From Investing to $100M: Ian Colville’s Real Estate Journey

Ian Colville (00:00)
skin in the game would be like, hey, I’ve got five thousand dollars of my money I’m putting in and I’m gonna ask somebody else for twenty thousand dollars. So I’m risking my my five thousand dollars.

Another way to do it is personal guarantees on debt. if you’re asking an investor to join you and help build out that twenty-five thousand dollars, you can also say, in addition to me putting in what money I have, you know, five thousand dollars, I’m personally guaranteeing the debt that we’re getting, either from a private lender or from a bank. So I’m ultimately on the line for seventy-five thousand dollars if this project goes wrong. That’s a that’s that’s an enormous skin the game component that doesn’t cost money, at least up front.

Cody Crabb (02:15)
Welcome back to the Real Estate Pros Podcast by Investor Fuel. I’m your host, Cody Crabb and today I’ve got Ian Colville with me. Ian is the founder of Carpathian Capital Management, a residential real estate investment firm based in Minneapolis. Today, they manage around a hundred million dollars in real estate assets, including private lending, construction loans, and residential development partnerships. Ian, welcome to the show. Thanks so much for hopping on today.

Ian Colville (02:38)
Thanks, Cody. Thanks for having me. I’m excited to be here.

Cody Crabb (02:40)
so for those who don’t know Carpathian, kind of what do you guys do today in plain English?

Ian Colville (02:47)
we invest in residential real estate in a few different ways. we got started back in 2013 when the homes were cheap. actually it was just me back then. So buying a few houses, renting them out, and hoping they turn into more. then I raised some money and turned that into a larger part of our business. So at our peak, we owned about $40 million of homes. we’re since we’ve since sold off most of them. but there’s a shortage in housing. So we got into the private lending business. We lend money to home builders and rehabbers that want to bring new housing or improved housing to market. So we have a private lending fund. and then we also now invest in residential developments, which is you know, buy land, put in the roads and utilities, and maybe put a hundred homes on the land, something like that. So three parts of our business, the most active is probably the residential development and then the lending and then part where we own homes and rent them out is winding down.

Cody Crabb (03:48)
So you mentioned at first kind of buying houses yourself and kind of eventually raising a fund, you know. for someone that’s listening who’s maybe kind of done a couple deals and maybe wants to kind of bridge that gap between like a couple of doors to like w you know, where you’re at now, what would you say that what would you say made that leap possible for you? And what would you recommend for people that want to make that leap themselves? I guess my

Ian Colville (04:13)
Biggest recommendation would be don’t assume that you can’t do it. It’s it’s it’s possible and it’s not that much more complex than doing one. You just sort of take the skills that you’ve developed with doing one or two well, and you expand them a little bit and try to do five well and try to do ten well. the key is of course that you have to have enough money to do that. And that’s where you get into, hey, you know, friends and family, can I have some money to do? you know, these three homes or can I do these ten homes and then eventually, you know, asking somebody for like you know a million dollars or something. So what I got started by buying a house or two here and there. I was a I was a banker back in the day. so I got started by buying a house or two here and there, had somebody fix them up for me because I was busy being a banker. And then when I decided I wanted to do this full time, I had six houses and a twelve unit apartment building that I had kind of figured my out my way through. I called that a track record. I know what I’m doing. I put it in a PowerPoint and showed some showed some returns and then I asked people for money. And because I was in banking, I was fortunate enough to know people with money. So

Cody Crabb (05:18)
Yeah.

Ian Colville (05:31)
Maybe I got I yeah so that’s just, you know, opportunity meeting, you know, meeting some preparation I guess some competence, but there’s plenty of people out there.

Cody Crabb (05:39)
And some confidence, it sounds like. I said confidence. Like you must have been like I can pull this off. You know, you’re like it’s

Ian Colville (05:49)
Yeah, but I you know, I would have I raised five million dollars the first time around. But it would have been okay if I had, you know, brought in five hundred thousand dollars or a million dollars. I just would have been grown more s slowly. Yeah. but so getting money from other people is probably something that your listeners are used to doing, but they might just be doing it for one house. you know, if you can if you can figure out a way to show people what you’ve done and then ask for more more money from more people, then you can call, you know, create a fund, which is just more money in in in in an LLC that’s doing more homes.

Cody Crabb (06:24)
You know, I love that you’re simplifying things to a degree that I love. You’re you’re it’s just it’s just like, well, yeah, if you you could have a hundred units and you could have one unit, but the they all are the same technically. If they’re the same asset class, they’re the same. You just do the same thing over and over. Like maybe you need help, maybe you need more people, but like it’s the same thing. and I find it’s actually controlled. Yeah, please do, please do.

Ian Colville (06:44)
I often have people ask me, you know, how do you do it and what does it mean? that are doing well on one or two houses. and I I feel like they think there’s some like alchemy or magic thing that we do at a bit of a larger scale, and there really isn’t. it gets gets more operationally complex, but the things we do are the same that you do on one house or you do it on a hundred. You know, we have to we have to buy, you know, buy in well, we have to manage operations very closely, and we have to get out well, you know, selling or renting or something. That’s the same if it’s one or a hundred houses. And other than maybe putting together some legal documents that gets a little bit more complex, it it’s the same stuff.

Cody Crabb (08:18)
And so even then you’re probably not gonna be doing that yourself, right? So

Ian Colville (08:21)
No, you get a lawyer. You get a lawyer these days there’s AI who can help you on your way. I wouldn’t not the final documents, but you know, it can answer a lot of questions.

Cody Crabb (08:25)
Yeah, sure. Yeah. Yeah. So this is interesting because I I think a lot of people here raise money and they don’t picture like going to a buddy that has some cash. Like they picture going to an institutional, you know, some some institution and asking for money. So what do you think somebody somebody would make what do you think would make somebody trust an investor on that kind of basis that maybe a bank or under traditional location wouldn’t?

Ian Colville (08:55)
I just can I can just can you ri explain the question? What does it what do I need to do to build trust with investors or

Cody Crabb (09:01)
Yeah, like so so if one of our listeners wants to maybe do some unconventional creative financing, go to a friend or family member, what do you think actually has somebody gets somebody to trust them? is it just the relationship or is there more to it than that?

Ian Colville (09:18)
relationship is an enormous part of it. and then there’s the the the a track record if you have it. sometimes you’re just getting started, you don’t have a track record, in which case it’s probably a relationship. You have to figure out somehow, you gotta do something. but after you’ve got a few homes under your belt and you can describe you know you can if you can describe that adequately well, you can start asking people for money. And from there it’s just that you know getting over fear of rejection and a whole lot of very human things that come into, you know, asking and some you know not not always getting. You have to, you know, for every ten asks you maybe get one or two yeses, that type of a thing. But it’s not it’s it’s not con it’s it weren’t I I guess it’s not rocket science. You just have to go do it, which can be pretty hard in and of itself.

Cody Crabb (10:10)
Yeah, easier than it sounds, I suppose. so one question that I have. So a lot of people that get get financing this way, often talk about having skin in the game. they talk about like, you know, it’s not just I’m not just facilitating the transaction, like it helps to have, you know a stake in it too because people feel like they’re in it with you and you it’s like, well he wouldn’t just be asking me for money if he he really believes in it ’cause he invested himself too. What’s yeah do you d what how what role do you think that plays? Like how have you seen that be effective?

Ian Colville (10:45)
Yeah, so let’s yeah, this is a great question. I you your prior question also asked me, you know, what builds builds trust is execution. I oftentimes see a new investor with us start with a very small amount of money and they add to it over time. So just staying in the game and staying in touch with people, it builds a lot of trust over time. And time isn’t something that you can, it’s not that easy to to speed up. There’s some things you can do to build trust faster, but it j it does take time. so you’re asking about the skin in the game question. Yeah, we get we get asked that all the time. Let’s just talk about it at like a hundred thousand dollar home level and it’s the same if it’s, you know, ten million dollars. But if somebody is going to buy a home, they need a hundred thousand dollars. They’re gonna buy it for seventy five, put twenty five into it or something. So it’s in total they need a hundred thousand dollars. maybe you can get a bank to give you seventy percent of that. or you can get a private lender like us to, you know, give you something like that. You still have to come up with twenty-five thousand dollars on your own. skin in the game would be like, hey, I’ve got five thousand dollars of my money I’m putting in and I’m gonna ask somebody else for twenty thousand dollars. So I’m risking my five thousand dollars. Another way to do it is personal guarantees on debt. if you’re asking an investor to join you and help build out that twenty-five thousand dollars, you can also say, in addition to me putting in what money I have, you know, five thousand dollars, I’m personally guaranteeing the debt that we’re getting, either from a private lender or from a bank. So I’m ultimately on the line for seventy-five thousand dollars if this project goes wrong. That’s a that’s that’s an enormous skin the game component that doesn’t cost money, at least up front.

Cody Crabb (13:05)
Yeah. Well and I think that’s that’s a really good point because a lot of people like I I’m thinking of relationships that I have, right? Like they trust me, they know me. if I asked them for some money, they would be like, Okay, why should I do that? Like they they love me and are close to me, but like they’re I’m not gonna do that. But I I think if I said I’m investing this much and like you said, you don’t even have to have money to to take more of the risk. It’s I think it’s when you are showing that you’re willing to take that on. I think that that that’s huge for for

Ian Colville (13:34)
Yeah, so five thousand of my money plus a personal guarantee on seventy-five thousand. You know, I’m at I’m at risk here for eighty thousand, I’m asking you for twenty.

Cody Crabb (13:42)
Yeah, I could see I could absolutely see that going a long way.

Ian Colville (13:45)
and then there’s one other thing is you can structure the payout is, you know, it let’s say the home sells for a hundred and twenty thousand dollars or something. You can structure the payout so that your investor that gave you twenty thousand dollars, they need to get all of their money back plus some sort of a minimum return and they need to make at least ten percent per year on their money. Only after that do I, my the five thousand dollar investor, get whatever’s left over. So you can sort of put your partner, equity partner ahead of you in the payout line. And if they’re if the deal doesn’t do well enough to get that investor a minimum of 10% return, then you know I get nothing.

Cody Crabb (14:28)
Mm. Okay. So that I love that. That makes and it makes it real. It makes it way more real. look yeah. So looking at looking at it from your side, when you’re the lender looking at someone else’s deal, what what makes you say this person is serious? This deal makes sense. Is it the same stuff or are there other factors you in play?

Ian Colville (14:48)
Yeah, so we when we make loans, it’s the same stuff that we ask for the same stuff that a bank would, but we’re more flexible on we focus a lot more on the value of the asset and the track record of the person and less on that person’s income and that person’s credit score sometimes. We do and we do look at it. but if there’s if it’s lower than what a bank wants to see and we think those reasons are acceptable like medical debt or something. know we can we can look we can make we make judgment calls all the time. And if there’s enough value in the underlying asset, that’s that’s ultimately what what does it for us. So a bit of a track record and they’re buying a house so cheap that, you know, if we were to take it over, we’d get our money back. That really Then we’ll probably do the loan. we do wanna see some ability to execute or some proof of execution. Yeah, for sure. so if it’s absolute first timer, we might not make a loan to them. But if they’re on their second or third project and the prior thing went well and they’ve got a great deal, we we won’t be as fussy about income and credit.

Cody Crabb (15:59)
Yeah, and I think that’s also important to note for people that think, you know, you’ve got to have a massive stack of cash to get started and stuff. Like you said, I mean, if you do one of these do one of these deals, you’re getting some private funding, then from there you can kind of look at that, you know, or some creative funding. And that I’m just saying, like it’s the path is not long to get to the experience part. So so on the flip side, I’d love to know like what are some red flags that you see that kind of that that stick out to you. You said you said that one of them was track record is is a huge one. but if if you see a line item on on someone’s application, what what kind of raises your eyebrows a little bit?

Ian Colville (16:45)
I I hate to sound like a banker, but if you’re looking through a credit report, and the reasons for a low credit score are ones that just indicate general irresponsibility. Sure. That that’s a red flag. But if you know somebody had wife had cancer and they’ve got fifty thousand medical debt and their credit scores in in the tank, that is not irresponsibility. So underlying reasons for things. A lot of people struggled financially during the financial crisis. I think most of that is cleared off of people’s credit scores by now, but you know, step a few years ago we would just if something was 2008, we’ll just ignore it. Yeah. Yeah. Or 2010. Yeah. So you know

Cody Crabb (17:28)
Can’t necessarily count on yeah.

Ian Colville (17:31)
signs of irresponsibility would be a red flag. the other thing is for people who are successful and they’ve got a history of, you know, we do one home a quarter or something, we and they’re suddenly jumping to twenty homes in a year. We won’t get involved on all of those homes. We know we might one or two or want to see that they can scale up their operations. So it’s not really a red flag. It’s just an awareness that when you add scale, it it’s hard. You know, it’s not it’s not hard to understand, but it is hard to do.

Cody Crabb (18:03)
Yeah. Well, you’re just multiplying too. I mean, it’s there it’s not just adding. I mean it’s it’s there’s a lot of factors too when you start to scale. so when you’re kind of looking at the actual assets, is are you looking at like purchase price, potential ad like ad value, location, like all that stuff?

Ian Colville (19:07)
Yeah, all all of that stuff. So per you know, purchase price versus what it’s actually worth. That’s that’s great if those numbers are are quite different. you know, after repaired value, we wanna see what the investor is going to do on the home and do we agree that it if they that they can do what they say they can do for the amount of money they project, number one, and number two, what is it worth after they do those do those things? There’s gotta be a wide enough margin in there so that we can reasonably believe that we’re gonna we’re going to get our get our money back. you know th and that after repair value or even its current value is the location is of course a major factor in

Cody Crabb (19:48)
And all of that. That’s the one thing I did know about real estate before being on this podcast. Yeah. That’s the the whole the whole the saying there. so I that that makes sense. so now just kind of shifting from lending into development, kind of what what sort of changes between bet when you kind of move to that side?

Ian Colville (19:52)
Location, location, location.

Cody Crabb (19:54)
what changes? Well, you’re getting into a different you’re initially into a different portion of the real estate.

Ian Colville (19:58)
I hate to use word development, but you know, real estate cycle. Yeah. Like when you have farmland, you can’t just build a home on it. you have to get the city to approve what you’re doing on that. You know, they have to be okay with you putting in all these roads and homes. So there’s an approval component to it that if you’re just rehabbing a home have less of it. You do have to get a permit, but approval for a development is a whole nother beast and that can take like a year. and then there’s land development. Once you’re approved, you still you still can’t build on the land because there’s no sewer and there’s no electrical and there’s no roads. And so there’s a land development component that happens. We call that horizontal work. before you can actually start building a home. So that that’s an addition that happens when you’re getting into new homes. and then, you know, of course there’s sometimes the money is used for the home building process as well, which will be a little bit more familiar to your audience. if you’re if there’s any of your audience that’s building new homes, they have to go buy find a buildable lot somewhere and they’ll oftentimes be in buying it from a land developer, someone who did those initial stages to get the land ready for a home to be built on it.

Cody Crabb (21:35)
Yeah. So it sounds like it’s just extra complexity, really. I mean the it’s it sounds like there’s the many similarities, but it’s it’s extra complex. What are the what are the advantages? Are there any advantages to doing doing things that way? I mean, obviously you can you can kind of do what you want with with the investment you’ve made, but it’s kinda just sounds like a harder version of the same thing, you know? It’s

Ian Colville (22:01)
Well, okay. So when we do developments, we are working with partners. So this lending and owning of homes, we did all that ourselves, or we do all of that ourselves. the development work is it’s a bigger beast and it takes a bigger team and more expertise, relationships with the city, et cetera. So we go to markets where there are home shortages, we find developers who have track records of success. and sometimes there those developers are looking for additional money so that they can do more projects than they would have been able to do with their own money alone. And so in it’s what we will generally do is we f if we find a developer and a partner that we or developer in a project that we like, we’ll make a proposal like we’ll put in 80% of the equity that’s needed for this 200 home development and you, our partner, will put in 20%. and then our partner goes and does the work. We provide a lot of financial oversight and expertise on some things where we can. they do all of the boots on the ground work and then we work out a profit split that works for both of us. so you know we get some, you know, we get a good return on our money and they get hopefully an even better return on their money than they would have been able to get if they had to sink all of their money into one one project. They’re able to spread it out over more and as a result get the profits for more more projects. so we we rely on the expertise a lot of our of our a lot for for our partners for those projects.

Cody Crabb (23:33)
When you say market markets with kind of housing shortages, I mean what is it that you’re specifically looking for? ‘Cause there’s not like a sign that they put up that says housing shortages.

Ian Colville (23:42)
There’s a reason. When we’re looking at developments, we’ll get into the weeds about, you know, we’ll commission a third party market study that looks at what’s happening right in the neighborhood where that development might go. That’s a lot of detailed stuff, but there is just one number you can look at is month supply of homes for sale. The just about every market will publish that number. That’s the number of homes for sale divided by the average number of homes that sell per month. So if you’ve got two months’ supply of homes for sale, in theory, what that means, no new homes are added to the for sale list, you’re gonna sell out of everything that’s there in two months. and it takes six months, seven months to build a new home. So it’s generally accepted that you want to have six months supply of homes for sale so that you don’t run out of stuff before you have time to build stuff. Yeah six months is about what’s considered equilibrium. And if you look at it generally prices will be going up if it’s below six months. There’s all sorts of nuance in real estate, but

Cody Crabb (24:42)
That’s really clear. I love that.

Ian Colville (24:56)
Generally speaking, on average, if you’re significantly below six months, home prices are going up. If you’re significant significantly above it, home prices are going down. If you’re around six months, kind of steady home price environment. So Cincinnati, it’s got one of the tightest home market home markets in the country. I think they’re at like 1.7 month supply. That’s a big shortage. if you go down to Miami or places in Florida, you can see eight months supply. And so that’s a market where you’re seeing some home price. Price declines. So it’s it’s actually not that difficult to just start with those headlines and then go do more research.

Cody Crabb (25:34)
Yeah, for sure. Well I that’s I think that’s a really useful, like actual, actionable tip. So I appreciate that. I’d be curious to know. So you’ve you’ve kind of seen, you know, you said you’ve been in this since 2013. You’ve seen cheap money, you’ve seen seen not cheap money, hot markets, very not hot markets. people there’s a lot of talk about the market in in our in the current kind of discourse right now. I would be curious to to know. What do you think if you just pulled an average Joe off the street and said, What do you th what’s going on with the market right now, the housing market or the the real estate in general where you are, what do you think they would say and why what do you think is wrong about what they said?

Ian Colville (26:21)
Well, what’s wrong about an average is there’s so much ver variability in local markets or even in neighborhoods, which is the beauty of real estate. If you know your market well or your neighborhood well, you can get an edge on everybody else who’s looking at averages. So even if your market is, you know, in the middle or whatever. But okay, on average, there’s still a shortage of homes in the United States. there’s still people who would like to get into homes, but there’s an affordability issue as well. So you know more in the interest rates more than doubled in 2022 was a pretty rapid increase in interest rates. And that pushed a lot of people to the sidelines. There’s people that there’s I don’t know, there’s stereotypically there’s a husband and a wife, and they’re living in an apartment with their two kids, whereas they would have preferred to be out in a home with a backyard. Yeah. but because interest rates shot up and home prices really really haven’t come down. They just in most places they’ve keep going up by a little bit. it’s become very hard for them to to realize that dream. So they want the home, they’re available, but their circumstances aren’t aren’t quite there for them to to make the leap. So I s there’s still a huge opportunity in residential right right now. But

Cody Crabb (27:52)
Yeah.

Ian Colville (27:54)
It’s slow. And you can see this every time the 30-year mortgage rate drops down to like six percent or even you know, six percent. It got down to six percent sometime in the last year. I can’t remember exactly when. Applications for mortgages to buy homes, we saw a bit of a spike. It wasn’t didn’t go back to when it where it was and we had three percent interest rates, but there’s clearly interest on the sidelines, and we just have to put together the pieces to make it work for those people, either build cheaper homes or somehow make it easier for them to afford the financing. yeah.

Cody Crabb (28:35)
Yeah. So the the demand is still there. Affordability tend I’ve I’ve certainly seen that in in my kind of my generation, my friends, kind of all them and their kids and stuff, is is they’ve they’ve had a hard go of it. so I think you know, what what’s what’s something that you see as we’re kind of finishing finishing out here, for someone that’s trying to grow from just a few deals into like an actual business so that this isn’t just like a I have a I invest in real estate. It’s like I am a real estate investor. What’s one thing that you would try to tell them to get right before they try to scale?

Ian Colville (29:14)
I just make sure they believe in their processes and their systems that they think it can hold up if their business was, you know, doubled and tripled in size. Can you can you manage your your contractors when you’ve got a lot more of to manage? Can you manage your finances when there’s more money coming in and more money going out? You know, really make sure that you’re running a tight ship at a small scale w and then and then try to grow it, grow it from there. So get execution down. and then after that, it’s you know, believe that you can do it. Don’t there’s nothing most it’s interesting. I’m in a I’m in a group called Entrepreneurs’ Organization, it’s a bunch of business owners. all to get in, you have to have a million dollars in revenue in your business or above. I sit down with these b business owners on a monthly basis. All of us feel like we’re semi-imposters. We’re like, how the hell did I get here? And what do I do? Syndrome is a big deal. If you’re feeling it with one house or you’re feeling it with a hundred houses, it’s still there. So don’t let that stop you. Like don’t tell yourself that you have no business going to five houses because

Cody Crabb (30:18)
Kinda love that actually that you shared that.

Ian Colville (30:31)
Because I can tell you, once you get to five houses, you’ll still think you have no business going to ten. And once you’re at a hundred, you’ll still feel like, how did I get here? I have no business doing this. I’m making it up as I go along and nobody else knows.

Cody Crabb (30:44)
Yeah. Yeah. I always I I’ve heard just as a little tag on that, one of my favorite ways to I I had somebody explain it to me like this, this is kind of how they view imposter syndrome. And ever since then I’ve just kind of loved it. so though they were like, Yeah, I have imposter syndrome, but I just pretend like it’s a good thing. Like I’m tricking everybody and I’m awesome at it. And like hee hee, I’m so sneaky and I don’t belong here, but I don’t care because I’m here anyway. so ever since then I’ve like I love that.

Ian Colville (31:12)
You’re not alone if you have doubts. the people that you think don’t have doubts are just not showing it to you.

Cody Crabb (31:17)
Yeah, wow, that is a ev that that as a standalone is is probably worth this whole episode. so back to you know, back to Carpa is it Carpathian? Sorry, I I didn’t know. Okay, let me let me say that again then. So back to Carpathian. what are you what’s next for you guys? What are you what are you excited for? What’s what’s coming up soon?

Ian Colville (31:37)
well, big picture. We’re we’re still doing what we’re doing because it took we we spent about 15 years underbuilding in the United States after the housing crisis. There’s this structural housing shortage out there. so it’s gonna take us that long, maybe longer, to build out of it. We think the opportunity is huge. Yeah. with the affordability and rates where they are, it’s a little bit slow to be realized, but we th we think this is a great place to be. we’ve got some great partners in great markets. So we’re really spending a lot of time on our development business. We have more deals than we have money right now. So if we we need more money to go and do more of what we’re doing successfully already. So

Cody Crabb (32:23)
So if someone wants a piece of that, they hear they are hearing what you’re saying and they are excited about it, who do they need to be? Where do they need to live? What do they need to do to get in?

Ian Colville (32:31)
We can live anywhere. We’ve got investors overseas. We have investors here. you do have to be accredited. So you have to have a certain amount of income or a certain amount of wealth to invest. And that’s that’s the case with a lot of private deals. and just reach out carpathiancapital.com or put my name into Google, probably show up and happy to happy to to talk to you about it.

Cody Crabb (32:53)
Awesome. Thank you so much. This has been super helpful for our listeners, I think. and we really appreciate your time. And we thank we thank you listeners for joining us as well. If you liked what you heard today, go ahead and give us a like, subscribe, comment, all those things. And don’t forget to listen to more episodes so you can get more great conversations like this one. Ian, it’s been a real pleasure. Thank you so much for joining me today. Have a good one.

Ian Colville (33:14)
Thank you, Cody. I enjoyed it.