Despite the fact that you likely drive past hundreds or thousands of hotel rooms every week, you’ve likely never considered investing in hotels or motels. Jason Schubert of ‘Rich in Five’ stumbled into investing in hotels…but immediately exited the single family investing business to focus purely on hotels. If you didn’t know, hotels, if operated even moderately well, can be cash flow machines…and Jason has honed the approach to immediately improve operations and reduce expenses to quickly maximize profits. If you’re considering trading in some green pieces for some red pieces, check out this FlipNerd Flip Show!
Mike Hambright: Welcome to the flipnerd.com podcast. This is your host, Mike Hambright. And on this show, I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week, which are available in the iTunes Store or by visiting flipnerd.com. So without further ado, let’s get started.
Hey, it’s Mike Hambright with the FlipNerd VIP Show. Welcome back for another interview. Today I have with me Jason Schubert, who is the founder of Rich In Five. He teaches people how to get rich or certainly be able to leave their jobs by investing in hotels. Very interesting topic. He started as a single family investor and realized that there’s got to be a better way than getting caught up in the rat race of one house at a time. Before we get started with our interview with Jason, let’s take a moment to recognize our sponsors.
Advertisement: RealtyMogul.com is an online market place for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as low as 9%.
We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.
Jason, welcome to the show.
Jason Schubert: Hey, Mike. How are you?
Mike Hambright: Good, good. So you’re down in Austin, Texas. That’s where you’re based at, right?
Jason Schubert: Austin, Texas, man. It’s a great place. You’ve got a lot of culture, lots of good food. Gets a little hot every once in awhile, but yeah, I love this place.
Mike Hambright: Yeah. Yeah, I actually lived in Austin for a couple of years when I went to grad school. Obviously, I’m in Dallas now, so I’m not too far away. But I actually saw you speak a few years back and we run in a lot of the same circles, attending the expos, and speaking at the expos, and things like that. But I’ve always been intrigued by your topic of investing in hotels. And I know there’s kind of some back story there as to how you found your way there. But why don’t you introduce yourself for the folks that don’t know you and talk a little bit about how you got into the hotel business?
Jason Schubert: Sure. Well, I just want to say welcome, everybody. Thanks, Mike, for putting this on.
Mike Hambright: Sure.
Jason Schubert: I hope that everybody gets a lot from this because I started out a lot like everybody who’s sitting here on this video chat right now just listening in. I started working at a typical job like everybody else. I worked at Dell Computers and I was there for almost 10 years, and was really, really thankful. Obviously, I read books and I went to the real estate investment clubs. I didn’t go out looking for what I’m doing right now. I wasn’t looking for hotels and motels. It just kind of, it happened, I believe in the notion that deals produce deals. But to kind of back up a little bit, my background was, yeah, I was at Dell Computers for almost 10 years. I wasn’t really pushed out the door. It was that I had an unfortunate incident where my grandfather passed away. And I went to my manager and asked if I could go to his funeral. And I had just gotten back from my honeymoon. And my manager said, absolutely not. You can’t go. From that point, something kind of changed inside me, where I let somebody at a job tell me that I couldn’t go to my grandfather’s funeral.
Fast forward, a couple years later, I found real estate and joined my local real estate investment club, and started buying houses creatively. But the thing for me was like what we discussed just a little bit ago, because it was kind of a hamster wheel. For me, it was more transactional. I was always having to look for that next deal just to make that $200 a month in cash flow. Always having to look for that next deal. And I did a whole bunch of them that first year. Obviously, after going through that for a whole year, a year and a half, and buying a lot of properties, I decided, well, I need bigger chunks of money. So I started rehabbing houses thinking that that was the progression. And I started doing a lot of deals, made a lot of mistakes. I was like, you know what, this is a lot, too. I’m always having to look for that next deal. You’re only as good as your last deal, right? So I was meeting with REO brokers, wanting pocket deals, which is come on, please. I’m always looking for another deal just to either make $200 or have some sort of flip.
And I knew that they’re rich guys. They’re rich guys in real estate. We’re doing commercial real estate. Didn’t know what form of commercial. I just knew commercial was the way to go. So like everybody else, you start looking into apartment complexes and when you hear of these mobile home parks and all that kind of stuff, and self storage . . . Well, I found a deal in Waco, ended up losing the deal because I was too scared to pull the trigger, long story short. And finally, I just told myself, you know what? I don’t really care what the next deal is. I’m just going to throw myself into the deal. And luckily, I had a hard money lender. . .While I was continuing to rehab houses, I hard money lender tell me, “Jason, I’ve got this great deal. When I got it, I immediately thought of you.” She ended up telling me that it was a piece of crap. I got really excited because when she thought of or when she got crap, she thought of me of getting my very first hotel. She handed me a hotel. And you know what? After running the numbers and getting into that deal, and learning everything that I did on that very first hotel, I was done. Houses, no more because the cash flow on that one hotel, it would’ve taken me years to accumulate enough houses just to get the amount of cash flow that I did off of just that one property that only took months to close. So that’s how [inaudible 00:06:26] got started.
Mike Hambright: And you went into it knowing that you were going to operate it? Or did you think you were going to go in and flip it per se and prove the value and resell it? Or you knew from the beginning you were looking to be an operator?
Jason Schubert: At the time, I wanted freedom, you know? That time, I wanted cash flow and I wanted what was going to actually pay the bills, which is cash flow. I wasn’t looking to flip it and make a big chunk of money. I’ve done that before and that money goes really, really quickly. Something that was reoccurring every single month that actually pays the bills. So the cool thing about the property was that I created a business model out of it. You know, we don’t just focus on one segment or one type of property. We go after everybody, 90% of the population. So I built a business model out of that first deal and that business model works all over the country.
Mike Hambright: Yeah. And I know from hearing you speak awhile back that your model is. . .You’re really looking for probably properties . . . Correct me if I’m wrong. I’m sure you’re looking at a lot of things. But there just tend to kind of like rental properties, especially multifamily-type units. There tend to be a lot of investors out there that have properties that have deferred maintenance. They’re not operating as effectively as they can. And by moving the needle just a little bit, it dramatically improves the cash flow. I mean, are those the typical situations you’re looking for?
Jason Schubert: Absolutely. I mean, there’s actually some sellers out there that are motivated just because they want to get out of the business. There are sellers out there who will just hand you the keys. There’s turnkey opportunities. As a matter of fact, I just got a call today from one of my coaches. We’ve got a student with a property and a contract. Extremely turnkey. Just a great property. You hardly have to do anything to it at all. And you have things like my first one, which as a major rehab. Gut every single room. Put everything back, and you’ve got those. But you just have to look at the opportunity. You have to do what I call back yourself into the deal. Run the numbers. And if the numbers work out, and you do what I teach at these boot camps and as far as how you back yourself into these deals, you’re going to be just fine.
Mike Hambright: And so from a business standpoint, you’re not only an investor, but you’re teaching other people how to invest in hotels as well, and whether it’s just teaching them how to do it. I know you have a few different irons in the fire in terms of teaching them how to do it, maybe participating in the deal with them, maybe having your management company that you have now help operate it. Can you talk a little bit about the opportunity for other folks to not just come to one of your boot camps, but how people typically work with you?
Jason Schubert: Well, the great thing about what we’ve done is we’ve created a program where we don’t just teach people what to do. We don’t just show them what to do. We actually do it with them. And at the end of the day, after coming to our boot camp and learning exactly what we do over the course of three days, I know that they’re going to be successful. And when they’re successful, they’re going to come right back to me so that I can help them out on another deal. Now, the way that you scale this business and the way that we teach this business, is that you’re not managing the property yourself. You have a manager who’s there at the hotel. However, there are things like. . .There’s back office-type things, which we actually can do for a lot of our people as well. So we have a lot of professionals that are my coaching students that for them to be able to scale and buy multiple properties, they don’t want to take the time to have to pay the bills or do the profit and loss statements at the end of every month.
They’d rather have us do it for them. So we provide that service as well. So we’re able to help people buy properties, change their lives, increase their cash flow, and at the same time, allow themselves to scale so they don’t just make 5, 10, $15,000 on one deal. They can do 5, 10, $15,000 on a number of deals, two, three, four, five hotels.And the cool thing about it, Mike, is that they’re using the exact same amount of time that they’re using already right now with residential. The same energy, the same time, and the same strategies that they’re using right now with residential real estate, and they’re just applying it towards a hotel or a motel. Because at the end of the day, it’s not just a couple hundred dollars a month in cash flow. It’s thousands of dollars a month in cash flow every single month.
Mike Hambright: It’s been awhile since I heard your pitch and I know your model’s changed a little bit. I seem to recall that you said, and I know based on your brand that I’m probably reading into this a little bit, but I think I’m probably right, is that some properties, where you see some opportunity is to make them more of an extended stay-type format instead of a one off transactional, day by day. So some of it’s just in how you market that property to appeal to somebody that might need a longer term play. Can you talk a little bit about some of the operational things that you typically do to go in and improve the business model immediately?
Jason Schubert: Sure. No, it’s a great question. So first of all, I ask a lot of people when I speak, how do most hotels market? How do they market? They possibly do two things, guys. They might have a sign in the yard and they might be on the internet. We market our hotels completely different than everybody else out there. You can’t drive by one of our hotels without noticing it. Basically, we line them up like Christmas trees. So we get your attention, we get your interest, we get you to make a decision from a customer’s standpoint and then you come inside and you take action by swiping your credit card at the front desk. That’s what we do. And we do it better than anybody else in the hotel industry and I’m not kidding. But what we do differently also is that we also don’t cater to just one segment, business travelers. We don’t cater to just tourists. We cater to everybody. Basically, 90% of the population, blue collar, working class individuals.
So I like people to kind of compare us to, or at least kind of have the type, wrap their heads around, is to think of us as the Walmart of motels and hotels. All right? And how does Walmart do in a poor economy? I always ask that question. They do good. And how does Walmart do in a good economy? They do even better. So I basically built this in the recession. So when all those other hotels were focused on business travelers and tourism were getting foreclosed upon, we were building this. We were growing this and we were successful. Who do you think this properties was it that we were actually purchasing when they were getting foreclosed upon? So all those hotels that were focused on business travelers and tourism, they were like this. Those were the properties that we were actually having, finding amazing deals on. And with our business model and implementing not only from a marketing standpoint, but from an operational standpoint as well. So we did two things. We’re driving revenue, putting heads in beds to marketing. We’re also cutting expenses the way that we’re managing our payroll and everything else.
Mike Hambright: And talk a little bit about how your folks typically find deals. I mean, I know, I recall this from a couple years back. I think you were getting some from hedge funds, people that were buying huge amounts of real estate assets, all types, from single family to commercial to land to hotels, and there were some opportunities to pick that up. I know there’s just similar to the single family business. There’s just some amount of digging for leads and trying to track people down and talk to them as well. What are some of the more common ways that you , when you teach people how to find deals?
Jason Schubert: The easiest way right now is like with anything, you can go to Google. And you can basically either go to LoopNet, you can Google hospitality brokers. Those are not just commercial brokers. These are actually brokers that sell specifically hotels and motels. You’ve got hospitality brokers. You’ve got banks. Right now, we are in the middle of a lot of hotel debt that is coming due because of all of the balloons that a lot of hotel owners got themselves into in 2009, 2010, and 2011. So we are actually doing really, really well, picking up a lot of either notes or properties directly from banks as well. So, of course, there’s a few hedge funds, there’s management companies. We’re getting a lot of leads. We’re actually now getting people, hotel owners, individuals who are actually calling us as well because of the network that we have all over the country.
Mike Hambright: Now, in terms of financing that you’re typically able to secure to get these deals, I’m sure there’s a combination of a lot of things, but are you typically finding folks who will sell or finance on? Are you able to get some sort of government-backed debt, which is a little more cheaper than probably what it should be, like with Fannie and things like that? What are some of the options you’re seeing?
Jason Schubert: The traditional way that a hotel owner would go back in the past and purchase a hotel is through the SBA. However, these days, the SBA got hurt so bad in 2009, 2010, and 2011. They make it really, really difficult for you or as a buyer to come in and just do a straight up acquisition, especially on a property that might be in trouble. I mean, for us, we buy properties that have problems because we know with every problem that we fix, there’s an opportunity for more cash flow. The bank doesn’t see it that way. The bank sees it as, well, you got an underperforming property. How are you going to service our debt? So what we do right off the bat is we do things creatively, just like you do right now with a house. We teach it a little differently in our boot camps, but exactly what people are doing right now with houses with lease options and owner financing. We’re going to take over the property, control the property for the first year, maybe two, maybe even three years, drive the revenue up and then we go back to the SBA and refinance and say, here’s what it was doing before and here’s what it’s doing now. So they love doing the refinance because now they have a performing property that they can then don versus a distressed property that they have to hope and pray that the buyer knows what they’re doing.
Mike Hambright: And at SBA, I know you have a number of different students that you work with, and I know you participate in some of those themselves. I actually don’t know. With the SBA, are you always eligible? I mean, if you’re buying multiple hotels, are they doing multiple or are they limited to just one? How does that typically work?
Jason Schubert: So you actually have a limit. There’s an amount, kind of in a bucket, that each individual has, according to the SBA. So you can use a portion of that bucket on numerous hotels until you’ve used that entire bucket. But I would much rather teach people how to go in creatively and not have to go through the SBA right off the bat because that is a very, very tough thing to do. They have really tightened up their criteria, et cetera, so it’s really hard for a typical borrower who just wants to go and buy a hotel to do it. What you can do, though, is there’s some really cool, creative strategies that we teach at our boot camp which you can do it. It is possible. But the path of least resistance, and we’re getting amazing rates right now from owners who are carrying paper and being the bank for us at 4, 5, and 6% interest.
Mike Hambright: That’s fantastic. So talk a little bit about geographically where you buy your properties or where folks that you teach buy properties. Is it literally all across the country, you’ll go where there’s a deal? Or are there some areas that you focus on more than others?
Jason Schubert: Basically, with our model, there’s a checklist. So we have a checklist of things that people need to go down when we’re teaching our students where and how to buy a property. So the business model is obviously have the mindset of think of us as Walmart, cater to everybody. But there’s also location involved, there’s also numbers involved that we have to think about when we’re going and we’re analyzing these deals. So with that checklist, which we teach at the boot camp, it’s about location, it’s about making sure that we buy the property right, the possibility for upside. And there’s a lot of different factors that go in because you’re not just buying a hotel, you’re not just buying the sticks and the bricks. You’re purchasing the street. You’re purchasing the people. You’re purchasing the area. You’re purchasing the opportunity. You’re purchasing the path of progress. So all those things are things that you need to take into consideration when you’re looking at a hotel.
Our business model? I mean, the chances of success. If you just follow that checklist that we teach at our boot camps, you will be successful. And you will not just make hundreds of dollars. You will make a lot of money every single month. But you got to make sure you stick to the model. We don’t want people to go out and, well, here’s a very beautiful property. There’s a gas station. There’s a hotel. Maybe I should buy that one because I can get it for next to nothing. Well, why do you think you can get that property next to nothing, right? Because that person focused on business and travelers. It’s going to be very, very tough for you to put those heads in beds that we talked about unless you follow the checklist, unless you follow the model.
Mike Hambright: Just to give a kind of a reference point, can you talk a little bit about what you’re able to do operationally typically in terms of maybe improving vacancy rates? I know this is a broad statement or a question, but if you were able to raise the vacancy rate or improve the vacancy rate by just a couple of points, what that typically means in terms of cash flow.
Jason Schubert: In our boot camp manuals, there’s basically having an apartment complex versus hotel calculator, and they’re side by side. So with an apartment complex is they use the verbiage that you just used, which is vacancy rate. Hotels, it’s occupancy rate [inaudible 00:20:00] percentage of rooms. It’s okay. Basically, the percentage of rooms that are occupied versus the ones that you have actually available to sell. So we use occupancy rate in the hotel world. But I mean, it really starts from day one with the type of marketing because the beautiful thing and the difference . . . and people ask me all the time, “Jason, why did you choose hotels? I know you got the first one. You did good. But why didn’t you go and do something else?” I noticed with my very first hotel that I can affect the occupancy faster with a hotel than I can in any other property out there, any other type of commercial property, because it’s a daily business. I can drive revenue daily.
You can take a hotel with that only has 10% occupancy and you can get it to 50, 60, 70, 80%, sometimes even 90%, within 30 days. And that’s all doing the things and the techniques that I teach on basically day three of our boot camps when it comes to marketing and how we make that splash. And how do we actually get people’s attention? How do we get them to make that decision to want to stay at our hotel versus any of the other hotels in the area? How do we set ourselves apart?
Mike Hambright: So for folks that buy properties, even if they get the seller to finance it, it probably needs some investment in terms of improvements in the property, spending more money on marketing, some of the other things you’re talking about. How do folks typically finance those things?
Jason Schubert: Well, we have lots of different ways. If you did get an SBA loan, the SBA can actually fund all of your repairs. If you were to get a hard money loan, which we’ve done, you can do private money, which we’ve used. You can do a combination of hard money and private money. Sometimes, you can get sellers to do a carry back and maybe even giving you credit. So there’s a lot of different strategies that we’ll use, but it really depends on the deal itself. We always want to start with why is the seller motivated. Why do they want to sell? And then really starting at the bottom, meaning, well, how much do they owe? What’s the seller’s situation? How can we help them, but at the same time accomplish what we need to so that this is a successful deal for us.
Mike Hambright: Pretty similar to a single family house. Everybody’s got motivation. You got to find out what that is and see if you can help solve their problem before you solve yours, right?
Jason Schubert: Absolutely.
Mike Hambright: So tell us how folks find out . . . I know you have different boot camps around the country. I know you speak at some different events, some of the REI expos. Talk a little bit about how folks can learn more by going to your website and then maybe some of the upcoming events you have going on.
Jason Schubert: Sure. If everybody will just go to richinfive.com. I’ll spell it out. R-I-C-H-I-N-F-I-V-E dot com. There’s a boot camp tab. And we usually post two or three boot camps that we have scheduled ahead of time. So we might have a Miami boot camp, we might have a Washington D.C., we might have a New York City, we might be in Alabama. It just depends. So we do these and we try and hit all different parts of the country because what we really want to do is get everybody an opportunity to own a hotel. I don’t have much competition. There’s million books and tapes and CDs and other gurus out there who are teaching this, so you’re not going to have the type of competition that you’re used to with apartment complexes or even houses. So make sure that if you can, come to a boot camp because that’s where you’re going to learn the fundamentals of exactly what we do and how we do it from A to Z.
Mike Hambright: This is going to be a common question. I’m sure this is a common question. Folks aren’t limited to buying hotels that are just in their market, right? Your students are typically probably buying them in markets where they don’t live, right?
Jason Schubert: Right. So you can buy a hotel in your backyard. I’ve got a lot of students that buy hotels all over the country. I kind of have a model, at least for myself and my own hotels. I buy where Southwest flies. That’s kind of my model, right? But everybody can have their own type of mindset or model whenever they’re buying, but as long as you stick to the fundamentals of the model. . .I do have a lot of students who will ask me, well, what states are better than others? Well, I’ll tell you what. I won’t tell you what state is better, but what I will tell you is a state to stay away from. Not really to stay away from, but it’s just a little bit more expensive, obviously, to purchase, and that’s in California. So everybody knows that California’s just a little bit pricier. This model works all over the country as long as you follow the model that I lay out at the boot camps. And so there is cities, there is population, there is traffic count. There are all those things that we want to take into consideration. But if you stick to the model, you’re going to be really, really successful.
Mike Hambright: Awesome. So if you’re interested in learning more about Jason Schubert, his Rich In Five program, investing in hotels, definitely go to richinfive.com and check out what’s on the website, and find out about some upcoming events. So Jason, thanks for your time today. Really interesting topic. And you’re right. I can’t say that I know anybody else that’s doing hotels or is certainly teaching others how to do hotels, so awesome.
Jason Schubert: Mike, what great questions. Thank you for allowing me to be here and share this with all of your listeners. I appreciate that.
Mike Hambright: Great. I’m sure I’ll be seeing you again soon.
Jason Schubert: Absolutely. Thank you.
Mike Hambright: Thanks for joining us on today’s flipnerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts in the iTunes Store. You can also watch the video versions of our shows by visiting us at flipnerd.com.