Seb Built Two Maine STR Cabins From Scratch for $1.46M

Quick Summary

Ground up is a different animal from buying something already standing, and Seb doesn't skip the ugly parts. His pre-construction appraisal came in under cost at 1.28 to 1.3, so he pledged his own house and two other investment properties as collateral. Construction costs climbed about 20% along the way.

He raised roughly $400,000 of equity, starting with family, and says the general partner earns nothing until investors get their capital back in full. Before you underwrite a build like that, check what the area already earns on Markets.

Key Points

• The 10 acre parcel in Kennebunk cost $285,000 with roughly 20% down, then sat through about a year of land development while Seb paid interest, including six to eight months of planning board hearings.
• Maine's wetland rules shrank the buildable envelope to two cabins on those 10 acres, and the first driveway estimate came back at $175,000 for 500 feet before a local contractor did it for $90,000.
• Construction bids landed around 550K, the whole project was quoted at 1,450,000 including land, and it finished at $1.46 million after construction costs rose roughly 20% mid build.
• The pre-construction appraisal came in under cost at 1.28 to 1.3, so the bank took his primary home and two other investment properties as collateral. Post-construction it hit 1.56 and he cashed out about $60,000.
• Each cabin runs about 1,000 square feet with one bathroom, no garage and no TVs, and Seb says the pair held 95% occupancy through February and March because couples book Monday to Friday.
• He raised about $400,000 in equity, largely from family at first, with investors at 80% and his own side at 20%. The general partner takes nothing until investors are repaid in full. He modeled a five year payback and says it's tracking closer to three to three and a half.
• At the time of taping he was under contract on 17 acres on a lake, about 35 minutes from home, listed at $1.5 million and still waiting on the appraisal.

Full Transcript

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Jeremy: We are live with the Short-Term Rental Pros Podcast. Today, I'm joined in person with Seb. I'm so happy you made it here, because today has been an absolute debacle with flights. But yeah, man, where'd you fly in? Where are you from? And how'd you get into short-term rentals?

Seb: Yeah. So, well, great to be here. Thanks for the invite. We basically drove from Portland, Maine, where we live with our four kids, where we started investing in real estate, to Montreal. Took a flight there. It took us about three hours just to get in that plane. We had to defuel, was a long story, but everybody was pretty stressed out today. But we made it. That's what really matters at the end of the day.

And yeah, so we're really excited to be here, networking with all these investors, different backgrounds. We feel like we're just getting started. We started about two and a half years ago, testing out different things, and very excited to be here and very focused all about short-term rentals. How can we get better at that specific business?

Jeremy: And just to break it right, I know you've told me you have a professional athlete background, which is awesome. I want to dive into that. Tell me about that.

Seb: Yeah. So, I lived in Montreal for a while. I'm originally from Uruguay, South America. The only thing we do is soccer. It's three million people and two and a half, we all play soccer. That's the way it works. But I lived in Montreal at the time when I was a kid. I wanted to play hockey. Montreal Canadians at the time were good. It's been 30 years since the last Stanley Cup.

And yeah, I started playing soccer and quickly went to playing elite, then playing for Team Canada. And at some point, my parents decided, let's go back to Uruguay. And I was 15. That's actually just the year where I met Audrey for the first time, which is my wife now. So, it's been over almost 25 years now.

And yeah, I played soccer in Uruguay for about four years and had the opportunity to play with especially two players that are well-known. First is Cavani, who played for Manchester United in Paris Saint-Germain with Mbappé and all these guys. And then Suarez, who played with Messi and is now at the Miami FC. So, never thought these guys would make it at that point.

Jeremy: I love when you say a different player or team's name and Paris Saint-Germain is French, and then you're speaking different Uruguayan players, you switch the accent.

Seb: Yeah, I feel like I can't say Paris Saint-Germain. To me it's in French. I got to say it in French.

Jeremy: But you've got the English, you've got the Spanish, you've got the French down.

Seb: Yeah. I mean, it's far.

Jeremy: Trilingual?

Seb: Yeah. Well, trying to. English is really third language. We've been in the US now for five and a half years. So, getting better at English.

But yeah, soccer was a big part of my life until I was 19. And at that point, you got to make a decision, right? I didn't have a parachute. Basically, nobody had to help me financially speaking. And you make one mistake, you get injured and it's done, right? So, I made the call to basically go back to Canada, step away from soccer and never look back, to be honest, never really play soccer again, and started studying in finance. And that's it. Then master's degrees in the energy sector.

But always with the objective of I want to have my own company, I want to invest myself. Real estate was really appealing. But we didn't have Instagram. We didn't have like podcasts. The barrier of entry was much more difficult at the time, I guess, or maybe that's just my excuse.

And yeah, slowly we started building capital. And we thought, we want something else for ourselves. We want to be financially free. It's all about the freedom. And that's how we started investing slowly in real estate. And now we're not looking back, because we have so many projects. We want to do so much more.

Jeremy: Yeah. And you guys have done some really, really unique projects. So, tell us, so you live, I know your company, the company that we work for is based out of Connecticut. You live in Maine. So, I mean, you've been all over the place. We're going from Uruguay to Canada. How'd you end up in Maine? And how'd you end up doing your first projects in a gunkwit?

Seb: Yeah. So, we started, I've moved 33 times in 38 years.

Jeremy: Yeah, a lot.

Seb: 16 schools, never been in any school more than two years, to be honest. So, we're used to just moving.

Jeremy: Audrey has been, how many of those moves have been? And Audrey is sitting behind here. She is looking at Seb. She's like, Seb, you better not say anything or I'm going to come over and give you the business.

Seb: She's ahead of all the general contracting and ahead of construction. So, no, but we lived together in Spain, in Paris, in Australia, Montreal, the U.S. a couple of times in Connecticut, now in Maine.

And really the job, I have a corporate job. I work for Avangrid. So, we built basically offshore wind, renewable power in the U.S. and transmission lines. So, my job is all about development, right? So, it's a great complement with real estate. And part of the reason why I'm important in Maine is just we have an office important. We love the area.

And we started investing, and we had been looking for a while in Montreal, in Quebec. The rules are so different. It's all about appreciation. Most of the time, you don't cash flow. Like everybody knows, you're buying something in Montreal, in Toronto, you don't cash flow. It's all about maybe in 10 years, this is going to be worth one more million dollars, because it's just the appreciation might be 5%, 6%. Everything's very expensive. It's not friendly for landlords, basically. Your tenants control pretty much, they control everything.

So, we thought, we're in the U.S., this is where everything happens. All the millionaires started in real estate. We started reading books. I read a lot of books, Bigger Pockets, all the podcasts, and started really being very interested in real estate.

And at some point, it was middle of the pandemic, which is probably the worst time to buy, right? And if you think about it, we were competing with 30, 40, 50 offers, cash, 20% over ask. And at some point, we said, well, we got to get started. We don't have any experience. So, what we're going to do is we're going to test multiple things and see what we really like, what we're good at, what we're not good at, and then we'll decide. We'll focus on one niche, which is exactly what we did.

We started with a two-unit. We did a BRRR, we rehabbed it, had new tenants, increased rent by 50%, worked very well, cash flow, 15%, 18% cash-on-cash, was a great deal at the time. And then bought a brand new construction property, which is all about appreciation. Cash-on-cash was only 10%, but no work, basically. And still today, we still own that property. I think the appreciation is about 9% in the last three years, year over year, right? So, we've built $200,000 in equity, and that was an easy one. We keep it because it's simple, but at some point, we said, well, now we want to do more.

We like vacation rentals, but Airbnb seems very difficult, dealing with guests and this and that. You hear a lot of things, and you never really know until you're in the business. And I started networking in Maine, met this person who told me, look, I have a bunch of Airbnbs, and this is how much money I'm making. I'm like, yeah, I don't believe you. I really don't believe you. Until one day, he just opened his phone and said, well, look at my app.

Jeremy: Open the Airbnb app. Open the insights tab.

Seb: Exactly. Earnings. And I'm like, are you kidding me? This house is like five minutes from my property. You're making like $65,000 with this tiny house? And we were like, okay, we're doing this.

And in between, we did a flip too. So, not a great experience. It was an old house. We still made good money out of it, but a lot of work. And I got to remind everybody that I work 10, 12 hours a day. We've got four young kids at home. So, every minute we spend is valuable. So, might as well spend it where we create the most value, right?

So, flipping to me is almost like we're paying taxes, and it takes a lot of our time. You make the money. So, let's say you do a flip. It takes what? Four or five, six months. And you sell it, which is pretty efficient. You buy it. You sell it within six months. You then have to pay short-term capital gains tax. So, if you make $35,000, $40,000, you're already taxed at a high tax bracket.

Jeremy: The government's going to take like half of it.

Seb: Exactly. Unless I do a 1031, right, over and over again. But we didn't think that business was really our business. We didn't think we were good at it, right?

So, we decided, let's just try it out, Airbnb. And I think we were in Montreal, Christmas Eve or something. We saw this property in Canabon Port, beautiful, brand new built. So, we weren't taking any risks. And we made an offer, and probably 20% over us, 25% over us, was crazy. And we ended up buying the property. We went to Canabon Port, visited, and we closed on the property. And that was our first short-term rental.

And honestly, that's when we fell in love with the business. Audrey is great. She loves customer service, design. Putting together all these properties is a lot of fun. The customer service is not as difficult as we expected it to be. Or maybe it's because we enjoy it. So, it's not really an issue. And of course, we have one. At that time, we had one.

And the cash flow is great. So, we're in a high appreciation area. Canabon Port is constantly appreciating. You can't build many more homes. And people vacation. We've got 8 million people in Boston. And then how many more between New York and Connecticut, that vacation here. And they come every single weekend of the year. So, it just happened to be that way.

I didn't do a lot of analysis because I didn't have any data. AirDNA was not something I really knew about. So, even the comps in my revenue analysis was pretty standard, I would say. And yeah, it ended up being the most profitable property we had, and cash flowing forward of $5,000 a month.

Jeremy: So, at that point, you're like, alright, we're going to lean in on short-term rentals.

Seb: So, we've done 3 different things. We've done long-term rentals. We flipped. Now, we've done short-term rentals. We've tried all 3 of them out. And this one is most aligned with our goals, which is cash flow and appreciation combined to build freedom and long-term wealth.

Jeremy: So, when did you decide on... You had 3 options. You tried them out. Pick the one you like the most. When did you make that decision? And what have you done since then?

Seb: Yeah, I think the decision was really easy, because we had just finished flipping and selling that flip, which was a nightmare. And it was going so well with Airbnb. For us, it was a perfect fit. We really enjoyed that business. We enjoyed putting together an experience for our guests. Audrey was loving that part in dealing with them, the customer service.

Jeremy: She's looking at her phone right now.

Seb: Yeah, we've got turnovers today. So, that's part of the fun too.

So, at some point, we decided, let's just focus on Airbnb and what we do best. But we didn't have a lot of money at the time, because we just bought 3 properties in a very short amount of time. And I want to go bigger and do a bigger project. So, that's when we started with the idea, okay, let's just bring investors in for the first time. So, we did the long-term, short-term flip. And now, let's just bring investors and try to do something larger, which we did.

We bought 10 acres in Kennebunk, really five minutes from the other property. And we brought in a Canadian architect. We follow people on Instagram that had similar type of cabins. The revenue looked pretty enticing. And yeah, and then we spent one year developing the land, going into planning board for approvals. And we started building the project. And that's when we decided, we're going all in.

And we're still always, we like couples. We don't like to do big families, big homes with 12, 16, 18 people.

Jeremy: Me and Seb have some banter about this. If you guys listen to this podcast, you know I love multi-generational travel. Two or three families in one house is my sweet spot. But he's gone the other extreme, which is two people, a couple in a house. But you know your avatar, which is, that's step one.

Seb: Yeah, no, you're absolutely right. And I think it depends also where you're investing. To me, it's more driven by returns, I would say. But because my wife, Audrey, is the one dealing with the guests and the customer service, I think she has definitely a preference for couples. I don't blame her.

Jeremy: Yeah, no, exactly.

Seb: Right. Yeah. So I think it makes a lot of sense.

Now, what we've discovered with couples is, and this is something that we had forecasted, but maybe not at this level with the cabins that we built in Kennebunk, these two beautiful cabins, a thousand square feet, over two bedrooms, one bath, beautiful architecture, is that couples travel from Monday to Friday.

And it's something that our larger properties, you always get booked on the weekends. Summers are always booked. It's high season. But I always wonder, how do I get people on a Wednesday, like in November, or in February? And that's how. Small cabins, you bring couples. Couples, they take time off during the week. They celebrate baby moons. They have all these celebrations. And we really were shocked, but we had an occupancy rate in February and March of 95% in Maine. What do you do in March in Maine? There's not much, to be honest. Walks on the beach. The weather's not great. And 95% occupancy rate.

So that's when we figured, okay, well, this is a nice niche. So as long as you can find a big market as Boston, New York, other big markets, one or two hours away, and you build that sort of retreat, couples will come and they will rent seven days a week.

Jeremy: And when you think about it, you say they will come. Well, what do you have to create for them? What is the experience? What are the amenities that encourage them to come?

Seb: Yeah, it's a good question. I think part of it, in Kennebunkport is...

Jeremy: Your properties are beautiful. I think that is one aspect. That's not a specific amenity, but I've seen them. They're stunning. They're black, kind of not quite A-frame. Are they A-frames?

Seb: No, they're like an A-frame. They have a catwalk. The architecture is really appealing.

Jeremy: It's nice. It's like Scandinavian architecture.

Seb: Kind of. Yeah, that kind of style. So it brings people over. But it's also part of the location. Kennebunkport is very well known. Bush family, vacation's there. So it kind of created all that appeal.

But I think it's the hot tub, is string lights, fire pits. People work 10, 12 hours a day. Everybody's stressed out. They just want to get out of the city, but they don't want to drive for five hours. They want to drive one or two hours and feel like they are in the middle of nowhere. Walk trails, beach walks, have a coffee. And so we have espresso machines. We have a fireplace inside, wood fire.

Yeah. So I think that's what people are looking for. Oh, by the way, no TVs. And this is something that I had a couple of nightmares about, because Audrey is all about, no, we're not going to put any TV. I'm like, boy, you're in the US. People here, like every home has like 15 TVs. We've got to have televisions here. And I was freaking out about it, to be honest. And maybe 1% of people ask. Nobody else says a word. And it's interesting because women, they send us messages. They're like, yeah, I think it's nice. And the husband is the one texting you.

Jeremy: Sports.

Seb: Yeah. Well, you don't have TVs here, but the wife is happy. So it's really, you unwind out of the craziness of our day-to-day lives.

Jeremy: So you really have created an experience where two folk going through their everyday life, the hustle and bustle of the city can escape, and you've leaned all in on that. Which no TVs, to me, that's radical. To me, I'm like, oh my goodness. I'm like, that's a little. But when you think about it, it makes sense.

You have very, very narrowly created your experience. You're not, oh, well, it's a couples, but sometimes maybe it's a couples and kids. And sometimes maybe it's a family getaway. Nope. It is couples who love each other and they need the opportunity to be present with one another.

Seb: That's exactly it. And there's so much to celebrate. So that's what we're discovering now, that these guys travel 365 days a year. So we've got board games, color books, even some of them, we were coloring. We haven't done that in 20 years. It was raining. So that's the experience and people love it. So we're looking to replicate this in other areas.

And by the way, it's also much easier to manage, because we have this other property we talked about where we have a lot of kids. There's always something going on. People are much more worried. Do you have a play for my games for my kids? Is it dangerous? Is it kid friendly? They always have a million questions. Whereas couples, not really. They come to celebrate. They're happy. They're taking time off. So it's a different beat.

Jeremy: Yeah. The questions I've had with the couples. Is there any way you can, I've had this before with one of our Florida properties. Someone asked, can you put out rose petals for us? And they booked for like two weeks and it was the off season. And I mean, we screenshot it, sent it to our cleaners and said, we'll throw you guys some extra money if you can make this happen. They made it happen. But I was like, is that the type of request?

Seb: We never actually got that. It's a good question, because we thought about it and I've seen other areas, properties where they offering massages and all these things. The thing is, I'm always very conscious about operation. So how do we do this in a sustainable way? If it's creating too much work for us, is it really worth it? So not really. We didn't get that question, but it's a good question to ask ourselves. Can we integrate more products that people were willing to pay? And then you increase your profitability and it's worth it. Something maybe we should try, but I don't know. I think it's more work.

Jeremy: So you started with the one and I think you, correct me if I'm wrong, you built three at the same time?

Seb: I built two cabins.

Jeremy: Two at the same time to get to three. Okay. So what was it like building both of them? I mean, I know they're on the same acreage, but walk us through the new build process.

And a place like a Gunquit, Maine, the thing with a lot of, I mean, honestly, in America, people say, oh, housing crisis is caused by a million different things. They blame something new every day. I would say my opinion is supply and demand. There's obviously a lot of demand. There's people moving to the US. Supply, multifamily supply has gone up like a good bit in the last few years, but really single family home supply has not.

And the reason is, because you try to build something in a Gunquit, Maine, honestly, anywhere where people have been living there for a while, you just get other people just go crazy and they go yell to the town, oh, don't let this development come. Don't let them build anymore. And nothing gets built. So how did you build in an area like that?

Seb: Yeah, that's a great question, because it's interesting because we bought 10 acres. So you would think you can build at least 10, 15 properties on 10 acres and still have some intimacy and privacy. And actually the building envelope is so tiny. And the reason why is because Maine, I always say Maine is like a wetland, so they want to protect their wetlands. And so the building envelope is such that our cabins are pretty near each other and we can't build anymore.

And so we had to go through an extensive permitting process. You need like a DEP permit, Army Corps permit, building the driveway on their specific specs, very expensive driveway. First, I think the first estimate we got was like $175,000 for a driveway, 500 feet driveway in a, I almost passed out when they say that. I'm like, you're crazy. And then start making phone calls and got a local contractor for 90, still $90,000 on a driveway. So I think they're trying to limit the density in those areas.

And I had to go to planning board multiple times. It took me probably six to eight months. And I had some neighbors complaining, hey, what about wetlands? Vernal pools, have you identify your vernal pools? Because these are really important for the environment and this and that. And we had all these surveys done by engineers. And those people don't care about it. It's not the environment. They're just not in my backyard.

Jeremy: You're so right.

Seb: It's always in my business, in the energy space, I can tell you it's always not in my backyard. It's not because they care about the environment mostly. Some people do. But yeah, the neighbors, they just don't want to see more density.

My really my comment to them most of the time is, look, first I bought 10 acres. This is my land. And we're going to make it look better. First, you're not even going to see the cabins from your home. And these are luxury cabins. People are going to pay a lot of money to come here. It increases value for everybody. We're bringing more tourists to the area, which is good for economic development. So that's the way I see it.

But I think you're right. Most people, and there's more and more challenges just to get anything done. And then I'm not even started with contractors in Maine. I don't know elsewhere in the US, but you can't find anybody. When I showed up, my mindset was, I got the plans. Now I'm going to go in and talk to multiple contractors, that's the right thing to do. Three quotes, everybody talks about three quotes for my rehab, three quotes for this.

Well, I'll tell you, we went to one, the quality wasn't as good. So we basically moved to the next one, which we thought it was a really good developer. And I told him, look, I want to have multiple quotes. The moment I said that, they basically said, well, hang on a second. This is not the way we do business here. I'm like, what do you mean? That's the way everybody should do business. You go for your subcontractors. You ask for quotes. He's like, yeah, you're going to have to pay. If you want me to quote this, you're going to have to pay, but I'm not doing this. This is a waste of my time.

So we learned through that process. And the biggest impact I'll tell you, at least in Maine, is contractors are so busy that they're going to keep you hanging for a long time. They're going to start building. They're going to tell you, we can build this in X amount of months, and then they're going to push and delay and delay. And why? Because they're taking on more customers, right? So the issue as an investor is carrying costs. I'm like, not only I want to get ready, I want to list this property, but now I'm paying thousands of dollars of carrying interest for the land, for the construction. So it becomes very expensive.

Jeremy: And this is just a big sounds because when you get an initial loan out for the construction, yeah, walk us through the numbers. Let's get into this deal. So you bought the land, you bought 10 acres. How did you finance the land purchase?

Seb: So the land was $285,000. I think we agree with the financial institution that we're going to come in at 20%. So we really put about $60,000 on the land. So now you have a loan basically running, right? And I'm six to eight months through permitting, I'm paying interest on that initial loan and I'm not even getting started on the construction.

But this was really, the bank financed the land and the construction, right? The bids for the properties were, let's say 550K. So overall, plus electricity, driveway, you name it, the project was initially quoted at 1,450,000, almost 1.5 million.

Jeremy: And that's not inclusive of land?

Seb: No, inclusive of land.

Jeremy: Okay. So what did they call it? A one and a half mil?

Seb: One and a half mil, 750 per cabin, if you want to put it per property.

Jeremy: Got it. And I'm assuming this loan, this was a shorter term loan, was it a balloon or?

Seb: Yeah, it's a short term construction loan. So essentially, you know that you're going to go and refinance immediately after. The interest rate was pretty favorable. Now what's interesting is when we started this, the interest rate was like four and a half, right? In a matter of six to eight months, we went from four to six and a half, right? In construction costs, increased by like 20%.

So when I initially pitched this to my investors, I was thinking about what we're going to make easily 20% cash-on-cash. But as we were moving forward, I was starting to get very nervous. At some point, we even thought maybe we should just sell the land. We're going to make a small profit, but I'm not going to do this project anymore because we're getting tight. It's getting really tight, the numbers. I don't know. At some point, we said, we got to do it. And so we moved forward.

Yeah, so the project really costs $1.46 million. Always keep in mind that when we do our Airbnbs, not only we leverage 80%, so we come in at 20% equity, but then furniture, hot tub, decoration, the whole thing, listing, professional photographers, all of that in carrying costs, the carrying interest, which is on top of the 20% equity. When you put all that in, you're probably 35% to 40% in equity on the overall $1.46 million.

Jeremy: So you call it 1.5, so that was 300. You had to bring 300 grand cash to the table. And then on top of that, what would you say each cabin, the outfit beyond the construction?

Seb: I think we were in, if I recall, I think it was almost 400K in complete equity on the project, construction, buying the land, construction, and listing the entire property, 400,000.

So in my mind is I'm not investing unless I know I have visibility on at least 20% cash-on-cash, which means $80,000 a year essentially, which at the moment when interest rate was a four and a half, we thought, yeah, we're going to make it happen.

Before investing, much more in-debt analysis on revenues, had AirDNA, start meeting more people. And that's part of the reason why the bank was agreed with the whole concept. Because the bank, when you show up with a short-term rental and you're building a unique cabin, no garage, one bathroom, they're like, we can't sell this. So the appraisal, the pre-construction appraisal came under the cost. So I had to put our house as collateral in two other investment properties as collateral.

Jeremy: You got a recourse loan?

Seb: Yeah. Yeah. So that's how fun.

Jeremy: You were talking about that on the call the other day.

Seb: That's right. Yeah. You don't sleep well when you start having recourse all over.

Jeremy: I was like, yikes. I never thought it like, yeah. You have kids.

Seb: Yeah. Yeah. Yeah. That's when I told you, I was thinking about exchanging one kid versus collateral. And yeah, so we really believed in the project, which is why we continue, but we had a lot of collateral in the project because of the appraisal and not because it didn't have the value.

Jeremy: How far short did it fall?

Seb: I think the appraisal came out at 1.28, 1.3.

Jeremy: So a couple hundred grand short.

Seb: Yeah. It's still significant, right? Because technically you should bring all that equity at the table on top of your initial equity. So yeah, it wasn't easy the first couple of months, but anyways, we decided to move forward.

And the post refinancing, the appraisal post-construction, sorry, post-construction ended up at 1.56. We cashed out about $60,000 more or less for our investors, which was great. Given the context again of interest rate, increased construction costs.

And the great thing about this deal from a profitability standpoint is the occupancy rate was so high quickly. We listed one property in December, the middle of December, and then the second one three weeks after, but we already fully booked in January. Obviously a strategy price was low price at the beginning. We talked about this with Federico and others, how do you get started?

And as we progress in February, March, and April, we started presenting to our investors the update on the cash flows, the profitability and so on. And I remember saying, well, I think we're going to cash flow only maybe $4,000 or $5,000 a month, which is still good given the context.

Jeremy: Per property or total?

Seb: Total, right? So that was closer to 12% because we had the 60% from the cash out. So they were, my investors were already only 280 to 300. So the $4,000 was over 10% cash-on-cash.

And as we move forward during the year, I started increasing that forecast, and I can tell you today we're going to be probably cash flowing for the two properties at least $8,000 a month. So now we're going to get to that 20% or more, year one, in an area where the appreciation is at least 5, 6, 7% a year, and where we still have a lot of room to increase our nightly price. So we made it happen even though our interest rate is probably around 7.5% right now.

So for us, it was a big success just to get it done, finish the construction, go through the entire process of permitting, building, listing, and getting our investors on board.

Jeremy: Got it. So two questions. One, did you work with a local commercial bank or was this a national lender?

Seb: Always now, I mean, I'm sold to local banks. They have so much more flexibility. You can sit down with them. You can actually talk to them in person, which to me right now after the pandemic is something that we're missing in our business. I was able to bring my laptop and present the project, all my forecast. And so I always go for local banks first.

Jeremy: Got it. And second question, investors. So you raised in total 400 grand equity for this deal. Where did this money come from? How'd you meet the investors? And what were kind of the terms that you and them negotiated?

Seb: Yeah, that's a good question. So the first one, I guess, or the easiest one to convince, because it was family and friends, essentially, right? They've got some capital. What's really interesting is that they don't have the ability to invest in real estate. They don't have the time, knowledge. But now if you pull all that money together, now they have the ability to build and be owners of short-term rentals, right? So we give them that opportunity. So it was, I would say, pretty easy to convince them. Everybody was sold to the idea.

Now, the way we structure the deal is very simple. I'll give round numbers. If our investors come in at 100% on the investment, so they bring 100% of the equity, the deal we have is we, as the general partner, we are not entitled to a single dollar of profit before my investors get fully reimbursed the initial capital. Okay? So that protects them. We have aligned incentives, because if our payback is five years, which is still good, we're working for five years to get to our profit. Once they're fully reimbursed, we share 50% of the equity.

Jeremy: Got it. So at that point, you own half of it.

Seb: Exactly, right? So I think the incentives are aligned. Now, the reality is, because of the context interest rate cost, we had to put our own equity as well. 20%, so our investors were at 80. So once they're fully reimbursed, they're now at 40, we're at 60. Right?

But now the beauty of this model is my investors are not going to wait. The money we make right now, all the profit is already reinvested in our next property. So that cash is constantly running at at least a 20%. And now more, I can say, because the payback is going to be probably three to three and a half years. So we're close to 30% return on their capital. So we're going to get access to that 60% faster and we reinvest that money.

So my investors, really, if they bring in $100,000, worst case scenario, they get their $100,000 back in three years and they get an annuity, like a royalty, whatever you want to call it. Equity. But also the cash flow, 50% on that cash flow forever until we decide to sell the property. And they reinvest, we reinvest for them into a next property. So it's the snowballing effect of investing, compounding interest.

Jeremy: Yeah. So tell us about that next investment. So this one, it's stabilized. Obviously, we're going to try to increase the average daily rate, keep moving the ship in the right direction there. But you've recently identified another property. I think this one's bigger. But tell us about it.

Seb: Yeah. So we were looking at other areas. We wanted to get outside of Maine. And so I went through the entire underwriting. I went from Nashville to Florida to pretty much everywhere in the US. Long process, eight months.

And one day I see this property on Realtor close to our home, 35 minutes on the lake, 17 acres, 17 acres on the lake. And with already two beautiful properties on it. I'm like, this can't be true. This is only $1.5 million. And in my mind as a developer, I'm like, I can split. I can do a major subdivision and build maybe 10 of these. And to me, the cash flow was like, oh, this is going to cash flow like crazy.

And so that same day, that same hour, without seeing the property, we made an offer. A couple hours later, we were on the contract. We visited the property that night, that evening. And it's actually one property with a huge barn, 1500 square feet barn. Everything's brand new, built in 2021. [inaudible], the quality of the property is just unbelievable. If I were to build those two, the property in the barn today, in this economy would probably cost me at least $2.5 million. And in my mind, I'm like, and now I'm buying 17 acres. Right?

So during the due diligence process, because we're about to close in the next couple of weeks, we hired a surveyor engineering company to help us figure out and talk to the town. We did as well. Talk to the code enforcement officer. Can we really build more and how much more? And then you get into the density, the number of wetlands, shoreland restrictions. But now we kind of understand the business because we've done it before. Right? So step-by-step, we're getting smarter.

And so now we're on the contract and we're going to list the first property as soon as possible. After closing, we're going to convert the barn into a three bedroom, two bath. It's going to be a beautiful barn. And this is going to be also, [inaudible] 20 minutes from the mountains in New Hampshire. So you've got double in seasonality. You've got the winter, the summer, the White Mountains, the White Mountains are 45 minutes, but we have a bunch of other mountains around at 20 to 25 minutes where people ski for at least four months a year. So perfect spot for us.

Now, without building anything, we think we can cash flow 20% cash-on-cash. Now, if you start adding properties, that percentage is just going through the roof, which is our goal now. So really right now, it's just about feasibility. It's what can't you build? How big can you build? How do you have to partition the lots? Like, how do you have to draw the map, so to speak? How do you have to build the roads?

Jeremy: So you're under contract right now. That's what you're trying to figure out?

Seb: Yeah. Like always, this is like just the cabins we talked about, the appraisal. I walked the property with the appraiser two days ago, right?

Jeremy: Physically walked it, yeah.

Seb: Physically, because I want to be there and explain, this is my vision, just to be clear. You know what I'm like, hey, you know that I can't even build this property today for one and a half million dollars. It's impossible. Yeah, I understand. And so we walked the property.

Now, banks are risk averse. This is an Airbnb business. You can convert the barn all you want. At the end, if they are stuck with the property and they have to sell it, they're not going to view it as us as short-term rental operators, right? So we're crossing fingers in the next couple of days, we're going to get that appraisal and we're going to be able to close it down. If not, we're going to have to negotiate back with the seller and figure it out.

Jeremy: If there's an appraisal gap?

Seb: If there's an appraisal gap, yeah, yeah.

Jeremy: So, and then this, right now, so you're closing on it as is, with the upside potential. Are you trying to, before you close, figure out what construction costs and all that would be for additional units? Or is that phase two? Phase two is beyond the two structures you have currently.

Seb: Yeah, that's a good question. So phase one to me is, if we're not able to build any property, is this still profitable, right? And the answer is yes, I can still make 20% cash-on-cash. So if I have the ability just to build one more, which is crazy because there's so much space, we're still in the money. We can get to 30%, 35% cash-on-cash. But first is all about risk. If I buy these properties, this land with two properties I converted, can I get to my 20% and protect my investors' money? Really important, right?

Jeremy: So base case.

Seb: Base case, I got to meet my 20, and we do. We're confident that we're going to be a very unique property. We're going to, this is the thing too in lace. It's something that realize the quality of the pictures, the quality of the decor, the quality of the furniture. It's not as professional as in other areas.

Jeremy: Yeah, lake houses have, yeah.

Seb: Exactly. And you have lake houses.

Jeremy: I'll admit it. Yeah, the first one we got, we got it with the furniture from like the old sellers and I look at pictures. We've switched, swapped some of it out, but I look back and I'm like, oh yeah, because this is like 1990, and that's what all the Airbnb listings are like, 1990s, early 2000s, like lake house, just thrifted furniture.

Seb: Yeah, that's right. Always compare, if you look at Nashville with whatever, 10, 12, 15,000 Airbnbs, it's highly competitive. They look good. They look amazing. And then you go to the lakes and I'm like, what's going on here? So we can differentiate ourselves pretty quickly. So that's a real advantage.

So phase two is, I'm already working with surveyors and engineers and they've told me during this due diligence process, look, you can build at least four to five, and depending on how you want to do this, we can go for more. Now I'm not looking even for prices, construction costs, none of that because my base. [inaudible]

Jeremy: You sent me the link and I've looked through the pictures and talked to you a little bit about it. So you have the one like quote-unquote lake house, the house that kind of looks over the water, on kind of like what 30 yards kind of like up to the side is the barn. So is your objective to have that barn be its own lake experience where it has its own lake frontage, or to have that be a part of a compound together?

Seb: Yeah, we thought about the two strategies. Initially, when I saw the properties, I thought this is the bar-dominium type of strategy, right? We go big, a lot of rooms, and then we realized that the first lake house only has three bedrooms. So I can't sleep 14, 16, 18, even if we convert the barn, it's not going to be big enough to have playrooms and the whole thing, right?

And now we're going back to our initial, my avatar, our target is couples, small families, maybe two kids, they ski, go to the lake, and they're paying high prices. And during the week, they still rent because it's attractive to couples. So instead of going with the bar-dominium type of concept, we're going to keep it as a separate beautiful experience with hot tub, projector screens outside, string lights. It's going to look, this is going to be the best property we've done so far.

Jeremy: And how will they get their own lake frontage?

Seb: They won't. They won't. They won't. You can still see the lake. You even have like waterfalls on the property.

Jeremy: Oh, wow.

Seb: It's so big, yeah. So there's multiple areas where we can build an experience around.

Jeremy: Well, I'm trying to envision what it looks like. But if you were able to partition, not where the main property is or the main house, but where they somehow are separated from the main house. So these are two private experiences, but they can get their way to the water. Because you're on the lake, you want to market lake access. You want to market, even if it's like a little dock, a floating dock that comes onto the shore. If there's a way they can have their quote unquote own private lake access, that'll be huge. I mean, probably more so in the summer than the winter.

Seb: No, you're right. And it's, so it's actually already, they already have an access.

Jeremy: They have an access.

Seb: Yeah, they have an access. So we're going to play with that and we're on multiple docks, and decks. So you're going to the water and the lake.

Yeah, so that's phase one. But then is how do we even finance and build phase two now that you have a loan on the entire land and existing properties? That's going to be a challenge. And I don't have the answer yet, but we're going to go through that experience in the next couple of months.

Jeremy: Yeah, well, I'm excited to hear. Yeah, because normally you wrap everything into one versus, yeah, you own the, I guess land hack is what some would call it. I mean, what you could do, well, we did like more glamping type stuff and with that extra acreage. But technically, you're supposed to have septic and all that figured out. That might be a more like, keep that low key. Don't tell anybody's situation. All right. I digress. Okay.

So, and guys, just for a little bit of context, where we are right now, why we're here, what we're doing this weekend. About twenty five ish folk that Seb and I work with as part of our mastermind are coming into New York City. I'm going to knock on some wood because the flights today have been absolutely insane. I don't know if you guys heard, but I guess Cloudflare or something.

Seb: We depend on Microsoft.

Jeremy: Yeah. Yeah. But Cloudflare, which isn't even Microsoft, they like a cyber security company. They launched an update and that update was I guess they didn't do enough bug testing or QA testing on this update because it caused Microsoft Azure to go down, which is scary. Kind of like AWS, AWS plus Microsoft Azure plus Google Cloud or like everything, like if those three go down like the world's over, one of them goes down and every single flight is delayed, canceled.

So we had Frederico was supposed to be here today. We were actually supposed to do a podcast with him, but he's coming in from Spain. His flights got rerouted. Kyle, we were supposed to podcast with him today as well. He's coming in from Chicago. A lot of folk have been successful. Luckily, a lot of folk are flying tomorrow, not today, but that's why we are here. So the next few episodes will be people who are here this weekend for the Mastermind seminar, which I'm really excited about.

But back to what we were talking about. So the two things I wanted to comment was a small property. I don't have as many small cabins in my portfolio, but I do have one lake house, lakefront property called Hidden Haven. We put in a hot tub, string lights. And yeah, you're right on. It's occupancy year round is definitely much higher. Doesn't the other properties that are bigger in the summer, they just, the families, they book their travel three months in advance. Absolutely crush. Whereas this house booking lead time is a lot slower. But I know I'm like, if even if the calendar is available two weeks in advance, like I know someone's going to book it. Like you said, kind of that couple. But then. So that was one thing I wanted to comment on or agree on.

The second thing on which I can actually read my own handwriting because the pen wasn't working. I got a Sharpie in my hand now, so hopefully it doesn't have this issue anymore. But yeah, back to this new property. So I think I tell you about like kind of the duplex strategy, or essentially what you do is, let's say you have two properties that are right next to each other. What you can do is you can have them listed separately and together. So if you want to optimize for having them booked together, you can do a little bit of a discount to encourage that. If you want to optimize for them to be booked separately, you can put a premium on it. So, yeah. Have you thought about that as like, OK, maybe we've list them separately, create separate experience. But we also give the option to do them together.

Seb: Yeah. So we actually did that with the cabins in Kennebunk, right? They're right next to each other. We said, well, it sleeps four, right? So sleeps eight. Now we have a listing. We have three listings, right? One for each property and then the two combined. And I thought we would get more demand for that. I don't know if it's because of the architecture of the cabins, but maybe 10, 20 percent of the reservation or less are really for both properties combined. But I got to say, we only really try for the summer. I think we would have to try for the entire year and see how people really if there's a demand for that.

But for the lake properties, I think that's definitely a good idea, because I think people when they go to the lake, they might want to be 10, 12, 14, 15. And so listing both, it gives you just the option, you can't lose. Right. Because if you book it, you book it. If you don't, you still have the ability to book it individually.

Jeremy: So, yeah, you're also just showing up in more searches. Cool. So how can we stay up to date with this project or, yeah, I guess our folk want to invest in your future deals. How can they find you?

Seb: So I think we're not very active on Instagram. Unfortunately, we, as I said before, kids, a job and fully invested in real estate. We do have an Instagram, which at Anchor and Unwind or Anchor Unwind, I should say. And at Anchor Unwind, where we post all our properties, especially for a guest, just as publicity.

But we definitely, if you want to reach out to us for any sort of questions or ideas, let us know. We're always happy to chat with new people. We're definitely looking for investors, but we're always more focused on the quality of the next project. Because right now it takes a lot of our time and we're looking for bigger projects. Right. So our next round is with investors that come in at at least 100K each. We're talking about at least six, seven hundred thousand dollars in equity. And hopefully in the next couple of ones, we're going to go to in a million. So we're pulling people always with the same type of structure. Right. You come in. We can put equity in as well if we have. Obviously, we love to put our equity to work, but always with the same mindset. You're going to get fully reimbursed before we even see a single dollar on the project.

Jeremy: And you're able to do that, which I like. And this is like when I talk to people who are raising money, like different folk in our mastermind who are raising money for deals. I'm like, what are you trying to optimize? Like there's no right way to structure a deal. It depends on your situation.

Some folk, for me, when I raise money for my first deal, it was I want to get out of my job like today. Like I'm not like as ASAP. So in order for that to happen, I need a management fee built into it. But if I'm going to get a management fee built into it, then I'm going to have to sacrifice that upside because I'm telling investors, you're making less money today, but you have more ownership of this appreciating asset in the long run. So it's that tradeoff.

In hindsight, to be completely honest, given how much appreciation there has been in the last few years, I wish I didn't. I wish I just had a very aggressive like essentially I wish it was more like debt financing. Where I was like, hey, I'm going to pay you back. I'm going to pay you within five, 10 years. I'm going to pay you back and I'm going to then own majority of the deal. But you know what you know now. You don't know what you knew then.

So but that's what you need to be thinking about is like if you have a good job and you're making money, doesn't make sense to capitalize or to cash flow today to optimize for that. Now, your goal is, if you're thinking five years out and you're trying to capture as much value, then you should have a plan that optimizes for that. So I think it's good for you that that's what you're thinking about. Hey, this is my situation. This is my investor situation. I'm finding a way, I'm marrying the two. There's no perfect way to raise money for a deal. There's no textbook. It's dependent on your situation.

Also, I know, are a lot of these friends, are they Canadians?

Seb: So our first round was all family from Canada. So we created a limited partnership for them. And the second round is really all U.S.-based investors.

And the comment you made, really good comment about the tradeoff between cash flow now versus equity. What's interesting is that our investors here in the U.S. at least, they're patient. Right. So even if we were to offer them a debt product, I'd let you say 10, 12 percent return. Right. They still prefer the upside. They still want the equity in the patient equity, which I really find interesting because it's aligned with my own goals. To me, it's all about building wealth through equity. Right. So they stay in their patient. They take all the risk. Right. Because when you're in the equity, you have no guarantees. Right.

And yeah, that's why moving forward, if we can get people on the debt side at a reasonable interest rate, depending on the risk profile, we would definitely say yes to that. But we enjoy to having investors that believe in us and are here for the long run.

Jeremy: Not just in it for a good time, but they're in it for a long time. And I appreciate you being in it here. And also, I enjoyed being a part of your guys journey and seeing these projects unfold.

Seb: Yes, man. Thank you.

Jeremy: Thank you guys so much for coming in, flying in today.

Seb: Well, thanks to you. And looking forward to our full day tomorrow with investors.

Jeremy: Absolutely. Awesome. Well, thank you guys all for listening. And as always, stay tuned to the episode of the Short-Term Rental Pros Podcast.