 vacation rentals are the future. My name is Erica Muller, which we're going to introduce him in a moment. A little bit about my background. I've been a real estate investor and agent for 21 years and started specifically investing in short-term rentals and handling short-term rental investments in 2007. So I've been dealing with vacation rentals long before Airbnb was around, watched it grow from nothing into something huge. I know those of you in Hawaii watching are probably more familiar with vacation rentals than a lot of people on the mainland because you have been exposed to them a lot earlier on than I think a lot of others have, you know, after Airbnb and it went mainstream. So today I have a really interesting guest, somebody that I respect a lot. He's very ambitious, very smart when it comes to real estate and the kind of decisions he makes with capital. And I'm excited to pick his brain with you guys today and talk more about what he's doing with his Hawaii investments. So we're joined by Matthew Bernal in Honolulu today. And Matthew, thanks for being here. Of course, thanks for having me. Yeah, my pleasure. So Matthew's been investing in real estate for two years, but in the two years he's done a lot and he's done it with other people's money, which is really interesting because a lot of people want to get into real estate investing, but they don't know how or they don't have the funds. So Matthew started two years ago and in that time he's already completed 24 projects and he's raised capital for it and the way he did this is he's been fundraising limited partners with 85% on the first position and we're going to talk about what that means in a little bit and then also raising the funds on the second position for the down payment and acquisition costs. So this is super impressive of those 24 projects that he's done, nine of them are vacation rentals and he does have quite a bit going on here in Hawaii. So without further ado, Matthew, let's jump right into it and talk about how did you get started doing this and how did you know this? How did you trust yourself with other people's money so early on doing this? Well, thank you for having me on. Well, the journey really started from a lack of satisfaction and what I was doing initially. I had a lot of dissatisfaction in my career and I wanted to figure out kind of what the next step was and I realized that it had to be something that was service-based, something that would really help the community around me and that led to giving people shelter. I found myself in another job in which I had to go and kind of evaluate what was going on in people's properties and I'd see a lot of people that would have holes in their roofs or big broken windows and no cash and no credit to go ahead and fix that. I don't really think that's very humane. So the solution I found was real estate investment. If I was able to go ahead and somehow acquire their property, rent it back to them to own, they could get a nice comfortable, wonderful place to live and rebuild their credit and then have some equity at the end of it. Ever since then, it's just been a whirlwind of a journey. So this was more of like a value-driven venture for you than it was like a profit-driven venture. When did you realize that you could be both value-based and profit-based at the same time? Well, I found that if you're pursuing your big Y, you're always going to be profitable, always in one way or another and whatever profitable means is going to be defined by the satisfaction and by the level of value. So in this case, it just happens to be in real estate. Real estate just happens to be an asset that everybody is always going to need. So I guess I got lucky with that. But I believe that the reason why I've been able to be successful is because I do care about what I'm doing and I do care about both my clients, my investors, along with my homeowners, my sellers. So between those two things, it's been fairly simple to measure out and weigh between profitability and value. They're synchronicitous for me. That's so good. I love to hear stories like that. So I want to know then, what's it been like trying to source deals in Hawaii? What's the morale of investing there? Like, how are you approaching people? How are you finding these deals? And really, how are you evaluating them to know what's a good one and what's not? So that is a really, really great question because it's so complex. So here on the island, I'm an outsider. I've been here for two years. So that alone meant learning what the culture meant. And there are various elements to having the people continue to hold their land. But at the same time, you have people that are in serious need of assistance. So you look at that, you look at the different areas, the varying areas in which you have generational ownership of properties, and yet not enough, I guess you could say financial capability to go ahead and maintain and upkeep them. And so you approach them with caution. The first thing I did was I made friends with a local realtor who knew better than I as an outsider what investment was appropriate to get involved in and which one was inappropriate to get involved in. She would be kind of my litmus test. And I went referral only in the very beginning. That's kind of how I separated anything from kind of like a greedy outside investor to somebody who's actually making a difference and sticking with my mission statement of improving my community. So when you say referral only, are you talking about referrals like deals coming from your agent? Are you talking about like other people's money that's coming into these deals? Like what do you mean by referral only? Well, the beauty of this island is that everybody kind of knows everybody. So yes, they the referrals were from an agent. However, that agent was normally related to connected with, you know, had some kind of special bond with whomever the seller was at the time. So it was professionally referred, but also personally referred. So it was like a nice combination of MLS versus I guess you could say word of mouth. I mean, those are really great kind of opportunities to find, right? Like every investor wants those off market kind of like word of mouth deals. Those are kind of the holy grail of real estate deals. Because once something's on the MLS, I think a lot of times people feel like, you know, if it hasn't sold in a week, it's probably there's something going on with it or whatever and investors tend to not even like look at it. But when you get it off market and it's a private referral, I mean, that's juicy. So you're getting all of these, these private word of mouth deals from your agent. She sounds awesome by the way. The next step you're starting out, I mean, you know, you don't, I don't know how much capital you had. Did you have capital to buy these deals yourself? Or did you have to be like, now I have to go find the money. What was the next step? That's awesome. Awesome question. I started with $50,000 in credit. I, you know, I quit my cushy job. My family was not very happy and did not want to be involved. So I had a credit card and that's that's how I did it. And I use that credit card to go ahead and get the basic tools so I could have the systems that I needed to go ahead and pursue. But from there, once I formulated my systems, once I had put my kind of my tools in place, I then relied heavily on those tools to go ahead and find deals and also fundraise for them. A great example would be Propstream. Propstream allows you to skip trace, allows you to find deals that are off-market. You can send all kinds of different, you can communicate with your clients or potential sellers in that way. And that goes for both investors along with, along with sellers, distressed or otherwise, tired landlords, you name it. Another huge tool was Facebook. Facebook was probably the most, most important asset when it came to fundraising. And I can honestly say I never spent a dime on Facebook marketing ever. So you were probably in like private groups asking if someone has a deal or something like that, right? Yes, yes. Private groups, creating, offering memorandums and all of this was a learning process. A lot of beta testing, you know, what works, what doesn't work. And then finally, I kind of got the, got the combination right. And I had one couple, they're fantastic investors based out of the big island and they believed in me. And we got our first flip done up in the North Shore, actually. It's fantastic. Yeah. And that leaves us right into the topic of today's call is, you know, developing out the North Shore, building over there, investing over there. So I know that you'd building out on the North Shore, is that correct? Yes, yes. It's a piece of vacant land. And what makes it really unique is that it is the last oceanfront apartment zoned piece of vacant land on the North Shore. It can be subdivided into two. So you, you know, I could build two homes, keep it simple, or I can build a condominium complex containing 16 units. And that's, you know, that's kind of, it's kind of always been the golden question, right? Do you keep it simple, make less? Or do you, you know, take up a challenge and make a lot more and retain some ownership on a legendary, wonderful island? Also, I can control how much, you know, the rents are for the people that live here and also for our military personnel that we love and respect. So it sounds like with this project, you have intentions of giving back to the community. Is that correct? Oh, absolutely. That's always been mission. We want to give back to the people that we serve. And that that goes for any place. We're active nationwide. And that's our mission nationwide, but particularly on the North Shore of Hawaii. Yes, absolutely. Because you have people that are serving our country, along with people that have, you know, generational legacies there. So yeah, we want to keep those, we want to keep those rents down and also those purchases down. One thing that makes this project really unique is that the cost per unit to build 16 units in a condominium complex is $533,000, right? I've learned how to control the cost. Therefore, I can make it so that people that live on the North Shore or serve our country are able to get a beautiful place for under a million dollars. And that's the mission of this project. Okay, so it sounds like you're going to, you're going to sell it to them and not rent it, right? Oh, no, I'll be renting. No, I'll be renting. Yes, or rent it own for people that need it. Oh, gotcha. That's a really great model. And it really does give back to the local community because I know there's so many people that would love to buy and they just can't because of credit reasons or, you know, current financial reasons, but it gives them that opportunity to kind of build into it. So I do love that a lot. Now, are any of what you're building there, are those short-term rentals, vacation rentals at all? So the North Shore has a, it has an attitude of, well, leave the tourism and the vacationing to Waikiki. They really want to keep it for our service members and they want to keep it for the locals. You can get away with a mixed, you know, kind of a mixed bag, but at the same time, we want to respect that. So I also have investments in Waikiki as well, which are far more focused upon vacation rentals. Yeah, so let's talk about those because, you know, we love vacation rentals and I think they're really great investments and I know Hawaii is up against a lot of, you know, restrictions right now, especially that area. So tell me a little bit about what you're doing in Waikiki with vacation rentals and how you're funding that. And that was something I wanted to come back to, is if you could talk to us about, you know, I introduced and said you're raising capital as a first position, second position, not everybody knows what that is. So let's talk about one, how you're funding this project in Waikiki, what it means to be first position and second position, and then how, what's your strategy of attacking this vacation rental market there? Because it is kind of saturated. So I'd love to hear more about that. Absolutely. So as I mentioned in the beginning, it's all about, for me, it's all about relationship building. So I've got three penthouses in the Hawaiian Monarch over in Waikiki. It's right on the mouth, right on the bridge between Waikiki and Alamoana. And the way that I came, that I, you know, got the opportunity was the landlord, tired landlord, he's owned these for years. I called him and I said, John, do you want to just sell these things? And he said, absolutely. So that's kind of what started that. As far as the, the leverage and the positioning, I have a partnership with a hedge fund that goes ahead and gives me 85% leverage. It's Northwind Financial. Erin is the CEO. He's fantastic. They give us 85% of the first position. And then what I do is I fundraise through private, through private individuals via Facebook, via, you know, referrals from people that I've already, you know, invested with to go ahead and cover that 15% for down payment along with an additional 10% to cover acquisition costs and reserves to make sure that the project runs smoothly. So for everyone listening, the first position you're saying is when they come in as the main equity partner, right? Yes. Think of it like the bank. They own most of the debt. They own most of the debt. They own 85% of the debt. And then the equity position of the, it's a cap stack, a capitalization stack is the 15%. It's your skin in the game. Right? So it's your skin in the game. And then in order to fundraise that 15% plus an additional 10 to make sure that the project runs smoothly, I offer a debt position along with an equity position upon stabilization. So my investors will receive a 12% annualized debt position during whatever the stabilization period is. So stabilization meaning the time it takes to rehab and then cash out refinance. And then upon the cash out refinancing, they receive their full amount back, their full investment back plus their 12% in this case over four months. And then they retain a 5% to 10% equity position, meaning they get paid month over month for anywhere from three to eight years. And that allows them to go ahead and take their money and invest it elsewhere. Hopefully with you again though, right? Me, we don't, we don't, it's not a requirement, but yeah, yeah. Hopefully they're happy with that that they reinvest with me. And that's the success. The Waikiki property, right? Oh, could you say that one more time? So this is how you financed the Waikiki property that you're doing short. Okay, let's talk about that property. So tell us about it. So you said it was a tired landlord. You approached him. You raised the capital for it. You took in some partners. And now what are you doing with it? Have you started renting it as vacation rentals? Well, when I was, when I was on the mainland doing, doing some, you know, some supervision and management of my other projects, I did Airbnb them out. However, now I want to take advantage of season and, you know, it's very full right now. And I didn't want to start rehabbing during season. But now that I'm back, yes, we, we're beginning all the drawings we're submitting for permits and we, we will start renovation here in the next two months. And that's renovation to turn it into a short-term rental like full-time? Well, yes, yes, there'll be short-term rentals full-time. They just need to be updated. We want to, we want to give everything a nice, a nice updated renovated vibe. It's on the second to the highest floor in the whole building, all three units. They have panoramic views of, you know, the mountains, the ocean, the city. So you can see everything and it's absolutely beautiful and it's very high up. So we want, we want the inside to reflect the outside pretty much just like anything else. And that will go ahead and allow us to go ahead and give, give our, give our customers, you know, very, very comfortable, very luxurious experience while they're, while they're here enjoying their vacation in Honolulu. Yeah. So on that topic, you know, Honolulu, there's a lot of competition. There's a lot of, you know, there's hotel competition. There's other short-term rental competition. And one of the big things right now with vacation rentals is almost like you have to create such a unique experience anymore to drive those high rates. And Hawaii in itself is amazing, right? So like people are going there for the experience of Hawaii, but how are you going to drive a unique experience in your property? You know, everything else said, you know, and done, like when they get to your property, what's your plan to make it something where people are like, wow, I am never leaving. And I definitely, if I come back, I'm staying here. I love that. Well, the beauty of Hawaii is that it's not hard to make people never want to leave. What I'm doing is I'm, I'm depending on local interior designers to go ahead and create an experience that is, that is Hawaiian, right? Give them, give my clients, my, my, my renters, so to speak, an experience that is genuine, real, legitimate and authentic. You stay authentic Hawaiian, nobody will ever want to leave. And in order to generate that, I've got a team of local interior designers to do that. So what does that like though on your bottom line? Cause like, you know, when you're setting these things up, there's a certain budget that has to go into place. And, you know, obviously the more you invest into the interior, the, the theory is, is that you'll get it back in the rental income. You know, and we hope that that's true, but where is the point in which you're like, okay, we're just spending too much to get this up and running? Like how do you decide what you're going to spend on the outfitting and the startup cost to get this going? Well, I actually make those decisions prior to making acquisitions. So I have a really solid underwriting process that I developed myself that, that shows me where I'm going to end up. And I've got very, very specific bottom lines with respect to my investments that if it's below that, I just don't do it. Period. End of discussion. So I went ahead and I made sure that the costs based on all of the wonderful professionals that I have working with me are in line with what the vision is. And those visions are in line with what my bottom line is so I can best serve my investors and my clients as well. So it sounds like then you know exactly before going into it what can be spent. Do you ever find yourself in the situation where you're like, this is a great deal on the property, but the startup costs are just going to be too high to get into where it needs to be. So you pass on it or do you just take it on? You're like, you know what, we'll find out as we go. It's just such a great deal. I can't turn it away. No, no, never. No, we have to keep our systems in control. Control is so important because anybody that tells you that an investment is 100% is lying to and that being said, you have to have as much control as possible. So I do allow myself a 25% contingency in every single write up. That way I've got a little bit of buffer and the reason for that is as we stated in the beginning, I am using other people's money and I take everybody's money very, very seriously. So I want to make sure that the numbers work even in a worst case scenario where I was 25% off on my budget. There are never under any circumstances a deal or any deal. Don't care if it's the best in the world, anywhere on the planet. I will not take a deal if the numbers don't work in a worst case scenario. Yeah, fair enough. So what's the end game here for you? You're young. You've got all these properties. You've got a lot of time to keep growing it, but what's the end strategy? You own a piece of all of this. So are you planning to sell everything to a fund down the road? Are you planning to individually sell these off or just keep them forever as cash producing, income producing properties? Well, it really depends on the asset. So as I said, there's a chunk of my properties that are rental and those are obviously not the vacation rentals. But on the vacation rental side, the beauty of that is that you can keep it forever. There is longevity to that. So I do plan on keeping them for as long as possible and then my great grandkids can decide what to do with them next. That's great. So those equity partners that you had in them, is that why you get them out so quickly is so that they can continue to hold a piece of equity, but they'll never have the ability to control or force the sale so you can keep them as long as you want. And they got paid back. I suppose from a strategic perspective, yes. Yes, I like to maintain as much control over what I've built as possible. But as long as everybody's winning, it works out perfectly. The three to eight-year exit strategy, five to eight-year exit strategy, it is beneficial for all parties and also it's the way that we keep growing. There are times when it's best to exit. Yeah. How do you know when that is? Like what happens if the market takes a turn? What's your plan? If the market takes a turn, I hold. So my plan at the moment is, I don't think we're in this big doom and gloom situation where we're going to see this massive correction where it's going to be the great depression or anything like that, but I do think we're going to see prices start to come down. And when that happens, a guy like me wants to be liquid so that I can go ahead and make plays in sort of more equity sectors, equity sectors such as Florida, Texas, Hawaii obviously, California. So for now, the strategy is hold, let them generate their cash, trust the market, trust the clients, trust my team, trust my systems and bear through it. And the way that we underwrite our deals is we're prepared for that. I actually have a 12-month reserves built into all my fundraising. Awesome. That's really great. And it sounds like even though you've only been doing it two years, you really built quite a system, especially on the underwriting side, because whenever someone's investing, if the underwriting process is not good and it's not sufficient, it doesn't matter what they buy. The chances of them being successful are going to be pretty low. Because these investments have to stand the test of time. It's not like you can go into a good market, throw a spaghetti at the wall and you're going to get lucky. Especially the market we're going into, you have to have a good underwriting process. So that being said, this sounds like if you're the kind of person who does not have the time, you work, you have a bunch of money saved up, disposable income that you can take risks with. I know you and I have even talked about me going in on deals with you, which I'm definitely looking at those and very excited about exploring that. But it sounds like that's kind of a great opportunity for those type of people. People like me were really busy and we just don't have time for deal sourcing. And we have to trust you that you're not going to run off. So tell me, is that the kind of investors you're looking for? Because once you take someone's money, you're kind of stuck with that person. What kind of an investor are you looking for? I'm looking for an investor who is passive, just like you described. Somebody that wants to get involved in real estate, whether it's with a big investment or a small investment, and wants to enjoy 12% returns. And also own a little piece of land. God's not making any more of it. Yeah, I love that. Cool. So how do people get in touch with you then if they want to do this with you or they want to just pick your brain? You seem like the kind of guy that you would share knowledge with people because you're just a good person, right? And there's a lot of young people out there probably that just have questions about real estate and you're kind of that mentor they've been looking for. How do people find you? Well, you guys can find me on my Facebook page. It's just priceless ventures on Facebook. And then you can also reach me anytime at matthewprice at pricelessventures.com or you can call me 808-892-9309. I'll answer. Shoot me a text and let me know what you're looking for and I'll make sure that we schedule a call. I'm always... The lady's calling you now. You just put your number out there for the whole internet. Well, you know what? Call me. I got time. So, okay, awesome. Well, this has been really great, Matthew. I learned a lot today. You know, I'm really impressed with your model. You've done so much in such a small amount of time. You know, I had to make a lot of mistakes before I really learned how to do it right. It sounds like you may have learned from other people's mistakes and kind of like taken that inspiration because, you know, failing forward is a real thing. Did you have any time to fail forward or how did you... Where did you learn the mistakes that you didn't make yet? Yes. So, the mistakes I have made, I have made my fair share of mistakes, specifically when it came to hiring my team. Mistake number one, hired friends. Never do that. I don't care what anybody says. I don't care how cool or smart they are. Don't hire friends or family. Number two, never pay upfront fees on loans. I made that mistake. And number three, if somebody isn't serving your interest and isn't satisfying their commitment, fire them. It will cost you money. Those are the three that I've learned the hard way. So, I hope that you don't. Yeah, I love that. And definitely listen to those words of wisdom right there. They're very, very real. Okay, cool. So, we're going to wrap it up. I recommend anyone reach out to Matthew if you have questions about real estate investing, especially in Hawaii and learn from him. If you are sitting out there with passive money and you want to invest it, definitely a cool place to explore. I know for me personally, I work a lot. You know, I work probably 40, 50 hours a week. You know that, Matthew. It's like impossible to get a hold of me. I wish I had time to deal source like you do because there are so many things I'd love to be buying right now. And that's the big problem is when you have capital to invest, a lot of times you just don't have time to find the deals. You don't want to just put it anywhere. So, I really like what you're doing. So, yeah, so we're going to wrap this up. I want to thank you guys for listening and remember at roleo.com, v-r-o-l-i-o.com. We have the national real estate data for short term rental investments for the cap rates on every single market across the country, including all the markets in Hawaii. We can show you exactly which markets are performing at best, which markets are performing the worst. You know, numbers are numbers. You can interpret it how you want, but we do have all that data accessible for free. So, definitely reach out to us and we want to thank you again for joining the call and or joining this show and we will definitely look forward to seeing you on the next one. Thanks for joining us, Matthew. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram, Twitter, and LinkedIn, and donate to us at thinktechhawaii.com. Mahalo.