In this episode, Clint Coons, Esq. speaks with Shannon Robnett, a 4th generation real estate professional who has built his deal network by being THE BEST resource for ‘connections.’
For more than 30 years, Shannon Robnett Industries (SRI) has built a strong reputation as a leading commercial real estate investment group by investing in multi-family properties in the Treasure Valley. Their family of subsidiaries, including My Vertical Equity, Phoenix Commercial Construction, and Executive Management Services (EMS) Property Management, have grown to become a substantial earner in multi-family real estate syndication, investing in and around Boise, Idaho.
Highlights/Topics:
- Robnett’s family generations of real estate professionals
- How Shannon built his source list and later diversified
- Building your network – be everyone’s best resource for connections
- Learning from more experienced investors
- Cash flow, deal parameters, long-term debt
- Solving the seller’s problems
- Moving up to bigger deals, becoming part of a bigger machine
- Finding deals in non-local markets – how to drum up referrals through experts
- Questions to ask when vetting realtors, leveraging out-of-state connections
- Money or deals, which comes first?
- Aggregating capital first – creating your investor list
- Helping to structure the deal – creative financing, options for sellers
- Learning this process, the jargon, doing the homework
- Reach out through his website to get on to Shannon’s calendar!
- The 2008 crash could have been averted if we had these podcasts at that time
Resources:
Robnett’s Real Estate Rundown Podcast
Tax and Asset Protection Events
Full Episode Transcript:
Clint: Hey, welcome everyone. It’s Clint Coons here. In this episode, what I’m talking to is an individual who started in Boise and built up a real estate empire. I know how challenging that can be for investors when you’re starting your journey and you’re wondering how to take it to the next level.
What I wanted to do is bring on a special guest who is actually referred to me by several clients who have been following him on his podcast, The Real Estate Rundown with Shannon Robnett.
He’s a real estate developer and syndicator, with a principal focus on multifamily and industrial. He’s in Boise, Idaho. He checks all the boxes—developer, he’s been a real estate agent, syndicator, I think he was even a school teacher and he can explain that as well. I don’t know what he hasn’t done yet. Maybe a fireman or a policeman because he builds those types of buildings as well.
Anyway, I’m so happy to have him on. He’s going to bring a wealth of knowledge. If you’re wondering how to make that change to move into a different area of investing, or you just want to know about the market in general, what you should be looking at, here’s the expert. Shannon, thanks for coming on.
Shannon: Hey, thank you so much, Clint. I’m not a school teacher, but I was a fire commissioner and I am a pilot. The thing is I started my journey building single family homes. I was the son of a developer and a real estate agent, so I’m a fourth generation realtor—my son’s a fifth—and it really has just been in our blood.
As I went along this journey, it hasn’t been fast. I’ve been doing this for 27 years. When people look at where I’ve been able to get to, and you take the full context of the picture, I’m kind of a slow learner. It’s taken me 27 years to get here, but it continues to build.
I started building single family homes. I didn’t like homeowners and all of that, so I started building municipal buildings, schools, and industrial warehouses. I did my first investment property for myself in 2001, and it’s grown steadily from there. In the last three years, we’ve raised just over $60 million in capital for placement, syndications, and funds. It’s been a heck of a journey. I wouldn’t trade it.
Clint: For a lot of people, they start out with wholesaling maybe. They can move into flipping, and then eventually get into a single family. I run into investors all the time that are wondering how to make that change and move out of the single family to these other areas. How were you able to make that shift?
Shannon: What I did was I found a deal and then I started out finding single check writers that wanted to partner with me. I would do all the work, they would put up the capital, we’d make a go of it, and we’d split the profits.
It wasn’t syndication per se. It was just finding and selling the idea that this is a profitable deal. I began to underwrite deals. I began to figure them out and then I began to create a list of people that would probably have an interest in it and I just began to approach them.
I eventually ran out of people that could write the size of checks that I needed. The last one was a family office that wrote a $19 million equity check for a $64 million apartment complex. I realized that being dependent on a single source was too much, and that’s really my journey about three years ago into the world of syndicated capital and funds.
I don’t care if you’ve got a single family home that you’re looking to flip. Find somebody that wants to partner, then do two, and then do four. Build on that and show your expertise.
The other thing that I found is my partners were making a lot of money. They were raving fans. I think most of my deals, my partners looked at it as a really good deal for them. When it’s a really good deal for them, they’re very likely to do it.
Maybe I could have made more on each deal, but the thing was, I had people waiting around to write a check instead of trying to find a skinny deal and get somebody to join me for a 20% IRR.
I had people that made 35% and 40% on their money and that may seem expensive, but because of them, I also got to do the deal. So I made any money that I made because they joined the deal.
Clint: Whether you are finding these deals, it sounds easy. Just go out and find a deal. People say, how do you build your real estate portfolio? I said I found the right people. Where the hell are these right people? You’re picking up rocks? First off, let’s talk about that. How do you go out there and actually find the deals? Because that’s a challenge.
Shannon: It can be a challenge. I was talking with a friend of mine, Ken McElroy, who runs a very small outfit about $2 billion worth. I believe the numbers were between 20 and 22, he bought one deal. They were underwriting three to five deals a week. The numbers are that he underwrote 150 deals to buy one.
I think that a lot of people don’t realize the amount of work that actually goes into finding the right people. You put together a team, but how many frogs did you kiss? How many screw ups did we have because the guy promised us he could do it only to never ever return a phone call again.
Now we’re under contract and we’ve got to do it. We’ve got seven days left and we’ve got to get contractors lined up. There are things that I’ve done. I didn’t go to college, but I’ve gone to the school of hard knocks. I like to say very convincingly that every dollar I have made came from a mistake. It was the mistake that taught me how to get better, how to pick better, how bottom dollar on the contractor isn’t likely to work out in your favor, and how reputation and referral really makes things work better for you.
We currently have a deal going in Florida, that through a contact of a broker here in town, I was able to connect with a guy that in a matter of weeks filled two 40,000-square foot buildings for us that I would have never known without that connection.
Relying on your current connections to get you to open the doors to other people and seeing where your network really is your net worth can really get you there. Also having the mindset that you’re going to do the work and you’re going to underwrite 150 deals to get one.
Clint: You brought up the network thing, How did you start building your network? Because I think that’s a challenge for a lot of investors. They hear the term all the time, but they say where do I go […]? How do I build my network?
Shannon: When my son was 21 years old—he’s 27 now—he got his real estate license and wanted to go into the business. I told him you need to start networking and he goes, well, okay, dad, but every networking event I go to, there are 10 other realtors there. I said, there are two ways to do that. Number one, you’re the youngest so you need to be the sharpest-dressed kid in the room. He showed up in a three-piece suit so he was memorable.
The other thing that I told him to do was I said, you need to be everybody’s connection for everything. You need to know a plumber. You need to know a mechanic. You need to know a carpenter. You need to know a tax guy. You need to know all of these people so that when people start thinking about they need something, they think about you.
When you’re going out there, and your idea of networking is not to find someone to connect with for you, it’s to find someone to connect someone else in your network with, it becomes so much easier because the pressure is not there to meet somebody that can meet your need. You’re out there to meet someone that you can then help them.
That mentality of givers gain, give first, or whatever you want to call that has worked incredibly well for me because the more I work to plug other people into the source that they want, I find deals flow through that.
I was just meeting with a couple of people last week that were a referral from somebody else that I had met and plugged in. The guy felt like he owed me something. Plug me in with these people that I’m now working on a $6 million deal with because they needed my expertise. Because I was able to plug other people in, they saw that I was valuable and thought let’s talk to him about working together on this deal.
Looking at that mindset of how do you connect and how do you become valuable to valuable people, you’re going to start to see that come. But again, that’s going to take months of laying the groundwork and unfortunately, it took me 27 years to the point that now I can begin to say that yes, I do have a network and I am able to plug people in and from that comes a lot of deal flow.
Clint: What I’m also hearing is if you’re starting out or if you’re making that transition, you want to start smaller, because I’m sure you just didn’t jump from the single family right into a 175-unit complex.
Shannon: No, I did not. What I did do was I was a merchant builder for others and then that I was also seeing stuff that they were doing. I was watching what they were doing.
I remember meeting with a guy, I was building a 40,000-square foot warehouse for him and I just asked him to help me to understand the numbers. He took me in and he showed me how he was doing it. He showed me how he broke down the capital stack. He showed me all of those things because I was asking.
A lot of people will give you a lot of information if they feel that they’re enhancing your life. If I come to you and say, hey, Clint, I want you to tell me everything you do to save a client money on their taxes. I’m probably not going to get the result if I come in and say, hey, Clint, I’ve heard a lot of people talking about how good you are at this job.
What are a couple of the simple things that most accountants overlook that you find a lot of value? I get people that come to me all the time and want to know. If I had a little bit more information about you, I could probably make that referral very well.
Then all of a sudden that role changes. I’ve seen where people will come to me for advice and realize that the job’s too big for them or the project’s too big for them, and I wind up with it as one of my deals because they go, I can’t do it, but do you want it?
It’s in becoming somebody that is connectable, asking the questions, and then providing the value backwards. It says, hey, thank you for that referral. By the way, I have two for you. By the way, would you be interested in this?
A lot of times, just that top of mind is what’s gotten me into the door or gotten me into the trouble that then I’m allowed to solve, to show my expertise, or my ability to be valuable to you, Clint, by providing you with these guys who were asking some questions. They’re high net worth individuals. It sounds like something you could work with. I hope this is a good valuable connection for you. Then you’re just able to build that network where you become valuable to valuable people.
Clint: What you just said there, what I’m going to do right next is I’m going to replay that.
Shannon: It’s in becoming somebody that is connectable and asking the questions and then providing the value backwards. It says, hey, thank you for that referral. By the way, I have two for you. By the way, would you be interested in this?
A lot of times, just that top of mind is what’s gotten me into the door or gotten me into the trouble that then I’m allowed to solve, to show my expertise, or my ability to be valuable to you, Clint. Then you’re just able to build that network where you become valuable to valuable people.
Clint: Now, why did I just replay that cut right there is because what you said was so important on how you approach people. I wanted people to hear this twice because it’s how you communicate, and you’re hitting this right on the head.
You don’t come at it asking for things. You come at it saying, I want to give to you. And then it works that way with everybody. If somebody’s coming and they want to give me something, I want to give back to show that. I think that’s key. Once they figure that out, they can start building their network around that technique.
First you have to find the people that can help those other individuals. Then it’s moving to the money side. You start finding the deals and you’re going to figure out how to underwrite these and they’re good deals.
But then you said you went to a family office and they’re throwing millions at you. I don’t know man, that’d intimidate the hell out of me if I walked in and said hey, you want to give me $20 million to do a deal? They’d look at you and say no, not happening.
Shannon: The way that I approached that was I saw this family office was doing a deal with somebody else, and I knew that other person. I said, hey, what’s going on here? This is an awesome project. You are doing an incredible thing. How did you do this? This gentleman unwrapped the package for me and gave me all the things that I would need to know to approach the family office.
I knew what their buy box was. I knew how they worked and I saw that, and said wow. I said, hey, if I could do something like that for you, would you be interested in doing that? He says yes. I put a project together that I thought might work in his buy box, handed it back to him and said, man, that’s amazing. Anyway, I could follow you on this? I could just see how this goes and how this gets done.
Through that connection, I met all these people. Oh, hey, guys, this is Shannon. He’s the one that brought the deal to us. This guy’s got some chops. Hey, guys, nice to meet you. I got some other projects that are like this one if you’d be interested. All of a sudden, the whole conversation changed. I’m not approaching the family office. The family office is approaching me.
By changing that dynamic and saying hey, guys, I probably gave up $1 million on this deal. I’ve made a lot more than that off of that single connection. Then out of that, I went from building a 36-unit apartment complex to 180-unit apartment complex that all of a sudden blew up my portfolio and blew up my visibility.
Now I can’t even really quantify what I’ve been able to make off of that connection that cost me a $1 million to make. But I would do that connection again all day long every day because now I’ve taken that next step. I’ve learned they pursued me. Then I was able to work with them and go hey, I think we can do that this way. They go well, the capital stack looks like this for us. I go, great. Let’s go with that. You guys seem to know what you’re doing.
I was intimidated very much so, but I was able to convey that in a way where now the masters—the guys with lots of money—were showing me how to do it instead of me coming in there, walking in the room going, I got these boys and girls. Let me show you how I do it.
It’s called the […]. It wasn’t like that at all. I was able to get them to show me what they wanted so that at the end of the day it looked, sounded, and smelled just like a family office would do it. They’ve all been to family office classes. They’ve all been to finance classes. They’ve all been to all these things.
Out of that came the connection with the bankers, came the connection with the other people, and came the connection with other high value high net worth individuals. Because I was then able to associate with those people, I’ve really expanded that network and taken advantage of that one project to really change things in the trajectory of the business and where it’s going.
Clint: You’ve been doing this for 20 years. But now we’re in a unique time. The markets change. We have these higher interest rates. You’ve got sellers that still think they can demand 2021 prices, and we’re stuck in this who’s going to blink first mentality when it comes to properties and finding deals.
If someone’s looking at this right now, do you see opportunity or do you see sitting on the sidelines? What you were talking about with Ken, that’s a hell of a lot of deals to underwrite to only find one, which is smart. Don’t jump because you’re going to screw over the people you’re bringing into the deal and then you’re going to burn all those bridges. You have to be patient. As an investor, where should I be looking right now? What are you doing?
Shannon. You mentioned it. I’m old. I’ve been doing this for 20 years, so is Ken. The reason that Ken wasn’t able to find deals that worked is because even though interest rates were incredibly low for the last 36 months, the people wanted more than they were worth and interest rates weren’t going to stay there.
Really, we’re back to where I’m used to working. I did my first deal at 9%. That’s the world that I’ve lived in. If you look at history, history will tell you that deals don’t get done at 3.5% caps. Right now I just sold a property at a 5.25% cap with 8% financing being what’s on the table. That does not make any sense to me which is exactly why I thought this is a great time to sell.
What I’m seeing a lot of people do is they’re trying to make a deal instead of setting their parameters and going this is what a deal looks like for me. We have to have cash flow out of the gate if we’re buying something. If it doesn’t cash flow, we’re not interested in doing it.
We’ve got to have the ability to lock in some long term-debt. Even if we can get short-term debt for cheaper, we always look at the long-term debt and what that’s going to cost, and make sure that that deal is going to pencil so I can lock-in some long-term debt so that I can create some stability.
I’m going to look at history. Right now, I’m looking at industrial. I just spent a couple of hours yesterday with one of my guys, and we’re looking at deals. The ask prices are at 5.5% cap and interest rates are at 8%. You’ve got negative arbitrage on all of your borrowed money.
This doesn’t work but it doesn’t mean we try and make a deal out of it. We just quickly go buy it and look for the next one. We’re looking for that proverbial needle in a haystack and where 12 or 24 months ago, people saw a deal everywhere because of how cheap money was. It didn’t necessarily mean it was a deal because they were financing it with bridge debt that was going to expire into who knows what. They were paying best and final non-refundable million dollar earnest monies, all these kinds of crazy things.
I think that people get in a hurry to go bigger. I think people get in a hurry to, I did one, now I got to do two. I did two, now I have to go four. Four, eight, sixteen. All of a sudden, they find themselves in a place where they can’t really manage it or they’ve just tried to go big for big sake.
I’m here to tell you, there is as much money in small deals as there is in big deals. There’s probably more of an appetite right now for creative financing than any other time in our recent history because of where interest rates are at and where sellers are at. When you can look at how you can solve the problem and it makes sense for you, and it makes the problem get solved for the seller, there’s a deal to be had.
You’ve got to look at it very abjectly and go, these are my things that it has to be, you can do that in 10 minutes, move on, and figure out what’s going to happen later, versus try and make something happen that’s quite frankly monetarily ridiculous. You don’t have to be the federal government. They’re doing that all on their own.
Clint: When you talk about that deal, that industrial place, do you ever approach the seller and try to explain to them the realities of the situation? Or are you just saying they’re putting it there, they’re not serious about selling, or they’re just looking for a sucker to come by and buy it, so it’s not even worth my time.
Shannon: I did just that. I sold that building at a 5.25% cap. What I was looking for was the guy that had an expiring 1031 and was all cash. He comes in and he goes, dude, I’m getting a 5.25% return this year and I got 3% rent bumps next year. Sometime in the future, I’ll refi it. But right now I got to place my money. There’s some of that.
This was a brand new building with brand new leases. It was top notch, but on the other side, instead of trying to get the seller to understand why he’s ridiculous, it’s easier for me to find out why the seller is selling and see if there’s a way that I can meet the sellers’ need to sell.
Why are you selling? I’m selling because I’m tired of managing the property. The tenants are a pain in the butt. I don’t want to deal with them anymore, but I still need money. Okay, maybe that’s an opportunity for seller financing where you can come in and do the work and earn in. Now you can take advantage of maybe some creative financing.
Maybe the seller’s looking for his purchase price. Hey, I can get you your $10 million, Mr. Seller. Here’s all the banks’ going to give me. Here’s the equity I can bring to the table. If you’ll take a second position for 24 months with my pro forma, I can get you to a place where I can refi and get your money out. Do we have a deal? Because there are a lot of people stuck on a price because it sounds like a nice price.
It’s not necessarily based in reality. Guys like you and me, that drives us nuts because it has to boil down to reality. You and I are sitting there going this is an $8 million property at best. What is this guy smoking? He should be selling it rather than real estate.
When you can solve the seller’s problem, that’s what may open you up to something that may get creative. We’re working on one right now. It’s been on the market for over 500 days. Sellers stuck at $8 million. If we can solve the seller’s problem for the $8 million price, I can buy that at $8 million if I can find 3% money.
My office building that I’m in right now, it was that classic example. They wanted $4.5 million on a 67% occupied office building. I called them up. We were 45 days out from closing. It was the last day of due diligence. I said, I got some good news and I got some bad news. They go what’s the bad news? I said, the bad news is the bank turned down my loan.
The guy goes, what could possibly be good news from there? I said, the good news is you guys are going to carry the paper on it and I’m going to close in 45 days at full price. They thought about it for a minute. They’d been on the market for two years. They realized that this was going to get them their price. They were going to carry back some paper for me. It was going to work out.
Their worst case scenario was I invested the money to rehab the office, got some of the tenants, and make it better. Maybe they wind up with it back, but they were no worse off than they were now and they were collecting the same amount of money every single month as they were from the current tenants. So they did the deal.
You have to look at how to solve that problem rather than try and explain. I see people do that all the time. They went in and I got to explain to the seller why they’re stupid. If you guys are married, you know how well that feels when you explain why that’s not the right way to load the dishwasher.
Clint: I think the way you could say it, if they were previously married.
Shannon: My biggest problem was I thought loading the dishwasher meant getting my wife a second glass of wine. It just never worked.
Clint: If I touch the dishes, that’ll start a fight. Not doing it, it’s all yours. You’ve been throwing out some common mistakes I think that people made just in their communication and how they approach individuals to put deals together, because you’re right, there’s that natural inclination to what you stated to say hey, you’re an idiot. There’s no way you’re going to get those numbers and that’s just going to entrench somebody.
But when you come at it from the standpoint of being a problem solver and trying to understand the position of where they want to be, then finding a creative solution to get there, you’ll find you’re probably going to get more deals. When you’re talking about on your podcast why you quit buying houses in duplex for something better, where are you going with that? What should people take from that, what you’re doing now, and what they should be looking at? Is that applicable in all markets?
Shannon: I think the main thrust behind that is to think bigger. Let’s talk about everybody’s journey. Like you said, they start out as a wholesaler because they have no money. Then they wholesale a couple of deals. Now they got the down payment for one. Then they keep wholesaling. Now they got the down payment for two. They do the burst strategy, they get their money back, and they start to build their empire. There’s nothing wrong with that.
But if you spent that same amount of time looking at your total goal and saying, I want to be in a large scale apartment complex or I want to be in an industrial complex, and you really went the family office route that I did where you bring a deal, you become valuable to valuable people, you’re going to see yourself positioned in front of more money than you can shake a stick at in a shorter period of time that’s going to allow you to build things at scale.
I think people look at this—I know I did for a long time—the reason my journey is 27 years is because I always felt like I had to be the solution to every single problem. It’s when I began to realize I am this and they could use that, but they have what I’m missing. I began to start figuring out how I could partner, how I could work together, how I could add value to other people. Instead of eating my whole pie, which was this big, I could have a small piece of a pie that was 20 times the size.
When I really adopted that mindset, I stopped thinking small and I stopped thinking about trying to do a duplex and then a duplex to a fourplex. Some people call it a quad to a small 32-unit apartment complex, which does nothing but suck you dry on expenses because you don’t have enough doors to spread it over. You’re able to get into the bigger game by becoming a piece of somebody else’s bigger machine and being valuable to them.
Plus, you’re going to absorb knowledge and information, and avoid pitfalls that you’re going to navigate by yourself. I know your journey, there are all kinds of money lying along the way that you educated yourself with because you missed this, or you did that wrong, or you learned the second time. It’s every entrepreneur’s journey.
If you’re looking at how to step out of the got to learn it yourself by getting punched in the face, to put yourself in a position where you are now coming at it from a place of I am learning from masters of the game because I’m creating and providing value to them and I’m getting taught at a master class level, you can advance so much farther so much faster, and even a small piece of that is much more profitable than 100% of your own pie.
Clint: You’re in Boise. It’s a phenomenal market—or has been—and now you just mentioned Florida. A lot of the people that are listening to this or watching it live in areas where no matter what they do, they just cannot find the deals. People tell them you need to look outside your market.
You have the connections, of course. But if you don’t have those connections, then how do you take and parlay that to a different market like Florida if I lived in Washington State? What do you say to somebody like that? What should they do? Should they just skip it altogether? Just stay local and just keep their nose to the grindstone?
Shannon: I would say continuing to do the same thing that doesn’t work and expecting different results is insanity. What I did is we’re in markets from Washington to Florida. We’re in Texas. We’re in Tennessee, North Carolina. What I did was I looked at markets first, because I’d rather do a good deal in a great market than a great deal in a good market. I have the whole market working for me in North Carolina versus 99.9% of the market working against me in New York.
I narrowed down. I’ve got 9 markets in the US that I want to be in. I called all my local realtors and said I’m looking for contacts in these states. Now, all of a sudden, my realtors know that they can get a referral fee out of everything I buy, so they’re calling the best they got, connecting me through personal relationships to people in that marketplace that I can now know are heavy hitters in that marketplace because they’re referring to them. I can then go in and start vetting that market through experienced eyes instead of my own.
I could fly there. I could rent a car. I could drive around. I could think I could figure things out, or I can go to a market expert in that area through a referral and make the connections and get inside track on inside deals. That’s what we do.
When we show up in a market, we have vetted the market, we’ve vetted the realtor, we’ve vetted the area, and we’ve got experts in the area that are telling us along with our own analysis that this is a good deal and this is something we should look at.
Clint: The things that you typically ask a realtor to vet the realtor before you go in there?
Shannon: Oh, yeah. This is the thing, Clint. I think you do, too. I’ve got long-standing relationships with realtors here. Because I’m a realtor, my son’s a realtor, everybody in town knows that if you bring me a deal. I will buy it from you. I will not involve my family at all. You will get the commission. I’m very clear about that.
I’ve done a lot of deals with people, so when I’m asking them for a referral, they know that I’m serious, number one. And number two, they’re not going to introduce me to a clown at McDonald that is going to run me around. They’re going to want that commission. They’re going to call their people and go. I got a guy looking for this in your market. Are you that person? Or who can you refer me to?
They will vet that because they know there’s real money on the line. A typical referral fee can be upwards of 25%. The last deal we did in Houston was just over $6 million, in and out in 45 days. My guy made a nice commission off of that, but he made sure that the people we were working with knew what they were doing so that we had the right people to get connected. Sure enough, 60 days later, he’s got a check.
Clint: You see, that’s an end that I don’t think a lot of people talk about. In fact, honestly, I’ve never heard someone mention it in that way before. That context is that your pathway into a different market is through your local realtor that you’ve built up the relationship with, that you’ve done deals with. Now, you take them and leverage them, so you don’t have to do it.
Everyone bitches about this like hey, how do I find that realtor in that out of state market? I’ve dealt with them and they don’t seem to want to give me the attention I need or they bring me just crap deals. That’s because they don’t have that connection.
Shannon: You deal with maybe even some of the larger brokerages, Keller Williams, Colliers International, and some of these others where they’re very adept at the referral. They’re very good at that and they know that it’s good for the company. Now they may be referring you to their office, but they’ve also had the deal we just did in Florida was not one office to the other.
It was another guy that when my realtor reached out to his contact in Florida, they said man, that’s not my market. But Jim over here, he eats, sleeps, and breathes that area and he’s going to get it done for you. Sure enough, the guy knocked it out of the park. The commission on one building, just the lease commission, was $358,000. We did that twice.
There’s a chunk of money exchanging hands based on my guy spending an hour or two on the phone and doing his due diligence based on knowing what we’re capable of and wanting to make sure that I get into the best hands possible to make that a reality for him.
Clint: There’s a reason why commercial brokers live on the water, because they make really good money.
Shannon: Exactly.
Clint: The question that comes to mind when we’re talking about this chicken and egg, money or deal? Which comes first?
Shannon: Money. Absolutely. Because the market is cooling off, it’s not as important that you line up the money right now. But you’ve got to have an idea where that’s coming from. There are a lot of ways to do that, because I think the deals are out there. If you’ve got money, you can put something out on social media and have 30 deals in front of you before nightfall.
If you put something out on social media that says I got a deal, I need money, you’re going to have maybe two hard money lenders shoot you an email and it’s a totally different thing. If you can aggregate the capital, you’re going to be in the driver’s seat on where that’s going to go.
It doesn’t mean that you have to say, hey, I need the money in the bank account. But if you have a list that you’re cultivating and hey, Clint, listen. In my past, we’ve been putting together deals that have returned 17%–23% to our investors. They’re usually a 36–60 month cycle, and they come with bonus depreciation and a couple of other things. Do you know anyone that would be interested in something like that?
Well, actually, Shannon, I would and I know a couple of buddies that would. Clint, if I could find a deal like that, what do you think you’d want to put in a deal like that? $100,000, man. Easy all day long and put $100,000.
Creating that list and making it twice what you need means that 50% of the people are going to flake on you, but you still got access to half the money that you thought. If you came up with a list that promised $3 million, that means you can comfortably come to a deal that needs $1.5 million in capital and go back to your list and go hey, Clint, do you know that deal I was telling you about? I got a fresh one on my desk. Let me get you over the details.
It’s not as hard as people make it sound or seem, but if you’re constantly calling realtors going hey, give me a deal, give me a deal, and they send you two or three deals and nothing happens, they’re going to realize you’re Chicken Little. You’re saying you got this, but you don’t, and they’re going to stop wasting their time on you. If I came back to you 12 or 24 months later and say, Clint, I finally found a deal that works. Are you interested? The answer is substantially different.
Clint: In my experience with some commercial brokers, they call you up and they say hey, I got this great deal in your area. It’s a 5.5% cap, but if we stabilize it, we can get this thing up to about a 7% cap. It seems like they’re just pushing on you stuff that isn’t necessarily moving with their other investors, and they’re trying to see if they can pick it up.
When somebody does that, working with someone new, how would you combat that investor or to that broker so you can still keep that deal full alive, but you turn it around, so it’s not a, hey, I’m just saying no, because you’re right. If you say no and you can’t close, they’re going to quit working with you, but you want to keep the line of communication open.
Shannon: I would take the time to underwrite that deal real quick. It’s a 5.5% cap. Clint, as soon as I buy this thing, you get paid. As soon as you get back on vacation from spending my commission, how long do you think it’s going to take you to lease this up and at what rate? Can you show me some comps for that? Then you come back and you say, hey, here’s my comps. I can get you up 15% on the rents. Here’s the lease that just closed.
I underwrite that and I go back to you and I say, Clint, this deal would work if the seller would take a 10% haircut on the price. Do you think we can get that done? The agent looks at that and goes, you know what? Shannon actually thought about that deal. He actually showed me that he has the capacity to think through the deal. He didn’t just say no.
You know what, Shannon? That’s why this deal has been on the market so long. Or Mr. Hanson won’t sell it to anybody for less than $4 million. Do you think he would be interested in a little creative financing? Maybe a seller carryback? Let me go ask him.
You’re not wasting their time because you’re showing them. Here’s the nuts and bolts and it’s got to be more than the realtor makes money on this deal, but this is how it would have to be for me to be able to make money at the deal.
The one thing that we do, and I think this is true in your world where people think accountants know everything about tax savings and all that stuff. Your particular firm is very special in that regard. Everybody thinks that realtors know how to underwrite deals. The reality is that 90% of realtors out there, I don’t care how good they are in their brokerage, don’t know how to underwrite a deal. They know what a cap rate is, they know what the market is, and they know how to sell.
It’s the financing, the capital stack, the underwriting that would go into that that would show this is all I could pay for without something happening. When they see that you have that understanding and that capacity, they go that guy’s legit. I’m going to get him a deal at one point.
Clint: You’ve been using a lot of terms that are specific to the industry and what we’re doing. If someone needs to get up to speed and they want to understand this stuff, when you’re talking about a capital stack, other than just talking to someone, do you recommend to people any resources out there that they could learn from, other than just going to your podcast or Ken’s? What do you think?
Shannon: I really do agree with Elon Musk on this. Everything you want to know you can find on YouTube, because you can. This is the other thing that I see. If one of your listeners wanted to call me, have a conversation with me, and wanted to get up to speed, I’m going to give them some homework at the end of the 15 minute call.
Look, you asked me these things. I gave you these answers. Now, I’m going to give you some homework. As soon as you’re done with the homework, feel free to book into the call. It’s a common drug dealer tactic. The first 15 minutes are free. From there, I want to see that you’re going to invest in yourself.
If one of your listeners came and and and got on got on my calendar and we had a call and he says, hey, I heard you talking about capital stack. I watched this video and this is how they were explaining it. I wanted to know more about mezz debt and I wanted to know more about preferred equity. I would go, that’s somebody that gets it and I’ll give him some of my time.
Back to that, not wasting time and not just asking for things, but being able to look at it and go, I see that you’re working to make better, you’re working to learn more, you’re working to gather more information, you’re looking to be smarter about what you’re doing, let me help you. Here are a couple of people.
In fact, let me connect with one of my banking connections that’ll tell you where these people hide. Now, all of a sudden, sure. You showed me some effort, I’ll show you some. I think that’s what a lot of people do. They go, I’m just going to go to the expert and act like his time is free and just ask 25 questions instead of doing any of my own research to prove that I really want to know and I’ve done some exploration on my own.
Clint: That does get frustrating. You just compared my firm to a drug dealer because we give away free 30 minutes […].
Shannon: But it works, right? It works on every level.
Clint: It does.
Shannon: We’re working with your firm on stuff because we see the value that you’re able to give out in that 30 minutes that impresses me to where I go, man, not only can I use that, I got to get my clients involved because this is a smart firm. These guys are really intelligent.
Not only can I get value for me, I can bring value to you. It’s exactly that. Now I’m looking at it going, man, this is incredible because now I get to be associated with you and your firm, , and the intelligence level that you’ve pulled together in that community. Now, I’m able to refer people in and I can get them a front row seat because of that free call. It’s genius marketing and it works on every level. It’s how I’ve gotten most of where I’ve gotten in life.
Clint: It just goes back to what you basically said. You give then you’ll receive.
Shannon: Absolutely.
Clint: That’s what drives it. I hope people get a lot from that. When you throw out there that they can reach out to you, is it as simple as just going to your website? shannonrobnett.com, right?
Shannon: If you go to shannonrobnett.com, you can see our job site cameras. You can see our newsletter. You can see all of our social media. You can even go to my calendar and book a 15 minute call. I’d love to talk with you.
Clint: I would highly encourage you to take advantage of this, that’s listening in or watching this, because as you’ve shown, you give us a wealth of information. You’re so free with your time and your experience just shines through. It’s that no BS. You see a lot of people out there, you can tell they’re not doing the deals. They’re just talking about it, they want to be there, and you can sniff it.
Shannon: You definitely learn that. Clint, if you could do something for me, if you could just write a letter like that to my guidance counselor in high school, that would really…
Clint: Thanks for coming on and taking the time. I really appreciate it. I know you’re really busy and I took 45 minutes of your time. I know it’s commitment, but I truly appreciate it because you give so much.
Shannon: I’ve said this a lot and I want to thank you, too. I think that 2008 as a financial crisis could have been averted if we’d had podcasts like yours that are bringing information to people, anybody that wants to use it. I think that the more intelligent an investor is, the better success they’re going to have. It’s podcasts like yours and it’s people with your reputation that are curating that content and bringing it to people that allows them to up their game at no charge, I think is phenomenal. What you’re doing for the investment community is awesome and I appreciate it.
Clint: I appreciate it. Just as we talked about earlier, by giving the information and people take this and they find success, they become clients. We’re all motivated. I want people to become investors.
Shannon: I want you […] drug dealer.
Clint: Absolutely. Anyway, thanks. Appreciate it.
Shannon: Thank you, Clint.
