Michael Russell - Short-Term Rentals, Hostels, and Hotels
Michael Russell is a seasoned real estate investor and hospitality entrepreneur who turned short-term rentals on Maui into financial freedom before scaling into hostel and hotel investing. As the co-founder of Howzit Hostels—the #1 small hostel in North America—and Malama Capital, he brings over 20 years of experience across short-term rentals, long-term rentals, commercial real estate, and hospitality assets. He shares how he sources and analyzes hotel deals, leads acquisitions, and is leveraging systems and AI to create efficient, high–cash flow hospitality investments with strong equity upside. Also a co-host of the Hotel Investor Playbook podcast, he offers practical insights for investors looking to transition from Airbnb-style rentals into hotels, build scalable businesses, and design unforgettable guest experiences—all while balancing entrepreneurship, family life, and island living in Maui.
In this episode, you will be able to:
- Understand why successful investors focus on eliminating the wrong deals instead of endlessly searching for the “perfect” one.
- Learn how to build real estate wealth step by step, starting with single-family homes and scaling into short-term rentals, hostels, and hotels.
- Discover the importance of creating a competitive moat through location, regulation, and barriers to entry.
- See how short-term rentals can act as a gateway investment, providing strong cash flow to fuel future growth.
- Gain insight into scaling from hands-on investing to larger commercial assets by hiring the right teams and systems.
- Learn why hyper-focus, clear criteria, and skill stacking are essential to long-term success in real estate investing.
The key moments in this episode are:
1:52 - Entrepreneurial Drive And Freedom Mindset
6:47 - First Investments After The Great Recession
10:59 - Moving To Hawaii To Fund Deals
19:59 - Why Hotels: Regulation And Diversification
22:17 - Choosing Markets And Barriers To Entry
27:54 - Four Pillars: Acquire, Finance, Market, Operate
31:44 - Hiring Management And Scaling Remotely
35:07 - Forced Appreciation In Boutique Hotels
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Full transcript here:
Michael Russell
The idea of finding the right deal is not, it's actually not finding the right deal to me. It is eliminating the wrong deals. And the faster and the better you get at eliminating noise and just being hyper focused on what you know is going to fit. Like I look at if you have a checkbox of things that that, okay, for this deal to work, as soon as I know, oh well, something doesn't check that box, then it's it's out of my radar. It's done.
Mike Swenson
Welcome to the Real Freedom Show, where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together.com. It's where we post all of our episodes, all of our content for you to figure out what path do you want to choose in real estate. We love highlighting great stories from great people to inspire you because real estate is an awesome space to be in. There's so much opportunity, and we want to see you guys take action and learn and grow inside of the space. And so today we've got an awesome episode for you. I'll start by saying if you want to go back and listen, episode 261 with Nathan St. Sear is one that we recorded a while ago, probably close to a year ago. And I'm here now with Michael Russell, which you are his business partner in some of the dealings that you guys have together. But Michael Russell, real estate entrepreneur, co-founder of House at Hostels, co-host of the Hotel Investor Playbook, co-founder of Malama Capital. You live in Hawaii. I live in Minnesota. I am certainly jealous of what you got going on in terms of your temperature as we sit in a bunch of snow up here. But uh, Michael, we're so excited to have you on the show. Happy to be here. For the listeners, just give us a little bit of a background, how you got into real estate, why you got into real estate, and we'll take the conversation from there.
Michael Russell
You know, from a broad kind of macro level, I think just I've always had an entrepreneurial spirit. I've always wanted to be um self-employed. And I like the idea that self-employment provides freedom and lifestyle. Um, I just, you know, even as a teenager going to high school and being, you know, stuck in class, thinking, golly, like if I can just get out of here and go do the things that I want to do, um, I was always a good student, but I just I never I always had a challenge with being told that I had to be somewhere at a certain time. And so the idea and the concept of being an entrepreneur to me really appealed from a very early age because I don't know, I think I was in um some course in high school uh where it was called work experience, where you have to work through a model of like, okay, well, what do you want to do with your life? Like if you are gonna be an entrepreneur, like what are some of the things that you're gonna do? How are you gonna make money? And then what is your life gonna look like? And for me, I was very drawn at an appetite for risk, but I also recognized that I wanted to have freedom in my life. I'm a lifelong surfer, okay. And I I share this because if anyone knows anything about surfing, you know, when the waves come, it's like you have no control. You can't like plan it in your calendar and just schedule it out and and and work around it. It's not like a basketball league league where every Tuesday and Thursday, you know, you do something recreational and you get your fix. With me, it's like being in an office and knowing that the thing that I enjoy most in life, my passion surfing, like that the waves are good in those moments, and I'm stuck at a job and I had don't have the freedom to choose when I work and when I don't. Like as a young adult, um, you know, even before that in high school, like just that concept, I always knew in my bones that hey, I wanted to be an entrepreneur so that I had freedom of my own time. So that's kind of like a little context. Real estate came into my life partly because, well, my mom was a real estate agent. And although, you know, she worked in the residential side, it wasn't directly in commercial, but I got an understanding. I was absorbed, you know, some of the the um, you know, knowledge of like, okay, people are building wealth through buying homes. And and so from an early age, I I kind of absorbed and experienced that the concept of how real estate can provide wealth for people. Um, I read all the books, right? I mean, you know, starting from you know, Rich Dad, Poor Dad to I think one of the books was Um The Millionaire Real Estate Investor by Gary Keller, if I'm not mistaken, was like one of the first books I read. Multifamily Millions by I think it was David Lindahl. I'm I'm going back years to when I was in my 20s, but the point is, I started consuming tons and tons of of knowledge about real estate. And so I knew, hey, this is my path. I like the idea of not just building wealth, but building something that's tangible. I don't know what it is. Something about seeing a building and knowing, okay, I own that and I can shape that building, I can make improvements. I like the physical aspect of it. There's actually more money to be made in many other areas outside of real estate. I think we all know that if you're a tech entrepreneur, you're probably gonna make more money if you're successful. But to me, it's more fulfilling to view and see physical assets and kind of leave my mark on the world, like in a sense. Like when I walk, um, let's say in an urban area and I see big buildings, I am fascinated by those buildings. Those buildings will be there for decades, if not centuries. And so I'm just drawn to real estate from a personal level and just in general, it's just uh there's something about it just tangible, it just resonates with me. So um, that's kind of what drew me to real estate. I hope that answers your question.
Mike Swenson
Well, it's interesting because I talk about when I highlight the you know the benefits of investing in real estate, and I mention it's a tangible asset. What I find is yeah, the the people that like investing in real estate really are drawn to that piece of it. And the people that don't, don't, right? Like if you're not excited that you can go drive down the street and see that place, because for people that invest in stocks or mutual funds, right, they like that they can see the little stock ticker and see if it goes up or down, but you can't, I mean, you can't go touch that. I guess if it's a company, you could go visit their headquarters or something. But what people love about investing in real estate is that it's tangible, right? With our investors, it's like, hey, here's a video that we shot in front of this property. And if you want to drive and go see it, you can too. And short of an act of God, it's not going anywhere. And so you can see it, and that's what people enjoy about it. I I totally understand that.
Michael Russell
Yeah, and there's a lot of other advantages, you know, like from a tax perspective, there's ways that you can use uh depreciation and other means to offset taxable income. Uh, things that you know, you learn in reading all these books that I just mentioned that it's like there's so many reasons why um that there's advantages of investing in real estate.
Mike Swenson
How did you get started then? What what was kind of that first piece for you in terms of investing in real estate?
Michael Russell
So, you know, back in 2008, obviously we had a the Great Recession, and what I witnessed was around 2009, I started noticing that some of these um neighborhoods. I I I was living in San Diego at the time, and there was a community, it's called Inland Empire, and it's just east of Orange County, which is arguably one of the most expensive uh zip codes in the nation. And you know, you've got you know the the coastal aspect of Orange County, where you know basically everything's you know, million-dollar homes and even just like um what do you call it, like uh track homes and things. But just east of that, you've got this commuter community. And some of these homes were built for um, you know, reasonably, they were very reasonably priced, but they just built so many of them. And they the idea was that they were gonna build all these homes and people were gonna commute. And what ended up happening is after the Great Recession, you had lots of these homes that were all very cookie-cutter and they all looked the same. Um, and they were quite literally empty. Um, people had to, they were being foreclosed upon, there were short sales, and some of these homes, these neighborhoods were brand new neighborhoods. And I bring this up only because um from an investor's perspective, what I was noticing is there's two things. One that the prices of these homes had fallen below replacement value. And number two, they were all very similar. There's some variances, but like as a new investor, new real estate investor, there weren't a lot of like variables where I'm like, hmm, this one works or this one doesn't. It's like anything in this neighborhood is significantly the same. It's really limiting the risk factor to just is this home, is this asset priced at a good price or not? Is it below market value? There weren't a lot of these other variables that sometimes with more advanced real estate investing, you have to kind of consider into the equation. So it made it very simple as an entry point to me. I said, Oh my gosh, it's 2009. There's literally tumbleweeds rolling through these almost brand new neighborhoods that are abandoned and they're selling at costs that are less than replacement value. I'm like, I gotta figure out a way to buy some of these homes. And I didn't really have any money at the time. So I was given an opportunity, coincidentally at that time, to move to Hawaii and get a sales job. And I didn't really see myself as a salesperson. I didn't really like that wasn't my life ambition, but I knew that I wanted to buy real estate and I needed money. So I said, okay, this is a means to an end. And I flew out to Hawaii. I'll save you all the whole backstory of why. But it was an it was a W-2 sales job in which I could earn a decent amount of money. And I chose at that point in time to just save as much money as I could, work as hard as I could, sacrifice as much as I could to buy. My goal was to buy five homes, and I was able, with the income that I was earning, to um use hard money loans and buy three homes in a very short period of time, which was incredible because I bought them, you know, as they were appreciating. So, from a timing perspective, I just knew that was the right time to strike. I mean, uh, you know, the the the recession, the great recession, it was pretty obvious to me, even though that a lot of people were struggling that there was going to be a rebound. And so I was able to buy these homes. That was my introduction to real estate. I had my W-2 job and I was just working means to an end, sacrificing head down. I wasn't spending a lot of money on, you know, wasting my money on, I shouldn't say wasting, but spending it on frivolous things. I was living frugally, just buying real estate. And that was the seed capital because when those homes ultimately appreciated within a few years, I was able to take those homes and leverage the equity by exchanging those homes into other assets.
Mike Swenson
So to clarify, in Hawaii, you were buying the properties in California.
Michael Russell
That is correct. So I went to Hawaii with the intent that I was just gonna go out for a one or a two-year spell to just earn money. It was really that was it. I was just out there because I had an opportunity for a sales job to make money, and I thought, okay, I'm gonna live the rest of my life in San Diego. Uh, but as it turns out, I, you know, gained some roots and got married and found myself now living 15 years later still in Hawaii.
Mike Swenson
So then after the single family, then you you started to dip your toe in the world of short-term rentals, right?
Michael Russell
Yeah. So I was there working, right, and observing. And naturally, since I'm buying homes in California that I felt were um uh you know undervalued, I was looking around the the neighborhoods in in Hawaii and I noticed that there was this concept of short-term rentals uh that seemed like you know, really profitable because in Hawaii, obviously, uh it's a great place to visit. You get year-round the seasonality, there's no off time, lots of people coming. Um, but what was unique was uh there was this transition that was occurring. I could sense it is there was a lot of people that were short-term renting, um, but they were doing so even though they did not have permitting in place. And so technically there was regulation. It just had not been enforced. And I understood in that point in time that a lot of the supply was gonna get cut out for many of the people that were short-term renting renting homes in Hawaii once regulation started being enforced. And the the the process is you got to go and apply for a short-term rental permit. There's a limited supply of these permits, and once they cap out, that's it. And so there was a home for sale. This was back in 2000 and golly, 2014, and it was a million dollars. Oh my gosh, a million dollars. It was crazy money, right? Um, but I had these homes that were my seed capital that I had started that appreciated that I bought in California. That million dollar home, I knew that if I could buy that, it would be a cash cow in short-term rental income, but only if I could get the vacation rental permit. Because like I said, the the that home actually was operating as a short-term rental, technically illegally. And so I made the gamble or the investment, I bought the home for a million dollars and immediately went to work to get the permit. And it took about I don't know, six to nine months, but I I did it, I got it above board. I secured that vacation rental permit. And it was kind of like for listeners old enough to understand this, the taxi medallion before Uber and Lyft and all that, that was like super valuable to have a taxi medallion in New York City. Well, that's kind of like the short-term rentals. This is all gonna make sense if we explain a little bit further, because the whole idea of buying real estate is there's got to be some sort of barrier to entry. There's gotta be a moat. If you buy anything, any investment asset, and anyone can buy the same thing, and there's an overabundance of supply, then there's no competitive advantage. And so, what I witnessed in that moment was if I could buy a short-term rental, get the permit before they were capped out, be above board, eventually, all these you know illegal ones would have to cease and desist. And that's exactly what happened within a couple of years is they started enforcing the regulation. Um, within that time period, I also bought a second short-term rental. And where I live, the reason why there was I could only buy two was because I was married. You can buy one per person. I put one in my name, I put one in my wife's name, and we were capped out. But those two short-term rentals, we owned like there was less than 200 of these permits across the entire island, and we owned two of them. And the the the from a from a cash perspective, it ended up bringing in uh enough revenue over time to where I was able to eventually leave my W-2 job. And so I was like, wow, okay, short-term renting. How do I do more of this? I want to buy more short-term rentals. And I knew I couldn't do any, I couldn't buy any more in Hawaii or Maui where I lived. And so I started looking again for areas where there was a competitive moat. That's kind of like my you know philosophy in real estate investing, which I've described, which I I've used time and time again.
Mike Swenson
It's awesome. I mean, I think for people listening to understand, you know, because we always encourage people to take action, get in the game, find a way to get started. And, you know, in your story, it's like you found a way to get in, and then that led to something else, and then something's gonna lead to something else. And so you don't have to, you know, plan for what phase five, you're the 5.0 version of your real estate investing story is you just have to get started at the 1.0 version, and it's gonna continue to develop and evolve from there. And so as you learn more about single family homes, then you learn more about short-term rentals, and then that's gonna continue to develop into kind of where you're at today.
Michael Russell
Yeah, I mean, of course. Look, I when I look back at my my arc, my professional arc of where I was and where I am now, it's like I didn't have everything planned out, but it is interesting how one thing leads to another. To your point, yeah, you just got to get started. I knew it was way more accessible to start with single family homes than it was for me to go buy, you know, a commercial building that was a lot more complex. I wanted to look at ways to mitigate risk. And that's kind of why I said, hey, these cookie cutter homes, I mitigated a lot of the uncertainty of all the different investing variables and just knew that, hey, if these were below value, it made sense, buy them, led me to the short-term rentals, competitive moat. Um, the next step though was saying, hey, I mean, um, this is working pretty well. I really like short-term rentals because it's, you know, it's it's real estate, it's fun, but it's also I'm I'm creating these memorable experiences for guests. Like, like it's a it's a fun investment class and it's very cash flow positive. That's one area where when I was looking at other investment classes, it was like I had a hard time uh um really going in any other route other than short-term rental because I got addicted to the drug of high cash flow, right? And that's what's so unique about the hospitality, uh about hospitality investment assets, you know, to start short-term rentals because that's relatively accessible for most people. But now where I'm going, um, I'm I'm you know, I've I bought a couple of hostels and we can talk about that, but now I'm I'm entering into the the hotel world where I'm I'm purchasing hotels. Um and so I basically took what I learned from short-term rentals and I'm scaling it up to larger assets.
Mike Swenson
Sure. And and just to go back, like I think for people listening, yeah, it's you don't have to take those big risks right away. You're taking small calculated risks with what you know. And then as you get more confident, then you're able to take bigger calculated risks um into what you're doing today. So yeah, talk a little bit about today. You're into you know looking into hotels, doing more with hotels, leveraging all your experience from the short-term rentals. What's that appeal for you, or what what is the the hotel piece going to accomplish now for you as you continue to evolve?
Michael Russell
Yeah, I mean, this is the thing. So being owning short-term rentals in Hawaii, that I I do have this competitive advantage because of all of the reasons why it's obvious people want to come to Hawaii, high, you know, high-ticket item, it costs a lot to come here. But one of the things that I recognized is there's always the potential where regulation could take this opportunity away from me. And if I just stay stagnant and don't do anything, right now I'm living this great life. I've got more than enough. I mean, the the short-term rentals replaced my my ordinary W-2 income and then some. But I'm concerned that regulation may ultimately take that away from me. And so that's why I am now like I'm in this, I'm preemptively looking at finding an opportunity where if those short-term rentals were to have to stop because of regulation, because they said no more short-term renting single-family homes. I don't want to be caught flat-footed. I want to make sure I have the next thing in queue. And so I'm just taking what I've learned from short-term rentals and um I'm I'm transferring that into hotels. And so uh actually, as we speak right now, I'm expecting to get the final uh approved contract for a hotel that I'm purchasing in Idaho. It's a roughly 40-key hotel, you know, uh two and a half hours or so from um McCall, Idaho. And it's like a you know, ski location, it's a summer location. Um, it's got a lot of demand drivers. And we could talk about why I've picked this particular location, but to your point about stacking skills and stacking layers of risk, I started investing in my backyard because I understood it. And now I have enough experience and knowledge that I feel confident that I can expand my investments uh outside of my own backyard. I mean, call it, I don't know, 2,000 miles away. And I don't even necessarily need to be there. Um, I understand enough now about how to operate the business to be able to hire those to do so on my behalf. And this is something that you just you learn over time. And so, yeah, to your point, I think that was a great and excellent um point that you made that it's like start within a level of comfort, become a master at it, and then keep adding. Skills over time so that you can keep scaling up and and and doing bigger things.
Mike Swenson
Yeah. And for people that want to know about hotels or um, you know, maybe even just how to how to find them, um why you've chosen Idaho, kind of is it is it the deal or is it the location, and you happen to find the deal and location, would love to kind of hear as you were starting to look into the hotel class, what were some of those first steps for you, or some of those kind of education boxes you needed to check, or risk boxes you needed to check to decide to move forward with the property.
Michael Russell
Yeah, well, I mean, you know, obviously I I have a whole podcast that is on this. I mean, I've got you know hundreds of hours where I can explain this. Um, the hotel investor playbook is all I talk about, investing in hotels. And so it's tough to really provide a concise, um, clear response to exactly like how to how to do all this.
Mike Swenson
But close your eyes and you just put your finger on a map and that's how you decide it, right? Yeah, throw it in the Cliff Notes version.
Michael Russell
Yeah, no, I I think that again, um, back to this idea of a competitive moat, you got to look for a place where there's high demand and lower supply and some sort of restriction to endless amounts of supply. Like, okay, so I own a couple of hostels, and people all the time tell me, like, you know, you should buy a you should buy a hostel in Miami. Like, there's some awesome ones in Miami. And this is just an example, you know, just arbitrary example. But it's like, you're right, those are really nice hostels that they have, and there's tons of demand in Miami, people, all kinds of international travelers, but there's also hundreds of of other hotels that are competitively priced and dozens of other hostels that there's so much supply. So you just from a from a high level, what's going to check the box? There's a lot of boxes to check, but certainly picking places where you have some sort of barrier to entry. And that's what I've discovered in in Idaho.
Mike Swenson
To your point, I think there's a a little bit of paralysis analysis of you know, the the world is your oyster. There could be opportunities anywhere. There's a reason why we're still investing in Minnesota in apartment buildings because it's what we know, it's what we have experience with. And yeah, that doesn't mean there's not great hot, there's not great apartment buildings in other states, but you've got to find the people to manage them. You've got to build the trust and build the relationships. And so that kind of stuff takes time. And so you don't want to outgrow um your relationships or you know, take an uncalculated risk somewhere where it doesn't make sense. But yeah, I mean, you you certainly could invest in hostels anywhere, but that doesn't mean just because they make hostels in a certain location that it's a great opportunity for you guys and and your group of people.
Michael Russell
Yeah, no, I mean you gotta you gotta know your numbers and you gotta know, and ultimately, this is the thing: there's a lot of shiny balls, right? You can go chasing everything out there, but you really just gotta pick a lane, and whatever that lane is, just become hyper-focused on it. That's what I found for me. It's like just it's not the idea of finding the right deal, is not it's actually not finding the right deal to me, it is eliminating the wrong deals, and the faster and the better you get at eliminating noise and and just being hyper-focused on what you know is gonna fit. Like I look at if you have a checkbox of things that that okay, for this deal to work, as soon as I know, oh well, something doesn't check that box, then it's it's out of my radar, it's done. And like a lot of times people talk about oh, you got to underwrite, you know, 100 deals or 500 deals. Really, that's not true. You just need to underwrite one, you just gotta find the one that works. And the challenge is oftentimes you don't know that that is the one that works until you've looked at enough to know that those don't work. It's knowing what doesn't work is really the most important step. I know that's that's kind of like I don't know, um, kind of like in your head stuff, but but it it really is about eliminating distraction and noise. So whatever lane that you want to pick, just pick that lane. And it could be look, I want to be the best multifamily investor possible. I want to be, I want to invest in short-term rentals, I want to invest in hotels, whatever you choose, just be an expert in that.
Mike Swenson
Yeah, we haven't subscribed to the send out X number of offers a week type thing either, because we're building through relationships and explaining, okay, here's the types of deals we want, and you're finding people that can help find those deals. And yeah, quickly we can determine whether it's a wrong deal. Um, and there's very few that we actually look at closely because we know they're not a good fit for us.
Michael Russell
Yeah, I mean, that makes total sense, right? Like there's there's the obvious ones like you know, price and location and demographics and all this. And if it doesn't fall within that, you're just wasting time looking at it. Just, you know, as soon as you can eliminate it, the the better, the the faster, the better. So I I feel the same way.
Mike Swenson
So talk through the next step for you here on this this deal that you've got coming up. So getting it under contract, what's going to happen for you as you look forward towards uh a closing here. Are you looking to get started or scale in real estate investing, but don't know your next step? Are you overwhelmed thinking about finding deals, analyzing deals, doing due diligence, and managing properties on top of it? Go ahead and push the easy button and invest with us. Real estate investing is what we do full time. We've done dozens of deals with hundreds of doors. We have the knowledge and experience to handpick the best deals that most investors can't find. We've at large off-market deals all the time where you can hopefully find returns and economies of scale that you just can't find on your own. The best thing is it's 100% passive to you for less capital than you put down trying to acquire a property on your own. Don't let this year go by where you don't make the leap, add to your portfolio, or you just sit in analysis by paralysis. To find out more, visit freedom throughrealestate.com and click on invest. You can book a call and learn more there. So get to scaling your portfolio now with us by your side. That's freedomthroughrealestate.com and click on invest.
Michael Russell
You know, obviously due diligence, right? So this thing's gonna go under contract, gotta do the due diligence, gotta run the inspection reports, gotta, you know, validate all of the um usage potential. Um, just you know, make sure that like you don't just take take the seller's word for it. You gotta check the title report, make sure the zoning is correct, all of this. But presuming all the due diligence is good, then it's really about marketing, branding, design, and operations. So, you know, what I talk about on my podcast all the time is there's four pillars of hotel investing. So there's acquisitions, which you know, I'm kind of at that point, there's operations, there's I guess I should do it in order this way acquisitions, financing, marketing, operations. Those are the four pillars. And so uh naturally I'm gonna look for people to fill roles for those four pillars of the acquisition piece kind of being done. I'm gonna work on the due diligence, the financing, I gotta set up, I gotta find the way to you know, find the right bank and the lender and all of that. Um and uh then there's gonna be um you know finding the right way to market this. So partnering with a branding company, like you know, um, I I find that sometimes in the smaller boutique hotels, you find operators that it's a lifestyle and it's a hobby and it's a passion. And so they do everything themselves, but what they don't realize is they are not experts in everything, and so they will save money by doing them themselves, but then be losing opportunity when they're not willing to spend the money when an expert could be bringing in so much more revenue in other areas, and that's what I found with this particular one. I can't go into too much details, but it's a property located in a great area. Uh, the owner has cared for this meticulously with love and passion. Um, but the marketing and the just general like decor, it just outdated. The website's outdated, the the design of the rooms, the photos, like all the basic stuff that you're like, look, I mean, just kind of improve this thing a little bit with better photos and uh you know, just get professional photos, get new design, get new interior paint, some you know, different linens. I mean, this thing is gonna show really well. So we're gonna have to do um the marketing and the right branding. And then it's a lot of times these days, it's it's quite frankly, it's social media, you know, just getting an awareness out there. So those are the those are the big things. I'm gonna find find the right people to manage the the hotel, you know, hire a management company. That's the beautiful thing about scaling up, is there's enough revenue to be able to pay for people to do the miscellaneous roles or to perform the responsibilities that I, as the owner, don't have to be physically present. I don't have to be working the front desk. I can hire a management company that manages the employees, and I can do this from 2,000 miles away where I live in Hawaii.
Mike Swenson
Yeah, that's awesome. And obviously, I know uh there's a lot more you can go into for details. And so that's why people need to listen to your podcast. But for you, just to kind of quick touch back, for you, this is about diversification. This is about you had mentioned before regulations coming in on short-term rentals and you know, taking what you've learned and applying it somewhere else. And so now you've got kind of another vertical of real estate rental where if something happens to short-term rentals or something changes, you've got other verticals that now you've got in. But for you, kind of long-term, what plans do you have in terms of either building and scaling in the hotel space or or other assets?
Michael Russell
To kind of go back to the to the beginning of that statement there. It's like anyone that thinks that is thinking about doing short-term rentals, I highly encourage it. It's where it's been amazing for me. And it's I call it the gateway drug because I can't find any other investment class that earns the same type of cash flow to help pay for my general lifestyle. Like I can invest in assets that perform really well over time with high equity appreciation, multifamily being one of those assets where you can kill it over a number of years, you can really make like build wealth, but it typically involves lower operating cash flows. And for me, that was an important component where I wanted to get out of my W-2. And so, you know, again, back to short-term rentals. Like, if I could scale short-term rentals, I absolutely would. And for anyone else that's thinking, it's it's a great business. I'm just terrified of regulation. I'm terrified that I'm gonna lose this opportunity and I don't want to be caught flat footed. So that is why I'm taking what I've learned from short-term rentals and I'm applying it to commercial real estate, where buying hotels is in many ways the same product of a short-term rental aspect, especially with boutique hotels. We're talking about 20 keys to maybe 50 keys, kind of in that range, maybe 40 keys is kind of a boutique hotel. Um and so what I found is that if if I continue to buy short-term rentals, I'm I'm subject to that potential risk of regulation. But if I go and buy assets like um hotels, not only do I get the benefit of like having something commercially zoned, but then I get to take advantage of the forced appreciation component that other commercial real estate assets provide, which I'm sure you've shared a hundred times on this podcast, which is forced appreciation, the value of if you increase net operating income, then you can control the value of the property as opposed to short-term rentals, which are valued from a sales comparison perspective based on the neighborhood and not on the income or revenue potential or actuals of the asset. So it's like this really sweet spot of being able to have the opportunity to gain wealth over time through appreciation of the asset, but in the interim, generate significant financial cash flow to help bridge the gap between now and several years down the line. So that's why I'm bullish on hotels. I love it.
Mike Swenson
I remember that uh, you know, back when I would work with clients, investor clients who were interested in short-term rentals for single family properties, ones that were already operating, they were trying to market it as well, here's the revenue that comes in. And it's like, I get it, and yet that doesn't necessarily mean that that's the value of the property because that's how single family homes are valued. It's based on comparable sales, where that's the beauty of commercial real estate is if you want the property to be worth more, find a way to increase income and reduce expenses, and your property is going to be worth more. Thinking of it as a business versus you know, just real estate acquisitions.
Michael Russell
So and there's this huge opportunity right now because you got so many of these folks where um you know baby boomers, they're they're transitioning. A lot of these boutique hotels have been operated by mom and pops, by families, the family-run businesses, the the owner operators they're they're getting tired, they want to retire, and maybe the kids don't want to operate it, they didn't grow up in the business, who knows? But there's this this huge opportunity right now where there's this transition occurring. And so there's plenty of opportunity to find boutique hotels to be able to just run more efficiently, better marketing, uh, better operations. Um, just to take someone that's been doing something for 20, 25 years and they've gotten comfortable in their ways, and you're like, whoa, this is there's a lot more opportunity and ways in which you can generate more revenue. Same thing with any kind of asset, multifamily included, but but I'm particularly buzzed or jazzed on on the idea of doing so with hotels because it just seems like there's not as much competition, surprisingly. There's not as many people like out there trying to find these opportunities. So sellers are really like open. I found that the last three acquisitions that we've made, it's like they've they've been really open to just working with us directly. So I I'm I think it's a really good asset to be investing into. It's not without risks, don't get me wrong. Like there's always a catch, if you will. And so, you know, hospitality investing does have its risks.
Mike Swenson
I will say that was a welcome surprise for me in the commercial space as well, is because it's a larger asset, it's not necessarily going to get you know put put on the MLS. Sometimes it might be, but it's a little less competitive in those ways. Like, yeah, the sellers are willing to work with you. Can you close something? And they're a little bit more flexible versus, yeah, for people that are investors buying single family homes, let's say it's a home on the MLS, you might be competing with dozens of other people for that property in commercial real estate. It's a little less competitive. And yeah, they're they're looking more for the right fit or the ability to close versus you know, highest price or different things like that.
Michael Russell
Barry to entry, right? There's a buried entry right there. Um, do you have the experience to be able to purchase a hotel? And if you don't, then you're probably like, well, I'm just gonna go buy single family homes and do short-term rentals. But so is everybody else. So if you look at it from a different perspective, say, well, what if I put in the time, the energy, the effort to really learn this craft? And maybe I go and I partner with other people that are doing it right now so that I don't have to learn everything myself. And again, I'll go back to the idea of that property manager example where unlike investing in a short-term rental where you're managing it yourself with hotels, there's typically enough revenue to justify hiring a third-party management company to take that burden off so that you can focus on going and buying more hotels or just enjoying the benefits of the cash flow as a business owner, not just always an operator. Oftentimes, short-term rentals, I won't say it's impossible. You can certainly um hire a uh third-party manager to manage your short-term rentals, but they charge, I mean, they charge like I don't know, in Hawaii, they charge 25% of revenue. That's a huge cut. Now, granted, these guys work their butts off and they they they deserve it, but with the hotel model, you know, property management fees are like three to five percent of revenue, not 25% of revenue. Big difference.
Mike Swenson
Well, I know there's certainly a lot more that we can touch on, and that's why people need to listen to your podcast. But for people that want to reach out to you, learn more about what you're doing, how can they do so?
Michael Russell
Yeah, I'm on all the uh the socials. I'm gonna be way more active this year. So LinkedIn or Instagram, you can find me. It's uh Reach Michael.
Mike Swenson
Well, thank you so much for coming on, sharing your experience with us. And yeah, for people that want to check out Hotel Investor Playbook Podcast, check you out on social media. But thanks so much, Michael, for coming on and sharing, and best of luck as you guys continue to grow.
