Joe and Katie transformed an underused 8-unit building into a super profitable Airbnb that makes $140,000 per year but it didn't all start very smoothly and we were waiting on AC part that basically took all summer for us to get for the whole summer we were down three units in this episode you'll learn how they found financed and managed the property on the way to $140,000 per year of cash flow People didn't realize that we were this new property just right here in downtown callville so we're receiving a lot more repeat business where also popular for
Glacier National Park how they leverage technology to automate their customer service as soon as they book they get their code we use Smart locks so they don't even have to talk to anybody which most people love but also how they overd deliver with a human touch so we leave for every single guest a handwritten Note card with their name oh you're here for your son's soccer tournament I hope he crushes it we put it right there right when they walk in with the welcome light and that's the first thing they see when they walk in
and now we're going to dig into all of that and more [Music] all right Joe I want to talk all about this building that we partnered on we bought about a year and a half ago is that right back in March of 2023 I want To spend a lot of time talking about the amazing job that you and Katie have done just like the design of it the customer service the experience of staying there I've stayed there myself my mom stayed there our family stayed there it's really really amazing I want to talk about the
numbers first and I think the numbers are always interesting for investors who were thinking about this so I'd like to just dig into kind of how it all started with the numbers maybe Start with maybe what the price was listed for whenever we started looking at it and then ultimately what do we buy it for and what do we spend kind of remodeling it getting it ready to rent out originally it was listed for 2.5 million we were able to negotiate that down to 1.75 and the remodel costs were 20 just a little over 230,000
I think it was 232,000 got it we also had some holding costs and some Reserve funds I'm just my Mind I was thinking when I went back and looked at our books I think it was like over 2 million like 2 mil 50,000 something like that does that sound about right for the total cost we had in in the property yeah slightly over um I think we use commercial financing so they required us to keep a reserve account just for their safety right around 2 million I I use two million for easy ma yeah I
do too I think I all right two million round numbers which is A big number right like especially when we you know we been buying $200,000 Properties or $500,000 properties but what I thought was cool about this and I know we had another episode we did on sort of more of the negotiation of this property so I'll put a link to that prior episode we talked about back last year right when we bought the property but what I thought you did a really good job of was you got to know the owner the owner is
the one who built this property He done a good job you know using it as a short-term rental midterm rental but tell me a little bit about the opportunity you saw and we're going to get into like the operations of the property but you know we bought it for 1.75 million he was asking 2.5 but when we bought it you know the the income on the property wasn't that impressive like that we got an appraisal on the property for right at 2 million bucks we didn't get like this massive discount on the Surface of the
property but tell me a little bit about why you were optimistic about spending 2 million bucks to buy this property kind of what you saw for it like as you said the owner he built it in 2006 he built it for himself and after getting to know the owner a little bit I realized he was a very meticulous guy which is amazing he lived on site actually when he owned the property there was actually six units and then there was two offices so the biggest Value ad that we saw was to be able to convert
those two office units into two more Suites the owner was also a real estate agent so one of the offices was his personal office so there was no revenue from his office the other office he rented didn't even have a bathroom they shared his renter had to like go into his office to use his bathroom so he was renting it for well under Market I I believe it was like $500 a month then and this is something that I would Not have even have noticed unless Katie and I uh T the property we noticed that
he was actually living because he was like sharing his time from Arizona in Montana so while he was here in Montana He was living in one of the units so that was also another unit with zero Revenue so we knew basically we only had five units and we were going to be going from 5 to eight so I guess that was the the biggest opportunity that we saw anytime you look at a property and it Was on the market and there's other people who could have tried to buy this property you and also you sold
me on it like we love the location of it we love the fact it's in cisel Montana it's kind of a jumping off point to the airport it's really close to downtown so it had a lot of those cor ingredients and then the construction of it was really cool like you mentioned he's meticulous it's very efficient like I love efficient multi-unit properties very small units 450 ft but the design of it and the materials were really high quality so there's just there's a lot of positives but the the biggest challenge was what's your business model
on this property it wasn't generating that much income compared to the price we were paying like if you look at it from like a cap rate standpoint we're going to have to do something to this property I just want to set the stage for everybody because we're going to talk a lot about What you and Katie did to turn this around and start making more money but on a Surface good property good location the business was not not really generating enough Revenue to support a $2 million purchase price I went back and looked at some
of the numbers I think he was making maybe like 12 to $133,000 a month in income from the property does that sound right I think that's optimistic as well I can think yeah he was probably knitting uh around 90 to 100 my plan was to at least double that another thing we determined actually this is another uh when we met with the owner is that he had no mortgage on it so we realized that you know we were going to have to get secure some finan which would make it a little bit more challenging but
I knew that there was a lot of systematic things that he wasn't doing very well that we could do like he wasn't using any of the tech he was doing everything manually And just handling all the guest reservations he was receiving by phone call checking the calendar blocking it off and so we knew we could use some tech and there's so many SE rental programs that we could use to make it more optimized and stick around if you want to hear the tech stack that Joe and ktie use i' we got a list of everything
they're doing when we get into the operations part I'll keep on going with the numbers so we bought it we had just Over 2 million bucks in it 2 Milli 50,000 one of the questions and one of the reasons I think you came to me with it was you already had a couple short-term rentals you were good at operating them you knew the location you like the property but it's like all right how am I going to come up with two million bucks like that's that's a pretty big number and so we started talking we
were already friends and already worked together and we're sort In the stage and this is what I want to set the stage for for Partnerships like there's all sorts of different kind of Partnerships but the partnership that we ended up working out was you and KD are the operators you're driving the ship like you're the captains of the ship you're the the general partner within me and my business partner in South Carolina we put up the money for the deal essentially so we ended up putting $750,000 of equity into the property and Then we got
a loan together our LLC in in Montana with you and Katie and our our LLC got a loan for about 1.3 million bucks so $1.3 million in Loan $750,000 in equity and because of that we were able to have about two Mill you know just over 2 million bucks available to then buy it fix it up and it was still pretty tight like I remember those first you know six month you and I having a lot of conversations like all right if we go over budget which y'all were Amazing on the budget you like remodeled
this property and I'm going to talk about the design that you did but you know it was pretty tight there like you're having to rent them out and then you're having to get them empty to fix them up and we were like all right well if we go over budget and we've run out of cash you know you had a line of credit available and you have some extra cash available just in case we needed to dip into that for a little while but We're going to talk about a lot of good things and the
fact that we ended up making this year $140,000 in cash flow projected for this final year but that first year can you talk a little bit about what that cash cash flow from your standpoint was like as the person having to operate the property oh yeah I can say a lot about this and now I'm looking all cheery and successful but uh 2023 was a challenge and I think that's something that is not discussed enough I Think it's easy to see like okay this is now we're looking back and now we have the property stabilized
so we're making all this cash flow but actually the first year we essentially broke even and actually Chad you mentioned uh we had some little bit of struggles there and I was grateful that this is a pretty cool strategy we were able to actually use our HELOC is a home equity line of credit we were actually pull some money from that so we wouldn't go in the Negatives and we didn't have to use a credit card um and we actually were able to add a really good interest rate use some funds to kind of carry
us over for a few months and then as soon as we made it into our summer of this year it's very seasonal here in Montana and we basically rely on the summer we were able to pay that HELOC off very fast and and not pay a lot of interest on that I think our biggest challenge was as as always construction projects are always Going longer than they anticipate I think a lot of us investors can relate those two units that we were supposed to be converting it took a little bit longer we had some issues
with some materials coming in flooring was kind of on back order permitting was a little little bit of a challenge but luckily we hired a good general contractor and we were able to get that through and finally finish that we also had another unit that the AC was messed up and we Were waiting on AC part that basically took all summer for us to get basically for the whole summer we were down three units and we anticipated on being finished at the beginning of the summer so with that being our busy season it was a
huge blow to us but um we were able to like I said just do everything we could with our five that were operational we ended up doing pretty well so the start of 2024 was the first year that we had all of our units up and Running so all eight It's Been a Good Year but yeah it took a little bit to get here some some work and some stress yeah I yeah y'all did a great job of getting through that and one of the things I want to emphasize some people here short-term rentals Airbnb
almost every one of them is pretty seasonal there are certain ones that are pretty consistent but I just want give people a perspective I was looking at our income for 2024 it was lower in 2023 I just Want to show you how impactful it was missing a month or two like when things get delayed up front having some extra cash to be able to kind of get you through this year for example our July rental income was 61,000 that's the high month that's the amount of rent that was collected so that was really really good
right that's amazing but just to keep people a perspective the low month of 2025 and March was 15,000 so 25% so just think about a roller coaster you know Like super super high 60,000 bucks in ju and then a little bit lower on the either side of that but then all the way down like the lowest month March April and then maybe two months in the fall as well will be about 15,000 bucks so like up and down roller coasters so last year the very first year we bought it in March and everything had to
go perfectly in order to get everything ready by June July and so we just you know missed a little bit of time didn't get them all Online so in the end like and this is actually from my perspective joke I was thinking hey if we're Break Even first year not a big deal like I knew that if we got through that year if we had to feed some cash we probably we could have too but getting through that first year now it's a year two I want to show the numbers and you give us some
thoughts on what would made a difference this year last year Break Even this year you know we had the kind of lower months in the Beginning of the year but then every month has been higher than the prior Year we're on Pace to make about almost 12,000 bucks a month or 140,000 bucks in cash flow by the end of the year can you talk about kind of how it got ramped up this year what kind of things made the difference from last year compared to this year I also wanted to add one final thing too
another challenge we faced this spring was we had our tax bill due we had a lot of those big expenses like We had to pay for our property management software and we PID for it for the year to get a discount so we had our taxes we had our insurance bill and we had uh like our big yearly expenses all like in the spring and this was after not having a strong summer so that was another reason why we had to tap into the hilock so one thing we've noticed is that now that people are
aware because what we got was like people didn't realize that we were this New property just right here in downtown callville so we're receiving a lot more business so a lot of people invest in this area and you know we're also popular for Glacier National Park it's my favorite place in the world I was just there yesterday and so they get properties closer to the park but for us we wanted to make sure we didn't solely rely on one feature for our cash flow so being right in downtown uh we're close to the hospital we
get a lot of people Visiting family at the hospital we have the Community College nearby and we have downtown Kalispel with all the breweries and coffee shops and then we're 20 minutes from Whitefish we're 15 minutes from Lakeside flad Lake which is a ski resort Whitefish by the way just for people don't know Joe and I did some ski there last year when I had to come visit the property that was a lot of fun business expense yes exactly somebody's got to do it right tough life what we Noticed we're getting a lot of repeat
business and also God bless Katie so she handles a lot of the guest Communications and every guest receives a message when they check out so a lot of times so there's this push for a lot of Str Str owners or operators to say you know book direct book Direct and it's definitely our strategy and they're you know kind of hating on Airbnb and verbo but we look at Airbnb and verbo as a I mean it's marketing you're paying For that right so if people don't know your business they're not going to know like how are
they going to find you right like Airbnb puts so much money into marketing so what happens is people find us on Airbnb or verbo or booking.com after they check out they love the place they realize wow this is a really nice property we give them a direct link to book and then we just basically briefly tell them that you're going to save more money booking with us We're going to make a little bit more that they don't necessarily know that but they're going to avoid the platform fees that Airbnb charges cuz they're upwards of 15%
just to use their platform so and it's the same property so the biggest thing we're doing is collecting Google reviews as well we have a little pre-arrival form that we send all of our guests as well when they book direct and we ask them where did you find us and the majority of them are Google search so uh I think we started when we purchased the property the previous owner only had like 42 Google reviews and we're up to like 165 you know it's been a year and a half that's a big thing we focused
on is getting a lot of Google reviews and building a brand too Google reviews are an asset we look at real estate as an asset and it is an asset and it produces income but in the terms of online reputation whether it's you know my coach Carson Business that I do or you know the Switchback Suites you are a brand that has a reputation for better words like Google reviews are one of the most search ways that people find out about your reputation just from the beginning so having 150 like I'm always amazed by your
reviews you send it's one of my things to get are the reviews for Switchback sweets you get these long reviews of people saying all these things they love about it and they Mention the hospitality little touches which I do want to go into and the things that you and Katie did like so we're looking at the numbers we made 140,000 bucks but a lot of the things you did in the very beginning were you were thinking very carefully about what this place is going to be what's it's going to feel like it reminds me a
lot I've listened to different podcasts on and read books on Disney and how the experience of going to Disney is like Almost like you're in the experience you know they're putting you on the stage essentially like when you go to Disney I feel like what you and Katie do with Switchback sweets is you're stepping into this experience of going to Montana being in the outdoors the painting on the wall of the mountains is really amazing you have these like too Maps you have each room is named a different Mountain from Glacier National Park you get
really exposed to the story of you And Katie and why you're in Montana and the fact that you're Outdoors so maybe let's talk about that first because the numbers we're going to get back to the numbers and how it's performing really well now but to me the why of Performing well is this Vision that you and Katie had for the brand and also for the little touches of design and the experience that somebody has can you talk a little bit about that what went into that so I will say I'll start with I do have
to give credit to our Stellar cleaning team so cleanliness is a that's a baseline you have to have that right that's a given not having to worry about whether our rooms are in the condition that they should be just like a hotel is huge so therefore Katie and I can focus on more of those things that you mentioned the hospitality you know with hotels people book hotels because of a standard and I think what's the the struggle for S Str operators is because There's such a range there's people that just kind of casually rent their
place out and they don't really you know they kind of just they clean it themselves maybe or maybe not and there's some people that treat it like a business like us so having our duplex which you also stayed at we just wanted to take what we learned from the duplex and apply it to the eight unit one of the biggest things that we did was little touches you know kind of a surprise and Delight we like to call it also undersell and overd deliver so we leave for every single guest a handwritten note card with
their name since we asked each guest why they're in town what they're visiting for we also have a little bit more information and we like to address that say oh yeah oh you're here for your son's soccer tournament I hope he crushes it you know give little specific notes like that we put it right there right when they walk in with the Welcome light and that's the first thing they see when they walk in so if they are coming into the property and they feel like they've properly welcomed like one of the messages we get
on Google reviews a lot is so we just got one yesterday that said we've been traveling we've been on the road for 3 weeks we stayed at half a dozen places and Switchback sweets was the place that we felt most close to home so we try to provide this feeling of even though it Is a hotel everything's efficient it's homey we we don't have like the matching furniture sets we have a very cool design we have like cool couches cool standing desks like you said every unit has a unique mural that's hand painted by our
friend who's a local artist and then like I said we do the personal touches like the handwritten not cards another thing this is kind of my little Pizzazz I like to do is uh since I'm the full-time maintenance guy which I Joy so Sometimes I'm mowing the lawn which is like a little strip of grass like this w i i go there specifically and here's the thing like we could hire this out sure but I'll go on especially on the day where we have a lot of check-ins and I kind of know when people are
going to check in I'll specifically go to the property mow the lawn or take care of small maintenance items and I almost make it a point to bump into our guests so I can have that face Toof face kind Of hi you know welcome to the property is everything okay with your sweet you know it puts a face to a name because we do have everything automated and that is another thing that we do new we tried to make the property just very easy for everybody you know they as soon as they book they get
their code we use Smart locks so they don't even have to talk to anybody which most people love but at the same time you know they're not getting that kind of human touch and I Think that helps a lot the people that I interact with or Katie interacts with are always giving us the best reviews cuz they see that you know we're real people right that it's not just a big corporate Hampton in or Marat or whatever no offense to those companies but I think I think The Sweet Spot of a boutique hotel which is
what we're operating here you're running is you want to have the standard I think you described it really well the standard of A cleanliness and the enjoyment and the comfortableness of a nice hotel with the personalization of a bed and breakfast right I think that the sweet spot that you and Katie have done so well is that you've customized it from the design and I want to talk about the design for a second I remember when you first before you even did any of the remodel and I don't know was it you and Katie or
you hired somebody to do this but you had a design guide essentially just like you Would like with a new business with a new brand which it was and you had like six pages of here are the different Furnishings we want to look at here's the look we want to have and you know some of them were exactly like that now in the brand but you you had this Vision ahead of time of design if you look at Apple why was Steve Jobs so successful he was like a maniac about little bitty small touches about
the story and the experience of holding an iPod and what Is it going to be like or an iPad or or an iPhone like what's it going to be like and so I think what you've got a great job of is all right cleanliness Comfort ease it's on my smartphone I want to be really easy I want to get in there easy but then oh this is Joe and Katie's Place they are two people who love Montana they're two people who go hike you know you hike all the 10,000 Peaks and Glacier National Park and
you tell this story and Katie is also like Really well known locally for for doing weddings and events here in Montana so it's like here are these real people who own this real hotel who I actually bumped into Joe out in the parking lot what an experience that combination I think is really cool and is what youall just you knocked that out of the park thank you CH yeah oh gosh it it means so much like just to hear you say that I got to give Katie complete credit for the design guide so you alluded
to it She owns a wedding planning business and she for every client she puts together these uh design boards and she basically uses I think she uses canva for this so she just comes up with a design and and I love something I learned about myself during this process is I actually really do enjoy the uh interior decorating and design it was a lot of fun it's probably my most favorite part of the uh process CU it's just it's enjoyable and we love to a space and it's kind of like we Imagine ourselves being in
the units and just like what would we like to see what makes us comfortable bright lighting cuz the previous owner everything was like dark he had like dark green colors and these mustardy colors that were kind of homey but they made the places look a lot more closed in more dark less welcoming so that was the biggest thing we wanted to do is brighten the place up also this is something that we noticed with the property is high ceilings and Vaultage ceilings in the second level so it's already feels even though we have like 400
square units they feel very spacious we put the design together with a lot of research and I have a lot of followers in the s strr space that I shout out to brendy she uh really awesome style and I just kind of you know kind of just learned from them there's a lot of people that are a lot better designers than us and we just kind of again just try to Envision Ourselves in these units another thing that we did too with our duplex is we actually stayed in the units ourselves we did this with
a duplex we didn't do it with the hotel cuz we had to hurry up and start making money but we kind of based on that we knew like okay little features like that for example we knew that we were in downtown so while a lot of people are okay with that maybe they're coming from a big city right they like the walkability a lot of People maybe if they're expecting a more Montana Retreat Cabin in the Woods kind of vibe we knew that wasn't us so instead of trying to like Pretend We're something that we're
not we basic basically faced that and said this is us we're a downtown Urban property knowing that there was going to be potentially some traffic noise we put in these really nice snooze sound machines and that's one of the things that we just kn what we would want in this space and we Get a lot of good comments on those as well a small little amenity right I think they were less than 100 bucks and people love them little touches like that basically it's just keeping the guest experience in mind one of my favorite features
when we arrived we had my family came and my two kids and my wife and yall came and gave us the extra special touch with the it was the birthday of one of my daughters and we had a birthday cake waiting that was Amazing but the other thing that for me personally someone who works remotely and is always getting on my computer you have these standup desks that can go up and down and you know you could have bought like you know a little bit cheaper desk but you bought a nicer desk that this is
a pretty small space but you use sort of minimalism principles of saying all right what do we have to have and what do we not need and a desk for people working remotely with a really Fast internet connection is just that's kind of that Baseline again like you have to have that and so you've got I know some of our guests that have come back have been people coming to town to work they're working remotely or even people on vacation like they have to get on their computer they have to work a little bit so
they can take 30 minutes in the morning use that desk so there's just a combination of those things and I I put all that Under the Umbrella of Design and space design and experience of thinking what it's like to live there and so between the art the murals the little small touches the desk the materials you used you really you have this good feeling it's Unique you're not Backwoods Montana feeling like you're in a cabin you feel like you're in a little Urban space but you you have a gateway to saying I want to get
outside like I want to hike I want to walk around which is the theme of Switchback sweets is Hiking and I think the vibe is really really cool and it it shows but then you execute the operation that's the thing that a lot of people can talk the good game but to actually like execute sauce specifically yeah like so so you say like when people check in we're going to have a handwritten note that sounds nice as that that's a feature you do but can you walk through like the actual steps that happen so somebody
says all right I'm checking in let's say next week They're going to check in they go through your direct booking you have their listing you know they're going to arrive on Tuesday at 3 p.m. what goes to your head as the operator on how you can prepare that person to have that experience when they walk in and have that little wow moment like what are some of the things you have to do ahead of time to make that happen so I'll back up just a tiny bit more so when people book one thing that we
learned early on With our duplex is that you don't want to bombard people with information right off let's say they book and their stay is three weeks out you don't want to give them the check-in code and all of the directions and all that stuff so because they're going to it's going to get lost in their email right so what we do right when the book is we have a digital guide book uh we can put the link in the show notes for this uh we use the hostfully guide book and Basically it has all
of our local recommendations it has shops rest restaurants breweries and they get that right away they get a quick little message that says hey thank you for booking with us your stays coming up we're getting excited but in the meantime so we we're building this excitement up to visit calispell right so we're giving them our personal top recommendations and it's not something that they're going to look at Trip Advisor this is our favorite places so they're going to get that and we notice that people when they book in advance they start to get excited about
the trip right so then 2 days before their trip then we give them the checking instructions they basically it's very easy it's right there and we give it to them as a text so basically we're answering all the questions before they're even asked and that actually helps us as operators so to operate this Is actually not that hard because through learning from our duplex we pretty much know what to expect already so they're going to get the check in instructions right before they don't have to even ask us anything and usually they don't we use
Smart locks so then again like as we mentioned they don't have to ask or email about codes and stuff so they can let themselves in and so one of the things this is kind of our competitive Advantage is that the Property is literally 4 minutes away from where Katie and I live so it's very easy for us to just zip over there A lot of times we just go over there in the morning we'll check our check-ins for the day and we actually have a really nice whiteboard that we uh work with our cleaning team
and we put the cards in we have these personal cards with our branding Switchback Suites and we welcome all the guests and then we put them in this little spot and then our Team knows where to put them this is something that we will probably automate or um kind of pass on in the future but now again this being our just our you know one and a half years in we just want to make sure that we had the systems down first before we hand it off to somebody else so then our team knows to
put the cards out we also have uh bed uh lights so on the sides of the bed so we make sure that all those lights are turned on and then we have little w we Call them welcome lights um the unit the upstairs units there's like a little hello you you probably remember that Chad and it's just kind of a feeling like when you walk in you just it's the smallest thing but you feel kind of you're actually welcomed into the property with a little hello sign and the light shining right down on the handwritten
note we do offer little small amenities like Koozies with our branding again you know it's another way To establish the brand another thing that we do and this is automated and we use our property management software hostfully to do this but all of the pms's do this on the morning of their after their first night we leave a little message and it sounds like it's coming from us say hey Chad you know hope your first night was great if there's anything that we can do to make your stay a little bit better please let us
know we're happy to help we're here For you and out of 10 won't even respond then the others will say like oh my gosh thank you for checking in this is great but it's like that that Personal Touch right so and then also if there is something wrong or like a little thing oh maybe our team forgot to put out the kleenex or something usually something small like that then that gives us a chance to address it and we can handle that really fast right like our cleaning team they're going to be there already So
we just text them real quick and then they boom they can handle that that need so it just makes us look I mean we're always constantly serving our guests also speaking of books I I had to mention this and this is where I got a lot of this from we read this book called unreasonable hospitality and it's another one that i' highly recommend anyone just to kind of go above and beyond and kind of just like just kind of wow your guess I thought of something Else about the hospitality aspect so sometimes okay so most
people are here they're visiting Glacier National Park or they're just kind of here to visit family or they're here to visit somebody unfortunately in the hospital or something like that but every once in a while we get guests that like I could think of one specifically we have a guest that's visiting family and they have a apparently this like famous this coffeee cake recipe that they're like You know they're asking us they're like hey do you have like a a hand mixer or bowls cuz we have this recipe really trying to make if we need
to bring our stuff we will but like our family really wants us to make this special recipe so we of course we didn't have that stuff like we have a basic stocked kitchen but Katie and I like we spent 20 bucks bought a hand mixer bought whatever they need needed like some extra spoons and put a note on there and displayed it Right there where they walked in and let we talk about like they didn't expect us to do that but like we went above and beyond put that out there and they have family here
so they're booking with us every single time they come back to Callis spell because of that little small thing these are things that like we can automate we can systematize but I think if you want to offer like just go above and beyond there's stuff that's like it's harder to scale but at the Same time the way we look at it is we have one building it's eight units all Under One Roof so it's like it doesn't really take that much of our time but we're still able to provide like such a personalized touch to
a lot of these guests yeah that's a beautiful story story I think what you're getting at what I'm hear you getting at which is a really important business lesson with in the hospitality business is that you want to scale the unscalable thing we Don't want to feel like we're in a machine right we we're a human being each of us feels very unique and so we want to be treated uniquely and so you're finding little opportunities to do that the wowing this having a special experience but you're also you're using technology in the way like
technology can feel like you're a machine right it can feel very automated but you're using it in a way that allows you space to treat people special like so for example The text the text message that comes automatically the morning they're already there you don't have to do that so it automatically sends it but then when they respond you can then respond like y I've got a text message in my inbox and so if there is a problem you know the one out of 50 they're like they're angry or they're upset or whatever you don't
want to let that problem fester for two days right you want to actually deal with a problem so You're using technology to automate something that it just is kind of menial you don't need to send out 50 text messages but then because you're not having to go and do all these little automated things and that allows you the space or your property man whoever the manager of the property is it gives you the space to treat people uniquely which perfect use of Technology like I think that's what's really cool about what you guys are doing
is like the feeling People get is the primal thing like that's what you're doing this for that's the purpose and then technology is just a tool to help you do that better and where it's helpful you do it whereas not you don't do it so it's it's just it's kind of a combination of the two exactly well said Chad way more succinct I get to observe I don't have to do all the hard work that you guys are doing but I get to brag on you but Because I think you're doing amazing work and I
also got to be the person experiencing that so it was really fun to take my family there and to hear my daughters like make all these comments about it my wife is really into like good design and we just love love experiencing that so I'm proud of it obviously this is this is something youve worked really hard at Katie's worked really hard at but what's cool is like all these touches and these Operational touches of being good at Hospitality you hope they then translate into the business effect and that's what's cool we started talking about
the numbers we bought the building for just over 2 million bucks the first year was Break Even cash flow so had to kind of get through that tight time that any business has but because we invested and you invested your time and effort we invested money into the design and the building year two is looking pretty good And I just I want to make a couple like big picture comments and feel free to jump in and leave your own commentary on this too Joe like I mentioned earlier that we you projected to be about $140,000
in cash flow and so what that I want to make sure that's I Define what that means that's we click the rent from the guest we pay about 8,500 bucks in mortgage expenses that's the principal interest on that mortgage yeah get we get that done and then there's other Expenses all the technology and the cleaning teams and all that stuff I think roughly when I figured out the break even was like 16,000 165 or so is like that's the number yeah per month that we need to hit every single month but the average rent we've
collected this year has been just under 30,000 bucks so some months 60,000 some months 15 so a nice you what you want to see is that big profit margin right they got a nice big profit margin and so the cool Thing is now if you look at like the business value like the this Enterprise of Switchback sweets is you know some somewhere we kind of get we're having to guess because we haven't put it we're not trying to sell the property yet but it's maybe 2.8 million to 3.2 million somewhere there so let's just call
it 3 million bucks is based on the net operating income of the of the property right now which is about 256,000 that's the the income minus the expenses not Counting the mortgage payment is about 256,000 a year if we were to sell it Joe I think it'd be about a million dollar increase in value from what it was last year right and that's that's a good Year's work good Year's work right so so I just congrats on that I mean I want to say that publicly because this thing doesn't just happen overnight it it happens
because of the work you put into it the design the effort the customer service the touches the Google Reviews but when you do all that effort and then it also works out and you have a building that produces 140,000 bucks a year in cash flow plus another million dollars in value like that's why you do this thank you feels good yeah no honestly last year I'm not even going to lie it was a tough year like I think I was confident Katie was confident we had the system down for the duplex but like when you
in it and again I just want to stress this Like to it's easy to kind of be up here and like after running the numbers with you and be like oh wow we increased the value by a million dollars you know it's easy to be super confident about it but I just kind of want to encourage people like it's not easy you know it's hard work and sometimes you go through moments where you kind of doubt yourself and am I doing the right thing and and I really you know this is my first time full
disclosure like working with a Partner and I'm so grateful for you Chad that like I have like just a very experienced but also just a easy you're very approachable and we've had like you said a lot lot of conversations and at no point in the conversations were you come on Joe we need that cash you know like and so like that says a lot about you and um you as a business partner and I'm so again so grateful we were doing fine but sometimes I struggle with that myself personally like just feeling um Confident and
uh I just appreciate you for just believing in me and trusting me and that trust just helped me to just get through and and now we're we're doing pretty well but it's not it wasn't easy but I think it's possible if we can do it I think it's it's it's pretty possible appreciate that thank you I want to say a couple maybe interesting points that people might want to hear we've kind of gone over the big picture of the numbers and we've gone over the Operations that um KD have really knocked out of the park
couple other things people might be just interested in the partnership itself if you're willing to talk about that a little bit Joe every partnership's a little different you know I think there's different ways to structure it I'll kind of point out I think the highlights of how we structured it add anything else that you remember to so we did a 50-50 partnership so in this case Joe and Katie were the people who found the deal and they're the ones who operate the deal so they're the general Partners we were the people who put up all
of the equity so you had to put a helck in for a little bit just to kind of fund some but The Upfront equity in the deal we put up to 750,000 bucks and the way we decided to structure it was we didn't take any kind of Interest or preferred return on our money and then Joe and Katie didn't take any kind of management Fee UPF front or finders fee or anything like that we just decided to do just like a even 50-50 split and part of that is just like having conversations of saying is
that fair is that not fair that's why every partnership's a little bit different you know down the road there might be some make a case for all right we need to hire some more management we need to have some team on the ground but that's the way we structured it was we put in 750,000 Bucks in the end if we sell the property we would get our 750,000 bucks first and then we would split any profits above that and so that's the basics did I miss anything on on the partnership Joe no that's pretty much
it and I think I'll add that so some people might argue like you know you're putting in a lot of work and that's a lot and Chad's getting a good deal um as the cash investor us as a deal investor for me so I went to bbcon and uh I I heard something from Shadow out to Carly snap she said you need to be doing bigger deals because we already had everything down for the Str STR on our duplex and I thought yeah I want to do a bigger deal but like how like we have
no cash so kind of I guess I would say it's like we couldn't have even done this deal if it wasn't for for Chad also he's not here he's not here in Kalispell so it's easy to kind of run the numbers from afar but like as we discuss with like the human touches and Stuff you're not going to be able to do that very well all the way in South Carolina so and then if anything goes wrong we're here like it's just an easy property for us to manage but maybe not so easy for Chad
to manage so we just thought you know you talk about sharing the piece of the pie and for me I was totally happy to partner 50/50 Katie as well so she's 25 I'm 25 so together we're 50 and for me I didn't look at it I'm not stopping with this deal right Like so you know my mindset is if we do a good job Chad's going to be happy we're going to make him some money we also might make some money hopefully that's the goal right that's why we do this you know I'm only 36
like I'm not going to stop my investing career right now maybe there's potential for future deals or even bigger opportunities which I have some stuff in mind CH we got to talk after this nice let's do it but yeah so that's kind of my mindset and You know we're still we're still in it and it's a long-term relationship I think you know I listen to you on a podcast I think it was with John shop and he talks about you don't have to have investors you don't have to have 20 investors that you're working with
like if you can like you yourself with your investor when you were a younger investor like you had like a couple of relationships right and if you kind of nourished those relationships do a good Job that's all you need right I think we over complicate the private money you know creative financing and you don't need to like be able to raise capital from a million different people just have some good relationships from people that are a little bit further along than you and then you'll be successful 100% I always tell I me you and I
have had this conversation but you and Katie are pretty much the epitome of the small Mighty investor and I I feel like it's The money side of things if you if you're a small Mighty investor you can make a bunch of money on three four five deals for you and Katie for example you have your duplex you got your house you live in with an airb aent behind it you've got like this handful of properties including the eight unit which for what I can tell like you know if you make half of 140,000 bucks per
year that's 70,000 bucks per year plus you have the cash flow from your other Properties I mean you could be making six figures off of a handful of properties which is an amazing income compared to most people and you have these assets that are also growing in value and Building Wealth like that's pretty incredible like to to be able to do that and so I tried to have that same attitude you did when I was building my business it was like I could have zero deal or I could have half of a really good deal
which one do I want to do and So not being selfish being generous on the operating side of things guarantees that you're going to have as much money as you ever need it's like I never had to worry about money to do deals because I had this attitude of like hey people put the money I'm going to make sure they get a good deal I'm going to take care of them and vice versa though like the people who put up the money I think I want to emphasize the people out there listening to this who
want to put up Money in deals there's more money than there are good operators like Joe and Katie there's more money out there looking for deals than there is good deals so if you're the person who has the deal even if you have no money but you're trustworthy you can find a deal like you need to have that attitude you need like hey look I've got something here it's it's worthwhile like I have a lot of value to bring to this equation and then the people who have the money I Think need to be say
you need to also treat your partners well you need to get you what's the thing that Joe and Katie needed to get over the hump they needed to know that they had a backer with some Deep Pockets so like if in a worst case scenario you I tried to emphasize this last year but like Hey Joe if we if we get Negative cash flow for a little bit step one user helck you know that'll be kind of a short-term thing but worst case scenario if we had gone over budget And you know we had spent
an extra 50,000 bucks and we just had to put that into the property we could have come up with some more money it would have been the most Pleasant thing in the world to have to do that but like we could have done that and so for Joe and Katie we were the back stop we were like the insurance policy basically and so it's not only 50/50 it's like all right what happens in a worst case scenario if we can't make our payments or something Like that so when you kind of align your interests as
a new operator or as a young operator if you align your destiny with somebody who is more experienced and has a little bit more money it it gives you more of a guarantee that you're not going to go out of business which is always a risk right it's always a concern so I think that's pretty cool to hopefully this is helpful for people to hear you know there's two sides of this perspective but Partnerships I've Benefited a ton from money Partnerships and Partnerships like this and this is I think this is going to be one
of our best investments that we've made we've had other good Investments too but because this is a long-term Vision like so I'm kind of curious for you and Katie maybe you could share with people like here we are with this building we're in year two what do you think looking forward like what have you all talked about what your ideas are for the Business do you just want to cash FL for a little while like how are you thinking about Switchback Suites for the next couple years it was a very eye openening when to listen
to your podcast about your first quadplex but uh well you talked about how most of your income your wealth building was from the appreciation right and for us like I knew that this property was going to be a potential I mean that's the plan right you we pay the cash flow I knew it was Going to be a cash flow property but I also knew like at 8 units in downtown like it's going to appreciate way fat with commercial financing which is you know based on a cap rate and a net operating income I knew
that we were going to be able to just kind of expedite our growth right like way faster than we would have with a duplex for example I had that going in into mind and then another thing that I was thinking of so it's like that's why I Was okay giving up for maybe that management fee or just kind of giving up like we talked about 50% to me I didn't even view it as giving up I I I viewed it as gaining 50% of nothing you know so so that's the first thought that comes to
mind the second thought is we still got some things to kind of fine tune and as we this year has gone pretty well we've kind of uh learned from kind of mistakes and we've kind of like optimized a few of our operational Procedures so right now it's actually fairly easy to manage and and this is what I had going in mind when we first thought about buying this property so ideally it would be cool to keep it operating cash flow continue to provide good jobs for our cleaning team continue to provide you some pretty solid
passive income you know you got daughters coming up maybe you know you got you know stuff to pay foray for college yeah exactly so if you're happy you know keep it going But I also do I was telling Katie last night I was like Katie this is the next opportunity what I love about real estate is it gives you options right like so maybe the option like I said is to keep it hold on to it cash flow it but we've raised the value of it if we want someone came tomorrow and offered us 3.5
million that's an option right so if we see another opportunity that maybe we need to put some of our own cash into the deal now we're able to play on a way Higher level than you we started with a house hack and I did everything I could and Katie did everything she could to get into this one property and that from there we just kind of slowly stepped up from there but you know we do have an idea to CU now we're kind of building this like Hospitality brand in cisel Montana and Katie's a wedding
planner we have uh I have a really good idea to open a wedding venue but you know that's going to require cash so it's either we Might need to sell Switchback Suites if I don't have to I won't but my point is we have options right now we also have a long-term rental that we have quite a bit of equity I've been looking at our portfolio as a whole and thinking like kind of you know doing kind of like Equity audits so you know just kind of seeing like do we have what is our return
on Equity that's been on my mind a lot lately we have like 300,000 in the in a property the first property we Bought and do we want to re you know just sell that 1031 exchange it's another strategy that we could tap into to not have to pay taxes on on our equity and uh just to kind of just keep going cuz I I have a lot of energy as you can't tell and I have a lot of ideas and um luckily I also have the best support Katie's amazing got uh the best partner Chad
and uh we're just excited for the future really there's just so much that we can go from here well said And in the end like Financial Freedom which is what I talk about on the show all the time is really about options you you described it really well like there is no there's not a set destination I get there and then I stop right it's I get to a line I have a certain amount of wealth and now what do I want to do when I grow up like what's next like do I want to
do another deal which is once you're a dealmaker it's kind of hard not to do more deals it's fun like that's Part of the joy I get out of this is like okay I'm getting to do deals but Joe and KY are the ones doing a lot of the work that I used to do but that's a natural cycle right you get more wealth you invest in other people you invest in other properties and it's a ton of fun and it's it just kind of keeps on going and you mentioned taxes there's one other little
tidbit that I don't want to go into crazy depth on it but just another tidbit about this deal that Might be interesting for people was you you brought the idea to me actually of doing a tax segregation study on the on the property so for people just see if I can explain it in like you know the 30C version of it yeah high level basically when you when you have real estate you have the property you have an improvements on the property everything except for the land it goes down in value it depreciates over time
it wears out and so the IRS allows you to do What's called a depreciation expense so part of the purchase price every year you get an expense on your tax return so it's I mean you are spending maintenance on the property but you this is not like money out of your pocket this isn't money that comes out of your bank account it would Bey Phantom expense yeah Phantom makes sense it saves money because it offsets other income that you have and you spend less on tax that's the end result well what we did was we
Did a a tax segregation study where you basically break up the property into a bunch of pieces not literally but on on a spreadsheet and some things on that spreadsheet could be depreciated faster and the end result was we had about I think it's 140,000 bucks last year in extra depreciation where we would have had maybe I don't know 30,000 bucks or 20,000 bucks or so yeah I think it was a lot more than that Chad actually but 190 Okay so 190 your portion and 190 our Portion okay got it all right so my numbers
so 190 so my partner and I we our portion of this partnership we had $190,000 expense that we didn't actually come up with the cash for that expense we could came up with the cash to buy the property so what does that mean if we have $190,000 in rental income which we do we have rental income profits from our other properties then we can offset the rental income that we have over here with this expense that we have on this Property and actually pay less in taxes so just just for an example if we had
a 30% tax rate on our personal tax return for 190,000 bucks so what is that that's like uh trying to do my math over like 50 to 60,000 bucks in tax savings at that rate so so we we didn't make any cash flow last year 2023 but from our standpoint as an investor in this partnership we probably saved about 50 to 60,000 bucks in taxes which is huge like that's a really big deal return Just not counting mortgage pay down so so that's money that we can then go invest somewhere else or do some you
know and optimize and use uh later on so if you haven't heard of cost segregation studies it's a it's a bigger topic it's something I want to do on the show at some point have a conversation about but it was a pretty cool another feature when you own real estate and you're in the game and you have Partnerships you can figure out ways to benefit from the Property and the tax benefits of the property not just the cash flow or the wealth building and I think it's important to say Chad too like obviously we're not
tax advisers so talk to your CPA about this if you don't have a CPA get a CPA but I think just high level it's just important to know that these are some of the levers you can pull with a lot of these uh especially commercial real estate or larger properties so to be a little bit more specific we paid 3,500 for the study and then that saved us personally Katie and me it saved us $113,000 in taxes and our personal tax return we kind of do some things to shelter some of our income as well
you know just invest in IRAs like that so we didn't have a high income on paper so we didn't save as much in taxes but also last year on a personal tax return Katie and I didn't pay anything in taxes which is wild right like we made income from our we have a midterm rental behind our Personal house we have a long-term rental we purchased the hotel and we had um we made about we cash FL about $2,000 on our duplex a month in our short-term rental so we we made money and Katie made uh
money with her wedding business but we didn't pay anything in taxes pretty cool tool to use yeah and in your case you're you're both real estate professionals I would assume right would youall qualify since you you you work enough hours I don't work enough hours To be a real estate professional but this is what school you know we have another rental income that we can offset here we're not real estate professionals if we didn't have enough income there'd be another discussion to have with your CPA to figure out how you can use that and but
it's it's a whole another part of the real estate business is figuring out taxes but the big picture here and I this is sort of the takeaway that I want everybody to to look at is this was a Property we started talking about that you found an opportunity you had this idea this Vision in your head you had the skill set that you built of short-term rentals and the knowledge you built and all this came together with Team you know partnership with your team on the ground your cleaners with technology we've talked about some of
your Tech stack which I'll if you don't mind Joe we'll put a list of the tech stack in the show notes so for those of You who want to like see all of the tech that Joe and Katie use we'll make a PDF of that and you can download that and get that for free as well that'll be in the podcast description and the show description if you look below so all this came together to have the end result of being a really beneficial deal and I'll give you the final word Joe there are people
who are looking at doing whether it's Airbnb deals or maybe just bigger deals period and they're Ready kind of to take that next step just what you have any advice from your perspective on what you would tell them to go out find their own bigger deals in their business I think the important thing that we learned in this deal was we started like I said with a house hack and I think if I three years ago even if I would have looked at our investment trajectory I would have never imagined that we'd be investing in
an8 unit right that would cost $2 million and would Require 750k to take down right so I think to me that would have just been it was just so foreign and so unattainable able that I would have just given up right there so I think it's important to to realize one we didn't start there I think it's important to just kind of like get the skills early on I think house hacking I think I said this on my last interview is such a great strategy it's the best way and kind of the easiest way to
get into real estate Investing if you're just starting out and another thing I'd mentioned is like it required us to take a major major mindset shift and kind of like an aha moment when I realize like everyone's always thinking like oh man real estate is so expensive it's so hard I can't recorded or I I took up my nine loans you know with Fanny Freddy they think that it's just not possible and I think like you mentioned Chad like there's so much private money out there and there's So much opportunities for Partnerships like surround yourself
with the right people go to the Bigger Pockets meet people join communities like RPM that's Chad's personal Community I'm in that community and just surround yourself with people that are doing these kinds of things and quickly you realize this stuff is not impossible like we thought it was right I still sometimes think it's impossible and I'm doing it you so I'm still learning myself and just Realizing wow like I got to keep reminding myself we're doing this and we're all human it's just natural to just kind of down on ourselves but that's kind of the
big messages that I would like to give is just just an encouragement to people maybe they feel stuck or maybe they feel like rates are too high or purchase prices are too high like I'm and then they just stop right there just try to be a little more creative have an open mind right and Then just realize that people are doing this so like what are they doing that we're not doing and it starts with a mindset shift well said so I hope we've convinced people that they ought to go visit Callis Bell Montana and
stay in Switchback sweet so I'm definitely going to have a link to Switchback Suites to the the website a direct booking so you can go if you want to come visit you're going to get the hospitality from Joe and Katie you're going to get to Experience the same thing we did I think you'll love it in fact I know you'll love it so check it out there'll be a link in the podcast description there'll be a link in the YouTube description we also have some show notes for this episode where again you can get the
text stack from Joe and get a free pdf of that Joe I also want to give a chance as we close here where people want to connect with you personally where's the best way for them on social media or Otherwise to stay in touch with you sure yeah and I wanted to add also if anybody has any questions about short-term rentals about hiking about climbing in the area like please reach out like I'm happy to share all of my knowledge so many people have helped me that it's just my way of giving back and I
just that's all I know how to do is just like share and give cuz I wouldn't be here if other people didn't do that to myself so you can find me at joeore renz on Instagram or even easier to remember Switchback Suites like the trail Switchback reach out on Instagram we still respond to all messages and we're still on there very active so yeah just reach out it's easy or find me on a mountain somewhere in Glacier National Park happy to help Joe is a great guide he he took us up on bikes up the
road to the sun with my my daughters couldn't believe they did it but we went up like eight or 10 miles up the road the road To the sun on on bikes it was fun and then we rode down which is even better we riding down so yeah reach out to Joe switch back sweets on Instagram I'll put a link to that as well Joe this has been fun thanks for taking your time and uh we'll see you soon thanks Chad in this episode Joe talked about how he started his whole real estate Journey using
a strategy called house hacking I did the same thing and we both recommend this is an incredible strategy if you want to Get started or live somewhere for free or less expensively so in the next video I'll teach you exactly how house hacking works you'll get real life examples plus a step-by-step guide so you can begin house hacking as well if you're watching on YouTube you can click on the thumbnail above me here or you can click on the link in the YouTube or the podcast description below I'll see you in the next episode
