Transitioning From Investing in STRs Into Boutique Hotels | Kassidy Warren E3

Michael Russell 0:00

Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate.

Unknown 0:09

Get in the game.

Michael Russell 0:18

Hey y'all! Welcome to another episode of the Hotel Investor Playbook. I am very happy to introduce Mr. Cassidy Warren. He is a boutique, hotel, and short-term rental investor who started by renting out his spare bedroom for $35 a night back in 2015. And now he's got $12 million worth of properties across five different states. He attributes his success to focusing on design, guest experience, and focusing on his dreams. He's a former, self-proclaimed former corporate ladder climbing junkie who quit his job, turned to van life, started his own consulting business, and now invests in real estate. He's an outdoor enthusiast slash madman. I know this guy, he is an athlete who paddleboards, snowboards, hikes, trail runs, and competes in triathlons and adventure races. So welcome to the show. Cassidy, how's it going?

Kassidy Warren 1:15

Mike, mate, good man. Good to be here. Excited. Love that intro, dude. You nailed it.

Michael Russell 1:21

Well, we are really happy to have you here. I just want to take a minute. I had a chance to hang out with you a bit. We we went recently to a um a hotel investing conference near Knoxville, Tennessee. And we I had the pleasure of you know getting to know you a little bit more, hanging out, going to dinner, and really talking story. And I am so inspired by what you're doing. I'm inspired by your story, your journey, not just from a professional perspective, but also just a mindset perspective, some of the things you shared with me about what you want to accomplish both mentally and physically. We talked a little bit about you know some of the uh the diet and fitness programs that you're you're working on. And so I'm inspired every time I get the chance to speak with you. I'm stoked. And so I'm happy to have you on the show.

Kassidy Warren 1:59

Ah, man, right back at your mic. Thank you, dude. I appreciate it.

Nathan St Cyr 2:03

Yeah, man. Cassidy, I am brick and pumped for this conversation. That's for sure. You're one of the guys that in this space that I really have felt very connected to and uh am inspired by, just like Mike said, look up to. But I just want to share with our listeners that as we go through this, there's this like there's this one differentiating factor with you that I think is is it's it's kind of epic. And I want to dig into it because it I believe it's gonna reveal a lot. But I want to dig into the question of why specifically are you selling your short-term rentals, those assets, and and moving them into boutique hotels. Look, we know that there's a lot of people in the space that have short-term rental portfolios, that they see the the benefits and the advantages of scaling through boutique hotels, but I don't hear a lot of times that those people are actually selling those assets, their short-term rental, because we've looked at yours. Like yours are freaking successful. There, you got, I know you got cash flow coming through. So to me, that's a question of like, okay, so what is it that you've recognized that you're you're making that decision? So I want to dig into that. Secondly, you're under contract right now for dude, your second boutique hotel in like freaking three or four months. We are look, we're pumped. I know that there's gonna probably be some things you can share with us, things that maybe you can't, but we want to dig into that. I'm excited to learn about that process. And I think that when someone's right in the in the moment, right when you're you're in the the heart of it, that that provides a tremendous amount of value to all of those, all of us that are that are kind of doing the same thing in the space. So I'm excited to to really dig into that piece as well. But before I do, and you mentioned it, it's Mike mentioned it in your bio. But I gotta I gotta I gotta tell first of all two quick stories. The first one is you guys mentioned diet and and actually I know there's passion for both of you guys, but I also want to provide a warning right now. This is a warning. Oh I've I've worked side by side with Mike for 12 years. Like, dude, 12 years. That's crazy. I was thinking, holy crap. And there's one common theme in our daily experience. Mike's gotta eat. Yeah. Onion. Dude, we'll go from like we'll have big things and we'll go from like one meeting to the next meeting. And all of a sudden, he's like, you know, I can tell, like the I she starts to change a little bit. And then as we're going into the next meeting, I can see the timeline around. And she's like, I know what he's thinking. He's thinking, how am I gonna get food before next P and then he'll voice it? I already know what he's gonna say, but as soon as we hang up, he's like, I gotta get something to eat, I gotta make sandwich, I gotta blow up. Well, here's the warning is today day one. Are you gonna are you on the cleanse? Are you on the cleanse? Today, today is day one of Mike starting a 16 day crazy juice, aren't you?

Kassidy Warren 5:16

You're on day one of tomato juice, huh?

Nathan St Cyr 5:19

Let's go back to the case. I am I'm okay, good for him, but bro, you don't have to spend time with them daily. So anyway, just a warning for for for you and our our listeners.

Kassidy Warren 5:30

My my wife went through the same thing. They're on the they're on the same program. And so everyone starts out there's the two-day tomato juice, and then there's the the 14-day cleanse after, and then you get into your your full meal plan. So Mike's doing this program, my wife did it. It's one of the greatest things that you can ever do. It's through Dan Martell and his fitness program, completely mindset and physical fitness life-changing program. So good for you, Mike. I'm proud of you, man.

Michael Russell 5:53

Yeah, I'm stoked. I'm really uh looking forward to you know taking it to the next level. I've always been physically in shape and you know, I've worked on mental fitness, but this is this is a combination of both. It really is what it comes down to is if you want to get to that top, top level, you know, I'm 44. So, you know, now it's kind of now or never for me. I don't know. I'm just arbitrarily saying that, but I'm like, all right, let's get ripped, let's do it. So I'm all in.

Nathan St Cyr 6:18

Hell yeah. Well, I I love that. I'm pumped for the journey and just wanted to provide a quick uh a quick warning for everybody, including myself. So, but secondly, I want to tell the story of you mentioned a little bit of it in your in in the bio, but I gotta provide some some context here of you know how we met. We're in a community together, a mastermind community, and Cassidy joins the the community and like day one. Like, like I don't I don't even know if his bio went out and all of a sudden he's like someone would throw up a question, and then here's this, here's this guy just providing freaking instant value. Like and it's constant. I swear, I don't know if he has like it's attached to his like I don't know, new technology, but before somebody even seriously, and it's it's consistent. You provide so much value when someone asks a question. And under all of these different, it's not just one avenue that you're you have knowledge in, it's just you really provide a tremendous amount of value. So, man, this guy comes in and then instantly freaking goes under contract in less than four months. He's under contract with his second. So, you know, we view Cassidy as like he's a main contributor. And one day I'm sitting there and on Instagram, all of a sudden I see how my journey started with $35 house hacking, sharing my home with strangers. Running home, running back and forth from on lunch breaks to turn beds, and you know, from there going from that part of the journey into okay, now we're gonna go and live van life so that we can we can utilize we can actually utilize this system to go move on to the next property, and then you know, from there strategically using your W-2 401k to with with tax benefits of cost segregation to go out there and and make things happen. And man, but just the start, just to to think that, man, this this guy that's provide really providing us with this much value consistently, that it started with with taking that that action of you know, $35 a night, sharing your home, doing the freaking work. I just I think that number one, it's really, it's really inspiring and it's a just a constant, right? When we look at people's stories, that it all starts with, you know, having a vision and then being willing to take action and do whatever it takes to get started. So I want to, I want to commend you from that, for that and just say that it's a really inspiring story. But I do have a question with that, because we could dig into the mental mindset and leaving your W-2. But I want to know in that moment, in that beginning, because obviously you saw something, you had a vision for financial freedom and to leave the engineering position. But I want to know why is it that you chose hospitality? Like there's so much noise out there of all of these different things that you can do to go and create whatever cash flow or wealth or invest in, and there's so much freaking noise. But you got really focused and you started a path in hospitality. And I just I'm wondering why.

Kassidy Warren 9:52

That's a great question. I throughout my life, I think I always worked like retail jobs, and I was always the one to talk to customers. I can remember a particular job where I was working on cars and I was working on a car, a customer came in, and everybody else kind of looked away, you know, and nobody wanted to go talk to the customer. And so I just, you know, I would always be the one to go talk to the customer. And I actually really enjoyed customer service. Something about leaving a smile on somebody's face even after they spent a bunch of money, right? So it was sort of like really delivering a ton of value to people. That's something that I really enjoyed. And I was an engineer for a long time, and that was sort of the same approach I took in my work. And a lot of the engineering I did was for customers in particular. And so I just always really appreciated like giving value to people and almost them not even knowing how much work went into doing that and the thought and the detail to get and deliver the thing to that person. And so that that's one piece of it. The other piece is design. I and my wife uh does all the designs, but I contribute. I like to say that I contribute a lot, but who knows? Uh, but I really do love just design work and architecture and textures and finishes and that sort of stuff. And so when Airbnb came along and you had an option to not only make more money and cash flow through whether you're house hacking or buying properties to do short-term rentals, you can make more money and you were able to actually design these properties really well. You could buy properties in the locations that you wanted to. So there was like a more of an emotional attachment to these properties and the hospitality and the design behind it. And coming from the customer service background that I came from, it was a lot of fun to be able to connect with the guests both when we were renting our spare bedroom out and just in the future when we started actually hosting guests remotely. So that's that's sort of where like how we landed on hospitality. I think it just fits within my own sphere and my like I can see and feel and touch everything really well with that hospitality. And buying big apartment buildings or being a landlord for single-family homes, that just doesn't resonate with me as much. And there's nothing wrong with it. It's just not my, it doesn't light me up like design and hospitality does.

Nathan St Cyr 12:23

I love it. So I I want to just summarize those points there because you're right. I I think that like house hacking is something that people do, right? But they don't necessarily, not everybody does it with hospitality and having strangers come into their own house. They may have someone that it they becomes a long-term rental in one of their their bedrooms. And then for them, typically they're gonna be like, okay, I house hacked and now I'm gonna I'm gonna go and buy my next rental. And then from there, they're like, wow, I'm spending all this time doing all this. I may as well, there's no scale here. So to scale, then they end up going into multifacts. But what you just hit on were a couple of things that you felt like hospitality were giving you, where number one, you were gonna get more out of it just from a life standpoint, lifestyle, emotional. You could go and purchase properties that weren't necessarily in just your rental market, but you could go find properties that you actually want to go to and visit, and then put your own creative spin on creating an environment that would put a smile on somebody's face, make them feel good, and you'd create this environment. But while doing so, you hit another key word that I heard in there was that they were gonna cash flow much stronger.

Kassidy Warren 13:43

Yeah, I mean, that's that's one of the big reasons, right? Like it's not the only reason, but it's one of the big reasons. And and we went through the COVID boom, and you've seen a little bit of a softening in the market, but overall, they're still gonna cash flow way more. And it's really dependent on your ability to create that experience for the guests that is gonna drive your revenue, right? It's it's the marketing, it's the photos, it's the listing, it's all your decisions that lead up to going live with the property, but it's your continued ability to operate the property and deliver a five-star experience for your guests every single time. So that's what's gonna drive your cash flow mainly. And then the the other, I just want to note the other thing that like really drove me to hospitality was like travel. Yeah, and we're big travelers. And I think a lot of the people in the Airbnb space, when you meet them, are travelers themselves and van lifers themselves. And one of the skills that I have or that I enjoy is going into cities and finding like the best neighborhoods, and not just the neighborhoods that are like the glitchier and the most glamorous, it's the ones that have the most character and would be most enjoyed by visitors. And so I try to like treat, like act like a local in the places that we invest in and bring people into the sphere of this neighborhood, the vibe of the town, the vibe of the neighborhood. And I think that's something that we're really good at, that I'm really good at is being able to deliver this experience of being a local in the city without having ever been or knowing anything about the city necessarily. And so that's been a lot of fun for me too. Bro, I love that.

Michael Russell 15:17

Yeah, yeah. I think what you're touching upon is that, you know, you have a passion for design, you have an interest in the financial aspect of it, but really, you know, there's a lot of avenues in which you can generate income. You know, you probably could have continued your career as an engineer and financially thrive, done very well, but you pivoted from that because it it seems like it was way more fulfilling for you to be able to, you know, to place your artistic vision into spots that you visited, and not only for the sake of like the the value in making money, but like what you're describing is it's very fulfilling to see how it's affecting people, right? So people are vacationing with their family and they're having these moments that they're gonna reflect on and they're gonna remember wow, remember that time we went and stayed in Tucson, where you have rentals, for example, and you know, we did that hike or we had this experience, or the family came together, we celebrated a birthday or anniversary, and you are the curator of that experience. And for me, man, that drives me. I really find that to be fulfilling in our in my own rentals. And I think that it translates really well to hospitality in general. And that's kind of where with scaling up to boutique hotels, the same principle applies, is that artistic vision, but on a broader scale.

Kassidy Warren 16:37

Yeah, I agree. And and you had mentioned me being sort of an engineer and being fulfilled there, and I and I was, but really, I feel like I'm also like addicted to growth a little bit. And there was only so much growth that I could do in that position and even in that industry. And then I was sort of looking at people ahead of me and not really liking what I saw. And so this was really a much more fulfilling and growth-oriented path. And that's also where I'm at right now, where deciding to transition into boutique hotels is really a growth-centered mindset. And it's not just a mindset, it's like growth around money and the velocity of money when switching from short-term rentals to boutique hotels or single-family residential to commercial real estate. And so Mike tell a timeout. Yeah.

Nathan St Cyr 17:24

So, Cassidy, so that like I've heard you say this before. And when you say it, I always want to stop you and be like, okay, can you can you explain what you mean by that? So velocity, because I I've heard you talk about your moot, your the reason that you're selling your short-term rental, some of those assets, and you and then you you say this thing because of the velocity of money. And I've never heard you expound on what that really means, but can you just can you explain that?

Kassidy Warren 17:55

Yeah. So the velocity of money is a concept that I've developed that is based on essentially return on equity or your amount of cash flow compared to the amount of equity that you have in a property. And so when I talk about the velocity of money, I'm talking about selling or cash out refi, that's one way, but I'm talking about selling your property when your equity is at least five to six or more years of cash flow. So if you're making 10K a year net, but you've got 50 to 60 K in equity, to me, that's a time to sell because now you can take that equity and trade up. So I'll give you, I'll give you an example of our Cleveland property. Let's say we net 30K. And but if we sell, we can get 250K in the bank after all fees, after all everything. And so 30 divided by 250 is like eight and a half yeah. Yeah, like eight and a half years. So now by selling, we've just pulled forward eight and a half years of cash flow. And then if you take that 250, how much of a let's just stick with houses, how much of a house can you buy? You can buy about a $1.2 million house with that $250 in cash, maybe a $1 million. So our Cleveland house is worth $450, but we can go buy a $1 million house by selling. And if we're buying right, we can still cash flow $30K, $50K, $100K, right? And so now we have gone from appreciating on a $450,000 house to appreciating on a $1 million house. And again, the trick to this is leverage. That's why this equation works is through leverage, your ability to get a mortgage or a loan. On the property and only put 10 to 20 to 25% down on the property. And that's why trading up accelerates your money. And so instead of waiting eight years for that cash flow, I can pull all that ahead through equity and leverage and trade up. And now I've just sped up my money.

Nathan St Cyr 20:20

Okay. And then what about the tax consequences of doing that?

Kassidy Warren 20:23

Yeah. So great question. So there's another reason why selling around the five to six year mark is a good reason. So you again, you can do a cash out refi, but you're only going to get a portion of your equity because you're limited to the loan to value. Banks are only going to give you most of the time right now, 70% loan to value on a cash out refi. So you're still leaving 30% of your equity on the table. So number one, cash out refi, you can't use it as well. And then selling versus a 1031. So 1031 exchange allows you to sell your property and buy another property without any tax consequences. No capital gains, no income tax, no nothing. So with a 1031, you have 45 days to identify a property. And what I've seen most of the time is people can't find a property in time or they buy a bad investment. And so you're locked up in a bad investment. Or if you don't find a property in 45 days, they actually hold on to your money for an entire six-month period. So yeah, you sold, you are avoiding taxes, but they hold on to your money for six months. So you don't even have control of it if you don't find the property under the 1031. So the reason we're selling, and actually we're going to sell a majority in the first quarter of next year so that we can take all that cash, we can have it in our bank account, and we can then go buy enough real estate in that year that we will still offset all of our tax liability for selling the properties. So consult a CPA. I'm not a CPA, but basically what we're doing is we're collecting all of our equity and we're going to go buy hotels and we're going to buy bigger, more expensive hotels, and we're going to trade it up, and that's going to allow us to cost segregate and get all of the tax benefits, and we're going to avoid paying taxes on any of the properties that we sold. And that's okay. Yeah.

Nathan St Cyr 22:23

So I won't call I want to another timeout here because this is really, really good stuff. There's some technicality in there that I want to that I want to cover. Um and look, we are have been just been recipients of this in our 2023 tax year. Uh, we had three cost segregations performed between purchasing and then uh renovating, one purchase and then two post-renovation on between our two properties, three uh total cost segregations, which impacted us in the tune of you know two million dollars. So that what you're saying, if I can take our experience and tie that back into what you're just what you just said, is a similar situation. If instead of 1031 exchanging, where then you've got the time clock on and you have it's the time is, and then you don't you're not not sure if you can make the timing of it exactly right. Maybe your money isn't held up. Now you're saying, hey, I'm going to sell and just get the mic. And then I'm going to put that money into a hotel. And because the hotel is a more valuable asset, ultimately I will be able to do a cost segregation study, get a bunch of depreciation up front, and that's gonna offset the amount of money. You gave the example of $250,000 on that one property in Cleveland. Well, if your cost segregation comes back and you're getting a $750,000 benefit or a million dollar benefit, well, then that nominalizes and actually takes out that $250,000 of income that you would have shown is now negated by that cost segregation. That's right, correct?

Kassidy Warren 24:16

Yeah, you never needed the 1031 in the first place. But if you're buying up, if you if you go and buy a cheaper, less expensive property, you're you're not gonna, you're not doing it right. If you go level up and you scale up and you buy bigger, more expensive assets, then you can then you can do that. But yeah, you don't need the 1031. This is called the lazy 1031, even though it's not lazy, it's just you don't have to enter into the actual 1031 and you can just do it yourself and you give yourself more time and find a better asset. So the the other point about this is if you want to 1031 into a hotel, very difficult. It's a lot more paperwork, it's a lot more headache. You have to have the right people on your team that want to let you do that. And so if you're gonna 1031, more than likely you would have to 1031 into a house. It's very hard to do it into a hotel unless you're buying it all by yourself, which is not normally how it happens.

Michael Russell 25:08

So yeah, I want to talk about this. I want to make mention. So, this is all very technical. This is there's a huge advantage of performing a cost segregation study. But I I want to, number one, I want to identify. So when you do a 1031, you're just tax deferring. You're not avoiding paying taxes, they're just deferred until you ultimately liquidate that next property down the road. And very similar to that, a cost segregation is you're not avoiding paying taxes, you're also deferring them through depreciation. And so what a cost segregation study does, and we could probably do a whole episode on this, but very simply, what it does is the study will identify ways in which you can accelerate depreciation based on different categories, whether it's a five, seven and a half, 15-year depreciation schedule. So instead of a straight-line 39-year commercial schedule where they take, you know, 39, whatever the cost was. So, Nathan, you said $2 million, right? If you took $2 million and you divide it by 39 years, that would be your straight line depreciation schedule. But when you have a cost segregation study performed, a professional will come, they will inspect the building for specific items. So whether it's, you know, like your laundry facilities, your flooring, your nails, like everything. Like they get really granular, whether it's, you know, like the beds that are in the property, anything that they can accelerate the depreciation, they will, they will do so into a shorter period. So let's say that you buy a building for $2 million. They might be able to identify $1 million worth of assets in that building that can be depreciated sooner. Instead of, you know, over 39 years, they might categorize it into five or to seven and a half years. And I don't want to go too far into the technicalities of this, but the bottom line is they will allow you to depreciate that portion that they have categorized separately than just that 39 straight straight year. And so when you do that, you can depreciate, let's say, a million dollars worth of assets faster. But you have to understand that it is based on the current year bonus depreciation schedule.

Kassidy Warren 27:22

Yeah.

Michael Russell 27:23

And so in 2020, was it two, it was 80%. 2023, it was 60%. Do I have that correct, Nathan?

Nathan St Cyr 27:34

Yeah. No. It's it's 2024 is 60. 2023. 2023 was 80, and prior to that it was 100%. Yeah.

Kassidy Warren 27:44

Okay. Which is still it's still worth it. And so basically, Mike, what you're describing is that we used to get a lot more depreciation, a lot more write-offs a couple years ago, and now we're getting a little bit less and a little bit less. And there's a there is a bill that's floating out there. I'm sure it won't get approved before the election. I'm sure it'll be after the election, but there is a bill out there to bring back 100%. And so Yeah.

Michael Russell 28:04

So if you had a million dollars worth of assets that could be depreciated at 60%, or it would it would be $600,000 or $80,000 would be $800,000. And then ultimately the tax advantage there would be whatever your tax bracket is, the first $600 or $800,000 of income could then be offset by depreciation from purchasing that more expensive asset, in this case a hotel.

Kassidy Warren 28:30

Yeah, basic, basically, the and I tell people this the secret sauce in real estate is like you have to, or most people have an active income source and then they have real estate. And sometimes the real estate is just their income source, but most times they have an active income source, whether it's another job or their coaches or they do their realtor, and that's their active income. And so if you're investing in real estate, typically you should keep some level of active income because then you just funnel that into buying real estate, you do the cost egg, and then you pay no taxes on your on your or low taxes on your active income side. So that's sort of the secret sauce. And so all these people that have these ideas of like, oh, I'm gonna quit my job and just invest in real estate, cool, but there's actually more benefit to trying to do both or some version of both. And depending on what type of deals you're buying, like on a hotel, they're very long cycle. So you have some extra time to go be doing some sort of active, active work or buying more deals or something. But yeah, this is the secret to us.

Michael Russell 29:31

About that for a second, though, because that's that's really relevant for us. So when you buy an apartment building, you are clearly a passive real estate investor. It's not really considered active income, it's a long-term asset, and the money is just coming in passively. You can't you can't have you can't claim active income on that in most cases. Again, I'm no CPA, so consult your CPA. But from what I understand, with from what my CPA is, you know, has told us, but when you operate a hotel, it is active income. And so you can segment off whatever portion you want to be for a tax advantage, you can pay yourself essentially a salary to help align with what you just described.

Kassidy Warren 30:08

That's right. Yeah, and that is another reason why short-term rentals and and hotels are appealing to me, is you have more tax advantages than a typical. And again, you may want to flex the depreciation more or less depending on your situation, but like you have the option to do that. Whereas if you're investing in multifamily or you're a regular long-term rental landlord, you're not going to get the same amount of benefits. And you're not buying as big assets. Like if you're a landlord, you're buying a $200,000 house, you're not buying a $600,000 house, right? That's the other benefit of Airbnb's short-term rentals, and is you're like buying bigger assets. And so the same thing with hotels. The other reason for like when I talk about velocity of money and moving it into hotels and boutique hotels. So I gave the example of taking your equity, the $250K, and buying a million-dollar house. So that's the house example. When you now think about it, a hotel and any commercial real estate, really, and your ability to force appreciation through improvements and improving the NOI. So basically, when you can increase profits on the hotel, you are now increasing the overall value of the hotel, the overall value of the property. You can't do that on a single family home. A single family home is worth what it's worth based on the comps in the neighborhood in the area. And so if that single family home is bringing in 500 grand as an Airbnb, it's not worth more as a home. It's it's whatever Sally and Joe are going to pay to go buy it. On a hotel in commercial real estate, if you're bringing in, if you were bringing in 200 grand profit, and then we come in, we buy it, we renovate it, we run it better, and now we're making 500 grand profit, we've just tripled or 4x the value of that property. And we can turn around and sell that thing. And that 250 grand of equity from my little Cleveland house that I took and I put into this hotel is now worth 1.5 million in cash. And that doesn't even count the cash flow that we got off of it. So that's the other reason for going bigger and trading up. And the velocity of money is even faster when you take your single-family home equity and now put it into boutique hotel assets.

Nathan St Cyr 32:29

Because you're switching from residential to which does not allow for leverage, is not valued on how much you increase income. You're changing the game by moving that and shifting that into commercial, which a hotel is, and now all of the levers, so you go create that experience that you're passionate about, that design that you're you're passionate about. And to turn this full circle, that's saying, hey, I mean, we just went through this with our team yesterday. For every $50,000 of swing that you make at, and this is this is a very conservative cap rate, but it's for math's sake, to make it simple, for every $50,000 of impact you can have, you're impacting the value of that property at a $10 cap, $500,000. So I mean, that's it's pretty radical to think, okay, well, there's two ways we can go do that. We can go optimize the efficiency of the expenses, and we can lower expenses. We go save $50,000 that way. And we could bring in $200,000 more by creating a new experience, by putting capital expenditures in. And it just dominoes. It allows us to get creative. It allows us to say these are the levers that we're gonna pull. This is the experiences we're gonna create. This is how people are gonna value this differently. And ultimately, that velocity of money that you talked about now has just hit the absolute amplifier button.

Kassidy Warren 33:55

That's right. And here's the thing a hotel is a business. And so when people come to buy the hotel, they're evaluating it as a business. And that was a huge light bulb moment. I have a business coach that kind of sat me down and was like, you need to build a bigger business. All these problems and issues that you're having with finding people and hiring people and outsourcing and delegating, it's because your business isn't big enough. And so here I am. I'm like, oh, I've got nine short-term rentals and we're making this much money, and we're like, look, pat myself on the back, look what I did. And in reality, still thinking small. And and I know that there's so many people out there that can't afford a house and can't buy a house and are just trying to get in the game and keep doing it, keep going, keep doing it. But after you go through it a little bit and you learn a little bit more, like you realize that I realized I still wasn't thinking big enough. And I didn't have a big enough business to support my dreams and goals. And so building a bigger business is so important to me right now that I can get to work with people like you guys, everyone in the mastermind, bring in experienced designers and people that like can really elevate everything that I'm doing. And I can and I can be the curator of experiences, but having a big enough business where I can afford people and you can grow the value. You have control over the enterprise value of your business. And and I think that there's something so cool. And it's just the next level up in this real estate game. I love it.

Michael Russell 35:28

Yeah. So you mentioned you went through the cycle of how you can grow the income exponentially by increasing the the net profit. But you before that, you also talked about how there's more opportunity to save money with a cost segregation study, in this case, purchasing a larger valued asset. And so ultimately, you know, the goal is to keep more money in your pocket. Right? Whether that's making more money through a larger investment or it's saving money that you otherwise would pay through taxes. But these are avenues through investing in commercial real estate. And in this example, hospitality, that you can you can accomplish both.

Kassidy Warren 36:08

Yeah, there's that old saying that it says it's not what you make, it's what you keep. And you could say that that's not true because it's actually how much money you make, right? Go make more money. But they say it's not how much money you make, it's how much you keep. And the way that I interpret that is how can I save on taxes? How can I keep more of my money so that I can then go reinvest it? Right. You don't want to have a scarcity mindset, and the only game you're playing is the tax game. But if I want to keep more of my money, then I can go reinvest more of my money, right? And so that's playing the tax game. Real estate is the highest like beneficiary of tax benefits out there when it comes to write-offs, uh depreciation, cost segregation, leverage, all that.

Nathan St Cyr 36:54

So basically, you're saying that tax benefits are they provide you a bigger lever. You get you get to play with a bigger, a bigger rock and a bigger stick. Well, create a larger lever.

Kassidy Warren 37:06

Yeah, and and you come to realize that a lot of wealthy people, like you get to a certain point, I think, especially people that are business owners, like traditional business owners, maybe they own a HVAC company or a logistics company or tech tech folks, they're not buying for the cash flow. They're buying the largest, most expensive asset that they can buy, that they can then cost segregate and offset their capital gains and their income taxes from whatever business they just sold or the money that they're making. And then, and then at some point they'll go and sell. But I want to make this point to people that a lot of the wealthiest people in real estate are not investing for cash flow. They are investing for appreciation. They are investing for tax savings. And so think about that from a mindset perspective. Yes, quit your job from cash flow. But actually, if you did the math, if you stayed in your job a little bit longer and you went bigger and bought bigger assets, like on the commercial side, you're gonna have a lot more money in three to five years through forced appreciation than you would if you just invest for cash flow. Right. And so that's what I'm talking about the acceleration of money, the velocity of your money. You may have to delay gratification a little bit. You may have to stay in your job a little bit longer, you may have to take stuff or do stuff that you're not wanting to do anymore a little bit longer. But if you focus on accelerating your money through appreciation, through forced appreciation, you're gonna have so much more money at the end of it. You're gonna create wealth instead of just focusing on cash flow.

Nathan St Cyr 38:45

Yeah, I love it. I love it. So I want to transition real quickly here because I'm I'm dying to know this, man. You're under contract for your second property in like three, four months. So congratulations. Thank you. Um when we really look at the the business of purchasing hotels, um, if you really broke it down into the playbook, there's there's the four areas, right? So you've got acquisition and then you've got funding, raising capital, financing, you've got the operations, and then you have marketing. And I want to just ask about from the acquisition standpoint, you know, we we look at our, we're in full-on acquisition mode right now. We're pumped, we're we're we're making moves, we're negotiating potentially uh a couple of game changers. But I want to find out from you when we look at acquisitions, there's our different sources if we look at the funnel, right? At the top of the funnel, you've got all these different sources of where a deal could come from. You know, whether that's brokers, broker relationships, whether that's just doing your own research and going direct to sellers, whether it's there's there's all of these different avenues in which relationships, right? I've been networking and lenders. Hey, I have a relationship with lenders from my past experience, and I had a uh foreclosure, just keeping top of mind for people. So I'd like to first ask in your in this specific example uh of the property you have under contract, where did what where did where did this come from?

Kassidy Warren 40:18

Yeah, it came from where all the best deals come from, which is off market through an existing relationship. So fortunately, Cruxy and LoopNet, that's where deals go to die, right? A lot of a lot of people, I mean, we're all looking on Crixie and LoopNet. And that's we're all looking at the same deals. We are all looking at the same deals on Crixie and LoopNet. And the reason that they're still out there is because the broker sent them to their 40 other investors that they already know, and everyone passed over them because it was priced too high or it wasn't in the right location or whatever reason. And so if you're looking at stuff on Crixe and LoopNet, the only stuff that you're gonna be able to find that's gonna be legitimate is stuff where they'll accept a much lower offer than what they're listed at, or they've been on the market for an extended period of time. And so for this particular deal, foreclosure, and went back to is going back to the bank and the broker that the bank assigned is within my network through another relationship within within the mastermind group that we're in. And so if I hadn't done that first deal in the group, I don't know if I would have been approached or asked to be a partner on this deal, right? And so me putting myself out there like you described and trying to add value and trying to just like go all in and be a part of this community and like do whatever I can, I don't think I would have gotten the second deal had I not done those things.

Nathan St Cyr 41:42

So let's start with step one of that. You joined a mastermind. Yeah. And then and then from that mastermind, you went, I've seen you do it, man. You've gone with like a seek to serve. Yeah, you have a seek to serve mentality where your your goal is not look, things come back full circle. So I don't mean that, but if you just start with the mindset of, can I contribute? Can I give? How can I contribute? How can I give? I'm gonna give, I'm gonna give, I'm gonna give. Yeah, in doing that and creating that, you've created value. You got your first knockdown, your first deal, and now the second one comes up, and that networking, those relationships that you've built, that that's really where this opportunity came from.

Kassidy Warren 42:25

Yeah, and just to highlight that a little bit, that was really intentional through what I focus on recently. What I've been focusing on recently is like really trying to give back and recognize that I actually really enjoy it. I really enjoy giving value. And building up all these short-term rentals, we had spent the past five years just like heads down grinding and like arguing with contractors and you know, that whole thing. And so I really wanted to focus on giving value and even just joining a mastermind was something new for me. And so, yeah, I was really fortunate that I came in and the this group of people has been incredible. But what I've noticed is that it really is about relationships. And I think commercial real estate in general is more about relationships. And so the more people that you can get connected with, the more people that you know, the more brokers that you know, the more people in the industry that you know and that you can add value to, it like you said, it's gonna come back to you. And so I'm I'm really extremely thankful for that.

Michael Russell 43:21

Okay, so can I I want to just touch upon a point that you're making, which I've observed is so you went from operating independently, you identified short-term rentals, you said, hey, this is a good market, I've got skills and doing design. And you know, you went and you pressed into it, and then you made this switch and you pivoted into something that you were completely unfamiliar with. And so in order to gain experience, you realize, like, hey, I need to join a mastermind, but then also I need to connect with people. And what I've witnessed you do, not just within the mastermind, but also in social media in general, is you are a master communicator. You are always communicating. And like Nathan said, seek to serve, you're doing so today on this podcast, but you're consistently doing so whether you know someone posts something on Instagram, you're like the first to respond. You know, we have a little WhatsApp group, you're the first to respond. And so I think the takeaway from this is if someone is wherever they are in their investing journey, if they want to do what you've described to scale up from short-term rentals into investing in hotels, you can gain a lot by giving. And you don't have to be an expert in everything, but if you've got some input, some feedback, or even if you just want to ask questions, the idea is to engage. And you know, in today's world, a lot of that engagement is going to be on social media. And I've witnessed you do it extremely well. So I just wanted to acknowledge that. But but to your point, that had you not been in the group or otherwise, you know, got into that first deal, like like one thing led to another. And it all stems from your constant focus on communicating with others that are interested in this space.

Kassidy Warren 44:59

Yeah, that was a conscious decision to like I felt like an outsider and really wanting to just add value. And I think your point about for people out there that maybe don't know if they have any value to give, asking questions and even doing it on a regular basis, like every Monday morning, maybe ask questions, ask how everyone's doing. Like, just get used to putting yourself out there and and like adding value in some way, asking questions or providing a tidbit or answering questions that people have, even just from your own perspective. And you can say, I don't know, but here's what how I would think about it. And so me being the first to respond is because I've sort of like made a commitment to myself that that's what I want to be doing, right? And I understand everybody has lives, so they're not always gonna be on their phone ready to go, but that's something that I've decided that I wanted to do. And I just feel like with such an amazing group of people, I want to like get to know them and stay connected.

Michael Russell 45:51

So cool. Hey, can we drill down into the details of this this deal? Yeah, and some of it you might not be able to talk about, but what can you share with us? You said that it was a foreclosure deal. Someone found out about this and then referred you to the person you know in our network that ultimately shared it with you. Can walk us through you know what's going on? Why was it in foreclosure? How how did the person find it? If it wasn't on Crax Ear Loop Net, who ultimately found it and and what is the opportunity with this particular deal?

Kassidy Warren 46:20

Yeah, so it's 34 units, and the we're getting it for a really good price because it's going back to the bank. The reason it went back to the bank is because the previous owner didn't make any updates. I don't think he had ever ran a hotel before or just didn't care. And so foreclosed, wasn't making payments, and so we're getting it at a big discount, and the bank is gonna actually carry the note. So we're doing 30% down, but they're gonna carry the note, which is great because we don't have to go out and find extra financing. And it's in a great location in the town. The the recent comps have sold for three to four X what we're buying it for. So the plan is to flip it, and you know, which would mean make some renovations. We don't need to go crazy because we have comps to look at, but we still want to make it better and have better reasons for guests to want to book with us, and then in three to four years, go and sell it at that three to four to five X valuation. So, but the focus will be on basically renovating the rooms the right way, improving the outdoor space, working with the existing team to run the hotel really well or better. The marketing photos are absolutely terrible. So, like when you go to book, it's like all nighttime photos of the outside. It looks very scary. Um, and so that's a big easy win, is to update all the photos after we do all the renovations. So I'm really excited about it, and I'm gonna have a bigger investment in this one as well. And the other cool thing is that we're not gonna go out and do like a big syndication fundraise because of the purchase price and because of the the other partner on the deal. We're able to just do what's called a joint venture. And so we basically all pool our money together and we come up with an operating agreement. Yeah, we all have our responsibilities, and that's how we're gonna do it. So it's it's a much simpler, easier way of structuring a deal than having to do all like the SEC fundraising lawyer stuff. And it makes it a little bit cheaper for us to do that too.

Michael Russell 48:27

Are you gonna take title as tenants in common then?

Kassidy Warren 48:31

No, so that that would be how you do the 1031 into a hotel is do tenants in common. This would be a deal that I could do that, and I may still, but right now, no, it's just gonna be we'll each have our own entity that has the ownership percentage, and then there'll be a separate overall entity for the property itself.

Michael Russell 48:54

What that sounds like, you know, again, I'm no expert, but Nathan and I came across this issue where when we purchased a property as a partnership, then when we sold the property, we basically, in order to avoid to avoid paying taxes to defer them, we had to buy the next property as a partnership. However, if we purchase our tenants in common, and you know, we each own a percentage of the building like you've described as entities. So I've got an entity, he's got an entity, we bought the property together, the entities own the entity property, if that makes sense. Yeah, and then this way when we sell, you know, my percentage, 50%, can then be 1031 into something independent of Nathan's entity if we so choose, or we could do it together again, but at least gives us that flexibility.

Kassidy Warren 49:39

Yeah, exactly. And that when I was talking about it's harder to do a 1031 hotel, that's exactly what I was talking about, was the tenants in common. And so I haven't done it, but maybe this might be a good deal to do it on. I know a joint venture, it's easier and partnerships is easier, but for like SEC, it's almost impossible to do it just because you're gonna have all the LP rays and all that sort of stuff. So, but yeah, this is the plan is to go continue to buy more hotels and continue to force appreciation. And so again, we're gonna sell a bunch of properties in the first quarter of next year. And so what it could look like is that we're the capital partner or we're involved somehow. But then there's also the big goal of mine to own and build sort of the landscape resort style hotels like Isaac French and Ben Wolf are doing, where you have a ton of unique units out on some land with water features or you know, remote wellness retreat, that sort of sort of lifestyle resort. And so that's sort of a big goal of mine is to want to continue to pursue that, but also be able to buy stuff and invest right in the meantime, because those are gonna take longer, um, just to even find land and find the property and do all the development and find the right people. So, but yeah, working on that too.

Michael Russell 50:58

So, so let me ask you this as we kind of wrap up this podcast here. I want to know, so let's talk about the future. The next five years, you're living your most beautiful life, right? What does that look like for you? What are you doing? Where are you living? You know, what's what's your what's your life look like at that point?

Kassidy Warren 51:13

Yeah, I'm uh I'm living where I live right now in Kirkman, Washington, but I'm on my uh lakefront house with Doc, Cold Plunge Sauna in the house, also cold plunging in the lake. I have my wake surfing boat parked out front. I get to wake surf every morning in the summer, maybe the winter, too, who knows? And in the winters, I'll be down in Arizona, trail running and all that. I will be mentoring and coaching people in a way that fits my lifestyle and my schedule, but still provides the most value to people. And I think by that point, in five years, I want to have over $100 million in assets under management. And actually, I think if I if I'm doing the math right, it should be closer to $500 million. No, that's a big goal, big audacious goal, but I think I can do it. And I want to own properties like the proper and ace. So if you know these brands, and and like what Ben Wolf is doing, where they're really just magnificently high design properties. I want to own places that are in the middle of nowhere that are high design, like the Amon brand. So that's the kind of stuff that I want to pursue over the next five years. And the life that I live is working closely with very creative, inspired people collaborating and creating things that I've never created before.

Michael Russell 52:36

So I love it, man. So Nathan would call that the bag, right? The big, hairy, audacious goal. Yeah. So I I love it, man. I love what you're doing. I love your mindset. I want to leave the listeners with um one last takeaway. I know that you're a tremendous self-learner. And so is there a book that you've read that has uh either inspired you or shaped you or helped you in some way to you know develop your professional career? What book would you recommend?

Kassidy Warren 53:04

Yeah, there's I'll I'll recommend a couple because there's three that I've read recently that had an impact. So I always recommend Buy Back Your Time by Dan Martell, always. And there's a lot of tangible stuff in there for entrepreneurs. But recently there's a book called Turning Pro, that it's less of a book and more of like really short, just kind of punch you in the face manifestation type stuff. And I I love that because it's less daunting. It's not it's not a big read. And then the other one is 10x is easier than 2x. That one is mindset changing. It's probably one of the best books I've read that I can remember. And the premise is that going 10x, going all in is easier than doing 2x. You're actually working harder and going smaller than if you just went all in and thought bigger.

Michael Russell 53:53

Awesome. Awesome. Well, this has been great. Cassidy, really appreciate you being on the show. Where can our listeners get in touch with you?

Kassidy Warren 54:00

Yeah, I'm on Instagram at qcassidw, and Cassidy's with a K. I also do like free 20-minute coaching calls every Monday. And there's a link on my Instagram if you want to just chat. Real estate, anything if you have questions, if you got Airbnb stuff. But yeah, Instagram at QCDW and uh puts in there quite a bit, like you said.

Michael Russell 54:22

Cool. You heard it live from the man himself, and trust me, he will respond and add tremendous value. So if he's offering that invitation, take him up on that offer because it'll definitely be worthwhile. Thanks again for joining us, and we'll see everybody on the next episode of the Hotel Investor Playbook. Peace.