How an Air Traffic Controller Liquidated His 401(k) to Buy a 32 Unit Apartment Complex | Shawn DiMartile

In this episode, Dalyn Hazell sits down with Shawn DiMartile to talk about retiring from a day job and pursuing real estate full time and using 401k and IRA money to invest in real estate.

Shawn is a founding member of Pac 3 Capital where he directs and oversees capital improvement projects. He is responsible for identifying, analyzing, and underwriting all acquisitions and director of investor relations. Shawn currently has over $28 Million in multifamily assets under management. Shawn is also the co-host of The MultifamilyTakeoff podcast and a proud United States Navy veteran.

Key takeaways from this episode:

-The things you need before you start investing in real estate.

-Pension system is better than 401k.

-The most attractive thing about real estate and how it will change your life.

-Real estate creates financial freedom faster than most other asset classes.

-How does the 401k system work and why do some people end up pulling their money out?

-What you need to do when undertaking a multifamily property.

-The difference between buying a 1968 apartment vs. buying a 1968 house.

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Connect with Guest, Shawn DiMartile:

Email: shawn@pac3capital.com

Website: https://www.pac3capital.com/

Instagram: @sdimartile @shawnpac3capital

Connect with the Host, Dalyn Hazell:

Facebook: https://www.facebook.com/dalyn.hazell/

Instagram: https://www.instagram.com/dhazell24/

Email: dalyndhazell@gmail.com

Transcript

Introduction  0:00  

This is the real estate investing for freedom Podcast, where we bring on the experts to teach you the golden nuggets of real estate investing, so you can escape the rat race and start living life on your terms. Now, here's your host Dalyn Hazell.

Dalyn Hazell  0:23  

Hey, welcome back to the show everybody. In today's episode, I sat down with an air traffic controller, turned real estate investor, who bought a 32 unit apartment complex with some of his IRA and 401k funds. So this guy's name is Shawn, he's got an amazing story and how he, you know, looked at what he had. And now he's deploying that capital that he spent multiple years stocking away at his day job, he's deploying that capital on real estate that's paying him now money, rather than waiting on that money to cash out when he's 60, or 65. All in the hope of retiring from his day job and pursuing real estate full time. So I think you'll learn a lot from Shawn, if you have ambitions of getting out of your day job. And you have some money sitting on the sidelines in terms of retirement funds. Shawn knows a lot about that. And he can help you in that way. He's going to do that in this episode. And that's our golden nugget of the day. It is to look at what you have, maybe you're working a day job, or maybe you worked a day job in the past, and you had some 401k money or IRA money just sitting there. It goes up and down. But you can maybe put that into real estate and see that cash flow today. And enjoy the fruits of that today. Of course, we're not going to give financial advice. We're not financial planners. So take everything we say with a grain of salt. But this can be a great way and it's been successful for many investors I've interviewed and listen to on other podcasts as they use their retirement money to funnel that into real estate. And I think they enjoy the fruits of that better than where it was before. So without further ado, here is today's podcast episode with Shawn. Welcome to the show. Shawn, how are you doing today?

Shawn DiMartile  2:13  

I'm doing really well. Thanks again for having me on the show. I really appreciate it. Happy to provide whatever I value so I can see your listeners.

Dalyn Hazell  2:20  

Yeah. And we're excited to dive into your expertise, Shawn, and what you have to tell us here. So just briefly, you know, can you tell the audience, how you got started in real estate, and maybe why you got started in real estate.

Shawn DiMartile  2:34  

Well, that could be a long story. I'll try to give you guys the sort of medium-sized version here. Essentially years ago, I finally got my dream job, or what I thought at the time was my dream job but a great w two jobs with a great income. And I started to have disposable income that I wanted to invest. And I had a great friend at the time who was a real estate agent in San Diego, and was also really interested in investing and he essentially introduced me to bigger pockets. Obviously bigger pockets started the whole rabbit hole of learning. For a couple of years, as much as I could about real estate investing. I read every book I could get my hands on anytime a book was recommended on a podcast I bought and read the whole thing. I started listening to multiple different podcasts. So obviously start with bigger pockets and then I started listening to a lot of multifamily podcasts. And I was doing all of this before ever making my first investment. So over time, I really started to save up some money and I was ready to make my first real estate investment. I'd studied as much as I felt like I could and it was just time to do it. But I was looking at a lot of single-family or small multifamilies meaning like you know, duplexes, triplexes for plexus. And the deals just weren't penciling out to be these like amazing deals, at least what I thought were amazing deals. So long story short, I ended up because I was sort of bouncing ideas and talking a lot with two of my co-workers who were also real estate investors. And we eventually came up with the idea of just partnering and buying a really large multifamily, getting commercial size and just jumping right into that part of the business. So that's ultimately when we ended up doing all three of us and ended up liquidating our 401 K's in order to get that first property which was a 32 unit in Greenwood, Indiana just outside Annapolis. The whole idea you know, I guess that's how I got started there. But really the reasoning behind all of that was because I wanted to retire early I and we could talk a lot about that I'm sure we could cover a whole episode on retiring early but the whole idea of working until I hit retirement age at my w two job and then retiring like everybody else just no longer made sense to me. And once I had heard about the fire movement and And all of these stories of people retiring in their 30s that's when the light bulb really went off and that's what made me kick it into overdrive when it comes to real estate investing.

Dalyn Hazell  5:12  

Yeah and there's a lot we could definitely unpack there for sure, Shawn so what I'm hearing from you is that you know you had this idea of what your dream was and I believe you were an air traffic controller right? That's correct. Yep. Okay, perfect and hence the name of your podcast multifamily take off I like to spend thank you onwards there Yeah. So So you had this dream in mind and you went after it right it's what we all do we go to college or we're just fired up about like a certain career path because that's what we're told but then when was it in that process that you know you you kind of woke up that maybe this was a great job but it's it's how you were earning the money you know, trading your time for dollars? When did you kind of wake up to that reality?

Shawn DiMartile  5:55  

That's a great question because and you really hand it on and towards the end there when you mentioned the trading time for dollars, so an air traffic control and specifically at my facility because I work at a 24 hour air traffic control facility. Your days off are first of all your days off are based on seniority. And when you're at a highly sought after facility like mine here in San Diego, California, which is where a lot of people want to live, a lot of people try to move to the this market to work as your traffic controllers in in addition to that, if it's a government job, they base your pension off of the highest three years of income that you made during your time there. So if you're getting close to retirement, most A lot of people will say hey, you know, they'll move their family to the highest earning air traffic controller job they can possibly get, just so they can get that higher pension and then they move. So in my facility I'm always at the bottom of seniority. And so my days off are Tuesdays and Wednesdays and they even meet for me to get one weekend day off say like a Sunday or just a Friday or something like that I still probably have another five years I've been I've been working at this facility for six years I'll probably have to work another five years possibly eight to 10 before I'll ever get weekends off. So that's really it was one of the starters there as I realized that I'm going to be missing out on a lot of things and I've already missed out on a lot of things and in addition to that we're always chronically staff so trying to get off like a random day is virtually impossible. And you have to bid and select your vacation days a year in advance which is obviously very difficult if you want to do a vacation with literally anybody else. So all of these things just really are what started to wear on me and made me think I just can't do this for you know 25 years I can't give up so much of my life and you compound that with the fact that I'm a person that really loves to travel I have a lot of hobbies that are outdoors and things like that. So all of this and I'm hearing stories on podcasts of these guests that are just crushing in real estate investing and they're living this life that they want you know that they constructed as far as working on work when they want to not have to clock in and being able to work pretty much wherever so all of that stuff really struck a chord with me and that's what got me obsessed in a way with with retiring early so I could live life on my terms.

Dalyn Hazell  8:31  

Yeah, well it sounds like Sean you were in and you're probably well compensated right in your role but it was not very flexible. And I think at the end of the day even if you're earning 100, 200,000 $300,000 a year it's how you're earning that money that determines your success because as we know you know you're highly taxed it's not flexible if once you stop working, the money stops coming in. So even these high executives are athletes that earn a lot of money it's it's fundamentally how you're earning money is the wrong way and you know Rich Dad Poor Dad goes into a lot of that, like the four quadrants employees employed business owner investor, you want to, it's okay to have a job in the beginning of your life, obviously to get that working capital up, but you quickly want to turn your income into those other categories. So it's heavily flawed, right? The pension system is heavily flawed because it's underfunded in a lot of ways, you know, a pension is probably better than a 401k because it's defined, you know, as a right defined contribution plan. But it's fundamentally flawed. Just because you're banking on this system to take care of you. Just like so, security later in life will be there and it's, it's, it's not gonna beat out inflation as much as you think. And you know, it's not, it's not gonna afford you the lifestyle that you really want. represent here.

Shawn DiMartile  10:00  

And when you're depending on regulators, the government who's making these decisions on your livelihood in the future, we all have to remember because we get reminded from time to time that they can just change up the rules literally whenever they want. So they can say, Oh, sorry, we're no longer going to provide this because we can't afford it. So we're going to change this percentage, you know, the tax laws, we're going to switch these up, because all of a sudden, we need to create more revenues. So now we're going to tax you more heavily in retirement, all of these things can just change on a whim. So I don't like putting it completely in someone else's hands.

Dalyn Hazell  10:39  

Yeah. And you did just that you took it into your own hands, your retirement and your future by starting in real estate. So how does real estate give you the authority, you know, to define your income to make more money? How does real estate do that for you?

Shawn DiMartile  10:56  

In so many ways, I mean, the thing with real estate, is that, first of all, if you're buying cash flowing properties, you're getting that income today, you're getting it immediately. So no, you know, if you're looking at it from a very basic perspective, you could just start stacking properties that are giving you X amount of net income per month, after all expenses are paid, you've got some cash flow, and you can determine, okay, I if I'm getting $500 a month out this property, I only need to do this this many more times. And now I have this much income. And if you've got it set up properly, with really good property management in place who's handling the day to day affairs, and your job is to just manage the managers, then that allows you to now work from anywhere, excuse me. So I could be where I'm at in San Diego, California, and my properties are in North Carolina. And I could decide, oh, I'm going to go on vacation for a week or two weeks or a month. And I can do all my work for my computer. So this really opens up your lifestyle to where you can live and travel anywhere you want. If you're going to be out of phone and email coverage for a period of time, you can set that up with your property management to have everything covered while you're gone. I mean, there's just so many ways that you can set this up to require minimal input from you. So that's really what's most attractive about real estate. But we'll probably get more into the retirement stuff as well. But the thing I love even more is that real estate is evergreen, when you're depending on the government to cut you a check, or you're dependent on a 401k, which by the way, is just a nest egg that is ultimately going to run out at some point depending on your withdrawal rate. You know, that's completely out of your hands. But when it comes to real estate, the longer you hold that real estate, the richer you get, the more the cash flow increases. It's just something that's permanent. It's like I said, it's evergreen, it's eternal. It's not going anywhere. The demands are not going anywhere. I love everything about it.

Dalyn Hazell  12:58  

Yeah, yeah, I was talking to a friend. And you know, it doesn't matter if he's listening to the show, but we were kind of picking apart kind of his business. And he's a landscaper, right, so he makes money by you know, every lawn he cuts. And you know, he was just kind of going through a hard time, because two of his employees just quit. So he's literally by himself mowing these lawns. So this business he had built for seven or eight years, it's kind of come crashing down. And as we know, it's hard to find employees that are willing to work for that wage nowadays. And so we just got talking about real estate and I said, You know, I love real estate, because it's passive. And two, it's duplicatable, without a lot of more people, I guess, like you just need a property manager, you know, and you're in, you're in a multifamily. So you know more about this than I do, but you don't. You're not as dependent on people with real estate as you are dependent on the asset and the tenant, and the tenant needs to be there to live. So it's like this, it's an amazing mix of, and it's really one of the best business models, in my opinion. Do you have anything that kind of adds to that?

Shawn DiMartile  14:05  

Yeah, exactly. Like you know, when it comes to landscaping, landscaping is something like that's a great example. And this is the case with a lot of businesses. Those are oftentimes businesses that people can decide their or excuse me services that people can decide they're going to forego if they're trying to save some money. So for example, they could decide they're going to cut their own grass, because money's tight for the time being, or any number of reasons. Whereas you have to have somewhere to live you have to have the basic need for shelter, and food and obviously family and without, you have to have shelter at some point. So it's something that like you touched on, it's not going away. This isn't one of those new businesses that pops up and then might die in the future. So no matter what period we're going through in history, it's something that's going to be there. So I think it's that and that's why it's got the track record as the safest investment. That's always been there.

Dalyn Hazell  15:02  

Yeah, yeah, I mean, I would probably argue you can probably get richer, faster by coming up with some app or software tool. But for us that aren't willing to be that creative or entrepreneurial real estate is where it's at as far as creating financial freedom faster than most other asset classes. So you did this thing, which I think a lot of people are scared to do if you liquidate your 401k. A 401k, is designed to have a lump sum later in life. So it's different from a pension; a 401k is just a lump sum once it runs out. You hope, hopefully, you have other funds. A pension would be it just keeps on flowing into your bank account as long as the pension is funded, right, right, and not underwater? Why did you decide to liquidate your 401k and put all your eggs into one basket, which was real estate investing.

Shawn DiMartile  15:54  

So this will probably be one of my longer answers. Because I want to get into, I want to first explain why I don't even like the 401k system, and which is why I ended up pulling the money out. So when it comes to 401 K's I studied this a lot before making this decision, because I was a big believer in 401 K at first, and I was trying to be as rich as possible when I retired. Everyone knows that you can't touch that 401k unless there's some extenuating circumstances until you retire or you're at retirement age 65 years old. Which, for somebody like me that's interested in fire that's a little bit late. I don't want to wait until I'm 65 to enjoy that money. But the idea is you're going to continue contributing to that 401k until the date that you retire. So it would behoove those that are going to stick with that plan to study it and understand, okay, how much do I need to save and invest throughout my career to live the life that I want to live? Well, there was a study called the Trinity study. I don't know if you've ever heard of it. But it was conducted at Trinity University by a bunch of economics professors, and I think some finance professors. And what they did is they studied retirement starting from the year I think 1920, all the way up to like when they conducted the study was like 2005, or something like that. And they calculated that you had retired every single year. So you 1920 1921 all the way up through every single one of those years, no matter what was happening with the economy, whether it was an economic crash, booming, whatever, what percentage of your retirement would you need to live off of, so that your money lived longer than you so that you didn't all of a sudden run out of money before dying. And they calculated that if you lived off 4% of that nest egg, you had something like a 95% chance that you wouldn't run out of money. So no matter what that amount is living off of 4% starting at age 65. So to do the math backwards, you can say, okay, when I retire, I want to live off of $100,000 per year. I feel like that would be a pretty good retirement for myself, you multiply by 25, to do the math backwards. So if you want to live off 100 grand a year, that's 2.5 million you need to have in your retirement account. So then, and if you go to a fidelity website or something like that, most of these retirement account websites, their calculators, that's how they'll typically calculate it. So then, you know, you gotta ask yourself, okay, how much do I need to save and starting when, if I want to have 2.5 million? Well, for most people, not including, like, you know, your contributions are matching from your actual employer, you'd have to start saving at about 25 or 28 years old, I forget now, and you'd have to start maxing out your 401k at that age. So most, most people are not going to hit that number. By the time they retire, they'll be well below that by the time they retire. So they're going to run out of money, or they're going to live off of barely anything after their retirement. So all of this is because like we've mentioned, it's a nest egg, you're just buying shares of stocks, it's in an index fund. So that in typically, by the way, all of these calculations are made assuming that you don't start transferring these assets into less risky ones. So typically, as you get closer to retirement, you'll start converting them from shares in the common stock index One, two, bonds, right? Because they're less volatile, and you don't want to, you know, all of a sudden the stock market crashes and you lose 30% when you're supposed to retire in four months. So typically, those calculations that we just did on how much you would have to have, you would actually, probably have a lot less than that. So the idea is though if you hit retirement and you start selling these off and then live off of that money. Well, the reason why I love real estate, is because when you have cash flow, obviously tenants move out things that things like that happen, but when you have a large portfolio, all of that as a counter for you account for the vacancy and everything to where over the course of a year, you have predictable cash flow coming in your bank account, and as time goes on, you only get richer Because rents go up with inflation, so rents continuing to go up, and you're probably still buying more assets at that point. So this, it's never going to go away, it's forever as long as you maintain the asset, the cash flow never stops. So it's, it's the exact opposite of the 401k system, that money is going to be gone eventually. Not the case with real estate. So that was sort of a long response. But um, you know, I wanted to kind of lay the groundwork, because at the end of the day, you're going to run out of money, more than likely with your 401k.

Dalyn Hazell  20:31  

Yeah, that was a really good response. Thanks for explaining that. So, yeah, and it's a life deferral plan, you know, you're deferring life to one day in the future when you get this lump sum. So what I used to do when I got my first job, you know, you know, out of ignorance, I just started throwing, like, 20% of my income into this, I don't know, it was a void. And I just like, I felt like it was just always deferring life. And you know, the account was going up and down, of course, as they do, but I think I don't want to bash on equities or like the stocks or anything, I just want people to focus first and foremost, on cash flow, and economic independence. Okay, once you have your economic independence, you don't have to work for money, then go start pumping those things. Okay. But I would argue, and I think you would agree that real estate is the best way to start for that cash flow. So step one, get your economic independence, and then start dialing in those, you know other things. And it doesn't have to be real estate, just maybe it's a cash flowing business, whatever it looks like for you, because your happiness is worth a lot more now than, you know, 30 years in the future. Do you have anything to add to that?

Shawn DiMartile  21:44  

No, I couldn't agree more. I mean, like, like you said, you're constantly deferring life with the 401k system. Like using myself as an example, I'm 32 years old, turning 33 in December, and I'm likely going to retire the next year or the beginning of the year after that, already from real estate, my partner rich, who's part of Pac three capital has already quit his job, and my partner, Mike is quitting his job next year, there's no way possible that any of us would have been anywhere close to being able to quit, was it not for real estate, you're not going to hear people saying that with retirement accounts, like Oh, man, I just blasted my 401k. And just kept maxing that out. And I was able to quit early, because that's just not possible, because you're not able to live off of a 401k like that, or before retirement. So you know, at the end of the day, like sometimes, it does make sense for someone to maybe they don't mind clocking and they love their job, they really do love their job. And the benefits would be there for them, for them to go with the 401k plan, and at least max that out as one of their options. So I'm not bashing it completely, trying to say it doesn't make sense for anybody because it doesn't make sense for everybody.

Dalyn Hazell  22:59  

Yeah, we don't want to put people in a box. But I think even if you love your job, there's going to be a day where you would prefer not to work. I mean, I just can't think of a scenario in which that wouldn't be the case. I mean, think about, let's say your husband or your wife falls out of a tree and gets disabled, like I've heard of that happening, and you have to take care of them full time. Well, if you had this job, you couldn't do that. What if the medical bills stack up like there's so many what ifs, and I'm not a doom and gloom person at all. But I think we just should always have that in the back of our mind to get economic independence first, and then kind of focus on maybe the other things like to see our money grow. And I also want to touch on like, you know, these programs, they forced you to have earned income. So I know to contribute to, for example, a Roth IRA, which a lot of people thought as a great investment vehicle, which it can be, but you need earned income to do that, meaning you have to have a job or a self employed business. So for someone like you coming up, or you're not going to have a job anymore, you don't have the ability to put into that account. So it's almost like the government wants to put people in boxes and kind of chained them to a career their whole life. And people have truly brought into this plan, and they're not retiring filler 60 or 65.

Shawn DiMartile  24:16  

Yeah. And to add on top of that, when it comes to having to have earned income. Another thing that I don't like about the 401k system is that it's oftentimes tied to your employer. So for example, mine is tied to the government, which is my employer. If I wanted to switch jobs to the private sector, my retirement account does not follow me. It's stuck in the TSP 401k system for the government. So I would have to start a new account over there. I couldn't continue contributing to the TSP. And in a lot of cases, it's not transferable. Sometimes it is, sometimes it isn't. So you have to deal with all of those nuances. So then you're completely starting from scratch on a new account and you have two different accounts growing. It's just, it's it. They have a lot of rules. Really restrictive around that stuff? I hate it.

Dalyn Hazell  25:02  

Yeah, definitely. Well, I hope we haven't, you know, totally destroyed one strategy of investing, we just want to kind of expose the traditional beliefs and tell you as the listeners, maybe that it's not always the right way to go. And I would just encourage everyone to again, get that economic independence first. So I want to move on to another topic, Shawn, and it's what would you do differently if you could go back and purchase that first investment property all over again? So actually, I guess first, we should touch on what was your first real estate investment, and then we'll go into the lessons learned?

Shawn DiMartile  25:36  

Sure. So the first real estate investment was a 32 unit multifamily property in Greenwood, Indiana. This was a 1968 vintage property. We basically bought it from a slumlord to kind of give you an idea of what it looked like. But it was also in a great neighborhood. So if you've ever heard the old adage of real estate investing, or buy the ugliest house in the nicest neighborhood, we did that except with an apartment complex. So it was a really nice neighborhood. I mean, the suburbs, maybe 20 minutes outside of Indianapolis, south of it. And the median household income, I think, is 58,000, somewhere right around there, which is pretty good for the Midwest, especially outside of a major Metro. The schools are all rated nine and 10 out of 10. low crime, it really hit all of the metrics that you would look for as a great neighborhood to park some money in real estate. So I'll just go ahead and get into some of the lessons learned since I've kind of given the lowdown the idea though, for this property, the business plan was to purchase the property, renovate the units, renovate the exteriors, we'd be able to increase rents for new tenants because of this, which would then increase our net operating income, basically boost the bottom line and increase the value of the property by a lot. Now, I still own that property today, it's been a great investment, but it's also had a lot of headaches, and there's a couple of things I would do differently. One, I likely wouldn't buy a property that old again. And if I did, I would just make sure for one that it doesn't have cast iron pipes. And real estate investing, you'll learn a lot of things as you go. And at the end of the day, you're going to learn a lot from just doing one of those things is the cast iron pipes, because a lot of these buildings that were built in the 60s or earlier, do have those kind of pipes and when they do cast iron rust it, it corrodes over time, PVC pipe, what we use today is amazing, because it doesn't do that. So cast iron, it also doesn't do well with roots. But specifically with this property. Over time, there's been so much rust built up in the pipe. So we have, I think two inch pipes for some of the drain pipes, and there's so much rust inside of there that they can't even get a camera all the way through. So obviously it's clogging really often. There's also some clay pipes spread throughout the property which have collapsed. So we've had to spend a lot of money on plumbing fixes, I'm talking in the 10s of 1000s of dollars. Looking ahead, if I ever buy a property again, and it has those kinds of pipes, I will not touch it, I want nothing to do with it. Because it's only a matter of time before those pipes need to be replaced. So that's one lesson learned. And the other lesson learned that I mean, there's been many, but the second lesson learned that's really important is to go in with more contingency capital, especially on a property that'll because when you're undertaking a large business plan on a property like that, you need to calculate be concerned, first of all be really conservative on all of your numbers, all of your renovation numbers, add in more money on top of that, and then have a huge chunk of like, let's say on this property, I would have had $50,000 to $100,000. And just contingency capital, because nothing you can't predict. With a property that is old, how many pipes are just going to start bursting, it's gonna seem like water just coming from every orifice in the property just all of the time. And it's just because we have something that old I mean, if it hasn't been gutted at some point, then just think about it, all of those plumbing connections where they put the plumbers glue and connect the pipes and stuff like that's been there for over 50 years, you know, and at some point, it's just going to fail, it doesn't last for eternity. Same thing with things like wiring and whatever is behind the walls that you can't see could be rotting, the roof, all of this stuff. You can't predict what's going to happen. But you can pretty much guarantee that there are going to be some things that come up and some things that go wrong. So you need to be prepared for and I wish we would have had a lot more contingency capital, we were able to get the job done and go and find the money. But now every time I underwrite a profit to buy properties, we always have a huge amount of contingency capital and if the deal doesn't work because of the contingency capital, then we won't do it just because we know what's going to happen. But I want to end that by saying that Still, despite that, despite all the things that have gone wrong with that property, we've made great money on the property, we bought it for $1.2 million in 2019, we just refinanced at a value of 2.1 million. And we're likely going to either sell or refinance in May of next year for around 3 million. So it's obviously done amazing for us. And that's worth noting, you know, that especially when it comes to multifamily, and that kind of scale, there's more room for mistakes to be made. And you'll, you can make a bunch of mistakes and still make out well.

Dalyn Hazell  30:34  

Yeah, another reason I like real estate is pretty forgiving. It may not feel like that in the moment when you're finding all the clay piping and whatnot. So why do you think you know, buying a 1968 home in my market is not bad. You know, I will buy a 1968 single family house any day? Why do you think there's a big difference between buying a 1968 apartment versus like a 1968? house?

Shawn DiMartile  31:01  

Yeah, and you know, there's probably a couple reasons for that one, it maybe I should also preface that by saying it depends on if there's been any renovations done to that property, because if this property this 1960 apartment had undergone, maybe you know, a couple renovations throughout the time it was held, then it might not have been so bad. So that's renovated at all. No, I don't think that a single thing like I mean, like the windows were original 1968 windows, the cabinetry, like all the interiors were completely original, they definitely have at some point swapped out the carpet, but the cabinets were from 1968 it seemed like everything was I would say though, whenever you're dealing with a larger structure, there's just more that can go wrong. When you have more piping behind all of those walls and you're amplifying that, that's just more piping that can leak. And if something leaks in one unit, it could affect four or five units in a building. So if you've got a single family home that's that old, you know, a link breaks or something like that you can send in a plumber and you could probably get it taken care of for a reasonable amount of money. But if on the second floor, some super old piping is all the sudden busted and it's leaking through the walls of the units below it, you've got a much bigger problem. So multifamily can amplify your profits in so many ways because of its scalability but its scale can work against you in some scenarios and that's one of them where you know if something goes wrong and one unit all of a sudden you can have a pretty big problem on your hands.

Dalyn Hazell  32:41  

Right? Right So what should people be watching out for in the multifamily space when it comes to repairs? Should they just not touch units this old or should they just have a bunch of contingencies in place? What would be your biggest piece of advice on that?

Shawn DiMartile  32:55  

My biggest piece of advice first of all would be if you're gonna undertake a larger multifamily or really any multifamily that's pretty old I would say get with somebody with experience working on a property that old or that kind of a project because that that there's so much that can be talked about that I think that could help somebody the most. But the things that I would look out for are one always always always scope the pipes. That means getting the inspectors to put a camera down all of the drain pipes all of them you want to know Are they collapsed what kind of piping Is it is it cast iron piping, have they put pvc piping in is it clay piping they used to use clay piping So think about that it's clay if the soil sits a little bit it breaks and so now you've got collapse pipes always do that. Always check whenever you're dealing with a property with numerous units, always check the HVAC units and get the approximate age of them and you or and or how much useful life the inspector anticipates you might have to pay extra for this. By the way, One of the things that went wrong with this property was that once the summertime hit hva seas were breaking like flies. And for numerous reasons, a lot of them were just so so old. But the biggest reason is that the previous owner did not keep up with cleaning them and taking care of them. So there were like filters missing on a lot of them. But the condenser units were just an absolute mess. I mean, there was a case without dirt and dust, which was obviously affecting their performance. And so the middle of summer hits, it's you know, even on the renovated units, it's hot outside and now you know, two or three times a month we're replacing an hv AC completely which is 40 $500 a pop. So that's going to affect your bottom line a lot. So I would always say, especially with a property that old where it's entirely possible for these air conditioning units to be really really old. You need to know how old they are, or at least an estimate, you know these things might last 10 to 15 years and if there is the end of that you need to calculate that you're probably gonna have to pay for that really soon. So those are really two big ones that kind of hurt us on this property. If you're going to buy an old property, make sure you're well aware of exactly how old those major components are. Because those are going to be the big costs right there.

Dalyn Hazell  35:19  

Yeah, certainly. So those are definitely some good learning lessons. Regarding this property, are you cash flowing on this property, or is your plan to make your money when you go and sell it this year, or next year,

Shawn DiMartile  35:32  

both. So we are cash flowing on this property, we weren't cash flowing, initially, we went in knowing that it was going to take several months because we needed to, because the property was just performing so poorly, we needed to go in and we knew we had to renovate the units and get new tenants in there at higher rents in order for us to really start cash flowing. Now there was a lot of room to do that. I mean, these were below Mark below market rents by an average of like $200 per unit. So we're getting huge increases on rents when we renovate them. But we went through a long period where we were like even in the red initially, and then it slowly started, we were able to break even and then slowly, we built up that cash flow really well. And now it's cash flowing extremely well, my initial investment was $70,000. And I'm cash flowing about two grand a month right now. So that's obviously amazing. But it took some time to get there, it took us about a year to get there. We'll continue to cashflow pretty regularly up until we decide to cash out, refinance or sell. But that is going to be the biggest payday. So we've done one cash out refinance. So far, I got $10,000 out of my seven 8000 returned to me, it was a pretty big cash out. But we reinvested a lot of that money back into the property. So we technically made all of our money back. But we wanted to redo the roofs, we wanted to resurface and striped the parking lot. We wanted to completely redo all the landscaping around the property. So there's a lot of these improvements that didn't necessarily have to be done per se. But we knew if we got them done, we would amplify that money even more. So we elected to return a portion of capital back to ourselves, then reinvest the rest. So far, I've made some pretty decent money off of it after owning it a year and a half. But the biggest Payday is absolutely going to be when we go to sell that property.

Dalyn Hazell  37:22  

Yeah, certainly. Now you'll be, you know, cutting off that income stream that cash flow stream, but then you'll have a lot more to invest in a bigger property. So maybe you're cash flowing three or four grand on that next property and you just keep trading up. I think that's kind of where you're headed?

Shawn DiMartile  37:37  

Yeah, that's exactly right. And we're buying larger properties now. So we just bought a 150 unit in Greensboro, North Carolina that we closed on in May. And right now we're under contract on a 145 unit. And those properties are easier to manage, actually, because we have on site staff when you get over 100 units, and you've got an on site leasing office with full time maintenance and full time leasing agents. It's a whole new ballgame. And I swear it's 1000 times easier than managing a 32 unit. So yeah, I plan to take all of those profits and roll that into an even larger property where it's going to be easier for me to manage, and it's going to make me more money.

Dalyn Hazell  38:19  

Yeah. Yeah, absolutely. That's impressive. So why did you choose that market? I can't remember the exact city that you're in. But why did you choose that market rather than something big that everyone talks about?

Shawn DiMartile  38:33  

Good, good question. So when we chose that market, it was actually a longer period of identifying markets, studying them, looking at the stats on them, pulling data, talking to brokers, we looked at a lot of markets throughout the country, but one of the primary focuses of ours where to stay out of those big markets that everyone talks about of while at the same time finding an emerging growing market. We wanted to stay out of the big markets like you know, Austin, Texas, or any of the coastal markets, because of the demand being so through the roof, that the competition was extremely difficult for newer multifamily investors, there's already a lot of barriers to entry to getting in the apartment business. Just to get on the loan, there has to be somebody signing on the loan that's got a net worth equal to or greater than the loan amount. You've got to have a certain amount of experience in multifamily. So it's a little tough to get the loans to begin with. And if you're going and competing for properties, apartments, where there's 2030 or more offers on that property, they're not going to pick the newbie investor, it's just not going to happen if you're in one of these big markets. So there was just no way for us to compete in a market without the experience behind us. So we decided okay, if we can find some secondary or tertiary markets that still have population growth that still have job growth that still have, you know, great income, median household income and schools and things like that. So places where people want to live that are still growing, even though the graph isn't growing like this, it's still steady growth. We like that. So we looked at all kinds of markets everywhere from Louisville, Kentucky, Lexington, Kentucky, Indianapolis, Cincinnati, and we ended up getting this property sent to us by an Indianapolis broker, and it's just outside of Indianapolis. And it really hit all of our metrics, and there wasn't a ton of competition. And that's really what helped us get this property.

Dalyn Hazell  40:42 

Awesome. Yeah, there are people out there that swarm to those hubs because they like the competition, or they want to be in the hottest part of the country. But like you said, I'm kind of more of a person who likes low competition, where I can still get a great return, but maybe not the max returns, but still a great return and not have 30 other investors I'm competing with, you know.

Shawn DiMartile  41:03  

Yeah, if you can get into those markets, somehow it like, it might be easier and like the single family space, but in the multifamily space, like I said, you they want to know that you can close and if you've never closed the deal before, on an apartment complex, I mean, this is like big business, like, why would they sell it to you, but if you can, if you could find a way to get into one of those markets, it can obviously be an amazing investment. The thing about those markets and you know, because there's also a lot of like investors you'll see on Instagram or guru that will say, all only idiots invest in California only idiots invest in Texas. I'm not saying that either. Take for example, this apartment complex I live in. This is an I. I'm actually a renter myself, even though I own all these properties. This is in San Diego, California, it's a red hot market. It's crazy. rents go up a ton every year, home prices go up and sent over here, the benefit is if you actually do get a property here, the rent is going to go up at levels you're not going to see in Greenwood, Indiana. So I've been living here for a leave or one year on this lease, they just sent my lease renewal request. If I want to renew, it's $150 more in rent, they're not renovating this place at all. That's just how much rent is increasing 150 bucks boom. And this is a Class A apartment complex, it's a really nice luxury apartment complex, and they are not doing anything, they're not going to come in and renovate. For me it's 150 bucks. My partner Mike also lives in a class in a really nice luxury apartment complex. He just says moving to a different complex, but he asked them how much they were going to market his unit for once he moves, they're marketing it for a $300 rent increase. So you multiply that over a couple 100 units and whoever the owners are, they're going to make out pretty well. So don't think that you know only dummies that don't know what they're talking about are buying low cap rate properties in those markets. No, there's a reason for that. And they're gonna make out really, really well. It's just a much higher barrier to entry. You need way more money, obviously. So it's just a whole nother business.

Dalyn Hazell   43:04  

Yeah, it's definitely all relative for sure. Yeah. So Shawn, where are you headed? Now? I mean, it sounds like you're obviously you're, you're getting bigger and bigger assets? And are you still in your full time job? Are you transitioning out of that?

Shawn DiMartile 43:20  

So I'm actually still in my full time w two jobs. I'm not transitioning yet, for a couple of reasons. Obviously, that's the number one goal that we've talked about here. You know, I'm in my low 30s. And I plan to quit over the next year or two. I've been working really hard for that moment. The reason why I haven't yet is really, you know, there's a lot of factors at play there. But it's a high six figure job. And if I all the sudden cut that off, that's less than investing I'm going to be able to do. And I'm really addicted right now to being able to continuously roll and buy new properties and roll my money into the next one, and just living off of as little as I can. So that really I'm just trying to set myself up to build as much wealth as I possibly can. One of my partners has already quit, like I said before, and the other one's going to quit very soon. But I'm holding on maybe a little bit longer, because there's just a lot of big life events coming up potentially in the next year or two. And I want to make sure that I'm exactly where I want to be but it's coming.

Dalyn Hazell  44:26  

Oh yeah, it is not shameful at all to keep your W two job as long as you can just especially if it's a high six figure salary, because you know, that'll just that'll just snowball your wealth accumulation even faster and exactly as you the ability to get those good loans as long as you can. So yep, I'm still in the same boat as you. But as long as your intent is to, you know, eventually have your passive income exceed your expenses, then that's what matters, you know, exactly. And it's not like we're both young guys. So it's not like we're gonna be having this, we're not gonna be in the same position, you know, 10 years from now, this is something you know, in the next one to five years, you're looking at exactly why so, so definitely, it can be done really quickly in real estate. When did you start investing By the way,

Shawn DiMartile  45:16  

so I started investing in 2019. That's the first big investment property that I purchased. It was that 32 unit. Since then, I've acquired a couple airbnbs as well, which brings great passive income and we've acquired almost 300 units and apartment complexes on top of that 32 units.

Dalyn Hazell   45:36  

That's awesome. Yeah. Well, Shawn, this wraps up the main portion of our show, the next portion is called the triple threat. And we asked each guest the same three questions. So this first question is, what is the app or tool that has been the biggest game changer for your business?

Shawn DiMartile  45:59  

Whoo, the app or tool, it's been the biggest. I'm going to go with a website. That's, I guess I do have an app to Upwork. Have you ever heard of Upwork?

Dalyn Hazell   46:09  

We're hiring contractors,

Shawn DiMartile  46:11  

I would say Upwork has been one of the biggest help for my business, because my business room involves a lot, right, because I'm in the apartment business. And part of my business, the podcast, part of my business is raising money from investors. So I have to create presentations for investors that are very attractive, look professional, I have to hire out sometimes assistants, virtual assistants, things like that. There's a lot of moving parts in the apartment business. And upwork.com is a website and an app where you can go and hire online virtual freelancers to do anything, they could, you know, you can find people even to do accounting if you want, you can find people to edit your podcast, you can find people to make cool social media content for you. And I've used it for making great-looking PowerPoints for my capital-raising presentations. So I think that that's been one of the biggest things in my business. Because if I hadn't done that, I would have had to learn to do all of those things. And that's just made it extremely easy for me to outsource all sorts of tasks. So I love that website. I love that app. It's huge. If you're going to try and grow a business, in my opinion, they made this logo right here, too.

Dalyn Hazell  47:22  

Oh, awesome. I like that. Question number two, what has been the biggest learning lesson in the last year? And why do you think that happened?

Shawn DiMartile  47:32  

I would say the biggest learning lesson for me is that if you're in a business like mine, where you need to raise capital on a continuous basis, where you're raising millions of dollars from investors to go and buy apartment complexes, you need to be raising money constantly. So even if you don't have a deal, under contract, you need to be going to conferences, you need to be going to local real estate meetups, you need to be hosting more meetups, you need to be out and about as much as humanly possible meeting as growing your network because when the time comes to raise capital, you need to have the biggest list that you could possibly have to reach out to people. So my advice is that that's been a learning lesson there. And so I've improved on that. And I'm constantly, you know, doing meetups and things like that to meet new investors. But my advice to anybody that wants to replicate this type of business plan is if you're going to raise money, get yourself out there and do everything you can if there are meetups that you could attend, and you miss them, that's your fault because you're going to need that

Dalyn Hazell  48:34  

person number three, our podcast is all about helping others achieve freedom with real estate investing, whether that's financial lifestyle or otherwise. So what does freedom mean to you?

Shawn DiMartile  48:45  

Well, that's an easy one. Freedom to me means that my passive income is supporting my lifestyle to where I don't have to show up to work. So it's freedom is financial freedom. Freedom is not having to say Ah, sorry, I have to clock into work I can't make it, I can't go to a computer for Christmas. I can't go to the wedding. I can't go to your birthday celebration. That's like being in prison and I've been doing that for years now. I mean, because I was in the Navy before this. I've been doing that for 10 years. Freedom is when I no longer have to do that.

Dalyn Hazell   49:18  

Yeah, I think probably for me financial freedom is the catalyst to all the other freedoms right and because it is saying the majority of our life doing work, and if you don't have to do that it'll unlock emotional family freedom. So I think people should focus on financial freedom probably first and foremost. Absolutely. Yeah. So Sean, where can listeners get a hold of you to learn more about you? I know you have a podcast and accompany it?

Shawn DiMartile  49:49  

Yeah, so the easiest way to get a hold of me is if you can reach out to me directly via email it's Sean sh a WN at pack three capital comm that's p a c pack the number three and then capital comm you can also get a pack three capital comm or you could check out our podcast if you want to. If you're, let me have the free plug on that. It's called the multifamily takeoff. It's all about apartment investing. So yeah, reach out. Oh, you can also call my phone number 502-379-7292. Any of your listeners Feel free to text me. You can schedule a call with me whatever you want. I'm happy to provide whatever help and value that I can.

Dalyn Hazell   50:30  

Well, thank you so much, Shawn, you've been a great guest. You really have a lot of interesting responses and insightful advice. So thank you, and I hope you have a good rest of your week. Appreciate it.

Shawn DiMartile  50:4 1  

Thanks Dalyn.

Outro  50:42  

Thank you for listening to the real estate investing for freedom podcast. If you enjoyed the show, please subscribe and leave us a review and tune in next week for the next episode.