In this episode of Cash Flow Pro, we talk with Pete Schnepp, a real estate investor and entrepreneur that will tell aspiring syndicators and us what the investor's point of view is. Pete has owned a painting service business for 15 years and has...
In this episode of Cash Flow Pro, we talk with Pete Schnepp, a real estate investor and entrepreneur that will tell aspiring syndicators and us what the investor's point of view is. Pete has owned a painting service business for 15 years and has dabbled in other services like pest control. Eventually, he began to tap into real estate to buy a house a year. Today, he owns 14 properties and a total of 40 doors! He wants to continue to build his private portfolio of single-family and multifamily homes.
In this episode, we discuss:
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Casey Brown 00:00
Oh, here we go. Hey there and welcome to today's episode of cash flow Pro, your daily real estate investing podcast and YouTube channel. I'm here today with peach net and he is a private investor. Now this is really probably going to be we've had a couple other private investors that that have brought the angle of of being in multiple syndications or multiple LLCs as LPs, and we've had a few of those on here, but we have not had anybody quite like Pete yet. And I'll we'll get into that here in a minute. And it has to do with with how he invests or what money he uses to invest, and we're going to talk about that for things because I know that a lot of aspiring syndicators listen to this show that want to know, what goes on in the head of people like up what makes you act on investment over a different investment, I guess, or what questions do you ask when you're investigating whether or not you want to invest? So anyway, welcome to the show. How are you today?
Unknown Speaker 01:15
I'm great, Casey, thanks so much for having me on.
Casey Brown 01:19
Absolutely, man. We're always glad to have our friends in Phoenix, on here, and you are probably sitting in one of the hottest real estate markets. Really, I guess known to man. We were like I was telling you prior to the show, we were out there in November. And it was just man. It's just like, there's just like this incredible buzz in the city just about everything that might have cooled off a little bit with with the crypto kind of dive that it's taken the last, say, month or 45 days. Because I know there was what what a lot of the Uber drivers called crypto millionaires, I guess it seemed like there was like 18 and 20 year old kid driving around in Lamborghinis and McLarens. And, and I saw some of that myself, like with my own eyes, I saw that that wasn't just like a, a news blip where they went and hunted that guy out. I saw some kid driving around in a McLaren. And I was like, What in the hell? And so anyway, but I would like for you to give us just a little bit of background on yourself. And then what? Why did you kind of choose real estate over other investment opportunities?
Unknown Speaker 02:34
Yeah, sure. So I, I own a couple other businesses. My primary company has a painting service business that I started 15 years ago. And then just two years ago, I started a pest control business as well with my brother, I started buying properties while my first one was in a bought it and oh seven with my buddy. And within I mean, right before the crash. And then I held on to that as long as I could, and then short sold in 2012. But after that, I bought another property with my wife's credit, like our first house, my new wife at the time. And we moved into it. And you know, I had always wanted to kind of build up a rental portfolio, it goes back to being in college reading Rich Dad, Poor Dad, like a lot of people. I mean, it just seemed like out of reach until I started doing it. But our primary house became our first rental house, right. And then there was a conversation that we had with some older folks at that point, it was somebody that we knew their grandparents that were fairly well off. And they said, Hey, you guys should try to buy one property a year. Yeah, at the time, I was like, Holy shit, how does somebody afford a second house when they already have one. But that resonated with me. And that kind of began became the goal at the time. And then things have just grown since then. Right? And so ever since then, you know, with all the information out there on podcasts, like you do, and just on YouTube, and it's you could be in real estate University every day, you know, while you're going to work or driving around. And so I just engrained myself in information and pushed through the fears of buying one property at a time and was very deliberate in living below our means, you know, every dollar we had saved up had a purpose. And we bought things because they were needs not wants, you know, and so we just focused on saving and saving and saving until we get enough downpayment for the next property and then doing it again and again and again. And here we are 10 years later. At the moment, I just sold a property but we've got 14 Total properties total of 40 doors, and it's building up to be a pretty nice little private portfolio.
Casey Brown 05:00
Man, that's great. And of the 14 Proper so so 14 properties and how many total doors does that equal?
Unknown Speaker 05:09
40 right now.
Casey Brown 05:12
Okay, so it's around so so about, so their average of triplex I guess if you will, right?
Unknown Speaker 05:19
Well, yeah, about half of them are single family and half of them are small multi families. We've got some couple, a couple of fourplexes. We've got an eight unit. I just sold a 10 unit. So it's a mixture.
Casey Brown 05:36
Sure, sure. So are they all right? They're locally in Phoenix.
Unknown Speaker 05:42
Yeah, Phoenix greater area.
Unknown Speaker 05:46
Scottsdale from like,
Unknown Speaker 05:47
not Scottsdale, it's tough to cashflow there. I'm more of a C Class investor looking for cash flow. And so Mesa is a good spot for us. We've got a couple in Gilbert, one in West Phoenix. So I'm just on the outskirts of Phoenix.
Casey Brown 06:08
Cool. So what what you mentioned before the show that you have invested in syndications and of course, this is the part that I'm gonna, that I want to get down to is is used you had mentioned that you use your IRA to invest in, in these things. And and I guess, first and foremost, what did it take to get your IRA set up to invest?
Unknown Speaker 06:38
Yeah, so I mean, it's, I don't want to say it was hard. It's just there's some steps, you got to go through little things like that. It's funny, it's like a barrier of entry that most people just won't, you know, go the extra mile to take the hour out of your day today to do it, and 30 minutes tomorrow to do. But I had met a couple other people that had done that. And so they basically put me in touch with the right people at the company. There's there's basically two big players in town companies that do that. I forget what they're called. They're not intermediaries. But there are firms that that specialize in self directed IRAs. You just reach out to them and say, Hey, how do I do this? And they will walk you through it, there's paperwork you got to fill out and at the time, I had funds at Vanguard, and the self directed companies called Vantage both with a V. But basically, they're like, Okay, well, here's the paperwork, you need to send Vanguard. And so I sent it to Vanguard, and you got to wait, and they need something else. And then, you know, it takes a week or so and they wire all the funds over and boom, it's done. So, it's not hard. Just paperwork. Really?
Casey Brown 07:50
Yeah, yeah. And that's very interesting when you start talking about how easy it is, because so many people don't really know that they can do those things. Because they it's like, it's like people become separated from their retirement accounts. They put money into retirement accounts, and they become separated from it. And they just trust that somebody, somewhere on some level is investing their money and is doing what's best for them. So with that being said it definitely. It definitely, you know, begs the question of like, like, we need to get the education there for people to understand that they can do these things. Now. With that being said, so you got your IRA set up, you got it set up with a custodian and you got everything in place for you to be able to invest privately into private equity deals. What did you when you first started looking for potential investment opportunities? What did that look like? And how did you go about it?
Unknown Speaker 08:58
I mean, quite honestly, I wasn't really looking at the time I got introduced to the operator by somebody else that I knew. So it was kind of a personal referral. At the time, I was actually investing in mobile home notes, like one one or two at a time through a company that paired up investors with people that were buying mobile homes in like nicer mobile home parks, chattel loans, and decided that that wasn't really enough return, but he knew he knew another guy that was buying mobile home parks, and he, you know, he just connected us I wasn't really looking. And so I talked to him. And at the time, you know, I kind of liked that industry, mobile home parks. I really do like it actually. And I hadn't, I wasn't shopping around I didn't have five or 10 syndication deals on my desk that I was analyzing. Honestly, it came down to me meeting this guy and I liked him. I trusted him. I knew the industry. He showed me here the parks that they had already bought. Yeah. And he's like, Yeah, I'll put you on the list for the next one if you're interested. And so the next one came out, looked at the pro forma and the paperwork and, and for me, it was like, Well, do I keep my money at Vanguard with some giant mutual fund, and all the shakiness that goes on with these big corporate companies that I have no control over? Or do I invest with somebody that I that I know, like and trust now at this point, in an insurance? I'm more familiar with. That's what it came down to.
Casey Brown 10:32
Wow. And that's, that's pretty interesting. So what when you look at the pro forma, what were some of the things that you that really jumped out to you saying, I mean, obviously, the returns? I tried to get around that and say, What was maybe a secondary item, that that jumped out to you, and you were like, Man, I really think this is for me.
Unknown Speaker 10:55
I mean, the returns don't blow me away, you know what I mean? I can make a much better return investing on my own. The problem is, with an IRA, I can't do that. And there wasn't enough for me, there's not enough in there for me to buy a property outright without getting a loan. So it gets a little bit tricky, right. And so it really came down to do I want my money tied up in a mutual fund or an ETF? Or do I think over the long haul, I'll make a better return with this operator in this asset class? And that's what it came down to.
Casey Brown 11:27
Sure. Sure. Yeah. Well, and that's, that's a kind of, I guess, the way a lot of people look at it now. Did you have to be an accredited investor to be in that deal? Or was that somebody that you had had a prior relationship with?
Unknown Speaker 11:42
That's a good question. I do believe I was considered an accredited, but I'm not positive. I mean, that the entry point was only at that time, I think it was, you could buy a share for 25 grand. And so yeah, I don't know if I did the first one, if I did 25, or 50. On the first one, but you know, I did like a very minimal amount. And then I've bought into three or four more deals with them since. And they've since sold the first the first property. And, you know, I mean, probably like most indicators that bought at that time and sold at that time, the returns blew their projections out of the water. Right. I don't know if they was just timing, but their communication is really good. And I like that ongoing, like the quarterly reports and stuff.
Casey Brown 12:29
Yeah, yeah. And that's, that's, I think, one of the one of the big keys to syndication and going into syndication is is from from the syndicator side, is making sure that the communication is is prompt, when it's when it is promised. So if you're promising quarterly communication, then it needs to be quarterly or a few days before, just to ensure that everybody is on the same page. Everybody knows what you're doing. And everybody knows how, how to make you know, how the asset is performing. And if there's anything that's alarming that needs to be discussed or talked about so. So you had mentioned that you recently just sold the one there in Phoenix that you did you say it was 10 doors that you sold? Yeah. Okay, I knew you were going to and you I know you and I talked about the potential of doing a 1031 verse just hanging on to the money paying the taxes and moving on. What are you going to look for maybe kind of branch out into any other syndications? Or, or potentially look for any other investments to step into?
Unknown Speaker 13:42
You know, like, not, not, unless it's through my IRA, the IRA, most of it's tied up with that company right now. But if they sell another deal, and it comes back out, I might explore a different asset class or a different operator, but you know, I'm happy with them. I wouldn't mind keeping it. Yeah.
Casey Brown 14:03
It's kind of like why why jump off the winning horse if it's if it's been running so far, and you know, your money safe and, and you know, and the other thing, like you said, when you when you're in control of that capital, you know, it makes you sleep a little better at night, I'm sure knowing that that that you are responsible for getting the stuff fixed on the asset that needs to be fixed. And you know, what's going on, you know, when the rents paid, you know, when, how much the insurances and so on and so on and so on, and the laundry list of things that goes with that, but you know, that's that's definitely a good way to be, I guess, if that's if that's the model that you're modeling. Do you do anything else? Do you work anywhere else is this is this some kind of a is this a side business or is this pretty much what you do all the time?
Unknown Speaker 14:54
So I do have two other businesses.
Casey Brown 14:56
Oh, you said that you I'm in Yep. Yep, completely in And then
Unknown Speaker 15:01
that's been the good thing is all these years, I don't need that I'm not living off the cash flow. So that just keeps building up for the next deal or for improvements, whatever it might be. Sure. Yeah, hopefully one day, I'll just live off the rents we'll see.
Casey Brown 15:20
Yeah, yeah. Especially, you know, you mentioned you had a pest control businessman talk about talking about cashflow. That's, that's one of the most, at least out out east here. You know, we have we have a good bit of termite activity and a lot of termite companies. A lot of people make some serious, serious money doing doing pest control. So but what does the so what does the future look like for you? In your environment? Obviously, everything is so high out there right now. That Are you thinking, are you thinking, hey, I'm gonna maybe sit on the sidelines here for a little bit unless good deal kind of maybe rears its head up? And is, is just looking for capital? Or what are your thoughts there?
Unknown Speaker 16:10
Yeah, so I mean, I'm watching the market. And it doesn't look good. But the prices aren't adjusting. We're making I'm making offers I made an offer a couple of days ago. But I mean, you look at properties that even the offer off market once the sellers just aren't, aren't really selling at a price that makes sense to buy at and that you can't cashflow. So if you're gonna buy something, even on the outskirts, and that needs to be rehabbed. And it needs all this work. Your brain, you're you're barely breaking even. So there's been I was reading the local reports the cromford report that analyzes all the data, and in the last six weeks, we've seen, Phoenix has seen the most dynamic shift in supply and demand that they've experienced him since the year 2000. So the demand has pulled back across the board, suppliers come into market, but the prices aren't really adjusting yet. So I'm in limbo. I'd like to buy something, but I'm not gonna force it. But it's honestly, it's gonna be I've got this money from that sale that I'm trying to 1031 Because I'm a real estate guy, and I'm trained to not pay taxes. So I think it's going to be harder, I have come to terms that I will pay taxes rather than forced to deal.
Casey Brown 17:31
Well, you know, one, one common mistake from the real estate sales standpoint, which is where I started many years ago. And one common mistake with 1030 ones people make is they get, they get jumpy. It's like, it's like soon as they sign those papers. And before the ink even dries on the transfer documents, it's like they are balls to the wall, looking for somewhere to spend this money. And I have seen many, many, many people overpay for the replacement asset. And it's like, why did you even sell the original asset, if you were just going to turn around and step into an overpayment of the next asset. And there's something there's something there that when that clock starts ticking, man, they lose their minds. And
Unknown Speaker 18:29
the prices have gone up so high, because everybody has been 1030 wanting for the last couple of years. And that's just Yeah.
Casey Brown 18:38
Yeah, and it's done the same thing to farm ground on the agricultural side of things. It's been, it's definitely been, it's definitely forced some things hired probably than what they should be. So you know, it's the 10. Again, so but you have some time, if you have an intermediary that didn't charge you a lot to put to put your money in there. Like for instance, here, we've got a local intermediary, that it's a bank that will take anything they charged 795 795 bucks to park the money, it sits there gains interest for what is it however many days that is their initial identification period, and then following the identification period, obviously, they'll gain interest until you actually close on the asset or withdraw the money. But it just again, it's not a it's it's not a life or death situation. But it just goes to prove or goes to show the psychology behind us writing unnecessary checks to the government, like people would rather take a loss than they will give the government one extra red cent and it's, and it's understandable to a certain degree, but then on the other other side, it's like, where to where does that become? Where does that become questionable? I guess is what I'm getting at. So alright, so what we're Where are we headed? Now? I mean, like you said, you're gonna you've put some offers on some things. Are you? Do you do your own underwriting and your own your own kind of projections and so on? Do you have a model you use for that?
Unknown Speaker 20:12
I do. Yeah. And I just found it on Google, honestly, six, seven years ago or something. It's a multifamily like underwriters, spreadsheet, tenure analyzer. And I've been using it ever since it's pretty solid. And make some tweaks for different, it's just a straight up, like, buy and hold simulator. So then I'll make some tweaks if I'm planning on doing a big capital improvement and a refinance or something to see the numbers. But that definitely helps me, you know, knowing your numbers helps give you give you confidence, that's for sure. Oh, yeah.
Casey Brown 20:47
Yeah, yeah. And especially if you if you have, because that was always one thing that I was I was lacking on in my early, the early years of my career was was the projections. And then and rather than just simple because because early on in my career, I was buying for cash flow, I was like, pure cash flow period, it didn't matter what it was, if something was cash flow, and like, we actually have some we act. It's the don't what am I trying to do, I'm gonna try to that pay for themselves. And like a couple of years, here locally. And there's some rundown, slumlord kind of houses. And man, when I first got in business, I was like, Yeah, I can't buy enough of these. And then it took about 10 or 12 of those to really, you know, you see all this hair that's missing. That's a big reason why it was just, it made me pull it out constantly. And so, you know, that was just one of those things. But anyway, so, you know, when you're looking at when you're looking at investing, and you're looking at setting there, whether or not are you using some some some outside bank financing as well?
Unknown Speaker 22:03
Yeah, so I did traditional Fannie, Freddie loans up till I got 10 mortgages, and then they cut you off. And so that was maybe a year or two ago. And then I started looking for a Portfolio loans. Man, I gotta end up with, I got a couple of reasons, I got two or three resources. Now. It started with just calling banks, you know, in a lot, it's weird, how many of them won't even talk to you. They don't do it, or they're only doing like really big deals. But then there was also a broker that I got, got connected with, like a commercial mortgage broker. And he introduced me to another few banks. So I've got, you know, three kind of go to banks. Right now, I'm in the process of doing a cash out refinance on a property that I bought a year ago. And it was really easy now that I've got a relationship. I just shopped it out to those three, and one of them gave me the best terms and we're locking the rate today. Potential right now, which is, I can't remember that happening in the past
Casey Brown 23:11
my career. It's kind of like when diesel used to be cheaper than gas, you never in a million years thought you'd see it the other way around. And, man, it sure is, but yeah, commercial REITs are really good right now. And I think I think they're gonna have to keep them that way. From a from a, on an institution wall, from a government level to the institutional level, simply to keep this thing from just really going south and staying stale and out. I think they're going to have to keep some of that profit held back to the owners, rather than going towards the interest just to just to keep things afloat. And I mean, honestly.
Unknown Speaker 23:48
We'll see some changes, that's for sure.
Casey Brown 23:51
Yeah, yeah, I definitely think so. So Well, listen, you know, we've we've kind of expanded and gone through several different things, several different several different angles from from the private investor standpoint, which is, again, a lens or an aspect that we don't get on the show real often with with folks that are actually looking to invest their own money into deals and the questions that they ask and, and like yourself, when you're when you're looking at things as just a private investor, things look a whole lot different than they do when you're actually like, like us investing with investor funds, if you will, and when we're when we're negotiating and it's all sounds wonderful, and it's all great when we're negotiating preferential treatment with for our investors and so on and so forth. But then when he actually comes down to saying, hey, what kind of questions are you asking the people that we're investing with so that we keep a good idea of what's going on and and you hit on something there that I talk about all the time when I'm whether I'm whether I'm talking to a group, whether I'm talking to my podcast, whatever the case is, but you said you know, I know liked and trusted this guy, and That is the number one thing that really draws people in from a marketing perspective, people have to know like and trust you, and you have about a half of a second to score that relationship or it's gone. And that's, that's so important. And I just, I had to go back and make note that you had kind of discussed that. So anyway. Well, Pete, listen, we have so a couple of questions that we ask every guest that comes on the show. And the first one being what is the best book that you have either recently read or are currently reading
Unknown Speaker 25:41
the book that I'm currently reading, I mean, I've read a lot of books, but I'm reading a business book right now called the four disciplines of in a four obsessions of was it called the four disciplines of an obsessed executive, I think, something like that. And it's, it's in a story format, and it's way better than I thought it was going to be, has nothing to do with real estate has everything to do with building an organization. And it's phenomenal. Try to, I want to see the name of it real quick. The four obsessions of an extraordinary executive, great story. And it's actually a, I listened to him on Audible. It's only like a three or four hour book. So I highly recommend it.
Casey Brown 26:25
Awesome, man. Awesome. All right, what is a dream vacation that you have either taken or hoped to take?
Unknown Speaker 26:32
I just went to Iceland earlier this year. And that was a bucket list trip. And it was phenomenal. So that was if you get an experience, if you get a chance to go to Iceland, you got to do it. And I did. And we jumped on board. And then we had an opportunity to come up to book a trip to Ireland next year. So that is booked. And we're just wait.
Casey Brown 26:53
Man, that's awesome. I remember my wife and I went to Italy about two or three months ago. And when we were looking at trips, so I'm kind of a dark. I'm kind of a map on a dartboard kind of guy like we're just but that dartboard is Google Flights, which gives you prices. And I remember you could find was it is it health, Helsinki, hell, Helsinki or something like that. How do you say that? Or is it Oslo? What's the in Iceland? I'm trying to think of the town in Iceland. That's right, Rachel. That's right. You could fly in there for just virtually no, I mean, it was it was just virtually nothing to fly there. And, like you could fly there cheaper than you could stay in your house for a night. I mean, it was just ridiculous. And so we looked at all kinds of different places. I ultimately ended up just saying, Hey, let's go ahead and get Italy crossed off and go check it out. So but man, that's wonderful. And then Ireland, that's on my bucket list as well. And this is always a question that a lot of times either re reinvigorate something that I want to do on my bucket list or adds to it, because you'd have to ask this question. And people are like, Yeah, we did this, this, this. I'm like, Oh, my gosh, that's awesome. Let's do it. So anyway, all right. Well, listen, Pete, we want to thank you for being on the show today. I want to thank you for providing a fresh perspective to the people out there that are listening. And I'm not sure I usually ask people for for contact information. If somebody wanted to reach out to you. Maybe they heard something that they talked to you. But I know in this case with you being just a private investor, you may not want to if you're if you don't care if somebody emails you or whatever, you might give us your email address. Either way, I'm not going to hold it against you for you. I just want you to know that that opportunity is available. And if but we do want to thank you for being on the show.
Unknown Speaker 28:43
Yeah, I'm always walking the chat. I'm a private investor. I'm not really looking to raise money or anything. But if anybody wants to reach out, I'm happy to talk. Best way to find me is I got a website with my name on it. Pete schnepp.com. And there you can learn a little bit about me and my business is connect with me on Facebook or LinkedIn. It's all right there.
Casey Brown 29:05
Awesome, man. Well, good deal and listeners if you would, as always, head down and give us a five star review and leave a comment if you'd like today's episode. And because we always want to try to improve, we always want to try to bring value to your day. And whether that be through real estate investing or helping you decide what to do with your financial position. And again, Pete, thank you so much. We really do appreciate it. Okay.
Unknown Speaker 29:34
Transcribed by https://otter.ai