WS03: Process and Systems for Rapidly Scaling Your Real Estate Investments and Achieving True Financial Freedom
MB 116: Reawakening, Reinvention & Opportunities in Commercial Real Estate - With Alan Schnur
Alan Schnur was away on a business trip when a plane struck his office building, killing 40 of his 44 team members. In the aftermath of 9/11, Alan spent a lot of time questioning what he wanted out of life and the experience informed his drive for continuous growth. Because you never know when another plane is coming, Alan doesn’t believe in complacency. In fact, he makes it a point to reinvent himself every few years and take on new challenges in residential and commercial real estate.
Alan is a wildly successful real estate investor based in Houston, Texas. He began his real estate career rehabbing single family homes, owning a portfolio of 120 before making the transition to apartment buildings. Alan’s go-big-or-go-home mindset translated to multifamily, and he invested in 2K units across 18 complexes—AND founded a property management company that handled 7K units across 40 properties. Now he is taking on a new challenge in commercial real estate, investing in shopping centers along with medical, office and warehouse buildings. Alan is the author of three books on real estate investing, including The Cashflow Mindset: Millionaire, Billionaire & Zillionaire Designs for Financial Freedom & a Fulfilled Life.
Today, Alan joins me to share the story of his reawakening in the aftermath of 9/11 and explain how his skill set as a commodities broker translated to real estate investing. He speaks to the single family formula that dominated the first ten years of his career and his subsequent shift to apartment buildings during a trip to Japan that may or may not have involved saké. Alan describes his apartment addiction, discussing his best and worst multifamily deals as well as his reasons for pursuing syndication. Listen in for Alan’s insight on being flexible with geography and asset classes, taking on new challenges in commercial real estate, and stepping out of your comfort zone to take ACTION!
Alan’s AHA moment
- Job as commodities broker on 101st floor of World Trade Center
- On business trip during 9/11, lost 40 of 44 team members
- Week in hotel room led to reflection, reawakening
- Move to Houston with company, rented condo in NYC
Alan’s experience with single family homes
- First purchase for $23K, profit of $100/month
- Bought one/month for 10 years (120 houses)
- Formula: Rehab, Rent, Refi, Repeat
Why Alan made the transition to multifamily
- Accumulated enough assets to quit job
- Bought 25 houses during trip to Japan
- Realized potential of apartment buildings
Alan’s first multifamily acquisition
- $40K down on 76-door building (owner financing)
- Generated more income than 100 houses
Alan’s ‘addiction’ to apartments
- Buy one every 90 days
- 18 complexes with 2K units
When Alan got involved with syndication
- Running out of money, wanted to share risk
- Started raising money on second or third complex
- Began with general partner at 30%, 70% for sale
- Work up to 40-50% for general partner
Alan’s best multifamily deal: The Bangkok Close
- 1031 buyer wanted 300-unit deal
- Invested $7M, sold for $14M
Alan’s worst multifamily deal
- Paid $5K/unit for 160-door complex
- School across street closed and knocked down
- Money from bank robbery hidden in sewer line
- Inspired shift to higher quality assets
Alan’s shift to commercial properties
- Apartments have variable costs (unpredictable)
- Triple net lease makes commercial predictable
- Business renting covers repairs, insurance/taxes
Alan’s shopping center deal in Boise, ID
- Bought six storefronts for $1M
- 50% discount (three vacancies)
- Closed at $2.4M
Alan’s outlook on asset classes
- Be flexible with geography, asset classes
- Try more things = better chance of success
Alan’s advice for aspiring real estate investors
- Put book down and get out to property
- Join networking group or pay for mentor
- Watch and learn by joining syndication
What Alan is excited about moving forward
- Retail syndication
- Education, helping others
#12: Alan Schnur
Stefan Aarnio: Ladies and Gentlemen, welcome to the show Respect the Grind with Stefan Aarnio. This is the show where we interview people who have achieved mastery and freedom through discipline. We interview entrepreneurs, athletes, authors, artists, real estate investors, anyone who’s achieved mastery and examine what it took to get there. Today on the show I have a friend of mine, Alan Schnur, who is well known for being a massive real estate investor in the United States. He’s written a book, he’s doing medical, he’s doing storage, he’s doing shopping centers, and he started out with little houses. He has a great story, I met him last year, actually, on The Real Estate Guys Radio Show cruise out at sea and it’s funny because he’s actually the uncle of a friend of mine, Ross Alex, who we’ve had on the show. And Ross has always been like, “Oh, dude, you’re like my uncle, you’re like my uncle,” he’s talking, he’s like, “You’re like my uncle. You got to meat my uncle.” And here I am on the cruise ship, I bump into Alan, I didn’t know it was Ross’ uncle, so here we are, Ross’ uncle, Alan Schnur, Alan, welcome to the show Respect the Grind, thanks so much for joining me, how are you doing today?
Alan Schnur: Oh, excellent, fantastic day here. I am coming to you from Houston and we missed you this year on the cruise, I’ve been back for a day or two, but it was an awesome event with Robert [inaudible 00:01:35] and Simon and a whole bunch of people, great education, and I’m sure today when we’re talking some of it will come through. Be, do, have.
Stefan Aarnio: Oh, I love that, be, do, have, we’re human beings not human doings. And you know, for the people who are on the video who can see the video version, I look like a fricking vampire when Alan looks like-
Alan Schnur: [crosstalk 00:01:57].
Stefan Aarnio: Oh, dude, when you put the sunglasses on, yeah, man. Yeah. You know, Alan, he looks like a pink prime rib over there. He [inaudible 00:02:06] catch some sun. But I’m like, I don’t know, I look like a bone. I’m pale vampire over here. So tell me, Alan, you’re on the cruise that Simon Black’s there, Robert [inaudible 00:02:18], Real Estate Guys, you’ve got Peter [inaudible 00:02:20], who’s just being himself, what were some of the big takeaways this year?
Alan Schnur: You know, so for me I bring my son, this is the third year in a row we did that cruise together and it’s just so important for me to educate my son about business and being an entrepreneur and especially real estate. I like to get him involved, I’ve been teaching my son how to flip and it’s nice when you’re around 200 other investors and it’s just not dad anymore and you start developing, it was fun watching my son develop his inner being, his core, and having conversations with adult about flipping properties and apartment buildings and shopping centers and asking money questions and ROIs. So, it was really good stuff. We’re sorry we missed you but I know you’re building this massive brand and you’re doing a fantastic job at it, I could see, I’d see it on Facebook, so kudos to you. I know you’re just killing it, man, so I’m excited to be here with you. And let’s get to it. We could talk about so many things, Stefan, I’m really, I’m a serial entrepreneur like yourself, I have multiple businesses, and lately I’ve been involved in shopping centers. But I know people want to know how did it all start, right?
Stefan Aarnio: Right, exactly. The people listening to this show, Alan, you were asking me right before we got started, “Who listens to this show?” And the real answer is we never know who the audience is, but in the real estate investing world, you’re on that cruise ship, I was there last year, very advanced group, and I noticed last year that very advanced group, it was high IQ men, a lot of them are older, musicians a lot of them, and very, very hot wives. Somehow money and hot wives goes together. But I digress. So, coming back to the average guy, a lot of real estate investors are like onesies and twosies, I coach people now, I’ve a coaching company, I notice that my portfolio students, half of them do nothing, which is human nature, and 25%’ll do one or two deals, and then there’s like a 5% group that’s rock stars doing all the deals. So that’s probably me, you, we’re in that small percentage. But for the people at home just starting out, what was life like for Alan before you got successful in real estate? Tell me a little bit of how you got started.
Alan Schnur: Sure. So, for me I grew up in upstate New York and then I spent some time in Manhattan and I had a job on Wall Street and then one thing led to another and I found myself working in the World Trade Center and I’d been fortunate because I’m about to tell everybody a heartbreaking story. I worked in the World Trade Center on the 101st floor of the north tower and on September 10, 2001, I was fortunate enough to have been … 40 of us were going to take a trip but only one of us took a trip and that was me, and unfortunately, 12 hours later I think a lot of us know how that goes, the World Trade Center was under attack and that day, there was 1,000 employees for the company that I worked for, we had the top five floors of the north tower, we lost 700 people, the company. And I lost 40 out of 44 of my division and I found myself in Portland just kind of hopeless and I couldn’t really get on a plane, there was no flying around the United States.
So I know a lot of us and the listeners and probably you, we’ve had these moments in life where we’ve got to turn around and figure out what’s working and what’s not working and for me, that was a really dark week. I spent a week by myself in a hotel room and I rewrote it, man. I rescripted my life. I figured out what was working, what wasn’t working, and I kind of decided I was going to get back on the trail of being an entrepreneur and start making some changes in my life. So difficult week, but moving on, I found myself … I stuck with the company [inaudible 00:06:10], they needed some help in Houston for a while, so I stuck with them. And then they decided to kind of pull the plug on the operation and-
Stefan Aarnio: And what were you doing for the company, Alan, what was your role?
Alan Schnur: Oh, my gosh, you guys ever see stock trading pits? You know, it’s like, “Five and a quarter, five, 755, and it was sold [inaudible 00:06:29] sold [inaudible 00:06:32].” [inaudible 00:06:33] 10, 15 years.
Stefan Aarnio: You’re the guy yelling that? You were yelling all that stuff? Wow.
Alan Schnur: Oh, yeah. Yeah.
Stefan Aarnio: Wow.
Alan Schnur: So I really, I asked myself, billions of dollars were going by, tons of transactions, I was the middle man, I was the broker, and I saw and I learned so much about human nature. And when I had the opportunity to finally start applying it to my own businesses, I did. So I found myself in Houston, [inaudible 00:07:01] closed down, and I bought one of those purple books, right? Yep. So I drank the purple Kool-Aid as I heard you say before, and I went over to an investment club and I signed up for a program, I paid a mentor $8,000, I bought my first house, $23,000, I fixed it up for $7,000, and I’m in it for 30, I borrowed the hard money and I refinanced it and I filled it up. So, once I did that and I proved to myself that if you could do it once, you could do it 10 times, and if you do it 10 times, you could do it 100 times. And we bought a house once a month for 10 years straight.
Stefan Aarnio: Wow.
Alan Schnur: 10 years straight. So I had like a good 120 houses by then and but housing’s a hard business, I think we can all agree on it. Luckily you’re paying down the mortgages and you hope for some appreciation and depreciation and cashflow. That first house only made me $50 but that $50, it could’ve been $50,000, it could’ve been $5 million, it didn’t matter. I needed a formula, I needed a formula fast, and the cashflow mindset set in and I said, “Well, if I could do it once, I could do it 10 times, I could do it 100 times.” And I got to tell you, Stefan, I ended up buying around 300 houses over 15 years but I didn’t just buy houses and stop, probably around 2010 when we were going through that financial crisis, I’m lucky because I saw the downturn, I survived, actually I thrived because it became a rental market at the time and I had a lot of houses. I bought them cheap. And I could afford to service the debt. But I also saw a crack in the commercial real estate market and that’s where I decided I was really going to make my move, I was going to be that entrepreneur that I said I was going to be in 2001 during that down period of my life, and I just went out there, man. And I bought an apartment building, a 76 unit building, I paid around $25,000 a unit-
Stefan Aarnio: Wow.
Alan Schnur: Yeah. $25,000 a unit, Houston, Texas. And that was it. And then as we say in Wall Street, sometimes you got to scale down to get it right, so the first apartment complex was $25,000 a door, the second apartment complex was like $15,000 a door, then $10,000 a door. I bought all the way down to $4,500 a door. I stood in there.
Stefan Aarnio: Wow.
Alan Schnur: I know.
Stefan Aarnio: Dude, so was that 2008, you’re buying that?
Alan Schnur: Yeah, 2010, really, because commercial markets were still coming along in 2008.
Stefan Aarnio: Right. And the money, so in the same year, I was up in Canada working for a private equity company, we were raising money for Ken [inaudible 00:10:01], so I was one of the guys working for Ken raising money-
Alan Schnur: Oh, he killed it.
Stefan Aarnio: And we were buying Houston properties $8,000 a door, car in the swimming pool messed up, so that’s the bargain basin back then. What do you think the same property’s worth today in 2018, 10 years …
Alan Schnur: So over a five year period, just about every 90 days, I syndicated an apartment complex, and we got the count up to 2,000 units and that was 18 apartment complexes. I sold 17 apartment complexes over the last two years, so I can tell you because I’m here, everything’s trading for around $[inaudible 00:10:37] a unit class c.
Stefan Aarnio: Wow, for a c class?
Alan Schnur: For c class, unbelievable, which is going to lead us further down our story in a few minutes to why I’m doing shopping centers. But yeah, c class is trading at like a compressed six cap right now in Houston, pretty much all over the place right now for a 1960/1970 apartment complex. And so when I started buying the apartment buildings, I wanted to create more income, I wanted to create multiple sources of income, which is in my book and we’ll talk about it. So I found myself really getting into the management business. I was self managing, but I was also picking up contracts for some friends and started building a company. You would call it building a brand. Before I knew it, we had 225 employees and we had 7,000 apartment units and like 1,000 houses under management.
Stefan Aarnio: Wow.
Alan Schnur: Tough business. Really tough [crosstalk 00:11:30]-
Stefan Aarnio: Dude, 1,000 houses, just driving to a 1,000 houses you’ll die, you’ll die driving to those things.
Alan Schnur: Yeah, right? Especially in 100 degrees. So, yeah, so we did the management business but happy to say, I sold just about all of it and I know we’re kind of moving quick here for our listeners but I just want to kind of repeat the pattern, which is I believe in asset swapping and asset swapping to me is kind of like apples for oranges, orange for zucchinis. Buy a house, buy a bunch, sell them, and then buy an apartment building, maybe buy an apartment building, fix it, whatever, fill it up, compress the rate, and sell it and buy a shopping center. Maybe sell the shopping center and buy storage. I do it all. So we’ll talk about it. But I really believe in velocity of money, too, keep the money moving and keep swapping and keep swapping up. What’s so cool about real estate and what’s so cool about money and the numbers, I used to say in the housing business, we watch our dollars and then the apartment business, we watch our dimes. And in the office space or even the shopping center business, we watch our pennies and nickles because there’s a multiplying factor here. If you can make a dime, well, in a lot of the businesses I’m in, a dime’s worth a lot, so you’re making 10 times your money. So, yeah, just the velocity of money and keep measuring it. What gets measured gets …
Stefan Aarnio: Well, it gets made, man, you measure it, it’s getting made.
Alan Schnur: Hell yeah, brother. Yeah. Yep.
Stefan Aarnio: Wow, okay, so you’re trading up for assets, you’re trading up for bigger assets, and what I noticed with the bigger assets in real estate is the multiplier’s bigger. You got more square footage, you’ve got more of everything, and that’s the scaling. I think people have trouble scaling in real estate, Alan. I’m up in Canada, we have the Canadian banks, and the Canadian banks cut people off after like four mortgages, like you’re done. They’re like, “Sorry, you got four or five mortgages, that’s it.” Scaling with a bunch of little properties is hard, what you’re doing is you’re scaling into bigger deals and bigger dollar volumes, and do you think that’s the true way to scale or do you think it’s more transactions? Because you’ve done both.
Alan Schnur: So, since I’ve done both, I’ve noticed I meet a lot of flippers and they do phenomenal, they can flip 50 to 100 houses a year, I sold 100 houses last year. But it’s kind of, it really is a job, we all can agree, flipping is a job if that’s what you want to do.
Stefan Aarnio: Very active, yes.
Alan Schnur: Right? So, I think where the flippers go wrong and that I like to teach is scaling up, and we’re talking about scaling up right now. It’s okay to flip but you got to scale up or you’re going to be stuck in the same flipping pattern. So, take those four houses, flip them, if you already hit the brick wall and no one wants to lend you any more money because you can’t get any more mortgages, well then take your profit and go to the next table. It’s like being in a casino. Going from blackjack to roulette or whatever, craps, so that’s the way I do it and that’s the way I advocate it. Go from houses to apartments, apartments to shopping centers. I don’t care but if you want to get bigger, if that’s the strategy, I teach this in one of my programs, I call it the billionaire mindset, which is scalability. If you want to scale, you do it once, you do it 10 times, you do it 10 times, you can do 100 times. If you want to scale, well, you got to keep getting bigger and bigger and bigger and then it’ll be up to the listener or the flipper to decide, “Okay, I’m good. I’ve arrived. I made it. I set a goal, $5 million, $10 million.” I know we’ve spoken about $100 million. Yeah?
Stefan Aarnio: Yeah, so, let me ask you this, Alan, you are not the normal cat, I just did another podcast right before this and I was getting interviewed and the lady asked me, she says, “What makes entrepreneurs different?” I said, “Well, you have to be insane to be an entrepreneur.” And a lot of people, they get onsies, twosies, they get a duplex, a triplex, and they say, “Oh, I’m retired, I’m going to stop working now.” What makes Alan different from the other 99 dudes or 999 dudes or maybe it’s 9,999 dudes out there, what makes you different? Because it’s really interesting to talk to Ross, our mutual friend here, your nephew, my friend, and he says, “Stefan, you’re like my uncle.” He says that to me over and over again and I’m like, “What does that mean? What does that mean?” What does it mean to be like Alan or to be the Alan? What’s the difference between the Alan and average Joe?
Alan Schnur: I believe, I like to reinvent myself all the time. I used to say people reinvent themselves every five years, or they should, meaning maybe a new career, too, but it could be next month, my reinvention. I just jumped from buying 10,000 square foot shopping centers, I started off slow, it’s like five or six little stores, 2,000 square feet storefronts, to closing 115,000 square foot shopping center last month. That’s a game changer. So I say to myself when I wake up, “What’s the game changer going to be today?” I might say it’s going to be a normal day but when I say it’s going to be a game changer, I’m going to blow it out the water, I’m going to work myself into a frenzy until I get what I’m after. I’m not competitive with other people but I’m very, very competitive with myself. Life for me started at 3:30 today, am.
Stefan Aarnio: I love that. I love that. I noticed on your Facebook, are you preparing to go up to Mount Everest? Are you climbing Mount Everest? Is that you?
Alan Schnur: That is me, yeah.
Stefan Aarnio: So what’s this about? So you’re self competitive, you’re going to the biggest thing, the next thing, and you’re eating this fancy breakfast, or different breakfast this morning because you’re going to climb Everest, are you going to go up the whole mountain or just to base camp?
Alan Schnur: I am just going up to base camp. One of my partners, Danny, love Danny, he sent me a text like eight weeks ago, he goes … I’m 48, first of all, Danny’s turning 30, he’s like, “Dude,” like the typical millennial, “Let’s do something-”
Stefan Aarnio: “Dude, yep, Ross Alex, here. Hey, man.”
Alan Schnur: “fire it up.” Danny’s like, “Let’s do something [inaudible 00:17:57] for my 30th. Kilimanjaro or base camp, Mount Everest?” And I’ve already done Kilimanjaro, so we just decided eight weeks ago to take on this challenge and head out to Mount Everest. And we’re celebrating. Danny and I bought this million dollar shopping center in Boise, Idaho, 13 months ago and it was 50 cents on the dollar, that’s the best way I’m going to explain it right now. We fixed it, we filled it up, 100% full, and we just sold it for a little north of $2 million.
Stefan Aarnio: That’s a good flip.
Alan Schnur: It really is. Just three tenants, three tenants, and hopefully we’ll talk more about this shopping center business. So we’re celebrating. It’s his 30th, we’re celebrating, we just cleared over a million, quite frankly, it was only 30% down, so we got into a deal with $300,000 and we’re netting north of a million, so it’s a 300% return. We were concerned about short term capital gains here in the United States, so we just, luckily it’s not, it’s longterm because we crossed over the 12th month. So yeah, the … Sorry, to go off on a tangent, but the Mount Everest-
Stefan Aarnio: So you’re climbing the mountain, you’re climbing the mountain, you did [crosstalk 00:19:09]-
Alan Schnur: Climbing the mountain, climbing the mountain, and I’m leaving in six, in seven days, or really six days now, and what you saw on Facebook this morning was I hired a trainer for the first time in my life, I highly recommend it, people want to get in shape, get a trainer. I just learned so much from my trainer about … I’d never been in better shape and let me explain, by eating a certain amount of carbs, fats, and proteins for each meal and burning it into muscle, I’ve lost six pounds of fat, gained five pounds of muscle, and my body weight didn’t change. And we could measure that out. Okay, but this isn’t going to be about … So Mount Everest and real estate, but the point I want to make is lifestyle and I know you always talk about it, too, this is what makes us different. This is our lifestyle, this is our fun, and we’re talking about real estate, we’re talking about triple … When I explain triple net leases to people, their eyes just take off. One of my students just left, he owns five apartment complexes, selling all of them and he’s buying triple net lease shopping centers that are having national names. And when I say national names, I’m talking about, these are some of my tenants, Starbucks, Game Stop, Domino’s Pizza, Allstate Insurance, doctors, dentists, chiropractors, destination centers. Destination centers.
And I feel like there’s so much value in that right now because, I don’t know, would you rather have an apartment building built in the 1960s and collecting $500 to $1,000 a door from not the most credit worthy person? Or would you rather have a guaranteed corporate lease from Starbucks Corporation? I mean, I just got an $8,000 check from Starbucks, they’re paying their rent to me. It’s a little payback.
Stefan Aarnio: Yeah, yeah, I saw that, Ross Alex was showing the $8,000 Starbucks check, how good of a tenant is Starbucks? So let’s talk about you mentioned, just to role it back a bit, you talked about game changing it, I like the word game changing, what I talk about is transformation, how do you transform this thing? You can’t Blockbuster your way to Netflix. You can’t caterpillar your way to becoming a butterfly. So, let’s talk about that. So you transformed the game and you went from houses into apartments, then you transformed the game, you went from apartments into shopping centers, so let’s talk about that apartment to shopping center transformation, is that something, a lot of guys don’t go past apartments, they’re done, they don’t go into the big commercial stuff. Let’s talk about that transformation.
Alan Schnur: Sure, so, I had a choice. Look, I sold 17 apartment complexes for what I thought was a good price and prices continued to go higher. I didn’t feel comfortable buying that higher price, so I had to make a decision what was it going to be? And quite frankly, I was a little burnt out and that’s another reason why people don’t go further than apartment buildings because they’ve reached the end of their evolution in real estate. They worked their tail off in the housing markets and they finally get to, they do a million dollar rehab on an apartment complex and then three years later it looks like they didn’t do anything.
Stefan Aarnio: Oh yeah, they trash it, man, those tenants, they’ll trash that place.
Alan Schnur: They do. We have this joke, how do you replace galvanized piping in an apartment building? One foot at a time with PVC piping. It’s not cheap. So, talking about not being cheap, here’s really the game changer of how to get to the apartments to the shopping center business, the retail business, because … And the multifamily house business, 60% of your expenses … Or, I’m sorry, 60 cents on every dollar you collect will be for expenses and in those expenses, they’re variable, they’re uncontrollable, you don’t know what it’s going to be. And I decided I wanted to be a syndicator. I make a lot … I like it, I like to syndicate, I like people, I like helping people get involved in deals that they could never get shot at ever. So I enjoy the syndication and I like the consistency of paying out my partners. I’m not blowing smoke.
And it’s hard to have that consistency when 60% of your expense, it’s out of control, you don’t know what’s going to break, you don’t know who’s going to pay, you don’t know how long it’s going to take to get them out of the apartment when they don’t pay, and then they trash it and you got to fix it. So, I found managing 40 apartment complexes that on average an 100 to 160 unit apartment complex will have around 40 pages of P&L. That’s a lot of paperwork to be buried in. And I did that for two years and it’s kind of rough because it’s like you get to it and, oh, you see they’re missing the electric bill or they didn’t get the water bill in or they calculated the commission for the leasing agent wrong. So it’s just really hard to get to that bottom NOI number. I had enough of it.
So, we don’t have that problem in shopping centers. We don’t. We don’t have that 60% variable of expenses. Let me explain what the triple nets really are, for anyone out there who doesn’t get it, something breaks, basically the tenant’s paying for it, taxes go up, tenant’s paying for it, insurance goes up, tenant’s paying for it, and the maintenance, the tenant’s paying for it. So, my P&L, it’s just one or two pages per property. That’s it. So, it’s so scalable. And I’ll lay it out one more time, would you rather go through a 40 page P&L with some [inaudible 00:25:00] with uncredit worthy tenants, or, for me, it’s like, on a 12,000 square foot center, Starbucks, Game Stop, maybe like [inaudible 00:25:12], a dentist, a chiropractor, Papa John’s Pizza, I’m done. There’s no water bill, there’s no nothing.
So, for all our people that want to build their syndication businesses, they want to scale, they want to … It’s an incredible conversation, like I just got off the phone with, who was it, I think it was some folks over at Game Stop, it’s a pleasant conversation talking to a Fortune 500 company about their lease instead of talking to a tenant paying $500, we’ll leave it at that.
Stefan Aarnio: Right. You’re dealing with a different group of people and I always say to people in their businesses you got to choose who you’re dealing with because i used to manage little shitty houses and you had these little shitty people and they had their shitty problems, they’re third grandma died, they can’t pay the rent, whatever, I had one house, they flushed 10 tampons down the toilet, I’m like, “Why, why, why?” $80 every time for that Roto-Rooter, the snake going down the toilet. And you got to decide at some point, I had a friend of mine I remember was getting into rent to own real estate and he said, “Why are you building a business on broke people?” He said, “Why don’t you pick some clients with some money?” And I thought, man, that’s genius. So I changed to dealing with the tampon tenants that are flushing tampons every 10 minutes into flipping where you’re dealing with the contractors and rich investors and it just keeps [crosstalk 00:26:44].
But let’s talk about storage, Alan, and I noticed that you had a storage deal that you were doing there and last year when I was on the cruise, I think they had like five guys on stage who had 100-something thousand units of real estate and they were all saying the party’s over for apartments, cap rate compression is here. I heard two trends that were big last year. Now, I didn’t get to go on the cruise this year, maybe these trends aren’t going anymore, but I heard storage is a new trend and I heard ecommerce is a new trend. And then [inaudible 00:27:14] like agriculture and farming and all these other trends.
Alan Schnur: Right.
Stefan Aarnio: Let’s talk about storage for a minute because I saw you were doing a storage deal, tell us about storage.
Alan Schnur: So, first of all, we’re building it ground up. So it takes a little time. It definitely took a good six months to get all our permits in place. But I really like it, the strategy with the storage is to built a dozen of them and then roll them up and sell them to a [inaudible 00:28:15]. [inaudible 00:28:16] quite frankly that happens … Sorry, yeah. So, that’s the total strategy, build a dozen and roll them up and sell them right to a [inaudible 00:28:26]. And it happens all the time. It’s how these guys grow so quick. And it’s such a beautiful thing, some of these guys are probably traded companies, their stocks trade at probably 10, 20, 30 times [inaudible 00:28:38] their earnings, so they just take a little guy like me out and they give me whatever, I’m selling on a 7, 8, 9 cap. But they’re earning, their multiple’s at 30. So they get the spread of like 20 points, it’s unbelievable.
Stefan Aarnio: Everybody’s making money.
Alan Schnur: Everybody’s making money. And I like it, it’s like somebody moves out, you just get a hose and you just hose down the spot, dude. But, you lock [inaudible 00:29:06] if they don’t pay. Sometimes … You asked the question earlier, how do you get to shopping centers from the new apartments, sometimes we do have to go through the houses to get to the apartments to get to the shopping centers, we have to take all these lessons and roll them up, and all our experiences, add them all up, and yeah, it accumulates.
Stefan Aarnio: Yeah, I love that. I have a friend who was a guy, I guess, training people how to master a lease option and acquire these storage units no money down. He says storage is like apartments but no tenants and no toilets, you just got the furniture. You’re just storing the furniture. Do you … I guess one thing that’s really interesting about the transformation you’ve gone through is when you’re a commercial man, you have all the rights and the tenant doesn’t have any rights because it’s commercial, it’s a commercial, you know, let’s talk a little bit about tenant rights because I’m up in Manitoba in Canada directly north of you down in Houston, in Canada it’s communism here and somebody can live in your house, not pay rent forever, and you can’t do jack. Let’s talk about tenant rights a bit because it sounds like you’re selecting businesses where you got the power and they don’t have the power.
Alan Schnur: Yeah, so when you’re buying commercial, you definitely, the money’s in the leases, for sure. We like to think the money’s in the leases in the housing business, but clearly we know it’s not because someone could live in your house as long as they want without paying, according to you in Canada. So, we spend a lot of time going through our leases to make sure there’s no aha and I got you’s after we buy the deal. So, definitely get yourself one or two good lawyers, we call them lease abstract companies, too, which is like a company that will summarize … These leases could be a little intimidating, 30, 40, 50 pages, some of these leases have been going for 20 years, so they just keep adding addendums when they want to prolong their leases. Like, all you got to do is go to a lease abstract company or have a good attorney. What we do when we’re taking down a deal, we’ll cut a deal with the attorney firm, so they’ll do the negotiation with the lender and the lender docs, they’ll take care of all the title docs and surveys and make sure everything’s in order there. We’ll also pay them to go through all the leases, so it’s a really, really good understanding on what we’re getting. So it’s all the lease, it’s all about the NOI number, the net operating income number.
We just bought something last month, 115,000 square feet, the NOI number is at $925,000. I love it. This particular model that I go after, 20% vacancy, so 80% occupied, so I could [inaudible 00:31:53] a little over the next 12 months while I fill it up and I add to the NOI. So it’s kind of cool because I just, $925,000 it came with net operation income, I just signed up two tenants and that added another $100,000 of net operating income in the last four to six weeks, which is my investors are really excited, I’m excited, and just do the math, it’s an 8.2 cap [inaudible 00:32:23] right now.
Stefan Aarnio: That’s huge, that’s huge value, man.
Alan Schnur: So, yeah, it’s around $12 million 500, I paid $11 million 350. So, just that kind of [inaudible 00:32:40], it’s awesome. I’m sorry, we should probably bring it down a little but if it wasn’t for the confidence in the leases in place, that’s all I care about. I don’t … If it breaks, it’s really not my problem. I don’t want anything bad to happen to my tenants, somebody called me a few months ago and I don’t know how they got my phone number and they said something about something being broken and I was actually dumbfounded, I didn’t know what they were talking about. And I just said, “Read your lease.” And then they never called me back. Just read your lease.
Stefan Aarnio: Wow, I love that.
Alan Schnur: Yeah.
Stefan Aarnio: That’s powerful. Okay, so let’s shift gears a little bit, Alan, what do you think’s more important because there’s brands and then there’s businesses, is it more important, you think, to have a great brand or a great business?
Alan Schnur: I go for the great business because I’m not into branding business, I know you are. I am not into branding business, matter of fact, every time I was in [inaudible 00:33:41], they knew my brand. [inaudible 00:33:45]. I wasn’t even there, I’d have a representative, so because there was this one town where we had 100 houses, so I preferred … I actually once thought about changing the name of the company so I could start fresh with the judge. So, I would really go for the business. I’m a lone ranger, occasionally I’ll have one or two partners at a time and I believe in business [inaudible 00:34:08], let me share this concept with you. Like my housing business, I had 300 houses, I got 100 houses left, and I call it a business [inaudible 00:34:18]. I have four people in the field, two property managers, and two maintenance people to take care of 100 houses. Then I have a virtual assistant that they all report to and then that virtual assistant reports to one of my CPAs and then I meet up with my CPA once a week for, we spend like 15 minutes on that. You see, that’s a business [inaudible 00:34:42]. You want to build it and move on to the next business. So I do that.
And then I still do have some apartments left, so I use the same concept with the apartments and I use the same concept in the shopping centers. But here’s where it gets interesting, we didn’t really talk about, I’m a house flipper, too, I sold over 100 houses last year but you would never imagine it, I never talk about it, I don’t do much with it, and I just see it every Wednesday morning when I’m sitting down with my CPA. A lot of us that are in the housing business, we could take advantage of scale of economy with the systems that we have in place already. So let’s go back to the housing formula where I have four people in the field and a virtual assistant and a CPA, all you got to do is bring one general contractor into the mix and he’ll report to the four people in the field. And now I got a house flipping business. And that’s how I do it.
So, and it’s awesome. So I’ve expanded this. Actually, I got to give it to my nephew, because I really taught him how to do it, Russ, and I was like, “Wow, Russ is making a lot of money doing this. Maybe I’m missing something here. Maybe I’m not too good for this. Nothing’s wrong with making a chunk of change to pay down the credit card every month, right?” So, I expanded it into I have a low income house flipping business, I have a millennial, I call it middle income, and I have a high end house flipping business. So, the low end, we’ll either take houses out of the rental portfolio when they get beaten up and I don’t want to spend an extra $5,000, so then we’ll go all in, we’ll put like $20- or $30,000 into it to bring it up to retail value. So those houses will go for $125 to $175.
Then the millennial model, really kick ass area here in Houston, it’s really up and coming, you can kind of tell it’s becoming trendy, the restaurants are starting to show up. We’ll buy a $200,000 house, fix it for $100, we’ll be in for $300, and we’ll sell it for four and a quarter. That’s the millennial. And then actually in my neighborhood, in [inaudible 00:36:50] Village here in Houston, you can buy a $7- or $800,000 flips, put $300,000 hold our breath and try to sell them for 1.5. And one more, so the high end would be I’m specking $2.5 million houses right now, so you’ll have to check in with me next year to see how that went. And so it’s kind of you get all the segments of the market, right, low income, middle income, and high income. Because I don’t like to wait around for business, sometimes high end’s trading and low end’s not, so talking about multiple sources of income and productivity doesn’t always equal activity, which or should we say that the other way around? Just because you’re active doesn’t mean you’re going to make something. So, why be active in something that’s not making something? So I totally believe in multiple sources of income but I also totally believe in jumping into multiple businesses.
\So I’m going to give you an example, right now the sun’s out in Houston, but if it wasn’t and I was planning on going to see some houses, no way, I’m not doing it. I’m not going out, I’m not getting wet. So I won’t do that. Or, let’s just say I wake up and I’m thinking about apartments, for whatever it is, maybe Freddie or Frannie spit out a new interest rate or one of my friends just told me, gave me [inaudible 00:38:09]. I’ll go do that. Now wherever I’m going to go make money, I’m going to go do, but I’m not going to go work in a business that isn’t making money that day. I just went off in a rant and rave, sorry.
Stefan Aarnio: No, it’s great. It’s a total mindset shift because what happens to people always in real estate or anything, they go nose down, ass up, they’re in their niche, and they just stick to it. Let’s talk about the book right now, Alan, tell me about The Cashflow Mindset, I got a copy, I bought one off Ross on the internet, tell me about The Cashflow Mindset and how’s that different than some of the other books you might see out there?
Alan Schnur: All right, so The Cashflow Mindset is Millionaire, Billionaire, and Zillionaire Designs for Financial Freedom and a Fulfilled Life, this is kind of the evolution of an entrepreneur slash real estate investor that I’ve been talking about and I just sat down over the last 12 months and wrote down what worked and what didn’t work and I put all my ideas in this book. And I also recorded it on Audible.com. So, what I call the millionaire mindset is you got to remember that making money is a numbers game and if you have one job and you lose your income, you’re out. If you have one business and you lose your business, you’re out. So, I just totally believe in the more things we do, the more chances of success. It’s just like throwing mud up on the wall, you got to see what’s going to stick. So, a lot of us have been taught the wrong way, we’ve been taught to do one thing at a time, focus on do one thing at a time. That doesn’t work anymore because you can go chase a house, or you can go chase an apartment building, and be in contract for three or four months and then it blows up. One out of three deals does blow up. So what happens? You just wasted 100 days of your life and you got nothing in the kitchen cooking.
So, I believe in chasing multiple houses, multiple apartment buildings, and multiple other pieces of real estate, and even business but I don’t want to take us there. So, I just got off of a boat, not the cruise, but a few weeks ago I was in [inaudible 00:40:20] living on a boat for five days and it’s just like the captain of the boat, no matter where we went, he would drop at least a dozen fish lines to see if he could get some [inaudible 00:40:29]. Not just one, not just two, but a dozen. So I think that’s how we should run our lives. And I just think we have a greater chance of success. That’s the millionaire mindset.
The billionaire mindset, the second level of the book, is really about, I guess it’s my essence, scalability, we talked about it. We have to scale. You’re living or you’re dying, you’re growing or you’re not, you just have to scale or get out, sell it. I don’t believe in stopping at 25 houses or 50 houses or 100 houses, maybe that’s why I got to 300. So, I believe in scaling, I believe in strategy. And strategy from Wall Street, which is buy low, sell high. I know that sounds ridiculously trite and simple, but if people would just apply it, buying low and selling high, do it all the time. And if you can’t buy low and sell high in the houses, go buy, I don’t care if it’s cars or baseball cards or Pokemon cards, whatever my son does, buy low, sell high. Yeah. So scalability and streams of income. Streams of income so import … I know you have, can you imagine if you just had one book for sale?
Stefan Aarnio: Oh, I’d be dead. You’re dead at one book.
Alan Schnur: Right? I’d be dead. We know that there’s [inaudible 00:41:50]. There’s not even a lot of money in this but it opens the door for syndication and I got to tell you, it’s really fulfilling, you probably feel the same way, to put the book down. It’s just nice, like getting the opportunity to put it down on paper and then it also … How do you think I do that? How did I buy 300 houses, how the fuck did I buy 300 houses, do you know how hard that was? So, and you get to just reflect and look back and it’s valuable because when we reflect and look back, how much better do we get? You just 10 times it, right?
Stefan Aarnio: Mm-hmm (affirmative), that’s powerful man.
Alan Schnur: So, yeah, I’m ranting and raving. And then finally, the zillionaire mindset, for me is you got to love it, you got to love what you do or it won’t work anyway. And now I’m actually getting a little older than all you guys, I’m 48, so now and I can look back over the last 20 years and I know what it’s like to work on Wall Street, I know what it’s like to make a million dollars a year, I know what it’s like to make zero dollars a year, and I know what it’s like to walk away from that, because I was unhappy. So, if you pick the wrong strategy and your heart’s not in it and your love’s not in it and you succeed, that’s more fucking painful than buying 300 houses.
Stefan Aarnio: I love the pain. Said by a man who’s bought 300 houses, you know what that’s like.
Stefan Aarnio: Let me ask you this, Alan, we got to wrap up in a couple minutes, man, what are the top three books that changed your life? Everybody loves books.
Alan Schnur: Books. I need to look around and see … I give them away all the time. I’ve got three books, I’ll tell you what, I’m going to pull up my Audible. Are you a big Audible fan?
Stefan Aarnio: Love it, man, I’m an audible junky. I go in the bookstore, I just buy all the audio books, I’ll just put them all in my cart, same with Amazon, I’ve just got these Amazon packages showing up every day with something and I don’t even know what it is.
Alan Schnur: So, I just downloaded, this is Robert [inaudible 00:44:24]’s pick, it’s called Ego is the Enemy.
Stefan Aarnio: Is that the … It’s stoicism, almost, it’s a stoic [crosstalk 00:44:32]-
Alan Schnur: Yeah, it’s written by Ryan Holiday, I’m enjoying it and it really just teaches you to shut up and just listen to people and realize that you don’t always have to go through life looking for validation and just listen to the other person. You know what I really like? Sam Zell’s book, I can’t find the … Am I Being Subtle Enough? Have you read that or listened to that?
Stefan Aarnio: Haven’t read it.
Alan Schnur: Oh, it’s awesome. It was my favorite book of last summer. And you listen to it, because Sam Zell reads it and he’s kind of from the East Coast, he sounds like he’s from New York City or Brooklyn, unbelievable. He’ll tell stories from flipping … Sam Zell’s bigger than Donald Trump when it comes to real estate and people don’t know that, he started out doing duplexes and houses. And next thing you know, it’s like flipping the apples to oranges to zucchinis, he’s flipping rail road carts.
Stefan Aarnio: Wow.
Alan Schnur: They just go where the opportunity is, that’s what we are, we’re looking for opportunity. So Sam Zell, for sure. I also like James Altucher, Choose Yourself, stuff like that. Robert [inaudible 00:45:37]. All that stuff. Yeah.
Stefan Aarnio: Love it, man. People treat the book question one of two ways, either go for what’s going on right now or classics and I love the fresh perspective because I did about seven or eight interviews one day, everybody said Think and Grow Rich, so it got kind of dry. Let me ask you this, we got three more questions here before we go, what is the one thing that young people need to succeed today? The millennials, the young Ross Alexes, the young Stefan Aarnios, what do these young guys need to succeed?
Alan Schnur: So, I mentor one or two of these young guys every year, it’s good for me, it’s good for them, and they really need to pick a strategy. You got to pick a strategy and stick with it. And when something’s working, seek help to either exploit it, make it bigger than it really is. I’ve seen so many people with successful businesses, then they just stop. They don’t realize they could even get bigger and bigger. And then I also, I meant what I said before about flippers, [inaudible 00:46:40] people are making hundreds of thousands of dollars a month flipping houses and I’m kind of scratching my head saying, “Where’s all the money, dude? Why are you still living in that little apartment and driving that little car?” And it’s because, well, obviously, they’re trying to keep up with their overhead and their spend, their burn rate on advertising, but if they would only scale up. So, that’s some big advice, you got to scale up. You can’t just stay stagnant and flip five houses. If you’re flipping five houses, figure out how to create that business [inaudible 00:47:16] that we talked about and start another business and another business. I got six to 12 businesses I look at every single morning when I’m mediating, which can take one to three hours every morning and I’m going to go after it. And I’m scaling up, I’m always thinking about scaling up.
So I’m training for Mount Everest and I’m doing these lunges, you know what a lunge is? And I’m doing it for the first time over the last eight weeks and it’s freaking painful. And if you just keep counting, it’s like you got to do 40. So now I’m like 27 and 28 and I’m thinking to myself, “Oh, my God, I got to do 12 more of these things, I’m just going to collapse.” And no, I just pick a spot on the wall and I’m just staring at that spot and I can’t fucking wait to get to that one spot on the wall. So, that’s scalability.
Stefan Aarnio: Focusing.
Alan Schnur: Yes. On where you want to go, the big picture. So, yeah.
Stefan Aarnio: I love it. Are there any resources you want to recommend for people starting out wanting to follow a path like Alan?
Alan Schnur: Yeah, so you definitely going to have to start listening to Audible.com, I mean, look, we heard [inaudible 00:48:24] say and [inaudible 00:48:25] say you can spend five, 10 years writing a book and you could go through it in a few hours, jack up the speed 200% and you can learn a lot [inaudible 00:48:33]-
Stefan Aarnio: I lost you there, Alan, I lost your might for a sec. Sorry, buddy. Go back? So, you’re saying you can speed up about 100% on the book?
Alan Schnur: Yeah. Go take the book from 100- to 200%, someone spent a few years writing it, probably spent tens of thousands of dollars to complete it, and all you got to do is take away a few good ideas, incorporate it into your life. It doesn’t get any better than that. So, that and you got to get out, you got to do networking, you got to go to the meetings, I don’t care what it is, if it’s real estate or business or young entrepreneurs, you’re going to have to get out of your head. I love to live in my head, just like everybody else, believe it or not I’m an introvert. So, but introvert not going to get me anywhere so I got to get out of my head, communicate, listen to people, pick up new ideas, I go to the meetings.
Tonight I’m giving a small talk to arounf 25 people about my book and it’s not a really big crowd but what’s really good about that is I have a new syndication coming up and it’s a 100,000 square foot center in a college town in Texas and I got to go raise a few more million dollars. And it doesn’t matter how much money I have in real estate, I can’t write a check for that, I can’t keep writing checks for that, so the more talks I give, the more out of the head I get, the more ideas I get from Audible.com and YouTube and listening to your podcast and your speakers, the better bigger my portfolio. It’s unbelievable, the opportunities that we have. What would this production would’ve cost 10, 15, 20 years ago?
Stefan Aarnio: Oh, it would be insane, it’d be insane.
Alan Schnur: Right? So we get to take all that technology, and I’m actually thankful for the opportunity to do this with you because you know what, whatever, maybe someone’s going to hit me up on my website and say, “I’m interested in triple net leases, I want to get involved,” and so you’re bringing me into their living room. Like it used to happen for The Beatles.
Stefan Aarnio: I like that. Before we go, Alan, how can people get your book?
Alan Schnur: So, if you go to, this is a special for you guys, all right, if you go to alanschnur.com, A-L-A-N, S-C-H-N-U-R, alanschnur.com, you can download a PDF, a free PDF. Just put your information in there, or if you want to buy it, it’s nice to always have a book in the hand, it’s on Amazon.com, it’s also at my website, and you can also go to Audible.com, I read it and it’s kind of funny, I’m cracking up, I crack myself up, so I’m in my head most of the time. So, and if you want to learn more about what I do and I have like 15 or 20 of my projects online and I also have hundreds of hours of education that I just give away now, I just give it out there, so it’s all at alanschnur.com. So I appreciate it, yeah, everything’s great and I appreciate the opportunity and I’m excited for you and, man, you look great doing all those posed pictures on Facebook. I mean, that’s [crosstalk 00:51:39]-
Stefan Aarnio: Oh, yeah. That’s like after a fast with makeup and all this production, yeah. It’s crazy. Well, thank you so much for being on the show, Alan, I really appreciate it and I think you brought a lot of value to the people who are out there doing they onesies and twosies and maybe they can see the big picture, but-
Alan Schnur: Look, just take action, I don’t care what it is, whatever it costs, whatever you have to pay, just please, just take action and let’s see what happens.
Stefan Aarnio: Awesome, thank you so much. Hey, it’s Stefan Aarnio here, thank you so much for listening to another episode of Respect the Grind. Now, if you like this information that you heard here today, I want you to check out my system. Now, it’s called the System to Cash, eight weeks to cash, all you have to do is go to thesystemtocash.com/podcast to get the exact real estate system that I used, my students used, and people are using this all over Canada and all over the United States to buy real estate at 40 to 60 cents on the dollar. Get the deals funded with other people’s money and get the teams and the crews working on your flips and you’re buying whole properties so you don’t have to do it. If you want to do real estate like a business, the system, eight weeks to cash, is for you. Check out thesystemtocash.com/podcast, you’re going to love it, we’re updating it all the time, it’s always getting better. It’s got all the files, forms, contracts, offers, everything you need to do this business. Thesystemtocash.com/podcast. We’ll see you guys inside the system.