve always thought was important is you’ve got to make sure that the investors enjoy their asset. So I think this is an unfair advantage we have over multifamily developers that are similar to me. Uh, here, you get to enjoy it, visit, visit your resort, be proud of it.

You get to put your name as a partner on. Usually I like to focus on distressed resorts that have massive upside potential, so when we get them fixed up, I mean, you have an iconic property is really, that’s what our properties are, the ones I’m buying.

Typically the celebrities of your town usually go there for the one I’m buying right now. A lot of the NFL football players love this place, so you get this really nice halo effect when you buy into a resort.

Ryan Enk: That’s awesome. Well, this has been such an awesome, awesome podcast. We’ve learned a lot if you’ve never even thought about or we’re always curious how you get into hotels. Uh, we discussed that in today’s podcast.

Some of the things that I’m taking away our, um, are the different kinds of plays you have with the hotel, whether it’s through Marriott or through fixing up and trying to run one yourself or through a kit there. It sounds like the syndicate is a really great play.

Then we talked about the different, you know, so called classes, hotels and where that sweet spot is in Josh shared with us at the three and a half star is a really great sweet spot with the value add being weddings and such.

We talked about how you could tap into your 401k to even invest in these things. And uh, we discussed the bar method as well.

Also not to, not to forget about this. We’ve talked about creating a great culture and how that helps businesses thrive. So with all that being said, what’s next for you? Are you currently working on something?

Josh McCallen: Hey, we are, we, um, this one is going to really knock people’s socks off. We were about to purchase a, the third oldest winery in America from 18, 64. And you might say, well, I thought you were in hospitality. This place has had, I always say 155 years of vineyard hospitality. It’s, it’s called Reno and it has hotel and golf course and it has this really special wine.

As a matter of fact, it has the right to sell champagne and you never hear that in America because it’s why is that substantial?

You know what, if you’re going to sell something in America, it has to be usually sparkling wine, but this property has a. remember it was founded when Abraham Lincoln was president and the family came from champagne, France and used all the authentic methods of rack and riddling of bottles to this day.

So it’s just always had the rights to continue using the name champagne even after everybody else lost that privilege by the way. Jfk and his dad used to drink here.

Because matter of fact, JFK had his champagne, his, his inauguration was all Renaud Champagne. So you’ll see that folklore all around the property. It’s very exciting.

Ryan Enk: So this is what you’re focusing on now. It’s got a, I believe it’s got a golf course on there. It’s got a. and so your main goal is to take this is, is, is it a, does a firm that does it, does it follow the Macallan method? And, and it’s got three point five stars right now. Where would you classify?

Josh McCallen: Great question. It does because it has all those amenities. It may even trip into the four stars and uh, that, that may be a choice we make where you add a little extra service. But no, this has, it has what? It has so many revenue streams. That’s why we’re excited about it.

Because each time you increase the revenue streams, you had dramatically changed the value for investors. That’s right. And that’s why we get excited about this one.

Ryan Enk: That’s awesome. Now, how did the bank see those? When you’re buying multifamily and you’ve got a certain cap rate, once you are able to go in there and improve the property and you, you can raise the rents, then you just take those rents and divided by the cap rate and there’s your value.

You refinance it and pay the investors back. Is it the same thing with hotels?…

Josh McCallen: It is. And what I always say because I’ve also invested in syndicates in multifamily and I think that’s a wonderful part of a portfolio.

So it’s Scott, the similarities to that where you’re trying to improve the rent per room, like a hotel room, but then at a hotel like ours, we also can sell weddings and I can increase the wedding sales each year by a pretty significant factor, whereas you probably can’t increase the rents an apartment every year.

There’s probably a ceiling in, in what we build. We’ve actually been able to blow past the ceilings and that’s why I, I find him very attractive and that’s what our investors tell me, is why they’re joining us.

Ryan Enk: Are there, are there cap rates that are indigenous to hotels or do they just follow the cap rates of the multifamily is in the area?

Josh McCallen: No, it said it’s different than the multi-families. It’s at right now. I think you’d do well if you could find a seven and a half cap. They’re not as compressed as what’s going on in multifamily, but the offsetting opportunity there’s so much extra revenue that you can generate for the investor. So the formula

Ryan Enk: Guys, for everybody who’s listening, if you’re trying to value a multifamily or a hotel, you basically take the noi, that’s the net operating income and you divide it by the cap rate. So what is if you’re taking, you said seven point five percent

Josh McCallen: Yes, seven point five and it goes, it goes up to 87. And so with those, those are pretty stable. That’s what it’s been for awhile. I’ve even seen them as low as the six is, but when we pro forma, we, we go conservative with seven point five.

Ryan Enk: Okay. So for those of you who are listening, I’m say you were able to increase the revenue on a hotel for 100 debt by a $100,000. I’m sorry, the net operating income, if you were able to increase that by $100,000 a year, you divide that by the seven point five percent cap rate.

So if you’re on your calculator is 100,000 divided by point. Oh, seven five.

Which means that you’ve increased the value of that hotel by one point $3 million just by increasing the net operating income by 100,000. So for those of you that are curious about how those are evaluated, you just take that a net operating income divided by the cap rate and that gets you your valuation of the property.

So that’s great. So for you in that area…

Josh McCallen: You’re right. And your cap rate study, what you just explained very well as you can see why dropping the next $100,000, whether it be from extra room rates, which we do or extra weddings, uh, produces massive wealth.

Ryan Enk: Okay, awesome. Awesome. See, I love, I love getting into the 500 feet up and I love getting into the math of everything too. Says really awesome. Hopefully you guys have gotten a ton of value out of this. Josh has just a wealth of information.

I’m so glad I was able to suck or I’m going to coming onto our show and sharing with us.

hotel contractorSo for anybody who’s interested, you know, you, you’ve got deals all the time. You’re currently working on a deal. By the time somebody hears this podcast, it might not be the same deal.

There might be another deal. So if someone’s interested in looking into the syndicated hotel model and they want to contact you to see what the opportunities are what’s the best way for them to reach you to learn more about it?

Josh McCallen: Our website is pretty, pretty simple. It’s just our name…

It’s https://www.vivamee.com/. Okay. And that’s the easiest way.

Ryan Enk: That’s awesome. Thank you so much josh. I really appreciate it. Any last words for our guests now?

Josh McCallen: Thank you guys. And by the way, stay strong everybody and get over your fear. Uh, there’s, there’s a way for us all to be part of this real estate endeavor-as Ryan always says. So I’m really happy to be part of this man.

Ryan Enk: Get off the sidelines.

It’s time to time to make some moves. Make some money moves as the…what’s that popular artist says?

I don’t know. My kids listened to her. Anyways, thank you for coming on the show, man. I appreciate it.

Josh McCallen: Thank you Ryan. Have a great day!

Thanks for listening. Please remember to rate and subscribe. You’re going to want to listen to every episode as soon as it comes out. It hasn’t been an idea or strategy that can literally change your life.

Listen, don’t miss out on the free investor pools that I have on my website https://cashflowdadlife.com/. So go to https://cashflowdadlife.com/ gets a free swag and lists and hit me up. If you want to talk about how we can get you out of the rat race as soon as possible. Until next time. My name is Ryan Enk and this was Cash Flow Dad Life!

 

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