Boutique Hotels vs STRs: Rich Somers Explains Why They're the Future of Real Estate in 2025

I'm very bullish, Tim, on the boutique hotel game. You know, we got tightening Airbnb regulations in a lot of markets around the country right now. We saw what happened in New York City. We saw what happened in San Francisco. We saw what happened in LA. And we're taking advantage right now. So, what would you say to those out there that want to get in the space but don't have the funds? What are like the top three things you might look for before you're acquiring an asset?

We took the income from $180 to $600,000 in 12 months. We bought the property for 1.5. It appraised 12 months later at 4.5. We tripled the value of the asset. Well, welcome back to the Short-Term Rental Riches podcast. I'm really excited for our guest today. I feel really fortunate just to have had this podcast for a long time because I get to talk with a lot of really cool people that are doing a lot of really cool things, helping a lot of people, and that have

had a ton of success. Uh I met Rich Summers, our guest for today, years ago on one of his podcasts actually. Uh and he's been doing a lot. He's been staying busy, so I'm excited to jump into it with him today. Uh but just to give you a little background first, he is running an investment fund. They specialize in boutique hotels. They currently have assets over $80 million. Uh he has one of the top 1% podcast in the business and real estate world called the Rich

Summers Report. He's just doing a lot of cool things. So welcome to the show, Rich. Tim, I appreciate you having me on, my man. It's been forever. I think uh the first time we connected was on my old podcast years ago, the multif family takeoff. Um and excited to reconnect, man. And um glad to see you're doing big things, man. Looking great, looking fresh. Thank you for having me. Same dude. Yeah, a lot can happen in a few years, can it? Um you know, our our

audience knows that my team and I have been working with boutique hotels. Um I don't know if everyone knows, but I actually took on an investor and a partner uh who built a boutique hotel. And so I'm excited to interview him uh in the near future and dig in the details. But uh in the world of short-term rentals, a boutique hotel is really just a short-term rental at a scaled level, right? I mean, the operations are the same, the purpose is the same. We have guests

coming into the properties. Uh we got to make sure they have a good experience and us as investors hopefully are making some money on the back end. So, Rich, you want to give us just a little background about your fund and what you guys have been up to? Yeah, so the main difference between uh short-term rentals, boutique hotel is really the the zoning and and how they're valued. So, short-term rentals, a lot of single family stuff here in in in uh US and I own uh

some short-term rentals here that are like single families. We manage a bunch also in different markets, but uh the main difference is is how they're valued. So, single family is going to be valued based on the comp system. Uh so whatever that house sold for across the street on a price per square foot basis uh generally speaking is going to be what your home is valued regardless of what it's making as a short-term rental. Uh but on the flip side, boutique hotels because it's commercial real

estate uh they're valued based on the income approach. And so the more I can increase the income, the more I can decrease the expenses, the more I can force my appreciation, giving me more control uh over the valuation of the asset, which is one of the things I really love about the boutique hotel space. But also, you got to think, uh, they're already calling this the greatest transfer of wealth in American history. We got 40 million baby boomers retiring here in the next 6 to seven

years. Uh, and then, you know, love them or hate them, uh, we got a real estate investor taking over office. Uh, and by the way, the Republicans are controlling the House, the Republicans are controlling the Senate. Um, this this is an exciting four years ahead of us. Uh, I believe, I'm speculating here, 100% bonus appreciation is likely coming back. Um, there's going to be a lot of policies uh put in place over these next couple years that are going to uh bode very well for real

estate investors and I think the Fed's going to continue to uh to to cut rates here over the next 18 to 24 months. And so uh I think the market's going to warm up, but most importantly, I'm very bullish, Tim, on the boutique hotel game. Uh you know, we got tightening Airbnb regulations in a lot of markets around the country right now. We saw what happened in New York City. We saw what happened in San Francisco. We saw what happened in LA. And we're taking advantage

right now of these tightening Airbnb regulations that bringing all the demand back to the boutique hotels, increasing the ADRs, and uh you know, in addition to that, we can go target these mom and pop own boutique hotels that are underperforming. They're not utilizing any technology. Uh they haven't been renovated in decades, and we can go in there and secure seller financing in a high interest rate environment. Uh we can negotiate our own down payment. We go in there and do a nice rena and really force

a lot of appreciation. And then lastly, I'll say this, Tim. Uh, you know, there's a lot of Airbnb investors out there. You know this better than me. I go to these real estate conferences all over the country and all these Airbnb investors are like, "Yo, Rich, I cannot wait to do my first boutique hotel." And so, I believe, and I'm speculating, I'm always willing to be wrong. I'm always willing to be wrong, but I believe in the next two, three, four years, the boutique hotel game

is going to be the next big thing. And so, that's why I think it's important to learn it right now. Thanks for the the summary and recap there. And and I agree a lot of really good points there. Uh I mean, first of all, just being able to add value to a property and then having the bank recognize that value that you've added versus, you know, the single family space where that value is really based on what your neighbor sells for. So that's something that I

think is really exciting. Uh and I'm excited about real estate in general. You know, they say uh or good or real estate investors make make a lot of money in up markets and they make a lot of money in down markets. They they basically are just always investing, right? Of course, not in everything and things are changing and I agree. I think there's a lot of opportunity uh with boutique hotels. That's why we've been jumping into it as well for a lot of the reasons that

you mentioned. But maybe maybe Rich, we can just step back uh a couple steps first. And I know there's a lot of our audience out there like, "Yeah, you know, that sounds great, Rich, but you know, boutique hotels cost millions of dollars." Uh, what would you say to those folks out there that want to take this next leap? You know, maybe they've got a short-term rental or maybe they just want to jump right to boutique hotels, but they don't have the money. I know you guys

are raising money. So, what would you say to those out there that want to get in the space, but don't have the funds or they're hesitant because of all the bad news in the marketplace? We've been in a high rate environment for 30 months and a lot of folks are terrified. They've been sitting on the sidelines and you said it two minutes ago. You said it and this is a very good takeaway and very important lesson for all your listeners. Uh you said uh good real

estate investors, good entrepreneurs make money in all market cycles, up uh up cycles and down markets. And I'm telling you right now, the last 30 months have been a grind for a lot of real estate investors. Uh no one would have predicted that the rate environment would more than double for 30 months. Uh, and so for the folks out there, yes, the mistakes are inevitable. They're going to happen. We make so many mistakes. We're making 50 mistakes every single week, but we're moving quick. And I'm

telling you right now, these 30 months, we've been able to grow the business. We've been able to figure it out. We've been able to buy good deals, and we've been able to figure it out. And all those lessons that I've learned over the last 30 months when most of the folks are sitting on the sidelines, they're waiting for a better time to enter the marketplace. Um, that wisdom right now is going to pay dividends when the market does turn around. And guess what? Over these next

four years, the opportunity is happening. And uh I'm ready to rock and roll. So I would say for the folks out there that are looking to get their start, I'm telling you guys right now, the greatest transfer of wealth in American history is about to go down. 40 million baby boomers are retiring. The rate environment is going to come back. There's going to be a lot of deal flow uh that's going to start happening. The market's going to heat up. And by the way, the Federal

Reserve printed 80% of the money supply in the last four and a half years. A lot of that money has been on the sidelines because of the rate environment. Um, you can get four and a half 5% uh risk-f free in a CD, long-term government bonds. Uh, and so a lot of that money has been out pulled out of the economy. But I'm telling you right now, in the next 18 to 24 months, as the rate environment comes down, we're going to see a lot of

that money that was printed uh enter the marketplace. We're going to continue to see inflation. We're going to continue to see asset appreciation in great markets. Um, but more importantly, the Federal Reserve is going to continue to print money over these next 10 to 15 years. And so, I'm very, very bullish. And I'm telling you guys right now, right now is the time because there's not a lot of competition right now. Um, there's still bad news in the marketplace. The rate environment is still high. But

I tell you what, in 18 24 months, it's not going to be the case. You can buy at a good basis. You can add a lot of value. And most importantly, you buy in good locations. Well, good stuff there. Um, yeah, we we know about location, location, location, right? Uh some people would even add a fourth location in there. Um you guys are buying underperforming assets. Can you tell us just a little bit about that or or maybe what are like the top three things you

might look for before you're acquiring an asset? I'll give you an example. the first boutique hotel that hotel that we bought and this is after me playing around in the multif family space and while I was buying larger scale multif family um I had an investor database and we are syndicating larger multif family in 2021 the rate environment started compressing and at the same time I was building out my short-term rental management arm to manage my short-term rentals and so I thought in 21 I'm like

well what if we pivot and go take down a small boutique hotel um I already have the investor database um and then also I have the management arm and I think we can manage a small boutique hotel. And so the first one I bought was 10 rooms up in Shelter Cove, California. Uh this is up uh beachfront uh up in Northern California near the Oregon coast. And this was a 2003 built property, so relatively new, 10 rooms, mom and pop seller. They had never exceeded $180,000

in gross revenue. They'd owned the property for 18 years. And so uh ended up picking this thing up. They seller financed the property. We took the income from 180 to $600,000 in 12 months. We bought the property for 1.5. It appraised 12 months later at 4.5. We tripled the value of the asset and that was through renovations, but more importantly, it was through good operations putting all the rooms on OTAAS. Uh the managers that were on site, they were living in two of the 10 rooms.

Uh we we renovated those rooms. We brought them back online. Uh, and we just put all the units on all the OTAAS, including Airbnb, including Verbbo, and we did a lot of heavy social media marketing, um, SEO marketing, and we rebranded the property. We put about 450 into it in terms of, uh, capex and, uh, design, furnishing, etc. So, all-in cost basis, uh, less than 2 million. It appraised 12 months later at 4.5. I'm refinancing that deal right now. Um, we just got a quote, I

just signed an LOI with a local bank in the area for a $2.8 million loan. Okay, so think about that. We bought it for 1.5. We put $450 in. Our cost basis is under 2 mil. I just got quoted a $2.8 million loan on a property that's worth 4.5 million. We tripled the value of the property in in 12 months. And that's the boutique hotel model. And so to answer your question, Tim, what I look for is I look for assets that I can buy under

performing. I don't care if they're negative cash flow. The the the less cash flow, the better because I know I can come in and get it at a better deal. We look for seller financing opportunities. Uh if not, we can use bridge lending. We have a really good bridge lender that funds all of our deals. And then uh for me, what constitutes a good deal is I need to at least have a clear path to double the value of the property uh within a 12 18

month span through our renovation package and and through our uh our operations. And how do you guys how do you go about actually finding the properties using Co-Star or Loopnet or your network or what's uh what's your process for that? Yeah. So, a couple couple methods here. So, first method, um, you really want to get clear on your your search criteria. Um, and that that comes down to market selection, but also what kind of asset are you going to buy. So, what is your ability to

buy? 25% of the hotels out there that are priced 10 million and under are owned by these retiring boomers. And so, we're looking at assets that are priced 10 million and under. Anything north that um you're you're dealing with more of a a savvy seller typically going to have uh a little bit less value to be added uh or a little bit less of a lift to be added potential to to force appreciation. And so um get clear on your ability to buy. So if you

have the ability to go buy a $3 million deal, you shouldn't be wasting your time looking at $10 million deals. Um but get clear on the search criteria in the market. For us, we're looking in California coastal. We love beachfront and we love A+ locations. Uh we like locations to where we can hold these things, these assets long term, you know, 10 years. Um areas that are going to have a lot of organic and natural appreciation over the the long term, but we can also force

appreciation with it. Also, this is very important, Tim. A lot of real estate investors in the multif family space, uh traditional long-term rentals, they look in tenant friendly areas like Texas, like Florida, like Arizona, uh because of landlord tenant laws. And I get it. But with the boutique hotel game, we think the opposite. We like the more liberal areas um because these liberal areas tend to have more bureaucracy and more red tape, but more importantly, they tend to have tight or strict Airbnb regulations, which brings

way more demand back to the boutique hotel, and that's that's what we're playing off of, right? And so, for example, I I own a luxury uh Airbnb single family in Scottsdale. Uh 8,000T property. This thing cranks out. It did $738,000 last year. It prints money. I never want to own a boutique hotel in Scottsdale because there's 6,000 short-term rentals there, right? And so we're we're only targeting areas in in coastal California with tight Airbnb regulations in great locations. Uh because these are high growth markets and

every 12 years organically a lot of this real estate doubles. Yeah, it makes a lot of sense. I mean, I'm I'm from California originally. I know what the restrictions are like. I still own properties in California. uh and they're still regulated, you know, and so being able to bypass that, having a license to operate as a hotel really takes away a lot of your risk, too. You know, there's there's a lot of, you know, buying a property in a gray area where the rules are not

set up yet. Is really risky, right? I mean, we we see these markets just being taken out. Um, and so if you're on the right side of that and you know that you can always rent legally, uh, and supply is being stripped, then then that's a good thing. Yeah. When I hear investors say, "I don't want any regulation. I want to pick markets with no regulation." I'm like, "Regulation is a good thing because you you you learn how to take advantage of the regulation and it

protects your investment." And it's not just a boutique hotel game. Um, I got a good friend of mine, Mikey Taylor, who's got multiple funds that are doing a lot of groundup development in the multif family space. Um, they're doing it all here in Los Angeles, Los Angeles, Orange County, San Diego. Um, there's the barrier to entry to build multif family here in these markets, larger multif family is very high. Takes three and a half years to get permitting, uh, entitlement to be shovel ready. And so,

um, it it it really protects your investment. And so, I think bureaucracy is a good thing. You just got to you just got to learn how to take advantage of it. Great point. Um, you mentioned there briefly about seller financing. I just want I just want to jump into that a little bit and maybe we can uh unravel some of the details behind it. You mentioned the baby boomers which we know they're the second largest demographic in the US, right? Uh, and a lot of their

properties they own outright. And if we think about a boutique hotel like the one you picked up for example, you know, that was built over 20 years ago, if if we look back at properties that are a little older and the financing options that baby boomers or whoever were building or buying these properties had, they're usually shorter term loans, right? You know, a 10-year commercial loan, 15, 20. So, a lot of these properties are owned outright, which means there's a lot of opportunity to work a

seller financing deal. um especially in an environment right now where the rates are a little bit higher. So what's your guys's kind of approach to exploring the seller financing before exploring financing with a bank? Yeah, so we will always source uh deals that have not traded in 20 plus years. Uh because these deals typically are probably owned by more mom and pop uh and also are more likely to have a lot more equity to where they can provide some sort of seller financing. Uh, and if

you look at the baby boomers, um, you know, ask yourself what makes a good candidate for seller financing. It's typically an older investor that's not going to be rolling their sale proceeds into another opportunity. Uh, but on the flip side, they're going to be retiring and they prefer to have some cash flow ongoing in retirement, but also to lower their tax burden. And so, in the boutique hotel game, um, you know, we're looking for assets that haven't traded in a while. And then my best favorite

way to propose the seller financing is to propose two offers. Um, one offer will be no seller financing and then another offer will have seller financing, but the second offer that has the seller financing in it. Um, typically I will make that offer a little bit more attractive uh, and I will find out uh, before I make the offer what is the seller needs. Do they want a quick timeline? Do they want certainty of close? They want certainty of close, maybe we do a higher earnest

money deposit. Maybe we go non-refundable on the on the earnest money deposit day one just to give them certainty of close. But if they're often these these mom and pop sellers, they just they just want the highest price. And so if they want the highest price, I'll give them two offers. One with our financing or we go source it and then another one with seller financing and I will make that seller financing offer a higher price point. And I will also show the seller financing terms.

I'll show them exactly what they're going to make through the debt service payments. And let's just say we do a five-year term or even a seven-year term. I'll add up all the interest payments over the seven years and I'll include that to the purchase price and I'll show them, hey, over seven years you guys are going to make this versus not doing a seller finance and if you show them the comparison of most people are going to pick the the bigger number. Yeah. Yeah, for sure.

I if you're going after like a mom and pop that, you know, they've been running this boutique for 20 years and maybe it's their only property. they haven't seen these options before, you know what I mean? So, I think that's really good what you guys are doing and really valuable, right? I mean, if if they take you up on it, but they need to be educated a little bit, right? Um, you know, if it's someone that's just not a real estate professional, that's not what they

do, they might not even know that these options exist. They do. You got to educate them a little bit. Um, you know, because if you're buying an underperforming hotel that they struggle to to operate, they're going to be a little bit nervous uh seller financing it, right? the the the one that I just alluded to, Black Sands in, they financed 70% of that purchase and they were nervous. I mean, this this deal was a nightmare for the for the guy's wife. Uh 18 years it lost

them money. And so they were nervous to seller finance and then um but what people don't talk about with the seller finance is you go and do something to their property that they weren't able to do over 18 years. I mean, we took the value from 1.5 to 4.5. We took the income from 180 to 600. And now all of a sudden, talk about trust. And so now we go to refinance them out. Um, what's going to happen with that seller? We go to refinance them

out, go pay them the 1.1 back. That seller is likely going to give me the 1.1 back and now be the largest investor in my fund because now I just built that trust. Rich, a a lot of our audience, you know, I started the podcast uh talking about short-term rentals, which used to mean, you know, the the individual property and now, of course, you know, we've broadened the horizons and we're talking about boutique hotels as well. But I think a lot of our audience are still

in the more single family space. Maybe they have some smaller portfolios and some of these concepts might just seem new to them. And so for someone trying to step into this space, you mentioned bridge uh loans, which is very common, you know, in the commercial space. It's literally a bridge between, you know, where the property is and and where you want it to be. Can you explain for for our audience just real quickly kind of kind of what that is and how, you know, you guys

are using that? Yeah. Um, bridge financing is simply just a short-term loan. um they typically will finance a percentage uh of the purchase price, a percentage of the capex, all the renovations that need to happen in the hotel game. If you have the right bridge lender, they'll even finance uh the furnishing and the design. So, um our bridge lender uh typically will do 65 maybe 70% loan to cost uh depending on how the deal underwrites. Um, and so, uh, in that example, they're going to fund

65% of the purchase, 65% of all the renovation, and 65% of all the design and furnishing. Um, which allows you to come in with a little bit higher leverage. And they're typically going to look at two numbers. They want to know what is the ASIS value of this property asis, uh, uh, when you come in and purchase it. And then number two, what is the, uh, stabilized value? And so, they're going to order an appraisal. And that appraiser is going to have two numbers. Uh the

existing value and then also the stabilized value based on your business plan. And so um they're typically going to cap themselves of about 65% of the stabilized value. Um but it's not really that big of an issue. So for example, the last deal that we bought um was 44 rooms up in Sonoma Coast Wine Country. Um this asset was Yeah. gorgeous asset, trophy asset, 1988 uh built. It had never traded until we bought it um last year, April last year. It stayed in the family the

entire time. The father had passed away a couple years ago. The son took it over, had poor management in place. Um and this thing just started spiraling out of control and he's told a broker to sell it, but he's like, "Hey, I don't want anyone to know it's being sold." So broker shopped it off market with just a few buyers. Um but we moved quickly. Uh we bought this thing for 6.9 and a quarter uh after the seller credit comes out to about I think just

under 135 a door. Uh, which wine country, Sonoma Coast, you know, Bedadega Bay? Uh, you're up in that. You're from NorCal, right? Yeah. Originally, yeah. Yeah. So, Bedadega Bay, uh, really good looking asset. All 44 units have bay views um right there on the water uh for 130 a door. You you can't build uh for that that price. And so, anyways, uh that that asset, we got a 70% bridge loan. Uh we're doing a $2.2 million rena. Uh so, our all-in cost basis is about 9.2.

2 the bridgeliner financed 70% instead of 65 because it underwrote well um and so we got a note let me just do the simple math here so uh we're looking at 9.2 uh million cost basis and then 70% of that so we got a note for about 6.4 foreign change, that asset will be worth 14 to 15 million uh when we're done with the rena and we stabilize there. We're almost done with the rena now. Um and once we get through this summer season sometime in

the fall winter, we'll be looking at a 14- $15 million asset with a $6.4 million bridge note. And so, um you know, then we'll refinance some perm debt and we'll get a 65% uh loan, let's just say on a $15 million asset. uh we're looking at a note of about 9.7. We'll pay off the prior note and and then we'll return a chunk back tax deferred to the investors. Uh refi and roll. They can take they can do whatever they want to do with that money.

They can roll it into another opportunity with us. Uh or they can take that money to go buy a personal investment um of their own. Um but that's the name of the game and that and that's why I'm all in on this boutique hotel game. about debt and taxes and um even in the high rate environment um we're able to to force a lot of appreciation right now. Well, Rich, you make it sound easy. Uh I know there's a lot of steps in there and that

uh you know it's not necessarily easy. Uh there's a lot of lot of hurdles to jump over. Um one just quick question before we jump into some of the challenges. Yeah, absolutely. When a bank's financing refinancing your property, so you know that's that's that's the goal, right? You guys take a property that's not performing well, you add value to it, you renovate it, it's earning more money, therefore the property's worth more, therefore the bank's going to lend you more money on it. But before they do,

uh there usually needs to be some sort of seasoned um you know, the asset needs to be seasoned for a little bit. And correct me if I'm wrong, uh this is going back to my my commercial real estate days. I used to be a broker for commercial properties. Um Okay. what what is like sort of uh we we worked with all all investments actually so multifamily um I don't remember doing any hotels but we had land and warehouse and shopping centers and you know I was

I was a guy like underwriting all this stuff with these big worksheets and it was a it was a lot of fun I learned when you say when you say broker you were uh representing buyers and sellers or you were representing uh you you were sourcing debt uh broker representing buyers and sellers got Okay, cool. Investors love it, man. Yeah. Um, and so there, you know, there's this period of time where the bank wants to just verify that the property is in fact worth more, it's

earning more. Uh, and so what have you guys seen as that sort of time horizon? I mean, you get the property renovated, you got new guests coming in, the ADR, the average daily rates gone way up. What's what's kind of the timeline there before you could actually refinance and pull out some of that money? Yeah, if you can have trailing 12 months of like strong financials uh under this new model and obviously there's going to be a ramp up period whenever you rebrand a property. A

lot of these hotels that were taken over were completely rebranding the name and sometimes we're even starting from zero in terms of the reviews and so there's always a ramp up period, but if you can show a strong trail uh trailing 12 of financials of like, hey, this is when we uh rebranded, we did the official um launch and then you can see the financials ramping up over the trailing 12. That's huge. Um, but you know, everything's negotiable with these banks. And so, um, if you

have another asset where maybe you got a maturing bridge loan and you're like, "Hey, um, you know, the reno took a little bit longer than expected, we got a maturing bridge loan, uh, we only have 8 to nine months of financials." You know, they're going to work with you and they're going to do what they can. Um, but worst case scenario, and this is one thing I didn't touch on with the bridge debt, is bridge debt's typically got a shorter uh, maturity date. So, um, you're

often looking at 24 months, uh, maybe 18 months, and on the high side, you know, 36 months. You could typically get some extensions. These bridge lenders are not trying to be, uh, hotel operators. The last asset they want to they want to operate as a hotel. Um, and so they typically work with you. This whole concept of like lend to owned, I I hear this like, oh, I got to watch out for these bridge lenders. They they lend to own. Um, I've never seen that before.

All the bridge lenders I work with, like we have great relationships with um shoot, our bridge lender that funds our deals. They sold us uh a hotel that they repossessed from another borrower um in December of 2023. And so they they were like, "Hey, we're not hotel operators. We got to get this off our books. We'll give you a discount. We'll finance it for you." So um this whole like lend to own thing, I I've never seen it. All the presenters I work with, we have

great relationships with. They're they're they're trying to help us because when when we win, they win. Um but anyhow um you know I think 12 months trailing financials great. If you can show uh a whole year on a tax return even better uh for the perm financing and obviously a lot of that's going to be contingent on what kind of perm financing you're going after. Uh if you're talking smaller hotels you're dealing with a lot of local regional banks uh that might have a construction I'm

sorry a commercial products right. Um but these are you know full recourse loans typically five sevenyear fix um with some sort of balloon payment at the end and so um you're looking at a lot of local banks and then you got CNBS uh product as well but you know that's typically going to be uh for boutique hotels kind of like uh they probably like a little bit north of uh 10 million in terms of low balance. Uh well thanks for the details there gosh these deals

are exciting. We know there's a ton of opportunity out there. Um what are what would you say have been like the the two biggest challenges you've ran into maybe that you didn't expect? Yeah. The the biggest challenge is uh going to be when you're shutting down these properties doing a full rena. Uh often you're shutting down the entire property. So zero income coming in. You still have all your fixed expenses going out. Property taxes are still going out. You still have insurance. Insurance costs have have

tripled here in in California and a lot of markets around the the country. Florida as well. Um, insurance rates are insane. And then you got bridge debt. Um, that's not cheap. So, bridge debt on hotels can be 10, 11, 12%. That's not cheap. And you have zero income coming in. And so, you really have to get uh very precise with your underwriting, but also have contingency baked in uh for these projects. And so, for the bodega deal, uh it's a $2.2 $2 million ren, but you

know, it's always good business practice for any real estate investor out there doing a big renovation to have contingency capital set aside. So, we typically underwrite for 20%, sometimes 25% contingency capital set aside. So, if it's $2.2 million rena and you're going to have 20% set aside, that's an extra $440,000 if I'm math correct set aside for change orders, uh, going over timeline, etc. Uh, almost all these projects typically go a little bit over timeline. There's always punch list items. Uh and then there's going to

be some change orders because once you start peeling back the walls, uh you're going to start to see some items, especially with these older tire properties that you didn't expect for. So, always have your contingency capital set aside. Um but that's the biggest risk, Tim. Like you got multiple projects going on on expensive bridge debt. Uh the properties are shut down. They're not bringing in any income. Uh and then you still got to stabilize these properties and so money can go very very quickly. Um, and

you don't want to lose these assets. You know, you got, especially if you're raising capital. Uh, I don't know about your listeners, but I want to sleep good at night. I want to sleep good at night knowing I'm being a good custodian of other people's money. Um, and so I want to take care of my lenders. I'm playing the long game. Like, I want to build a big thing. And so, I know the way to do that is I got to like make sure my lenders

get paid. I got to also make sure all my investors get paid. Um, I'm fully transparent with with what's going on. Um, and the last thing I'll say is this. Uh, this is probably one of the biggest challenges that that I personally had last year that we we dealt with. Um, we talked about insurance rates going through the roof. We did a full rena, a $ 1.4 million rena on a 24 room boutique hotel here in downtown San Diego in the Ly Italy neighborhood. Um, it's

like the hottest, trendiest neighborhood where all the the cool restaurants are popping up here in downtown San Diego. It's where our office and podcast studios located. Um, we did a $1.4 million reno on a property that we bought for 5.8. Uh, it had all the problems. It was like a one-sar hotel, had bed bugs, like it had squatters living in it. It was disgusting. Um, and so we completely turned this whole property around. We did the grand opening in December of 2023. And in January of

2024, we had a record rainfall in San Diego. Like rainfall that like we hadn't seen in like 45 years. And like all the streets downtown were flooded out. My podcast studio got flooded out. Shoot. Even my new uh high-rise apartment, brand new construction high-rise apartment, uh got flooded out and like all these buildings were getting flooded out downtown. Our our hotel got flooded. Four, no, six of the rooms were affected. We just did a brand new reno. Um it was it cost us about $500,000. It

was a 500k loss. We had to shut down the property for like six weeks after we did the grand opening. Uh you know, do all the um the mitigation, all that sort of stuff, and get this property back up and running. uh insurance did not cover a dime. They have still not paid a dime. Um we paid almost $60,000 for that premium and they didn't cover a freaking dime. And so that was something that definitely set us back. But I'll tell you what, Tim, I alluded

to I'm playing the long game. Uh I was fully transparent with the investors. I went over shot a couple video updates. Uh we do uh you monthly reporting with all our investors, video photo updates of all the properties, renovations. But I went and shot a video and I was just like transparent. I even put it on social media. I'm like, "Hey, um, you know, not every day is going to be bright and sunny as a real estate investor. We had our hotel flooded out, insurance to

cover a dime, about a 500k loss." But guess what? We grinded, we hustled, and we figured it out. My team rallied, and I'm very proud of them. Um, but none of our bridge lenders missed the payment. Um, our investors never missed a distribution. And, uh, we got the asset back up and running. Uh, did it set us back? Yeah, it did. But I would rather lose my own money than investor money because I'm playing the long game. I want to build a big thing. Um, I'm

trying to build a billion-dollar uh real estate portfolio. And this is coming off of being an 11-year air traffic controller. Six years ago, Tim, I knew nothing about business, nothing about real estate. And I cash out my $300,000 401k to get my start in real estate investing. And so, I want to build a billion dollar thing. And I know in order to do that, um, the only way I'm going to build a billion dollar thing is by doing what I say I'm going to do, taking

care of my investors, taking care of all my lenders, even when [ __ ] hits the fan. Awesome stuff. And uh yeah, necessary values. Uh if you want to be in the real estate world, you got to be honest, you got to be transparent. Um and you got to be continuously learning. You know, I I guess that's um one of the nice things about buying more than one boutique hotel or having a a plan to acquire a billion dollars is the next one you'll have all

the learning experiences of the prior one. Um so great stuff there, Rich. And and I would agree probably the biggest challenge that I've had my personal real estate career has been not budgeting enough. You know, big renovations, you got all those things that can happen. And real quick, all all those challenges are like they're going to happen. You you you can plan for you can stress test your underwriting. You can plan for like all the whatifs. There's a million whatifs. But the main thing is like

you just got to take action and go because uh like these challenges are just gonna pop up. Like every day I'm putting out fires. Like there's just there's just left and right. And that's just that's just the game. As an entrepreneur, as a real estate investor, um it's just part of the game. But each time you you push through and you figure out how to like get through these challenges, you level up your game. A new door gets unlocked. You look around and you're like, "Oh

my gosh, I just reached a new level with new opportunities." Um, and it all starts with challenging yourself. Life gets overwhelming before the level up and um, so I wouldn't shy away from it. Um, I would lean into it. Um, and it's just the mistakes are inevitable. It's part of the game. Um, it's that that's why this game is not for everyone. It's not it's not for everyone. 100% 100%. And um, sort of leading into one of the other challenges being a real estate investor is

management. Uh, and one of the really important things with a short-term rental or boutique hotel is ensuring that our guests have really good experiences and they leave us good reviews because we know that a property that has subpar reviews can literally earn a fraction of the same property that has good reviews. Uh, and we talk we talk about management a lot on this. uh you know, our audience knows that we we manage properties in a lot of different places. Our personal portfolio and uh we're constantly

learning. So curious to hear um just a little bit of insight from you guys. You know, you you've acquiring these are big properties too and and a lot of them. What's your sort of strategy and maybe some tips for our audience on uh just ensuring that you you get the management piece nailed down? Yeah, man. You nailed it. the the management arm is is definitely the most challenging arm. Like boutique hotels, uh short-term rentals is not a passive game. Like it's very very active. It's very

hands-on. And the second you get complacent, you're going to get smacked. And so um revenue management is is is key. Uh really really paying close attention to the comps and you said it, driving guest reviews, like that's the name of the game. Um and tracking your KPIs. And so, um, we run a level 10 meeting every single Monday. We self-manage all of our stuff. Um, you know, I I think there's something to be said about going third party because there's a lot of headaches in property

management. You know this better than I do. Uh, but I'm a control freak, man. I like to be able to have full control of these assets. Um, I don't want to buy all these assets and raise money from investors and then just give it away to like some third party to like go manage our stuff and like uh, you know, if it works out great. I'm not I'm not in that boat. And so for us, if we have an issue with any of the properties or

one of the properties is not performing the way that we needed to, um, you know, we'll sit down, we'll meet, and, uh, we'll make a pivot and I'm willing to pivot. I'm willing to try anything if if it's going to give us an opportunity to to give us a competitive advantage. I'm willing to try anything. And so, um, from a revenue management standpoint, uh, from a guest experience standpoint, um, you know, playing with the front desk, like we try to operate lean if we can, especially

with the smaller hotels with a selfcheck-in, selfch checkckout model, but, you know, some hotels, um, you know, they might have a lobby, they might have multiple access points. They might uh, just not be in an area or have a a a guest avatar that is okay with the selfcheck and selfch checkckout model. It can lead to bad reviews. And so, you're going to be able to pivot. Um, and pivoting might be, hey, like let's let's let's staff a front desk and um that's just part of

the game. And so a lot of it is really driving the reviews um and and and and really defining the team, man. Like I I think like I just made a shuffle with my team personally um we had our annual meeting this year just last week and um you know, someone that was with me for for quite some time. Uh I had to to let go. It was a tough conversation, but I had to reset the bar and had to bring in some fresh talent. and

we're bringing someone else in that actually starts tomorrow and she's got 11 years managing and operating small boutique hotels, 50 rooms and under 11 years um as a revenue manager and uh has a lot of experience and so we're going to bring in some some better talent and reset the bar. But um it's all the things to get better as an entrepreneur and as a real estate investor. It's all the reps, all the at baths and I'm telling you right now like you like you know

this better than I do, property management is uh it's it's a lot. It's a lot of fires and a lot of moving parts and it never stops. There are certainly a lot of pieces. It seems like every day there's a new piece, you know. Um yeah. Uh and you really have to stay on top of them. I mean, you let a couple pieces go under the radar and uh it comes back to you real quickly in the form of a not so good review or a

loss to your market, you know, or a loss to your competition. Like you're basically earning less than than your your neighbors. your competition. So, these things have to be watched. And I I think that's one of the things that's exciting about the boutique hotel space, too, is that there is a little more scale there, right? I mean, if if we own a a single family Airbnb short-term rental, we're not in a position really to to go out and hire a revenue manager, to hire a a

manager that has 11 years in the boutique hotel space, right? Uh and that's one of the nice things that come with boutique hotels. We have some scale. uh we can afford to hire a team and um especially the bigger you get, you know, the the bigger your team can be. And we know now with all the technology that we can centralize a lot of these options. You know, you mentioned some properties having reception on site and some not having it. Maybe just real real quick, Rich,

what what sort of leads you to decide whether you are going to have an on-site reception versus uh removing that and saving a lot on on operating costs. Yeah, it all comes down to the reviews and and and the guest experience because obviously you know this better than I do. The reviews drive everything. You said it. Um and it's not just the Google reviews, but it's like all the OTAA reviews. And so, um you got to look at at the at the operation. And you got

to look at the number of units. How much revenue is it going to bring in with or without it? So we have the one hotel where it has a 4.9 star Google average, the Black Sands in up in Shelter Cove, and that's selfcheck-in, selfch checkckout. That thing crashes. It has great reviews, and we just run a selfcheck, selfch checkckout model. It's garden style, so it's easy for the guests to find their rooms. Um, and they don't need a front desk. Um, we have another hotel here

in Little Italy, which is 24 rooms. Um, and that one there's like multiple access points and it's very very hard to run remote. And so a lot of our poor reviews come as a function of that. And so um, we made a pivot to start going to a part-time front desk. It started working pretty well. And so now we're going to staff, uh, a reception from, you know, morning to evening. And that's going to allow us to one drive in more reviews, but also bring in

a lot more revenue. And so you just got to work backwards. And so the best way to do that is ask yourself, okay, well, what what is a front desk going to going to run you um for that particular property? Like I think 12 to 13 hours of front desk um is going to be sufficient. So someone showing up uh you know probably at 8 or 9:00 in the morning and then someone there till 9:00 at night. So just run work backwards. So for example, 12

hours uh a day uh times let's just say 25 bucks an hour, you're looking at $300 a day in in front desk personnel. That's probably going to be two people, right? Two people working 6 hour shifts times 365 days in a year, you're looking at $109,000. And let's just add 25% for payroll taxes uh times 1.25, 25. You're looking at a cost of about 300 uh sorry, $136,000 to have uh a front desk 365 days a year for 12 hours greeting people when they show up.

Uh helping them find their room, helping them with restaurant uh you know, recommendations, uh you know, any activities they want to go do, they want to go out on the boat, they want to go hiking, they can help with all that sort of stuff and just be that friendly face that's going to welcome them. But also, we can lean on the front desk now to do uh a very small packaged breakfast in the morning. So, the front desk that shows up in the morning, they can

go get local donuts, croissants, anything packaged is legal. We don't need a food and beverage license to do it. So, as long as it's packaged, we can do it. They can put out coffee, orange juice, and graband go stuff, granola bars for the guests. And now we can check the box in the OTAAS, hey, we got free breakfast included. And then uh secondly um we can do some like more like uh cool stuff like in the afternoon evening with with the front desk they can do

some sort of happy hour stuff. Uh maybe we can do some wine stuff um in the in the afternoon for like an hour or two and it's a good little amenity for the guest. Um and so we can really utilize that sort of stuff to just have an extra touch points for the guest and really drive reviews. And so in this example, we'll bring in $136,000 of additional payroll, but we have the opportunity to bring in an extra five maybe $600,000 in topline revenue. Um, that's

a 5x multiple. I'll take that bet any day of the week. And guess what? If I if it doesn't work out, you can always you can always cut back on staff. I'm willing to try anything um to see if it's going to give us a lift. And if not, you can always cut back. And so it's a risk-free proposition. Yeah, that's some really great insight. I mean, a lot of times when we look at reception, we're just thinking about reception, you know, answering the phone, making

a reservation. Uh, but really having your team kind of go the extra mile and offering more amenities and really just checking the boxes, as you mentioned, on the OTAAS provides more visibility, which means you have more chances getting booked, which means it can drive your topline revenue. And uh, yeah, great great insight there. And great great insight, I mean, throughout throughout this interview, Rich. Uh we we've talked about a lot of stuff, right? Um you really gave us some some good detail on sort of the

process for acquiring a boutique hotel, sort of what you guys and your team and your fund. And I want to make sure we've got a minute so you can share that with Let me let me give you let me give you a couple more quick pointers real quick cuz I these are these are these are these are good nuggets right here. So, um the marketing for these boutique hotels and the SEO is is very big and that the most important reviews is your Google reviews. And

so, uh we use a company um my buddy Colton owns this company. It's called Jumper Media. And what they do is they can simulate uh basically these artificial drives, GPS drives to your property. Um and and what they do is these GPS drives will go on Google and they will Google your hotel and they will they simulate a drive and they will go park in front of your hotel for like an hour. And so now what this does is it is it bumps you up in

the Google ranking. And so use these guys in 3 months they guarantee that you're going to be in the top three on Google ranking in whatever market you're in. So that's that's one good tip and you can use this for any business. Um the other thing is SEO. SEO is very very important. Um, we started using an SEO company very recently. So, they're going to be writing uh blog articles for all the properties with certain keywords um that's going to drive online traffic and point all

the traffic to our direct booking website for these specific hotels in whatever markets they're in. And they can structure these blog articles to like loop in the local uh you know wine bars, the local restaurants, the local concerts that are going on in the area. and it points all these arrows back to our hotel, which is just going to give us more visibility. Um, and then the last thing I'll mention is this. This is very important. Um, I have had Isaac French on the podcast, Ben

Wolf on the podcast. These guys have had uh, you know, pretty big exits. Uh, especially Isaac French and and and going very heavy on the social media presence. And so the social media presence for all these properties is big. So influencer marketing, influencer stays, having the right photos and the the right videos to push out on social media so you can grow your social media account is huge because it's going to help it's going to be a big lever for not only your direct bookings, but

it's going to be massive lever for your exit. Um Isaac French had a uh what is it called? One Oak Lake or One Oak Live out in Fredericksburg, Texas. Um he sold this property a smaller uh kind of a um unique stays type of experience. I think it's only like 10 10 units, all individual units, but he had a massive Exodon's property. And he said the seller paid an extra $2.2 million uh in addition to the purchase price because his property had this massive social media

following on Instagram, which was driving a bunch of direct bookings and they were able to charge this tremendous ADR. And so one thing that we're doing, we're going ham on this year is like I hired a marketing director last year and we are going all in on influencer stays and going hard in the paint uh on really growing the the the accounts, the social media accounts for these properties because it's going to help us tremendously uh with these exits, but more importantly driving uh a lot

of like you know direct bookings and and allowing us to ultimately uh get a lift for those ADRs. Great nuggets. And yeah, we know I mean direct bookings earn more, right? We don't have to pay booking fees and much more important um I mean I would say it's important for anyone out there with a short-term rental but as a hotel you have your own brand and it really does guarantee your occupancy a little bit more if if you're not relying on OTAAS, right? You've got repeat

guests coming back, you've got new cast coming directly with you and then of course the value of your property. Uh if you've got this big brand behind it, there there's a bunch of value there. Yeah, of course, man. Awesome stuff, Rich. Geez. Um well, let's see here. Uh we covered a lot of great things. Uh I've got one other question before uh before we um make sure everyone knows where to find you. And that is it's not related to real estate. Doesn't have to be anyways.

The name of the podcast is short-term rental riches. And so a lot of times when people hear the word rich, they think of finances, right? But we know that there's a lot more to life than just being financially rich. So, I'm curious if there's something in your life that you've changed recently, maybe uh a product or something that's enriched your life in a non-financial way. One of my like favorite quotes is uh money money is uh time, wealth, and freedom. And that's that's true wealth right

there. And um your true riches in life are time, money, and health. And so I'm a big believer in like, you know, taking care of your body. So like, you know, waking up early, going to the gym. It all starts with fitness, right? Taking care of your own body. If you can't take care of your body, um how are you going to take care of your real estate investments? How are you going to take care of your business if you can't take care of your own

fitness? Uh and so I'm a big believer in, you know, going to the gym, lifting weights, getting outside, hiking, walking, being into hobbies, uh and also impacting a lot of different folks. And so for me, uh, you know, money really comes down to, uh, time, health, and freedom. Money is just a vehicle to buy all those things. Yeah. Great stuff. Great stuff. Um, well, I really appreciate you coming on. Uh, I know you've got a lot of stuff doing. You talked about your fund. Uh, you've

got the podcast. Uh, you have one of the largest real estate networking events out there. Can you tell us a little bit uh about that and where to find where to find you? Yeah, so everything's on Instagram uh @ rich summers. That's s o m e r s. Uh we got a hotel fund. We got uh a bunch of investors. We do passive income tax benefits if you're interested in learning more about investing. And if you're an accredited investor, you can go to summerscap.com/invest. And then

uh I got a podcast called the Rich Summers Report. We're going to have Tim on at some point next time you're in San Diego.