January 3, 2022

JF2680: How He 10x His Portfolio in Just One Year with Shawn DiMartile


Shawn DiMartile stepped away from a six-figure salary as an air traffic controller to focus on commercial real estate full-time, and the risk has paid off. In 2021, he was able to 10x his portfolio with multifamily syndications, and currently has $27,000,000 in AUM. In this episode, Shawn shares how he found the deals that 10x his portfolio and the strategies he’s using to raise cash flow.

Shawn DiMartile | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today, we have Shawn DiMartile with us. How are you doing Shawn?

Shawn DiMartile: I’m doing good. How are you doing man?

Slocomb Reed:  Doing great. It’s good to be here. Good to have you on the show. Shawn is the managing partner at Pac 3 Capital where they syndicate multifamily value-add properties. He is a GP in $27 million assets under management across 327 units. He quit his job earlier this month, December 2021, as an air traffic controller to focus on building his real estate portfolio. He is based in San Diego. Air traffic control to real estate is a fair leap. What got you into real estate?

Shawn DiMartile:  That’s a great question. It was kind of a long road that started a long time ago from a great friend of mine, Anthony Espinosa. Anthony, if you’re hearing this, thanks, brother. But basically, with my air traffic control job, I was making a high six-figure income, and I wanted to invest, and I just didn’t know what. A good friend of mine that’s in real estate recommended a real estate mentor and then recommended the Bigger Pockets Podcast. This was like five years ago. Really that was just a catalyst of a long journey down the rabbit hole of starting to read a lot of books and literature on real estate investing. Then eventually I started learning about multifamily and how much more powerful and scalable multifamily was. Eventually, my first ever purchase for a real estate investment was a 32-unit apartment complex, which we might get into. But that’s the short version of how I got into it.

Slocomb Reed: You started with a 32-unit; did you self-manage?

Shawn DiMartile: I did not self-manage. I split that with a couple of partners as a joint venture and we did pay a third-party property management company, which when you’re in the 32-unit size, it’s kind of hard to find a great one. But it was out of state, so we had to have a third party.

Slocomb Reed: Where was it?

Shawn DiMartile: Just outside of Indianapolis, in an area called Greenwood, Indiana.

Slocomb Reed: Nice. 32 units – was that a value-add deal or was it just a stable cash flow?

Shawn DiMartile: That was a heavy value-add deal, actually. When we bought that property in 2019, I guess for lack of a better term, it was kind of run by a slumlord, and it was in disrepair, top to bottom. So we knew that going in, but these rents were just so far below market. I’m talking like a two-bedroom going for in the $500 range.

Slocomb Reed: You got this with two other partners. Were they both new to real estate as well?

Shawn DiMartile: Actually, when we got it, it was a total of four, five, or six of us. Two of those have since been bought out early on and there are four of us in it right now. What was the question again?

Slocomb Reed: Well, the question I’m getting to, Shawn, is you’re a full-time W2 employee in a non-real estate-related field, you’re in California, and your first deal is a distressed 32-unit in the Midwest, run by a slumlord. Why did you start there?

Shawn DiMartile: Such a good question. For starters, starting out of California was an easy decision, because here in Southern California, with real estate prices and multifamily assets, the prices of those, it’s so much more difficult to find a property that’s going to cash-flow and that’s going to give you the kind of returns we’re shooting for. Not to mention all of the laws regarding the landlords and tenants. But we knew from the get-go we needed to invest out of state. Through a long process, we identified a couple of different markets we were interested in.

And then why we ended up getting into an asset like this has a lot to do with this being our first time and how competitive the market was. It was really difficult to find a steady, stable value-add deal that we could beat out our competition to purchase the property. So we started looking at properties that were more of a heavy value-add. Now, I have a lot more exciting on the construction side of things because my father owned his own construction business, so I had an idea of how to find good contractors, how to vet them, and how to get this place where it needs to be. I wasn’t as worried about that.

But when we found this deal, after underwriting so many deals, even though it was a heavy value-add, even though it was our very first property, we knew there was so much meat on the bone that we could make it work if we just put everything we had learned to use, which ultimately, we ended up doing. We’re going to make out extremely well; we’re going to 3X our money over just two years. We’re actually selling that property right now.

So it’s been a long road and there were definitely some bumps in the road, but we just knew from the get-go, we just wanted to get in the game. We wanted to get our first property, we wanted to get something that we knew we can make some money on, and we knew it was going to be tough, but we went for it, and I’m so happy that we did, because I’ve learned so much.

Slocomb Reed: You’ve 10X-ed the portfolio since then, I believe, but I want to stay here for a moment though, Shawn… A 32-unit in the Midwest, I would imagine relatively low rents especially because of how far below market they were to start with. What did it take to find a property manager who could execute your business plan?

Shawn DiMartile: That’s a great question, and it’s not easy, because as you know, and a lot of people know that might have some experience listening to this, you’ve got your property managers that are very experienced with a value-add apartment complex, and typically, the best property managers for this kind of job are really not going to touch anything less than 100 units. So those are usually out of the question. And then you have your property managers that really only have experience in single-family, and not so much with multifamily and putting together a profit and loss statements, and all that kind of stuff, that’s proper. Then you have your middle of the road, you can find some property managers that manage a lot of single families but they also have some small multi’s in there, 10 units, 15 units, some 50 units, whatever. That’s what we were able to find. We had others that we wanted to manage it, but they just wouldn’t touch something so small.

Slocomb Reed: What action, Shawn, did you take to find a good one? Did you have to go through a couple of bad ones first?

Shawn DiMartile: To find a good one, we interviewed essentially every single property manager that manages in that area, or that manages somewhere nearby. We talked about all of them.

Slocomb Reed: How many was that?

Shawn DiMartile: I want to say that it was 10 property managers, which isn’t a crazy amount to interview. But we went through extensive interview processes using a lot of the questions that are in Joe Fairless’s book. But ultimately, we didn’t have a lot of choices that would actually manage it, so we’ve stuck with the same one. And to get to that one that we picked, it took a lot of interviewing and then going through references. With this company, we talked to several people that they said they manage a portfolio of their properties, that have multifamily roughly our size, and everyone was singing the praises of this property management company, so we ended up deciding on them. Now, they haven’t been the best property management company, but for what we could get, they’ve done a pretty good job. We’ve had to do some renegotiating to make it work the way we want it to work, but I think that we got the best we could.

Break: [00:08:04][00:09:43]

Slocomb Reed: So you’ve tripled your money… What happened to the valuation of the property and what did you have to do to force that appreciation?

Shawn DiMartile: We bought the property for 1.2 million, and we’re selling it right now for just shy of 3.1 million. In order to get that done over the past two years has been a lot of work. We kind of joke that we just bought a pile of bricks because the property is a brick exterior and we’ve replaced just about everything, top to bottom, things that we didn’t want to be replaced…

Slocomb Reed: What’s the cost of that?

Shawn DiMartile: We put over $400,000 into the property.

Slocomb Reed: So you’re all in for 1.6, but you’re selling for 3.1?

Shawn DiMartile: Correct.

Slocomb Reed: That’s pretty exciting.

Shawn DiMartile: It’s pretty exciting. We’ve done a lot of work on it, and it’s been a little bit of a pain, because when you’re trying to manage a heavy value-add out of state with a property management company that doesn’t have the resources as some of the larger property management companies, you have to do a lot of things yourself if you want to get it done right. A lot of negotiating with contractors myself, a lot of calling to get bids from contractors myself, a lot of that stuff. Obviously, all that work has paid off in the long run, but there was a lot of ups and downs.

Slocomb Reed: Tell me what projects you had to GC yourself or find your own contractors for.

Shawn DiMartile: We needed to replace every single one of the second-story balconies or patios. They were literally sagging down from the building. They were sort of a hazard for safety, and they were also just an eyesore. That was such a big project that I really didn’t just trust my property management company to get that done. That was something that I was a lot more hands-on with. I interviewed a whole lot of contractors, found one that was reputable that got the job done. So that was a big one.

And we had some pretty large plumbing projects that need to be done. For example, one of the primary drain lines out of the building that connects to the city main was collapsed, and we didn’t find that out until months after we had closed. That was another really big project that I was a lot more hands-on with. But really, anything that was just above $10,000 really was something that I was really putting a lot more of my own time in to reduce costs.

Slocomb Reed: That was 2019, 32-units. You have literally 10X-ed the portfolio since then. What was next?

Shawn DiMartile: Really the next big step for me and my partners was getting a mentor. We got a one-on-one mentor; this wasn’t like a program or a coaching program. Shout-out to my mentors, Tony Azar and John Azar. But we found them and started a mentorship program, because we knew we wanted to take it to the next level and start to syndicate, but we wanted to make sure we had a lot of experience with us to go through those first couple syndications.

So we got them on board, and really, this year was the year we broke out and 10X-ed the portfolio, and that was because we took down 150-unit and Greensboro, North Carolina, and a 145-unit in Greensboro, North Carolina. Both of those properties were sourced by my mentor, he signed on the loan with us to make that easier, and he’s also a co-GP on these deals. That was really what helped us grow so quickly. And what I would recommend to anyone listening, if you’re going to start syndicating and getting properties at large, I can’t recommend enough that you should really get somebody on board to co-GP with you, that has a lot of experience doing that. But I think that that was really the most important move for us, getting that mentorship, having them help us learn the ropes of the syndication process, and go take down these big deals. It was definitely challenging, but that was the most important move we ever made.

Slocomb Reed: So your mentor sourced deals and personally guaranteed the loans?

Shawn DiMartile: Yeah.

Slocomb Reed: So with these two deals, these 300 units, what will your role be in executing on these business plans?

Shawn DiMartile: So we’re working hand-in-hand with my mentors on moving through with the construction. We’re essentially in the voting process on which improvements are we going to make right now, which contractors we’re going to go through. Really, I could say we’re involved in everything, my partners and I, but we’re doing that side by side with my mentor. What I mean by that is, for example, Tony and John, they’re vertically integrated with their own property management company, and they have thousands of units, so they have managers of the properties in that general area already. So I’m able to communicate with them, for example, my role with the construction side and the CapEx side. I’m communicating with them on what we’re getting done next, when we’re going to do it, how much we’re willing to spend on each project, etc. But I’m doing that hand-in-hand with Tony. But essentially, my role is more on the Capex side and in the improvements to the property.

Slocomb Reed: Got you. Who brought the investors to this deal to fund it?

Shawn DiMartile: We split that with my mentor. Essentially, we needed to raise four million dollars for each of these deals. My mentor actually came in with essentially almost half of that, and then the rest of that my partners and I needed to go raise from our investor database, which we were able to successfully do, and it was very difficult. But as far as bringing in outside investors, that was done by Pac 3 Capital.

Slocomb Reed: Nice. So what’s the plan with these? Is it a simple value-add, raise the rents, five-year hold?

Shawn DiMartile: That’s correct. Three-to-five-year hold; there’s a multiple value-add strategy we’re doing including renovating the units, doing some improvements to the amenities, we’ve sub-metered them, individually water metered each of them on both of those properties, all 300 units; things like that. It’s been going incredibly well. We’re projecting and underwrote for $100 increases in rent. And since we closed just earlier this year, we’re already getting $300 bumps to $400 bumps on the renovated units.

Slocomb Reed: And the tenants have higher utility bills, because they’re paying their own water, right? So what accounts for that drastic increase between the underwritten rent growth and the actual rent growth?

Shawn DiMartile: I think it’s a combination of a couple of things. What we’ve done to the property so far has been a pretty good value-add. One of them is townhomes, which there are not many townhomes in this market. Townhome-style apartments – you don’t have anybody living above or below you, so that’s a really desirable apartment unit. Now, these units were built in the 1980s, so the interiors, the cabinets, all that kind of stuff was really old. We’ve gone in and replaced pretty much everything on these units – cabinets, flooring, countertops, appliances, the whole nine yards, and really brightened them up and made them look more modern. They’re more desirable and we’re getting a rent bump from that alone. But in addition to that, we’ve increased the amenities. We’ve added a dog park, we’ve completely redone the sports area. There was a basketball court and we made it into a multi-use sports area, a little soccer area for kids, some hopscotch, things like that, a brand-new playground, we’ve upgraded the pool area…

There’s been a lot of things to just physically make the property more beautiful and have more curb appeal. But I also just think that that market also has a lot of upward pressure on rents as a whole. Throughout 2020 and in the pandemic, Greensboro, North Carolina was in the top five for year over year rent growth. I think in 2020, it increased 10% just organically. So I think you combine that with the value-add plan and the rents are just exploding.

Break: [00:16:57][00:19:53]

Slocomb Reed: When you were sharing this opportunity with your investors, what kind of a return were you offering?

Shawn DiMartile: We were projecting, I believe, if my memory serves me correctly, 18% IRR, double-digit cash on cash returns year over year, and a 2X equity multiple over three to five years. So kind of a standard thing that you’ll see a lot is double your money in five years, and that was with really, really conservative underwriting. We’re talking when we underwrite our exit cap rate, we’ve increased by 0.25 per year. So for five years, that’s a significant increase. So we keep it pretty conservative, and it’s still penciled out really, really well. Our investors are going to make out pretty well, at least it seems so far.

Slocomb Reed: Do you know how your mentor source this deal?

Shawn DiMartile: This deal was actually already in his portfolio. He bought this property six years ago, actually, with his investors. It was a time in the cycle – because just like with this business plan, he told them it was about a five-year hold; they were just slightly over that five-year mark and it was time for them to sell. He still liked the deal and still saw that there was still more value-add to be done, because their original business plan was mostly exterior and rents just kept increasing. So it was time to sell that property and he said, “Look, we can sell the property to you guys, and I’ll rebuy-in with you guys, and then we can implement some more value-add to the play, if you want.” That’s how we did it. So it was really an off-market opportunity. The original owner was going to buy back in with us, so it made it really easy for us.

Slocomb Reed: Yeah, that’s a big opportunity. Correct me where I’m wrong, Shawn, for our listeners – remind me of the mentor’s name, Tony…?

Shawn DiMartile: Tony and John Azar. They’re brothers.

Slocomb Reed: So Tony and John bought into this for a value-add five-year hold, six years prior. They operated their business plan, they added value for their original set of investors, they got to that five-year mark or a little beyond that five-year mark, and it was time to sell in order to provide the IRR that they had projected. There was still meat on the bone though, enough so that you could come in and effectively operate the same business plan again, over another three to five-year span, and present that same opportunity, again, with the same property. Do you know if there are any passive investors who bought back in again, for the second round?

Shawn DiMartile: There weren’t any passive investors that bought back in, because those were all Tony’s investors, and they all got, I think, just shy of a 3X equity multiple on the deal. But he wanted to push us to raise all the capital ourselves, minus the amount he contributed. He contributed well over a million dollars of his own capital, which helped with our capital raise, and also was great, because it was great to demonstrate that to our investors and explain that to them. But he allowed us to just go outside of what he was contributing; he said, “You guys go and raise all of the rest of the capital we need”, which we did. And I’m glad that he did it that way, because it really pushed us on this capital raise and taught me a lot about that. But that’s how we got it done.

Slocomb Reed: You’ve got your first 32 units, you have these two North Carolina syndications. Any other real estate deals?

Shawn DiMartile: No other commercial multifamily real estate deals. The rest of my deals are single-family Airbnb deals, which that’s completely out of the realm of commercial real estate. But we’ve got a lot of plans for next year, and we will be growing the portfolio. Hopefully, we can grow substantially, but we’ll see, man. It’s a really competitive environment. It’s difficult to find good deals, but we’re on the hunt.

Slocomb Reed: Awesome. Well, Shawn, I know you are one of our Best Ever listeners. What is your Best Ever advice for our listeners?

Shawn DiMartile: Best Ever advice is to go out there and get started. If you’ve read the books, if you’ve listened to podcasts extensively, you can only learn so much before you just start doing. A lot of the things that I’ve learned so far were not in any of the books or podcasts. You’ve just got to start doing it. Just pull the trigger and get it done.

Slocomb Reed: Are you ready for the Best Ever lightning round?

Shawn DiMartile: Let’s go. I’m ready.

Slocomb Reed: What is your Best Ever way to give back to the community?

Shawn DiMartile: I love helping people getting started in this industry. Anytime someone’s trying to ask me questions on like double-checking or underwriting, asking me advice on anything that has to do with operations, I like to try and help people because I’ve been in their shoes before and I know how hard it is to find somebody with experience to help, so I love doing that.

Slocomb Reed: Nice. What is the Best Ever book you recently read?

Shawn DiMartile: That would probably be Pitch Anything by Oren Klaff. I love that book, and I’ve read it twice now, and I’ll probably read it again.

Slocomb Reed: Shawn, where can our Best Ever listeners get in touch with you?

Shawn DiMartile: The easiest way is to email me directly. You can email me at shawn@ pac3capital.com, or just pac3capital.com, on the website you can reach out.

Slocomb Reed: Awesome. Well, Shawn, this has been a great interview. You’ve added value to us as well as your properties. This is good stuff.

Shawn DiMartile: Thank you.

Slocomb Reed: Best Ever listeners, we hope you have a Best Ever day and we will see you tomorrow.

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