January 15, 2020

JF1960: Starting A Real Estate Investing Business & Growing To 245 Units with Collin Schwartz

Like so many investors before him, Collin caught the real estate bug from reading Rich Dad Poor Dad. He started looking for deals while still working full time, eventually leaving the job to be a real estate investor full time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“If you’re not constantly learning, you’ll soften a little bit” – Collin Schwartz

Collin Schwartz Real Estate Background:

  • Real estate investor who began investing in 2017
  • Currently owns 245 rental units (with another 70 units under contract)
  • Based in Omaha, NE
  • Say hi to him at 402-204-5552 – collinschwartz1ATgmail.com
  • Best Ever Book: Shoe Dog

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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, Collin Schwartz. How are you doing, Collin?

Collin Schwartz: Doing awesome, Joe. Doing awesome.

Joe Fairless: I’m glad to hear that. A little bit about Collin – he’s a real estate investor who began investing in 2017, currently owns 245 rental units, with another 70 under contract. Based in Omaha, Nebraska. With that being said, Collin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Collin Schwartz: Yeah. I kind of moved all over as  a kid… In 2007 I decided to move up to Nebraska, start working on my MBA. I was working at a grocery chain for about six years [unintelligible [00:02:03].17] Left there to pursue the corporate world, more of the 9-to-5 gig, got married at the time, was gonna start a family… I started working there; it was in insurance, I was in marketing, and then I started doing some IT work. I really found that I was enjoying or thought I had made it with the 9-to-5 gig, good paycheck, but was being left very unsatisfied and unfulfilled…

So as many other investors out there, I read Rich Dad, Poor Dad. That was January 1st, 2017. I knew I had to make a change, so right from then, I basically started networking, got on Bigger Pockets, started listening to your podcast, started listening to everything I could, read every book I could… And then April 24th I closed on my first threeplex with a partner.

Joe Fairless: April 24th of 2017?

Collin Schwartz: Of 2017, that’s correct. So about four months later I was able to close on it. It was a pocket listing. I actually met the agent through Bigger Pockets, he reached out to me… So it was a good start. I was in a good location. It needed some rehab, the rents were way under market. So I went through, did that rehab… At the same time, I was having trouble finding leads, I think as a lot of new investors do. Brokers don’t give you a lot of respect in the front-end, and maybe rightfully so, until you kind of prove yourself.

Joe Fairless: Sure.

Collin Schwartz: So I started sending a bunch of letters I handwrote. I think it was 191 letters. I got the list from ListSource, I filtered it down to multifamily owners that had owned their property for — I believe it was over five years… And I wrote a simple letter, sent those out. I got six deals out of that…

Joe Fairless: Huh! [laughs]

Collin Schwartz: Yeah, it was a great return on my investment. It was kind of funny, because I was still working at my full-time job then… So I would be having to leave meetings, taking phone calls, and figuring out how to negotiate… A whole new realm for me. But that actually worked out really well.

Fast-forward, I have continued buying… As you stated, I have 245 rental units. Over about 20 properties we started purchasing bigger units. One of our last ones was 87 rental units; the two that we have under contract are 48 and 23-units. I self-manage about half of those properties, a little more than half of those units, kind of trying to find the right balance as we’re growing the team, and what we can keep up with, as most of these properties need a lot of repositioning, a lot of remodeling… And now I’m just kind of looking forward to continuing to purchase more and more, and meet with other investors.

About 15 months ago I started a meetup group, and that’s been great. We have about 500 members with regular attendance of about 100 people every month.

Joe Fairless: The 101 letters that you handwrote, you got six deals from it… What were the terms of those deals?

Collin Schwartz: They were kind of all over the place. One of them basically I got a referral fee of $2,000 for passing it on. Another one was a sevenplex, and it was just me direct with the owner. I purchased it for 369k. It was a seven-unit. Rents at the time were, I think, 4,200. I went through quite a decent repositioning process. Purchased it through bank financing, I should say that. And then within – I think it was 8-9 months, we were able to refinance out of it and got it valued at 525k. So it was kind of all over the place. Almost all of them I purchased with a partner. There was one duplex I did purchase by myself.

What’s kind of funny – those six deals that I got, I’ve also gotten recommendations from those sellers, for other properties… So I’ve been able to purchase neighboring properties based on the previous landowner telling the other landowners that I actually purchased their units… So I was really looking at going in and raising the rents, and using bank financing for the 80%. For my 20% I was using a home equity line of credit.

Joe Fairless: Okay. You live in Omaha… Are these properties in Omaha?

Collin Schwartz: Yeah, everything’s in Omaha, especially when I first started. Now I have two little kids, but at the time when I started I just had one… I also help with another business as well, plus at my full-time job… And I also realized right away that if I was going to effectively do it, especially on these smaller-scale properties, I was gonna need to self-manage… So I chose things that were near my workplace. It happens to be kind of a downtown area, that’s gentrifying, expanding, going through a lot of improvements, so it was a good area to look… But there’s still a lot of tired landlords around, so everything that I started buying was in basically one-hour walking distance from my work. So if I needed to go meet a contractor over lunch, I’d hop in my car and basically run on over there and get it taken care of.

So I knew that at first if I was getting a call, I needed to go handle a situation that was two hours away from me, I was gonna get burnt out really quickly.

Joe Fairless: Sure. Did that initial list focus on that highly-targeted area?

Collin Schwartz: Yes, it was two ZIP codes that I put in there. I was around my work, and basically another ZIP code that followed the line of the Interstate, which I would have to drive back anyways to and from work, so… I kind of made it in the convenience manner, but also an area that I saw a lot of growth potential as well. It wasn’t just for that convenience.

Joe Fairless: Okay. And you said the first deal – I heard you say that it was a triplex and you did it with a partner. Is that correct?

Collin Schwartz: That is correct.

Joe Fairless: Okay. And who is this partner?

Collin Schwartz: Steven Sykes.

Joe Fairless: And how do you know Steven?

Collin Schwartz: This is kind of funny… I was sitting there with my wife – this was January/February 2017 – just saying “Who do you know that knows something about real estate?” Well, she’s like “Hey, talk to my cousin’s fiancée.” He was an attorney, he recommended me to another agent, and another agent recommended me to Steve. He had about 50 rental units under management and ownership at the time, so we just started really hitting it off; we had multiple conversations, we started talking about our goals, what we were looking for… I found this property, brought it to him and said “Hey, will you walk through this with me? What do you think?” We got along really well, so we decided to partner on it.

He had the experience, he knew some contractors… And it was absolutely paramount, because when I walked through the property, I just looked at the current rents, saw things that I had no idea what to do with, and “I don’t think this makes sense.” And lo and behold, it did. It appraised at the time of purchase for about 50k or 60k more than–

Joe Fairless: Oh, awesome.

Collin Schwartz: Yeah, and that was just that initial purchase, before we even did anything to the property.

Joe Fairless: That’s great. So he clearly brought the more seasoned experience. I imagine you brought the cash?

Collin Schwartz: We actually both brought cash to that deal, so we were 50/50 on the cash.

Joe Fairless: 50/50 on cash, okay.

Collin Schwartz: Yup. And I did the management for the property.

Joe Fairless: With all your years of expertise managing properties…

Collin Schwartz: Exactly, exactly.

Joe Fairless: [laughs]

Collin Schwartz: At first I had no plan on managing. I’d read everything about passive income, this and that… That was my goal, and he said “It’s probably gonna be good for you. If in three months you don’t like it or you don’t see it’s valuable, I’ll take it over and manage it.” Well, I ended up really liking it, which is not of the norm…

Joe Fairless: What do you like about it?

Collin Schwartz: Something’s different every day, it’s challenging. I’m also somewhat of a control freak, so having that control, being able to fill vacancies a lot quicker, being able to be more effective on the turns… Actually putting something together and being able to mold that property… And now I purchase a lot of properties in that area, and being able to mold the overall client base that’s in there, and have kind of reputation, or whatever you call it, having quality property… So yeah, it’s kind of a control thing, but it’s the same reason that I don’t prefer to invest in stocks anymore, is why I wanted to manage it myself. Because if I was gonna let somebody else manage it, it was a similar scenario. I was giving up control, similar to the reasons why I don’t enjoy the stock market as much.

Joe Fairless: I’d love to learn more about filling vacancies quicker. What do you do that would be different from a property management company that you’d hire?

Collin Schwartz: We do a lot of things that are similar. I think I incentivize the people that work with me a little bit better, but we really push getting professional photos, we post it on all social media accounts… We do all that normal stuff, but we also try to contact our residents and have them provide us referrals, customer service… And then even goofy things, like me and my son dressed up like T-Rexes for Halloween… So  I decided “Well, what better use, dress up like a T-Rex and take photos and videos of the properties…?” That just increases the viralness of the actual property itself… So instead of somebody viewing it 200 times, you’re getting 5,000 views. So just things like that can really help with it.

Joe Fairless: Were you two in the unit, and people were taking pictures of the T-Rexes in the unit?

Collin Schwartz: It was actually just me and my son, and being a two-year-old, three-year-old, he was not cooperating at the time… But I had a professional photographer come in and we did funny things. Me pulling something out of the oven, taking a shower in a T-Rex costume… So just kind of a bunch of goofy stuff.

Joe Fairless: Okay.

Collin Schwartz: But yeah, do something different… And what made me think of that is actually when I was walking around with him on Halloween, and probably 50% of the people had a wow, amazement about the costume… I was like “Okay, there’s some wowness left to it. I’m gonna use it for some marketing.” It was a $50 costume, I might as well use it again.

Joe Fairless: [laughs]

Collin Schwartz: Just kind of fun stuff like that, but really pushing social media, really pushing relationships with my vendors so that they’re sharing, they’re telling other people about it… And the fact that I do self-manage and have a small management company that we manage all the properties which we own, our responsiveness is typically much faster than others.

Joe Fairless: You mentioned earlier you might incentivize more than others… What exactly do you do  from this standpoint?

Collin Schwartz: I think most property management companies just pay their leasing individuals, whether it’s a salary, and they do other things, that’s kind of secondary… At least some that I’ve talked to. I give them half a month’s rent; that’s exactly what we take in, so they get bonuses on that… And that’s if they fill it within ten days of being ready. If it’s not ready within those ten days, then it drops to 25% of first month’s rent. But that really increases the intention to get out there and lease them up right away, especially when you flip a whole building at once. So we may have ten units, and that’s a possibility for a bonus of $3,000.

Joe Fairless: That’s a large incentive.

Collin Schwartz: Yup, so that’s worked really well. At first I was just doing 25% a month, and vacancies were sticking out there, and then I said the 50%, and lo and behold the next day we have five vacancies filled.

Joe Fairless: Oh, my gosh… 50% – they had to have a signed lease within ten days, or they had to–

Collin Schwartz: They need to have the deposit from that individual, that signed lease.

Joe Fairless: A deposit…

Collin Schwartz: They need to have money from that individual.

Joe Fairless: Did you notice any decrease in qualifications once you upped it from 25% to 50%?

Collin Schwartz: I have not noticed anything yet, but that is something obviously that I’m looking at… [laughter] I’m still the one who reviews all the background checks, and credit reports, and everything like that. [unintelligible [00:12:59].14]

Joe Fairless: Sure. Yeah, you do. 245 units and you’re the person who still reviews that on all vacancies?

Collin Schwartz: That’s correct.

Joe Fairless: What system do you use within the business? Taking a step back, not just background check, but what systems do you use to help you manage 245 units?

Collin Schwartz: We used Buildium. That’s a property management software. You can enter in all the tenants, they can pay online through the portal there, it has an accounting feature, you can send off background checks… We also utilize what’s called PayLease; it’s a CashPay card. Lots of our residents are primarily Spanish speaking, or they don’t have checking accounts or anything like that, primarily cash payers they were typically (or they were before). We switched them over to a PayLease card. They can go to the local Walmart, pay with cash, and that money gets wired over… Similar to an ACH.

Joe Fairless: And PayLease?

Collin Schwartz: Yup, PayLease.

Joe Fairless: Okay, got it. When you think back with your triplex, what are some things you do differently from an acquisition front now, that you weren’t doing before?

Collin Schwartz: I would this is probably my first 7, 8, 9, 10 deals, what I would do differently… And it’s very similar to the triplex. Well, I guess there’s two things… One, always ask if they filed a hail claim. If they haven’t, get that assigned over to you. Have them open up a claim with their insurance policy. This is in the due diligence process, have them assign it over to you. The worst that happens is there’s no claim.

Second is always get a construction budget and factor something in there for something else going wrong… Because it does happen. I think we kind of put ourselves a little bit backwards, and relying on — I think we each put in an additional 5k or 10k, and we were relying on that to rehab the whole property, plus with the cashflow… Well, there’s just numerous expenses that come up, and it just creates a lot of stress. And if you can have that leveraged construction line, meaning that at closing you’re putting down an additional 20% of the 80% of the construction line that you could have access to – that provides a tremendous amount of help in getting projects done quicker, more effectively, and with less stress.

Joe Fairless: Triplex to 245 units… How did you have the money to scale to this degree, in this period of time?

Collin Schwartz: I didn’t… [laughs] Cash runs out really quickly in this business… I think I had some savings, and I had my home equity line of credit… So I think at about 18 units I started basically running out of money. And I had partnered on at least half of those units by then. So what I started doing – and I started getting a little creative – I was finding a lot of these deals off market, so I’d bring a  partner in and then I’d add acquisition fees. Now, the acquisition fees were factored into the overall purchase price, and then basically in the details I would put that XYZ LLC receives 5% acquisition fee at closing.

That would actually be consumed by the bank. I would be paying, say, 10% of the overall, my partner would be paying 10% of the overall, and then the bank would be paying the 80%. So I’d receive a chunk of that at closing, and that helped.

I’ve done about a dozen flips or so, so that has helped… A little bit of wholesaling… I’m not a professional on that, just more of if I find an opportunity and a buyer and a seller, I kind of link them together. And then obviously, the BRRRR strategy has been huge. That’s been one of the biggest ones.

And then there’s also private money, people taking second positions on the loans… There’s been quite a few different ways.

Joe Fairless: Yeah, and I’m glad that you listed those out. Has the BRRRR strategy been the biggest one where you were able to get chunks of equity out and then place in another ones? Or is there another one that would be in the first place?

Collin Schwartz: If I was looking at a dollar standpoint, it would be the BRRRR. Especially with what I have in the pipeline right now – I have a lot of things that, since I only started two years ago, there’s things that are just kind of hitting that year seasoning mark, that we’re refinancing with Freddie… But yeah, it was definitely the BRRRR strategy. But the other ones kind of came at opportune times, where I’d possibly have to pass on the projects, because I did not have the down payment, but was able to get somebody to provide a second-position loan in which I paid them 1% monthly interest, which they’d get ACH-ed into their account, with the assumption that after we reposition the property, that there’ll be that spread in there, so that I can pay them back their initial investment as a promissory note in the second position.

Joe Fairless: So you’ve found yourself in times where you needed to be really resourceful, because you didn’t have the cash in the bank account, and you saw an opportunity… Any tips for someone who is at 18 units, and now they’re out of money, what you suggest they do first, just to get started in the more creative realm of getting equity?

Collin Schwartz: I think there’s a couple different things that lead up to that. It’s definitely networking, obviously. If you don’t have the money, you need to find somebody that has the money. Start finding and really bird-dogging and searching for deals. When you find the deals, and when they’re actually deals that you can see a 30%, 40%, 50% upside in, people are gonna be attracted to that.

One of the reasons and one of the things that helped me get so many partners, I believe, is because I was doing the property management myself. Most third-party property management companies aren’t as good as the owner, and a lot of people saw that as value, so they would wanna partner with me… And some partners have paid for 100% of the down payment, which I paid back on the refinance portion… But I know property management isn’t for everybody, so I’m not telling everybody to go manage their own properties… But if you do have that bandwidth, if you’re good with people, you’re good with systems, that’s a really good route, and it’s attractive for other investors.

One other way that I’ve gotten money is hard money; so I’ve actually used just a hard money lender. But in those positions they take first position; if it’s a good enough property, you can go refinance out and get them paid back, and still own the property. So I think it’s multiple things, but networking, and — this business is all about adding value, whether it’s adding value to your properties, adding value to your partners, anything like that. Anything that you can do to add value to others.

Joe Fairless: Taking a step back, looking at your portfolio that you’ve acquired, what property have you lost the most money on and how much did you lose?

Collin Schwartz: Well, fortunately I have not lost yet, so… I just knocked on the table right here.

Joe Fairless: I’ve heard it. [laughs]

Collin Schwartz: I have not lived through a downturn yet, so that’s the reason why I’m trying to keep my property’s cash reserves into the bank, in case something does occur, and not necessarily relying on the cashflow for living purposes.

So I have not lost money yet… Now, I’ve been ready to turn my hair grey and pull them all out on quite a few properties, but… So far I have not lost money.

Joe Fairless: What was the last challenge you came across where you wanted to pull your hair out and your hair turned grey?

Collin Schwartz: [laughs] There’s a few of them, but I guess one of the first properties that I purchased – it was a duplex. Great deal, I purchased it for 100k. It was through one of those letters. It was off-market… And I did the [unintelligible [00:20:08].11] somebody had shown up; I had a For Rent sign… They showed up at the property and said “Hey, we’re really looking for a place to stay, and…”

Joe Fairless: Need it quickly?

Collin Schwartz: They needed it quickly, they had cash… But I was going on vacation the next day, the other side was vacant, and I was gonna have to tell my wife that instead of being a real estate investor, I was starting to make a second mortgage payment outside of our house…

Joe Fairless: [laughs]

Collin Schwartz: So like any foolish, young investor, I took the money. Well, six months of overdoses–

Joe Fairless: It sounds like we’ve got some professionals here…

Collin Schwartz: Yeah… You know, they actually paid rent, which was surprising, but overdoses, bed bugs, police getting called, domestic violence reports… Just about every type of nightmare. And not only that, the building was older, so some pipes burst during that time… So I highly, highly considered selling it. I was gonna sell it; I bought it for 100k, put about 15k into it… I was like, if I could sell it for 130k and make a net of 10k, that’s more than I make in a month and a half on my job. That’s not a bad deal.

Joe Fairless: Yeah…

Collin Schwartz: Anyways, I kept telling myself “I’m just gonna stick with it.” It was a couple of weeks that took me to that point… So I stuck with it, but I was able to refinance it at a valuation of 205k. But it was very, very trying and stressful during that time.

Joe Fairless: What happened with the residents?

Collin Schwartz: Oh yeah, we agreed to have them leave. It was about six months in. I told them “This is over. You guys have gotta find a new spot.” They did; with all the police reports and everything, they left… And now I have some excellent, excellent renters in there. 750 credit scores, retired individuals… So it’s very much a turnaround. But also, rather than the first person with cash, I probably went through 20 applicants this time.

Joe Fairless: Right, I imagine you went the opposite end of the spectrum with the next ones…

Collin Schwartz: Yeah. So I think even going back to what I would do differently, like that construction loan portion – if I would have had just a little bit of a buffer right there, I don’t think I would have made that rash decision. And if it was attributed to the property… But at the same time, I didn’t wanna make a second mortgage payment.

Joe Fairless: Right. Having a healthy marriage is important as well.

Collin Schwartz: Yes, absolutely. Absolutely.

Joe Fairless: [laughs] Details… So based on your experience as a real estate investor, what is your best real estate investing advice ever?

Collin Schwartz: There is a couple things, and I think it keeps changing for me, but I always go back to “You’ve gotta keep learning, you have to keep networking. You can’t stay complacent.” There’s just so much information out there that if you’re not constantly reading, if you’re not going to seminars, if you’re not listening to podcasts, you’re just gonna soften a little bit. Also, have a good daily routine, have a strong morning. For me, I get up and exercise, and it just gets the day right. So education and a strong morning routine…

Joe Fairless: You’ve got 70 units under contract… I don’t wanna talk about that one, because you haven’t closed yet, but I think I heard you say you have an 80-something unit as the largest one in your portfolio?

Collin Schwartz: Yes, we have an 87-unit property.

Joe Fairless: An 87-unit. How many partners you have on that one?

Collin Schwartz: That we have four partners. Me and another partner are the managing members, and then we have two other partners.

Joe Fairless: Okay. Money people?

Collin Schwartz: Money people, that’s correct.

Joe Fairless: Okay. So how is that structured?

Collin Schwartz: Basically, they get the equity based on what the dollars that were put in. We receive an asset management fee for managing the manager; that is one that I don’t manage in-house, so we’re actually managing the manager… There was an acquisition fee at the time of closing as well… So that’s the basic structure. It’s very simple.

Joe Fairless: And you have your managing members, so you have a portion of ownership in the general partnership as well?

Collin Schwartz: That’s correct. So we did bring equity to the deal as well.

Joe Fairless: Cool. And what’s the business plan for that?

Collin Schwartz: We actually purchased it under Freddie Mac, so we’re two years interest-only, 30-year amortization. I think it’s 7 or 10-year fixed, but… Basically, the property was in really good condition as it was, but there’s still a delta that we can raise the rents, at least 25%… So we’re going through now, we’re updating the units. They’re about 15-year-old updates, whether it’s the LVT, or the plank flooring… Just kind of more of the grayish look, versus the brown, as that’s kind of more the [unintelligible [00:24:16].25] It’s next to a university. We’re going through there, we’re repositioning, and then within two years — we can start the process at 18 months with, I believe, just a small penalty from Freddie Mac… Refinance, pull out all of our cash – that’s the obvious goal, and that’s what our projections say. Roll into another 30-year amortization, 10-year fixed, with three years of interest only.

Joe Fairless: Why have a third-party management company manage this?

Collin Schwartz: Honestly, at the time I had purchased numerous, numerous properties. It was all within one week, and those other properties required probably 30 units that needed to be updated, and the third-party management company had the place basically stabilized at that point, so now we just had to go through and raise the rents… So they already had a good system in place, and I did not have the resources at the time to bring on something like that in what I deemed an effective manner.

It doesn’t mean that at some point that won’t come in-house, but at the time it made more sense to not ruffle it, and my office is a couple blocks away, so I can still head over there, I can help with the turnovers… I can still be involved in that sense, but without having to take on the resource of another 87 residents and maintenance requests, and collecting rent, and if it was a different process – moving over leases, and everything like that.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Collin Schwartz: Ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:25:45].02] to [00:26:29].13]

Joe Fairless: Best ever book you’ve recently read? You mentioned you’re a learner…

Collin Schwartz: Yup, so there’s a few of them. Shoe Dog, everybody should read that… And then the Art of War by Sun Tzu. Those two books.

Joe Fairless: Best ever way you like to give back to the community?

Collin Schwartz: I’d like to start doing more, but the meetup group – I do spend a lot of time… We don’t charge for it. I’ve invested a lot of time, a lot of nights away from the family… And then I try to communicate with as many investors as possible, and help investors in the community as well.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Collin Schwartz: You guys can give me a call, 402-204-5552. Find me on Instagram, or Facebook. Otherwise, BrickTownManagement.com.

Joe Fairless: Well, Collin, thank you for sharing your story, how you went from using your own money and your own resources up to 18 units, and how you scaled from 18 to 245, and going through the list of tactics that you used – partnering with people… You did that all along the way, right out of the gate. Off-market deals, adding acquisition fees to those, flips, wholesaling, the BRRRR method, private money and hard money… And then talking about your approach for management and filling vacancies quicker than what’s typical… So thanks for being on the show.

I hope you have a best ever day. I really enjoyed our conversation, and we’ll talk to you again soon.

Collin Schwartz: Awesome. Thanks, Joe. I appreciate it.

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