GI232: Invest in Square Feet with Matt Shields

GI232 Invest in Square Feet with Matt Shields

Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today, we have Matt Shields. He is an electrician, a serial entrepreneur, and a multifamily real estate investor, owning and operating a portfolio of 700 apartment units in 3 states.

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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 Matt Shields. He is an electrician, a serial entrepreneur, and a multifamily real estate investor, owning and operating a portfolio of 700 apartment units in 3 states. So thank you so much for coming on the show today, Matt.

Matt:
Charles, thanks for having me. It should be fun.

Charles:
Yeah. Yeah. You have a very interesting background. So, if you don’t mind, before we get into the nuts and bolts of your real estate business and other businesses can you let us know kind of a little bit about your personal and professional background prior to getting involved with your current real estate investing business?

Matt:
Yeah. I would say that I’ve been involved in real estate pretty well most of my life. I actually started putting roofs on houses when I was about 10 years old or so. My family was always very hands-on you know, when people needed things, we would jump in and help. Right? So started really, really early by the time I was 16, pretty well, knew how to do everything in the home. I actually bought my first house when I was 19, and I flipped it. And then out of high school, I didn’t go to college. I joined electrical contracting company and as a, as an apprentice. And basically as soon as I had enough time in the industry, I started my own electoral contracting company. And we would buy houses and fix ’em up, flip ’em, rent ’em out, what have you.

Matt:
Mm-Hmm. <affirmative> when the contracting company was slow. And so, so that was going well until 2008. And then we had a number of companies that owed us money that went out of business, which then in turn put that contracting company out of business. And fortunately in 2008 was when the app store came out. So we had some, some programming background, you know, through some things with the contracting company, which is kind of a, a story in itself. But we decided let’s give this app store thing a shot and creating apps. So that slowly turned into our technology company, which we are today a a digital transformation company. So we help people digitize their processes, what have you that started doing well in 2017. So got involved in larger real estate now and started going after the multifamily opportunity. So now we’re vertically integrated. We over have our own property management company own construction company which, you know, obviously we work and manage on all the various different assets that, that we have. So in a nutshell, that’s, that’s my background.

Charles:
Yeah, that’s that’s, that’s quite the background there. So when you were starting, I mean, obviously you’re around real estate, you were you know, you’re in roofing, you’re helping out with contractor, you become an electrician. When did you make the decision that real estate investing you want to be on the other side so to speak, of the hammer and get, become owning?

Matt:
So, I will when I was early on in my electoral contracting career, I was actually my apprenticeship career, I realized that I wanted to, to own my own company. I wanted to own my own business, right? I was, I was standing on the very top of a ladder in a a bathroom in a commercial space. And I was reaching up, stuffing wires into a junction box, and all of a sudden the thing blew up in my face. So fortunately, like I remember, it literally took me like 10 seconds or so to realize that I’m okay. You know, I didn’t fall off the ladder or anything like that but my hands were all charred and, you know, in black, no burns or anything. But I, it was at that point I realized like I wanted to be involved more again, on the business side of things.

Matt:
Yeah. So I, I knew that I wanted to get out of actually doing the work myself and what I found, so I, I started the contracting company and we started getting involved in the houses and all of that. The problem with smaller real estate is that the scale isn’t there. So you essentially, in, in order to make it work, you have to kind of have a situation like I had where, you know, you maybe had a company and this was, you know, kind of a side thing, or you are going to be the one who’s there still swinging the hammer and still, you know, showing tenants and, you know, fixing things and all of that. So the second time around when I, you know, started doing this after the, the technology company, I knew that I wanted to go larger so that we could hire a team, hire a staff to be able to manage all that day-to-day stuff and not have to, not to have to deal with it. So it’s all, you know, kind of a, an evolution of realization. You know, everybody thinks I want to invest in real estate and I want to do all these houses. You know, it’s, it’s incredibly difficult to be able to, you know, manage all of that on your own. So scaling out is really where, you know, my mindset was when I started that again.

Charles:
Yeah. It, it, I wasn’t from the beginning, I didn’t really see it. When I was buying small, I started with small three family properties, and it, it is very difficult to scale, and it’s very difficult to, no matter how good of a deal you get, I mean, it’s difficult to cash flow small properties consistently. I mean, you, unless you have no debt whatsoever or you’re in there, you know, actively managing it or like you said, doing work. I mean, that’s really how it happens. And in the town that I was buying property in, in, in Connecticut, where I’m from, and when I would see the other larger landlords, that’s really how they had it. ’cause We had a lot of the northeast, we had a lot, tons of three family properties, and they would like be doing flips over here with their contracting business, and then, hey, you know, something had to get fixed and they would drop off some of their guys over at one of their three family properties, or six family, whatever it was, or small multi-families to do it. And I saw that as really the most effective way of being able to, you know, have the crew, because that makes your management so much easier. But also, you know, you have to do that unless you have the scale, like you said, in going to a large apartment building.

Charles:
Mm-Hmm.

Matt:
<Affirmative>. Yep. Yep. So

Charles:
When I was looking on for your firm, like, kind of going into this, is that I saw that you guys have like a range of different apartment buildings. I’m not sure if there are previous sales that you already went through deals you did, but kinda ranging from 12 all the way up to almost 300 units. So I know you’re vertically integrated now, and you’re managing everything in house. I mean, has your strategy or criteria changed over the years?

Matt:
It, it definitely has. Yeah. And this is, again, all about scaling. So we joined a group called Jake and Gino. Mm-Hmm. <Affirmative> when we started this, I’m not sure if you know your listeners have heard of them but we knew that we wanted to, and I’m saying we, because I met my partner actually at Jake and Gino when we partnered up, we knew that we, we wanted to be able to find this knowledge from, you know, other people. So this is, again, all part of the, the, you know, the evolution you know, in, in, you know, moving through this. So we acquired some smaller properties at first. And we, we actually we acquired a 55 unit and a 12 unit basically at the same time. Okay. Right. And didn’t really realize the whole scale thing, just quite yet.

Matt:
The, the 12 unit seemed like a good deal. So we, we jumped into it. We were using third party property management at the 55 unit, and they just weren’t really doing that great of a job. You know, we, we felt like we could do better. So we jumped in and kind of, you know, cut our teeth on, on that type of an asset. And I would say, and I’ve, I’ve talked to quite a few people about this, that’s like really borderline whether or not that would work or not. Again, that’s maybe not even enough of a scale to be able to bring in, you know, having a team running it through a property management company. We were still doing quite a bit of the management, but we did have, you know, some, some team members there locally. So you know, that’s, that’s kind of where we started at.

Matt:
And then, you know, through evolution, we we started, you know, getting bigger and larger, you know, bigger, bigger properties. And I, I’m not sure if you’re referring to some of our assets, we do also have some portfolio portfolios where, you know, they were all located within a certain range and we picked up like six buildings at one time. Yeah. So you all together, that was about 300 units. You know, between those, those six different buildings. So it’s all about growing. It’s all about scaling and, you know, moving to the next step as as you progress.

Charles:
Yeah. That’s, that’s interesting about that. The, the deal you were talking about, because our first syndication deal years back was a 59 unit, and we found ourself right in that predicament of full-time lease full. It wasn’t, you know what I mean? It was just, it was expensive. It wasn’t the full scale. Right. It’s really, I don’t know, 80, a hundred units when you really start seeing that, where you can put the full-time leasing person in there, admin whatever you wanna call, and then a handyman in there, or maybe one and a half. And that’s where you can really start seeing that. But it’s difficult with the smaller properties. Yep. But yeah, it’s, it was also two is a, was a 32 unit and then 27 units around it, like you were saying, in a portfolio deal, threes units and a quads and a, and a triplex. So there’s all different types of ways of doing it and skinning it. It’s just makes it a little bit more difficult, but it makes it a little easier to sell it too, because you’re selling it as a whole package higher number and get a little higher value. ’cause Someone’s gonna come in there instead of buying one by one, they’ll pay more for having the whole packet.

Matt:
Exactly. So,

Charles:
Yep. Very, it’s, it’s, it’s kind of, I mean, there’s a lot of mortgages. It’s, it’s, it’s a lot of work that you’re doing it, but it’s a great way of making returns for your investors.

Matt:
Yep. Yeah. Exactly. Exactly.

Charles:
So where are you guys now? I mean, with focusing on specific markets, because I always find this interesting be if you’re vertically integrated, you have your in-house management, how have you narrowed your focus on where you guys are buying properties?

Matt:
Yeah, so I would say, so when we go into a new market, we’re looking for at least 200 units in that market. And that allows us, again, to scale. And you establish that, that flagpole, right? Mm-Hmm. <Affirmative> you know, and obvi you want it, it to be in a market where there’s other opportunities in that general area to be able to, again, capitalize on the scale of things you’re gonna buy, tools you’re gonna buy, you know, maybe vehicles you’re gonna have team being able to shift those teams between the various different assets is something that we certainly pay attention to today. I would also say that you know, as we’ve, as we’ve gone through and, you know, scaled up these these teams in different markets, we’ve started to realize that, you know, one of the mistakes that we made early on is we were, you know, looking wherever the opportunity might present itself, right? And trying to understand different markets, different sub-markets, where this line is at. That line is at, it just gets to be too difficult. And, you know, again, it, it, it seems like the right way to do things, the right, right approach. But we’ve definitely scaled back and now we focus on about five, six different cities. And you know, we know those areas well, and we’ve been there many, many times. So that’s really what we’re trying to do is, is focus in on those specific areas.

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Charles:
So when you you were talking about with your first deal there where you had an issue with the property management company, which is normal, because if you’re self-managing I had a small portfolio, I was self-managing it, then I had a third party manager and it, and that was kind my feeling for the first six months. It, it worked out fine. It was a great manager. I got ’em from our recommendation. But the thing though is that it takes time for them to like you know, is there, maybe you put in bad tenants or something like this worse than what they would put in. And now you’re going through and working that whole process out. Now when you’re dealing with management now, and you guys are having it in-house, what, what benefits have you found other than the control, which is obvious? What other the benefits would you say that you have you and your investors have benefited from, from having that management in-house?

Matt:
I would say, so property management is extremely difficult. It’s you know, a really, really difficult job, and you, you really don’t make all that terribly much money off, off of it, right? So it really is about controlling that asset and being able to control different situations. For instance, when we’re going through and doing a refinance, we’re able to really, you know, we’re able to contact the people that, you know, are right on boots on the ground, and, you know, if we need something, we need, you know, this information or what have you. And again, through refinance, the lenders are even looking for updated numbers Mm-Hmm. <Affirmative> all of the time. So we’re able to, to pull that or get that very, very quickly. So I would say that, you know, just having access, having control over things is probably the only benefit to it. Yeah. You know, if, if there wasn’t, if that wasn’t there, I don’t know that we would necessarily do our own property management. Again, you know, we’re looking over, we’re looking after our own assets. It certainly is not a business that, you know, is generating a lot of capital, a lot of income, and you have to do a tremendous amount of work in order to you know, keep the lights on and, and keep everything, keep the wheels on the bus. Yeah. Right. So it’s, it is difficult. So

Charles:
Yeah, with a couple groups that we work with that have in-house management, I mean, the fees are just really low too, that they charge, which is great for invest for everybody except for, I mean, it’s not a profit center and they know that going in there, but the control’s a huge thing. You know, controlling asset, but also controlling expenses. And that’s like one of my, one of the things I, you know, I have so many problems with third party management on is the expenses. And like, you know, Mm-Hmm. When they’re not calling people that are on my list of who you’re, who’s, you know, calls person for electrician calls person for this HVAC person. And you know, you get into these crazy situations where, hey, so this has to be right away. We have to do something. We’re calling our person, blah, blah, blah.

Charles:
And it’s three times as much as your person. So those are the things I always found with management companies. And you know, it is what it is. And their profit, I mean, their, their expenses can be all over, you know, depending on how they fee. So people always bring it down to a percentage, right? But it’s all these other fees too that you’re paying on. When people talk to me about it, it’s like, well, what are they charging for leasing? What are they charging you for renewals? You know, all these different fees that get put into it, so you can’t just go off of it’s 3% or it’s 8% or 10%, you know what I mean?

Matt:
Yep, yep. Yeah, I couldn’t agree more. It’s, it is difficult to be able to, you know, control all of that when it is, you know, not really spelled out what the, what the true costs are. Right. So yeah, couldn’t agree more.

Charles:
So Matt, like, you know, you’re, you’re a serial entrepreneur, you guys have many different businesses, and how do you stay focused with, I mean, between these different businesses? And you know, you have passive investors in some of your businesses with your real estate, and I imagine you have other investors in your other businesses people to answer to. I mean, how do you stay focused and really divide up your day, I guess, to cover all the bases?

Matt:
Yeah, so I would say that this is, this goes back to meeting cadence and the teams that we have in place and how we communicate between those teams. Mm-Hmm. <affirmative> you know, all of the companies basically use traction as, you know, kind of the core operating system, if you will. And really that really revolves around a number of key meetings that we have pretty well every day. And, you know, some certain meetings once a week. So we have the, the daily huddles where the various different teams all get together and everyone you know, answers what they’re, what they’re doing today, what the goals are for today and they also talk about what they accomplished yesterday as well. So you know, if there’s anything left over or there’s any help or anything like that, that they might need that’s kind of covered in this 15 minute meeting in the morning.

Matt:
And again, I’m not participating in all of those <laugh>, all the various teams are huddling together with their associated teams. Then once a week, we all come together again in the various different management realms. We have the L 10 meeting. So if during one of the huddle meetings a a topic comes up in a longer discussion starts to happen, we say, wait a minute, stop. Let’s shelf that and we’ll bring that up during the L 10 meeting as, you know, one of the topics. So again, that, that huddle, that daily huddle is just a quick meeting. Get, get, you know, everybody updated, make sure that everybody’s on the same page, make sure that everybody knows what everybody else is doing, and that, that’s really the purpose for that. But the, the L 10 meeting is diving in deeper into issues, problems that might be might be there.

Matt:
And then you just, you keep these on repeat over, you know, over the weeks. So we have our to-do lists that we go over each, each week, and we try to, okay, we’re gonna set this as a topic that we wanna get done by next week, and we can check this off, check this off, check this off, this is what was done last week. And then, you know, so those are the to-dos. And then we also have issues that we go through and do the exact same thing on. So this is just a constant a constant path of improvement that we’re tracking and moving through and checking things off as we go. So that’s, that’s the way that we organize things. And again, it’s just a, a team effort to make sure that we’re not forgetting things and we’re not you know, sweeping things under the rug.

Matt:
And then we also have things I’m not sure if you’ve ever heard of Cameron Harold, he has something that’s called a vivid vision. Oh, yes, yes. So, so great way to be able to organize where you guys are going. I’ve tried to do the 10 and 20 year plans, in my opinion, you can’t plan everything that’s going to happen in that amount of time. There’s gonna be so many, so many, you know, twists and turns that you’re gonna be way off course by the time you’re 10 years in. But three years you can create a, a plan that is going to get you there. So this is, this vivid vision is really outlining instead of, you know, backing up and, and talking about the steps, how we’re going to get there, this is talking about what life looks like in three years, and you get everyone on your team to, to, to, to buy in and to also articulate how they’re going to help you get to whatever that vision is.

Matt:
So that’s again, a way where we kind of, where we get the whole team moving in one direction so that everybody understands these are the goals, this, these are the tasks, and this is where we want to go in three years from now. And we did this this, we’re coming up on about three years. So be, we’ll be redoing this retweaking this to create the next three year vision statement here very, very shortly. So all of those things are what I basically help put together and, you know, put into the various different teams to make sure that everybody’s rowing the right direction, and there’s an operating system, be able to handle the issues and the problems as they, as they might come up. That’s

Charles:
Great. Yeah, that’s a great answer. And for listeners Matt mentioned traction and Viv Vision, which are books, and I’ll put those links into the show notes there. So being around real estate investing for so many decades, I mean, what do you see in being a value add operator? You see a lot of, let’s say, mismanaged properties, right? What are some common mistakes you see real estate investors or entrepreneurs in general make

Matt:
Mm-Hmm. <Affirmative>, I would say, and I, I go back to this. So I, I have my own podcast called Invest in Square Feet, and there’s a reason for that. The, the idea of breaking things down to the square foot calculation is incredibly key when you are looking at you know, comps and opportunities and whatnot, no matter if you are looking to acquire that property yourself, or you’re looking to invest into that property, as, you know, an lp, a limited partner, what have you. So one of the mistakes that I’ve seen people make is not, not check the rent rolls to validate that the the square footage is correct on a per unit basis. Because what a lot of operators will do is they’ll inflate their square footage calculation on their rent roll. So then you, so then it looks like the bill or the, the units are a lot larger than what they are.

Matt:
Then the operator or the, the potential operator or the, the person who’s looking to acquire this property they look around and say, oh, well, you know, there’s a, you know, 1500 square foot unit down the road that’s leasing for, you know, $1,500 and we’re only at 900, so we’ve got a $600 delta there. Right? you know, your, your units might not be as large as what that other one is down the road. So if you calculate that on a per square foot basis, you know, your, your max rent is only going to be, you know, this, this price or this much Mm-Hmm. <Affirmative> not all the way up to where everybody else is. Right? so this is a problem that I see investors make a lot where that is not validated. And, you know, you might think that you are investing in, you know, 200,000 square feet of apartments Mm-Hmm.

Matt:
<Affirmative>, and you might only be investing in 150,000 square feet of apartments total. So, you know, you can imagine what that does to your returns, and you have to consider this from a, a tenant’s perspective, when they’re going around and looking for their next home, they’re picturing like, my bed is gonna go here and my couch is gonna go here, and the chest is gonna go over here. They’re picturing how all this stuff is gonna fit in there. So if you are trying to price yourself at a competitor’s price, and your unit is not as large, their stuff is not gonna fit in in your unit. Even if no matter how nice your unit might be, their stuff won’t fit in there. So they’re not going to lease, they’re gonna go down the road, you know, to that. So validating and verifying the square footage of the various different unit types is incredibly, incredibly important. Making sure that that rent roll reflects that and the underwriting reflects that, and the OMM reflects that. So to me, it all starts with, you know, investing in square feet. Yeah,

Charles:
That’s a, that is great. That’s the first time I’ve heard that on the show. But it is when I, I look at what I’m looking at a deal when I’m reviewing one initially, and then one of the first things I do is looking at square footage of the units, because you start getting older units, you can’t add square footage, it’s functional obsolescence. So it’s something that you just, you can’t fix it. So it’s something that you have to make sure if those units are too small, you’re never gonna get, it’s like, it’s like having central air versus window units. You’re just, you’re just never gonna be able to get those rents past a certain level. So it’s that’s a great, that’s a great point. Thank you so much for bringing that up. Oh. So as we’re kinda wrapping up here, what do you think are some of the main factors that have contributed to your success over the years, between running a number of different businesses and investing in real estate?

Matt:
I would say I mentioned this earlier, finding, finding people who have had the success Mm-Hmm. <Affirmative> that you’re looking for or have, have the success that you’re looking for. I’ve, I’ve unfortunately, you know, again, you’re al you’re always learning. I’ve unfortunately followed the path of some people that weren’t as successful as what I thought they were, or I even knew that they weren’t successful, but they had success at one point. So I was trying to follow their path. And you have to understand that there’s always an outcome. The, the decisions that were made and the ways that things are, or the ways that they were evaluating things is always gonna lead to the same direction unless they’ve changed something about themselves. Mm-Hmm. <Affirmative> that path is gonna lead to the same point. So for me, I, I always try to find people who are living the life in the field that I want, and try to try to learn from them, try to interact with them you know, get together with them, have masterminds with them, so it’s learning from others, but being careful who you learn from and make sure that that person is actually successful in whatever it is that you’re looking for that success to be in

Charles:
Matt, more great information. So how can our listeners learn more about you and your businesses?

Matt:
Yeah, I’d say just go and check out invest in square feet.com. There’s information about me on there. And we’ve got some Facebook groups and all of that, but it’s all, all right there. So. All

Charles:
Right. Well, thank you so much for coming on today, Matt, and looking forward to connecting with you here in the near future.

Matt:
Charles, thank you.

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.

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About Matt Shields

Having achieved success in the world of technology and entrepreneurship, Matt reached a point in his life. Driven by a burning desire for financial freedom and the allure of passive income, he started on a path that would change his life forever when he started learning multifamily real estate investing.

As fate would have it Matt crossed paths with JP Albano, a like-minded individual hungry for success. Recognizing the potential of their partnership, Matt and JP joined forces, united by a shared vision to create something extraordinary.

Together, they took the plunge into the realm of real estate, starting with acquiring a few promising apartment deals. However, their turning point came when JP met Howard Primer, a mentor who would become their guiding light. In a fortuitous twist of fate, Matt and JP found inspiration and wisdom in Howard’s story, which resonated deeply with their aspirations.

Empowered by this encounter, Matt and JP embarked on a transformation journey. Drawing inspiration from the principles and values instilled by Mr. Primer two decades prior, they reimagined their business model, birthing Significan Lifestyle Communities (SignificanLC) – a multifaceted, vertically integrated firm specializing in value-add apartment investments. SignificanLC sought to create a truly remarkable living experience for their valued renters.

Today, Matt is proud as a seasoned real estate investor, owning and operating a portfolio comprising 700 apartment units across three states. His relentless dedication and strategic acumen have facilitated transactions totaling an impressive $60 million, a testament to his unwavering pursuit of excellence in the realm of real estate.

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