Overcome Real Estate Challenges: Secrets to Thrive in a Tough Market

Stephen Schmidt (01:31)
Welcome to the show where we interview the nation’s leading real estate entrepreneurs and by golly I’ve done it again y’all. It’s Stephen Schmidt I’m back at it like a bad habit and I got a real good real good treat here in the studio for you today I got Shannon Robnett that Shannon has an extensive career in the real estate space We’re talking to the tune of over 120 million dollars of assets under management 70 million

plus total capital raise, 25 % average IRR in over 35 years in the business. And we’re going to have an incredible conversation, of glean some nuggets from Shannon today and see what in the world brought him on this show. So we’re going to jump right into it. But just before we do that, remember at Investor Fuel, we help real estate investors, service providers, and real estate entrepreneurs, 2 5X their businesses so they can build the businesses they’ve always wanted in order to live the lives they’ve always dreamed of. That being said, Shannon, welcome to the show.

Shannon Robnett (02:29)
Hey, thank you, Stephen. Appreciate you having me on.

Stephen Schmidt (02:32)
Man, I’m glad to have you here. So you’re third generation, if I caught that in our pre-show conversation, correct?

Shannon Robnett (02:38)
second generation builder developer, fourth generation realtor. the average is a third. ⁓

Stephen Schmidt (02:42)
and

So normally I would ask somebody how they got involved in real estate, but it of seems like it was your destiny,

Shannon Robnett (02:50)
I didn’t have a choice.

Well, know, Steven, I tried to break the mold. I tried to go to college, you know, and I’m sitting there working at a coffee shop to try and pay my insurance on my car while I lived at home and went to college. And my brother’s making 50 grand a year in 1995, which is about, I don’t know, about 105 by today’s standards right out of high school building houses. And I really had to take a long look at it because I wanted to do something different.

because I saw that my dad and my brother, they were the answer to every single problem. And I didn’t want to have to be the answer to every single problem. And so I knew I needed to build an operation and an organization that had players in it that were stronger than me. And I didn’t know how to do that. And so I started building houses. I really quickly learned I don’t like homeowners. ⁓ know, somebody’s office space has a different

Stephen Schmidt (03:32)
Okay.

Shannon Robnett (03:52)
personal relationship to them that their living room does. And so I got out of that and began to build commercial. did police stations, I did city halls, I did schools and gymnasiums, I did doctors facilities, ⁓ even fire stations and ⁓ just a myriad of things. And I realized that every time I did my job well, I got fired. ⁓ Because when I was done, ⁓

The reward for a job well done was to be relieved of duty. You never had to come back to that job site. And so I began to watch, you know, what I hadn’t paid attention to growing up was my parents had been building an industrial real estate portfolio. And I knew it intimately because like one summer I got to paint a 38,000 square foot block building with a roller. I forget what I’d done. My mother won’t, but for some reason that was my

summer activity was to paint this building with a roller. And I watched in 2001 where they retired with Cash Flow

I started to get it. And so I built my own industrial park and I involved a couple of partners with that. We had some great success there. And then I started to see how working on my own portfolio, working for myself and my investors,

continued to pay after the certificate of occupancy where I typically got terminated. so, ⁓ you know, fast forward, ⁓ you know, now we build ⁓ primarily multifamily and industrial. ⁓ And we have, ⁓ again, by trial and error and by default have gotten into the syndication and the fundraising space. ⁓ We do, we’re vertically integrated. So we do everything from the fundraising, the fund management.

⁓ the construction and development in a lot of cases, ⁓ and then the property management ⁓ as well because there’s nothing that affects your bottom line like the property management and the rents that you’re getting and controlling your expenses.

Stephen Schmidt (06:48)
Sure. We’re rolling into a really interesting season in real estate that I think most of the people I speak with concur on. ⁓ the question that I have is obviously in the single family space, we’re starting to see in different markets inventory start become more than demand. ⁓

And then you’ve got the overinflation of home prices and everything else. How does that affect the multifamily space in the industrial space when things in the single family market are Correcting themselves. Hopefully I phrase that question. Okay.

Shannon Robnett (07:28)
Well,

again, so it’s funny because when people talk about this new and exciting market that we have, this is my third time through a market just like this. So this kind of market happens where interest rates rise, interest rates fall. And I remember talking with a developer, a builder here in town when I built his office building, who’s in the single family.

home building space and he’s one of the largest in the Pacific Northwest, the largest in Idaho. And he said that people wait when interest rates start to fall, people wait to see it drop another quarter of a point because that’s another 20 bucks, right? But it’s more about playing the game and making sure you got the best deal. But when you look at markets, Steven, like I do, I don’t look at markets for job growth. I don’t look at markets for people moving into the area.

Stephen Schmidt (08:24)
you

Shannon Robnett (08:25)
I look

at markets for wage growth because when you’re looking for what I want and that’s appreciation through rents, if I’m in a stagnant wage market but a growing job market like Florida, I’m going to run into the situation you just described. I’m going to run into something that wages are no longer growing because people are moving in en masse and jobs aren’t prolific and high paying jobs are even scarcer so that

Stephen Schmidt (08:42)
Right.

Shannon Robnett (08:54)
when the economy changes and work from home is now a luxury or is confined to the elevated 15 % of the workforce, then you start to see problems in markets like you have. But we do have an interesting market right now that I’m taking advantage of because currently ⁓ we’re building phase two of ⁓ multifamily development that

I have a three bedroom, two and a half bath, single car garage townhome. So there’s nobody above you that we are getting about $2450 a month for rent on. A 1,500 square foot house in the area will run you about $475 or about $3,800. And even if you pencil in a 3 % appreciation in the value of your home, you can’t in a 10 year cycle make that pencil

that it’s better to buy a home than it is to rent and just invest the $1,500 difference into a Vanguard fund that’ll do you 9%, right? ⁓ You don’t have the interest write-off, okay, fine, but you have ⁓ an investment that’s continuing to grow that’s equal to or greater than what you’re gonna get in…

paid out on your house. We’re no longer at 2 % interest rates where $600 of your payment is going toward your principal. We’re back to getting maybe $150 on a $500,000 house toward your principal in your first year, right? On a monthly basis. So where are you really going to get ahead in that market? And at $500,000, you’re stroking about four grand a month with today’s interest rates. So I can see why it’s not making sense because it

I know that Americans have been programmed to own, which is part of the problem, right? You need to own your home. Well, do you? Or do you need to invest wisely? And in a lot of cases, the single family home that you own is your only investment. And maybe beyond that, it’s a 401k with work.

Stephen Schmidt (11:34)
Hmm.

You have a very solid point and on that note, the question that I would have to follow up with that is. Are you of the are you of the? Camp that would say you shouldn’t necessarily own your home or at what point do you think somebody should actually own the home that they they stay in?

Shannon Robnett (12:08)
Well, I don’t own mine. if you look at, you if you go back to 2012, 2013, housing prices were, we’re just going to say $175,000 for a three bed, two bath, two car garage. That’s what they were in the Boise area. They have come up to $400,000. To have owned a house during that time period would pay you very well. That being said, if you didn’t catch that,

You are now at a place where we are seeing a 5 % appreciation in our market year over year from last year, which is one of the strongest in the nation. So the reality is what are you trying to do? And that is what I think most investors don’t ask themselves is what is my goal, right? If your goal like mine was early on, I moved every two years because if you live in your house for two of the last five years, you could sell it without paying capital gains on it, right?

Well, so I was moving every two years, selling every five and continuing to multiply. But what I found was that I was creating a second job for myself because now I had these other two houses to manage, right? And so it really depends on what your goal is. If your goal is more time freedom and to retire sooner, your single family home doesn’t necessarily do that. And yet most people make that decision based on emotion rather than an Excel spreadsheet.

right? And so, so I’m not saying it’s bad, but I’ll tell you, in my case, I live in a million and a half dollar home for $3,500 a month.

Stephen Schmidt (13:38)
Okay.

Shannon Robnett (13:48)
Right? I don’t have, if I were to buy that million and half dollar home, I would have $300,000 in capital tied up. I have a security deposit of 3,500 bucks. If I were to buy that million and a half dollar home, I’d have an $8,000 a month payment. So I would have $300,000 tied up. That million and a half dollar home would go up $75,000 a year in value, right?

Stephen Schmidt (13:57)
Sure.

Shannon Robnett (14:16)
But then you come to the end of that, if I’ve owned that home for five years, I’m still gonna pay 10 % in sales costs to exit. I’ve got my real estate fees, I’ve got my closing costs, I’ve got whatever repairs and maintenance I need to do. So am I really getting ahead to the degree that I can with other investments? And for me, that answer is no.

Stephen Schmidt (14:25)
Great.

Yeah, that’s pretty pretty incredible that you say it’s a million and a half dollar home that you’re getting for 3,500 a month because the million and a half dollar houses that I see for rent are like 15 grand a month. So that’s a pretty smoking deal when you factor all of those things in the way that you said. So let me ask you this because you’ve obviously been through peaks and valleys with the market and

survived. So what was the closest you ever came to bankruptcy and what did you learn from that season?

Shannon Robnett (15:57)
I went through bankruptcy and I learned a lot. You know, I was never the kind of guy that was going to get it out of a textbook. But when 2008 hit, I did have, ⁓ I had a big development going. I had all my cash tied up in it. I had all my lines of credit maxed out with it. And when the housing market turned, I was developing a subdivision. I did not have the capacity. I was building industrial. I was building office buildings.

and I did not have the relationships or the capacity to build single family. So the biggest lesson I took from that is I have to be vertically integrated. I have to be able to solve every single problem that comes at me on any development. So now when we look at a development, we don’t just look at what does it take to build a development. We look at what does it take to build and manage that development successfully because…

Let’s just say we find ourselves in the place where a lot of investors have found themselves. A lot of developers have found themselves over the last 18 months where they built something for 60 million. And if it’s sold at a four cap, they were going to make 20. No big deal. It’s going to be great. Right. You saw rent soften last year, so maybe they weren’t leasing up like they were supposed to. We had this happen with the development that we’re in the middle of. And if we had to sell at that point, we would have lost money.

We had enough capital reserves. We were able to continue. We’ve raised rents. We’re raising rents again. ⁓ And we’re now finding ourselves in a market that we will exit and we will exit well. But it’s because we are dialed in on the management. We are squeezing every dollar out of this thing that we can. And we are creating an environment that is second to none, right? And I think where a lot of people get confused is

You hire a property management company to maximize your returns. But what is the property management company’s number one goal? It’s to maximize their returns. So they’re not necessarily in alignment with you. So they’re there for the fees. They’re there for the ancillary income. They’re there for all the things that make them more money, which may or may not be in alignment with you. So they may have their expenses dialed up pretty high.

so that they can make money on those expenses rather than trimming the expenses and maximizing the rent, right? And so that’s one of the areas that I think can be your biggest turnaround point. Not that you need to go start your own property management company, but maybe you need to realign how you pay your current property management company that there are bonuses for efficiency, that there are ways for them to make money that don’t…

take away your ability to sell. And I think that, you know, having your property in sellable shape at any time in the quarter is ideal. I know a lot of people, go, well, I’m not planning on selling the property right now, so I’m not really defer, I’m doing some deferred maintenance or I’m spending money right now that I don’t necessarily need to, but it’s tax efficient where just as quickly as interest rates came up, they could come down. And if that’s been your model,

your T12 is gonna look like crap. You’re not gonna be in position to take advantage of that. So I think that there’s a blend there where being the answer to your own problem and being the solution that gets you out is something that my brother and my dad have taught me well, but it doesn’t mean that I have to do it myself. I just have to have the teammates that are aligned with me to get that done.

Stephen Schmidt (19:17)
Mm.

You hear the words or phrases time in the market over timing in the market. I’m sure you’ve experienced that yourself. For somebody that is wanting to get into the space that you’re dominating, what would be the first piece of advice that you would give somebody that’s wanting to get into the commercial, industrial, large multifamily projects? What would you

what would you be telling them right now?

Shannon Robnett (20:09)
Well, timing the market is luckier than I’ve ever been. You can’t be consistent with timing the market. There is a good time to buy and there’s a bad time to buy. A good time to buy is when you have access to a deal. And I don’t mean just any deal, but one that fits your parameters and your model. And I think that in 1920, 21, 22, people got real used to getting in and getting out. We were day trading real estate.

And I won’t say that we didn’t do it. We had a project that we met our 10-year goal in 18 months. So of course we got out, right? ⁓ But I have the unique ability to go create another one. So I wasn’t at the mercy that a lot of these people were where they sold a property that was a great deal. They had killer equity in. They exchanged it for something that provides them with little or no equity at this point, but it’s a bigger deal.

and then the market softens, interest rates go up. So now they’re more underwater than they would have been instead of maximizing what they already had. And, you know, I can give multiple examples from my life where timing the market is utter crap. It’s time in the market, right? And so I would challenge anyone that looked at it and said, hey, if I’d have sold my house in 2008,

because the market sucked for the next five years or the next eight years that wouldn’t be better off today than they were in 08. If they’d have stayed in the market, they would have had that asset now for going on 15 years, but they would be in phenomenal shape. Those that were lucky enough to time the market and buy it in 9 and 10 and 11 were able to exit, were able to post some killer profits, but it taught them nothing about what the market is today.

So if you’re looking at deals, most real estate deals historically are a five to seven year model at a minimum. At a minimum. We sold a property in 2022 to a REIT and I’ll never forget one of the principals said, we won’t even look at this property for 10 years. We will not even consider selling this property for 10 years.

Because what the market will do for us in 10 years, we could never duplicate. And that was experience that they had, I mean, ⁓ they had $173 million in cash on their balance sheet at the time of the statement, right? They were not hurting for money. But what they understood was that the time in the market was where real consistent profits were being generated that they could count on.

Stephen Schmidt (22:54)
Thank

Shannon Robnett (22:56)
Now, if the market got really good, they had the option to sell, but they had to look at what they were going to do next. And that’s what a lot of people, think, ultimately they lost out because they sold in 21 and then tried to go into something else in 22. And it just isn’t doing what the other property that they had was doing. And now they’ve gone bigger. They’ve got bigger problems with less cash flow.

Stephen Schmidt (23:25)
you

If you had to go back to the beginning of when you got started, but you could take all the knowledge that you’ve gained, what would you do different and what would you do the same?

Shannon Robnett (23:38)
Is this the one where I’m supposed to say I go kill Hitler? ⁓ No, wait a minute. That’s a that’s a time question. ⁓ You know, I think, you know, when when I started doing deals, I wanted to the whole pie. You know, I wanted all the profits for myself. And I’ve realized that as you scale ⁓ and involving the right kind of strategic partnerships, evolving your business to the point that it

understands what to do, how to function without you is very important. And as I’ve grown a team, I can now take on more and do more and be responsible for more than if I was doing the whole thing myself. And I think that that is the thing that I have learned. The other thing that coincides with that is trust, but verify. Verify that these people can and have done

what you’re asking them to do, not just that they want to do it, not just that they’ve had success over the last two quarters, but that they’ve had success over the last 10 years. And that takes a lot of people that you might work with out of the game, and it may take you away from the boy genius that can really renovate and innovate his silo of your market, but it also puts you in a place where you’re working with proven veterans.

that you can look out in the landscaping right now and you can see who went through 08 and who this is their first time through a market change. And that is the foxhole ⁓ dedication that you want. You want somebody that’s been under fire. You want somebody that’s been in the middle of a deal that’s gone catastrophically wrong and how did they figure it out? What did they learn?

because there’s a lot of people right now that are walking away from deals or throwing up their hands and just letting the deal do whatever because they’re being overloaded and overwhelmed with the bad news of interest rates didn’t get cut last week. So now my property is not going to be worth anything. So I got another 18 months of slogging away at this thing for no money. Okay. Well, if you were on a three year cycle, that’s pretty bad. That’s pretty detrimental to your business plan.

That’s okay. What are you going to do from here?

Stephen Schmidt (26:10)
When you went through a weight and you went through your bankruptcy, what were the things that you focused on for the next three to five years, the nine, 10, 11, 12, 13, to get back on track towards where you were heading in the first place?

Shannon Robnett (26:25)
Well, know, 08 was particularly devastating for me. ⁓ Not only did I lose my business, my marriage fell apart, and I wound up with some very serious health issues that sidelined me for about 20 months. ⁓ And so what I began to put together, you know, I think the biggest thing that happened in 08 was my confidence was shattered. I still had the same skills and abilities, but I didn’t believe in them.

⁓ I began to get back involved and start to build things. I built a couple of businesses that were successful that I sold, but it really took ⁓ me focusing on my mindset and getting that pulled back around to understand that I have a unique set of skills and that set of skills can do A, B, and C when it’s done with confidence. And what I learned from that was that I had made

I had made structural mistakes. I had done things that proved to be wrong. But I also learned I wasn’t the only one that did it. The world did it. Some of the world’s smartest people did it. Governments did it. It was a global financial crisis that I happened to get caught in. And there was a lot of thought that went into that. But what I learned was that the skills that I had that were successful in 05, in 06, in 07,

If reapplied and the market indicators were paid attention to, 15, 16, and 17 were the same. I was getting the same kind of results as I was getting in 06, but I had to rebuild my confidence. And so that’s why I took a lot of things, ⁓ the phrase be the dumbest guy in the room. Well, obviously just by our conversation, Stephen, you can understand I am not. ⁓

going to be the smartest guy in most rooms, right? But I began to really position myself in rooms with guys that were way beyond what I did. I spent months ⁓ conferring with a guy who had a billion dollar exit, right? If I could get an audience with this guy, it didn’t matter what he was telling me, I could learn from it. He had seen things that I will never see, right? He had seen how finances work in a way that I’ll never understand.

Stephen Schmidt (28:24)
Disagreed.

Shannon Robnett (28:49)
but I could get in the room with him and I could be around them. And I began to really elevate my game, but it came down to really elevating me. And when I really focused on what does Shannon have to offer other than my unique skillset in the marketplace and a spreadsheet that does tricks, what am I really doing? And in order to build back the person that needed to be there to pilot that ship, I think was the biggest thing that’s changing what I do now.

and really focusing on how is Shannon’s mental space, how is Shannon’s health, how is Shannon’s ⁓ time away. I just spent this last weekend ⁓ at our cabin by myself. ⁓ Well, I spent it with my wife and my parents, but I didn’t go do everything. I didn’t go out on the lake. I didn’t go ⁓ mountain biking or dirt biking. I just stayed there and I read some books and I spent some time.

really decompressing and getting back to a place where I know this week is we’re going to be hell bent for leather and I’m in the mental space to do it.

Stephen Schmidt (30:01)
You mentioned your skill sets. have three or four things there. What would you say your top three skill sets that you bring to the table really are? What are those?

Shannon Robnett (30:11)
You know, I fly at about 30,000 feet, so I can see things that a lot of people can’t. I can see how, you know, hey, if we bought this property, we did these things to it, we added this to it, we did this, we could create something. But when it comes to execution on that exact plan, I’m not the best at that. So I’ve pulled people around me that that is what they do best. Execution is what they do best, right? And so it…

It’s building that team that takes my weaknesses and elevates them to be strengths all around. And so I can see things, I can put deals together, I can run the numbers, but when it really gets granular, I have people that do that. And so I think that’s another skill set is recognizing that I don’t have to be all things to all people. And there are people that love doing what I don’t and or I’m not.

Stephen Schmidt (31:10)
Hmm.

Shannon Robnett (31:11)
And so when I can employ them to do what they’re really good at, I’m going to wind up with a better result than me burning the midnight oil and, and, you know, focusing on the thought process of grind harder. Man, there’s no way, there’s no way that you can out grind rather than outbuild. If you can build an organization, I’ve got 15 people that can grind when I’m not.

Stephen Schmidt (31:33)
you

Shannon Robnett (31:37)
It doesn’t matter if they’re only grinding at 70 % or 50 % of my capacity. At the end of the day, more got done. And when that got done that way, we wind up with a better result than if it was just all on my shoulders.

Stephen Schmidt (31:52)
Yeah, you got it. Well, Chris, Chris Shannon. I’ve got a friend of mine named Chris Robnett. So that’s so funny. My apologies. Shannon is who we’re here in the studio with today. Can you tell these fine folks where they can connect with you for more?

Shannon Robnett (32:10)
The easiest way to do that is just at shannonrobnett.com. You can see what deals we’re doing. You can see some of the tax planning stuff that we’ve helped our clients with. You can even grab 15 minutes on my calendar. I’d love to chat with you, hear what you’re doing, and see if there’s any way we could help you.

Stephen Schmidt (32:27)
There you go folks, go connect with Shannon for more. I’ve some love from the real estate pros and the investor fuel community. We appreciate him coming on and sharing some nuggets with us and we’ll see y’all in the next episode.