He Managed $320M for a Family Office - Then Walked Away to Build His Own Empire | Reilly Brennan E32

Michael Russell 0:00

Ever feel like you're working hard, but just building wealth for someone else? That's the exact feeling Riley Brennan had. After helping grow a family office portfolio from 3 million to over 320 million, he realized it was time to take the tools he'd learned and go out on his own. No parachute, no outside capital, just a vision and a willingness to figure it out. In this episode, Riley shares how he sourced and acquired two boutique hotels in Minnesota, what it's really like to go from W-2 stability to full entrepreneurial chaos, and how the hard days still feel good when you're building something for yourself. If you're thinking about making that leap or you're already on that path, this one's going to hit home. Let's dive in. Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game. On this podcast, we talk story about everything you need to know to make money investing in hotels and hospitality assets. On today's episode, we have Riley Brennan. Riley, welcome to the show.

Reilly Brennan 1:24

Thanks for having me. Happy to be here with you guys.

Michael Russell 1:27

We're excited to talk to you. You are the founder of the Trailside Hotel in Duluth, Minnesota. We're going to dive into the hotel and what you're doing, and it's amazing. But prior to that, you were stacking skills. So you were part of an organization that helped to grow this family office from a $3 million portfolio to over $320 million in assets. Most people would ride that momentum forever. But I want to know why did you decide to walk away from that and build something on your own?

Reilly Brennan 2:00

Yeah. So that's a great question. I know that I gave up some pretty strong equity position, but I think for me, I'm I'm a creative individual, right? I've I've played guitar for so long. I'm terrible at most art, but that doesn't mean that I don't enjoy the process of it. So when I've realized finally, like, hey, I'm I'm climbing this up. I know exactly where this path is going, but this isn't my summit, right? Like somebody's climbed this path before and is pulling me up, and it's helpful. And there was a lot of great mentorship, but ultimately I wanted to paint my own picture. I wanted to have my own vision. And I still don't even necessarily have complete clarity about what that is, but it has been so exhilarating and humbling jumping into this. And now it's like you start feeling all those feelings of like, oh man, this is exactly what my boss was talking about when he like stepped out. There's no greater thrill. There's also no deeper pit that you can find, right? So I'm at this point where I could never go back to work for anybody else again. Now that I know that, hey, dude, just get the machete, start clearing the way, and eventually you're gonna build some really cool things.

Michael Russell 3:07

Yeah, it takes a lot of courage to do that. Like you said, you had a path, you were, you had equity, you had all the stability that you could need, and then you go and decide to go your own route, but then you get the exhilaration of doing something on your own. And I can definitely relate to that. I know Nathan can as well. All of us, it's like as human beings, we we we crave something new, right? We crave adventure. It's like this competing forces of we crave stability and security, but we also create crave novelty or adventure, like I said. But I I want to pivot back to kind of my my first question there, which is what you were doing. You helped build this massive multifamily portfolio at your last company. Why did you pivot into hospitality? You already know how to invest in apartments, but you're choosing to invest in boutique hotels. What pulled you away from the apartment game?

Reilly Brennan 4:00

I'm an emotional and non-emotional investor at the core, right? Like if I walk into a space, I'm like, this just feels really good. Right. Then I'm then I'm gonna start breaking out the spreadsheet to see if something works well. And when I was a kid and my parents would take us for vacation up in the UP, the upper peninsula of Michigan, I had grandparents that had a small little resort, a couple of cabins up there. So in my head, I'm thinking, man, wouldn't it be something if like we just have this serene spot by a lake that we can share this experience with other individuals? We'll just be this mom and pop kind of caretaker. And when we realized we wanted to make a jump and create something for us, it's like that nostalgia, right? As a kid came back to me and I'm like, that's that's what I want to move into. So we spent some time looking. Actually, I was going through a lot of tax records trying to find when people bought stuff because we were looking for seller financing. So I tried to marry that up with, well, if somebody bought something 25 years ago, they got to be about this age. And that's how we found our first hotel, Dean on Gitchigumi. And we went and we stayed there, and it was just like blitzed out with all this vision somebody else had before. It's a very unique Northwoods experience. It felt like that property was like reaching out and like bringing us to it in a way. Then we we closed on that, and that's when I found out like, hey, I like hotels. I really like the hospitality space. This is super unique. There's just more creativity that you get to imbibe into a hotel from my perspective than long-term stuff. I'd like the the build out of the an apartment complex can be entertaining and it can be fun, but it's very static at the end when it's completed, and that's really good for stability. But I was talking with my contractors for the trail side today, like we're as we're wrapping up and pushing through, I'm like, what does it look like if we clear a couple of spots up here and we just drop in like 16 little A frames? There's more optionality to it. And maybe that's the ADHD in me that really likes being able to like, oh, check out this other shiny thing that's here. I think that's where it comes back down to is you create a vision, you can share it with more people, and you can always tweak and change things along the way as you want.

Michael Russell 6:13

Yeah, there's a lot of levers you can pull, like you said, not just from building some additional units, generate more revenue, but like multifamily apartments, you're locked into this long-term lease and things may change and you you can't adjust those levers very quickly. But with hotels, if you recognize, hey, there's opportunity to increase revenue by doing XYZ, you can implement those and start to see immediate, tangible results by whatever improvements you're making, not just from a financial perspective, but also from like the experience perspective, the fulfillment of knowing your decisions impact the experience that people look forward to. They work all year long, and you get to curate something that they get to benefit from. And that is amazing.

Reilly Brennan 6:53

Yeah. And because it's so like it's a quick cycle compared to a long-term tenant, right? There's so many more data points that you get to learn from quickly. I know you guys are phenomenal at being able to create these amenities of, like, hey, guess what? We've got a bus, we're loading up, we're going to the top of the mountain because you're creating the experience. Well, if we figure out a bus system and we start bringing people to the ski slope that's nearby, and people are using it quickly, then we'll get so many more data points about like, yeah, like hammer down on this, keep doing this over and over. And if nobody uses it, that's also really helpful where we see we tried something, we failed, we're gonna ease off the gas on that. Let's try something new.

Nathan St Cyr 7:32

I love that. So I'm gonna give a very specific example that relates to what you just said. So we did that. We thought that for our business model, that free shuttle service from the airport was gonna be key, right? And and as we rolled this out, number one, it took away from the activities and experiences because we had to like change what we were offering from an experience standpoint so that we could get people from the airport. But then what we started realizing is oh man, we're offering this service, but because there's complications, people have to wait, there's this and that, that we ended up getting reviews that weren't even positive from it. So we had enough of these data points to realize, okay, so we thought that this was going to be a competitive market advantage. But what it ended up being is it started hurting us, but it allowed us to say, but directionally, what we got the best feedback on was the experience and the request for more of those. And so then it allowed us to utilize our team and our staffing, same amount of time, same amount of use on the vehicle, same amount of seats, all of that, but to redirect it in a way that ended up ends up being an unbelievable value proposition enhancer, which allowed us then to increase ADR faster and all of those things. So I think you're right. There's there are these levers and these test points to figure out, hey, we can go and do this. What's the impact? And then are we in the right direction or not? And then pivot.

Reilly Brennan 8:59

It sounds like from what you guys, when you were offering the shuttle service, the the way I look at that is you're functionally like offering to take over people's pain in that moment, right? Like travel is painful. It's not fun. That's really hard to make that a good experience. And now that you've integrated yourself and said we're gonna be part of this experience, it's usually a net negative. That's I I love to hear that you guys like pivoted and you're like, Yeah, now we got a bus. Now we're gonna go do cool stuff. We're gonna give you that dopamine hit. We're gonna provide some serotonin. That's a that's a way better sale for the emotion ride there.

Nathan St Cyr 9:34

Not a lot of people on those bus shuttles were standing there going, Oh, here's my 30-minute wait until they come pick me up. But every single person that goes out on an activity is recording it going, look at the waterfall.

Michael Russell 9:45

Yeah, so that that key word you just said, pivot, that is such a uh a key principle that the unique hospitality is you get to pivot much quicker. We you can notice what's working, what's not, and you can make adjustments to affect the bottom line and also the guest experience. I want to circle back though to so you've got this this hotel, it's a trailside in, and I want to know how you located and acquired this.

Reilly Brennan 10:08

Yeah, so that was our our first hotel that we purchased that's also in Duluth. We realized we just love this area and it's very tourist heavy. So we're like, well, it's nice if you can do it right in your backyard. Before we bought the inn on Kichigumi, we were looking at tax data, we'd look at the individuals, I'd skip trace, I'd put together a sheet and like, okay, how old are these owners here? All right, it probably means that they did seller financing. So when we approached them, said, Hey, have you ever considered selling this place now that we're guests, we love it? And Julie, the owner, says, Don't leave without talking to my husband. And so the next morning the dude cooked us breakfast, kicks open the front door, sets it down on our table, and he looks like an 1880s mountain man from Wyoming, right? Like just he is a hell of a character. And the first thing he says is, So I hear you're buying the damn place. Like, Uppo man, all right, let's go. And no, we became good friends with them. They were really happy to see it transition to another family. So they sell or finance that. I've got two other partners in a JV there. And then the trail side was very different. So I had uh LoopNet send me a notification that said there's 22 units, 700,000. I was like, boom, yeah. I dropped the phone call on what I was doing, looked at the listing, called the guy because it was a it was a self-listing, he didn't have representation. So I called him up, talking to the owner and the seller. I'm like, hey dude, if I meet you in 15 minutes with a purchase agreement or a letter of intent, will you promise not to take any other phone calls until you and I have a chance to meet face to face? I will bring you an earnest money check, like in 15 minutes. I'm I'm getting in my car now. He said, Yeah, yeah, that's a little unusual, but okay. Went and talked with him, took a look at it. I said, This is great. Here's the LOI, here's it signed, here's a couple thousand from me to you as an earnest money check. Then he just told everybody else from that point forward that it was under contract, which was sweet. So we did uh a couple weeks of diligence and then got the attorneys to help out with our purchase agreement and found our bank financing, stacked that up. The same two partners that I have in at the inn are also my other two partners on the trail side, which is great because we all know our personalities, we all know what we want to be doing or not doing. And then we just stacked up on a construction loan appraisal came in magically, if you can imagine this, exactly what the amount of construction was going to be, plus the purchase price, gave it to us, and then we closed, yeah, 75 days later, something like that.

unknown 12:39

Yeah.

Michael Russell 12:40

What I want to know then. So you said this thing just came to market. So it wasn't like this was a stale listing that'd been on the market for a long time. You got an alert that there was a new listing. Is that correct?

Reilly Brennan 12:49

Yeah. Yep, that's exactly right.

Michael Russell 12:51

You just knew you were decisive. Like this fits our buy box parameter. Let me go act on this. You did not wait. You just went out there and said, let me get on this. How how are you so decisive in that situation? How did you know just for certain, like, okay, this is gonna work?

Reilly Brennan 13:04

I think part of it is underwriting a lot of other deals, right? Like as soon as you start to see like this is the cost and what you expect at $50,000 a unit, here is what you know at $100,000 a unit. It's very it you can quickly ascertain of like, all right, now this is worth my time to go look at. And then oddly enough, when we first moved up here and we still hadn't closed on our first hotel, I looked at this property just in passing and was like, man, this would be really cool to own one day. This is a great location. I don't know if like the universe just like served me a big softball and I was just able to swing and hit a hit a triple. But yeah, again, back to just like that emotional thing. It's like, okay, the location is fantastic, the pricing is incredible. It's directly on the mountain bike trail system. It's like one of six gold star trail systems in America, and it's right at the head of the snowmobile trail, too. So I'm like, all right, we can hit like all of these seasons in Duluth for tourists. Yeah, I don't know. I'm sure I can find a contractor to renovate the rooms that haven't been touched since 1989. I'll figure out how to pay for it later. So the speed, that's something that was imbued to me from the the last company that I worked with is be decisive, take action, be the first one in the door, be the first offer on the table. And if you know it's good, like just don't quibble over the price unless it's huge. Like give them what they want because the goal is to own this indefinitely and not to save an additional 50 grand over the next couple of years.

Michael Russell 14:34

Yeah, that makes sense. Then you you talked a lot about how you quickly did the underwriting for this. You figured out based on what I know on average, the cost per unit, this fits the parameter. But beyond that, you had to start estimating construction cost and then finance it costs. So can you walk us through the deal structure in terms of you bought it for $700,000? How much did you put in for the construction? What's the reno budget? What's your capital stack look like? Walk us through the whole scenario.

Reilly Brennan 15:03

So I I've got a couple of good friends that are contractors and our designer has been amazing. Oddly enough, we had asked her, she did a couple of actually, she did a single small SFR flip with us, and it was so good. Said, Amy, please come to a hotel. She's like, that's been my dream. Said, Great, I need you to give me a bid within the next seven days, please. So I really like to get all the stakeholders together when we're talking about numbers. So to walk through with a designer, to walk through with a GC, if there are any subs that we need to have out there at the same time. So everybody can look at the same photograph and we can all hear each other communicate in the moment. So we have clarity and we are all certain we're on the same page. Because long email chains and everything else just skew left and skew right, and you don't really know. It's easy to forget what that vision is. And so as long as you are harping consistently, like, this is the path forward, this is what we're doing. Yes, I want you to make decisions, but this is your left and this is your right lateral limit, and everything inside of that you have ownership over. Like, I don't care what you do with the rooms, I just need you to put onto paper what I'm kind of regurgitating to you, and I'm sure it's going to be wonderful. So we probably did about 550, 600 as we will wrap up within the next week or so in actual construction renovation. We had a couple of good surprises. That's always fun. And then we did about 200 to 250 in all of our FFE and design costs and everything else. We were able to work with a local lender as well, which I can't harp on that enough. If you can develop those relationships with the banks that are within your community, they want to see this stuff turn over. They're excited to see Young Blood that's coming in. So we got an ADL TV on it. Between me and our three partners, I think we all brought about a similar amount overall. And there was some additional equity that was fabricated essentially based on the appraisal. And we were able to count that also as part of our equity in. Our lender is fantastic. They're excited about future projects we have going on. The total timeline to get all those numbers, I think it took 15 days. Where we were able to get that, and then we have a large algorithm that we use for everything in our underwriting. What one of my partners actually custom created that. And so it it just simplifies things, right? I don't know if if you guys run that the same way, or is it tough to get everybody into the their seats in the same room at the table at the same time?

Michael Russell 17:41

Well, I will say the banking component is that's a big uncertainty. And that can oftentimes take the longest. So the fact that you've got a bank that supports you and has confidence in you, that that's a huge burden off your back. I guess also it's worth mentioning that the skills that you've been stacking outside of investing in hotels, you come from a background where you're you're flipping homes, right? So you're constantly going through this analysis to recognize an opportunity when you see one. You have relationships already with contractors, interior designers. So kind of coordinating that orchestra, you already have a sensibility of what feels right. You can kind of make decisions very quickly. That the reps that you've taken, the more reps that you have, I feel like you can make decisions much more efficiently because there's less uncertainty of whether that's the right choice or the wrong choice. You're like, it feels about right. And the way you were describing, like I just delegate to this person and let them take ownership of it. That doesn't come naturally to me. I'm gonna be honest. Like, that's hard for me. And I just want to commend you on that skill set because speed is valuable in many situations.

Nathan St Cyr 18:46

This is firing me up, bro. Like, this is it is the speed, like you hear that constantly, right? Speed, and I'm gonna say this like, like, I think that Mike and I operated differently when we were not bringing in investors. So our mindset was different. We're like, okay, this is what's in front of us. Start. Worst case scenario, we make this investment. What happens? Okay, is that the worst thing in the world? No. Okay, so then it allowed us to operate a lot quicker and with less maybe verification. And when I mean verification, I mean deep level verification. Like, okay, we were able to put stuff together in a faster way. Once you bring someone else's capital in, and it sounds like you have a relationship and have capital partners that number one, you guys already know each other, you're you're you've operated together, that familiarity helps with the speed. Secondly, you're in a market in Duluth that is not like this massive, massive market. There are only so many local banks. There are I I can see this if you're the right person with the right skill set, how you could really take advantage. And it sounds like this fires me up hearing you describe how you're like, okay, we're all together, we're gonna make these decisions. Here's your lanes. That was a really powerful thing that you said. Here's your left. Here's your right. So you're clear and defined. But everything else in there. And then I loved how you gave that empowering statement of, but you know what? Anything in the middle, I know you're going to do a freaking great job. Go with it. Like I don't need to weigh in on every little freaking thing if it's in your lane. Right. And if if I can, can I rewind this whole tape for a moment? Because I'm really curious about something. But I wanted to dig in because I've never had a conversation with anybody that's worked with a family office. And this is really intriguing to me because we have a vision to really grow. And when we look at funding options and who may want to be involved and partner with us as we move forward in the future, I know that family offices may be a source of capital. So I'd love to get your perspective on working in a for a family office and knowing that we're on this hospitality path, what is it that family offices, what is it that they're really looking for? And what's the best way for someone that's growing a brand like us to make those connections? Hey guys, quick heads up. If you're passionate about hospitality investments, excited by the upside and want to get involved, but you're not quite ready to take on a full project yourself, listen up. We've secured a flagship property in downtown Los Angeles that fits our hospitality model perfectly. And we're targeting 20% plus returns for investors. We're opening this first to our accredited podcast listeners. You'll get early access to the full investment overview plus a behind-the-scenes look at how we're bringing the project to life. Just hit the link in the show notes to check it out.

Reilly Brennan 21:48

I would say the first thing is understanding the difference between when you're looking at maybe like a traditional PE company and then a family office is they probably feel like they have more responsibility to their investors, right? They're not just losing investor 246's money. Like, no, dude, that's that's Nate and Mike's on the right below him. Like I know this is part of the plan for their daughter's college fund. So this means something to me if I let them down. So that's not an option. Maybe an asset manager on PE has that feeling too. I'm sure people do on paper from the spreadsheet perspective. But so if you go into it with like, this is this is a hearts and minds game. Real estate just happens to be the vehicle of which we're we're utilizing this to grow our wealth. That's that's the direction that I would try to tackle that from. I think you guys go in as who you are and you ask them what they're as long as you're not using sound bites, like I think that was something we'd hear very often. We'd get connected with people, and you're like, oh man, like, yeah, I just heard Tony Robbins talk all about that. Right. Or this was, yeah, of course, this Brandon Turner's been like dropping this for last this is all pace morby. Give me something authentic, right? Like, who are you as a person? What is the outcome? What is the vision? Why is this good for us too? And why should we be excited about this where we want to continue to maybe branch out and do this on our own?

Nathan St Cyr 23:11

Yeah. No, I I'm that that perspective of that it's really helped paint a picture.

Reilly Brennan 23:17

Okay, well, like I'm it's that uh it's my painting skills there.

Michael Russell 23:20

So I'm ping-ponging around like as far as what you said, but I want to go back to your budget for FFE because you said you spent about $250,000 on FFNE. Is that correct? Yep. And so a $700,000 purchase, what is it, like a 33%, 35%, something like that, right? You spent a big chunk on FFE, which it doesn't alarm me. But I guess I would like to know from your perspective, like why spend so much, right? Like this is something that we are constantly calibrating in our evaluation and underwriting. And it's this big fog of uncertainty. Because how do you know when there's like this law of diminishing return where it doesn't matter how much extra you put into it, if that particular market is only going to get 150 bucks a night, whether it has this extra decor and wallpaper and lighting or not, like how do you determine whether or not the FFE amount is going to provide a sufficient return on investment?

Reilly Brennan 24:26

I'm not certain, but I trust my designer when she looks at something and she can say, People will go crazy if we do this. You'll have so many more Instagrammable moments. This will fit with the motif for everything. I want each of these rooms to look a little bit different. I want some of them to look very different. I want to do a king suite, I want bunk beds, I want to like European feeling for us. A large portion of that chunk came out because we really didn't have anything that we could repurpose. And we knew that we wanted fire pits. We knew that we wanted Adirondack chairs. It's it was so fun. I wish I like you guys were out here because they're like painting the building outside today. And then in the mock-up, she's like, this is too dark, you know, this charcoal color. We need to talk about all the live plants that we're gonna get out here. We need to talk about the landscaping. We have a big bonus room. There's an eight-car garage, right? So going back to like, well, what are we doing to create community here? It's like, what does it cost to get a 14 by 10 foot plastered trail map up on the side? I know that if you spend more and it's unique enough, people want that same unique experience over and over. And the cool thing, uh, a takeaway that we had from our first hotel is because each of the rooms are different, guests will talk and like, hey, I saw this was open. I've actually stayed in that room and I've stayed in this room. Is this other room open, though? And so you really get onto this circuit too, where now I'm not hunting down with marketing dollars, additional individuals to come in and fill these rooms up. I've I've got recurring revenue from some very core individuals that want to come back all the time and experience the difference rooms. So I think if I can tap into that as an emotion and I'm making a sale to an emotion and not necessarily and seeing like, well, what's the return? What is the the dollar ROI if we do triple scon sliding rather than double? I don't know. I just I just think it works out.

Michael Russell 26:26

No, I love that answer. Look, you're being truthful. And if you look at what you're creating, it's not a commodity hotel, it's not a days in where you've got it so quantified based on what do we need bare minimum to satisfy the person that's just looking for convenience. Nope. You're providing a killer experience. That word is used a lot, but we really relate to this because we did the same with our hostel. We went and took a rundown motel that was really in poor condition. And we're like, let's make it Instagram worthy. I don't want to say we said who cares how much we're spending, but it certainly felt that way to a degree because we're like spending more than what probably like we could quantify as, like you're saying, a justifiable return on investment. That said, our hostel is sick. And what it's done is it doesn't just give us value from like a quantifiable return on investment. It's when banks go and look at our project, they're like, oh, oh, this is really nice. When potential investors look at our project, like it gives us that prototype, that tangible example where people can have confidence in what we're capable of. And also when you're negotiating to purchase a property, they do the same thing. Are these guys qualified operators? So there's a lot of intangible advantages of making things nice that again, to your point, like maybe you didn't look at what you were spending based on return on investment. I will say from your website, the images of the rooms are like incredible. I presume that these are more like design mock-ups. They look like they're maybe not necessarily like the actual photos of the rooms. They've got a very like Thompson style, if you're familiar with Thompson hotels.

Reilly Brennan 28:14

In I'm I'm on the website in real time because I've been sending images for our team to update. So I haven't been on this website today. The first two room photos are absolutely real photos.

Michael Russell 28:26

Wow. Well, you've done a knockout job. I really like the the colors and the feel. And this is what makes a boutique hotel different than a commodity one. It's not just the I don't know, the the financial return. It's golly, your stamp like on this thing that you're proud of, that it represents you and your brand and what you're capable of. It's beautiful. And that that's that motivates me. I have to include that in the calibration of what I'm doing on a daily basis, that it also makes me feel good to present this to the world.

Reilly Brennan 28:59

Yeah. Thank you, Mike. I appreciate that.

Nathan St Cyr 29:01

And I want to point out the emotion that that website makes me feel. You're you're situated in one of the six gold star trails in the United States of America. And this property, you literally can get out and go straight to it. So you've got this feeling that comes from it of like I love that shot of somebody like reaching down with their glove on, working on the freaking the muddy tire of their mountain bike. Like, right? It just like the emotion that comes from that, like, and then you're like, then you're like gear storage. I don't know. These little things that have emotion and then also have the logic of the actual accommodation and how convenient it is, and how you're gonna provide hospitality to that person that's out there riding. It made me feel unbelievable.

Reilly Brennan 29:46

Thank you. That's our design team's been great. Our our web and our marketing team, this is all Sarah's design. She's like, hey, I've got like 64 options. What do you want to talk about? And I said, please just narrow it down to three, have a conversation with me, and then whatever I tell you, if that's the wrong answer, do do the opposite. Right. Just I can't out-website somebody, I can't out-carpenter someone, I can't out-design anybody. So it's like, what is my skill set? It's finding the property, getting the right people in the right seats, and letting them go. Right. I I forget what that quote was. The essence of leadership is functionally not showing everybody what your superpower is, but being able to show everybody else what theirs is. So now that we've got these these 1099s, we've got this really tight core group of people that are here. If we have three good months of revenue, like I'm gonna go out and I'm gonna find a 60 to an 80 unit resort, right? Like if I have these people with me, things are gonna be okay.

Michael Russell 30:46

Stacking skills, baby. That's what you're doing. You're building confidence. You've been looking at deals in the six to eight, eight and a half million dollar range. And I can tell you right now, we didn't start doing that. That would sound crazy, but we're like, we got the team, we can do this. And so you just build the momentum builds upon itself. So can you walk us through then? We've talked a little bit about the cost, your setup cost, your construction budget, and things. Let's talk about your occupancy and your what do you expect to make on this thing? What are your revenues? What are your well, how are you gonna run this thing from an operational perspective? Staff like let's let's get into the details of your expense ratios and all the nuts and bolts. I want to, I want the the good.

Reilly Brennan 31:23

Yeah. So we anticipated ultimately from an occupancy perspective that we'd only be full 47.5% of the time. That just felt like we really leaned into the other hotel and kind of saw it there and then wanted to stay as conservative as possible and then hopefully be pleasantly surprised. I think at a low cost, when we believe what a strong revenue for us would look like, we'd probably be at like 443 in our underwriting per year. And we underwrote each room at $119 per room just to make it flat across the board. But I can tell you right now, people aren't batting an eye when we're booking a 169, 179. So I think that we have the opportunity not even being open the full year. We'll probably make that in the first three quarters, and then that next year we'll hopefully be another 15% stronger. Because then we have reviews, we've got the Airbnb listings. And this is my one of my favorite parts is when I get to talk with my partners and we look at the financials, we're like, hey, we're we're in a better spot than where we were, or we're in a worse spot than where we consider. The the nice thing that allows us some of this gap and time to figure it out, we're on I.O. interest only with our lender for a year. So that helps provide us a little bit of cushion until these big costs start turning on.

Michael Russell 32:45

I have this conversation all the time where it's like you're you're if you're underwriting conservatively, great, but if you're looking at providing a superior product and it's $25, $50 more per night, let's say, and the average stay is two and a half night. Like people are willing to pay that extra $125 or whatever it is because there's a distinct difference between the experience. So I don't think you're far off in what your expectations are, but I like the fact that you underwrote this conservatively.

Nathan St Cyr 33:09

Bro, people driving up from the cities. I mean, dude, I know this place. You're being ultra conservative. This place is sick.

Michael Russell 33:17

You're investing in these cold plunges and saunas, and and you've got the fire pits and food trucks and all that stuff that you know you can see on your website. I'm wondering, like, okay, can you can you charge for that stuff? And if so, how does that affect your your overall investment profile or investment return?

Reilly Brennan 33:32

So that that could get really lucrative quickly. And it turns out the guy we actually know a couple of people who own very custom boutique sauna companies up here around the Duluth area. So we haven't leaned into that yet. But one of the things that we've realized, like, I tell you what, if we start getting feedback that one sauna and one cold plunge is not enough or it's too crowded, then we're at flip of a switch. We're gonna buy a second one, and then we're gonna add that as a unit, and we'll start booking private one-hour sessions inside of it. So I don't know what the profile looks like, but right now, if we're just focused on like what the vibe is, we want as many people interacting together as possible when they're on the site because word of mouth is how we want to drive the majority of all these very organic customers coming in. Our first hotel, we have people who've been coming up for 25 years, right? We haven't owned it that long, but they've curated that. Like if you have the consistency and then you start turning into like, yeah, we're also gonna get into Google hotels. Yeah, we'll also start marketing through Airbnb. It blows my mind. So, from a returns perspective, to get detailed is like you like you'd wanted, Mike. I think our our equity multiple is just under a four, and our IRR will probably be about 21. Our cash on cash look at about 10 overall. So, I mean, it's is it the juiciest thing ever? No, but it's consistent, and I certainly hope that like we're 50% off on top of it.

Michael Russell 35:03

Well, okay, so here comes the hard question, right? I love your metrics. Anything north 20%, awesome. But you what we're talking about here is you're you're talking, you've underwritten this for $500,000, a little less than that. But let's just call it $500,000 in top line revenue. I don't know what your expenses are, but if you're running 50%, there's $250. I kind of did some quick math based on your construction, FF and E cost, purchase price, 80% of that. You're you're probably getting about, I'm assuming about a million and a half dollar loan. Is that right?

Reilly Brennan 35:34

Yeah, just to like one one four or two. So like total, if you're going where I think you're going, like our total project cash flow at the end of year one after we cover some debt, it's probably around 70, which isn't super, it's not egregious. It's not a ton.

Michael Russell 35:50

You gotta split that with investors or however you're gonna do it. But I mean, I guess if you're not gonna raise capital, it's just gonna be the three of you guys, and let's just say it's straight line, 70 grand, split that. Is that worth it?

Reilly Brennan 36:02

Absolutely. And here's why. One, we all acknowledge that the cash flow is not our number one priority, and that getting to the refinancing and having that that multiple that's paid out at the refinance by being able to boost our NOI. We're we're all focused on what does this look like in 36 to 60 months. And plus, within the expenses, I still have a percentage as a property manager that's built in. Our my my other partner who functions as a CFO also has a couple points on there to make sure that he's compensated for his time too. But really, this is a it's a lower risk project at a lower dollar amount. So we have a proof of concept because if this is what goes, then like that that capital raising, the faucet turns on. Here's how we're doing. Guess what? We beat all these other proformas. Are you excited to get into this on a $14 million project compared to a 1.4? Because that's when it's really going to get interesting. So I look at this the same way, like you had mentioned. If you have a lender, they know who you are. This is also a really great exercise in branding and developing that brand and that narrative and that story and being able to connect with other individuals. So when finally we can say, hey, guess what? Yeah, we are actually able to do $750,000 a year in revenue against a one and a half million dollar project. What do you think we can do with a larger project?

Nathan St Cyr 37:30

I'm so pumped that you just said this. Just so you know that's the best answer you could have said for me. When you're early in your journey, there's value that is not necessarily tangible in the moment, but that is gonna have an impact on you that's long lasting. And so, so how do you value those things is can be the challenge, just having the conversation about okay, is it worth it? Well, I don't really know because this is all we're gonna get. So, from the financial standpoint in the moment, is it worth it? Hell no. Would I go through all of the work that you've gone through and described for 20 grand in a year? No, I wouldn't personally. Oh, it sounds terrible, but that's not the goal. That's not the end goal. If the, if it was, if that was stop point, then then no. And we have this conversation all the time. It's like, okay, but it's not for that, it's for growth. We're doing this, we're making this higher, we're adding this, this for growth ultimately because there's a there's a bigger vision. So this is a part of the process in your bigger vision. You've gone all out with it. You haven't shortcutted it. And it's the branding, that was a really important statement.

Reilly Brennan 38:35

Yeah, thank you. And to be completely fair, right? Like I don't have a W-2. I'm I'm out here swinging by a wire the first year as it at 1099. So to keep the lights on, yeah, I've I've also got to flip some some houses on the side. We travel a lot for hockey, and that's not that's not inexpensive. But that said, if I was limiting myself based on scarcity, I thought, oh man, I don't know if we're gonna make this here. I need to supplement with something else. I then I I start losing all the time and the focus that I have to try to pursue another project. And again, it's being able to find opportunity first, I think. And then passion is always following behind whatever that opportunity is. We have an old VFW under contract right now that my kid's sister is moving up here from Colorado to manage, that we're gonna turn into a bar and a food truck court, right? Like, this is so outside of the bounds of anything that I've ever looked at before. But again, you get a loop net notification. You have a friend who's like, hey, I need to get a contract on this shortly. I'm trying to go back and discover like needing speed for everything, having certainty, realizing that creativity and creativity with a team of other creatives can make any project worthwhile, even if it's small potatoes now. But my confidence is through the roof. And that significantly means something, especially if I'm gonna start making calls in three months and saying minimum to get in is 200. We don't want a whole lot of people in this, to be honest, because it's too many managers, not enough employees in that situation. So I like to keep tight, cohesive groups of people and do great things. And that's the hope. It'd be great if it makes more, but you know, we'll we'll see.

Michael Russell 40:16

Well, I think that your your website, it's somewhere on there. It says something like base camp for adventure. So your trailside hotel is the base camp for adventure. And I'm just kind of relating that to what you're describing that this hotel is the base camp for your vision. Has that vision to grow always been there from the start? Or did this kind of evolve as you got into the say, wait, I think I'm onto something?

Reilly Brennan 40:36

All right. I think more than anything, I want to have a unique opportunity and be able to scale that same feeling that I have when I'm working on a new project. So if I wanted to really just focus on and dial down all the operations and things, I think that we would be able to reach our number faster. But I prefer to be out walking in the woods. I I like to hunt something, bring it to the table, and leave that for everybody else to carve up. So I want to stay out in the wilderness finding that that next thing. So I I don't know where we stop at. I don't know how much we want to scale it, but I'm just really trying to listen to that internal monologue with myself about is this making me happy? Is is my family getting enough time? Because that's that's certainly a topic that we cover often. And are the people that are with me on this train still feeling fulfilled and satisfied too? And if the answer to those three questions are yes, then it's full steam ahead. And if one of them's wobbling, then maybe we need to talk about where that ceiling is, what that looks like, and make a purposeful stop.

Nathan St Cyr 41:47

It's crazy how we're all on these different journeys, but yet the parallels and the exact same things that happen.

Michael Russell 41:55

Well, I think what you're saying is it's brutally honest. You're talking the truth here. The reality is we all want to tell our story like we're rock stars all the time. But the truth is, hey, we got lives to balance. We have, as human beings, uncertainties, and we have families that are pulling us in different directions and all these complications that come with being an entrepreneur, and we're asking you these questions, and you're just being brutally honest that look, I'm taking it one day at a time right now. I'm hyper-focused on this. And the goal is to gain the experience and grow from this, and we're gonna see when we get there what the next step is. But we're on a journey, we're walking through the forest, you said. So I love it.

Reilly Brennan 42:36

Yeah, metaphor I like to kind of remind myself of because it's easier for me to visualize something, is like this last year, I've kind of been this like lake freighter that's out there just barreling through the waves. And I need to be more cognizant of surrounding myself with anchors. I need people that are coming into the ecosystem or that are working for me that's like this is we need to pause, we need to like slow down a little bit, because I can just start barreling through walls at any given moment. And I need that other personality to say, well, hold on. Yeah, that's 80% of the picture, but there's still 20% we need to like pump the brakes for, please.

Michael Russell 43:13

Does that sound familiar, Nathan?

Nathan St Cyr 43:16

I'd say we got both. We got full steam ahead, we got anchors, we were we're we're we got both sides of the ship. That's good.

Michael Russell 43:24

Uh we're we're navigating, you know, this is a a journey and we're exploring and we don't exactly know where we're gonna end up. We have a compass and a direction, but at the end of the day, we can't control everything. So when we hit obstacles or we hit challenges, sometimes we got to pull in safe harbor, drop anchor to use your analogy here, and reprovision ourselves in a sense. And then we're better prepared to go out there and continue exploring. So I I love that. I love this conversation. I think it's been real and it's been raw and it's been helpful and it's validated a lot of our own fears and concerns that we have, just speaking the truth. So, is there anything you want to leave us on, like based on what you've learned, anything you can leave our listeners where knowing what you know now, had you learned that sooner, or if there's any actionable advice you could give to someone who's interested in in doing what what you're doing, what would you say?

Reilly Brennan 44:14

The first thing would probably be if it's less scary after you jump. Right? Like if you think that entrepreneurship is jumping into this deep pit and you don't know where you're landing, usually that first jump is only about three inches down. And then you realize that like that next step, okay, that's a little further, you get more comfortable and that that's okay to start small as long as you were doing something. And I just I don't have a parachute. I wish I could give an analogy of like always have a plan B. I don't. I'm completely screwed if this doesn't work out. So so it has to, but and then you you will never have a perfect plan. Just accept that like every every lesson is something that you can use and put in your backpack of wisdom and carry it with you, and that's okay. It's great.

Nathan St Cyr 45:02

Love it. Yeah, man. I've really enjoyed this conversation, Riley. Yeah.

Reilly Brennan 45:07

Yeah, I love being on here. I appreciate you guys having me and getting to talk through that emotional turmoil. And I don't know, I'm buzzing right now, dude.

Michael Russell 45:15

Well, I'm following you on Instagram because just like this conversation, you're documenting your trials and your tribulations and all the stuff that comes along with being an entrepreneur. You you're documenting on Instagram, and it's been great to watch. You do a nice job of presenting that, and I can definitely relate to you. So if our listeners want to stay in touch with you, follow your journey. Obviously, Instagram, is that the best way to stay in touch with you? What do you recommend?

Reilly Brennan 45:41

I'm gonna lie and say yes because I'd love to grow my Instagram page. So you can find me at the Brennan Buzz. Alternatively, Facebook is also good too. That's just Riley Brennan, just my personal page there. Check out our hotels, the Trailside Hotel. If you happen to be around Minnesota or the Duluth area, we do have our big opening this Saturday, 3 to 6 p.m. Taco, cider, beer, live music. And bring your dogs, bring your kids, because it's meant to be a family fun party.

unknown 46:10

Bam.

Michael Russell 46:11

Awesome. All right. Well, this has been a real pleasure. Thanks so much for being on the podcast, Riley. So we are Mike and Nate. He's Riley Brennan. This is another episode of the Hotel Investor Playbook. We'll catch you again next week. Aloha. Thanks for hanging out with us today on the Hotel Investor Playbook. If you got even one good nugget of wisdom about hotel investing, do us a favor, hit that subscribe button and leave us a five-star review. And hey, if you're feeling extra generous, drop a quick line in the review section. Something like Mike and Nate are the go-to hotel investing guys, or best podcast for anyone looking to crush it in hospitality. Or, you know, whatever feels right. Those little shout-outs go a long way in helping more people find the show. And they pretty much make our day. All right, appreciate you guys. Catch you next time.