July 3, 2020

JF2131: Going From Singles To A 20 Unit With Nate Shields

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Nate is the Co-founder of School Dispatch and has been investing for 4 years with a portfolio consisting of 28 units in 3 states. Nate’s goal is to have 100 doors in 10 years before taking money from his properties. So far during his progress, he has faced the challenge of de-converting a duplex into a single-family home and also the fortune of finding a miss-marketed deal which helped them snag a winner. 


Nate Shields Real Estate Background:

  • He is the co-founder of School Dispatch
  • Has been Investing for 4 years
  • Portfolio consists of 28 units in 3 states
  • He has also flipped 6 properties
  • Based in Madison, Wisconsin
  • Say hi to him at his Youtube channel: Dude Real Estate
  • Best Ever Book: Zero to One by Peter 



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Best Ever Tweet:

“Investing in a single-family home to a 20 unit isn’t as difficult as it may seem. At the end of the day, it’s just bigger numbers” – Nate Shields


Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of the fluff stuff. With us today, Nate Shields. How you doing, Nate?

Nathan Shields: I’m good, Joe. Thanks for having me.

Joe Fairless: Well, my pleasure, and I’m glad that you’re good, and a little bit about Nate – he’s the co-founder of School Dispatch; he has been investing for about four years, his portfolio consists of 28 units in three states, he’s also flipped six properties, based in Madison, Wisconsin, and he’s got a YouTube channel called Dude Real Estate. So with that being said, Nate, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Nathan Shields: Sure. I come from a marketing background, but as the previous recession hit, I was looking to do something a little bit different, something a little more entrepreneurial, and I wanted to get into real estate. So I started off as an agent in 2013, and after a couple of years, I got the investing bug and started educating myself and joined up with my buddy. We’re still 50-50 partners on all of our rental properties. So we just slowly climbed that ladder and still are climbing that ladder. So as you said, we’ve got 28 units in three states now.

Joe Fairless: So the last recession, depending on where you lived was ’08, ’09 timeframe. You said you were an agent in 2013. So what were you doing between ’09 and 2013?

Nathan Shields: I was doing marketing for a law enforcement training company, and we were affected by the recession just like everyone else. So my hours got cut, my pay got cut, benefits got cut, and I was just looking for something else that I could support our family with, and something that I was a little more passionate about, too. So I really always thought real estate was a great avenue and I wanted to start in the sales side, both to get me out of my job, but potentially to help me understand the process of buying rental properties. I just always had this dream of owning 10 or 20 properties. It just made sense that you put a renter in, they pay your expenses on it, and then you get cash flow on top of that. So it just made sense in my head and that’s why I think a lot of people gravitate toward that because it’s very easy to understand.

Joe Fairless: Your new partner, what’s your partner’s first name?

Nathan Shields: Troy.

Joe Fairless: Okay. You and Troy have 28 units in three states. What are the three states?

Nathan Shields: Illinois, South Carolina and Alabama.

Joe Fairless: Well, I would have guessed Wisconsin was one of those three. Okay, good. Throwing me a curveball this early in the conversation. I like it. [laughter] Alright, Illinois, South Carolina and Alabama; those are the three states. Where was your first property?

Nathan Shields: We were both in the Chicago area when we started. So that’s why we have Illinois on the list. So we bought our first few properties there. Then my partner Troy moved to South Carolina, and he sourced a duplex there, and then we were just looking for something a little larger, so we found a 20-unit building in Alabama, and then our property managers just brought us another four-unit building down there as well.

Joe Fairless: Okay. Well, South Carolina, Alabama, closer than Wisconsin, Alabama. So now It’s making more sense. How did you learn about the 20-unit in Alabama, and where in Alabama is it?

Nathan Shields: Yeah, it’s about an hour outside of Huntsville, and Troy, he found it on LoopNet, which is where a lot of people say deals go to die, but you can still find some stuff on there. The thing that caught his attention was actually the numbers just looked awful, almost too bad. So he dug a little bit deeper, and once we looked at the rent rolls and the tax returns and all that stuff, we’re like, “Oh, no, the numbers are wrong on the LoopNet side. We like this deal,” and it ended up being a really good deal for us.

Joe Fairless: Can you think of a specific example of a number that was way off?

Nathan Shields: The revenue, based on what we knew the rents were– I think the rents were roughly– and this is very low, but it was $350, $375 for the units in the 20-unit building. You do the math and figure out what the–

Joe Fairless: It’d be $500.

Nathan Shields: –what the revenue should be, but it looked almost half that. So we just knew right away that there was something else going on. Either they’re not telling us something or it’s mismarketed.

Joe Fairless: It was just mismarketed?

Nathan Shields: Yep.

Joe Fairless: Great. I’m glad we’re talking about this. So it was mismarketed. Was it listed by a broker or was it direct from the seller?

Nathan Shields: It was listed by a broker, and she had some experience. She owned some properties herself, but she wasn’t a commercial broker, so I don’t know if she knew exactly how to market, technically, a commercial property correctly. She was a little bit older, the sellers were also a little bit older, they were pretty motivated because they needed to 1031 into a property in California for personal reasons, and so they were pretty motivated to sell it. It was listed at $575, we got it for $475 and it immediately appraised at $573.

Joe Fairless: Okay, got it. So despite them listing it incorrectly, they had about the right valuation.

Nathan Shields: Yeah, I think they were close, and they were able to get a quick sale out of it.

Joe Fairless: Okay, and how did you buy it – all cash, or with financing?

Nathan Shields: Financing. In a sense, it was almost 100% financing without having the seller financing part of it, because we had a line of credit from our lender already. So essentially, we used the lender to underwrite it, but then we were also able to use our line of credit as the down payment.

Joe Fairless: Will you elaborate on what type of lender that is?

Nathan Shields: It was a commercial lender that we pretty much worked with from the beginning. So when we first started with them, we brought some capital to the table, but we needed a little more to get started. So what they did for us was they essentially held our funds as collateral and gave us a multiplier on our money for a line of credit. So that’s how we started, and we used the BRRRR method on the first couple of properties, and then got an extension on that line, and we were able to use that for essentially 100% financing on that apartment building.

Joe Fairless: Wow, that’s great. Was that lender the one that you two came in contact with, in Chicago?

Nathan Shields: Yes.

Joe Fairless: So they’re local to Chicago?

Nathan Shields: Yeah, Troy had already had some dealings with them on some other stuff. So when we talked with him initially, it just made sense for us to continue working with them, because they gave us some good terms.

Joe Fairless: So it’s just a local community bank or credit union to Chicago?

Nathan Shields: Correct, yep.

Joe Fairless: They were comfortable lending the line of credit, which I guess it’s line of credit, and you can do whatever you want with it, that’s my guess, but–

Nathan Shields: Yep, pretty much. You can do whatever you want.

Joe Fairless: Okay, fair enough. So just so I’m clear, you bought it with a line of credit, and then did you put a loan on it after that?

Nathan Shields: Yes.

Joe Fairless: What are the terms on the loan?

Nathan Shields: I believe–

Joe Fairless: High-level.

Nathan Shields: Yeah, probably looking at– it was a 20-year amortization and probably around 5%, something like that. High level there.

Joe Fairless: Alright, fair enough, fair enough.

Nathan Shields: I don’t remember exactly.

Joe Fairless: Yes, you’ve slept since then. So you and Troy were going along, picking off singles, and then all of a sudden, bam, a 20-unit. That’s a gigantic step, maybe a 20 times multiplier of what you were doing. What did you do to prepare for the purchase of a 20-unit when you’ve been doing single family?

Nathan Shields: So he had a little bit of experience in the commercial space. So that combined with our experience and my experience as a realtor – we did have to educate ourselves a little bit, but at the end of the day, it’s just some bigger numbers, and we’re pretty good at running those numbers.

So we were looking for a deal just in any decent metro market, pretty much anywhere in the country. So we were looking all over for about six months, and then we landed on this one. So our biggest concern was not the deal itself. It was more finding out more about the management, the demographics of the area. So once we got it under contract, we popped down there, took a look at the building, which was not a surprise at all to us; we knew it was a C class property, and really just wanted to meet the property manager. So the property manager had been managing that building for ten years, and we felt very comfortable with him. So we kept him on and he’s been great ever since, and he brought us this four-unit that we just closed on last month.

Joe Fairless: Does the property manager manage other properties?

Nathan Shields: He does.

Joe Fairless: Okay. So it’s a third-party management company. It’s not a resident who lives there.

Nathan Shields: Correct.

Joe Fairless: What does the property manager charge to manage this 20-unit?

Nathan Shields: 8%.

Joe Fairless: Anything else?

Nathan Shields: Nope, just flat 8%.

Joe Fairless: Okay. What was the business model for this 20-unit purchase?

Nathan Shields: What do you mean by that?

Joe Fairless: Are you doing a value-add play where you’re renovating the interiors or are you just you bought it, you’re sitting tight, you’re renting them out, you’re making them rent ready, but you’re not increasing the rent?

Nathan Shields: Right. So we set out immediately the rents were artificially low. The last owner didn’t really ever raised them. So we saw an immediate opportunity to get those up to market as we had turnover. So like I said, they were $350 to $375 per door, and we’ve been raising those up to $425 to $450. No problem.

Joe Fairless: Without any major improvements to it.

Nathan Shields: Correct. We did some exterior improvements, very minimal, some landscaping, power washing and stuff like that. The interior, we’re actually going to start experimenting as we turn over a couple more units to maybe spend $3,000 to $4,000 and freshen them up with some new flooring, new lighting, new vanities, stuff like that, and see if we can even push to say for $475 or $500.

Joe Fairless: Did you bring money and put it in the bank account for that cap x work or would that be out of pocket to try and test that business plan?

Nathan Shields: Yeah, we don’t take any income from our portfolio. It’s a long term portfolio for us. So everything that we make in cash flow from all of our properties goes back into either capital improvements or funding our next purchase.

Joe Fairless: At what point will you two decide, “We’d like to have some money from these properties now”?

Nathan Shields: That’s a good question. Initially, our first goal when we first sat down to brainstorm was 10 years, a 100 doors, and at that point, maybe we’ll reconsider where we’re at. But I think it’s just every year or two, we just look at what we got, look at where we want to go. Certainly, at some point, we will; we’re both about 40. So once we hit that 50 mark, I think for sure, we’ll want to start taking some cash off the table.

Joe Fairless: What’s a lesson that you’ve learned based on it not working out, and then you’ve course-corrected?

Nathan Shields: One of the properties, we failed with due diligence; both us and our attorney. It was a duplex, and we thought it was zoned for that, and we never actually checked, because we just assumed–

Joe Fairless: That it was a duplex, right.

Nathan Shields: –that it was a duplex. There were two units, and there were other multi-unit properties on that same block, and I never actually checked the zoning… And what we ended up having to do is deconverting to a single-family.

Joe Fairless: Dang. When did you find out about having to convert to a single-family?

Nathan Shields: We bought that one all cash, and we wanted to refinance out of it once we got it stabilized. So we did some work to the upper unit, since that one was vacant, and then when the appraiser came, he said, “I can’t appraise this because it’s technically not what it is.” So when we found that out, we had two choices – we could leave it as is, but all of our cash would have been stuck there, and we really wanted to refinance out of it.

So luckily, the downstairs tenants were about to move out and that place needed a little freshening up too. We took a brand new kitchen that we had just put in the top unit, and we actually were able to save the cabinets and the appliances and put them into the unit downstairs and freshen that kitchen, and then we just had to cut some stairs in, do some painting, a couple of other little things, but it probably cost us about $10,000 to do that; and time of course, too. So the lesson wasn’t as expensive as it could have been.

Joe Fairless: It used to be a kitchen upstairs. What is it now?

Nathan Shields: It’s really just a landing area. So the stairs were cut up right through the kitchen.

Joe Fairless: Okay.

Nathan Shields: It’s just a little landing area before you get into the living room up there.

Joe Fairless: How did the valuation and cash flow get impacted?

Nathan Shields: The cash flow definitely got hurt. We were expecting probably $1,600 a month in rents and that dropped us down to about $1,350. Valuation was probably roughly the same, and it became such a problem property for us. anyway… We ended up selling that a few months ago.

Joe Fairless: Oh, yeah. Alright. What did you buy it for?

Nathan Shields: We bought that for $72,000 and we put roughly $22,000 into it. We sold it for $125,000 or something like that. It wasn’t a great market; that was part of the reason we were getting out of it.

Joe Fairless: Well, you made $10,000 to $20,000 on it.

Nathan Shields: Right. After all that hassle, yeah.

Joe Fairless: It’s surrounded by duplexes. Was it just sandwiched in between duplexes?

Nathan Shields: Well, there were single families, but yeah, there were also some duplexes and fourplexes on the same street.

Joe Fairless: Oh, man. What did your attorney say whenever you asked him or her about it afterwards?

Nathan Shields: Yeah, he said he made a mistake. He should have checked that too and he didn’t, so. He’s a good guy; he’s honest.

Joe Fairless: Yeah, I respect that. I respect when people own up to that stuff. Well, that was something that is certainly valuable for a lot of Best Ever listeners. What deal have you made the most money on?

Nathan Shields: Boy, I mean, at the end of the day, I think it is the 20-unit building because on paper, we made $98,000 at closing, and it’s just been a really great cash flow property, and as we increase our NOI and cap rates at the moment, they’re still decent. So the value has gone up. So I think we’ll hold that one for a fair amount of time. We’ll either refinance in the next year or two here, potentially sell it. We’ve had a couple of unsolicited offers, but it’s just a really great property for us.

Joe Fairless: Yeah, I think I heard you say that that property manager has since referred another property to you two; a four-unit. So you got the 20-unit, you got a bite of the apple, but then you went down to a four uni. Do you have any baseline for the amount of units per transaction that you’re buying, or are you just accumulating and it doesn’t matter if it’s 1, 2, 4, 20, it doesn’t matter?

Nathan Shields: I think we’d like to move, still bigger. That four-unit was just really nice because it was one town over. Our property manager had already managed that property as well. He brought it to us, we got a good deal on it. We liked that area, and we have boots on the ground there, so it makes sense to continue buying. I don’t think we’d go smaller than a four-unit at this point, and we actually talked about getting into more commercial stuff, whether it’s self-storage or potentially more like a double or triple net lease, things of that nature.

Joe Fairless: How long did you own that duplex that turned into a one plex?

Nathan Shields: Let’s see; about three years.

Joe Fairless: Okay. So you made $20,000 plus on that, and ultimately it was a single-family house. So why not buy single-family homes, and then do a quicker turnaround and then use that to pump money into larger stuff?

Nathan Shields: I think we just don’t like single-family homes at this stage of the game.

Joe Fairless: What don’t you like about them?

Nathan Shields: I think the biggest thing for me is just that they’re comp based. We’d rather go in and be able to add value and have a true commercial asset instead of rely on comparable properties.

Joe Fairless: Right. You have more control over the operations and the business plan direction. Okay, I get that. What has been something that you’re most proud of since forming this partnership with Troy and buying these properties?

Nathan Shields: I think it’s our ability to maintain a partnership. A lot of people– you get two sides of the coin where people do a lot of partnerships or they’re really scared to do partnerships, and the people that are scared probably got burned at some point, and we both have our stories too of bad partnerships. So we understand what makes a good partnership, what makes a bad partnership, and we both had to essentially get out of bad partnerships along the way. One for him was a business partnership, one for me was another real estate partnership, and sometimes you’ve just got to understand that your goals aren’t aligned, your values aren’t aligned, and we’re lucky that our goals and our values and our time horizons are all aligned pretty perfectly.

Joe Fairless: Goals, values and time horizons. I think values is pretty self-evident in what you’re talking about there, but as far as goals and time horizons, will you elaborate more?

Nathan Shields: Sure. So when he had his partnership that went south, his partner was 20 years older than him. So Troy’s long term goals were really the other guy’s short term goals. So it just didn’t really line up, because he was trying to do things that made things more immediate, and Troy was thinking more long term. So eventually, they had to dissolve that partnership.

And then as far as goals go, it’s just we have a goal to buy a bunch of real estate, and there’s a lot of different asset classes to choose from, and it’s just like a side retirement vehicle for us. And honestly, it doesn’t take that much time. We spent a couple of hours a week on it, maybe. It gets a little more intense if there’s a buy or a sell, but it’s not that hard to do. I think a lot of people think it’s a lot of hard work, and I suppose it could be, especially if you’re doing all the painting and landscaping and managing everything, but we try to outsource as much of that as possible.

Joe Fairless: What’s been a challenging conversation that you’ve had with Troy over the years that you two resolved that, hey, if you didn’t have as strong of a partnership as you do, it might not have been resolved and you might have parted ways?

Nathan Shields: I think the biggest ones are probably buy or sell decisions. So I was putting a little bit of pressure on him to sell our Illinois properties, and we did sell that one. So there are times where we just have more intense conversations; they’re always friendly, because we want the best thing for the business and the best thing for us. So I really can’t think of any really intense conversations that we’ve had. One of the other things I forgot to mention was when it comes to partnerships, personalities matter too, because if you can’t get along with someone and understand how they operate–we’ve been friends for 20 years, so we know each other really well.

Joe Fairless: Right.

Nathan Shields: So that’s another thing too, we just get along, and when it does come down to it, we have the best interest of each other in mind and the business.

Joe Fairless: Four things in partnerships – goals, values, time horizons and personalities to make sure we get along. Thank you for that. I appreciate it, and I’m sure a lot of other listeners who are thinking about partnerships or are in one and just assessing each of those boxes appreciates that, too. Taking a step back, based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Nathan Shields: I think the best advice I can give is, definitely get with a real estate investing networking group. If there’s not one in your area or there’s not one that you like, start your own. That’s what I did back in Illinois. It’s a great way to meet people with different skill sets, and you can end up partnering with people on deals. Our group here in Madison is very collaborative; people lending to each other or bringing deals or– it’s a great group of people to be associated with. So definitely hook up with a real estate investing group.

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

Nathan Shields: Let’s go.

Break [00:22:54]:04] to [00:23:47]:03]

Joe Fairless: What’s the best ever book you’ve recently read?

Nathan Shields: If I can mention two, there’s one called Zero to One by Peter Thiel. It’s more about the startup culture, but the way I process it as looking for from getting from owning nothing to getting that first property is a super important step, and that’s why I like to make sure that people know, especially when they’re starting out, that if you can get that first deal, it’s pretty much all downhill from there because that’s the biggest hurdle.

Joe Fairless: You said two?

Nathan Shields: Oh, yeah, I do have another book – Built to Sell, which is more of a business book, but it really helps you think about your business as “Is it an asset that someone else would come along and actually want to buy?” For a lot of real estate investors I don’t think that’s necessarily the case, because they might not have an attractive real estate business. So just be thinking about systems you can put in place, how to make your assets more desirable to someone who might want to buy them in the future.

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

Nathan Shields: As far as giving back, especially to the real estate community, I do have my Youtube channel. I just offer advice and tips and hopefully people can learn from my failures as I shared one of them. I have many more, but you can also see those on my channel. I also offer on my website, duderealestate.com, you can click a link there to just get a free phone call with me. So especially if you’re new, I think I add a lot of value just in helping people figure out what is the next thing that they have to do to get to that first property, whatever that hurdle might be.

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

Nathan Shields: There’s a couple ways – they can go to Dude Real Estate channel on YouTube, they can also find me on BiggerPockets. I’m a blogger for BiggerPockets, so you can find my articles there; that’s another way I give back. But just look me up Nate Shields on BiggerPockets.

Joe Fairless: Nate, thanks for being on the show. Thanks for talking about the 20-unit, thanks for talking about four things to look for in partnerships, which is goals, values, time horizons and making sure personalities align, and some lessons learned on the deals and partnerships that have helped you get to where you’re at, and also some lessons or things that you wouldn’t necessarily do again or you look out for.

I appreciate you being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Nathan Shields: Thanks, Joe. Appreciate it.

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