How to Invest in Commercial Real Estate

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Episode 131 - From General Contracting to Multifamily: Special Guest Shannon Robnett's Journey

by Criterion, Braden Cheek, Brian Duck
December 18th 2023

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss special guest Shannon Robnett's transition from single family residential real estate to multifamily and industrial real estate.

What is up? How is it going? Welcome back to another super exciting episode of How to invest in commercial real estate. And uh today is a, is a cool episode because we didn't have to come up with some topic. Uh We have a guest on the show today and we are super excited to introduce Shannon Shannon Robnett is on the show and he is with Shannon Robnett industries doing a lot in commercial real estate and I always love having people on that do a little bit of different stuff than we do. I know right now we're, we're big into retail and Shannon is big into multifamily and industrial, I believe, but I'll kind of get out of the way here and introduce Shannon and allow him to kind of give his intro. Hey, thanks guys. Yeah. You know, so I grew up in a real estate family um and watched my parents, uh you know, as a builder and a real estate broker, create a financial uh empire that allowed them to retire at 50 with different assets. Um And so I kind of followed in that footsteps. I was a four hire general contractor uh for a long time. And over the last five years, we've transitioned out of that where we only self perform our own multifamily and industrial projects that we build.

We also have vertical equity under that SR I umbrella that uh does our fundraising and works with our investors on our different projects. And then we've also got property management that we integrate so that we can be vertical in our stack from uh development of multifamily or industrial all the way through tenancy and uh continuing to uh you know, maintain that asset and continue to collect rents on it. So that's kind of what we do. We do that from Washington to Florida. Uh We currently have about 100 and $30 million worth of assets under management. And uh we're continuing every day to continue to build our, our portfolio for ourselves and our investors. And you are based out of where Shannon my office is in Boise, Idaho, which is where I've lived for the last 42 years. Nice. So I've got a bunch of relatives up in Boise. So shout out to all the Renfro's hanging out in Boise. Uh I get up there. Oh, every, every couple of years or so, but very hot area growing super fast. A lot of west coast people moving in which I'm sure has helped buoy your business there.

Yeah. You know, it's uh it's hard to complain about the influx of, of people when that's what's necessary to drive my business. So I just keep my sh my mouth shut and keep building. I love it. Well, so you said that your, uh, your family was kind of in the real estate space and maybe I heard you say you started in general contracting? Ok, tell us about that. How did you start with the general contracting then? How is the transition into, you know, doing your own developments? Well, I, I watched, uh, you know, II, I tried the college route and, uh, right out of high school, I went to college and watched my brother, uh, start building houses. And, uh, back in 95 he was making about 50 grand a year out of high school, no education, no formal education. And, you know, just building single family homes. And I thought, man, that's easier than going to school trying to figure this out. And, uh, so I started building single family homes. I quickly realized I didn't really care for homeowners. Uh, and so I transitioned into the commercial space, those of you that have single family rentals or, uh, deal with that.

You, you guys understand what I mean there. But when I did that, we built everything from, uh, schools and gymnasiums to medical facilities, city halls, police stations, fire stations. We've really kind of done the gamut. And every time I got done building a project, my, my paycheck stopped and I realized that this wasn't, wasn't the kind of uh passive income I was looking for. And along the way, I had started working with a lot of clients that would come to me before they had even bought their piece of ground. And we'd start designing something and start working through what they wanted and, and help that whole process. And then I also realized I can do that for myself. So back in 2001, I built my first industrial complex for myself. Um And uh poured every bit of capital I had into that made myself very uncomfortable, robbed the company of all its funds to do it. And quickly realized I was gonna, if I wanted to do this, uh more than once in a lifetime, I was gonna need to start involving partners. And so I began to involve single check writers and we would develop a project and we would, we would profit from that and we would move on.

And um my last single partnership on the development side was 100 and 80 unit apartment complex that started in 2017 that I did where I partnered with the family office. And uh they wrote a $19 million check. And I quickly realized that if my business was gonna get bigger, the chances of finding too many more people wanting to write a single $19 million check were gonna get slimmer and slimmer. And so I took kind of at that time, my development and my uh business into the syndication world where we began to aggregate capital and, and uh do the things necessary there and we've continued to develop. Uh We've currently got uh two apartment complexes under construction. Another one getting ready to kick off in 24 and another one in 25 as well as several industrial projects. Uh one in Florida and then two more here in Boise for next year. Man, that's great. You know, we uh have done a lot of syndication. Uh We've never uh done the single check writer, at least to the tune of 19 million.

And so maybe, uh that'll be something that we look at in the future. Uh But that capital, it, it, it tends to be a little bit more onerous than some of the syndication capital. Is that what you found? Well, it ii I had a great relationship with the family office. Um They were amazing to work with, uh but you are beholden to them. And what I found was after our project there, the family office decided to retool what they were doing. And so I found myself without capital and, you know, you kind of put all your eggs in one basket. The good news is you got one person that's willing to write the check. The bad news is if they change your mind, uh or if they change their mind, they also change your, your whole business plan. And so, yeah, I, I completely agree with you there that it's, it's, it is nice but it does get, uh, a little nerve wracking because you've got, you know, this whole project is tied up with 11 person, your thought process isn't too much different than ours. And what, what we talk about on our podcast and that we like continuous passive income. Right. And, and it sounds like that's kind of, uh, where you, uh, eventually felt like you wanted to get to.

Yeah. You know, I watched it, I mean, like I said, in 2001, my parents retired uh on cash flow and, you know, here 22 years later, their lifestyle hasn't changed because as things have gotten more expensive, so is the rent and uh they live the same lifestyle today that they lived then? And so that's kind of everybody's goal, right? Is to get to passive income and we just kind of do it a little bit differently because I would say 80% of the stuff we do is is new ground up. So we are the original value add, you know, we're actually putting together the sticks and stones to build the project that then put the tenant in and create that initial value over and above expenses. Uh And then, you know, operating costs are obviously a lot lower on a new building. Uh And so we kind of get to get to benefit from that as well. And on your new ground up. You, you like to, uh, hang on to it. Right. You're not trying to build it to maybe find, uh, get a long term lease and, and find someone else who wants to buy that, uh, property. You're correct.

We don't like to sell it, but, you know, as we all saw during the last couple of years, there were people willing to pay more than I was willing to, to, to put on the balance sheet to hold it. And you know, the nice thing is um when you're doing ground up development, you can go build another one. You know, there is another opportunity. Uh And so you're not selling, looking to buy somebody else's already stabilized product. And so, um and a lot of my investors are looking for appreciation before cash flow. And so, you know, I think that there are really three types of investors. There's those that are looking for cash flow, there's those who are looking completely, are looking primarily at tax advantages and those that are looking for appreciation, they're starting out with 100 or $200,000. And they know that at some point, they've got to get that to two and 3 million to get cash flow that's gonna support a lifestyle. And so uh most of our investors that are in our new construction developments are looking for that appreciation. We've seen uh deals do 100 100 and 4% in a, in a two year period, we've seen stuff do 40%.

So we, we tend to get a higher yield on the new construction. And then, uh you know, when we do hold that cash flow tends to be a little bit better because our expense ratios are a lot lower with the new construction. So, is that so in your bio, you say uh one of your bullet points was of discussion was ground up versus value add and why you might have it wrong? Is that kind of what you're talking about there or? Yeah, you know, a lot of people, they, everybody likes value add. You know, from a banking perspective, it's easier to get uh financing on a value add because the bank's looking at the underlying numbers of what it does today, that's what they're making their loan on. So if it's, if it's got free cash flow of 100 and $20,000 they're gonna loan you something based on that number and then you're gonna go in and repaint it, put new deck chairs by the pool, change it from the Tropicana to the Flamingo, whatever it is you're gonna do in your business plan and you're gonna increase that hopefully to 100 and 60 or 100 and $70,000 in, in. No, I and that's where you're gonna create your value, but you're already starting with somebody else's value that likely bought it from somebody else.

That created value, that bought it from somebody else that created value. And so this re trade kind of takes a lot of the profitability off the table. Whereas when you're going in and building class, a new construction, uh you're coming in with, you know, literally sticks and stones and whatever it costs to build that delta between where it comes out for value based on the rents that you're adding can be pretty substantial. And uh you know, on top of the, the fact that you have new product, and so we look at that and go, you know, we'd rather maybe take 2436 months to, to build this product out and be in a better position on our equity side than to be looking for somebody else's value add that we then have to, you know, rehab and do things like that. Um And it also kind of it, it, it puts you in a much smaller field of those that are able and capable of doing that because, you know, there's a lot of people out there doing value add, they may not have resume, may not have the balance sheet that will allow the banks to do a development loan, right?

No, that makes sense. We, we've seen the same thing. Obviously, we love buying existing shopping centers and multifamily units, but we've started our own developments and yeah, it hopefully will put us in a class, a much smaller competition class uh, because most people, yeah, just in the smaller development we're doing, it took about 6 million of, of capital and that, that prices a lot of people out unless they're able to get family office money or, uh, private equity money. Um, and so, yeah, that, that's a good strategy. Well, you know, not only that when you're looking at it, you know, towns grow, cities grow, they don't always stay, what is the retail center today doesn't always stay that, you know, there is the, the, the suburbs and the, and the places that, that people want to be now that they didn't want to be then where you can really achieve substantially higher rents than going into some of the old shopping centers. And you guys probably found this, that, you know, you're, yes, you're, you're bringing more equity to the table. You're getting, you know, lower LTC maybe LTV.

But you're also positioning yourself to be a more solid investment. Um You've got brand new product, it's higher demand. Um You know, you're not going in there trying to figure out what the last three uh tenants have been while you try and undo the third remodel of the second remodel. Uh You're in there putting in new tenant improvements and you're, and you're going with the businesses that are, you know, moving into the area now. So you're really kind of dealing with in a lot of cases, a more capitalized or a better class of tenant that isn't looking for, you know, the cheap space that used to be next to the mall that's no longer vibrant. Yeah. So what was um another point on there? There's one about how to eliminate tax in your life. And we, we kind of beat taxes to death on the show because most people don't realize that taxes are literally their biggest expense and kind of in their lifetime as a whole. So, you know, super interested in hearing your perspective on how to reduce or potentially eliminate uh taxes. You know, specifically uh another point on that is uh well, you say eliminate tax from your life and have others pay for everything you want in life.

Just wondering what uh what, what you have to say about that. I love that. Well, you know, uh everybody thinks about real estate as, you know, a great way to eliminate tax and it really is, right? But I, I take the section 179 depreciation um and, and use that in a different way. So I'm a pilot, I'm a third generation pilot. I love flying, right? Um But flying is number one, it's expensive and number two, it's really hard to get other people to pay for it. And so what I did was I started a flight school and there's a, there's a huge demand for aircraft, for rent uh for people that want to learn how to fly. And so I created a uh a flight school and every year I'm purchasing one or two new aircraft, usually in the 450 to $500,000 range. I depreciate that through section 179. So I'm allowed about a million one in depreciation annually. Um And because I'm active in that business, I'm able to take that against my active income because I am, I run the booking platform.

Uh and so I'm able to do that. So now I have five aircraft at my disposal on any given day. Uh depending on the schedule, can fly anything from single engine to twin. Um And somebody else is out there making the payments on it because they're being rented 10 and 15 times a day. Uh depending on which students are doing what uh you can do the same thing with vehicles. There's a great app out there called Tural. You've always wanted to own a Lamborghini but didn't want to be paying $4000 a month for it. You can use Touro and use your section 179 depreciation because it's an active business. Uh write the car off, lease it out and enjoy it when somebody else isn't driving it. I would do that in a second. I would do that in an absolute second. I don't think it would, it would maybe take off in Tulsa. I don't think there's a big market for Lamborghini Reynolds in Tulsa. But the, the plane thing is super interesting. I mean, starting a business solely to use the depreciation against active income that, that is using the tax code to your advantage. And I think a lot of people are, are scared of that sort of creative thinking.

Um, when really it's, it's perfectly acceptable, uh, thing to do, I would think. Well, one of the busiest private airports in the country is five minutes away from here. That's correct. And if you go there you're probably lacking in aircraft for rent. Right. That's one of the things that you can capitalize on the other thing that we're gonna go, I guess. Yeah. And there's, there's a lot of ways to do that. But, you know, to your point, most people look at the tax code as a penal code. Right? You did this, you made money so you owe. But if you really look at it as a, as a guidebook on what you're supposed to do, there's so many other ways to build out things that are, um, going to provide you with the things you want in life. You know, that allow you to do the kind of things that you want and have access to the things that you want without being the one that pays for it and definitely not paying taxes on it. Yeah, I love it. What else we got, Brian? Well, one of the things Stan, and we talk about a lot on here is, uh, we try to do, have some motivational topics and mindset type topics. And you said that, uh, one of your bullet points was maintaining a mindset that allows you to win in any market.

What do, what do you mean by that? Well, you know, it wasn't that long ago. Um, I had a series of, of pretty traumatic physical, um, problems. I, I blew out my knee. I, I had to have back surgery, two neck surgeries. I broke three ribs, uh, all within about an 18 month period of time. And I found myself, uh literally in a chair, right? I, I mean, I couldn't move and, and I wasn't able to participate in my businesses and things like that. And I learned at that time that if I let my mindset get negative, everything in my day was negative. You know, when, when you're in the entrepreneurial space, all you are is a problem solver and either you're, you're looking at that as things that are beating you up and things that are causing you to not get to where you're going, or you're looking at those as steps on the ladder and problems that you're solving that will pay you and will build the future you want. And if you're, if you're really not in a space where your mindset is, is strong and you're able to really focus on what your goals are and why you're doing the things you're doing, you're gonna find yourself struggling more to get the same things accomplished as if you're really taking the time to bulletproof your mindset and really understand that these are not problems that you haven't faced before.

It may be a different color, a different size and a different flavor. But there's still just problems to solve that, get you that much closer to your goals. And when you really take that mindset of making sure that you're, you're mentally available to take on these challenges, you're gonna find that the whole thing shifts and you find all of this becomes an easier thing to do and it becomes something that now is perpetuating you based on a positive mindset rather than a negative mindset that keeps dragging you to the bottom and making you feel like you can't win. All of that is based on your perception and how your mind is ingesting that information and what you're doing with that mentally before you actually kick out the solution. I absolutely love that. We've talked a lot about that on the, on the podcast when you get involved in commercial real estate and it doesn't have to be commercial real estate. It can be any entrepreneurial venture. Life is gonna throw you a bunch of problems mainly because you lack experience in that field. You're new to it. Uh And most people that's where they want to talk and run.

Uh But if you have this positive mindset of how can I win? How can I make this work how can I buy this property instead if I can't afford it or I can't do it. Uh Now you're giving yourself an opportunity to solve that problem. And if you do, you get to retain that skill uh indefinitely in your life and you become a person that can solve problems and that's gonna make you good at a bunch of these ventures. And ultimately, it's gonna bring uh wealth and, and financial success into your life. So that's a great point. Shannon, I love it. You know, that a lot of people forget is they pay hundreds of thousands of dollars to become a specialist uh at college. Right? I mean, I have a, one of my investors is an oral surgeon. He had over $400,000 in college expense and spent seven years doing it. How many of us as entrepreneurs look at the problems as education, you know, we don't, but because we don't ingest it that way into our mind, we look at it as a problem instead of looking at this is, you know what? This is cash flow, 101. This is, you know, this is time management. Uh 305, you know, these are college classes that we're taking in the school of life.

And if you're looking at it like that, it tends to help you look at things a little bit different and, and, and like you said, look at this as, as one more tool in my toolbox. That's gonna get me to the future that I want. Yeah. You know, one of the first apartment complexes that my business partner and I purchased, you know, obviously we didn't know what we didn't know and we kind of got swindled on the numbers and we ended up not making any money and we started losing money and we ended up having to fire sell it and we lost, I'll, I'll just guess at 40 $50,000. And to us at the time, that was like a, that was a year's salary. That was a huge, huge number. But because of the mentors that we were reading, uh that caused us to say, hey, this was just like a college education. People pay uh 30 40,000 for a college. We, we paid it for a, a real good lesson in how to not get scammed and buying apartments and to go back to your point, it's all about thinking about these prerequisites and I was an engineering major. So there's like, you know, a lot of high level math and you just can't jump to differential equations or to calculus. You've got to take the base classes and that's what your entrepreneurial journey is gonna be like is you're gonna get involved and you're gonna make mistakes and you're gonna have these mini failures all because you don't have something that you need uh to help you be successful and whatever venture you're at and so those little failures are your prerequisites and they're gonna teach you the things that you are lacking today in order to help you be successful down the line.

And so the optimism is so important, uh because now you're gonna see every adversity as Napoleon Hill says, as an opportunity, as a seat of an equivalent benefit that's gonna propel you down the line. And if you can have that kind of mindset, there's no one that's gonna stop you. Uh You know, you're not gonna, you know, be able to be stopped. You're just gonna, every failure is I learned more. I'm gonna be better. I'm gonna be, you know, stronger. So, yeah, and I, I think there's maybe a misconception that you have to go out and have all of these failures or you have to go get a college education. You can, you can go get a mentor or work at the, your dream job or your dream company and watch all of the failures in, in that business growing and, and that should be teaching you something. I mean, we can learn from everyone else's successes and failures. You have to be paying attention. Sure. Shannon your investors that are, that are, you're, you know, syndicating deals with, I'm sure they're learning through every deal and they're not having to make all the mistakes on their own. So that's a good opportunity for people listening to the podcast is get involved with a little bit of money. And as the saying goes, put a little money down and the, and the knowledge and experience go up and you can get, you can get a lot of the failures out of the way, doing it that way.

And, you know, I've told a lot of my investors, if you want to know how to do what I do as an investor, you know, I'll, I'll sh I mean, all the numbers are available. Everything that we do is available monthly newsletters, keep you up to date. Job site visits are available. Uh We have cameras on our job sites and I have a couple that I can tell you right now. They are planning to do their own projects. I can tell because of the questions that they're asking and the frequency that they're getting involved. And, you know, just like you said, you can either go through that mistake and lose that 40 or 50 grand, which I'm gonna bet you probably haven't even come close to making that mistake a second time because those are expensive and, and you, you want to get your money's worth, but you don't want to have to take the class again. But you know, you, you can also uh work with people that are doing what you do. You know, people ask me what's the one thing you tell your 25 year old self? And the one thing I would tell myself is go get that job, go, go to work for the guy that's doing what I wanna do. And there was two guys in town that I could have gone to work for and I would have learned so much I would have been making a lot less during those first three or four or five years.

But the, the trajectory that I would have been able to put myself on, based on that three years of working with them would have, would have paid dividends. But in my youth, I wasn't able to see that a mentor is a good idea, working for somebody and, and, and figuring out how their system works before you go out there and try and build your own from scratch is definitely definitely something to do. So, one more thing before we call it quits today that reminds me Wolf of Wall Street, one of my favorite movies. Uh What does the guy do? He meets this guy and he, and he's like, how much, how much you make last month? And the guys I made 70 grand, like you made 70 grand last month. He's like, yeah, he's like if you show me a payslip right now, you make 70 grand, I go to work for you right now. And I love that because that's what a lot of people should be thinking when they come across someone super successful is how do I go to work for free for this person to learn what they learn even if I don't get paid because of the benefit of the experience and the knowledge that's gonna help you down the line. So, Shannon uh how can uh all the people that catch this podcast? How can they connect with you? How can they get on your newsletter and how can they have a chance to invest with?

You? Give us some websites or some, some things that you want them to know? We we keep it really simple. If you just go to Shannon Robb, you can find access to all my social media, you can sign up for the newsletter. I've even got access to my calendar. If you want to make an appointment chat, figure out where you're at in your journey and give you some insight on what steps you might want to take next. But that's just Shannon Robnett. Alright. We will post that link uh in the description of the podcast. So everyone's gonna have that. Shannon. I thought it was super insightful. Congratulations on your success. It sounds like you're doing it the right way. Hopefully, uh we can maybe do a project in the future or at least stay in touch. Yeah, thanks for coming on. Appreciate it. Shannon Robnett guys. Check him out. Alrighty, we will see you next week on how to invest in commercial real estate.

Episode 131 - From General Contracting to Multifamily: Special Guest Shannon Robnett's Journey
Episode 131 - From General Contracting to Multifamily: Special Guest Shannon Robnett's Journey
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