I sat down with Michael Russell, co-founder of Malama Capital, on the podcast recently, and his story is one that I think a lot of real estate investors need to hear. Michael built a portfolio of 15+ Airbnbs in Maui, hit a wall, pivoted into commercial hospitality, bought a hostel during COVID at literally zero percent occupancy, and turned it into the number one rated hostel in North America. Today he's sitting on a $20 million portfolio that he built without a single dollar of outside capital.
In This Article
Why Airbnb Investing Has a Ceiling
How to Buy a Hotel: The Hostel Advantage
Buying a Hotel During COVID at Zero Occupancy
The Financial Case: Hostel vs Hotel vs Short-Term Rental
Hospitality Is a Business and a Real Estate Investment
If you've ever thought about how to buy a hotel or wondered whether there's a smarter path than traditional hotel investment, this is the conversation that'll change how you think about hospitality real estate.
Michael Russell: By the Numbers
$20M
Portfolio Value
#1
Rated Hostel in N. America
15+
Former Airbnb Units
$0
Outside Capital Used
Why Airbnb Investing Has a Ceiling
Michael got into short-term rentals the way a lot of people do. He was living in Maui, saw an opportunity, and started building out Airbnb units. At one point he had 15 to 17 properties running, and they were doing well from a cash flow standpoint. But here's the problem he ran into that most Airbnb investors eventually face: the model doesn't scale.
With Airbnbs, every guest wants a bigger, better experience. They want nicer furniture, better amenities, a more "exclusive" feel. And every improvement you make costs more money, but you can only charge so much per night for a single unit. You're also stuck with comp-based valuations. Your property is worth what the house next door sold for, regardless of how much revenue you're generating.
That's a fundamentally different game than commercial real estate, where your property value is driven by net operating income. If you can increase revenue or cut costs, you directly increase what the property is worth. Michael realized this when he took a course on buying apartment buildings, and it clicked for him. He thought, "What if I took the revenue potential of short-term rentals and combined it with the value-add mechanics of commercial real estate?" That's essentially the hospitality investing model.
How to Buy a Hotel: The Hostel Advantage
So here's where it gets really interesting from an investment standpoint. When Michael was looking at the hostel vs hotel comparison, the math was overwhelming.
Same 400 Square Feet, Two Very Different Outcomes
$200
per night as a hotel room
$480
per night as a hostel (8 beds x $60)
2.4x more revenue per square foot
Revenue per square foot is the metric that matters in hospitality investing. Not RevPAR, not ADR in isolation. It's about how much income you can generate from every square foot of space you're paying a mortgage on. And that's where the hostel model absolutely crushes traditional hotels.
Now, I know what you're thinking. "A hostel? Isn't that just a cheap, dingy backpacker spot?" That's exactly what I thought too before I started looking at modern hospitality concepts. But what Michael built in Maui is nothing like the hostels you're picturing. Think more along the lines of a boutique social hotel. Beautiful common areas, curated experiences, community focused. The kind of place where people actually want to hang out, not just crash for the night.
Buying a Hotel During COVID at Zero Occupancy
Michael's first hostel acquisition is a masterclass in buying when everyone else is running scared. He found a property in Maui that had been a hostel for 25 years under a single owner who had basically let the place fall apart. Deferred maintenance everywhere. And then COVID hit.
The property was at literally zero percent occupancy when Michael bought it. Nobody was traveling to Hawaii. The previous owner wanted out. And Michael saw what most people couldn't see through the panic: a fundamentally sound real estate asset in one of the most desirable travel destinations in the world, available at a steep discount because of temporary circumstances.
The best time to buy hospitality real estate is when nobody wants it. COVID created once-in-a-generation buying opportunities for investors who had the vision and the stomach to move forward.
- Tyler Cauble
He completely renovated the property, repositioned it as a boutique social hostel, and within a relatively short period of time, it became the number one rated hostel in North America. That's not luck. That's understanding how to add value to a commercial property through operational improvements and strategic repositioning.
The Financial Case: Hostel vs Hotel vs Short-Term Rental
Let's talk numbers, because this is where the hostel model really shines compared to both traditional hotels and Airbnb-style short-term rentals.
With a traditional Airbnb, you're capped. You can optimize your listing, improve your amenities, and maybe charge a premium, but at the end of the day you're renting one unit to one guest (or group). Your revenue ceiling is fixed by the nightly rate for a single booking.
With a hotel, you get more rooms, but each room takes up significant square footage and you're still limited to one booking per room per night. The overhead is massive: front desk staff, housekeeping for every room, higher furniture costs per unit.
The hostel model flips all of that. You're putting 6 to 8 beds in the same square footage that would hold one hotel room, and you're charging $50 to $80 per bed per night. The revenue density is dramatically higher. You need less housekeeping per guest, your common areas do double duty as amenities, and your per-guest acquisition cost is lower because hostels attract travelers who book based on community and experience, not just location.
And here's the kicker: because hospitality properties are valued on income (just like commercial real estate), every dollar of NOI you add directly increases your property value. There's much more room for error, and a much stronger value-add play.
Hospitality Is a Business and a Real Estate Investment
Here's the thing that Michael said that really stuck with me, and it's something I've experienced firsthand with Salt Ranch Hotel here in Nashville. Hospitality investing isn't just a real estate play. It's a real estate investment and a business investment wrapped into one.
When you buy an apartment building or an office complex, you're mostly managing a real estate asset. Collect rent, maintain the building, manage the tenants. Hospitality is a completely different animal. You're running a business every single day. You're managing staff, curating guest experiences, handling reviews, marketing to travelers, adjusting pricing in real time. It never stops.
Find a partner or mentor who has done it before. I would have given them an equity stake to help provide experience from the renovation to operational efficiency.
- Michael Russell, Malama Capital
That's Michael's biggest piece of advice for anyone looking at how to buy a hotel or hostel. Don't try to figure it all out yourself. The operational side of hospitality is complex, and having someone who's been through it before can save you hundreds of thousands of dollars in mistakes. I've lived this reality myself. Running a hotel is essentially two businesses at once.
What to Look for When Buying a Hotel or Hostel
Based on Michael's experience and what I've learned through my own commercial real estate career, here's what matters most when evaluating a hospitality acquisition. If you're still working through how to buy your first commercial property, this same checklist applies regardless of asset class:
Location fundamentals: Is the market driven by tourism, business travel, or both? Maui works because of consistent tourism demand year-round.
Revenue per square foot potential: Don't just look at room count. Calculate how much revenue each square foot can generate under different operating models.
Value-add opportunity: Deferred maintenance and outdated operations are your friends. They create the discount you need to make the numbers work.
Operational complexity: Be honest about whether you have (or can hire) the operational expertise to run a hospitality business.
Exit strategy: Hospitality properties are valued on income. Every operational improvement you make directly increases the value of the asset.
Key Takeaways
Airbnbs have a scaling ceiling. The model relies on comp-based valuations and doesn't reward operational improvements the way commercial real estate does.
The hostel model generates 2x+ revenue per square foot compared to traditional hotel rooms. 400 sq ft with 8 beds at $60/bed = $480/night vs $200/night as a single hotel room.
Buying distressed hospitality assets during downturns is where the biggest returns come from. Michael bought at zero occupancy during COVID and built the #1 rated hostel in North America.
Hospitality is a business AND a real estate investment. You need operational expertise, not just capital. Find a mentor or partner with experience before jumping in.
Revenue per square foot is the metric that matters. Focus on income density, not room count, when evaluating hospitality investments.
This article is adapted from a conversation on the Tyler Cauble YouTube channel. If you want to hear Michael's full story, including the details of his renovation process, his thoughts on scaling a hospitality portfolio, and how he built a $20 million business with zero outside capital, watch the full episode above.
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