Dorsia Year 2 - Foray into VAs, Scams, Expansion, and Contraction

It’s been about a year+ since I’ve written about our adventures in rental arbitrage and basically here are the highlights.

• Our Foray Into Virtual Assistants
• Systemizing Everything
• The July Challenge
• Scams Throughout the Year and Its Lessons
• Expansion - From 8? To 14 Units.
• Overnight Catastrophe Almost Ending Our Entire Operation

1. Our Foray Into Virtual Assistants

Flying back from my cruise back to my home, I had this daunting realization: why am I working so hard? Back home, I had a lot of mundane tasks. And mundane tasks could certainly be outsourced to someone I pay almost nothing to.

In the cruise I went on last year, I was stuck at sea for 8 straight days and nights and thus I had a lot of free time and wrote our first blog. But since I literally had 8 straight days I also read “The Millionaire Fastlane” as well as a vast majority of “The Snowball.”

The former inspired me to hire a virtual assistant...for my online marketing business. There are a lot of mundane tasks in online marketing and I wanted to hire it out...so I went on a bunch of different websites to try to hire someone.

1A. How to Hire

I enjoy using something called ‘filters’ in my ads when hiring a VA. They consist of really dumb things like “Please state your favorite food in the first sentence of your cover letter or else I will know you did not read this ad / will result in automatic rejection.”

The tricky part is to not put this ‘filter’ (or ‘filters’ if you want to really challenge your prospects) in the beginning or the end of the ad. What I do is a format similar to something like this.

Intro sentence.

• Bullet point
• Bullet point 2
• Bullet point 3
• …
• Last bullet point

Probably a 5 sentence paragraph here. Talking about some higher level stuff. Bury that “filter” sentence in the middle of this paragraph. Some other thing. And the perfect candidate would be:

• On time
• Etc.
• Blah
• Maybe another filter right here.
• Blah
• …

Final paragraph.

What happens is when I put 1 filter, pretty much 10% of the people will actually comply with what I’ve asked. Good. 90% of the people are not going to follow your instructions anyway. Why should you interview them?

And pretty much <1% of people will actually comply if you have more than 1 filter. Of the hundreds of job apps I’ve looked through only a single person has successfully ever “caught on” and acknowledged both filters.

1B. The Interview Process

A lot of VAs … try to present their best side (lie blatantly) about their ability. When I was hiring for my marketing business, I’d ask fundamental questions like “Do you know how to run Facebook ads?” and they would answer “Most definitely.”

Bare with me here--this will apply to real estate as well…

When they say they know how to do something, I ask them “How do you…” questions and go about 5 levels deep. “So how do you create a Facebook ad? Could you walk me through it?”

Then about 90% of the VAs there will collapse and just come up with the most insane steps. As if the person asking that question didn’t actually know the answer. Anyway, this will help you nix the prospects that are actually not skilled enough.

If they pass the “technical” part (technical in quotes because I just ask very basic questions with the intent to make them more advanced later on), I ask them “why” questions.

The purpose of “why” questions is to build rapport and understand their motivations and really dig into them.

I ask them multiple “why” questions like, “why us?” “why do you want to do this specific gig over other gigs?” And if they give a generic answer, you go deeper.

Here is an example:

“Why us?”

[Oh because I like being homebased and not having to go to work.] (note this isn’t any deep information here so you have no leverage and don’t build any connection.)

“Why do you want to be homebased for your work?” (homebased is what Filipinos call working from home)

[My parents are getting old and I really want to be close to them and be able to take care of them when they need me] (this is where you are starting to build rapport)

“Wow <compliment on how good of a child they are, build more rapport>! <ask a personal question, like> So you and your parents are really close then?”

[They answer]

“<compliment them again>. So if you worked for me and I hired you, you’d have the freedom to stay home and be close to your parents when they are getting old and have limited time on Earth?”

[They answer something]

“Gotcha, gotcha. <transition to end of interview>. Are there any questions that you would like to ask me? I’ve been asking you all these questions so it’s only fair that you ask me a few.”

[Q&A session]

Then you transition out of the call and basically say you’ll think about it and you’ll let them know within X days for sure.

Then you weigh your options.

1. Continued

So I hired this perfect VA. The most motivated and the most detail oriented VA I could ever ask for. Also the most cheap of all the options so that was just an added bonus, but…

...their English was very poor. I wanted them to write ads for me and I thought that was a ‘mundane’ and ‘routine’ task. NOPE. Little did I know that copywriting is actually a very advanced skill and I have definitely hired someone and put them in a position where they’d definitely fail.

So I tried to “hybridize” the workload: have them do the mundane things to ‘set me up’ so I can write the ads myself. That worked pretty well until I realized the ‘mundane’ stuff takes 2 seconds. And soon they were complaining about how there are not enough hours.

So I asked my business partner Andrew if Dorsia (our company) needed a VA. I have VA who cannot do advanced task but is looking for mundane work. He said “yes.” He had tried to hire a VA service company with limited success earlier on and I thought this VA would be a wonderful fit.

To this day, the VA is still with us.

2. Systematizing Everything

A lot of daily tasks that I did was very mundane: posting on Craigslist, scanning through inquiries, scheduling cleaners for new reservations, and so on. I wanted to offload all of this work, because it’s boring to do and I didn’t want to do it.

I did this in a few stages. At first I wanted to just offload all the work at once, but soon realized that was a bad idea. It is unreasonable to expect a VA to do everything perfectly when they suddenly have to learn how to do twenty different things. Offload things one at a time, so that they can perfect it, and once they do give them another task so they can perfect that. You may want to give stuff that do not impact your business as much first, so you test the waters out. For me, I offloaded scheduling cleaning first. This was a task that was easy to check and verify that it was done correctly.

Another thing that I learned was that typing out instructions and inserting pictures along the way is painstaking. Instead, use a video capture device to just record yourself as you do the steps a few times. It is also more intuitive to watch a video and mimic what you see, than to read a document step by step.

3. The July Challenge

Somewhere early 2018, I read this book called the ‘4 Hour Workweek.’ Then I dove deep into Tim Ferriss’s material. Then I realized he was on GaryVee’s podcast and I’ve been a fan of GaryVee for a while, so I was hype to listen to that specific podcast…

...Little did I know that would have a major influence on how we would operate in 2018.

Tim Ferriss posed a challenge to an overwhelmed businessperson and basically challenged them to outsource all of their work, and book a one-month long vacation where they would not be able to communicate with their team. Once you pay the money for the month-long vacation, you are not financially committed to systematizing everything by the time you leave for your vacation...otherwise your business will go up in flames.

Hype that I was, I told Andrew back in February 2018 that we should definitely do this challenge and not talk to our VAs or our team in the month of June 2018.

In April 2018 we decided we still had a lot to systematize so we decided to go dark on July 2018 instead. I remember still having meetings with VAs really hammering on them to let us know if there are any questions, and drilling them with things like “what would you do in X situation if we weren’t here to answer your questions?”

So step by step, we (mostly Andrew) systematized everything and we stepped away from July 1 to Aug 1.

Granted, this is the easiest month to do this challenge with because everything was booked already. There were no vacancies to worry about. But, still a milestone nonetheless.

We came back on August 1st and...everything was OK.

4. Scams and Their Lessons

In the furnished rental world, there are a lot of scammers out there. Here, I will outline some off the top of my head.

The biggest scammer award goes to a one-month booking. Let’s call her Neda (because that’s her name). Neda’s booking for our place was for a month, and we disclosed that there would be construction going on. She proceeded to complain about the noise and the VAs neglected her. We responded too late and she wanted a refund because it was so noisy.

We took initiative and talked to Airbnb about this and they said that we could just have them cancel the rest of the trip and refund them as per the Airbnb refund policy (50% of remaining rest of the trip).

Then Neda refused to leave the place and said she will just stay for the entire time and get a full refund.

She succeeded. Airbnb reneged on being on our side. We followed up on this because we lost about 2.3k (50% of a month’s cost) on this deal and our original argument that Airbnb sided with us on is that we said that there is construction and it’s only common sense that there is noise and that we weren’t trying to hide anything. Now, Airbnb found a loophole and said we disclosed that there was construction but not how long it is and so they are giving her a refund.

Airbnb did not care that we gave her a choice to leave and that we’d refund her the rest of the trip, and explicitly allowed the guest to stay the entire stay and then retroactively get a refund intentionally.

Lessons learned:

* Airbnb has unilateral control and can basically destroy your unit’s profitability in one fell swoop. They’re known to be a fairly unethical company for a multitude of reasons which I won’t go into here, but I highly recommend shifting away from Airbnb as soon as possible since you are super exposed (as both a guest and a host).

* Bad things happening and setbacks is just the cost of doing business. Things like this will always happen. You just need to make sure that your business model has enough margin to absorb these rare but devastating events.

* Terrible people will always be out there in the hospitality industry. You’ll never run into a case where there are 0% issues. There will always be issues.* Rental arbitrage can be systematized and be made somewhat passive, but in general it will still be, and always will be, an active business due to these scenarios.* Speed is certainty for your customers. One of the main reasons why this case ended the way it did is because the VAs didn’t respond quickly enough. They left her alone for two weeks. That’s unacceptable.

The second issue is with Comcast. Another person named Andrew Wong was moving from one part of the SF Bay Area to another. Comcast did not check their address and proceeded to move one of our unit’s services to Andrew Wong’s new address. This was comical, but extremely annoying as our tenant is now without internet. After 4 hours of calling Comcast, we finally was able to settle on deleting the old Comcast account, getting a new router, and then starting a new Comcast account in the same unit.

The main lesson learned here is again, this business will never be passive. New and novel things happen all the time and Virtual Assistants, while can come up with some creative solutions to solve issues, are generally not the best and brightest out there. In our experience, they’re quite great at following solutions but not coming up with great novel solutions. Hence, it might just be that we need to find new VAs on our end -- but the responsibility of crafting and expanding on a system whenever there are brand new issues is still on the owners’ (our) side.

5. Expansion

In 2018 we expanded from 8 units to 14 units. These units are all from the same landlord.

6. Contraction

In 2018, we also contracted from 14 units to 10 units.

Why?

Here’s what happened:

One day, Andrew texted me on Slack telling me that Airbnb had deactivated our account (with all 14 units in it) because the guest found a “surveillance device” in one of our units.

Airbnb would not tell us where it was, so we sent someone over to take a look. It turns out it was a hidden camera that’s lodged into a smoke detector. Upon closer inspection, it seems like that the hidden camera was not connected to our WiFi (good news), but the smoke detector made of hard plastic was carefully cut and the camera was soldered in. So someone put a lot of effort into creating this non-working “hidden” camera (it’s a black square sticking out of a white plastic body), when they could have just bought something off the shelf that’s much more discreet.

Long story short, I filed a police report but the report takes about 10 business days for us to pick up. Airbnb didn’t even wait for the report to come out and just said we are banned and that they are not going to respond to any of our follow-ups.

But before they said that, they sent us on a wild goose chase and told us to open the smoke detector (even though we explicitly sent them a picture that has a label that says the smoke detector is not able to be disassembled) and file a police report (which I already did). They also kept asking for a copy of the police report after we repeatedly told them it takes up to 10 business days for it to be done.

This happened in winter of 2018 and all of our pending winter bookings were cancelled (we were doing quite well up until this point). So we ate a lot of vacancy as we had to re-book everything using other methods.

Controlling our losses, we decided to “sell” some of our units. We basically gave away units to other rental arbitragers and charged them cost for furniture and slightly above market rent to recoup some costs. At the end of their sublet with us, we’d just let them take the unit at market price and it’s theirs. It’s quite a win-win actually: they would have had to spend a ton of time and money to acquire the unit anyway, so why not just let them have ours? We win because our winter vacancies are filled and we can control our massive losses.

Just to be clear, we had 14 units AKA ~$30,000/mo in rent. So we were losing about $1k/day. That’s why we were so desperate to sell.

To date, we “sold” 4 of these units. So now we only have 10 units.

Going forward, we’ll expand slower and fill the units up without Airbnb.

Lesson learned?

* Split your units up into multiple Airbnb accounts. Airbnb now checks for things like phone number and social security number, etc. if you want to create new Airbnb accounts so you’ll need to work around that. You cannot get burner or online numbers: you must use a new and novel number that’s tied to a carrier like AT&T or Verizon.* Better yet, don’t use Airbnb and use other platforms that are less aggressively banning people without due process.* Have cleaners scan our units for hidden camera and unusual things.

7. I lied

Remember like 2 paragraphs ago when I said we have 10 units?

We actually have 9 now. One of the units was a JV with a local landlord who assured us that HOA would be OK with doing what we’re doing…

...They were not. Also this particular landlord/investor kept asking us a ton of questions, soup to nuts as far as how everything worked and every line item in the financial statement we sent. While that’s of course quite reasonable, we’d much prefer the investor to be passive since answering questions en masse means we will not be able to do our duties to maximize income for both ourselves and other investors. Plus if I’m honest, this particular investor/landlord invested the least amount of everyone we’ve partnered with so it’s one of those “nightmare client” situations--the most troublesome but the cheapest.

At the end of the day that 10th unit was profitable even over the winter months but having HOA loom over us + a bunch of extra rules that they imposed on us and having to deal with this particular client made the whole deal no longer palatable. So we’re dissolving it as this is being written.

8. Conclusion

In conclusion: rental arbitrage can generate great cash flow. There are enormous pitfalls to this model which is the tendency to put all your eggs in the Airbnb basket, and that this business will never, ever be passive. Ever. Units will always have issues and there will always be problematic tenants. But the returns are good.

So it’s up to you: do you think it’s worth all the hassle and headache to get 10X cash-on-cash on what you’d get for a 1% rule single family out of state?

Once you have the answer to that, you’ll have the answer to whether or not you should pursue this model. For any questions DM Andrew Wong or Angelo Wong.

See you next year.