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Show Summary
In this episode of the Real Estate Pros podcast, host Erika speaks with Jonathan Pacilio, a successful entrepreneur in the short-term rental space. Jonathan shares his journey into real estate, discussing the lessons learned, the importance of understanding the differences between short-term and vacation rentals, and the strategies for effective design and renovation. He emphasizes the significance of networking and building relationships in the industry, as well as the potential of long-term rentals. Jonathan also highlights the importance of operational efficiency and the need to focus on cash flow to achieve financial freedom.
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Jonathan Pacilio (00:00)
Yeah, I’ll keep this kind of brief. I just think like doors matter even in short. I was saying this earlier to you, but doors matter. So like if you could just, this is a silly example, because it’s not easy to get. I know that, but it’s true, right? Like we’re all doing this to probably spend more time with our family or do what we want to do or have mailbox money and all the things, right? So are we willing to put in all the hard sweat and the tears and all the things to get what we want? But if you gave someone a hundred door apartment building, let’s say, right?paid off, right? then you can hand that to a quality property manager so that you don’t have to do anything, even if the rents, but it’s paid off, right? There’s really no overhead. If the rents were paid off, my assumption is you’d be making, for the most part, for most people, you’d be making enough to just you know have a good life the rest of your life, right? So it’s like doors matter, 100 doors paid off, one asset, all the things, right? That’s just a very simple example.
Erika (02:24)
Hey everyone, welcome to the Real Estate Pros podcast. I’m your host Erika, and today I’m excited to be chatting with Jonathan Pacilio He’s been shaking things up in the short-term rental space. Jonathan, I’m glad to have you here.Jonathan Pacilio (02:39)
Thanks Erika, I appreciate it. Excited to be here. I appreciate your time.Erika (02:42)
I think our listeners are going to have a lot to learn and take away with how you’ve scaled your business in the short term rental space. So I hope people are ready to take notes here. But first, Jonathan, you know, let’s dive in with your story. What inspired you to get into the real estate world in the first place?Jonathan Pacilio (03:02)
Yeah, so I mean, real estate’s, think, one of the most understood ways to try to invest in something and buy back your time and generate a little bit of wealth, right? Like whether it’s starting a small business or being an influencer or whatever it is these days, it’s a lot more overwhelming than like I saw a building, I saw a house and I bought it, or I can buy it and make some money on it, right? That’s a very easy to understand concept, right? If you’re just very…immature and ignorant that much makes so much clear sense. so we early on in our in my career, before I had a family, I bought a few properties and I went through that journey of how good and difficult it can be. And this was before the Great Recession. So thankfully, I wasn’t really too overly exposed. I had a few properties that we ultimately managed to be able to hold on to as I saw values dip, you know, 50, 60 percent. And I didn’t.
You know, there were, was some tough times to be like, oh, I don’t know how we’re going to hold on to these things. It’s not like we had a hundred doors or anything like that, which is over leveraged and all the things. But it was very easy to understand like, Hey, this, is a legitimate way to build wealth and start getting cashflow on the side of my career, which I happen to be in financial services for almost 17 years. But at that time, let’s just say, I don’t know, eight, eight or nine years, whatever it was. And so we ended up holding onto that and
Offloading some of those and then you know as the market was rising and so we actually made a nice little little Return on on those properties. And so I generally got the understood I could understand the fact that Look these things put cash flow in my pocket while I hold them and then the appreciation of these things get you a Slightly bigger check at the end of the day when when you flip them or offload them and so I’m like, okay Well, clearly the way that I can make money on these things
Is understood it makes sense. It’s hard work. Of course, I could I have tons of stories Of what went wrong and all the problems and all the things but at the end of day I was like this clearly makes so much sense It’s been around for hundreds of years and I get it and I I’m a very simple guy so you know, I kind of dove into that after we kind of got out of the Great Recession And I offloaded these properties Into hey, I’m gonna I’m gonna become more full-time in being intentional on leaving my career with real estate in mind
It just so happened that around the 17, 18 mark, I think, 2018, 2017, something like that, my biggest problem was the single family market in general. You know the margins were shrinking and shrinking to the point where I had to replace multiple six figures for myself and my wife if we were ever to leave our career. The story of wanting to retire prematurely and then work full time on something else, a lot of us have that.
And instead of starting a separate business or something that seemed a little bit more complicated or unknown to me, real estate just seemed to be the way to go. But the issue again, it was like, OK, I just need like 20, 30, 40, 50 homes if I’m going to make $200 a pop. But at the time, short term rentals or Airbnbs were really thriving. And I think the numbers were starting to come out where it was a legitimate business with legitimate business revenue that ultimately
could have the types of advantages that real estate would have, but lead to us making five, six, seven X what you would make on a single, just a single home if you were to long-term run it, which is absolutely the case, right? We’d have certain properties we bought for 150,000, 250,000 in the early days and make $6,000, $7,000 in cashflow in a month. It was bananas, right? So long story short is over the last seven years, we’ve kind of built a short-term rental portfolio of
a mixture of things that have allowed for my wife and I to retire from our career. So, and we do this full time. We manage for others and we were continuously expanding. We’re very targeted in what it is that we pick up today. The landscape has absolutely changed. We’ll dive into that a little bit, but the journey is essentially, I want to leave my career. Real estate is very simple to understand, not simple to operate and have, but it’s simple to understand. It makes you money.
you can start to grow your wealth over time. And hopefully in our case, is that we can leave careers doing things we didn’t have a passion for. And we’re absolutely, that’s our reality now with the desire to continue to grow. So I’ll leave it at that. mean, I think that’s pretty standard. Most people are like, that’s great. And you either follow that path and you take risks and you take action or you, you you’re an analysis paralysis for the next decade and you never buy anything. Right. So no matter what you do, it’s going to be difficult, but it’s worked out for us so far.
Erika (08:14)
Yeah, it really, really has with where you are today. And some people would say that the short-term rental space can be pretty risky. And a lot of people, when they think of short-term rentals, they think of vacation homes. But I know with you, your approach is different. Can you talk about that a little bit more and how you look for short-term rental properties?Jonathan Pacilio (08:37)
Yeah, so I’ll just, I’ll say this. I don’t hear this a ton, but a little bit, but you have short-term rentals and vacation rentals, which are pretty much the same thing, right? They all end up on Verbo or Airbnb or whatnot, but there really is a distinct difference in almost like it’s all about the guest expectations, right? And competition, right? So I would, in this, we have…We have properties in short-term markets. Like I’ll just bring up Charlotte. I don’t have any in Charlotte anymore, but I did, right? Charlotte is kind of like, okay, well it’s a big city, so I understand it, but why would anyone go there? You’re not really vacationing necessarily versus let’s say the Smoky Mountains where we had a big eight-bedroom cabin at one point. we have, we, we have which we no longer had. We made a nice bit of a return on that, but we have some in vacation markets today and I really enjoy having those, but those are absolutely more difficult to manage.
as well as you also have a lot of investors who want to break into those markets because again, they understand it. It’s like, you’re near a lake, you’re near a mountain, you’re near the beach, you’re near Whitewater Center or whatever. so I think people need to understand is there’s a- if the number one thing you leave with today and you wanted to break into the short-term rental market is short-term housing needs are a legitimate thing. We’ve probably all been there without knowing it in the course of our life, whether it’s-
There’s a funeral to someone in your family. You’re moving to a new market like a Charlotte or an Indianapolis or a Columbia or something like that and you are waiting for a house to close. You have a house now and your house, the floor, it floods and you need like, it’s going to be four weeks or six weeks to replace flooring. People are just checking out a new area to live. You have babies born, right? I could go on and on.
And in a lot of cases, there are people just like meeting in the middle of Atlanta or something, right? And they’re coming from Georgia and Florida and Virginia and they’re meeting there. So there’s a million reasons, but short-term rentals come with lower expectations, not as in it’s clean or it’s a nice place. But if someone spends $18,000, let’s say, for a seven night stay at a super fancy luxury home like they would at our place in Banner Elk,
you better believe that the moment they get there, they’re going to have all these expectations and you’re going to have to navigate that. And you’re to have to spend a lot of money almost in a mini arms race to keep up and prepare your asset to be one of the best offerings in the marketplace, right? Versus short-term rentals, if you’re in an area that not a lot of people would understand why anyone would have an Airbnb, the supply ratio in the general marketplace might be maybe you have a hundred listings versus if it was a vacation market, you’d have 2000 listings.
Right? So by default there, you’re already getting a better ratio of like, what is the supply versus the demand? And not only that is most people, you know, they take their own iPhone photos or they just put their backyard cottage up online and it’s okay, but it’s kind of ugly. So if you take a, if you can take a professional mindset to a market, again, I’ll just use this simply because this is kind of generally where I live. live in South Carolina, but it’s right across the border from, from Charlotte, North Carolina. But if you had something in outside of Charlotte, let’s say
You you you have less competition than an Orlando or a Smokies or maybe an Austin or Hawaii even The regulations probably haven’t caught up there or or city councils in some cases are not even thinking about it ⁓ And if with just a little bit of effort you’re competing with true mom and pops who have no idea what they’re talking about Right. So short-term rentals have a swath of reasons people need them. The supply is down comparatively speaking to like in Orlando
where everybody understands, yeah, or Myrtle Beach or Hilton Head or something, right? Which have kind of exacerbated the pricing because it’s priced to perfection. The numbers don’t even pencil in anymore. And ultimately, at end of the day, to make the guests happy and give you less headaches to make them happy, short-term rental markets that you haven’t really necessarily heard of are a better play in my mind.
Erika (12:52)
Yeah, and speaking of headaches there with short term rentals or even just your investment experience at large if ourour listeners today, we’re going to glean from what you’ve done in your advice. What would you say are some of the biggest lessons that you’ve learned over the years, whether it was the experience or maybe having a headache?
Jonathan Pacilio (13:15)
Yeah, think pre… man, mean anything could go wrong. just to get back to short term rentals for a second, just for a minute. Like amenities is a big thing, right? Like if you have hot tubs and pools and pool tables and games and all the things in a vacation rental, like naturally you do have to kind of go that route. Like if you want to stand out, people are on vacation. They want to unplug, they want to enjoy things that they just don’t have at home. So any amenity you have, video games, PS5s, hot tubs, they have…You know pools in these like container pools now, which are really cool ⁓ They have saunas barrel saunas. I mean golf course things. It’s incredible right what people are doing But every single one of those like just throw one, you know Six seven eight kids under the age of ten at any of those things and like in two three weeks Like you’re just gonna be scratching your head with what’s missing what it ended up on the roof what’s broken? It’s just bananas, right?
So amenities are a big thing. They’re awesome to have and you feel good about them and you’re like, look at the photos of my cool place. But from a headache perspective, like good luck from day one to day 365 in just one year, the amount of stuff that’s broken and missing and you have to replace and all that. it’s being a vacation markets, it’s awesome. But the headaches are absolutely like, how do I maintain the integrity of the awesome product that I have that’s out there?
if I’m competing at a high level and I’m producing all these things or I’m providing all of these things, it’s just, it’s a headache. You have to walk it like a fine-tooth comb constantly. And because your cleaning team and your maintenance team, nobody’s gonna care like you are. They’re never gonna care. They’re never gonna give you a handwritten list of, there’s one missing checker from a cool thing. They’re just not gonna do that. So again, the headache piece is how much stuff in this asset do I have to manage?
the more the more stuff, the more cool little tiny things or even big stuff like pools, like hot tubs, like, you know, it looks cloudy, like, you know, like, define cloudy, you might think cloudy is different than me versus some paranoid person who, you know, got eczema once from standing on hot tub. So that’s something you’re going to handle versus like I have places that they don’t even have a grill, and they’re booked solid, and they have beds, and they’re attractive, like we do really good design, no matter where we are. But it’s like, you know, no one’s gonna take art off the wall and
cool beds and like just like there’s nothing to really destroy or break and there’s so nobody complains about anything because we’re just competing at like our stuff looks prettier than your stuff and so people go and they sleep as long as the bed’s not broken which we don’t allow to happen that’s your headache right so I just I just say that to say like if you don’t have to compete in an arms race of amenities by default your headaches are gonna be way down and they’re just easier because the expectations is clean place to stay that’s close to whatever I’m there for
and enough room and it looks pretty and it’s attractive and I’m not on vacation so I don’t expect all these things I paid this exorbitant amount of money to work. So that’s, that’s, that’s my, my advice I guess to the group.
Erika (16:48)
Yeah, yeah, that’s that’s really solid advice. You talked a few times about how important it is for the space to look attractive. So for for you, how do you determine what type of designs or renovations are worth the investment? So you still have that ROI, still have those good margins there.Jonathan Pacilio (17:09)
Yeah, I mean, like my wife and I, we’re very classically driven in terms of like just classic looks. Like there’s a big push now and it does seem to be working where, you you’ll pay a lot of money for an incredibly good designer to come in and not only do the design of art and throw blankets and accent walls and murals and all the things. And absolutely, like they’re very, they’re showstoppers when it, you know, you’re scrolling on Airbnb or Verbo or just anyone’s site.Even if we look at Hawaii hotels or something, want to see great, beautiful pictures of rooms and different things. But I think the amenities now, that’s where really, I think people are being sold the dream, like, buy this house. Let’s say it’s a million bucks, right? And they know it’s great, got pretty good views. It’s got decent land. It’s got fire pit, all the stuff you’d expect. But it’s like, hey, let’s throw another $300,000 in it of amenities and murals and redesign. it’s like, well, so there’s a fine line. I can’t give you a perfect answer, but we do.
classic, simple. We don’t mind spending our time to get it right, right? And we do the design, so it’s a little bit different. If you’re gonna hire a designer, you’re probably gonna pay a pretty good penny. So for us, you know, we kind of save on that, but it’s our time. But we don’t, I try to avoid these expensive amenities that look good at first, but are just difficult to manage and maintain. I think you wanna just, first of all, just see where your competition is. Again, like Orlando’s a great example.
I don’t know the market very well. just know that if I find, if you find something you’ve never looked at Disney and you go there and you find a, I guarantee this, if you find like a really cool home that you’ve only looked for about five minutes and you’re like, this thing is amazing, right? If you spend an hour long after that and you’re, and all of a sudden you’re just like, just for fun, let me just remove a budget from the table. You would see things that you’re like, ⁓ did like, did whatever JK Rowling come in here and design this thing with her novel or
or Walt Disney come back from the dead to like do the, they’re incredible. And you’re like, that must’ve cost hundreds of thousands of dollars just to create the children’s rooms. Right? And so you have to ask yourself like, is that worth it? If you got to start spending that kind of money and that’s what’s going on right now. I mean, people are, are, are coaching you like, Hey, buy it at this dump X amount in there. And yeah, you might get these great bookings, but it might take you all of a sudden three to five extra years before you’re even seeing a return like close to getting your money.
And I think that’s the danger is people love pretty stuff and it’s easy to understand why a beautiful product at the end of the day, no matter what you spent, would maybe start booking great and make a lot of money in high bookings. And they start losing the sight of the fact of they start getting away from the math and they’re like, well, what does it take to get there? And that’s just really dangerous. I just think this one point, if your audience would just take away and say, go back to the numbers.
And a well-designed but reasonably okay, boring four-bed, three-bath in a city that I don’t really know much about but doesn’t have a ton of supply, I might not get the overall revenue for a purchase like that versus going to a vacation market. I understand why people go there. Overpay already for what the house is worth, what trading at face value, and then dumping multiple six figures.
into it to make it amazing and something you’re proud of. I’ve done this. Being prideful about something you want to share with your friends and family and colleagues, but that doesn’t have a great return, it’s just stupid. It’s just not good investing. I’ve been there. There’s no judgment, just truth on my end. I’ve done that. Hopefully, that answered your question.
Erika (20:44)
Yeah, that’s very, very helpful for our listeners. And speaking of investments, have there been any relationships or networking groups that have been instrumental with building your short term rental growth?Jonathan Pacilio (20:59)
We so I try to every every so often every couple years ⁓ Look for I mean I’ve gone to the conferences a lot of them and they’re great and all that stuff But I guess an intimate group of people every so often You know, hopefully no more than than 20 to 30 that’ll go to a retreat of some sort and I’ve hosted these myself I just don’t have the time with three little kids right now at our state, but ⁓ I just thinkIt’s never about the speaker, right? You could be in front of whatever, Warren Buffett, just pick a guy or a girl that’s amazing at what they do, Cody Sanchez, whatever. Like you’re not going there for them. Like they give you the nuggets that you can get online. It’s the two or three people that you really click and hit it off with at a 30 person retreat that’s right around your level, maybe a level up or a level below that might have a skill set that you’re looking for that you’re just bad at, right? Like so for me right now, I’m trying to learn the skill of really raising money and getting.
to use it. We’re really good at what we do. I’d like to think we are. And there’s just no need for me to use my own money. We’ve bootstrapped enough and I can still do that. And I will do that. Not to say we wouldn’t throw money in the game, but for us, it’s like, okay, well, there are other people who are just really good at connecting with people and raising money and making the methodical, ethical, responsible way to showcase investments to other people who do not have the skill set to do, let’s say, what we do, but they want to put a couple hundred grand to work or whatever, right? Just pick a number.
So I just, I like small intimate groups, because I think you meet those people and those are the people that open doors for you, not necessarily the guy or the girl that you’re going, that’s hosting the event, that’s ⁓ impressively successful, which of course they have their own, their value, and they’re amazing to hear from. But again, that’s why I do it. So, and I think everybody should actively seek that out every couple years at the very least.
Erika (22:41)
Yeah, that’s really solid advice there too. And as great as those speakers can be, it’s building those actual relationships that you can help them and they can help you.Jonathan Pacilio (22:53)
Totally. I agree.Erika (22:54)
So Jonathan, we talked a lot about short-term rentals, but I know you’re interested in getting more into the long-term rental space. Can you chat more about that and what your plans are there?Jonathan Pacilio (23:04)
Yeah, I’ll keep this kind of brief. I just think like doors matter even in short. I was saying this earlier to you, but doors matter. So like if you could just, this is a silly example, because it’s not easy to get. I know that, but it’s true, right? Like we’re all doing this to probably spend more time with our family or do what we want to do or have mailbox money and all the things, right? So are we willing to put in all the hard sweat and the tears and all the things to get what we want? But if you gave someone a hundred door apartment building, let’s say, right?paid off, right? then you can hand that to a quality property manager so that you don’t have to do anything, even if the rents, but it’s paid off, right? There’s really no overhead. If the rents were paid off, my assumption is you’d be making, for the most part, for most people, you’d be making enough to just you know have a good life the rest of your life, right? So it’s like doors matter, 100 doors paid off, one asset, all the things, right? That’s just a very simple example.
We look for doors in the short-term rental world now that we can make unique and
I know it’s not about short-term rentals, so I’m not going to go down that road, but doors do matter. And so the point now is like, how do you get to that point? so long-term rentals, short-term rentals have its own incredible increase in many cases. I happen to have a situation now where I honestly, I don’t work more than about five hours a week on anything in my operations. It’s all strategy at this point. And that’s kind of the whole point I’m saying, like we have doors that produce with limited engagement, but doors matter.
And long term is always easier than short term. Let’s just be honest. You don’t have to worry about guest reviews and this and all the things, right? I’m not saying your quality shouldn’t matter. I’m just saying that at the end of the day, there is a number for all of us that if the asset is paid off and there’s no leverage on it, a number of doors would produce enough cash flow for the rest of your life that you never have to work again. And not that you wouldn’t work, but then now the brilliance of that is I get to work on what I want to work on for the rest of my life.
uh You know if you want to be worth 200 million dollars I guess you know it might be you’re gonna be working longer and trying crazier things and take a bigger risks But I think for the average person if you gave them something like that That’s why doors and being able to turn it over to a quality property manager. Like if you have a single-family home You know they the property manager can’t make any money You need to give them an opportunity to make money so they’re working hard on your behalf so that you don’t have to work, right? That’s my basic understanding of doors Everybody wins everybody eats versus you know one or two or three
And that’s just the reality of it. And the same thing is with the short term in the world, right? If you give them one average mediocre cabin at this day and age, like, and you have a property manager, You’re nobody’s making money really, right? So that’s why I want to, as I take wealth and I park it in paid off long-term assets that I don’t have to touch or care about.
Erika (25:37)
Yeah, that’s a really good plan there. Especially when you’ve got things in motion where you’re only spending five hours a week on operations there. you, before we go, can you share a little bit more about that? Because I’m sure that’s a step where a lot of people get stuck.Jonathan Pacilio (25:55)
Yeah, mean, man, so this is why for now, this is for now the right hospitality, short term rental Airbnb, Verbo, whatever assets can still generate enough cash flow and it’s getting tighter and tighter and tighter. But we happen and again, I don’t make as much money as I want to and I don’t make necessarily what we did fully yet in with both of my wife and I working in our past careers. We had successful careers.But it’s enough to where we’ve altered our lifestyle to be like, now I have almost all my time back. And now, you we’re working on the development of what, like one or two projects at a time to where, again, every unit we roll out will be just that much more cashflow. But I think you have to have a very, like right now, every single client I take on to either consult or manage for, or for every project that we decide to invest in.
it’s gotten to the point now where there has to be X amount, right? Whether it’s, I’m just making these numbers up a thousand dollars a month, $1,800 a month, $3,000 a month. Like it has to satisfy some reasonable injection of cashflow into your life that you then, for us, we align it to maybe a service or some form of time that we bought back. And it took, it took five years to get to the point now. And it’s just now, just this year.
We’ve determined to simplify, we’re selling off a couple assets and we’ve exited some things that were just drags on our life. But it’s very simple, it’s just math. What do you need to survive? What do you need to put food on your table? What do you need to pay your rent? And acquire assets that have a very tangible number to contribute to that by the end of a six month period or the year. And if it’s $100,000 a year but living…
way less than you would with your $300,000 combined income as to family income or something like that. You have to be able to make those trade-offs. don’t know too many people who just go from zero to 60 and all of a sudden in a year, now they can just live the life they were and they’ve recouped all their W2 old W-2 income. It’s a process, but short-term rentals in my mind, you can still make two, three, $4,000 a month. It’s getting much harder. You might have to put a lot more money and energy up front. I don’t think you can invest
passively invest your way into it anymore. I don’t think you’re gonna get somebody you give them 200 grand and they’re gonna give you $2,900 a month on top of what they take from a project. I think those days are kind of coming to an end, not everywhere. So I hope that kind of answered that. But if you’re gonna own and operate short-term rentals yourself, you absolutely can really start chipping away. Like what do you need at the end of the month to…
start replacing your life that I’m going to assume here with most audience who’s getting into real estate or have been there for a while is to buy back time to start doing more what they do and exit maybe a career that it was great at one time they’re just they don’t want to do it anymore.
Erika (28:53)
Yeah well, wow, you’re sharing your story today. It was so awesome, Jonathan, for our listeners here who want to connect, learn more, maybe they want to want to collaborate. What’s the best way for them to reach you?Jonathan Pacilio (29:09)
Yeah, so mean, LinkedIn’s really, kind of spending a lot more time in there. It’s just Jonathan Pacilio, you know, connect with me there. ⁓ There’s some really cool projects that we look for on a regular basis on whether and whether if you just want to learn the world, that’s great. You want to talk shop. That’s awesome too. And again, if you want to do projects, we, know, we, basically only do one now at a time. I’ve made that mistake of being too distracted. And it just takes three times as long and it costs more money because you’re, you’re,you’re pin pulling back and forth. So we really only focus on one at a time. And my wife and I are pretty much all in like from finding the deal to designing it, to building it and renovating it to ultimately, you know, having it translate into a top 10 perform top 10 % performer in whatever market, you know, per the competition. And that’s, that’s where you can make significant cashflow still is there’s so many operators that don’t want to invest the time and money.
And so they just kind of let it sit there at middle of the road and then they eventually fizzle out or they just, you know, are okay with very, very small returns.
Erika (30:12)
Well, again, Jonathan, it’s been great having you on the show and I love what you’re doing in the short term rental landscape.Jonathan Pacilio (30:20)
Yeah, thanks, EriKa. I appreciate your time. has been great. Thank you so much.Erika (30:24)
And for our listeners, if you got value from this episode, make sure that you’re subscribed to the Real Estate Pros podcast. We’ve got more conversations lined up with pros like Jonathan, who are out there building fantastic real estate businesses. We’ll see you on the next episode.Jonathan Pacilio (30:41)
Thanks so much.
