How a $800K Distressed Motel Became a $2.4M Revenue Machine | Michael Russell E87

Speaker A: Welcome to the Lights on podcast featuring

Speaker B: stories behind building and running successful hotel businesses.

Speaker A: Let's get started.

Speaker B: Welcome back to the Lightson podcast. I'm Khin SEO, CEO of Lysan and your host. Today on this podcast, we share stories from across hospitality about building and growing hotel businesses. This episode is sponsored by lightsound. Lightsound helps hotels grow revenue more consistently by managing pricing, distribution and digital, um, marketing. Together, we help hotels identify new revenue opportunities so they don't leave money on the table. We also run the full revenue and marketing operation so the team on the ground can stay focused on the guest experience. If your hotel needs more revenue growth, visit Lysan Co to learn more. Our uh, guest today, Michael Russell, co founder of Hauseit Hostels and Malama Capital, both based in Maui, Hawaii. He acquired a distressed one star motel in Maui during COVID renovated and repositioned it as Hauseit Hostels, and grew annual revenue from roughly half a million to nearly 2 million, earning the property the number one small hostel in North America award from Hostelworld in 2024. He also hosts the Hotel Investor Playbook podcast where he interviews hospitality investors and operators on deal execution, acquisition strategy and portfolio building. Michael, welcome to the show.

Speaker A: Great. Yeah, thanks for, uh, having me. Happy to be here.

Speaker B: Yeah, it's just so great to have somebody already like, being so far, uh, on the podcasting journey. I'm definitely, uh, a loyal listener to your show. So it's just my honor to bring you into our show too, just to talk, uh, about hospitality, hotel investing and all that. So I'm super, super excited today.

Speaker A: Thank you. I appreciate that. Thanks for the long intro.

Speaker B: Yes. Well, Michael, obviously I know a lot, uh, about your background because, uh, I'm a loyal listener to your show. But, uh, for people, uh, audience in this show who don't know about you, um, how did you start your hospitality journey from the W2 world? Getting to short term rental, then, uh, um, buying a Aquila deal and now running the, uh, hostels in Hawaii.

Speaker A: Yeah, you know, it's interesting. It's not always linear, right? Like, you stack these skills and one thing leads to another. But I, I never imagined myself as being a hospitality entrepreneur. Um, I have had a passion for real estate ever since, I don't know, since I started reading books about it, um, back when I was probably, you know, a teenager. Um, and I knew that I had a, I had a calling to be an entrepreneur. I always liked the idea of being able to set my own schedule and I learned about real estate like most Very early on from reading books like, oh, gosh, rich, um, dad, poor dad, you know, just to kind of get me started. Years ago, Gary Keller wrote a book called, um, I think it's called like,

Speaker B: the Millionaire Real Estate Investor.

Speaker A: Yeah. So I had a thirst for knowledge and I gravitated towards real estate. And I always thought at some point that I would start investing in apartment buildings because that's where the most information is available. You know, there's more education on investing in apartment buildings, at least in commercial real estate, than I think any other asset class. And so that's the route that I thought I was going. Um, but things don't always work out like how you predicted. And, um, I had an opportunity to come and live in Hawaii, where a friend of mine had, um, secured a job working for one of the hotels. He offered me a sales position. I thought, I'm not a salesperson. There's no way I could do that. I. But the compensation for the sales position was high enough to attract me to say, you know what? Hawaii doesn't sound so bad. I was living in San Diego, flew out to, uh, Maui. And the reason I say this because that was my first period of sacrifice. And I get it. Moving to Maui, not much of a sacrifice. But wherever you are in this world, if you want to achieve a goal, oftentimes it takes work. And for me, I had a very clear vision that I wanted to buy real estate. But the means to be able to do so require that I have money. And so when given an opportunity to enter the W2 workforce, um, and make a lot of money, I had to balance that with my ideals of my dream of being an entrepreneur and say, you know what? I'm going to sacrifice being an entrepreneur to go put my head down, work my tail off and, and make as much money m as I can, and live a relatively frugal lifestyle. Um, I know sometimes when people make a lot of money in whatever profession, it doesn't have to be sales. You could be an attorney, whatever medical, ah, profession. I'm just picking, um, obvious professions that people associate making a lot of money with and their spending habits go up. And that's fine. Uh, there's nothing wrong with that. But for me, I had a goal that what I wanted to do was build freedom and wealth in my mind was not necessarily more material things. It was time. And so I had a map. Well, what do I need to be able to buy my own time so that I'm not beholden to anyone to where I can do the Things in life that make me most happy, whether it's personal pursuits, whether it's learning, education, traveling, what have you. And so you could pick a lot of ways to do this. I chose real estate and back to the apartments, because there's education on it. I thought, okay, well, if I can start buying homes, single family homes, and then eventually roll those into apartments over a period of 10, 15, 20 years, I had a vision that I was going to build enough passive income to be able to do whatever the heck I wanted. And so the sales opportunity, even though I wasn't a natural salesperson, that was like a shortcut where I had, uh, a very clear vision that I was going to come to Hawaii, work my tail off, make enough money in a W2 and start buying single family homes. And this also coincided with a very good opportunity from a market perspective, because about the time that I was making this life choice, we were coming out of the Great Recession. So, gosh, this was around 2009 that this all occurred. And for those that remember or were around during that time, um, there was economic turmoil, there was blood in the water, right? And when everyone is fearful, that's the time to be greedy. And so that's exactly what I did. I said, how do I get as much real estate as I can? I've got no money working. The W2 job, as much as that did not appeal to me from a long term perspective, it gave me the financial means to start buying single family homes at below construction cost pricing. And I say that because that was just one metric where I knew if I can buy this thing for less than what it costs to build, that is a pretty clear indicator that at some point it's going to be worth a lot more. And I think that this is relevant for anyone, um, because, you know, oftentimes people will follow the masses, right? If everyone is fearful about investing, that's when they pull back. When everyone is investing because it feels like, oh, this is the time to buy. That's when they're overpaying. And so I had a bit of a contrarian perspective. I was willing to take on a bit of risk and move my butt out to Hawaii, work this job, start saving all that I could to buy undervalued residential homes in Southern California, which ultimately appreciated and did so very rapidly from around 2009 to 2012, they basically doubled in value. And that was just like the catapult to my first step to be able to develop enough, like, real capital to start leveraging that and to invest in other Higher value assets, which, you know, I'll pause here, but I'll give you a clue. That was short term rentals and from short term rentals that led into ultimately hospitality and full circle. I'm leaving out some areas of this linear progression here, but that's how I got into ultimately hospitality investing was from single family home investing, short term rentals, and then ultimately commercial real estate hospitality. Yeah, skipped out the apartments.

Speaker B: But, uh, well, I think that's one point, especially since you mentioned the contrarian mindset. I think it'll be an interesting topic here because it's that mindset that helps you got into the really early on wave of short term rental. Because I think that when you guys jumped in in Maui, and I think we can just talk about that story a little bit, it was before everyone else knew it was such a thing. And obviously, uh, years later now everybody jumped onto shot and Randall to a point now it's heavily regulated, uh, in Maui and all that. But when you first jump on it, I remember hearing your episode how shocked after you crunch a number, you just couldn't believe in yourself. Right. And it's so contrarian from the mainstream thinking with all these, ah, long term real estate strategy. You want to just uh, uh, cut up that thought process. How did you get through? Okay, the data is showing me one thing, but it's so anti mainstream. How did you um, believe in yourself and actually try it out that got you into your current path today?

Speaker A: Yeah. Well, I think that what you're referencing to me feels like something, a pattern that I've developed over time, which is find areas where there's less competition in the moment, but then an asymmetric return down the line. And at the time that I started investing in short term rentals, this was back in 2015, and to be specific, I'm talking about short term rental homes. Um, you know, Airbnb was relatively new, right? Like prior to Airbnb, the idea of staying in someone's home was sort of taboo. I mean there were people doing it, but the marketing and the notoriety of it was very, uh, primitive at the time. And so it's not like today where, oh, uh, yeah, of course everyone does it. Um, and so entering that space at that time, that was really like a ramp. That was another catapult, so to speak, that accelerated my, um, investing career because at that point, 2015, not a lot of competition, a lot of opportunity, a lot of upside. Um, and so anytime I transition into another type of investment, I'm looking for that common denominator where can I find value where others are not looking?

Speaker B: Why are you talking about like that into now?

Speaker A: The.

Speaker B: I, uh, feel like another launch pad for uh, investing, uh, career in hospitality. Right. So shop and rental getting to now actually buying a commercial level of a hospitality. Right. Like you bought a one star, um, motel in Maui during a global pandemic. Yeah, I think that itself sounds very contrarian. Right. Walk me through what you saw that make that feel like the right moment again. Another opportunity for you to build that asymmetric return which you realize that return afterwards.

Speaker A: Well, I think so. There's a variety of factors here. Um, but I want to touch upon something that I feel like people out of being polite, they might avoid just asking this directly. So I'm going to come out and say it. What the heck is a hostel? Right? Isn't that like a dingy, like low budget backpacker place that's like loaded with bedbugs and infested and just like filthy? Like, who wants to invest in that, right? When people think of a hotel, they think of the trophy asset. They think of the, the glamorous Instagram reel where people are, you know, showcasing their cold plunge and their sauna and their, you know, balcony, hot tub and, and all the cool things or maybe you know, their unique, A, uh, structure that is, you know, built like uh, as a tree house or something of that. That's all the cool stuff. And that's what everyone wants to do. But a hostel, Hostels are gross. Hostels are dingy. And so I say that because that's exactly the type of investment that if you look at it from a little different perspective, you can recognize there's, there's gold in them hills, there's riches there. Um, what we bought with a one star motel was exactly what I just described. But I didn't just come up with this idea. I'm not an inventor. An entrepreneur and an inventor are very different things. I am a process follower. I looked at in this moment, I said, okay, I'm doing really well with short term rentals, but there's a limit to how much I can scale this for a variety of reasons in Hawaii, most of it due to regulation, some of it due to just the, uh, you know, infrastructure issues. But I wasn't going to go and build a huge portfolio of short term rentals. But I like the hospitality game. And so looking at a hotel to me seemed very attractive. I could take the skills that I've learned from my short term rentals and apply that. Um, but the problem was in Hawaii, I think like the lowest, the lowest value property for sale was like $20 million. And that just wasn't, that wasn't a level that I could enter as just a bootstrap and entrepreneur. Okay. Um, but a one star motel was. And so I looked at the motel and I said, well, what else could be done with this? And so we didn't have AI back then. Good old Google to the rescue. And I found that there were brands in Europe that um, were really more design forward in terms of representing what a hostel could be. Um, there are brands like Generator that had all these cool, um, you know, like just edgy artwork on the walls and had, you know, from a marketing perspective, like their website was really kind of, um, you know, it was edgy. I don't know how to put it other than that, but it was, it was demonstrating that like, there is a different type of hostel that's available. And after, um, kind of entering the idea that this might be feasible, there was a company called Freehand that got purchased for $400 million by generator, one of the European hostels I'm describing here. A company, I'm like, what the heck? How many? They must have like 50 locations or something. I looked it up. They had four. Four locations, $400 million. I was blown away. I still can't believe it. It seems crazy, but for a hostile company. So I did a little searching, um, on Freehand. And it was a US based four location hostel company with locations in la, Miami and New York. And they were similar in that kind of design forward edgy, having really curating experiences where people can come together. And so I know I'm going into a little bit of context here, but this was something that I never associated with a hostel that was. With a little bit of research I go, well, we could probably apply that same mentality to this one star motel that no one wants because it's got the stigma of something that is dingy and not valuable. And so we bought this rundown hostel during COVID at a absolute steal. And the owner had been operating for 25 years. And it's your typical stereotypical story of, I'm tired, I'm burnt out, I want to get off the island, I don't want to do this anymore. Here you can take it for, for next to nothing because it's Covid and the world is ending, we're shut down. And so who in their right mind would want to buy, um, a hostel during COVID when shared accommodation is like the last thing any bank is going to finance. Right. Well, fortunately, the seller who wanted to retire was also interested in, you know, earning some recurring cash flow. So it was a match made in heaven. We wanted the asset, he wanted out, he seller financed. We bought this thing for, I'll just tell you, $800,000, a 20 room motel. And um, three years later, I mean it was pumping out $2.4 million in revenue. So you know, there's a lot to that. But we basically took this rundown motel and we took the principles of these other companies that were oper operating in Europe and the United States, uh, that showed that hey, there's a real promise here, there's an exit, there is a market for potentially for a company to acquire ours down the road. If we can go and take this property that has run down, this isn't going to work everywhere. But it also had the benefit of being located in one of the most popular and most expensive tourism destinations on the planet. And in Maui where airport motels cost $500 a night. We thought, well, there's gotta be upside here eventually. So very similar to the Great recession when there's blood in the water, you know, I had the confidence to say, hey, I feel like I've been here before. We're going to recover, we're going to go spend in 20, 21 is when we ultimately closed. We're going to go put some money into this thing. We're going to put about a year, year and a half into renovating the property and we're going to give this thing some love and restore its beauty and turn it into something that's not just a cheap place to stay, but a place where people want to go and visit to meet others. It was the antidote to a lot of the, uh, symptoms of social media. Now when people are so isolated, they crave connection, but they're so insecure about connecting, they just get on their phones and all they do is stare at their phones. The hostel is a place that we curated design wise so that we force people to really interact with each other. Now if you're a 45 year old man like I am now with a family, I'm not going to stay at a hostel. But my 20 year old self would love to go somewhere like Maui and hang out with other people that are going to want to play beer pong and want to hang on the sofa and do karaoke night and then hop on our, our free shuttle bus where we take them to the beaches and we, we take them to Hana and they go snorkeling and they meet best friends they had never met before or within a span of days. That's what we're curating. We're not selling a room or a bed. We're selling an experience. It's a shared experience. And that's really what drives the value of a hostel. So if you go back to the image of that dingy, dirty, nasty hostel, I'm perfectly fine with that because I'm investing in a niche that has very little competition, relatively speaking, and, and converting it into a cash machine and not just making money, but really like making people's whole lives, like making experiences people otherwise never have.

Speaker B: I mean, that's the core of hospitality, is to delivering that memory and experience. And honestly, that's what got a lot of operators. And you know, the boutique and independent owners in this place, like, you know, they might be thinking about making money, but I think they got to have that heart and passion about providing that experience. Otherwise you might as well go buy apartment buildings where everything's boring, long term stake, everything's stable, right? And, um, aside from that, I think there are just so many golden nuggets from that experience, right? Thinking about investors or just the normal people thinking about buying a hotel, it's like, wait, what? You probably need a lot of capital for it, right? But I think just kind of calling out the fact that, um, the fact that we are in America, I think people just don't understand that, how there's just so many opportunities and ways to help to bootstrap. And I think bootstrap is a really key thing because, you know, this is how you got into, from, uh, you know, working a W2 job into an investor world, learning all the tool, all the toolkit like, that we gotta have, like in this country. It's crazy. It's amazing, right? Um, you know, especially, um, having a hotel asset, which is like an intercession of real estate and business, it gives you a lot more opportunities. You know, when it comes to, you know, you kind of mentioned you, uh, know, seller financings being one thing. And you know, um, I'm not sure, you might have even used, you know, the SBA loan, right? Which is like, honestly probably the most friendly, like, business loan that you could get, like, in the world. Like, these are the things that, you know, people tend not to think about that. Uh, uh, but like, you know, if you want any, anyone want to take action just to embed their life thinking about the time freedom, the financial freedom side of things. They're just so much more people can Use and leverage right now to get to that. There's no excuse for. Why can Michael do that and me still sitting there working a W2 job that I don't like? So I think those, uh, we can spend hours on that. But definitely there's a lot of, um, what, uh, Michael has with his podcast talking about those concepts that people should go and check those out. Um, so thinking about converting a, you know, a one star dingy motel to that experience that people, especially, you know, the young folks in their 20s were crave for. Right. It's quite a big conversion and repositioning of the hotel. Was that one thing like, doing that dramatic change? I was there one thing that you got wrong in the early process that you had to unwind?

Speaker A: Well, I mean, we made so many mistakes. Oh my gosh, uh, budgeting mistakes. That's a huge one. Right? Look, we didn't have any experience. We didn't really. I say this now because, look, we didn't really know what we were doing. Um, we took a bit of a chance. We. But here's the thing. I will say, look, we're smart, we're scrappy, we're outside the box thinkers, and we were not risking other people's money. This is something that I feel like I see a lot that I get nervous about for others. And, you know, when people bring me deals and ask if I'm going to invest in them, I don't want to invest in beginner operators. Right. If, uh, someone's not done a deal before, like, I'm not going to invest. I don't care how good the deal looks on paper, I'm not going to invest in it because I know from my own experience, holy heck, we made a ton of mistakes and they're going to make mistakes and that's okay. But, um, ah, from a financial perspective, if we lost money, it was our money and not investors. And so that's an area where I feel like, yeah, in hindsight, I look back at like, what we originally expected to spend and how much more we spent. We basically spent like, you know, 40%, maybe even 50% over budget. I mean, that would have destroyed our returns if we had investors. So we bootstrapped this. And look, we had a unique situation. I think that, I mean, uh, everything. The universe came together where we bought it for next to nothing. And then shortly after we bought it and made some improvements, the world reopened and we got a massive surge of folks wanting to socialize again and we ran darn near 100% occupancy. For, like, two years. Well, that made us seem like we were just geniuses, but it was a bit of luck. Bit of luck, right. We made some predictions, and we made some gambles. We put our chips on the table, and we got lucky. Um, but if I think about all the countless mistakes, I mean, how much time do you have? It'd be too much. But financially, budgeting was an area where I think that we really had to mature in terms of forecasting. What are, you know, as you're doing renovations, of course, a construction budget, but even, like an operational budget. Really knowing your numbers is so important, and I think that's something that often gets overlooked. Again, back to the glitz and glamour of investing in hotels. A lot of people do, so for the. For the trophy asset. Problem is, the trophy asset doesn't often pay you the bills or doesn't pay for the bills. It just. It's something that people like. They feel good, and they feel pride in owning something really cool. But more often than not, um, they're not making a lot of money in hospitality. And that season, I feel like that's where a lot of us are right now. Right now, in this season of hospitality, Margins are slim. Right. There's been some softening. And so this is really the time where sharpening our financial acumen has become important. Now, fortunately, we don't have investors, but for those folks that had promised returns that were north of, you know, 15, 20%, especially in hospitality, which is risky. I don't know of anyone that's actually doing that right now. And if they are, give me their number, because I want to know what they're doing. Right. But that's. That's the tough part of hospitality. As I painted a picture of how great it is, I also think it's important to really take it all with a grain of salt. That, man, um, it's a volatile business. Yeah. And, you know, you can really get smoked if you don't plan for contingencies. So that area is where we really recognize that was our Achilles heel. That's where we need to really say, okay, um, do we have enough operating cash? And what can we do to refine our budget so that, um, we're able to, uh, predict our annual cash flows so we don't just, like, pay ourselves a bunch of money and then get hit with a surprise month where we have less, uh, demand than ordinary or higher expenses? So that part, I know, it's not exciting. It's not visual. It's not something I can spray all over Instagram. But it's like so critically important to an astute investor is to really know your numbers.

Speaker B: Yeah. Um, and speaking about contingency and I think the situation, because especially you guys are operating in Maui, you know, uh, the universe is not like giving you guys, ah, easy time. Right. Getting to repositioning that, then getting to 2023, the natural disaster in Maui hit as well. And at that point your market effectively shut down overnight. Right. So kind of like from that perspective, um, what was that look like and did you feel you were prepared getting into that natural disaster situation? How did that contingency, how did that preparation, uh, play so you can survive through that Black swan event?

Speaker A: Well, to a degree there's mindset, right? There's, there's what your business is doing and then how you handle that. Um, I always tell my team it's not the problem, it's how you react to the problem. We had Covid a few years prior to the fire and so having gone through Covid, especially as a short term rental operator and watching my income completely dry up, there was still some fear and some pain that I held from that previous episode. But having gotten through that, it also gave me optimism like, okay, this is the worst thing I've ever experienced. The fire and the high net was not just a huge blow to my business, but we lost our home in the fire. So we had to navigate this whole world of chaos between my kids, school, between our home, between our business. It was really tested us the emotional resolve that it took to just compartmentalize what I could control and what I could not. That was probably the most challenging period of my life ever. After the fire, um, and so it was a lot, it was a lot. Fortunately, um, in hindsight, the economic impact was relatively short lived and we had enough cash reserves to get through the interim to where things started to return. Um, in the moment it feels like eternity, but in the grand scheme of things, um, it was a period of time that was difficult, but we persevered. The short term rentals that I operate, those are wiped out because I have them in Lahaina now. Fortunately, those homes did not burn down. Not just our personal home, but, um, the hostel business was a little bit faster to rebound. I think that the folks that were staying at the hostel, especially because it was located on the other side of the island, they're a little more open to coming back. And we tried our best to communicate through our email list like, hey, we really could use the support. So there were things that we implemented like anyone that was going through that period here. But the reality is, yeah, we took a big, big financial haircut. And so what I learned from that, outside of navigating a natural disaster, is you got to hold on to some cash reserves for that Black Swan event. Anything can happen. And so it's really painful sometimes to have a big balance sheet being like, this money is earning me nothing. In fact, it's probably costing me something with inflation just to keep money in the bank for pure security. But that discipline, I think is, um, it's important. And the fire was a valuable lesson as to why.

Speaker B: And, you know, it's not something in common, right. With, um, you know, natural disaster. It's, you know, it's just becoming more prominent. And not just for Hawaii. Right. I think just looking at, across the country and the hurricanes, you know, the windstorm blisters and the upper, you know, what have you. Right? And lots of, um, operators have the properties in these kind of destinations that are very prone to natural disasters. Right. So if another operator called you the week after a disaster hit their market, what's the first thing you would tell them to do? And what are the things that most people usually get wrong at that moment?

Speaker A: Yeah, like if an operator called me and said, like, maybe if they're operating in another state or something. Is it in this scenario, in this hypothetical scenario? Well, look, first and foremost, take care of yourself. Your mental well being, your physical well being, everything else is secondary to taking care of you and your family, right? And in the moment that is like, it's hard for someone going through something like that to really, uh, I guess embrace that thought because everything in your body and your mind is screaming, like panic, like fight or flight. Like you just, you just you. You're out of. You're not in control. But the reality is, if you lose everything related to your business, like, it's devastating. But life will go on. If you lose sight of your relationship with your loved ones, if you let it get to your head, to where, you know, you grow distance from, from your, your spouse or your children, like, what's the point of the business anyway, right? The main priority of the business is to provide a means to enjoy your life. And so if you're not enjoying life, then, you know, losing the business is just secondary. So that, that's like the first piece of advice. Um, outside of that, I would say take care of your people. Take care of the people that work for you. If you have any means whatsoever to provide support, invest it in your team, whatever means, whether it's financial or if it's housing, if there's anything that you can do for them. Because people don't really buy into a business. People buy into the people that run the business. And in our business, especially hospitality, I mean, you could have the prettiest room in the world, but if the personnel are not friendly and the staff isn't there to offer that hospitality, it's not really worth much. So make sure you retain your core people and invest in them. Everything else you'll figure out, I mean, every situation is unique and different. But for any entrepreneur who's gotten to that point where they own their own business, they clearly have a set of skills that they've, they've learned or employed before, they'll be able to do it again. If you've done it once, you can do it again. No matter how bad it feels in the moment, if you're completely wiped out, you've got the resources and skills in terms of the experience and know how to go and do it again.

Speaker B: Yeah, people don't realize like, you know,

Speaker A: uh,

Speaker B: before anyone became an entrepreneur. Right. Because I think we all walk a similar path. You know, we started out, you know, career in W2 and you know, slowly transitioning into running our own businesses. Right. I think for people who are still, you know, working a job at this point, like they couldn't appreciate how much that you just mentioned meant so much. Right. Thinking about like, first of all, everything that we all do is for a purpose. Right. For the most part it's for our family, for our loved ones. Right. Uh, myself included. Sometimes, you know, like we tend to forget that and just God, like bought on to like, you know, the tasks on hand. You know, there's a lot of stuff to going like going on in the business and you know, we tend to forget our love ones and just everything else aside from your business and your job. Right. Just I think reminding people again why you're doing certain things, for what reasons, uh, it's just almost something that you have to put on your mirror every day. You have to remind yourself constantly before you kind of lose track of that. And obviously the second advice about taking care of people, especially in the hospitality industry, it means so much that, uh, to your point, um, especially bigger hotels, right? Ah, I think they're all being run professionally like it's an asset, right. People look at it, people manage the assets through the spreadsheet. Many times people tend to forget that beyond, ah, the spreadsheet, beyond any sort of button clicking or number changing, there are real Life consequences. Um, behind uh, this impact to the soft team, there's the impact on how a guest would experience uh, uh, your property. I think, um, without really running the operations on the ground or having somebody who partnered up running that, purely running things on a spreadsheet, uh, it's going to probably first big mistake like uh, auto fail in this industry, honestly.

Speaker A: Yeah, yeah, I think, I think that to your point, yeah. You know to be profitable you need to be financially astute. But you also gotta, you gotta look at the bigger picture. What drives you, what drives your people, what's your why and make sure you execute not just a, ah, product that delivers financially but delivers personal um, fulfillment as well.

Speaker B: Yeah. So great. So um, kind of moving that into a kind of more the nitty gritty part of running hospitality business. Right. So um, obviously you run now your own brand, hosted hostels, uh, you know, it's a independent brand. You're not using any soft big brand, uh, um, to start with. Right. Which gives you a lot more flexibility to craft that experience that you mentioned. Right. Kind of inspired from what you've seen happening in uh, uh, in the mainland and in Europe, uh, which you are able to drive quite a bit of success in terms of direct bookings, which is, I think lots of hoteliers, they would think that's the holy grail. Uh, they all want to be reaching more direct bookings and all that. So uh, you got a really high mix of that compared to the whole business. So did you find what you did specifically that allows you to drive that success?

Speaker A: All right, so I guess what I want to make sure I understand is so you're asking what is driving the success for our brand?

Speaker B: Um, yeah, in terms of um, direct bookings. Right. I think as the, you know, um, we had a pre show conversation, you know, about you know, the OTAs and direct booking and all that. Obviously, uh, uh, most hoteliers right now they still think like, you know, that's the number one most important thing to think about. And you definitely had a huge success on driving that for the Hauseit Hostels brand. So how did you make that happen?

Speaker A: Well look, this is a work in progress. Um, I'm going to be the first to admit that we're not at where we want to be with direct bookings. Like we want 100% direct bookings and we're nowhere close to that now. That's okay. Um, we're still improving year over year. Um, and transparently this is the first year 2026 where we have specifically focused on Implementing um tools and making decisions based on feedback we get that is tied to our strategy for direct bookings. Um, now we've long known how important it is so it's not like we haven't been doing anything. We've been trying successfully to um, encourage people to book directly by improving our website, by advertising or promoting our brand on social media by sending periodic newsletters, all the things that you're supposed to do by um, really focusing on five star reviews so that people that visit Google may be inclined to just book direct all of these things. But um, what we weren't doing was monitoring the data. We didn't have the resources in place because you mentioned at the beginning of this kind of topic here that we're entrepreneurs. We don't have this huge corporate uh, entity um, which for us provides a lot of flexibility to go about and do things on our own. But the flip side of that coin is we have to figure out how to do everything ourselves. We don't have a roadmap like the franchise. Hotels have a lot of value in years and years of experience and tons of case examples where they make decisions based on what's already worked. When you're going and carving your own path, you're drinking water out of a fire hose, it's like so much is coming at you. And so what we really had to do is focus on one um, you know, not one aspect at one time but we focused on the things that we could control immediately with the intention that we're going to continue to refine and get better. And so over the last few years direct booking has always been an objective but it wasn't until this year that now we've hired a social um media um consultant. We have like you know, a direct person that is responsible for social media account. We've hired an agency to help with very ah, methodically ah, delivering a brand message through social media and through email campaigns and then using their tools and resources to monitor the results. We've invested in technology to improve our revenue management. So you know these things are um, all, all interrelated but the main like structure uh of this or the UM foundation is making informed decisions based on data. That's how you're going to get more direct bookings is not just throwing stuff out there and then being like oh did it work or not? No, we'll throw it out there and then monitor the results. And that's easier said than done especially when you're a small business with relatively few resources. Um, but as we all know AI is leveling the playing field. It's making it easier for everyone to be able to perform analysis on data that they otherwise would just put off because it was too difficult, cumbersome or we just didn't have the experience and being able to manage it.

Speaker B: I see. Um, and just you kind of mentioned that inspiration to go having 100% direct booking, right? Well, let's say you have a magic wallet right now. You can just magically get rid of OTAs. Do you think it's a good idea? Do you think, uh, OTAs from a boutique, independent, ah, perspective, um, how do you think about them being a frenemy enemy, something that you can use? How does that supplement uh, or uh, otherwise your um, overall strategy for uh, bringing those bookings?

Speaker A: Yeah, I think the OTAs get a bad rap. A lot of poo poo on them. A lot of people poo poo on them because they're like, oh, they're taking my, they're taking my revenue. I'm, I'm, I'm losing 15 or percent or you know, somewhere in that range by, by them, um, you know, taking their commission. But I don't know, I don't think that's the right approach. Um, I think that they're more like strategic partners. And I think sometimes what people tend to overlook is, is the operational cost of running a direct booking campaign. You know, if you're investing in a team, who's going to run your influencer campaigns, who's going to run your social media, who's going to handle your email marketing, like all of that has a cost and ideally you get more direct bookings and the cost to generate those direct bookings are less than your 15% commission. But the reality is it might actually be equivalent. You know, if, if you're going to employ all the, especially the small business, um, there's a cost for that and I think people forget that and they just automatically assume that the OTAs are bad and direct booking is great and look, ideally we would have more direct bookings because I do believe our margin, our cost margin is less on direct bookings. Even with all of the cost to employ influencers and social media marketing, all the things I've talked about, but the convenience of OTAs is it takes next to zero bandwidth. I don't have to think about the marketing strategy or monitor data metrics to the campaigns that we're performing. I just have to pay a commission. And from that value perspective, I think the OTAs are great value. I mean they're an advertising Partner. Um, the area that I feel like the real separation with direct bookings is less on the cost or making a higher margin on each guest. It's more on curating the brand and building a direct relationship with your guest. Because not only can you remarket that existing guest, if you have their contact information and they've booked with you before, but then you can also promote and communicate with them so that they might be more inclined to spread, uh, word of mouth. Like the best advertisers for your brand, especially in hospitality, are going to be people that have stayed with you before and recommend it. And so the nurturing of your guest, um, that to me is a real separation factor between OTAs. But for someone starting out that is under the impression that they're going to open up a hotel and from day one they're going to knock out of the park with social media marketing and they never need an ota. I think they're really, they're, they're, they're not in, they're not looking at this from, like, from reality. The OTAs turn on marketing immediately with zero bandwidth and you can start getting bookings right away. It's the same thing with, um, why people, um, may prefer a brand or a flag hotel is because it's an advertising partnership. And so I don't want to write off OTAs. Um, I think that there's value in controlling the data, like I said, and controlling your guest information, but it's more about nurturing that relationship and less about the cost savings.

Speaker B: Yeah. And I think that owning that personal, uh, relationship with uh, the guest who stayed is important. It's kind of a big unspoken benefits of direct, beyond just the black and white numbers. Right. That kind of gets you to a lot more visual marketing opportunity and things like that. And you, to a point, uh, ota, if you think about it as a set of tools that you could use when your business needs to your point, I think a good analogy is if you think about Apple, Apple has a great product, iPhone, MacBook, what have you. They have a lot of direct stores. They can just sell this stuff to their stores all day long, which they definitely spend a lot of time building out those, uh, direct storefronts. But guess what? If you go to the at, you go to T Mobile and all that, you still see iPhone being sold there. Right. From, uh, our perspective, we think of it as a way of distribution. Right. There's always going to be, uh, um, a bigger reach, honestly, because OTAs, they have deep pockets, they spend billions on marketing. How can you, um, strategically, you know, put, um, your property there, like use that billboard effect, uh, just get more rich, getting more people know about your brand and your property. And guess what? If they kind of come to your property through OTA booking for the first time? Sure. Now at least the guest is coming through your doorstep to your property. And now you have all the accountability to make sure that you wow the guest and turn them into a direct booking next time and then come back. Right. So I think, uh, there are lots of things that just when people just shuffle off OTAs, right, when they bring shut down, about, ah, nothing about ota, it will never work for you. It will kind of start working against you. But if you start thinking it about another tool, um, for you to um, maximize your earning potential, there's a lot more you can play with. Right. In fact, um, um, it's going to be a past episode that should be released, uh, at some point, uh, with, uh, Calvin Ocello, one of the legendary, um, hotel brokers on the island. And we just talk about, uh, how a hotel buyer, when they come in and analyze potential buying a hotel as a property, as an asset, they do look at the distribution and how diversified it is. Uh, it's part of how they would think about the value of your property too. Um, one way or the other. We don't want over reliance on one channel. So having that diversification and just knowing that when you're ready to, you know, put the level on when it's needed is such a thing about contingency. Right. I think, uh, that would be a good contingency for everybody's back pocket. Um, you know, if you need it, you just turn it on. If you don't need that and your directbook is going great, turn it off. It's, uh, you know, just another way of thinking about contingencies.

Speaker A: Well, you gave the example of like, you know, the iPhone and you know, maybe walking into another merchant who's selling that same product. And when, while you were talking, uh, you, uh, know, the idea came to me, it's like, look, if I can secure 100% direct bookings for people that already know my business exists, then that is, that is optimal. But the OTAs, you know, they can secure folks that had never even heard of my business that I would have never gotten anything from. So it's just added value.

Speaker B: Yeah.

Speaker A: You know, obviously doesn't always work that way because sometimes people that know of your business will then still go book on the OTA anyway. But if you're advertising on social media and 100% of the people that see their book with you and then someone, did I say Expedia? If you're advertising on social media, Instagram, whatever, and people book with you because they like what they see, that's perfect. But then the person that is scrolling, let's say expedia or booking.com, and they're looking for a cheap place and they're like, oh, what is this? They would have never found you had you not been on there. So the postcard effect is awesome. It's just added value. And so I see no problem with that. I think that they work simultaneously, equally together.

Speaker B: Yeah, yeah. So, you know, just a quick tip for everyone, right? You know, if you are, uh, just overlooking OTA right now, make sure, if you want to have that Debutbox effect, the postcard effect, make sure that all those listings on the ota, they should stay as, uh, sharp as what you'll be putting on your direct website. Right. I, uh, think it's just a very simple thing to do, making sure you update your listing. That's it. And, uh, um, sometimes you never know somebody scrolling there and uh, if they are more curious, they're not lazy. They start checking out this hotel, checking out your social media, and that could be turned into a direct booking. So, uh, don't be lazy. Like, you know, you want to use all the billboards that you could possibly can.

Speaker A: Do you think any of your listeners own short term rentals?

Speaker B: Uh, mostly hoteliers, but, uh, you know, there are some that might be like a short term rental operators turn hotelier. We have some of that. But, uh, do you have any tips for short term rental operators?

Speaker A: Well, you know, this is the world that I live in, right. My short term rentals are a big part of my income. And so, um, I live in both the hotel and short term rental world. But, um, the postcard advantage you're talking about works really well for us when we advertise on Airbnb instead of, you know, my wife's name is Lauren. So instead of it being Michael and Lauren's Airbnb, like a lot of people do, we created a brand that people recognize. It's called Swell Vacation Rentals. Little play on words, me being a surfer. And so there's a little logo and Swell Vacation Rentals. And sure enough, people go on Airbnb and they go, huh, huh. I wonder if they have a direct booking website and they can Google Swell Vacation Rentals and find us. But if they go to Michael and Lauren's Airbnb, they'll never find us. Right. So like that's just like one little tip and I, and I think it does, it does apply to hotels as well. People will I do this, I prefer to book with the hotel but I may not have realized that they even existed until I found them on one of the OTAs. So that, that is a very powerful value add benefit of always making sure that you're easily findable because people will search you. Once they find you on the ota, they will go and locate you.

Speaker B: I see. Um, super curious about that branding strategy for short term rent. Would you ever thought about combining the brand between Hauseit on the hostile side and um, your short term rental brand as well. Do you see a world where if there's going to be one branding across all your operations, would that do positively negatively?

Speaker A: I don't think they really would serve each other because they're just on opposite ends of the spectrum. Um, the hostels are for typically younger and more budget oriented folks and my vacation rentals, they're luxury, you know they're four bedroom luxury homes. You know the, the, my rentals go for around 1500 bucks a night and the hostels go for around 50 bucks a night. And so big separation. Um, I don't know, I don't, I don't know that they're totally connected. So at this point I haven't really thought about it. No.

Speaker B: Gotcha. No, no, it's just, I'm curious actually I, I did not know about uh, the, the shop and rental brand that you have. So I'm just curious about that. Um, cool. So that's kind of more from a financial um, revenue side of things of the operations. Now thinking about, I um, think a big um, theory that you have coming in being an entrepreneur is to get the time freedom. So thinking about how you run your operations right now across the hostel side, the shop and rental side, um, and it sounds to me you have built very solid system to really remove yourself from the day to day. Um, what do you feel like you did the right um, thing that can get you to where you are right now and are there still gaps that you want to fill just in terms of providing the system so that you can be more time free?

Speaker A: Yeah. Well, I think that low hanging fruit number one really become a master of your calendar. I know that this seems pretty obvious but it's crazy how much time just kind of leaks out when you're not scheduled. So I do my best and I can always get better but I do my best to Live by my calendar and not just schedule work stuff, but schedule fun stuff. Like this year, a big priority for me outside of work is spending more time with my wife. We have two young kids and they eat up a lot of time. My work eats up a lot of time. And next thing you know, there's no time for mom and dad to be husband and wife. And so like today for example, it's a Tuesday in which we're recording this. And I had a scheduled time to go surfing with my wife this morning. That was fantastic. That to me is like the most enriching thing about what I do for work is to be able to earn the moments like that on a Tuesday morning, to be able to just go spend some time with the person, one of the people that I love most in life. Um, because otherwise, what's the whole point of this? So mastering my calendar, scheduling work, scheduling fun, making sure that it's as balanced as possible and also extending some grace because the reality is things don't go to plan all the time. And sometimes, you know, uh, if you want to ask me, well, what do I need to improve on, it's got, it's email. Like email to me is. It's the thing that I like least. Um, I just, I've experimented with outsourcing email to my VA and I just didn't see good results. And so I have attempted to compartmentalize like times to do email. But I'm gonna be honest with you, when I look at, well, what's gonna move the needle, what's gonna move my organization, oftentimes email, I'm just like treading water there. I'm not really moving forward. And so that oftentimes gets put off. And it's an area where I need to develop a better system to be more productive or I need to hire someone even if it costs a little bit more money, that has the ability to be my gatekeeper and handle most of my email correspondence because my email alone is a full time job. So there's areas where I feel like I'm doing really well, but the area in that regard of email is still a big question mark for me. Um, I know that AI is improving to the point where you can start eliminating a lot of that. And so that is a goal of mine is to continue to refine my AI skills to get better at uh, not just email, but all of the tasks that I do on a regular basis. If I can use AI to develop systems or so called agents that can automate this for me, then that's going to free up more of my time to focus on the big things. You've got to also leave time for strategy and thinking. And what is it if your brain is constantly occupied in all the things you have to do that are just task oriented, you don't leave much room to just let the universe bring you ideas that are going to really move the progression of your work or your career or whatever you're trying to accomplish. So it's a balancing act and believe me, it is a constant struggle to continue to improve that the balance of work and lifestyle. But I think like anything, if you put focus into it, things have a way of improving. And so that's another goal of mine, is to just get a little bit more efficient at, uh, balancing my communication and emails.

Speaker B: Yeah, and it's a blessing and a curse being an entrepreneur because there's always things that you want to improve when you're trying to fix blessing the curse. I don't know how else I can put it. Uh, but, um, offline, I can definitely share some tips and tricks on. There's some good stuff they're working on to some AI side of things. Personal productivities, hospitality. We can kind of chat offline on that. I'm actually pretty solid on that part. Um, so bringing to the last, uh, question to the show, um, obviously, um, I got connected with you through your podcast, the Hotel Investor Playbook, uh, podcast. And um, we kind of a short chat about before the show, I think you had a very different, um, mindset, uh, and intention and purpose of how you treat your podcast versus like most of us. Right. Myself included. This is a way to showcase our thought, leadership and things like that. But I really like how you think about your podcast. Do you want to share that thought process? And just for our audience here, I definitely want all our audience to come actually listen to your podcast because I think the angle is very different, uh, but in a good way. So I just want to, um, get into that part.

Speaker A: Yeah, so look, I'm a lifelong learner and living in Hawaii is isolating. And so I think that the podcast serves as a means for me to continue to learn from others. Um, but in doing so, I'm also sharing that journey of information gathering along the way. And one of the things that I noticed often, not always, but often, whether it's YouTube or podcast, there's, there's, there can sometimes be folks that maybe they have a little bit of an ulterior motive. Like there's a, there's a workshop or a course or a mastermind or there's something that they're providing content with the goal of getting you to subscribe to education of some sort. And I think that education, I'm all for it, but the consequence of sometimes having a podcast and then, you know, being a content creator for, for education purposes, sometimes people, they'll leave out some of the details that would discourage someone because they're afraid. Like, oh, you know, like, look, if I, if I really show them the real deal, then they're not going to subscribe to my newsletter or my, my, my mastermind. And so I don't have any of that. And so sometimes, like, I'll ask people real stuff and I'll blow up their, their whole concept. Like, I mean, I'm just being real here because, like, I, I want to learn. And so I'll ask them tough questions because I'm not afraid. Like, oh, no, like, uh, uh, if I, if I go down this route, someone's not going to subscribe to what I'm doing. And I'm m on, um, doing this podcast not because I'm trying to monetize it, but because I'm trying to learn. And I'm not taking the expert route. I'm not going on the podcast and saying, look, this is what you need to do. X, Y, Z. I'm going in the podcast saying, hey, this is what I'm doing. This is how I'm learning. I'm bringing on others that have done incredible things and I'm asking questions how to learn from them. And anyone that wants to join me on this journey of exploration and knowledge and learn about how to invest and be profitable and make money in hotels and hospitality assets, then listen to the podcast and you can count on me that I'm going to ask tough questions and I'm going to get to the bottom of it. I'm not going to BS you with light stuff. We're going to get to the real deal here. And so that is my motive. Like, the more that I learn, the more that I'm happy and I'm grateful that I get to share that experience and document what I'm doing live. And anyone that wants to learn, um, about investing in hotels, particularly if you're more of an entrepreneurial, um, you know, if you're at a level where you're, let's say you're, you're not institutional level, where you're working with the confines of, you know, you got to raise capital from private investors, you maybe have, um, the ability to sell some assets in 1031. Maybe you have experience in short term rentals and you want to scale up. That's kind of in my mind what I embody or myself. And so maybe others are attracted to podcasts that want to pursue the same thing. Um, that to me is really, um, what I find to be fulfilling is sharing this knowledge. And others who write me, they say, hey, thanks so much for the podcast. I'm learning so much. I really appreciate all this. That's what I get at it, the fulfillment that I'm at a point in my life where financially I don't necessarily need any more money. I might want some more. Sure, who doesn't? But I don't do this for a financial purpose. I do it for a personal purpose. I love learning and growing. And so that's what the podcast is all about. And if anyone wants to listen to it, then, um, they're going to gain what I just talked about.

Speaker B: Yeah, people are going to see in, uh, a show note for sure. And I personally gain lots of insights, uh, uh, from your podcast and your interview style too. So, um, actually with all the episodes, um, that you have so far, lots of people that you talk to through that journey now, it's probably going to be a lot. So I'm going to ask you to pick your favorite, right. Who, um, impress you the most in terms of like, just like you, you know, you just have certain ideas from certain m. Guests from you, and you just thought, wow. Then, uh, uh. And what, what that, what is the best advice or a piece of thought that really wowed you?

Speaker A: Gosh, you know, it's funny, we've had some, some really big names on there. Um, you know, with respect to the bolts, um, what is it? Terry and something Bolt from Bolt Farm Treehouse. Like, like, I'm just picking on, uh, an arbitrary person that's like, you know, got sort of a brand name and like, you're like, oh, cool, I've had them on my podcast. But really it's, it's the scrappy entrepreneurs that are just like, dishing out what they've gone through to, to be able to buy a hotel. And um, I think Jonathan Mueller, I don't know what episode, I mean offhand, you just kind of put me on the spot here. But I think, um, I think his episode to me was really remarkable. Not because he said anything that was so profound or was so necessarily like inspiring or unique. It was just real and gritty and honest where he was talking about his journey from investing in real estate, making mistakes along the way having the dream to buy himself a hotel or a hospitality asset and going through the steps to attain an SBA loan, uh, dealing with the consequences of rising interest rates, how to handle and juggle all of the operations when you're. You're a small outfit like that. To me, the real earnest conversations where we dive into the details, we kind of unpack, like, the real things that occur that aren't always glamorous or glorious, those are the episodes that I find the most fulfillment from. But it's interesting, you know, like, I've had so many different types of people. I've had, um, brokers that do $50 million hotel transactions. I've had, um. Oh, gosh, what was his name? Uh, I'm blanking right now, but he was the co founder of Days In. I can't believe I can't remember his name right now. Okay, well, you put me on the spot, but the co founder of Days In, I mean, the dude's a billionaire. A billionaire. He started investing in hospitality in the 70s. And, you know, his projects are like $500 million Goliath, like huge, you know, up to $1 billion type properties that, you know, they're, they're under the brands of the Marriott and the west and all this, which is so much different than the Jonathan Mueller's of the world that are just starting out with their small SBA loans. That's what's crazy is like, I get to interview people from all these, you know, different lives, uh, you know, like different, different levels in life and different, um, perspectives. And so that one is really interesting too. I really enjoyed that one. But those are two very different types of folks, so it's really hard to pinpoint what I like most. But I'd say every episode there's, there's just something great about it.

Speaker B: Yeah, yeah. Oh, definitely make sure we find this episode. Actually, they're putting our show notes so that people can find out, because I think, to your point, very different spectrum. Uh, and I really like podcast as a medium because, ah, you get to, um, I think this is very soon one of the very, um, last medium to get authentic content from, uh, people's conversation. Right. Especially we all see all this as lob all flowing around. Um, this is like how you get, like, from people's mouth. I, I just find it like, you know, if you, you know, someone want to learn, uh, about people's experience, thoughts and things like that, like, this is probably like one of the best mediums. Like, you know, this is how I learn. So much different things just in the. From this medium. So I just, like, um. Yeah, I just love it.

Speaker A: Yeah. Well, hey, welcome to the journey. I think you're just starting out now, so, um, it's. It's a lot of fun and I think you're. You're definitely going to continue to enjoy it.

Speaker B: Yeah. Yeah. Well, normally I will ask people, where can people learn more about you? But I think it's pretty obvious here. Um, Michael runs the Hotel, uh, Investor Playbook podcast. So we're definitely going to be, uh, putting that in the show notes. Uh, definitely. We will pick some of the episodes that we talked about and put it in show notes so people can actually get a sense of all the good content from Michael. So, uh, Michael, thank you very much for today. It just fulfilled my. My secret idol moment of somebody I listened to for a while and finally getting them onto my show, which is. I'm super excited and, uh, it was a great conversation today.

Speaker A: Yeah, no, thank you. Thanks so much for having me on. I mean, it's been fun and, um, hopefully your listeners will get some value out of this. But I appreciate it and, yeah, thanks for having me on.

Speaker B: All right, thanks, Michael, signing out. Thanks for listening to the Lights on podcast. We'll see you again next time.

Speaker A: And be sure to click subscribe to get future episodes.