Subscribe via:
Show Summary
In this episode of the Real Estate Pros podcast, Sid Bahadur, CEO of Nicasa and XB Homes, shares his journey in the real estate industry, discussing his transition from long-term rentals to short-term rentals, the current state and future of the short-term rental market, and the importance of management skills in running a successful business. He emphasizes the significance of investing in employees, understanding financial metrics, and learning from challenges to achieve growth and success in the real estate sector.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Sid Bahadur (00:00)
Yeah, think one of the things that’s been, you know, the real estate industry, as it gets more more, I think, commoditized, you know, and becomes more and more popularized is that we’re seeing a reduction in good quality deals, right? Like now, and good quality deals back in the day, I think one of the biggest things that we do is what is our underwriting ratio to the deal conversion ratio? Back in the day, we used to be 40 deal underwriting. We would underwrite 40 homes and we would…you know, making, you know, going to contract and, you know, one home. So that used to be two and a half percent success rate. Now, like the bar for deals has gone up even more. Now we’re into writing 140, 160 at sometimes to go into contract and one. And so that’s really like, if every deal is a good deal, then guess what? None of these are good deals because you’re probably missing something that most people are not.
Kristen Knapp (02:10)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Sid Bahadur. He is the CEO of Nicasa, which is an Airbnb property management company in Seattle. They’re managing over $50 million in their portfolio. He’s also the CEO of XB Homes, a boutique construction company. And he also has a brokerage as well. He’s got a lot going on, so I’m excited to get into it. Thanks for being here, Sid.Sid Bahadur (02:32)
Thanks for inviting me over, it’s great to be here.Kristen Knapp (02:35)
Amazing. Well, tell us how you got into the real estate industry to begin with.Sid Bahadur (02:38)
Yeah, I mean, I think the way for us, it was really bad starting to own as rentals and we did a lot of the primary owner living for a year, buy it as a 5 % down payment, live there and then convert to a rental and have the rental paper itself. And over 30 years, we would develop a portfolio. So we started like that and we started buying long-term rentals and we had roughly 27 or so long-term rentals we owned by doing this strategy. And we also bought his investment homes as well, right?but wherever possible, we were trying to live there and move. And while we were doing that, ⁓ as we started building a portfolio, also, one of the long-term rentals we bought was in Seattle. Turned out the original owner had done short-term rentals before that. And so we got curious as, hey, you know what, we’re already doing long-term rentals, what’s the revenue in short-term? So he actually was really kind enough to share us the revenue. And that got us excited and got us on the path for short-term rentals after that. And we started with one.
And once we moved out, we converted short-term rental and realized the revenue was like double of what we can make in long-term rental. And we started doing that. We bought a couple more for ourselves. And then we opened up a management company after that. we started, know, outside investors, first friends and family, then outside investors started coming in and buying short-term rentals as well. And then we started managing it for them. And so then we grew that business to $15 million in real estate and management. And while we doing it parallel, you know,
you get to know and network with a lot more people. And then we started learning, hey, we can also, as part of a portfolio, we can start doing BERS, which is the, know, the buy, the have, you know, refinance and rent sort of methods. So we started doing that. Then we got into flipping. And once we got into flipping homes, then we got into construction of homes. then, you know, during this whole time, as we got investors, we were also brokers for said investors. And we got, know, you know, our business just kept on going. And now we own like
multiple of these companies all focused on real estate.
Kristen Knapp (04:32)
Wow, that’s really impressive. you think it’s really beneficial for people to kind of diversify their investments the way you have in kind of the different aspects, or do you think it’s better to go all in on something?Sid Bahadur (05:31)
Yeah, you know, this is the interesting thing. I think it’s good to have a mix of both, right? My strategy was more from a boredom perspective that I love doing new challenges and ⁓ I’ve seen both strategies go really well. Obviously, ⁓ you know, have some investments in other asset classes such as S &P 500, a great diversified portfolio and, you know, and gives you great returns. But if you’re going in rentals, as example, you keep on developing that.and keep on doubling down there because once you go into one specific niche, the benefit of that is you get scale benefits. You get to get new property managers. Your property manager is great and you develop great relationships. You get to develop great relationships with contractors. And as you develop that scale, sometimes those may lead to new avenues, but don’t start with, I’m going to go five different things at the same time. You’re going to fail in all of them. Find what works and clicks best for you.
Dumber down their scale of business and then if you find synergy with another different business, go for it. I think that’s my way of doing it.
Kristen Knapp (06:34)
Yeah.Sid Bahadur (06:35)
Thank you.Kristen Knapp (06:35)
Absolutely, and I think with short-term rentals in particular, I think there’s a lot of different information being thrown out. think people are maybe confused about that market. What are you seeing with short-term rentals in the future of that investment sector?Sid Bahadur (06:49)
Yeah,I think now we’re going to the industry consolidation phase now. Essentially, like before, there was a lot of growth happening with a lot of mom and pop owners opening up. Now is what we’re seeing is one is the bigger companies such as the Casas are getting bought out. Some of these companies are also struggling as well. And even mom and pop owners, as the demand shifts during 2021 and 22, we saw a massive boom in the short-term rental industry, especially in these rural locations.
because no one could travel to Bahamas or internationally. And so they would go for these local beach destinations, for example, whether it be Florida or, you know, like Scottsdale, et cetera, and all of these locations. Now we’re seeing that demand come back and taper off. And so we’re starting to see some revenue declines. And so as that revenue decline happens, you know, you’re starting to shake out in the bottom of the segment where a lot of operators are struggling, but the good ones are still performing really well. And so you’re starting to see that consolidation where the best operators who delivering the best revenue, the best…
returns for the clients and obviously, you know, deliver the best returns, you obviously have to have the best ratings in town, you know, are still able to grow their businesses and portfolios and deliver really excellent success for the clients. In Seattle, as an example, we have seen a 15 % increase in supply, but our overall, like in the year over year alone, last year was like 6,000 or so homes and now we’re seeing close to 7,000 or so homes across the portfolio.
Kristen Knapp (07:58)
Yeah, absolutely.Sid Bahadur (08:14)
And the thing is, revenue across the board has declined partly because of, say, travel in Canada has gone down because of some border restrictions we’re seeing. And so some of the smaller operators who are not able to deliver the same, know, reviews as an example are struggling. Our portfolio has performed better than most of them, but we’re also, we’re actually the top one, we’re number one in terms of reviews for the scale we operate in. are at a 4.964, 4.97.average rating, is really, really a high bar to keep. And so that’s kept our portfolio in a really great shape versus some of the market that we’re seeing across the
Kristen Knapp (08:49)
Yeah, and I think when you’re vertically integrated like you are, which is a really challenging thing to do, you have to manage so many aspects of the business, you have to manage so many people. What are your tips for having good management skills?Sid Bahadur (09:37)
Yeah, you know, one of our, I think our secret sauce is to be able to do it, ⁓ you know, at the scale and, you know, manage it well is, you know, focus and invest on people. And I know a lot of people talk about that. For me, it comes down to a few specific things. One is, you know, when we’re hiring people, we always try to pay them more than market. And that’s like, Hey, we don’t want them to keep on looking at our like, Hey, am I getting underpaid? And I want to move because the cost of the churn and the cost of hiring is way more.than cost of retaining a good employee, right? So that’s one. Second thing is we try to focus on, how can we help grow these people in their career? And so, as an example, every month have mentorship calls with each of my employees, And hey, what is your milestone that you want to achieve in terms of personal or professional? And we’re happy to help you in either way. And how can we grow you in your career? So on average, our employees have been there since the beginning and we have had basically zero turn because of that.
And so we’re investing in employees, we’re giving the pack to success. So if someone says, Hey, I want to increase my salary by XYZ. Like, you know what? Absolutely. Here’s the productivity milestones that we want you to reach and achieve an outcome. And I want you to grow to those and I will help you and all the rest of the coaching. And if you get to that productive milestone for the business, here you go. So for example, if you can manage three employees or four employees, you know, that’s taking off workload from me for managing. then, you know, you can grow or Hey,
If you can take on some other aspects of a business and take off the Lord, you can grow more. And so we’re trying to help them both in the professional side and the personal side on how we can help them succeed as well. And that’s where I think is really important advantage is how can you invest your talent and make them succeed.
Kristen Knapp (11:17)
Definitely.And you’re investing in people directly, do you find that that helps the culture of the company as well?
Sid Bahadur (11:28)
Yeah, absolutely. mean, every single employee of ours, I really focus on a couple of things. One’s attention to detail. Like every single thing where, you know, our culture is focused on how can we deliver the best guest experience, for example, the Airbnb business or for the construction business, all of our employees are actually employed, you know, horizontally across most of our businesses. And so, you know, hey, how can we get that culture of attention to detail that, when you’re walking through these homes and Airbnb, what are the things that guests will care about?For example, keeping the curtains open as example so that there’s always light. Keeping a couple of lights in the entryway on as example. Or sometimes cleaners miss some eye spots as example. How can we fix those spots? ⁓ And how can we invest in preventive maintenance in these homes? And so now our employees, back in the day, I used to create these preventive maintenance sheets for all our houses. Now our employees are the ones who are like, hey, Sid, you know what?
Every quarter we have scuff marks that happen because people are dragging suitcases up and down the stairs. We should clean up the scuff marks on the walls. And so now that’s a part of our safe quarterly maintenance checklist. And so it’s the employees who are now proactively like, hey, I see this as a pain point. I’d rather solve it than, you know, our, you know, than, you know, guests complaining. And one of the ways that’s been, that’s worked well for us is our all our employees bonuses. Everyone’s tied to a bonus structure.
is that if our company succeeds, you succeed. So for example, one of the components of the bonus is what is our overall rating? So if we achieve like 5.0 rating overall for that quarter, you get an X percent bonus. If you’re 4.8, we’re at 0 percent bonus because I don’t make any money, you don’t make any money. So our goal is how can we be as successful as possible by aligning incentives for all our employees.
Kristen Knapp (13:10)
Absolutely, I mean yeah, it helps the internal culture but then also the external culture to your clients and customers. So I know that you’ve been able to scale really impressively throughout all of your different sectors. What are some of the skills that you’ve learned to grow, to build these multi-million dollar revenues?Sid Bahadur (13:31)
Yeah, great question. think the for me, the three biggest skills that have been helped me succeed is one’s really understanding numbers and finances. Like, hey, like every single business, if you ask me, what is my cogs, which is cost of goods or my P &L for each of these, what is my SG &A, what’s my marketing, what’s my customer cost of customer acquisition, really understanding every single line item of P &L and understanding is this going to be a successful and viable business model has been one.My second one has been management and how do I manage people and how can I hire the best people, retain the best people, grow the best people and like be able to manage them successfully. So I can grow these businesses and reduce churn has been my second. And third, think for me has been sales, not in the traditional salesy word, more so my sales process is like, if you have a client who wants to come buy a short-term Apple, how can we make them successful?
And how can we give them the returns they’re looking for in one form or the other? And my fundamental belief is if my client is successful and can make one investment, they’re gonna buy a second one, they’re gonna buy a third one. And in fact, most of the clients are repeat clients. They keep on buying more and more. Some of the clients who bought a few years ago now are venturing the construction with us and they’re investing capital there. And so our goal is like, how can we keep on making our clients successful as they get, you know, and be…
And sometimes if the investment didn’t perform really as we expected because of some market declines, how can we share the loss with them to make them whole as well and be successful? That’s my mentality on this one.
Kristen Knapp (15:09)
Absolutely, I mean it’s really impressive and kind of I would love for you to talk about maybe the times that weren’t as pretty or maybe a mistake that you encountered early on that you know you were able to correct and learn from.Sid Bahadur (15:20)
Yeah, mean, so as an example, right, one of the biggest challenges we faced was actually earlier this year, a lot of our demand that used to be so roughly in Seattle is a, you know, it’s pretty close to Vancouver. So we get a lot of inbound traffic, as an example, from the Vancouver area, and it’s mostly shorter stays, weekend stays. And that ended up tanking, that was 15 % of our portfolio. And Ghana drove out…demand overall, not just for Seattle, but even LA and all these West Coast cities ended up going down by 73 % or so, in some cases, because of the cross-border rules and all ⁓ the trade war and all the rhetoric that was happening. And so when that happened, our clients, obviously, when we underwrote these deals, these investments, especially for short-term rentals, some of them weren’t performing, and especially the ones that didn’t perform as well, was the shorter stays in the smaller homes, because that was more predominantly Canadian travel.
And so we had to pivot on those and we said, hey, you know what, we’re gonna make some changes in our portfolio. So example, the two bedroom homes we have, how can we market them as four bedrooms, but two homes together as an example, so you can avoid some of the effects of the two bedroom impact that we’ve seen with the shorter stays essentially. And sometimes we actually had to waive management fees, the clients never asked us for that. They understand that investments are subject to market risks, right?
We want them to be happy. We want them to be satisfied with the investment. And sometimes we’re also sharing the pain and the impact of that as well. And if that means we’re waiving the management fee for like a month or two, we’ll do it because we want you to be successful.
Kristen Knapp (16:52)
Absolutely and talk kind of more about that about like the discipline you need to have and you know operating at such a high barSid Bahadur (17:00)
Yeah, think one of the things that’s been, you know, the real estate industry, as it gets more more, I think, commoditized, you know, and becomes more and more popularized is that we’re seeing a reduction in good quality deals, right? Like now, and good quality deals back in the day, I think one of the biggest things that we do is what is our underwriting ratio to the deal conversion ratio? Back in the day, we used to be 40 deal underwriting. We would underwrite 40 homes and we would…you know, making, you know, going to contract and, you know, one home. So that used to be two and a half percent success rate. Now, like the bar for deals has gone up even more. Now we’re into writing 140, 160 at sometimes to go into contract and one. And so that’s really like, if every deal is a good deal, then guess what? None of these are good deals because you’re probably missing something that most people are not.
And most of the times, first time operators that we have seen miss a lot of the major costs involved. For example,
maintenance costs, utilities for Airbnb as an example, Or cleaning fees, et cetera, or BNRT taxes, which is business and occupancy taxes, or something of that sort. And the bar that we are trying to hold to ourselves is, hey, we need to underwrite more deals and we understand what the different components are, do we really push for a higher bar in the acquisition? Similarly for construction project, lot of our, we see a lot of these business models with people are buying a lot of…
you know, real estate and to build houses on the thing is a lot of times the underwriting forgets about the fact that there’s hidden costs involved in construction. Apart from the ground building costs, for example, you could be responsible for stone extensions or utility extensions and those can easily add up to a hundred thousand, two hundred thousand cost that you missed in the underwriting sheet. And so how can we get that bar to that level? And so every single time we do a deal, have a due diligence report that we present and we always run our numbers looking at the due diligence report.
And that’s, you we have accumulated over the experience of the years we’ve done so for every single deal of ours.
Kristen Knapp (18:58)
Amazing. Well, I mean, you’ve given such good practical advice and lot of inspiration for people. What’s next for you? Like, are your guys’ goals over the next few years?Sid Bahadur (19:07)
Yeah, so our goal right now is our each of our businesses now going to our Airbnb business is more mature state of business. So that’s growing steadily, you know, at a certain percentage every year or so. Our right now next couple of years, my goal is to grow our construction business from $50 million in construction projects and development to 100 million or so while still keeping the same bar. And as I do so my ⁓we’ll start seeing what other business models we can start looking at to grow our continuing going our portfolio more and have diversification and fun of doing different businesses.
Kristen Knapp (19:43)
We’ll tell everyone where to find you and how to work with you.Sid Bahadur (19:47)
Sorry to repeat that question, I think I missed you.Kristen Knapp (19:50)
where to find you and how to work with you.Sid Bahadur (19:52)
⁓yeah, you can find us on our website and our Instagram. I think our Instagram is nicasa.bnb which is BNB for Airbnb and Bread and Breakfast. And you can also find us on our website nicasa.co or xbhomes.com. That’s some of our companies that we have over the each other list.
Kristen Knapp (20:09)
Incredible. Well, thank you so much for being here, Sid.Sid Bahadur (20:12)
Absolutely. Happy to help. was like it was great to be here. Thank you.Kristen Knapp (20:16)
And thank you everybody for listening. Hope you got some really good inspiration for your own business, looking at it a little bit differently. And please reach out to Sid. He’s got a lot of great advice to share. And it seems like his companies could really help you out with your business.Sid Bahadur (20:29)
If you’re looking ever fordata driven investing, I’m happy to talk about and quickly run through data for every single aspect of every single business. That’s my goal. Thank you.
Kristen Knapp (20:37)
Awesome.Well, thank you again everyone for listening and we will see you back next time. Bye.
Sid Bahadur (20:44)
Next part.
