May 5, 2021

Joe Fairless

8 MIN TO READ

Scaling a Commercial Real Estate Company with Other People’s Money

What does it take to become a successful investor? Do you need years of study and decades of practice? Does it require special connections? Well, the story of Collin Schwartz proves you don’t need any of those things.

Collin is a devoted husband, a father of two, an avid reader, and a podcast devotee. And, in the spring of 2017, he launched his career as an active investor in the commercial real estate market. Today, just a few years later, he owns 245 rental units, and he’s already signed contracts to buy 70 more.

How has Collin made such an impact in real estate in so short a period of time? His fascinating journey offers lessons for potential investors everywhere.

A Bit of Collin’s Background

When he was a child, Collin’s family frequently moved. In fact, it wasn’t until he started his MBA program in 2007 that he finally put down roots. He moved to Nebraska, and he’s been based in Omaha ever since.

After college, Collin got married and worked jobs in insurance, marketing, and information technology. However, while those positions supported him, they didn’t fulfill him.

Then, on New Year’s Day 2017, Collin read “Rich Dad, Poor Dad,” the groundbreaking 1997 book about personal finance by Robert Kiyosaki. A mental light bulb went on and he just knew he had to get into the investment game.

Right away, Collin started consuming investment-related books and podcasts — as many as he could. He networked with investors. He joined the educational website Bigger Pockets. On April 24 — not even four months after reading “Rich Dad, Poor Dad” — he closed his first deal.

On that day, Collin and a partner bought a triplex. It was a pocket listing, which means it was sold through the owner’s personal contacts instead of a public listing.

After the purchase, Collin got to work refurbishing the building. He knew that, given the property’s solid location, it could fetch healthy rents after some sprucing up.

In short, Collin was well on his way. Obviously, though, he was still very green and he would learn some important lessons over the next few years.

1. Cast a Wide Net

In mid-2017, Collin was still working his regular office job. He figured that, in his spare time, he would contact brokers, collect commercial real estate prospects, and bid on the leads that seemed promising.

This plan soon hit a snag, however. Collin discovered that most brokers aren’t interested in giving leads to newcomers. He had trouble finding new properties.

Fortunately, Collin had no intention of giving up. Instead, he created an account on ListSource, an invaluable website that provides homeowner leads and lists.

With the information on that site, Collin compiled a long list of people who’d owned a multifamily residence for more than five years. Then he went old school. He mailed each person on his list a handwritten letter to introduce himself. Approximately 191 letters went out.

Collin didn’t get many responses, but this project definitely paid off. He was able to buy six properties from those contacts.

On top of that, those six homeowners recommended other commercial properties to Collin, all of which were located nearby. Even better, after he closed those six deals, the sellers talked to the other properties’ owners and endorsed Collin. Thanks to their assistance, he was able to buy even more units.

2. Keep Learning, Keep Growing

As time goes by, Collin continues to improve his skills and build his base of knowledge. That growth has taken different forms.

For one thing, Collin always makes time to study. During his first year of investing, he kept practicing his negotiating method. Even today, with all of his success, he still devours books and podcasts about real estate, eager to acquire new techniques and gain new competitive edges. As he once tweeted, “If you’re not constantly learning, you’ll soften a little bit.”

He keeps growing his professional network as well. For example, a few months before the pandemic, he formed a meetup group. Today, it has 500 members, and about 100 people attend each monthly meeting.

3. Partner Up

In any field, an experienced partner can be a great help, especially for a newcomer. Indeed, that person can assist in numerous ways, a fact that Collin can attest to.

One of Collin’s crucial early collaborators was a local real estate investor named Steven Sykes. In 2017, he met Steven in a circuitous way. The fiance of Collin’s wife’s cousin was an attorney who knew a good deal about real estate. He told Collin about a real estate agent he knew, and that agent recommended a different agent. Finally, that third person gave him Steve’s contact information.

Collin and Steve hit it off right away, and they had long conversations about their investing goals. When they met, Steve owned and managed about 50 rental units. Collin showed him the triplex opportunity, and they became active investing partners.

Given Steve’s expertise, he was able to explain every aspect of the deal to Collin. And they each contributed half of the money for the purchase.

Steve also provided Collin with a sense of security, promising him that he’d buy out the entire complex in a few months if Collin didn’t like real estate management.

In short, having a seasoned partner like Steve can often mean the difference between success and failure — and between enjoying a project and not enjoying it.

Since that time, Collin has had no problem attracting business partners when he wants to. Part of the reason he’s so appealing to potential allies is his penchant for self-management. Indeed, he describes himself as a “control freak,” and he runs his properties whenever he can.

As such, Collin meets with contractors and personally fills tenant vacancies. Thus, he’s able to handle problems faster and keep his rates of occupancy high. And he has an outstanding reputation within the industry to show for this hard work.

4. Get Outside Financing

Collin relied on his own money for the first 18 residential units that he purchased. As he scaled up from 18 to 245 units, however, he had to depend on financing from others. He couldn’t have scaled up without it.

For one thing, Collin found many deals through his own personal leads and not through public listings. Thus, whenever he brought a financing partner on board, he could charge that person an acquisition fee. Those fees definitely added up.

Flipping buildings has been another source of funding for Collin. To date, he’s completed about 12 flips.

In addition, he’s received a number of second-position loans.

One of Collin’s largest sources of funding is the BRRRR strategy. “BRRRR” stands for “buy, rehab, rent, refinance, repeat.” This technique is fairly simple:

The active investor purchases a distressed property.
He or she beautifies it and, if necessary, brings it up to code.
The units are rented out.
The investor refinances, typically by receiving cash for equity by way of a larger mortgage.
With that infusion of cash, he or she can then look for another distressed property to buy, starting the process all over again.

In a similar vein, Collin has, at times, gone to hard money lenders for cash. Then, after completing a deal, he was able to refinance, pay back the money, and attain ownership of the property.

Creative Financing

If you look at the largest of Collin’s commercial properties, a residential complex that has 87 units, you can see how intricate his financing strategies can be. Collin and a partner serve as this property’s managing members, and the two of them brought equity to the deal. Two other partners have contributed funding. Collin also earned an acquisition fee for this complex, and he gets an asset management fee as well. On top of all that, the group received a fixed loan from the lending company Freddie Mac to complete this purchase, one that’s amortized over 30 years.

This property wasn’t a candidate for the BRRRR method because it wasn’t distressed; it was in great shape at the time of sale. Even so, Collin estimates that his group can raise the rents by 25 percent or more. And they’re giving the units a makeover, one that includes new flooring, new colors, and other improvements. Moreover, Collin is planning to refinance in about 18 months, after which his group can take out their cash.

As a final note, Collin keeps the cash reserves from his investments in the bank. He doesn’t try to live off of his cashflows. As a result, he’s well prepared in case of a sharp downturn in the economy, an event he has yet to live through.