GI228: ADU Investing with Shawn DiMartile

GI228 ADU Investing with Shawn DiMartile

Shawn DiMartile began his real estate investing career by liquidating his 401k to purchase a 32-unit apartment building, and in just 2 years he was able to triple the value of the asset and sell it. Shawn syndicated his first property in 2021; a 150-unit multifamily complex, and then 2 months later syndicated a 145-unit complex. He was then able to quit his full-time job as an air traffic controller and is now a full-time multifamily investor with over 300 units, a boutique hotel, and several Airbnbs.

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Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Shawn DiMartile. He began his real estate investing career by liquidating his 401k to purchase a 32-unit apartment building, and in just 2 years he was able to triple the value of the asset and sell it. Shawn syndicated his first property in 2021; a 150-unit multifamily complex, and then 2 months later syndicated a 145-unit complex. He was then able to quit his full-time job as an air traffic controller and is now a full-time multifamily investor with over 300 units, a boutique hotel, and several Airbnbs. So thank you so much for coming on the show.

Shawn:
Thank you so much for having me on the show. I really appreciate the opportunity, man.

Charles:
So tell us about, a little bit about yourself personally and professionally prior to getting involved in real estate investing and with your W-2.

Shawn:
Sure. So the really, the story starts when, um, I was in college, joined in the United States Navy to become an air traffic controller. I served in the Navy for five years, and, uh, when I got outta the Navy, I got hired by the FAA here in Southern California doing approach con and departure control for John Wayne Long Beach, Torrance Fullerton, Los Alamitos Airport. I started making good money doing that and really wanted to, to invest this money. Like I already had that mindset that I wanted to invest. I just didn’t know what in, and years ago,

Charles:
About

Shawn:
Five, six years ago, maybe even longer than that, an old buddy of mine who was in real estate told me I should listen to the BiggerPockets podcast, which really was the catalyst that started it all. I mean, I started getting obsessed with that. Listen to every single episode, read every single book that I ever heard of, and I really gravitated towards multifamily because, uh, you know, all of the metrics made sense to me and why it was more scalable and all that. So I got hyper-focused on that, and that was my first investment in real estate, was actually a 32 unit apartment complex before I even owned my own home.

Charles:
Oh, really? Yeah. Awesome. Very cool. So when you were, when you were learning more about, and you went on BiggerPockets, you were learning more about multifamily investing and then when you actually made your first real estate investment and um, you know, tell us about the whole process for that. Like how you found the deal and then kind of how you financed it and everything like that. So

Shawn:
This, uh, deal, I, I partnered with five other people Mm-Hmm. <affirmative> in order to get this deal. And this was a deal Indi Indiana, so it was an outta state investment. It was in Greenwood, Indiana, and we decided to invest outta state just because it’s much cheaper and we could actually afford to get a commercial sized apartment. I mean, when we bought that thing, it was only like 1.2 million, I believe for 32 units, which you can basically get a house or a duplex here in San Diego for that price. But, um, anyways, I met these people from, uh, a couple people from my job. Two of the guys I was, uh, air traffic controllers with when we actually started a company together. And then, you know, another guy I met at a real estate meetup and then he brought in somebody. So it was kind of this mix of people that were, were all wanting to invest in order to fund the deal.

Shawn:
We all basically, you know, pitched in our entire savings and me and two other guys liquidated our 4 0 1 KSS in order to come up with more money. And we all just did a joint venture partnership on this 32 unit. So financing it, that was a enough uphill battle because this being our first deal and it being a heavy value add, uh, property, it wasn’t technically stabilized when we bought it, I believe it was the occupancy was around 80%, something like that. So that took a while to convince the bank to lend us money, but ultimately, like, yes, we were able to get it done. And, you know, that’s really when the journey started. There was a lot of learning lessons there because it was a 1963 vintage property with all kinds of issues. But, uh, yeah.

Charles:
Yeah, that sounds like a, uh, quite the project. So just backing up a second here, you talked about the financing and the financing issue. I, as it sounds, was a problem because of you were lacking on the experience portion. Is that correct? Yeah. Did you to, to get them to, uh, allow you to, uh, move forward with this project and for them to fund it? How did you have to do it? You, I imagine you had to bring in a third party property manager that was pretty experienced in that area to kind of sell the bank on, hey, this is who’s gonna run it and stuff like that. Is that correct?

Shawn:
Yeah, it was partially that. So we ended up getting a local bank to lend us the money for it, but really what we ended up doing is bringing in a guy that had multi-family experience, commercial multi-family properties in order to satisfy some of that experience. Yeah. But even then they were like really wanting us to spell out like the business plan in hyper detail. Like early on they were looking for quotes and all sorts of things to like really nail down what we were gonna do. And really, once they got like a solid understanding of our plan and they agreed with it, and, uh, they eventually led, lent us the money. I believe we had, you know, 75% leverage on that property. So I just feel like it took like, you know, an extra month of convincing ultimately. But like, yeah, we did have to bring in a, a third guy that, uh, had some experience. Okay.

Charles:
Yeah. So you had to actually bring on a partner for experience. ’cause I’ve seen it with new investors go both ways, where sometimes just bringing in a professional third party manager, they will check off that box, let’s just say. Mm-Hmm. <affirmative> of the experience portion. But you guys did both ways. You had the manager and then also you had someone on your team. So that really made it, uh, a slam dunk there. I imagine there wasn’t any

Shawn:
Issues on

Charles:
Their end. Yeah. Yeah. So let’s talk about, when you’re talking about this heavy value add, can you go into some of the issues you had? And I mean, I, I would say that probably financing with that local bank was probably the best way because financing with local banks is great in, in properties like this because there’s no prepayment penalty and it’s easier for them to like, believe in your business plan ’cause they’re local usually to exactly where the property is.

Shawn:
Yeah. So, you know, the biggest issues though that we faced with this property was the lack of, uh, maintenance upkeep. The deferred maintenance that was there. So we bought the, the property was in a great neighborhood. I would say that we probably bought the worst property in the best neighborhood. Now that’s an old real estate adage that, uh, you know, they tell you to do. But this property had, like, to put it into perspective, the interiors were so bad. Um, I believe those cabinets were like either originally from the sixties when it was built or shortly thereafter. I mean, most of the cabinets didn’t even have shelves in them. It was just a big open box. And so they had to be completely replaced. I have pictures of when we did our first walkthrough where some of the carpets were so old and dirty that it actually looked like concrete.

Shawn:
I I’ll, I would show people pictures and they’d say, is that concrete inside? And I’d be like, no, that is carpet. So there was just like, you know, you name it, it went wrong. We had plumbing issues, cast iron piping that was so corroded. Um, not very much stuff could get through it. There was clay piping and some of the drains that, uh, co completely collapsed. The plumbing issues were expounded. Uh, and even worse because there weren’t any cleanouts for them to be able to come Wow. For a plumber to be able to come by and easily, you know, drain out blockages. So we had to get those installed. Wow. So there, that was like really, like the biggest, um, you know, problems we had with the business plan was unexpected maintenance. Another big item that really killed us was the air conditioners. ’cause once we hit summertime, we bought this in December, and I’m

Charles:
They, I’m sorry. They were all central air. I have to cut you off.

Shawn:
They’re all central air.

Charles:
Yeah.

Shawn:
And they all have their own ac And so when we got our, um, our inspection done, we had them look at all the acs, but we didn’t have them do like a thorough inspection to where they could give us an idea of like the useful life remaining, which is what I have. I do that every single time. Now I pay extra for them to do a hyper inspection because what ended up happening is every month, one or two air conditioners would go out and those are, would, would average us 3,400 to $4,000 a pop to replace. And you combine that with a lot of the plumbing issues. And those were all repair and maintenance issues that we did not expect. So we ended up running low on cash and had to borrow $200,000 to complete the business plan. So it was, um, you know, that’s just a couple of examples of a lot of like issues we had.

Shawn:
So I think a good learning lesson for your listeners there, I don’t like buying properties that are that old anymore. Yeah. Um, if I’m gonna do that heavy of a value add nowadays, I’d rather just build it brand new personally. But if you’re gonna buy old assets, pay extra money to have the, um, inspection be as as thorough as possible. Scope every single drain line that you can with a camera. Um, look at all the major systems and hyper detail. Like don’t tell ’em to, I don’t want to know if just, if the air conditioner’s working, I want to know, you know, how old do you think it is? Ha what is, how is, has it been kept up and cleaned? How much useful life do you estimate it has? Like, I want to know that stuff. So I would just recommend if you’re buying old assets, like really do a thorough inspection so you know what you’re gonna have to pay for.

Charles:
Yeah. No, that’s, that’s a lot of great information. We would usually do like, um, you like scope like every, like every third, you know, every third line. Mm-Hmm. <affirmative> and before go on large assets and stuff like that. But it’s difficult with those older properties. I mean, that’s why I haven’t bought, you know, we’re, you know, 1985 and newer buyers. You know what I mean? Yeah. And it’s just like, it’s difficult when you’re getting into, when you’re really taking care of bones because all this stuff that you do, it’s, it doesn’t add any money to the rentals. No one’s gonna pay you more because, uh, the drains are now working correctly something that should be happening, uh, from the beginning.

Shawn:
Right. I don’t buy those old assets anymore either. Um, and, and at the end of the day, like even with the advice I was just giving, they can only look at so much. Like, do you, you can’t peel back all of the drywall to look behind and make sure all of the plumbing is looking good, et cetera. So no matter what, like surprises are gonna come up with those old properties. So you have to be very well capitalized expecting that basically. And like you said, like most of, a lot of those fixes, like they don’t really have an ROI, like, I had to replace a huge section of piping that costs $20,000 and it just is money down the drain. It’s just keeping the property operating. So yeah, I’m not a fan.

Charles:
Yeah. And, uh, there’s, there’s so much stuff that goes wrong. I’ve, my first three properties were all old properties built around 1900. And the stuff that would go wrong on ’em, uh, you know, re piping, natural gas stuff, you know, stuff that you just, you happens with old properties. It’s a very difficult, uh, it’s very difficult to, to see ’em too to, because if you’re in these units, you’re not in these units for that long when you walk ’em, you know what I mean? Mm-Hmm. <affirmative> when you’re, when you’re inspecting to buy a house, you spend hours on the house, you know what I mean? On every part of it, you know everything about it. Good point. When you’re walking these units, I mean, it’s really, there’s a tenant in there, you’re in there, there’s someone taking pictures, there’s, uh, two people with clipboards. You’re opening up closets, looking at, you know, mechanicals. So it’s something that you really have to bring someone in, like that’s great information and great, uh, you know, some great advice there for bringing people in there, specialists and whether they’re looking at roofs because there’s something always like, you know, walk every roof, check everything like that. And especially when the older assets, like you’re saying, that’s some great advice there.

Shawn:
Yeah. Yeah. It’s just like, I’ve completely, you know, granted we did do well with that property. Like we ended up like, you know, coming out, you know, on top and making some good money, but it’s just not worth it to me. Like, ’cause the risk is just exponentially more.

Charles:
Yeah. Yeah. That’s, I always tell people, uh, just avoid heavy value ads on their first couple deals because they are just, there are tons of work and you don’t have your, there’s tons of work. It’s a different thing if you’re bringing in all those contractors after owning multiple properties and you have the contractors and stuff like that. I imagine when you guys were doing this, you went through general contractors all the time. People weren’t showing up all this kinda stuff ’cause you didn’t know what to use. And that pushes everything back. Mm-Hmm. <affirmative> and, you know, it’s just, it’s a very difficult process dealing with the, with these larger renovations.

Shawn:
Absolutely. I couldn’t agree more.

Charles:
So, uh, one thing I wanna talk about that we kind of, you went over and, um, it’s something that I regularly asked this question by like, students in my, our, our mentoring program. Mm-Hmm. <affirmative>. And it’s about liquidating your 4 0 1 K.

Shawn:
So ah, yes, let’s talk about it <laugh>.

Charles:
Um, wow. That, that’s, that’s some dedication there. You and one other person, as you said, did it in your group.

Shawn:
Uh, me and two other people,

Charles:
Two other people.

Shawn:
So, you know, I’ll, I’ll, I’ll kind of start explaining that by a couple things. Number one, it’s important to note that I withdrew from my 4 0 1 K during the covid relief, which means that I did not have to pay the 10% penalty. I had to pay no penalty. And when it came to paying taxes on it, I was able to pay the taxes, uh, over the course of three years. Um, so, you know, it, it made it not hurt as much. Like I didn’t get penalized as much essentially. But, you know, if I could summarize my thoughts on 4 0 1 Ks, uh, I would summarize it in a couple ways before explaining why I did it. Number one is that I think 4 0 1 ks are good for people that want to stay at their job until retirement and contribute to it. Their, their entire time. And their plan that they’re okay with is maybe their pension, their retirement 4 0 1 k and like having that nice middle class retirement, that’s a good option for you.

Shawn:
Um, I was really bought into my 4 0 1 k at first I was maxing it out. I think, you know, nowadays, I don’t know what that is, like, you know, a thousand bucks a month, 1200 bucks a month to max out your 4 0 1 k. Um, but the problem is, is like while I’m doing that and living in San Diego, it, it was very difficult for me to then have extra money to invest to save on top of that so I can invest in real estate. So I really had to make a choice. Am I going to go for this 4 0 1 K and keep dumping money into this? Or do I want to get into the real estate with my own cash? So I was looking at it at that, uh, from that perspective in one sense, but I really just don’t believe the 4 0 1 k anymore.

Shawn:
Like the idea that I’m going to put my money in here and I can’t freaking touch it until I’m 59 and a half. Um, I do, you do not have control over that money. Um, I don’t like that. Um, number one, I have very few exit options without being penalized unless I wait till then I didn’t wanna wait till then to retire. I wanted to expedite the process, uh, get cashflow stacked up so that I can quit my job way sooner. So that was a lot of my line of thinking. I think a lot of people too that buy into the 4 0 1 kss don’t really understand it fully. Um, you know, to put it into perspective if you wanna, um, you know, to to, to determine it, the, the the 4% rule and all that kind of stuff, you know, if you’re gonna live off of that 4 0 1 k, you need to live off of 4% of whatever your balance is.

Shawn:
So take however much you wanna live. Let’s say you wanna live off of a hundred grand a year, multiply by 25, you need 2.5 million in your retirement account. 90% more or more of people will not have that much. So I just don’t think it’s that powerful of a tool. I get that, uh, your employer will match it and it’s quote unquote free money. But I mean, sure, if you’re gonna stay at your job until your 65, go for it. But for me, yeah, that, that was my line of thinking. We all liquidated our 4 0 1 ks. I didn’t have to pay that penalty, which definitely helped, but I was able to quit my job last year. So I think it worked.

Charles:
Yeah, that’s fantastic. I think the other thing too is that people that have the 4 0 1 Ks have no idea what it’s invested into. Right. And have no idea about the returns because I see people and I’m, they’re, you know, they have these like target date funds and stuff like that, and people in their twenties have their money in it. And I’m like, it, it’s extremely conservative. And I’m like, you know, and that’s why people have less than a hundred thousand dollars in it or something like in that, in their thirties or something. And I mean, I don’t, you, you’ve gotta put a ton of money into that thing to get it up to like what you’re talking about.

Shawn:
Yeah. I mean, and for most people it’s not even, you can’t, because like to, you can, there’s a certain amount that you can contribute to your 4 0 1 k, you can max it out, but they will only let you put so much in there. And then it’s just, you know, you’re investing in the stock market for one. So you’re investing in index funds. So as you get closer to retirement, you’re supposed to start transitioning those to towards more of a balance of bonds, et cetera. That way you don’t like, get your retirement account wiped out by 50% if the stock market crashes a year before you’re supposed to retire. And I think a lot of people just like don’t factor that in when they’re doing their calculations on, oh, I think I’m gonna have this much at retirement. Well, did you take into account that you’re gonna take some outta the s and p 500 and the list goes on?

Shawn:
But at the end of the day, a 4 0 1 K is a nest egg that slowly depletes when you retire. What you are doing is selling shares of your index funds in order to fund retirement. So that money is draining, and the idea is to withdraw it at a low enough rate to where you don’t die before you run outta money. With real estate, if you have cash flowing real estate, it’s infinite as long as you take care of the property. In fact, as time goes on, you get richer and you get more income because rents are going up, property values are going up. So it’s the exact opposite of a 4 0 1 k. Yeah,

Charles:
That’s, that’s a, that’s a great comparison. Thanks.

Charles:
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Charles:
So they, you have this, I love getting people on the show with, uh, unique investing strategies. And you have one and we’ve never had someone on the show talking about and, uh, accessory dwelling units. ADUs, can you explain what this investment tactic is?

Shawn:
So, you know, the, the investment tactic we’re focusing on here is bonus adu. So to, to explain what ADUs are for those that may have heard it and don’t understand, it stands for accessory dwelling units. And essentially what that is, is if you have a single family home or even a multi-family, uh, property, you can add units to it without having to go through the long process, the extended process that traditional ground up development has to go through, um, and you pay fewer fees, et cetera. But essentially this is a way for cities to increase density that don’t have a lot of empty lots. It’s really popular in California because most of California cities have, you know, had this issue where they need to increase density. San Diego is basically ground zero for this. San Diego, um, has a unique problem because it’s geographically constrained.

Shawn:
You’ve got the Pacific Ocean to the west Mexico to the south, mountainous terrain to the east, that’s expensive to build on. And then Camp Pendleton military base to the north. Now all of the available flat land for the most part has been accounted for and built on. So San Diego has this problem where they need to build a crap load of new housing because there’s a ton of demand and not enough supply. The median household income here is a million dollars now, and it’s because there’s way too many people that want way too few houses. Um, to put it into perspective, the city announced, uh, released in their 2021 annual report on housing that the city needs to build 105,000 new housing units by 2029 in order to meet demand, but they’re only building 5,000 per year. So they need to triple the amount of new housing they’re building Wow.

Shawn:
Every single year to meet their goal. So since the city doesn’t have flat buildable land available for them to build new neighborhoods, they don’t have any other choice but to increase density. And so what they did was they took the ADU, uh, laws in California, which typically allows two ADUs and they made a new code to allow an unlimited number of what they call bonus adu. So basically unlimited ADUs up to the floor area ratio of the lot. So in essence, depending on the size of the lot, you could take a single family home or a small multi-family and turn it into a 10 unit, even 20 or 30 unit multifamily property. And when you do that, even if they’re adu, that’s just the government’s term for that unit. Since it’s not a traditional ground up development, it’s traded lent on everything just like a normal apartment complex.

Charles:
Interesting.

Shawn:
So what this, what I, one of the, a couple of things that I love about this business model are one, I’m buying an existing asset that’s producing income while I wait for permits. So traditionally with, uh, you know, ground up development, a lot of the risk lies in things like the fact that you’re buying an empty lot that’s making no income and you’re gonna be making, uh, mortgage payments, tax payments, et cetera for a couple of years while you wait for permits. Those are called holding costs. And you’re just sitting there burning money. With this business model I’m able to buy, like for example, I have one property that’s about a half a mile from the beach, I got an Airbnb permit and I’m actually cash flowing while I’m waiting for the permits. The other thing I love about it is it lets me build new apartment units and neighborhoods that otherwise have zero empty lots.

Shawn:
So there’s no other new units. And that, uh, property a half mile from the beach is a perfect example. Most of the properties over there were built decades ago, don’t have central air conditioning, don’t have in unit washers and dryers and are really old and dated. So it, uh, it has a lot of advantages and there’s ways to reduce risk a lot more with this business model. So that’s what we’re focusing on right now. Um, because here in San Diego, we could build these things for 150 to $200,000 per unit and sell them for north of 400,000 a unit.

Charles:
Wow. Wow. That’s that’s pretty, that’s pretty amazing. Uh, that was one of the, you know, the risks with construction is that you can have a property that’s 1% built or 99% built and you’re not making any money on it. Exactly. So I love this idea of the multiple income streams to, even if you’re not cash flowing, you’re still covering a lot of your costs and you’re not just burning all day long. So, um, exactly. Um, yeah, so I, one of the risks I have and, um, you know, of a being California of a bean San Diego, but I mean, how does, how does this working with the government down there? I mean, is this gonna be very difficult? They sound like they’re very, it’s, they’re actually very pro at because they’re trying to work the problem up, which is great. I mean, how do you, you’ve done this many times, like how is that working with it and have you, what kind of issues have you come up, uh, upon?

Shawn:
I think the biggest issues have been with neighbors because obviously people, like some people don’t mind because like a new beautiful complex is built down the street. Some people get really upset, uh, because they don’t want their neighborhood to change, which I understand, but I, I think the reality is you cannot stop a city from growing. And if you try to, it ends up hurting the economy. Yeah. So I, I understand the, the grief, but like, I’ve definitely had like really angry neighbors literally threatening me. And I’ve had to, um, well I have some, um, restraining order standing by, like it’s gotten that serious with some people. But, uh, when it comes to the government, I think it’s to be seen because this regulation is only two years old and it’s starting to really pick up speed steam with these ADUs, for example, ADUs made up 19% of all new housing construction, which is massive, uh, in 2021.

Shawn:
And that’s only increasing. I think that the biggest problem or the biggest worry for me when it comes to that is just the government, like going back on its regulations. If, uh, if the NIMBYs, uh, you know, ha I guess if the NIMBYs fight enough, um, I do think NIMBYs are losing their power here in California. For those that don’t know what that means, it, uh, stands for not in my backyard because the mantra here in California, there’s just NIMBYs everywhere where, um, anytime some the state tries to get something done, these people say, I’m all for it. I just don’t want you to build it here. And a perfect example is a, a neighbor that called me about my place a half mile from the beach, and she said, I don’t give a crap. Why don’t you build it east? I don’t want it in my neighborhood.

Shawn:
And that’s a perfect example of a nimby. Yeah. Um, in fact, the governor said, NIMBYs are destroying our state in an interview with the San Francisco Chronicles. So like, it’s been a huge issue. I I think that the city is, or, or the state is finally like telling these people like, no, like, we’re not gonna let your voice ruin this plan to build new housing. Um, but outside of that, I mean, I don’t have a lot of worries because it’s been put into law. It’s in the municipal code. And anytime you have something that’s been written into law like that, it takes time to either reverse it or stop it. So I think for the foreseeable future, this is a really safe and effective strategy.

Charles:
So when you’re looking for looking for possible, uh, properties to do for ADUs, uh, I mean, what are you looking for when you’re filtering these properties? What is a, something that shows that this is gonna be a very favorable property for this, uh,

Shawn:
Tactic? So a couple of things. Number one, it has to rely or lie within a transit priority area, which is a map that the city’s put on their website. And it’s essentially any lot that’s within a half a mile of major public transportation, whether that be the bus route or a trolley route. Um, because the idea is is, uh, because there’s no parking requirements for these, uh, ADU properties. And so the idea is if it’s close enough to public transportation, it at least gives people an option to utilize that. So it has to be within ATPA to even qualify for this program. Um, so that’s number one. Number two, I like to look for lots that are 7,000 square feet or bigger. Um, and also RMM zone residential multifamily zoned. So the RMM zoning is important because that allows for greater density. Um, you know, if there’s, there’s usually like RMM dash one one and then it goes up to like dash three something. But basically the higher RMM zoning, the more density you could have. Um, and then, um, let’s see, uh, the 7,000 square foot lot was, is another big one because that’s just kind of our minimum due to the fact that we want there to be, you know, 10 units or more when this thing is all said and done. And we’ve found that lots of that size make it, you know, generally that gives us a good chance of hitting those numbers.

Charles:
Right.

Shawn:
Um, some other criteria are, you know, alley alleyway access, just because it makes it easier to do the construction and cheaper, it also reduces your setbacks. Uh, we like a small house on a big lot because sometimes like yeah, you might have an 8,000 square foot lot. Well, if there’s a big 2,500 square foot house, two story house that’s sitting dead middle of it, you can’t really build in front of it or behind it, uh, there won’t be enough room. So we like to have like a really small house that’s located on the front of the lot to give us a big space in the back to build. So, uh, one of our projects, for example, is 1049 square foot house on a 7,050 square foot lot and the house is right on the front of the lot. So those are a couple of the criteria. And then, um, you know, I could keep going down the list, but those are probably the most important.

Charles:
So what is your exit strategy on these properties? Do you lease ’em up and sell ’em? Are you leasing ’em up and holding ’em?

Shawn:
We do both. Um, as of right, like all of our projects right

Charles:
Now

Shawn:
Are, uh, lease up, um, put ’em on into some long-term debt probably and then sell them. Um, and that’s just due to the fact of our investor appetite really. Uh, because we’ve pulled our investors, we speak to our investors a lot, and for the most part, our investors prefer like a three to five year hold. Now these projects take, depending on where they’re located two to three years to have it fully built and leased up. So the plan is to essentially, you know, complete the construction. If we, if we have time left on the construction loan, probably list it for sale once it’s leased up and stabilized. If not, we would probably put it into perm debt so that we don’t have our hands tied during the negotiation. Um, but, uh, in general, three to five years.

Charles:
Nice. Okay. So as we’re wrapping up here, uh, what are some common mistakes you see other real estate investors make or that, uh, you’ve made yourself?

Shawn:
I think the, the most common mistake is not having enough money.

Charles:
Mm-Hmm. <affirmative>

Shawn:
Not being well capitalized. I think, uh, I’ve made that mistake myself on that first deal I told you about where we had to borrow more money to finish the plan. Um, and I think that that’s why also why you’re seeing so many, not so many. ’cause it’s not like there’s a ton, but you’re seeing a lot of operators nowadays that are losing their portfolios or losing several properties or finding themselves in trouble because they’re newer guys that rapidly built portfolios over the past couple years, but they have zero liquidity and they didn’t raise enough money to handle what’s happening in the market right now, or they’re debt or whatever. So I think that you just, if your deal can’t pencil with an additional 20% contingency capital minimum, um, then it’s not worth doing. Um, I would even say like, be as conservative as possible and make it a priority to raise extra money, especially if you’re new. Because if you don’t have liquidity, meaning if you don’t personally have hundreds of thousands of dollars in your bank account in order to cover some missteps or errors you might have made, uh, you’re gonna find yourself in trouble. And that’s what’s happens to so many people. Yeah.

Charles:
No, I, I read this online a lot too, is that you’ll have people that first time buying properties and they’re having issues just coming up with a down payment. And that’s like a huge, that’s just like a huge red flag for, ’cause you don’t have reserves. No one ever thinks about the reserves. Yeah. And yeah, I mean, I, I wasn’t my biggest thing when I started, but I, I did have money saved, you know what I mean? But Mm-Hmm.

Shawn:
<affirmative>

Charles:
It wasn’t earmarked for the real estate, but it’s something that, um, I don’t, I’m just, when I tell new investors, that’s like a huge, that’s a great, that’s a great advice. ’cause I totally agree with that.

Shawn:
Yeah. I think it’s number one man. Like I’ve even seen, like with my mentor who has, you know, 8,000 apartment units, I’ve seen him like have an issue that came up on one of his properties and he just used his own money, like over a hundred thousand dollars to fund it. And then he is just gonna reimburse himself, uh, whenever the property is sold. This is why whenever you’re getting these commercial loans, the banks want to see usually 10% liquidity post-close. Mm-Hmm. <affirmative>, um, for, for your properties, these commercial properties. And the reason why is because you are supposed to be the person that if something goes wrong, can make up the difference. And I think that having that standard for yourself or even improving upon that is a good strategy.

Charles:
Yeah. And our first syndication, uh, deal years back, um, we were financing some of the repairs and, you know, we had to float that, you know, it was like a hundred thousand dollars how to float that before getting the money back from lenders. So it’s, uh, I think it’s, it’s the one thing that really, if you have holding power in real estate, you’ll make money. The problem is that people just go in and they’re, you know, real estate investors love debt and they just get in there and they are very tight and that’s where issues happen. You know what I mean? Mm-Hmm. <affirmative>. Whereas if you’re very well capitalized, you can just write a check and fix the problem.

Shawn:
Exactly. Um,

Charles:
So, uh, what are some of the main factors that have contributed to your success over the years?

Shawn:
I think number one is getting a really good mentor. I was able to secure a really good one-on-one mentor that like, if I didn’t have him, I wouldn’t, I, there’s no question I wouldn’t have been able to do those two really big syndications back to back. Um, he co-sponsored those deals with me. Um, his experience helped me, uh, raise the money that I was able to raise. So I just, that has to be really emphasized as number one. And I really recommend anyone listening if you want to expedite your path to progress, uh, highly recommend getting a mentor. Um, I think another thing that’s really contributed to my success is, um, getting involved in everything that I can. And what I mean is having my own podcast, I hosted my own real estate meetup for a long time. Um, be guests on other podcasts, write a blog, do social media content. I mean the list goes on. Do anything and everything you can as early as you can so you could start building that trust and getting people to know and like you so that you can get investors. Um, it takes a long time. So I’m telling you, if you wanna raise millions of dollars, you better start that stuff now.

Charles:
Yeah. It, it is a very long-term process from the time you start to time that you’re actually consistently raising money for deals. Yeah. Um, a lot of great information. How can our listeners learn more about you, your business and your podcast? So

Shawn:
Two ways. The easiest way is to find me on Instagram, shawn_dMartel, and I’m sure you guys will have my name on this podcast episode. So just shawn underscore d Martel first and last name. Um, and you can also find me on my website, investorshawn.com, spelled S-H-A-W-N. But, uh, please follow me on Instagram. I put stuff out every day and my website’s got my blog, a free ebook covering this, ADU strategy, all sorts of stuff.

Charles:
Well, that’s great. Well, thank you so much for coming on today and, uh, looking forward to connecting with you and here in the near future.

Shawn:
Thanks Charles. Appreciate it brother.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Charles:
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Shawn DiMartile

Shawn started his journey into real estate investing by liquidating his 401k to partner on an out-of-state 32-unit apartment in Indiana. In just 2 years he was able to triple the value of the asset and sell it for a substantial profit.

Shortly after that, Shawn secured a mentor and was off to the races.

He syndicated his first 150-unit multifamily property in 2021, then 2 months later syndicated a 145-unit.

Shawn always wanted to invest in America’s finest city, San Diego, but the low cap rates and landlord-tenant laws made it difficult to make value-add multifamily pencil to great returns. That all changed when San Diego implemented their bonus ADU program, which allows investors to build apartments on single-family lots. This strategy has largely remained under the radar over the 2 years since its implementation, but Shawn’s new eBook “California Gold” details this strategy so investors can stake their claim on the new gold rush in California.

Shawn was able to quit his full-time job as an air traffic controller and is now a full-time multifamily investor with over 300 units, a boutique hotel, and several Airbnbs. He now dedicates his time to flipping the script on investing in SoCal and is ready to show how this strategy can equal massive profits in America’s most coveted city.

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