Playing The Long Game In Real Estate, Running A Short-Term Rental Business, Thoughts On The Housing Market, And More With Kevin Lee, Insightful REI

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The housing market isn’t in its most pristine state now, and many investors are running away or else crouching in a corner until times get better. Not Kevin Lee. Despite everything that’s going on with high interest rates and inventory problems, Kevin stays optimistic that he can make the most of the opportunities out there. In this conversation with Tim Herriage, he talks about his philosophy of playing the long game in real estate, his tips on running an Airbnb business, and his general thoughts on the state of the market and where the opportunities lie. Kevin also shares with us a powerful message on how following your passion will help you achieve the financial freedom through real estate. Tune in for a quick hit of wisdom and inspiration from an insightful REI expert.

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Playing The Long Game In Real Estate, Running A Short-Term Rental Business, Thoughts On The Housing Market, And More With Kevin Lee, Insightful REI

Welcome back to the show. Thank you so much for swinging back by. I’m with my good friend, Kevin Lee. Kevin, thanks for being here.

Thank you so much for this opportunity to invite me to the studio to have a candid talk with you. It’s an honor.

I’m glad you’re here. Why don’t you start off by telling everybody a little bit about yourself?

I started real estate investing back in 2010. I did that somewhat passively for about seven years. I was buying rental properties while I was on my W-2. I did that for seven years and then decided to do this full-time actively. I didn’t find passion or fulfillment in my W-2 job, so I quit that. I started active real estate investing back in 2017. I started out virtual wholesaling just like anybody else in the business. I thought that was the easiest way to break into the industry. I have had some success with that. I said to myself, “Why not go big or go home?” I went big on it and I have been doing this for five years. We had great success doing this. I never looked back.

You’ve gone big and we brought you home. I start every episode with a segment I call the Bottom Line Up Front. In the Military, we used to brief generals. They always said, “You don’t bury the lead. It’s not a sales presentation. You go to get the most important thing out front in case the general has to leave.” Imagine someone tuning into this episode. In a little bit, they’re going to pull over and get gas, and they’re going to forget to turn it back on. Let’s give them the most important thing that you see in real estate now. They’re things that you think people should be focusing on. They’re maybe things that you think people should be doing differently or maybe not doing it all.

We have been bombarded with so much media attention. You should insulate yourself from the media. Whatever bad news that you hear from all these news outlets, you should do what is best for you. If you look at real estate as an investment instrument, like the stock market, it’s going to go up over time. I’m in it for the long term. I don’t know about the audience, but I wouldn’t let whatever recession or bad news hit me. I would go full-on with whatever I think is good for me.

I would buy these properties, hold on to them as long as I can, and then wait for equity to build up and invest for the long-term. I’m in it for the long-term. I will encourage the audience to do the same as well. Hang on there. It’s going to come back. There’s going to be a blip in the market in the next couple of months, but we’re going to be coming out just fine. Have that confidence in the market. Real estate is a hard asset to own. It’s not like stocks where it goes up and down, and you can lose money so easily. We’re talking about hard assets here. Hang on to these hard assets. Over time, you’re going to be coming out fine.

That’s good stuff because so many people lose focus on the assets. They start focusing on money, income, and lifestyle. They lose focus on the assets. I’ve been studying a lot about compound interest and looking at the way real estate appreciates. It’s the compounding effect. When you look back in the rearview mirror it’s nice, isn’t it?

You definitely hit the nail on the head. It’s the compounding effect. I’m like Warren Buffett. He is a value investor. He sees it over the long term. I see it in the long-term as well. A lot of people are in it to make that quick buck. You have to have the mindset that this is not a get-rich-quick, overnight or quick scheme. You have to be in it for the long-term.

It’s like building a company or starting a brand new business, you’re not looking for that exit the very next day. You’re looking for that exit given that the market condition is good for you to IPO. What do you think is the long way for a startup to become mature? Five years, maybe. You got to give it time for it to grow and capture the market. We were talking about this offline that you and I are maybe less than 1% of the market. We’re barely scratching the surface. We got 70-plus years.

Speaking of startups, you come from these California markets. You said you used to live in the Bay Area. You were involved in some technology companies. From your tech background, were you a software developer? Did you own a startup? What did you do there?

I worked in several tech companies, big and small. I started working for Cisco Research, the R&D arm of Cisco Networks. I was writing some research papers, and doing cutting-edge technology for them for a little bit. I then wanted to do something that’s more applicable in the industry, so I quit that and joined a startup. I did that for a couple of years before that company got acquired. I then joined Oracle. They had a division that was doing public Cloud. We had a lot of people that were moving when it got acquired. They left Amazon Web Services and then joined Oracle. We started something there as well. That was a good run for a couple of years.

Earlier, you said that you didn’t have a lot of passion for your W-2. You seem like a very insightful person. Insightful REI is your tagline on Instagram and your handles. You said you passively invest first. As an IT guy, what was it that drew you to passively invest in real estate?

There's so much technology that you can leverage in this business. You need to leverage that technology because that's how you scale. Click To Tweet

I would say that I still have a passion for computer science. As far as getting a PhD in Computer Science, I can be so geeky about technology, programming, and stuff like that. Writing a program is almost like writing a poem. I’m coming from that perspective. I wouldn’t discount that experience. At some point in your career, there’s nothing else for you to do. You have done everything. You have created everything. You have designed everything. What is left to do for somebody who is super creative?

I’m looking for the next big thing or the next opportunity. That opportunity wasn’t there at that particular moment. I had a passion for real estate. I was already doing it on the sideline. I said, “Why not do this full-time? Maybe there’s an opportunity there.” Little did I know, it did create opportunities for me too. We’re talking about Airbnb, short-term rentals, and stuff like that. It’s a spin-off of what I do, which is active fix and flip, wholesale, and stuff like that.

You and I are in a mastermind together. In RCN, we loan you money. I’ve seen a lot of your fix and flip stuff, but when people hear you in the mastermind, everybody latches on to the Airbnb part of your business. It’s sexy. Everybody likes that. I’m very interested in this. What got you from passive to active wholesale to fix and flip to Airbnb? In a minute, can you break down your thought processes in between stages?

From the very get-go, my thinking has always been, “How do I build that passive income in a super high-priced market like California?” I thought about long-term rental, but that doesn’t pencil out in my market because the housing price there is super high. In order for us to cash flow in those markets, we had to go with a short-term rental. It so happened that we stumbled across this and it makes us cashflow on these properties that we like to hold down for the long-term. We’re taking the best part of two worlds. These properties do appreciate in value as opposed to homes in Midwest. They don’t appreciate as fast. We can bank on cashflow as well.

Everybody I know that wants to talk about real estate investing is like, “I want an Airbnb.” I was talking with someone earlier. In May of 2022, Airbnb had the highest vacancy rate it had since the platform matured. They had more inventory than they had. I talk to people like you and you didn’t have vacancy problems. I look at my portfolio and I didn’t have vacancy problems. I was speaking to another lady who runs Airbnbs in the middle of nowhere in Oklahoma and she didn’t have vacancy problems.

I then start thinking that the difference in these scenarios is we’re running it as a business. We’re professionals. We’re leveraging tools and technology to manage our machine. I want to start the conversation there. Why don’t you share some of the things you’ve learned as an Airbnb investor, and maybe some things that you did wrong at first and that you’re doing better now?

We’re always evolving. I’m learning as I go as well. There’s so much technology that you can leverage in this business. I encourage all the audience to leverage the technology because that’s how you can scale. You can be treating it as a business. I mentioned a few things like the tech stack you must have in this business. For example, Hospitable. We use Hospitable to automate communication with guests, reviews, and the process of checking in, checking out, and so forth. We also use that to make sure that there’s no double booking across platforms.

Airbnb and Vrbo, we have our listings on these two main platforms. I talked about using Hostfully, which is a virtual guidebook that we can give to guests so that we can capture their information. They then can book with us directly down the road in the future. That’s what I envision this to be. Ultimately, when we build a business, we don’t want to be in the day-to-day. You want to be in the business and work on the back end. There is PriceLabs too. You have dynamic pricing all based on seasonality. This improves your SEO on Airbnb.

We’re going to stop there. I’m going to have to be a computer scientist to figure all that out.

I don’t think so. These are done by computer scientists or programmers to make it so easy for you and me to use or consume. It’s almost like a service.

I don’t have to be the poet here. I can just read the poem.

You can just read the poem and enjoy it.

That’s important because people hesitate to approach new technologies because of the fear of the unknown or maybe it’s going to be too difficult. They hear a computer science guy like you that said that writing code is like writing poetry. They’re like, “I don’t like to do it either.” Let’s talk about your fix and flip business. Everybody reads that the market is going to heck and you should run away from real estate. Is that what you’re doing?

I don’t think so. This is a business. If we don’t buy houses and we don’t improve on these houses, we don’t have a business to run. You definitely need to be wiser and smarter in underwriting your deals. We’re in a recession as everybody is talking about it. We need to buy deeper. We still have a lot of competition, but it’s not as competitive as before. The buyers that I used to compete with are basically sitting on the sidelines, which is good for me. I’m the only one that’s in town buying deals. I’m able to get a $20,000 to $30,000 discount that I was never able to get a few months ago. That’s good for me. The less competition you have in the marketplace, the better it is for you because you’ll be that monopolistic player in the market.

One of the things that have always interested me about you is I like to watch your TikTok and your Instagram.

Thank you.

You’re really big into fitness. You seem to be a big giver. You like to share with others. From what I can tell, you put out a good product. Aren’t you worried that people aren’t going to want to buy houses anymore?

I wouldn’t think so. It’s one of the necessities like food. You need to buy food to exist. You need to breathe air. You need to buy water to drink. You need to buy a shelter to live in. I don’t think that it’s ever going to go away. I don’t know how they took a different spin on the housing shortage supply in the market. We were talking about it when the market was hot. We’re still lacking in supply. Nobody’s talking about, “There’s a housing shortage.” All they talk about is the recession. I’m so surprised.

It goes back to what you said at the beginning of the show.

How can you, all of a sudden change the script and change people’s psychology about the market? You turn the script around.

The math is we’re five million homes short in existence.

The numbers don’t lie. How can you, all of a sudden, change the script? They’re like, “We’re in a recession. We’re going to have a 20% price reduction.” That is so wrong for the media to put that fear in people’s minds. Everybody is not buying houses. Everybody is sitting on the sideline. If you have a baby that’s going to be due tomorrow, you can’t help it. It’s not like you can hold out on that.

If you need to buy a house tomorrow for your family to live in, you got to buy it because it’s a necessity. Don’t worry about it. If you can buy in this high-interest rate market, you can certainly be able to afford that house down the road. Who knows? Maybe the interest rate is going to calm down. You can do a refi and the house payment is going to be less. Bite that bullet right now.

When you look at what has happened since May 2022, new home-building activity has dropped off a cliff. New listings every week have dropped off a cliff. Year over year, the average dollar per square foot of sold houses in America is up 9%. It may be down from April 2022, but April was a crazy time. Everybody was so afraid that rates were shooting so far up that they rushed to get a house. Some of them didn’t even know what house they were looking at. I don’t want to spend too much time on that, but it’s a good segue. Talk about the necessary skills to navigate this business. Specifically, if I’m ignoring the media and you’re telling me to look at the data, what is the data that I need to look at?

There are several data that you should look at. Redfin publishes these unbiased data. You have to be very intelligent at analyzing and sifting through the data. You can massage numbers any way you want to match that or align that with your perception of the market. How do you step out of that bias and look at data differently? You should definitely follow the industry leaders on these matters, and then have an unbiased view toward it.

Percentages are the most misleading thing in this economy. I read days on the market were up 100% in Boise, Idaho. I was like, “Oh my gosh,” and it went from 7% to 14%. The all-time average is 90%, but 26% of new listings have price reductions, which is a 150% increase over 2021. I’m like, “Yeah, but they also went on the market at 25% above what they were in 2021.”

The competition you have in the marketplace, the better it is for you because you'll be a monopolistic player. Click To Tweet

It’s so misleading.

It’s a 100% increase to go from 1% to 2% and to go from 2% to 4%, and to go from 4% to 8%, and to go from 8% to 16%, then 16% to 32%, and 32% to 64%. At that point, we’re finally at the normal days on the market for Dallas Fort Worth over the last ten years. We would have to double.

We have a long way to go.

That’s right. New listings I was reading are down 24% year over year. New home building activity is dropping off at 5% a month. We are already undersupplied. When you start adding in the supply issues with the demand issue, you can’t put all the babies on hold. That’s interesting. It’s time for the Money Minute. I imagine that there’s someone out there. Maybe it’s a young Kevin that’s stuck in his W-2 job. Maybe it’s someone that has started investing and is struggling in some way, shape or form. I’m going to give you 60 seconds. I want you to spend that minute pouring into the person. Imagine this is the only piece of advice they’re going to get all month.

Follow your passion and stick to your gut feelings. Listen to what your gut or stomach is telling you to do. Don’t follow whatever that’s outside of you like the media, your friends, and so forth. You are your own startup. You lead your future and your destiny. Nobody is going to have any business in that. You got to follow your heart. Do whatever you think is right for you and your family. Follow your passion. I was so sick and tired of my W-2 job. I wasn’t growing. I had a passion for real estate. That’s why I pursued that and quit it. This is what you need to do. Follow your heart. You’ll be fine.

That was great advice. I specifically liked the part about mixing passion and heart because so many people get into entrepreneurial businesses for a reason. It could be for financial freedom, money, or more time with their family. They then get married to the business, and all they do is pour their whole body, heart, and soul into the business, and start forgetting the things that they said that they were doing the business for. That’s excellent advice. I’m going to go into rapid-fire. Keep your answers a little short because I’ve got a lot I need to ask you. Are you ready?

Sure. Let’s go.

Is Airbnb going to be outlawed in California?

In certain areas, we have seen that happening already. There are local ordinances that are rolling out. I wouldn’t say this is a California-specific thing. This is nationwide. Regulation is not bad. We need to put some regulations in place so that we know how we operate this business. It’s not Wild Wild West like what crypto is. We need to put some regulations there. We encourage business owners like us to know how we operate within boundaries as well.

Do you consider yourself in the real estate investing business with regard to your Airbnb properties or in the hospitality business?

I have both feet in both worlds. We acquire these underlying assets. It so happened that on top of these assets, we run a hospitality business. This hospitality business is paying us money. They’re cashflow to us. We’re taking these two businesses together.

You’re like McDonald’s. You have a real estate business, and then you have a hospitality business. They just happen to be co-located. That makes sense. How important is it to have a manager in the Airbnb business?

That’s huge with any business. If you’re running this as a business, you need to have a CEO and a COO. I happen to be the CEO and I have a chief operating officer who is my manager that’s managing the day-to-day. We also have employees underneath the COO that are going to facilitate the day-to-day even at a final detail. That’s the hierarchy of the business or the company.

What’s next for Kevin Lee?

I’m still thinking. I built out several verticals. I have more passive income and revenue streams. We’re looking at several opportunities out there.

How important has networking been to your success?

Networking is huge. I don’t think that you can do it by yourself. You do need to leverage your network. Your net worth is your network. The people that you hang out with are going to help you to build your net worth.

If you had it all to do over again, what’s one thing you would do differently in your real estate investing journey?

I would probably start maybe ten years earlier. I wish that this real estate education or financial education was given to me while I was in school. Nobody teaches you this in primary school or secondary school. That needs to be part of the curriculum. It needs to be integrated into our education system.

What is the dumbest thing you’ve done in real estate investing?

The dumbest thing is buying something that’s way too high. I bought a property and I didn’t even go see it. It’s $40,000 or $50,000 way over budget. I’m dealing with the aftermath of it. I’m going to sit and wait for the market to come back and sell it without even touching it. It’s going to cost me more money to fix and flip it. I’ll lose money that way. I’m going to sit on it, let the market come back, and then we’re going to sell.

What’s the best thing you’ve done in real estate investing?

The best thing I’ve done in real estate investing is to explore the different iBuyers out there so that we can create that inventory for ourselves. What I’m doing is creating a brand. That’s how you get your name out there. The monthly meet-up that I hold in my local market is a channel for me to not only connect people together but ultimately, that is where these deals meet as well. I’m the organizer or the person that’s behind the meet-up. That goes with what you guys are doing as well. That’s brilliant because once you start creating value for other people, the value will come back to you.

What you’re saying is everyone who’s reading this should send me deals. Is that what you mean?

That would be great.

Why did you start a meetup? Was it to show off your houses?

Your network is your net worth? The people that you hang out with is going to help you to build your net worth. Click To Tweet

Not at all. I want to be able to pay it forward. How I started this business is I went to a meetup like this. That’s how I found my business partner back then. We then started doing something great. I want to create a channel because right after the pandemic, all the meet-ups shut down. There was not a live meet-up where people can come and network with each other. I want to create something that’s unique. We invite different speakers. Eric is going to be the next speaker in line. He is going to come and speak to us about lending. I want to give back. I want to bring the next generation of wannabe real estate investors. I want to tell them the possibilities out there for them.

That’s awesome. We’re almost out of time. This is the time of every episode when I tell the guests, “Why don’t you share any parting thoughts or parting shots?”

I would say follow your passion. The number one limiting resource that we have here on this earth is time. It’s the moments that we want to capture. We don’t have enough of those. You have to understand and ask yourself what you’re in this business for. You’re in this business to create financial freedom and moments for you. We can be out there grinding, but we forget the most important thing, which is the time that we want to spend with our loved ones, whether it’s our parents, kids, spouse, and so forth.

I’m inspired by the next guest here. It is about a lifestyle business. This is what it’s all about. It’s creating moments because you can’t capture those. We use the money to create those moments for us. Understand and ask yourself what you are in this for. Are you in this for money? Money can come and go. Are you in this for passion for your heart? That’s my parting thought.

That’s a great way to sign off. Kevin, thank you for being here.

Thank you.

Thank you, all. Remember, your network is your net worth. Make sure you’ve been growing both. We’ll see you next time.

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About Kevin Lee

Kevin started his career in software engineer toiling away for Corporate America. He felt that there’s something more for him out there and didn’t want to be stuck climbing the Corporate Ladder. While he was in his Corporate Job, he was investing in real estate passively. It was born out of passion he had already had when he was in graduate school. He bought his 10-unit apartment building while taking a business class across the campus over there at the Anderson Business School.

Real estate startup was also a challenge for him as he was bored from his 9-5 job. After having some success in several real estate transactions and entrepreneurship, he decided to quit his job and pursued his real estate entrepreneurial venture full time. He started virtual wholesaling and then fix and flip. After 5 years of a flourishing business, he focuses primarily on fix&flips, short term rentals, and business acquisitions. In addition to what he’s doing now, Kevin has also raised multi-million dollars for apartment syndication, owned several residential assisted living facilities, and done several creative financing deals. He loves anything related to real estate. He also runs a growing local real estate investor meetup that helps novices to get into the space.

His goal in 2022 is to grow his social media presence. This is to increase the people he can help and do business together, while establishing brand awareness.

The following podcast program is furnished by RCN Capital LLC. The information provided is for general educational purposes only and does not constitute any legal, tax, financial, investment or other professional advice. The views, thoughts, and opinions expressed of any speaker are the speaker’s own opinion and do not represent the views, thoughts, and opinions of RCN Capital LLC. No information contained in this episode should be construed as financial, investment or legal advice from RCN or any individual, author, host or guest. You should always consult a financial advisor before investing.