Insider Secrets Podcast Season 2, Episode 17
Guest: Shannon Robnett
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By way of background, Shannon is a Real Estate Developer and Syndicator with a principal focus on Multifamily and Industrial real estate in the greater Boise area. His accomplishments include:
- Involved in Boise Real Estate Market for 35+ years
- 2nd Generation Builder & Developer
- 4th Generation Realtor
- Involved in over $250MM in construction projects ranging from multi-family, office buildings, and municipal buildings to schools, industrial projects, and mini-storage
- A history of over $140MM in successful developments
- Has under management over $100MM with a wide range of
You can find more information about him here.
Shannon would love to speak on topics like but not limited to:
- Raising capital to fund any deal
- Winning with bulletproof contracts
- Industrial is the hidden ATM of real estate
- Managing investors expectations
- Ground up development
- Ground up vs value add and why you might have it wrong
- Maintaining a mindset that allows you to win in any market
- Eliminate tax from your life and have others pay for everything you want in life
Understanding the market’s cyclic nature is crucial, with an anticipation of improvement over the next 12-18 months.
Have solutions ready for all aspects of a deal. Learn from 2008: be prepared for market turns.
Specializing in one thing becomes crucial as you recognize the depth of your knowledge.
True expertise arises from hands-on experience, embracing challenges, and actively practicing in your field.
If you’re taking on a deal, be the source for the completed project. It’s about having the solution to all the problems or having access to them.
Syndication is just a fancy word for a partnership. Limited partners provide capital, and general partners create, vet, underwrite, manage, and decide when to sell.
Despite political divides and global uncertainties, with pent-up demand and a shortage of supply, there’s significant money on the sidelines.
The market hasn’t cooled off as expected. Interest rates haven’t slowed much. Wages are rising, and the economy remains strong.
“I’ve absolutely learned the most from the failures, from the things that have knocked you down, the things that should put you out of the game.” – Shannon
“If you get a deal under contract at 11.5% interest and it cash flows and you can make money for yourself and investors, then that’s a viable deal.” – Shannon
“The average Class A tenant is coughing up about 26 percent of their income to pay the rent. Compared with a Class D tenant that is coughing up close to 42 percent of their income to pay the rent.” – Shannon
“It’s so easy in our business to get shiny object syndrome and look at deals all over the nation. We go in and we identify markets we want to be in before we even approach the deal level.” – Shannon
“There’s a supply and demand ratio that goes into that. And it doesn’t mean that you can afford a 3 million home, but it also doesn’t mean that nothing’s going to happen.” – Shannon
[01:50] Intro to episode guest
[02:41] One word that describes Shannon personally and professionally.
[04:16] Can you tap into something that was a bump in the road for you that you learned a valuable lesson from?
[11:17] What is syndication, particularly for new listeners, in a concise way?
[15:09] What’s your outlook on the market in the next 12 to 18 months, considering the recurring cycle?
[23:25] Are you currently involved in multifamily projects, or are you focused on light manufacturing and industrial deals?
[26:07] Are you building multifamily or single-family properties?
Kristen: [00:00:00] Welcome to this edition of Insider Secrets, the weekly podcast that turns real estate investing goals into reality. Each show, we interview guests who are seasoned real estate professionals actively closing and managing real estate deals. Mike is the founder of My Core Intentions and would like to help you make your real estate investing dreams a reality.
Mike coaches you to buy investment real estate, creating short term cash flow and long term wealth. Your host and real estate coach, Mike Morawski, has more than 30 years of real estate investing and property management experience. Here’s your host, Mike.
Mike Morawski: Hey, what’s up everybody? I hope that you had a great week and that you are enjoying your weekend, no matter what you’re doing, whether you’re still working or catching up on things, or you’re just hanging out with your family, and I hope that you’re enjoying yourself.
I just want to take a minute and ask you a favor. If you would [00:01:00] just take some time to smash the subscribe button on YouTube and join us there. We’re continually bringing out content, whether it’s a live event or a webinar or information about multifamily to help your business grow.
And my whole goal is to help you continue to grow. So I want you to be plugged in with us. So if you take a minute to like the content, subscribe and stay connected with us. We’ll continue, our goal is to continue to bring you good, relevant content. That’s going to help you go to the next level or get started in the business wherever you’re at.
I know today’s guest that we’re going to bring a lot of multifamily information, a lot of market information. Information it’s just gonna help you grow. Let me bring in our guest Shannon Robnett with Shannon Robnett I ndustries from Boise, Idaho.
Shannon, good to see you again.
Shannon Robnett: Hey, thanks Mike. I [00:02:00] appreciate you having me on the show.
Mike Morawski: Man, it’s been a while. I think it’s been a couple of years since you and I have done podcasts together. So I’m excited to see what’s going on in your life and what you’re up to.
Shannon Robnett: Well, it’s one of those things, there’s no rest for the wicked. So we got to keep moving and we got to keep going, so.
Mike Morawski: Yeah. Why isn’t that true? I don’t know if we create that ourselves or if that’s being an entrepreneur or if it’s just where the market’s at?
Shannon Robnett: I’m going to go with all of the above.
Mike Morawski: For sure, for sure. Well, listen as we get started one thing I always love to do is I ask all my guests and you I always say that I’m gonna write a book on this and I am going to call it the one word, but in one word what best describes you personally and professionally?
Shannon Robnett: That’s got to be tenacity.
Mike Morawski: Ah, that’s my word. That’s awesome. Where did that come from? What makes you tenacious?
Shannon Robnett: As you know, Mike, nothing in this business is easy. And if it was easy, everybody would do it. There’s been a lot of successes I’ve had in my life, but I’ve absolutely learned the most from the failures. From the [00:03:00] things that have knocked you down the things that should put you out of the game. And, Mike, knowing your story as well. There’s plenty opportunities for you to have gotten off the bus and to quit and to not get back in the saddle.
But that’s really the difference. And that’s really. I remember being a young man and thinking, I know so much. Most young people at 20 do, but then the older you get, you realize that there’s so little that you do know that being a specialist at one thing becomes more and more important.
But the thing that I’ve figured out is that this thing called experience comes from the knocks and the bumps and the bruises. And actually being a practitioner of what you’re doing and being a somebody that’s active in your craft that brings the experience that you saw in others at 30 years in the game.
Mike Morawski: Yeah. You couldn’t have said that any better. And I appreciate the compliments. That’s for sure. And one thing I would say is I think we’re still both young men.
Shannon Robnett: You know what? As long as we hang out together, we are, we are.
Mike Morawski: I feel like I’m [00:04:00] 40 sometimes.
Shannon Robnett: Yeah.
Mike Morawski: Most of the time actually. And, I think that people talk about retiring or getting off the bus and, I just don’t see it happening. And some of that is because of setbacks but some of it is because I just love what I’m doing. And I know that you love what you do as well.
Talk about can you tap into something that was a bump in the road for you that you learned a valuable lesson from?
Shannon Robnett: Well, let’s go to 2008. You didn’t get hit in the head any harder than that. And the thing that I had is I was developing a subdivision at the time and I had partnered with a guy that I thought was a great guy. But by the time I got done, I was sitting there shirtless, bleeding out of every orifice and trying to figure out what the heck had just happened. And what I figured out and what I took away from that is, you have to have at your fingertips. It may not necessarily be you, but you have to have the solution to all the problems.
And what I realized was that I was developing a [00:05:00] subdivision. I had commercial up front. I had sold the corner off the Walgreens. I had 95 lots in the back. They were all pre sold to builders in 2007. We had earnest monies on them. Everything was set to close. We were looking like we were going to just absolutely crush it. And then the market began to turn. And what I realized at that point was that I didn’t have a solution for the vertical construction. I had no way to deliver the product. And so here I was a link in the chain that didn’t have a solution at hand.
I did not have the ability to bring a product that would sell to market. And from then, when I began to look at that and really come back from that, I made sure that if I was taking on a deal, I was the source for the completed project. It didn’t mean that I had to do every aspect of it.
But it meant that at the end of the day, I saw doors opening in our group. And when we looked at it that way, we [00:06:00] funded it that way, we underwrote it that way, we were able to find success in every market. And so we weren’t sitting there reliant on, Hey, I’m going to buy this land for $40, 000 an acre. I’m going to put all this money into it and create the roads of the sewer systems and all that stuff. And then we’re going to sell it to somebody else.
We were looking at that going, okay. If we sold this to somebody else, this would be our price. But what are we going to need to build these out? And what are those houses going to sell for? And is our land price viable? And so I really began to look at my underwriting all the way back to the beginning and go, if I’m taking this project on, can I deliver a house at a competitive price at where I’m asking for the land? And if I don’t have a builder, can I build these out?
And so out of that grew an evolution of several companies where we became the answer to all those problems. And in doing that, we created a vertical chain that we were the solution regardless of what [00:07:00] happened. Now we still had buyers come along that wanted to buy it at different phases. And we chose some of those phases to exit, but weren’t dependent on others to get to complete execution.
Mike Morawski: Don’t you feel sometimes like you have to be the guy with all the answers?
Shannon Robnett: Well, I do. But again, Mike, we’ve chosen to put ourself in that position as lead sponsors on deals. We may not do the underwriting, but we’ve got to verify it. We’ve got to double check it. We may not physically do the due diligence, but we’ve got to check the pictures and we’ve got to check the reports that we may not get all the documents pulled together for the loan, but we’ve got to sign for it.
We’ve got to verify that, we’ve got to make sure all that happens. And it’s 1 of those things that, yes, I do feel like I have to have the answer for everything, but I also like to take Henry Ford’s approach a little bit that says, you know what? I don’t necessarily know that answer, but I know I have a guy that does. And in being able to build a team [00:08:00] like that. I can within minutes have that answer and come up with that solution and make sure that we can deliver what we said when we said for how much we said, as to the best of our ability and in doing that, I think it builds a stronger organization because you’re not putting your reputation on the line where somebody else is going to be involved.
You’re not putting yourself out there for Johnny never shows up to to make you look like a clown.
Mike Morawski: Yeah. I love that Henry Ford story how he had his executives in the office and said, Hey, go build me a V8 engine. And they said, we don’t know how. He said, yes, go figure it out and sent them away. And he didn’t know how to do it, but he knew that it could be done. And I love that. I love using that as an example, because like you said, it’s not about us. Yes, maybe we have to come up with the answers or people are looking for the answers, but if we have a deep enough team and a strong enough team, we can put all those people around us to get [00:09:00] those answers for us and to help us through.
Shannon Robnett: Yeah.
Mike Morawski: I love the way you put that. Talk about your background a little bit. How’d you get to doing what you’re doing and what are you doing today?
Shannon Robnett: I was born into this line of work. My dad was a builder and developer. My mother was a third generation real estate agent became a broker early on. I’ve had my license. My son currently has his license in two states. I grew up at the dinner table, listening to my parents sound off like Rich Dad, Poor Dad. And half the time dinner would culminate with mom and dad going to the office and working on some deal. The Smiths wanted to move their shop from over here to over there.
They were looking for a piece of land and they were going to build something and sell something in 1031. And I thought I wanted to go a different route. I thought I wanted to get out of construction. And I went to college for a semester and I realized that wasn’t for me. On top of that, I was watching my brother right out of high school, build houses. And if you built four houses a year, you can make about $45,000 in 1992, which was a [00:10:00] handsome sum. And, so I quickly got into residential construction. Then just as quickly realized I didn’t like homeowners. And, steered my company into commercial, built everything from city halls to police stations, fire stations, ambulatory facilities, medical schools, gymnasiums, industrial facilities, and anything in between.
And then I realized, Mike, that the minute I got done building that building for them, they got to start making money and my ability to make money on it stopped. And from there I saw the power of what passive income or residual income created what rents created. In 2001, I did my first industrial complex and 2 of the original tenants are still in the buildings out there.
And that same year I watched my parents retire on cash flow. I’ve watched them keep the same lifestyle they had in 2001. Because inflation has run at a pace that’s about equal to the rent increases, and they’ve been able to keep their lifestyle exactly like it was. And I went down [00:11:00] that journey and began to grow and started partnering with a couple of doctors on a deal, another real estate broker, and just grew that into something that then became more than I could get capital from a single partner. And from there, we stepped into syndication about three years ago. And since then we’ve raised about $60 million.
Mike Morawski: So explain to people, a lot of listeners that listen in, especially first time listeners are new to the space, explain what a syndication is?
Shannon Robnett: A syndication is just a fancy word for a partnership. You’ve got your limited partners who don’t do anything except provide capital. And it’s not that they’re lazy. That’s just the limit to their partnership. They provide the capital. You’ve got a general partner team or a sponsor. They create the opportunity, they find the deal, they vet the deal, they underwrite the deal, they get the lending on the deal, they manage the deal, and then they decide when to sell the deal.
And they’re active in that activity and that partnership creates returns for everyone. And we call it a syndication because of how we layer the capital, and [00:12:00] how people come into that. It’s definitely a highly regulated industry with the SEC getting involved in all of the legal mumbo jumbo as you know about the PPMs and the documents and all that, but it’s really nothing more than a partnership.
Mike Morawski: That’s a great way to put it. Thank you for explaining it that way. Hey, so what kind of deals are you seeing in the market today?
Shannon Robnett: Mike, I’m seeing all the deals I’m used to seeing. I did my first deal in 2001 and at a 9 percent interest rate and was looking, was hopeful to sell at a nine and a half cap. And, we’ve seen a lot of things happen in the market that are indicative of interest ,rates cheap money, lowers cap rates. Cash flows can stay the same on lower cap rates with cheaper money.
But now we’re getting back to a place where interest is crept up. It’s back to what I’m used to. I was talking with somebody, I think 90 percent of my career has happened above seven and a half percent. And so the deals are still deals. Somebody was asking me the other day, how do you in good conscience by a deal [00:13:00] today?
And it’s very simple, Mike, it’s a function of cashflow. If you get a deal under contract at 11.5% interest and it cash flows and you can make money for yourself and investors, then that’s a viable deal. If it gives you an opportunity at some point down the road to refinance and get a better return, that’s fantastic.
But the deal has to function at the beginning where the deal is offered. And today we’re looking at 7 to 8.5 percent interest rate, depending on what kind of product you’re using and what kind of product you’re financing. But there’s still deals to be had. I’m looking at two or three deals a week.
Granted they’re a little bit harder to find than they were before. But the other thing is there’s not a line of buyers causing the FOMO and the multiple offer situation. And so it gives you time to really, truly evaluate them.
Mike Morawski: Yeah. One thing I always tell people, I say, Hey, I got in the real estate business in the early nineties, and interest [00:14:00] rates were just coming out of double digits and so this is not an abnormal market for me, nor for you.
Shannon Robnett: No.
Mike Morawski: When people say, oh, interest rates are too high, what does that mean? Did you get spoiled at 3%? I used to tell the story, my parents, when I was growing up, they had interest rates of 2 and 3 percent on their property. And it didn’t stay long. And we creeped up. There was a time interest rates were 21%. So we should be grateful today that we’re not at that place.
Shannon Robnett: Right. And when my father started his career, he was building houses and selling houses at 21%. And he was still busy. And so there’s a supply and demand ratio that goes into that. And it doesn’t mean that you can afford a 3 million home, but it also doesn’t mean that nothing’s going to happen. And, I think that a lot of people get lost in the fact that a deal is something that accomplishes the objective.
And if that’s cashflow, tax benefits, things like that real estate provides. As long as the [00:15:00] interest rate and the NOI are in alignment and it provides a way to get to that objective, I think it’s a viable deal.
Mike Morawski: Yeah. So we’re heading into an election year, right?
Shannon Robnett: Always the fun stuff.
Mike Morawski: This is a cycle, right? We always have this cycle. And so where do you see the market headed and what do you think is gonna happen in the next, call it 12, 18 months?
Shannon Robnett: Well, Mike, it is a cycle. The one thing that I haven’t seen in our cycle is as much pent up demand and as much money on the sidelines as we’re seeing in this cycle. There’s a lot of smart operators that didn’t buy anything in the last 24 months. They just couldn’t make deals pencil at what other people were willing to pay. And so there’s a substantial amount of money sitting on the sidelines. We’ve got a very divided political climate.
So that’s going to cause some angst, but everybody’s concerned about the war in Ukraine. But man, we’ve had a war going everywhere since I’ve been a kid. We’ve always been at war. This one is a proxy war, but it’s a war nonetheless. But I think the current [00:16:00] administration is probably going to do what every administration has done before, they’re going to start lowering interest rates, probably about, June.
So that they can get the economy into the best shape they can before November. And that’s a political card that everybody plays, right? This isn’t a Democrat versus Republican statement. It’s just what happens. And so I think you’re going to see with the pent up demand, with the lack of supply of housing that has existed since the market crash in 8 and 9, I think you’re going to see things improve into the end of 24.
And I think you’re going to see the beginning of 25 be pretty good. If we look at the market as a whole, Mike, we can see that the market hasn’t cooled off like they had hoped it would, it hasn’t. And if you take Jerome Powell’s first address, when he talked about our robust economy, that was a runaway economy, and how he needed to start raising interest rates because the economy was just too hot.
And you look at a speech that he made, I think it was in [00:17:00] July. Those economies are almost identical. So raising interest rates really hasn’t slowed much. We’ve seen wages explode. We’ve seen pricing for employment go up. We’ve seen a lot of people come out of the workforce because they can’t live on what they’re making and go into a different field.
But I think all in all, I think the economy is still strong. And I think that a strong economy, a lack of supply, and probably some lowered interest rates in the middle of 24 are going to make for a pretty good 25.
Mike Morawski: Yeah. When you look at things like, they continue to raise the interest rate to try and slow the economy down and the economy’s not slowing down. You still have strong employment sectors. You still have strong job diversification. I’m looking in markets today and buying in markets that population growth, strong job growth, strong household income growing. So other than the fact that interest rates got a little bit high here, and [00:18:00] relatively speaking, because I think they’re that high, that we’re still in a market that makes sense to do deals in.
Shannon Robnett: Yeah. Mike, I think it’s a supply and demand thing. We’re estimated to be somewhere between [00:19:00] 4 and 7M housing units short in America right now. And, we have people moving to areas that are ill equipped to handle it. Let’s talk about Tulsa market that you like. That market is booming. It’s got a very tax friendly political stance. Very landlord friendly political stance. And it’s got a lot of job growth coming to that area.
So what you see is you see that people are moving out of high tax areas like California, like New York, they’re moving to other areas. Jobs are moving to those areas. So there’s going to be a bit of a reckoning on 1 end of the spectrum. But I think what you’re seeing is strong economy and strong job growth is creating more demand in other areas. So, instead of saying, hey, we’re 4M housing unit short in America right now, we’re going to be closer to 7M because there’s going to be some vacancy in California, because people are leaving.
Last year, over half a million people net export from California. Outside of strawberries. That’s the 2nd biggest thing they export. And so you’ve got these kind of situations that are happening that are [00:20:00] helping economies like Tulsa, like Orlando, like Dallas and other areas across the nation.
But I think combine that with the fact that deals are still getting done. When I look at my local real estate market here, I look at 3 things real quick. When I see a market report for the month, I look at how many houses got listed. I look at how many houses went pending and I look at how many houses sold.
And we’re running a two month supply, but that could be anything really. It’s just a number. But if we’re listing 500 houses and 100 are going under contract and 100 are sold, we got a problem. We’re creating, we’re gonna have more supply for sale than we want. What I’m seeing is that we listed 500 houses. 300 go under contract and 300 sell, which means that of those that go pending, some of them are going to fall out, but they’re going to sell.
And so we’re still in a supply constrained market. And as long as there’s constraint on demand, prices will stay high. And people are just learning to adjust from a McMansion for a million dollars. [00:21:00] They’re looking at three bedroom, two bath for $550,000, because that’s all the payment they can afford. But people are still continuing to buy.
Mike Morawski: Yeah. So people adjust according to what the environment is doing, what are you looking, so what are you working on today?
Shannon Robnett: We’ve always held a strong balance sheet in industrial, and right now industrial is in my opinion, one of the best and safest bets out there. And so we’re expanding that industrial portfolio. If you think about it, Mike, right now, we’re in a very inflationary environment. Everybody that’s in multifamily is experiencing at least 65% increase on their insurance. And if you’re in the C and the D class, you’re experiencing uptick in your delinquencies because the people in those price categories are giving blood, literally to afford the rents at where they’re at.
And so when we’ve shifted to industrial, we’re in a triple net asset where the tenant’s paying the expenses. We’re able to get rents. If we’re going into a recession, you can check historical data. That’s the fastest time in history of new [00:22:00] business creation. So they need space. They need somewhere to go.
We’re stepping into a deal where you’ve got a tenant that’s usually got, they’ve got credit, they’ve got a business plan, they’ve got a business mind, they got a balance sheet, they’re signing on the loan themselves and they’re covering all your expenses. It’s a pretty win win situation.
And they’re signing long term leases. The other thing about industrial is they tend to have higher cap rates traditionally than anything else in the other asset class out there. So, there’s a little bit more of a spread between what you’re paying for the asset and the finance costs. So you’re able to fix long term debt for high sixes, mid sevens. And buy a seven and a half to an eight cap.
Mike Morawski: Do you like leaseback deals at all on that industrial stuff?
Shannon Robnett: I’ve done several leasebacks, and those can be a bit of a challenge because typically the seller is focused on total dollars out. And if you get a seller that is focused on total dollars out and you can work with them on how to make that a viable equation for you. [00:23:00] Where, Hey, I can get you the maximum up front, but you got to give me a Brent bumps that the protect me. And so we’ve done several of those, they work well, you’ve got an established company with established track record.
Mike, as you know, one of the worst things that business can do is relocate. They’ve got to pay their employees to move everything. They’ve got to shut down their business. Then they’ve got to retrain all their customers as to where they move to. And so it’s very important for businesses to remain in their location. And a seller lease back does work often.
Mike Morawski: Yeah, I think it’s a pretty interesting model when you talk about light manufacturing or industrial stuff right now. There’s been a couple of interesting deals to look at. But where are you at? Are you doing any multifamily stuff right now?
Shannon Robnett: Yeah, we currently have 190 units under construction, as well as another 60 unit under construction. We’re getting ready to break ground on another 60 in Tennessee. We’re looking at some multifamily ground up in Raleigh, Durham, all strong markets, all really robust markets. Mike, like you, man, I’d rather do a good deal in a great market than a great deal in a [00:24:00] good market. Because the market’s going to lift you what’s the Warren Buffett say? Rising tide floats all boats.
I’d rather have Raleigh Durham market lift my boat rather than be out in the middle of Hackensack, New Jersey. Out on the outskirts of town trying to do something when everybody’s leaving town.
Mike Morawski: You look at chicago in this market here. The negative population growth. It’s like, who’s going to be left? But the funny thing is deals are still getting done here and now, I haven’t bought a deal in the chicago market in years. That’s why I like markets like Tampa or Huntsville, Alabama or Dallas, Texas, or Tulsa.
And, people look at you cross eyed sometimes when you say Tulsa, and then you start to tell them about the market statistics and the data, and then they start to open up. And I think Tulsa is a market that right where Indianapolis was a decade ago. And just before the smart money catches on, we’re just before the smart money catches on because when smart [00:25:00] money catches on, the markets blow up.
Shannon Robnett: Like you, Mike, it’s so easy in our business to get shiny object syndrome and look at deals all over the nation. We go in and we identify markets we want to be in before we even approach the deal level. And we underwrite the market and we say, man, this market’s got all the markings that we’re looking for. It checks all the boxes.
And then after that, we’ll begin to drill down and really pursue deals in that area. Because I don’t want to have to do due diligence on a deal and the market at the same time. So if we know this is a good market, we believe in the growth on it on a 10 year level, and we can see the metrics of what’s coming to that area, it’s easier to do the deals.
It’s easier to look at why would you want to do that? And, probably like you, Mike, we don’t want to go into a market and acquire an asset. We want to go into a market acquire several. We want to be able to put a footprint down, and make sense of being there. I was recently in Houston looking at a deal.
I happen to be at a conference and, just took some time to go look [00:26:00] at it, but it’s not a market I would travel to look at for a single deal, which is why we’re looking at several other industrial deals in that Houston market.
Mike Morawski: Interesting. You’re building new multifamily stuff or you’re building single family?
Shannon Robnett: No, we build multifamily. Yeah. And, there’s a supply and demand issue. But one of the things that I look at, Mike, if you look at national averages, the average class A tenant is coughing up about 26 percent of their income to pay the rent. Compared with a Class D tenant that is coughing up close to 42% of their income to pay the rent. And the class A tenant, if they’re coughing up 26%, that means that they have the ability maybe not the desire, but they have the ability to buy something or rent something nicer. They have the ability to do something different. And there’s a lot of opportunities in markets, that allow for a new product to be brought on with new amenities, with different configurations that the people are going to want to be at.
And[00:27:00] Mike, if you’re looking at single family homes, you can’t buy a new house for the same price as a used house. A new house is always more, but there’s always people that want the new one. And so we continue to do that. But we’ve always brought a substantial amount of equity to deals that don’t put us in a situation where we’re unable to get out of them.
We also very very conservatively underwrite. I’m looking at 190 units right now that we’re mid stroke through. And, my exit cap was a 675. We started that at 20. So we knew what our exit was going to be. We knew it had to have the potential to go higher, even though the last deal I sold in January of 22, was it a 375 cap. And so this sister property to it, we knew there was a potential to be sub 6. But man, I’d rather look amazingly smart, because the market helped me, than astronomically stupid because I ignored history.
Mike Morawski: So how are you figuring those cap rates? So if you buy a deal today and you’re going in at a 6.5 cap. [00:28:00] And you’re going to hold that deal for five to seven years. What’s your math around, what the future cap rates going to be?
Shannon Robnett: What I look at, Mike, as I look at history, I look at where things tend to go. We’ve seen multifamily in the mid eighties trading in a 10 cap. So there is the potential that you could wind up at a 10 cap, but as you know, you only lose money on real estate when you sell it. So if you have a pro forma that says, Hey, I bought it a six and a half cap. I cannot in good conscience underwrite that at anything lower than a seven and a half cap.
And I’ll probably underwrite it to an eight. And the reality is Mike, I stress test my deals to get me to a place where I’m making a viable return for my investors. Not anything crazy like a lot of these guys are promising. Most of my deals are 14 to 17 percent on paper. But it’s very easy to deliver 14 to 17 percent over a five year period, rather than trying to promise 22 to 24.
Because as you miss it by a half a percent on the downside, [00:29:00] you’re an absolute idiot. But if you upside it by a half a percent, they think you walk on water. And so I look at that and I will stress test that deal and say, Hey, if I can get 3 percent market appreciation, even though the deal that I’m looking at buying is 10 percent under market, if I can get a 3 percent market appreciation and I can sell it at a 7.5 or an 8 cap and still get that 15, 16 mark, then I’m going to be in great shape to deliver well beyond that.
And that’s really how I put my stuff together, because then I know we’re going to come in, we’re going to pick up 10 basis points right off the bat with the rents, that’s going to put us hopefully ahead of the curve. We don’t wind up in a flat spot somewhere down the road where rents slough off on us. We’re off to a great start on cashflow.
And then holding it, especially when it’s in a cashflow positive situation is very easy to convince investors to continue to do. People only want out when they’ve waited and waited and waited, and there’s still no return. But if people are getting cashflow and the market is a little bit turbulent, they’re still willing to wait if they’re getting [00:30:00] cashflow.
Mike Morawski: Right. And that goes back to what you said early on that cash flow is what’s most important.
Shannon Robnett: Yeah.
Mike Morawski: As long as your preferred return is getting paid, people are happy with that.
Shannon Robnett: Yeah.
Mike Morawski: So when you’re looking at those deals today, and you’re raising capital or you’re raising equity to do your construction or to buy a deal. What’s the cost of that equity today? And is it all private or is there institutional equity you’re bringing to the table?
Shannon Robnett: I’ve looked at institutional equity multiple times. And quite honestly, I’d rather pay a couple points better to Main Street than Wall Street. As a developer, I have more control if I’m using private equity, if I’m syndicating the capital, if I’m raising the money. If I go to an institution, all of a sudden, I’ve got some puppet, a master in, New York or Chicago is trying to pull my strings that may want to exit in year 3, regardless of the market, because that fits their pro forma.
And so I’ve looked at it from a [00:31:00] situation where y’all got on board the bus, because you thought I was driving a good bus and we were going in the right direction. Let’s keep it that way. And so I’ve steered clear of institutional capital for my career. Doesn’t mean there’s not a place for it. It’s just, I haven’t used it.
And, we look to make it a good return for our investors. Like I said, our target is somewhere between 14 and 17 percent on the target. We’ve never failed to deliver on those. We’ve always exceeded that. We just want to continue to make good deals that are viable and give longevity.
I know that lately a lot of people, at least the last couple years, a lot of people have been approaching real estate like day traders. They’re in and out of a deal in eight months, and one of the biggest problems that investors have is now you’ve created a problem for them. Because they gotta swing by the tax office. They gotta pay some money to them, and then they gotta figure out what the heck to do with their money again.
Where a five to seven year deal that’s constantly paying them a cash flow is everything they wanted.
Mike Morawski: It’s interesting. You mentioned earlier shiny object syndrome, [00:32:00] and over the last couple of years, there were a lot of people in this space. A lot of people underwriting deals. Large amounts of multiple offers on deals. And as soon as that market change, people started to look at other things. People started going in the car washes and self storage. And it’s funny how open the multifamily business has gotten. It feels like you can breathe again in the space.
So you’re not in those multiple deal situations. You don’t have earnest money that you have to go a million dollars hard day one. So I love this part of the cycle, and I know it’ll get like that again, but this is the part of the cycle that I think you’d find better deals and really can stride better in this environment.
Shannon Robnett: Mike, it gives you an opportunity to use your expertise, because you’re not competing against somebody that’s maybe not paying attention to the metrics. We’ve all looked at that guy across the table. Or, sidelined to us and said, man, how in the heck can he offer that price for [00:33:00] it?
But at the end of the day, what I’ve seen is there’s more money to be made in this part of the cycle by a long shot than there is to be made on the climb up because there’s deals they’re distressed. There’s deals that are just not working out that people want out of.
There’s people that have just decided that real estate isn’t for them for whatever reason. And acquiring deals right now when there’s time to think, when there’s time to navigate, when there’s time to really perform, due diligence and really build a solid pro forma is definitely going to be indicative of a brighter future for everybody that is still involved in the game.
Mike Morawski: I think if we had to take a consensus from this morning’s podcast, it would be the fact that the market is still strong. Don’t sit on the sidelines, take action, open enough doors, turn over enough rocks. And you’re going to find that deal in the market that makes sense to do something.
Shannon Robnett: Yeah, no, I completely agree with you on that. And it’s just a matter of staying after it. And that’s [00:34:00] why guys like you and I are tenacious because tenacity pays. Because it’s definitely not our looks that are opening those doors, Michael. Let’s just be clear.
Mike Morawski: So, anything you’re working on, you want people to know if people need to connect with you about anything. Do you want to tell people how to get ahold of you?
Shannon Robnett: Yeah, you’ve got this great banner running along the bottom here, but shannonrobnett.com, you can see the deals we’ve got. You can book a call with me to talk about maybe what your particular situation is. I love educating and helping people.
But we’ve always got deals going. We’ve got a great fund that’s investing in first position notes. And so we’ve always got stuff that are producing great results for people that are looking for the right kind of real estate solutions.
Mike Morawski: Awesome. A couple fun questions just at the end. So what’s the best book you’ve ever read?
Shannon Robnett: I actually told Robert Kiyosaki this one time that his book was quite disappointing. And he looked at me for a minute and then he got that grin on his face and he said, you must have been raised by poor dad. And I said, yeah, you got me on that one.
But, I think one of the best books I’ve [00:35:00] read, because I really like a good CIA spy, not all, it’s the book by Chris Voss Never Split The Difference. He tells a story from his time as an FBI negotiator and then quickly follows it up with how to apply that to business. And while I haven’t mastered all of his FBI mind tricks, it’s definitely been helpful to me.
Mike Morawski: That was an awesome book. That’s for sure. How about, best tourist attraction you’ve ever seen, ever been to?
Shannon Robnett: Best tourist attraction I’ve ever seen. I really try to stay off the beaten path. I love to travel, but I really don’t like being in crowds. So tourist attractions, I think the Eiffel Tower, when I was a kid, when I was a young man, the Eiffel Tower is pretty spectacular just because I like to build stuff.
Mike Morawski: That was an awesome site. I’ve been there. Hey, listen, thanks for being on this morning. I appreciate it. Any last words of wisdom?
Shannon Robnett: Mike, I appreciate everything you do, putting out information and content and helping educate people so that they can take action. I think it’s guys like you that are putting out a channel that allows people to [00:36:00] get real world information that can allow them to action that will change their life. That is pretty special. And I thank you and I know your listeners are pretty thankful as well.
Mike Morawski: Yeah. Thank you, Shannon. I appreciate that. Thanks for being here this morning. Thanks for being here, everybody.
Kristen: Thank you Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Wherever you hang out on social media, you will find Mike and My Core Intentions. Please like and follow us to get the most up to date real estate investing trends.
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