605: The Short-Term Military Housing Niche

SHOW NOTES FOR EPISODE 605: THE SHORT-TERM MILITARY HOUSING NICHE

Finding a good real estate strategy is great!  Finding an effective niche within that strategy is even better.  In today’s podcast episode, Real estate entrepreneur, investor and US Navy Captain Joe Riley shares how he saw the problem of military families constantly relocating and turned it into a profit center!

What You Will Learn

• Why there is a demand for short-term housing near military bases
• How a “military mindset” gives a true advantage operationally
• What his “secret sauce” was for insuring success with his Airbnb business
• How he expanded beyond just military-based housing
• Why he calls his business “The Walmart of Short-Term Housing”
• How he made it possible for investors to purchase and profit from his short-term rentals without having to do any of the work

About Our Guest

Joe Riley

As a captain in the US Army, Joe Riley has had multiple overseas deployments, and previously served on the National Security Council at the White House! Joe is also the founder of Patriot Family Homes, a company that meets the need for short term housing near military bases. They are a veteran-owned and operated company transforming the short-term vacation rental industry by bringing professional management to small towns and big cities alike. They are uniquely positioned to partner with passive real estate investors looking to access short-term rentals cash flow without all the headache of managing them.

More About Joe

• From a little town in East Tennessee right next to the mountains
• Went to University of Virginia for undergrad on an ROTC scholarship
• Did the Army stuff
• Went to Oxford in the UK, got a Masters and PhD in International Relations
• Came back to U.S.
• Did Army moves every 12 months
• Moved 7-8 times in 7 years
• On one of his deployments they decided to put their house up on AirBNB instead of selling it to see how it would do
• They were stationed down at Fort Benning in Columbus, Georgia at the time
• The home did very well on AirBNB
• It was no surprise because there is a big need for temporary housing within military families

Launching a Business

• When they came back to Ft Benning, they decided to get a couple more AirBNB houses
• They saw that the need is definitely there:
  • If the base has no more available “on post” housing, the military will cover the cost of “off-post” housing
  • Sometimes a military family will arrive and will have to wait for on-post housing – they can now stay in one of Joe’s short-term rentals
  • The military also does a lot of TDY (temporary duty) travel.  For example, a soldier based at Ft Benning but who is training at Ft Bragg can get a short-term place to stay
  • Families coming in to visit for the holidays, graduations or just visiting can stay in one of his rentals
  • When a soldier graduates from Basic Training or Airborne School, lots of relatives may come and they can all stay in one house, which is much more affordable than renting a bunch of hotel rooms
    • There’s a fully-stocked kitchen so mom can cook a great meal for the family
• Took out his first big loan for the houses
• As soon as he purchased, the Army said he was to go to the Ukraine
• He thought he would now go bankrupt because he couldn’t be there to manage the houses
  • Short-term rental properties on AirBNB are operationally intensive
• One of the guys he was deploying with said his wife (also a WestPoint grad) was staying behind and she could take care of the places
• That ended up being his “secret sauce” to grow his business – military spouses to manage and maintain the properties
  • Spouses need portable, flexible employment that allows them to move around and raise their families and still contribute
  • They have a great community there
  • The Marine Corp has taken over
  • It started as a great Army organization but a few Marine Corp spouses “infiltrated the ranks” and have take over the show
  • Today, military spouses do everything from cleaning the houses, to booking and reservations, to maintenance and repair, to acquisitions and more
  • He currently has 50 employees
• As he moved from base to base, he would just buy more houses
• He also saw that the need was not just military bases
  • He’s in a college town, Columbia South Carolina has Ft. Jackson and the University of South Carolina
    • They picked up a lot of University business
  • Savannah, Georgia
    • 1st Ranger battalion
    • Also, a big tourism town
• Today he has rentals from Pennsylvania, near the Poconos, all the way down to Texas
• They also own, manage and lease in an Arbitrage model
• They mostly have single family homes but they also have some smaller multifamily properties as well
• He says he’s the “Walmart of short-term rentals”
  • They don’t have the million dollar beach homes
  • They do have some nicer properties
  • But what he has in his portfolio are “run of the mill” houses that cater to families traveling on a budget, groups of plumbers or electricians travelling to work on projects
  • Nothing fancy but affordable
  • His owners get a great return on their investment
  • They target “hotel-style cap rates with a single family backstop”
• They have their own warehouses where they store all of their furniture
  • They get their furniture from hotel liquidators
  • His grandfather in Etowah, TN has a Christian training center for men leaving prison or recovering from drug or alcohol additions
    • He built them a woodshop
    • They learn woodworking
    • He supports their ministry by putting their furniture in their homes
• They have an in-house renovation team too
• Joe says, this is what the military is good at – taking on large logistical challenges
• They currently have 350, wanting to reach 1,000 by the end of the year

Locations

• They have expanded beyond just military bases to include vacation areas as well
• Being so many areas, they have people on staff that do licensing and permitting only
• He is in 27 different markets
  • The biggest risk being in so many markets is regulatory risks
    • If they change the local rules or regulations
  • What investors say is spread me across a wide geographic area so they can get diversification and risk mitigation
• They currently have homes in:
  • Georgia
  • Alabama
  • Tennessee
  • Texas
  • South Carolina
  • North Carolina
  • Florida
  • Virginia

Management

• He offers two different options when they work with other property owners:
  • The people just pay them them a management fee to manage their property
    • They have a digital and a full-service management package
    • They’ll do the digital management anywhere in the country
      • They handle booking, pricing, reservations, calendar management
      • They handle everything until the guests show up
      • When the guest hits the door, they are the owner’s responsibility, including cleaning
        • However, they do give the cleaners access to their software which shows the bookings and dates they need to be there
        • But, if the cleaner doesn’t show, it’s not their problem
    • For the full service, it has to be within their existing geographic perimeter and have a minimum of 5 properties, on the way to 10
  • The other option is a master lease or rental arbitrage model
    • Joes team will go to a landlord and say, “We’ll give you a 3-5-year lease and guarantee your rent each month.  You don’t have to worry about turnover.”

As an Investment

• His cap rate is in the low to mid-teens
• The best return comes from homes in cheap real estate markets that have a lot of turnover.  Places like
  • Pensacola, Florida
    • Navy base
    • Beach traffic
    • But still affordable
  • Savannah, Georgia
    • They like this market a lot
    • On islands a few ways away
• If you want to invest in one of their houses:
  • They’ll show you a menu of properties that their underwriters are looking at
  • You pick one
  • Their average home cost is around $220,000
  • Furniture is generally $20,000
  • His team goes out and closes on the house
  • Makes it an assignable contract to you
  • You finance it
  • They will take it from there

Biggest Mistakes

• Through experience, he has learned a number of things:
  • He learned that there is a strong demand for the “Walmart AirBNB”
    • It’s not just the fancy vacation rentals only
  • You really do need to run Smart pricing
    • It helps for faster turnovers
    • It eliminates gaps in your scheduling
    • But you need a good operational infrastructure to do that
• Short-term rentals are not passive income if you’re running them yourselves
  • When he only had 6 houses and was getting ready to deploy he was about to burn-out
    • He felt like it was a disaster
      • There was a problem every weekend
      • It was the opposite of passive income
  • He decided he was going to give up short-term rentals and go back to long-term rentals
    • Then he had to determine if he was going to hire another management company or form his own
      • If you only have 1 or 2 houses, you can manage them yourself
      • When you get up to 5 or more houses, you need help
  • He realized, through that, that short-term rentals are not passive income

Biggest Success

• Relying on military spouses
• There are a number of different groups
  • Some have been in the service for 20 plus years and have no small children to deal with
  • But the majority that work for Joe’s company are in their 30s

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• There are two house purchase type options:
  • It’s an investment property that you might want to use for yourself (i.e. beach house, etc.)
    • There are different considerations vs. purely investment property
  • Or it could be strictly be an investment house that you will never use yourself
• The best return comes from homes in cheap real estate markets that have a lot of turnover.  Places like
  • Pensacola, Florida
    • Navy base
    • Beach traffic
    • But still affordable
  • Savannah, Georgia
    • They like this market a lot
    • On islands a few ways away

Current Business

• He thinks short-term rentals are really the place to be today in real estate
• He wants to have 1,000 homes by the end of 2022
• By 2024, they want to be at 5,000 homes
• By 2027, 25,000 homes

Rap-It-Up

• Favorite real estate book: He never read one
• Favorite business book: Rich Dad Poor Dad by Robert Kiyosaki
• Favorite app: Guesty and Slack
• Favorite quote: “Love your tenants and never sell”
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? I’d go start knocking on doors at the nearest recreational lake that has nice houses and put flyers on them that ask them if they wanted to have me manage their property. There’s not a lot of competition on the management side.

How to Reach Joe

• Website: Patriot Family Homes

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