Best Ever Tweet:
Colin Smith Real Estate Background:
- 28 year old engineer who fell in love with real estate
- Owns a boutique brokerage consisting of 2 full time employees and 6 agents
- He has syndicated flips, a small apartment complex, and owns a small portfolio himself
- Based in Colorado Springs, CO
- Say hi to him at http://www.solidrockre.com/
- Best Ever Book: The One Thing
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Colin Smith. How are you doing, Colin?
Colin Smith: I’m doing pretty well, Joe. How about yourself?
Joe Fairless: I’m doing pretty well as well, and looking forward to our conversation. A little bit about Colin – he is a 28-year-old engineer who fell in love with real estate. He owns a boutique brokerage called Solid Rock Realty. It consists of two full-time employees and six agents. He has syndicated flips, a small apartment community, and owns a portfolio himself. Based in Colorado Springs, Colorado. With that being said, Colin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Colin Smith: Sure, absolutely. I originally got a degree in engineering. I was an engineer for the county for about four years, but really didn’t love it very much. During that time I bought a four-bedroom house and rented out the other three bedrooms. One of the guys who came and lived with me was just starting to flip houses and got his real estate license, so I really learned a lot from him on how the whole game is played, but I really didn’t have the capital to flip properties myself, so I thought “Well, there’s really only ever a few people involved in the flip, so why don’t I become the real estate agent to help find deals for other investors, so I could build that capital?” And that’s exactly what I did – I went and got a real estate license, and through the whole process actually kind of fell in love with the whole real estate game. I’m no longer an engineer actually. I’m currently just doing real estate full-time as an agent, I have a small company, and really my niche is working with investors, and I really enjoy what I’m doing now.
Joe Fairless: I don’t remember coming across someone who used to be an engineer and now is a full-time real estate agent… There’s no question there, that’s just a comment.
Colin Smith: You know what, I got a lot of weird looks when I was still going through that transition. They said “What do you do?” I said, “Well, I’m an engineer for the county, but I’m also a realtor and trying to make that a full-time gig.” A lot of people thought, “Huh… Well, that’s different.” [laughter]
Joe Fairless: Yeah. Well, it’s cool. It’s fun to hear your story. It is different. When you were an engineer for the county, what kind of engineer were you?
Colin Smith: I was actually a traffic engineer. It wasn’t really my favorite job. My job was really road signs and road markings, and we’d joke around with some engineers saying “Oh yeah, you make sidewalks.” That was pretty true… It was pretty boring.
Joe Fairless: [laughs] What was your major?
Colin Smith: Civil engineering.
Joe Fairless: Civil engineering. Got it.
Colin Smith: It was civil engineering with a specialty in traffic.
Joe Fairless: Okay. Well, you made the bed you slept in then, if you put a specialty in traffic.
Colin Smith: Yeah, kind of.
Joe Fairless: Okay, so you were an engineer, and you started house-hacking, had a four-bedroom, one of the people who were renting a bedroom from you was a fix and flipper, and then you didn’t have the money to do fix and flips, so you thought you’d be a real estate agent, and that would help you make some money in order to do those fix and flips, so you became a full-time agent. Was there overlap with you as a traffic engineer and as a real estate agent?
Colin Smith: Yeah, I would say it was probably a solid two years I was kind of almost working full-time for both. It was that 4/10 schedule for the county, so I’d get up early, get over there, I’d use all of my breaks for making phone calls, returning phone calls, or shooting over and doing showings if it was nearby, and then usually doing showings in the evenings, and then weekends and days off, I was doing showings or closings or inspections, or something of that nature. It was kind of a grueling two years of trying to make that transition.
Joe Fairless: And what was the milestone that you decided that you had reached it, so you were no longer going to be a traffic engineer, and you were gonna be full-time as an agent?
Colin Smith: I realized I had made as much money as a real estate agent in about six months for what I was gonna make for the entire year at the county. I kind of realized the numbers are looking a whole lot better in one direction.
Joe Fairless: That was a two-year process, from when you got your license to when you had that six-month mark of income?
Colin Smith: Yes, that’s right. About two years.
Joe Fairless: Okay. And when you had your full-time job and you had your job as a real estate agent, during those two years as a real estate agent, what were you doing that eventually set you up so that you were making more – or as much – in six months as an agent than you were as a traffic engineer in 12?
Colin Smith: Very good question. What I kind of set myself up was — I was constantly networking with other investors, other realtors, other wholesalers, and always seeing how I can provide value. So part of what I did is I sort of built my own small cash buyers list, I would scour the MLS on a daily basis, I would look for decent deals, and then if I found what I thought was a decent deal, I would go ahead and run a comparable market analysis on what I think it would probably be selling for as the after repair value, and send that out to the investors, with both the listing and the [unintelligible [00:07:25].25] It was a great way for the investors just to immediately have all the information right in front of them; they can make offers quickly… So I’d help them both buy the property and then sell it.
Then with wholesalers, a lot of times what I was doing is — they’re talking to a lot of sellers who don’t wanna sell nickels on the dollar; they’re looking to sell for top dollar. So we’d come to an agreement to work together where I’d work a lot of their seller leads, or help them find leads as well, if a seller is looking for a quick close. So I really just did a lot of networking, provided a lot of value to other people, and kind of got my name out there that way.
Joe Fairless: What’s the compensation on that – we’ll go with the wholesaler one – for them, if you find someone who wants to sell quickly?
Colin Smith: Usually it wasn’t actually charging anything. It was more often I was getting more leads from them than I was giving to the wholesaler, so I kind of just did it pro bono; it wasn’t a very often situation. Vice-versa, what I was doing – and I’d go through a lot of attorney paperwork to make this happen… But in Colorado, I cannot pay an unlicensed individual referrals. So instead, I’m hiring some of these wholesalers as part-time assistants and paying the commissions on leads that they brought to me.
Joe Fairless: I’m sure you met a lot of wholesalers, and more than who you actually sent leads to… So the ones you chose to send leads to vs. the ones you did not choose to send leads to – assuming that’s a correct assumption – what differentiated the two groups?
Colin Smith: Well, I’ve probably met with — and something else that I’ve been doing with both wholesalers, and people who wanted to do fix and flips, is I would spend an hour or two with them to kind of teach them ways in which they could get started… Even though I wasn’t personally doing what they were doing, I knew enough to be dangerous to teach them what to do. That was another way to find new clients, is that they were brand new, but they had the resources or the time to go out and do these things.
With that being said, a very small percent of population they actually met with took what I said and ran with it. Most of them would give up or fail, or just never really get started; sort of an analysis paralysis.
So if I were to send a lead to one of the other wholesalers, it was usually to the ones who were doing the most deals, and the ones who were also giving me leads, as well.
Joe Fairless: Alright, let’s transition into your small apartment complex… How big is the small apartment complex?
Colin Smith: That is a 19-unit, and what made that really interesting – it’s 19 units, but it’s split up as two fourplexes, one triplex, and an 8-unit, and it also has a vacant piece of land we can build another eight units on. And what’s also great about it is that each building is on its own lot and parcel number, so we’ll build some off individually to FHA and VA buyers.
Joe Fairless: You said “we” – who’s “we”?
Colin Smith: A small group of six guys that we use to syndicate that deal together [unintelligible [00:10:24].07] just finding enough cash to both purchase it, but also — the renovation cost was almost as expensive as buying the complex itself.
Joe Fairless: What were the numbers for the purchase and the renovations?
Colin Smith: The purchase price was 785k, and renovations about 650k.
Joe Fairless: And did you get financing for either one?
Colin Smith: Yes. We are using a hard money lender to both purchase and for renovations; we’ve done about half of the renovations. And we’ll refi into a longer-term commercial loan here in the next — well, I’d say most of the renovations are done in the next 8-9 months.
Joe Fairless: How long ago did you purchase this?
Colin Smith: About two months ago. [unintelligible [00:11:04].25] I’ve done about eight evictions in the last two months for this property. The previous owner was trying to manage this 19-unit from Tennessee, and if anyone sent him a check, he’d send them a key in the mail. So it’s really been turning around a lot of that tenant quality, as well.
Joe Fairless: What are the six partners? Is it you plus six, or are you included in the six?
Colin Smith: I’m included in the six. I have one other co-management member, and then the other four are more passive investor members.
Joe Fairless: Okay. And what’s the structure that you have with them, that you’re using?
Colin Smith: In this particular case we did a little bit untraditional, and just did an equity split. The co-manager and I will get a percentage for managing the project, and then the rest of it will be an equity split based on capital contributions to the investment. And then as this property turns around and we start cash-flowing, we’ll also do quarterly splits based off those same numbers.
Joe Fairless: Got it. And do you have an ownership percentage in it?
Colin Smith: Yes. In fact, I hold the largest percentage. I did bring capital to the deal as well, but then with the managing aspect as well, that helped bump my percentage up.
Joe Fairless: Oh, cool. Well, congrats on that. So you’ve got a group of six; basically you’ve got limited partners – your four investors who are more passive – and general partners, right?
Colin Smith: Correct.
Joe Fairless: Okay. So for the general partnership, what’s the general partnership ownership?
Colin Smith: 90%. 10% to the managing members.
Joe Fairless: Okay, so 10% to you and your co-manager.
Colin Smith: Correct.
Joe Fairless: Got it. So 90% to limited partners, 10% to general partners, plus you’ve got money in the deal, so your ownership is great than whatever you split between your partner… Is it probably 50/50?
Colin Smith: For that section, yes, it is 50/50.
Joe Fairless: Got it. Cool. And how did you come up with that structure?
Colin Smith: A lot of the other guys I know personally, so it was just a way to, I guess, do this deal with friends and make it a fun way of structuring it, so that everybody wins and does fairly well on it… And assuming all the numbers come out right, then everybody should win together. If it doesn’t, then I guess we’ll all lose together at the same time. [unintelligible [00:13:20].14] That’s right, that’s right. I don’t suspect that will be the case, because we bought it at such a low price that it’s too good of a deal to pass on.
And some of it also – I’ve had to try and raise this capital pretty quickly, because my original goal was to actually take this on myself. But as I got into it more, I realized I was gonna either be over-leveraged, or was gonna get denied by some of the bigger banks with the lower financing rates.
Joe Fairless: What does the hard money lender charge? I’m just curious…
Colin Smith: We are doing two points and 8% interest, with interest-only loans.
Joe Fairless: Got it. You said interest-only loans?
Colin Smith: Yeah. Interest-only payments.
Joe Fairless: Right, yeah. Cool. And that is — I know you’re gonna be getting out of it, is the plan, in about 9 months, so around 12 months total… But how long is that loan in case something bad happens and you have to have it longer?
Colin Smith: 12 months with permission to do a 12-month extension.
Joe Fairless: Got it, okay. Cool. And what have been some of the lessons you’ve learned so far — or maybe not lessons you learned so far, but just things you’ve experienced besides the evictions that you think we should talk about?
Colin Smith: You know, honestly, this one has been pretty straightforward. I’ve done some flips in the past, so using some of the same contractors; we got a lot of quotes, we had quite a bit of time to do due diligence on it… So by the time we were getting to closing, it was just a matter of starting to pull triggers on things, the first step being getting some of the worst of the worst tenants out [unintelligible [00:14:54].02] was having a weekly drive-by, shooting at it, from one unit in particular… So really, it’s just been trying to clean everything up and getting everything going. I haven’t had any too major headaches or hiccups yet.
Joe Fairless: Sounds like a tough area.
Colin Smith: You wouldn’t think. I was surprised myself, because Colorado Springs is one of those cities that you go [unintelligible [00:15:16].21] it’s a great neighborhood. Then you go back down to our street and kind of wonder what the heck happened. But hopefully, as we clean things up, I think the whole neighborhood will keep turning around, because it’s not too far away from downtown, which always helps.
Joe Fairless: Oh, yeah. You said the plan is to exit out, refinance out of this hard money loan in 12 months total time, and put on a longer-term loan?
Colin Smith: Yes. And at that point in time if any partners wanna get out, we’ll do a buyout based on new appraised value, or hold it for the long-term. There’s a little bit of discussion. Some people wanna hold it, some people wanna sell it, so we might just structure buyouts for those who wanna sell it.
Joe Fairless: And on the sell, regardless of sell or hold on to it, do you all have voting provisions, so that everyone has an equal say, or is it structured in some other way?
Colin Smith: We do. For the most part, we’ll do voting just based on a strict number count, but if we had to, we could do votes. And I guess per the operating agreement, technically votes is based on their ownership interest in the total investment.
Joe Fairless: Got it. So it’d have to hit a certain threshold, like 70% of ownership interest wants to sell or wants to hold on to it.
Colin Smith: That’s right. I think it’s a 51% voting.
Joe Fairless: Okay, got it. Is this the largest collection of properties you’ve purchased at one time?
Colin Smith: Yes.
Joe Fairless: And how did you come across this deal?
Colin Smith: Actually, a wholesaler brought it to me originally. In this particular case, because it was such a large deal and a commercial deal, they said “Hey, we’ve got this property, but we don’t wanna use our standard wholesaling contract.” They asked me if they could just pay me a small fee to take it over. So I put all the paperwork together, and was gonna start helping them to get it sold… And I started looking a little closer at the numbers and thought “Hey, this looks like a great deal. I think I might be interested.”
So they kind of gave me the first crack at it, I didn’t really have to compete for it, thankfully, and actually at the end of the day we brought the wholesaler in as one of the members of the investment. So his wholesaling fee is a part of his capital contributions.
Joe Fairless: Oh, that’s great. That works out for everyone.
Colin Smith: Yeah, it worked out really well.
Joe Fairless: What’s a wholesaling fee for wholesaling a deal like that to you?
Colin Smith: His fee was 25k. Originally, it was gonna be 20k, and after doing some further inspections, I realized it was gonna be a lot more work than we originally anticipated, and I told him “Hey, if you can go back to the seller and get a price reduction, I’ll give you an additional 10% of whatever that is in the wholesaling fee.” He negotiated the property $50,000 back down, so it went from 20k up to 25k for him.
Joe Fairless: That’s amazing. You should keep that offer. Every time you negotiate it down I’ll give you 5k more; let’s keep this rolling.
Colin Smith: [laughs] That’s right, I was more than happy to pay him that much.
Joe Fairless: That’s great. Your other properties – what else have you got?
Colin Smith: My primary home – we’re sort of doing the fix and flip model, where we’re gonna be holding it for a couple of years and sell it, move into another property that needs renovations. We’re working on finishing up a lot of those renovations at this point in time. The trick there will be getting my wife to want to sell this one, so we’ll see if that happens.
Joe Fairless: How many times have you done that with her?
Colin Smith: This will be our second one… But she fell in love with the home on this one, so we’ll see. We have another single-family home we’ve had for a few years, and then I also just purchased another fourplex; that will be another total gut job that we’ll work on putting all back together when it’s gutted. I’m still working on getting two tenants… One particular guy is a disbarred attorney [unintelligible [00:18:54].25] so he was an interesting guy that I’m still working on trying to get out of there.
Joe Fairless: [laughs] That would be the worst. It’s not only an attorney, but it’s a disbarred attorney, so there are no rules there, but they do know what the rules are and how to skirt them.
Colin Smith: Yes… And thankfully – I was just in Court for this one on Tuesday, and I actually botched the paperwork, but the judge said “We should really just get this settled, because I don’t wanna see you guys again.” And long story short, he kept on trying to over-talk and tell the judge she was wrong, and that upset her, so actually the whole situation went in my favor… So he’s got 30 days to get out, and if he doesn’t, then we’ll complete the eviction and get the sheriff out there shortly thereafter. So I got lucky on that one.
Joe Fairless: Well, I actually hope he doesn’t go out and the sheriff actually has to throw him out…
Colin Smith: Oh, don’t tell me about it… I wanna get started with the renovations. [laughter]
Joe Fairless: Alright, fine, fine, fine…
Colin Smith: I guess the judge told me the same thing though.
Joe Fairless: Right, yeah… [laughs] With the fourplex that needs the gut renovation, how did you find it?
Colin Smith: We do property management as well, so I usually tell people I kind of do all things residential in real estate, so we’ll do both property management and sales; in this particular case, we sent out some postcards for growing our property management side of the business. The seller came to me and said “Hey, I really wanna just get this thing under management. I’m sick of it. Here’s the situation…” So I said, “Great, let’s go and get that started”, and then right after we signed the contract, she said “Well, I’m also interested in selling it. Do you think that’d be something you can help me with?” I said, “Yeah, of course, absolutely. That’s really more of what I do than on the property management side”, because I have an assistant who really takes care of more of the boots on the ground for property management. So I asked “How much do you wanna sell it for?” and she gave me a number, and I said “I think we can make that happen.”
From there, I said “Well, I think I’ll be your buyer. I’d be more than happy to make that price happen.” It ended up being a very good deal. She was actually also a real estate agent, so she kind of knew the value of the property and knew that she was giving it to me at a pretty good price.
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
Colin Smith: I would say — a lot of people ask me how to find a mentor, and a lot of people say “Hey, can you be my mentor?” In my opinion, if you’re asking the question “Can you be my mentor?”, you’re probably always gonna get the no answer. The better way to approach this is always find something of value to give; either bring them a deal, or be willing to just sit around and help out whenever you can, or [unintelligible [00:21:29].01] or maybe you go push a broom, clean up, work with the contractors, go swing a hammer… You can really learn a lot that way. It’s kind of how I learned a lot – by doing the work and finding deals for people and not expecting getting paid. We’ll do CMA’s for people for free all day long, and that really brings a lot of value to them and brings them back working with us.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Colin Smith: Okay, let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve recently read?
Colin Smith: Best ever book… I’ll probably say The One Thing, by Gary Keller. It’s a pretty good book.
Joe Fairless: Best ever deal you’ve done?
Colin Smith: This fourplex I was just telling you about. I think it’ll probably be the best ever deal when it’s all finished up. I bought it for about 175k all in, about another 75k for renovations, and it should get an appraised value of about 400k.
Joe Fairless: Doggies… Wow! There you go. You read my mind, I was about to ask you the numbers, so I appreciate that. What’s a mistake you’ve made on a transaction?
Colin Smith: I did syndicate a small flip on a manufactured house, and I did not know that to get lending on that house we would have to make sure that the home was never moved and it’s always [unintelligible [00:23:37].22] original location… And it was built in 1978, and they had moved in 1979 to the location I bought it from, and I had no idea. So rather than continuing on with the renovations, we decided to go ahead and just bite the bullet, sell it as is… Even though it was a syndicated flip, I covered 100% of that loss, which ended up being about $17,000.
Joe Fairless: So if it’s a manufactured home, in order to get financing it has to have always been at that location?
Colin Smith: Correct. And there should be a sticker, if not two stickers on the property – one on the outside, and one typically is put underneath the sink… And when they move the manufactured homes and mobile homes, they’ll usually take that sticker off.
Joe Fairless: Best ever way you like to give back?
Colin Smith: Usually we’ll give to churches and different church organizations, and then a partner and I [unintelligible [00:24:30].13] he’s the wholesaler that I do business with. He was on episode (I think) 1490 of yours; we run a REIA twice a month, the first and third Tuesday of the month, and we sort of give back… It’s a free REIA that we just like to provide knowledge to new investors and help them get started.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?
Colin Smith: The best place to find me is just on our website, www.solidrockre.com.
Joe Fairless: From how you got started, working the hours that you were working, the four days, ten hours – I believe that’s what you meant by “four by ten”, right?
Colin Smith: Yeah.
Joe Fairless: Okay… Four days, ten hours, plus being a real estate agent on the side and/or in the evenings and on the weekends, to transitioning from that job to a full-time real estate agent who’s not got a brokerage, and putting together deals – a 19-unit deal, I love that we got into the specifics of the deal structure, the business model, the debt that you have on the property and some challenges that you’ve come across and how you’re working through those challenges, as well as the fourplex, too… Congrats on all you’ve done so far, and I’m really grateful you were on the show.
Thanks again for being on the show, and we’ll talk to you soon.
Colin Smith: Awesome. Thank you, Joe. It was good chatting with you.