He Made $65,000/Month on His First Rental Arbitrage “Contract” (Real Numbers!)

Ashley:
Today’s episode is a first for real estate rookie. We’re diving into government contracts, what they are, how they work, and how rookie investors can actually use them to create predictable long-term income without owning hundreds of units.

Tony:
Yeah. If you’ve ever felt nervous about maybe Airbnb rules changing or you don’t like the idea of flipping or large multifamily and you want something that’s maybe a little bit more predictable, today’s guest is going to show you a completely different way to think about rental demand, where the government becomes your tenant.

Ashley:
This is The Real Estate Roofie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. And with that, let’s give a big, warm welcome to Noble Crawford. Noble, thanks for joining us today, brother.

Noble:
Hey, thanks for having me. I appreciate it. Appreciate it.

Tony:
Noble, first thing I want to ask before we get into the actual interview, do you ever feel like this pressure with the name Noble that you’ve got to live up to a certain standard? Because if my name was honesty or my name was humor, I feel like I’d have to be funny everywhere that I went. With the name like Noble, do you feel that pressure?

Noble:
It’s funny. Not so much anymore. That’s a family name. So I’m actually the third. My oldest son is the fourth, so it’s getting out of control now. But that’s funny.

Ashley:
Now tell us who … Spill the means. Who actually lives up to the name and who doesn’t in the family?

Noble:
It definitely would’ve been my dad. My dad was upstanding. Yeah.

Ashley:
Well, Noble, take us back to when short-term rentals were working and what was going right and what started to feel unstable underneath the service though.

Noble:
Yeah. So I’ll give you the quick little bit of context of how I got into it, so that’ll help break some things down. So I used to work in the hotel space and then I got into technology space and I worked in that space. And when I was in that space, I got into sales. I was doing commission sales for technology. I had to manage a couple of different verticals. So this will be important later. So the verticals that I was over was corporate, was higher education, was healthcare, was military and federal government. Those were the primary verticals that I worked as a commission sales rep. And so long story short, my wife, she gets sick. She gets sick and she’s having these seizures and whatnot. And so we had to take her to the doctor and they were like, “Oh, you have this massive tumor in your brain, you have a brain tumor.
We need to get it out like ASAP.” So we scheduled the surgery, got her in what should have taken six to eight hours and the surgery took 14 hours, but they were able to get the tumor removed. She’s out, she’s in the ICU. The second day in the ICU, she flat lines twice. Long story short, turns out she was allergic to morphine and they had her on a morphine drip post-surgery and it was killing her organs from the inside out. And so fortunately they were able to resuscitate her both times. She’s still here with us today. But on the heels of that surgery, she had to go through a long recovery period because the brain surgery is pretty major. And so it took like six weeks almost for her to learn how to do basic things all over again, including walking straight. And so during that timeframe, I had a decision to make.
If I was going to stay home and care for my wife or I was going to be at the job grinding them because I was on commission sales. So I elected to stay home with my wife at that time. And so at the end of that timeframe, I got called into a company-wide sales meeting. And the CEO of the company, he just rips me in front of the entire company for having dismal sales numbers for the previous four weeks, even though everybody in the company knew what I was dealing with. And so I had made a decision in that moment, I’m not going to be beholden to someone else’s time, making money for someone else. I’m going to put my head down and grind and work myself up out of this W2. And so eventually I hit a couple of large contract deals and I was out of there.
I cashed out. So on the heels of that, exiting, I started a marketing agency. I always wanted to run a marketing agency. That was the thing. I was one of the first HubSpot related agencies in that space. And so I fell in love with this concept of MRR, monthly recurring revenue. So as I stack clients in my marketing agency, my monthly revenue started stacking. And so I was like, oh, I can get used to this. But as Ms. Fortune would have it, I was working exponentially longer hours than I was in my W2. So it kind of defeated the purpose. And so my dad came across this YouTube video and he sent it to me and he said, “You familiar with this short-term rentals?” I was like, short-term rentals like, “What is that? This is 2016, late 2016.” And so I checked out the video.
The guy was putting it on. He was holding a mastermind out in California at the time of a group of people that were already in the space doing some big things. And so me and my wife flew out there and we said, “Hey, we can do this back home in Texas.” And we came back and put our heads down and went to work. What we were taught initially in the short-term rental space was lease arbitrage. That’s how we were taught when we went to that mastermind. So that’s what we executed on. So we’re cruising right along. We’re starting to build our portfolio of inventory and stuff. We get up to like a dozen and plus and we started having some things about the Airbnb’s platform specifically that we didn’t enjoy. And then so we started engaging in B2B type business way back in 2018, 2017, 2018.
And so that was our first foray into the short-term rental space and how we got started. So that was a long answer. I don’t even know if I answered your question.

Tony:
No, you did. And nobody … Well, first, let me say, I’m incredibly happy to hear that things turned out well for your wife. And I can’t imagine what an experience that might’ve been for you just going through that from a health perspective. But I always think it’s so interesting how, for a lot of folks in this podcast, myself included, there are these moments in life where you feel like, man, could things get any worse? And a lot of times that becomes that turning moment where it’s like, I’m actually going to decide to make sure that things get better. And I just love that. I love that part about your story. But you jump in full force into arbitrage, you’re building up your portfolio. And you’re early. I mean, 2016, Airbnb is still almost a baby at that point. So you’re really one of the earlier folks in this space, but you go the arbitrage route, you start building your portfolio.
Why not just keep scaling that up? I mean, you had first movers advantage or wasn’t a lot of folks doing arbitrage at that point. Why not be one of the guys that’s got thousands of arbitrage units?

Noble:
Yeah, yeah, good question. So we ultimately, over time, we scaled up to like 44 doors, and then we had a few of those that were owned assets, but the majority of them were leased inventory. And so it was going well. I couldn’t complain, the revenue was good and all that sort of thing, but I just didn’t enjoy some of the issues that came with having to deal with changes in the platform and things like that and just guest issues. Even though I started my career in the hotel space in hospitality back in the day, it’s just not something I enjoyed in my own business. And so for that reason, we decided early on that we wanted to … Because remember, my background was already selling into these different verticals. And so my thought process was, why don’t I see if I can get direct business for lodging and accommodations in these same verticals?
And this was pre-direct booking. This is before anyone was talking about it. And so we turned that switch on and it started to take off. And then on the heels of that, that’s when I had a light bulb moment about engaging with the federal government, and we’ll talk about that.

Ashley:
Yeah. So what was that thing that kind of put government contracts on your radar as a real estate strategy?

Noble:
Yeah, absolutely. So essentially, so a couple of things happened. So number one, like I said, the first thing was I was going about just my regular week of business. And I had this light bulb moment like, why am I not selling to the federal government? I already understand the process because in my W2, I had to sell into the federal government. So that’s how I cut my teeth on government contracting, was for my W2 job. So I already knew the basic process of it. And so I said, “Well, why am I not doing that with this business? It’s just a different service really, different product and service.” And so we started to go down that path of going after our first contract opportunity. And so prior to that, we were already providing inventory in the healthcare space and it wasn’t with traveling nurses, but we were providing inventory in the healthcare space.
We were already providing inventory in the corporate space because I had already started engaging with corporate clientele and we had already started providing inventory in the higher education space and it wasn’t student housing. So we had already turned on some of these things very early and then government contract stuff was just a kind of a natural progression. No,

Tony:
I’m curious, we’re going to get into the how-to of how to actually put these government contracts in place. But just to set the table for our listeners, what is the biggest, in terms of dollar value, what is the biggest government contract that you’ve ever secured for your real estate business?

Noble:
So the most recent one, which is a large contract out in San Diego, it’s a Navy contract, it’s 400 doors. Me and the couple of business partners, that one’s about 44 million.

Tony:
44 million?

Noble:
Yeah.

Tony:
Oh my goodness. I was not expecting 44 million.This episode just got-

Ashley:
We have to go into the numbers of this real quick. So 400 doors. And so what’s the bottom line end up being on this?

Noble:
So I’ll break it down for you. So I’ll give you a little bit of context. So in the government space, and here’s the beautiful thing, and it’s probably the best way for me to describe it. I’ll just give you the first case study. So we’ll back up a little bit. I’ll tell you about my first deal and that’ll set the table for this large one. Oh, making us

Ashley:
Wait. Okay,

Noble:
Go ahead. Okay. All right. So the very first one I did after I made the decision, I’m going to pursue this space because there’s something there. So my first deal was I found an opportunity that was already in my backyard. So I’m here in the Dallas-Fort Worth area. I found an opportunity with a company that was a defense contractor. And so they were holding at the time a DOD contractor, a Department of Defense contract, and it was to provide training and recertification for helicopter pilots and mechanics. And so these pilots and mechanics would fly into the Dallas-Fort Worth area and they would go through their training and recertification and they would just rotate them through, rotate them through. And so the pilots, their training recertification was 30 days. So they were flying instead for 30 days. The mechanics, their training and recertification was two weeks.
And so once I found out about the opportunity, I approached the company that was holding the DOD contract, the big umbrella company, and I said, “Hey, we would like to provide our inventory of properties for your trainees to stay at.” Because I knew one of the things I found out during my research was I knew that they were staying in hotels. So at the time, I knew I had a superior product that could compete in price. Now, here’s the beautiful thing. With the government, the government pays for lodging under what is called a GSA rate, government services administration lodging rate. That is a nightly rate. So they pay for lodging and accommodations by the night. Well, as it would turn out, we were sitting on nine doors, mixed of one and two bedrooms. There were arbitrage apartment units in the area, and we were leasing those by the month, obviously.
And so when the government pays you by the night, according to this GSA rate, that nightly rate can differ from market to market. But in Dallas-Fort Worth, it was 167 at the time, 167 a night. So if you do the math, 167 a night times 30 nights is $5,010 a month. Now, mind you, we’re putting the pilots in one bedroom because they’re there longer. So one bedroom for us was costing us 14.85 in rent, couple hundred dollars in expenses, large profit margin. And so we said, well, the mechanics are only there for two weeks. So we’re going to put them in a two bed, two bath with a shared living, shared kitchen, common area. And so however, because we had a second bath and we were to split them up like that, we were able to charge that 167 a night, not once, but twice.
So the two bedroom units were generating $10,000, $20 a month, and the rent was only a couple thousand dollars plus expenses. High profit margins, that deal, five-year contract, nine doors grossing 65K a month.

Ashley:
At what point did you say, “I need to use some tax planning.”

Tony:
Wild.

Noble:
So that was the first one that we did. And so after that, we were like, “Oh, we love this. We’re about to do it again. We’re about to run it up.” And so we found another opportunity up in far North Dallas. Raytheon’s up there. We found an opportunity with them, similar situation, not as many doors, but a similar situation. And so after that, it was full on. It was like game on. And so fast forward to last year is when we landed the big Navy one and that one. So we’re still inside of the first year of that one. And it’s a five-year deal.

Tony:
No, well, I’m super excited to get into the kind of nitty-gritty part of putting this together, but what did that first deal prove to you? Again, you said five-year contract. What did that first deal prove to you that most investors misunderstand about government contracts?

Noble:
I think most investors think that it’s just difficult to pursue them. There’s just too much red tape. You’re talking about Uncle Sam. And so they immediately think IRS level red tape and it’s too difficult to pursue. And it’s too big of a goal. Maybe they think it’s like doing business at the federal level is just way over the top. And it’s really not. It’s really just a matter of understanding the federal procurement process and how to bring your product or service to the market and make it available to them as a registered vendor. And so it’s not easy, but the process is simple. I’ll say that.

Ashley:
So really that first deal really opened the door for you because once you understand how that contract worked, the next question becomes how many different types of government contracts are actually out there and which ones should rookies even be paying attention to? We’ll be right back with more from Noble. Okay. So now that we understand why government contracts made sense for you, let’s slow this down and walk through how they actually work, especially for someone who’s never even heard of this strategy before, like me. So for someone-

Noble:
Good question. So there are multiple types of government contracts. Now, since we’re on the Real Estate Rookie podcast, we’re going to focus on just the real estate related ones, which the majority of those involve some type of lodging, accommodations, housing, something like that. The way to think about it is what type of inventory is a specific federal agency looking for? Now there are over 400 federal agencies, so there’s a lot and they move people all around the country all the time. So there’s always a need for someone to lay their head somewhere. And so, but what types of inventory are they looking for? Well, it could be single family, it could be multifamily, it could be hotel, it could be emergency shelters. So this is an idea. And it could even be, in some instances, manufactured homes and tiny homes. Now, the core areas that I focus on are single family, multifamily hotels.
We sell all of that back to the federal government. And so part of it is just understanding what specific type of housing or type of lodging is the agency looking for. And then what we do basically is we find, after we found the opportunity and we understand what they’re looking for, then we go out and source that inventory. So then we go out and we find the property that matches that inventory. And there could be a number of different variables. Sometimes it could be a scenario whereby it needs to be within a certain radius of this address or of this zip code. It needs to have certain amenities. It needs to have free parking. It needs to have this, that, or the other. 95% of the time, the inventory needs to be furnished. And so very similar to an STR, MTR play. It needs to be furnished inventory.
But once we determine what type of inventory is required-

Tony:
No, but one clarifying question on that. I just want to make sure I’m tracking. So you’re securing the contracts before you actually get the property. So is your model predominantly then still arbitrage to where you have some flexibility to lock these units up after you’ve gotten the contract?

Noble:
Good question. Good question. So in some instances, yes. Some instances we’ll win the contract and we’ll leverage the contract to support getting the inventory, right? Because it’s a totally different conversation when you’re coming to the table with a federal contract and you’re not asking a multifamily community, “Can I do a short-term rental at your property?” It’s a totally different conversation. The occupant is totally different. These are vetted personnel of federal agencies or contractors or service members. Some of them have security clearances, so they are the ideal occupant that most of these properties would love to have on site. And so sometimes, yes, we’ll get the contract and we’ll leverage the contract to then go get the doors. But more often, we are actually having a preliminary conversation with the property about the opportunity that we’re working on and we’re trying to negotiate what is a win-win solution to partner with them on this opportunity.

Tony:
Got it. No, but let me ask one follow-up question on that piece because you mentioned the government contract in hand and it almost reminds me of Section eight where there are a lot of investors in the Section eight space who tout that Section eight is guaranteed. And for the most part it is because the government is paying all or portion of those rents, but then there are those situations like the government shut down. So when those things happen, are your contracts impacted? If the government shuts down for 60, 90 days, are you not getting payments or are they still paying for their lodging requirements?

Noble:
Good question. So the short answer is, I’m going to give you two answers. The short answers is your payment, their payment obligation is guaranteed. It’s a legally binding contract. So once you go into contract with an agency to provide lodging, it’s legally binding. So this most recent government shutdown, because we’ve gone through government shutdowns before. Now, this most recent one was the longest. They’ve never gone that long before. They were the longest, and that was the first time ever that we got paid late. However, they also are required to pay interest on late payments. So what we normally got paid on X date, we got paid like 48 hours later, but they paid with interest. And that was the first time it ever happened. And quite frankly, I think it was more of an anomaly because at the time Trump had made a decision to pause payments.
Well, that was actually illegal and the big contractors went into uproar and he backed down. But yeah, it’s a legally binding contract and thus it’s a guaranteed payment from the federal government.

Tony:
My mind is like blown right now on this strategy and I can’t believe that we’ve waited almost 700 episodes to get you onto the podcast. So I guess the next question about the contracts is, how long do they typically last? Like you mentioned five years, that’s a long time to have some quote unquote guaranteed income. Is that normal or is it typically a shorter timeframe?

Noble:
So it can be anywhere from … They run the gamut, to be honest with you. I’ve seen some as short as like two nights, but maybe they need to put 500 people in a hotel room for two nights and we’ll broker that deal. We’ll put those rooms under contract and then mark them up and sell it back to the agency basically.

Ashley:
So that’s even you going to the hotel?

Noble:
Oh yeah.

Ashley:
Oh, so like getting a room block.

Noble:
Yeah, we’ll do hotel brokering. Yeah, that’s a strategy that we use. And so it could be as few as just a couple of nights and as long as it’s five years and everything in between. So they vary.

Ashley:
So now let’s talk about that operational piece, the hospitality piece. You think of Airbnb arbitrage, you’re renting the unit from somebody, then you’re doing these contracts. Who’s the actual property manager? If the toilet starts leaking, who is the person? Are they contacting the apartment agency or apartment complex and you’re out of it? Who is taking care of them and what role do you actually have once the people are in the apartments?

Noble:
Yeah, good question. So essentially, we are the point of contact for the agency. So there’s actually two contracts that exist, the contract between your company and the agency and the other contract between your company and the property owner. And so we’re the main point of contact for the agency if an issue comes up with an occupant, our team is alerted first. Now on the front end, we’ve already come to an agreement of how maintenance and things like that and emergencies will be handled with the communities or with a single family property owner, whatever the case is. And so if anything happens, then that whole process kind of kicks into place.

Ashley:
Do you have an example or a story of there was a problem where you actually had to step in and take up some of your time? What’s the worst case scenario of something that could happen?

Noble:
Okay. So at the end of the day, we’re all in kind of a real estate quote unquote space. So yes, I’ll give you one. The worst one’s probably happened to one of my students. So one of my students, it was a contract out in Alabama. It’s for the alcohol, tobacco and firearms, ATF. It’s a five-year deal. It’s 150 doors, something like that. So it’s a combination of multifamily and hotel space. Now, the multifamily that he got under contract was new development. So it was super clutch, new development, brand new facility, class A, beautiful, everything. So he’s into the second year of the contract and just a random event happens. Now, all of the occupants are there gone doing their job during the day, so they’re not in the units during the day, nine to five type deal. During the day, one of the units gets shot up by a drive-by.
Now here’s the thing, this is in a nice area of town. It’s in a nice area of town. It’s brand new Class A development, and it’s this freak thing. So whomever shot up the unit, drove by first floor type of scenario. Luckily, nobody was there, but multiple rounds going through the windows and everything. So after that happens, of course, he’s freaking out because he’s getting all of these messages and stuff from the agency. His agency contacts. Long story short, it was a very freak thing. Even the police got involved, obviously they said nothing has ever happened like that in this side of town and certainly with these level of properties. And the agency didn’t hold him responsible or anything. We moved them. They had to move to another unit, the higher floor. It was good. It worked out. So anything can happen. Anything’s possible. We’re dealing with real estate at the end of the day, and you just have to go with the flow and adjust accordingly.
And so that’s what happened.

Tony:
Now, before we talk about pitching Noble and putting yourself in position to start securing some of these contracts, and again, I’m sure everyone’s mouth is probably watering at a $44 million real estate contract. I didn’t even think that that was possible in this space. But before we talk about that though, what’s the minimum foundation that a rookie investor needs to even be taken seriously by a government agency?

Noble:
The very first thing that you have to do is you need to register your entity to be a vendor with the federal government. So you have to register your entity. You can do that by going through a website, Sam, S-A-M.gov like uncle Sam, sam.gov, and you have to go through the registration process. So for someone that hasn’t gone through that process before, it can be a little cumbersome, but that is a necessary first step. You just have to do it. Once you’re registered with the federal government, you receive two different identifier numbers. One of them is called a UEI, unique entity identifier. It’s a 13 character alphanumeric number. The other one is called a CAGE code, C-A-G-E. The CAGE code is an identifier for your entity that is issued by the Department of Defense. Every company gets one. And so once you have your UEI and your cage code assigned, you’re officially in the system, in their database as a federal vendor, and it’s off to the races.
Then at that point, you can start the process of going after some of these opportunities.

Tony:
And how long does that process take noble ballpark? Is that a two-year process or is it a two-week process?

Noble:
It’s definitely not that long. It can vary though, depending on the person’s aptitude going through the process. So I’ve seen it, quite honestly, I’ve seen it where it’s taken some people a couple of months to get through it because they just didn’t know how to navigate it and the questions are a little bit confusing. It’s like filling out IRS paperwork. It’s just not fun and confusing. When I work with my students and mentees, my goal is to get them in and out in two weeks. And that’s historically what I’ve been able to do. And so it just depends on that person’s aptitude for getting through the questions because there’s a lot of questions and documentation you have to deal

Tony:
With. But it can be quick, which is super cool. I have family members who run homes for disabled adults, and you have to go through a government vetting process as well, but that’s a two-year timeframe for you have to get all these certifications, do all these different things. So I was just curious if it was similar here. One last question though, Noble, just going back to the contracts really quickly. I know we mentioned the length can vary, but do you see renewals happen often?That first one that you signed that was five years, do they renew for another five or is it kind of like a one and done thing in most scenarios?

Noble:
Yes. So a lot of the contracts, to be honest with you, are old contracts that just get repeated every five years. And so that is pretty common because the agencies want to give other companies the opportunity to win the business. And so a lot of times when opportunities come out, they’re not first time opportunities. On occasion, there are, but a lot of times they can be decades old opportunities that just get resolicited every five years and give you opportunity to compete for that business with that agency.

Tony:
Once you understand the contracts themselves, a real advantage shows up in how you approach them because after the break, Noble’s going to break down how to actually find these opportunities and how to pitch the government. So like you said, they choose you. So we’ll be right back after we’re from today’s show sponsors. All right. So we’ve covered what government contracts are, how they work. Now let’s talk about the part that everyone’s really excited about. Where do you find these opportunities and how do you actually get the government to say yes? So Noble, a lot of rookies probably assume, and you kind of hit on this earlier, that you need some super secret access to be able to do this, but obviously that’s not really the case. So where can I go to find these government contracts once I’ve been approved? Is there like a Zillow for government contracts or where am I going to search for these?

Noble:
So essentially the same place that you go to register, sam.gov, that’s the best starting spot because those same opportunities, once you’re registered, you can log in and you can see a list of a lot of those opportunities right there in that portal. I would say that Sam.gov probably would be considered like the parking lot, if you will, of government contracts. They park a lot of opportunities there. Now there’s some other portals as well, but that is the primary portal, sam.good.

Tony:
And Noble, do you ever find yourself like … We both know Jesse Vasquez, and when we interviewed him on the podcast, he was almost doing gorilla type marketing for his midterm rentals where if he saw a business truck at the Extended Stay America, he would search for their phone number and call them up directly to try and get them to come save his midterm rental. Are there any kind of gorilla strategies like that, or is it really just It’s like, hey, once you get approved, you can really get all the business opportunities you need through that onesam.gov website.

Noble:
So there’s not really gorilla strategies per se. That being said though, there are a couple of marketing assets or tools that we use, if you will, in this space. So one of them is called a capability statement. A capability statement is simply like a one-page business resume. So we use that document all the time. We send it in emails to different contracting teams. You’ll put it on your website, you can put in your LinkedIn profile, whatever the case is. So the capability statement is probably the number one marketing tool that we use. And again, it’s like a one-page business resume. The next thing that I would say is probably the best way to kind of get out there and get in front of people because the part of the problem is a lot of these agencies, they don’t know you exist. You’re in the database, but that doesn’t mean they’re going specifically and looking for you.
And so getting in front of these agencies is a huge, advantageous thing to do. And so you can request what is called a capabilities briefing. And that’s simply kind of like a get to know you meeting over Zoom typically or a conference call or something like that where they’re actually looking at your capability statement and you’re going over it with them, kind of explaining to them like, what is your background in this space? And your background does not need to be on the federal side. It can be on the private sector side. It could be that you’ve ran short-term rentals or midterm rentals or what have you. But it’s effectively a get to know you meeting. So between capability statement as a marketing tool and also having capabilities briefings, that’s as good as it gets in terms of like any type of gorilla marketing effort.

Ashley:
So is that kind of like your pitch almost before the numbers even happen is that meeting or is there something else that happens before you’re actually working through the numbers on the deal?

Noble:
So there’s a couple of things that happen, which I’ll break down for you. So there’s really kind of like two sides of the coin if you kind of look at it. So on the one side of the coin, you have active bid opportunities that are posted on Sam.gov. The other side of the coin is there are opportunities that you don’t have to compete for. It’s who you know and it’s driven by the need that the agency has. And so it can be advantageous to build a rapport, get to know some of these contracting teams, the decision makers, what their needs are, what they’re looking for, what their forecast is for inventory and lodging inventory. So one side is active bidding. The other side is networking, quite frankly. And so those are the two sides. Now, as far as the active bidding side, I’ll break down the anatomy of providing a proposal to an agency that’s put out a solicitation.
I’ll break it down. Okay. So the first step is to find the opportunity. Again, you can do that on sam.gov. That’s one location where you can look. The next step is once you find the opportunity, there’s going to be a due date, which that due date represents, when do you need to submit your proposed solution for this opportunity to the agency? There’s a cutoff date. There’s a date and a time. You can never be late, not even like 30 seconds because that could automatically disqualify you. And so you need to pay attention to the due date. Once you find the opportunity and you notice what your due date is, then you want to read all of the information that the agency has provided about what they need. That is called a scope of work or a performance work statement. It can be a five-page document.
It can be an 85-page document. But at the end of the day, it states everything in great detail about specifically what the agency is looking for. The type of housing, the quantity, the dates, the move-in or check-in, the length of the contract term, all of the things, all the amenities that they’re looking for. Everything is in that performance work statement or scope of work. So you need to read that document. Then after you determine, okay, this is something I want to go after I want to pursue, you can do some quick math to run the numbers to see how much potential profit is on the deal. So you would start by finding the GSA rate for that region or market or zip code. And you can Google that. You can put GSA lodging per diem into Google and then put in the city and state or the zip code.
It’ll bring up a chart and it’ll tell you what the government pays per night in that market. And so once you’ve determined that, let’s just say the opportunity is for a one-year deal. So 365 days, you can multiply it times that GSA rate, that gives you your gross revenue ceiling of what you could potentially from a gross revenue perspective make. Now, the next question is you want to know how much potential profits in the deal. And so if you know, let’s just say it’s a hotel deal, you could quickly go just to get a quick idea, you could quickly go to hotels.com. Drop in the city, put in the number of doors that you’re looking for or whatever, put in some rough dates and get an idea, kind of a foundational baseline of what hotel inventory is going for in that market. Now, keep in mind, what you find on a hotels.com is not what you’re going to end up paying.
Reason being is because when the government has a need, they have a need in bulk. They need a lot of something. That’s typically the case for lodging as well. So when you contract a hotel deal, you’re not going to pay market rate. You’re not going to pay rack rate, any of that. You’re going to be paying a group discount rate where you’re blocking a group block of rooms. And so you’re going to get a discount for that. But it at least gives you a foundational baseline of what you could expect in the market. And so you can quickly assess it and say, okay, this is my gross revenue. This is what I anticipate from a market perspective, what is the spread there? Because that’s where you make your money. And so you can run some quick math to make a quick decision of, am I going to pursue this opportunity or not?
If you say, okay, I’m going to pursue this, then you need to start doing your market research. That’s finding the actual property that’s going to fit all of the criteria that they spelled out in the scope of work. So they want free parking included. Maybe they want Continental Breakfast, maybe different things. So you’re going to find properties that fit that criteria. Once you find the property, then you’re going to start your outbound communication where you reach out to the property to get rate quotes from them for all of the things that were detailed. Because you need to then start to determine what are my expenses going to look like so I can figure out what my true spread is. So you’re going to get some rate quotes back from the hotel after they’ve determined it’s available. That’s first and foremost. You want to find it.
Is it available if it is?

Ashley:
Noble, real quick on that point of availability, how far in advance are you getting these contracts? Is it you have a year to kind of book out these? Is it weeks? Or what is that kind of timeframe that you’re getting before they actually need the check-in?

Noble:
So it could vary. It could vary. Sometimes the true window is when does my proposed solution, my proposal need to be submitted? I see it’s on SAM. I see they’re readily ready to award it. When do I need to have that turned in? That window could be, it could be a week, it could be three weeks for you to go out and put a solution together to present, to propose. Now, once you’ve secured the contract, maybe you secure it in April and it doesn’t start until mid-May. Well, maybe you secure it April 1st and it starts 10 days later. There’s a lot of variables that determine is based on the agency’s need. Does that make sense?

Ashley:
But it could be like two months from when you find the bid online and from when they actually need it to start. It could be that quick. Okay. Because I feel like that makes it even more difficult to find availability when it’s that short of a window.

Noble:
One might think, but there’s certain strategies that you could use to get that information quickly and to lock up that inventory. But at the end of the day, you still want to get your numbers back from the property, the hotel in this case, because you’ve got to put your markup on it and determine what you’re going to propose to the agency. And so then once you’ve done that, usually you’ll want to ask for what is called a letter of intent or a letter of authorization from your partner hotel in this case. That is not a legally binding document. It’s just a letter on their letterhead from their decision makers simply saying that should X, Y, Z company end up closing this opportunity with this agency for X number of doors over this timeframe, we’ll support it based on availability. And so it doesn’t lock them into anything hard.
So then there’s that. Then after that, it can be in some situations, very much a hurry up and wait game. Hurry up and get us your information, your proposed solution in, and then you got to wait on the government to respond. And so sometimes you might wait a few weeks, sometimes you might wait a couple of months. I think the longest one of my students that had to wait was like five months, but he landed a $7.5 million contract. But that’s the process from beginning to end, if you will.

Tony:
I’m just curious, because it seems like it’s a little bit of a black box once you submit everything. What can someone do to make their proposal stand out amongst … You can’t even see what everyone else is submitting. So how do you make sure that you give yourself the best shot at actually getting chosen?

Noble:
The key is, at the end of the day, you want to be in a position where you’re providing the best value for the agency. Now, value can mean different things to the agency, but they’ll typically spell that out. So there’s three common things that they look for. Obviously, price is one, right? Sometimes that’s the most important factor, sometimes it’s not. And they’ll rank the factor of what’s order of importance. So price is one determination factor. Another one is what they call technical capability. Technical capability just simply means, are you able to check all the boxes of all the things that we’re asking for in the scope of work? If you can, you get graded 100% on the technical part because you met all of the requirements. The third part is past performance. That’s where people get hung up the most because the first inclination is, “Oh my gosh, I don’t have any government contract past performance.
How can I win?” You don’t need government contract past performance. For those that play in the space that we do, that’s all the past performance you need. So all of my students that have won contracts, it was all the first for them, but they’ve had past performance by doing short term, even long term and midterm stuff, or maybe they came from a flipping or wholesaling space. But they have some level of past performance under the larger real estate umbrella, we can leverage that. And so did I answer your question?

Tony:
No, absolutely. And that’s what I’m trying to understand is just like how as we go through this process of submitting ourselves, can we potentially stand out? But I think the next question that comes to mind for me, Noble, is that let’s say that we do get chosen and you talked about reaching out to the hotels if it’s a big order or something to that effect, but how can rookies maybe negotiate on the property owner side or the landlord side to get the best possible rates to make sure that that margin is actually there?

Noble:
Got it. Got it. So let me back up a little bit and I’ll make one point and then I’ll answer that question. So what you asked previously, most people think, “Hey, this is going to be a highly competitive deal. I’m going to be going up against multiple other vendors.” Here’s what happens in reality, and I was just walking a student through this the other day. You may be in a scenario that you feel is highly competitive because you call a hotel and your sales contact at the hotel is like, “You’re the fourth call I’ve had today,” or whatever. And so that plants this seed in your head of, “Oh my gosh, there’s a lot of people calling. This is going to be a competitive opportunity.” More often than people realize a number of the people that are initially looking at an opportunity fall off, they don’t go to the finish line and they end up no bidding.
And so I’ve seen multi-seven figure opportunities where there was one vendor that bid and won by default, or there was two or three, and it was one that somebody won 20 million and there was only three bidders. And so it’s not as competitive going to the finish line as people think it is. Part of that is just up here. And so hopefully that makes sense. Now, and then what was the previous question you asked

Tony:
Me? Just like on the other side of going toward the landlord, how do you leverage these government contracts to negotiate better rates there?

Noble:
So it depends on the type of asset. So let’s just say it’s a single family asset. Obviously you’re dealing with a property owner at that point or maybe even a property management company. So if it’s a single family asset, let’s just say it’s a contract with a Veterans Administration because it’s very common. So the Veterans Administration, they’ll look for single family assets where they can place a veteran in a room in a house or sometimes two in a room in a house. And maybe that veteran house is located near a VA medical center and they need to stay nearby because they just had a post, they had surgery and they go back to post-op appointments. So they need to stay nearby. So the VA will pay for veterans to stay in your unit sometimes by the bed, but definitely by the room on a monthly basis.
Now here’s the thing. If you’re speaking with a single family property owner, one of the advantages for them making their inventory available for you for this specific use case is one, that individual is already vetted by the federal government. Secondly, the payments are guaranteed by the federal government. Third, it’s a long-term deal. These are normally five-year deals when you find these VA type opportunities. So you can actually lock up a property for five years with a homeowner, with guaranteed payments backed by the federal agency. Those are all positives for the homeowner. And you’re simply, you become the manager for the occupants that the federal government provides. And so because of that, you’re able to negotiate usually a discounted rate because you’re taking it for such a long term and you’re just helping them pay down the mortgage on the house. If it is a multifamily scenario, then there’s a lot of leverage that you can pull.
It’s very much similar to an arbitrage play. Because you’re taking so much inventory, you’re helping them increase their occupancy rate. Sometimes we have helped property management companies go from 93% to full-on 100% occupancy just off of one contract. Our San Diego contract, we’re spread out across 27 different communities to get to that 400 doors because inventory is so tight. But in some of those areas, we’re able to get those property manager companies to 100% occupancy. That’s excellent for them.That’s a win all day long because the standard is you need to be at 96%. That’s kind of the standard for where property owners want to see property management’s occupancy rate. And so we’re able to push that up. Typically, we’re able to negotiate because we’re getting so much inventory. So we’re able to negotiate a very favorable rate for us. And then also, again, because of the type of occupant that we’re putting into the property, they’re vetted at the highest level of the federal government.
So the background checks and the clearance checks is at the highest level, much stronger than property management vets I guess and background screens a guest. So the type of occupant that we’re putting in the property are the type of people that they very much want to have staying on site. And so we leverage all of that stuff to, at the end of the day, come up with a win, win, win solution, a win for you as the vendor, a win for the property owner, a property management company, and a win for the agency. And when you can construct that deal, that’s the recipe for a winning contract.

Ashley:
Now, Noble, what are some of the negotiation tactics you can put into your contract or negotiate with agency where maybe you don’t have as many upfront costs? If you’re getting even a hundred units furnishing those units can be quite extensive of a cost. So what are some of the things you should negotiate to really minimize those upfront costs?

Noble:
I like that. I like this. I get that question a lot. So one of the things that I recommend, especially out of the gate, because these contracts can be a year, three years, five years, they’re longer term. And if it’s 50 doors, a hundred doors, that can get costly furnishing that. We don’t pay for the furniture. We typically will lease it. We’ll lease the furniture. We’ll go through a court. We’ll go through an AFR. We’ll go through a regional furniture company. We’ll lease that inventory for a number of different reasons. One, we’re padding that lease cost back into our proposal. So we’re taking that expense, we’re marketing it up a little bit, and we’re putting it right back into the proposal. So it’s being offset by the revenue that we’re generating. That’s number one.

Ashley:
So Nobel, is that a high-end rental center or something kind of where you’re leasing?

Noble:
Yes, it’s corporate furniture leasing. And so Court, CORT is probably one of the largest in the nation. AFR is very large, but they rent full on fully furnished apartments and you can do it by the month, I mean, all the way down to the silverware stuff. And so it’s a fully furnished, but we’re not paying for it. We’re leasing it. And then because we’re going to a quarter AFR with volume, we’re expecting a discount. Again, because it’s over a longer period of time and it’s multiple doors. So we’re not going to pay even market rate. But it also helps on the back end because when a contract ends, it comes time for disposition, you’re not sitting on a hundred units worth of furniture, you don’t know what to do with.

Ashley:
Having a garage sale at the apartment complex.

Noble:
Right, right. So that’s how it works. And that helps keep our upfront expenses low, very manageable because then we’re just dealing with things like utilities, turning those on, this, that, and the other, and we don’t have huge upfront expenses. And to that point you made earlier, we do negotiate off of security deposits and first month’s rent a lot of times where we’re not paying first and sometimes not even second month’s rent upfront. And so there are some different levers you can pull to make your upfront costs very minimal.

Ashley:
So Noble, you left me in suspense here. So with that $44 million contract, I don’t know if you want to give us yearly or monthly, but what are you going to end up netting on that contract each month or every year? I

Noble:
Can tell you what we deposit in the bank and then what we end up paying out every month. So here’s how it works. And it’s a little tricky because when you get a contract like that, the agency will issue what are called task orders. And so a task order is where they say, okay, we’ve got our next wave of people coming in is going to be 120 of them and they’re going to be there for eight months and that’s a task order. Well, while that task order’s going on, another task order could be issued on top of that that overlaps. Okay, we’re sending in our next 200, they’re going to be there for four and a half months, and that’s a task order. And then there’s another layer of task order. So task orders are issued throughout the course of the five years, right? But the value of what we sold to the agency and what we wanted on was 44 million.
Now, our profit margins, profit margins in this space can vary. They could get … I’ve seen as small as 20% and I’ve seen as large as like 55, even 60%. And so we’re probably hovering around for this particular deal, the 40 to 45% profit margin range. So it’s nice.
But it’s difficult for me to say monthly because of the task orders and the way they stack on top of each other.

Ashley:
Right. Yeah. No, that makes total sense. And that’s also interesting to learn. Yeah. But wow, okay. So 40 to 50%.

Tony:
Yeah. I mean, over the life of this deal, I’m 44 million, 40% is what, just over $16 million over the life of that deal. I mean, that’s like an NBA player’s salary.That’s like an NBA contract right there.

Noble:
It’s not just me because I have business partners in on it.

Ashley:
Wait, are you calling in from your yacht right now?

Noble:
I’m at the house. That’s funny.

Ashley:
Well, Noble, thank you so much for enlightening us on government contracts and really the upside potential. And I’m sure as great as it sounds, there is a lot of work that goes on behind the scenes, the negotiation that I can’t even imagine finding the properties that fit exactly what the government wants. So thank you so much for taking the time to share with us the first basic steps of how to actually start this real estate strategy. Noble, where can people reach out to you and find out more information?

Noble:
Absolutely. Well, first of all, my pleasure. Thanks so much for having me. I appreciate you having me on. If anybody wants to connect with me, the easiest place, quite frankly, is Instagram. I’m always on the Gram. My handle is noble.crawford.3. So noble.crawford.3. And I still answer my own DMs. I’m not any type of influencer anything, but Instagram’s a way to reach me.

Ashley:
Until this $44 million contract

Tony:
To go to new. They won’t be able to find them anywhere.

Ashley:
Well, thank you guys so much for listening to this episode of Real Estate Rookie. I’m Ashley. He’s Tony. I’ll see you guys on the next one.