Michael Chang transitioned from a 7-figure M&A investment banker to a successful 7-figure short-term rental business owner. Michael and his wife, Liz, now manage 20 rental arbitrage apartments and 6 Airbnb properties. His key lessons include the pursuit of freedom, the need for cash-flow-generating assets, and working with high-integrity partners.
Michael Chang transitioned from a 7-figure M&A investment banker to a successful 7-figure short-term rental business owner. Michael and his wife, Liz, now manage 20 rental arbitrage apartments and 6 Airbnb properties. His key lessons include the pursuit of freedom, the need for cash-flow-generating assets, and working with high-integrity partners.
All right, everyone. Welcome to the Real Estate Game Changers show. I'm your host, Mike McKay, based in the Jacksonville, Florida market. And each and every week we do this show for people who are changing the game of real estate all over the country. For anyone in the Jacksonville, Florida market, or thinking about getting into it, feel free to reach out to us. If you need any help on anything we still are very actively buying in Jacksonville, especially mobile homes on land, if anyone has those kinds of deals, we're flipping a couple of those right now and really looking to focus on that this coming year. So our guest for this week is a friend of mine from up in New York. So Michael Chang, welcome to the show.
Michael Chang:Thanks, Mike. I'm very excited to be on your show. I've been watching it on Facebook and I'm glad to be on here with you.
Mike:Awesome. So for the people who don't know you who are watching how did you get started in the real estate business and how did that kind of lead you to where you are today?
Michael Chang:That's a great question. So my background is in traditional finance. I was an investment banker in New York. I was an M& A banker at Citi in Merrill. Did it for 10 years and my girlfriend in time and now wife, we're looking at ways to invest and grow our net worth. We started with a few single family rentals, and then we kind of stumbled backwards into Airbnb short term rentals. And once we kind of discovered the power of that platform, we, decided to go all in on that in 2017. So we've been working on that business for the last six years. We have 31 properties in Philadelphia and in Tennessee. Airbnb is like our core strategy. So we use a couple of different strategies to continue to grow that. You were there in the very beginning of our journey. So, you're like one of my favorite people. So I love thank you for having me.
Mike:Yeah, man. So you said different strategies that were people who aren't familiar with short term rentals. What do you mean by different strategies?
Michael Chang:So there are three main strategies in short term rentals. One, you can buy them. So kind of traditionally buy property turned to an Airbnb. And then run it. The second strategy is what's called rental arbitrage. And what that means is you basically rent instead of buy a property, and then you rent it out on for short term rentals with the landlord's permission. So, you rent it out on Airbnb. Booking. com, Expedia, Vrbo, and you make the spread between what you make on the revenue versus the rent and the expenses that you're paying your landlord. And lastly, there's a strategy called co hosting, which is really just another word for property management. So it's a way for someone to do Airbnb. To run Airbnbs without actually putting any money in, they're just kind of doing the work and then they get a percent of the revenue, generally 12 to 20 percent from, The owner of the property. So those are the three kind of key strategies that that folks use. We started with rental arbitrage. And then once we got more comfortable with the model, then we started buying. So we have 25 Airbnb arbitrage units, and then we own six property.
Mike:Gotcha. And for people like comparing those two strategies, like rental arbitrage versus owning the property. What are the upsides and the downsides?
Michael Chang:It's always a balance, right? Of like risk and reward. It's kind of that spectrum. Co hosting is the lowest risk. You have no capital really in your time. And then your upside is kind of capped. You're going to make percentage of revenue and then arbitrage, you're responsible to rent, and then you're for the rent, the expenses and furnishing a property. But your upside's is unlimited on the amount of revenue that you can make. If you kill it, then you know, all that profit flows to you. You don't have to share it with anyone. And then when you buy, you've taken a lot of risks, cause you're putting down payment, you own the house, the property, you have the mortgage, you're down payment, you have to furnish it. But you get a lot of upside. The property will appreciate or should appreciate and you'll make the money for the Airbnb. But if it doesn't work out, obviously then you set to pay the mortgage. You put it out to down payment. If you're doing an arbitrage, you gotta pay the rent, the utilities, co hosting, that's where it's no risk, that risk is on the owner. So. That's kind of the spectrum, just depending on kind of where you are in your journey, like what makes the most sense for you.
Mike:And like, how do you guys decide whether it's like per market or per type of like property, if you're going to pursue a rental arbitrage strategy versus purchasing in that area.
Michael Chang:It's like a reflection of rent versus the revenue you can make. If you're looking at rent arbitrage, and then when we buy, there's an additional like regulatory component that we look at. Because as the rules change, you're not going to buy a property. Assuming I can do Airbnb for 30 years and then it changes two years down the line, then I'm in trouble. Obviously we'll look at what we're opinion on down payment, what's the cash on cash, what's the return on equity with those factors. So it's a longer process when we buy, but we find a good market that we'd like we'll definitely, we want to scale there. That's what we bought six in the Smoky mountains, national park in Tennessee, which we really liked the market.
Mike:What are you looking for from a regulatory perspective? If you are going to make a purchase. What do you want to see?
Michael Chang:We want to see two things. We want to see an area that has a history of short term rentals or overnight rentals, depending on kind of what it's called. So we want a place where like, this is an already established part of the economy and a place where tourism is a predominant part of the local economy. So we want to make sure that if there's no tourism, there's no Airbnb. People don't eat because that will protect us ultimately from onerous role changes. If they're going to kill their own goose. So if you're in a market where a hundred percent of the economy is based on tourism and a lot of it's based on Airbnb's, they're going to be very supportive Airbnb's because that's ultimately what's going to drive tax revenue jobs, poverty appreciation. And that's when you're going to be the most protected.
Mike:Gotcha. And then those arbitrage units, you're okay with a little less certainty in regulation in those markets, or are you looking at some regulation there? How are you approaching those?
Michael Chang:Yeah. We would never want some regulation. You don't want no regulation because that's a fruit for all. And then so supplies unconstrained. So we want somewhere where there's like, you know, kind of smart regulation or at least regulations that you understand that you can take advantage of. So we like regulation actually, because what it does is it constrains supply. We don't want a ton of people coming in and that kind of screws up your market. And for arbitrage, it's definitely probably the hardest, I would say, because in order to make money, you need a lot of them. And then, so you really got to get the market right and you got to get the building right. Because that really ultimately drives like how scalable that business is and how profitable that business is. And I think there's definitely an opportunity set there that we like, especially as multifamily rents start coming down. I think that spread is more and more in favor of people that understand the arbitrage model. And so we're really excited about 2024. I think there's a lot of opportunity.
Mike:And, like, is there a specific return that you're looking for from an arbitrage property, or how are you deciding, hey, this is a deal?
Michael Chang:As high as possible. In arbitrage, there's a 1 percent rule in long term rentals, which are a little anguidated at now. I described like a two X rule in arbitrage. So if your rent's a thousand bucks, you should be making 2, 000 a revenue per month. If you kind of hit that rule, your general would be fine. If you do North of that, you have to do great. If you do South of that, you're going to be a little more pain. So that's where you kind of we underwrite, we want to make sure we kind of are at or north of that threshold and then so my landlords aren't hearing me right now, margins are healthy enough where, we're very good tenants to potential landlords that we always pay our rent.
Mike:Sure. Yeah. That's important.
Michael Chang:It's important to business relationship. Exactly. Houses are just a little different. We don't arbitrage houses but people do, and they can be successful. We like buying houses. And ultimately I think like buying is the path to long term wealth. So very much focused on buying especially there's obviously tax advantages and appreciation associated with buying versus renting.
Mike:And you guys manage your own properties or you have a team internally who does, which is. Different than some other people do like why did you guys decide to go that route versus hiring a third party property?
Michael Chang:Well, that's where you come into play, my friend. So Mike is very kind and generous. And I'm going to share like two stories about Mike that everyone should hear. So Mike was there in the beginning when my wife and I started, we didn't know what we're doing. We go to his meetups in New York city and we actually met people there that we're still friends with that have are still doing Airbnbs and that's been great. And thank you for that, that's what I meant said Mike and side has led me to like other business opportunities. So, shout out to to you on that, that was been really helpful. But. To your question about like managing ourselves, we always kind of manage ourselves that we were getting burnt out and we didn't know how to hire VAs. And Mike put together this really great blog post that I still like we basically use still now. We added on our own things there, but Mike developed like kind of a methodology and how one should vet and recruit global talent. And that was our first step to actually building teams remotely that now run our entire business, run all of our businesses and can be run our personal life too. So all my VAs they do everything. They manage almost every part of my life. So, you know, shout out to all of them there. Anyone listening there you guys are great. And then the other story I want to talk about Mike is How you've been like, it's funny, like, like I talk to other people and they're like, they still talk about you. They're like, oh, like, yeah. Oh yeah, Mike. Yeah. Yeah. Mike was really helpful. And this, that, and the other, your name still comes up like six years later. Just to kind of tell you the impact that you've had on folks in short term rentals and in New York. So, I know you're in Jackson right now, but you're loved and miss in new.
Mike:Thanks, man. So you guys have managed to have all these VA's running the majority of your business I think offline you said you kind of a short term rental business for like an hour a day on it. What would be, if someone wanted to start going that route, let's just say they have like five short term rentals and they're kind of starting to get to the point where they're pulling their hair out between the guest communication and pricing, and all the stuff that goes into it. Who would you suggest, like what role do they try to hand off and hire first?
Michael Chang:Customer service part. I think that's the easiest one to do. You hire global talent at a competitive rate and you have to get trained them. But they can handle, at least initially the guest communications. Communications with your cleaners and then maintenance issues. I think that's kind of the core. Those are pretty kind of easy to knock out. And then if you have a good working relationship with that person, then you can grow on to other parts of your business. But it's always going to recommend people to do that in the beginning. Just the things that like, they're very going to be much, much better than you at doing right. Cause if you're an entrepreneur, you're running around doing a bunch of different things, like you're not going to be as fast on the app as they are. If they're sitting in front of a computer and two is like, you're not going to write mindset. You're like problem solving something. And then a guest comes and asks you like, where's the wifi? You're kind of annoyed, actually, like, dude, I sent you like 10 times and you probably won't give it a real, good customer service answer that you'd want to give it because they're paying you money to stay at your place. So you want someone that actually is like they're in the right mindset is trained to do that, that can provide the service level and that's going to reflect well in your reviews and generate goodwill for your business that they'll refer someone to come to your property thereafter.
Mike:Yeah, that's a good point. And for the changing economic environment that we're in. People always say that travel is one of the first things that takes a hit because frankly in a lot of cases Maybe it's a luxury. What have you seen on that side in the short term rental market
Michael Chang:things are better for us. And I think I was, Oh, and I speak with my peers to like Q4 this year is up versus Q4 last year. So, I think things are going well, right? If you are operating your properties professionally, what I mean by that is, you know, the right pricing, you have a real customer service organization. It's decorated properly. You're maintaining your units. You should be making money.. But if you're not doing it professionally, if you maybe aren't making money and then you're not really reinvesting your property, you're not providing good service. I think that some of those people are struggling. A lot of the Airbnb hosts complaining about not getting bookings. They a little bit. Because if you're in a top 80 percent of properties, generally, and you're in a decent market, you should be getting booked, right? The lower 20 percent that are like getting hurt because they're taking photos with iPhones that are going to Ikea or home goods, like it's not a recipe for success
Mike:Yeah, and then have you guys changed anything? Let's call it in the last 12 months. I mean, I'm sure you're constantly evolving but anything like specifically that's been able to help you guys stand out and continue to bring in revenue even better than last year.
Michael Chang:Design more and more is a big component. Someone said you could have put a port a potty on Airbnb post COVID and you would have still made money. Those days are gone, demand isn't what it was. There's more professionalism into space. I think design is one of those things that's really going to set you apart versus kind of like it's the low hanging fruit that's going to set you apart. So if you're an Airbnb host, that is. You know, wants to uplevel their game their property designed as the first part that is the first step. And I think the low is hanging fruit that you can knock out pretty easily and see some immediate return on your investment.
Mike:And are you hiring like an interior designer to help with that? Or is that something that you guys have also decided to handle internally?
Michael Chang:Yeah, we have that in house.
Mike:gotcha. And then I'm assuming you just have people to help you set this stuff up, because this is the most aggravating thing ever. I said, I'm sure you have people help you, like, actually set up the furniture
Michael Chang:Oh, yeah, we're not doing that yet. We're finally graduated from doing that.
Mike:Horrible.
Michael Chang:yeah, those are the days, man. I remember those days, man, the long nights, your hands hurt from opening boxes. And man, I remember before, like not having an actual toolkit and just like Allen wrenching furniture myself, screwing furniture yourself. So yeah, people think it's all just kind of happens. There's a lot of hard work that goes into it. There's some hosts maybe they overpaid or in a bad market. Then didn't do the work. I have a lot of sympathy for those people because I know how work and blood, sweat and tears. And more importantly, dreams, like someone's dream of building their own business or creating wealth for their family is in a property. So I don't take it lightly when people struggle or ask for help. I also try to help them because I remember in the beginning, when it was hard for us and you were there, like you were generous with your time. When I had questions for you, when you were still in the business and the technology stuff and operational stuff. So I always remember how helpful that was to me. I was trying to pay it forward to people need help now because I remember the stakes and it's just like, yeah, I can help someone. Be happier, like help them with their family or makes more money to help their family. I think we all should pay it forward.
Mike:yeah, and you mentioned the technology side there and I've been out of it for a bit what are the new things that are coming you guys are using on the technology side to bring in more revenue?
Michael Chang:Well, just crazy thing called TikTok. I would say like being able to promote your properties on social media is actually like a huge thing. We partnered with the influencer who focuses just on our market. And she's been wonderful on helping us drive traffic to our properties. And we, obviously we help her as well too, but you know, marketing through social media, I think the nuts and bolts have gotten a lot better too. There's just a lot more software available than what it was. You probably had to build some of that stuff for yourself. Well, what was your company called? Like hi, something.
Mike:Howard
Michael Chang:hi Howard. Yeah, the off the shelf technology is actually quite good now with price labs and if you use guest to your host away, remote lock, like all the nuts and bolts are all there. You have to kind of put it together and optimize it for your use case, but I don't think there's a lot of like technology differentiation. Actually. I think it's now it's really just like design in the right market operations accounting, just like the real like nuts and bolts of business. Which I fortunately I'm very good at. So I like my odds against the typical operator, let's say.
Mike:Are you guys focus on driving like for a long time when I was in the business like this a topic of Direct booking was like a hot thing Is that something that you guys focus on, or you don't worry about that much anymore?
Michael Chang:It's a very hot topic now to Mike, should've started a direct booking technology company. There's a company called Bruce Lee, March Simpson. They're like, they're doing very well. And they build websites for 5k. Overseas global talent. So it's not a bad business. We very early on collect guests contact info from 2019, I think. So we have good database. We figured out a few hacks along the way to get, all the contact information from everyone that stays there and then just like pushed them to our direct booking site. I would say like we're in Philadelphia, so it's just not that much repeat business. So it's not as much but you know, we're like five, 7 percent direct right now, which for urban market, probably. Okay. I mean, I've seen without putting any marketing dollars behind it besides a MailChimp account. So yeah, I feel like we're doing pretty good. We have the direct booking site just through our PMS system. So it's pretty tight. It doesn't fail. We don't have to manage it.
Mike:What are some of those tips for people to collect guest information so that they can upload it to the database?
Michael Chang:I can't share my secrets. All right. For you. So like an easy way to do is everyone needs wifi, right? So, go on camera, print out a QR code that goes to like a form, right? That basically asks for them to fill in your contact information so you can stay in touch with them. And then have the wifi information there, right? Have wifi that, Hey. 5 percent off your next day, just, putting your information here and you'll get everyone's contact information. There's no third party software needed. It's
Mike:So they have the Wi Fi info, it doesn't force them to do it to get the password, but it's just kind of, you know, generously
Michael Chang:Yeah. Cause one, you don't want to force them. Cause it'd be like, what the hell? All right. So it's there, right? It's just like here, Hey, here's the one. Oh, but fill your information. Cause we send free tips and whatever freebie you want to give and then, you know, yeah. Easy
Mike:else have you guys tried to do to get guest contact information?
Michael Chang:peasy on our next episode, Michael, I'll share a notice. If you feel good enough to invite me again I'll share a notice.
Mike:Oh, definitely! Come on! And
Michael Chang:All right. What's another one? I think a lot of it is just like, you know, you have signage in your. So if you have an email address and you're looking for a website, you're going to be able to say, Hey, this is my bro, if you enjoyed your stay, like this is our website, you don't have to go through Airbnb Booking.Com verbose video. Like just book with us directly. If you'd like to stay, it's right here. So you don't need a fancy website to do that. They're, you've already sold them. They're already in your property, you've sold them. So that trust factor is already built there. That's where Airbnb is strong, right? They have that trust factor there, but they already know you. So it's not your thing. All they need is somewhere in the book. They know. What property you're booking, there's a calendar, it's updated and there's payment information. Your charge will actually be very low because it's like a someone in the network already. So it works really well. And it's, and the nice part it's very low overhead. You don't have to do anything right. You have, if it's integrated PMS, you don't have to do plugins or like write code between one website and another. So it's all kind of integrated within one platform. And if you kind of do it the way that I described it, all you need to do is pay for a MailChimp type four, maybe Canva. It's very cheap software. Put something together. It's really easy. You don't have to pay for stay fine. You don't do any of that. You don't need any hardware, any of that crap. I think taking a page from your ingenuity, Michael. So just like trying to figure out ways to optimize our return on our capital and our time.
Mike:You said in an urban market, five to seven percent is pretty good. Are you seeing a difference in repeat guests, direct bookings, like, in your Smokey Mallon's properties versus your Philadelphia,
Michael Chang:I actually don't know. I haven't looked at cause it's probably not that many, so I haven't looked actually. I don't know the breakdown between the two. So I can't actually say actually,
Mike:fair enough.
Michael Chang:not sure.
Mike:And then everyone says like Airbnb. Then I'm assuming for people who don't know about this, you guys are on like a lot of different channels.
Michael Chang:Yeah. We're on as many OTs as we can get on. You want to be as broadly distributed as possible.
Mike:What's working well for you guys these days in the different markets
Michael Chang:I mean, Airbnb needs to be really strong. They're all strong, right. They're doing a lot of marketing dollars behind. Booking. com I think is better and better, we're getting more and more business from them. Yeah, even where it's traditionally that kind of an urban European type customer. It's a lot more here. U S we see them in Tennessee, VRBO, Expedia, obviously Airbnb, Google travels, big Marriott homes. Hilton has a new product as a new home share product. American express is rolling something out. Yeah, it's a lot going on.
Mike:Yeah, you mentioned that. I remember Mary, I was coming out with that just as I was kind of exiting the business. So is that something you get approved with them and then they kind of book your place or like, how do you integrate with?
Michael Chang:Oh, you need like 50 listings. We're not big enough yet, but you need 50 listings to get on there. I don't know the exact process, but I know folks that have it and it's worked pretty well for them. I think you're just integrated within rewards programs a year, stuff comes up and their inventory and then I don't know the backend, but it's a nice distribution channel for folks.
Mike:For sure. Okay. And like kind of back to like sourcing the properties and sourcing deals. How are you figuring out first, besides the regulatory piece, what markets did you want it to be?
Michael Chang:We do a lot of analytical research are used air DNA, there's a lot of data there. It's just a kind of parsed the data. See what we know works and just look for patterns in different markets that fit that. I think that's right at a very high level of kind of how we do the research, kind of know what works and then we just try to like, you know, let me see the same patterns in different markets.
Mike:And then as you're kind of like zeroing down, like, how are you picking like a neighborhood or like a type of product, for example, like a single family versus a multifamily, like, how are you deciding what is the best product that you wanna rather arbitrage or own in that market.
Michael Chang:I mean, I think the data is good enough where like you can go and see like what particularly works well. Obviously like what your budget is and everything to like what actually works well in those markets. So yeah, like the three bedrooms, four bedrooms workout, what area you want to be is a unique property, but I think a lot of it's just like the data, like just finding good comps and then taking your subject property and kind of doing the work to see what makes sense and what doesn't.
Mike:Yeah. And I know that like small things can make a difference. I had John on the show too, and he was kind of talking about his methodology behind some stuff. What are some examples of things that you've noticed maybe in the Smoky Mountains that are like big value adds that you feel drive a lot of revenue to those lifting?
Michael Chang:Yeah. I mean, there it's like proximity to like Dollywood is big, right. At least in kind of the part that I'm in you want to, you know, closer to Dollywood, you do better bigger, better. Bigger indoor pools.
Mike:You have indoor pools?
Michael Chang:Yeah. Oh yeah. Oh yeah. It's game is very different from even like four or five years ago, it's really evolved all that Florida Kissimmee stuff is like migrated to other markets. It's like an arms race. A lot of these places now.
Mike:Wow, okay. But you've got, obviously, team distributed around the world, but you're also building out local teams in these areas. Like, if you guys are not in either Philadelphia or Smoky Mountains, obviously, how do you go about finding the right people to do the on the ground stuff for your property?
Michael Chang:Facebook groups are a great place to start. When we started it, the business we looked for people that were trustworthy, people that we would want to work with and we're using the same cleaners that we first started in Philly, like the same people they've grown their business now too, yeah we just want to find people that they may not be the cheapest, but they're honest and reliable, cause cleaning is not like, you're not hiring someone to go to Mars, right. You're hiring someone that's going to show up on time, do a good job, communicate with you. We just look for those traits where we want to build that relationship with them, give them more business, give them consistent business. There's a lot of things here. It's a positive feedback loop. If you have a successful property, a successful portfolio in a concentrated area, you can give them consistent work. If you're booking out seven, eight, nine times a month. You have like 10 units in a place that's 70 turns, right. That's distributed, but it's in one place. So they know like, okay, I can hire teams against that. I can build a business around that. So you get some vendor lock in with them on your side and their side and it works out pretty well. You can tell pretty quickly. Someone's going to be a longterm partner for a year or not.
Mike:Sure. How are you guys handling it? I remember always one of our struggles was like, I just call it running supplies. It's like consumables. Is that something that you put on the cleaners? Is that essentially located? I just remember as we scaled, that became like a bigger and bigger problem to try to figure out. we have our nails?
Michael Chang:Wherever we kind of scale the location, we always make sure we have storage on site there. So we make sure we have a place where we can put everything. I think back before when you're in the business versus now, just Instacart, uber eats like you need something like short, fast Postmates. I mean, you can go Walmart and you can get someone to deliver something like two hours now. The technology is that much better now. You just pay some 25 bucks to drop off toilet paper. It's no big deal.
Mike:Right. Okay. That's a good point.
Michael Chang:Just drop it off in front desk and just go get it. It's pretty easy.
Mike:And then the cleaner brings it up to the
Michael Chang:No, just tell the other guests to come down and grab it.
Mike:Okay. And then what are the other pitfalls about people who are like trying to scale a business, right? I feel like one's easy. Two is easy. Three is pretty easy. You start to get to like 7, 8, 9, 10 units, you start to run into some problems, like what are the problems you see people running into at that point, and how do they overcome them?
Michael Chang:Two things. One is like technology. They haven't invested in, and it's hard. You can run a couple of units just on the app, every V app, or you can run multiple apps and kind of run around with your hair on fire. But you have to kind of actually be go technology or be at least competent, how to hook up a property management system, and how to get all that to work. So then when you scale, you need technology to help you automate tasks and be more efficient. And second is kind of the earlier point I was talking about with global talent. You need global talent. Us talents is too expensive. Given the margins in the business, you have to hire global talent that you can recruit and train, pay, motivate. A lot of people struggle with that. It's easy to get one person but we have four BAs that run the Airbnb business operationally. We have a bookkeeper. And then probably like 10 people on the education, on the personal branding business, and then we have our team. We have cleaners, handymen, there's a lot of people. So how do you organize all that? How do you track that? How do you recruit them? How do you pay them? How do you make sure they're doing a good job and keep them happy? And that's where like, it's I'm looking at it from, you know, 30 units, but when we first started, you just start with one and then you build some confidence, you build some procedures and then you get the next one, you get the next one. That first hire is the most important, cause that person trains everyone, you and that person become the DNA of the organization. And another thing too, the culture of the organization. From me on down, it's like we don't minimize waste. Nothing's wasted. If it's a cancellation fee, we should get it. If it's an air cover claim, we should get it. If the water bill is too high, then we send someone to go and check the toilet. So that ethos goes down in organization. We don't allow people to take our margin away from us. Maybe put it that way. We very much protect our margins. Cause that's how my people get paid. That's how we get paid.
Mike:yeah, for sure. And then a common worry in the short term rental business is yeah, screening, right? Like, how have you guys reduced as much as possible? Incidents that happen at the property because of guests and parties and all that kind of stuff
Michael Chang:The simple answer is price. We're going to have a quality property, that you don't have to like cut down so low that you get the problems. People that are problematic are usually the ones that pay the lease. So just make sure you have a quality property you can reinvest in. Price is the best green. I would say that's the biggest lesson. And that's the easiest thing that you can do. Just high quality property, run it well, maintain it so you can always get booked. Good prices. And then you won't have problems. Depends
Mike:What's the minimum threshold that you guys look for in terms of like your average daily rate to not have a problem
Michael Chang:Depends on the market. I feel like it's different from Tennessee. But we never want to be in a position where we're losing money on a reservation. So I was to make sure we're covering our fixed costs
Mike:If you'd like medium like gallon per day basis, for
Michael Chang:Yeah, that's what the accounting comes into, we know what we spend per unit. So if we're not going to take. This is that we're losing money on. If that makes sense, or we're taking too much risks, because you've got to manage those building relationships and you don't want problems that affect buildings. You don't want to burden your staff with bad guests that like suck of a lot of oxygen or damage your place. But you want consistent bookings, right? Because you want your cleaners to have, and all kind of works together. You want consistent cleaners or cleaners like are invested in you and do a good job to show up on time cause they want your business because like, you're probably one of the few people that like can offer them eight turns a month in a unit, and that they can turn and an hour and a half and they're making 80 bucks, like they're pretty happy with that.
Mike:you know
Michael Chang:Yeah. That's why they're still here.
Mike:Cool so I know like you guys have spent the last year a lot of time and energy into growing your social media. So it's in conjunction with short term rentals. But I feel like that's something we should touch on. Why did you guys decide to go that route and how has it affected your business?
Michael Chang:And we started kind of being more public about our journey about May of last year. So it's probably like a year and a half. So we really just kind of start posting about what we've done with our business, how we've grown it. And we've shown it in a way through our lens as a married couple my wife and I, Liz, my wife and I, we grew the business together and doing it in a very sustainable way. So we didn't grow the fastest. Because we didn't grow a ton during 2022 because rents were just ridiculously high. And we bought instead because there was just cheap financing. Does that make sense? And now as we flip in 2024, where housing prices are very high, interest rates are very high, but rents have come down. Surely there's a lot of rental arbitrage opportunities that we really like. Just being able to navigate that. So we want to kind of share that journey on social media because I'm going to try to show people that this is something that's possible, it's not about Lamborghinis and Rolexes. It's like, Hey, you can build a business to support you and your family to go buy real estate, to do things in a conservative, consistent way. To build net worth and build a capsule for yourself. And we thought it was an important message that we wanted to share versus some of the other things we're seeing on social media. We thought it wasn't portraying the situation accurately and people weren't teaching people the right way to doing it. So I was like, okay, well if someone's going to learn, this should at least learn it the proper way, at least in my opinion. Right. Versus someone that not as experienced as us. We've done this for six years. I've been in investment banking for 10 years. We do things in a way that it's durable, and that's the message I wanted to kind of share. Do things in a durable way. We've been doing it for six years. We have two kids we both work on this full time. This has to be durable. I can't have it go like this.That's not volatility in my family and I want, so yeah, maybe the highs aren't as high, but the lows aren't going to be as low, we got young children, like you don't really want to subject them to like a rollercoaster financial journey.
Mike:Sure. What are some things that you guys have put in place in order to keep the business like durable and consistent that you see other people like just not doing?
Michael Chang:Not swinging for the fences, I don't want to be convinced of a deal. It should like work. I don't want to stretch for something, if it doesn't work, it doesn't work. I'm not trying to like, Oh, these three things have to happen for this to like, make sense for me. I don't want to do that. It's like, okay, this makes sense. Obviously there's risks and everything. Right. But I want to make sure I'm taking like smart risks. So I think that's probably the biggest thing that makes our business durable is that we were conservative underwrites. We know when we get into something like. It generally will perform within a certain range.
Mike:like that you have a friend of mine likes to say I try not to make deals work. That's when you get into trouble.
Michael Chang:Yeah, you get yourself in trouble by just stretching a bunch of different assumptions just to get something to pencil. And that's one of the pitfalls of being a real estate investor. You can kind of feel like you have to be buying, you have to be doing something when the right decision is done. Do something is still like not by the deal is just like, okay. I'm going to write a deal. Like, okay, it doesn't work. It doesn't work but especially when you have fun or your capital, they feel like you have to be doing something. I think that's absolutely the wrong mentality. I think that's why building another business for us, building a social media business, it's been so helpful because more than generates an uncorrelated. Stream of income that's not related to the Airbnb business, but, or directly related to the performance of the Airbnb business, but it talks about the journey. But secondly, it, things aren't as busy on the Airbnb side. We're not feeling like we have to go buy deals or do ground up, develop, or do all this kind of crazy stuff, right? We can orient our energies like we're. Where we have better options. So I think that's where that durability comes from. Like having multiple uncorrelated strings of income, especially in realistic, if just not forcing yourself to do a deal in order to do a deal,
Mike:Yeah. Yeah. Especially right now.
Michael Chang:Especially right now. Oh yeah. Yeah. I mean, Jesus, I read before, like a year ago, right? Like, Oh, like who buys deals at four caps, right. And unhedged, like interest rates and like just all this crazy stuff that happened before tides coming out.
Mike:Yeah, we're getting close to the end here. And there's always two questions I like to ask you at the end. The first one is I'm sure you have some stories here, which is what is the craziest or most uncomfortable situation you've ever experienced in a real estate deal?
Michael Chang:You would think I would tell like a Airbnb story, but it's actually when we first started buying, we're in Philly and we were looking at these, like, honestly, kind of crack houses, like they're like 50 grand. Terribly now put 50 in and it comes like one 30. We're just starting. We didn't know what we were doing. I remember walking in one and it was gross, man. It was like, you walk in, you're like four people living there. They're like cockroaches on the wall running around. You could smell like human waste, it was just gross. And Liz and I walked in there and then that was when we're like, what the hell? What are we doing? Like, no, like never again. Or like, this is not what we're going to do. It was very visceral. And I know everyone starts in like the 50, 000 houses and your real estate game. And it was like, and then we walked in, it was like not doing this. Let's figure out something else. We're both smart people and let's figure out something else. I remember that. I was like, Oh man, like that in my real estate journey. I remember that very viscerally. I was like, I'm not walking up in a wife in one of these places ever again in my entire life. But there's plenty of money to be made there. Like your friend Angad. He has like 300 of these in New York. I don't think I ever told that story actually, but like, I don't know why it came up now, but I remember that now maybe it was cause yeah, we're when you and I, before we're talking about other potential business models.
Mike:Yeah. Maybe try to block it out of your mind. Cool. So the last and final question I always have is if you could go back in time back to when you were looking for your first deal or your first short term rental deal, you can give yourself one piece of advice, knowing what you know now, what would you tell yourself?
Michael Chang:Oh, I told myself I would have told myself to buy way more in 2021.
Mike:That's a good
Michael Chang:Oh man, I didn't buy it. I've only bought three. I should have bought everything. I was too conservative. I look back in the underwriting work we did, we're like walking away for 20 percent cash on cash deals, like, Oh, it's not high enough. Cause the first one was so great. We were like, it was like crazy good. And then, it was like, ah, 25%, like, why would we do this? It doesn't make any sense. Oh God. I would do those every day now, every day and Sunday now. I guess it's like kind of a broader lesson just be like, when you find something that really works, that just. Just be aggressive don't get anchored in like something that worked really well. And then you gotta hit that ground slam every single time. Right. Like had I bought like four more of those 20 percent deals my net worth would be better. But you know, it's just a lesson. I think this is where a durability part comes into. You just play the game long enough that you can actually learn the lessons and then effectuate the lessons in the next cycle. So I've learned this now. So next time I know it won't be the exact same thing that will happen, but like something similar, it's like, Oh, the panda recognition, like, Oh, okay, well, I didn't execute well in 2021 cycle, the 2027 cycle. I will, you know, lean in when I see a similar situation.
Mike:That's a good piece of advice. Well, people want to reach out to you after the show where they have questions, they want to check out some of your content that you put on social media. How can they go about reaching out to you guys or finding online?
Michael Chang:Yeah. I'm active on Instagram, so just look for Michael Chang BNB. M I C H A E L C H A N G BNB. I also have a podcast. It's called STR. Like the best STR, like the best we're on Apple podcasts, Spotify, and we talk with leading short term rental investors and operators. So if you're interested in short term rentals and want to hear stories of how people that are successful in the space, how they think about their business, how they started, how they operate feel free to check out the podcasts.
Mike:Well, awesome. And well, thanks for being on the show. This is great.
Michael Chang:Appreciate it. Thanks, Mike. Thanks for having me. And my guy is so great. I love being on this show. It's the best one.