How to Source, Underwrite, and Purchase Your First Boutique Hotel | Gideon Spencer E5

In this episode of the Hotel Investor Playbook, hosts Mike and Nate sit down with Gideon Spencer, the principal of Stonemont Capital, who purchased a $6 million hotel at the age of 32. Gideon shares his journey from starting in real estate with a fourplex to acquiring a boutique hotel, providing invaluable insights into market research, capital raising, and deal validation. The episode delves into practical steps for finding and analyzing hospitality deals, the importance of building broker relationships, and effective capital-raising strategies. Gideon emphasizes the significance of aligning with experts to scale investments and offers motivational advice on overcoming self-limiting beliefs. Tune in to uncover the secrets behind creating wealth and freedom through boutique hotel ownership.

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Transcript

Michael Russell: 0:00

Are you interested in purchasing a hospitality asset but don't know where to start, don't know who to partner with, how to raise the capital, and ultimately close the deal? Then this is the episode for you. On today's episode, we meet with Gideon Spencer. He is the principal of Stonemont Capital. And at only 32 years old, he purchased a $6 million hotel. In this episode, we're going to cover things like how he finds the deals, sources the capital, who he's partnered with, and how he analyzes the deal to make sure that the investment will work. Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game. Gideon, welcome to the show.

Gideon Spencer: 1:02

Thanks for having me. I'm stoked to talk to you guys. It's been a long time coming. We planned pretty far ahead, so I'm excited to chat.

Michael Russell: 1:08

Yeah, absolutely. So listen, I am so excited to get right into it. So I'm going to start off with a question. But before I do, I want to give you a little time context of where we're at. So we have approximately about $30 million worth of real estate currently under ownership. We have bootstrapped ourselves, right? But we are in acquisition mode and we are, you know, looking to purchase the property. We're going to go through the process. We're going to raise capital. Um, but we need to find the right deal. And I'm giving a little background because, you know, you just finished purchasing a property. You bought this property in California, you raised capital, you closed on it, you're in the process of renovating it. So, you know, you're kind of one step ahead there in that regard. And I really want to pick your brain because what we're realizing here is we have uh almost all of our property is located here in the White Islands. So we've got short-term rentals, we've got commercial retail, we've got long-term rentals, we've got, of course, a couple of hostels under our belt. But now that we're expanding and we're scaling, we're looking at other markets, particularly in the California market, West Coast market. And so what we want to know from your experience is how do you go about and you know, you start researching markets, you start identifying potential properties. How do you know when you're looking at the data, how do you know that the assumptions that you're making are going to be accurate?

Gideon Spencer: 2:26

Yeah. So there are two parts to that question. The first part is that what is the general criteria for the market? And then the second part is how do you like validate that that market meets that criteria? So the first part is we look for markets that are secondary markets or or um like secondary regional travel markets, as we call them, which is basically any strong travel market that's near a major metro like LA or San Diego. So that's why we ended up landing on that solving market and solving California, right by Santa Barbara. The reason for that is what we find is when people are under economic distress or there's a pullback in the market, people don't stop traveling. They just change their travel habits. And given that we're in hospitality, there's already that higher risk profile of that asset class. And so we try to balance out that risk with selecting markets that tend to be more recession resistant. So with these regional travel markets, rather than you know, somebody travel booking a week trip to Europe or a ski trip to Vale, they're gonna go out to the wine country for a weekend trip that's just a couple hours away. So what we did was now shifting into how do you validate that data and how do you actually measure it, is we use CoStar and we looked at data all the way back to how the property performed during economic pullback. So we looked heavily in 2008 and we compared that market to other markets in the area. And so what we found with solving specifically was solving pulled back about 10%, whereas the rest of the country pulled back anywhere from 15 to 25%, depending on the market. So even though there was a pullback, it wasn't so much that we felt like we would be in a really dangerous position. That said, there are some markets that they even go on the flip side where they do better during economic um recession. So Fredericksburg, Texas, for example, it's a Destin a regional market that you're familiar with. Destin, Florida is another market that tends to do really well during economic pullback. So those are the things that we're looking for is finding opportunities that we have strong upside while at the same time protecting our downside risk through picking the right markets and picking the right locations within that market. Another thing that we look for in markets is something that has really heavy and consistent foot traffic, um, and something that's not too seasonal. So that's another reason the West Coast is a great market is because the seasonality tends to be smoother. So you don't get these big spikes of tourism in the like in the winter for Vail. Or I guess Vale, you know, it's the summer, and then in the winter it shuts down and different things like that. Um Gideon, can I call it timeout?

Nathan St Cyr: 5:25

Vale's a ski tone, right? Yeah, yeah, yeah. Can I call it timeout? Okay. I want to go to the first very first thing that you said. You said that you look for secondary markets, right? So why secondary and not the primary? You said secondary to Los Angeles or San Francisco or but but why specifically secondary? Why not in the heart of that metropolis?

Gideon Spencer: 5:51

Well, the reason is because it tends to be less competitive. So the the heart of metros can be really good because you also have a lot of economic diversity, so it tends to be generally recession resistant in the right markets. Um, but yeah, it can get crazy competitive. We looked heavily in San Diego specifically, and even that was I mean, people who are given good deals in San Diego, they are they have such strong, deep relationships with the brokers in those markets. And so what we find is there's a sweet spot that tends to be less competitive in those secondary markets while at the same time being really great prime locations for travel and great locations for lenders because the lenders want it to be a strong market as well. So um getting into the game, we found that's a nice sweet spot.

Nathan St Cyr: 6:42

Okay, so if I that's golden, love that. If we go into your example of like San Diego, because when when we're looking at acquisition, we're looking at acquisition up front, the deal that we can get, the value proposition we can get, but we're also looking at the exit. So do you feel like in those highly competitive markets that on the flip side, on the exit, there could be potential um greater opportunity than in the secondary markets?

Gideon Spencer: 7:13

Yeah, yeah, 100%. I mean, there's that old expression, Ryo is the harder a property is to buy, the easier it is to sell, and vice versa. So with those secondary markets, there because there is less competition, um, they are easier to acquire. But then, yeah, on the flip side, you're not gonna have as aggressive or optimistic of a selling opportunity generally. But in secondary markets that have strong tourism, like solving, um, I don't think we're gonna run into that issue. Like looking at the the data, and then another thing that we look at in markets is does it have strong, consistent growth over a prolonged period of time? Um, it's like looking at the return profile, is that something we're comfortable with? Now, if we found in a major metro that we could get a good deal and then the exit would have a massive upside because of the demand in the market, then that would be that would be solid too. But given how difficult those markets can be to penetrate into, we found um, or the the decision that we made was to look also in secondary markets. We looked in primary also, like San Diego is just really difficult to find um during this climate.

Michael Russell: 8:24

Love it. Great, thank you. You looked at the history, you look at the data. Can you walk us through like what tools are you using to find this this data and to to look up the history of a particular market?

Gideon Spencer: 8:36

Yeah, so we use a ton of different tools and resources. The first I would say is CoStar. So we use CoStar um to get like a high-level first pass at property data. It's worth noting that CoStar is not gospel, right? So the second step of validating that information is calling hotels in the area. People would be mind blown to hear how much information you can get from calling hotel owners that are in the market that you're looking into. Like you would think that they would be much more cagey with their data. They're not. You can give them a call, they're typically really friendly. I've had we've had some actually when we were looking and solving um one of my partners, Alex, there was a hotel manager that actually sat him down and pulled up the financials and was showing him all of the data over the last couple years. And um, and so yeah, I'd say that's the the second wave in terms of like where to get and validate data. And we can even go into like the discrepancies too, because there's a discrepancy in the coastar data and what the hotel operators were saying. And that's where we actually found a big opportunity um to exploit, to actually go for this this property because Coastar was not totally accurate, but it was close enough.

Nathan St Cyr: 9:55

I want to dig into that because that's a good point, but I also want to highlight what you just said. Like you just gave like the biggest freaking nugget that that any of us could hear is that sometimes in our own mind, we think our mindset is, oh, they're not gonna share that with me, right? Oh, why would they do that? Uh I'm not gonna call the hotel owner and ask them for their financial data when I'm the competition that's gonna come in and potentially purchase something, make it better, and now we're competitors. But I think that we've found that as well. Mike's unbelievable at uh making connections with directly with owners. And then the information that he he's like, Well, this is this is what I found out. I'm always like, what? They told you that. And so I think that that's a mind, you know, a mindset shift that as we're going through this process and as you know, listeners are going through this process, that's that's just an absolute gold nugget that forget about the way that you're thinking about it and just take the action to do it because what's the worst thing that that can happen? They say no. What's all the best? Yeah, the best thing that happens is they sit down with you and they pull out their financials, right? That's just such a nugget. Yeah.

Michael Russell: 11:14

No, I love that. I think that's so so that's really relevant. Like we're looking at a property right now, it's a hostile property in San Diego, and the property is triple net leased to a hostile operator. And technically, this is a competitor of ours, right? And so the the owner of the property is selling, selling the property, the hostel operator is not going to renew their lease. Their lease expires in a few months. Then, you know, I don't know what the owner is gonna do if they don't sell the property, they're gonna have to lease it up. Who knows? But we're interested in buying it. So, you know, I contact the the broker, the the listing broker, and I ask for any of the financials. They're like, well, we don't have any of that because that all belongs to the operator of the hostel. So rather than ask the hostel operator, I was like, Well, can you can you ask him? No, no, no, it's all proprietary. So I just like, all right, so I call the hostel. I speak to someone at the front desk. The front desk person is a little skeptical at first, but you know, you kind of warm them up. You'd be like, Look, I'm a normal person. Here's what I'm doing, here's why I'm doing it. And you just speak candidly and openly. And then all of a sudden the guard comes down and like, all right, fine. I'll give you the information, send an email to the owner. So I did. The owner of the hostel, right? Uh is in New Zealand, the operator, owner operator of the business is in New Zealand. And, you know, there's probably some hard feelings that the landlord is, you know, selling the building or raising the rent or whatever, and their business is ending. You would think the last thing they would want to do is give potentially their competitor their financials. But sure enough, the owner was like, Yeah, why not? Here you go. Here's what we're doing financially, and just gave us her, her literally gave us her QuickBooks profit and loss statement just by calling her. And actually, she's in New Zealand, so it was like a WhatsApp call. So all these like barriers that you think, like, oh, I'm never gonna touch with the owner. Oh, the owner's in New Zealand, it's never gonna happen. Well, one WhatsApp message later, and next thing I know, we have the actual financial. So, you know, whatever the seller of the property is uh positioning it, the value, well, we now have inside information. Be like, actually, based on this, we feel the property is worth X amount, way less. And so I love that point, Gideon. Like just calling people, talking to people on the phone, actually going up sometimes if you have the opportunity, knocking on doors, meeting him in person, it's so valuable.

Gideon Spencer: 13:20

100%. And that's even a universal principle, right? Where like the universe wants you to win way more than most people think. It wants you to win, right? And like a lot of these roadblocks that people have in front of them, the self-limiting belief that says, like, oh, I don't know if I can do that. I don't know if I'm smart enough. Oh, that looks really difficult. Oh my gosh, multi-million dollar deal, that seems really big. I don't know if I can do it. Oh, the hotel competitors, they don't want me in the space. Like, 99% of those are not real. Like, it's all bullshit. That is a like a self-limiting belief due to fear or anything else. And if you actually go up to that brick wall that's holding you back and you push on it, you'll realize it falls over like a piece of paper and you can just walk straight through. So, like, don't get held back by something that's not even there. Like, call people, talk to people, reach out to, or even somebody trying to get into the space, reach out to the hotel operators in your area or if you were into multifamily, the multifamily owners in that area, and just ask if they want to grab some coffee. Tell them what you're trying to do, tell them you're trying to get into the space, build the relationships with people. Like just call people, talk to people. It's a relationship game, and it never hurts to meet more people and ask more questions and show genuine curiosity. I mean, you guys even told me amazing stories last time we hung out uh down in Cabo around how you've acquired some of your properties just by knocking on doors and talking to people, and then properties ended up being for sale, and everybody thought about you because like you were the ones that were knocking on their doors and and chatting with them. Didn't you acquire one of your hostels that way? Both of them, yeah. Yeah, both of them, yeah.

Michael Russell: 14:58

Like literally knock, knock, knock. Anybody there? Sure enough. Someone comes out like, well, who are you guys? Well, we want to buy your hostel. Uh okay.

Gideon Spencer: 15:09

Yeah, no, it's it's amazing. Just like what can happen if you simply move forward and and don't let yourself get held back by these imaginary roadblocks.

Michael Russell: 15:22

All right, so I want to go back a little bit if that's all right though, because I love this. I dude, you're you're a very inspirational person. Every time I talk to you, I'm always feeling like one foot higher. Like I just I love it. I feel like you're like levitating or something, you're just always so popular. But you know, I want to walk through because I like the details, right? I want to go, okay, so you've got CoStar, you got the ability to contact, you know, uh hotels in a market that you're interested in. But but how do you originally find the market that you want to start investing in? Like we have in our from our perspective, we're like, okay, West Coast, San Francisco, Los Angeles, San Diego, those all seem like awesome markets, but where do you start if you really want to dive in? And then ultimately you said, look, San Diego just wasn't gonna work for us, but you had to do something to ultimately determine like what is the data saying? And how did you get the data? You said co-star and calling people, but can you walk us through more of like a granular approach? Like, do you just look at a listing or something? And then from there, you're like, oh, this listing looks good. Like, how do you do it?

Gideon Spencer: 16:26

Yeah, so um, the way we went about it, it was given the deal flow, what we would do is we would select like a high-level market. So we chose um blue states because they tend to be higher in regulation, so they keep out Airbnbs. Um, so the competition is naturally lower. We also chose markets that had strong fundamentals. So I don't I don't think there's a systematic way of doing this. We it's kind of like searching for a needle in the hayssack and you have to evaluate each piece of straw as you go through it. Um, there are some ways that you can roughly systematize it. Like in CoStar, they'll let you apply certain filters, but even then, it's difficult to get granular on the specific requirements that we were looking for. Like you can't filter, take a list and filter on Coastar, like which one of these is within two hours of a major metro. It's just not there, right? So, um, but fortunately, like there aren't that many markets that like the like it's it's not that complicated at a high level. Like, let's pick California, for example. You guys already knew, okay, West Coast, that's an area that you like. It's close to Hawaii. Um, so it makes sense, right? Then you look at California and you say, okay, San Francisco, Los Angeles, and San Diego are the biggest metros. So, like, where are people traveling in those markets? So, calling up people in those markets and saying, hey, where do people with money go to travel on the weekend? Right. So up in the north, they hang out near, like, they'll go to spots like the um block stands, like where Rich Purchase. That's a bit more rural, but they'll also pick spots like um, what was the other one? Bodega Bay and those areas. And Shane in our group, like Shane's familiar with that area. He's from San Francisco, and so he knows, oh yeah, Bodega Bay is like a great weekend trip spot. And so it can be supported by San Francisco. Um, in Los Angeles, uh, there's like the Central California wine country, like Sauveing, Los Almos, Los Olivos, and different areas like that. So it's kind of like at a high level, just working the way down to where you say, okay, fundamentally, blue states are red states. Blue states work well for us because we want to keep competition out. Okay, now what markets do we like? I'm a big fan of Colorado. I love the outdoors, I love hiking. I've been to Colorado a lot. So that was a market that I was looking heavily into. So my partners and I, we were looking in West Coast, California, um, because they're deeply familiar with California. And then I was looking in Colorado because I'm familiar with Colorado. And so it's like, where are you interested and where do you have the context? And then from there, you work your way down to it's almost like you you gut feel, intuitive, talk to people to discover a market, and then you validate it with that hard data to say, okay, how close is it to major metros? Pull up the coast art data to say, okay, what are the revenue, what what is a revenue and occupancy look like over the last 20 years? How does it hold up in economic recessions and things like that? So it's kind of like a slow systematic approach. But once you have your markets locked in and you know the markets deeply, like now it's just a matter of building relationships with blow brokers and ripping through deals to underwrite that are actually in those markets.

Nathan St Cyr: 19:46

Okay, can I ask a question on that? So, because I remember you, you know, a lot of times within our within our community, you you kind of going through broker relationships, submitting LOIs. That was a big thing for you. It's like even Even if the LOI was nowhere near where the pricing guidance was, if you felt like there was value in, hey, if I can provide this to the broker, provide feedback, it could benefit them in their conversations with the seller when the next the next deal comes in. So you're building those relationships. But how long would you say that when you've identified your market, then you have the the pricing guidance, whatever it is, the listing. How long is your process then before you feel comfortable uh submitting an LOI? Are you just doing this on very, very rough numbers to submit your LOI, or do you feel like you're really trying to peel back the onion?

Gideon Spencer: 20:46

So both. I think uh an LOI, for anybody who doesn't know, it's a letter of intent. You send it to the broker or the property owner who's selling the property, and it basically says, hey, I have an intent to purchase your property at this set amount. I was using it as an icebreaker. I think a lot of people they view it as, you know, a proposal to get serious in a relationship. I viewed it as a proposal to literally like tell a girl hi, right? I'm not even asking you out on the first date. I'm literally just saying, hey, letting you know that I'm here and that I'm serious. And if you're interested, maybe we can go on a first date. But I'm not asking you about the first date yet. I'm just saying hello. And so that's what I would do is I would look at these properties and I would do quick underwriting and I would say, okay, given the quick numbers, this is what I think uh it's worth and what I would make an offer on. And I would send the LOI with a caveat that said, hey, this is an LOI based on some rough numbers that I pulled, but I'd love to chat with you to iron out the details so that we can get on a number that makes sense. So basically, I'm not telling them I'm committing to this property at this price. I'm also not telling them that I think this is what it's worth because some owners they might look at that and say, oh my gosh, this is a low ball offer. I'm not even going to entertain that. Might make them frustrated, whatever it is. So what I would say is effectively, hey, look, based on what I saw, this is what the number said it's worth, but I would love your help ironing it out. So now I'm positioning myself on their team, right? I'm saying, hey, let's you and me, tag team, to figure out what this number looks like so that we can work through it. I'm not saying this is what it's worth because I want to hear more from you to really understand what it's worth. So it was like an introduction to a conversation, and it also told them that I was serious. I wasn't just somebody who, like, I think hotels are kind of cool. Maybe I'm gonna dip my toes in, but maybe I won't. I'm saying, look, I have a letter of intent. Like, I am actively looking for these deals. It shows that you're more serious, and brokers love it because now they can take that piece of paper and give it to the property owner who they're trying to sell the property of. So it makes them look good. Brokers look great. That's the part that I feel like a lot of people getting in the space don't understand. Brokers look good when you give them letters of intent because their job is to get letters of intent. And so if a property is like newly listed, even if the property is overpriced and so nobody wants to submit an offer on it because they're like, well, that's too far out, like that broker looks bad, but if they're not bringing in LOIs, so you're making them look good and credible, and you're telling them, hey, I want to team up on this deal, and you're telling them, look, I'm not a like a lowballer, I'm just making an offer based on the data that I pulled, but I love to chat more so that maybe we can land on something. And I found that as an intro to building more relationships than any other method, like the property and the deal aside, building those relationships with that broker and having the icebreaker as the LOI, I found to be major value.

Michael Russell: 23:44

There's so much, that's awesome. There's so much to unpack there.

Nathan St Cyr: 23:47

Yeah, yeah. And okay, so to get this LOI number, right? You feel you feel pretty good about the market based on your, you know, you kind of went through intuitively, you had your things, you checked that, check the boxes. All right, this is a market I'm gonna focus on. I feel pretty good on. Now there's properties. I'm gonna start the relationship building. I'm gonna start submitting LOIs. Now, to submit that LOI, you're looking at so that just to start the conversation, right? Not even the date, just to start the conversation, as you said. The numbers that you're utilizing, I'm assuming you're using probably a pretty rough number of as far as a percentage of expense uh expenses ratio to operate. And then you're looking at overall, I believe that with this level of property, this is what the occupancy ADR and ultimately revar is. And then you develop your your your NOI number from there and provide that as your offer. Am I or are we on the right path here?

Gideon Spencer: 24:49

Yeah, yeah, 100%. So I will I would run the the quick math slightly differently depending on what information I had. So if I have their net operating income, then I take that and I divide it by the cap rate in the market, and then that's the offer. A lot of these deals, though, you might not have that information up front. So what I would do is I would go into CoStar, I would see what the market was performing at. I would make them an offer based on that market performance with roughly a 30 to 40% discount. Right. So I'm assuming, okay, I'm gonna, I'm gonna discount it because I'm looking for, I'm a value add investor. So I'm looking for properties that are underperforming by 30 to 40%. And then that also factors in like any renovations that need to be done, new furnishing, operational improvements. So that's like super quick, really rough. If I have no data, that's what I would pull the numbers that I would run and say, hey, look, I'm assuming your property is not performing very well. I'm making a bunch of assumptions here. But then that starts the conversation, right? To say, hey, work with me to iron these details out. Send over the NOI, let me know what the seller, like what their threshold is and different things like that. Strong.

Michael Russell: 26:04

That's really good. I love that. I want to I want to comment on that because you know what I hear you saying is, you know, a lot of times people they get an analysis paralysis. And what you're describing is look, I'll just take action and then I'll do some more thorough analysis. But what I'm accomplishing by taking action is I'm building a relationship with a broker. Because until I submit that LOI, I'm just a looky lure. I'm just kicking the tires. But if I submit an LLI, and specifically, if you submit an LOI where you don't already have representation, you're not working with a buyer's broker, then oftentimes the listing agent will be like, well, okay, let me help you. This is how we need to repackage this. You know, depending on how you position it, you use some very um, you know, the verbiage that you used was strategic. But I really like the idea that instead of just analyzing deals, getting stuck into this process where you're like, oh my gosh, like they're never gonna self-talk, they're never gonna accept this. So why do we even bother? You're just like, no, I'll just submit the LOI, I'll work it out with the broker. They know I'm I'm a serious buyer. Well, they'll give me some input and some advice. And, you know, if I need to revise this, I want to do some thorough research, but you're taking action. I just think that's that's such a good takeaway.

Gideon Spencer: 27:12

Yeah, and you're not required. What's the best way of saying this? You're you're not restricted by any information you don't have until you actually purchase the property. So when you submit the LOI, you don't have to have perfect numbers. You just have to have good enough numbers based on the information that you have. And then as the seller reveals more information, then you can adjust your numbers up until the sale, right? Then it's yours. And so, you know, hopefully your numbers are correct. Your numbers really need to be fucking dialed by the time you actually close, um, or even start raising for that matter matter, because that can impact uh relationships with investors. But yeah, I think like people who spend a couple hours per deal underwriting, making sure that it's good, they're wasting valuable time. Like I wouldn't spend more, like when I was doing napkin math, I would probably spend like five minutes doing quick napkin math on a property just to see if it was close enough to even what I was interested in. The next level would be quick 15 minutes on a spreadsheet underwriting it. And then if it got past that point, it looked really good. And we could come to like the the broker seemed to show interest and engagement with my offer. Then I would do a deeper dive with like hard numbers and start, you know, calling up hotels local in the area to really dial in the numbers and stuff like that. But you really you don't need to get so serious and restrictive and and analytical so early on, because early it, I mean, it's it's it's a game of speed and accuracy, right? If you just have accuracy, you'll never get there. If you just have speed, you'll never get there. So you really need to balance those two things properly.

Michael Russell: 28:55

I love that. So, what are you looking for? Like when you're saying, hey, uh, do some quick back of the napkin math or back of the envelope math, you know, what are the IRRs that you're looking for? Just top level, like to get started conceptualizing, hey, is this gonna work? What are you looking for from an IRR for your investors?

Gideon Spencer: 29:13

So for our investors, we have a minimum of 18% projected IRR. With that said, in the initial conversation phase, if it's anywhere close, even if it's in the 15% range, we'll still move forward with it just because you can have conversations and through discovery and negotiations, you can get it to that 18%. Right. So it's like by the time everything is said and done and we're we're committing to the deal, we want a clear path to 18% minimum for our investors. But as long as we're roughly in the area and and the conversation is on the table and things can be negotiated, then it just has to be pretty close. So I would say probably about like 15% initially. And then by the time we close, we want it to be minimum 18.

Michael Russell: 30:02

Okay, so you know, maybe this is a good opportunity to walk through the solving, right? Maybe you can walk us through that. Yeah. So tell us about the partners.

Nathan St Cyr: 30:12

Mike, time out though. I think that there's a critical missing piece here before we go into solving. Gideon, how old are you? I am 33.

Gideon Spencer: 30:26

Am I 33 or 32? Am I 33? No, I'm 32. I turn goodness, I'm at the age where I don't know how old I am. I uh yeah, I'm 32. I turned 33 in like two weeks. That's why I'm all kind of fuzzy on it. 32 years old. Okay, well, I'm old.

Nathan St Cyr: 30:44

You're 32 turning 33. So cool. So you're a 32-year-old, you own a freaking seven to ten million dollar hotel. How much experience did you have before this in real estate? And then why out of all of the things that you could do, like all of the different things that are out there, there's so much noise. Why did you choose to say, I'm gonna go and invest in boutique hotels? And then from there, Mike, I think we go into solve it. I gotta know this. Yeah, so yeah, yeah.

Gideon Spencer: 31:23

So I actually kind of stumbled into it, which is crazy to say you stumbled into owning a hotel. But yeah, it stumbled into it because so Jackie and I, we my wife, we travel a lot and we're both from San Antonio, Texas, but we don't live there. And so we wanted a place to stay when we were in town. So um we decided to buy a property, ended up buying a fourplex because we wanted to get the most number of doors under a single roof that was also a residential property, um, so we could put low money down as a primary residence, and then um, but also have multiple doors under one roof for all the the benefits of that easier maintenance. Um, exactly, economy of scale. So we purchased that, we renovated the units, we rented them out as uh short-term rentals, and everything just made sense. The model made sense, um, the numbers made sense, the systems made sense. It it was just like everything about it, the tax benefits, it just fit really well with what we wanted to do and were interested in, and it got me excited. And so I wanted to scale, and that was two and a half years ago, I think. Um, two and a half years ago, about six months in, I was like, dude, this is it. I want to freaking scale this. Uh, but I didn't want to keep just buying residential. I was like, dude, I want to go fucking big. Let's like, let's get more doors under one roof. And so that's when I decided to buy a hotel. And so joined the group, Rich's group that we're in, and uh started meeting people who had bought hotels, which is another massive lesson, right? Like go step into rooms where your dreams are people's realities. Like, hang out with people who have done the thing that you're trying to do. Don't listen to your Uncle Joe who watched a hotel flipping series on Netflix, tell you how to buy a hotel. Talk to people who have bought multiple hotels if you want to buy a hotel. If you want to go to the Olympics, hang out with Olympians, don't hang out with people who watch the Olympics. And so I wanted to buy a hotel, so joined the group. Um, met you guys and and a bunch of other great people. And so it's it's been a blast. But yeah, that was the the journey, really, and then partnering up with the right people to find the right deals and raise the money and get it done.

Nathan St Cyr: 33:43

And then comes solving. So all of a sudden now you're in it. You're like, holy crap. We're in this thing, and you're 32, you've been in this group for a few months, and you put this thing under contract, and then you got to go raise how much money did you have to raise?

Gideon Spencer: 34:05

Yeah, we ended up raising uh 3.1 million. Um, before I dive into that though, there's there's a second part of your question that I didn't answer, which is like, why did I end up like what about boutique hotels? For me, there's a massive transfer of wealth that's coming. Baby boomers have a massive amount of the wealth right now. There are, I think, something like 10,000 of them are retiring a day. They own 25% of the small businesses out there. And so there's a massive opportunity for the old school way of doing things, being innovated by the new way of doing things, right? So taking these mom and pop owners that have their properties, giving them great deals that work out for them in their retirement while at the same time adding a ton of value for a bunch of upside. So I knew from the beginning that I wanted to acquire small businesses. And um, and once we got the fourplex and the numbers made sense, I was like, okay, this is where these are the pieces that fit nicely together. Like the model makes sense. I'm familiar with it enough that I feel like I can hit the ground running in scale. And I think there's a massive opportunity, primarily within the next five to six years, of not only the baby boomers um selling and handing things over to the next generation, but also with boutique hotels. There's so many the Airbnb regulations that are shutting Airbnbs down and the growing wave of experienced Airbnb operators. There's going to be a ton of transition from short-term rentals into boutique hotels. And I want to catch the front of that wave. So I think I'll probably be in boutique hotels at least the next, I don't know, five to 10 years. Um, and then we'll see from there. We'll either have the assets that, you know, are are operated or managed um by a team. And so I don't I don't have to be directly involved, but then we'll eventually exit those. And I think if boutique hotels, they're I I think, I think the the window for the massive opportunity is very brief. So that's why I wanted to move on it quickly. I didn't want to, you know, next year, next year, next year I'll buy a hotel, but actually say, like, okay, let's fucking do it right now um and ride the wave. Dude, I freaking love it. So then what was it you're staring down the second question that you asked?

Nathan St Cyr: 36:19

You're 32 years old without having you're 32 years old without ever doing this before, and you're staring down a four million dollar raise. Walk us through that.

Gideon Spencer: 36:28

Yeah, so yeah, so that was definitely quite a bit to work through, but I will say, I will say you can what's the best way to say it? Like, I think finding the right people is everything, right? So we had a lot of great people on the team. We ended up raising $3.1 million for all of it. We raised it all within about 30 days. So we had a 45-day escrow. Um, but by the time we pulled everything together and actually started the raise, it was about 30 days. And yeah, it was a major effort. There was a big push to get all the capital in. Uh, fortunately, between all the partners, we were able to raise the capital. We also ended up opening it up and and bringing more general partners in. So by the end of it, we had about six general partners. Um, everybody, it's amazing to work with. I'm so, so thankful for each person on my team and for how like the synergy, everything, the vibe. It's just, it's fun. You know, like that's that's really what life is about. It's building cool shit, but having fun while you're doing it. And so yeah, we just jived and pushed hard. And it would, there was definitely, I'd be lying to you if I said there was no moments of like, oh shit. It's like there are definitely many oh shit moments.

Michael Russell: 37:47

And uh actually when we were hanging out, well, how many of your friends, how many of your friends have, you know, three and a half million dollars laying around in disposable income, right? You probably had to go through a huge list to contact all these people in your network. Like, can you walk us through like what was that like when you're calling people like, hey, it's Gideon, I'm buying a hotel. Uh, do you want to invest? Like, was that awkward? Was it uncomfortable? Like, how what did you do to be able to get people to be like, yes, I will give you my money?

Gideon Spencer: 38:13

Yeah. So, first of all, not enough of my friends to have three million dollars just laying around. Um, but yeah, I mean, it kind of like at first, it was a little uncomfortable to have to reach out to people and ask, especially the people that I hadn't spoken to in a while, because there were a lot of people when I was going through my contact list that I was like, oh man, I should reach out to him. Like, I wanted like just reach out and chat and say, hey. Um, and I don't want him to think that I'm only reaching out for the money, but I also need to raise money, but also I really care about him as a person. So it was like, it was difficult for me to balance those things out. Um, and fortunately, I had reached out to a lot of these people earlier on, and so it was it was a lot of warm, warm um intros already. But yeah, so this is how I actually went about engaging people and raising the capital because to me, like they're friends and family first, and I love them to death, and I never want them to think that I just think of them as, you know, pocketbooks. Um, and so I yeah, I reached out to them and I said, Hey, look, I'm in real estate, I'm buying boutique hotels. Fortunately for me, by that point, I had already been making a bunch of content. So most of the people that I reached out to are like, oh yeah, no, I'm familiar. That's really cool. Um, and so yeah, I'd reach out and say, Hey, look, I'm buying boutique hotels, and these are the types of deals that I'm looking for and we're raising money. If that's something you're interested in, let me know. So I wasn't even like asking them for anything, I was asking them if it was something that they'd be interested in. And then the people who did say that they would be interested in a deal like that, once the solving deal came up, I did reach out to them. So let me let me take a step back and I'll I'll give you more structure for what it looked like. Before we even found the deal. I was reaching out to people saying, hey, look, I'm buying boutique hotels. These are the types of deals that we go for. If that's something you're interested in, let me know. Also, how are you? How's life? I always led with the what I was looking for before the like, hey, by the way, I care about you as a person because it feels so slimy to me when people are like, Oh my gosh, how have you been? How's the family? And then they ask for something, and I'm like, was you being nice to Trojan Horse? So I would always, I would always start with, Hey, what's up? Long time no see you. Just wanted to give you a quick update. This is the thing that I'm doing. We're raising money. Let me know if you'd be interested. Also, how have you been? Yeah. You know, and it's like, and then they'd say yes or no. And then we would chat about them and their life. And so it didn't look like I was up to anything weird. Um, and then we were looking for deals. And then once the deal actually did come up, then I was able to reach out to the people who said they were interested. And I was like, hey, look, we came upon something. This is what the profile looks like. Um, I sent them the deck. I also I put the the deal profile on a notion with a URL link that ended up being like the most useful thing in the world because I was just firing that URL to people left and right, and um, and that was really easy just to keep track and and and provide visibility. And then yeah, we ended up inviting them to a webinar. We paid a group that creates PowerPoints 500 bucks to create a 20 page slide deck. Um, and we had everybody on the webinar for an hour and a half. I think we ended up having 80 people show up. Um and yeah, ended up raising the full amount from that group. I think we ended up getting raising like 1.2 or 1.3 within like 24 hours of our webinar. And then through continued conversations with the people who were on the webinar who needed to chat with their people and run their own numbers and what have you, we were able to raise the rest. But how does it work?

Michael Russell: 42:03

Like they they say, yeah, I'm in, and then there's this verbal commitment, right? And you're like, okay, they send their in, but are they really in? Like, when how does it work where you're like, okay, we need the money by this date? Like, when do they send it in from the times they commit to the time they send it in? Like, how does that work?

Gideon Spencer: 42:21

So we had we we had them sign um LOIs. Yeah, where they sign like letters of intent, which actually are non-binding, they don't have any way, but it's the the physical act makes it feel more official, and so people feel more committed, and we actually get that commitment from them. So we had them sign LOIs, and at the webinar, we told them up front we need all the money in by this date. And so everybody knew up front. I'm I prefer everything up front. This is all the data, this is what to expect, told everybody what to expect. We gave everybody the dates, and then it was just continued engagement after that. So uh between all my partners and I, we basically owned the relationships of the people that we brought to the table. So, like I spoke to all my investors, Alex spoke to all of his investors, and so on. We didn't really have like one person that was in charge of collecting because these are these are relationships, these are meaningful experiences that we're trying to provide to people that we care about. And so um, yeah, that's how we went about it.

Nathan St Cyr: 43:25

Can I share something, Gideon? Because that is just it's like we're right in that process, but I I just gotta confront this. So I had this um I just lack of not lack of knowledge, lack of experience can create some anxiousness over this piece. But I was I was back home in Minnesota and I was having a conversation with my mom and my sister just about what we were doing in general, right? And when I talked to them about how we were gonna raise capital for our next, uh, our next investment, they started asking me some questions. And they were like, they started asking about tax when I started going through like tax benefits and how people can do self-directed IRAs and then like what return profiles, they were so blown away that this opportunity even existed. And I had this recognition that, and this is more pertaining to the friends and family, this first capital raise and providing friends, family, acquaintances with this opportunity. I had the recognition that, man, this isn't accessible to everybody. They there's people that we care about. We have spent our whole life's work, Mike and I, to get to this point, right? Our whole life's work in developing career, becoming unbelievable leaders, becoming unbelievable, you know, champion mindset, and then executing at really high levels, investing in real estate for 25 years, like all of these things that we put all our time and energy into working. And then all of a sudden we have an opportunity to open up and provide accessibility to us and our life work where they can capitalize because they know us. And and that reciprocation piece, it just clicked in me. It like it was like this. We're providing accessibility to returns of returns that a lot of people don't have access to. They don't even know exist on this first raise with I'm being specific to friends and family. And and that to me is really, really exciting. And it I'm I'm feeling really passionate to have the opportunity to go and present this opportunity to friends and family because I want them to win. I want them to win off of us. You know what I mean? Yeah, a hundred percent.

Gideon Spencer: 45:49

Yeah, I think that's uh that's a mind shift that takes the good to the great, or that's the difference between the good and the great, right? Which is like if you truly believe in the deal and it's truly a good deal, then when you talk to people and you make that offer, you're not asking them for money or taking their money. You're presenting like a great offer to them that they can't get anywhere else. So, in one sense, if you truly care about the people in your life and you truly believe in the deal, then you should be excited to share it with them. Because you can say, like, I had a friend, one of my investors, he's a good friend of mine, one of my best friends. He he ended up rolling over a self-directed IRA, which is something we can talk about too. About 25% of our investors um invested with self-directed IRAs, so retirement accounts that normally return much worse returns uh than real estate deals do. And he looked at his uh he looked at the numbers in his IRA account, and his numbers were growing by an annual rate of 4%. And so, like, dude, inflation over the last couple years was 6%. So he was literally losing money in his self-directed IRA account that he ended up rolling into our deal, and our deal was projected to do about 18 and a half to 19%. And I was like, dude, what a cool gift that I can provide to a good friend of mine whose retirement was literally shrinking when he thought it was growing because he wasn't paying attention to it. And he's very out of sight, out of mind, right? Like he works hard at his day job, he's not a professional investor. So he's like set in forget it, thought it would be safe in his self-directed IRA, which was managed by a financial advisor who wasn't paying attention, who was just parking the money because that financial advisor collects a check, regardless of how the investment performs. And so he looked at his numbers and was like, dude, thank you so much for telling me about this deal. I didn't even realize I was losing money with it sitting here. And so he ended up rolling it over. And I'm like, what a cool thing that I can take care of the people around me with this thing that I'm doing. Um, yeah, it's it's a meaningful thing. And that and that frame of mind is what makes it all so exciting is not asking for something, but providing incredible value to people you care about.

Michael Russell: 48:17

Yeah, we're providing a service, right? These deals don't just come out of thin air. You have to work hard to find them.

Gideon Spencer: 48:22

Yeah.

Michael Russell: 48:23

So you've mentioned that look, I'll just go out and I'll start submitting LOIs at 30, 40, 50%, let's say below market value, and then maybe we'll get one. But that doesn't just like not anyone can just do that. Most people that are working in their professional careers are focused on their career. They don't have all the time, energy, effort, know-how, experience to go out and find these gold mines, these real estate deals. So most people just put their money into the stock market. But look, everybody, there's equilibrium in the stock market. Everyone has access pretty much, you know, if you're above board to the same information. So there's not a big disparity in between like what someone, you know, your neighbor, let's say, can go and put money into a stock. Well, so can you. There's no differentiating factor there. But when you dig into real estate and you unearth these, the value here, you know, it really is a service provided. I was, I was looking at some, we were running some analysis, some financial modeling on what our investors would would would receive. We had a 10-year hold period. And so when you look at, you know, the average return in the stock market of, you know, maybe 10%, let's just say. But you know, if you can go and and double that, or maybe we had one where it was even like a three time, we were we're gonna triple their amount of money over that. Like that's not just out there in the stock market. You got to unearth these things, you gotta find them. And we were looking at the, you know, in this analysis, it was like 70% of this deal goes to the investor, the limited partner, 30% to us. So yeah, we are gaining something, but man, 70% of that profit is going to them, and they're doing absolutely nothing other than contributing their money and they're trusting in us, but we're providing a huge service. So it's not just like, hey, I'm raising money and I need money. It's hey, I'm raising money. I'm giving you an opportunity that I've worked my whole life to get here to be able to know how to analyze this deal. I've put in the hard work, I've gained the experience, I have the expertise. All you need to do is provide the capital and you can get the majority of the return on this investment, you know, together. So it is an absolute service, 100%. I think that changes your mindset definitely when raising money.

Gideon Spencer: 50:24

100%. 100%.

Nathan St Cyr: 50:26

Yeah, and I think that that goes for just our listeners in general. Like if you, you know, don't have experience, but you're partnered with someone that does have experience, you're now you've now elevated yourself to be able to have that same level of conviction. Because like, you know, we've we worked, you know, three and a half years all in every day after working an entire career, bootstrapped the whole thing on our own, and then um, you know, became award-winning hospitality um, you know, leaders. And so all of a sudden, if you're someone that can go and find deals and then partner with someone that has that experience, you were you truly, you don't even need to have the experience in the operation of it. You have something to contribute. So I think for our for our listeners, it doesn't matter where you are in your journey, you have the ability to um to there's there's nothing holding you back. That's the bottom line.

unknown: 51:30

Yeah.

Gideon Spencer: 51:31

100%. You just you just dropped one of the most valuable nuggets, I think I've ever heard or experienced, learned in my entire life, which is you don't need to be the expert in anything. You just need to be able to align incentives with the experts that you need. Right? Like we go through in 18 years, 22 years of education that programs us into needing to learn how to be the experts in order to deliver value to the system so that we can trade our time and value for money. And that's not how anybody builds anything meaningful. The way people build things that are meaningful is by acquiring skills and delivering value that has to go beyond themselves. And to do that, you have to bring in the experts. Because it's impossible to do everything yourself. So, like the only reason we were able to raise $3.1 million was because one of our partners, Neil, has 13 hotels and 30 years of experience. Like they weren't giving, like my friends and family weren't investing just in me. I mean, they were investing in me because of the rapport and relationship that I built over a long time. And so they trusted my awareness to pick somebody like Neil who they felt could deliver. But my friends and family don't think I can buy and run and stabilize a hotel and exit it. But like I acquired that that skill by aligning incentives with Neil or the tech company that I built when before doing hotels was I literally, it was a tech product. I didn't know anything about tech, but I thought it was an interesting space. So I sold the vision to a software developer, and then I aligned those incentives with some people who were high up in like the Texas vehicle registration scene and owned a bunch of businesses. And I said, Hey, look, we're building a pro a product that'll meet the needs of your businesses. This person had like 25 locations that the product we were building would fit perfectly with. And so he loved the idea. And I was literally the bridge between two experts and like merging tech and the Texas vehicle registration scene. And then within a year, we returned a quarter of a million dollars just from like the proof of concept. And so it's like don't be the smartest person in the room, know how to make friends with the smartest people in the room, and then figure out what value they can create together, and then just get them talking to each other and you get a little piece of that pie. But if the pie is big enough, then that sliver is still gonna be quite a bit for you. Like just find the people who know what they're doing, don't spend all of your time trying to figure out how to do that thing yourself.

Michael Russell: 54:19

Yeah, that's been awesome. Gideon, I wanna I want to thank you for coming on the show. This has been fantastic. I every time I talk just with you, I'm so inspired. And you know, listening to you, you know, discuss your journey here and where you where you started and where you're going. I mean, I just really feel like you've got there's there's huge things that are ahead for you. And I'm just happy to know you. I I I want to comment on something that I just I recognized listening to you about this particular asset class, which is you know, you've mentioned you use words like it's fun, it's exciting, you know, you had an interest in Colorado. I just feel like what's interesting about this this asset class is you can invest in all different types of things. You can, you know, invest in apartment buildings and mobile homes and all this stuff. But what is what is coming across is you have just absolute passion for doing this, that you like, really enjoy speaking about it. And that that energy that you have, it's contagious. And I think that's one of the reasons why you've been so successful. And you also, I feel like it aligns with your personality is to partner and and to to not have to know everything yourself. So those are just a few takeaways that I've learned. I I think this has been this has been great. Nathan, if there's anything else you want to add before we wrap this up, please feel free.

Nathan St Cyr: 55:30

Yeah, I just one of the benefits of uh you know us going through this journey and going through the journey together. And one of the benefits of of having a podcast is is really okay, we both can align and and create value for each other, but in that, you know, we get to the most valuable thing to me is that we just got to spend an hour with each other that out of our normal day, we probably wouldn't have been able to make happen. And um, and so just having this hour to connect, Gideon, was uh just really a treat. Really grateful for it.

Michael Russell: 56:06

Yeah, I do want to ask you one other question though, before you get off, if that's okay. Every time I speak with you, you're always in order to demonstrate your a point. You reference some book or some some piece, some nugget. So can you give our readers, uh share with us what what's something that you've read that you would recommend our readers um, you know, to to read as well?

Gideon Spencer: 56:28

Yeah, I would say um, so it's predominantly real estate listeners, I assume. Um recession resistant real estate, I think is what it's called by Jay Scott or Recession Proof Real Estate, something like that. It is, it's been one of the most impactful and least talked about books that I've ever read. It talks about economic cycles, what investment strategies work, at what phase of the uh economic cycles. And like real estate is such an amazing vehicle for building wealth, but it's really the economic cycles that drive um that wealth creation. And so understanding what to do when has been fantastic and it made a massive impact on how I thought about real estate. And when there was that economic pullback a couple years ago, I and a lot of people in real estate were freaking out. I was sleeping like a baby because I'd actually like planned for that and it saved me so much stress. And so that's that's a big one that I would recommend. The other one that I would recommend is Atomic Habits by James Clear. Dude, it's so good. Because it's like you can do anything if you're disciplined. Like if you really thought about it, you can literally, it doesn't matter what you want to do or who you want to be, if you had flawless discipline, you could become that version of you. And so what that book uh outlines Atomic Habits is how do you make being disciplined as easy as possible? Lower the barrier of entry to that discipline so that you have greater odds of becoming that version of you that can get the things that you're trying to get. So yeah, those are my two.

Michael Russell: 58:08

Awesome. Love it. Okay, great. Well, we'll end there. Uh, thanks so much for being on the show. If our listeners want to get in touch with you, where can they get a hold of you?

Gideon Spencer: 58:17

Yeah, so you can find me on socials, Instagram, um, X, I'm mostly on Instagram, uh, Gideon Spencer underscore is my handle. And uh you can shoot me an email too if you want, gideon at stonemont cap.com. S-t-o-n-e m o n t c A P dot com. We'll love to connect with uh anybody who's listening. Awesome. Thanks, Gideon.