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Jon Hodge's Journey from Construction to Short-Term Rentals

Written by:
Jeremy Werden
December 23, 2024

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Quick Summary
Learn about Jon Hodge's journey from the construction industry to becoming a successful short-term rental (STR) investor. Jon leveraged his construction expertise to build and renovate properties. He rapidly scaled his portfolio, moving from single-family and multi-family long-term rentals to high-performing short-term rentals, particularly in Memphis, Tennessee. Jon emphasizes strategic property selection, leveraging local insights, and building community partnerships while optimizing costs and maximizing returns.
Key Points
- Created economies of scale by managing multiple units in the same building and controlling HOA boards.
- Advocates for taking calculated risks early in one’s career and surrounding oneself with experienced mentors.
- Highlights the importance of understanding cash-on-equity returns and redeploying equity into higher-performing assets.
- Recommends targeting undervalued properties with growth potential and negotiating aggressively on price.
- Values strong relationships with cleaners and staff, offering benefits like flexible schedules and vacations.
Full Transcript
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Jeremy: We are live with the Short-Term Rental Pros podcast, and I'm here today with Jon Hodge, who's also known as the Bank Whisperer, as well as a construction... construction... what would you call yourself? A builder or a banker? Or kind of—you wear all the different hats. I'll let you take it off.
Jon: Yes, so sure, I've been in construction. I mainly deal with rehab. I do some new construction, but I've been in the building scene since about 2009, primarily in the—show—not only short-term rental rehab space but really in the multi-family rehab space, which is just kind of a different animal.
Jeremy: Okay, so you have built, and I know, like, recently—so you've been doing this for years. You're from Memphis, Tennessee. How many, I mean, you have what—you own 100 doors at this point?
Jon: Yeah, we're over 100 doors, yeah, about 120 and some change. Everybody's always like, "Well, how do you not know how many doors you have?" Well, it's like, some of them are a work in progress, right? So it's like, we may have eight of them that are halfway constructed. So what do you do with that? Is it zero? Is it four? Is it eight? So that's why we have a plus-minus on that.
Jeremy: A lot of people would round up to 10.
Jon: Right, listen, I try to be exact with everything. I'm an accounting major by, I guess, kind of degree, but I try to be exactly precise with my words.
Jeremy:Okay, so how did you get into construction? Then I want to parlay this into how you got into short-term rentals. Jon is a part of the short-term rental super team, spoke at the conference in Nashville—STR Wealth. Great conference. So how did you—I know you're doing a lot of things—but I guess, how did you get into short-term rentals in particular? And then, what are your plans and ambition, like moving forward with the evolving space?
Jon: Sure, so I started back in 2009, getting into the construction industry, and was really intrigued by it. Before that, I was in the restaurant catering business. I had so many built-in ceilings. I was going to college at that time, so you have natural inability to really grow something—at least, that's where my mindset was. One of the things that I noticed is that, at that time, average ticket prices per customer were anywhere from $10 to $20 a head. And I said, "Man, these tickets here—they just don't generate enough money to have any kind of upside." For people that are in that business, I just couldn't see it. So I said, I've got to get to something—some kind of business—that has much bigger ticket items. And that's when I kind of discovered and landed in construction.
So I started working there, and, long story short, I got in at the right time with the right company, and it exploded. I made a ton of money just getting kicked off and had, at that time, more cash than I knew what to do with. We couldn't spend it fast enough. I subsequently started my own business during that time that would run alongside the construction aspect and would do a lot of other trades work that the owner I worked for wasn’t interested in. And so that's how my company—it’s called Contracting Solutions—got kicked off and going.
We started doing well. We were viable in the construction space, and I started making a lot of money with that piece.
Jeremy: That’s a good thing to do.
Jon: It wasn’t terrible. After about year four or five, it’s like the first several years, you make a ton of money on paper, but you just never see the cash if you have a big growth rate. So if…
Jeremy: You're buying new equipment, you're taking on more overhead
Jon: Your cost of goods sold continues to grow as your revenues do. So it's like, yeah, you're still paying taxes, but you don’t ever see the cash.
I finally got with a mentor of mine who said, "Look, I want to show you—you’re doing great in construction, but let me show you how to build wealth." He took me kind of under his wing, introduced me to banks, introduced me to properties, introduced me to brokers—laid every single thing out for me. And that's when I started the transition from being rich to becoming wealthy. That was a pivotal moment for me because I didn’t know what I didn’t know. At that time, there just wasn’t as much free access to information that we have today. I really started my real estate career in, actually, 2016.
Jeremy: Oh wow, so you were in construction for a while before you actually started owning the properties? Yeah, so you were essentially working for clients.
Jon: That’s right.
Jeremy:And then you became the client, so to speak.
Jon: Yeah, yep, exactly. And again, you get rich on paper, and then after some time—or some leveling off, or even a decline in sales—that’s when you start to actually receive the cash from it. And so it’s, where do you shed that cash to, as your best tax advantage and whatnot? So that's why we started buying real estate.
Jeremy: Okay, so in 2016, you started buying. Did you start with multi-family and then shift? I’ve seen—I feel like—a lot of folks start in multi-family and then pivot to short-term rentals. Or, yeah, what was your journey from an owner standpoint?
Jon: So I purchased a single-family home that was just a regular long-term rental. Now, at this time, I had the hurdle that I feel like every investor does, which is like, how do you get in the game, right? There were so many things there that I had—I just had mental blocks on how to do this. I had to beg a friend of mine that I grew up with—he had already done a few flips—and it’s like, "Just let me on your deal. Whatever I’ve got to do, let me know how to do it." Everything was so intimidating to me. I didn’t know how to do this or that, but I knew construction.
So he said, "Look, come on board here, we’ll walk this thing through, we’ll go 50/50 on it." And we did that. We purchased that first one there for $72,000. I provided all the construction piece of it—about $28,000. I’m all in it for $100,000. Then, he wanted to exit—he needed to go ahead and hop onto his next investment there. It wasn’t crazy successful on the resale at the time, but I didn’t mind holding it for a long-term hold—this is what I wanted to do. I rented it for several years, just sold it about eight or nine months ago for $330,000. So it wasn’t a terrible investment.
Jeremy: 30 Gs and then you bought him out? What, put in another 50 to buy them out or something? So all in 80? All in 80 to come out 300. So you forexed—4X your investment in.
Jon: Exactly, yeah, and the great thing was, at that time, I had actually bought him out with cash-out refi funds.
Jeremy: Oh, okay, so you didn't even use your own cash?
Jon: They actually appraised high enough to where they—actually, we had 100 grand in it. They paid me 110, essentially out 100 on a loan, and then I took home 10 in cash. And that's, yeah, that's where we just kind of snowballed that. So it really was like a no-brainer for me.
And that's when things started to really unlock for me in my head.
Jeremy: And it gave you the confidence and swagger that, "Oh wait, I buy something, I value-add it, refi it. Off to the races. Rinse and repeat, rinse and repeat."
Jon: Yep. So later on that year, about six months later, I just said, "Hey, I want to go, like—I want to swing for the fences here." I ended up purchasing 72 units before the year-end in long-term multi-family.
Jeremy: So it’s two different—one or multiple deals?
Jon: There's two different apartment complexes.
Jeremy: Got it.
Jon: Okay, so those were good, easy buys at the time. Again, that mentor that brought me in introduced me to the banks. I had the construction knowledge already there. Value-add, at that time, was like what banks wanted to do. So there were just different lending deals there. We ended up doing that one for 10 percent down, and 90 percent of construction and acquisition was financed by the bank.
This was not a second home loan. This was not a weird DSCR. This was just—how—this was just a commercial loan. This is how they did business. And so, um, yeah.
Jeremy: Where’d they go?
Jon: We’re far removed from that now. We get somewhat of the same terms—they're a little bit more conservative with kind of how they position themselves. But—
Jeremy: Is it a local community bank to your area?
Jon: Absolutely.
Jeremy: Well, that’s it, guys. Local banks. And that is—
Jon: Because the loans were based strictly on relationships. Yeah, they had to check the proforma boxes. They had to, like, perform there. But, like, when that stuff would happen, mediocrely, they had the relationship. And that's what got it pushed through.
Jeremy: And yeah, they trust you. They trust you, they like you, they know you. And they like the history.
Jon: Yeah, they like seeing the history. The fact that I had rehabbed thousands of doors at that time, it’s that, "Hey, look, this is the guy’s bread and butter here." And the only difference is, he’s gonna own it at this point.
Jeremy: Yeah, I did my first commercial loan with a local bank. It was actually a little—I started kind of—I didn’t have conventional means when I started. Like, I did not have two years. I got my first credit card at 21.
So when I applied for a conventional loan at 23—They kind of laughed at me. And, I didn’t have—I had, like, maybe one year of tax returns, of, like, crappy one-year, crappy tax returns.
But the commercial route is—I don’t want to say the Wild West—but if you get someone who you can, like... At the time, I was managing Airbnb, so while I maybe didn’t own any, I could at least, like, show the numbers of one, like comps.
Jon: Sure.
Jeremy: And they could take me into account—the fact that I was able to sell them on myself, my ambition—and got financing from a commercial bank. Which normally, people max out. It's, like, weird. Like, I went the opposite route that I feel like a lot of people do. It’s like they max out their conventional, and then after they max out their conventional, then they start doing commercial because of the DTI—that’s income constraints.
Whereas I started commercial. Now, two or three years later, I have two years of, like, good tax returns.
Jon: That’s right.
Jeremy: And now I’m going to—now I’m doing conventional.
Jon: Yeah, and I totally recommend doing it that way. Anybody that—it’s kind of like you say. There’s a lot of things that people—I don’t know whether they’re taught this, or whether they just think, "Well, this is what somebody told me to do." It’s like, well, they didn’t lay it all out for you, right?
Everything. A lot of the things that people are taught in this industry, it’s wrong. It is not the way that I would go about it.
And so once the people that get in kind of like my inner circle there—once they hear me out on how I lay everything out from start to finish—they’ll really say, like, "Wow, that makes a lot more sense. And the way that you did it, that’s the way to do it. That really is the way to do it."
I’m actually getting now back into doing conventional financing there because of the ebb and flow of tax returns and kind of, like, where banks are. And so, if you have a pulse on that, you’re going to have a big leg up in the market.
Jeremy: Yeah, well, I think it also definitely helps because, at the time, I didn’t have anyone telling me what to do. It was really like, "Oh, I can’t get a conventional loan? All right, I’m going to try this commercial thing."
Like, "I’m gonna—all right, that door closed, I’m gonna try another door." But in hindsight—I mean, even the way I did things, like, with partnerships early on—one, like...
I think I could have been more aggressive. I could have, like, swung for the fences harder. I was kind of conservative. In hindsight, like, looking back at what I did, people would be like, "Dude, you were ballsy."
But the way I look at it, I was like, I had a high conviction. And if I had, like, a mentor who would have been like, "Dude, yeah, your numbers are right here. Like, I’ll give you a loan or something, or like, let’s get you a loan for your portion of the down payment so you don’t have to raise equity from all these different people."
Jon: So my son, he’s—my oldest is 22 years old, and he’s interested in real estate. He’s in the Navy, serving his country. And he has a lot of advantages as in the loan space. And he's asking me for kind of advice there on what to do.
I tell this to every young person—if anybody's watching today, listening today—here's what my advice is: Take absolutely as much risk as you can possibly stomach, as early as you can, because as you get older, you will not be able to take that same risk. When you add families into it, you will not be able to take that same risk.
And so even—I mean, people all over the industry, they look at me, and they're like, "Man, he is taking some risk. He is taking some..." but it's all calculated, right? And it's not nearly as risky as what I was taking. I've been successful through several different types of investments, and it is going—it's waning down. Like, I already feel it. I am taking less risk, saying, "Hey, I think I could have done this last year or two years ago, but I'm actually just gonna be a little bit more conservative." And that will continue throughout my life cycle there.
So when people are looking at partnerships, I really encourage them to try to get yoked with somebody who's kind of on that same path as you, who has that understanding. Too many people jump into these partnerships without thinking through the—what's the life expectancy here? Do we have the same goals, ambitions, and everything?
And as much as I pair—I only have a few partners in my life there—and as much as I pair the things that we're good and aligned with, I also got to make sure that person is opposite me in skill set. And so the things that they bring to the table, or that they lack in, are rather than I excel at, and vice versa.
Jeremy: Well, first of all, thank you for your son's service. My brother's actually in the Army, and he's VA-loaning the crap out of that program, which—for those of you guys listening—a VA loan is essentially, and definitely correct me if I'm wrong, but government-subsidized, zero percent down payment, good, relatively good interest rate for people. Some of the best.
Jon: Yeah, some of the best services in anybody's service.
Jeremy: And you can do—I think there's—I think you can, you have to refi if you're at the same base. So, like, my brother's in Colorado Springs. He refinanced out of it and then did another VA loan. So he did a rehab on the property, increased its value, did a cash-out refi, used all that cash to, like, pay for the furniture for his new house, and then did another VA loan on a different property.
But if you move—so, like, the thing that a lot of people do, who I feel like are really smart... like, I've talked to people who joined the military literally not only because they wanted to serve their country but also for the VA loan. And they've intentionally tried to move, like, several different times because every time you move, you get to do a new VA loan—unless I'm mistaken.
Jon: No, that is correct. And they typically want to have—they want to have these loans basically active for about a year. So it is a little bit longer, but that's really not a long time to get those things restarted.
And so they have significant advantages over civilians—they just do. And people that are serving their country, that are in the service there, I encourage them to all reach out to people in the real estate space because they have a lot more tools kind of in their bag than most everybody else out there.
Jeremy: Do you have—I’m curious because you can wipe off the DTI. So, I know we’ve said DTI, and I don’t—Jon and I don’t mean us to get to nerd out with the banking lingo—but essentially, from a conventional financing perspective, which a VA loan is technically conventional financing, it’s just something you can only get access to if you’re in the government or if you’re in the military.
But you’re only allowed to get a certain degree of monthly debt obligation, which is your mortgage. You’re only allowed to have so much you owe a bank each month relative to your income. However, if you rent that property out, like Jon said—you have to—you can’t do it within the first year. But if you, after that year, you change bases, you rent that property out—bang, you’re good. It offsets that DTI.
So you have to rent it out, right? With the VA loan, they don’t get rid of DTI requirements, do they?
Jon: Yeah, no, you do need to be renting it out there after that whole period there. But it plays into some other kind of things that they look for. They want to see, "Did you manage any properties?" And so when you show that, it's that, "Yeah, I've been managing this one. It is a rental there." Then they count that towards, essentially, your qualifications to get additional loans through that.
And the interesting thing about the military is that, number one, I just want to go ahead and state that they are just—their sacrifice, not only to this country, for who they are and what they do, but also the financial sacrifices that they have to make. They deserve every bit of this and then some.
But they will actually, for most people, they’re looking at your W-2s or they’re looking at your income there. And then they start to, like, carve out percentages for folks in the military. Even though they may state that they’re only making $50,000, they may get the equivalent of somebody who's making $70,000 to $75,000 when they add back all the taxes that are not in there, that come with other people’s normal jobs. They add back in their living expenses that are reimbursed, and all that kind of stuff there.
So even though they may not be getting paid a lot in a monetary sense, there’s a lot of add-back that they get advantaged of.
Jeremy: Got it. So, for those guys listening, thinking about enrolling in the US Military, it's not just the opportunity to serve your country; it's also the opportunity to serve your real estate portfolio.
Okay, so you were back on—so you were multi-families, got two buildings up to 72 units. When did you make that transition, and why did you make that transition? Or why did you add short-term rentals to your portfolio?
Jon: Sure. So, again, with his mentor thing, I met some guys that were here local in Memphis. They had a couple, a few Airbnbs, and I wanted to sit down with them and look inside and see what their units looked like. They seemed to be very successful. One of them had probably seven or eight units at that time. The other one had as much as 30 within a commercial building.
I go in there, and I look at their units, and I see everything start to finish. And I was like, "Man, this is really crappy, like, this is really terrible."
And so I’m like, "All right, well, I need to see the financial data. Let me take a look at this financial data." And I’m going through all this stuff here, and it’s like, "Wow, you don’t have to have, like, a great product back in 2016, 2017, to actually be really good at this business."
And so I knew that. I was like, "Man, I believe that there is going to be a marketplace for people that want to have pretty decent living conditions. If you can make it in the crappy spaces, you can definitely make it in the good or great spaces."
So I did that, executed that cash-out refi on that property, that first one that I bought, and I took all that cash. I did my risk of buying a downtown condo three blocks to Beale Street, right there on Main Street, that I purchased for eighty-five thousand dollars.
Yes, that was $85,000 fully furnished at the time, and I paid cash for that because I did not want to take the risk at that time. Again, my mind was just in a different place than it is today. I said, "Hey, I’m going to give this thing a shot."
Spent about ten thousand dollars furnishing the place, getting the place ready and everything else, and immediately listed on Airbnb that first year. So I’m $95,000 in it. That first year, I cranked out about fifty-two thousand dollars in gross income at that property.
I couldn’t believe it. It was very wild—no pricing optimization, no nothing other. I actually used to go down there and clean this myself. I wanted nothing to interfere with me having complete control over these assets when I first got started out.
And so I’m running my construction company. I’m checking out at about lunch or so, going down here, getting these things cleaned, getting these things ready, getting it perfectly staged. I did that for about a year and a half and added to the portfolio a little bit. I was able to pick up one at ninety thousand dollars, all in around that area.
These were all just condos that were down in the downtown Memphis area. For several years, we were waiting and watching for, "Hey, when is this going to, like, run out?" And it seemed to have never run out at that time.
And so we milked that cow for a very long time, really got strategic with buying them, and kind of the rest was history.
Jeremy: So you started your strategy initially 2016, 2017. You saw, "Holy crap, these downtown Memphis condos—you can pick them up pretty cheap, and they’re making..." I think—I mean, you’re right.
A lot of times when we talk to people in the industry, the ratio that a lot of people have for what they consider just, like, pure napkin math, good investment in the short-term rental space, is you want your purchase price to be less than, like, five or six. Some people say six, but less than, like, five times your revenue.
So if you’re buying a house for $500K, you want to be making at least $100K a year. Or if you’re buying a house for $100K, you might want to be making twenty thousand dollars a year.
In your case, you were buying for $100K and making $50,000 a year, which is a 2X—2X purchase price-to-revenue multiplier, which is...
Jon: Yeah.
Jeremy: ...which is nuts.
Jon: It’s crazy. You can go back and listen to a podcast that Bill Faeth put out. It was episode 17, I believe, in his podcast there of STR…
Jeremy: Unfiltered, I think?
Jon: Unfiltered. And it may have been the one before that—it was—but it’s one in there. And he’s talking about this Jon Hodge guy from Memphis, Tennessee. I would go to these, like, short-term rental communities, and they’d be like, "Hey, where are you from?" It’s like, "Yeah, I’m from Memphis." And they’re like, "Oh shoot. Are you okay? How is everything?"
And I was like, "Yeah, I think everything’s great, I guess. Yeah, we’re doing okay." And I did not understand what everybody else was doing all over the country. And so it wasn’t until we started benchmarking in Bill’s Mastermind that they’re just like, "Man, do you think Jon’s, like, really filling out this information and stuff correctly?"
Like, it’s like, "Listen, numbers is my thing. Like, double-check them. Here’s my revenue number." I was bringing these in, saying, "This is it, right?"
And it was like 40, 45, 50, 55 percent cash-on-cash returns. People just couldn’t believe it.
And so we’ve been sitting here in this honey hole for—yes, it’s 2016 now. And the units weren’t as big as what people were purchasing at the time. Again, we couldn’t contemplate that. We couldn’t even think about spending $700K, $800K on a purchase there because we were buying these for so cheap. So yeah, we did that for several years. We still have these units.
Jeremy: How many units you pick up?
Jon: So I was able to pick up, and I've got to date, in just that little single block, actually—there are 17 units.
Jeremy: Are they doing, or were they doing, 50K on average? And I guess, what was their average purchase?
Jon: Yes, so 50K is actually on the lowest end. So that’s like the starting—the one bedrooms are doing that. Two bedrooms are doing around 65 to 75,000, and then my three bedrooms were doing a hundred thousand dollars.
Jeremy: So, and then, how has that changed over time? Like, have people found out that Jonn Hodge is making all this money here? Like, "Let’s—we’re all going to Tennessee today."
Jon: Yeah, unfortunately, when people see you pull up in a Lamborghini, they think that they understand that something is going on money-wise there. So that’s a challenge for me.
Jeremy: You gotta leave the Lamborghini home when you’re setting up for work.
Jon: Yeah, exactly. So just to kind of…
Jeremy: Just get in an overall—in your truck.
Jon: Yeah, just to give a comparison there. So we’re buying these—the one bedrooms—between, call it, a hundred thousand dollars. Those were forty-five to fifty thousand dollars that those were generating. The two bedrooms we were buying for 140 to around 180, and those were generating the 65 to 75. And then the three bedrooms I purchased for 300,000 that were doing a hundred grand there.
Those were back from a span of 2016 all the way up to around 2019. And so the same 300,000-dollar purchase today will transact for around 475 to 500,000. Still hits the metric, but it doesn’t hit the metric for me anymore.
And in fact,
Jeremy: That’s 5X multiplier—when you were doing 2X multiplier, now you’re like, "Ah, 5x”
Jon: Listen. I’m going to—like, people are like, "Hey, they’re bringing me these investments." They’re like, "Man, would you consider over here?" And it’s like, "I gotta go take a loss to go buy a beach property, right? I gotta go take a loss to go invest in any other place in the country."
And people ask all the time. They’re like, "Man, are you worried about people coming to Memphis and getting into your spots and all that kind of stuff there?" Real estate has been the most freeing and liberating business that I’ve ever been in because what’s good for me—the second-best thing—is what’s good for everybody else around me.
And the rising tide truly does rise all boats. So I am happy for people to do that. Now, the challenge with Memphis is that we are so pocketed and landlocked with HOAs downtown, with pockets of areas that are very challenging. I’ll say they are lacking in as much security as they may need.
A lot of investors come in, and they get annihilated here. They get sold on this property that looks this way, and they don’t understand the neighborhood.
Jeremy: They see the pictures, they go under contract on it, and they just assume it’s all going to be okay.
Jon: Yeah. And so I don’t mind because a lot of them I’ve known have come here. They’ve gotten burned, they’ve gotten out, and you have to have boots on the ground.
The management pieces here are—they’re really not management companies. They’re actually just construction companies in disguise. So when you see, and it’s like, "Oh, this thing went wrong, that thing went wrong," and you don’t have a good grasp on that, it’s a very challenging place to be in.
So I say that 50% returns—they come with risk. They come with risks.
Jeremy: So you are the kingpin of Memphis, Tennessee, and if anybody is going to come into your area, prepare to be, not annihilated, not by you, but by the city itself.
Jon: Yes, yes, absolutely. That’s a great way to put it.
Jeremy: Okay, so have you done—so you’ve got 17, which you bought—let’s just say your average purchase price was, like—I don’t know, let’s call it 150. Do you think that’s fair?
Jon: I think it’s probably about 175.
Jeremy: Yeah. Okay, let’s just even call it 200. Just—the numbers are still going to be crazy. So, all right, 17 times 200—we're at 3.4 million in just purchase price value. I'm assuming you, on average, put 20% down on these? Or maybe you had the commercial bank relationship, so you could do lower?
Jon: Yeah, so I put 20% down on the initial purchases, yes, on all of these. I ran that for a long time and actually did a portfolio cash-out refi in 2021, locked in rates at five percent across the board, and did a full cash-out refi on that.
Jeremy: So, and what did the portfolio appraise for?
Jon: Yeah, so the portfolio appraised for—gosh, five of the units weren't in there, but I'll add that manually. So you're talking about the whole portfolio appraised for around five and a half million dollars.
Jeremy: Dang. So, and I was rounding up before with 3.4 million, keep that in mind—but so we're saying over 2 million dollars of equity value. When you just—your initial cash investment, your down payment was like in the 600s, or roughly? I mean, you probably moved some under other cash-out refis around?
Jon: Yeah, exactly. So it's crazy complicated, even for explanation, but you could say, safely, I had eight hundred thousand in equity put out into this before I executed my cash-out refi.
And so, essentially, boiling it all down is that my payment a month at that time was around ten thousand dollars a month. So that's the net, right, and that's principal, interest, and everything I need to get in there.
Jeremy: Crazy for 17 properties.
Jon: Yeah, so I executed my cash-out refi. I retained about eight hundred and thirty thousand dollars that was paid out to me over and above my loan, and my payment went from $10,000, and now it is at, like, $12,300. So it's a $2,300 trade monthly in a note for around $830,000.
To me, that's not a good deal—that's a great deal.
Jeremy: Yeah, I mean, that's—I mean, even that interest, that's—what's $800K at, like, a 0.002 percent interest rate? Might be $2,000 a month.
Jon: Yeah
Jeremy: Or practically zero. I mean, zero if you're rounding—it would be, you would be rounding to zero.
Jon: Sure.
Jeremy: Okay, and then these properties—so your $12K is your interest. What is—what—and they are generating—what is the—let's just say 17 of them on average—they generate how much per month?
Jon: Yeah, so right now, we're averaging around $70,000 a month.
Jeremy: Okay, so 70 grand a month, twelve thousand a mortgage. Let's say your cleaning expense—well, probably roughly around 10 to 15 percent, or—
Jon: Jeremy, my cleaning is, like, extremely low. This is another one—
Jeremy: Full-time cleaner?
Jon: Yeah, it's a hot-button topic in our mastermind group there.
Jeremy: So your expenses are low too.
Jon: All right, I'll say this. It's 25 bucks a turn on average for me to turn a unit because I employ somebody essentially full-time, and it works out for them, it works out for us. It's a win.
Jermy: Yeah, they can clean them—they can clean them pretty quickly. I'm sure you have linens, like, around so they don't have to wait for the washer.
Jon: Everything is built, everything is built around speed.
Jeremy: Yes. Economies of scale
Jon: Number one, and the number one thing that they get to do—and this is, like, super important to me for our cleanings—is they get to pick up and they get to drop their kids off at school every single day. I also—we also just sent one of our cleaners on a full, paid-for, week’s vacation at the beach because they are so essential for our business.
Jeremy: Wow, so you treat your people right. You take a people-first mentality.
Jon: Yeah.
Jeremy: Okay, well, I'm just trying to reverse—all right, we got 70K of revenue here. So I'm just gonna call your cleaning percentage—I mean, what would even be a fair percentage? Like, less than five percent of your revenue is going—
Jon: Five percent. It's five percent, sure.
Jeremy: All right, five percent of 70K. All right, this is where my math—that’s $3,500 a month, I believe, in cleaning expense. So, I mean, you're at 65K post-cleaning. Utility is probably what, another—I mean, I don’t know, $400 per unit or something?
Jon: These are really small, so, like, 200 would be, like, on the highest end. Yeah.
Jeremy: All right, so that's another $3,500 away. So now we're—I mean, you're pretty much—I mean, dang, you're at, like, six—I mean, over $60,000 pre-mortgage payment. And then you—so you're cash-flowing, like, 50 grand a month off these things.
Jon: Yeah.
Jeremy: So, guys, this is where we all—listen, I get to give some snaps.
Jon: We like to—we like to run on a 40-model for our debt and our expense ratio there. So I take whatever my gross revenue is, and I like—
Jeremy: Multiply that by four.
Jon: Yep. And that's what I should be having. Now, that's not just expenses—that's expenses and my debt service. Those same rules do not apply today for what we figure, but it is what we have historically done, based on interest rates, based on the purchase prices that we had, and based on our economies of scale discounts.
Jeremy: Got it. Okay, so things are crazy. You saw it, you smelled it, you went for it. You went for it. So, all right, but people talk—"Well, times were different." I bought a house four weeks ago, just listed it yesterday—like, I’m still making moves personally. But yeah, tell us about the today. Is your foot still on the pedal, I guess?
Yeah, have you—have you done anything in addition to those 17 units there? I know we're not at your 130 yet, so I know there's some in the middle that we haven't talked about. But yeah, what do you—what have you done? What else is there? What else are you performing? Like, how are you adding to it today?
Jon: So, I always have to go back to something that Richard Fertig told me in the space, and it struck a chord with me: What works in the past will not work in the future.
And so I always try to make sure that I have that mindset just kind of at the forefront of my mind whenever I’m making investment decisions.
The other piece is that my only regrets in real estate—they pretty much, the summary is—I didn’t buy enough fcking real estate. And so those are my biggest regrets, and so I don’t want to repeat those same mistakes.
So my gas pedal is pushed all the way to the floor at all times. My buying strategy is, like, is very much different. I am waiting for items that are going to be sitting on market, typically for about 30 days, maybe 40 days, before I’m ever even considering them for a purchase.
I want to hear your deal. I want something that has, like, complications with it. I want people that need to be moving from a time aspect very quickly.
So I am buying much differently. I am typically going out there. Over the last six months, I have made five purchases, and my discounts from their initial ask price have ranged anywhere from 12 percent all the way up to 33 percent off of their ask price.
So when I go out there and I look at things that are on market, I put on a whole new cap with that. And things like tools that I use for STR insights—they really help me kind of, like, gauge where I need to be.
And I am also kind of, like, strategically saying, like, "Well, revenue-wise, what is trending there?" And then on the buy side, it won’t be able to pick up how much you can discount their average price sold. So you have to make that determination in your head.
If I’ve got a property that’s been on the market for two weeks versus, like, two and a half months—those are different buying criteria there. I think that people are going to be a little bit more apt to make a great deal for me at the two-and-a-half-month mark.
Jeremy: Yeah, and they probably know that you’re serious—you’re going in, you’re gonna do the deal. Because I feel like, at that point, if it’s two and a half months, they may have already been under contract with somebody who is a little bit less serious or saw the inspection came back and there were issues. Or they may have had financing issues at that point.
So now, one of the things—you’re coming in—you come in when you can, like, save them. Like, that’s where you’re coming in with your cape on.
Jon: Yeah.
Jeremy: You’re ready to…
Jon: One of the biggest things that I send over whenever I’ve been making these recent purchases is a liquidity letter. And I will send this in with my offer, and it will show in there that I’ve got a million dollars in cash ready to go. Now again, am I gonna—am I gonna buy their property with a million dollars in cash?
Jeremy: No.
Jon: But they know that I have a certain level of ability to purchase that property there. They feel comfortable with that. Nobody’s offering that to them. Nobody’s, like, opening up the curtains there. I’m all ears for what questions they may have for me.
So I go through this kind of rhythm and this dance of, "This is how well qualified I am, and I am your best hope right now."
Jeremy: And then, okay, so that’s how you’re getting deals. What types of—are you doing downtown Memphis, Tennessee? You don’t have to say exactly where, but like, what types of properties are you looking for now? Your buy box, so to speak?
Jon: Sure. So I am actually diversifying outside of Memphis. I have kind of hit the fill on my bucket here for what I’m gonna be doing real estate-wise.
If something happens to, like, be handed to me—falling in my lap—I have to take a deal, I might. But I am buying in Hot Springs, Arkansas, right now. I am buying in Panama City Beach right now.
Jeremy: And are you—yeah, I think you touched on this earlier—are you looking for more new build opportunities using your construction expertise?
Jon: The answer is yes and no.
Jeremy: Rehab?
Jon: So, rehab. So I am going back to my traditions of real estate, which are forcing the appreciation piece versus, "I got a great property, and I can just add a hot tub here." Like, I don’t like to deal in that because I think that is—I think that’s a little fickle for the industry. I believe that is a—it’s a revenue tweak; it is not a wealth-building tweak.
And so I am taking the approach of, number one, I am looking—if I’m looking at a new construction project, you have to understand the cash flows of that. Probably won't start receiving revenues on a new build construction for around—probably—12 to 14 months on average. So, do you have the money to kind of go the distance there, or is cash flow your game?
So there's stuff that I'm buying at the beach right now—I’m cash flowing within 60 days. So that's about my criteria, as long as I want to go before I'm starting to generate that cash and kind of building that piece out.
So I am sticking with condos down there for right now because of my strategy.
I like the fact that I can have a lot of built-in amenities. I can have control over a building. I can get a lot more things done and achieve those economies of scale when I have about five to seven units in a given block or a given building, and then I hop to another spot.
And I think that I'm looking for what I consider tertiary markets. I am not going into the major cities and the blockbuster hits on places to invest on the forums.
I'm going into—I mean, yeah, are people talking about Panama City a little bit? But not really, right? Are people talking about Hot Springs? I know that people have thrown it out there, but like, who's got evidence to show from it, right? They talk about these people going here.
We've got the evidence to show that we'll go in there, we will purchase these things, and we'll get them up and running, and they do well for us. But I'm not going to be going to the Smokies right now. I'm not going to be going to Orlando right now. I'm not going to be going to those larger areas there because it is just my investment strategy that's personal to me.
Jeremy: Okay, so you buy the block, so to speak. You literally buy—you take the buy-the-block strategy, which is good economies of scale in specific areas. Also, yeah, if you are concerned about condo restrictions, which—there are a lot of condos that either have restrictions or are going to have restrictions.
But if they currently don't, and you become one-fourth of the condo board, next thing you know, if they need 75% approval to get short-term rental restrictions passed—well, they can't, because Jon owns over 25% of the building.
Jon: Well, it’s interesting that you bring that up, because that's exactly what my strategy was in 2016 when I started buying these condos in Downtown Memphis. So I learned two things:
Number one, I targeted HOAs that were all on the verge of bankruptcy. So I would look in their cash flows; I would see how they were trending. And these were ones that were just kind of falling apart.
Number two, I would go in there and immediately, silently or publicly, purchase up 25% of that board so that I could never be overtaken, or I had to have my approval in order to get bylaws passed.
After that was done, I would need more bodies. So I would bring in other investors that I was friends with because one person—even though he owns six, seven, eight condos—can only hold one board seat. So we started to add friends, family, that kind of thing to the mix there.
And at this point, we control almost 70% of the HOA. So we are the HOA, my friends.
Jeremy: You are the king pin. You are the king pin. You took over buildings.
Jon: Yeah. And so it was a very polarizing effect. I think I have a polarizing effect in general with people. Either people absolutely love me and they are die-hard Jon Hodge, or they are just die-Jon-Hodge and they hate me.
Jeremy: And you show up in the Lamborghini.
Jon: That is salt in the wound for some people. And so I think that the same lady who told me during a board meeting that I could burn in hell came to me six months later and said, "Are you still interested in buying my condo?"
Jeremy: Ironic how that one turned out.
Jon: It was. At that point, for that HOA, all real estate roads led through Jon Hodge. That was just the reality of it. I had the money to do it, and with the HOA falling apart, we needed to kind of wrangle and kind of put the stuff together.
I’m happy to say, at this point, we had, on average, around ten thousand dollars in the bank during that time when I first started purchasing. We've now got in excess of over a hundred and seventy-five thousand dollars in the bank for those HOAs, and we are flourishing right now.
We have kept up better with building maintenance. It doesn’t hurt that I own a construction company, and I can get these things at cost. I know how to bid them out. I do a lot of the legwork there. So that's, like, my sacrifice into it.
But the real benefit there is that our units look really good, they show really good, and people love to be there. Location's everything.
Jeremy: You make it easy for them to get into the buildings. You put on the locks on the right thing versus, like, having to do some, like, "Oh, keep a key in a padlock around the corner."
Jon: We did that very early on, and that was a—we wanted ease of use. Ease of use. You put these people down in one of the best locations that you can get in Memphis. There are walkable restaurants, bars, stores all right there. It’s hard to fck up that investment. It really is.
Jeremy: Got it.So at this point—but there’s only so many buildings. Like, you can only—there’s only so many buildings where that was even possible, and you’ve identified them. And this is where I would say, like, real estate is not like—this is what people talk about. Like, why is, like, wealth—like, why do big corporations not take over everything? And have those 17 units.
Why does Jon Hodge from Memphis, Tennessee, have them? Like, real estate's not like an even playing field. You can identify things, you can have a strategy, and you can execute on it. And if you do, you can kind of box people out.
And now it's not a level playing field, but it's also like—even if you had—at that point you had expertise, you had resources. I mean, it seems like when you started, like, again, you had that construction company, but you really didn't have that much. Like, you didn't have the cash flow you have now or the bankability that you have now.
But you just one by one made it happen. You had a strategy, and you executed on it over five years.
Jon: Yeah, and that's a great point to say that: don't make somebody else's strategy your strategy. Yeah, right. I know guys that—I couldn't believe how they were buying these buildings. And it was all through tax credits and taking these delinquent loans and purchasing through that.
And to me, that was the most amazing piece of, like, man, I never even thought about that strategy there. But I had to, like, take a step back and say, that's just not my strategy.
Jeremy: Yeah. Not what you do.
Jon: But I celebrate with those guys, and I go and learn from them. And I love just being around this ever-evolving—there is so much information out there. There's so many different ways to slice this thing.
I do not believe that people actually have an excuse—that want to really get into real estate—that they have an excuse not to be in it. Because I know people in all walks of life, with all kinds of challenges, that they get into real estate. They just do it.
And so you don't have to take Jeremy's strategy, you don't have to take my strategy, or anybody else's that you see.
Because I will just say that some of the strategies that are out there on Instagram, and they're on the billboards, and they're in the influence space—they're not real strategies. Right, it's a cool story. Like, people get hooked on the story, but, like, their bread and butter is somewhere else.
And so understanding that—like, defining your strategy and what you can make your mark in—that's going to be a key piece, I think, for people to get into the game.
Jeremy: Yeah, and your strategy can change. I think a lot of people think that, like, "Oh, what I do today..." like, I don't want to go down that route because they think it's gonna, like, somehow pigeonhole them doing a thing.
Like, "Oh, I don't want to start co-hosting other people's properties. Like, that's, like, like a job." Well, it's like, dude, you can start there. Like, start there. I started there, like renting properties. That doesn't mean you can't eventually buy a property. It just means you're—it's like a starting point.
So I think that's what's great about short-term rentals in particular is, like, there's really something for everyone. You can be Jon Hodge, like buying out, buying the block, buying—or you can be where Jon Hodge was when he was 23. And you would have—at that time..
Jon: I was taking the cleaning fee because I cleaning the units was kind of like the little side hustle there that helped kind of build in a little bit more cash flow so that I could do the next investment.
Jeremy: Exactly. So it's—and it's great. I think that's why the short-term rentals in particular—I mean, and you do other—you do have other, like, at this point, are you doing other types of real estate investments? Or are you purely short-term rental strategies?
Jon: Yeah, so I am—I'm exiting the long-term rental space pretty much across my portfolio.
Jeremy: You're selling your buildings?
Jon: Yeah.
Jeremy: And you cannot be able to say 100 whatever doors anymore.
Jon: So, listen, and that's the thing, is like—I don't think it's gonna ever bother me, because it never impressed me before.
Jeremy: Yeah.
Jon: It was always something that people were kind of in shock with. And at the time, I just didn't think about the number of doors and whether it being this, whether it being that. I know people with a lot more, like, a lot more now. Most of them say they get this many doors, and, like, the reality is, it's like it's a percentage of a percentage.
Jeremy: Yeah.
Jon: Of that, these were all done with my own cash. So that's why mine may be a little dwarfed.
Jeremy: But what is the cash flow from your multi-families relative—like, is it just, like, at this point, your short-term rentals are just cash flowing so much more? Even though there might—you might have less quote-unquote doors, you are cash flowing significantly more with the short-term than long-term rentals?
Jon: Yeah. So that eight-million-dollar portfolio is really only generating around 425 to 450 thousand dollars in gross income there.
Jeremy: And those—the eight, the 80, you said?
Jon: Of the 72 units.
Jeremy: 72 units. So, like, 70 grand a piece per year or something?
Jon: Yeah, yeah.
Jeremy: Like, they're like $600-a-month apartments.
Jon: Yep. Yep. They're—and, again, it's like it has been the biggest builder of equity for me, but it has, like, really sucked on cash flow.
And so when I look at my cash-on-equity return—Ryan Bakey and I are, like, big drivers of people checking their cash-on-equity returns. So I take my equity of what I've got left outside of my loan, and I am looking at my cash flow after all my expenses there and pinning that as a percentage against my equity.
Jeremy: Your equity.
As if I can take that equity and redeploy—let's say that I've got, like, a four to five percent return—and that's real life. With four to five percent return on my equity.
Do I think I’m gonna take that equity and go ahead and grab the gain, not pay taxes on it, 1031 into something else that I can make 12, 14, 18, 20 percent cash-on-cash return? Then I opt to do that.
But if you don't have a pulse on what your cash-on-equity return is, you'll sit there and you'll just be rich on paper. Your equity position—remember, it only matters at really three points: when you buy the asset, when you refi the asset, or when you sell it.
So all this thing of like, "I got all this equity," it’s like, "Well, did you refi?" "Well, no, but I know it’s there." Well, the market’s going to dictate where your equity is, and that’s just a roller coaster.
So I think that you’ve got to, like, understand that it only matters at those three points—no other time.
Jeremy: Yeah, so you can say, "I’m a millionaire on paper," but you're not really. And that's actually, like, something I’m personally dealing with. I started off with a lot of partnerships where the properties went up a lot in value, but it might just be more operational time relative to, like, what your cut is.
Like, more where it's like, "All right, the properties have gone up so much in value that if you can take—if you’ve already 3X’d your initial investment, 4X’d your initial investment—and then you can take that, lever that 20 up, whatever, even if you put 25% down, lever it up, and then own the entire deal yourself."
That’s the calculation. That’s—it’s a similar calculation, but it’s like, yeah, how do you take this equity? And that’s a great thing about real estate. It's like, how do you take equity and then deploy that equity, lever that equity up in a calculated manner in order to produce cash flow?
Jon: Yeah. Yeah.
Jeremy: Okay, cool. So you are—at this point, you’re always calculating. And actually, I was texting Ryan this morning, so bringing up Ryan—shoutout, he was on the pod a few weeks back. So anyone wants to check that out, okay, a great episode on tax and stuff of that sort.
But so your current strategy is, you're just always re-juggling, "All right, I have this multi-family building. It’s built up." I’m assuming probably at this point you're making $400K a year, probably several million, right? I would assume in value.
Jon: It’s probably, uh, four and a half, five million bucks.
Jeremy: Got it. Okay.
Jon: We only have three million dollars in debt on it.
Jeremy: Okay. So you can take a couple million dollars out, but for you, I’m assuming what will make you pull the trigger is, like, when you know where you're going to deploy that two million dollars. Because you have to do it within—to do a 1031 exchange—you have to do it within a certain time period.
So I’m assuming that's kind of your holdup there, or correct me if I’m wrong.
Jon: So we are active. We have been actively looking and finding deals, but it’s the timing aspect that is going to be challenging, kind of like on the deployment of it.
So I think that I’ve got to constantly be in the market. I have to constantly plug with brokers. They have to know what my buy box is. I have to act extremely quickly because the 45 days, they just fly by.
And when I find the deal that is the deal, I pull the trigger immediately. So I don’t want to hesitate and say, like, "Well, I’ve got a few more days to do this." Like, the market moves on great deals.
And so being ready to go on that is really, like, kind of what the focus is.
We may take a little bit of money home. I may go ahead and take the largest portion of it, and I will be deploying that into short-term rentals strictly from an aspect of, like, "Okay, let’s say that I can’t get to what my 20% gross ROI, which is my typical, at least minimum buy box—let’s say I can’t get there, right? Let’s say that I can get to even a 10 or 12 percent gross ROI.
If I’m going to be taking an 8-million-dollar asset there, and the same 8-million-dollar asset that I had today at most generates, what, $450K, $475K in gross income, and I can take that and even just get to a million bucks—that’s the calculation.
That’s the calculation.
So, it’s like, then I get my cash flow back. My debt portion can stay the same. My equity can stay the same. But all I’m doing is adding just more money to the bottom line there in cash flow—for myself, for partners that I’m aligned with. Cash flow is a big number for us. The appreciation comes in a not-too-distant second, but it is second.
Jeremy: Got it. So, okay, right now you’re on the hunt. You are on the hunt. You are looking to re—re—I’ll say re-jigger. I don’t know if that’s the word, but I’m going to read—re…
Jon: Redeploy.
Jeremy:Yeah, redeploy. And really, you’re looking for a very big deal, even for your standards—an 18-million-dollar purchase.
So, okay, well, keep me posted. I’m excited to see this effective deployment. And for those listening, what’s, like, one—like, what is your pro tip? What is a tangible piece of advice you can share with those listening?
Jon: So, get yourself around the most successful people that will give you access to them. And I have been able to do a lot in this space by getting around the people that are doing great things.
And I am at the conferences. I am at meetings. I am going to, getting involved with it. Because not only does it need to be from the educational purposes—do I gain a lot there—but I need to be on the forefront of people that are moving and making moves in the space.
And so, surround yourself with people however you have to do it. Whether you have to pay for it, whether you have to sneak in the back door, or whatever you have to do to get around the crowds—get around the crowds.
Jeremy:So, put yourself in front of like-minded folk who are growing in the right direction or are already in the direction you want to be.
Jon: Sure. There is one last thing that I want to go ahead and plug here. My Instagram handle is right here: Jon, J-O-N, Hodge, H-O-D-G-E-1, on Instagram.
Connect with me there. I am—Jeremy, we talked a little bit beforehand in regards to some AI software that I am working on in regards to performance. And I am busily building that out. To get access to that in the future, we will give access to those that sign up on my website, which is Jon, J-O-N, Hodge, H-O-D-G-E.com, for first access on that.
And it’s going to be an awesome tool. We talked just a little bit about it, and I think it’s going to really change our industry as far as how we look at performance.
Jeremy: Yeah. And one thing I do want to share—when I met Jon, I showed him our pro forma software, and he—I know—and gave him an example property. And I’ve never had someone, just in such a quick period of time, look at it and point out, "This looks off here," or "This line item," or "This Opex was the thing in particular he pointed out is off."
So, Jon is great at just—I mean, you’ve probably looked at tens of thousands of pro formas at this point in your day.
Jon: Sure. Absolutely.
Jeremy: So, definitely check Jon out on social media and follow him. And also, I mean, I don’t know if you’re willing for people to reach out to you to help with their pro formas.
Jon: You’ll never know till you shoot your shot, right? So, impress me with something. Give me something of value there. Tell me you’re gonna go mentor somebody there. I am really big on people giving back and people paying it forward. So, who knows?
Jeremy :Beautiful. Awesome. Well, thank you so much for coming on today, Jon.
Jon: Really appreciate it.
Jeremy: Alrighty, guys, until next time, thanks for coming.
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