Scaling Short-Term Rentals: Boutique Hotel Investment, Airbnb Alternatives, and Real Estate Strategies with Blake Dailey

well welcome back to the short-term rental riches podcast I'm excited for Blake daily today a fabulous interview I know we're going to dig into a lot of nuggets here and we're talking about shter rentals but on a very scaled level right you've heard us talk about Boutique properties in the past and multifam properties in the past and this is exactly where Blake has been operating he's acquired a lot of properties he's got some really good insights and so I'm excited to dig into the details welcome

to the show Blake it's good to be here Tim thanks for having me excited to to dig in talk some boutique hotels and yeah let's do it yeah me too I we it sounds like uh you kind of started with the smaller multifam properties and then that just developed into what you're doing now you want to catch us up to speed yeah dude the the the quick backstory is the first house I ever bought was a uh Airbnb property but it was a a mother-in-law Suite

off of a main house so my wife and I lived in the main house rented out the Mother-in-law suite and we cash flowed to live there for free so like we paid our mortgage all of our expenses Wi-Fi utilities everything and still had money left over every month and we didn't have to pay to live there because like we're getting our bills paid I like this is awesome so I was like why don't we just buy more houses like that like my whole idea coming into

real estate was to like you know buy houses do the long-term hold maybe do the bur method but it was all always thinking long-term rentals it's like build a passive you know cash flow not thinking that Airbnb was the passive way to do it and found out it's really not but anyway I was buying these houses with guest houses or adus or garage above garage apartments you know basement rentals whatever Carriage Houses like all the different ways that you can get two units for the price

of one because most real estate agents are really really bad when you find these houses they're listed as a single family house and like a lot of times the square footage of that guest house or of that extra unit isn't even priced in to the purchase price so it really is a lot of times like getting two units for the price of one and the cool thing about those ones is which I'm sure you know is you can do like a super listing so you can

have one unit one listing for one unit another listing for the other unit and a listing for the whole place so you can do bigger families bigger groups and really optimize your revenue and your occupancy that way and we built up this portfolio and as that grew I really started to tap myself out on what I could do um you know like messaging guests you know running around cleaning supplies doing repairs managing you know contractors and cleaners and all this stuff all I work in a

W2 job while I was active duty in the Air Force I was like there's got to be a bigger way thank you for your service by the way thank you I appreciate it finally uh finally separated uh earlier this year and it feels feels good to have my first six months as a free man um congrats but as we were doing that I kind of tapped out and almost like created another job for myself then I'm working you know twice as much and we we reach

our financial goal like what our Financial Freedom number would have been but I still had the Air Force contract so like I'm stuck anyway I just got to figure out how to get better and go bigger to get more scale and that led us into commercial real estate where we learned how to you know Syndicate and raise money and underwrite and fine deals and structure deals and just do bigger properties and you know uh manage them as well and then that led into these boutique hotels

which you've been doing uh for the last couple years year six of them now in California and Lake Tahoe and Panama City Beach in Florida and now in the smokeys in Tennessee yeah it's awesome man um yeah I think it's it's for a lot of people it is a natural progression like as you mentioned you know you have a a property here you have a property there um it really just doesn't make sense to like hire your own team right financially because you're not just quite

at that scale yet and that's one of the beautiful things but behind larger larger properties and boutique hotels is that um we can set up things a little bit better can we can we just start off though I know there's like boutique hotels have been trending a lot you know just out in the media and everything um and so I imagine they're getting a little harder to find uh you've been out acquiring um do you have some tips for audience just on how to find how

you're finding deals yeah I would say right now it's probably easier to find a a Boutique Hotel deal than like a good St deal like a good normal residential house you're going to do Airbnb on and most markets is just priced out like the interest rates the competition earnings are down like the the residential units like the the typical airbnbs I I still have those they're not operating as well like financially they uh they have been strained because there's so much more competition there's you know

regulation in these different markets like I I I think Tim I I want to throw this question back you of what you think Airbnb is going to look like in another five years like the company Airbnb I think they're going to lose a lot of market share because more people are going to properties like boutique hotels where they don't have to rely on just Airbnb they're using the other platforms there's you know using direct bookings which has grown a lot among hosts as well like hosts

are getting smarter and as a platform they've never really taken care of the host which is the supply that they you know that they make their their fees on with the booking so I think Airbnb is has really um has really felt the pressure and Airbnb operators because that have felt the pressure because of the shifts like people now want to stay in hotels more than airbnbs like you never know what you're going to get people are hating these cleaning fees all like you see one

price you know when you're looking and then you go to book and it's a lot more expensive I think like California has had laws against that now where they have like the price trans price transparency act and you're seen that in other locations but just as a guest you know and put yourself in the guest shoes people don't like that crap and now it's like the hotels are now um more affordable for you know your your couples or your like really small groups so like now

it's like Airbnb is just for you know five plus people and and people want to stay more in hotels so I think what boutique hotels have done and I'll kind of like Define what a boutique hotel is it's small independent and unique so small typically like 50 units or less it's an independent mean it's not it's not under the flag of uh you know Marriott or Hilton or one of those other Hotel Flags window them and it's Unique in its design and its amenities and its

location and its experience so it's got its own Vibe and its own appeal so small independent and unique so what's pushed more people there is that you know airbnbs in in in shortterm rentals in general have kind of turned people off a little bit more but the experience of what that platform has created has very much stuck around and you're seeing that spread to more of the H Hotel space now where you know you have the ease of booking right you have the automated check-in you

have the flexibility in in in how you can book it you have the amenities and the design and the style and the experience that you want to have or like that the new traveler wants to have when they go stay somewhere when they want to take a vacation but you also get the consistency and the standards of a hotel because it's a more professional property it's ran by a business owner not a host that's doing as a side hustle so you get so many you like

you really get the benefits of both and that's grown so much and now like in the commercial real estate space you have a bunch of uh baby boomer uh small business owners a lot of them uh own the hotels so they're trading their properties they're retiring kids don't want them they're beat up they're run down whatever they're outdated and so that provides really good buying opportunities and three out of my sticks have been seller financed so I think it's a great opportunity for a flood of

deals and potentially really good financing and you're G to have more margin so I think for all those things you're going to have more opportunity with buying hotels especially over the next couple of years and now where you can specifically go find them um just weave it all back to the main question how do you actually find witho tails is I think the first place to to start looking is just on the online listing platforms like go to kxy go to loopnet there's a couple small

Niche Niche sites like hotels forsale.com or in shopper.com um and and you can look up some other things around that but those sites especially krei and loop net are the first ones to get on because that's where commercial real estate brokers are going to list the properties that they have for sale you hear all the time that like Loop net is the place that deals go to die I think that's absolutely not true because I've gotten really good Boutique Hotel deals on loopnet it's just a

matter of you're not really going there to find deals you're going there to make good deals like where can you find places to add value and you know you're going to uh add Renovations can you add units can you add um you know other income streams can you cut the expenses because now V uh hotels are valued on their income so if you can either raise the income or lower the expenses your noi increases and then your value increases so that's a a value ad play

option so you got to creatively look at the deals that you're you're trying to find and not just like with the residential Airbnb pluged into a calculator and say all right doesn't cross 15% cash on cash next deal like you have so much more leverage on the boutique space which is why I think you have more chance at getting deals yeah lot of good stuff there Blake um I think what one of the good points you made is about Airbnb and and market share and yeah

I I would agree you know people are getting Savvy right uh especially in the Boutique Hotel space it's always been much more um you know a standard to have a direct booking site I think a lot of the older Boutique properties as you mentioned are older and they haven't been renovated and so someone that's comparing an Airbnb versus a boutique property in the past was looking at okay this looks like a great experience and versus the boutique that like you know this looks like a rundown

motel room but that's not the case with a lot of ones that you've renovated or with all the ones that you've renovated and a lot of other ones we're seeing coming on the market I'm curious though at like what point do you see a boutique siiz property really shifting from more of an experience you know the smaller the property is I think the more kind of unique it is uh but you've gotten into some really big deals lately um you know over 100 150 units at

at what size do you really see a little less of the experience um slipping away or does that does the size not even matter yeah really good question I think it's all like the setup of the property because if you could picture like in a downtown area wherever Dallas and you're just driving you see an older motel and all it is is a parking lot and exterior corridor rooms and like with the lobby just like a little l-shape there's not much you can do there right

like you're very limited on on what that property can be it's always going to be like a roadside Motel it might even be better to be switched to long-term rentals if you're in a an area like that because the other hotels with with more space and more amenities and more cool features are going to be able to out compete you um so like for my recent property for example it's 130 units on 10 acres at the gate to the Smoky Mountain National Park which is the

most visited national park in the country so you get a ton of of Travelers there there's space to spread out and what they didn't have before was really any Gathering space or way to uze itiz those 10 acres so now we're adding a a big pool bar where we'll do drinks out by the pool and for other people around the property like Thursdays Fridays and Saturdays when our when we have our busiest times we're ring a big uh Pavilion big covered Pavilion with an outdoor kitchen

and seating areas and um and hammock and a big fire pit like a a wraparound fire pit that overlooks the mountains we're also having things like pickle ball and put putt an outdoor movie theater screen a fitness center a big lounge and game room and then we have a wedding and event venue as well plus just a bunch of green space and walking paths all throughout the property so in that there's a lot of places to you know to to gather to create the memories right

there's a lot of instagrammable shots there that still make it very experience heavy and that's what we're using to that's what we will use as all these amenities are completed through the construction is to attract people in and create that experience on like what they see online and then on the smaller properties like the the five hotels we've done before this we all 20 units are under eight eight to 20 units so in that range and um I'd say like my 8 unit has very little

space it's like street parking the units themselves are really nice but there's not that much outdoor space I'd almost call like the 130 unit on 10 acres much more Boutique than that 8 unit um so it really depends on the property and the layout and I think that's one of the like the criteria of small uh independent and unique like small can kind of be stretch like where is you know how big is too big right because there's boutique hotels a lot of size generally I

think it's under 50 units and I would probably stretch to call ours uh a boutique hotel it's more of like a unique hotel and resort type thing but I think you're right yeah like on on smaller properties the the more you can weave in you know places for people to gather like think about those instagrammable shots that really make people like oh I got to book that place right it's like the sunken in hot tub and the deck it's the fire pit with the dusk photos

it's the barrel sauna off of the patio it's the you know might be the pickle ball court in the backyard it's like all these different features that come together to make it like very experience heavy and I think now we're in a a competitive landscape on you know sites like Airbnb and booking Expedia and verbo and all these different things uh so that's that's great Blake I think one of the big differences there though instead of these things being priced now they are they're shared right

and so um that brings up another element in the operations I'm sure uh do you want to chat a bit of just about let's let's jump into the operations real quick and yeah differ I mean that's that's where the rubber really meets the road with these kind of properties right I mean that's where you're really going to make your money as operators being able to cultivate cultivate the shared experience and right be able to keep people happy not have people you know take it over and

hey the pickle ball Court's mine now while while I'm staying here you can't play on it um and and just you know you got noise complaints right because people are next to each other potentially you know on top of each other unitwise um so there's so many different comp components that come into it but I think at the base level right on these say call it a 20 unit or less you know million dollar or less per year property you you don't need front desk staff

you can operate it very similar to a short-term rental with your uh smart locks with your PMS Integrations and automated messages and all the different text stack that you would use on short-term rentals there's just going to be more robustness on the back end I think for all those that think like going to get a 20 un hotel is going to be the same as running your three four five unit strr portfolio is going to be the same it's not but those aspects are so like

the foundation's there but it does get more um it gets more involved with how many guests you have messaging how many calls you begin get CU now you are a business like right people are going to have questions about uh what's the parking situation or how do I check in or I you know do you guys have a military discount because now you're a hotel so it's a it's more of a business in somebody's house that you're renting so you got to account for those things

and I think the better you are in the boutique of tailes space at Building Systems and putting the right people around you or building the team right both at the property on the on the back end for the support staff the better you're going to be at running that hotel so foundationally it can be very very very similar to your Str operations but you're adding more robustness on the demand that your guests are giving you on the kind of issues that you'll see with with parking

and uh and noise complaints and turnovers right hopefully you have laundry on site um because you're going to end up doing a lot of conry a lot of laundry and your uh you know contractor fees of you know Contracting it out to a laundry service are going to be pretty high if you don't have it done in house and then thinking about like do you still pay hourly because you have all these units so your cleaning costs are going to be crazy high but if you

bring them in your cleaners in hourly how do you keep them efficient so then they don't also inflate your cleaning costs there's so many different pieces of it um so we could dig on dig in on one piece or you know certain systems that work but I can go in this all day yeah awesome um well yeah quick question here so we know that a lot of properties lend themselves well to a virtual reception type setup right uh so we we have multiple Boutique properties in

our portfolio now two of the boutique hotels have on-site reception uh two of them do not I'm curious in your experience at what point would you say you need to have the on-site reception um versus just going fully virtual yeah I think it's in like the quality of stay that you're going to provide so you're not going to have a you know upscale or luxury property that's unstaffed most likely so that's going to be your you know midscale and Below um you know kind of call

it you're what 60 percentile and Below probably and uh and equating it to somebody who doesn't know like the economy midscale upscale luxury kind of uh scale in the hotel space but I think the nicer that you want to be even even if you have a small 8 to 10 12 unit property if you're going to try to be really upscale or like actually luxury it's going to be the touch points of hospitality that make you luxury and upscale property so you need to have somebody

there you know serving drinks or checking and welcoming people in kind of like being a concierge for the people that are staying on site and kind of handl you know making the whole stay process very very smooth for them if they need anything now on the other side of that if you're going to be in that same unit range 8 10 12 uh listings or or or units and you have the automated check-in you're you know somewhere midscale or below meaning you're not you can be

nice but you're just not providing that extra touch right you're not really bringing the hospitality piece of really what makes it a hotel so that's kind of where you're that hybrid those you can run all day I mean our first five were like that with no front desk we'd have guest closets where they'd have a code to it so they could go get extra towels or you know L Linens or shampoos or toilet paper whatever it is they could go get it for them now if

it was during the hours when we had our cleaners there obviously we' give it to them but if it was after hours we'd save that labor cost of having to have somebody there all the time and just let them go get it themselves so it's it's it's about setting the expectation with like the quality uh of the of the experience and of the hotel that you're trying to create and then you're backing your way into the Staffing that you need so I think in most cases

right the starter Boutique Hotel that somebody gets into first you know maybe they found something in their Market that's whatever 20 units or under might be six 00 $800,000 a million dollars like a very reasonable first Boutique Hotel to get into they're probably going to come into it add value redesign it you know put the smart locks on it make it nice but that doesn't need a staff member that can be run virtually with you know with vas or you doing the guest messaging hopefully vas

you guys build systems and don't you know message your own guest um but it can be managed hands off offsite pretty passively for the most part it'll probably take four to five hours a week for you to kind of you know do things uh at the property or if you're going to go nicer right if you're going to have any FNB components if you're going to provide a luxury product then you're probably going to need somebody there at least during business hours to just curate that

whole that whole luxury experience um for the guest okay okay so interesting so you would base it more on how luxurious it is versus you know what sort of class it's at I guess that that or your size like at 130 units we need front death staff because we have so many people onite at any given time so as you go bigger like really it's like contactless or staff hotels really only work to up to 40 or 50 units because of all the demands of guests

you know imagine on a Friday night we have 130 rooms we might have 60 80 100 people coming to the front office to check in gotcha gotcha okay um well we know having onsite reception can be a really large expense right uh that's why a lot of people higher virtual assistance and this all comes back to you know boutique hotels these are investments you know I've I've always looked at all my short ter rals as Investments as well but we know that that's not always the

case right there's a lot there's a big personal aspect to them but we're in the boutique space it it's an investment and so we got to look at the numbers and so I'm curious to hear some of your biggest value ads and how you might go about estimating those so so for example maybe you came across a property that had 25 units uh it's operating with a a reception on site and you know that based off your experience we could we could operate this Pro or

this property no problem with offsite or virtual reception how do you go about kind of running those numbers and what are a couple other things that you might look at that says okay this is a win because we know we can add value in in this way yeah I think the first thing that you can look to add value with is your amenities so if you don't have the pickleball court or the putt P or whatever those like equivalent things are that's really cool in your

market for the experience that you're you're trying to provide it could be fire pits it could be a cabana it could be a whole slew of things it could be a private Chef or like yoga that you provide for your for your people on a couple days a week like whatever that thing is I think those are the things that are really driving people to book now of course you can't go byy a Motel 6 and just like add yoga or at a pickleball court and

expect your rates to go go up you've got to have like the design and the quality of of of the unit itself kind of match the amenity right because like think about an upscale luxury resort you're going to have you know a spa some kind of like Steakhouse or like really nice restaurant those are upscale amenities now at a uh you know a holiday in or whatever something that's uh not quite economy cut midscale or call it midscale you're going to have like your free breakfast

your um you know your weight room and like an indoor pool and hot tub oftentimes so like the amenities match the quality of the property itself so I look at your amenities like are you in a a National Park Market are you in a you know downtown Metro Market like what do the people traveling to that area want and then provide that uh both in your design and your amenities and that's what's going to drive one first is higher occupancy getting more people there and then

you can optimize for higher adrs after that and really push your rates and that's where you get the big increases in your net operating income which which are really going to drive uh Drive the value so I like to look at it when I'm breaking down a renovation first of all want to walk the property I want to know like how the property is operating now do they have the staff like you're talking about and if so are they needed based on the quality of the

hotel and like the location what can I make this into and most of the times it's going to be you can probably operate it um um virtually and not need staff there like a true luxury product is uh is a much more unique thing you can absolutely do it but I'm saying most cases you can probably make that 25 unit virtual put the automatic checks in place and then have your staff you know a typical hotel is going to have front desk general maner cleaning staff

maintenance so if you can just [ __ ] the front desk but you still have the management they can serve and kind of fill in for the guest relations but then on the back end you sub people me with like yier this is what we call them in our business those these are our vas that do all of our guest messaging our admin our resolutions answer the phones all that stuff and they escalate it if needed so they're kind of fulfilling our virtual front desk staff

at like you know a third or fourth of the cost but it's still a really good you know pay rate for them over there and then we'll have our one manager that does all the on-site stuff and then we'll typically for a 25 unit would contract out maintenance and would still probably do hourly for our housekeeping because that allows us to like one have them is employees direct their work and control the costs we do p uh incentive and performance bases to that housekeeping team too

because they really are like the heart and soul of the hotel if you can't turn rooms then you can't run your hotel right um so we'll we'll look at what is going wrong in the current operation how do we need to fix those things what's it going to cost in terms of cost and people right if they have a bunch of deferred maintenance and nobody on site and we've got to hire somebody there and fix all the Deferred maintenance plus do our upgrades um so we

look at those things and then I think like I like to break it break it down to like a blanket cost of you know doing multiple multiple of these Hotel projects no now knowing that a light renovation can be you know anywhere from whatever 5 to 10,000 per unit in repairs and furnishings and a medium tier renovation think all right we got to redo some Plumbing we're going to change out the vanities we're going to redo some flooring we're going to redo all the fixtures we

might Reco the parking lot like that Medium tier renov we're going to paint the outside things like that that might be you know anywhere from the 10 to $25,000 per unit 10 to 20 maybe call it and then if you're going to do a full gut rehab or if you're going to add some really big awesome amenities that's where you're going to see like 20 25,000 plus maybe up to 50,000 or more depending on the size but I would say like 25,000 plus per unit and

then that gives us our basis of like all right like you said it's an investment so if we're going to put a million bucks into this Allin with the purchase and that amount of repairs and we expect a cash flow you know 200k then we got a 20% return is that what we're looking for you know then you got to look at your irr right because you're if you're going to hold on to to it for the long term and the refinance get the money out

to go do the next deal so that's typically how we do it on a broad Strokes basis okay okay um I'm curious guys we're already kind of coming to the end here and I've got quite a few other questions that I want to ask maybe we'll have to do a followup on this one um the boutique hotel series when we're doing big yeah that's right um when we're doing apartment Renovations you know we can we can really underwrite how much we need to put into an

apartment for example you know there's a lot of comps available uh but when we're doing a boutique type property a lot of what's selling the property is because it's Unique right some of the things you mentioned like uh you know it's in front of the Smoky Mountains and there's not a lot of other properties around um I'm curious how you go about actually estimating how much additional Revenue you're going to be able to drive by comp by completing these Renovations are you how are you going

about finding coms and what sort of tools are you using so this one is is is such an art and a science and I'll I'll be as fast as I can because I know we're getting to towards the end but really depends on the type of Hotel so if you're doing a more unique type stay maybe it's individual Bungalows or individual cabins or unique builds or whatever it is that is g to operate more closely to your air DNA data and you know your typical all

buildings in one in in one hotel it's all single Kings or double Queens that's going to operate more to your hotel data which you're going to get from the Str data which kostar own so you can get it from like the Smith uh it's str.com but it's Smith travel report so those Str Str Trend reports will give you the ADR the occupancy the refar the supply the demand the total revenue for like the last seven or eight years so all those are all the metrics that

you need to see how those Hotel units in that market are performing and what the trends are and all that kind of stuff or you can get the Str subscription through co-star so that gives you Hotel data and short-term rental data now what you needed to decide when you're analyzing a property is based on your market and the other comps available out there and what you are going to create on that property is it going be more like an strr or is it going to be

more like the hotels in that com set and then you kind of just weight more heavily that data and it's it's it's always a mix right you always want to take each into account um but you weigh more heavily like if you've got two three bedroom units you're probably going to operate more like an Airbnb in that market or like the airdna data which is going to pull mostly from Airbnb um so that's the way I would look at it is based on your Market based

on what you want to do and how you're going to create and in like the property itself the unit mix you're either going to weigh more closely to airdna data from Str strs or hotel data and the Art of that is like mixing and waiting the uh the data to match what your property is going to become and how it will then sit in the comp set post renovation right and that's what you're going to ramp up towards okay so the SR data from coar uh

airdna if you're looking more to compare with more of a short-term rental comp okay got it but yeah I agree you know it's a bit of a science like you know our team spends a lot of time on Revenue management uh and we know that that's quite different for hotels and is for short- ter rentals unfortunately we don't have enough time to jump into all that as much as I would like to um so we we talked about a lot here you know creating that unique

unique experience with the boutique hotel even if it's large by pulling in a lot of these amenities that you would expect in a short-term rental you talked about some of the value ads some of the operations you know sort of the limit of where you might need to have on-site reception the 4050 Mark or if the property's really luxurious versus you know maybe just sort of um uh mediocre I guess I don't I don't like calling properties mediocre but you know not luxurious you can have

a great midscale property right there's nothing wrong with it just you know you maybe even get more cash the the cool thing with the revenue management is that you can have a great midscale property that performs better than luxurious properties if you really have the backend operations set up well um yeah if you're dialed in you absolutely can because the margin on those lury luxury properties can be slim just depends what all your expenses go into them so I would agree with that for sure well

I got I've got one other question for you uh the name of the podcast is short-term Minal riches and a lot of people associate the word rich with finances and we know that uh living a rich life doesn't revolve just around finances so curious if you've added something in your life recently or changed something that's enriched your life in a non-financial way yeah I changed up my sleep routine because we had a baby so did yeah so we uh had a baby we just added uh

added a member to the family our first uh our first child baby boy just literally three weeks ago uh today and it's been super cool super challenging uh at the same time and just thank God for my wife she is a she's an angel and way better at the parenting thing than than me so I'm picking up some cues from her and yeah I mean that's what it's all about right it's like to build the business right to create a a business around your lifestyle not

the other way around right that fuels what you want to do in life and that for me that's you know build something awesome and spend time with family and you know take them on trips and buy these cool boutique hotels and awesome places that we want to go visit and uh you know it's the focus on Boutique Hotel so we can build the team and manage it efficiently so I have my time to do those other things with them um so yeah man it's been it's

been pretty cool that's awesome congrats congrats very exciting um well awesome well uh that was jam-packed Blake where can people find you I know you got a YouTube channel what's the easiest way to get in touch with you yeah the best way to to to reach out probably just be in Instagram you guys can uh shoot me a DM on there Blake J Daily um typically answer all the all the DMS so feel free to shoot me a message if you want guys want to talk

anything boutique hotels or have a question and uh if you guys want to learn a little bit more tangibly about the boutique hotels I put a lot of free stuff on my YouTube it's just Blake daily on there so check that out and if I can be a resource let me know awesome well thanks Blake have a great one and until next time I've dedicated years figuring out how to manage my personal portfolio remotely and it wasn't always easy and it took a long time but

now my amazing team can professionally manage my properties without me and good news our team can also manage yours let us save you the stress and headaches and some money by offering you an industry low fee to find out more about partnering with us head to Str Str riches.com hit the property management button answer a couple quick questions and meet with me personally that's Str strr riches.com rest easy knowing that with my team your properties will be in excellent hands