Acquisitions Anonymous - #1 for business buying, selling and operating - Retention rates that withstand hurricanes! 2 vacation property management deals with Mike Harrington - Acquisitions Anonymous Episode 91

Episode Date: May 3, 2022

Michael Girdley (@Girdley), and Mills Snell (@thegeneralmills) are joined by Mike Harrington (@MHarringtonNC) to talk about vacation rental management businesses, the industry, 2 Deals, the best criteria to choose a market, operation specifics, and more.-----Thanks to our sponsor!Fleetio's suite of cloud-and mobile-based fleet management solutions enables fleets of all sizes to automate fleet operations and manage asset lifecycles. Users can instantly access and update data regarding planned and unplanned maintenance, fuel, inspections, parts, and much more. It also improves communication and streamlines issue resolution with its mobile app, email notifications, and reminders. Fleetio integrates with telematics solutions for automated odometer updates and DTC handling, and pairs with fuel cards to automatically log transaction data. Fully optimize your fleet by giving fleet managers, drivers, technicians, and other personnel access to the tools and information they need anytime, anywhere.Questions? Call us at 1-800-975-5304 or email [e-mail]-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.* Great Lakes Region VR Company* Colorado Ski-Market VR Company -----Show Notes:(00:00) - Intro(00:37) - Fleetio(01:55) - Mike’s background, business & vacation rental management(06:59) - Deal 1: 14 y/o Colorado Ski-country vacation rental management (11:17) - Does the reported revenue makes sense? They report 49 employees: what can you tell us about employees in the VR industry? Labor availability, regulations, geographic limitations(17:21) - What’s the correlation between business size and participative ownership?(19:41) - What’s been your experience when acquiring a new business and transitioning from the previous owner in the industry?(21:35) - What’s the implication of short-term rentals on revenue?(25:02) - Do you place your company listings on booking platforms?(28:08) - Deal 2: VR Management Firm(36:18) - Could you add a complementary business?(38:35) - What are the threats that you evaluate in this business?(41:20) - Why are fees in vacation rental companies higherSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, Michael here. Welcome to another episode of Acquisitions Anonymous. Me and Mills had a great time with Mike Harrington, who is our new buddy, who is in the vacation rental management business in North Carolina. His company is Carolina Retreats, and we talked about two really interesting vacation rental management companies that are for sale. One is in the Great Lakes region, and I managed to make it the whole time without insulting the Great Lakes region, and the other is in the Colorado ski country.

So dug into these, found it fascinating. Hopefully you'll like it as well. But first, a quick word from our sponsors and then on to the episode. Big shout out today and thank you to our sponsor, Fleeteo. Fleetio Suite of Cloud and Mobile Base Fleet Management Solutions. They enable fleets of all sizes to automate fleet operations and manage asset life cycles. Users can instantly access and update data regarding plan and unplanned maintenance, fuel, inspections, parts, and much more. It also improves communication and streamlines issue resolution with its mobile app, email notifications, and reminders.

Fletio integrates with telematics solutions for automated odometer updates and D2C handling and pairs with fuel cards to automatically log transaction data. Fully optimize your fleet by giving fleet managers, drivers, technicians, and other personnel access to the tools and information they need anytime and anywhere. I personally am a user of Fletio. Aquacil, my business runs FLEDO. and we get a lot of use out of it, both from a maintenance and tracking standpoint, tracking cost. But then also we've started using it for weekly truck inspections for our fleet of 50 pickup trucks. And it's totally transformed our process.

It's way less stressful. There's no shouting, yelling, fights, breaking out about truck inspections. So it's been really worthwhile. Give Fleetio a look if you have a fleet that you're working on managing. Thanks so much. Welcome to Acquisitions Anonymous. Mike Harrington, thanks so much for being here. We're excited to have you on the show.

Yeah, thank you, guys. Really appreciate it. Super cool. Well, I mean, I loved in the pre-show. You and Mills totally nerded out about being from the Carolinas, and I heard both of your Carolina accents like accentuating, so I know there was some bonding that's going to show up really well in the episode today. Before we get started, Mike, I'd love for you to start with.

Just give us a minute of your background, how you got in the vacation rental space, and then what you do today and, of course, your business. Yes, so I've been doing this for about 17 years. Started on the Outer Banks, North Carolina, actually Hatteras Island. My first opportunity was a company called Hatteras Realty. So really just fell into it. So I got out of graduate school, had no idea what I wanted to do. I liked the surf and I liked the beach.

And I said, that sounds like a great idea. I had no idea when I was walking into when I got a, assistant manager job for $14 an hour at one of these vacation rental shops. But I was really blown away with the scale. And from there, I, yeah, we've kind of dug in and had some opportunities with some mentors. Took another position at another firm. And then in 2015, I was able to acquire my own firm to launch Carolina Retreats, which is my company now.

And here we go today. So it's been a fun ride. So what do you guys, like what is the core process of your business, right? So vacation owners have homes, right? And what is that kind of, that's your core customer. And then there's the other side of the customer, which is the people that come to stay in those homes. So you kind of do a matchmaking and management service. Right. So our client is the homeowner, right? And our customer would be the guest. You know, in North Carolina, we're regulating by the North Carolina Real estate Commission. So this is a real estate firm, first and foremost, and we provide management services.

So our primary customer is second homeowners, not necessarily the investment-minded, you know, STR investor looking to gobble up a bunch of properties, right? So we manage second homes at the beach, you know, families a lot of times that own these properties. And, you know, they're like, hey, we want to own a beach house. We'd like to rent it to either offset our calls or make a little money if we can. and we're return keys. So you come to us, provide marketing, accounting services, tax compliance, hospitality services with the guests, maintenance, housekeeping, sort of everything.

So, you know, in a perfect world, it's more of a kind of set it and forget kind of service. But, of course, you know, that's not always the case. But, you know, we have boots on the ground. We have all this locations in all of our markets and managers there. So we're kind of that traditional firm that's, you know, hold your hand, everything you need with your house, kind of deal. Yeah, I love it. So if I'm, you know, let's say if my place rents for $300 a night, you know, I have a beach house in Cape Hatteras. Is that in North Carolina?

Okay. Yes, geography test passed. Let's say that rents for $300 a night. So my, you know, option number one is to go down the path of basically like self-managing it and all the household associated with that. Then, like, let's say that I could get 100% of that revenue. Let's say I go to somebody like you. You know, I'm going to assume you're going to take a cut of that. And then probably also part of your pitch to me is I'm going to get you more revenue because I'm a professional than if you did it yourself.

Is that kind of the way I would think about it as a homeowner? Yeah, I mean, you know, I don't want the Twitter mob coming after me here. But, I mean, of course, I'm biased with a management firm. Of course, there's a ton of people that own these homes. and manage themselves to do a great job, completely understand that. But, you know, really in the grand scheme of things, that's the, that's not really the rule. That's more of the exception. So, you know, we have, when you think about it from any professional organization, right, I have access to tons of data.

We have access to, you know, systems otherwise, an individual homeowner couldn't access. You know, in our pitch, yeah, I mean, we have the eyeballs, we have a historical database. we have people that are coming to us, you know, without having to use platforms. And, you know, we're going to rent that home. And if you look at a management fee, and I've tried to argue this on Twitter a couple of times with moderate success. But, you know, you can't really look at a management fee as a pure cost center because there's value add there, right?

I mean, okay, yes. Will you, will you systematically make more money if you didn't spend a dime on management services? Sure. But, you know, how much does your time take doing that? you know, a lot of people who own these homes have other jobs. I mean, for the most part. So, you know, that's that value they pay me.

They're going to make that back not having to deal with it in their professional career. So, you know, a lot of folks out there. You know, there's different strokes for different folks. Yeah, totally dig it. Well, cool. Well, I'm excited to dig in. You get guests to the week, by the way, for bringing us two deals that you found on your own in the vacation rental space.

So Mills has our first one, which is near and dear to my heart because it's in the ski area. And for those that you know, I am addicted to skiing. So Mills, Mills, you have a first deal. I'll pull it up here for those of you that are on video as well. Yep, yeah, good. Mike, really excited to chat about these with you. So this one's listed on Raincatcher. They don't list an asking price.

It just says open bid, but the revenue is a little over $13 million. And it says the net income is around $1 million. $350,000. And it seems like it's kind of a one-click, like, you know, you can register and get confidential information, you know, on this, which we aren't doing. We're just, we're just pulling up the public listing. But it's a 14-year-old renowned Colorado ski country vacation rental management firm with properties in multiple markets. They say it's rapidly growing. They have a dominant presence in the high-end rental market, and they have a well-established management team. The company was established in 2007, high-end regional vacation rental leader managing high-end rentals in multiple Colorado destination markets.

They have a high service model and demonstrated revenue generation that's key to acquiring and retaining their clients, which like you're saying, Mike, is the actual property owners. And then they have affluent owners of seven-figure second homes, so consistent with what you said. and they have, you know, discipline focus on this niche, which helps them drive above market commission rates, greater than average length of stay, and high fixed cost efficiency as a result of above average cost of stay per property, which we can delve into what some of the different levers and components of these businesses are. But I would think managing those costs, maybe keeping cleaning down and whatever, whatever kind of variable and fixed costs are associated with owning and managing these properties. They're saying they do those things really well. So we'll have to talk about those.

They also, it looks like they sustain their growth through discipline acquisition of high-end properties and relentless focus on service and customer experience. They focus on, let's see, quality of property as opposed to volume. And they say that creates a hedge against some other multi-state competitors. They, let's see, drive maximum revenue per property and provide a clear niche target for marketing to homeowners and guests. They say that over the last two seasons, their ADR, what is that in this industry? What's that acronym? So average daily rate.

Average daily rate. It grew 13.7% from $459 to $522. And the average reservation grew 32% year over year from, from $1,940 to $2,560. They say that they're poised for continued growth with industry reports suggesting pent-up demand is going to lead to strong years to come in the vacation rental industry. Their current markets are growing faster than industry average, and they expect that to continue, of course.

They're projecting conservatively that revenue for 2021 will hit $14 million with EBITDAF, $2 million, average revenue per property ranges from $60,000 to $80,000. We don't see this a lot of times, but they're asking for indications of interest. This was a little bit dated, but in November of 2021, that's more common upmarket in kind of lower middle market deals. But a lot of times brokers won't do this because there's not a ton of demand, right? Sometimes these listings have to sit out there for a long time. So if you call this broker or you get information on this and it's still for sale, it tells you that their process probably didn't go well, which is why a lot of times brokers or advisors won't do this.

Any other details that jump out at you guys on this one that we need to hit on before we turn it over to Mike? So I do have a question, or a couple questions. So Mike, they say they have 14 million in projected revenue for 2021. So this is a little dated of a listing. So $14 million and they did EBIDA, so profits of about $2 million, or fake profits, if you asked Charlie Munger. So $14 million in revenue, $2 million in profits. So the $14 million, they are booking all of the rental revenue as their revenue, and then they're paying on their treating as an expense, the money that they're turning around

and paying the property owners. Is that why this revenue number is so high? So I don't, in this particular case, I don't think. So some people do that. Like if you go to Florida, they're going to book that gross, gross amount is revenue and then it kind of trickles, trickles down. But if you take that $14 million, let's divide it by they have an average revenue per property of $60,000 to $80,000. Let's just take the lower, right? 60. So that shows about 230, 235 properties under management, which is about right. So that, you know, if they took that $14 million, And I think, I really think it's a little bit more than that. But 2 million in EBIT up on, if it's 14 million on the gross, it's substantially high. 14 million on their net on their on their income, the company's income, 2 million EBIT would make more sense. So it's not abundantly clear what that is, but a little bit of digging, it wouldn't take too long because if they have a number of properties under management around that range, then that would tell us all we need to know.

So. Perfect. And Mills, I just scroll down here. There's two more points that are interesting. 49 employees. So I assume, Mike, one of the options when you build a business like this is you either go full like W2 employees on your staff and you're responsible for them or there's like the independent contractor 1099 route where you have a bunch of freelancers working for you. It looks like these guys have gone based on that number fully kind of the W2 staff professionalized type. thing. So is that, is that kind of your read of this as well?

Yeah, probably includes some housekeepers, probably includes some maintenance people, things like nature. I know, you know, Colorado, that area, you know, especially in these ski towns, you know, you really have to be self-sustainable up there. I mean, there's just not a lot of, I mean, really, really labor is an issue, right? So, I mean, I know folks that keep housekeepers on year round and they'll just have them, you know, do things at the house in the all season, take care of the yard, clean the hot tubs, whatever it is, just to kind of keep people on. So that's probably about right. And then the second thing here, Mills, is there's two owners that each own 50%.

So you're dealing with kind of two sellers that are half and half partners. Yeah, this is, so I found this is really rare. It's rare to find this much information kind of listed publicly for these vacation rental companies. And just to kind of set a little bit of precedent. I mean, I've acquired five of these companies over the past, you know, seven plus years. So, and they're all a little bit different, especially in different markets. Colorado is, while, you know, a pretty sexy market, right? And you Colorado scaring, you got all these resorts out there.

But it's also, it's also tough with regulation now. there's a lot of things going on in Colorado that could be a little bit scary as you kind of dig into this. Now, if you're in the resort areas, that's one thing, which you start kind of getting outside of the resort areas a little bit. That's where regulation can kind of start creeping in and you might have a little bit of a liability. But, you know, making about $1.3 or $2 million in EBITA, there's not a ton of those size businesses around, especially for sale. And I'm a little surprised why they went the rain tenter route as opposed to, you know, if you're in our industry, there's a pretty, pretty well put together channel for buying and selling. And I'm surprised they didn't go that route as opposed to going publicly. So that's just one thing that jumps out.

What is that? What is that route? So there's, you know, that we have a broker network in our industry. you know, if you're kind of kind of in the middle of all that. And, you know, we, you know, companies of this size, especially are going to use that broker network. Because it's going to put you in touch in front of the buyers and actually have the capital to pull something like this off. I mean, if I was looking at this company, right, as a buyer, let's just say an individual buyer first and then we'll say a aggregator second. But an individual buyer, you know, I'm going to look at this and say, okay, I'm making $2 million.

in cash flow roughly, you know, your Colorado, you're a fantastic area. You know, can I grow this thing from, let's say it's 200 properties, 250 properties. Can I grow it to 500 properties, right? That's exactly what I'm going to be thinking. And do I have to do that by jumping to a new market? Can I do that by adding some fuel to the fire marketing within my existing markets? Because, you know, you're going to buy something like that. and you're going to probably pay a premium today.

I mean, these things are trading. They're probably, you know, four to six times. And that's a lot of money. And then you have to go in there and then try to find out, do you or can you actually grow this thing, you know, to make it worthwhile. So there's a lot of variables, you know, from an individual buyer perspective. And, you know, I certainly wouldn't dive into it if you've never done this before. I wouldn't jump right to this.

I'll probably backtrack, finds it a little smaller. Hey, Mike, a question for you on this. What's the role of owners typically in this size business? I mean, 49 employees seems like a lot, but like you said, you may have to just have those folks captive year-round because of how seasonal this market is.

But is this, I'm thinking on the spectrum of, you know, on one end of the spectrum, it's an owner who his name, his likeness is the brand, right? And people hire him because he's got his name and face plastered on billboards or on all the local magazines and papers and all those kind of things in that market. And on the other end of the spectrum, he's just a guy who likes to live at the beach and he's got a team who kind of runs it for him. What's typical? To me, these types of businesses are typically a little bit more, you know, owner-centric or at least their name, right, is synonymous with the brand.

Yeah, I mean, you're right. I think the smaller you are, that is absolutely the case. I think as you do get a little bit of size, you know, producing some numbers like this, there's a little bit more separation between, you know, you, the owner and the actual structure of the business. But, you know, a lot of times the successful people that I know in this industry, I mean, they started out, you know, they were selling property or they were, you know, they were doing something like that and all of a sudden stumbled in this niche and then slowly built it over time.

So yeah, I mean, they're very synonymous with the business. I think the key is if you're going to trade the business, you know, is sort of having that buyer that that owner can then sell to those homeowners. So what are you buying in this industry? You're buying one year contracts, right? I mean, that's it. And those contracts can cancel in 30 days if they want to. I mean, it's, you know, it's, it's, it's, it's counterintuitive a little bit because that sounds like a very precarious business. But, you know, they are, they are sticky because I don't know how many people, uh, or that you know, own vacation homes and haven't managed, but it's a pain in the ass to change management companies, you know.

Yeah. And as long as you trust, you know, your, your manager, you trust that company and they're performing, you know, they're just going to like, all right, we'll just see how it goes. And then we'll go from there. So, that's been my experience anyway that, you know, retention. generally pretty high. Mike, you said you've done five of these deals in the last seven years. What's been your experience with transitioning away from the older kind of previous owner, the seller?

Is everybody on a different software and CRM platform and you kind of migrate them to one that works and you have a playbook that works? Like what's the transition? Because to me, I look at this and if I'm not living in this market in Colorado, if I'm not living in like Holden Beach or the outer banks or wherever, right, the markets that you serve, it seems like it would be impossible to run one of these absentee or remote. It's not impossible depending upon, you know,

what kind of team you have in place. But, yeah, I mean, so my deals, you know, have ranged anywhere from 150, 60 properties down to 30 properties, right? So the smaller the company, the harder the deal is, really. A lot more handholding, a lot more, you know, kissing babies and, you know, doing all that sort of stuff with the homeowners. But, I mean, you know, generally speaking, you know, like our model, for instance, we're kind of hub and spoke model. So we have sort of our core platform that we use and then we acquire these businesses and then onboard them on to ours. You know, if you're just buying this as a one-off, right?

If you're buying this to get into the vacation rental business, you know, you just got to see what kind of platform we're on. I mean, and if you're going to, even if you are remote, there's a lot of communication. Because think about it, every one of those owners are remote as well. I mean, they're not living there. So, I mean, they're not going to be popping in the office every day asking to, you know, have coffee. I mean, you just have to put a really good management structure in place. GMs are worth their weight and gold, you know, good GMs in our industry. And there's a lot of them out there.

And, you know, it can be done for sure. Interesting. On the, we may get into it more with. the other deal we're looking at, but I got to think there's a massive impact and implication for you guys with short-term rentals and, you know, people wanting, right, maybe some of that exposure through VRBO or Airbnb, how do you think about, there's probably an hour-long conversation about the prevalence of that in vacation rentals, but I'm wondering about the quality of revenue for you guys on, you know, if you just had a, if you were looking at a book of

business like this and they have 100% kind of traditional weekly rentals, right, in a, in a vacation destination, is that revenue better or worse than somebody who has 100% Airbnb, kind of more short-term rental? And it's beholden to one of those platforms like an Airbnb or VRBO. You know, some people will argue this. point with me, but I mean, there's nothing better than a direct booking that you can control, right? I mean, so, you know, Airbnb got to where they are, even VRBO for that matter, got to where they are about saying they're platforms, right? Hey, we're platforms. We just connect, we connect buyers and sellers. That's what we do. Well, you know, along the lawns,

they started getting a little bit more, well, you know, if there's an issue, we think we should be able to refund or this or that. And it's getting really hairy now. Airbnb just came out with a new policy for guests with refunds and, you know, and they're pretty heavy-handed. I mean, you know, that's not to say us as a management company, we're just going to side with the owner every single time, right? If an owner, if the air conditioner goes out in the middle of summer, well, guess what? That guest deserves, they deserve compensation for that. And, you know, we work with our client, the owner, and we tell them, say, look, this is,

this is generally how it works, you know, the contract spells out. You know, this stuff should, you know, these kind of mechanical systems need to be working during the stay. and that's it. But I would be very, very worried if I was looking at this company. And I can probably tell you this Colorado company in that market, their bookings are very heavily weighted towards the OTAs or online travel agents, Airbnb, BRBO, right?

They're probably to the tune of 70% OTAs, 30% direct. And that would be good if they had that. You know, it just puts a little bit extra layer of liability on those in mind. when you're so heavily weighted. Because if Airbnb decides to say, you know, we feel like we should raise the host fee from 3% to 12%, right? Which they've effectively done for software integrated partners. So now, you know, the host pays 3% the individual host.

Well, me as an integrated partner, I pay, in fact, I pay 15%, but the guest doesn't get charged a service fee. So, you know, I'm like, okay, that's great. But, you know, for me, I got to figure out how to make that, make that up somewhere. You know, and those kind of things change all the time. So, you know, as a direct, like for our company, we're about 85% direct, 15% OTA book. So we have a tremendous amount of control. You know, that's a sales feature for us as a traditional management firm, too.

You know, we tell the owners that, you know, we can control it. You know, if there's an issue, we're the intermediary, not some people in Silicon Valley. So, you know, that can go a long way. That's interesting. That's really interesting. So what I'm hearing you say is you have to, in essence, have a, in some markets, maybe more so than others, you have to have a presence there. But to the extent that you can drive direct, then you control more of your destiny and probably some, you know, cost savings and efficiency for the client, the property owner. Yeah, absolutely.

I mean, you have to kind of play the game. I mean, we throttle out inventory on the platforms, you know, and sometimes it's looked at what they call it a billboard effect, right? So they see properties they like. They do a little bit of digging. They find you direct. You know, it's a better overall deal for them. They avoid some fees. So, you know, you have to be on there.

I just, you know, if you're not spending any time trying to increase your direct bookings, you know, you're really doing yourself a disservice long term. And we've seen that play out over the past. I mean, I've seen it play out for the past 10 plus years. I mean, it's just progressively gotten more and more and more. And, you know, they're a business, right? VRBO and Airbnb are a business. Their job is to make money. So as much as they tell you, how much they love you and buy me swag at events, you know, they're looking to try to get that guess before I can get them. So it's just a little bit of a race there. So in terms of this particular deal, Mike, you know, it sounds like you think this is not one for a novice buyer to go into, even though the size is pretty good. It's kind of at that SBA level where I think this is SBA loan capable, right? Like given that, it sounds like this isn't one you would recommend for kind of a novice or inexperienced buyer to go after. There's some headwinds in the Colorado market. And this is also kind of the red flag here a bit that there's a

way that these businesses tend to transact, but this one's listed in a way that is atypical there, almost like they're looking for a buyer that's a sucker. So anyway, tell us how you think about this and how should a listener say the podcast think, well, is this one I should dig into or not? Yeah, I would, don't want to call them a sucker, but, you know, I would, I would certainly be, so going into this, I would certainly do a lot of digging, right? I mean, I think this is where some conversations with the, with the sellers goes into play, with looking at the, the market said they're actually in. It's not that hard to kind of just Google and figure out the regulatory issues in those

markets. And then, you know, what other competitors are in those markets? I mean, that's a big, that's a big thing too. So, you know, if you don't have any, if you step into this business and don't really have, you know, something to offer that's different or something to offer that, you know, you can see this blatantly missing to increase it, you're just buying this business and hoping it stays the same for the next five. years. And that's, yeah, that's not what I want to do. Um, you know, so I would just, I would just be

careful, you know, going into that kind of hot, sexy market just to get that name on your, your placard there. Yeah, totally dig it. Okay. Well, cool. So I think we have another deal that if ski, ski area is super sexy, we have the opposite of sexy. Is that right? Or, I'm about to lose, you know, I've lost all of our Corpus Christi listeners multiple times, uh, but now is a chance for me to piss off the entire Midwest. Mills, you want to read this one as well? Yep. Yeah, so this is successful vacation rental. Michael's got to pull it up for those on YouTube. Successful vacation rental management firm with opportunities for Midwest expansion. They have a really, this is like the money shot in terms of this interior aesthetic. Like I want to stay here. I'm going to figure out

where this is and go check it out. Gross revenues are $2 million, $2,33,000. So a totally different place on the, on the, kind of in the, in the pecking order of size of these transactions. EBIDDA is 368,000. They have no FF&E. They do list $117,000 worth of inventory,

not really exactly sure what that would be in this industry. But it says that, the business has strong revenues, solid and scalable systems, position firm for dynamic growth. The company established in, 2014 is a boutique premier short-term rental leader in the Great Lakes region. The founder set out to create a lien and bootstrap property management firm that would grow in a

sustainable fashion with no outside or investor opinions funding its own growth. Because the company has been managed responsibly and conservatively, revenue for the company rebounded to more than, that sounds like a bad thing, but rebounded to more than $2 million in 2021, a 74% increase over COVID. COVID impacted 2020 levels and just short of the 2019 figures. So they're saying, hey, look, COVID impacted us, but we fell to a fourth of our size, but then we bounced right back. Net income increased by 77% to 175,000 when compared to, I think they're saying,

negative $226,000 in net income in 2020. Many marketing opportunities exist, but the firm has chosen to scale responsibly by limiting their growth to high quality clients and properties with a, quote, focus on those who are within their networks, end quote. The company utilizes best in class technology partners and tools to scale operations and deliver high quality and high touch service. They're able to do this while maintaining a lean headcount and delivering unparallel property revenues with high consistency and low cost. Let's see. Compound annual growth rate. Oh, sorry, the market is expected to expand at 3.4% through 2027. Some purchase considerations here. Two million in 2021 revenue. Headquartered in the Great Lakes region. Company is the area's only professional and reliable vacation rental property management company. That seems the area has got to be very small if they're the only one there. The firm is process oriented. They followed defined operating procedures, flows, and timings. Let's see.

Company operates like a much larger organization rather than someone's side hustle, which I think is an acknowledgement that this is somebody's side hustle. Been around since 2014. They have two leased physical locations, operations plus offices and storage. It's about 4,000 square feet.

Let's see. So the seasonality, They're busiest from May through October. They're lower in November, December, and April, and very slow in Q1. Companies for sale with an open bid, yeah, they don't have an asking price on this either, just like our first one. And I think that's most of the details. They have 15 employees. It says down here at the bottom.

So there is some, you know, at least some W-2 employees, or I'm assuming W-2. So I like this one. I think it's really interesting. I think the one thing you pointed it out, kind of going through the bullet list there, is the company is the only management firm in the area. So, yeah, either A, the area is really, really small, or B, it's not necessarily a destination area. However, that's not necessarily a bad thing sometimes. I mean, if you're kind of first mover and you start seeing something, you're actually,

I mean, they're producing revenue, they're producing profit. So there's something there. And I'll be honest with you, I'm a southern boy. I have zero idea about Great Lakes and all that area. I mean, so if someone could enlighten me on that a little bit, but is there, you know, how much room is there to grow using a brand, like in that entire region, I think would be something I'd be very interested in learning and seeing if you could kind of really niche down and dominate that market out there.

I'm just thinking about the different regional aspects. I mean, Great Lakes is totally different than Colorado, which is totally different than the Carolinas, which can be very different. Like, you could have, you know, you could have mountain rentals in the Carolinas versus, you know, beach rentals in the Carolinas. And those two things function almost completely opposite, right? Fall versus summer. What, I mean, what is the, this is going to sound so biased, but why do people want to go to the Great Lakes? No, but like, what's the appeal, right? Is this picture, do you think this is, is this like, where are we talking about here?

And the picture is misleading, right? It's not like, this isn't like a mountain town. Looks like a basement, right? Yeah, yeah. It looks like some building in Detroit that has been like retrofitted and is this amazing historic rehabilitation project or something. So, yeah, I mean, I'm assuming, you know, I do. have some colleagues for a Lake Michigan area, you know, out there. And it is popular. I mean, I think

you got Chicago, you got, you know, you got, Michigan's baby. You got, you got population centers around there that kind of want to get away and go enjoy that. So I think we, I'm always surprised, and because I'm always in my little neck of the world, but I'm always surprised just how many people there are just in general, right? I mean, if you think, you know, you're looking at our inventory and you're like, yeah, I don't know how many people are one are going to come down to the beach in the summer. Geez, you know, we have 20 open houses. I mean, just like that.

I mean, that's nothing. It gets taken up. So I think there's a lot of people out there. I do, you know, looking at their numbers and they're kind of going through, you know, 2020, you got to kind of throw that out. I mean, everybody had to go through that. I mean, there was, my business was shut down for two and a half, three or three months, you know, right during.

in our heavy booking season in 2020. I mean, it was scary. It was very scary for all of us in our world and vacation rentals and hospitality, you know, everywhere. You know, luckily everything did bounce back. It didn't bounce back here in 2021 like we've seen in other areas. So, you know, the velocity of demand didn't seem to be the same compared to, you know, our areas or the mountains or things like that.

So that's, you know, I have to dig into that a little bit. bit. You know, I'd really be interested to see 2022 numbers, you know, year to date, because that would be very telling, depending on how far out, you know, advance they book. But, you know, generally speaking, I mean, sometimes these areas are just aren't quite as, you know, well-known or sexy, you know, but still have this kind of dedicated base of guests coming can be really, really good businesses, and especially at this size. I think, you know, there looks like there might be some meat on the bone to grow this thing.

One interesting thing here toward at the bottom of the listing and the detail information under competition. It says the following. Competitors have existed at various times in the past, but the company's broad service scope, low management fees, and high reliability, make it the number one vendor of choice in the market. So kind of your idea that you're talking about, Mike, when you buy one of these, your strategy is to try to think about how you're going to grow the top line and therefore the

bottom line. It sounds like these folks may have been underpricing themselves for a long time, especially if they're the only one that's reliable in the market. That's something I love to see in a listing. It's like, oh, you haven't raised prices in five years? Yeah. Okay. Well, I know where we can start. Yeah, could be. Another thing to think about when you're looking at these businesses, like what we look at, is there another business line you can add that's of value add to the owner that you can make money on. So for instance, for us, we came in when we started to get a little bit of size, we said, you know, what if we built our own commercial laundry facility and then we had our own

linen rental service that we offered our owners that we could do in house, right? So business within a business kind of thing. And that sort of stuff, you know, it really, really adds up. And then you can, you don't have to go, you know, so far out there on management. You know, management fees, especially in our market, management fees just kind of keep the lights on, right? Management fees keep the lights on, keeps people employed. You know, these other business lines that we're in really kind of add to the profit. And we tell, we were very upfront with that with our clients.

It was like, look, these are just additional services we either offer the guests or you, Mr. Homeowner. You know, they're optional, you know, and we kind of go from there. But, I mean, over the years, and you kind of learn that trick a little bit, you can see these businesses and go, okay, I bet you we could go up there. I bet you we could build a little larger facility for $250,000. And I bet you we could, you know, add another $70,000 to the bottom line, you know, off of that over the next couple of years. So, you know, those sort of things when you're looking at as a season sort of vacation rental manager or what have you, that stuff really makes a difference in these businesses. long term. What are, you know, what are some of the threats as you think about to, to this,

these businesses in general, right? So you talked about the online travel agencies, Airbnbs and stuff like that, increasing their fees over time. I'm also starting to see folks like Vakasa and folks like that that are venture funded coming in and trying to be, you know, this plus a brokerage, right? Vacation Ritals Plus brokerage. What, what other sort of things are you seeing? Are those even threats that I just kind of talked about?

I mean, I wouldn't necessarily say there are threats. I mean, it's just added competition. I mean, you know, we've seen a lot of threats. I've been in this business since the Great Recession through COVID. I mean, you know, and it's amazing how resilient, you know, the business actually is. Now, markets have a lot to do with that as well, right? So choosing the right market is very important. I mean, you know, I'm also in a hurricane, I'm in hurricane alley.

So I deal with that year in and year out. You know, fires that are out in the mountains. So natural disasters are always there. But, I mean, it's really interesting. The, you know, the Casas of the world and these guys that are coming in, you know, it's added competition. I think if you do a good job local in your market and you communicate with your clients on a routine basis and you're performing, you know, you're doing what you say you're going to do, it's very hard to. you know, disimmigate that client from your management, especially if you're taking care of the home and, you know, and you're a trusted advisor. So, you know, I'm not saying there's not a lot of

long-term threats out there. I think what I would be or what I am the most concerned about is a lot of people that have jumped in the market over the past couple years, they're buying at premiums. They're looking at these 2020, 2020 numbers like their gospel, right? And they're saying, oh, geez, you know, I can, I can quit my job if I get five STRs and get 90% loans on. And I'm just going to be an STR owner. And I'm like, man, you know, I'd be very worried. I'd be very worried if I was in that position. Because, you know, at some point, you know, international travel opens back up, Cruises open back up. I mean, my kids, I'm in baseball, softball, and travel volleyball right now.

I don't have time to do anything, right? I mean, yes, I can work from home, but I can't go anywhere. So I think when life like that really, really starts back, you know, some of these marginal properties and these marginal locations are going to start filling a pinch pretty quickly. Mike, can I ask you a question on fees? I'm thinking about, you know, commercial property management, residential property management, and the fee structures there, my impression has been that vacation rentals are always, you know, substantially higher, right?

Like maybe even double digits compared to a six or eight percent, you know, commercial or residential property management fee. Right. Is what's kind of, I guess, the rationale behind that? Is it that you're providing kind of more services? Is it kind of taking into account the seasonal nature of those rentals? than having to spread more costs over a shorter amount of time. And how do people typically expect fees to be delivered?

Is it just like you said, the property management fee covers the bulk of it and of your overhead and then you have add-on? Can you talk about the nature of those? Yeah, I know. People love to zero in on the vacation short-term rental management fees. But, I mean, you know, it's way more hands-on work. I mean, if you think about it, we are,

we're a mini hotel with rooms in a 30 mile radius or what, what have you. So, you know, we're not only, we're not just collecting money, sending a statement every the month and then get a call every couple months to go, you know, fix a leaky balsing, right? I mean, that's not how we operate. You know, if a AC goes down the week during the guest stay, it's the worst thing this happened to these people in their entire life. So we have to have 24-7, you know, coverage, we have to have vendors on, you know, on the standby. We're doing marketing. We're doing accounting. We're doing tax compliance, which is also kind of a moving target sometimes because these municipalities love to zero in on what they're charging for these taxes for these short-term rentals and change that. You know, we're doing back in, some back-of-house service, right? I have a commercial laundry facility, so we're cleaning, we're turnover all the linens and towels. And that usually happens within like a few hour window, right? I mean, typically like when I go to stay at the beach, the cleaners are leaving.

Right. And they're, you know, they're turning it over within a three to four hour window because it's like Saturday to Saturday rentals. Right. And I'm not saying, you know, look, I didn't create the Saturday to Saturday thing. You know, that's just the way it is in certain markets, you know. But, you know, let's be honest, it sucks for someone like me because, you know, we have six hour window basically to make a house look brand new that someone's just lived in for you.

I have three children. We're in a vacation home, man. We live in that vacation home, right? So we have six hours to turn that thing over. We're doing the linens. We're making the beds. We're inspecting any maintenance issues we have to try to address or at least notate before.

So, you know, there's a lot involved. And again, I think if people look at these fees as strictly a call center, like, well, you know, all you need is a good cleaner in a maintenance person and you're good. I'm like, okay. Try it. Go do it. Good luck. And then and then what if that cleaner gets sick or decides not show up? Then what are you going to do, right? I have built in redundancy, you know, all of those things that sometimes if you're, you know, in my opinion, if you're a business minded person, which we deal with a lot of business minded people, I mean, that stuff matters, right? It matters and you're willing to pay a professional to look after their asset and to make sure it operates correctly.

Mike, maybe you've talked a bit about how some markets are attractive markets to be in and some markets are unattractive to be in. I think we just covered how potentially being in ski country is relatively unattractive compared to being in Rando Great Lakes small town. Yeah. I think to some people that might be counterintuitive, like, because just the demand seems insatiable for, ski resorts, right?

Like, how do you think about, like, the levers or the criteria that make either a good market or a bad market to be in this vacation rental space? Generally speaking, the more, you know, the more marketed a market, that's the right way to say it. But, you know, these sexy ski areas, these really, really popular beach areas, it's also a ton of competition. I mean, and a ton of good competition, not just, you know, people that just decided. to do it. So, you know, if you kind of go down a couple, couple spots and the attract them the scale of a market, like, so a great market, and I don't want to blow them up because I have

some very, very good friends in this market, but, you know, Deep Creek Lake Maryland, right? You guys ever heard of it? No. Sure. So it's, but it is massively popular. And it's a four-season market. It's very close to D.C. right on a lake. They have a ski resort, small ski resort there. It's beautiful. It's beautiful out there. And these guys kill it. And not many people just, you know, if you're kind of outside the periphery of that area, you just don't know about it. So there's a bunch of those places that just do a great job. And, you know, but that's where kind of really digging in and doing your research and kind of being in the know comes into play. It gives someone like you and myself, you know, a competitive advantage over the search funders where people that are just looking at it financially to get into it. it. Yeah, I love it. Cool. So in terms of making this particular deal work, like, how would you or

recommend, let's say, you're a random person off the street, which, by the way, most of our listeners turn out to be very random. That's how it works. Let's say you're a rando off the street and you're looking for an entry into entrepreneurship by buying a business like this. How would you go about evaluating

this one, or would this be one you would just kind of pass by? I would look at it. I mean, I'll certainly look at it. I like the size of it for an entry point. It's not too small where you're just really risk and getting screwed, but it's not too big where you can't get financing and figure that part out. I would look at the area. It's in, number one, is there a growth opportunity again?

Is there more potential inventory out there that you can work with from a client relationship basis? And then, like I said, look at what's not being offered right now. what's not what's missing you know if i always look at it from this standpoint i'm like you know what would my wife say if i went with this company or checking in this house right so when i first side when i first bought my first business on tops of i island north Carolina which is a great great little barrier beach town yeah uh used to have to bring your own sheets and towels to the house right so you'd rent a five bedroom house and they say you got to bring your own Or you can, here's a couple links.

These guys will rent them to you and you pick them up. And I was like, I'd be divorced if that was the case. Like, you know, immediately, right? So stuff like that, just kind of look at what's always been done. And is there a way to kind of mitigate and change that? Because that would be something you could offer immediately that's, I think, value at. Yeah, super cool. All right.

Well, dude, thanks for this. I feel much more educated about this market and is really interesting. Mike, how can our listeners best help you? What sort of things do you have going on? How can they be a service to you? They don't have to. If you'd like to follow along on Twitter, I'm not very good at it, but I love listening to what you guys have to say on there,

but at M. Harrington NC, at M. Harrington NC. You can follow along there. You check us out at Carolina Retreats.com. We've got a lot going on, and I'd love to have you in North Carolina if you ever down this way. you got it all right thanks for doing this very excited about it and look forward to getting it out we'll talk to you guys next week a lot of fun thanks guys