\n<\/p>\n
The beautiful thing about\u00a0building wealth<\/a>\u00a0is there\u2019s\u00a0not just one way to reach your financial goals.<\/strong>\u00a0This is where your\u00a0creativity and ambition<\/strong>\u00a0come into play. Today\u2019s guest,\u00a0Daniel Schiermeyer<\/strong>, built his residential portfolio and then\u00a0leveraged that to buy businesses<\/strong>, with more ways to cash flow than we can count!<\/p>\n Daniel started getting into real estate after college when he\u00a0read\u00a0The Automatic Millionaire<\/em><\/strong>. He\u00a0prioritized living cheaper<\/strong>, and in Charlotte, it was\u00a0cheaper to buy a house\u00a0<\/strong>than to rent, so he bought his first house at twenty-nine. With a thirty-year mortgage on his first house, Daniel realized if he bought a house every year or two, by the time he was sixty, he\u00a0could pay off all the houses\u00a0<\/strong>and have a strong retirement plan. His\u00a0real estate portfolio consists of two townhomes, a duplex, a self-storage facility, and businesses to boot!<\/strong><\/p>\n Sticking to residential real estate was the plan until\u00a0Daniel drove by a car wash for sale with his brother.<\/strong>\u00a0His brother encouraged him to pursue it, so they\u00a0called the number on the \u201cFor Sale\u201d sign<\/strong>. Once they\u00a0talked to the broker, ran the numbers, and walked the property<\/strong>, they realized the numbers made sense. Now, he\u2019s got a cash-flowing car wash and residential and commercial real estate all while chasing financial freedom!<\/p>\n Ashley: Daniel: Ashley: Tony : Ashley: Tony : Ashley: Tony : Ashley: Tony : Ashley: Tony : Ashley: Tony : Ashley: Tony : Ashley: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Daniel: Tony : Daniel: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Tony : Daniel: Tony : Ashley: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Tony : Daniel: Ashley: Daniel: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Daniel: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Tony : Ashley: Daniel: Ashley: Daniel: Ashley: Daniel: Ashley: Tony : Daniel: Tony : Daniel: Benjamin Allen: Daniel: Tony : Ashley: Daniel: Tony : Daniel: Tony : Daniel: Ashley: Daniel: Ashley: Tony : Daniel: Tony : Ashley: Tony : Daniel: Tony : Daniel: Tony : Ashley: Daniel: Ashley: \u00a0<\/p>\n<\/div>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/i>sponsor page<\/a><\/i>!<\/i><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie episode 237.<\/p>\n
I think I like going the residential way, getting a house or two, a duplex, some small. It builds you a little bit of portfolio, it gives you a little bit of experience. And then like I said, I wouldn\u2019t have been able to buy a commercial business if I didn\u2019t have rentals because I need to use it as collateral. So it\u2019s a great way to buy a property and if you can make it cash flow and somebody else is paying down your mortgage and building you equity, that\u2019s just going to help you when you want to try to buy something bigger in the future.<\/p>\n
My name is Ashley Kehr and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
And welcome to The Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information and stories you need to hear to kickstart your investing journey. And this week I want to shout out one of the folks in our rookie audience. His name is Zach and he loved a podcast review saying, \u201cLove this podcast. I\u2019ve been a listener for the last two years and have really soaked up a ton of information from these two. I\u2019ve learned so much. I\u2019m a full-time agent since the pandemic and have done two flips since then and just purchased my first buy and hold already looking for the next. Because of this podcast, I had the motivation to take action.\u201d
So Zach, congratulations, brother, super pump for you. And for all of our rookies that are listening, Ash and I would be so deeply appreciative if you could also leave us an honest rate and review on whatever podcast platform it is you\u2019re listening to. The more reviews we get, the more folks we can help. And that is always our goal here at The Real Estate Rookie. So Ashley Kehr, what\u2019s up? How you doing today?<\/p>\n
I was panicking for a moment there thinking about what I was going to say, what has been going on that I can talk about. But actually here\u2019s something really exciting. I hired a consultant to help me refine my systems and processes. I use monday.com in my business and so I just signed them on yesterday and they are going to build out my Monday boards along with help me with hiring a couple people and I can\u2019t say what for yet, but it\u2019s like a big project I\u2019ve been working on that will be implemented the beginning of next year, but they\u2019re going to help hire the people that I need to put into place for that. So yeah, I\u2019m excited.<\/p>\n
This wouldn\u2019t happen to be the company that Brit used also, is it?<\/p>\n
Yeah, it is.<\/p>\n
Oh, that\u2019s so cool.<\/p>\n
Yeah. Yeah, so [inaudible 00:02:26], I think I can say their name, I can talk about whatever on here, right? So I just hired them, so we\u2019ll see how it goes.<\/p>\n
That\u2019s so cool. She was actually telling me about them at BPCON and she made an intro and I think I have a call with them coming up here soon as well. So I\u2019m excited to hear what they have to offer. Well that\u2019s awesome, Ash. I\u2019m excited to hear what this super secretive project is that you\u2019re working on.<\/p>\n
Yeah, thanks. And what about you? What\u2019s new with you?<\/p>\n
Keeping busy as usual. We got a bunch of properties that we\u2019re bringing online here at the end of the year, but I think our goal is to try and pretty much pause acquisitions. And I think I actually mean it this time, at least with the-<\/p>\n
I know you told Sarah this 10 times.<\/p>\n
So many times. But we want to at least through the end of the year to pause acquisitions because we\u2019ve added so many properties over the last couple of months that we just need some time to stabilize our existing portfolio. And I think scale is a good thing. If you\u2019re not growing, I think you\u2019re shrinking, but you also want to make sure that every once in a while you tap the bricks at least momentarily to make sure that you\u2019re not building on a shaky foundation.
We have some VAs we brought online that we really want to get them trained up. Our operations manager, we want to get them trained up. We really want to start refining our process for managing our rehabs. That\u2019s been a pain spot for us. So as we look to really ramp up our acquisitions next year, the value add will be a big part of that strategy. And we know that there\u2019s a lot of gaps in our rehab process right now, so we\u2019re trying to refine that process a little bit. So sewing down a little bit, but almost like the whole slingshot thing, you got to pull back to be able to launch forward. Hoping that the next couple of months here will be a good start for us for 2023.<\/p>\n
Yeah. And that\u2019s what the company\u2019s going to help too with Darrell is taking what he does as far as the project manager on the rehabs and help him build out. He has a really nice Monday board actually built out right now as to the process and tracking it and stuff. But they\u2019re really going to help him define that more and get better systems in place for the whole rehab process.<\/p>\n
I love that and that\u2019s a big part. I think what a lot of real estate investors lack is the awareness that they are still building a business. Even though we\u2019re real estate investors, we\u2019re still entrepreneurs. And when people ask me what I do, I don\u2019t necessarily say I\u2019m a real estate investor, I say I run a real estate business. And it\u2019s a slight nuanced difference, but it really does change how you approach what you do on a daily basis. If your goal is just to be an investor, all you\u2019re going to be focused on is buying properties. But if your goal is to build a real estate business, there\u2019s a different kind of focus that comes along with that and that plays into the systems, the processes, the team building and all those other things that typical businesses do.<\/p>\n
Well, let\u2019s get into the guests that we have on the show today. So we have Daniel on the show today and he is an extremist, skydiving, biking, snowboarding, all these things. And he actually makes me remember this fond memory I have of my mother telling me during my childhood that when she was younger she actually was skydiving solo and got stuck into a tree. So of course the whole time we\u2019re recording this, she\u2019s re-texting me all of the details of this experience for. So if you want to know the full story, slide into my mother\u2019s DMs and she will tell you. But yeah, so Andrew is really awesome to talk about because we\u2019re doing something a little bit different on this episode. Daniel has investment properties and he shows how he leveraged them to actually purchase businesses. So he goes through a car wash he purchased and then also a self storage facility.<\/p>\n
And I think that ties into the whole building of business thing and it leans into a lot of what Daniel talked about because he was a traditional real estate investor and then made the transition into buying these businesses that had real estate as one component of it. And he talked about what that transition looked like for him and his business partner.
There\u2019s also a part in the episode where we talk about how he was able to find some of these off market commercial deals. So make sure you listen for that part because I think there\u2019s some instruction in that for pretty much all of our rookies that are listening. And at the very end, we talk about whether or not rookie should start in commercial or maybe start in residential. So listen for what Daniel\u2019s advice is on that as well. So Daniel, brother, why don\u2019t you tell us, man, I think everyone has that moment in their life where they\u2019re real estate investing is what I need to do. So what was that moment for you? If you think back on your journey, what was that one moment when you said I need to become a real estate investor?<\/p>\n
So I fell into it when I graduated college, I\u2019d read a book called Automatic Millionaire and it just talked about paying yourself first. You don\u2019t need to go buy coffee and lunch every day. That\u2019s where you\u2019re going to spend a lot of your money. And then one point I talked about in the book was that a lot of people spend more than half their paycheck on their living expenses, so a mortgage or rent. So I\u2019ve always tried to live cheaper. When I first graduated college, I had roommates renting an apartment with a roommate and then when I moved to Charlotte it was cheaper to buy a house than it was to get an apartment. So I fell into buying a house because I had a friend that was a realtor and it was cheaper and then ended up getting a roommate house hacking. And then that\u2019s actually when I fell on BiggerPockets and that\u2019s when I was like, \u201cOh, that\u2019s what I\u2019m doing. This makes a lot of sense, I want to do more of that.\u201d<\/p>\n
So you had the proof of concept with this house hack first and then you fell into real estate investing afterwards. But what was that moment that made you say, \u201cThis is what I need to continue doing.\u201d?<\/p>\n
So when I bought my first house, had a 30 year mortgage, my play was if I can buy a house every year or two, by the time I\u2019m 60, because I bought my first house when I was 29, I think by the time I\u2019m 60 all these houses will be paid off and I know what they\u2019ll rent for. So that\u2019s like a retirement right there. That was my retirement plan when I first started.<\/p>\n
Before we get any further, what does your portfolio kind of look like today?<\/p>\n
So right now I have a townhouse, a duplex, the townhouse that I live in. And then my brother and I own a five self service bay and one automated car wash and a 18,000 square foot storage facility.<\/p>\n
Okay. So let\u2019s go into that. You told us you decided real estate is what you want to do, but then where was that moment where you\u2019re like I want to get into these businesses or as Codie Sanchez says, the boring businesses that she calls them but are actually pretty profitable?<\/p>\n
So in 2020, actually right as the world was shutting down for COVID, a car wash came for sale and my brother\u2019s a professional dirt bike mechanic and he knows some people that have owned car washes in the past. And because I had been buying rentals on my own and talking about real estate, he\u2019s like, \u201cHey, we got to figure out how to buy that thing.\u201d And I was like, \u201cAll right, well let\u2019s take a look.\u201d There\u2019s a broker side on the side of the road and we called the broker, \u201cHey, we\u2019re interested in looking at this.\u201d He sent us all the financials and we started looking at it and we\u2019re like, \u201cLooks like it makes sense.\u201d That was our first look at what a business was and we thought we could handle it. So we started to jump into it.<\/p>\n
So Daniel, I mean I think first kudos you\u2019ve having the courage to jump into this totally different asset class because it is still investing, but buying a business that is very different than buying a piece of property. So I think Ash and I both know really well how to analyze rental properties to determine if they\u2019re profitable or not. But if you\u2019re looking at something like a car wash, how do you determine whether or not it\u2019s actually a good deal? Are you looking at how many cars are driving by every single day or what the population is around that car wash? How do you tell if it\u2019s a thumbs up or a thumbs down?<\/p>\n
So I think with any commercial business you want to look at what town it\u2019s in, the traffic counts on the road, what type of projects are coming, are there more homes being built in that town? Is it getting busier or are people moving out of that area? So the area that this was in, we knew it\u2019s been growing like crazy. Housing development\u2019s going everywhere, apartment complexes, big like a rec center just got built right next door. So we just saw all that development coming to the area. So that made us feel like it was a very good piece of real estate and be a successful business.<\/p>\n
So you had said that your brother found the deal and brought the idea to you?<\/p>\n
Yeah, he\u2019s the one that first brought it to me.<\/p>\n
Okay. And can you talk about partnering with family? How did you guys structure this? Has it caused any conflict and any advice you can give to rookies who are maybe thinking about partnering with their family members?<\/p>\n
Yeah. So the way we were able to do the deal is we had inherited a house that we grew up in Vermont. So when we first looked at it, we knew what the purchase price was. The only way we can get that down payment is to do a cash-out refi on that house. And I was like, \u201cIf you\u2019re comfortable with that, then we can actually start having conversations with the broker and lenders and things like that.\u201d
As for partnering with my brother, I think any partner you have, one has to have a strong suit and one you have to compliment each other, not be exactly the same. I feel like me and my brother are that way. I\u2019m a lot better with the books, the back end talking to the lenders and he was a mechanic so he can fix anything. So we knew the day to day operations he could handle any of that. It\u2019s made us grow closer but because we complement each other, I feel like it\u2019s made the business side of it way easier.<\/p>\n
So obviously we\u2019re real estate investors so my mind goes back to this piece, but when you guys bought the car wash, Daniel, were you also buying the land that the car wash was on or are you leasing that from some other owner?<\/p>\n
We own the land as well, which is what made it more enticing.<\/p>\n
That\u2019s awesome, brother. So when you purchased this business, it was one transaction for the actual car wash itself and for the land or was it two separate transactions for both of those?<\/p>\n
No, it was just one transaction. The owners had talked about that they wanted to almost lease the land back to themselves and they had talked about it but they never did it. So when we bought it, it was just one transaction.<\/p>\n
That is awesome, man. And I feel like that gives you flexibility down the road as well because say that you guys want to get out of maybe the car wash business, you can sell the car wash but still keep the land I would assume, right?<\/p>\n
Exactly. Yeah. If we decide to sell a few years out, we would probably break the land off and start paying ourself rent in that way. So then when we sold it, we could keep the land, because the land value has grown crazy in that town as well. So we see the value of it.<\/p>\n
So let\u2019s talk about that purchase. So you\u2019re purchasing an investment property, the real estate itself, and then you\u2019re also purchasing the business of operating the car wash. What are some things that rookies should look for when purchasing these two things together that may be different if they\u2019re just going to purchase an investment property to rent out where there\u2019s actually an operating business that you\u2019re purchasing along with it?<\/p>\n
So purchasing any commercial business is not going to be nearly as passive as just owning. If you have a rental and you set up a property management company, you\u2019re going to have to be a little bit more involved. What drew us to the car wash is that we knew we could do it while still working our full-time jobs, but you\u2019d something you have to take into account, especially upfront, you\u2019re going to have to be somewhat involved making sure that all the day to day operations are happening, all the bills get paid and then at some point potentially you can put a manager in place if the business does well enough.<\/p>\n
So just following up on that piece, I\u2019m thinking about the financing options that you guys had, Daniel. So did you guys just pay cash for the entire business plus to land? Was there some kind of debt involved? And if there was debt, who did you all go to secure that financing?<\/p>\n
So we did an SBA loan for it and prior to even looking into this, I didn\u2019t really know what an SBA loan was. So it\u2019s a small business loan and there\u2019s actually a few different options, but they allow you to get into businesses with only 10% down. So we only had to put 10% down on this business when originally we were trying to put 20% down or 25% because that\u2019s just what we thought we had to do. But the bank actually wanted us to only put 10% down and then have a certain amount in reserves just because it\u2019s a car wash, it\u2019s our first business and there\u2019s a lot of equipment. So they would rather us have money in the bank to make sure that we could take care of anything if something were to break.<\/p>\n
So just going along the SBA route, I\u2019ve never personally used any SBA debt. Ash, have you ever used SBA for anything for the liquor store? Did you guys use an SBA loan?<\/p>\n
No, because we started it ourselves, so we just paid cash for everything to start it up. We didn\u2019t actually purchase it, but I have\u2026 So the first campground I ever put an offer in on, I went to a bank to get almost the seller wanted almost a pre-approval letter. And commercial banks usually really don\u2019t give a pre-approval. They\u2019ll say like, \u201cYes, we\u2019re interested in lending on it,\u201d but the seller rejected it saying, \u201cNo, we\u2019re not doing SBA lending. My agent has advised me that it can take a really long time to close because you\u2019re jumping through different hoops.\u201d And so I had to go back to the bank and I had to get them to hold the in-house as a portfolio loan and say that they would lend on it that way that they would not do an SBA loan.<\/p>\n
Well, with the SBA debt, Daniel, when you look at buying like a traditional single family residence or even small multi-family, typically banks are going to look at you as the borrower, what\u2019s your debt to income ratio, things like that. When you\u2019re doing an SBA loan, are they looking at your own debt to income ratio or are they just looking at the business itself and the profits and revenue that it generates?<\/p>\n
They look at both. Especially this was our first commercial business, they looked a little more heavily on our personal debt to income ratio just as if for some reason the business didn\u2019t make the money that it was making, they wanted to know that we\u2019d still be able to cover the payment. And another thing that they wanted in order to complete the loan was collateral. So luckily having had a few rental properties that had been performing and having equity in them, I was able to use one of my rental properties as collateral.<\/p>\n
And can you just elaborate for maybe the rookies that aren\u2019t familiar with what that means? What does it mean that you use your rentals as collateral?<\/p>\n
So you get the loan and then the lender that you\u2019re using for the commercial business, they get basically a second position on the other rental property. So if you were to default on the commercial loan, then they could go try to pull any money lost out of that rental property.<\/p>\n
My one business partner, Joe, he actually bought five Subways and after you said that, I remembered he did that, he purchased it with an SBA loan and he had two rental properties that he owned free and clear. And they actually took those two properties as collateral too for the SBA loan when he went and purchased those. And then he went to sell one of the properties I believe, and he had to have show that the property that he\u2019s paid down enough of the debt for the Subways that he could pull this off that they didn\u2019t need it as collateral anymore.<\/p>\n
Yeah, we\u2019ve been since been able to refinance out of the SBA loan to free up collateral so that we could do things without like I want to sell one of my rentals. But yeah, it\u2019s crazy. I\u2019ve learned that people that do big things like Elon Musk, when he wanted to buy Twitter, he was going to use Tesla stock as collateral to buy Twitter, which that\u2019s a whole huge scale of it.<\/p>\n
Same concept. Same concept. Right. So just one other follow up question for me, Daniel, on the car wash piece, so neither you nor your brother had any experience running, managing your car wash. So on day zero when you guys closed, what was the process like or the experience for you guys, A, educating yourself on how to run something like this? And then B, were you doing the day to day management yourself or did you have a manager in place?<\/p>\n
So prior to closing and what actually got us interested is luckily the sellers did a tour with us. Basically they brought us on site and showed us basically day to day operations because we wanted to make sure that we could handle it while still working full-time jobs. But day one that we closed, they left us with as much information and they\u2019re like, \u201cThis is how we started, things break, you\u2019ll figure it out. If you have any questions, you can call us.\u201d And that was kind of it. And then you started watching cars come through and see how everything was going on. But we did all the management ourself and we still actually do. We have some help if we\u2019re out of town so people can take trash out, things like that. But yeah, we basically learned by doing. It\u2019s not as complicated as it seems.<\/p>\n
So Daniel, like car washes, laundromats, some of these, what are cash cow considered businesses in some case, I\u2019m sure if you run your numbers correctly, but how does someone find deals like this? I mean, did your brother find this by sending out mailers? Was this listed on some kind of website where businesses are for sale?<\/p>\n
So this one was actually literally, we just drove by it on our way to work and there was a broker sign right next to the business sign and that\u2019s how we started it. We called the broker and that actually the same broker the one that led us to our second business. But once we got this one, we actually started looking on sites like there\u2019s LoopNet, Crexi, BizBuySell, which is a great place. When I first started, I would go on the MLS and I would just analyze deals all day long, not all day long, but I\u2019ve analyzed hundreds of deals and so now I\u2019ll go on those websites, even though they\u2019re not the best place to look for deals, it\u2019s good to go on there and analyze them. You can usually send a broker, sign an NDA and they\u2019ll send you stuff and then you can analyze the deal.<\/p>\n
Do you have a calculator or anything that you use, Daniel, for analyzing those things? Or is it just kind of hodgepodge of Excel files and things like that?<\/p>\n
Part of my old W2 job, I actually got into accounting a little bit. So typically when you get a business, you\u2019re going to get the profit and loss, the balance sheet. So you can look over a profit and loss and you want to know where that profit\u2019s coming from, where the expenses are coming from. And then when you subtract your expenses from your profit, you know what your net operating income is, then you can figure out what you could afford for debt. And then in looking at the different categories on the expenses, you can see maybe I could cut that out, maybe I could spend less here. And then maybe on the profit side, oh, they spend nothing. That was one thing we saw on ours. They spent no money on marketing on the car wash and they were already profitable and the way we were going to purchase it, it was still at a cash flow day one. So we saw room for improvement and that was one of the things was like they didn\u2019t spend any money on advertising.<\/p>\n
So Daniel, I think you have a penchant for maybe taking calculated risks, right? Because outside of your business, your entrepreneurial endeavors, you also have a passion for some of these extreme sports. So we chatted a little bit before we started recording about you jumping out of planes and being a solo skydiver and things like that. So we know that you have the courage to do that and I think it plays a role in your business life too, because you bought the car wash with no experience, which is awesome. But then eight months later you found the self storage opportunity and now you venture into this second new space of real estate investing. So I guess just walk us through, A, why you decided to move forward with the self storage and then once you made that decision, you had to restart that whole education process all over again. And what did that journey look like for you doing that the second time around?<\/p>\n
So a week after we closed on the car wash, the broker that represented the sellers sent us a deal and it was a storage facility and I was like, \u201cI just bought the biggest investment of my life. There\u2019s no way I can do another deal like this.\u201d And so I just pushed it aside and didn\u2019t really do anything with it. About a month later, AJ Osborne was on BiggerPockets podcast and I reheard about storage and it got me interested and again, and so I started looking into the storage side of it.<\/p>\n
For those that don\u2019t know, AJ Osborne is the self storage king. If you want to learn about self storage or you want to get excited about it, definitely listen to his podcast or his episode on the BiggerPockets podcast. Follow him on Instagram, @ajosborne. So Daniel, you got excited from it, listening. So walk us through then what were the next steps to analyze the self storage deal because that is different from analyzing a car wash and even still for analyzing an investment property as a long-term rental.<\/p>\n
So we did the same thing. We got the broker to send us the profit and loss, so how much income it was making and what the expenses were and on storage it was actually a little bit simpler. And then the next thing was to get the unit breakdown, so how many units of what size are there and what are their current rates? So one of the things that made it appealing is that it was way under market value. So you could see from there, I just started Googling storage in the town that it\u2019s in and looking at what market rates were, what other places we\u2019re getting and made a few phone calls like, \u201cHey, do you happen to have this unit?\u201d And they\u2019re like, \u201cNo, sorry, we\u2019re full.\u201d
Call another place, \u201cYeah, sorry, we only have one unit available and it\u2019s a small one.\u201d So did a little bit of that and you\u2019re like, \u201cWow, there actually is opportunity here.\u201d And then so getting an average of what the market value was for those units and we had the unit mix, I know what we could bring the rent currently what it was at, what we could potentially bring it up to by doing a small rental raise. And then it just made complete sense and then that\u2019s how I learned how you can create massive value in the commercial business like that.<\/p>\n
Okay. So Daniel, to find out what your competition is and also what was the vacancy rate in the area and what people were charging for units. You Googled different self storage facilities in the area and you got on the phone and you just called them and basically asked those questions as to do you have the size unit available or what do you have available and how much does it rent for? And then just took that data and you pulled your own comps for the area just by taking the time to do a simple Google search and to get on the phone. And I think some people sometimes over complicate as to how do I find out the comps, all this stuff when really it\u2019s just as simple. You Google, you get on the phone, you ask for the information.<\/p>\n
Yeah, there\u2019s a lot of stuff on Google and the bigger companies, everything\u2019s right on their website so those are easy. And then the more mom and pop ones, you just get a phone call and maybe you don\u2019t get all the pricing but you have a quick conversation say, \u201cHey, I\u2019m looking for a bigger unit, what do you have available and what are the prices?\u201d And then pretty simple conversation and they usually give you the information.<\/p>\n
Dan, I think it\u2019s super interesting that you said the day after you close on the car wash, you got this deal presented to you by the broker. And I think there\u2019s a big lesson to be learned in that for our rookie listeners, because it\u2019s like you had zero experience in commercial real estate, but as soon as you prove to that broker that you could close a deal, now you\u2019ve got this inroads to get more deals in the future.
And the same thing happens to so many other investors. Before you have your first deal, it\u2019s almost like there\u2019s a gatekeeper to find the right things. But once you get that first deal close, now you start to build a reputation for yourself. You start to build relationships, you start to build networks. And that\u2019s why that first deal is so critical and so important. It\u2019s not just because of the cash that you\u2019re going to get, but it\u2019s because of the reputation that you build for yourself and the network that you build and the relationships you build and the future deals that are given to you because you\u2019ve proven that how to close and how to get the deal done. So has that broker sent you any other deals since?<\/p>\n
Yeah, he sent some more storage deals. None of them were really as appealing or they\u2019re too far away. And then just from buying storage, there\u2019s brokers out there that are looking for people that have bought storage and we\u2019ve got started getting calls from people everywhere. So we got on a few more lists and there\u2019s deals that flow through all the time.<\/p>\n
So I want to talk a little bit about the financing for the self storage. We know you went the SBA route for the car wash. Was it the same approach for the self storage and if so, was it the same mortgage broker and lender that you went with to help facilitate that or was it someone different?<\/p>\n
So we actually ended up using a different company. Basically when I heard AJ\u2019s podcast, he had tons of information out there, so I consumed tons. And he actually had Live Oak Bank as a lender on his podcast. And the guy that he had on the podcast was actually from the town that we were buying our store facility in. So he left his contact information, I immediately sent him a message or I basically wrote a two page business plan, a brief summary of me and my brother were and what we were trying to do and why we thought it was a good property to buy. And then I had a call with him the next day and I was like, \u201cI just bought a car wash. This is the biggest loan I\u2019ve ever had to get. Can I even qualify to do this again?\u201d He\u2019s like, \u201cYeah, you can get up to five million in SBA loans and it doesn\u2019t all have to be on the same business.\u201d So I was like, \u201cOh, well that\u2019s cool.\u201d<\/p>\n
Well let\u2019s talk about that business plan first before we go any further. I mean, at least when we\u2019ve talked on this podcast and myself included, when I first reach out to a lender, usually it\u2019s just an email like, \u201cHey, I\u2019m interested in purchasing this property, what kind of terms do you have?\u201d Or I call a bank and ask to speak to the loan officer, I say that. But just presenting your entire business plan right away, can you just walk through exactly what exactly a business plan is and some of the key things that you should include in it?<\/p>\n
Yeah, so what I had sent then was a summary version I had to do a little bit more in depth, but it\u2019s basically they want to know who the buyers are, what their background is and why they\u2019re a good fit for a business like that. They want to learn about the property, why you see value in it, what you think you can do to make more income, and that it\u2019s going to be something appealing for the bank to loan on. They want to know a little bit about the area where it\u2019s in. So just the big overall plan of what you want to do. So it\u2019s basically a big summary for them.<\/p>\n
So along those lines, you submitted your business plan to the loan officer, go through the SBA loan, did you partner with your brother then too?<\/p>\n
Yep, the two commercial businesses were 50\/50 partners on.<\/p>\n
Okay. And then as far as the operations, so you said you\u2019re still pretty doing a lot of operations on the car wash. Is that the same for the self storage? And how do those two differ as to how much time you actually have to put into them?<\/p>\n
So the storage was, we lucked out, it was full mom and pop, everything was on pen and paper. So we were able to go in, start on day one with a management system. So we got to get all the tenants transferred into a management software, started accepting credit cards and then we were able to automate our gate so that it ties in with our management software. So with the storage, it was very busy up front, but now it\u2019s a lot more hands off because we\u2019ve been able to add a lot of automation or I can answer phone calls and take payments from home. Now is the car wash, since we really like to keep it clean and make sure everything\u2019s functioning, usually one of us goes by once a day or we make sure somebody goes by to take up garbage. So the car wash is a lot more involved and the storage is more automated now. You know what you have to do in different parts of the month and it\u2019s just a lot more steady, brings in basically the same income every month.<\/p>\n
So what is the difference for you managing the commercial businesses compared to being a property manager on your long term buying holds?<\/p>\n
I like the commercial businesses, they definitely are more involved, but if something breaks, like if a toilet breaks or I have a water leak at one of my houses, I need to get that fixed right away. It\u2019s going to cause a lot of damage. It costs a lot of money. If a hose breaks at the car wash and I have to shut down the bay for a day, I\u2019m not going to lose a ton of money because there\u2019s still other bays for people to use. Same with storage. If somebody moves out and a door\u2019s broken and it\u2019s going to take me a week to get up there and fix it, I may lose out on 50 bucks, but it\u2019s not the end of the world. So I like the time freedom that comes with owning the commercial businesses. I know the bigger you get then they may take up a little bit more time, but also when you get to a bigger point then you can usually have operators in place that can handle those things.<\/p>\n
So Daniel, when you opened the self storage you took over, did you have a grand reopening where you were skydiving down, holding like a flag grand reopening, new management in place, new owners?<\/p>\n
We did not, but we updated Google my business and updated the pictures and actually had a website. So those were the biggest things and that\u2019s how a lot of the new customers that we\u2019ve had have found us.<\/p>\n
Okay. So I think right there is just three tips that somebody listening could take away if they\u2019re looking to get into self storage or even just a business in general. This is those three things changing that can add value is putting some marketing in there, having a website where people can actually find you. I mean, think about it, you guys, for those of you listening, you need a storage unit, what\u2019s the first thing you\u2019re probably going to do? You\u2019re going to Google the storage unit. And even if you know where storage unit is and you\u2019ve driven by it, well if you aren\u2019t driving that way within the next day, you\u2019re still going to Google it and look for it. And if you can find one with a website. And Daniel, did you say that you have direct booking online where they can actually reserve it online?<\/p>\n
Yep.<\/p>\n
How convenient. Nobody wants to talk to anyone or have to stop in anywhere.<\/p>\n
We don\u2019t actually let people rent by coming in the office. We make them do it through the website.<\/p>\n
I love that you made the jump pretty quickly to commercial real estate. I think a lot of new investors have that on their vision board or their future goals, but they feel like they have to graduate up towards commercial real estate. So for the rookies that are listening, what\u2019s your advice to those that have zero deals that eventually want to get into commercial real estate? Should they start with the townhouse, the duplex first, and then move into some of the commercial stuff? Or is it okay for them to start on day one by going after the commercial assets?<\/p>\n
I like going the residential way, getting a house or two, a duplex, some small, it builds you a little bit of portfolio, it gives you a little bit of experience. And then like I said, I wouldn\u2019t have been able to buy a commercial business if I didn\u2019t have rentals because I needed to use it as collateral. So it\u2019s a great way to buy a property and if you can make it cash flow and somebody else is paying down your mortgage and building you equity, that\u2019s just going to help you when you want to try to buy something bigger in the future.<\/p>\n
So Daniel, we have talked about your commercial businesses, but what about your investment properties? Do you have one of your investment properties where we could maybe go through the numbers on it?<\/p>\n
Sure.<\/p>\n
I\u2019m going to do just some rapid fire questions and then you can get into the story of it. So where is this property located?<\/p>\n
Concord, North Carolina, just outside of Charlotte.<\/p>\n
And how did you find the property?<\/p>\n
I had a friend that was a real estate agent and he helped me. He knew what the price range was for the first house I was looking for, so he helped me find it.<\/p>\n
And what was the purchase price? What did you end up buying it for?<\/p>\n
108,000.<\/p>\n
And did you have to do any rehab on the property?<\/p>\n
Nope, just some minor cosmetic stuff.<\/p>\n
Okay. Did it have tenants in place or did you have to place tenants and what are the current rents?<\/p>\n
It was my first house.<\/p>\n
Oh, okay. That you first lived in. Okay. Okay, so go into the story then since, what has happened to the house since you first bought it?<\/p>\n
So I lived there for one year. I had a roommate for six months of that time, so I was paying personally like $300 a month toward my mortgage and then I moved out. Then my mortgage with HOA is $750 and I rent it for $1,250 now.<\/p>\n
Wow.<\/p>\n
How did you finance the deal? What percentage did you put down on the property or did you purchase it?<\/p>\n
It wasn\u2019t 20%, it was 15% down at the time. And so I had PMI for a little while and then once I got to 20% equity, I was able to get rid of that.<\/p>\n
And how did you get rid of that? Because we don\u2019t really talk about that enough is if you buy a property and you put less than 20% down, you\u2019re paying that PMI, the insurance on it, so you can get rid of that once you have at least 20% equity in the property. And what kind of steps did you take?<\/p>\n
I just reached out to the lender and said I knew that I had 20% equity in it based on what the remaining balance was versus the purchase price. And they had to send somebody through to do a site walkthrough and then they\u2019d removed the PMI. So it took about a month to get somebody out there, but it wasn\u2019t too difficult. Just had to reach out.<\/p>\n
And did they charge you to do any of that?<\/p>\n
I believe I had to pay for the person to come do a walkthrough. I think it was only 150 bucks.<\/p>\n
Well, worth it to get rid of that PMI because how much are you spending a month. Yeah.<\/p>\n
Yeah. Well congratulations, Dan, that seems like a great property. And you said that was the first real estate deal you\u2019d ever done, right?<\/p>\n
Yep, yep.<\/p>\n
Man, that\u2019s fantastic. You got to live for almost free for an entire year and now you\u2019re out of it and you\u2019re cash flowing like what, five, 600 bucks a month? So dude crushing it, man. Crushing it, brother. All right. So for all of our rookies, listen, if you want to get your question featured on the show, give us a call at 8885-rookie, if your question is a good one, we just might feature it on the show. So Daniel, are you ready for today\u2019s question?<\/p>\n
Yep.<\/p>\n
Hi, my name is Benjamin Allen. I reside in Geneva, New York. I have 16 units, just closed on my four unit actually in the 1st of May. And my question is directed towards reserve or capital expenditures areas. I have approximately about 12 grand for covering major expenses like roofs, furnaces, boilers, major expenses like someone destroys the units or things of that nature.
And I\u2019m just wondering, should I continue to build that up and just have that as a general reserves fund for big large items? Or should I just only keep it at a much lower amount to where I only handle the general maintenance throughout the year for that fund? Or should I have two separate different accounts? My bigger question is, do I just leave a big account with a lot of money in it for maintenance costs and big for repairs? Or should that be two separate accounts for maintenance versus big, large purchases like roofs, furnaces, boilers? I hope that wasn\u2019t too confusing, I apologize, but I really appreciate your content and your show. I learned a lot from it. Thank you so much, and I look forward to hearing from you guys. Thanks, bye.<\/p>\n
So I actually just have all my rental stuff in one account for my personal rentals, but I have a spreadsheet that I keep track of everything. So if you don\u2019t want to do the spreadsheet route, I would consider having a separate bank account and that way you can see what you have saved up for repairs and maintenance. But if you\u2019re going to keep track of it in a spreadsheet, I don\u2019t see any reason why you can\u2019t have it in one bank account.<\/p>\n
Yeah. That\u2019s a great call out. I mean, we actually do a little bit of a mix in our portfolio. We have four, I don\u2019t know why we do it this way, but four of our properties all share one reserves account and then every other property from there on out has its own reserves account. And then that\u2019s just for big CapEx expenses. And then usually the ongoing repairs and maintenance we just pay out of the OpEx account. How do you do it for your portfolio, Ash? Do you have a separate for repairs and maintenance and then a separate for CapEx?<\/p>\n
No, there\u2019s pretty much one checking account for each LLC. So for me and each of my partner or properties I own myself, it\u2019s just one, but I don\u2019t take any cash flow out. I feel like I\u2019m just constantly moving money around to buy more properties or to invest in this or that or to fund my own rehabs and stuff. I just never let it get below a certain amount.
And plus I have a couple lines of credit too that I keep available so that if I really needed to pull, if for some reason all of my properties needed new roofs, then I would definitely have to go to my lines of credit. But I think you get to\u2026 We always have six months reserves when starting out on that first property for your mortgage payment, so your principal interest, your taxes, your insurance, and then also if you have an HOA like Daniel did on his first property. But as you grow in scale, I think that, at least I have figured for myself that as I\u2019ve grown and scaled, I don\u2019t need to have six months for every single property because the chances of all my properties going vacant or all needing huge repairs are pretty slim. And if that does happen, I have the lines of credit to cover that.<\/p>\n
Yeah, I did the same\u2026 I didn\u2019t take money out of my rentals for the first few years. I just let it build up an emergency fund and I knew what it would cost to pay rent for both of those units or to cover the mortgage for six months of both of those units and knew what that number was and then had a number that I wanted for reserves for each unit. So then I knew what my total number was that I wanted to have in that bank account.<\/p>\n
And Daniel, I think that\u2019s a really good call out that the longer you can delay taking money out of your real estate business, the faster it\u2019ll grow. Because if you\u2019re able to reinvest those funds into maybe improving the rehab or maybe purchasing that next property or whatever it is, you\u2019ll have a better chance of continuing to scale. And it was very similar for us in our business. We didn\u2019t start taking any money out of our Airbnbs until we had 13 properties live. So for properties one through 12, we were reinvesting all of that capital back into the business. And that was hiring people, getting more software, your bookkeeper, your whoever, but just reinvesting back into the business. And I feel like that made all the difference in our ability to scale. So I want to keep us moving, Daniel, into our next segment. This is the Rookie Exam, the most important three questions you\u2019ll ever be asked in your life. So are you ready for the exam, Daniel?<\/p>\n
Let\u2019s do it.<\/p>\n
All right, brother. So first question, what\u2019s one actionable thing rookie should do after listening to your episode?<\/p>\n
I would make a move on whatever you\u2019re trying to do, whether if you\u2019ve been studying, trying to buy your first single family or first short term rental, go analyze some deals and see what you want to do. If you\u2019re in that space where you\u2019re actually trying to look at the commercial, like I said, go on Crexi, BizBuySell, one of those, analyze a few deals, maybe reach out to a broker and see where you\u2019re at. Maybe if you\u2019re at the point, then maybe reach out to a lender and see what you could even qualify for in financing.<\/p>\n
Daniel, what is one tool, software, app, or system in your business that you use?<\/p>\n
Google everything. So Gmail, Google Drive, Google Sheets, Docs. We basically have a shared email for each that my brother and I can access, so that way whenever we store documents or whatever, we can both access them. So it\u2019s an easy filing system for us both.<\/p>\n
Yeah, I use the same, it\u2019s so convenient and works so well, especially if there\u2019s multiple people working on something together or needs to access that.<\/p>\n
All right, Daniel, last question. Where do you plan on being in five years?<\/p>\n
I would like to own a larger portfolio of commercial businesses, ideally more storage, but that market\u2019s getting harder and harder to get into, but I would like to grow that portfolio and then I technically hit financial freedom this year and left my W2 job, but I would like to be at a next level of financial freedom where it\u2019s just continuing to make money to invest in bigger projects.<\/p>\n
Congratulations.<\/p>\n
Congratulations on that.<\/p>\n
That\u2019s amazing, brother.<\/p>\n
Thank you.<\/p>\n
And I love the way you phrased that. And the way that I\u2019ve come up with this framework in my mind is that you have financial disparity, which is where you\u2019re living paycheck to paycheck or worse than that, right? Then you have financial dependents where you have a W2, you\u2019re able to cover all of your basic expenses. And then once you break free from that, you have financial independence and that\u2019s where you\u2019re able to cover all of your basic living expenses, but with your own business, with your own revenue that you\u2019re generating. And that\u2019s like where you\u2019re at right now, where I am too. And the next layer after financial independence is financial freedom, and that\u2019s where you\u2019ve got the few money to go live, whatever kind of life it is that you want to live. So a lot of people, I think, get those layers confused, but I like the idea of shoot first for financial independence. And once you get there, now you\u2019ve got the time and the flexibility to really focus on financial freedom.<\/p>\n
Yeah, that\u2019s a good way to put it.<\/p>\n
Cool, Jeffrey. So as we round things out, I want to go to our rookie rockstar. This week\u2019s rookie rockstar is Jeffrey Brusho. And Jeffrey says that he\u2019s been following Codie Sanchez for a while and was wanting to buy maybe more recession resistant commercial real estate. And he said after six months, he came across a property that was on the market and checked all the boxes. The seller had this property listed for 1.5 million. Jeffrey wrote an offer initially for 1.1, seller said no. Jeffrey countered at 1.2, seller said no again.
After listening to the BiggerPockets episodes, he said that he learned that it wouldn\u2019t be a bad idea to reach back out. So he checked in with the listing agent again and said, \u201cHey, how are things moving?\u201d The property was under contract with another buyer. So Jeffrey ended up reaching back out and seven days later he got a call from the listing agent saying that that initial buyer dropped out and the seller was now willing to accept Jeffrey\u2019s 1.2 million offer. So Jeffrey, I\u2019m super pumped for you for being able to get this property in a contract, but even more so, it\u2019s a great lesson for all of our rookies that just because a property goes under contract with the buyer, that doesn\u2019t mean that they\u2019re going to close. Deals out of escrow all the time. So if you can be the second person in line, that is a great position to be in.<\/p>\n
Yeah. Congratulations, Jeffrey. That\u2019s awesome. And way to stick with it. Well, Daniel, thank you so much for joining us today to do this recording. Can you let everyone know where they can reach out to you and possibly learn some more information about your crazy skydiving and other adventures that you do?<\/p>\n
Yeah, you can reach out to me on Instagram, it\u2019s Free Fly Kid. On Facebook, Daniel.Schiermeyer. Those are the main two. I respond to everybody on there.<\/p>\n
Well, Daniel, thank you so much for coming on today. We really appreciated you taking the time and providing value to us and all of our listeners. I\u2019m Ashley at Wealth From Rentals and he\u2019s Tony at Tony J Robinson. And we will be back on Saturday with a Rookie Reply.<\/p>\n